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People invest in cryptocurrencies for a variety of reasons. Some are speculating, trying to profit from an asset's appreciation. Others are looking to buy crypto to use in day-to-day transactions. Bitcoin, in particular, attracts a lot of attention due to its position as the top cryptocurrency. No matter what your reasons for buying Bitcoin are, almost all investors have wondered at some point: Can Bitcoin be stopped by the government?
The answer is, technically, yes. However, any attempts to ban or regulate Bitcoin out of existence are improbable to succeed. Bitcoin itself is decentralized. Any attempts to shut down Bitcoin would mean all the governments worldwide would have to collaborate and shut down the internet at the same time. As long as nodes are available to process transactions and people believe in a decentralized form of money, Bitcoin will live. Given there are 8 billion people on this planet, the prospect of shutting down everything is next to impossible.
Governments typically want to ban Bitcoin because it threatens their centralized control over currency markets. Historically, if you were going to transact in the United States, for example, you would have to deal in USD. Bitcoin upends that. Now, you can store and spend value in a less traceable, less manageable (from the government's perspective) way.
So, while the government may want to stop Bitcoin, such an act succeeding is doubtful for the main reason noted above.
To understand why this is the case (and why that should assuage any fears a Bitcoin investor should have), we'll need to examine how cryptocurrencies work and some real-world examples of governments that have tried to ban them and failed.
The Technology Behind Bitcoin Makes It Hard to Stop
Can Bitcoin be stopped by the government? The answer lies in the tech itself. There are quite a few reasons why the tech behind Bitcoin makes it nearly impossible to stop by government agencies. Here are three of the key ones.
Bitcoin Is Decentralized
Bitcoin's underlying technology, blockchain, is a decentralized system. Unlike traditional financial systems, it doesn't have a centralized point of control. There are no banks, central clearing systems, or central transaction logs. While the technical aspects of this system are beyond the scope of this post, Bitcoin is a giant digital ledger that millions of computers are constantly updating worldwide.
When someone says they're mining Bitcoin, that's what they do! They're using the might and power of their PC or ASIC system to help keep that distributed ledger in check.
The decentralization of Bitcoin is its first line of defense against government interference.
Think about it like this. Who would you take down if you were the government and wanted to eradicate Bitcoin? There are no authorities to crack down on, no CEOs to arrest, and no buildings to raid. Sure, you could outlaw all Bitcoin miners and Bitcoin spending online, but that would be a challenging proposition. Trying to ban something that exists on the internet is difficult at best.
Bitcoin's Structure Is Censorship-Resistant
It's a corollary to the point above but worth exploring. Bitcoin's structure is resistant to censorship by default.
When you decentralize something, it becomes challenging to censor it. Transactions are broadcast to the network and validated by multiple nodes. Even if a particular government agency were to crack down on Bitcoin and somehow stop all nodes in their territory, Bitcoin would live on as losing a node - or even many nodes - would not cause the system to collapse.
This aspect is a crucial difference between Bitcoin and traditional financial systems. If someone wanted to suppress American finance, they could raid or take down the NYSE, NASDAQ, or any other large bank. That would devastate the traditional dollar and send shockwaves through the financial community.
But take down a Bitcoin node? There are countless others ready and willing to step in and take its place!
Without a single institution or authority to censor, Bitcoin is unstoppable. As long as a few people out of the 8 billion or so on the planet can run nodes and process transactions, Bitcoin will live.
Bitcoin's Algorithms Make It Secure
A technologically savvy reader might think that a government agency could stop Bitcoin through technological means. That is, would entities like the NSA, FBI, DHS, and other hacking groups around the globe have enough power to hack into Bitcoin servers and disrupt the technology itself?
The answer is, shockingly, no. Again, while discussions of various cryptographic methods are beyond the scope of this article, Bitcoin uses mathematical algorithms that are pretty much completely impossible to crack with current technology. This facet alone ensures the integrity and immutability of the blockchain, making it extremely difficult to tamper with transaction records or reverse transactions.
