Recently, news emerged that the United States Department of Defense will be studying Bitcoin, along with various other technologies, as potential terrorist threats. The DoD worries that Bitcoin will allow for terrorist activities to be carried out easily, and secretly, due to the speed and anonymity of Bitcoin. While there may be some justification for these assumptions, due to the success of the Deep Web drug market, Silk Road, is fear of terrorism really the main reason for this new investigation into Bitcoin?

Is Bitcoin Legal? Of Course. However, Bitcoin Users Are Being Targeted

What does this new investigation say about Bitcoin’s users? This news could be interpreted to mean that the Department of Defense suspects anyone who uses the digital currency of being a terrorist. Since Bitcoin is just one of many technologies included in this investigation, could the DoD be suspicious of anyone using any of those technologies? This implication is reminiscent of the federal government’s ardent defense of the NSA’s spying programs and their outrage at Edward Snowden and his disclosure of classified NSA documents. Politicians from both parties hailed the NSA’s activities as defending American interests from terrorists. However, the majority of the National Security Agency’s spying was done on American citizens.

If our government initially assured us that they only collected the information of suspected terrorists, but then Snowden’s leaks, along with admissions from the NSA itself, told us that the NSA had been conducting unwarranted spying operations on innocent American citizens for several years, that would tell us that the NSA assumed that all Americans were potential terrorists. Now the Department of Defense could be doing the same thing with Bitcoin, regardless of the legality of Bitcoin itself.

Just as there are assumptions that the NSA’s surveillance program could be used to put down any major political dissent, could it be possible that the DoD intends this investigation to be used as a tool of intimidation not to stop terrorism, but to discourage the use of Bitcoin altogether?

Bitcoin is Safe and Legal, but is a Threat to Government Issued Money

As cryptocurrencies gain popularity, it is possible that demand for traditional, government controlled money will decrease. A decrease in the demand for a government’s money is very bad for the government. A decentralized currency has the potential to starve the State, as the main source of State power derives from its ability to monopolize the monetary system by forcing legal tender laws on its subjects. With its citizens being forced to accept its paper money, the government can inflate the money supply infinitely to pay for anything it wants. This unrestricted inflation causes business cycles, encourages total war, and initiates a massive redistribution of wealth that enriches a small minority of people at the expense of the majority of the population. The centralization of money is the ultimate vehicle of government expansion, which could very well lead to tyranny. The threat of losing the most powerful chain that ties the government to its subjects is far more terrifying to the State than any threat of foreign terrorism.

Bitcoin turns that on it’s head. It is a legal alternative to the government currencies, and it’s decentralized natured, as well as the limited quantity created by mining, flies in the face of the way fiat currencies are handled. Bitcoin is still legal, and still exists, simply because the governments of the world ignored it until it grew powerful enough that it could not be squashed so easily. The decentralized network is spread much too broadly at this point.

What Does This Mean for Bitcoin’s Future and Bitcoin’s Value?

Hopefully, it will not affect Bitcoin’s general acceptance whatsoever. Because of the technology of the blockchain, it is virtually impossible to track Bitcoin transactions back to the original parties that engaged in any exchange. Doing so would require an untenable level of surveillance and expenditure of money to track down the participants in a single transaction. The Department of Defense would gain essentially no benefit from embarking on such a program, despite government’s love of wasteful spending. Additionally, projects such as Dark Wallet and Dark Market will enhance the anonymity of Bitcoin transactions.

The potential implications of Bitcoin are monumental. Although considered by many as nothing more than a cool experiment with cryptography, Bitcoin has the potential to completely replace the system of oppression that is the central bank’s control of the money supply. The federal government knows this and it is afraid of this possibility. Restricting currency to the amount of Bitcoin that can be mined according to the Bitcoin core protocol would completely stifle their ability to manipulate individual’s wealth.

This new venture into restricting Bitcoin is possibly another attempt at destroying its anonymity and bringing it under federal control. The government may be trying to play on the fear of American citizens to bring the digital currency down, but that is doomed to fail. In this author’s opinion, this attempt will likely achieve nothing but wasteful government spending and an increased awareness of the existence of Bitcoin, which will lead to an increase in the acceptance of Bitcoin as a medium of exchange. Then, as fiat currencies continue to experience compound inflation, but Bitcoin is mined at steadily decreasing rate, the tables will begin to turn.

It is difficult to determine what the purpose of this research is with such limited information, but the broad scope is somewhat concerning. The best case scenario is that this is just a waste of time and money, which is bad enough on it’s own. The worst case is that this is related to some larger scale project, continuing the recent pattern of using “terrorism” as an excuse for the erosion of privacy and liberty.