Cryptocurrency: Unbannable, Thus Only Winning Move Is To Play The Game

grarpamp grarpamp at
Tue Nov 2 00:20:06 PDT 2021

Bitcoin Cannot be Banned

The idea that somehow bitcoin can be banned by governments is the
final stage of grief, right before acceptance. The consequence of the
statement is an admission that bitcoin “works.” In fact, it posits
that bitcoin works so well that it will threaten the incumbent
government-run monopolies on money in which case governments will
regulate it out of existence to eliminate the threat. Think about the
claim that governments will ban bitcoin as conditional logic. Is
bitcoin functional as money? If not, governments have nothing to ban.
If yes, then governments will attempt to ban bitcoin. So the anchor
point for this line of criticism assumes that bitcoin is functional as
money. And then, the question becomes whether or not government
intervention could successfully cause an otherwise functioning bitcoin
to fail.

As a starting point, anyone trying to understand how, why, or if
bitcoin works should assess the question entirely independent from the
implications of government regulation or intervention. While bitcoin
will undoubtedly have to co-exist alongside various regulatory
regimes, imagine governments did not exist. On a standalone basis,
would bitcoin be functional as money, if left to the free market? This
will inevitably lead to a number of rabbit hole questions. What is
money? What are the properties that make a particular medium a better
or worse form of money? Does bitcoin share those properties? Is
bitcoin a better form of money based on its properties? If the
ultimate conclusion becomes that bitcoin is not functional as money,
the implications of government intervention are irrelevant. However,
if bitcoin is functional as money, the question then becomes relevant
to the debate, and anyone considering the question would need that
prior context as a baseline to evaluate whether or not it would be

By design, bitcoin exists beyond governments. But bitcoin is not just
beyond the control of governments, it functions without the
coordination of any central third parties. It is global and
decentralized. Anyone can access bitcoin on a permissionless basis and
the more widespread it becomes, the more difficult it becomes to
censor the network. The architecture of bitcoin is practically
purpose-built to resist and immunize any attempts by governments to
ban it. This is not to say that governments all over the world will
not attempt to regulate, tax or even ban its use. There will certainly
be a fight to resist bitcoin adoption. The Fed and the Treasury (and
their global counterparts) are not just going to lay down as bitcoin
increasingly threatens the monopolies of government money. However,
before debunking the idea that governments could outright ban bitcoin,
first understand the very consequence of the statement and the
The Progression of Denial & Stages of Grief

The skeptic’s narrative consistently shifts over time. Stage one of
grief: bitcoin could never work – it is backed by nothing. It is
nothing more than a present-day tulip mania.  With each hype cycle,
the value of bitcoin rises dramatically and is then followed by a
correction. Often extolled as a crash by skeptics, bitcoin fails to
die and in each instance, it finds support at levels higher than prior
adoption waves. The tulip narrative becomes tired and the skeptics
move on to more nuanced issues, re-anchoring the debate.  Stage two of
grief follows: bitcoin is flawed as a currency. It is too volatile to
be money, or it is too slow to be a payments system, or it cannot
scale to satisfy all the payments in the world, or it wastes energy.
The list goes on. This second step is a progression of denial and it
is a significant departure from the idea that bitcoin is nothing more
than nothingness.

Despite the supposed flaws, the value of the bitcoin network continues
to rise over time. Each time it does not die, it gains strength. While
the skeptics are busy pointing out flaws, bitcoin never sleeps. An
increase in value is driven by a very simple market dynamic: more
buyers than sellers. That is all and it is a function of increasing
adoption. More and more people figure out why there is fundamental
demand for bitcoin and why/how it works. This is what creates
long-term demand for bitcoin. As more people increasingly demand it as
a store of wealth, there is no supply response. There will only ever
be 21 million bitcoin. No matter how many people demand bitcoin, the
supply side is completely fixed and inelastic. As the skeptics
continue to shout the same tired lines, the crowd continues to parse
the noise and demand bitcoin due to the strengths of its monetary
properties. And no constituency is more well-versed in the arguments
against bitcoin than adopters of bitcoin themselves.

Bitcoin FUD (Fear, Uncertainty & Doubt) Dice v1 and v2, courtesy of Nic Carter.

Desperation begins to kick in, and the debate re-anchors once again.
The narrative predictably shifts. It is no longer that bitcoin is not
backed by anything, nor that it is flawed as a currency; instead, the
debate centers on regulation and government authorities. In the final
stage of grief, it is actually that bitcoin works too well, and as a
consequence, the government will never let it happen and ban it.
Really? So human ingenuity somehow re-invents money in a
technologically superior medium, the consequences of which are
mind-bending, and the government is somehow going to ban that?
Recognize that in claiming as much, the skeptics are admitting defeat.
It is the dying whimper in a series of failed arguments. The skeptics
simultaneously accept that there is fundamental demand for bitcoin and
then pivot to the unfounded belief that governments can ban it.

