If it's illegal to exchange goods or official currency for cryptocurrency in the nation you are in, the usefulness of cryptocurrency is going to be considerably constrained. This depends on how thorough or draconian the state is but a lot of people just shy away from illegal activity without enforcement being that strong. After all, if buy a tangible good, I want legal title to it and having engaged in an illegal transaction to get the stuff makes that less certain.
This is an important point - I think a lot of us tech people like to think "no it only exists on the internet the govt can't touch it! It's like international waters!", but then you have countries that can completely restrict or shut down the internet. As long as the infrastructure exists in the real world and is controlled by a govt, then the "imaginary online stuff" is still ultimately under their control. Even in "the matrix" someone was still running all those computers and could turn them off if they wanted.
Countries can just ask you to prove how you earned income, and jail you if your proof is unsatisfactory to them.
India banning cryptocoins doesn't mean that people will automatically be jailed for mining on day one. It just means that anyone using cryptocoin to avoid paying Indian taxes can end up jailed when their expenditure exceeds their provable income, or when their documented income is traceable to cryptocoin, or etc.
The United States IRS doesn't have to make cryptocoins illegal to convert into currency; they just have to demand that you pay taxes, and have you jailed for tax evasion if you fail to do so. They don't actually care if you earn income through selling cryptocoins for currency, as long as you report the income earned without attempting to evade an honest assessment of value, and as long as you pay your taxes on that income earned.
At least concerning the tax issue, the US government doesn't even need to do that. If they squeeze the credit card and banks as they've done for the adult industry and marijuana industry, we will see the entire market deflate. The only reason crypto is okay in the West is because an offramp into fiat is provided. Once that offramp gets closed, it's game over and we are back to 2010 in terms of crypto value.
The US has instead taken the view through various upcoming 2022 IRS procedural rules that — as long as there's a complete paper trail documenting who the origin of, and who is responsible for paying taxes for, the cryptocoin when it is converted into currency — then there is no harm in offramps that collect tax ID information and report it appropriately.
Their focus on requiring "origin of and taxation of" attestation may impact the perceived value of cryptocoins when traded for currency, but they don't seem to much care if people want to generate hashes and sell them to each other, just as long as it's not used to launder money or avoid taxes.
It is of significant debate whether the perceived value of cryptocoins is in part due to its value for both laundering money and avoiding taxes, but that's distinct from whether the perceived value is in part due to the ability to sell cryptocoins for currency.
Eventually efficient systems will implement zero knowledge proofs. Not necessarily because of "privacy", but because of the efficiency gains of such a system. Privacy is just a bi-product of this information theory reality.
The efficiency gains of these systems are irrelevant. Governments of the world want monetary control, and they cast that desire in the form of laws like "know your customer" or "anti-money laundering." These laws are antithetical to what you're talking about. If the government requires legitimate institutions to implement these forms of laws then to engage in actual society (i.e. - school, groceries, business, rent, banking, and most importantly taxes) then the existence of zero knowledge proofs and their implementation are irrelevant. At some point you come back to the inescapable problem with crypto: the real economy is based on trust and an immutable digital blockchain is, at best, a gloss on this system.
Many chains, L1's, defi products, etc., have already expressed their eagerness to comply and implement KYC and other regulatory controls.
My warning is that the open-source Pandora's box of zk proofs is necessary, technically feasible, and inevitable. ZK proofs are coming, and there will be systems built on top of them. Our governments and societies need to be ready for this reality.
You're missing the point. It doesn't matter what the technology can do. There is a system that currently exists, and that system will protect itself through regulation. Cryptocurrencies will come within the fold or they will be outlawed. It is irrelevant what is technologically feasible. Governments and state actors don't exist in stasis, any advance in technology will be met with an appropriate response even if that response is "banks are not allowed to accept any funds that have any connection to X cryptocurrency." If that doesn't work, the response will be "banks are not allowed to accept any funds without perfect knowledge of the two parties transacting and where the cash is coming from." What bank would possibly risk going against the government? Even the well-known money laundering banks balk in the face of government scrutiny. What company would possibly risk losing their relationship with their bank?
