I recently wrote
Can the Government Shut Down Cryptocurrency. I started to write an update at the top of the article, but it got long and I thought it warranted a new article.
As of today, September 24, 2021, China has banned cryptocurrency transactions and effectively made crypto illegal.
https://www.cnbc.com/2021/09/24/china-central-bank-vows-harsh-crackdown-on-cryptocurrency-industry.html. I also found out that several other countries have banned or are on the brink of banning or severely restricting cryptocurrency:
https://finance.yahoo.com/news/countries-banned-cryptocurrencies-why-210500613.html
Photo credit: WorldSpectrum at pixabay.com
Government control of cryptocurrency is not popular to talk about, especially on a decentralized platform. No one wants to hear it, I think. I would have been better off saying, "Banning crypto is a technical impossibility. Good luck, world governments! Ha!" However, I don't write to be popular; I write to reflect what I see and believe to be true, even when it is not popular opinion. And, naturally, I could be wrong.
Why do Governments Want to Regulate or Ban Crypto?
I was very much against all government regulation of cryptocurrency initially because most governments' reasons for regulation are not in the people's best interests.
First, authorities like to mention things that make sense and are possibly good reasons to regulate:
- Many cryptocurrencies are very bad for the environment (bitcoin being the worst among them). There are many other cryptocurrencies, however, that have minimal environmental impact, so regulating a particular coin or the energy sector might make more sense.
- Cryptocurrency is often used to fund crime and/or terrorism. That's hard to argue with. I think most of us disapprove of crime and terrorism.
- Unregulated crypto gives rise to scams and corruption. It is bad for consumers.
If we look beneath the surface, governments have other reasons to curtail cryptocurrency.
- Institutional banking is a powerful lobbying force in most countries worldwide. They will not be pleased when (not if) banking is decentralized.
- Tax evasion. It might still be illegal, but cryptocurrency makes it easier and a big headache for the government to track.
- Privacy. This is probably the biggest concern, and it is a bigger concern the more a government devalues its citizens' right to privacy. Cryptocurrency is not just cryptocurrency, as we well know. It is the blockchain. It is a way to communicate that is challenging for a central authority to censor or control. When we examine countries that are banning cryptocurrency, they tend to align with countries that curtail freedom of speech. I think this is the (not so) secret main reason for banning cryptocurrency in countries that have done so.
Even in countries which ostensibly value freedom of speech, I think crypto makes the government nervous. They cannot subpoena information like they can with WhatsApp, for example. (See How Facebook Undermines Privacy Protections for Its 2 Billion WhatsApp Users.) I have mixed feelings about this. On the one hand I certainly like my privacy, but what recourse will there be when trying to fight online hate groups, terrorist cells, pedophilia rings, human trafficking, etc? Will we have to become a society of vigilantes? I am not sure that would be a good thing. Has rule by the mob ever worked out well? Could it? My gut feeling is no, but I would like to be mistaken.
Some Regulation Might be Helpful
To be clear I, personally, am not a fan of banning. I don't even think it is practical in a longterm sense. I think some regulation is a good idea. I have explained much of my reasoning for this in my first article and above. However, expanding on the reasons, regulation could help avoid scenarios where cryptocurrencies achieve high status and market capitalization when they are not based on anything.
I am not talking about coins that have real world use that has been proven. Rather, I am referring to cryptocurrency projects that have issued a coin which is widely traded, well respected, and is actually not functional (yet). It's like if you bought software to do your taxes, but all the software did was have a fun splash screen that said how amazingly it will one day do your taxes. Maybe it will. However, wouldn't it be crazy if the software was worth millions and people bought it based on the promise alone?
Further, if it didn't work and the developers decided to just take the money and go live on a beach somewhere, if it was tax software, I think people would be angry and demand a refund! However, with cryptocurrency, people put up with silliness. Is it because of a lack of technical understanding or because of greed? We can make money when the price goes up up up up, even if it is based on nothing. Is this another incarnation of the
Tulip Mania in Holland in the 17th century?
Are Some Cryptocurrencies Just Smoke and Mirrors, Maybe by Initially Wellmeaning Developers?
The way things currently stand, you or I could easily register a website, write a compelling, convoluted whitepaper full of technical mumbo jumbo, and invent a new coin that does nothing useful. Then a billionaire could tweet about how he named his parrot after my coin and suddenly, I would be wealthy.
In fact I suspect that at least one of the top 20 major cryptocurrencies is smoke and mirrors only. I have one in mind, but I won't sully its good name since there is no solid proof. However, I suspect that the founder of the coin believed in the technology and the project, the coin did very well (and still is) based on everyone's belief in the project, and I think he secretly knows the technology cannot work. Maybe he has trouble sleeping at night, possibly hoping for a way to magically shore up a sinking ship.
Wouldn't that be horrifying? As a developer, if you came up with a very cool technical idea, people bought into it like crazy, and then you one day realized it was a non-starter. What could you do? You could try to find ways to make it work. However, if you did not succeed in doing so, thousands of people who believed in you would eventually lose all their money. Your name would be ruined. How could you even get help? If you told anyone that you need to go back to the drawing board, so to speak, the news would likely leak out and your coin would be ruined, taking all those who bought into it down with it.
Maybe this occurs to me because I have been part of software development in the past, so I know it is possible for such a thing to happen. Also, sometimes, when I read a coin's whitepaper, I think, "Wow. That's amazing, but, how will they achieve these wonders?" And, sometimes, they do achieve them! However, as I said, other times, I think it is just magical thinking.
Banning Cryptocurrency in Other Countries Affects All of Us
Because of globalization, cryptocurrency being banned in "other" countries affects all of us. It alters the market. China has banned it. India is considering banning it.
(See, for example, https://fortune.com/2021/06/02/india-bitcoin-ban-crypto-exchange-investors-crackdown-rbi/.)
China and India are the most populous countries. Together, they comprise about one third of the population of the world! So, even if we live in a country that is more likely to regulate than to ban crypto, it will make a difference that it is banned in China and maybe one day in India. (Personally, I suspect India will ultimately decide not to ban it, but what do I know?)
The ban will affect prices as well as public sentiment and confidence in cryptocurrency. Confidence is always shaken when something happens that sends prices plummeting.
Conclusion
Honestly, I think cryptocurrency is likely the future. I think the blockchain is probably the future of the internet. When the internet was invented, it was largely unregulated. I still have headaches getting some parts of my older websites to conform to FCC guidelines on this and that as well as ensuring I have cookie warnings, etc (finally completed, but it was a headache). We have gotten used to these things, though, by and large. I suspect that cryptocurrency will be banned outright in most countries which do not endorse their citizens' right to free speech.
In most countries, though, I think there will be regulation and it's not entirely a bad thing. I would be very surprised if cryptocurrency and the blockchain turned out to be a fad. It feels like something much bigger than that. Time will tell.
Disclaimer: Not financial advice.