Can The Government Ban Bitcoin?

Bitcoin is not currently banned by the US Government, but history has shown that any Government can ban Bitcoin and related activities. Although, imposing a total ban would be very difficult.

Key Takeaways:

  • Due to the global integration and usage of Bitcoin, it is unlikely the US government will take a stand against the world's largest cryptocurrency.
  • It is simply not feasible for a government or central bank to shut down Bitcoin due to its decentralized nature.
  • Governments still have the means to impose strict legal and regulatory restrictions on activities associated with Bitcoin including mining, trading, and holding the asset.

The fear of a Government such as the US banning Bitcoin and related activities is a growing concern as the blockchain currency gains increasing adoption. Bitcoin is often touted as a hedge against inflation and potential collapse in the fiat system. This article will discuss if the US Government has or will ban Bitcoin, how they could ban Bitcoin, and the potential reasons behind it.

Will the US Government Ban Bitcoin?

It is unlikely that the US government will stand against Bitcoin. The coin is now integrated and used by merchants and institutions overseeing billions within the US economy. The US also leads Bitcoin mining efforts globally. However, it is important to realize there could be a string of events that unfold that lead the US government to change its current position and could lead to an outright ban. Although, there have been reports the Government has been attempting to quietly ban Bitcoin through indirect means.

Can Any Government Shut Down Bitcoin?

No, the Bitcoin blockchain can never be shut down by a single government. Bitcoin is run by a collective rather than a single central authority, it is impossible for one, or even several, governments to target and stop the activities of thousands of nodes that make up the Bitcoin network.

For governments or central banks to truly shut down Bitcoin, the government in question would need to shut down and target over 1 million mining operations worldwide. Alongside the sheer effort this would take, each node can be located in any jurisdiction in the world – making the task simply unfeasible. Websites such as Bitnodes.io can be used to constantly check that the decentralized distribution of Bitcoin miners remains secure.

If They Can't Shut Down Bitcoin, Can a Government Ban Bitcoin?

While shutting down Bitcoin is out of the question, governments can attempt to implement a country-wide ban by imposing tough legal or regulatory measures on Bitcoin-related activities, such as mining, trading, or holding Bitcoin. Additionally, they can even attempt to block and shut down crypto exchanges or websites that allow for the distribution of BTC. As past attempts have shown, an outright ban on Bitcoin is tricky.

An example is China. the government has continually tried to ban the use of Bitcoin since 2013. In 2013, all banks were first issued with a notice that prohibited transactions related to the coin. However, the use of BTC remained. After that, China doubled down and went on to target initial coin offerings in 2017, Bitcoin mining activities in 2019, and finally, banned all crypto trading in 2021. But, even with all of those measures, Bitcoin could still be accessed by those in China willing to take on the risks involved.

Chinese Government ban on Bitcoin

Bitcoin holders can still use virtual private networks (VPNs) to make it look like they are in a different country and they can leverage peer-to-peer exchanges to buy and sell Bitcoin without relying on a centralized exchange. So, can governments restrict Bitcoin? Definitely. But, as a result of the decentralized nature of cryptocurrencies, it is a hard task to completely ban Bitcoin.

What's the US Government Current Position on Bitcoin?

Fortunately for US residents, Bitcoin is not banned and has never been banned in the US. There has also never been any expression from the US government that a ban on Bitcoin would be necessary. However, this doesn’t mean there haven’t been problems for Bitcoin in one of the largest economies in the world. The US government has always taken a firm regulatory approach to Bitcoin. US officials recognize it as a legitimate asset class and digital currency, but as a result of its partial use in illicit activities, it has taken many years to sure up that view.

There is a constant ongoing battle between multiple US government bodies over who should take charge of regulating cryptocurrencies. Unfortunately, this has resulted in a slow uptake of crypto regulation, which isn’t great for an industry that has moved at light speed.

Why Would the Government Ban Bitcoin In the US?

