If and when central banks crack down on digital currencies it will be lights out. People keep asking me what can central banks do. The question should not come up as the answer is obvious: ban transactions in Bitcoin.If the government bans bitcoin it must essentially monitor all the miners in the network. Mish fails to understand bitcoin is not a coin, it is a ledger system. There is the inevitable lawsuit between the right of expression and the right to regulate.
If the US banned bitcoin transactions, people would still have their digital coins, but they would effectively be worthless. One could not buy anything with bitcoin other than barter transactions. There would be no way to get money in or out, at least in the US.
The agents can respond to a ban with a hedge fund that holds their money under contract. Thus, within the hedge fund contract, outsiders can exchange money for bitcoin, then reverse the trade. It is like a private coin exchange or private hedge fund.
The only method the government can use to monitor the distribution of funds within the hedge i to monitor their activity in the miners network. It becomes an illegal activity and there is risk of government seizure. The government is essentially prohibiting calculations on the bitcoin ledger, there are no real bitcoins, just ledger entries.
What exactly would government ban? They would ban certain block chain ledger algorithms. I would like to see Mish write that law. China limits bitcoin use by limiting capital and cash flows in general. Otherwise he Chinese bitcoin traders would just shift to a foreign coin exchange.
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