Vladimir Okhotnikov: comments to history of Binance

Vladimir Okhotnikov is a philosopher-researcher, author of articles on cryptocurrency and blockchain, developer of complex IT-projects, a supporter of libertarianism.

Vladimir Okhotnikov: historical parallels

Jacques de Molay, the last Master of the Knights Templar, was arrested on Friday, 13 October 1307. After a long trial, he was executed in Paris in March 1314. The history of the Knights Templar, the most powerful organization of medieval Europe, was over. The Templars became too powerful and amassed too much wealth to coexist with the monarchies. The wealth of the knights went mostly to the King of France.

On August 2, 1858, the Parliament of the United Kingdom passed the Indian Governance Act, under which the legendary East India Company was ceded to Britain. The history of Europe’s most powerful organization was over, the Company with private shareholders maintained its own army and navy, waged wars, conquered entire countries and had the right to monopoly trade. However, the government needed its assets. Unlike the Templars, no one was going after the company’s executives. On the contrary, they were fabulously enriched, and so far, many of the fortunes of British families come from the wealth of the East India Company. 

February 2024. American Seattle District Judge approved a court deal with the Binance crypto exchange. According to the deal, the founder of the exchange Changpeng Zhao resigns, the exchange itself pays a fine of $1.81 billion, and another $2.51 billion is confiscated in favor of the US budget. For five years, an American court will supervise and monitor the performance of Binance.

What do these events, hundreds of years apart, have in common?

All these are examples of the classic situation of a collision between a state and a powerful private organization. 

Historically, it has been quite common for organizations to achieve a power comparable or even greater than that of many States. The scenario was repeated every time: the organization was tolerated, while seeing in its favor, and as soon as the opportunity arose, it was liquidated, and the assets were simply taken. It doesn’t depend on the form of government, France had an absolute monarchy, Britain a constitutional monarchy, the US a democracy.

«The state in its modern form, as hundreds of years ago considers itself entitled to interfere in the privacy and business of its citizens. In fact, the term "State" refers to specific individuals who are referred to as "elites". True development is when there is real pure competition, but when administrative support creates a monopoly, stagnation begins. Elite groups use proximity to power as a competitive advantage - it destroys the economy. And this will continue until the role of the state changes...»

Vladimir Okhotnikov

The uniformity of actions well demonstrates the essence of the state, which has not changed in the last millennium. Power acts in the interests of elites. In the case of the Templars, the King himself acted as an elite, in the case of the East India Company the top aristocrats were real elites. The case with Binance is somewhat more complicated - here the situation is controlled by anonymous elites, not in the formal structures.

We see that laws and morality are secondary. For the state, the question of control is fundamental. All three organizations listed: the Knights Templar, the East India Company, and Binance were all too independent of the rulers. If the interests of influential organizations and the state did not coincide, the organizations were doomed.

Centralization as a basic feature of the modern state

A common feature of the States we cited (14th-century France, 19th-century Britain, 21st-century United States) is the centralization of government. Indeed, except in very exotic cases, centralization is common to all States in all historical periods.

Initially, the centralization was good, it helped to unify and socialize the tribes of primitive men. However, in the transition to modern civilization, centralization becomes a problem.

Centralized governance does not necessarily mean one ruler. It can be a collective body that uses democratic procedures when making decisions, which, very often, are more like imitation. What is important here is the existence of a single body (formal or informal) for decision-making. 

The decentralized system is much more complex to implement, especially for larger communities. The challenge is not even to organize a decentralized structure, but to keep it from being centralized.

The problem is that centralization inevitably creates elite groups that can influence decision-making. This, in turn, leads to a monopoly.

«Centralization sooner or later leads to monopoly. In principle, monopoly is not necessarily evil. It can come from normal competition, where there is a clear winner, can be driven by natural causes. However, when monopolies are organized by the authorities by restricting competition, it is wrong. Any control or regulation by the state sooner or later becomes in favor of individual elites. Again, this is the nature of centralized control...»

Vladimir Okhotnikov

Commercial, public or any other influential private organization sooner or later comes into conflict with the interests of elitist groups. This is not necessarily direct competition or the desire to get another’s business. The main issue - in the control of activities. Independence and unpredictability create risks and impede the realization of one’s own agendas. That is why it is necessary to establish control over the carriers of such risks. If you also manage to appropriate other people’s assets, you can consider this as an additional bonus. This is what happened to the Templars and the East India Company. Their activities were risky and often contrary to the policy objectives of the state, and they were excessively (from the point of view of the state) rich. All this is unforgivable.

