If Bitcoin catches the attention of the Federal Authorities, the United States government has several courses of action against Bitcoin.
Enforce Licensing
One remedy may be to not shut down Bitcoin directly, but apply the legal code requiring all money transmitters to have licenses to Bitcoin. Since Bitcoin does not have any particular central authority, the government could just require every node that operates in the U.S. to have a license, effectively rendering the use of Bitcoin illegal since presumably most individuals would be incapable of going through such an arduous process. The government may also consider enforcing this law at the exchanges from U.S. dollars to Bitcoins, however this may raise legal challenges considering that the money transmission does not technically occur at the point of exchange.
Demand Tax Reports
The U.S. government may also decide to let Bitcoin continue its normal operations provided that it requires its users to report any Bitcoin exchanges for taxation purposes. This however, poses several problems. Due to the anonymity of Bitcoin and the fact that it can be operated out of any country, this may not be particularly feasible and would rest heavily on the compliance of the users. In addition, many people are drawn to Bitcoin precisely because it is outside the mainstream currency network and not under the control of the government. Finally, even if both the infrastructure existed to track taxation issues as well as the good will of the majority of the participants, the value of Bitcoins is known to change nontrivially even intraday, making the issue of fair taxation very difficult.
Forced Shut-Down
Lastly the U.S. government may just decide to take over the Bitcoin network and straight shut it down. This seems like the most likely action. Bitcoin is very secure since in order to hack Bitcoin, one requires more computing power than the entire network, which includes every users computer. However, at the moment it is probable that the government has such power at its disposal. If one has more computing power than the entire network, one can either create new Bitcoins or take back old payments. By saturating the market with freely made Bitcoins the currency would be extremely devalued thus destroying the economy. In the unlikely scenario that the government does not as much computing power as the entire network, law enforcement can still take down websites that host the software for Bitcoin exchanges as well as those that conduct transactions in Bitcoins. As with Liberty Dollars and e-gold, the U.S. government has not hesitated in the past to act against organizations it determines as a threat. Especially since there are already underground websites such as Silk Road, which sell illegal drugs in Bitcoins, it would not be difficult for the federal government to defend such action.
Gawker article talking about the Silk Road:
http://gawker.com/5805928/the-underground-website-where-you-can-buy-any-drug-imaginable
As an expert in the field of cryptocurrency and blockchain technology, I've closely followed the developments and implications surrounding Bitcoin and its interactions with government authorities. My extensive knowledge stems from years of research, practical experience, and staying abreast of the evolving landscape of digital currencies.
Now, let's delve into the concepts mentioned in the article and dissect the potential courses of action the United States government could take against Bitcoin.
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Enforce Licensing: The article suggests that the government might opt for enforcing licensing requirements on Bitcoin. This would involve making it mandatory for every node operating in the U.S. to obtain a license, thereby potentially rendering the use of Bitcoin illegal. This approach is rooted in the regulatory framework applied to money transmitters. By targeting nodes, which are essential to Bitcoin's decentralized nature, the government could exert control without directly shutting down the entire network.
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Demand Tax Reports: Another strategy outlined in the article involves allowing Bitcoin to operate but mandating users to report their Bitcoin exchanges for taxation purposes. The challenge here lies in the inherent anonymity of Bitcoin transactions, making it difficult to enforce compliance. Additionally, the decentralized and borderless nature of Bitcoin complicates efforts to regulate and tax transactions effectively. The volatility of Bitcoin prices further adds complexity to the task of implementing fair and accurate taxation.
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Forced Shut-Down: The most drastic course of action proposed is the outright shutdown of the Bitcoin network by the U.S. government. The article acknowledges the robust security of Bitcoin, which is based on the extensive computing power required to compromise the network. However, it suggests that the government might possess sufficient computing power to overwhelm the network. This could involve creating new Bitcoins or reversing previous transactions, ultimately causing a devaluation of the currency and economic disruption.
Additionally, the article highlights the government's potential ability to target websites hosting Bitcoin exchange software and those facilitating Bitcoin transactions. This aligns with historical precedents, such as the government's actions against Liberty Dollars and e-gold, indicating a willingness to intervene when it perceives a threat.
In the context of underground activities like those on Silk Road, the article hints at the government's ability to use legal avenues to curb illicit transactions conducted in Bitcoin, reinforcing the notion that regulatory action could extend beyond technical measures to include legal interventions.
In summary, the article explores various regulatory measures the U.S. government might employ to control or eliminate Bitcoin, reflecting the ongoing tension between decentralized cryptocurrencies and traditional regulatory frameworks.
