What Happens if Governments Ban Cryptocurrency?

Cryptocurrency is a hot topic, and it seems like countries either accept it or try to ban it entirely. As such, many individuals are hesitant to invest, in fear that the moment they do, their country might make it illegal.

Although a government banning cryptocurrency sounds serious, it isn’t quite as dramatic as you may think. Read on to learn more about what happens when a government bans cryptocurrency.

Can a Government Ban Cryptocurrency?

Many countries, notably China, have banned cryptocurrency. And while passing the actual regulation can be easy, a full-on ban is not as simple as one would think.

Of course, in China, the government uses a massive firewall to control its citizens’ internet access—and therefore, they have had much more success with their ban than in other countries, like India.

That being said, the ban isn’t as complete as the Chinese government makes it out to be. While cryptocurrency websites are blocked by the Great Firewall, and registered mining operations were shut down when the ban became official in 2021, Chinese residents still hold a fair amount of cryptocurrency—they simply have to be more sneaky with how and when (and where) they access their accounts.

Which brings us to the true answer—no, governments cannot truly ban cryptocurrency. They can ban the legal registration of it, and the mining operations on their soil, but they cannot stop their residents from making accounts and buying crypto abroad. In fact, which has been proven by Chinese nationals.

We consider cryptocurrencies a bit like game theory—while governments can ban them in their country (and prosecute those found to be holding them) they cannot actually stop their people from buying them, and in these cases, they actually miss out on tax revenue they could have by making them legal.

What Happens When a Cryptocurrency is Banned?

China is one of the few countries with a full cryptocurrency ban, but there are many other countries which just ban a specific token, most notably Japan and South Korea which have both banned privacy coins like Monero and the UK which has banned pump.fun.

In these cases, the token that is banned is delisted from centralized exchanges, and if the government is able, they will block the websites for these tokens using the national firewall. There is also cases where the government can imprison the creators of a certain token if they are known (such as in the case of Tornado Cash) but still, they cannot make the token extinct.

Of course, tokens that are delisted in large markets are more likely to go defunct eventually, but the government cannot do this on its own. People can still trade these tokens person to person, and use decentralized exchanges like Uniswap and Sushiswap.

Basically, all this to say that while a government can ban a token, and have it forcibly delisted, they cannot, on their own, make the coin go away entirely and individuals are still trading banned tokens every day.

Can The Government Seize Cryptocurrency Investments?

Unfortunately, yes, most governments can seize cryptocurrency investments—by freezing your wallet or your assets in general until you comply. That being said, the government can often only seize the assets they are aware of, and while most governments track Bitcoin and other major token sales, they don’t track all of them.

Additionally, as we mentioned above, the government can typically only freeze the assets on their soil, and the wallets they have authority over. This means if you store your cryptocurrency in a hidden Trezor or Ledger wallet, and then travel to another country to sell it direct to another person, your government cannot stop you. While it may be difficult to find a safe place to store your physical wallet that the government won’t find if they ransack your home, they can’t freeze an offline wallet. They also can’t stop you from using that wallet to trade with someone outside of the country.

Basically, what we are saying is, the government can seize crypto assets, mainly those stored on centralized exchanges. But, they can’t seize every form of cryptocurrency. Therefore, those who are smart and take precautions won’t have to worry about this.

So, is Cryptocurrency a Safe Investment?

While we tell you all of this so you can know that a government can’t ever truly ban cryptocurrency, know that cryptocurrency is still not a safe investment.

Cryptocurrency is a volatile investment that is heavily influenced by the laws of supply and demand, as well as by regulation. This means that even though most governments can’t truly ban cryptocurrency, market sentiment at the announcement of a ban can lead to a steep price drop. Additionally, because many cryptocurrencies are unregulated, there is no guarantee you are protected in a market crash like you sometimes are with fiat.

As mentioned in all of the sections above, the government can say a lot of things, but it is truly difficult for them to prevent you from using cryptocurrency. So, you don’t have to worry about them snatching it away if you want to invest. But you do need to worry about what projects are viable, and storing your cryptocurrency safely so won’t have it frozen, lost or stolen.

We recommend that anyone looking to invest in cryptocurrency start with a major coin like Bitcoin or Ethereum. While these are the more trackable tokens by governments, they are more secure in terms of volatility. But, if you can, use a decentralized exchange to buy (instead of a centralized one) because these are what the government tracks.

We know that not all individuals starting out will be able to utilize decentralized exchanges, so if you must use a centralized one, just ensure you purchase a cold wallet, and transfer your cryptocurrency off the centralized exchange as soon as possible. While the government can still track your cold wallet (because of the public ledger technology) this will ensure they can’t freeze your wallet on their whim. Then, if you do find yourself in a country where cryptocurrency is banned, you can still take your wallet with you and use a decentralized exchange to sell once you are on foreign soil.