Arguing that governments can’t shut down Bitcoin is missing the point
- Chair of the US Banking Committee has suggested a ban on all cryptocurrencies
- Many declare that crypto is immune to government shutdowns, but this is only true directly
- By attacking the ecosystem and the ability to access it, crypto can be curtailed significantly by lawmakers
Bitcoin cannot be shut down, so the saying goes. But this misses the point.
Firstly, let me be clear and affirm that this mantra is true, technically at least. Bitcoin exists on the Internet and hence it is immune to being shut down. Unless, of course, you somehow shut down the Internet. But for all intents and purposes, Bitcoin is decentralised and exists in the online world, a feat of technology that makes it resilient to being restrained.
Bitcoin can’t be shut down directly, but indirectly is a different story
But while a direct shutdown of the blockchain is impossible, governments can, at least theoretically, dent Bitcoin heavily and curtail its adoption by the masses. It might not qualify as technically shutting it down, and I am not commenting on the likelihood that this happens, but there is little doubt that if a concerted enough effort is made, an assault by lawmakers on Bitcoin could be devastating.
We need only look at the prevalence of centralised entities in the space. While Bitcoin itself is decentralised, in order for the masses to access it, the vast majority go via centralised companies such as Binance or other exchanges. And what happens if governments go after these companies?
These companies will be forced to abide by the laws. Sure, decentralised exchanges (DEXs) will remain, and like Bitcoin itself, are resilient to being directly shut down. But would you expect Bitcoin to achieve mainstream success and continue to grow into a legitimate financial asset if DEXs were the only option?
Not only would institutions be reluctant to pursue this route, but they could also just be banned from holding it.
US Banking Committee Chair suggest banning cryptocurrencies
I write this article now in the wake of the story which emerged regarding the US Banking Committee Chair, Sherrod Brown, suggesting a ban on cryptocurrencies.
“I’ve already gone to the Treasury and the Secretary and asked for a government-wide assessment through all the various regulatory agencies. … The SEC has been particularly aggressive, and we need to move forward that way and legislatively if it comes to that.”
It has been scoffed at in some quarters, but it’s worth paying attention to. The US is the financial capital of the world. Were the SEC to come out and ban it, this would have a seismic impact.
Think of the chunk of the market that could be forbidden from holding Bitcoin – institutions, pension funds, public companies, etc. Or all the infrastructure that would be torn down, such as exchanges.
On the flip side, it does remain a remote possibility. And getting back to my point earlier about how people overlook the potential for governments to shut Bitcoin down, Brown did acknowledge that “We want them to do what they need to do at the same time, maybe banning it, although banning it is very difficult because it would go offshore, and who knows how that would work.”
I’m not predicting any sort of demise for Bitcoin or crypto off the back of this. I just think that too many overlook how damaging governments can be towards the world’s biggest cryptocurrency.
Sure, the beauty of the blockchain is that it cannot be shut down directly. But indirectly? That is a different story. Governments carry too much power to be written off as “irrelevant” when it comes to Bitcoin.
So far, there is nothing to think that countries such as the US will make such drastic moves to ban crypto. But after a torrid 2022 that has seen scandal after scandal rock the space, comments such as Sherrod Brown’s are not surprising.
In the remote possibility that these words were ever put into action, it would be foolish for investors to write it off as a benign development for crypto.