An Instructive Binance Story

Binance is a very unusual structure for our time. It should not have risen to its level... but it has risen to become the world’s largest.

The history of Binance as a corporation began in 2017 with the ICO. It can be said that the ICO was successful, although it is generally considered a failure. In fact, they managed to raise $15M quickly, and that money turned out to be crucial. It was possible to create a full digital trading platform and conduct successful marketing.

Then there was a period of explosive growth. A year later, in 2018, Binance headed the TOP crypto exchanges in terms of trading volumes. By December 2018, the stock had grown to over $440M.

In the summer of 2023, Binance accounted for up to 90% of spot transactions with cryptocurrencies. In fact, the exchange controlled the market. Did she do it exclusively legally? Who knows... Americans have accused Binance of violating American laws, and whether they apply to the rest of the world is a big question.

However, the question is no longer one of legality. Americans had the opportunity to influence the stock exchange and its management - and they did. The same was true of the French king Philip the Beautiful when he abolished the Knights Templar. He could - and he did. The difference is that times have become less violent. The master of the Knights Templar was burned at the stake, and the head of Binance is likely to get away with a fine and 18 months in prison.

Why is Binance so interested in the US authorities? Compared to traditional exchanges and financial companies, business volumes are small. In general, the capitalization of the entire cryptocurrency market was at that time less than the capitalization of Apple.

However, cryptocurrency carries potential risks for the entire financial system, it is capable of breaking the monopoly of dollar payments. To ban cryptocurrency is technically difficult and problematic from the point of view of the law. But taking control of the company that in turn controls the market is the optimal strategy.

This strategy was implemented qualitatively. The exchange lost markets, leading managers left, criminal investigations were initiated. After months of pressure, charismatic Changpeng Zhao agreed to resign and pay a large fine. The exchange will also pay a fine to the US budget and be under judicial supervision for five years. 

«I don’t think Binance had any chance of winning against the entire Western legal system. It was only a issue of time. In general, they managed to resist for so long solely on the energy of Zhao. He tried to find the right strategy. Forced to leave the United States - that means more work in Africa, expelled from Europe - go to Latin America. However, the state has many instruments of pressure. It is difficult to say which one has become decisive. In any case, Zhao had almost no options...»

Vladimir Okhotnikov

The largest crypto company in the world was under the control of the authorities. After an agreement with the authorities, Binance quickly regained its position in the market. However, this is a different Binance.

Friend of the State

In many cases, cooperation with the State is beneficial, if in principle such cooperation is possible. The Templars collaborated with European monarchs, but their cooperation was limited to ideology and religious views. For example, they refused outright to help anyone in intra-European conflicts when Christians fought Christians. Nor did they want to give the monarchs unrestricted access to their treasury.

A modern example of a business related to Binance is Tether, the largest stablecoin operator (USDT). 

In November 2023, Tether announced that it would block the wallets of those under US sanctions and would partner with US intelligence agencies. 

It can be considered such a safe business strategy. Tether has always been under threat - American financial authorities are suspicious of the dollar-denominated stablecoins. In addition, Tether is active in Latin America, and there, due to the specificity of the market, US support is vital.

«In the crypto community, you have to hear criticism of Tether. They want to block wallets, this is a violation of the principles of the blockchain community. What to say... The fact that someone can block your wallet is disgusting. However, the principles are good when you are only responsible for yourself. When you have hundreds of thousands and millions of people behind you, and they depend on you, you have to compromise. We don’t know why Tether took this step, so I think it’s wrong to discuss it...»

Vladimir Okhotnikov

As a result, Tether feels great and is actually beginning to colonize Latin American financial markets.

Conclusion

Did Binance have a chance to stay in the same format? Yes, it did. However, this was possible only if they agreed to work within the established rules. Not laws, but rules that were advantageous to elites. However, Changpeng Zhao demonstrated independence and did not go on cooperation. However, it cannot be said that he lost everything forever. The person who created Binance will surely find somewhere to put his energy... unless, of course, he is not too tired of legal problems.

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