Bitcoin is more than ten years old on the sly, but over the past five years it has grown particularly rapidly in acceptance and popularity.

In the last two years, Bitcoin has also become a common topic of discussion among various governments. Especially about how they can control the use of Bitcoin and other cryptocurrencies.

Bitcoin regulatory debate

Bitcoin and other cryptocurrencies can act as variants for an international currency. For example, countries such as Russia, China, Venezuela, and Iran have investigated how they can use digital currency to circumvent U.S. sanctions. In this way, the American government runs the risk of losing its global authority.

International politics and economics are two very complex issues. Increasingly, nations are using sanctions instead of military use to make the world “safer”. Or rather: to keep the world under control.

International politics and economics are two very complex issues. Increasingly, nations are using sanctions instead of military use to make the world “safer”. Or rather, to keep the world under control.

One of the most attractive features of Bitcoin (BTC) and other digital assets is that one can make a transaction at any time anywhere in the world. Sending a few cents to billions of dollars is done in just a few clicks. The transaction costs are negligible.

No matter where you live, how old you are, how much power you have, what language you speak, anyone can use Bitcoin.

But what is an advantage can also be a disadvantage. Anyone can use Bitcoin, including malicious parties.

We regularly see illegal activities using Bitcoin and other cryptocurrencies. These include financing terrorists, selling and buying illegal drugs, “ordering” murders, tax evasion, and money laundering.

Can Bitcoin be regulated?

The question is whether governments can stop these practices with bitcoin. Because: can it be regulated?

Regulating: subjecting it to rules or control and supervising its implementation.

Before we delve deeper into this, it’s worth asking whether Bitcoin can be regulated at all. The crypto coin was built with the primary purpose of being decentralized and distributed. These are two very important qualities of Bitcoin. They are also two aspects that can interfere with the regulation of Bitcoin.

Because it is decentralized, Bitcoin has no controlling entity. The control of Bitcoin is shared by several independent entities from around the world. As a result, it is almost impossible for a single entity to gain full control of the network. It is not self-contained, and it cannot be manipulated the way they would like it to be.

Through distribution, Bitcoin exists in multiple locations simultaneously. The general ledger of transactions can be found all over the world.

This makes it very difficult for the regulatory powers to enforce cross-border measures. The bottom line is that a government or other third party cannot technically invade an office to close everything down.

The government cannot arrest a CEO or director to pull the plug on the project. Bitcoin is (almost) unique in this. All projects that have an ICO and have a founder are behind the times in this respect. Can bitcoin be regulated? Hardly at all. Can control be exercised on other cryptocurrencies? More easily, though.

Having said that, there are a number of things that can seriously obstruct the acceptance and use of Bitcoin.

Focused on centralized entities: exchanges and portfolios

A logical first step is to regulate the fiat onramps (stock exchanges/brokers). In the early years of bitcoin, crypto-brokers and exchanges did not need much input or approval from regulatory authorities. Now that cryptocurrencies are within reach for the citizen, the government starts to intervene.

We already saw this in the news from China today. The central bank of Shanghai has indicated to tackle crypto exchanges.

In the US, the SEC, FinCEN (Financial Crimes Enforcement Network) and CFTC have all played a major role in implementing know-your-customer (KYC) procedures and anti-money laundering (AML) policies for all exchanges operating within the US borders.

Exchanges have no other options than to abide by what the government wants. The vast majority of users trust the exchange and will automatically bow to imposed regulations.

Policymakers may not be able to shut down Bitcoin’s underlying technology, but they can make the user experience a lot more difficult for the masses. This barrier can drastically reduce Bitcoin usage.

Targeting users

The government can also focus on individual users. Contrary to popular belief, Bitcoin (and even some privacy tokens) are not anonymous. In fact, a commonly used argument is that Bitcoin, because of its public and transparent ledger, is easier to access than fiat money.

Combine this with the willingness of a crypto exchange to cooperate with the (American) authorities, and you’re done. A federal task force could easily follow the path of money. It is to find out what money has been sent and received from certain addresses. This would allow them to identify a particular person.

Companies like Elliptic and Chainalysis have already set up collaborations with law enforcement agencies in many countries to detect illegal use of cryptocurrencies.

Although it is more difficult, the government probably has enough knowledge to stop the majority of cryptocurrency-related cybercrime.

Earlier this year, for example, we saw that the FIOD and Europol together took Bestmixer.io offline. According to the authorities, Bestmixer.io was used for money laundering. With the help of cryptocurrencies such as bitcoin, the criminals would like to conceal the origin of their money.

Because transactions are registered in the blockchain, future lawmakers can look back in time. They can view all the details of sellers and recipients, even if they do not (yet) have the tools to do so today.

However, there are several tricks to mix your crypto coins. Wasabi and Samourai use some features in their wallet and recently we have also been introduced to the SNICKER method.

Conclusion on regulation

Can Bitcoin be regulated? In short, no! The bitcoin network itself cannot be regulated just like that. But it is possible to make it more difficult to use the network.

In fact, this regulation has already started with the fiat ramps and compliance with strict KYC and AML laws. However, there are still plenty of ways to buy, sell, and trade Bitcoin peer-2 peer without the intervention of a centralized exchange or party.

It will be a huge effort for any government to completely uproot a decentralized network like Bitcoin.