“Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”
SATOSHI NAKAMOTO
Imagine you are a seasoned army general entrusted with quelling a rebellion that threatens to destabilize the status quo. Your first priority would be to locate the leader of the rebellion and seek to negotiate their cooperation. But if they prove unwilling to cooperate, your next step would be to remove them from the equation - either through persuasion or force. This would likely cause the rebellion to lose momentum and eventually dissipate. However, if the rebels appoint a new leader, the cycle must be repeated until the it is completely quelled.
Concentrating power comes with significant risks. If one person holds all the power, then it only takes one person to unravel the entire system. Any opposition with sufficient strength and determination can shift the balance of power because they can focus their efforts on a concentrated target. Therefore, it is important to maintain a well-distributed balance of power and avoid trying to engineer a stable system if you want it to last for a long time. Stability comes at the cost of all the chaos you don’t understand or perceive.
The world of finance is not immune to power dynamics. As an open-source form of money, bitcoin poses a formidable challenge to every previous form of money. It is free for anyone to build on or destroy. And thus finance generals around the world have been trying to destroy it since its first dose of mainstream awareness in 2013 with no success. This is because bitcoin thrives without a central leader in an elegant web of incentives.
All the participants in the bitcoin universe are driven by self-interest, but it is precisely this selfishness that makes it work. For example, there are armies of developers working tirelessly to make bitcoin easier to use. They stand to reap great rewards if they succeed. There are exchanges around the world that facilitate financial on-ramp, and the more volume they transact, the more successful they become. Further downstream, there are artists who create content on YouTube, Twitter and TikTok who stand to gain influence and wealth if they provide concise, actionable knowledge that goes viral. Businesses are inventing new ways to use bitcoin with their existing models, and authors like myself strive to educate and grow in influence.
You see, bitcoin is not a single thing you can stop or ban, it is a macrocosm of economies working together. We are all contributing to bitcoin's success in our own way. If you destroy one part of it, that is all you have accomplished. You have only destroyed one part! So, when a nation state declares that it will destroy or ban bitcoin, you should ask: which part?
CASE 1: A NATION STATE MINING ATTACK
A country’s leader learns that enormous computing power secures the integrity of the bitcoin network. And that it works with specialized computers called miners. So they print billions of dollars for mining equipment in order to control the majority of the computing power. This way, they are closer to the supply issuance and they can decide what transactions go through or simply decide to validate fraudulent transactions effectively destroying trust in bitcoin.
REKT
Let's assume that a highly motivated state actor decides to pool resources and use brute force to attack the bitcoin network. In this context, "brute force" means using a large amount of computing power in order to control the network and disrupt transactions. A lot of computers work together to protect the network by making sure that users can only spend bitcoin they own. If an attacker has the majority of the computing power, they can determine which transactions are valid and which aren't. In the past, it might have been possible to attack the bitcoin network in this way, but not anymore. The network is now more powerful than the top 500 supercomputers on earth combined, achieving a level of computing power that no single nation state can overcome with brute force alone.
In order to achieve this in theory, a state actor would need to mass produce a huge amount of processor chips under the radar of international adversaries. The circle of individuals involved in this effort would have to be exceedingly small and airtight, because failure to do so would make their intentions obvious. Then, they would need to deploy these chips in a coordinated assault while maintaining even more secrecy. If successful, this would give the nation state actors control over the network for about 10 minutes. After 10 minutes, the rest of the network would discover the attacker and either eject them or move the ledger history to a new chain. The attacker would have spent billions of dollars to achieve a single double spend, and all the special purpose hardware they bought in secret would be rendered useless. It would be an expensive lesson to learn.
However, by the time the attack reaches this point, the nation state would have earned some bitcoin because the incentives system works. It would make more economic sense for them to keep the rewards and continue to participate. They would become bitcoin miners. Game theory wins.
CASE 2: A NATION STATE CURRENCY ATTACK
A government learns that there will only ever be 21 million bitcoins. In order to gain control over a significant percentage of the supply, they print billions of their national currency to buy as much of the supply as possible. By doing this, they hope to influence the price to benefit themselves and erode confidence in bitcoin's store of value properties.
