Banning Bitcoin

Abstract

We employ a monetary model with endogenous search and random consumption preferences to consider the extent to which governments can ban bitcoin. We define a ban as a policy whereby government agents refuse to accept bitcoin and mete out punishments to private agents caught using it. After identifying monetary equilibria where bitcoin is accepted, we then derive the conditions under which a ban might deter the use of bitcoin. As in earlier studies, we show that a government of sufficient size can prevent bitcoin from circulating without relying on punishments. We also show that, given its size, a government can ban bitcoin so long as it is willing and able to mete out sufficiently severe punishments.

Keywords: Ban, Bitcoin, Cryptocurrency, Currency, Endogenous matching, Money, Money matching, Political economy, Random matching, Transactions policy

JEL Classification: C78, E41, E42, E50