Therefore, if the government cannot stop Bitcoin by hacking it or shutting it down, there isn't much of a way that they could eliminate it.
Why Does the Government Want to Ban Bitcoin?
You might be wondering why the government even wants to ban Bitcoin in the first place. Isn't Bitcoin just like any other asset?
Gold is an asset with a fixed amount in the world, and it's not illegal for people to buy, hold, and sell gold.
So, what makes Bitcoin different? Why is Bitcoin not like gold? Why are we asking can Bitcoin be stopped by the government when it should be like any other asset?
Reason #1: Financial Control
The government would want to ban Bitcoin for several reasons, but the main reason is monetary policy.
Currencies are more than just a way to pay for coffee every morning. Monetary policy impacts inflation, interest rates, debt, and money supply. A central bank can raise rates to cool off a hot economy or lower rates when it looks like a recession might be on the horizon.
Bitcoin, as a decentralized currency, operates outside of this control. This aspect challenges the government's ability to manage the economy and could undermine its authority.
But it's not just about power. The ability to influence monetary factors can make a big difference in people's lives, good or bad. Lowering interest rates during tough economic times could give a family a chance to make it, thanks to lower-cost loans. Higher interest rates can curtail rising housing prices.
Fiscal policy aims to keep society stable, and when the government loses the ability to set that policy (as they do with Bitcoin), that could lead to economic instability and unforeseen consequences.
Reason #2: The Potential for Illicit Activities
Every country has various KYC (know your customer) laws for opening a bank account. Typically, every bank must perform some verification on a person's identification and have an attestation to the source of funds. Banks must do this to help fight against money laundering and other financial crimes.
You do not need to do this to open a Bitcoin wallet! Indeed, you can start with Bitcoin without any identification at all. Open a computer program, and you now have a wallet. From there, you can send and receive money mostly anonymously. That is a potential haven for bad actors.
However, it is worth caveating this point as Bitcoin is somewhat traceable. While Bitcoin's public ledger records all transactions, the blockchain doesn't directly link them to real-world identities. With sophisticated analysis and correlating these addresses with other information (e.g., from exchanges that require KYC), it's possible to trace Bitcoin transactions back to individuals or entities.
Bitcoin is not entirely anonymous. It's more accurate to say that it's pseudonymous, offering a degree of privacy but not absolute anonymity.
The potential for anonymity and obfuscating the trail of money (which criminals can use for anything from tax evasion to money laundering to payments for dark web activity) makes Bitcoin a target for law enforcement agencies and the government.
Reason #3: Economic Stability
Lastly, Bitcoin's price is notoriously volatile. This volatility is not suitable for economic stability. While the US dollar or Euro may fluctuate occasionally, it's unlikely to crash or surge by 50% overnight.
Bitcoin has done that before.
That rapid fluctuation creates uncertainty and will disrupt financial markets.
Governments like stability. And those price fluctuations are the opposite of stability. That makes the government weary of widespread Bitcoin adoption, and the reason we're asking can Bitcoin be stopped by the government. Some agencies may want to stop Bitcoin altogether before it gains too much momentum.
Previous Attempts to Ban Bitcoin
It should be self-evident that no single government agency could ban Bitcoin completely. Even if they did so, it would almost assuredly live on in other parts of the world.
However, governments are still trying to ban it. Two nations, China and Iraq, have enacted bans on Bitcoin.
Here's what has happened in each case.
China
China's attempts to ban Bitcoin began in 2013 with restrictions on financial institutions dealing with cryptocurrencies. These initial restrictions culminated in a 2021 crackdown that saw the closure of mining operations and a ban on trading.
While these measures did disrupt the Bitcoin market there, they did not eradicate it. Many users migrated to overseas exchanges or resorted to peer-to-peer trading platforms. The ban pushed Chinese Bitcoin activity underground, making it harder to track, but they did not eliminate it.
