On Monday 26th June, CNBC reported that in an interview with Barclays UK Chief Executive Ashok Vaswani, Barclays had discussed with the FCA the possibility of bringing cryptocurrencies, like Bitcoin, ‘into play’ through the introduction of regulation.
As one can imagine, such news can have a largely positive impact on Bitcoin. Two years ago, a news article of this magnitude would send the bitcoin market racing. Today this hasn’t happened.
In the interview, Vaswani makes it very clear that Barclays have been in dialogue with the UK regulators about the possibility of bringing cryptocurrencies into the mainstream but points out this is ‘not necessarily Bitcoin’. He also does not expand on what involvement Barclays currently has with Bitcoin but it is widely known of their involvement in payment provider and former bitcoin startup Circle Pay, who were given a UK business and money transfers account as well as a license from the FCA. They became the first UK-based Bitcoin company to do so.
Why is Regulation a Buzzword with Bitcoin?
The most important reason why people would like a framework of regulation to be structured for Bitcoin is because it is a major step towards legitimisation of the cryptocurrency. What this effectively means is that, by structuring regulation for Bitcoin, mainstream authorities are actually acknowledging its place in society and are opening the doors for a new wave of people to get involved.
The impact that regulation can have on Bitcoin can be monumental and this year we only have to look at Japan to see this. On April 1st this year, Japan brought in legislation that gave Bitcoin legal tender status in the country. Since April 1st, the Bitcoin price has appreciated in value 121% and it is hard to deny Japan’s involvement in this. The legitimisation of Bitcoin in Japan has lead to new capital and people entering the market, who previously were sat on the sidelines. This resulted in a sharp increase in the Bitcoin price and further strengthening the marketplace.
Japan’s stance on Bitcoin has set the precedent for other countries to follow and bring in a positive regulatory structure that does not stifle innovation.
The Issues when Regulating Bitcoin?
There is a major issue when trying to structure Bitcoin regulation which is that Bitcoin is decentralised and therefore the token itself can not be regulated. This is because it is impossible to apply the same regulatory structure to Bitcoin as is done to fiat currencies. There are a number of reasons as to why.
Bitcoin is Self-Regulating
Bitcoin is actually a self-regulated system. Instead of being regulated by a centralised body, Bitcoin is regulated by mathematics in the form of algorithms. These algorithms enables users to predict and measure different elements of Bitcoin’s financial system such as a pre-determined money supply and a constant and measureable rate of issuance, both of which are incorruptible. This means that Bitcoin does not require a central governing body to mediate any transactions, removing the need for centralised regulation.
To further argue this point, we can look at the way new Bitcoin’s come into existence. This is done through a process known as ‘mining’. Simply, during this process, thousands or potentially millions of individuals contribute their computing power by running software which solves complex mathematical equations. Whichever computer solves that equation, they are rewarded with a pre-determined reward, currently 12.5 Bitcoins. This is how new Bitcoins are issued. No governments, no central bank and no regulatory accolade.
This is completely unlike all other forms of ‘currency’ we have today and therefore, the same regulatory structure we use for our centralised currencies should not apply to Bitcoin.
Bitcoin is not a Currency
This is usually a tough statement for those who are new to Bitcoin to get their head around. Bitcoin is not a currency. Bitcoin is programmable money, backed by cryptography, which shares similar principles to sound money.
Bitcoin can encompass more use cases than just a currency. These include election voting, property registries, smart contracts and more. In actual fact, most industries can be revolutionised by Bitcoin and Blockchain technology because it changes and adapts to suit different use cases through the utilisation of side chains. To call Bitcoin just a currency is like saying your mobile phone can only be used to make calls when in reality your mobile phone can be used for a number of different uses from banking to photography.
Sound money can mean a few things depending on who you ask, however, it is widely used to describe a means of trade that is backed by a commodity such as gold or money that has intrinsic value and therefore more prone to deflation than inflation.
In the case of Bitcoin, it is the latter. When someone asks me, why is Bitcoin intrinsically valuable? I answer by saying ‘Bitcoin’s intrinsic value derives from its utilities, Bitcoin is just useful’. All of the future use cases that will be developed will add to the intrinsic value and thus increase the Bitcoin price.
Bitcoin is also deflationary. What this means is instead of the value depreciating as a result of the increase in the money supply (inflation) the supply of Bitcoin decreases over time. This occurs roughly every 3-4 years, last year being one of them. When this happens, the rewards paid out to miners halves in order to maintain Bitcoin’s most basic economic principle, supply and demand. This means that over time, you are not falling victim to the silent tax of inflation but rather growing the value of your coins through a healthy deflationary system.
A ‘Positive Regulatory Structure’?
A positive regulatory structure for Bitcoin would be applicable regulation to the companies operating inside the Bitcoin space as opposed to regulating the asset itself. This is what has happened in Japan and the rest of the world must learn from this. By regulating the companies in the space the on and off ramps of Bitcoin will substantially improve as consumers would now be able to feel a degree of trust in the organisations they are transferring their money to. It would also aid in mainstream adoption and thus allowing innovation to thrive as opposed to stifling it. This would lead to a safer and more developed business infrastructure around Bitcoin.
Disclaimer: The views expressed in the article are solely that of the author and do not represent those of, nor should they be attributed to CCN.
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