The Battle for Bitcoin: Can Government “Shut Down” Cryptocurrencies?

One of the more frequently-asked questions that we get from people dipping their toe into the crypto world is “What is the government going to do?” or “What if government closes down bitcoin?”

While we cannot precisely answer the former without our crystal ball, in recent years experts have noted that the IRS’ 2014 classification of cryptocurrencies as property for tax purposes and more recent moves like the IRS case against Coinbase are the “start of an effort to pull digital currencies like bitcoin into the mainstream”. And while certainly the future is unpredictable in this rapidly-changing ecosystem, it is important to recognize that the use of cryptocurrencies is growing and legal or partially-legal in major developed countries such as the US, Japan (where bitcoin is legal tender), Canada and much of Europe.

What is very interesting is that there is certainly not anything close to unanimity between nation states on how to deal with cryptocurrency. Developed countries seem to be trending towards acceptance and regulation, which many argue is necessary for healthy growth and mass adoption, while many developing countries are instituting outright bans. Thus far there is no semblance of agreement around the world. We’ll come back to this.

The intent of this post is to address whether any government could cause the demise of bitcoin, as in shut it down, sayonara, see ya. This is important to address because it is both a legitimate fear and also there is a lot of misinformation circulating the interwebs that cause otherwise interested people to sit on the sidelines.

As many studying the crypto space know, JPMorgan Chase Chief Executive Jamie Dimon has been a prominent and vocal dissident against cryptocurrencies. In September 2017, he warned that governments will shut them down if they grow too large. “Right now these crypto things are kind of a novelty. People think they’re kind of neat. But the bigger they get, the more governments are going to close them down,” Dimon said during an interview with CNBC-TV18.

Certainly, if investors or just individuals interested in cryptocurrencies believe that the government might “close them down” they might hesitate to invest or even learn about blockchain technology.

So, can government “close down” bitcoin? And even if they can, should they?

While government could certainly hamper ease of use and discourage use, it is impossible for any government “shut down” crypto. Officials from the US government have even admitted it. On the November 1, 2016, Forbes’ Unchained podcast #14 US federal prosecutor Kathryn Haun stated that “you can’t shut bitcoin down.”

Haun noted, “I don’t think the reason the government didn’t shut down bitcoin (previously) was because the blockchain is useful to the government. I think the reason is that the government realized they can’t shut down bitcoin. There’s simply no way. With these technologies, once the genie is out of the bottle you can’t put it back in.”

So the US government, with its massive military and diplomatic presence worldwide cannot shut down bitcoin? How is that possible?

Author and Bitcoin bull Teeka Tiwari provided a very good answer in a July 2017 interview with financial publisher Bonner & Partners. Said Tiwari, “The beauty of bitcoin is that, unless you shut down the entire internet, you can’t kill bitcoin or any other distributed cryptocurrency. They’re impossible to kill because, by definition, the underlying records of the transactions — what’s known as the “blockchain” — are copied all over the internet. That makes it incredibly difficult to regulate. Governments can try, but they’ll always fail. And of course, that terrifies regulators. Their inability to control these networks scares the heck out of them.”

The best part about this is it’s true.

To elaborate and clarify further, anyone can download the bitcoin blockchain here: https://bitcoin.org/en/download. According to Wikipedia, “Bitcoin Core includes a transaction verification engine and connects to the bitcoin network as a full node. Moreover, a cryptocurrency wallet, which can be used to transfer funds, is included by default. The wallet allows for the sending and receiving of bitcoins. It does not facilitate the buying or selling of bitcoin. It allows users to generate QR codes to receive payment. The software validates the entire blockchain, which includes all bitcoin transactions ever.”

So as long as you have a computer, the internet and your private keys you can transact in bitcoin and maintain the entire ledger from block #1. Because of the inherent encryption, it is virtually impossible to detect your activity unless the government knows what cryptographic sequence of 1s and 0s they are looking for.

So yes, while governments could make bitcoin and other cryptocurrencies more difficult to use, or make them illegal as has been done in primarily developing countries, it is essentially impossible to stamp out cryptocurrencies due to their decentralized nature and lack of central controlling body.

A good analogy might be to ask whether government can close down algebra? Certainly, government could impose penalties on algebra users or ban the publication of algebra textbooks, but the government can’t destroy math. Math is universal, it’s use multifaceted and decentralized. It just is. And if the US banned algebra, then devotees could move to Sweden or Switzerland. This brings us back to the observation about lack of any coordinated worldwide government “policy” on cryptocurrency. That type of worldwide coordinated government effort to ban bitcoin would be the closest way to actually squash it. And we are nowhere near that. When have world governments ever agreed on monetary policy?

So why should governments embrace the use of Bitcoin?

Given that the US and powerful, developed countries cannot shut down bitcoin, we believe this is why they will have to become more receptive to imposing regulatory frameworks in lieu of outright bans. Countries like the US have been historically financially innovative. If the US wants to stay ahead of the rest of the world, then it’s only logical that they would find ways to work with cryptocurrency as opposed to vastly restricting its use or sending it underground.

The government has banned alcohol in the past. Did that work? Not at all. It pushed it underground, made it highly profitable to produce and the government lost out on massive amounts of tax revenue. We imagine that banning bitcoin would result in the same scenario. Furthermore, because it is highly unlikely all countries will/would ban cryptocurrencies, those that allowed it would realize the financial and technological benefits far faster than those that banned it.

In conclusion, while it is certainly possible to make the everyday use of bitcoin and cryptocurrencies difficult, it is impossible to destroy bitcoin and short of worldwide government consensus like the world has never seen surrounding monetary policy, it makes little sense for governments to ban it.

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