Iraq
Iraq took a less direct approach to Bitcoin. Rather than banning it outright, the central bank has issued warnings against its use and prohibited financial institutions from dealing with cryptocurrencies. These insinuations have created a climate of uncertainty and discouraged widespread adoption. However, a small but active Bitcoin community continues to operate there, primarily through peer-to-peer channels and foreign exchanges.
How Do Bans Affect the Crypto Market?
While the above crypto bans have been mainly unsuccessful, each ban has impacted the crypto market (and the broader perception of cryptocurrencies as a whole). There are three key ways these bans impact the crypto market.
Short-Term Impact #1: Cryptocurrency Perception
If you're an investor in Bitcoin, what's the first thing you think of when you see a government trying to ban it? It's probably fear. Fear that the government will try to ban it or regulate it out of existence.
That fear can hit investors, but more importantly, it hits non-investors, too. People who may have been on the fence about crypto suddenly shy away from it, fearing they'll get in the crosshairs of a government agency. All of this acts as a negative cycle to deter people from crypto.
It's worth noting that even if the government isn't explicitly trying to ban Bitcoin but is instead targeting some other cryptocurrency, the fact that an authority figure is going after any crypto is enough to steer some people away from any coin.
Bans negatively impact cryptocurrency perception, hindering its adoption and use online and in the local community.
Short-Term Impact #2: Market Prices
When a major economy like China announces a ban, the market typically reacts with a sharp price decline. This decline is due to a combination of factors, including a decrease in trading activity, a loss of investor confidence, and a perception of increased regulatory risk.
Crypto selloffs can sometimes have a cascading effect. People start selling crypto due to the ban, which puts downward pressure on its price. Then, as Bitcoin falls, other entities must sell their positions. For example, anyone who bought Bitcoin on margin may have to sell to cover their position. That puts further downward pressure on the price, and the cycle continues.
Once people understand the ban more and re-learn that it's almost impossible to ban crypto entirely, prices will stabilize and typically go up. But that initial shockwave will send prices down to start.
Long-Term Impact #3: Cryptocurrency Innovation
Ironically, the community typically responds with innovation when a country seeks to ban cryptocurrency. Crypto enthusiasts and businesses seek out alternative solutions and jurisdictions. This desire to see crypto thrive can lead to the creation of new technologies and platforms that are more resistant to government interference.
Remember, crypto is more than just an asset; it's also a set of beliefs. When many programmers ponder the question, "Can the government stop Bitcoin?" and some government decides the answer should be yes, they'll respond with innovation. That innovation will ensure that governments have a very difficult time impeding Bitcoin!
Are There Other Ways Governments Could Stop Bitcoin?
It should be self-evident that even though countries may try to ban Bitcoin and other cryptocurrencies, such efforts are unlikely to succeed.
But you may wonder: Can Bitcoin be stopped by the government in other ways? What about regulations and rules making it so challenging to own and use Bitcoin that it would no longer be worthwhile to hold or use?
Governments have and continue to try to stop Bitcoin through onerous regulations.
Taxation: India Case Study
One way in which governments try to curtail Bitcoin is through excessive taxation. India implemented this in 2022 via Section 115BBH of the Income Tax Act.
In India, a 30% tax is levied on profits from trading or transferring crypto assets. A 1% TDS (tax deducted at source) applies to all crypto transactions exceeding a certain threshold under Section 194S of the Income Tax Act.
It's worth exploring what makes this tax so nefarious. A tax rate of 30% on profits is not entirely unheard of - many countries have a capital gains tax rate around that threshold. Instead, it's the 1% TDS tax that is the problem. Profits are subject to a significant tax, and every transaction is subject to an additional 1% deduction. No deductions are allowed except for the acquisition cost, and taxpayers cannot offset losses against other income sources.
No matter what you do with crypto, the government gets a 1% cut. That makes buying, selling, or holding Bitcoin in India very challenging.
Promoting Central Bank Digital Currencies (CBDCs): USA Case Study
The United States is actively researching and exploring the potential development of a central bank digital currency (CBDC), although the US has yet to decide to issue one. The Federal Reserve has been researching and experimenting to understand the potential benefits and risks of a CBDC, particularly in improving the domestic payments system.
