How to Destroy Bitcoin

Right now the United Kingdom is proving an effective testbed for how the democratic countries across the G20 can effectively clamp down and stop the financial contagion of bitcoin from spreading into public markets. Much ink has been spilled by engineers discussing how to theoretically destroy bitcoin from a software or computer science perspective, and quite frankly this approach is far too drastic and unnecessary. There is a far simpler and more effective means within the traditional toolbox of statecraft1.

Outright banning bitcoin is a bit blunt and politically inconvenient, but the truth is that small, private and barely noticeable regulatory notices, minor legislation, and memos to infrastructure providers are all that is necessary to bring down the entire corrupt network to its knees so that it can no longer cause public harm.

It’s important to understand that nearly all consumer interactions with bitcoin happen through centralised entities who require domiciled entities within the United States for their continued access to payments infrastructure, banking and customers. This makes them particularly vulnerable to coordinated law enforcement and coercion by their banking relations and payments processor partners.

There is no legitimate economy that transacts in bitcoin. It is an absolutely rubbish means of payment and most customers are simply looking to realise short-term gains in terms of Dollars and Euros as a result of zero-sum speculation on price movements, which is indistinguishable from gambling. They do so through consumer gambling apps (Robinhood Crypto, Cash App, etc) that present a casino-like interface that lets users gamble on the price movements of these hypervolatile pseudo-assets. The app itself relies on a third party service provider for exposure to the market and custody of the underlying assets, however the customers are not able to realise or transfer these underlyings and are only able to convert the marked gains in a virtual dollar account which is settled back-office in real dollars with the service provider. This makes apps like Robinhood Crypto not significantly different than what would traditionally be called bucket shops in normal markets. These markets are highly manipulated by pump and dump schemes and are in aggregate are a net wealth transfer from victims to early stakeholders who manipulate prices, networks and exchanges for their own gain.

It is not necessary to destroy entire networks or every dollar interchange, indeed so long as there are two rogue entities running the software it will probably continue to exist but this does not matter. It suffices to simply shut off the traditional banking on-ramps and off-ramps to make it difficult to gamble on, unprofitable to mine and economics will take care of the rest of the destruction without any heavy-handed efforts by lawmakers at all.

  1. Notices to Payment Processors

In the United States, the Treasury and Office of Foreign Assets Control could serve notice to major US payment processors that transactions that the following entities represent high risk to United States persons and national security:

  1. Binance
  2. Binance.US
  3. Huobi Global
  4. Kraken
  5. Bitfinex
  6. KuCoin
  7. Bithumb

With this entities lists served, none of the compliance departments in any off big four US banks would touch transfers from any of these foreign entities or their correspondent banking partners in Europe. Payment interdiction is highly effective at bringing down internet crime and both Visa and Mastercard would no longer process card payments to these exchanges, which would effectively cut them off from nearly all customer inflows.

Most of the tokens these offshore exchanges offer are so-called “alt-coins”, with an underling economic structure effectively identical to that of a pyramid schemes (i.e. old investors are paid out by new investors). Shutting off their inflows and capacity for redemptions would cause most of their market prices to crater as customers fled for the exits. This would likely destroy in excess of 80% of these pyramid scheme tokens.

  1. Shutdown wildcat USD cash equivalent stablecoins

Right now there are two foreign entities that have been given free reign to print unbacked cash equivalents against the US Dollar without oversight of regulators or the Treasury. These two entities are:

  1. Bitfinex/Tether with USDT token. (Incorporated in Hong Kong)
  2. Binance with BUSD token. (Likely incorporated in Cayman Islands)

Shutting down these entities and legislating away the glaring loophole that allows US companies to hold these stablecoins would fix the crypto wildcat banking problem in the same way that Liberty Reserve was brought to heel. This would snuff out 70% of trading against most crypto tokens pairs which is widely predicted to be a source of artificial inflation and wash trading in the markets. Since most of these markets are already thinly traded this would cause a massive run on exchanges back into normal currencies and would drain whatever holdings the exchanges allege to hold to zero, and causing most of the wildcat foreign entities without dollar accounts at the Fed to fold.

US companies wishing to launch domestic stablecoins pegged to the dollar should likely be brought under proposed Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, which would require any prospective issuer of a stablecoin to obtain a banking charter, obtain FDIC insurance and produce publicly verifiable audits of the assets comprising the offering. This would force companies like Facebook to purse domestic banking partners rather than trying to become the same kind of problematic shadow bank we saw during the global financial crisis.

  1. Declare any digital assets issued by US companies as securities, ban the rest

For companies in the United States who have previously issued ICO tokens or alleged utility tokens there is already an existing framework for how to grandfather them into existing markets in a safe and regulated way: they should be forward-classified as securities. The consumer interactions with all of these products is nearly identical to that of equities, people buying these tokens are investing a common enterprise and are led to expect profits solely from the efforts of the promoter or a third party. Doing this in software or on paper makes very little difference to the economics or consumer risk.

Tokens which have no corresponding legal entity willing to claim legal liability for development of the product (i.e Dogecoin) should be outright banned as they represent naked non-economic pyramid schemes and there is no societal utility in such schemes continuing to exist. If there are any token companies which can stand on their own as regulated money transmitter businesses or technology companies then let them try, but with sane consumer protections to prevent the absolute madness and consumer abuse we see today.

The beauty of the soft-touch approach is that we don’t even need an outright ban. Bitcoin carries with it the seeds of its own destruction by virtue of it being effectively a pyramid scheme that depends on the greater fool theory and consistent inflows to sustain the collective delusion in the viability of infinite recursive speculation on hot air and libertarian fantasies. If we as citizens in democratic countries simply restrict the inflows and on-ramps, the entire scheme will collapse on its own in a highly predictable and politically expedient way without much effort. And the world will be better off without it.


  1. See also Bruce Schneier and Nicholas Weaver’s article on regulatory approaches to the ransomware problem. https://slate.com/technology/2021/06/banning-cryptocurrencies-bitcoin-ransomware-disruption-exchanges.html