Hi Brandon, I agree with you on a few things, but I disagree with your conclusions.
The incentive for governments to squash Bitcoin and other digital currencies is indeed extremely strong. There's a common military formula to assess a threat... Threat = Capability x Intent. We know it's likely that governments have intent to destroy digital currencies, but their level of capability isn't completely known.
I did make the case in this piece: Bitcoin Paranoid, that governments are probably already attempting to infiltrate Bitcoin, using the weaknesses of the development team, perhaps paying them or threatening them. But crushing digital currency in general isn't so easy.
This idea of decentralised currency is already out in the open, so if one project such as Bitcoin fails, it's simple for another to take its place. Think of it like Internet file sharing. Napster was the first user-friendly system that offered this service, and when it was shut down there were Morpheus and Gnutella, and then they got shut down, and eventually we got BitTorrent, and governments are still trying to shut down torrent sites... They're not having a good time.
Napster was quite unsophisticated compared to BitTorrent, with a high level of centralisation, making it easier to shut down. Digital and decentralised currency follows a similar path. There was e-gold, and Liberty Dollars, Electronic Liberty Dollars. But they were all too centralised, and they got shut down. Now Bitcoin has been going for about 9 years, and it's pretty obvious that it's not so easy to shut it down. Now we have Dash and other currencies with decentralised autonomous funding, that are even harder to kill.
When you say "It’s a battle the government can’t lose, and therefore they won’t lose it," you're assuming that they have the capability, and that's really not proven. The music industry can't stop file sharing, the movie industry... So how can you know that banks and governments will be able to stop an analogous technology?
The other case is that is that government doesn’t succeed in curtailing activity in alternative currency and it continues to expand in importance. In this case you’re also fucked, as governments will not be able to fund and sustain themselves.
To me, that doesn't sound like I'm fucked. Actually, that sounds good. Actually, that sounds like what Bitcoin was intended to do - to remove power from established power structures. New organisations are already beginning to take their places.
Here is a quote from Timothy May's "Crypto Anarchist's Manifesto", written around 1988, long before Bitcoin came along:
Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions. Combined with emerging information markets, crypto anarchy will create a liquid market for any and all material which can be put into words and pictures. And just as a seemingly minor invention like barbed wire made possible the fencing-off of vast ranches and farms, thus altering forever the concepts of land and property rights in the frontier West, so too will the seemingly minor discovery out of an arcane branch of mathematics come to be the wire clippers which dismantle the barbed wire around intellectual property.
My only criticism of what May wrote here is that he didn't go far enough.
Churdtzu, Thank you for this reply! I think the form a government crackdown would take would probably be selective prosecutions. Govmts could simply start prosecuting large numbers of people involved in alt currency for crimes such as tax evasion. This is not to say that alt currency users are breaking the law more than others, it's just that every individual and business is subject to so many rules, and it's not uncommon for govmts to selectively enforce these rules towards particular ends.
I'm glad you're receptive to what I'm saying. I agree, governments probably will do that, and in fact they already have - Charlie Shrem, Ross Ulbricht, and going back, Bernard Von Nothaus for Liberty Dollars.
This definitely slows people down in digital currency, but it's unlikely to stop them. Many entrepreneurs will move to countries where there aren't relevant laws, or where the laws aren't likely to be enforced (sometimes you just gotta pay off the right people).
The US and other developed nations - especially English-speaking nations - tend to be the ones with the strictest financial regulations. (Well, not against big banks, but against new companies.) In these countries, the government is likely to get in the way a lot, and inhibit adoption.
Again, it's similar to prosecutions with file sharing. They prosecuted 12 year old girls for downloading 10,000 mp3s, and maybe a few people got scared... People in the US particularly don't like downloading without paying. But in literally almost every other country, people do it without fear of punishment. File sharing has been inhibited because of these prosecutions, but it certainly hasn't stopped. It's the same with digital currency.
Beyond that, one of the biggest fintech players right now is Citibank. Citibank has several fintech departments, one for consumers, one for business, and so on. It's possible that Citibank's fintech departments will be a target for prosecution, but I think you'll agree it's unlikely.