Hip-Hop and Parallel Economies
Separation of Finance & State
The whole world is watching Canada and the trucker protests right now, and it presents a thread that connects many different concerns people have together. This free post is not actionable trading advice, but is instead an insight further into how I think about parallel economies and what the actual exit scenario is for crypto investment. Obviously many of you are seeing headlines saying things about crypto wallets being seized etc. First, you can’t seize a crypto wallet, Second, I will show you what they are actually doing, and how to easily sidestep this with crypto if it happens to you, and last we will talk about what the long term implications are of what the Canadian government is doing, and how this will affect you when it inevitably spreads to your country.
But first, I want to share an example with you all of a parallel economy forming within a subject that you all may or may not be familiar with. The music industry. So we’re going to take a short second to talk about the last 10 years of rap music.
Table of Contents
Gangster Rap and Parallel economies
Becoming Un-cancellable
SWIFT system and US sanctions
Becoming Anti-Fragile
Canadian Trucker Protest
Background
Bank Freeze
Crypto Freeze
The Inevitable Conclusion
1. Gangster Rap and Parallel Economies
We’re going to take a trip back to 2010. I’ll get a few caveats out of the way first, because I’m going to invariably miss a lot of the details here. I’m not some hood dude. I grew up in the suburbs, office job, etc. And I’m not super into music, so a lot of the hyper specific details are going to be lost on me. But I have made enough observations to draw some inferences and parallels.
During the 90’s and early 2000’s, hip hop music in general got a bad reputation as being associated with thugs and gangsters. However, it was also exploding in popularity so much that it represented a new growth market for record labels and they were willing to overlook this and hope that with enough money certain unsavory outcomes could be avoided. In general, for maybe 80% of rappers, this was true, and they were able to leave their old lives behind, or maybe never had one to begin with. For some this meant never doing a show in their hometown because of who might still have beef with them. For the other 20%, their beef and gang affiliation transcends any level of fame. Cee Murdaa gets into it here starting at the 5 minute mark. There’s no squashing it.
Obviously, the record labels wanted to get away from this affiliation. No matter how much money they were making from targeting the most talented rappers, they realized that if they kept certain segments out of the industry they could improve their image among certain demographics. So sometime in the early 2000’s this shift began where record deals started being held off based on how risky the rappers background was. You might think that some gang affiliated rappers were getting through but in reality they weren’t. The image that the industry wanted to create was Post Malone, Swae Lee, French Montana, and Jack Harlow. Nothing against any of those rappers, I like their music too, but thats the curated image the industry wanted, where Rap was more about a vibe and less about a lifestyle. This is the image the industry wanted.
As the gutter side of the industry was frozen out of record deals, management, event venue booking coordinators, and features, the industry thought they had won. And for a while they had. There was essentially no way for people with certain backgrounds to participate in the music industry.
So how did they get in? Well first, think about what it was they were actually being shut out of. Were fans unwilling to buy their music? No, fans will buy whatever. Were fans unwilling to attend their shows? No, people would still pay for those concerts. The issue is simply that they were shut out of the infrastructure required to sell their music. Once you see the problem, the solution then becomes obvious. Build your own record label. Build your own distribution company. Build your own booking company. Etc. Etc. Etc. That’s exactly what happened.
Becoming Un-cancellable
Sounds terrible right? Building up the entire backside operations for the one thing that you want to do. Yeah, it probably sucked learning how to book a venue and all of the ancillary services and insurance you have to have in place before you can even make the deposit. All of that probably sucked, but it came with one massive benefit. All of the levers of power that are normally used against you in that industry are now under your control. You can’t be cancelled. You exist entirely outside of their system. Are you starting to see the connection I am intending to make here?
Yeah, those two guys in the video above, 30 Deep Grimeyy and NWM Cee Murdaa they don’t have a deal with a big record company. They don’t need one. Below is an interview from their manager discussing how he started his label. You can start at 32:50 and listen to about 38:00 and get exactly what I’m talking about.
He started out as a rapper who couldn’t really grow much further than his county as far as his reach was concerned. He partnered with a video-grapher and grew his management company from just learning how to make music videos, book venues, manage appearances, insurance, scheduling, transportation, and launch records.
