Horror scenario Bitcoin ban: Can states paralyze the Bitcoin?

One of the central advantages of blockchain technologies is decentralization. Ultimately, it should also ensure that there is no single authority that can influence or even paralyze the system. Nevertheless, is the Bitcoin safe from an official ban in some countries in times of the cash ban and with the abolition of the 500 euro note similar tendencies in Germany?

Bitcoin evolution: We don’t care about politics

First, it should be examined whether there is a purely technical point of attack with which a central party can prohibit Bitcoin evolution.

In contrast to a platform or a Bitcoin evolution company, which is always assigned to those responsible who can be forced to paralyse operations, Bitcoin would generally have to prohibit the operation of miners and nodes. Difficult, because it is a decentralised system. This possibility seems to be difficult to enforce, because then all participants of the system would have to be excluded, which is almost impossible.

51% Attack: When Father State Controls the Blockchain

A 51% attack? This would mean that states interested in paralysing the Bitcoin system could gain the majority of mining power and manipulate transactions. This attack is never ruled out, but unlikely if it is a civilised state that does not see the Bitcoin as a serious crime and therefore would not itself initiate questionable attacks.

But: Due to financial conditions such as electricity costs, it is much easier or more profitable to operate Bitcoin Miners in certain regions. In the long run, this can lead to a centralisation of mining power to a few locations. The problem with this fact is that if a government in a region that provides more than 50% of the hash power gains access to the miners by controlling the traffic, it could gain full control of the Bitcoin system by attaching „wrong“ blocks to the block chain.

Bitcoin ban: weak point market
The technical possibilities with which authorities or heads of state could paralyze the Bitcoin seem possible, but limited and can only be implemented with great effort.

The situation is quite different in the world outside the blockchain technology: Finally, in order to use Bitcoin as a means of payment, it is necessary to be able to use marketplaces for exchange in fiat currencies for as long as the Bitcoin system is not yet fully accepted in itself, i.e. participants could live their entire lives with Bitcoin as a means of payment.

Marketplaces now differ from Bitcoin in that they have a central operator who is responsible for the platform. In addition to the possibility of forcing this operator to discontinue its service, there is also the option of fundamentally prohibiting Bitcoin trading. This would not prohibit the Bitcoin itself, but depending on the region that is excluded from the Bitcoin, the crypto currency would lose considerable trust and value.

What could Bitcoin bans look like in practice?
Since I personally consider a sudden Bitcoin ban to be unrealistic, the thought process of the ban begins with communication. In the following I will therefore describe a possible, purely imaginary course in which a state could curb Bitcoin by resorting to methods that are not always legal. The state will first publicly and largely propagate the risks and disadvantages of Bitcoins or crypto currencies. The currency thus suffers a strong loss of confidence in the region. People who had only a moderate interest in it stop using the crypto currency out of conviction of the disadvantages. A resulting exchange rate loss is not excluded.

In order to approach the broad mass of Bitcoin users, the state tries to restrict access to the Bitcoin outside the actual cryptosystem. Marketplaces for crypto currencies are either subject to obligations that are difficult to fulfil, making it increasingly difficult and inaccessible for users to use these platforms. After taking the simplicity away from the marketplaces as one of their USP’s, they will try to make them disappear altogether. Arguments such as money laundering support are used to paralyze the stock markets.

Customers now only have the option of using foreign marketplaces or less widespread trading models such as cash purchase. Since they are very likely to use credit transfers or credit card payments there, financial institutions and banks will be obliged to block these payments for reasons of money laundering prevention.