Several governments around the world have restricted Bitcoin trading, some have even banned digital currencies altogether. The most cited reason for banning cryptos is their use to finance criminal activities. While this is partly true, the real reasons behind the restrictions are more likely to be politically motivated.
In 1764 James Hargreaves invented the Spinning Jenny. The machine turned out to be one of the key innovations during the Industrial Revolution.
Not everyone was happy. Yarn prices fell, competitors feared about their business and workers lost their jobs.
Eventually, Hargreaves had to flee from his hometown, because an angry mob broke into his house and smashed all his machines.
The economist Joseph Schumpeter calls such innovations “Creative Destruction” – the new replaces the old. As a result, companies that don’t adjust will go out of business, workers who don’t acquire new skillsets will get replaced by machines, and political power structures may shift in favor of new players.
Innovation, even if it has positive effects on the overall society, will often negatively impact the situation of individuals or certain groups of individuals. “Never change a winning system,” is a popular saying that shows: Not everybody welcomes innovation.
Blockchain technology has many enemies as it threatens to disrupt the current global economic and political system
Blockchain is said to affect nearly every industry. That frightens those who are satisfied with the status quo.
Blockchain is particularly sensitive, because it comes with a major difference compared to innovations such as the Spinning Jenny: The decentralized nature of blockchain cuts out middlemen, including governments. That said, blockchain poses as serious threat to the current global political and economic hierarchies.
It’s therefore not surprising that blockchain has come under fire from all sides, corporations and governments alike.
This hostility takes on different forms. Cryptocurrencies are currently unrestricted in 107 out of 251 countries and regions. “Unrestricted” means they are either considered legal or there is simply no regulation in place deeming them as illegal.
In those countries where cryptocurrencies are restricted, oftentimes they are being cut off the financial system. In other countries they are banned altogether.
Countries where Bitcoin trading is currently banned are Iran, Pakistan, Taiwan, Vietnam, Saudi Arabia, Bolivia, Morocco, Nepal, Bangladesh, Cambodia, Indonesia, Egypt, Algeria, Columbia and Ecuador – in China*, some new changes were just made.
Bitcoin’s role in the shadow economy has become a convenient reason to ban digital currencies
Bitcoin has been banned for several reasons.
Officially it’s mostly just one reason: Bitcoin might be used by the shadow economy to finance criminal activities such as terrorism financing, money laundering, drug trafficking, etc.
And yes, it is true that criminals use Bitcoin’s anonymous features to stay under the radar of law enforcement agencies. However, illegal activity is not the dominant use of digital currencies.
But does it make sense to ban an innovative technology because it is also used by criminal elements?
Instead of a ban, it would be far better if governments and the blockchain community would work together and try to find a solution to stop criminals from using the technology.
Bank robbers need cars and money bags when they rob a bank. The last time I checked, cars and bags were still legal.
It seems to me that the “bitcoin is used by gangsters” argument has become a convenient reason in some countries to ban a technology that could potentially harm powerful political players.
The real reasons why governments ban digital currencies is its potential for creative destruction
Put aside terrorism financing and money laundering, governments have more than enough other reasons to ban cryptocurrencies.
Digital currencies are borderless and apolitical. They are outside of the control of central banks and financial market regulators. That has consequences:
First, issuing fiat currency is a revenue source for governments. It provides governments with purchasing power at the expense of the public’s purchasing power. Why giving up on that monopoly?
Funny enough, Ecuador launched their own digital currency in 2014, and at the same time banned other cryptocurrencies. The idea failed though, a strong sign that technological innovation should be left to the private sector.
Second, governments ban cryptos because they fear losing control over money flows.
China, for example, does not allow their currency to be traded freely and transferring money out of the country is illegal. There is no way the government could control capital flight if it happened via the blockchain.
Third, the financial sector has one of the strongest lobbies in the world. As blockchain technologies poses an obvious threat, especially banks are trying to prevent the innovation or at least slow it down until they are on top of the game.
JPMorgan’s CEO Jamie Dimon recently said he doesn’t give a sh*t about blockchain. But believe me folks, he does. Oh please, of course he does!
It will be impossible for governments to ban blockchain technology in the long run
Although bitcoin trading is restricted in a large number of countries, authorities still seem to be willing to work with the blockchain sector.
China for instance has blocked bitcoin trading, but has not completely blocked all efforts of public blockchain projects. The Chinese government is cooperating with Ethereum developers from New York to develop apps that can be used in China.
Moreover, it seems that the countries that have banned bitcoin trading simply don’t know how to deal with the technology and thus decided to take the easy way out and introduced a ban. However, as the technology evolves, it will be impossible to keep up such a ban forever.
In the meantime, other countries such as Liechtenstein are pioneering a regulated blockchain sector. Those countries who do currently not have a handle on blockchain could look at Liechtenstein as a role model and copy the regulations that are being put in place.
Eventually, it will be nearly impossible to ban a globalized technology such as blockchain anyway. In the digital age, technological innovation will always be one step ahead of governments, and it makes far more sense for private and public sectors to work together and find solutions, instead of turning down innovative concepts and thus falling into stagnation.