Listen to him talk, do you think he is going to pressure any of his artists to apologize for not being woke, making homophobic comments, etc? Obviously not. The lesson is that any infrastructure you want to use, you either have to have control over it, or nobody can have control over it. You can’t trust existing institutions to do it, nor can you trust the wastrels that have inherited this country to do it. There are no elites in America. Just people who have built things, people who have inherited them, and people that have neither. People that inherit complex, functioning entities, like a business, or a central bank, take their function for granted and often do not partake in the necessary sacrifices to keep them operating. Record companies miss the big acts of today and the major growth sector of their industry because they are unwilling to sacrifice their vision of the future and ESG. That’s to their detriment. The banks and central banks similarly are missing the major growth product of their sector (inflation resistant fiat currency, or deflationary fiat), because they are unwilling to sacrifice their vision of the future.
Hold on tight enough to a failing vision and it will drag you down to hell with it.
2. SWIFT System and US Sanctions
For a short background here, I want to talk about economic sanctions and the leverage that the US has and uses on the rest of the world when they wish to exert control over them.
I’ll start with a metaphor. You probably have a cell phone and a cell phone plan, but you require the system of cellular antennas all across your country to not only function but to allow you to access them in order for your cell phone to work. If the entity in charge of those antennas were to block your device or SIM card from connecting to those antenna, then your cell phone would only function as a miniature computer and not as a communication device.
Similarly, you can have a bank account, it can have money in it, but you require a system called SWIFT if you want to be able to communicate to another bank. They are the global standard that every bank is compatible with, and SWIFT is wholly subordinate to the United Nations, the G-10, and to a greater extent to the US government. SWIFT was actually founded right after Nixon ended convertibility of the US dollar to Gold, and it was an instrumental part of the shift away from gold standard currencies to floating point currencies.
For a while, SWIFT was the only system for making interbank transfers and transactions, and this was the main lever that the US uses to enact economic sanctions on other countries. The leverage essentially is applied through the UN. SWIFT is headquartered in Belgium and thus complies with all EU laws and regulations, which means it is subservient to any sanction issued by the UN, but in 2012 the US specifically twisted SWIFT’s arm to get them to remove several Iranian banks from the SWIFT system. This was ostensibly part of a pressure program that was accusing Iran of making nuclear weapons. Of course, it’s been 10 years now and we know that was a lie, which led to a devaluation of the Iranian currency by 80%, the collapse of many businesses and the exit of many corporations that had been providing jobs to Iranian citizens. These sanctions also made it nearly impossible to maintain insurance on shipping vessels stopping in Iranian ports, so imports and exports collapsed as even if you were shipping pallets of cash or Gold, the ships still wouldn’t come to port. Medicinal products aren’t subject to sanctions, but medical imports collapsed because the ships couldn’t dock and medical companies couldn’t get paid, so many medical conditions, like HIV/AIDS, hemophilia, diabetes, cancer, multiple sclerosis, and others are no longer able to be treated in Iran. These sanctions are still in place today, and it’s estimated that over $100 Billion of Iranian assets were frozen as a result of these sanctions, no estimates for how much value was destroyed in the Iranian economy, nor how many people died, families starved, and lives never started.
Becoming Anti-Fragile
Other countries saw this, and are well aware that this vulnerability exists. China for instance set out to create their own version of SWIFT, theirs is called CIPS, and went live in 2016 or 2017, I don’t remember the exact year. Russia as well has created their own interbank system called SPFS. Not only do China and Russia use their own interbank communication systems, but they have also got many of their trading partners to use their system. Currently the US is threatening to cut Russia off from the SWIFT system, but this wouldn’t really hurt Russia as much as it would hurt Europe. If CIPS and SPFS didn’t exist, then yeah, Russia would be at the mercy of the US, as would China. Instead, China creates a system, and then offers access to it for the entities we freeze out of SWIFT. The US state department complains about Iran being close to China, but China and Russia are the only entities through which Iran can conduct financial transactions, they don’t have a choice. And I suspect Afghanistan will also similarly be given the same offer from China and Russia if they haven’t already. Europe is extremely dependent on Russia for oil and gas imports, cutting Russia off from SWIFT would essentially push Europe into a dark age of recurring black-outs if not permanent ones, or it would push Europe to adopt SPFS to maintain transactions with Russia. Any threat we make to remove Russia from SWIFT is an empty one if we’re smart, but if we’re dumb it’s a major threat to the stability of Germany, England, Denmark, and others.
