What would happen if the U.S. government decided to completely “ban” cryptocurrencies?
What if the government decides to “ban” cryptocurrencies?
After Durov was arrested for failing to prevent crimes on Telegram, cryptocurrencies may be his next target.
It may sound far-fetched, but politicians have claimed that cryptocurrencies facilitate crimes such as terrorist financing and money laundering. So what if cryptocurrencies were to be banned?
The government may attempt a 51% attack on Bitcoin because two mining pools control more than 50% of Bitcoin’s mining power.
Mining pools can pool computing power, share costs, and increase reward opportunities. This brings ongoing expenses, lower barriers to entry and shared financial risk.
Chainalysis reported that Iran, Lazarus Group and scammers used mining pools to launder illegal funds by mixing them with legitimate mining rewards. When funds are sent to CEX, they are difficult to detect. Therefore, governments may try to censor these mining pools.
In practice, however, a 51% attack on Bitcoin is nearly impossible due to the large amount of computing power and coordination required. Andreas Antonopoulos (note: author of "Mastering Bitcoin") explained as early as 2014 why nation-states can no longer use Bitcoin.
A more realistic situation is a crackdown by regulatory authorities. Cryptocurrency privacy is already under attack. For example, Tornado Cash founder, Samourai Wallet CEO and CTO was recently arrested and accused of money laundering by providing “mixing” services.
Many countries, including Japan, South Korea and even the United Arab Emirates, have banned privacy coins like XMR and ZEC. The European Union is also considering such a ban.
In practical terms, this means that these privacy coins will be delisted from CEX, resulting in less token liquidity, lower adoption, and less possibility of redemption into fiat currency.
China strictly bans cryptocurrencies
China is a clear example of banning cryptocurrencies. In 2021, China declared all crypto transactions illegal, banning trading, mining and related financial services. The government also requires online platforms and social media to stop publishing encryption-related information and advertisements.
At its peak in 2019, China accounted for 75% of the global Bitcoin mining business. The crackdown caused the computing power, or hash rate, that protects the Bitcoin network to drop by nearly 50%. However, computing power soon recovered as mining moved to other countries.
Reuters reported how users used small rural commercial banks to buy cryptocurrencies through gray market traders, capping each transaction at $7,000 to evade scrutiny.
The Chinese use OTC trading on OKX and Binance and open accounts in Hong Kong.
This ban still hinders the development of cryptocurrencies in China. Although China has a much larger population than South Korea, it lags behind South Korea and Japan in terms of transaction volume. Recently, China seems to be changing its direction in cryptocurrency, or at least becoming more open, which is good news.
Banning self-hosted wallets would be a major blow. CEX may only interact with regulated custodial wallets, thus hindering self-hosted wallets.
This would take away financial sovereignty and make users dependent on third parties who may freeze their accounts. In practice, global cooperation among all countries is required.
Banning self-hosted wallets in one country pushes users to regions that do not enforce such bans. Although there are FUD voices saying that the EU will "ban" self-hosted wallets this year, there is actually no ban.
Other simpler and more effective bans include:
Ban banks from servicing crypto businesses
Requires crypto businesses to obtain licenses but does not issue them
Block encrypted websites and VPNs
Think “Operation Chokepoint 3.0.”
The worst-case scenario is a complete ban on holding cryptocurrencies in the United States. Citizens may have to exchange cryptocurrencies for U.S. dollars, and violators could face fines, jail time, or asset seizures, with blockchain tracking used for enforcement.
Banks will ban crypto transactions and require reporting of suspicious activity. Increased surveillance of those hiding cryptocurrencies could force other countries to cooperate. The United States could launch a central bank digital currency (CBDC) as an alternative.
Sound far-fetched?
The United States banned private holdings of gold in 1933. But studies show that only 20% to 25% of privately held gold is actually turned over to the authorities.
Interestingly, between 1932 and 1934, the dollar's value against gold fell by more than 40%. Gold prices surged from $21 to nearly $35 an ounce. Those who decided to hold gold saw a significant increase in wealth.
If the United States and other countries ban cryptocurrencies, it may be due to critical economic control issues. Such a ban could cause prices to plummet, forcing the market underground. But Bitcoin will continue to produce blocks, and there will be a "sanctuary" that is not controlled by the government.
This article is reproduced in cooperation with: PANews
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