A CBDC is a digital version of the country's native currency. In this case, instead of minting and issuing US dollars, the Federal Reserve would mint and issue a cryptocurrency equivalent. It would still be US Dollars, just digital versions of them!
Many people suspect that if the government were to issue a CBDC, it would likely either outlaw or make using alternative forms of payment (like Bitcoin) very challenging. After all, the government would be motivated to encourage widespread adoption of the Central Bank Digital Currency, and discouraging people from using alternatives would be one way to do that.
At the very least, even if a government merely introduced a CBDC and left the crypto market untouched, introducing a currency like that would take money out of the market for other currencies and put it into CBDCs. After all, why would someone buy other cryptocurrencies if they can buy one backed by the US government?
Bitcoin Regulation: Some Thoughts on the Future
Nobody can predict the future when it comes to Bitcoin and the regulations surrounding it. The future will be complex and continuously evolving.
Most governments have learned from China's failure to ban Bitcoin. As such, most places are leaning towards comprehensive regulatory frameworks to address the challenges, risks, and opportunities presented by cryptocurrencies. We expect a global trend towards increased oversight, with stricter exchange rules, enhanced anti-money laundering measures, and transparent tax guidelines. The aim, of course, is to balance fostering innovation and protecting investors while mitigating risks associated with illicit activities and financial instability.
At least one government will almost assuredly introduce a CBDC, as multiple agencies have expressed interest in one. Once that happens, people are still determining exactly how the Bitcoin market will react and adapt. It may be positive, as introducing a CBDC would validate government trust in the crypto concept. It could also be harmful, as it will suck liquidity out of the existing crypto market.
Nobody can predict the future. The only certainty is that governments will almost assuredly push for more regulation and oversight in this space!
Given all of this, at PlasBit, we believe people should take proactive control of their Bitcoin. A cold wallet (a hardware wallet) is one of the best ways to give you complete control over your hard-earned money. Cold wallets are virtually hack-proof since they store the private key to your wallet offline. There are no connections to the internet, and many cold wallets require physical access to get the private key. Storing your funds in this manner means you don't have to worry as much about regulations arising. It keeps your information safe offline.
Can Bitcoin Be Stopped by the Government? It's Complicated
It would be almost impossible to eradicate Bitcoin from the entire world. Such a feat would require 8 billion people to be disconnected from the internet to stop Bitcoin altogether. There will always be people who will run nodes and servers and dedicate their time and energy to ensuring Bitcoin evolves and succeeds.
Furthermore, it is doubtful that any single government could truly eradicate Bitcoin from within its borders. As we've seen with the examples of China, Iraq, and Egypt, eliminating Bitcoin doesn't work that well. Typically, such actions only push Bitcoin activities further underground. They don't go away.
What has happened, and will continue to happen, is that governments will instead push for more regulation surrounding Bitcoin. Some of that regulation is welcome, though. For example, PlasBit operates with a Polish Ministry of Finance license. That license serves two purposes. First, it allows us to operate legally within the financial framework of Poland, and second, it gives our users confidence in what we offer. Since we have regulations and must abide by specific rules, you know your money is safe with us.
That regulation helps prevent unscrupulous people from operating exchanges without sufficient reserves or taking your crypto balance. Indeed, rules like that are good for consumers and operators as they instill trust and confidence. If you want to buy Bitcoin, always do so with an exchange licensed to perform those services.
Some governments may push regulations too far, but most are trying to build a sensible financial framework around Bitcoin to ensure bad actors cannot ruin the currency's future.
At PlasBit, we believe in Bitcoin and its benefits. While some governments may seek to ban crypto (and those attempts will grab headlines), the reality is that Bitcoin is here to stay. If you choose to invest in Bitcoin, you needn't worry that the government will come in and destroy your investment one day. As we've seen above, such a doomsday scenario is almost impossible.
