Jurisdictional Arbitrage Fallacy

There is a theory that, since it is unlikely that all states would join a Bitcoin ban, the coin would survive by movement of mining and other activity to permissive states.

Those who do not comply operate in the black market from the perspective of the banning authority. Another state in violation of a ban is considered a rogue state from this perspective. A ban is a simple political action against which Bitcoin offers no protection.

There is a related fallacy that such an action would be impossibly difficult in the case where Bitcoin is popular. This is the idea that Bitcoin is secured by the vote, which reduces its security model to that of the status quo of state money, eliminating Bitcoin’s value proposition.

White market operations are by definition eliminated by a ban. The theory therefore implies that Bitcoin is ultimately secured by the protection of rogue states. This also reduces to security by vote. Furthermore powerful states have many tools to compel others, everything up to and including open warfare. These tools are commonly employed in various wars, such as those on drugs, money laundering and terror. A Bitcoin ban could easily fall under the umbrella justifications for all of these existing international conflicts.

However, Bitcoin is specifically designed to operate without permission from any state. Its continued operation as a black market money may lead one or more states to attempt its suppression through censorship. While this may be attempted by a single state, it is common for states to collaborate in defense of the taxing power of their monies. This is the purpose of the International Monetary Fund.

Such an action can be executed most efficiently from a single geographical location. In this scenario rogue states offer no defense except to the extent that they are not only willing to forego the tax benefit of their own monies, but also to donate tax money to resist censorship. It cannot be assumed that rogue states can overpower the censoring authority, and any dependence of them reduces Bitcoin to a politically-secured money. As such the theory is invalid.