The governments are Back in the game , as Russia becomes the latest country to spook the markets with talk of blanket bans against cryptocurrencies. Specifically, the Bank of Russia has railed against the industry as it chafes at its impending irrelevance as Bitcoin and related technologies open our eyes to the massive overreach of central banks around the world.
Veterans in the space can recall dozens of similar bans over the years that more or less failed as blockchain technology flourished. However, new entrants are more likely to not know how to navigate what may be uncharted waters for them. As a result, I hope we can together debunk many of the lies and half-truths put forth by the Bank of Russia conspiracy theorists over the past few days:
Use in illegal activities
Due to the anonymity of transactions, cash substitutes are widely used for illegal activities.
There are actually two misconceptions contained in this quote, at least in the context of Bitcoin, both of which are relatively easy to debunk:
- Bitcoin transactions are anonymous.
- Bitcoin transactions are aliases , meaning that a user's identity is not by default tied to their activity on the blockchain. However, all Bitcoin transactions on the Layer 1 blockchain are publicly visible at all times. Meanwhile, governments, financial institutions and blockchain intelligence companies use KYC and other resources to tie users' real-world identities to their blockchain identities.
- Bitcoin is widely used for illegal activities.
- This accusation stems primarily from associations of cryptocurrencies with criminal enterprises such as Path of the silk and so-called “get-rich-quick” schemes such as fraudsters . However, the truth is that Bitcoin's nature as a public blockchain makes it nearly impossible for illegal financial activities to be hidden from the prying eyes of regulators. This reality can be easily visualized by reviewing the percentage of cryptocurrency value transfers that are linked to criminal activities:
The above chart comes courtesy of Chainalysis, a blockchain intelligence company
Monetary sovereignty of the central bank
Cryptocurrency limits the sovereignty of monetary policy, which could force the central bank to keep the key interest rate permanently higher to control inflation.
The lie here is not that Bitcoin will reduce the monetary sovereignty of central banks. Such an outcome is almost certain, as citizens realize the amazing benefits of the bitcoin-based financial system . Rather, the lie is that quasi-omnipotent control of monetary systems by central banks is a good thing.
The truth is that the Bank of Russia, like many other central banks around the world, is afraid of losing its ability to manipulate and control financial markets, while at the same time accrues considerable wealth to the rich and powerful among its ranks and benefactors. Meanwhile, the Bitcoin financial system remains a bastion of inclusion and self-reliance, as anyone is free to participate at any time on an equal footing with everyone else.
Proof of work and environment
Cryptocurrency mining creates unproductive electricity consumption, which threatens the power supply of residential buildings, social infrastructure and businesses, and the implementation of Russia's environmental program.
Those who see the Bitcoin blockchain and the proof-of-work consensus mechanism that makes it possible as "unproductive" are either ignorantly or maliciously missing the point.
Michael Saylor, CEO of MicroStrategy and someone who has spent a lot of time thinking critically about the true value of Bitcoin, sums it up pretty succinctly:
Likewise, the idea that Bitcoin mining threatens residential and commercial power is a farce. The energy consumption of such businesses is relatively constant in the context of supply and demand, meaning that energy prices in areas where homes and businesses come together (i.e. cities and towns) are some of the highest in every sector. The main differentiator of profit for Bitcoin mining is the cost of electricity, which means that Bitcoin miners are highly disincentivized to work in areas where direct competition from residential and commercial energy users leads to excessive energy prices.
The fact is that Bitcoin mining is leading to revolutionary development and investment in energy infrastructure around the world, but especially in places where such infrastructure is in short supply. Just ask the state of Texas, where the influx of Bitcoin miners builds opportunities of a power grid that catastrophically failed as recently as last year, resulting in dozens of deaths.
The truth is publicly available
Central banks and the government bureaucrats who run them are highly incentivized to hate Bitcoin and sway public sentiment against it. After all, their suffocating control over the financial markets over the past few centuries has earned them enormous wealth at the expense of everyone else.
Regardless of their misaligned incentives and attacks, the Bitcoin blockchain continues to work, block by block, bringing financial inclusion and sovereignty to anyone who chooses to use it.