Most of the Bitcoin hearings held by various governments around the world have been rather boring, but yesterday's New York Bitcoin hearing actually offered something different. These hearings usually consist of Bitcoin entrepreneurs and specialists advising regulators on what they should do to foster Bitcoin-related innovation in the local country, but the regulators will usually reply simply with, "9/11." Up to this point, it's pretty much been Bitcoin experts talking to a brick wall that doesn't want to share much about its views on where regulation should go in the near future. What happened yesterday was a turning point. There was a point where Ben Lawsky, the Superintendent of Financial Services for New York, plainly stated that regulators would make the prevention of money laundering the priority over allowing new innovation. Here's a clip of Lawsky explaining his point:
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If that's the view of most regulators, then they'll eventually try to shutdown Bitcoin. Tracking payments is somewhat possible right now, but what the regulators don't realize is that Bitcoin cannot be regulated once it gets to the point where most Bitcoin users never go outside the Bitcoin ecosystem. The regulators can only make things difficult for bitcoiners when it comes to switching between bitcoins and dollars. Trying to shutdown Bitcoin would actually be bullish for the price of bitcoins because it would just make people want to pay for goods and services with bitcoins instead of revealing their identity to an exchange.
Bitcoin is a Global Currency
As Jeremy Liew points out in the beginning of the clip, the main problem with over-regulating the Bitcoin space in the United States is that you're basically just going to guarantee that those businesses and jobs move elsewhere. If the regulatory framework around Bitcoin in the United States is not changed, then we're going to see a continuation of the trend where Bitcoin startups avoid the US completely. The US will not be able to regulate Bitcoin startups out of existence, and they will simply move to places like Singapore, Switzerland, and other countries that value economic freedom. The countries that adopt Bitcoin first are going to have a huge advantage over those who try to suppress it. The countries that turn down the innovative properties of Bitcoin will face the same fate as the ones who have turned down increased innovation provided by the Internet. Placing restrictions on Bitcoin will lead to a slower rate of economic growth than the rest of the world, which is something no politician wants to see.
Financial Regulations as Corporatism
The current, Corporatist model of regulation for Bitcoin businesses in the United States protects those with enough money to pay for all of the regulatory and legal burdens of being a money services business. JP Morgan could start a Bitcoin exchange tomorrow because they have the cash flow to pay for keeping up with all the required regulations. This type of regulatory structure basically ensures that there will only be a few large players at the table when it comes to Bitcoin exchanges. It's also the same reason that the amount of competition in the banking system as a whole is dropping to historic lows.
Regulators Don't Get What's Going On
It seems that most regulators, or at least Ben Lawsky, have not thought deeply about the implications of cryptocurrency. While it's possible to put up some gates of entry at the Bitcoin exchanges, the reality is that cryptocurrency is going to be used without the need for government-issued money in the near future. Some people are already moving over to a system where they get their income in bitcoins and pay for everything in bitcoins. In other words, they have no need for interacting with the regulations involved with fiat currency. What will their plan be to regulate those individuals? How do you stop someone from sending $150 million worth of bitcoins from one address to another with complete anonymity? What's the game plan there? Are they going to require every consumer to fill out paperwork when they use more than $1,000 worth of bitcoins as payment for goods or services?
A War is Brewing
Regulators still seem to think that they'll be able to control Bitcoin for now. Once they realize the potential for Bitcoin and other technologies to make their roles obsolete, they aren't going to go down without a fight. They don't have the power to stop Bitcoin, but they could definitely slow down mainstream adoption. The reality of cryptocurrency has been released upon the world by Satoshi Nakamoto, and regulators won't be able to create a world where cryptocurrency doesn't exist.
Last modified (UTC): January 29, 2014 1:36 PM