Hester Peirce, Commissioner of the United States Securities and Exchange Commission (SEC) comments on the implementation of a ban on Bitcoin.
“You would have to shut down the Internet”
Although the market capitalization #Bitcoin has surpassed one billion dollars, statements from government authorities and business leaders continue to stoke speculation that the United States will impose a ban on Bitcoin.
The United States Treasury Secretary, Janet Yellen, has publicly criticized Bitcoin and other cryptocurrencies for their role in “illicit finance.” Meanwhile, in the private sector, Ray Dalio, founder of the world’s largest hedge fund, has commented that Bitcoin could become outlawed just as gold was in the 1930s.
Jesse Powell, CEO of Kraken (a cryptocurrency exchange based in the United States) also warned that “there could be some severe measures” against digital assets.
Could the United States make such “measures” a reality by joining countries like India, Nigeria, and Turkey to implement a “blockade” against Bitcoin?
While a complete ban is certainly possible, the practical, legal, economic, and political difficulties of implementing such a ban make it unlikely. Instead, we can expect the United States to join with other developed economies around the world to further regulate Bitcoin.
Authorities will face the challenge of drafting laws that can be enforced without strangling the new economic growth opportunities that Bitcoin offers to countries that embrace it with open arms.
Practical challenges
A basic understanding of what the technology #blockchain underlines the practical challenges of a Bitcoin ban.
The term “Blockchain” describes a decentralized and distributed ledger that records the history and transactions associated with digital assets. Bitcoin is a virtual asset accessed from this “blockchain”, from which it is also recorded.
Similarly, the term cryptocurrency is a misnomer, as Bitcoin is more of a decentralized network than a traditional currency that can be held or confiscated by an authorized custodian. Instead of having physical “coins” or access to an “account” regulated by a third party, those who own Bitcoin use private keys to unlock the digital assets recorded on the “blockchain”, which is maintained by a decentralized and global network of computers.
These private keys are often represented by a series of words, known as a “recovery phrase”, which can be memorized and used to access their Bitcoin anywhere in the world where there is an Internet connection. Therefore, Bitcoin can be confiscated as much as one could confiscate their own memories.
While the United States could criminalize the ownership of Bitcoin, it would be almost impossible to enforce such a challenge. Specifically, there would be no way for the government to confiscate Bitcoin from its global decentralized network.
The government would not be able to capture the previously mentioned “recovery phrases” that were memorized by their owners, who refuse to share them or claim that they have lost or been stolen. Furthermore, prohibitions in other countries show that this measure could be counterproductive.
An example of this was when the Central Bank of Nigeria prohibited local financial institutions from providing services to cryptocurrency companies, buyers and sellers began using “p2p” or “peer-to-peer” trading platforms to exchange Bitcoin at a special price in that country.
Legal challenges
The political discourse that has been part of the Bitcoin network since its inception and the inherent associative nature of this very network would also make any prohibition imposed on this asset subject to being challenged by the First Amendment.
Bitcoin was created as a public network where participants make unalterable entries in an electronic or digital ledger. While the most visible manifestation of these entries is the exchange of value, Bitcoin is more than just money. According to the prominent Bitcoin advocate,
Andreas Antonopoulos:
“To say that Bitcoin is digital money is like saying the Internet is a fancy phone. It’s like saying the Internet is only about email. Money is just its first form of application.”
In fact, the Bitcoin network has been used for political discourse since its inception. The first block or “genesis” block in the Bitcoin blockchain included the following statement: Times 03/Jan/2009: “Chancellor on the brink of second bailout for banks.” On the day of its initial public offering (IPO) on Nasdaq, Coinbase had a mining pool insert the following headline into the Bitcoin blockchain: “NYTimes 10/Mar/21 The house gives final approval to Biden’s $1.9T pandemic relief bill.”
These messages, which serve as commentary on the role of central banks and government authorities, cannot be censored and can be read by anyone with an Internet connection. Unlike the common scribbles found on a simple and perishable paper dollar bill, political statements have been permanently and irretrievably stamped on the Bitcoin blockchain since its inception and during several important moments in its history.
The political discourse that Bitcoin has expressed since its foundation, as a networked association beyond the reach of centralized authorities, should subject any prohibition attempt to be viewed under a magnifying glass. Because the First Amendment has been broadly applied to emerging new technologies, it would be reasonable to expect it to be applied in this same extensive manner to blockchain technology.
Those who oppose a Bitcoin ban in the United States also have arguments in favor of due process, under the Fourth, Fifth, and Fourteenth Amendments of the United States Constitution.
The IRS (Internal Revenue Service) classifies Bitcoin as property and therefore any ban could represent an unconstitutional seizure.
The American government itself has seized and sold Bitcoin, further legitimizing its status as property protected by the constitution. While the government could compensate this argument by offering “holders” a space where they can convert their Bitcoin to US dollars, the potential loss of hundreds of billions in net worth for individuals and publicly traded companies would hardly result in a “just compensation” guaranteed by the Constitution.
Economic challenges
Even if the United States government could legally ban Bitcoin, doing so would be economically prohibitive.
Much of the value of Bitcoin has been created and is held by American companies. For example, Tesla has purchased $1.5 billion in Bitcoin, Coinbase is a publicly traded cryptocurrency exchange based in the United States with a market value of over $85 billion, and major banks like JPMorgan Chase and Goldman Sachs are launching cryptocurrency investment products. Additionally, payment companies like Visa and PayPal are helping thousands of small businesses accept Bitcoin in exchange for goods and services. Although those who oppose may parrot claims that terrorists and drug traffickers use Bitcoin, blockchain analysis suggests that only a small and decreasing fraction of Bitcoin transactions are used for nefarious purposes.
The numerous applications of Bitcoin for storing value, authenticating it, and for sharing intellectual property promise to create many new businesses, just as the emergence of the Internet did in the late 1990s and early 2000s. Any ban or overwhelming regulation imposed by the United States government would squander the opportunity for the country to remain a world leader in new technologies.
Political challenges
Just as the Bitcoin network has grown exponentially, so has its political influence. This influence, combined with practical, legal, and economic factors, is likely to result in the United States government creating regulatory certainty rather than an outright ban on Bitcoin itself.
Companies and individuals who have had significant exposure also have important political influence. According to Coindesk, Sam Bankman-Fried, CEO of the cryptocurrency derivatives platform #FTX was the one who made the second-largest donation to Joe Biden’s presidential campaign. Recently, Fidelity Investments, Square, and Coinbase joined forces to launch a Bitcoin trading group to lobby political authorities.
As the number of Bitcoin users continues to grow without anyone stopping it, any attempt at prohibition would face not only resistance from corporate lobbying groups but also the anger of a growing and passionate block of the voting public. In fact, #Binance the leading and largest cryptocurrency exchange in the world has announced a total of approximately 150 million verified users; therefore, there is no doubt that this rapidly growing group would exert significant political pressure in response to any proposed ban.
Conclusion
Until there is greater regulatory clarity regarding Bitcoin, statements from some prominent government figures and corporate leaders will continue to stoke speculation about the imminent disappearance of this emerging asset.
Although a #prohibición total would be unfeasible for the reasons mentioned earlier, one can expect there to be increased regulation. If this regulation is well adapted to avoid strangling the emerging Bitcoin economy, it could bring newfound legitimacy to the digital asset, minimize its use for illicit purposes, and provide additional stability to its prices.