Can Bitcoin be Banned?

Bitcoin’s Market Dominance

Bitcoin is the original cryptocurrency and is far and away the most valuable. Bitcoin uses peer-to-peer transactions that make it easy to send BTC directly to others. It doesn’t require access to a traditional bank account or need to go through a trusted central authority. Transactions are cryptographically secure, ensuring safe, direct and trustless digital transfers from one owner to another. 

The cryptocurrency market is still dominated by Bitcoin; (approx. 45% of the total crypto market cap.) A simple way to understand this dominance, using conventional concepts from economics would be to say that market capitalization is equivalent to the value of all circulating cryptocurrencies. We can multiply the amount of issued Bitcoins by their unit cost. Then we can do the same with all other Cryptocurrencies such as Ethereum, Cardano, Solana etc. Adding all the values of all the cryptos together form the total market cap.

Did you know?

• Over 100 million Bitcoin wallets hold some BTC
• Approximately 16,000 wallets hold more than 100 BTC
• About 1 million Bitcoin transactions are occurring every day
• In the United States, approximately 11% of people hold Bitcoin

Should any of this be concerning?

Well, a lot of people are already using Bitcoin for peer-to-peer transactions, so there is naturally some concern over money laundering and tax evasion. 

Bitcoin transactions could shield income from corporate taxation. Al Capone feared the Internal Revenue Service, yet corporations in North America continue evading taxes without scrutiny. However, governments in the United States and Canada do not seem eager to crack down on corporate tax evasion. It is unlikely that tax evasion or illegal activity would ever lead to an outright ban.

Governments that have Banned Bitcoin 

Only a few governments so far view Bitcoin as an imminent threat, banning it outright. Some countries have begun drafting regulations to limit Bitcoin usage in financial institutions. Quite frankly, most governments in the world don’t take issue with Bitcoin. It’s still a small fragment of the total world economy, which sits at around 85 billion dollars a year. 

Total Bans

Morocco enacted a ban on digital cryptocurrencies back in 2017. Regulators cited vague concerns for drugs, weapons, and ransomware. The government itself is investigating the benefits of government-issued cryptocurrency. Meanwhile, the volume of cryptocurrency trading in Morocco is near all-time high. 

Only 29% of Moroccan adults have access to a bank account, according to research from the World Bank in 2019. Thus it’s no surprise that peer-to-peer digital currency, (where you only need a smartphone) like Bitcoin, thrives.

Algeria also enacted a total ban in 2018. The purchase, sale, use, and possession of digital currencies are prohibited. Nonetheless, a simple search on Google makes it easy for Algerians to buy Bitcoin online through exchanges like Local Bitcoins.

In Egypt Bitcoin and crypto trading were banned under Islamic laws in 2018. Nonetheless, the volume of Bitcoin being traded in the country has boomed in December 2020/January 2021. Perhaps that is because Egypt also has an enormous unbanked population (67%). Egypt also has a high volume of workers who travel to other countries and remit their earnings to family back home, which Bitcoin makes very easy.

Nepal also announced a total ban on Bitcoin and other cryptocurrencies. The national bank in this country deems operating exchanges illegal, even arresting several individuals involved in local exchanges. Still, Bitcoin operates there, because it is easier to get an account, and it holds value much better than the Nepalese rupee. 

China

China officially banned Bitcoin mining, with a crackdown  one of the world’s major Bitcoin mining hubs. 

The People’s Bank of China has developed a centralized digital currency, digital yuan. By eliminating Bitcoin (and all cryptos) as competition, digital yuan is set to become its major currency of the future. With a central authority in place, it will also be easy for the CCP to track transactions within the country.

Every few years, a new law is enacted that restricts the use of Bitcoin. In 2013, the government  barred Chinese banks from handling Bitcoin transactions. In 2017, they banned initial coin offerings, preventing crypto companies from raising capital. 

Partial Bans 

Not all countries enacted a permanent ban on cryptocurrency trading. Some countries deem any digital currencies that aren’t backed by the government illegal. Columbia recently revised their regulations and is working with international cryptocurrency exchanges to make Bitcoin use safer. Ecuador banned financial institutions from using Bitcoin while pursuing their digital cryptocurrency. Nonetheless, the purchase and sale of it privately remain legal. Similarly, Bolivia also banned any cryptocurrency that isn’t government-backed in 2014.

Other countries like Nigeria have banned financial institutions that facilitate crypto trading. Meanwhile, China has only banned the mining of cryptocurrency, rather than its use and sale. As a result, much of the computer hardware used for mining is being shipped to other countries where mining is still legal.

Why Is Banning Bitcoin So Hard?

None of these countries successfully stamped out Bitcoin. The inadequacy of current banking options incentivizes people to use it even if it’s illegal. Ironically, improving the reach and services of centralized banks would be more effective in curbing the trade of cryptocurrency. In many other countries around the world, crypto is classified as an intangible asset or a commodity. This is especially true with Bitcoin.

