Whether you're talking about Bitcoin or net neutrality, it's rather obvious that the people creating the laws surrounding certain technologies have no idea what they're doing. This issue is going to be extremely difficult to cope with as computers and smartphones continue to play a bigger role in our daily lives. The reality is that the people who want to regulate Bitcoin are the ones who don't understand the technology. If they understood the Bitcoin protocol as more than just a payment system or currency, they would realize that it would be practically impossible to ban. As Erik Voorhees told Senator Manchin on Twitter, Banning Bitcoin would be about as practical as banning the sun. The myriad of mistakes made in Senator Manchin's letter requesting a ban on Bitcoin gives us a preview of what's to come as more subversive creations in the Bitcoin space begin to disrupt everything from banks to some of the basic functions of governments. Here's a breakdown of Senator Manchin's misunderstanding of Bitcoin:
Bitcoin Allows Users to Participate in Illicit Activity
I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy.
In the first section of his letter, Senator Manchin notes that Bitcoin has been used to allow people to participate in illegal activity. I would ask the Senator if this means that cash should also be banned. I'm also not sure what he means when he says Bitcoin has been "disruptive to our economy". Yes, Bitcoin has the potential to completely replace some businesses that currently operate in the United States, such as Western Union and other businesses involved in international remittances, due to its ability to process payments between two parties anywhere in the world at basically no cost. That's kind of the point of any new technology.
If he's claiming that the insolvency of MtGox is what's disrupting the economy, then perhaps he's forgotten that a similar situation took place at MF Global only a few years ago. The only difference is that case involved the misuse of dollars. The MF Global case also involved billions of dollars, not the alleged hundreds of millions lost at MtGox. If Senator Manchin wants to be consistent, then it seems he should also be calling for a ban on the US dollar.
Let's Ban Inventions That Can Be Used by Criminals
The very features that make Bitcoin attractive to some also attract criminals who are able to disguise their actions from law enforcement.
Literally every new invention can be used by criminals. Should we also ban the Internet since it can be used by bad actors to plan their crimes? Cryptography allows criminals to have secure transmissions of data over the Internet, does this mean no one should be allowed to have secure communications? Criminals used planes on 9/11 to take down the Twin Towers and kill over 3,000 Americans. Is it also time to ban flight? Perhaps we should just go back to the beginning and ban the invention of the wheel because it allows criminals to flee the scene of a crime. You can hit yourself in the face with a hammer instead of using it to build a house. Perhaps we need to ban hammers too. Let's nerf the world!
The truth is that there will be pros and cons to every new invention. The criminals at the NSA are trying to use the Internet to collect data on every single person in the world. That doesn't mean we should get rid of the Internet.
Bitcoin's Ability to Finalize Transactions Quickly is a Bad Thing
Anonymity combined with Bitcoin’s ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.
This is not a problem for Bitcoin. This is a feature of Bitcoin. Merchants do not like the fact that consumers can wait up to three months in some cases before they decide to do a chargeback. Chargebacks are terrible for merchants, which is why so many retailers are embracing the cryptocurrency. Merchants also like cash for the same reasons. There are no chargebacks and minimal fees on transactions. Yes, it sucks if you get your bitcoins stolen, but that means your private keys were not properly secured. It would be like leaving a wad of cash on a table in the lobby of a hotel. It's true that it's somewhat difficult for the average person to secure their bitcoins with cold storage right now, but upcoming hardware wallets that can interact with smartphones, laptops, and desktop computers should be able to solve that issue.
Bitcoin is Used on the Black Market
Bitcoin has also become a haven for individuals to buy black market items. Individuals are able to anonymously purchase items such as drugs and weapons illegally. I have already written to regulators once on the now-closed Silkroad, which operated for years in supplying drugs and other black market items to criminals, thanks in large part to the creation of Bitcoin.
Cash is still king when it comes to the black market, so I would have to ask the Senator again about whether or not cash should also be banned. The size of the global black market is closing in on $2 Trillion. I'll be happy when the Bitcoin market cap gets to that level, but we aren't quite there yet. In fact, the value of all the bitcoins in the world is just over $7 billion right now. This means Bitcoin would account for 0.35% of the global black market in a situation where every single bitcoin was being used for illicit purposes. It seems that Bitcoin isn't the problem when it comes to people purchasing illicit goods or services.
Bitcoin is Banned in China and Thailand
That is why more than a handful of countries, and their banking systems, have cautioned against the use of Bitcoin. Indeed, it has been banned in two different countries—Thailand and China—and South Korea stated that it will not recognize Bitcoin as a legitimate currency.
Bitcoin is not banned in Thailand or China. In fact, there are Bitcoin exchanges operating in both countries. This doesn't really have to do with an inability to understand the technology behind Bitcoin. This is just not knowing facts that are easy for anyone to comprehend. Having said that, Bitcoin is also about freedom more than anything else. I'm not sure why you would want to follow Russia or China's lead when it comes to anything involved with laws surrounding the freedoms of individuals.
Bitcoin is a Risky Investment
I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.
Are we also going to ban other risky investments? Who will be in charge of the decisions over which investments are risky and which aren't? The entire banking system in the United States nearly collapsed due to bad investments in housing loans a few years ago. Should we also stop making housing loans? Are Americans not free to choose their own investments now? Or will this only apply to Bitcoin? You can't take risk out of the investment world. If there were no risk, there would be no reward. There's a good chance anyone starting a business today will fail. Does that mean they should just give up and work for someone else? The American Dream was built on the idea of taking a risk.
Deflation is Bad
In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency. There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3% inflation, while a recent media report indicated Bitcoin CPI has 98% deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.
It's important to remember that bitcoins are a commodity right now. They aren't a currency due to their inability to be a proper store of value. Anyone who holds bitcoins right now is basically betting that Bitcoin is the future of money. The value of all the bitcoins in the world would have to get much higher before it could be used as a currency. Holders of bitcoins are not experiencing deflation, they're experiencing an increase in their bitcoin holdings as more people put their faith behind this new currency and payment mechanism.
So Let's Ban Bitcoin
Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.
And now we get to the real problem. You can't ban Bitcoin. It's a P2P network protocol. You would have to shutdown the entire Internet if you were going to ban Bitcoin, and I'm quite certain you would not want to do that Senator Manchin. The lengths the government would have to go to in order to ban Bitcoin could be described as tyrannical. You can try to put that kind of government in place if you want to ban Bitcoin that badly, but it might be easier to just embrace freedom.
You can read Senator Manchin's entire letter on his website: https://www.manchin.senate.gov/public/index.cfm/press-releases?ID=237cbd66-6a26-4870-9bcb-20177ae902b0