Why Has Bitcoin Been Condemned By So Many Governments?

Law and Public Policy

Photograph: Charlotte Chiu

Bitcoin’s ability to provide users with anonymity and a monetary system outside of the government’s reach gained immense traction in the early 21st Century. Experts have argued that crypto can reduce the time and manpower needed to move large amounts of money, limiting the risk and cost to users. Although, to many, this may seem like a beacon of hope and change in our international financial institutions, many governments look at Bitcoin as a threat. Here’s why.

Bitcoin is categorised as a permissionless blockchain network. Simplified, blockchain can be defined as a wallet which holds transactional records while ensuring security, transparency, anonymity, and of course, decentralisation. In practice, “blocks” of data are organised in a chain (as you can imagine!) that is then encrypted and becomes a chain of information controlled by users. Permissionless is just to say that anyone can join (examples include Bitcoin, Ethereum), as opposed to permission blockchain networks which require users to pass an additional layer of security.

Bitcoin first rose to popularity among anarchists; people who did not trust their government to handle, manage or mediate their money or transactions. The idea that Bitcoin was a financial institution of sorts that was completely out of the government’s reach was fun and exciting. However, Bitcoin soon became equally attractive to criminal organisations due to one’s ability to remain anonymous and untraceable to government law enforcement agencies. Moreover, although mining Bitcoin can be an energy-intensive process, you also remove the need for criminal organisations to store large piles of cash in garages and containers, as used to be the case.

So, do governments not like Bitcoin and other cryptocurrencies because they lead to crime? Perhaps in part. In 2017, Bitcoin was estimated to have fuelled over 200,000 ransomware attacks in 150 countries, including the now famous shutting down and locking out of medical records in the UK. In 2020, an estimated $5 billion worth of cryptocurrency will be used for illicit activities. However, this still only accounts for around 1% of crypto activity.

Some central governments, including those of India, Nigeria, Turkey and China have discouraged and even restricted the use of Bitcoin due to its lack of a central authority. However, China is perhaps the most interesting case due to its unique position in the Bitcoin market. According to the consensus among experts on the subject, Chinese nationals are responsible for nearly 65% of Bitcoin mining, which has contributed to a 1000% rise in the value of the crypto coin. Yet, due to recent crackdowns on cryptocurrency by the Chinese government, the value of Bitcoin has fallen and so has its prominence.

Despite a seemingly uncertain future in the world of cryptocurrency – as coins continue to emerge, rise and crash continuously – it is definitely the case that it will play a major role in international markets very soon. Who and what should you be watching to understand the future of Bitcoin et al.? Watch how the US government handles it. Then watch how the USD is affected.