Could Governments Destroy Bitcoin?

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People have said many things regarding the ability of governments to phase out bitcoin. Some argue that implementing a bitcoin ban would be the most effective form of a government attack on bitcoin. That may result from various reasons, including protecting fiat currencies and the existence of fraudulent online markets. However, such actions would require more extensive justifications. Also, they don't guarantee that the world will immediately stop using bitcoin. The following article explores the many ways through which governments can destroy bitcoin and the impacts of those actions.

Imposing a Bitcoin Ban

Bitcoin is a decentralized currency not subject to government regulations. However, governments have the power to ban its usage if they have valid reasons to justify such an action. To do so, the government will have to pass a law that prohibits Bitcoin as a currency. However, critics argue that such measures may not destroy bitcoin.

As one financial markets analyst puts it, clamping down on the use of bitcoin would mean imposing restrictions on how people can use their finances. Banning bitcoin would suggest it is instrumental that people are willing to risk jail terms to use it. Besides, it would also show that governments are curtailing people's financial freedoms.

Most people use bitcoin because it is a decentralized currency that does not require government approval. That means implementing a ban would only create complications with the monetary policies of various governments. As a result, imposing a bitcoin ban is not likely to destroy it.

Increasing the Competition against Bitcoin

Some financial market experts say governments can also bring down bitcoin by competing with it. Governments can make the economic incentives for using bitcoin irrelevant by phasing out its demand. That would require introducing a more efficient technology than bitcoin or making it seem less lucrative than fiat currencies.

Boosting the competition with bitcoin would also require governments to go back to the gold standards and allow more privacy and freedoms in financial transactions. That is likely to undermine the demand for bitcoin across global markets. However, gold standards restrictions are some of the reasons that prompted bitcoin's introduction and allowed it to thrive.

Proponents say a government-created cryptocurrency is the best potential competitor to bitcoin. Central banks could come up with digital currencies that mimic the bitcoin blockchain technology. Even so, most of them agree that coming up with such an invention would require a lot of time, resources, and new policies, not readily available to most governments.

Governments can also leverage blockchain startups to build services that only function with native cryptocurrency, specifically designed for the applications. That means directing businesses outside of the crypto market to decline payments in bitcoin and other foreign cryptocurrencies. For example, the government may require a website like YuanPay Group to accept investments only in the US dollar and other local cryptocurrencies. That would prevent businesses, investors, and individuals involved in online oil trading from using bitcoin.

Such a directive would facilitate the migration from bitcoin to other native cryptocurrencies and fiat money. However, it may only discourage bitcoin in the United States, Europe, and other Western countries.

Increased competition against bitcoin would significantly water down its public perception. However, it may have little to no effect on bitcoin circulation. Besides, it would take a lot of effort to harmonize the public perception of bitcoin across global markets.

The Characteristics of Bitcoin

It is also essential to consider the critical characteristics of bitcoin when evaluating the governments' ability to destroy it. Unlike fiat currencies, digital money is a decentralized digital currency developed through various anonymous and complex computer programs that most governments cannot easily crack. Besides, bitcoin transactions rely on blockchain technology that secures all the transactions from third-party interference.

Based on bitcoin's unique characteristics, it is not easy for any government to wreck it. Even if governments impose laws to ban the usage of bitcoin, some would still use it as a means of exchange and store value in various transactions. Increased competition against bitcoin may weaken its public perception over time but does not guarantee its destruction. That leads to the conclusion that governments do not have the absolute power to destroy bitcoin.