Why Bitcoin May Be Banned
Since the cryptocurrency operates without government control, and competes with currencies created by governments, there have always been suggestions that one day it may be banned.
Over the past few years, we have seen some important people in various governments criticize Bitcoin. Some governments have even gone so far as to ban it completely or impose some restrictions. For example, according to Coinmarketrate.com, that’s what China did.
Fortunately, not all of these attempts were successful. Although, knowing what the government is losing by not having a currency to build up capital, it is clear that Bitcoin is the main enemy for them to allow it to function freely.
There are several reasons why we may see an intense fight against Bitcoin, which will only force governments to strengthen it as against a decentralized system.
Bitcoin is private
One of the reasons encouraging governments to try to ban Bitcoin is its private nature.
While it is true that Bitcoin is not completely private because it is a pseudonymous system, it is also true that it can be used in a way to enhance this anonymity and offer users a certain degree of privacy in their monetary transactions.
This is important for people, as it avoids the censorship inherent in traditional systems. But at the same time, it does not allow governments to monitor and control their citizens.
Bitcoin is resistant to censorship
Bitcoin is a cryptocurrency that is resistant to censorship. Transactions added to the blockchain are virtually irreversible, which means that anyone can send money to anyone else without fear of a court decision or a company’s decision to make it impossible.
This is an inconvenient solution for states when the fiat money of the traditional system provides them with many tools. This concerns the ability to freeze funds or withdraw them if they deem it necessary.
Bitcoin poses a threat to national currencies
Another reason why states would like to ban the BTC is that it is a direct competitor to their currencies. It is they who allow them to exercise some control over their citizens and the economy they manage.
There is a reason why they so want people living on their territory to use these currencies that they can control. This also applies to CBDC – digital currencies of central banks.
The ability to issue debt obligations, as well as to devalue them, is what they achieve by creating new money and issues
If there was a currency with excellent characteristics that was not under their power, then this would jeopardize such an opportunity and undermine their power.
An example of this is the quote of a Nigerian senator named Sani Musa:
“The technology is so strong that I don’t see what kind of regulation we can implement. Bitcoin has made our currency almost worthless.”
The United States is a special case because its government can exercise some control over other countries, since these countries mostly use the dollar indirectly or indirectly. Some countries have converted their economy to the dollar, or their citizens are seeking to purchase this currency to protect themselves from high inflation of the national currency.
In this case, the United States can apply sanctions to countries or individuals using various mechanisms, if it deems it necessary.
However, recently Bitcoin has shown what potential it has to avoid this kind of sanctions.
Examples of bans on BTC
Some countries have tried to ban Bitcoin in the past, including the most famous cases are China and India, the two most populous countries in the world.
Let’s look at each of these examples and analyze what the results were.
- China
Over the past decade, China has banned Bitcoin several times. However, this did not prevent it from being the epicenter of BTC mining for some time, and many crypto exchanges were operating in this territory.
This is due to the fact that Bitcoin miners receive great economic benefits, which favors local governments when it comes time to pay taxes.
Bitcoin mining is also a way to use the excess energy generated, especially during the rainy seasons, when hydroelectric dams generate much more electricity than required.
Therefore, it is not only difficult for this country to fully control the prohibition of the use and activities related to Bitcoin, but also to find an economic incentive for the politicians themselves.
- India
In the case of India, we see that financial regulators tried to ban the BTC in 2018, but in the end the Supreme Court found it unconstitutional. Not satisfied with this, in 2021, legislators revived the ban, applying penalties for storage, mining and trade.
The effect they achieved was exactly the opposite: a significant increase in the number of BTC was observed on their territory.
A ban for this country seems unlikely in the future, but the authorities managed to increase taxes on this cryptocurrency to 30%.
- NIGERIA
In early 2021, the central bank of Nigeria (CBN) banned crypto exchanges and forced the closure of BTC-related bank accounts.