Other cryptocurrencies that have utilities besides holding value recently faced a lawsuit from the Securities and Exchange Commission in the United States. The lawsuit holds that the digital asset XRP is an unregistered securities offering. However, this same reasoning would not apply to Bitcoin since there is no official company behind it. 

That’s the economic-legalese mumbo-jumbo explaining why Bitcoin won’t be banned. Let’s jump into the technical reasons that it would be impossible to ban. 

Have You Heard of the Streisand Effect? 

Singer Barbara Streisand sued a photographer, asking him to remove an aerial photo of the coastline which featured her property. This led to more and more people viewing and sharing this photograph. With anything on the internet, the moment someone wants to hide or delete a piece of media or information, it backfires. You know, the internet is pretty large and hard to regulate (unless you’ve already got a monopoly, – we’re looking at you Google and Facebook). 

An Endeavour in Futility

In addition to bringing a bunch of attention to cryptocurrency trading, a ban would be an endeavour in futility. To stop people from using Bitcoin they already hold, the government would need to ban all IP addresses associated with Bitcoin. Blocking the IP addresses of exchanges might be easy, but you’ll never find the IP addresses of every single user that’s ever done a transaction. Privacy-concerned folks will be using a virtual private network or VPN. We privacy-concerned folks also love our privacy browsers including Brave and Tor. 

Will a government pay a lot of money to try to find and block all these addresses? Unlikely. It’s a lot more time, energy and money than it’s worth and it is likely impossible. 

Second, let’s move on to banning specific products. Yes, a government could ban certain exchanges from being used. But as we’ve seen in countries with total bans, this doesn’t work. Banning personal mining equipment will lead to people jumping ship and moving to other countries. In China, large Bitcoin mining operations generated capital to compliment personal use. Since the mining ban, where more than half of the mining operations have left Beijing, these rigs have moved to Kazakhstan, where the cost of energy is low. Plus, people will always find a way to turn whatever electronics they scrounge upon into mining hardware.

Finally, what about the internet service providers? Just remember the last time you had a problem and had to call your provider. Often, they run into lots of technical problems that they can’t fix efficiently. Could they track and ban millions of users from using cryptocurrency exchanges? If they do, there are always secret nooks and crannies of the internet that traders will use. Either the entire internet would need to be shutdown, or even less likely, it would need to be effectively regulated.

An Attempted Crypto Ban

The Indian government passed a law banning any banks from doing business with cryptocurrency exchanges. I.e. from ever turning cryptocurrency into money. However. That was immediately challenged in the court systems, and through due process was overturned. Now any bank in India, including the central bank can do as they wish in terms of cryptocurrencies. 

The Bahamas

The First time a cryptocurrency became legal tender was in October of 2020. The Bahamas issued a digital currency called the sand dollar, making it the first in a very long line of countries making cryptocurrency legal tender. Now France, Ecuador, Switzerland, and the United Kingdom are all looking to get into the craze. It is pretty obvious at this point that use of cryptocurrencies is only going up. 

When their local Lira dived in value, halving in just over two years, Turkey jumped on the bitcoin bandwagon. It increased its use of Cryptocurrencies by over 20% in that time, using it as a hedge against inflation. 

During the pandemic, many people jumped on the bitcoin future market, opening a wallet for the first time. Over last year nearly 20 million more wallets were opened. Wall Street’s banks have never signed up accounts nearly as fast. Crypto assets are here to stay. 

For those reasons and more, Bitcoin, and the thousands of other cryptocurrencies, are a very healthy asset class. Elon Musk used them to make himself a truckload of money on the cryptocurrency market .

In Summary

Bitcoin is already adopted and ingrained in many countries with poor access to banking institutions. Even when Bitcoin is banned, people still use it out of necessity, because it’s easy to use. With financial institutions and large traditional investors buying Bitcoin, it makes a ban even more unlikely. 

The cost of banning this or any decentralized cryptocurrency worldwide would be very high (billions and billions of dollars) and technically next to impossible. We don’t like using the word impossible, but in the case of banning Bitcoin, it is apt. It would certainly cause a lot more trouble than it’s worth. Even the U.S. treasury recognizes this. 

Rest assured, we won’t see a Bitcoin ban in the USA. While a government can claim to ban Bitcoin use in their country, we can be fairly certain that the ban wouldn’t work logistically or economically.

Many countries are even embracing digital currencies. El Salvador announced that Bitcoin has become legal tender in September of 2021. 

Nearby, Venezuela already has record high  usage rates of Bitcoin. This is due to the hyperinflation of their local Fiat currency. Paraguay, Mexico, and Panama also have shown interest in legalizing Bitcoin as an official currency. When a few countries start adopting Bitcoin, the price will go up. More retailers will start accepting it as payment, incentivizing other countries and businesses. Once the first few dominos fall, we will probably see a huge increase in Bitcoin adoption worldwide. 

Bitcoin, uh, finds a way.