How Banning Bitcoin Could Backfire
As we’ve discussed at length in this space, governments can and will make life more difficult for people who wish to use Bitcoin and other cryptocurrencies. Such interference can take the form of everything from tax policy to outright bans. In a 2016 paper, Joshua Hendrickson and William Luther “show that a government of sufficient size can prevent bitcoin from circulating without relying on punishments.” They go on to find that governments could ban Bitcoin entirely if willing to hand out sufficiently severe punishments.
If cryptocurrencies undermine governments’ monopoly on currency, governments may very well take steps to limit their use. But doing so might have an unintended consequence: it might cause the average citizen to think a lot harder about why governments have a monopoly on currency in the first place.
One of the biggest challenges faced by advocates of sound money is that it simply isn’t on the general public’s radar. It’s easy to forget that fact if you’re a regular reader of this blog and the Sound Money Project, but other than occasional lip service in a Republican primary, issues such as the gold standard aren’t frequently discussed — not even by mainstream economists. That doesn’t mean these issues aren’t of critical importance; they’re a big reason why AIER exists. But when not faced with an immediate crisis, it’s easy for most of the public to not educate itself on problems with fiat currency or the Federal Reserve.
Enter Bitcoin. Even if a lot of the public doesn’t know quite how it works, it’s on magazine covers and cable news. Not all the coverage is educational, but Bitcoin’s current publicity is undeniable. If the U.S. government (for example) does take steps to ban it, Bitcoin enthusiasts, along with anyone else with an interest in changing our current monetary regime, should do their best to turn a crisis into an opportunity.
If such a debate kicked into high gear, it would be an ideal time to encourage people to ask themselves, “Why is the government so afraid of Bitcoin? What does it have to lose?” In this scenario, cryptocurrencies would really be the sound-money movement’s opening gambit — the thing that gets the conversation started and could lead to other reforms down the road. Perhaps I’m being overly optimistic, but government should raise matters bearing on our current monetary regime at its own peril.
Max Gulker
Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.
Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.
