The smart governments will embrace Bitcoin, because it's going to win anyway

There has been a lot of talk recently about the regulation of Bitcoin and other cryptocurrencies. Some countries, like Japan and the UK, are embracing it.

On the other hand, some countries like China have banned it completely. And this China news is the one that stands out, and here's why:

China bans things all the time. Facebook, Twitter, Google and Youtube, are all banned in China. Except they're not. Renren is Facebook, Weibo is Twitter, Baidu is Google and Youku is Youtube. They are the exact same businesses, but owned by the Chinese, and now worth many billions of dollars.

This trend has led to the investing motto: "If China bans something, invest in it." Because when the Chinese government bans something, they don't actually ban it. They just ban the foreign version so they can copy it. It's their way of saying, "This thing is going to make a lot of money. Kick the Americans out. Let's make our own."

So, while China has "banned" cryptocurrency exchanges, I can almost bet my left testicle that somewhere down the line, probably in the not too distant future, a crypto exchange with the government's blessing is going to pop up. And, once again, China will have stolen another idea and gotten rich. How clever.

If this is actually their move, and I believe it is, it's a smart one. It's one I think every government should follow: Embrace Bitcoin, and embrace cryptocurrency. Because it's going to win anyway.

To understand why it's going to win, we need to break down how Bitcoin works. Bitcoin is peer-to-peer. That means it operates between me and you, without a third party like a bank or government. If I want to pay you, you give me your Bitcoin address, and I send you Bitcoin. Your address has no names on it, no physical address, no phone number. It's just an encrypted collection of numbers and letters that looks like this:

17AvEmhZZ2qnJbpHPyt42jG5Eyga1cY2a

When I send Bitcoin to that address, anybody can view it on the blockchain. You and I can go onto the blockchain right now, using any web browser, and see every Bitcoin transaction ever sent. But there is no way for anyone to know this address belongs to you. Or that you even own an address at all. The only way for someone to know, is if you tell them.

Think about what this means. If I want to send Bitcoin to my business partner, I'm sending it. If the government bans it, that's great. I'll still send it. They won't know. Because they can't. Bitcoin addresses are nothing more than a collection of 26 numbers and letters. Are you going to make it illegal for me to send numbers and letters in an email? If I really need to, I can even code it into symbols, or words, or emojis, so nobody can even tell it's a Bitcoin address. If you shut down my email, I'll just send it through Facebook. If you ban Facebook, I'll send it on Skype. If you shut down my Skype, I'll write it on a piece of paper and put it in the mail. If you intercept my mail, I'll write it in a Yelp review. You can't stop people from sending Bitcoin.

This is already playing out with the China ban. Do you think Chinese investors just stopped buying cryptocurrency after the ban? No, some of the biggest exchanges in the world are Chinese. They just moved their servers offshore. Investors simply moved their money to Japan or Korea and continued business as usual. And, I'm sure many millions in Bitcoin is being exchanged within China's borders daily, under the radar. How can the government know? They can't.

We've seen this kind of thing before. When the peer-to-peer network Napster was invented, it created a worldwide problem of pirated music. The government got involved and there was a long court battle. In 2001, the US government finally managed to shut down Napster. What happened? They succeeded and totally eliminated the problem of copyright infringement. Peer to peer networks became illegal and disappeared, and everyone went back to buying CDs.

Right?

No. Napster got taken down, and a hundred better, faster, more private Napsters popped up. They used mirrors and spoofed IPs to become impossible to detect. I was in high school at the time, and all anyone talked about was downloading music and making mix tapes. Illegal file sharing sites became so widespread and advanced to the point where it was the worldwide norm to listen to pirated music. The entire entertainment industry banded together with the government to try and shut down peer-to-peer file sharing. Yet today, nearly twenty years after the US government "won" the Napster case, any ten year old with a smartphone can go online and in five minutes download any song or movie ever created, illegally, for free.

