Earlier this year, we discussed how and why bitcoin could become a new reserve asset, in an article that began with a quote from palantir president and venture capitalist peter thiel. just a few months later, it now appears that bitcoin is in the process of becoming a reserve asset, with several major companies adding bitcoin to their treasuries.
(Image Source: bitcointreasuries.org)
Most recently, we provided an extensive synopsis on the power, history, and mission of palantir. Last week, the President of Palantir discussed his latest thoughts on Bitcoin at a virtual event hosted by the Nixon Foundation. He was joined by former Secretary of State Mike Pompeo and former National Security Advisor Robert O’Brien.
The geopolitical thing I always wonder about is, you know, the US dollar is a reserve currency of the world. there are some things about that, which are good for us. some things that are more problematic.
from a chinese point of view, they want to get…they don’t like the united states having this reserve currency because it gives us, you know, a lot of leverage over iranian oil supply chains and all sorts of things like that …
…although I’m kind of a pro-crypto, pro-bitcoin maximalist person, I’m wondering if at this point bitcoin should also be considered in part as a chinese financial weapon against the us? uu., where fiat money threatens. but it especially threatens the US dollar, and China wants to do things to weaken it.
so, it’s sort of a ‘china long bitcoin’ and maybe from a geopolitical perspective, the united states should be a bit… asking some harder questions about exactly how it works.
– peter thiel, 4/8/2021
This is an interesting comment from the president of a company that has a long history of handling highly sensitive defense work for the US government. He went on to point out that China’s digital yuan “is not a real cryptocurrency” and is instead more of a “totalitarian measuring device.”
Mike Pompeo echoed these thoughts, adding that:
I think these digital currencies, separate from bitcoin and cryptocurrencies or something like that, will see more countries visit. the united states has a project that we are also working on, but it will take time to arrive.
It has a lot of implications for us here at home, and I guess we won’t be the leaders on this front, where an authoritarian regime like China sees almost every advantage of having the ability to issue or withdraw currency. of people who act inconsistently with xi jinping thought.
-mike pompeo, 4/8/2021
Taking these comments together, it is surprising that no one has suggested that palantir’s powerful analytics capabilities could have applications in cryptocurrencies. It is not what was said in this debate that was so interesting; We made very similar arguments in January. it’s what’s left unsaid that’s worth exploring.
In March, an irs executive director revealed a program known as operation hidden treasure while speaking at a tax conference. This program is spearheaded by an “Emerging Threat Mitigation Team” within the IRS Fraud Control Office.
These transactions are not anonymous. we see you.
-Damon Rowe, IRS Office of Anti-Fraud
It’s worth noting that Palantir has been working with the IRS since 2013, a relationship that expanded in 2018. Specifically, Palantir helps the IRS combat tax evasion. while there has been no public disclosure that palantir software is involved in the hidden treasure operation, it is certainly surprising to see the president of palantir advocating “bitcoin maximalism” while also suggesting that it could be a financial weapon that the government must take. a closer look.
what’s going on here? if the irs is looking at a huge amount of data that includes social media posts, bank records, and can crack anonymous crypto transactions, how is this different from china’s digital yuan?
The crux of the matter is governance. the digital yuan is a completely totalitarian system; China’s ruling political party can add or subtract money from the accounts at any time, tracking every transaction. perhaps this data will increase the social credit score of citizens. perhaps social credit scores increase account balances. It is a very simple system: full control by the ccp.
Even if it included more regulation, a financial system involving bitcoin is inherently more complex. For one, bitcoin revolves around consensus. the blockchain itself is a mechanism that drives a consensus on who has what, derived from a record of all the transactions that have occurred. If the bitcoin developer community wants to make changes or updates to that mechanism, this requires the consensus of a diverse group of bitcoin miners. the transparency of the ledger is balanced by the overall anonymity of the accounts, or “bitcoin wallets”.
Although bitcoin is a truly global phenomenon, US citizens are still subject to US tax laws. The IRS has the right to enforce these laws through the US legal system, but we citizens also have a right to privacy. how do we balance the two?
This is a data governance issue. As you may have guessed, Palantir specializes in data governance. palantir has written extensively on various governance protocols, including a recent midsize post titled Beyond Anonymization. this post details techniques such as synthetic data creation and needs-based decryption.
the ghost of regulation
There has been much fear that the government will move to crack down on bitcoin among other cryptocurrencies. Whether or not they have the authority, let alone the ability, to do so is rarely discussed.
If the government shut down bitcoin exchanges, would the application layer move closer to the blockchain, as it did when most bitcoin users operated their own wallets? Could cities then become sanctuaries for bitcoin mining or decriminalize working exchanges? if cities like seattle can operate drug dens or “supervised consumption sites” that feature the “safe” distribution of illegal drugs, could the power of dallas or atlanta unilaterally back bitcoin? the city of miami is already exploring the adoption of bitcoin in various municipal capacities.
perhaps bitcoin containment is a more palatable strategy than abolition, any attempt at which could only serve to strengthen bitcoin’s legitimacy internationally. Anyone can look at the blockchain and see the ledger and the transactions that took place. If the IRS has the ability to see who owns those accounts, pretty much the only thing that separates Bitcoin from China’s “totalitarian metering device” is the software platform that links the Bitcoin blockchain to real-world identities. Does it guarantee privacy?
The palantir platform is designed to handle these types of data science issues in an ethical and responsible manner. bitcoin may be inferior to other cryptocurrencies in a technical sense, but its price appreciation and growing popularity have attracted top developers and mining support. these developers push the limitations of bitcoin and work to solve its problems. bitcoin miners ensure the security and integrity of the blockchain. the more miners participate, the stronger the bitcoin blockchain becomes.
Bitcoin is the most important financial innovation since electronic markets were introduced in the 1980s. In our view, the US is more likely to control some aspects of Bitcoin, rather than stifle US-led innovation that surrounds him. our guess is that president thiel also realized this.
(Robert O’Brien, Mike Pompeo, & Peter Thiel | Image source: Nixon Seminar)
A data analytics platform that protects general anonymity while being able to identify illegal activity is precisely the compliance solution bitcoin needs to thrive. It would allow bitcoin to maintain its open source independence, as the irs cannot modify the blockchain to debit someone’s bitcoin wallet. you should seek remedies using the American legal system.
A system of independent checks and balances could create a powerful reserve asset with distinctly Western characteristics. this engagement may be the best approach for governments to deal with digital disruption from central banks. attempting to ‘kill bitcoin’ would likely only increase the sophistication of its protocols, in the same way that the infamous ccp internet firewall has proven to be quite porous, commonly circumvented with vpns.
While we cannot confirm that this is actually happening, our hunch is well founded given the palantir president’s comments, made while sitting next to the former cia chief. this would certainly match CEO alex karp’s ambition to become “the world’s largest software company”.
This holy grail of making data actionable by linking it to the critical business systems that drive a business (turning the data warehouse into a “central nervous system” for the business) is what’s driving incredible growth in some of the largest new companies. in silicon valley, including canva, drizly, figma, notion, loom, clearbit, and many more.
-david ulevitch, andreessen horowitz
the rush of vc capital into analytics platforms similar to palantir is a clear indication that the market opportunity is expanding rapidly. palantir has a significant head start.
We live in a world that will be increasingly organized and fueled by data, particularly data that is shared between organizations. Analyzing the bitcoin blockchain to assist the irs in enforcing US tax law is another example of a potential use case for the palantir platform, assuming palantir isn’t already involved.
we stayed a long time both palantir and bitcoin. we have discussed our target price of $50 to $100 in a previous article.