It’s clear then that the path for a nation-state to reduce their financial risk at the hands of the US State Department is for them to either create their own system of transactions, or to have a treasury standard that exists completely outside of the one controlled by the US and UN.
3. Canadian Trucker Protest
Background
This background is written for the highest example of the human species that I have ever come across in my life. Yes, that’s right, I’m talking about people who are somehow blissfully aware of modern politics and current events. You are the best of us. But in order for you to understand this section I’m going to give a brief background on the Canadian Trucker Protest. If you already know whats happening, feel free to skip to the next section.
So, In response to the CovID virus, the country of Canada has been enacting stricter and stricter vaccine mandates requiring people to be vaccinated in order to do simple things like eat inside, patronize certain establishments, travel, cross the US border, etc. Truck drivers in the country who are especially affected by these mandates organized a protest where they drove to Ottawa, the national capitol of Canada and parked their trucks around the city center and put the city into gridlock in protest. The Canadian Prime Minister fled the city to hide in an undisclosed location, while Truckers, and many other people that are negatively impacted by the mandates clogged the city. The protesters were honking horns, singing, dancing, playing music, etc during the days. This protest has lasted a few weeks so far (Canadian militarized police are violently attempting to break the protests up as we speak), and the protesters attempted to raise funds to be used for gas, food, water, and other supplies to keep the protesters in place.
The Canadian government has tried every manner of tactic they could use to interfere or make the protesters uncomfortable. This included setting up roadblocks to impede supplies being brought in, and then confiscating supplies when people walked them in, and then further applying pressure on GoFundMe, which is a website for people to organize charitable causes and donations, so that GoFundMe shut down their donations and seized their funds. The protesters moved to another platform that was unwilling to bend to the Canadian government, at which point the Canadian Government decided to freeze the bank accounts that they could identify as being associated with the protests, as well as attempting to freeze some of the crypto wallets they associated with the protests. We’re going to speak specifically about those attempts to freeze finances here.
Bank Freeze
Banks are centralized entities. They have an address, a tax ID, and numerous interfaces with the government administration. If the governments want something from them and can create a plausibly legal document asking for it, the banks are obligated to give it to them. The banks will not protect your money if they receive a government document. Even if it’s the wrong government document, or if its for a completely different person. The banks follow orders, then shrug afterwards no matter how much damage it causes, no matter if the government orders are legitimate, legal, ethical or not.
In Canada, after they froze hundreds of bank accounts associated with the freedom convoy, major banks across Canada reported outages for several hours for all customers.
There are a lot of theories about why everyone lost access to their ability to bank right after the accounts were frozen. I have a theory. Canadian Banks have no reserve requirements. Meaning that if all customers at hypothetical Bank A have deposited $1 million dollars, Bank A can loan out the entire $1 million and have $0 on hand. If they were required to hold 10% reserves, they would have to hold $100,000 on hand. Canadian Banks have no reserve requirements, which means that if a small contingent of customers were to make withdrawals, Canadian banks would be unable to process the withdrawals, and they would have to make requests to the Central Bank (Bank of Canada) for an overnight loan at basically 0%, and these deliveries and transactions might take several hours to process. I suspect that a few savvy people took the news that bank accounts were frozen simply due to participation in the protests as a sign to withdraw their money from the bank and the Canadian banks couldn’t handle that in the moment. For reference, banks in Canada have retained reserves of far less than 1% for over 2 decades.
With no reserve requirements and a central bank that can print money, any bank run is likely to only last for a few hours at best. The worry isn’t that your bank will collapse. The worry is that the value of your currency will collapse when banks can spin it up from nothing. Which is why some form of reserve requirement is necessary for financial institutions.
As a note, the Federal Reserve removed all reserve requirements for US banks during the pandemic, and has not reinstated them either. The same problem is here in this country as well.
Crypto Freeze
Journalism often confuses people due to an imprecision of language. I received several DM’s on IG, both of the smug type and of the scared type referencing this and either asking “where is your God now?” or “I thought crypto would protect me from this?”
