Could governments ban or heavily regulate Bitcoin (BTC) and cryptocurrencies? What are the risks? Are there alternatives? We take stock of the subject.
Small reminder: Bitcoin, a decentralized network and a priori uncensored …
First of all, we must remember the independence of Bitcoin (BTC) from governments. The largest cryptocurrency was created to exist outside of traditional financial systems, and especially not to be controllable or censurable by a single entity. The Bitcoin whitepaper begins as follows:
„A version purely peer to peer electronic cash permett r having to digital payments are sent directly from one party to another without having to be handled by a financial institution . “
That’s the whole point of Bitcoin, and cryptocurrency in general. It relies on a very extensive network of miners and users, which means that it is not controllable. In addition, it is impossible to cancel a transaction in BTC, which makes the distributed ledgers tamper-proof. Ultimately, this makes a payment network not censored , which simply requires access to the Internet for use.
… With some limitations
But in fact, the decade of Bitcoin’s existence has allowed some limitations to emerge, which mitigate this idealistic vision a little. Originally, Bitcoin mining could be an open and inclusive market par excellence: anyone could mine BTC with their personal computer. In 2020, it is no longer the case: the costs of mining have become so prohibitive that only those who can will allow the practice nt activity. This effectively concentrates the hashrate in the hands of a fraction of Bitcoin users.
And this fraction is mostly located in a single geographic area. Today, between 60 and 70% of Bitcoin’s hashrate is concentrated in China , where particularly low electricity costs have attracted many miners. This therefore raises the question of the possible influence of the Chinese government on these network players.
Governments that have already banned Bitcoin
Either way, Bitcoin is performing well enough to grab the attention of governments in recent years. In some countries, the use of bitco i ns is already illegal . That said, in the vast majority of cases, Bitcoin purchases are allowed, and only certain uses are restricted. But it also happens that countries outright ban cryptocurrency (in red on this map):
Namely that while some governments officially ban Bitcoin, in fact few prosecutions are carried out against those who trade BTC. This has a side effect, however: it prevents local crypto companies from growing. The consequences for the industry are therefore very real.
Why might governments want to ban Bitcoin?
The absolute ban on Bitcoin, with traders who would be prosecuted or who would be prevented from carrying out their activity, is therefore not really a reality for the moment . The scenario is however conceivable. If Bitcoin is not worried, it is also because it does not yet really threaten traditional financial systems, which are based on fiat currencies, such as the euro or the dollar. But if its use is truly democratized, probably we would see a reactionary start from the financial institutions and the regulators . If necessary, a possible ban would be based on several arguments: