As Bitcoin and other digital assets gain popularity and adoption, a major topic of debate is whether the US government, or any government for that matter, can impose control over their usage. Before going any further, it’s worth considering whether Bitcoin can even be controlled in the first place.
The cryptocurrency was designed with the primary goal of being decentralized and distributed – two critical characteristics that might make or break Bitcoin’s regulation. Bitcoin does not have a single governing entity since it is decentralized. Bitcoin is controlled by multiple different entities all around the world, making it almost hard for a single group to gain complete control of the network and manipulate it as they see fit. Bitcoin occurs in several locations at the same time because it is distributed. As a result, it is extremely difficult for a single regulatory power to impose its will across borders. This implies that a government or other third party cannot technically raid a business and shut it down.
While some believe that cryptocurrency is apolitical, others contend that a technology that directly targets central bank-driven monetary policy can’t be anything other.
Indeed, the revolutionary potential of bitcoin drew many early users, and there has long been a tight relationship between libertarianism and cryptocurrencies.
Bitcoin (BTCUSD) has sparked debate and attention since its debut in a 2008 whitepaper. Its supporters hail the cryptocurrency’s birth as the beginning of a new and equal monetary system. Critics argue that the cryptocurrency’s involvement in illicit activities, as well as its lack of legal legitimacy, demonstrate that it is “rat poison squared.” The truth is most likely somewhere in the middle.
Meanwhile, governments all around the world are keeping a wary watch on Bitcoin’s progress. Some countries, like as El Salvador, have embraced it as currency. However, major economies, like the US, refuse to accept it as legal cash. They have valid reasons to do so. The trust chain that underpins today’s financial infrastructure becomes an algorithmic construct in Bitcoin’s network. 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 actors on Bitcoin’s blockchain has the potential to 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 authorities. As a result, under the new system, governments’ role in directing and controlling economic policy through intermediaries may become obsolete.
Why Are Governments Concerned About Bitcoin?
It remains to be seen if the state- and regulation-free world anticipated by Bitcoin supporters can come to fruition. Meanwhile, governments throughout the world are attempting to comprehend the impact that cryptocurrencies may have on their economy in the near future. They are primarily concerned with the three issues raised by Bitcoin in its current form.
Crypto currency is capable of evading capital constraints imposed by governments.
Governments frequently impose capital restrictions to prevent a currency’s value from depreciating as a result of exports. For some, this is another kind of government control over economic and budgetary policy. In such cases, bitcoin’s state-less nature comes in useful for avoiding capital regulations and exporting wealth.
One of the more well-known cases of Bitcoin-based wealth flight occurred in China. Citizens of the nation can only buy foreign money up to $50,000 per year. According to research by Chainalysis, a crypto forensics business, more than $50 billion flowed from China-based bitcoin wallets to wallets in other countries in 2020, implying that Chinese residents changed their native currency to Bitcoin and transferred it to other nations across borders to sidestep government regulation. As the perceived legitimacy of blockchain technology grows, politicians in the United States have expressed an increasing interest in turning this non-partisan technology into a source of political contention.
A More In-Depth Look
Attempting to define cryptocurrencies as a Republican or Democratic technology displays a terrible lack of knowledge of digital money and its roots. Bitcoin arose during the Great Recession, when millions of Americans were suffering as a result of the failings of centralized-government watchdogs and massive, excessively powerful financial institutions. Cryptocurrency pioneers aimed to build a system that would give ordinary Americans ultimate control over their financial destiny and digital lives.
According to the principles of decentralization, digital currencies are naturally inclusive and accessible to all. Whether you live in Manhattan, New York, or Manhattan, Kansas, and have access to the internet, you have equal access to blockchain networks and all of its advantages. Among such politicians, there are also outliers. Regardless of political membership, public leaders at lower levels of government in the United States have supported crypto. However, political divisions are frequently blurred at the municipal and regional levels.
Whatever the cause for this party division regarding cryptocurrency, it may not matter in the long run. The problem appears to be a self-fulfilling prophecy: conservative politicians promote crypto while progressives condemn it, therefore a few more right-leaning individuals get fond of it while a few more lefties shun it, and so conservative politicians welcome it even more. As cryptocurrency gets more popular, it will become more divisive. Cryptocurrency might become one of those heated subjects where people can easily assume your political leanings based on your viewpoint, and this could influence investment decisions. It might simply be a question of time.
As a result of the universality and open access to digital money, it is difficult to be intrinsically political when it comes to cryptocurrency, which is why it is supported by bipartisan parties of lawmakers. Progressives such as Rep. Ro Khanna (D-Calif.) and Rep. Eric Swalwell (D-Calif.), as well as conservatives such as Sen. Pat Toomey (R-Penn.) and Sen. Cynthia Lummis (R-Wyo.), who have sharp ideological differences in most areas, all agree that encouraging crypto growth is a common good for all Americans.
The real-world advantages that crypto networks give to users are lost in the partisan wrangling and media analysis from the Washington-based press. Given the nature of decentralization, blockchain networks are much safer in an era of continual data hacks. If the network’s data is spread among hundreds of machines, hackers will have a far more difficult time gaining access to a meaningful entry point to gather and abuse users’ data.
What about fundamental financial services access?
According to FDIC data, over 7 million Americans — those living in places ranging from rural to metropolitan areas – still do not have access to a bank account. Many of these people suffer due to the high fees of obtaining or keeping a bank account, or because they cannot easily access a physical bank.
Blockchain networks provide customers with an easier and more cost-effective way to manage their money by reducing the influence of traditional intermediaries like as banks and other financial clearing houses. They eliminate onerous fees, are available 24 hours a day, and typically complete transactions faster.
Finally, it will require a great amount of effort to impose any form of meaningful worldwide regulation on Bitcoin, with the most crucial aspect being centralization and consensus of view. The bulk of the regulatory alphabet agencies in the United States fall into the same camp of “defend the good men, stop the bad people,” but there isn’t one single individual piece of guidance to follow. Currently, cryptocurrencies are governed by multiple entities in the United States, including the CFTC, SEC, and IRS, making it difficult to develop broad regulatory norms.
Rather than partisanship, the major difference in views on cryptocurrency regulation is generation. 15 percent of millennials and 14 percent of Gen Z individuals say bitcoin is over-regulated, compared to only 2 percent of baby boomers who believe cryptocurrency is over-regulated. There are too many controls on bitcoin, according to 7% of Gen Xers.
“What you’re seeing in those figures is individuals who utilize cryptocurrencies against others who don’t,” said Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center and a writer on digital currencies. “You’re seeing a reflection of individuals who want it and and use it compared to those who are hearing concerns about it and don’t fully understand it.”
According to Johnson, this age division helps explain the relative evenness of beliefs across political parties. Bitcoin is a controlled currency. In reality, its regulation has already begun with fiat onramps and rigorous KYC & AML legislation. While Bitcoin ownership is prohibited in nations such as Ecuador, Bolivia, Egypt, and Morocco, it would take significant bending of the moral fiber of the Constitution to infringe on cryptocurrency ownership rights in the United States.
It cannot, however, be turned off. Without a centralized exchange, there are still ways to purchase, sell, and trade Bitcoin P2P. It would take a massive effort on the part of any government to entirely destabilize something as decentralized as Bitcoin, but that scenario is more dystopian than tangible.
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