No, it's not banning Bitcoin (BTC). A ban would be hard to enforce and would have no effect on non-US citizens or residents. Nor is it declaring Bitcoin (BTC) a security.
The ultimate weapon that could be used against Bitcoin would be to destroy trust in it. All currencies operate on the basis if trust. You trust that the value you received for the goods and services you sold can be used to purchase other goods and services, without much loss in value. Loss of trust is a big reason why inflation is so bad for currencies: you no longer trust that your currency will hold its value.
So how could the US Government destroy people's trust in Bitcoin (BTC)? People trust Bitcoin (BTC) to transfer funds completely and securely to their wallets. Bitcoin (BTC) uses decentralization to ensure no one hijacks a transaction or double-spends funds. This is Bitcoin's strength. But there is a weakness: the 51% attack.
A 51% attack occurs when someone controls 51% (or more) of the the nodes that verify Bitcoin transactions. The attacker replaces blocks in the blockchain with their own blocks, allowing double-spending, diversion of funds, and other disruption of normal Bitcoin processing.
According to , a website that computes the current cost to rent 51% of the hashing power from NiceHash for one hour, it would cost $1,747,941 (as of 15 Apr 2023) for one hour of 51% of the current hashing power. That is not even a rounding error for the US Government. But there is not enough hashing power for rent to pull off a 51% attack using NiceHash.
That leaves the avenue of buying enough physical computing hardware to control 51% of Bitcoin's hashing power. An article on in Jan 2021 computed the cost to buy the physical hardware (about 1.36 million ASICs) to produce 51% of the hashing power for Bitcoin: $5.46 Billion. A very large number for us, but still very small for the US Government. The only limitation is the manufacturing capacity of companies making ASIC Bitcoin miners.
The US Government also owns a lot of very powerful computers (anyone remember the Cray-1?) and those could be redirected with a simple executive order, unlike a purchase of miners, which would require Congressional budgetary authorization. A declaration of Bitcoin (BTC) as a national security threat would be used to put the resources of the US Government behind an effort to bring down Bitcoin using a 51% attack.
Once the US Government has control of 51% of Bitcoin's hashing power, it can manipulate the blockchain in ways detrimental to other Bitcoin owners and maybe to the US Government's advantage.
Imagine if the BTC you sent for a major purchase did not make it to the intended recipient, but went to the US Government instead. The transaction is irreversible and you are out your BTC.
Trust will be destroyed. The US Government does not have to manipulate the Bitcoin blockchain for very long, just long enough to show that they can take over the blockchain at any time. No one will want to use Bitcoin (BTC) any more. Not only that, all Proof-of-Work (PoW) coins could be subject to the same attack, which would be even easier than the attack on Bitcoin.
Proof-of-Stake coins and non-PoW coins might be safe, but they might suffer some loss of trust, just by association.
Will we get any warning before such an attack? If ASIC miners are out-of-stock for weeks, it might mean a government is purchasing large numbers of miners. Leaks from the government about software programs being written to mine Bitcoin on exotic computers would be another clue, as would job postings for coders familiar with blockchain operations. Opinion pieces published, calling on the US Government to stop Bitcoin, will be another sign.
So, is it possible for the US Government to mount a 51% attack on Bitcoin, in order to destroy trust in it? In my opinion, given the numbers above, yes, it is possible. Is it likely? In my opinion, no, but the probability is greater than 0. If the powers-that-be feel threatened by Bitcoin, they may push the US Government in that direction.
How to protect yourself? That is the hardest question to answer. Since no Proof-of-Work cryptocurrency will be safe in the long run, non-PoW coins and tokens, all of which have their own vulnerabilities, might be temporary safe havens. Outside the world of cryptocurrencies, protection might be found in precious metals, income-producing real estate, and possibly collectibles.
The lack of alternatives to Bitcoin may allow the US Government to temporarily stop the adoption of cryptocurrencies, but I believe the ingenuity of cryptocurrency creators will probably bring forward a new generation of cryptocurrencies, ones that are safe from attacks by governments. There may be some cryptocurrencies already existing that meet this criterion. Post them in the comments below, if you know of any.
It shouldn't need to be said, but here it is: This is neither financial nor legal advice. Do Your Own Research (DYOR). Stay safe out there, fight the good fight, and keep on stacking!
