More than ten governments in the world have banned Bitcoin and other cryptocurrencies, including China, Israel, Morocco and Bolivia. An important thing to consider is that not all governments have banned cryptocurrency in the same way.
First, Bitcoin and its Blockchain technology are bringing something new to the world. They are advancing the concept of digital currency which makes them a competitor to fiat money. Keeping in mind that governments control fiat money, this is an understandable motive for imposing regulations on Bitcoin.
Second, the best Bitcoin qualities are its worst flaws and make governments nervous – a decentralized exchange, for instance. This lack of central authority is the main reason why Bitcoin is being banned. If Bitcoin or any other cryptocurrency become mainstream and universally adopted, banking systems could become useless. The popularity of Bitcoin could lead to the banishment of banking systems as we know it. This raises several security questions. It may sound appealing at first, but banks provide security to their users in a way cryptocurrency still can’t. For example, cryptocurrency transactions are irreversible, so if you type in the wrong key, you may lose your funds. Banks, as a third party are there to solve these types of issues. It is understandable in a way that governments are trying to understand the good and the bad that cryptocurrencies could bring.
Third, and probably the most talked about reason, is that anonymity of transactions makes Bitcoin a good ally of criminals and could be used for drug trafficking, prostitution, terrorism, money laundering, tax evasion and other illegal and activities. South Korea plans to ban all foreign exchanges and to regulate domestic exchanges of Bitcoin and other cryptocurrencies, mainly because of illegal activities.
Fourth, banks are imposing some regulations too. For example, the British bank Lloyds banns their customers from buying cryptocurrencies using their credit cards because they would be in debt if the cryptocurrency value plummets.
You can see that reasons for banning are diverse and security challenges are serious and real. Most analytics agree that complete banishment could only create black markets for Bitcoin transaction and the solution is finding a compromise – using what’s best out of banking systems and out of Bitcoin and Blockchain technology.