If Napster has taught us anything, it's that P2P networks are impossible to shut down. The only way to do it, really, is to turn off the internet. But of course that will never happen, because the internet does far more good than harm, and I believe the same can be said for Bitcoin.

The simple fact is there are far more good people in the world than bad. I can say, for example, that I have no plans to launder money with Bitcoin, I have no plans to smuggle drugs with it and I certainly am not using it to buy a gun or child pornography, and neither is anyone else I know. The most likely reason I would use it, is to send money to friends overseas, so I don't have to pay 10% to Western Union or wait 3 days for a bank transfer. I might also use it to receive payments, so I don't need to have five different bank accounts in five different currencies. Things like this, that make my life easier, more efficient, more affordable - exactly what technology is supposed to do - are the main use-cases of a global and decentralised currency like Bitcoin. To assume someone who uses Bitcoin is a criminal is just plain odd. Most people who use it do so because it makes their life easier. Which should be obvious, but apparently is not.

Is it true that criminals will use Bitcoin too? Yeah, probably. Just like criminals use iPhones to communicate efficiently, and Google maps to map their escape routes, and cars to get from one place to another, and electricity to power their computers. If we're talking about crime, the internet has facilitated more crime and terrorism than any technology in history. Of course, this doesn't mean we should make iPhones and Google maps and cars and the internet illegal.

In fact if we look at history, making Bitcoin illegal is only likely to encourage more crime. Had Napster been embraced from the beginning, The Pirate Bay wouldn't exist. Bittorrent wouldn't exist. If they did exist, most people would never use them, because there would be no need to. Instead, the industry was forced underground. The Pirate Bay, and hundreds of other sites, facilitated trillions in illegal downloads, and the US government spent millions of dollars and ten years trying to shut it down. Guess what? They failed. The Pirate Bay is still there, used by millions of people every day.

The same will happen with Bitcoin. It will only result in a more private, more anonymous, more untraceable Bitcoin, one where wallet addresses are scrambled and encrypted, one where transactions are routed to make tracking impossible. The government will try to shut them down, fail, and then they'll finally embrace Bitcoin after the damage is done. In fact, these types of ultra-private cryptocurrencies already exist, such as Monero and ZCash. Monero currently has a one million dollar bounty on anyone who can successful trace a Monero transaction. That's how confident they are in their privacy tech. But there is little motive for most people to use these coins, because most people aren't doing anything illegal. Why would I use Monero? So nobody can see I sent $500 to my sister?

What the government should have done with Napster, was embrace it. They should have embraced the technology, they should have embraced the brains behind it, and they should have legitimised the digital music industry. It should have been obvious that after people had experienced the convenience of listening to any song they wanted on their computer, instantly, for free, there was no way they were ever going back to buying $30 CDs. It's no surprise that ten years after Napster went down, after illegal file sharing sites had already decimated industries and reached every corner of the internet, Napster's original founder, Sean Parker, re-emerged and launched a site called Spotify. What is Spotify? Well, it's Napster - a site where you can listen to any song on your computer, instantly, for free. Technology always wins.

Which brings us to Bitcoin. Do you think, after using Bitcoin, people are going to go back to paying $30 and waiting 3 days for a wire transfer to clear? Do you think they're going to go back to paying Western Union 10% of their paycheck to send money home to their family? Do you think they're going to go back to paying $10 in monthly account fees, just because?

This is why it's going to win, and this is why the smart governments will embrace Bitcoin. They will encourage people to use it. They will welcome the innovation, and foster the brains and the technology. Because when you do this, you can benefit from it, and control it, you can legitimise it, you can tax it. You will have businesses and create jobs and build an economy around it - an economy that by all metrics, is trending to be enormous. Sure, some people will use it for crime, just like every technology, but if it's legal, people can study it, learn about it, experts can help law enforcement use the blockchain to identify and stop crime, rather than forcing it underground. People can get degrees in it, innovate with it, make a living from it, Ultimately, it will create far more good than bad.

Which governments will be on the right side of history, only time will tell.