Why Fears Of A Government Crackdown On Bitcoin Are Overrated
topshot – a woman shops at a store that accepts bitcoins in el zonte, la libertad, el salvador el… [+] September 4, 2021 – the congress of el salvador approved a law in June that will make bitcoin legal tender in the country as of September 7, with the aim of boosting its economy, although analysts warn of a negative impact. (photo by marvin recinos/afp) (photo by marvin recinos/afp via getty images)
A consistent thread about bitcoin has been that if it succeeds, it will inevitably invite government legislation and regulation to shut it down. This has been a kind of indirect criticism leveled by investors like Ray Dalio who are “on the side of bitcoin” but are concerned that its success will attract the attention of existing state powers.
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This is not an entirely surprising or irrational fear. we live centuries after the establishment of the nation-state as the all-powerful center of the welfare, military and tributary state. it is clear that state powers are often only held back by “political” (rather than physical or technical) constraints. Could governments shut down bitcoin if they wanted to?
This is probably much more difficult than one might think. bitcoin is somewhat resistant to government crackdowns due to its origin and the way the network is built. while states, if focused enough, could probably do bitcoin some harm if it were a central state goal across the board, there are many factors why a “government crackdown” on bitcoin is overhyped for destroying the network.
1- requires large-scale coordination between many different multilateral agencies and states
Since bitcoin is internationalized, it would require consent and coordination between nearly all nation-states to crack down on bitcoin effectively. while major world powers (such as the united states and china) have a bloc effect and there has been more coordination (often led by the united states) on issues such as climate change and corporate tax rates, when looking at issues as As diverse as covid-19 and the tit-for-tat of “strategic rivals” and Olympic boycotts, it’s still hard to see countries focusing on bitcoin in unison.
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It would require large-scale coordination to shut down the network in any meaningful way: otherwise people could transact and support the bitcoin network in other nations or even in space. A Slow Nation-by-Nation Ban Can Affect the Network: At one extreme, an unlikely state-led ban in the United States could choke bitcoin from American-led financial systems and markets with almost total global reach. however, as long as bitcoin was tradable in other states, a “global ban” and “government crackdown” could not be achieved.
2- there is no central node that the states can really put pressure on
one of the most unique points of bitcoin is that there is no central leader figure to pin down. Satoshi’s disappearance and Hal Finney’s untimely death have led to a situation where there is no “company CEO” or other central leader to go after. While there are pressure points that nation-states can use to pursue their goals (eg physical concentration of miners, key technical contributors still constrained by borders), there is no central one, but rather a set of fuzzy points. We saw this when the Chinese state banned bitcoin mining on its territory – did that spell the end of bitcoin? no: the miners simply moved their equipment elsewhere, and within a few months, the hash rate was as high, if not higher, than before.
States are not used to dealing with organizations like this – they are used to dealing with multinational corporations to some degree, but there are generally a set of central pressure points and leadership that a state can rely on to get that corporation adhere to certain rules and regulations. that, due to bitcoin’s unique creation history, is highly unlikely to happen with any attack on the bitcoin network.
3- code is voice
In the United States, the code is considered “protected” speech: the source code of the software that powers bitcoin is protected by the first amendment. To attack the distribution of the code that powers bitcoin, countries like the United States would have to radically change and subvert power-limited pacts and the longstanding rule of law. this is not impossible (bitcoin, for decades and even centuries, the time horizon is a gamble that (some) technical restrictions are better than purely political ones in maintaining the rule of law), but it would be highly misplaced and probably politically untenable .
bitcoin can induce 4 states for commercial and other reasons
The internet may never have been encrypted at all: export controls were initially placed on encryption, and commercial uses were viewed with skepticism. however, states partially relented when the commercial potential of the internet became apparent. now encryption powers communications as well as online banking and e-commerce sales. this is not something like states: the five eyes and allied countries want to subvert end-to-end encryption and authoritarian states like the Chinese state have backdoors or other mechanisms to promote social control. However, it shows that when faced with something that could threaten national security, the need for states to show GDP results and provide wealth to their people could override their preferences in other areas.
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As more and more countries adapt bitcoin in some way, this pressure will increase until, perhaps, one day, we may see a bloc of bitcoin-friendly nations emerge similar to the cairns group for agriculture. Some will find that their home power generation is more efficiently parsed through open source bitcoin rather than backing other countries’ fractional reserves. the more states that surrender to support the bitcoin network, the more difficult it becomes for other states to attack it.
5- bitcoin’s threat model has long included state-level powers
The way bitcoin is implemented makes it (more) prohibitive for any centralized collection of computers to disrupt the system.
with over 170,000 ph/s hash rate protecting the system (as of writing) from a 51% coordinated attack (where an attacker could take over the system and propagate invalid spends to disable the system during legitimate users, or to profit monetarily from it), a projected security budget of around $45-60 million per day, and enough stakeholders (from investors, code contributors, analytics companies, miners and companies, and now governments, who accept bitcoin) who have put their financial livelihood into monitoring the chain so that bitcoin could be secure beyond its fundamental dynamics: bitcoin is large enough to warrant significant resources for any attack, resources that would not be available to any nation-state, and that they would have to be continuously deployed in a way that would make it difficult to hide who the attacker was.
We live in a heady age where “magic internet money” has suddenly become the preoccupation of clausewitz readers the world over. as bitcoin becomes more prominent, the possibility grows that it will attract state powers to disrupt or co-opt outright; however, those who play any role in the network, whether by investing, transacting or supporting its infrastructure, can rest assured that the system has something inherent in it. properties that make it more resistant than one would expect even against the strongest attacks.
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