Cryptocurrency fanatics think that they can digitally outcompete physical reality. They cannot. The governments of the world are the Borg - you will be assimilated.
I am a person with nuanced thoughts and opinions, unique and diverse from the rest of the world.
>cryptocurrency
Let's not confuse zk proofs with cryptocurrency. Powerful, non-cryptocurrency systems that use zk proofs are coming. Alone their power is something we must reconcile, even before combined with distributed, autonomous systems.
And that's my point. ZK proofs are astoundingly powerful. Our societies and governments should be getting ready to deal with them.
>protect itself through regulation
Yes, this is a tool of the state. But it's just that, a tool. People have tools too.
The assertion of absolute state control is contrary to the state loosing the Crypto Wars (https://en.wikipedia.org/wiki/Crypto_Wars). The Crypto Wars were one of the first examples establishing the limits of state power in the face of the Internet. This is before other global projects like BitTorrent or Gnutella.
The world is wide and I suspect the future is going to be weird.
The problem with this sort of reasoning is that it conflates an e.mail or a downloaded movie (or a bag of cocaine) with a cryptocurrency or token. E.mails/movies/dope etc are all basically consumer goods. Read the e.mail, wipe it. Put the coke up your nose, watch the movie.
It only has to go as far as the person you are sending it to, and it's journey is finished, and it's value is realised. Crypto is entirely different in that it has no value unless you can sell it on to another person. That final step is it's weak point.
PGP had no economic value when published in defiance of the State Department. Why publish PGP when the personal incentives seemed to far out way the consequences? Phil Zimmerman still lives overseas.
That's my point. You can ignore economics entirely and zk proofs are still going to radically transform our societies and IT systems, long before considering their impact to the cryptocurrency industry.
You are wrong in a subtle way. Yes, if you are doing scaling, than adding hiding using zk is almost free. Problem is - you are hiding things from literally everyone. And while it works for payment systems like zcash, it is a problem for most of DeFi. For some protocols it is impossible (there is proof that you can't do it for AMMs, like uniswap). In general case implementing zk means you need to have a separate layer of information delivery that is capable of discerning parties that Need To Know from the rest.
> I think a lot of us tech people like to think "no it only exists on the internet the govt can't touch it! It's like international waters"
Do people really think that today? I did, when i was a teenager discovering the Internet, and then quickly realised how naive that is when my favourite torrent site got taken down, and when a public digital library website got taken down like a terrorist organisation with a SWAT team taking their servers.
Ah yes, the easy solution is just to ban all the exchanges. That'll do it! And then they'll just have to ban the peer-to-peer decentralized exchanges (dydx, sushiswap, uniswap, xrpl). That might be a little tricky though...
It's just like governments trying to ban torrenting and p2p file sharing. Look at how well THAT went.
This gets repeated a lot around here but is far from the truth. Drugs are still traded, and so are other "illegal" items. And trading drugs is quite risky comparing to trading crypto (especially fully decentralized).
> usefulness of cryptocurrency is going to be considerably constrained
Sure, but you are missing why 3rd worlds like China, India and Morocco are trying to restrict crypto. They are worried about capital outflows. It's not a surprise most of these countries already have rigid capital controls. People who have decided they want to "outflow" their capital are not really worried about government restrictions.
Yeah, people making these arguments haven't lived in developing countries with terrible, inconsistent, reactionary, arbitrarily applied laws. Where you have to "break the law" constantly in order to survive.
Sure but bitcoin's value would be a lot less if it was only being used to skirt the abuses of third world regimes - and when those same third world regimes make illegal.
Most people who buy bitcoin today in the first world do so because it's made money for people.
Sure, in third world countries and elsewhere, people skirt or break the law on a regular basis. But they still don't it for kicks and they don't do it for "right to cryptocurrency", they do it because it will get them something and making crypto illegal will mean it gets people less and people use it less, reducing demand and price (minus the manipulation bitcoin experiences but at some point that manipulation won't be manageable).
The goal of drugs is to do the drugs. They are consumer goods. You buy them, then consume them. Crypto has no value unless you can sell it on to someone else, and that's it's ONLY value. That is the glaring difference, and it's weakness.
