Can the Government Shut Down Cryptocurrency?

I have read people stating that the government cannot shut down cryptocurrency because it is decentralized.  That is partly true, but not the whole story.  A single government could not easily shut down cryptocurrency at this time, but regulations can make it challenging to hold cryptocurrency. 

(Update: I was going to write an update to this post, but it got long and turned into another article. Why, China, Why are You Banning the Cryptocurrencies?)

Photo credit: WorldSpectrum at pixabay.com

Will the Government Ever Be Able to Shut Down Cryptocurrency?

In the distant future (100 years from now?) when quantum computers are sufficiently powerful, the government may be able to effectively shut down bitcoin if they so choose.  However, that is a long way off.  Will quantum computers be able to crack other coins sooner?  Possibly. 

Should We Worry About Regulation?

Nevertheless, government regulation can, at the very least, cause headaches for holders of cryptocurrency.  For example, the US government made it illegal for Americans to do business with the Suex.io exchange today (September 21, 2021).  They had reasons.  There are many other exchanges. There are decentralized exchanges.  However, there might be regulations in the future that make holding cryptocurrency more difficult for the average, law-abiding citizen. 

Government Regulation of Commodities/Currency is not Unprecedented

Sometimes, governments regulate things in ways that may seem unreasonable. Some may recall that it was illegal to physically own gold in the US from 1933 to 1975.  I was young at the time, but know this from books.  You would think that something that you can dig out of the Earth, possibly even on your property, would be legal to hold, but for many years, it was not. (Wikipedia's take on this: https://en.m.wikipedia.org/wiki/Gold_Reserve_Act)

Governments Will Probably Regulate Cryptocurrency Rather Than Shutting it Down

My point is that, decentralized or not, I think world governments could theoretically shut down crypto in the sense that they could make holding it so uncomfortable that most people would opt out and the value would plummet.  Will they do that? I don't think so.  Administration/policing of people who defy such a shutdown would be a nightmare.  Aside from this, more economies worldwide are starting to depend on crypto in one way or another.  Instead of a ban, I expect that by 2024, most governments worldwide will have increased regulation.

At first, I saw this as invasive, and it is in many ways. However, I have come to realize that there are many issues with the current cryptocurrency sphere.  For example, the lack of regulation has given rise to many tokens which are actually Ponzi schemes. There are even scam exchanges such as Quadrigacx here in Canada, which was a prominent exchange, and turned out to also be a Ponzi scheme.  There are also pump and dump scams and rug pulls.  The more I learn about crypto scams, the less I view the SEC and other regulatory bodies as meanies.

However, I am not (always) delusional.  I think a lot of the governmental push against cryptocurrency comes as a result of banks feeling threatened. Banks have quite a bit of pull with the government. Also, the blockchain allows decentralization of communication, which was the initial promise of the internet, but, which is challenged by Twitter, Facebook, and even ISP's.  Especially in countries where communication is censored, cryptocurrency is viewed as a threat.

Besides reducing the issues with fraud and scams, I see two other positives coming from government regulation.  The first is that it is a tacit endorsement and will lead to more widespread mainstream adoption.  Also, institutional investors will feel more confident adding crypto to their portfolios thus entrenching it in the mainstream even more.  In turn these will likely lead to reduced volatility, which will, in a sort of cyclical way, increase consumer confidence, and drive adoption.

Conclusion

So, can governments shut down cryptocurrency? Not easily. Will they seek to regulate it?  Yes, but that will reduce fraud and increase consumer confidence, reducing volatility and driving more mainstream adoption. 

I realize many people will probably disagree with me, and I look forward to your respectful comments explaining your alternate viewpoints! That is how we all learn in my opinion.

Epilogue: Can Solar Storms Affect Cryptocurrency? Question for another day.

One scenario I did not discuss which I think about is the potential impact of severe solar storms on cryptocurrency.  That is a subject for another article another day. It probably sounds nutty on the face of it, but there really have been severe solar storms which have knocked out huge portions of our electromagnetic grid. It is easily conceivable that a major solar storm will affect the internet, blockchains, cryptocurrency, and more.  I am sure we would recover from the disruption, but what havoc would it wreak on world finances first?  Few people consider that the sun can affect us this way.  I certainly didn't until recently.

Disclaimer: None of this should be taken as financial advice.  Nothing I ever say should be taken as financial advice.