The argument that the government will simply ban or confiscate bitcoin once they realize it's a threat is pretty common among those who sincerely research bitcoin and aren’t convinced (which used to include myself).

I appreciate this question because it typically comes from people who don’t want to drink the orange koolaid.

I think there’s a lot of truth to this rebuttal, because at the end of the day, seems like it’s bitcoin vs the US military. The United States is the global reserve currency. Everyone’s debt is in dollars. The failure of the dollar surely means the failure of the United States, right? They’re not going to let that happen. They’ll ban it. They’ll confiscate it. And people will comply, because if it’s between freedom and security, most people choose will security. That’s exactly what happened in 1933, right? Executive Order 6102 goes into effect, and people just… roll over and give their gold to the banks, allowing inflation, for the sake of security.

“They did it with gold, why shouldn’t they do it with bitcoin?”

And the conversation becomes about privacy, KYC, wallet security, monero, and whether or not its technically possible for the government to find private keys and confiscate them. That’s a fun debate in and of itself, but it’s not relevant.

So here’s my attempt to address the “ban/confiscation” argument. Feel free to add to it, correct it, and share your thoughts and challenges.

(2033 is arbitrary, this is just whenever the US government decides to get me)

People parted with their gold for the sake of saving the economy, and it's not hard to imagine our economy tanking because *all the things*, the US realizing that confiscating bitcoin might be the best option, and attempting to do the same thing it did in 1933.

One subtle difference between 1933 and 2033 is… The dollar was pegged to gold prior to 1933. In order to devalue the dollar, they needed to unpeg it from gold, and the only way to unpeg it was to take all of it.

We're in the reserve situation.

If the Fed wants to decrease OR increase the value of the dollar, they already have the ability to do that.

Imagine the scenario. The dollar is devaluing relative to bitcoin, and the government is realizing they don’t have control over the money anymore.

They’d have to say “Hi everyone, we have the ability to make the dollar scarce like bitcoin by simply shutting off the printer, but we can't seem to keep ourselves under control. So give us your bitcoin."

Doesn't work? What about “Bitcoin is destabilizing the economy! Because, er, um, people trust it more than us. So we need it.”

Because - keep in mind, we’re not just talking about the perspective of US citizens. This would be happening in full view of every other government in the world. Don’t underestimate how weakening and destabilizing this would be. The moment the US Government says “we need your bitcoin”, that instantly sends a signal to the rest of the world that we’re going to a global bitcoin standard. Then the US dollar loses all power and bitcoin becomes insanely attractive to other world powers. If it’s a domestic threat, it’s an even greater foreign threat.

You can think of bitcoin as a global technology that destabilizes tyranny on auto pilot. Increase the tyranny, increase the demand for bitcoin. Attempt to confiscate it, and it becomes a weapon to everyone around you.

In short: For the government to stop bitcoin here, they’d need to stop it everywhere, and that simply isn’t possible.

A much simpler option would be to simply shut off the printer. It would be less extreme, less difficult, and more beneficial for the government to harden the dollar than to try to fight bitcoin.

But we all know that isn’t going to happen.

I feel like the question that follows is - is it even possible for the US Government to leave the dollar without collapsing as a nation?

Yes - that’s 100% feasible, and I hope this is how things play out.

As long as the bitcoin adoption process continues, we could easily reach a point, perhaps not long from now, where politicians simply lose incentive to take a hard stance against bitcoin.

From there, there are plenty of smooth, non power struggle off ramps for the dollar. We could organically move towards an Austrian system as bitcoin adoption helps more of us understand what money is and how it should be handled, or perhaps the dollar gets strategically maneuvered to become a layer 2 solution, at least temporarily.

My personal theory is that bitcoin first functions as a savings account for a notable percentage of the population, and then the government realizes its in our entire country’s best economic interest to let that continue as we figure out a way to give the dollar a controlled implosion.

The US federal debt has gone down significantly relative to the value of bitcoin.

Either way, there are plenty of realistic scenarios that start with gradual adoption and work its way into the democratic system.

All that to say, Bitcoin vs US Military isn’t inevitable, but it’s almost certainly the worst option for the government.

TL;DR: A US government ban or confiscation attempt would instantly legitimize bitcoin to the world, which would put the US in a very bad place. The only beneficial option is to allow bitcoin to flourish, and implement a plan to take advantage of it.

Thanks @Darthcoin_Cash for posing the question in our comment discussion here, and @siggy47 for giving me a fun incentive to type this out for everyone.