Why would a country ban private use of cryptocurrencies?

tl;dr: Taxation, Control, and Flight of Capital.

There are many arguments and stories that can substantiate why a country would ban cryptocurrencies, but it all boils down to financial independence. The ability for individuals to take capital into their own hands and take it anywhere without any government control.

Let’s take an example, circa 2005 (before Bitcoin), where let’s say you are in Country X and you want to take your own money, which is worth about US$ 100,000 out of the country, and take it with you, where ever you want. The problem is, the government controls who can and cannot take money out of the country and how much. Let us also assume you want to take a small bar of gold (that is worth US$ 100,000) outside, and again, the government here would have a say. You would also have to inconvenience yourself to book a flight and take the physical gold bar with you, thus creating more problems for yourself.

A the end, it is all about control. The writ of the government is challenged when it comes to printing money and controlling the money supply. If you, as a citizen have the ability to keep your own money, to yourself, that is accepted worldwide and can be traded in an instant, then the government’s dominance over you, as a taxpayer is challenged.

Today, it might be a single person who would be taking their capital with them, but tomorrow it could be in the millions. Thus, the 100s of years old model of governance using taxation and money printing (inflation) as a control mechanism is challenged.

There is no alternative, at present, in play for governments to handle a model in the broader financial system where such a system can exist, unregulated, and where taxation methods (such as wealth tax, etc.) are beyond the scope of the government.

With all this in mind, the myopic thinking by governments is to put a blanket ban on cryptocurrencies, with the aim of killing their growth in its infancy.