Why Freer Governments Also Fear Crypto
By Walter Donway
August 13, 2026
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Relatively liberal governments are deeply skeptical of cryptocurrencies.
It must be said: Dictatorships are not alone in pushing back against blockchain systems. Relatively liberal governments are deeply skeptical of cryptocurrencies. Some of their concerns are valid. After all, if technology can help dissidents evade repressive laws, it can also help criminals evade just laws. Western regulators cite concerns about risks to consumer protection and security. Cryptocurrencies are volatile (at least at this stage in their evolution); Ponzi schemes and other scams flourished in the unregulated Wild West of crypto markets. (Nigeria’s government initially argued Bitcoin was “not legitimate money” and was tied to schemes that had burned Nigerians.) Also, money laundering and illicit finance loom large. Because crypto transactions can be pseudonymous, officials warn that terrorists, cybercriminals, or other bad actors might misuse them. High-profile ransomware attacks and dark web drug markets fuel the perception that Bitcoin is a haven for illicit activity. In reality, research indicates that the vast majority of crypto usage is legal, and that cash remains far more anonymous for criminals.
But what government believes in financial laissez faire?
But what government believes in financial laissez faire? The United States and Europe have tried to bring crypto to heel. Surely, they argue, financial freedoms must be balanced with oversight to prevent harm. In practice, this means more regulation: requirements that cryptocurrency exchanges and wallet providers collect customer IDs, report suspicious transactions, and comply with the same anti-money-laundering (AML) rules as banks. The European Union, for instance, recently set out plans to make crypto-assets more traceable “in order to combat money laundering.” New EU rules will impose transparency and capital requirements on crypto businesses with the aim of protecting users and integrating crypto into the supervised financial system. Efforts accelerated after episodes like the 2022 collapse of a major crypto exchange (FTX) that cost investors dearly.
Are the good guys morphing into bad guys? Cryptocurrency was conceived as an anti-authority, libertarian movement to create “money without government.” When “free” countries increasingly regulate it, domesticate and centralize it, they potentially undermine the qualities (privacy, censorship resistance, decentralization) that make it valuable to dissenters. For example, if every crypto account is linked by law to a verified identity, an authoritarian regime can more easily subpoena that information or pressure companies to hand it over, thus exposing dissidents. If every transaction above a tiny threshold must be reported to authorities, it facilitates the surveillance that human rights advocates fear. As one analysis noted, the unique advantages of crypto could “become extinct” under heavy regulation, eliminating users’ protection from state overreach.
Most democratic governments probably are sincere that they target criminals, not political speech, and seek reasonable oversight to stop terrorist financing, child exploitation, tax evasion, and the like. But there is financial surveillance and control creep even in free societies. During the 2022 protests in Canada by the “Freedom Convoy” truckers, who organized to oppose COVID-19 vaccine mandates for cross-border truck drivers and then all COVID-19 restrictions and mandates, authorities froze bank accounts of protest organizers and donors under emergency orders—a controversial move in a rule-of-law nation. In response, some supporters turned to Bitcoin for a route around the freezes. Canadian officials, in part responding to charges that funds were being misused by “right-wing extremists,” then tried to blacklist certain crypto addresses as well. Obviously, democracies may use financial levers to quell dissent, blurring the line between security measures and political overreach. This highlights why built-in checks on centralized power—like decentralized money—appeal to civil libertarians in any country.
Co-Opting Blockchain’s Architecture for Control
Regulatory pressure in the United States and Europe has accelerated rather than stabilized. In practice, governance has often occurred through enforcement actions and litigation rather than clear legislative settlement, pushing innovation offshore while leaving unresolved the tension between financial surveillance and civil liberty.
Authoritarian regimes, for their part, no longer play defense. The same technology that empowers individuals can be co-opted by governments to enhance state power. Take China’s launch of a digital yuan, also known as DCEP (Digital Currency Electronic Payment). Unlike Bitcoin, this is not a decentralized cryptocurrency; it is issued and managed by China’s central bank with just the trappings of digital currency (using cryptographic serial numbers and smartphone wallets), while keeping the ledger in communist party hands. The digital yuan gives the Chinese Communist Party unprecedented visibility into transactions.
As one analysis noted, the “real intent” of China’s CBDC is “to increase state control of the payments system and closely monitor transactions and even personal behavior.” In trials, digital yuan wallets have featured “controllable anonymity.” Thus, small purchases might be semi-anonymous, but larger transactions are fully traceable by authorities. In an authoritarian context, this raises chilling possibilities. If every citizen’s daily commerce is logged on central servers, the state could compile a granular social profile, flagging “suspicious” activity or enforcing loyalty. Dystopian scenarios abound. Imagine your money expiring if not spent by a deadline or being made unusable outside your region—both features China reportedly contemplates to manage economic policy.
Or consider integration with China’s nascent collectivist “social credit system.” A low social credit score (for, say, criticizing the government) might result in your digital wallet being frozen or restricted. A U.S. economist warned that in authoritarian societies, digital money could enable “surveillance, state control, and… social engineering on a scale never thought possible.” In effect, the CCP could link the digital yuan with “big data” surveillance, and AI could usher in what some call “financial omniscience” — the government eyeballing and manipulating every transaction. That’s a dictator’s dream—the diametric opposite of Bitcoin’s pseudonymous, voluntary network.
Russia is now pilot-testing a “digital ruble” explicitly intended to give the central bank more control over electronic payments. Putin’s government, which has banned private crypto for payments, likes the digital ruble because it’s programmable money that the state can potentially use to track or to require that certain funds (like welfare payments) be spent only on approved items. In regimes like Iran and Turkey, facing sanctions or economic instability, leaders see state-controlled digital currencies as tools to both shore up control domestically and possibly evade international sanctions. (Venezuela’s Maduro launched the “Petro” cryptocurrency in 2018 for similar reasons. It largely flopped, ostensibly backed by oil reserves but in actuality a bid to bypass U.S. sanctions and manage hyperinflation by decree. Few Venezuelans trusted it.)