REKT
At the time of this writing, about 19 of the 21 million supply has been mined into existence. It is worth noting that a nontrivial percentage has been lost to poor disaster recovery practices. This means that the actual amount of available bitcoin is less than 19 million.
If a government decided to inflate their money supply to buy bitcoin in the open market, they would be competing with wealthy individuals, enterprises, and other governments. If they went all-out, they would only succeed in bidding the price up. The reason for this is that bitcoins are limited in supply. The more they buy, the higher the price would go, making early adopters richer without any extra effort. If multiple nations attempted such an attack, it would drive the price of bitcoin to skyrocket irrationally and accelerate an inflection point known as hyperbitcoinization1.
The most certain outcome to cap this monumental folly would be that it devalues government money and average people lose purchasing power. This would then create a loop that makes government money less attractive to hold. Citizens would trade their depreciating money for the appreciating bitcoin, since their elected leaders are doing it. As Gresham eloquently put it, "bad money drives out good money." Bitcoin would slowly disappear as people covet it and spend less valuable fiat money. Governments would need to inflate even more if they want to pay for roads, schools, and hospitals.
CASE 3: NATION STATES ATTACK EXCHANGES WORLDWIDE
Governments around the world decide to join forces and shut down every major exchange. An exchange is a place where bitcoin interfaces with government money, allowing people to buy and sell bitcoin with whatever is legal tender in their jurisdiction. By shutting down these exchanges, governments hope to cut off the flow of bitcoin between the digital and the real world, making it more difficult for people to access and use it.
REKT
It's highly unlikely that governments around the world can work together and shut down every major exchange. The logistics of such an operation would be complicated and would require a level of coordination that is beyond the capabilities of most governments. Additionally, it's not clear that all governments would agree on the need to take such drastic action. As it stands, many governments struggled to respond effectively to the Covid-19 pandemic which was a common enemy. It is unlikely that they would be able to mount a coordinated attack against something as sophisticated as the bitcoin network.
If, against astronomical odds, governments managed to shut down every major bitcoin exchange, it would create incentives for people to bypass these restrictions and find ways to access and trade outside government control. This would lead to a game of "chicken" between governments, as whoever reneges first would stand to gain a larger share of the new bitcoin economy. It's difficult to predict which government would cave first, but it's unlikely that any of the major players (China, Russia, the U.S.) would want to be left behind. And as for African countries, with the exception of a few, most would not participate in such elitist foolishness.
Let's further theorize that governments manage to shut down every exchange on the planet and that none of them succumb to the temptation of secretly allowing exchanges to operate. What would happen then?
A new type of exchange would quickly emerge to fill the void, one that has no central deposit or clearing house. This is a decentralized exchange2, which looks and feels like a regular exchange but doesn't control your bitcoin keys – you do! This is because you don't deposit them into the exchange wallet. Instead, you trade from the convenience of your hardware or non-custodial wallet through a mechanism called atomic swap3. Liquidity would move to these decentralized exchanges and they would resume trading outside of government oversight. In fact, decentralized exchanges have been growing in volume and liquidity year after year.
CASE 4 NATION STATES CREATE THEIR OWN CRYPTOCURRENCY
A government decides to create its own version of bitcoin since the code is open-source and free. They hope to use their population as a bootstrap to leapfrog bitcoin adoption.
REKT
By definition, a cryptocurrency is secured by cryptography and operates without a central issuance or regulating authority. This means that no government can truly issue a cryptocurrency, as governments are centralized groups of people who hold power and make decisions for a specific region. Therefore, when a government claims to create a cryptocurrency, they are really just rebranding a version of their already existing digital currency. It's like a car with a Tesla exterior, but under the hood, it still runs on the same old gasoline. So, while government-backed cryptocurrencies may be advertised as a revolutionary new means to prosperity, they are powered by the same fiscal policies that govern traditional fiat money. They will inflate the supply and reduce its value over time, just like traditional fiat currencies. Inflation is a common method used to fund things like roads, hospitals, schools, and wars, it's a tactic governments have relied on for a long time, and one that they cannot abandon easily. They are not the decentralized, autonomous forms of money that governments would have you believe. They are just another tool in the government's toolbox, and one that will be used to maintain their power and control.
