Classification and effect of nation state bans on crypto
Different types of bans:-
Banking bans - preventing banking makes fiat on/off ramping , salaries and hedging harder. Executed and then later revoked in India. Stifled volume , company formation which picked up after the ban was lifted.
Imprisonment or fines - under consideration in India and Russia.
Mining bans - states have begun monitoring unusual electricity consumption patterns (Venezuela) and removing bribed consecessions to miners (China).
Blocking domains - Venezuela is restricting Coinbase.
BGP attacks / rerouting node level traffic - no current known state level attacks but is a possibility.
Whitelisting assets / wallets - Stakeholders can be mandated to allow transactions of only whitelisted assets breaking the fungibility of crypto assets.
Depending on the type of ban and combinations of bans, different parts of the ecosystem will be affected.
The table below estimates the effect of each policy in isolation.
|Black hat hacking||neutral||down||neutral||neutral||down||neutral|
Bans in adverse nation states may serve as sandboxes to incubate and scale censorship resistant platforms like p2p exchange , privacy coins , DEXes and network level anonymization.
While bans may be effective in the short term in the longer term positive regulation and interacting with crypto networks directly (upcoming post) are more likely to win out.
Nation states like China and India that initially try to take an oppressive stance will continually flip-flop realizing the futility and inability to execute bans. In this period the state may loose out on crypto project formation and innovation. It may also serve as an advertisement for crypto and create demand.
Competitive nation states should not be afraid of competition by crypto networks. Crypto will be become pervasive and is geo-fluid. Positive regulation and interaction will lead to increased crypto company formation and economic activity. Crypto holders and entrepreneurs will increasingly ‘exit’ to competitive nation states and charter cities if they have regulations in place ( sovereign individual thesis ).