Banning cryptocurrencies: it’s now or never (or maybe just never)
Time and again, I read articles on the Internet about how central banks and governments may be planning to shut down Bitcoin or cryptocurrencies altogether. The discussion so far has revolved around whether governments and central banks would be able to succeed in their endeavour. Some say that being so decentralized, it would be a near impossible task. Add to that the anonymity provided by Monero or Dash, and you’re in for a game of whack-a-mole in the dark… Others would point out that governments, while they cannot succeed in shutting them down completely, may make them pretty useless by refusing to recognize any transactions made via cryptocurrencies or any other decentralized blockchain based solution (like a ledger for land ownership). This basically means that cryptocurrencies will only be used on the black market, or for exchanges between people that want to operate outside the law, like hiring an illegal migrant to mow your lawn or purchasing weed on a street corner, nothing very exciting compared to the potential use cases of blockchain technology and thus deal a severe blow to their global worth. Even so, some cryptocurrencies will thrive, especially those which have a clear decentralized and difficult to trace use case such as decentralized file hosting (Siacoin, filecoin, maidsafe, Storj) or decentralized computing (Golem). But cryptocurrencies which only serve as a replacement for money will likely have a hard time if governments collectively decide to ban them.
The current announcements of China banning ICOs, Russia shifting positions on crypto and the ECB shooting down the Estonian project of an official cryptocurrency did have an impact on the market, with Bitcoin and Ethereum diving. On the other hand, Japan’s decision to accept Bitcoin as a currency made it’s value soar. So while no single announcement or decision can “kill” cryptocurrencies, it can still cripple them and deal a blow to their market cap/value.
But there is more to it. I am myself a crypto-enthusiast and see cryptocurrencies and blockchain as simply an extension of checks and balances or the division of powers to keep governments from abusing their power. Just like governments are divided in the judiciary, legislative and executive branch to avoid any abuse of power (a wise decision which proves useful as we see with the Trump administration, whose unconstitutional initiatives have been shot down either by Congress/Senate or by courts), money might become a further part of the government which will escape it’s total control. People will be able to decide, on a fully democratic/decentralized basis, which cryptocurrency they trust best on the basis of their own judgement and values. For instance, if the richest 1% accumulate too much of a cryptocurrency, the mass of people can create a new cryptocurrency and boycott the one used by the richest 1%, basically rendering their virtual coins worthless.
Back to the point of the article: I believe that if governments and central banks want to effectively ban cryptocurrencies, they have to do it now, or at least very fast (within a year’s time). After that, it will be too late.
Some politicians I have talked to feel confident they can shut down cryptocurrencies by forcing them onto the black market. But this can only happen in authoritarian countries like China or Venezuela. For most democratic countries, as time goes by, the likelihood of succeeding in banning them diminishes. We start hearing about the first pension funds which invest part of the savings in cryptocurrencies, or banks which automatically convert part of your monthly pay-check into a cryptocurrency. What this means is that we are on the brink of wider adoption, constantly reinforcing itself. The more people start investing in it, the more they have a vested interest in ensuring that their investment thrives. Now how do you think a huge pool of voters, who have invested a part of their life savings in cryptocurrencies, would react if a few power-hungry politicians seeking to retain their full control over money, decides to outright ban them, thereby destroying 10% or 15%, or even 30% of people’s savings?
Look at what happened after the Pirate Bay website crackdown in Sweden, it gave birth to a new political party called the “Pirate Party”. Although it’s life was arguably short lived, this was just about defending basic principles of freedom and privacy online. Think of how people would react if it wasn’t their weekly illegal download that was at stake but part of their lifetime investments? I think that unfortunately, politicians underestimate the backlash from people at the next election.
And that’s not all of it. When governments implement something people like or when they let the private sector scale something they like, it is hard if not impossible to simply take it away. Look at Obamacare: although it is not nearly as well designed as universal payer healthcare, people that do benefit from it have protested the Trump administration’s attempt at gutting it. Even Republican voters, who are covered under Obamacare, went to meetings to protest their elected Congressman/woman. To take another example, imagine that tomorrow, scientific evidence points to links between smartphone use and brain cancer. How likely/easy do you think it’s going to be to take away smartphones? And this is in case of a scientifically proven public health reason. Think of trying to remove smartphones for a reason that can only be justified by governments trying to retain control and power…
What’s more, it seems as if cryptocurrencies are emerging precisely at the time when all our financial institutions have reached a breaking point: we are still not out of the 2008 crisis and are overdue for one, time and again we hear about this or that bank that is near collapse and requires another bail-out (and perhaps in the near future, a bail-in), governments’ public debts are at record highs, some States are near bankrupt and are living from gigantic Pay Day Loans, that is, loans from banks with an interest so high, that it swallows up any meagre inch of economic growth, inequalities between the rich and poor are at an all time high, and extremism is rising all around the world. It’s almost as if cryptocurrencies are the net that is woven underneath us in light of our imminent fall.
In this light, it almost seems as if regardless of timing, cryptocurrencies are here to stay. If you believe, like I do, that another crisis is inevitable, and that this time, given the level of public debt, the same massive Keynesian bail-out will not be possible, governments currently are faced with two choices: either support the emergence of cryptocurrencies and wish for the best once the crisis hits, knowing that they will have less power to try to remedy the situation given that part of the money supply and economic exchanges will be outside of their control, or prevent the emergence of cryptocurrencies in which case they will be in full control and should they fail, they will likely be blamed for cutting holes in the net which may have saved people from suffering through a total economic and financial meltdown and loose their credibility and their job at the next election (if at that point, we are still in a democracy!)