With the current market cap north of $1 trillion, Bitcoin seems to be strengthening daily. However, why were e-Gold and Liberty Reserve, preceding endeavours with the same goal of providing online digital currencies, shut down before they even hit the $10 billion market capitalization mark? Bitcoin’s market value certainly has been noticed by the government. This begs the question: can Bitcoin be regulated by the government?
Bitcoin is widespread- from its mining to its buyers. It is a globally-distributed phenomenon. Even though the primary buyers are located in the European Union and the USA, the people who run the system (software engineers & node runners to keep the servers functional) are spread all over the world. This extensive network of people who administer the system paired with the fact that all of them work under pseudonyms or anonymously makes it all the more unshakeable thus preventing, or at the least limiting access to, their inner workings by outsiders.
Additionally, Bitcoin markets are independent and Bitcoin's use is not restricted by geographical boundaries.
Bitcoin as a cryptocurrency has no pre-eminent line of failure i.e, it does not have offices located worldwide or a ruling body or a team of lawyers. This system design can not be manipulated. However, it does not mean that there have not been any attempts to dismantle this architecture. Only a few months ago in December 2020 an attack on Bitcoin was set in motion by Steve Mnuchin, the then US treasury secretary. It was a rather weak pounce intended to crack down on transactions of Bitcoin through US exchanges which would allow access to complex information about the flow of funds. Unfortunately for Steve, it didn’t carry out according to plan, and faced strong opposition.
One of the most feared outcomes for Bitcoiners would be something similar to Executive Order 6102. This was issued by US President Roosevelt in 1933. It effectively placed a ban on owning physical gold by US citizens. This was executed by forcing these people to hand over their gold to the authorities. Similarly, it is feared that an extreme measure forcing people to relinquish their bitcoins to the government might be taken. To no surprise, Bitcoin already has a plan to combat this scenario if it were to occur.
The government could also start taxing this currency. They could also launch their own digital currency via the Central Bank to initiate competition with Bitcoin. Finally, Bitcoin mining could be banned.
These regulatory attacks may seem feasible but they are either too weak or bear a too large a cost for the government.