Play this one out. When exactly would developed world governments
actually step in and attempt to ban bitcoin? Today, the Fed and the
Treasury do not view bitcoin as a serious threat to dollar supremacy.
In their collective mind, bitcoin is a cute little toy and is not
functional as a currency. Presently, the bitcoin network represents a
total purchasing power of less than $200 billion. Gold on the other
hand has a purchasing power of approximately $8 trillion (40x the size
of bitcoin) and broad money supply of dollars (M2) is approximately
$15 trillion (75x the size of bitcoin). When does the Fed or Treasury
start seriously considering bitcoin a credible threat? Is it when
bitcoin collectively represents $1 trillion of purchasing power? $2
trillion or $3 trillion? Pick your level, but the implication is that
bitcoin will be far more valuable, and held by far more people
globally, before government powers that be view it as a credible
competitor or threat.

President Trump & Treasury Secretary Mnuchin on Bitcoin (2019)

So the skeptic logic follows: bitcoin does not work, but if it does
work, the government will ban it. But, governments in the free world
will not attempt to ban bitcoin until it becomes more apparent that it
is a threat. At which time, bitcoin will be more valuable and
undoubtedly harder to ban, as it will be held by far more people in
far more places. So, ignore fundamentals and the asymmetry inherent in
a global monetization event because in the event you turn out to be
right, the government will step in to regulate bitcoin out of
existence. Which side of the fence would a rational economic actor
rather be on? Owning a monetary asset that has increased in value so
dramatically that it threatens the global reserve currency, or the
opposite – not owning that asset? Assuming an individual possesses the
knowledge to understand why it is a fundamental possibility (and
increasingly a probability), which is the more defensible and logical
position? The asymmetry alone dictates the former and any fundamental
understanding of the demand for bitcoin only reinforces the same
But Bitcoin Cannot Be Banned.

Think about what bitcoin actually represents and then what a ban of
bitcoin would represent. Bitcoin represents the conversion of
subjective value, created and exchanged in the real world, for digital
keys. Said more plainly, it is the conversion of an individual’s time
into money. When someone demands bitcoin, they are at the same time
forgoing demand for some other good, whether it be a dollar, a house,
a car, or food, etc. Bitcoin represents monetary savings that comes
with the opportunity cost of other goods and services. Banning bitcoin
would be an affront to the most basic freedoms it is designed to both
provide and preserve. Imagine the response by all those that have
adopted bitcoin: “Well that was fun, the tool that the experts said
would never work, now works too well, and the same experts and
authorities say we can’t use it. Everyone go home. Show’s over folks.”
To believe that all the people in the world that have adopted bitcoin
for the financial freedom and sovereignty it provides would suddenly
lay down and accept the ultimate infringement of that freedom is not

    “Money is one of the greatest instruments of freedom ever invented
by man. It is money which in existing society opens an astounding
range of choice to the poor man – a range greater than that which not
many generations ago was open to the wealthy..” – F.A. Hayek

Governments could not successfully ban the consumption of alcohol, the
use of drugs, the purchase of firearms, or the ownership of gold. A
government can marginally restrict access, or even make possession
illegal, but it cannot make something of value demanded by a broad and
disparate group of people magically go away. When the U.S. made the
private ownership of gold illegal in 1933, gold did not lose its value
or disappear as a monetary medium. It actually increased in value
relative to the dollar, and just thirty years later, the ban was
lifted. Not only does bitcoin provide a greater value proposition
relative to any other good that any government has ever attempted to
ban (including gold); but by its nature, it is also far harder to ban.
Bitcoin is global and decentralized. It is without borders and it is
secured by nodes and cryptographic keys. The act of banning bitcoin
would require preventing open source software code from being run and
preventing digital signatures (created by cryptographic keys) from
being broadcast on the internet. And it would have to be coordinated
across numerous jurisdictions, except there is no way to know where
the keys actually reside or to prevent more nodes from popping up in
different jurisdictions. Setting aside the constitutional issues, it
would be technically infeasible to enforce a ban of bitcoin in any
meaningful way.

