Government always supports new emerging technologies, but Why does the government want to ban cryptocurrency? Well, this is what this article is all about.
In What Do We Trust?
To understand why governments are wary about Bitcoin, it is necessary first to understand the function of fiat currencies in a country’s economy. Traditional coins issued by governments are referred to as fiat. Fiat money is backed by a government’s complete faith and credit. This implies that governments agree to make a currency borrower whole in default.
The United States government depends on the Federal Reserve, a central bank over which Congress has minimal control to print or produce money for its economy.
2 The transaction cycle in the US economy, which encompasses borrowers, lenders, and consumers, is based on a chain of trust between transacting parties. The last link in the chain is the Federal Reserve, also known as a lender of last resort. ( Why does the government want to ban cryptocurrency? )
Bitcoin supporters accuse the Fed of generating money out of thin air, implying that physical assets do not back the currency. They claim that the central bank creates asset booms and crises by controlling the quantity of money in the US economy.
Governments make it easier for central banks to play their roles in an economy. While central banks are engaged in monetary policy, they cannot govern its usage. The government has this obligation. Governments distribute and control the movement and use of money in an economy via a network of intermediaries such as banks and financial organizations.
As a result, they can control how it is moved, where it is dispersed, and how it is used. They also generate cash by taxing the revenues of people and companies.
Bitcoin Undermines the Cycle of Trust
The decentralized system of Bitcoin can demolish the structure outlined above. Its network eliminates middlemen and, as a result, the components of a government’s plan.
A central bank is no longer necessary since the money; Bitcoin may be created by anybody operating a complete node. Peer-to-peer transactions between two parties on the Bitcoin network eliminate the need for intermediaries to manage and distribute cash. ( Why does the government want to ban cryptocurrency?)
Bitcoin’s network’s trust chain underpins today’s financial infrastructure becomes an algorithmic construct. A transaction is not included in the central ledger until all complete nodes approve it. Even a little dispute or inaccuracy in a transaction entry might cause it to be rejected.
At the very least, simplifying activities between people and diverse entities on Bitcoin’s blockchain can reorganize the present system. The financial infrastructure is decentralized, and the authority to expand or reduce the quantity of money is not assigned to a single or set of rules. As a result, governments’ role in directing and controlling economic policy via intermediaries may become obsolete under the new system.
Why does the government want to ban cryptocurrency?
Governments often impose capital restrictions to prevent a currency’s value from depreciating due to exports. For others, this is another kind of government control over economic and budgetary policy. Bitcoin’s stateless nature helps avoid capital regulations and export wealth in such cases.
One of the most well-known cases of Bitcoin-based wealth flight happened in China. The nation’s citizens may only buy foreign money up to $50,000 per year. ( Why does the government want to ban cryptocurrency? )
According to Chainalysis research, more than $50 billion flowed from China-based bitcoin wallets to wallets in other countries in 2020, implying that Chinese residents may have changed local money to Bitcoin and transported it across borders to avoid government oversight.
Bitcoin ties to illegal activity
The ability to circumvent a country’s established financial infrastructure is a blessing in disguise for criminals since it allows them to conceal their participation in such crimes.
The Bitcoin network is pseudonymous, meaning users are only recognized by their network addresses. It is impossible to determine the origin of a transaction or the identity of a person or organization behind an address. Aside from that, the algorithmic trust created by Bitcoin’s network eliminates the need for trusted contacts on either end of an illicit transaction.
No surprise, thieves like Bitcoin as a means of facilitating financial transactions. The Silk Road case is the most well-known example of a bitcoin-related crime. In a nutshell, Silk Road was a Dark Web bazaar for firearms and illicit narcotics, among other things.
Users might pay using bitcoins. The bitcoin was kept in escrow until the customer acknowledged receipt of the items. Because the persons involved in the transaction only had blockchain addresses as identity, law enforcement found it impossible to track them down. However, the FBI was eventually shut down the site and seize 174,000 BTC.
Hackers have recently been interested in infecting popular programs with ransomware and demanding payment in bitcoin. The 2021 Colonial Pipeline breach, which caused power outages in many states, illustrated the extent to which such hacks may become national security threats.
Bitcoin is not regulated. ( Why does the government want to ban cryptocurrency? )
Governments across the globe are still attempting to find out how to regulate Bitcoin more than a decade after it was launched. The issue of bitcoin regulation has many aspects.
For example, shifting narratives about Bitcoin’s usefulness has complicated problems regarding the ideal government body to monitor the cryptocurrency, terminology utilized in lawmaking, and even the technique to law creation. ( Why does the government want to ban cryptocurrency? )
Is Bitcoin money to be utilized in everyday transactions or a store of value mainly for investment purposes? Is Bitcoin a haven asset in times of global economic upheaval? Neither the so-called Bitcoin expert nor the ordinary bitcoin investor seems to be aware of this.
It may be claimed that the usage of Bitcoin in investment products such as futures demonstrates its appeal to traders. However, the underlying markets for such derivatives remain uncontrolled since none of the significant cryptocurrency exchanges, which are used to establish Bitcoin’s price for futures markets, are registered with the Securities and Exchange Commission (SEC).