The Government Isn't The Enemy of Bitcoin

Listening to the discussion between Kim Dotcom and some BTC enthusiasts, what stood out to me most was the points where they agreed. They both took it as a fact that "the government" will definitely try and stop Bitcoin.

Neither Kim Dotcom nor the discussion moderator, who I don't know and didn't catch their name, got into the conspiracy theories you hear a lot of in the crypto world. There are people who believe that the CIA or NSA or someone have already taken actions with the goal of preventing Bitcoin from succeeding as far as it might have done already. Nothing said in this particular debate excluded that possibility, but, the broad outline of Kim Dotcom and the moderator's mutual understanding was that "the government" had not yet taken decisive measures to eradicate Bitcoin with finality. However, it was only a matter of time before Bitcoin reached a scale that would draw the full attention of government forces.

If Bitcoin is to survive that full attention, according to both sides, it needs to lay the groundwork now to build a base of resistance to government intervention. It's only here where Kim Dotcom and the moderator started to branch off into different directions. The moderator's side, broadly representative of BTC in general, was that the best resistance against the government was to have large financial institutions hold vast amounts of money in Bitcoin, so that they are motivated to defend it. They are, according to the moderator, the ones with the financial and political power to exert influence, so they have the best chance against "the government."

Kim Dotcom, broadly representing the standpoint of BCH, says that the best way to build resistance to the government is widespread adoption among the common people. With mass adoption, there comes a point where Bitcoin is too intertwined into the lives of every day people so that it becomes unfeasible for the government to extract it.

The hows and whys of both positions were described in terms block sizes and full nodes and centralization, and all the familiar sore points between the BCH and BTC camps. I'm not going to delve into those points, partly because they've been beaten to death. Odds are that if you're reading this, you know them all too well already.

The main reason I'm not going to get into those details, though, is that before we even get there, I don't agree with the foundational concept that "the government" is the enemy of Bitcoin.

Some governments already regulate or ban crypto, but, lots of governments do lots of things, for a wide variety of reasons. So I don't think any one government's position on crypto can be assumed to be representative of how governments in general operate. Consider that Zimbabwe does not issue it's own currency, but we don't take this to be evidence that all or most governments would like to eventually do away with their own currency.

When we talk about "the government" regulating or outright banning crypto, we're really focused on the larger economies that tend to set the tone for international business and conventional local practices. And the obvious leader, is, of course, the United States. Many speak about the potential for the US government to ban crypto within its borders as being largely synonymous with crypto's chances for adoption worldwide. It's certainly true that if the US outright banned crypto, even if no one else did, crypto could be largely regulated to dark markets.

Will the US definitely ban Bitcoin in particular or crypto in general, should it ever evolve beyond the level of novelty asset that it is now?

I don't think so.

For one thing, it's a big "if" as to whether or not crypto would ever reach a level where it becomes not just a viable currency for every day transactions, but a preferable one. It may be that it remains volatile enough that one always has to wonder if it's worth spending now or waiting until tomorrow to see if it's worth a little more or less.

As much as crypto people tend to hate institutions like federal reserve banks, there's a lot to be said for currencies with values that have some regulation and aren't completely at the whim of market forces. I like knowing that tomorrow's price of carrots is not going to surprise me. I think most people like that kind of stability. It makes it possible to budget for groceries and rent and the rest of my life. Will Bitcoin ever be able to provide that? Who knows. If it doesn't ever achieve a consistent enough value, it might always be used alongside other currencies, not supplant all contenders.

But, let's say it gets to a level where anyone could walk into a shop and be equally likely to use Bitcoin or the US dollar. Does this mean it is a threat to US economic hegemony?

Consider the way the US handles gold. It didn't invent gold the way it invented the US dollar. Which means the gold reserves it famously keeps at Fort Knox and probably other undisclosed locations, was acquired. And the purpose of acquisition was to have influence in the gold market.

Why wouldn't the US do the same with Bitcoin? Acquire a bunch of it to have a lot of say over its value and trade worldwide? I think this is a lot more likely than a general ban, not just because it's easier to do, but also because it potentially converts Bitcoin from a potential economic threat to another vector for economic leverage.

Assuming that economic leverage is a goal, which is merely one possibility among many in which the US government finds a suitable use for Bitcoin to futher it's own aims. Many of those possibilities are probably beyond the imagination of someone like me who only has a layman's understanding of economics.

But just asking what those "aims" are leads to my more central point, which is that talk about "the government" is too broad and nebulous to be helpful. A government, especially the US government is a huge organization where the left hand doesn't know what the right hand is doing, and if they did know what each other was doing, they'd probably disagree anyway. It doesn't have one aim. Maybe it has so many aims that it effectively has zero aims.

People in the crypto world like to talk about how the US exports lots of violence around the world. Which is true, the US arguably exports more violence than any other country today.

However, it also exports the most food and other forms of aid. Does that redeem it? No. But it does point to the fact that the government has many goals. Some of them might even be at odds with each other depending on the context.

Similarly, crypto itself is not merely one thing. It can be used to fascillitate illegal dealings between people who want to avoid being tracked. It can also reduce transactional friction so that people with less money can enter the marketplace. "The government" probably wouldn't like the first feature, but could find a lot of benefit in the second feature because it creates more consumers and workers that can be taxed.

Both governments and crypto are just tools that have good and bad effects, some intended, some unintended. What happens when they meet?

Governments are almost certainly going to try to tax it more, because history has shown us they always look for a cut wherever there's money flowing. But they're also like any other group in the world in that they'll use it in as far as they can benefit from it.

The government is not a de facto enemy of crypto, any more than the weather is an enemy of your plans tomorrow. The government isn't friend or foe, it's just part of the landscape in which crypto will navigate as it expands. Thinking of "the government" as a monolithic organization with one overarching agenda is, frankly, naive.

If you want a more realistic model as an analogy for how "the government" and crypto are likely to interact, I think you should look at the issue of climate change.

Climate change is an issue people have very strong opinions on, and there are lots of vested interests trying to push their agenda. Different groups have different levels of influence and push "the government" in different directions. The results we see are a mixed bag. Sometimes "the government" acts to protect the environment, sometimes it acts in favor of business development at the expense of the environment.

In either case, regardless of which way "the government" goes, the other side complains that "the government" as an enemy, an obstacle, a problem. Somehow, even though environmental consciousness is more prevalent in the government today than fifty or a hundred years ago, and economies keep growing, no one is ever satisfied with the current progress.

I think crypto is likely to see a similar path. It will slowly become a part of life for the betterment of all, but at a pace that no one will be happy with, every obstacle will be labelled as the harbinger of doom, and all sides will feel that the other side is winning unfairly.