US officials that are anti-crypto will provide a long list of reasons why the US government should restrict the world’s leading coin. Here are some of the most prominent reasons the Government could implement a Bitcoin ban:

  • Implementing regulations. The Government could make it difficult to buy and sell Bitcoin by implementing new laws and regulations to outlaw its use. This could entail making it illegal to be involved with Bitcoin activities within the country. As an example, in 2013, the People's Bank of China banned the country’s financial system from interacting with Bitcoin. This was followed by subsequent restrictions in 2017 on ICOs, in 2019 on Bitcoin mining, and in 2021 on crypto trading.
  • New criminal legislation. Alongside regulations, the US could also try to introduce legislation to deem the use of Bitcoin as criminal activity. In 2018, the Indian government tried to do exactly that. Indian officials proposed a new bill that stated anyone to be found using cryptocurrencies would be handed a prison sentence of up to 10 years. Luckily for crypt investors based in India, it was never passed into law.
  • Blocking access. Instead of targeting law and legislation, the US government could simply try to block access to Bitcoin and US-based crypto exchanges, preventing citizens from purchasing or trading the cryptocurrency. In 2019, the Reserve Bank of India (RBI) tried to do something very similar. By banning access to Bitcoin exchanges, the RBI prevented Indian citizens from purchasing or selling Bitcoin using national fiat currencies. However, in March 2020, the Indian Supreme Court overturned the RBI's ban.
  • Technical measures. To support regulation and legislation, the US could implement technical measures to block Bitcoin-related websites, including technologies such as VPNs. In 2017, the Russian government blocked access to several Bitcoin-related websites, including the popular exchange BTC-e. The government claimed that the websites were being used to facilitate illegal activities.

How Will the Global Market be Impacted if Bitcoin is Banned in the US?

The global crypto market would be severely impacted if the US decided to make Bitcoin illegal. The removal of US investors would significantly reduce liquidity within the market and it would also severely slow down cryptocurrency innovation.

Positive impacts of a Bitcoin ban in the US

  • Increased decentralization. The US currently accounts for a large proportion of the Bitcoin mining network. If the coin were banned it would free up space so that other countries could contribute and, therefore, improve the network’s decentralization.
  • Re-focus on privacy. If Bitcoin were banned, efforts might be redoubled to work on privacy-focused digital assets that could protect financial privacy worldwide.
  • Development of alternatives. A ban on Bitcoin in the US could propel developers to create a crypto that was US-regulation friendly, which could ultimately lead to greater crypto adoption in each country.

Negative impacts of a Bitcoin ban in the US

  • Short-term price volatility. A ban in the US would likely panic the crypto markets, leading to a sell-off in the asset class and stability in Bitcoin prices. This would likely have a ripple effect on other cryptos and also the wider financial economy.
  • Decreased trust. As the world’s leading crypto, trust in the sector could be tainted if the US banned Bitcoin. If the world’s leading economy bans the largest cryptocurrency, it may not leave a lot of hope for others.
  • Slow down innovation. If the US pulled out of Bitcoin, crypto innovation would almost certainly take a massive hit. Crypto technologies globally could become stifled.

How Could The US Government Ban Bitcoin?

While it’s not technically possible for the US government to completely remove Bitcoin, there are still several ways that the country could try to restrict access to the world’s leading crypto. Here are 4 ways the US Government could ban Bitcoin.

  1. Implementing strict regulations. The first way would be to implement new laws and regulations to outlaw its use or impose strict KYC requirements on crypto that prohibits investment from individuals. One example of a country that has implemented laws to accelerate a Bitcoin ban is China. In 2013, the People's Bank of China banned the country’s financial system from interacting with Bitcoin. This was followed by subsequent restrictions in 2017 on ICOs, in 2019 on Bitcoin mining, and in 2021 on crypto trading.
  2. New criminal legislation. Alongside regulations, the US could also try to introduce legislation to deter the criminal use of Bitcoin. In 2018, the Indian government tried to do exactly that. Indian officials proposed a new bill that stated anyone to be found using cryptocurrencies would be handed a prison sentence of up to 10 years. Luckily for crypto investors based in India, it was never passed into law.
  3. Blocking access. Instead of targeting law and legislation, the US government could simply try to block access to Bitcoin and US-based crypto exchanges, preventing citizens from purchasing or trading the cryptocurrency. In 2019, the Reserve Bank of India (RBI) tried to do something very similar. By banning access to Bitcoin exchanges, the RBI prevented Indian citizens from purchasing or selling Bitcoin using national fiat currencies. However, in March 2020, the Indian Supreme Court overturned the RBI's ban.
  4. Technical measures. Finally, the US could try to impose technical measures to block Bitcoin-related websites, including technologies such as VPNs. In 2017, the Russian government blocked access to several Bitcoin-related websites, including the popular exchange BTC-e. The government claimed that the websites were being used to facilitate illegal activities.