The headline says the wallets were frozen, if you take that language at face value, you might assume that means that a wallet loses all function in much the same way as my bank accounts are currently frozen and unfunctional.
This is not the case. What actually occurred is that the Canadian Police reached out to all centralized exchanges registered to do business in Canada and requested them to blacklist specific wallet addresses, which means that you can no longer make transactions to those centralized exchanges from that specific crypto address. Those centralized exchanges are the only places the state has any power to leverage. I want you to consider the following tweets from the CEO of Kraken, which is a centralized exchange that operates in Canada and many other countries.
Below is his response to someone asking him what happens when law enforcement or the courts come to a centralized exchange and are told to freeze assets.
Sound familiar? It should, I outlined this as the basic solution in my Beginners Guide to crypto. These places are just as vulnerable as a bank, because they have had to conform to many SEC, FINRA, or other financial guidelines in order to operate within your country. That is the price of convenience. The Centralized Exchanges do not need to change how they operate. They function to provide a convenience to people that need that convenience, and that convenience comes at a cost. They have an address, a Tax ID number, bank accounts, compliance officers, and teams of lawyers who exist to keep them open. These are all vulnerabilities to the state.
This level of candor from a CEO about the limitations of the product he offers is admirable. It’s like the CEO of Pepsi telling people that water is a better alternative than diet Pepsi. He’s telling the truth.
How would you get around this if your wallet was black-listed? Well there are several crypto services you can use where you send crypto to it, and it disintermediates it to a bunch of different wallets, and you receive crypto in an equivalent amount to a new wallet from a bunch of different wallets. It essentially is a black hole where anyone trying to track crypto to a new wallet cannot see beyond. An example of this is Tornado Cash on Ethereum.
Currently law enforcement and financial enforcement have no means through which to track funds once they have entered a mixer like this. Mixers like this also exist on other chains. Here is how law enforcement currently catches people when they use a mixer.
Instead, Semenov said law enforcement would spend its time obtaining logs from infrastructure providers like Cloudflare or Infura, as these could be tied to IP addresses. Law enforcment (sp) would also likely look at any addresses linked to a centralized crypto exchange, where the wallet would have customer details linked to it via the know-your-customer (KYC) process.
That’s right, they can pull IP address information from web service providers and can cross reference that with the time of access and exit from these mixers. So lets say you just stole $3.5 Billion in BTC from an exchange that you hacked… lets call it Bitfinex. And you want to hide where your funds are going to from law enforcement that might be chasing your funds. You access a mixer like this without having a VPN on, and then access it again from the same IP address because you forgot to turn a VPN on, or just didn’t know any better.
Well, law enforcement can track when the funds enter the mixer, and then can contact Amazon, Cloudflare, etc. to get all of the IP addresses that were currently connected at that point in time. They can then track the activities and behaviors of all of those IP addresses from that point forward to eliminate the ones that aren’t related to the theft. Eventually through process of elimination they’ve narrowed it down to one IP address, and then they can eventually figure out which wallets are connecting to other crypto services from that same IP address and get a list of wallets. They can’t do anything to these wallets just yet except to blacklist their deposits to centralized exchanges. And this… hypothetical… dumbass stored their recovery keys on dropbox, which law enforcement requested dropbox share copies of all files these people hosted on dropbox. The files themselves were encrypted, but with very simple encryption. And once law enforcement broke the encryption, they then had access to the private keys of these wallets, and could transfer the funds out. It took law enforcement 7 years to do all of that. A VPN and a clean IP address might stretch that process out to longer than an entire lifetime for law enforcement to track.
Very clear lesson to be learned there. And for anyone currently caught up in the canadian trucker protest who has their wallet frozen, it’s a pretty clear indication of what to do, and what not to do when using a mixer to hide your source of funds from a blacklisted wallet. Criminals also engage in this behavior to launder money or hide funds, but when governments start treating normal people like criminals, that suddenly expands the volume of funds entering things like mixers, which ironically offers more cover to anyone using the mixer as there are more likely to be other people using these services at the same time, and so law enforcement has to spend even longer combing through IP addresses if they are trying to track down criminals.
