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The title of this article could have been a tad bit more sarcastic and innovative but there is a need to steer clear of confusion and collide into comprehension. There is widespread rumour and FUD mongering, in the no coiner-slash-nonbeliever-slash-crypto hater global populace. Screams distant and near of “All your crypto funds are going to be seized and turned to dust by the government, serves you Ponzi dumbf*cks right”, can be heard in varying tonality, diction and crescendo from the Einstein club outside the blockchain world.
The truth is, nobody can unless you parade around with your private keys to your wallets tattooed across your forehead (or may be saved as a file on your computer saying Phrase key or whatever unassuming name you thought wouldn't be assumed). Let’s see how and what really are the implications and restrictions in lieu of government regulation on cryptocurrencies.
A brief history of ‘Prohibitionistic’ regulatory failure1920s Prohibition
Congress passed the Volstead Act (Prohibition Act) which paved way for executing the 18th Amendment in 1919. After a year-long delay, January 16th saw the commencement of the Prohibition Era in North America. All forms of manufacture, transportation, sales and consumption of alcohol, spirits and intoxicating liquid-you name it, were forbidden.
Richard Cowan from NORML (National Organization for the Reform of Marijuana Laws) in 1986 phrased the Iron Law of Prohibition, the intensity of law enforcement and prohibition leads to a far greater propagation and abuse of whatever is being enforced or prohibited.
Well, the ‘Noble Experiment’ was like finding the philosophers stone or the elixir of life, futile and a miserable failure. Instead of reducing consumption and absenteeism, it gave life and enhanced magnitude to unprecedented consumption, illegal liquor sales, adulteration for potency, ‘organization’ of crime, siphoning-off of tax revenue, corruption amongst officials and government expenditure. Ironically all these results are documented by pro-prohibitionists who were economists and anthropology scientists.
The Clean Air Act Amendments of 1977
A controversial ‘Act’ that undermined new factories and establishments to adhere to protocols and measures defined by the clean air act with pr-existing establishments and industries being exempted. The old establishments were to function hassle-free unless there was a major ramification in their functionality. ‘Substantially modified’ was the lingo used by Congres for demarcation but a paraphrasing of what accounted to be ‘Substantially modified’ was not established.
Two decades later in the 1997 Environmental Protection Agency’s (EPA) vigil, these legacy companies came under the radar and lawsuits ensued. But the firms got off on a technicality that EPA approved of them in the past. As we know passing retroactive laws is preposterous in the system, these guys get off scot-free to parade.
Narcotic Drugs & Psychotropic Substances (NDPS) Act 1985
The Act was a foolish attempt to club Hashish, Ganja (Cannabis flower), Heroine, Smack, Cocaine and other hard drugs into the same category, to levy a blanket ban on all of them. But actually happened in spite of the decade long incarceration, peddling cannabis and hard drugs increased multifold and consumption soared high. Because prohibition made all these commodities multiply in retail value. The atrocious NDPS act create new drug problems in the country which never existed before.
Cities like Delhi, fell prey to smack and crack cocaine addiction. A fall from grass (grace too!) to chasing dragons.
The Pirate BayThe Pirate Bay (TPB) was the world’s largest peer to peer file sharing platform, built using the technological facets of the Bittorrent protocol. It is the best torrenting website with tons of legal and illegal P2P file sharing, a phenomenon that harbours piracy and copyright infringement. TPB is banned in more than 30 countries including the US and is facing thousands of copyright infringement lawsuits from the US. Internet service providers started blocking TPB and sending threatening emails to torrenters.
Violation of the ban would trigger a penalty of anywhere between $5,000 and $150,000, jail time, or both. Despite the aggressive restrictions, TPB is still accessed by millions around the world in both banned and permissive countries, where user accessibility is accomplished using, The Onion Router, VPNs, proxy websites, TPB email page delivery, archived access and pdf viewing.
Silk Road
The first modern darknet marketplace and a haven for crypto-anarchist activities including unmonitored, anonymous and billions of dollars worth of illegal drug sales. The platform exclusively accepted Bitcoin as a mode of payment and vendor settlements. The utopia came out of its trip when the FBI and the Europol shut it down in October 2013. February 6, 2011, to July 23, 2013, was a period on the Silk Road where 1,229,465 transactions were completed on the site. The total revenue was 9,519,664 BTC, and the total commissions collected by Silk Road from the sales amounted to 614,305 BTC, according to the FBI. Close to 288,342 BTC was seized from the mastermind behind the project, Ross Ulbricht. A further $1 billion worth of bitcoins were seized from the Silk Road in November 2020 by the FBI.
