Meanwhile, as Bitcoin has grown more respectable, the cool kids have moved on to decentralized finance (“DeFi”), “an open, permissionless, and highly interoperable protocol stack built on public smart contract platforms” such as the Ethereum blockchain, to quote a recent and excellent St. Louis Fed paper by Fabian Schaer. Like Bitcoin, DeFi has no centralized third-party system of verification and regulation. But it is a much looser, more variegated system, with multiple coins, tokens, exchanges, debt markets, derivatives and asset management protocols. As Schaer puts it:

This architecture can create an immutable and highly interoperable financial system with unprecedented transparency, equal access rights, and little need for custodians, central clearing houses, or escrow services, as most of these roles can be assumed by ‘smart contracts.’ … Atomic swaps, autonomous liquidity pools, decentralized stablecoins, and flash loans are just a few of many examples that show the great potential of this ecosystem. … DeFi may lead to a paradigm shift in the financial industry and potentially contribute toward a more robust, open, and transparent financial infrastructure.

(I told you it was cool.)

For the true believers, Bitcoin and DeFi are the first steps toward a libertarian Nirvana. In a widely quoted tweet, crypto guru Naval Ravikant added steps three to seven:

Bitcoin is an exit from the Fed.

DeFi is an exit from Wall Street.

Social media is an exit from mass media.

Homeschooling is an exit from industrial education.

Remote work is an exit from 9-5.

Creator economy is an exit from employment.

Individuals are leaving institutions.

We are on our way, according to Pier Kicks, to the “Metaverse”—a “self-sovereign financial system, an open creator economy, and a universal digital representation and ownership layer via NFTs (non-fungible tokens).” Yes, even art is now on the blockchain: Witness the sale by Christie’s last month of “Everydays: the First 5000 Days,” by Mike Winkelmann, aka Beeple, for $69.3 million.

What is the right historical analogy for all this? Allen Farrington argues that Bitcoin is to the system of fiat currencies centered around the dollar what medieval Venice once was to the remnants of the western Roman Empire, as superior an economic operating system as commercial capitalism was to feudalism. Another possibility is that the advent of blockchain-based finance is as revolutionary as that of fractional reserve banking, bond and stock markets in the great Anglo-Dutch financial revolution of the 18th century.

Like all such revolutions, however, this one, too, has produced its haters. Well-known economists such as Nouriel Roubini continue to predict Bitcoin’s demise. Bridgewater founder Ray Dalio has warned that, just as the U.S. government prohibited the private ownership of gold by executive order in April 1933, so the same fate could befall Bitcoin. Perhaps most ominously, the central bankers of the western world remain sniffy. A new line of attack (highly appealing to monetary officials eager to affirm their greenness) is that the electricity consumed by Bitcoin miners makes crypto dirty money.

Are we therefore heading for a collision between the old money and the new? Perhaps. As we approach the end of the first 100 days of Joe Biden’s presidency, I am tempted to paraphrase his former boss’s jab at Mitt Romney back in 2012: “The twentieth century is calling to ask for its economic policy back.” There is something very old-school about the Biden administration.

It believes in Keynesian demand management and stimulus. It is proposing a massive infrastructure investment plan. The result is that fiscal and monetary expansion triggered by a public health emergency seems set to continue beyond the duration of the emergency. The administration’s economists tell us there is nothing to fear from inflation. Meanwhile, in foreign policy, Team Biden seems committed to Cold War II against China. All of this hinges on the enduring credibility of the U.S. dollar as the preeminent international reserve currency and U.S. Treasury bonds as the safest of all financial assets—not to mention the enduring effectiveness of financial sanctions as the ultimate economic weapon. Yet precisely these things are threatened by the rise of an alternative financial system that essentially bypasses the Federal Reserve and potentially also the U.S. Treasury.

So you can see why Ray Dalio might expect the U.S. government at some point to outlaw Bitcoin and other cryptocurrency. The last administration occasionally muttered threats. “Cryptocurrency … provides bad actors and rogue nation states with the means to earn profits,” stated the report of Attorney General William Barr’s Cyber-Digital Task Force last year. Treasury Secretary Steven Mnuchin considered forcing U.S. exchanges to gather more information about individuals withdrawing their Bitcoin. Pro-Bitcoin politicians, such as Miami mayor Francis Suarez, are still in a minority.