I've often heard that nothing can stop bitcoin.
While this may be true, I would like to make a list of all possible ways in which banks and governments will try to fight against BTC. So we could find ways to anticipate against it.
Some ideas:
- Prison sentences for people getting caught owning BTC, trading it or selling goods in BTC. Penalties so severe that most people will back off. I often hear local media associate BTC holders with criminals and money launderers, and expect governments to treat them as such. Local banks in my country can face penalties if crypto profits are transfered to a local bank account.
- Regulation for exchanges getting so tough that they can never comply, which will cause them to be shut down, which would generate a run on crypto with a similar effect to FTX bankruptcy.
- Liquidity crises of the exchanges. In case of a bank run, banks can pay about 3% of their account holders. I wonder which amount of liquidity an exchange should have to be solvent. FTX behaved like a bank, but the difference is that FTX' bankruptcy can cause a crash of BTC price while a bank run just leads to the bank being bailed out by the IMF, without the currency getting destroyed.
If you think that none of these things is a realistic threat to the system, let me know.
If there are other threats, likewise.
What might make the most sense in my opinion is too increase friction as much as possible. Saying that Bitcoin is "unstoppable" is indeed true. What governments can do is to turn Bitcoin from an innovational Ferrari into a heavy transport train, maybe blowing up the rails at times to try to stop it temporarily in making any progress.
Now you realize that even if you slow Bitcoin down, it is still a heavy transport train, going slowly but surely as there is enough lobby taking care of functioning rails.
> Prison sentences: that's a funny one because even today many countries have issues in keeping up the logistics and sufficient capacities for criminals not involved in Bitcoin or cryptocurrency in general. When India threatened to put everyone into jail who is dealing with crypto, I guess you wouldn't have had to pass any class in school in order to know that
putting 100 million Indians into jail (let's leave the whole administration for police investigation and court processes aside) might be sliiightly too demanding for the Indian system as a whole!
Sure, they could try and set precedences by nationwide propaganda, letting people know that someone is going to jail for 15 years as a consequence of owning some Bitcoin, but seriously that is not going to work out either. They would have to destroy any rule of law and any bit of democracy to justify a prison sentence that might not even have the slightest of an effect,
taking into consideration that not even the death penalty is backed by science showing that a certain crime rate goes down as a result of the death penalty. >Increasing regulation for exchanges until they can't handle it anymore: this won't work either in the mid to long-term for various good reasons. One reason is that decentralized exchanges are already there and they will only get better. Multi-sig technologies already allow for safe peer-to-peer transactions on simple websites that can't even easily be shut down by the governments. Fully decentralized exchanges are evolving. How are you going to increase regulation for them? There are surely ways to regulate the version that might be there today, but what if there is another version tomorrow? The issue regulation has in comparison to technological innovation: it always lacks behind. And in many cases the developers might not even be known so you can't even sue anyone.
If I recall correctly, the use of Tornado.cash was sanctioned now. People who use it get into trouble. Really? That leads me to my next point, also addressing your precise question whether increased regulation could force exchanges into compliance issues.
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Lawsuits! Tornado.cash, and I really expected it, under the lead of Coin Center is going to sue US Financial Authorities! When governments decide to increase compliance rules to a level such that crypto-related exchanges specifically are brought to their knees, they will guaranteed fight back legally. The case is easy to be made: why would a financial institution facilitating trade be any different in front of the law than the ordinary bank? Crypto exchanges would cooperate, which means they would have access to financial superpower (even Binance alone I guess) and employ an army of lawyers and investigators in order to find loopholes, simple proofs that banks are no different, complex proofs for the matter as well, and probably a lot of stuff we can't even imagine. I want to see the judge who then comes up with a plausible verdict that justifies different treatment between banks and registered exchanges so severe that compliance rules for crypto exchanges can be of magnitudes harder than those for banks. I am sure they can come up with shenanigans for a certain period of time, but they can't probably make a case that means end to crypto exchanges while allowing banks to prosper with their current business models. It just needs a single financial crisis and those verdicts would be attacked again.
The decision that is to be made by governments is whether to fight or embrace Bitcoin, also in the fact of global competition. We have already seen companies choosing the most crypto-friendly countries to incorporate their headquarters. Switzerland was a great example for that and so governments also feel the pressure to not make mistakes and abandon an entire industry with strong future potential.
