The saying “government will ban Bitcoin” is one of the most frequently used pieces of FUD. It is something that every Bitcoiner intellectually wrestles with on their journey down the Bitcoin rabbit hole. It is a frequently cited reason by those skeptical of Bitcoin to justify their reluctance to explore further education. Thankfully many excellent writers have written extensively debunking this piece of FUD. Bitcoiners often emphasize the logistical challenges, intense resource costs, game-theoretical complexities, and the sheer implausibility of any attempt by the State to outlaw Bitcoin. While Bitcoiners hail these writings as compelling evidence of the inevitable advent of hyperbitcoinization, the subsequent logical question is frequently unexamined or hastily dismissed: If the government’s ability to ban Bitcoin is constrained, what alternative strategies might it employ to undermine or co-opt the network?
What if, instead of a direct ban on Bitcoin, the State employed subtle and indirect strategies to manipulate or even co-opt it, ultimately achieving the same goal of rendering it ineffective or worse, a tool for State control? Bitcoin poses an existential threat to the State’s monopoly on money. To be more precise, it is Bitcoin’s attributes of decentralization, self-sovereignty, censorship resistance, and pseudonymity that challenge the State’s control over individual liberty. What if, rather than outright banning Bitcoin, the State could neutralize its disruptive properties by integrating and endorsing it? What if the government could harness Bitcoin’s “Number Go Up” (NGU) technology to enforce its objectives and undermine the very ethos that defines Bitcoin today?
The initial users of Bitcoin were pioneers fueled by their convictions. To many of these early adopters, Bitcoin encapsulated their ideological principles stemming from the cypherpunk movement and free market anarchism. They perceived the technology as the realization of their dreams for emancipation from government oversight and the fruition of financial independence. Over time, the reasons for joining the network shifted from ideological to practical motivations. A growing number of users turned to Bitcoin solely for pragmatic purposes, viewing it primarily as a superior monetary asset for economic activity compared to contemporary fiat currencies. Moreover, the allure of potential exponential growth in purchasing power (NGU) became a significant draw for many newcomers, sparking curiosity and speculation about when such growth might occur. As the Bitcoin network expands, ideological motivations among users will naturally diminish, giving way to a greater focus on seeking improved, more sound money rather than a strong emphasis on separating money from government control for preserving individual freedoms. This pragmatic shift unveils a vulnerability that the State might leverage to influence against the network. To delve deeper, separating money from the State empowers Bitcoin to operate independently, ensuring freedom from direct governmental intervention, and emphasizing financial autonomy and user privacy. This strategic approach aims to completely remove the currency from centralized authority, bolstering individual liberty. Conversely, the state adopting Bitcoin involves the government acknowledging and integrating Bitcoin into its existing financial structure, potentially instituting regulations while retaining a degree of control over individual freedoms.
The State’s ultimate advantage lies in what’s known as the ratchet effect—a social mechanism used to diminish individual freedoms during crises by implementing supposedly temporary measures of authority that frequently persist long after the crisis has passed. This technique serves as the blueprint for unchecked growth in State power. Recently, the conflict in the Middle East prompted FinCEN to seek expanded powers under the PATRIOT Act. Their aim was to enforce stringent regulations and effectively outlaw privacy tools within the realm of Bitcoin, all in an effort to strip users of their ability to attain privacy within the network. Despite the lack of substantial evidence linking Bitcoin to funding nefarious activities in this particular case, the State’s intentions have become transparent. Whether these measures will be fully implemented remains uncertain at present. However, the ominous reality remains: the groundwork has been laid, and a similar agenda could easily resurface in the face of the next crisis. Throughout history, one thing remains evident: the State requires only a crisis of catastrophic proportions to rally overwhelming public support. By doing so, the State might endeavor to bifurcate the network into two factions: a white-market and a black-market Bitcoin. These actions could provide institutions and State entities with the regulatory clarity needed to embrace the network in a politically viable manner. As “Institutions finally arrive” prepared to invest their capital, it’s bound to trigger a significant surge in price, fueling the frenzy around NGU. At this juncture, it’ll become quite evident who desires to separate money from the State and who desires better money for the State.
