Why Are Countries Banning Cryptocurrencies?

There are many countries where cryptocurrency is banned and this sporadic pattern of bans has affected the health of the crypto market overall. In every discussion of why 2018 has seen a bearish mood pervade the crypto scene, we cite government restrictions as a key reason. We know how hard-willed China’s stance has been with regard to cryptocurrencies and that India is also planning to come down with an iron hand on the use and trade of cryptocurrencies. As it is, the Indian attitude towards cryptocurrencies has never been positive enough to write home about. This overall atmosphere of uncertainty that pervades the space makes it difficult for traders and exchanges to operate freely and explore various possibilities when it comes to this interesting new form of currency. Nobody knows when these governments will strike down on another aspect of crypto use or what the next country to completely ban crypto will be. This makes it extremely difficult to undertake experimental explorations in the field. So why is it this way? Why are the governments banning cryptocurrencies? These are some of the questions we seek to answer in this article.

This regulatory disapproval is a prime reason why we have seen the Bitcoin price rise stop. Given that even the top cryptocurrency of the market (and also the pioneering one) has also been unable to escape the effects of governmental disapprovals or restrictions, tells us a lot about the overall situation of the market. Several countries, including Vietnam, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, North Korea, Bangladesh etc. have all shown varying levels of a hard-line stance against the cryptocurrencies. The reasons for these bans may be grouped into two broad categories: namely, security issues and the threat to governments from the decentralized nature of cryptocurrencies. While the governments publicly admit to just the former reason, the latter is always a major factor motivating their decisions to implement such bans. Let us delve deeper into these various motives.

Security Issues Related to Cryptocurrencies

We are all well aware that cryptocurrencies are often known to fuel criminal activities because of the simple reason that they can be made private and anonymous rather easily. While Bitcoin itself is not designed to be anonymous, privacy coins such ZCash or Monero are, and there are ways to make Bitcoin Transactions anonymous. As we have seen in the infamous cases involving dark web marketplaces such as SilkRoute or AlphaBay, such anonymity can help criminals in exchanging goods and services while remaining under the radar. It is also suspected to promote tax evasions and we have seen this year itself how South Korean authoritiesto had to raid and check crypto exchanges that had allegedly avoided paying taxes due to the government. The very fact that cryptocurrencies can often be used in cracking illegal arms deals or selling drugs, makes it a problem for governments to condone their use. Moreover, sometimes it is also assumed that cryptocurrencies and blockchain can help terrorist organizations, although such an assumption is not exactly well-founded.

Governments’ Fear of Decentralization

No government would enjoy losing control over losing a vital part of the governance and administration: the economy. However, the cryptocurrencies, by establishing peer-to-peer payment and information exchange channels and a database distributed across participant computers, represents decentralization. This decentralization is a threat to government control since they no longer can monitor and track every movement of their citizens’ money. Moreover, since the distributed ledger technology that blockchain is does away with the need for having intermediaries such as the traditional banks to smoothen payments and transactions, government-controlled and authorised bodies lose a lot of their functionality if cryptocurrencies become widespread. Naturally, governments would not want their key financial institutions to become irrelevant and replaceable and hence question the credibility of cryptocurrencies.

Now, one thing that must be noted is the fact that banning cryptocurrencies often spawn black markets and lead to their tech talent leaving their home country in search of a more conductive government. For example, earlier this year, we saw native crypto experts bid farewell to china to set up shop elsewhere. Clearly, banning cryptocurrencies isn’t taking us anywhere and we can only hope governments come up with a more sustainable model of dealing with cryptocurrencies.