Non-Custodial Wallets
And just as another reminder, this is what happened when Canadian Law Enforcement tried to get non-custodial bitcoin wallets to freeze user assets. Even if they had wanted to cooperate and freeze the assets, their exists no means to do so. It’s impossible, the code is immutable.
I’m not really trying to sell you anything besides a subscription to my substack. Yes, there are affiliate links for centralized exchanges here, but I don’t want you depending on them. Taking custody of your crypto is where your journey here begins, its not the end goal, its the starting line. I want you all to be there or beyond.
4. The Inevitable Conclusion
So what is the value proposition for accumulating bitcoin and other crypto? It’s very easy for me to tell you to buy, but for good reasons, many people ask when will it be time to sell. Well, for that, you need to understand how this all ties together. The big failure of crypto occurs where it interfaces with government fiat currencies. All problems occur at the centralized exchanges where you’re trying to go from crypto to money that you can spend. That’s where the authorities are waiting, that’s where the IRS will be watching, and that’s where all of the benefits of crypto are at their weakest.
Just like gangster rappers building their own labels and infrastructure so that they could operate without having to conform to the desire and culture of the major record labels, so too are we building our own infrastructure. The goal here isn’t to sell. The goal here is to eventually live within an economy where you can earn, spend, and save all in Bitcoin, or another crypto without ever having to use government systems again. A separation of finance and state. And why not? Compared to the catholic church and the protestant revolution, I think we face a far weaker opponent. But win, lose, or draw, it’s absolutely necessary that we try. What you are actually investing in is ownership of the financial infrastructure that is being built right now. I would say that I am getting to the point where I am almost completely price insensitive to bitcoin and crypto. I don’t care how much it costs, I value my independence and ability to transact more than anything else. Government is a service provider in a number of different ways. They have always had a monopoly and as such never had to deal with competition. Right now, the service they provide through money, is an ability to store your past productivity to use later. Their service is failing in a number of ways, and a competing product is here. I’m choosing their competitor, and I am hoping that enough other entities choose their competitor so that I can avoid their system entirely.
The dream is to have a job or income streams that pay in bitcoin, then to go to the store or service providers and they accept bitcoin, and not just accept it, but they hold it as their treasury. If they are converting it straight into dollars after my purchase, it defeats the point. Ultimately, I am looking to live in a society where everything is priced in bitcoin, or crypto in general. I no longer wish to be part of government central bank ponzi schemes. If I’m going to invest in a ponzi scheme I want it to be named CUMROCKET, and have questionable marketing material. I don’t want it to have the full weight of a militarized police system enforcing its use and cultural compliance among the population. The goal is never having to sell. The goal is getting to use crypto instead. Given enough time, I suspect more and more entities will make the switch. There is game theory at play here for countries, and companies. Even if you don’t want to adopt crypto, it will get more and more expensive as others do, and so it becomes an intelligent choices to hedge against this future by exposing a portion of your treasury to bitcoin now. And many entities are doing this and have been doing this as we speak. Not Just El Salvador.
KPMG Canada adds bitcoin treasury
Rio De Janeiro allocates 1% of treasury to Bitcoin
Restaurant Chain Everbowl shifting to accounting in Bitcoin
And, according to Deloitte, More than 2,300 US businesses accept bitcoin, according to one estimate from late 2020, and that doesn’t include bitcoin ATMs.
The game theory is clear here. A 10% allocation today, might cover your entire treasury requirements in 2030 if this trend continues. It may end up being a significant financial move for a company to adopt a small allocation of treasury now, instead of having to adopt a large allocation when this becomes the norm. That same advice applies to people as well. It’s a hedge against a future possibility for the average person. For me, I sincerely believe it is my future, and I’m all in.
This was a fun and informative read! “Separation of finance and state” - love this. And your connection of crypto finance to independent record labels/music infrastructure was genius, in my opinion. In these dark times I cannot help but remain long term optimistic, and your writing always leaves me with a sense of excitement for what is to come. Despite the increasing levels of totalitarianism worldwide, this feels like the very beginning of a tectonic shift in the direction of freedom. Thanks for this post, I’m going to send it to all my friends, I hope they get as much out of it as I did.
How do you not have people beating down your door for your perspective? A million thanks for putting this out in the world.