A pattern emerges: Authoritarians cherry-pick crypto buzzwords—blockchain! digital currency!—but strip out the liberty-enhancing features (decentralization, openness) and instead use the tech to reinforce central authority.
When combined with AI‑driven transaction analysis and behavioral scoring, such systems point toward a future in which money itself becomes an instrument of continuous political evaluation—programmable, surveilled, and revocable. Such projects are underway in Russia, Iran, and elsewhere.
Surveillance and Propaganda
On the defensive against “blockchain dissidents,” regimes like China are looking at how to exploit blockchains for data control and propaganda. Its Blockchain Service Network (BSN) is a state-approved platform to deploy blockchain applications under government rules. BSN does not use “free” or anonymous ( “permissionless”) public chains like Ethereum or Bitcoin; instead, it maintains permissioned ledgers where users must register. All activity is visible to or controlled by the state. The strategy? To give companies and even other nations access to “blockchain” applications that exclude any inconvenient decentralization. By domesticating blockchain, Beijing stays in charge but can claim that the Chinese have the efficiencies of distributed ledgers while still trusting their government as the intermediary.”
Authoritarians cherry-pick crypto buzzwords—blockchain! digital currency!—but strip out the liberty-enhancing features (decentralization, openness) and instead use the tech to reinforce central authority.
Such projects have the potential to enable Big Brother to track everything from supply chains to personal records in a tamper-friendly way. A permissioned blockchain becomes a perfect tool for Orwellian oversight. Imagine a vast unified ledger of citizens’ education, medical, financial, and travel records, maintained immutably so that no incident is forgotten, and accessible to security services at will. This is no longer speculation. China’s Data Security Law and Social Credit experiments suggest this convergence of “big data” and authoritarian governance. A Columbia University report dubbed this trend “data-centric authoritarianism,” noting the paradox that regimes like China are co-opting decentralizing tools to centralize power still further.
Illicit Finance
Other regimes have co-opted blockchain technology for decidedly nefarious purposes. North Korea has harnessed cryptocurrency to fund the dictatorship’s drive for nuclear superiority. Its state-sponsored hackers have stolen staggering sums (over $1 billion by some estimates) from cryptocurrency exchanges and users worldwide. Pyongyang then uses the stolen crypto, which is harder to trace than traditional bank funds, to thwart sanctions against buying what it needs on global markets. This exploitation by a criminal state of decentralized tech underscores what we always knew: technology itself is neutral. It can serve freedom or oppression. North Korea’s crypto heists weaponize open financial networks as pirates once went marauding on Caribbean trade routes. Similarly, authoritarian governments have used disinformation campaigns via social media (amplified by bots and funded through crypto) to undermine democratic movements abroad.
Authoritarian Governments are Adapting
Development and application of technology have become a classic arms race. If open blockchains give citizens a getaway car, regimes are busy building roadblocks. In the digital arms race, the term “techno dictatorship” denotes the fusing of cutting-edge tech with age-old authoritarian agendas. After many dystopian novels about inescapable totalitarian control that the hero nevertheless escapes, has the time come when a dictatorship will harness systems such as blockchain or digital currency to create an inescapable surveillance state? China appears to be testing those limits. The hope for the heroes—call them freedom’s remnant—may be in the counters we’ve seen. Whenever central authorities try to hijack technology, human ingenuity finds new paths to liberty. Even the “Great Firewall” of China has cracks that determined citizens exploit. Likewise, if a digital yuan becomes too invasive, people may seek refuge in private cryptocurrencies or barter systems beyond the regime’s reach.
The Tools and the Tenets
Technology has never been a defense against political oppression. Freedom always depends also on people’s ideas and ideals and their determination to act on them. Yes, tools matter—hugely. Think of the printing press enabling wide dissemination of books, pamphlets, newspapers, and magazines. Or radio and TV somehow always making their way through “iron curtains.” These, and now the internet, shift power away from government toward the people. But how telling the shift will be depends upon the nature of the ideas, beginning with philosophy, that motivate users. The advent of decentralized digital networks again is altering the balance.
Technology has never been a defense against political oppression.
Cryptocurrencies appear to realize ideas of classical liberal thinkers. More than 40 years ago, F.A. Hayek argued for the “denationalization of money” with the conviction we would never have sound money as long as governments monopolize it. (So far, he’s 100 percent right.) He said: “We can’t take [money] out of the hands of government by force, all we can do is by some sly roundabout way introduce something that they can’t stop.”
The war in Ukraine has underscored this dual‑use reality: cryptocurrency has funded humanitarian relief and national defense on one side, while facilitating sanctions evasion and covert finance on the other.
Talk about prophetic! In 2009, Bitcoin’s pseudonymous creator did exactly that by introducing a currency that the state can’t easily stop. Another Nobelist in economics, Milton Friedman, foresaw that the internet would need “reliable e-cash” to realize its full liberating potential: “a method by which on the Internet you can transfer funds from A to B, without A knowing B or B knowing A.” He predicted that this would “reduce the role of government” (while cautioning that criminals would exploit it too, another prediction right on the mark).
In economic terms, cryptocurrencies introduce competition to the realm of money, a competition that can discipline even governments when people flock to alternatives when official systems abuse trust. In political terms, a regime that cannot freeze all the funds or silence all the voices finds it harder to crush the human spirit.
About the Author: Walter Donway
