Absolute futility of cryptocurrency ban
Some governments do not give rest the rapid growth of acceptance of cryptocurrencies by the world community. Humanity saw in them an alternative way to save their savings and protect their financial freedom. But governments see a threat in this.
Attempts to curb crypto
In the past few weeks, U.S. Treasury Secretary Janet Yellen has raised a wave of alarm about (as she believes) the growing “abuse” of cryptocurrencies, which she claims, to be applied solely “for illegal financing” by questionable groups.
When the hearing took place regarding Yellen’s statement, she expressed some sinister intentions, saying they needed to take urgent action to develop a counteraction to the use of the crypt and its limitation. The measures should aim to ensure that the regulator is confident that they are not being used to launder funds.
Back in December, former acting financial comptroller Brian P. Brooks warned consumers that more crypto-industry regulations should be expected before former President Donald Trump’s term expires.
These rules were never implemented, but Yellen’s interest in reducing the number of cryptocurrencies proves that the government’s interest in the previously unregulated monetary system has not disappeared with the change of presidential administration. Elsewhere in the world, full and partial restrictions on the use of Bitcoins and cryptocurrencies have recently been imposed.
European Central Bank (ECB) President Christine Lagarde did not stand aside either, saying Bitcoin conducts “fun business and interesting and utterly reprehensible activities on money laundering.”
The ECB directly demanded from EU legislators to urgently create legal norms for cryptocurrencies, up to their ban. This is particularly the case for stablecoins. The ECB believes they need the power to use veto power over the release and distribution of stablecoin in the euro area.
From partial to total ban, and the result does not particularly please potential supporters of the cryptocurrency ban, as it is virtually futile. Historical records confirm this repeatedly, and even almost constantly.
Baths give rise to workarounds
In July 2020, the popular short video app TikTok announced it would suspend operations in Hong Kong, following China’s introduction of a new city-state security law. The announcement was followed by three frenetic days for Hong Kongers using the platform until the app was eventually removed from the app store.
But smart consumers quickly found workarounds to continue using TikTok. They used virtual private networks (VPNs) that gave Hong Kongers foreign IP addresses to “cheat” make the app work within city-state boundaries (almost the same as people bypass the Great Chinese Firewall). They also started using SIM cards not from Hong Kong, again disguising their activities as other parts of the world.
This kind of bans doomed fiasco
It’s enough to look at the failure of the war on drugs, which is obvious. But the incessant flow of not just drugs, but guns, cell phones and other banned items into prisons, is at the same time indicative of both human ingenuity and state incompetence.
Interesting point: a surprising side element of these stories is the periodic appearance of cats. Prisoners held in a prison in Brazil have taught the cat to carry an escape weapon into the facility. Officers said the cat was seen coming in and out of the prison gates and on New Year’s Eve in 2012, she was caught by a security guard with “two saws, two drills on concrete tied to her body, earphone, memory card, mobile phone, three batteries and mobile phone charger.”
Strangely, this happened in us, in Russia — a cat carrying cell phones and chargers into prison. An even more interesting twist is a cat helping prisoners in Sri Lanka, who, after being taken, was let go, presumably on subscription.
Examples of failures of prohibitions mass
More similar to the case of Bitcoin is an example of the East German mark and the black market sprang up around a currency in divided Germany.
The East German currency, officially known as Mark der DDR — the mark of the German Democratic Republic — could be exchanged for West German banknotes at a rate of 5:1 through official channels (and before 20:1 on the black market). The GDR strictly banned imports of other currencies, fearing the rise in popularity of the parallel currency. Such efforts were futile. East Germans, desperate for a strong West German stamp, found ways to get it. By 1979, up to a quarter of East Germans were receiving money from their friends and relatives in West Germany.
The very idea that the government might even try to ban the development or use of something as complex and ephemeral as a virtual peer-to-peer currency is beyond doubt a pass. Only in the conditions of the utopia described by Orwell can such an attempt be made. And even so, it is unlikely to succeed.
Now largely forgotten, the “SOES Wars” are an example of the cycles of superiority that arise when regulators attempt to crack down on certain actions.
SOES (Small Order Execution System), was an electronic stock trading system established by NASDAQ in 1984, but which gained special prominence after the 1987 collapse. It was introduced in response to a claim that during a severe fall in share prices, some stock dealers had “abandoned” their trading obligations, which include giving hard (non-negotiable) quotes even when prices fall. SOES allowed simultaneous execution of up to 1000 shares of this share category from any dealer in the domestic market (the highest or lowest price).
Shortly after its introduction, a handful of traders found that SOES was useful for “suspending” other traders not paying close attention to their markets, thus providing fast as well sometimes and lucrative deals. Recipient dealers complained to regulators, saying SOES was set up for use in extraordinary market conditions rather than day-to-day use.
In response to a regulatory requirement that SOES can only be used for retail customer orders, traders who know how to use SOES (some of which have started opening brokerages firms dedicated to this activity), requested individual customer accounts, agreeing to share profits with them. In response to the restriction that orders may be restricted to trading on one side (buy or sell) on individual shares per day, SOES traders have opened hundreds of accounts: buying on one, selling on another for a day, rearranging trades before sending them to their clearing firms after the market closes.
And when orders processing rules seemed to crack the SOES system in 1997, setting a maximum automatic execution size of 100 shares, it had almost no impact. By then, SOES trading firms had transformed into their own trading companies, offering a wide range of other proprietary electronic trading systems: SelectNet, ECN, cross-networking and even, in some cases — Instinet.
An inquisitive reader might want to learn that why didn’t securities regulators at some point simply ban the Small Warrant Execution System? It’s hard to say, but most likely because in the event of a market crash or crisis, the optics of abandoning the method of quickly getting out of positions for retail traders and brokers would be decidedly negative.
A common expression at the time was that SOES traders were “thugs” who used systems designed for other purposes for profit. Others felt that by failing to comply with their own quotes during periods of market pressure, Nasdaq dealers themselves had taken the SOES headache on themselves. The same can be said of global monetary and banking policy organizers in their attempts to denounce Bitcoin as a tool of criminals.
One would expect that after the cryptocurrency ban, there would be at least the same dynamic — an “eye for an eye”. And who is to say what will replace Bitcoin if a partial or total ban is effective, even temporarily? It seems likely that a new cryptocurrency that solved a few small problems that are in Nakamoto’s design will quickly fill this gap.
As the wise proverb goes, where there is desire, there is a way. Throughout history, governments have identified emerging threats and sought to address them through harsh prohibitions or regulations so strict that they are effectively bans on their own. But the only thing guaranteed by these actions is, of course, not eradicating an “unwanted” product or behavior. It is a human tendency to find new and innovative workarounds in the face of obstacles. And far from least — it is government interference in individual liberty.