This isn't true if your objective is just to protect wealth long-term. If bitcoin is "banned" in India (you can't exchange it for INR on an exchange), you can still "use" it in the sense that you can acquire it illegally or overseas and then hold onto it. Your liquidity is limited but this is a small downside long-term.
This isn't true if your objective is just to protect wealth long-term.
I said illegality constrains the usefulness of cryptocurrency. Long-term gains is one of the remaining hypothetical uses but other uses are limited. So your claim doesn't refute my point. With fewer practical uses, we might see bitcoin's long terms value decline but that's speculation.
Wealth storage is a practical use case. This is a weird thing to grasp, but it's actually perfectly reasonable (I.e. utilitarian and stable) for an asset to be "purely monetized", in the sense that it has no value whatsoever except from its capacity to store value.
That said, you're right that ability to actually spend bitcoin probably shows up in any PDE that accurately models its market dynamics. If 90% of countries on earth ban bitcoin, and those bans are well-enforced, bitcoin probably won't be very valuable.
It's one practical use case. Bitcoin's value rests on multiple use cases and eliminating other uses cases reduces demand for bitcoin. And that effect also reduces bitcoin use for wealth storage (but might not eliminate, sure).
Drugs are actually very expensive relative to production costs because of the added risks. Marijuana, for example, is a very easy crop to grow. There isn't any reason it should cost more than any given spice per gram. However, since it was illegal, street vendors could charge significant markup because 'shoe-leather' cost is very high. Now that it's becoming legal, the gov is extracting the difference as taxes, keeping prices high for revenue.
I’m not sure what your point is? You’re kind of proving them right. I guess you’re trying to equate drugs with crypto, saying if it was criminalized it would spike in price, but that’s a false equivalency. Drugs provide a utility all on their own they depend on users speculating about them just to have value. If anything the inverse applies here, but for the same reason, a currency that the government doesn’t want you to use will have less value because you’ll only be able to exchange it with nefarious organizations who can pick and choose the price. Drugs are expensive because the risk of them being illegal is factored in and the suppliers can demand whatever they want.
I think they're expensive exactly for that reason - people have to factor in the risk that someone would be totally legally justified to come and take all their stuff tomorrow. Those are also actual products with a true value to people - not a currency
Could you please argue how it is wrong? The logic seems pretty simple to me. A currency has value as long as it is exchanged, if government restricts exchanges, the currency drops in value.
Hmm, I can take a stab at this and probably be wrong myself.
Money like everything is a market. There is a supply of money and a demand for money. If the demand remains constant but the supply is curtailed in some way I could see the value of the good exchanged going up. Now if you make the argument that this action would decrease the demand then yes the value should go down?
If you cannot use it for anything, and maybe it's illegal to even own it, why acquire it in the first place? It is demand that decreases. Supply that goes down simply to match lower demand does not necessarily outpace it and produce an overall price increase.
The difference between this and something like the 1920s alcohol black market in the US is exactly the point that people are raising when they talk about cryptocurrency lacking fundamental value. Alcohol has fundamental value (it is a drug with some effects that have proven to be valuable to many humans for thousands of years), but a currency does not have any value in isolation. People didn't stop wanting alcohol when it was banned, but they will stop wanting a currency if it is banned. It will not have a similar "constrained supply driving up the prices" effect to black market alcohol, because alcohol's demand never wavered but demand for cryptocurrencies will. It is not irrational to buy black market alcohol that you can drink or sell, but it is irrational to buy black market currency that you can neither drink nor sell.
This is all made generally moot if India is the only place to ban it, because they won't make a huge dent in the global market.
Why would you assume that the demand remains constant?
Demand for a cryptocurrency is set by some combination of (a) it's utility as a payment tool and (b) it's value as an investment vehicle.
Legal restrictions reduce it's utility as a payment tool, driving down demand. They also disallow a significant group of investors from using it for investment, both reducing demand, and temporarily increasing supply as many legitimate investors (especially institutions) would have to sell off their holdings before the law coming into force. There's no obvious mechanism how these restrictions would somehow curtail supply more than the demand.
