Disclaimer: Opinions expressed in this article do not constitute investment advice from Bitcoin Reserve.
This week billionaire fund manager Ray Dalio suggested that governments would eventually "outlaw" bitcoin if it became too successful. But can you truly ban bitcoin?
In an interview with Yahoo Finance last weekend, Dalio, the founder, and co-chairman of Bridgewater Associates—one of the world's largest hedge funds—stunned crypto aficionados by suggesting that bitcoin, much like the early days of gold, could be banned if it becomes too successful:
“If [Bitcoin] becomes material, governments won’t allow it. I mean, they’ll outlaw it and they’ll use whatever teeth they have to enforce that. They would say, ‘Okay you can’t transact [with] Bitcoin. You can’t have a Bitcoin.’ So then you have to be almost like, ‘Is it a felony and I’m going to have to be a felon in order to transact?’ They outlawed gold. What’s wrong with gold? Gold was a storehold of wealth."
Indeed, in 1933, Executive Order 6102 made it illegal for U.S. citizens to hold or trade the precious metal.
Why? Because the Federal Reserve Act of 1913 limited the government's ability to print money, requiring all fiat to be backed by 40% gold maintained by the government.
Consequently, In 1934, the Gold Reserve Act mandated that all gold held by the Federal Reserve must be surrendered to the US treasury department.
Of course, gold was pegged to the dollar when the ban came into effect in the '30s; the rationale for a similar restriction on bitcoin simply doesn't exist. There's no longer the need for the government to own gold in order to print money; they do a fine job of that on their own.
But that doesn't mean governments can't scare up other reasons for a ban.
Bitcoin Bans Around the World
Blanket embargoes on bitcoin are already in place in some countries. In Vietnam, Pakistan, Afghanistan, Algeria, Bolivia, and Qatar, for example, owning, transacting, and otherwise dabbling in cryptocurrency is illegal.
Additionally, some counties, including China, India, Nepal, and Morocco, have initiated partial restrictions, banning crypto exchanges or bitcoin's use in payments.
However, while these countries may be able to intact any laws they desire, bitcoin, in and of itself, is non-confiscatable.
You only need to look at the peer-to-peer trading that goes on in these countries to see that the restrictions simply don't work.
For example, Saudi Arabia's crypto ban came into effect in 2018, but it did very little to dampen bitcoin traders' spirits in the country.
You Can 'Ban' Bitcoin, but You Can't Kill It
To understand why the notion of outlawing bitcoin is so ludicrous, you need to understand how bitcoin works.
Bitcoin is underpinned by a globally distributed network of nodes run by thousands of people worldwide.
Some believe that the number of bitcoin nodes is actually far greater, suggesting that the real figure is closer to 100,000.
In any case, it's this decentralization that makes it near impossible to kill, ban, or restrict bitcoin. To do so, you would have to go door-to-door terminating said nodes, as well as the internet itself—for good measure. And, if the confusion over how many nodes there actually are tells us anything, it's that this would be a futile endeavor.
In addition, and fairly ironically, any attempts to put a ban in place would likely backfire—akin to nearly every other government-implemented ban in history.
Per an analysis by Parker Lewis, head of business development at Unchained Capital, a coordinated bitcoin ban across multiple jurisdictions is highly improbable. In the event that bitcoin becomes banned in one county, another would gain the outflow. Either way, bitcoin wins.
To top it off, Dalio using gold's ban precedent is misleading. Why? Because gold continued to proliferate after the ban was instilled.
Technical barriers and game theory aside, banning bitcoin would constitute a blatant disregard for financial freedoms. While other less democratically sound countries manage to get away with it, the US, with its engrained constitution and swathe of vocal libertarians, would likely have a harder job making it stick.