Saturday, October 21, 2017

The Government Attack on Bitcoin Has Begun



Tho Bishop writes:
Recently Russia announced that it will be unleashing a CryptoRuble, just a week after Vladimir Putin strongly criticized Bitcoin and other private cryptocurrencies.  When announcing the move, Minister of Communications Nikolay Nikiforov acknowledged that it was in part inspired by
the aim of getting ahead of other governments:

I confidently declare that we run CryptoRuble for one simple reason: if we do not, then after two months our neighbors in the EurAsEC will.

In doing so, Russia is following the lead of another country that too has become hostile to private crypto, China. Last July the People’s Bank of China became the first central bank to announce it had developed a crypto-prototype that it plans to offer alongside the traditional renminbi.

That the first forays into state-backed cryptocurrency comes from two countries with a history of restricting a free and open internet is not surprising. While Bitcoin originated as a way to opt out of government control of money supply, increasingly governments see the underlying technology as a way to increase their control of the economy...
The usefulness of state-controlled crypto is why we should expect increased scrutiny and regulation on private cryptocurrency exchanges.

It's been reported that the Chinese government, which shutdown private crypto-exchanges in September, is looking into reopening exchanges with increased regulation. Russia, too, is working on exchange regulation, rather than an outright ban.  This apparent change in direction may be the consequence of China’s exchange ban resulting in an increased use of peer-to-peer platforms in the face of the government crackdown.

For the same reason that government prefers regulated bank accounts to cash and safes, state officials may recognize the benefit to propping up licensed exchanges. Already we have seen numerous cryptoexchanges be willing to collect and hand-over sensitive customer information in exchange for government-issued licenses. Much like banks, these exchanges are increasingly being enlisted as tax collectors for government.
The idea that Bitcoin and other cryptocurrencies are going to operate without government control is absurd. The government will either tightly regulate Bitcoin or step in to coerce the use of its electronic currency instead

Bishop goes on:
It is worth wondering whether this harmony between government and consumers will continue, however, once state-controlled crypto truly ramps up.

After all, we’ve already seen government rely upon traditional boogeymen of terrorists, drug dealers, and other criminals as justification for their increased control. The increasing use of Bitcoin by hackers and extortionists provides a modern-day twist to these age-old scare tactics. Is it all that difficult to foresee a scenario where governments attempt to freeze all regulated exchanges in the aftermath of some terrorist attack or other scenario? Or go one step further, and legally mandate replacing a privately-held asset for a government-issued currency?

The example of China demonstrates the inherently decentralized nature of Bitcoin will likely always ensure a degree of functionality beyond the reach of government. At the same time however, the increased popular appeal of crypto-currency also means increasing reliance on third-party services, and fewer individuals securing their investments in private wallets.  Since the most popular – and thus most lucrative – exchanges and other services have an inherent incentive to maintain a good relationship with legal authorities, it is easy to see how this easily plays to the benefit of government officials.
The battle is on. There is no way anti-government forces will win the e-currency battle. 

Governments can always require that merchants who accept Bitcoin (and other private e-currencies) record the name of the users. There goes the privacy value of Bitcoin. Under such circumstances, Bitcoin is much more trackable than cash---or gold.

 -RW

4 comments:

  1. Cash has become harder to use. Try going to an autodelaership with 50k in cash and tell them you want him but a car. A while ago that was actually possible. Soon it will be impossible even for a 1k television

    Bitcoin does not have to be flawless and totally secretive to be a useful tool for freedom. Simply being able to transfer wealth across borders is a big step. Being able to have a wallet that is difficult for the government to confiscate is a huge improvement over a bank account that can be frozen in an instant.

    And while I can't predict the future and can admit that bitcoin may be a long shot, the chances are better than zero. Governments, after all, compete with one another. If a lot of people are using bitcoin, I can imagine one government deciding that attracting capital (even in crypto form) is useful and starts to lighten up a bit to gain an edge over other governments.

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  2. Your premise - that governments might see the advantage to lightening up a bit in order to gain an edge over other governments - is naïve, in my opinion.

    If you wish to predict what any and all governments will do next, assume that they are sadists who wish to impoverish their own people. Venezuela does not imitate America. America imitates Venezuela. Parasites feed; expecting or hoping they will do anything else is pointless.

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    1. Governments offer various tax breaks and incentives to attract business all the time. This became harder to do, due to the power the US government had over others. Swiss banking secrecy for example. But as the US power weakens and we shift into a multiple works, it will be harder for one government or group of governments to impose it's will over others.

      I completely agree about your comments regarding parasites. But just as organized crime families iften compete with one another (though with nuch kess violence than governments do) so will the various governments.

      I am hoping bitcoin will be able to slip through the cracks.

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  3. Robert, I don't follow your logic: "Governments can always require that merchants who accept Bitcoin (and other private e-currencies) record the name of the users. There goes the privacy value of Bitcoin. Under such circumstances, Bitcoin is much more trackable than cash---or gold."

    Why couldn't such governments also require merchants who accept cash to record the name of buyers? How is this a particular defect of Bitcoin compared with cash?

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