Why fears of a ‘government crackdown’ on Bitcoin are overestimated

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TOPSHOT – Woman buys from bitcoin accepting store in El Zonte, La Libertad, El Salvador on … [+] September 4, 2021. – El Salvador’s Congress in June approved a law that will make bitcoin legal tender in the country from 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)

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A common thread about bitcoin is that if it is successful, it will inevitably invite government legislation and regulations to shut it down. This is a kind of indirect criticism advanced by investors like Ray Dalio who are “on the side of bitcoin”, but fear that its success will attract the attention of the authorities in place.

It is not an entirely surprising or irrational fear. We live centuries after the founding of the nation state as an all-powerful welfare state, military and fiscal center. It is clear that state powers are often limited only by “political” (rather than physical or technical) constraints. Could governments shut down bitcoin if they wanted to?

It’s probably a lot harder than you think. Bitcoin is somewhat resilient to government clampdowns because of where it comes from and how the network is built. While states, if sufficiently focused, could likely inflict damage on bitcoin if it were a central objective of the state at all levels, there are many factors explaining why a “government crackdown” on bitcoin is overrated for destroying the network.

1- This requires large-scale coordination between many different multilateral bodies and states

Since bitcoin is internationalized, it would take the consent and coordination of almost every nation state to effectively crack down on bitcoin. While the 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 you examine issues as diverse as COVID-19 and the tit-for-tats of “strategic rivals” and Olympic boycotts – it’s always hard to see countries focusing on bitcoin at all times. unison.

Large-scale coordination would be needed to shut the network down in any meaningful way: otherwise, people could transact and take over the bitcoin network in other countries or even in space. A slow nation-by-nation ban can affect the network: In the extreme, an unlikely state-led ban on the US could choke bitcoin out of US-led financial systems and markets with almost full global reach. Yet, as long as bitcoin was tradable in other states, a “global ban” could not be accomplished nor a “government crackdown”.

2- There is no central node that states can really put pressure on

One of the most unique things about bitcoin is that there is no central leader to pin down. Satoshi’s disappearance and the untimely death of Hal Finney have led to a situation where there is no “company CEO” or other central leader to sue. While there are pressure points that nation states can use to pursue their goals (e.g. physical concentration of minors, major technical contributors still limited by borders), there is not one central. , but rather a diffuse set of points. We saw it 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 months the hash rate was as high, if not higher, than it was before.

States are not used to dealing with organizations like this: they are used to dealing with multinational corporations to a certain extent, but there is usually a set of central pressure and leadership points that a State can focus on. ‘support to get this company to adhere to certain rules and regulations. This, due to Bitcoin’s unique creation history, is very unlikely to happen with attacks on the Bitcoin network.

3- The code is the word

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. In order to attack the distribution of the code that powers bitcoin, countries like the United States would need to fundamentally change and overturn long-standing pacts of limited power and the rule of law. It is not impossible (bitcoin, over decades and even centuries, a time horizon is a bet that (some) technical constraints are better than purely political constraints to maintain the rule of law) but would be very out of character. , and probably politically untenable.

4- States can be induced by bitcoin for commercial and other reasons

The internet may never have been encrypted – export controls were initially placed on encryption, and commercial uses were viewed with skepticism. However, states partially relented when the commercial possibility of the Internet became evident. Encryption now powers communications as well as online banking and online sales. It’s not something like states: The Five Eyes and allied nations want to subvert end-to-end encryption, and authoritarian states like the Chinese state have backdoors or other mechanisms to promote social control. Yet it shows that, in the face of something that could threaten national security, the need for states to show GDP results and provide wealth to their people may trump their preferences in other areas.

As more countries adapt bitcoin in one way or another, that pressure will become greater until perhaps one day we could see a similar block of bitcoin-friendly nations emerge. to the Cairns Group for Agriculture. Some will find that their domestic power generation is analyzed more effectively through open source bitcoin rather than supporting fractional reserves in other countries. The more states look to support the bitcoin network, the more difficult it will be 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 securing the system (as of this writing) against a 51% coordinated attack (where an attacker could take control of the system and propagate invalid expenses in order to bring the system into play. outage for legitimate users, or to benefit financially), a projected security budget of around $ 45-60 million per day, and enough stakeholders (investors, code contributors, analytics companies, miners and companies – and now governments – that accept bitcoin) that have placed their livelihoods on chain watch so that bitcoin can be secure beyond its fundamental dynamic – bitcoin is big enough to justify significant resources for any attack, resources that would not be available to any nation-state and that would have to be continually deployed in a in a way that would make it difficult to obscure who the attacker was.

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We live in an exciting time when “magic money on the Internet” has suddenly become the concern of Clausewitz readers around the world. As bitcoin grows in importance, the possibility that it will attract the powers of the state to disrupt or completely co-opt it grows – but those who play a role in the network, whether by investing , by carrying out transactions or supporting its infrastructure, can be assured that the system has properties that make it more resistant than you might think, even to the most powerful attacks.

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