At first the thought of regulators toiling with the bitcoin sent shivers up and down my spine. In part the popularity of the bitcoin is based on its independence from such entities. Perceived by many as unscrupulous and representing the super rich or at least not the common majority, these regulators so its thought would create laws that fashion the bitcoin into just another government controlled currency. I have a different perspective.
I think that some regulation is good. If the bitcoin is allowed to go unchecked in an completely democratic or anarchical way then some entity is going to take control of it and fashion it to their benefit. Hate to say it, but society, nature, however you want to look at it is made that way. There are endless examples of this. One close to home was the unregulated (more or less) mortgage business of 2002-2007 – which in part, was responsible for the rise of the bitcoin. Business people, using a technological advantage, took control of mortgage financing and created great inefficiencies in the financial system that put real hurt on our society. Today, the world is progressing at an incredible rate and old ideas about capitalism and government are likely to do more harm than good. However, the paradox is that due to that growth we need some regulation to build a veneer of trust and give the mass some level of perceived security. Not to the point of controlling the bitcoin making it just another name for the dollar, euro or yuan; rather to levy some credibility. I will admit this can be a fine line.
If some credible regulation can be enacted that does not tamper with the underlining functionality and number of bitcoins created then the bitcoin holds some real value. As governments and countries try to maneuver through these tough financial times and their currencies devalue or debase as a result the bitcoin is a real opportunity for a store of stable value. Gold, for example serves that purpose for many now, however, gold cannot be easily traded for currency. I think one future of the bitcoin will be to allow holders to obtain a stable store of value, whereas their countries currency currently does not.
Some regulation of the bitcoin is needed, too much will be trouble. I don’t necessarily disagree with Jesse Powell, but I do hope that regulation creates a balance of flexibility and structure for the bitcoin that gives it the credibility it needs to become more mainstream and keeps it on its own a decentralized global currency.
Mock Bitcoins are displayed on a table in an illustration pictureReuters
New York's attempt to treat digital currencies such as bitcoin in the same manner as other financial instruments by fitting them into an existing legal framework would harm innovation and consumers' independence, according to a digital currency expert.
Jesse Powell, CEO of San Francisco-based bitcoin exchange Kraken, told IB Times UK that New York's recent proposal to bring bitcoin businesses under regulation could harm consumers and businesses.
"If we're talking about decentralised digital currencies, like bitcoin, the most common approach I've seen is to attempt to fit it into an existing legal framework, ie, to regulate it equally alongside other existing similar financial instruments," Powell said.
"New York has recently proposed a legal framework that would greatly stifle innovation and harm businesses and consumers in its state."
He noted that the existing legal framework around financial services was made by incumbent players to stop novel instruments such as bitcoin from entering the market.
"I would expect a fresh take at a legal framework around decentralised digital currencies to be much more relaxed and pro consumer choice," Powell added.
People "ought to demand of their governments the ability to choose their currency" and "have to question the motives of any government prohibiting its people from what effectively is simple communication", he said.
"Commerce is a basic human right and too many people have been disadvantaged and ostracized in the name of consumer protection. It's time for states to act in the best interests of their people if they want to avoid conflicts."
"If governments see decentralised digital currencies as an existential threat, perhaps they really ought to re-evaluate the purpose of their existence."
Speaking about Ecuador's ban on bitcoin and other digital currencies, Powell said it is "a move toward becoming increasingly isolationist."
"If Bitcoin is banned, Ecuador is about to miss out on the largest transfer of wealth in history," Powell said.
He noted that the country's plan to introduce its own crypto currency is a positive thing, "if not for the accompanying ban on alternatives."