Which Government Has Already Banned Bitcoin?

According to our list of countries that have made Bitcoin illegal, the governments of China, Nepal, Afghanistan, Bangladesh, Morocco, Algeria, Egypt, and Bolivia have made it illegal to use Bitcoin.

  • China. China is by far the largest country that currently has attempted to remove Bitcoin from its economy. Banning Bitcoin has been high on the government’s agenda since 2013. The prominent reason behind China’s continued fight against Bitcoin involves the central bank’s fear that the digital asset could harm the country’s economic development.
  • Nepal. Nepal was one of the most recent to impose a Bitcoin ban, implementing restrictions against the cryptocurrency in September 2021. Through fear of thefts, the national Nepal Rastra Bank declared the use of the coin, Bitcoin mining, and Bitcoin trading were now all deemed illegal activities.
  • Afghanistan. Afghanistan was another country to employ a Bitcoin ban in 2021. Due to disruptions in the country’s economy, black-market networks that leveraged Bitcoin became prevalent. Once the Taliban reclaimed authority in the country, the group banned the use of all digital currencies, severely punishing those leveraging them.
  • Bangladesh. Like China, Bangladesh imposed restrictions on Bitcoin slightly earlier than most. In 2017, the country declared that all crypto-related activity was illegal, due to the risk posed by the country’s AML laws.
  • Morocco. Morocco banned the use of all cryptocurrencies, including Bitcoin, in 2017. Like other countries on this list, the government believed those using crypto were using it predominantly for criminal reasons.
  • Algeria. Like Morocco, Algeria is another African country that has banned the use of Bitcoin. A financial bill created in 2018 forbid the use of cryptocurrency exchanges and prevented residents from holding any form of digital asset.
  • Egypt. Egypt implemented a ban on all cryptocurrencies in 2020. With the backing of the country’s central bank, all cryptocurrencies were described as having no tangible value and, therefore, worthless to hold. Only national currencies were deemed feasible for trade in and out of the country.
  • Bolivia. Shortly after China imposed restrictions on Bitcoin and other cryptocurrencies, Bolivia followed suit and issued an all-out ban in 2014. It was the first complete country-wide ban the world had ever seen. Bolivian officials were concerned by the effects that cryptocurrencies would have on trade and have not yet changed their stance.

Frequently Asked Questions

Does the US Government control Bitcoin?

No, Bitcoin is operated by a P2P network composed of individuals and entities located all around the world. No one entity has outright control. While the largest Bitcoin mining pools do take place in the US, the US government still holds no control over how Bitcoin functions.

Can a Bitcoin ban be effectively enforced?

No, history has shown that it's practically and technically challenging to effectively ban Bitcoin in a country. Bitcoin is a global peer-to-peer network that isn't controlled by a single entity, meaning, a 100% ban on Bitcoin-related activities would require significant resources and enforcement.

Conclusion

The fear of a Government ban is at the forefront of many investors' minds and one of the biggest risks to Bitcoin. So it is understandable to question if the US is likely to ban Bitcoin, and what would happen if Bitcoin were banned. But, it’s relatively good news. Although there are undoubtedly difficulties regarding crypto regulation in the US, the country remains one of the biggest contributors to the crypto space and has not shown any serious intention to ban the world’s leading coin.

If a Government were to ban Bitcoin, it would place the country well down the ranks in terms of crypto innovation and the development of actual use cases with blockchain technology. But it's highly unlikely a single Government ban will result in Bitcoin crashing to zero.