Regulations Will Attack Bitcoin Decentralization
Governments are eager to regulate the crypto industry. It is nothing new, since the rules to control trade are the main occupation of the Statists, and even more so, when trying to implement an electronic money that is outside their orbit of power.
The US government has clear intentions to regulate the crypto industry and Bitcoin in particular .
The US and its allies can influence the decentralization of Bitcoin, to control it with regulation. Thus, the US began to coordinate regulatory policy with its Western allies .
Banning Bitcoin is no longer a desirable option for governments as it has become intertwined with the global financial system. On the other hand, it is better for them to regulate it, to (surely) control all transactions in a complete and global way.
How could they control all Bitcoin transactions globally?
They would do this by controlling the majority of the computational (hashing) power of the several million computers that the Bitcoin network uses to confirm transactions .
To do this, it would need to regulate the majority of the Bitcoin hash rate, which is known as the 51% attack .
The regulation should be global, so that it can regulate the companies that control the majority of the Bitcoin mining hash rate. However, it does not take that many countries to achieve that control over the hash.
As of February 2022, the US has 35.5% of the global Bitcoin hash rate , Canada has another 9.5%, and Germany and Ireland have 4.5% each. Just four Western nations contain more than half (54%) of the global Bitcoin hash rate. And those nations are allies of the United States. By adding a few more nations to apply uniform regulation, it will be possible to impose global norms on the majority of the hash rate.
While Bitcoin miners can move jurisdiction, as they did with the ban in China, (although it took a few months to recover the safe hash rate it had), large Bitcoin mining companies (farms) await regulation, otherwise it was ban, and focus on profit, unlike people, who often focus more on the principles underlying the philosophy of Bitcoin, thought of by Satoshi Nakamoto, p2p money, scarce, fungible, immutable, pseudonym unseizable, without trust, without permission.
Bitcoin Mining Regulation is a “Divide and Conquer” Tactic.
Mining corporations will uniformly comply with the regulations. Corporate boards have a fiduciary duty to put investors’ earnings before personal values. We have already seen a case of censorship in the US, when Marathon, one of the largest bitcoin mining companies in the United States and Canada, has mined the first bitcoin block that complies with the OFAC ( Office of Foreign Assets Control ): Marathon Mines First OFAC Compliant Bitcoin Blockde .
Since the large corporate mining pools control most of the hash rate ( 5 mining farms own 51% of the hash rate ), and are primarily motivated by profit, most of the hash rate is likely to remain. where it is legal (regulated), and more profitable to mine Bitcoin.
Institutions control most of the Bitcoin mining hash rate, and institutions actively seek regulation.
The management teams of large Bitcoin farms will not be able to justify the downtime, lost revenue, expense, and delay of moving to a foreign nation simply to avoid regulation. Its competitors would continue to exploit profitably in accordance with “reasonable” regulations.
Independent miners can move their equipment mainly based on their principles. Unfortunately, Bitcoin mining has become too centralized . Independent miners are the minority in control of the hash rate, and will remain willing to confirm transactions from unregulated sources, considering they can move more easily than big farms.
If the division between those who are willing to comply with the regulation and those who are not is very narrow, since 51% of the hash rate complies with the government regulation and 49% does not, then the minority of Non-compliant miners would still be confirming 49% of transactions. That 2% downside may seem insignificant, however, it is unsustainable in the long run.
Regulatory governments have no need to break the Bitcoin hash algorithm. They will simply coordinate the regulation of Bitcoin miners to require them to only confirm transactions from regulated exchanges. Limiting confirmation to only those transactions from approved exchanges does not require any changes to the core Bitcoin code. Bitcoin’s core code allows miners to choose which transactions to include in each block. Limiting transaction confirmations also does not require breaking Bitcoin’s cryptographic hash.
Delays in confirming unregulated transactions would be aggravated. Confirmation of non-compliant transactions would be sporadic. The fees required to confirm prohibited transactions would grow higher and higher.
The status quo of Bitcoin has gone from being mainly a chain of blocks of true believers of the free money market philosophy for people, to being an investment tool of institutions, and unfortunately many of the bitcoiners celebrate it.
Bitcoiners who understand and claim the principles of honest money, p2p, uncensorable and without the permission of a central authority, are already in the minority.
KYC is the Ultimate Goal
After Western governments regulate Bitcoin mining, it will be much easier for Bitcoin to be traded mostly through regulated exchanges, and KYC (Know Your Customer) will be the norm.
Exchanges will identify all users, capture taxes owed on Bitcoin earnings, and seize user accounts when directed by the government.
Bitcoin will retain its store of value status, limited by the extent to which governments tax it. However, Bitcoin will lose the essential quality of unconfiscability.
The regulatory battle raging over Bitcoin this decade will influence the outcome of the war for personal and monetary freedom.
Satoshi Nakamoto’s idea, that money can exist outside the control of the state, will come up again and again, looking for possible alternatives.
The struggle for personal freedom is continuous from generation to generation.