Should Bitcoin be legal? Governments seem unwilling to take a stand, and with good reason: a premature attack in this arena could be a huge misstep.
Do you remember Napster? The government aimed all its might at the online file-sharing network, ultimately forcing it to shut down in 2001. Perhaps regulators and law-enforcement — in all of their wisdom — believed they were doing a good thing when they pursued legal action against Napster. But in reality, the hasty reaction had a clear unintended consequence — creating a proverbial hydra.
Now thousands of new-generation peer-to-peer file-sharing networks appeared — skillfully avoiding the centralized model that had made Napster so easy to find and eliminate. Not only had government and its allies failed to stop file-sharing, but they had unwittingly accelerated the development of new, better technologies that made the practice unstoppable.
Make no mistake about it: governments do not like private, unregulated, decentralized currencies like Bitcoin. Central banks generate colossal profits by controlling and monopolizing traditional sovereign currencies, and Bitcoin threatens that control. And then there is the issue of taxing assets that cannot be found…
Perhaps governments have remained eerily quiet on the issue of digital currencies, their legality, and their future because they are exercising cautious restraint after the lessons provided by the Napster débâcle. But there is more to this mystery. It is quickly becoming apparent that governments simply don’t know how to attack Bitcoin — or if they even have the ability to attack Bitcoin. And that raises a fascinating question: has the war ended before it even started?
For time immemorial in modern western democracies (and their predecessors), the debate has raged about how much government should be involved in society. It is the ceaseless argument between collectivists and individualists: from Hamilton and Jefferson, to Smith and Marx, passions have always run high. But in the end, the simple majority has always won because that is, after all, how democracy works. Narrow margins offer no solace to the losers, and too often we have seen 49% of a group effectively rendered powerless — if not disenfranchised altogether.
Take for example the issue of slavery in the United States. The question of its humanity (or lack thereof) was always subordinated to the will of the “democratic” rule; if the majority wanted slavery, the majority would have it. The list of rights that have been stripped from minorities (in all senses of the word) in the name of democracy is nearly inexhaustible.
While the world may not yet know it, however, cryptocurrencies have finally and inexorably emasculated large-scale, uncompetitive democracy. The days of depriving the forty-nine-percenters are drawing to a close. Governments are about to lose 90% or more of their ability to collect revenues through taxes. Ultimately, if people can hide their assets and capital flows, where will the government derive its revenue? Taxing real property will only cause flight from those assets. Income will soon be masked, under-reported, or hidden outright. This, de facto, means massive downsizing and decentralization, because without cash,there is no way to fund the modern military/police state. Democracy will still exist, but it will be focused at the local level — where it is most effective, fair, and competitive.
Is it any wonder that the very mention of Bitcoin or other cryptocurrencies sends adherents of the status quo into fits of hysteria? Can you blame them? These new technologies represent an enormous collective threat to institutional democracy. And it is unfortunate that these people have succumbed to their panic, rather than seeing the merit in decentralized decision-making — because the proverbial genie is out of the bottle, rendering the debate moot. No matter how much we love our nationalistic democracy, it is inexorably doomed.
I understand some people are skeptical, but think about this: over many decades, countless people have decried the existence of computers and modern technology. Legislation has been introduced — and even passed — in many locales to limit job replacement by automation. Yet, despite all this heated effort to stop its growth, technology has flourished. The same will be true for decentralized cryptocurrencies.
And what of the economies that sought to limit technological progress? They paid dearly for it. The effort to impede technology has been absolutely pointless. Every new idea will have some detrimental effect, but ultimately humanity is far better served by embracing progress — rather than focusing on its minor shortcomings.
We can fight large retailers in our communities, but they will circumvent our efforts. We can criminalize recreational chemicals, but the chemicals will ultimately flourish. We can demonize genetically modified crops, but they will feed our families. Markets exist because significant numbers of people want the goods and services they provide. Criminalization stops nothing; it only creates deviation. It makes producers and distributors smarter. This is where democracy fails and markets succeed.
Digital currencies have finally made it impossible to prevent people from pursuing their interests. And now, those interests can be pursued anonymously and with impunity. There is very little anyone can do to stop it. Governments know this — ergo their hesitation to take a stand on the issue of Bitcoin.
So what will they do? Governments could, theoretically, attempt to ban digital currencies in every form — or even outlaw the Internet, altogether. But such notions are preposterous. To begin with, how would the global regulatory environment uniformly agree on the definition of “digital currencies?” Would they ban all forms of encrypted digital communication? I pose these hypothetical questions because Bitcoin is only the beginning. It is hardly the only decentralized technological mechanism that can be used to store and transfer a representative form of wealth.
But even if most countries do criminalize Bitcoin, the ones who do not will reap huge economic rewards for embracing it. And, of course, digital currencies will still be available — legal or not — anywhere the Internet exists.
Napster is a clear point of reference. Outlawing the first generation of any technology will only make subsequent generations stealthier and stronger. Like a viral or bacterial strain developing resistance to medical treatments, digital encrypted currencies are designed to evolve and react to anything that might pose a threat to their existence.
So, should Bitcoin be legal? If we want to improve the standard of living for everyone on earth, the answer is yes. It is far better to allow markets to address shortages, needs, and capital flows than to continue to deprive up to 49% of a “voting public” of the goods and services they require.
Will Bitcoin survive? It might or might not. But if it doesn’t, ten thousand stronger, better versions of the algorithm will become available immediately after its demise. In that sense, yes, private, unregulated, digital currencies are here to stay.
Will the government try to regulate Bitcoin, or even destroy it? Maybe. Probably. But does it matter?