Bitcoin Node Concentration by Country (

Even if all countries in the G-20 coordinated to ban bitcoin in
unison, it would not kill bitcoin. Instead, it would be the fait
accompli for the fiat system. It would reinforce to the masses that
bitcoin is a formidable currency, and it would set off a global and
hopeless game of whack-a-mole. There is no central point of failure in
bitcoin; bitcoin miners, nodes and keys are distributed throughout the
world. Every aspect of bitcoin is decentralized, which is why running
nodes and controlling keys is core to bitcoin. The more keys and the
more nodes that exist, the more decentralized bitcoin becomes, and the
more immune bitcoin is to attack. The more jurisdictions in which
mining exists, the less risk any single jurisdiction represents to
bitcoin’s security function. A coordinated state level attack would
only serve to build the strength of bitcoin’s immune system. It would
ultimately accelerate the shift away from the legacy financial system
(and legacy currencies), and it would accelerate innovation within the
bitcoin economic system. With each passing threat, bitcoin innovates
to immunize the threat. A coordinated state level attack would be no

Permissionless innovation on a globally decentralized basis is the
reason bitcoin gains strength from every attack. It is the attack
vector itself which causes bitcoin to innovate. It is Adam Smith’s
invisible hand on steroids. Individual actors may believe themselves
to be motivated by a greater cause, but in reality, the utility
embedded in bitcoin creates a sufficiently powerful incentive
structure to ensure its survival. The self-interests of millions, if
not billions, of uncoordinated individuals aligned by their individual
and collective need for money incentivizes permissionless innovation
on top of bitcoin. Today, it may seem like a cool new technology or a
nice-to-have portfolio investment, but even if most people do not yet
recognize it, bitcoin is a necessity. It is a necessity because money
is a necessity, and legacy currencies are fundamentally broken. Two
months ago, the repo markets in the U.S. broke, and the Fed quickly
responded by increasing the supply of dollars by $250 billion, with
more to come. It is precisely why bitcoin is a necessity, not a
luxury. When an innovation happens to be a basic necessity to the
functioning of an economy, there is no government force that could
ever hope to stop its proliferation. Money is a very basic necessity,
and bitcoin represents a step-function change innovation in the global
competition for money.

And more practically, any attempt to ban bitcoin or heavily regulate
its use by any jurisdiction would directly benefit a competing
jurisdiction. The incentive to defect from any coordinated effort to
ban bitcoin would be far too high to sustain such an agreement across
jurisdictions. If the United States made the possession of bitcoin
illegal tomorrow, would it slow down proliferation, development and
adoption of bitcoin and would it cause the value of the network to
decline intermittently? Probably. Would it kill bitcoin? No. Bitcoin
represents the most mobile capital in the world. Countries and
jurisdictions that create regulatory certainty and place the least
amount of restrictions on the use of bitcoin will benefit
significantly from capital inflows.

                           Banning Bitcoin Prisoner’s Dilemma

In practice, the prisoner’s dilemma is not one-to-one. It is
multi-dimensional involving numerous jurisdictions, all with competing
interests, making any attempts to successfully ban bitcoin that much
more impractical. Human capital, physical capital and monetary capital
will flow to the countries and jurisdictions with the least
restrictive regulations on bitcoin. It may not happen overnight, but
attempting to ban bitcoin is the equivalent of a country cutting off
its nose to spite its face. It doesn’t mean that countries will not
try. India has already tried to ban bitcoin. China has attempted to
heavily restrict its use. Others will follow. But each time a country
takes an action to restrict the use of bitcoin, it actually has the
unintended effect of promoting bitcoin adoption. Attempts to ban
bitcoin are an extremely effective marketing tool for bitcoin. Bitcoin
exists as a non-sovereign, censorship-resistant form of money. It is
designed to exist beyond the state. Attempts to ban bitcoin merely
serve to reinforce bitcoin’s reason for existence and ultimately, its
value proposition.
The only winning move is to play

Banning bitcoin is a fool’s errand. Some will try; all will fail. And
the very attempts to ban bitcoin will accelerate its adoption and
proliferation. It will be the hundred mile-per-hour wind that fuels
the wildfire. It will also make bitcoin stronger and more reliable,
further immunizing it from attack and reinforcing its antifragile
nature. And in any case, believing governments will ban bitcoin, if it
becomes a credible threat to global reserve currencies, is an
irrational reason to discount it as a savings technology. It both
cedes that bitcoin is viable as money, while at the same time ignoring
the principal reasons as to why: decentralization and
censorship-resistance. Imagine understanding the greatest present
secret in the world and not capitalizing on the asymmetry and utility
that bitcoin provides in fear of government. More likely, either
someone understands why bitcoin works and that it will not fail at the
hands of a government, or a knowledge gap exists as to how bitcoin is
able to function in the first place. Begin by understanding the
fundamentals, and then apply that as a baseline to assess any
potential risk posed by future government intervention or regulation.
And never discount the value of asymmetry; the only winning move is to

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