A government-issued cryptocurrency, born from the desire for control, would likely be a closed financial system with little room for innovation. Only large banks and corporations would have access to the privilege of building on top of it, their focus primarily on maximizing shareholder profits. This lack of innovation and value to the current financial system, would only serve to increase the level of control that is possible.
Furthermore, government-issued cryptocurrencies would still be subject to capital controls and political maneuvering, similar to how national currencies compete today. This leads to disputes between governments, resulting in regional sanctions and blacklisting, causing even more financial fragmentation than we currently see. In short, a government-issued cryptocurrency would not bring the decentralized and borderless qualities that many people see as the main advantages of Bitcoin.
Imagine a world where your national legal tender is programmed to limit your citizens' spending to just $100 a day, or to force them to spend all their money before the month's end. It sounds like something straight out of a dystopian novel, but with the advent of government-issued cryptocurrencies, this scenario is not only possible, but it is operational today.
Bitcoin fixes all of the above. Its issuance is decentralized and its supply is predictable for the next 140 years. It cannot be controlled by any single country, making it accessible to anyone, regardless of location. It is an exit strategy for citizens of countries whose governments implement such oppressive monetary policies.
COUNTRIES THAT BANNED BITCOIN
CHINA
In 2013, China tried to ban the bitcoin trend,
But after all this while, it is still not dead,
Whenever the CCP tried to make a new rule,
People shook their heads and said, "Oh, that's cool".
They issued new threats, with sterns and frowns,
But everyone went, "Oh, look at them now",
Their analysts panic, then spread fear and dismay,
But the sun still shone like any other day.
In 2021, they banned mining with a terrible plan,
So the miners left for U.S. and Kazakhstan,
The ones that stayed went deep underground,
To fight the recession in goblin town.
UNITED STATES
The United States is cautious in the approach it takes,
Not flat out banning, but slowing for progress sake,
They see bitcoin challenging the dollar’s reign,
From Africa to Europe, Nigeria to Spain.
So they fight back hard with all of their might,
Sometimes in secret, sometimes in plain sight,
They send mole after mole and all kinds of spies,
Cypherpunks, corporate, even State level guys,
But they are easy to spot wherever they are planted,
Bitcoin is harder to fool than the simple gold standard.
INDIA
In 2016, Minister Modi made a surprise move,
To declare cash useless, and have it removed,
Everyone in India, father mother and son,
Put on their sport shoes for the great bank run,
The central bank decided to ban bitcoin too,
Like U.S and China, they went full “me too”,
They had this great plan, to which no one agreed,
To eradicate crime with digital rupees,
But the Supreme Court came running to rescue the people,
Telling the central bank its ban was illegal,
And despite their efforts to control and regulate,
The people chose bitcoin, not money from the state.
RUSSIA
In 2014, the Prosecutor General solemnly declared,
That Bitcoin was no longer welcomed there,
Any use was considered unlawfully malicious,
Justice was dealt in a manner so vicious.
In 2022, they banned it again,
But this time around, they invaded Ukraine,
Then the West got angry, took their yachts and net worth,
Everyone abandoned them, but bitcoin did not!
NIGERIA
In 2017, the Nigerian Central Bank said “enough is enough”,
They sent out a memo to cut all traders off,
Nobody listened, so they did something sneaky,
They went on the air and said bitcoin was risky.
In 2021, they sent a memo again,
To remind everyone that the penalty remained,
And that they had been working on a brand new creation,
That was better than bitcoin and proof of work innovation.
They launched the eNaira with grand celebration,
Hoping it would lead to a big mass adoption,
But nobody used it from the day it was launched since,
Not the fruit seller or the Nigerian Prince.
NIGERIA BANS BITCOIN
9JA NO DEY CARRY LAST
In the 1970s, Nigeria was a place of vibrant energy and promise, a cultural melting pot that drew icons like James Brown and Paul McCarthy to its shores with the promise of both artistic fulfillment and financial gain. But as the decades passed, the nation's fortunes took a turn for the worse. The Nigerian Naira, once a powerful currency, was left weakened by reckless economic policies, and the country failed to live up to its potential as an economic powerhouse.