The darknet markets since the demise of Silk Road have still stuck around transacting in millions although a tad bit less trustworthy. The present-day black markets on the dark web have imbibed multi-sign, multiple cryptocurrency ledgers with escrow services, anonymous access, vendor feedback and registration free purchases. The Feds are trying to seize and close these darknet marketplaces, but with the advent of decentralization, it is a mammoth endeavour.
Regulations and altered feedback
Government policy can incapacitate individuals from levying feedback. A complete decadence of resources is triggered by levying taxation on profitable ventures and subsidizing less performing ones. There is no system to facilitate feedback in this Kafkaesque scene.
One side of the coin
Cryptocurrency is to the largest extent decentralized, with no central authority dictating maximal and minimal supply limit of tokens. They are conducted peer to peer on the blockchain, recorded and authenticated on a public ledger. In a nutshell, a cryptocurrency like Bitcoin is controlled by multiple individuals at the same time, interspersed globally and anonymous (unless they have attached their IDs for KYC authentication at exchanges). There can’t be a raid on a single entity to close down or regulate Bitcoin, it's impossible.
Regulation in its most popular form recently made prevalent in several countries, aims at decreasing the tax gap and levying taxation on FIAT conversion of certain cryptocurrencies, depending on whether they are utility based or not. CFTC, SEC and IRS currently levy taxes on crypto as either income or capital gains. Owners could easily just shift to choosing a permissive FIAT currency or coin/token to trade or liquidate to.
The design of Bitcoin was never intended for full anonymity as much for being pseudonymous. All information on transactions, receiving and sending addresses are recorded on the distributed shared public ledger. Forensic analysis by the government can trace transactions to receivers and senders, most exchanges have to strictly adhere to KYC and AML (Anti Money Laundering) laws set by government authorities. Companies such as Chainalysis and Elliptic have already started rubbing shoulders with law enforcement agencies around the world to track and nab illegal or suspicious cryptocurrency movements on the blockchain.
The nameless alphanumeric hashcode of character string identity is mostly compromised when using private internet services where individuals have to furnish proof of ID to their ISPs, leading to an IP address and ID match scenario to trace transactions.
The other side of the coinThere are several ways individual crypto owners can beat the government regulations to a great extent and not leave their transactions open to prying law enforcement scrutiny.
Most crypto wallets are HD wallets and can generate numerous addresses to receive and send assets on the blockchain. Individuals can diversify the transfer percentages of their crypto assets into several addresses, making it hard for red signals of irregular crypto movement to arise. But this is applicable for light transfers instead of heavy movement.
Crypto can be bought with cash from trusted local sources utilizing services such as LOCALBITCOINS (although known to be under surveillance by law enforcement). This way an entry point of FIAT to crypto cannot be established.
Bitcoins and other cryptocurrencies are popularly mixed to confuse the shared public ledger. Mixing refers to a process where a pool of cryptocurrency is accumulated with several coins and coins of different historical transaction dates are exchanged. Another mixing technique is to create temporary addresses. All this to annihilate a trail of trace and linking. The only downside of this is individuals have to either trust the anonymity of a third party or find other individuals in the same line of thought to facilitate the mixing process, the latter being completely anonymous and extremely cumbersome in nature to accomplish.
Another favoured method is to use a combination of The Onion Router (TOR) browser in tandem with a logless VPN service while using anonymous exchanges and wallets such as the Hidden Wallet or Onion Wallet which are not mandated to comply with KYC and AML laws. The TOR browser routes internet traffic to a multitude of random nodes in several countries making it impossible to pinpoint the actual user IP address and a logless VPN does not record user activity as everything is encrypted, routed through multiple locations/network nodes before arriving at the destination site.
Why would most people prefer the other side of the coin?
When governments try to do more than lay down elemental principles to enhance the game, unforeseen adversities and suppression of innovation are a few of the most popular outputs amongst many other discrepancies.
Manipulation, Opaqueness and Uncertainty (MOU) -pun intended
Regulation adds tons of risk and uncertainty to the market dynamics. If the risk is too much, investors flee to safer havens. Regulation is often made as a compromise against a perceived power struggle and a means to quell apparent autonomy in haste. The whole intention of blockchain was to do away with third party interventions, gatekeepers and nosy scrutiny in order to create a classless, socially and economically justified financial technology system. A system standing on the pillars of transparency, privacy, fairness and a people-centric orientation of conduct.
There is also the historic problem of multiple and self-centric interpretations of laws governing regulation to the benefit of corporate lobbying and legacy immunity as seen in the Clean Air Amendment Act. The cryptocurrency markets are immune to inflation seeing all tokens have a limited set amount of supply and reserve. Unlike the paper currency, that's minted incessantly out of thin air on imprecise and hidden resources pegged as collateral.
