Cryptocurrencies across the market are plunging because users all around the world fear that trading cryptocurrencies could be banned. The last country that announced a possible ban is South Korea. Officials stated that trading cryptocurrencies could be banned entirely, or at the very least it would be regulated.
This fall affects all cryptocurrencies, not only Bitcoin, which, as the best performing cryptocurrency, has dropped by more than 15%.
South Korea isn’t the first country to ban cryptocurrencies. Last year, countries like Vietnam, China, Bolivia, Ecuador, Kyrgyzstan, Saudi Arabia, Bangladesh and North Korea did the same.
What are the main reasons banks and governments in these countries ban cryptocurrencies?
There are two big groups of reasons – one group of reasons is officially stated by almost every aforementioned country: cryptocurrencies are banned because of security issues. The other group of reasons are usually not stated officially but is largely implied. It is directly associated with cryptocurrencies being decentralized: cryptocurrencies allow people to trade directly with each other (peer to peer), cutting out the need for a middleman, which traditionally is a bank.
Security and protection
Using cryptocurrencies has its dark side. Just a couple of days ago, police in South Korea raided the offices of two of the country’s largest cryptocurrency exchanges on suspicions of tax evasion.
The anonymous nature of cryptocurrencies means that it can be used for illegal transactions – such as buying and selling drugs or weaponry. According to central bank officials, cryptocurrencies can also be used for money laundering or terrorism. The case of NHS this year shows that cryptocurrencies allow hackers to request ransom payments and stay anonymous.
Banks and governments
Banks generally charge fees for doing absolutely anything that includes money, even when they just hold onto it. Banks have created a high level of trust that your transactions will pass smoothly. But, after the financial crisis in 2008, banks lost some of that trust.
Using blockchain as a digital network, where every single transaction (called a block) is securely linked together makes transactions verifiable, available to everyone and is more immune to hacking than centralized banks. This makes banks totally unnecessary for transactions. This is what motivates them to ban cryptocurrencies altogether.
Virtual currencies are self-governed, meaning they are not controlled by any government, person or a central authority. This makes monitoring almost impossible and poses a threat to government authorities (this was especially true for China).
Finally, using cryptocurrencies is posing a threat to the stability of the national currency in some countries (Indonesia).
It is important to stress that banning cryptocurrencies will only create black markets. They can be declared illegal but it will have no effect on the use of cryptocurrencies due to their decentralized nature. To kill cryptocurrencies altogether, all governments from all over the world would have to ban them.