If the State aimed to divide and take control of the network, what additional objectives might it pursue? One such objective would involve the ossification of the network. To be fair, the discussion surrounding Bitcoin network ossification is intricate, philosophical, and highly debated. In my view, it would be a targeted outcome sought by the State. The economic reality of scaling poses significant and potentially insurmountable technical hurdles for self-custody long term. As the network ossifies sooner, the necessity for custodianship intensifies among an increasing number of network participants. Increased custodianship facilitates the State’s ability to enforce censorship, even for individuals who still hold their private keys. Any business seeking to function within the State’s jurisdiction must adhere to its censorship requirements, regardless of its proclaimed ideology. Consider a scenario where privacy tools are banned due to a crisis, leading the State to establish a sanctioned ledger of approved addresses (users). Every business in the economy would be obliged to uphold the State’s directive to operate legally. Even for individuals who hold their keys, compliance with the State’s mandates and censorship would become imperative to participate in legal economic exchanges. This showcases how the State could censor the Bitcoin network, not directly at the protocol level but indirectly through regulatory societal enforcement.
If the State aimed to ossify the network, what strategies might it employ to socially encourage this outcome? To begin with, it could strive to render the consensus upgrade process resource-intensive and contentious. There’s a school of thought suggesting that Bitcoin’s absence of a formal upgrade protocol serves as an advantage, preventing potential system manipulation by attackers. While this notion holds merit, it also adds complexity and risk to coordinating upgrades among users and miners. Due to the absence of a formal upgrade protocol, network participants like node operators and miners lack a precise method to signal their support for specific upgrades. Consider this example scenario: I support BIP 119 and would readily and programmatically upgrade my node if a defined percentage of the global hash rate or network nodes signaled their intention to coordinate an upgrade as well. However, without an upgrade protocol in place, accurately quantifying market sentiment for potential upgrades relies solely on social signals, which are challenging to measure accurately. This situation elevates the risk associated with any upgrade, as it holds the potential to fragment the network. Relying solely on social signals for upgrades as the network expands will hasten ossification, arriving sooner rather than later.
Bringing together the threads of this thought experiment paints a rather sobering picture of a potential future landscape for Bitcoin. Let me be clear, this thought experiment doesn’t chart a definitive course for what’s ahead. However, the reality remains: a significant amount of State power is tightly interwoven with the stability of its fiat currency. As interventionist policies persistently erode the value of fiat currency, the State, grappling with an existential threat, will fiercely endeavor to maintain its facade of authority. This will involve heightened efforts to shape public perception and resorting to draconian measures to retain control. During crises, the State historically manufactures consent, and in its desperation, even co-opting Bitcoin to serve as a tool for State control might emerge as a conceivable outcome. We should not be so quick to cheer on the State’s adoption of Bitcoin if it comes with strings attached.
Rather than readily acquiesce, we must scrutinize state adoption of Bitcoin to ensure it does not betray founding principles. The tempting carrot of mainstream approval and Number Go Up could conceal the stick of attempted centralized control. If integrating Bitcoin requires compromising aspects of its censorship resistance or the peer-to-peer structure, we must unflinchingly refuse, no matter the supposed financial benefits. Amidst such critical circumstances, it becomes crucial to not just withdraw our consent, but actively participate in non-violent civil disobedience while rallying behind those developers dedicated to making the tools at our disposal more accessible for ordinary individuals. This multifaceted approach stands as a pivotal course of action in times of urgency. The war against State capture is a battle on multiple fronts and every individual plays a role in ushering in Bitcoin’s future. With each passing day, Bitcoin’s resilience and antifragility grow deeper into mainstream society. But without tireless vigilance upholding its ideological vision, the Bitcoin our grandchildren inherit may be unrecognizable – neutered and leashed, stripped of its liberating potential through regulatory capture. We must be steadfast guardians, uncompromising in the face of those who would erode its emancipatory promise. Though the road is arduous, our principles today can secure financial sovereignty for generations to come. Let us carry the torch of individual liberty so its light may one day illuminate a just world, where Bitcoin fulfills its purpose as independent, peer-to-peer money for all, unfettered by censorship or authoritarian control. Our actions today shape the economic emancipation of tomorrow.
This is a guest post by Michael Matulef. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