What went wrong? The root of the problem lies in the nation's reliance on a fiat system based on oil and natural gas, coupled with a culture of corruption that held it back. For two decades, the economy struggled with double-digit inflation, and the Central Bank of Nigeria found itself in direct competition with commercial banks through its practice of lending directly to consumers.
But then, in 2017, something unexpected occurred: bitcoin emerged and became the talk of the nation. Suddenly, everyone from civil servants to students to politicians were discussing the digital currency, adding yet another layer of chaos to the already messy economy.
As the largest economy in Africa and home to one of the youngest populations in the world, it's no surprise that Nigeria became the largest bitcoin market by trading volume in Africa, according to data from exchanges like Paxful and LocalBitcoins. But the government did not take kindly to this development. Under the leadership of Governor Godwin Emefiele, the Central Bank of Nigeria went on the offensive, with rumors of a new "internet money" circulating throughout the halls of the CBN as early as late 2016. As the governor, Emefiele had a team to research new topics like this, and they went to work to try and understand this new force.
Can someone explain what a bitcoin is or where it comes from?
The following weeks were marked by a flurry of activity as the team dove headfirst into research, clicking away at Google results as they frantically sought to understand this new, mysterious force. Andreas Antonopoulos videos filled search histories on government servers as the team consumed all the information they could find on bitcoin. And then, after weeks of research, they held a briefing.
What have we learned?
Sir we understand bitcoin is a new kind of virtual currency that is out of our control. We have no say over the issuance or the regulation. We can't tax it, we can't create it.
Do we know who created it?
Yes sir, we do. A lady by the name Satoshi Nakamoto.
Are you sure it's a lady?
It's hard to say sir. These Chinese names can be gender complex.
Fine! Get her on the phone.
We already tried. She likes to be left alone.
Oh, ok. How is Bitcoin created?
According to our research, it’s a process called mining. Apparently it's the digital equivalent of earth mining but with computing resources and lots of electricity.
Electricity? This lady Nakamoto found our achilles heel. She could have used oil or any other resource but she chose electricity. I like her less already.
Sir, we found out some fun facts about bitcoin in our research: the maximum supply is 21 million and the supply issuance is capped every four years.
What a simpleton. I don't think Satoshi is very bright. Only the Olympics gets planned every four years. We plan our fiscal budget every quarter and adjust according to inflation. What is our current money supply?
Crickets.
"You are all useless. I should hire Satoshi instead. Find her already!"
Sir, we are getting reports that a growing percentage of our citizens are avoiding tax and saving their money in Bitcoin.
Even when it is backed by nothing?
Yes sir, and to compound the issue, Nigerian princes are ditching the Naira and US dollar for Bitcoin. They have all adjusted their emails and we can’t stop or track them.
That's not good. We need to warn the public at once.
And so it was, in the first month of the year 20174, the central bank issued a stern warning to banks and other financial institutions, directing them to stop all bitcoin transactions under their watch or face dire consequences. They did their best to enforce this mandate, but the outcome was far from what they intended: the financial activity surrounding bitcoin simply migrated to the shadows of a burgeoning black market.
The Nigerian Senate, in response to the central bank's circular, summoned Governor Emefiele to shed light on the opportunities and risks that cryptocurrencies represented for the nation's economy and security. In front of the Senate Committee, Emefiele shed light on the key role that cryptocurrencies play in money laundering, terrorist financing, illegal arms purchases, and tax evasion. He said:
Cryptocurrency is not legitimate money because it is not created or backed by any central bank….It has no place in our monetary system at this time and cryptocurrency transactions should not be carried out through the Nigerian banking system.
In the aftermath of the circular, Governor Emefiele seized the opportunity to unveil an innovation that had been incubating in the central bank's research lab. A digital version of the Nigerian Naira, known as the "eNaira,". It was presented as a worthy rival to bitcoin in terms of features, speed, and security. The entire nation held their breath in anticipation of this exciting new development.
On October 25, 2021, Governor Emefiele delivered a speech on national television, introducing the Central Bank Digital Currency (CBDC) known as the eNaira. Built on blockchain technology, he explained that the eNaira was a liability of the central bank and went on to enumerate its technological features with a thick Igbo accent.
