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Ronald Reagan once famously said “The most terrifying words in the English language are 'I’m from the Government and I’m here to help.'” I am sure that many of the early adopters of Bitcoin and the current enthusiastic endorsers of the crypto-currency would concur.
After all, belief in the need for and future of a peer to peer currency that is an inherent rejection of government control implies at least some degree of mistrust of government. In this case, though, even some in the Bitcoin community believe that some “government help” may be required if Bitcoin is to fulfill its potential.
Let’s be clear, I am not talking about regulation of the blockchain. Any attempt to regulate the issuance and transacting of Bitcoin would be foolish and most likely unenforceable. Even those like me with a recent and fairly basic understanding of the virtual currency can see that.
The business that has sprung up around the currency, however, is a different matter. If Bitcoin is to succeed in the long term then greater understanding and acceptance is a must, and some element of transparency in the businesses that exchange the currency and process payments is seen by many as the first step to that greater acceptance.
The fundamental problem, of course, is that those who are charged with, or more accurately are likely to charge themselves with, the regulation of any Bitcoin-related business are likely to do so only within the framework of existing regulations covering financial markets, and with reference to fiat currencies.
Thus the proposed regulations coming from the New York State Department of Financial Services (NYSDFS), for example, would impose capital requirements that would require those granted a license to hold any retained earnings or profits in securities denominated in U.S. Dollars. (Section 200.8 Paragraph b). This offers scant reassurance to those whose motivation for investing in and holding Bitcoin is a distrust of fiat currencies.
That said, though, there are elements of those proposed regulations that make sense. Whether we like the infringement on our personal liberty or not, the fact remains that we live in a world where terrorist and other criminal groups are constantly looking for ways to launder money, so requiring some diligence in that area strikes me as an acceptable price to pay for security and stability. I am not sure if that can be achieved while retaining the integrity of the blockchain, but an attempt to do so is not inherently bad, and one thing is for sure; it can’t be achieved without the input of the Bitcoin community.
Similarly, limiting ownership of the businesses to those without a history of criminal activity or questionable business practices is probably a sensible regulation. I would love to think that we could all, as individuals, be capable of ferreting out and avoiding bad actors but I am, at heart, a realist, and history would suggest that that is not the case. It is also true that having regulations in place doesn’t offer a guarantee: Bernie Madoff would be a prime example... but it would serve to avoid the most obvious abuses.
That realism also leads me to believe that some level of regulation of the businesses surrounding Bitcoin is inevitable. I know that many people don’t want to hear that, but once again, I will take history as my guide. If anything, the recent memory of the Madoff debacle makes it even more certain that some kind of regulation will be attempted.
If that is true, then it is vital that those that embrace and understand Bitcoin have their say in what regulations are actually imposed. There are signs that this is already happening, most noticeably the decision of the NYSDFS to extend the comment period on their proposed regulations. Of course, it remains to be seen if they will actually listen to those comments, but, for now I see the extension as a small victory and an encouraging sign.
I genuinely believe that having a widely accepted and understood alternative to government-issued currency that is not inflationary by nature could be a good thing. If nothing else the existence of a freely available and freely transactable alternative to fiat currency will go some way towards discouraging the inflationary excesses that we have seen in the past. To achieve that, however, the Bitcoin community may have to be prepared to work with rather than against those who are from the government, and are here to help.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
