Why can't governments regulate cryptocurrencies?

Governments can, and have, regulated cryptocurrencies, in at least a few ways (exchanges have to perform anti-money laundering/know your client checks on users trading large amounts, etc). However, if you're willing to play outside of the more mainstream businesses, it gets really tricky. Some of the design principles for Bitcoin are:

  • Censorship resistance: no central authority can suppress your transactions.
  • Decentralisation: anybody can participate in the network, from anywhere. There is no privileged authority, so no single point that you can eliminate to take out the network.
  • Anonymity: As long as you don't reuse addresses, it's comparatively hard to track your money flow.

All of these things mean that, while governments could regulate cryptocurrencies, enforcing that regulation is another matter entirely. Still, regulation does have something of an effect, and you can see prices drop whenever a major government changes the rules.

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