Your personal view on crypto depends on where you’re located in the world, along with factors such as your personal financial situation, your local currency, and of course, the government’s view on cryptocurrencies. For those in more developed nations, with a strong fiat currency such as the USD, crypto regulation and the majority of the population view crypto as a risky asset. It needs to be strictly monitored and carefully regulated in many eyes, which also leads to the potentiality of an outright ban.
But would a government ever ban crypto outright? The short answer is, yes, and there are quite a few governments that already have, such as China. But an outright ban on crypto doesn’t mean that the government is opposed to digital currencies that they issue themselves, referred to as a Central Bank Digital Currency (CBDC). Let’s discuss CBDCs before we get into the nuances related to banning cryptocurrencies.
Central Bank Digital Currencies
Though many governments, US included, have somewhat tenuous views on cryptocurrencies, they are certainly not opposed to digital currencies. That is, as long as they’re the ones who control and issue said currency. These are commonly referred to as Central Bank Digital Currencies (CBDCs). CBDCs are what governments would prefer over cryptocurrencies. Realistically, they’re the next evolution in fiat currency for numerous reasons, not the least of which is the continued digitization of society and commerce.
CBDCs would work just like fiat currencies currently do, meaning they’d be backed by the government and have fixed value. Think of CBDCs like stablecoins, except they’re not subject to any potential price fluctuation or de-pegging. There would also be more advantages such as being able to expand financial access and create financial inclusion.
Crypto vs CBDCs
While crypto and CBDCs are both digital currencies, the main difference is that cryptocurrencies are decentralized whereas CBDCs have a single central authority in the form of the federal government. This means that you are still at the mercy of the government in terms of being able to access your funds when you want them. This isn’t an issue in times of financial and social stability, but it could certainly affect your ability to get money out in times of need (think Russians trying to get out money as the war broke out). It also means that almost all your financial activity will be more rigorously tracked in order to deter crime, something that can be seen as a double-edged sword.
There are already countries that have issued CBDCs, including Nigeria, where demand for Bitcoin is at a premium as they’re being limited by the government in terms of how much fiat they can take out per day. The country is switching from the old higher denomination bank notes to the new lower ones and implementing a more digital system. There have been an array of issues leading up to the switch, highlighting the difficulty in changing the status quo in any nation.
Bitcoin and Crypto as Legal Tender
Nigeria, along with other countries such as The Bahamas, have already implemented CBDCs. Other more developed countries like the US and Canada are exploring their options. China is certainly planning on implementing a CBDC as they’re already in trials in some Chinese provinces. But though these countries are looking into CBDCs, there are others that have already made Bitcoin legal tender, and more considering it. There are also specific towns, such as Lugano in Switzerland, that are truly putting Bitcoin to the test as a payment method.
El Salvador and the Central African Republic are the two countries that have made Bitcoin legal tender, while Lugano has its own cryptocurrency while also allowing Bitcoin and Tether USD to be used for everything from buying food to paying your taxes. Conversely, there are quite a few countries that have already outright banned crypto such as China, Egypt, and Qatar.
When and Why Might a Government Ban Crypto?
Why do these nations choose to ban crypto while other governments embrace it and others allow it to have a place as a speculative asset? The oversimplified answer is: control. If you look at the list of countries that have outright bans on crypto, they’re also countries with oppressive governmental regimes. Cryptocurrencies are a decentralized asset, meaning that the government doesn’t have any control over what you do with it once you have it. So, for countries like China, who want to have a ton of oversight over their citizens, cryptocurrency is a threat. Threats to their control is what often leads governments to ban crypto, especially in nations where there is corruption and large disparities of wealth.
So, a government is likely to ban crypto as it finds that it conflicts with their own goals. This can again be seen with China, as it was at one point, the crypto hub of the world. It’s where Binance started, it had the highest Bitcoin mining hashrate, and all of the old top exchanges were based in China as well. But then, as Bitcoin became more valuable and entered more and more into the mainstream as a decentralized currency, China banned it along with all other crypto assets. They knew they couldn’t control it.
The Future of Crypto and CBDCs
Governments around the globe are in various stages of accessing both the viability, or lack thereof, for both cryptocurrencies and CBDCs. The latter are more likely to be accepted by the majority of governments, as they keep control centralized.
As for crypto assets, only time will tell. As we’ve seen, some governments have already banned it, so it’s certainly possible that others will too. Conversely, some have adopted it as legal tender, helping muddy the overall world view. Whether switching to a CBDC, adopting Bitcoin or crypto as legal tender, or banning it outright, one thing is certain, it will be an interesting process to watch.