So what happens if the US Federal government determines that it is illegal for any US business to accept bitcoin? Could the currency still survive? Would there be a use for it? Since it would only be illegal to conduct business transactions with bitcoin, could it be used a currency between individuals?
Could the US Federal government merely make it illegal to trade bitcoins for USD? If so, how would it be enforced? Could a tax audit reveal a bank transaction to or from an exchange? How would this effect the value of bitcoins?
I don't see how they could. Bitcoin is a
global currency. So if the US Federal government says it's illegal for any US business to accept bitcoin they may as well say that it's illegal for any US business to accept euros, yen, pounds and so on - and bang goes the export industry. Because when someone abroad buys your stuff they are paying you in
their currency, and then you exchange it at your bank or keep it in that currency for hedging purposes. So Google accepts money in euros when someone in euroland buys an ad for example, and they keep much of that money in euros rather than repatriating it to the US. Someone paying in Bitcoin is doing the exact same thing. And then there's all the other token items such as frequent flyer miles, reward points and so on which are all tokens businesses accept instead of money. They'd have to ban all of those too.
They can't do anything, not just because it's decentralized but because it's global. The more countries that participate in Bitcoin the better.
P.S. I should have added - the government will never have to bail out bitcoin because there is no lending based on it. So from the taxpayer point of view it is risk free as long as they can still collect taxes on people's capital gains from trading or people's profits from selling pizzas in bitcoins etc. If Bitcoin had existed in fully fledged form in 2008, would the govt have needed to bail out the banks? They did it because the banking system was the only financial system in place, but if there was a working alternative in place, would they have just let the banks fail?
Bitcoin is bad for banks because it cuts out banking's middleman function, but it could be good for govts if it reduces their need to conduct bailouts (which they didn't enjoy doing because they caught so much flack from voters for it). The biggest threat to bitcoin is actually banks unilaterally closing accounts of exchanges and merchants they think are using bitcoin. In which case we'll need the govt on our side to force the banks not to close accounts on the grounds that it is anti-competitive behavior. Banking and governments are separate institutions and they have different agendas. At the moment the govts agenda is the same as the banks - but it's up to us to persuade govt that it's in their interest for them to line up with us against the banks.