This was done in order to prevent the collapse of the currency, which the CBN itself has coped with somewhat uncertainly in the past, which led to inflation of 16% by 2020.
This was the main justification for the fact that many citizens turned to Bitcoin in the first place, which led to a further drop in demand for naira (local currency).
Nigerians are also used to sending money to relatives or raising funds for protest actions, in which Bitcoin was simply not replaceable. As a result, the ban only caused an increase in demand for crypto, as well as an increase in trading volume and an increase in price relative to its currency.
To date, no government has been able to completely ban Bitcoin or reduce its use on its territory. However, some critics of the cryptocurrency, even some of its supporters, believe that more sophisticated measures can eradicate the crypt in the future.
When it comes to restrictions, countries have two alternatives. One of them is related to an attack on the way citizens access cryptocurrency, which is carried out through exchanges. The other is an attempt to destroy the entire network and thereby destroy Bitcoin entirely, thanks to a coalition of several governments.
Ban on Cryptocurrency Exchanges
If the government bans Bitcoin, the first thing it tries to do is attack the centralized part of this cryptocurrency. Although exchanges are not part of the network, they serve as a gateway for many novice users.
Among such options for acquiring BTC are credit platforms, brokers and exchanges.
These institutions must meet certain requirements in order to operate legally. When working with people’s money, it is necessary to have everything in order so that they will not be prosecuted later.
The termination of these centralized institutions will momentarily restrict access to crypto assets for a significant part of the population, which will cause a drop in price, especially if we are talking about a large or influential country for this cryptocurrency.
However, the result of such an action is limited by the attitude of users. If the user perceives this as an inability to access Bitcoin, then he will be successful.
However, we have already seen examples when users were looking for alternative ways to circumvent these prohibitions by turning to peer-to-peer platforms to receive cryptocurrency. They operate in a decentralized manner and cannot be banned by the government.
Banning the Bitcoin network
For the government to shut down the entire Bitcoin network is a difficult, if not titanic task. BTC works with thousands of nodes scattered around the world that use the internet to communicate with each other.
Further complicating this story is the fact that developments are currently underway that allow nodes to communicate via other channels, for example, via satellites. As long as one Bitcoin node can communicate with others, they can transfer transactions and continue to use this network.
Such a large number of nodes makes Bitcoin decentralized, so if the government wants to destroy the network, it will have to destroy all the nodes. There are not enough nodes in your country, as many users may continue to use this currency by connecting to nodes in other countries.
In some ways, this would be similar to other bans in the past, such as the prohibition of alcohol in the US in the 1920s. As a result, people continued to consume and produce it underground.
A ban imposed by only one country will drive all activity underground and take it out of the control of those in power.
Global ban
It would be very difficult for a government working alone to ban Bitcoin. However, the alliance of several or all of them can seriously affect the crypto asset. While they are working at the same time.
If a large group of countries act together, they will be able to destroy all exchanges, brokers and centralized credit platforms.
But this is not the end, as we have seen before. They should work to stop the development of Bitcoin-related projects that can generate open source software for other users so that they can use their own solutions.
Finally, they should put pressure on Internet service providers to monitor network activity and restrict everything related to cryptocurrency. This will make it difficult for nodes to communicate with each other.
The combination of countries and these attacks will deal a serious blow to the Bitcoin network, as it will affect its decentralization.
The consequence of this may be increased centralization, since decentralized exchanges are not so developed to cope with this context. In addition, there will be less liquidity and fewer miners in their market, which will put everything at risk, opening the door to hacker attacks or the countries themselves.
However, what cannot be so easily quantified is all the measures that users of this network have taken to solve these problems. All previous attempts have led to the development of mechanisms to counter these events.
Of course, there are countries or unions that have more power than the above. The United States or the European Union may have more power than China or India when it comes to trying to destroy Bitcoin. It would be interesting to see if this is possible, or if we are at a stage where Bitcoin is strong enough to resist.