Privacy Invasion
Privacy is unfortunately overlooked until its loss by most people. Like the government is saying ‘What do you have to hide when you have done nothing wrong?’. Yeah well, try to ask ‘Why do you have to shut the door when you’re taking a dump?’.
Price manipulation of regular services and goods can occur when government officials and financial policymakers have access to the amount of wealth in exactitude thanks to public distributed ledgers of the blockchain.
Cryptocurrencies to the most extent are apolitical and non-partisan however the same cannot be said of individuals holding them or entities conducting constant surveillance of asset movements. For example, an entity X wants to send a political contribution to an entity Y, surveillance can trace transactions to the real identities of both parties and record political affiliation that can be used in a manipulatory and unfair manner at a time of preference.
Major businesses can hunt down and steal customers from small-time and medium-size businesses while tracking down transaction’s destinations. Either by offering lower discounts or crafting bespoke services. This could be repeated in reverse too.
Discrimination is the ugliest offshoot of such surveillance and infringement of privacy by regulatory authorities, once users and service providers are tracked down with the help of recorded transactions on the blockchain. A whole universe of purchase habits, preferences, political leanings, ideologies and opinions are ready to be exploited to whatever means the government sees fit to take advantage of. Even from a non-governmental point of view, individuals and employers can do the same, with access to financial asset information and transaction history with the inputs and outputs clearly panned out.
Conclusions What can we do to stop Government Regulation of cryptocurrencies?
Nothing.
Can we fool the government?
Not inside any country while using centralized exchanges and exposing your IP address and output/inputs destination while dealing with FIAT.
Okay… so-? Er..
These guys charge zero tax on crypto assets and provide citizenship against investment. Saint Kitts and Nevis, Antigua and Barbuda, Dominica, Vanuatu, Grenada, Saint Lucia and Portugal.
But wasn’t there a section called ‘The other side of the coin’?
Gladness on the section’s remembrance. Sure yeah, a combination of TOR/I2P, a logless VPN service, a non-compliant KYC and AML law exchange alongside cash-based entry point to crypto would keep you on the other side of law enforcement scrutiny.
Phew, that’s a relief!No, not really. What you can do ASAP to protect your crypto assets in a fool-proof manner is to get them offshore:
>Form an offshore company.
>Set up an international trust for maximum protection and estate planning.
> Move your assets offshore in an international LLC (Limited Liability Company) structure.
There are two options, form an International Corporation or an LLC in a private and zero tax jurisdiction. Open an international wallet in the structure thereafter.
Will regulation successfully counter money laundering and other financial crimes besides making it all secure?
Not at all. The bloodiest and dirtiest money (FIAT) from drugs, cartels, terror funding, war crimes, arms smuggling, human trafficking, prostitution, fraud, tax evasion and other organized crime goes directly to the largest banks in the world. The banks don’t say no to such wealth and the governments don’t say no to the banks. If the system could not do it in the past with the same laws, what can it accomplish now? Check out the Fincen Files for more info on this.
Also unlike a vast portion of FIAT money which is used for illegal means, only 20% of cryptocurrencies or more specifically BTC is used for illegal transactions, contrary to popular belief.
Before forgetting -is regulation any good?Well, peeps out there are saying it would allow greater participation, increase market value and speculation, maximize revenue for governments and exchanges, create safe conduct of commerce and trading activities while also hindering crime and scams on the digital front.
Financial surveillance for a better and safer future by giving up the present privacy and autonomy. It's something like what Dolores Ubridge said in the Order of the Phoenix, progress for the sake of progress must be prohibited. ROFL.
Do we need regulation?No. We don’t. Transactions on the blockchain are absolute, irreversible, irrefutable, permanent and on display for the world to see. It is trustless yet decentralized and P2P. There is no scope for discrepancy and misdoing as much as we permit it, just like anywhere else. Strong founding teams, loyal communities and self-governance lead the revolution towards financial freedom and outdoing surveillance.
Why is there a need to involve some big brother authority to do the things that are being done already? Unless somebody is feeling guilty of not involving the government and paying taxes for undelivered promises alongside futile politics.
With full awareness of the strong nature of thoughts, expressions and unwavering belief in the utility and aesthetic of the most important technological revolution that mankind has seen this century, blockchain and Defi. It is prudent to analyze the shortcomings of government intervention and use case scenarios. Because seamless and efficient systems should never see the shame of redundancy due to policy and control mechanisms.
Thank you for lending your eyes to this. Please let me know what your thoughts are in the comments, rip me apart and I’ll try to edit what needs editing.
