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The ‘War on Bitcoin’ Is Almost Here – And It Will Get Ugly

Last Updated March 4, 2021 2:39 PM
Ben Brown
Last Updated March 4, 2021 2:39 PM

For better or worse, bitcoin is now on the global political stage. 

It was discussed in Congress. Donald Trump slammed bitcoin on Twitter . The Treasury Secretary called cryptocurrencies a national security threat , and the chairman of the Federal Reserve urged caution .

Meanwhile, India just proposed an all-out ban on bitcoin while China scrambles to create its own cryptocurrency.

What we see around the world is eerily similar to a theory put forward by Eric Voskuil . If the theory holds, we may see a “global war on bitcoin” emerge.

4 phases of bitcoin and government interaction

According to the thesis, bitcoin will go through four phases in its battle with states and regulators.

  1. Honeymoon
  2. Black Market
  3. Competition
  4. Surrender

The US is arguably in the “honeymoon” phase right now. In this scenario, governments don’t outlaw bitcoin entirely, but they exert heavy regulatory pressure on companies operating in the bitcoin ecosystem.

“[This phase] is characterized by a desire of state agencies to retain regulatory control.”

We’ve already seen this in the US with the onerous New York BitLicense. The SEC and FINRA also doubled down on crypto custody this month, while Treasury Secretary Mnuchin said cryptocurrencies would be held to the “highest standards.”

The black market phase

The black market stage is next, where governments fully outlaw bitcoin transactions and mining (bitcoin is already banned in many countries around the world). It comes when states feel their monopoly on minting money is threatened.

India is the latest state to move closer to the black market phase. As CCN.com reported, Indian regulators have proposed a full ban on holding, mining, and transacting bitcoin.

During the black market phase, Voskuil also predicts that states may issue their own digital currencies:

“This may coincide with adoption of an official new money, i.e. Fedcoin.”

Again, this is eerily similar to India’s proposal. Regulators envision a “Digital Rupee” that would be only legal tender in the country.

The list of countries experimenting with their own cryptocurrency is growing fast. China, Iran, Venezuela, and Russia are just a few of the more notable names.

The “global war” on bitcoin?

As Voskuil admits, these stages often overlap and vary region to region. What we see right now is the world’s superpowers operating somewhere between the honeymoon and black market phases. But if states begin working together to stamp out cryptocurrencies, things could get ugly:

“As states collaborate to protect their monies, this may become a global “War on Bitcoin”

It’s a worst-case scenario, but one that all bitcoin users should keep in mind. 

Is it possible? As Nic Carter, co-founder of coinmetrics.io  and partner at Castle Island Ventures, explains, the US is more likely to tighten regulation than issue an outright ban on crypto companies operating:

“I’m not saying it’s guaranteed to happen in the US, but I think regulators could definitely tighten the noose (rather than full illegalization).”

The coming years will be crucial for the future of bitcoin. As governments wake up to the fact that bitcoin isn’t going away, will they lean towards reluctant regulation? Or will they launch into a global war on crypto?

Read Eric Voskuil’s full article  for more on this theory, and what comes next if a global war on bitcoin does emerge.