Your argument boils down to.....Bitcoin is successful because it forces the state to use a less scalable, more expensive tool (physical seizure) than fiat (remote freezing/inflation). What the government can't control, it must contain. But you are ignoring how the state achieves control without physically kicking in doors! ​Chokepoint Control (Containment): The government doesn't need to seize Bitcoin from millions of individuals. They need to control the on/off ramps—the regulated exchanges, the banks, the custodians. The moment you try to convert your Bitcoin into dollars, property, or goods in the regulated economy, you expose yourself to their power. That choke point is scalable, and it achieves their containment goal. ​The Incentive Trap: You praise Bitcoin for forcing them to use the most expensive form of power projection (physical arrest/seizure). But this only applies to people who already have massive stacks that warrant that expensive effort. For the average person, the government simply raises the cost and complexity of using Bitcoin until it's impractical, forcing them back into fiat for most transactions. ​The True Game Theory: The uneven playing field doesn't end just because the tool is slower. The state's move is to legislate Bitcoin out of utility for the masses—either through capital gains complexity, KYC/AML enforcement on all major interaction points, or outright banning its use as money. Why go through the expensive process of physical seizure when you can simply make the asset functionally useless within the system? The government doesn't need to win the technical fight for every wallet; it just needs to win the regulatory and enforcement fight at the perimeter to maintain its monopoly on power and money.

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You’re describing exactly why circular Bitcoin economies matter. If your thesis depends on converting back to dollars, you’ve already conceded the game. Chokepoint control of fiat on-ramps is only a problem if you need their permission to transact. They can regulate exchanges and add KYC friction, but they cannot stop peer-to-peer transactions or prevent you from accepting Bitcoin for goods and services directly. Your argument assumes everyone needs to touch regulated rails. Bitcoin adoption accelerates precisely where state monetary control fails. The containment strategy works in stable jurisdictions until it doesn’t. Saying “they can make it hard to interface with their system” is not the same as “they can stop Bitcoin from functioning as money.” One is friction, the other is control. If they could actually stop it, they would have already. Circular economies aren’t cope, they’re the end game. Stop measuring success by how easily you can exit back to fiat.
Bitcoin adoption accelerates where state control fails, and that's true in unstable jurisdictions, but we are discussing the US government. They operate under the principle of what they can't control, they must contain. ​Circular Economy is Niche Friction, Not Systemic Control. How many goods and services can a person actually acquire using a peer-to-peer Bitcoin transfer without interacting with a KYC'd business or eventually cashing out to pay for a house, a car, or taxes? Your "end game" is a niche system that only services a fraction of the economy. ​The government does not need to stop peer-to-peer transfers; they only need to pass regulation that makes the recipient of a peer-to-peer transfer a de facto Money Services Business, subjecting them to massive regulatory overhead, fines, and jail time for not having KYC/AML procedures. That threat alone stops the circular economy from becoming an actual parallel system. ​You call it friction; I call it a regulatory cost barrier. When the cost of using Bitcoin to pay for common goods exceeds the utility, you are forced back to fiat. It's a quiet, bloodless form of control that is absolutely scalable. ​Saying "they can't stop it" is not the same as saying "they can't neuter it." The government is not trying to kill Bitcoin! They are trying to contain its utility so that it remains a speculative asset rather than a functional currency that challenges the dollar's monetary global monopoly. You are praising the friction while ignoring that the friction itself is the government's containment strategy working perfectly. Your "circular economy" is a fantasy the government can afford to ignore until it's large enough to matter, at which point friction, becomes control.