As I expressed in yesterday’s Part 1 of this article, called “Can Bitcoin Exchange Risk Lead to Bitcoin Regulation?“, Bitcoin is far from perfect, and the Bitcoin exchanges are a primary concern right now. Over the last year, they have generated nothing but negative press for getting hacked, for closing, or being outright “Ponzi schemes”. This issue needs to be addressed within the community, and potentially outside of the community.
No one has been able to show where Bitcoin itself is a problem, quite the opposite. Bitcoin successfully solves many problems that plague other currency payment systems today. It dramatically cuts costs of using the now antiquated remittance system of Western Union. The costs of sending money overseas has now been effectively dropped by over 90%, regardless of what part of the world you are accessing (Western Union fees vary based on country.) And things like identity theft will also become a thing of the past, as the transactions only feature a public key and amount sent, with no personal information included. The users’ security is never compromised, and that is a benefit Visa and Mastercard do not offer and cannot offer.
What is the Real Problem with Bitcoin Regulation?
This is the heart of the problem with the idea of Bitcoin regulation. Nation-states and regulators want control and regulation, not to protect consumers. Target, Home Depot, and JP Morgan Chase lost tens of millions of consumers’ personal information and financial account information to hackers within the last two years. Have regulations changed for them? In the case of JP Morgan, regulators are looking for ways to take away privacy measures for consumers, not enhance it. For Visa or Mastercard? For banks or large retailers holding millions of consumers information and financial account information? No, it is business as usual. No special license that restricts business has even been proposed like BitLicense was for Bitcoin in New York. These giants of industry, which tens of millions trust every year to protect consumer information haven’t proven to be “Too big to fail”, just too big to regulate.
The issue here is the playing field is not level for everyone. In fact, it is the exact opposite. Major corporations get a pass when security issues arise, or even when federal laws are broken. Bitcoin does not, even though it is “not legal tender”. If it is not “legal tender”, where is the legal or moral ground to regulate it as such? Ethically, any government cannot have it both ways. They contradict themselves on this issue. It would be more ethical, and more honest, if a government banned it out of fear that “The People” will trust an algorithmic currency over the Monopoly-money fiat currency system currently in use. Russia is banning Bitcoin, and in doing so hides behind the narrative that Bitcoin is used by terrorists. So Rubles and U.S. Dollars are not used by terrorists? People buy guns, commit crimes and build bombs with dollars and rubles, but that’s fine? These politicians must think we are stupid. Banning is fear of a superior currency, not fear of terrorism. Terrorism certainly wasn’t invented on January 3rd, 2009
Bitcoin itself does pose a serious threat, but it’s not to the users. It is a threat to the status quo, to the establishment, and to anyone who does not engage in sound money principles, like central banks, which control national governments. Being better threatens people, in government, and in any walk of life.
Can Regulators be Trusted?
Taking into account that when major corporations have tens of millions of user’s accounts compromised, on multiple occasions, and no regulation or punishment is metered out, the question is where does regulation actually start to come into effect? It’s obvious regulating Wall Street is not an option, after the 2008 economic collapse. The barons of Wall Street get to run amuck and spit in the face of any and all laws on the books. Target and Home Depot and JP Morgan are also above the law when it comes to protecting consumers. HSBC and Wachovia helped launder hundreds of billions of dollars for Mexican drug cartels over the course of many years. After a small fine, and 19,000 money laundering violations that a federal crimes which require trials and jail time, they walk away not only free from persecution but making a handsome profit on their criminal activity. Regulators missed that, too. What they would like to get in front of is Bitcoin, which as a currency has never hurt a consumer.
For example, it seems that regulators big idea on how to improve security for Bitcoin users is for Bitcoin users to add their identity to every transaction. This is so pathetic that it is laughable. One, this introduces identity theft into the equation where it does not exist. Two, it makes Bitcoin harder and more inconvenient to use. Three, it doesn’t solve any known problem with Bitcoin transactions. Bitcoin current problems may include sending Bitcoin to the wrong address by mistake, or not getting a product after sending a payment. These problems can be solved without compromising user security with every online transaction. That hasn’t worked with debit card transactions, so why would it work with digital currency transactions? This goes back to my point about are regulators trust-worthy. This would help regulators be regulators, but it wouldn’t help consumers at all. It would hurt consumer protection. Bitcoin sends the public key and the amount. That’s by design, and far superior to anything currently in mainstream use. If regulators wanted to help someone, get the mainstream to copy Bitcoin’s superior system.
Bitcoin exchanges have hurt thousands of consumers, not millions like the American corporations I just mentioned, but Bitcoin exchange risk needs to be addressed. Just not be American regulators, who have proven to be derelict in their duties, and potentially corrupted into protecting the established players from innovative new players. Regulators, like central banks, also seem to operate with no accountability or oversight. They missed all the crimes I’ve already mentioned, and nothing happens to them. I don’t even know if anyone bothered to fire anyone, change a name of a non-working regulatory body or new laws passed against potentially corrupt regulators.
Regulations in the United States, much like central banking anywhere, is a joke. They attack he smallest home business or innovative new industry but ignore the biggest fish with the most influence, power, and consumers under management. This is the exact opposite of their intended function. They are not protecting consumers. They are protecting the establishment from having competition or having to innovate. This is why you are still using debit cards designed in the 1950’s today, in 2015. Regulators don’t do their job, even after countless instances where market leaders, in multiple industries, are taking advantage of consumers, not protecting them.
Who knows if Target, Home Depot, or JP Morgan weren’t in on those identity theft heists? We assume they aren’t, but who really knows? No regulator does. If there are no repercussions, what’s to stop a major inside job from taking place? Why should anyone trust any regulatory body at this point? It’s like trusting a central bank. They look after themselves, have no oversight, and have not done anything that they have sworn to do.
A Regulation Can Help, Under Certain Circumstances
A regulation can help improve trust in the digital currency industry. Look at the FDIC in banking. This is a PRIVATE corporation that insures bank account holders against theft or bank closure up to $250k per account. This PRIVATE sector corporation may have been commandeered by the government, but things that work best come from the private sector nine times out of ten. Bitcoin exchanges need oversight, preferably from within the Bitcoin community. And they work like fiat currency banks do, so a system like the FDIC insurance program would help a lot.
Government regulation has proven incompetent, potentially corrupt, and out of control nine times out of ten. Regulators can’t be trusted and don’t even understand the digital currency industry to begin with. How will you regulate what you don’t understand?
Maybe outside of the U.S. regulations have a much better track record. I would be all for regulation if it were fair, effective, and accountable. In the U.S., these objectives have not been hit for a long, long time. Micromanage the identity theft issue that plagues almost 5% of all debit card users. Get that under control first. Then look at Bitcoin.
Regulators know what Bitcoin is. The innovative currency that protects consumers from identity theft, inflation, predatory remittances charges, and banking fees worldwide. The currency that the world should be working to emulate, not be attacked with torches and pitchforks by the minions of The State, to protect the establishment’s thiefdom instead of consumers’ interests. The Bitcoin community and private industry can solve any current Bitcoin problems. Regulators, with their track record, have proven that they can only make things worse.
Images from Shutterstock and Wikimedia Commons.
Can the Bitcoin community get exchanges under control? Does the community need national regulation to handle Bitcoin exchange risk? Share above and comment below!