The rise in the awareness and popularity of Bitcoin over the past few years has forced governments to take a stance on the cryptocurrency. Some governments, such as China, have attempted to marginalise Bitcoin, while other countries such as Japan and South Korea have embraced this new technology. Australia has taken a ‘stand back and watch’ approach, although it is one of the more Bitcoin friendly nations.
There is a concern by governments that Bitcoin could one day become popular enough to pose a substantial threat to their fiat currency monopolies. In an interview on CNBC, Jamie Dimon, Chairman and CEO of JP Morgan Chase, commented that “Governments are going to crush it one day. Governments like to control their currency, they control it through a central bank. They also like to know who has it. Where it is, where it’s going. Wait til someone gets hurt, wait til it’s used for illicit purposes, which is already is, governments will just shut it down.”
The ability of a government to shut down Bitcoin is an interesting topic. In the same way that governments have failed to stop viewers from illegally downloading movies, shutting down Bitcoin altogether is equally as futile. At its core, Bitcoin is just a maths problem, and private keys are mere numbers floating in cyberspace. So it’s virtually impossible to shut down Bitcoin, but one unconventional method posed to eliminate Bitcoin is that instead of attempting to shutting it down, if a government truly wanted to rid the world of Bitcoin, it could simply buy up all the Bitcoins in existence and then destroy them.
It’s important to note that this scenario is impossible from a practical standpoint. But as an interesting thought experiment, let’s humour the consequences of a government’s attempt to monopolise and destroy Bitcoin.
Firstly, if a government were intent on buying all the Bitcoin, they would create massive demand for it. An enormous buyer attempting to purchase the world’s supply of Bitcoin would lead to exponential price rises. This in turn would lead to the public participating in the buying frenzy for ‘fear of missing out’. If the government’s intention is to remove Bitcoin from the hands of its citizens, an exponential price rise would certainly create the opposite result. The lack of available supply in the Bitcoin market, multiplied by a sudden increase in speculator interest will snowball on itself to an extent where Bitcoin’s entire market cap will be much too big for any country to corner.
During the $20,000 peak in the price of Bitcoin last December, the Bitcoin market cap reached $340 billion. It’s safe to assume that a massive buyer gobbling up all the Bitcoins available for purchase would drive the price up to multiples of the all time high seen late last year. Thus, a country would have to devote a gargantuan amount of funds, perhaps in excess of its entire GDP, just to fund this one effort.
Secondly, assuming that a country theoretically had an unlimited budget dedicated to acquiring every single available Bitcoin, it would also need to control the entire mining process to ensure it received all newly created Bitcoins as well. This would involve the government needing to generate enough computational power to match that of the current Bitcoin network in an attempt to 51 percent attack the Bitcoin Blockchain. At present, the entire Bitcoin network consumes as much energy as a mid sized country such as Denmark or Ireland. In fact, the Bitcoin network currently consumes more power than the bottom 159 countries! So in order to acquire all of the world’s Bitcoins, not only would a country need to devote its entire GDP to the purchasing of the coins, it would also need to commit most, if not all of its electricity output towards Bitcoin mining.
Thirdly, assuming that a government with an unlimited ‘Destroy Bitcoin’ budget had enough energy output to match that of the Bitcoin network, and hence, was somehow able to successfully acquire the overwhelming majority of the world’s Bitcoins, the remaining Bitcoins which were not able to be purchased by the government could be used to continue the Bitcoin economy. This is because Bitcoin can be divided into a hundred millionth of a coin, or eight decimal places. So even if a government was able to hoard and destroy the vast majority of the world’s Bitcoins, the remaining Bitcoins which were not able to be acquired could be divided and circulated as if the government’s devious plan never even happened.
Lastly, in the theoretical event that a government was well on its way to accumulating all of the world’s Bitcoins with the plan to destroy them, Bitcoin developers could fork the Bitcoin protocol, and the newly created forked coins could be used to create a new, uncorrupted Bitcoin ecosystem.
The thought of a hostile government attempting to accumulate and destroy Bitcoin is merely a hypothetical scenario. In reality, the financial cost and electricity output required are too large for it to ever be a feasible method for destroying Bitcoin. Nonetheless, it is a thought provoking exercise which demonstrates just how resilient Bitcoin actually is.
