The Single Most Important Story in Crypto
Crypto is now "legal tender" for wages in Dubai
It does not get any bigger than this, folks. As reported here, a court in Dubai has upheld an employment contract in which the employer agreed to pay an employee’s wages partially in a crypto token (in combination with the government-issued fiat money). In an earlier, similar case, the court “…did not enforce the payment in crypto, as the employee failed to provide a clear method for valuing the currency in fiat terms.” However, in this more recent case, the Dubai court “[ordered] payment of the crypto salary as per the employment contract without converting it into fiat.”
Why this is such huge news
As I have written elsewhere, legal tender must be at the center of any discussion of the future of crypto (Bitcoin, Ether, tokens, etc.). Admittedly, this is not a concept ordinary people are familiar with, perhaps beyond noticing that U.S. Dollar bills have the following words printed to the left of the presidential image: “This note is legal tender for all debts, public and private.”
So, what exactly does this mean? Let’s start with the Black’s Law Dictionary definition of “debt.”
A sum of money due by certain and express agreement. The obligation of a debtor to pay a certain amount of money or to give a certain amount of value.
The most fundamental form of debt is the money an employer owes to their employee. In this Dubai case, the “certain and express agreement” was that the employee would perform their assigned employment duties (“…give a certain amount of value”) in return for the “…pay[ment of] a certain amount of money.”
There are several ways in which a debt can be considered legally extinguished. For our purposes, the simplest and most common way is for the debtor to tender full payment of the debt to the creditor. The assertion printed on the face of the U.S. Dollar arises from the Legal Tender Act of 1862. This made it possible for the Union to fund the Civil War. Convertibility of the Dollar to gold or silver was temporarily suspended, and the Legal Tender Act required Americans to accept payment of debts in paper money.
Later, in the Coinage Act of 1965, the U.S. Congress eliminated the precious metal content in U.S. coinage and established what I call the U.S. Dollar’s “monopoly on legal tender.” Lest someone claim the U.S. Congress exceeded its authority, consider Article I, Section 10, Clause 1 of the U.S. Constitution (emphases added):
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
When the Constitution was written, this provision struck a delicate balance. Article I also gave Congress the authority to coin money, regulate its value, and enact uniform bankruptcy laws. The Constitutional Convention was called partly in response to the Daniel Shays Rebellion, provoked by unscrupulous debt collectors going after Revolutionary War veterans, many of whom were never paid their rightful wages. Such debtors would now have recourse to the courts, which would rule uniformly as to what was owed and how those debts would be extinguished.
Back to wages and legal tender
In the Coinage Act of 1792, Congress established the U.S. Dollar as a weight in silver. The U.S. Eagle was established as a weight in gold and was equivalent to $10. If you were to take 1/10th of the weight (in gold) of a U.S. Eagle and compare it to the weight in silver of one U.S. Dollar, the ratio of silver to gold was 15 units (of silver) for each unit of gold.
This worked well with legal tender laws because it secured the interests of creditors and debtors alike. Creditors knew they would be repaid in a monetary unit that was a stable proxy for gold or silver. Debtors were protected because creditors could no longer ask state courts to force the debtor to surrender some other form of property (e.g., horses, livestock, crop yield, etc.) without it being fairly valued by the court in a unit universally recognized by law as a tender in the payment of debts.
So, imagine: It used to be that a person’s labor was valued in a monetary unit that was a proxy for silver or gold. As I try to explain (I’ll admit poorly so) in my book Liberty’s Silver Bullet: The Digital Liberties Amendment to the United States Constitution if you “store the value” of your labor in a one-ounce bar of silver, the value of your labor does not dissipate because the silver does not rust. This is not some esoteric academic theory handed down from on high. This is chemistry: Silver is a Noble Metal (as is gold, platinum, and palladium). And, as your high school chemistry teacher probably tried to explain, chemistry is math.
And so is crypto
Precious metals have an inherent superiority over crypto because they can be used as money without the need for electricity. But beyond that, its immutability makes crypto “like” gold. Just as the laws of chemistry preserve the weight of gold and silver, the laws of math maintain the value of cryptocurrencies.
When you store the value of your labor in the U.S. Dollar, you are using a unit now issued with no real tie to underlying productivity. This is why prices are soaring. If you keep those dollars in a U.S. bank, you surrender the value of your labor to a system where the rules are whatever the Ruling Class wants them to be. (If you don’t believe me, read up on the failure of Silicon Valley Bank).
The single most important waypoint in adopting cryptocurrencies like Bitcoin is the ability to store the value of your labor in a cryptocurrency of your own choice and agreed upon by your employer. But there is no point in considering this unless you can go to court in a dispute, and the court can enter a judgment in your favor in that same crypto unit. As long as the USD enjoys its monopoly on legal tender, that simply cannot happen here in the United States.
But it can in the United Arab Emirates (Dubai)
And that is why this is the second biggest story in crypto - the first being the Bitcoin whitepaper itself.
This is not an argument against the United States or in favor of the United Arab Emirates. The court system in the United States is rooted in the tradition of English common law. The courts in the UAE follow civil/criminal law, which in turn arises from the Islamic tradition of sharia law. The superiority of common law systems arises from the independence of the judiciary. A population’s ability to confidently engage in commerce depends on a court system that can refer to similar cases for guidance when a dispute arises. These courts must be free to follow precedent - regardless of who was or is in power, then or now.
Instead, this is an argument for bringing the Constitution of the United States into the Digital Age. To do so requires we rescind the power to make laws respecting private legal tender. Simply put, if we choose to work for a cryptocurrency and our employer agrees, we should be able to rely upon the courts to adjudicate the eventual dispute - in the same cryptocurrency unit we initially decided to use.
