The news that Bitcoin has just broken the $8,000 mark is re-focusing attention on the cryptocurrency. Even five years ago, the Bitcoin was regarded as a niche concern: the domain of hackers, and online criminals. Today, with an increasingly large number of retailers accepting the currency, it is becoming mainstream.
Amid all of the speculation – both financial and intellectual – that surrounds Bitcoin, the broader view is often neglected. Whether cryptocurrencies like Bitcoin represent a revolution in currency, or merely a slight evolution, the fact is that they sever a link between state power and fiscal control that has existed for many centuries.
The fact that Bitcoin is not issued by governments, and therefore exists largely outside political control, gives rise to both opportunities and risks. Some have claimed that Bitcoin will allow the oppressed masses to rise up against totalitarian states. Others point out the financial risks of relying on a currency that is totally unregulated.
Whichever side of the argument you come down on, one fact remains: despite many predictions to the contrary, Bitcoin is here to stay. And it seems that, finally, governments across the Americas have realized this.
The approach of two countries – Argentina and the USA – is a good illustration of the opportunities and challenges that Bitcoin brings for government.
Making Bitcoin Real: Argentina
The number of Bitcoin users in Argentina is still pretty small, in truth, and barely registers on statistics that track worldwide usage of the currency. However, Argentina has made a name for itself as a country where Bitcoin is widely accepted to buy real, everyday items.
The reasons for this are various. The country has some onerous restrictions on importing foreign currency, and using Bitcoin allows many companies to get around these. In a country where tourism continues to grow year by year, many companies are reliant on foreign money, and switching to Bitcoin can make a big difference to their bottom line.
In addition, the inflation rate in Argentina remains high. Though there are signs of stability creeping in, the last decade has seen the peso significantly decrease in value. This is partially responsible for a widespread distrust of the government among Argentines, which in turn means that less than half the population uses Argentine banks and credit cards.
It is perhaps not surprising, therefore, that many people have turned to Bitcoin as an everyday currency. In fact, and as some have pointed out, the history of the cryptocurrency to date reveals a strange paradox: that it has been most popular in those countries that need it least. The USA, for instance, has a stable currency and an efficient banking system, but still makes much use of Bitcoin.
The government of Argentina, you will not be surprised to hear, is not happy about the increasing popularity of Bitcoin. The fact that the currency allows citizens to get around financial controls represents a direct threat to state power, and yet the government has been relatively slow to react to this. Restrictions are now being planned, but the efficacy of these, given that Bitcoin is designed to be inherently anonymous, is likely to be low.
Making Bitcoin Political: The USA
By contrast, the US government has been quick to recognize the growing usage of Bitcoin, and has been one of the first administrations to look into regulating it. The US government signaled its openness to the use of Bitcoin and other cryptocurrencies earlier this year, though also left open the possibility that it will be regulated soon. In a sign of things to come, the Securities and Exchange Commission issued a warning in July that they are about to toughen up their stance.
Typically for the US, just the hint of new regulations coming into force has started a widespread political argument. On one side, there are free-market enthusiasts who have embraced Bitcoin as a currency freed from the control of the State. On the other stand citizens and lawmakers who worry that a completely unregulated currency will facilitate crime, and reduce the government’s ability to control the macro economy.
In reality, arguments like this are likely to be eclipsed by the ongoing growth of the currency. It is hard to see how any government, even that of the USA, can effectively regulate Bitcoin and similar currencies, if only because it is essentially impossible to trace the owners of them.
While this may be a problem for governments, the anonymity of Bitcoin does give rise to opportunities for circumventing restrictions put in place by oppressive governments. The most prominent examples of this are China and Nigeria.
China is, in fact, one of the largest users of Bitcoin in the world, despite the fact that the government is in the process of trying to ban cryptocurrencies. In a pattern that is repeated all over the world, it seems that currencies like Bitcoin are most desired where governments are the most restrictive.
The approach in Nigeria, on the contrary, shows the opportunities that Bitcoin can provide. Though the government of Nigeria is hardly a model of effective governance, and was initially sceptical about cryptocurrencies, in recent years many Nigerians have begun to use the currency instead of traditional banking services. A report in the Guardian recently revealed that the national bank in the country, the CNB, is beginning to devote resources to study Bitcoin. The reason for this is clear enough, but it is startling to hear a Central Bank admit it – the CNB said that they simply “cannot stop the tide of waves generated by the blockchain technology”.
Usage of Bitcoin in the wider Americas remains relatively low, at least outside of the US. However, those in favour of the currency point out that it represents a great opportunity for the developing states of the region. As the Harvard Business Review points out, in theory bitcoin allows developing countries to leap-frog advanced economies, by allowing developing nations to go straight to advanced technologies.
Whether – and where – this will happen in the Americas remains to be seen, but don’t be surprised if the recent unrest leads to a spike in Bitcoin usage in Venezuela.