Customers who download the speed wallet app will be able to perform the following:
a) onboard and create their wallet,
b) fund their eNaira wallet from their bank account,
c) transfer eNaira from their wallet to another wallet,
and d) make payment for purchases at registered merchant locations.
Much wow!
The President of the Federal Republic of Nigeria, Muhammadu Buhari, immediately followed with his own take on the eNaira.
Indeed some estimates indicate that the adoptions of central bank digital currencies and its underlying technology called *pauses* blockchain can increase Nigeria’s GDP by$29 billion United State dollars over the next 10 years.
After reading his speech, President Buhari officially launched the eNaira with the slogan: "Same Naira, More Possibilities." Within the first 24 hours, more than 2,000 people registered for the eNaira out of a banking population of over 100 million.
REKT
In the spring of 2022, KuCoin exchange reported that 33.4 million5 Nigerians were trading or owning crypto assets, despite the ban imposed by the central bank of Nigeria. And yet, the eNaira, the central bank's own digital currency, struggled to gain any meaningful adoption. The reason was simple: without demand, no currency can survive. It doesn't matter if it's a cryptocurrency, a digital currency, or a "quantum currency."
The Nigerian government failed to recognize that its people wanted a way to preserve value, which is a difficult thing to do when the government's own money keeps losing value due to inflation. The government believed that a rebrand would distract people from the real issues of mismanagement at the central bank and crony capitalism that have plagued the country for decades.
Despite Governor Emefiele's proclamation that there had been "overwhelming interest" and an "encouraging response" to the eNaira from Nigerians and parties around the world, the app had a rating of 4.3 out of 5 on the app store, with only a handful of reviews. Word on the street was that it was a clunky beta experience. Hopefully, improvements will be made so that the experience of losing value could be smoother for the users.
LESSON
In the world of finance, bitcoin represents an outlier on the fringes of technical superiority. Its decentralized and open-source nature make it resistant to attempts at destruction or coercion by nation states. This is because the network is secured and maintained by a diverse set of actors, all driven by self-interest, and no single entity controls a majority.
As with any revolutionary idea or technology, it's natural for the established powers to resist. However, history has shown that these attempts are futile and only serve to delay the inevitable. Nation states that try to destroy or ban bitcoin only end up harming a small part of the ecosystem but more importantly themselves, as they get excluded from all the innovation that goes with it.
Nation state leaders should recognize that bitcoin is here to stay and instead of fighting it, they should focus on understanding and adapting to the new decentralized financial system that it represents. It is a powerful tool that can bring transparency and accessibility to geographic regions that they have struggled with for a long time.
Furthermore, it is important to understand that bitcoin is borderless in every sense of the word. It can be transmitted as a text file, radio signals, morse code, emojis or any creative way of representing your private keys. This gives smaller nation states a tool to fight against global sanctions and retain a degree of financial autonomy. Why ban something that could help when the rest of the world turns on you?
In the long run, it would be best for nation states to regulate bitcoin only after they have sufficiently understood it so that regulation can improve inclusion and reduce crime. It's time for nation states to recognize that bitcoin is a powerful force that can bring about positive change to the financial systems. Those who are able to understand will benefit greatly. Those who don’t will end up like North Korea and the internet.
If you enjoyed or hated this chapter, leave a comment below. Next, we learn why you should keep a low time preference in “CHAPTER 7”. You’ll learn about a Norwegian who bought $25 of bitcoin in the early days and forgot about it for a few years. Tell your friends. Lord Thoth appreciates you.
Hyperbitcoinization is the inflection point at which Bitcoin becomes the default value system of the world.
Decentralized exchanges, or DEXs, are places where people can trade cryptocurrency directly with each other without having to give control of their funds to a middleman, like an exchange.
An atomic swap is an exchange of cryptocurrencies from separate blockchains conducted between two entities without a third party's involvement, like an exchange.
https://www.cbn.gov.ng/Out/2017/FPRD/AML%20January%202017%20Circular%20to%20FIs%20on%20Virtual%20Currency.pdf
https://www.kucoin.com/blog/kucoin-is-into-the-cryptoverse-report-reveals-35-percent-of-nigerian-adults-are-crypto-investors