Many may believe that the sudden apparently positive attitude towards Bitcoin by governments and regulators is a positive development – but is it? Regulators are desperate to regulate Bitcoin while it is still in its early days so they can take full control as it evolves, taking away most of the value of Bitcoin in the process as a fully open source, distributed, peer to peer monetary system.
Any step down the road to regulation would clearly be very negative for Bitcoin, but ultimately can Bitcoin be regulated?
It is of course impossible to regulate Bitcoin itself through its very nature and the regulators are beginning to understand this. The regulators also know that by acting oppressively towards Bitcoin any chance of regulation and control will be diminished as the Bitcoin community takes evasive action. The only locations where Bitcoin can be regulated and therefore controlled are the decentralised exchanges, web based wallets, shops and services.
Regulated exchanges and web based wallets will no have to collect full photo ID and proof of address from users as an absolute minimum, and possibly other personal information as well. Further, the exchange will be compelled to divulge such personal information to the regulators or government agencies on demand, even for false reasons as happens now, simply to fish for information on someone. Government agencies will also have the power to freeze and cease Bitcoin accounts on a whim. It is also quite likely that exchanges and web based wallets will be secretly compelled to share user data with government agencies, NSA and others.
None of this can possible impact Bitcoin or the Bitcoin network itself per se, it will influence the way Bitcoin is used and accepted in the mainstream if users believe that they have to use a Bitcoin exchange and thus lose privacy and many of the benefits of using Bitcoin in the first place.
Of course ultimately every Bitcoin user has freedom of choice as to whether to use an exchange or web based wallet or not, and like security issues this is a matter for user education about the pro’s and con’s of using a Bitcoin exchange. Bitcoin users must also understand that it enforces personal responsibility in that is they make a mistake or error of judgement, they can lose Bitcoin without the possibility of having the transaction reversed or running to a regulator to complain. It might be that some Bitcoin users are not prepared to accept that responsibility and would prefer to be regulated for that reason – if so – that is there decision and responsibility.
New York is now actively accepting applications for Bitcoin and other crypto-currency exchanges in its area of jurisdiction. While this may seems like a Bitcoin friendly and welcoming development, comments by the New York Superintendent Of Financial Services betray the real agenda:
The recent problems at Mt. Gox and other firms further demonstrate the urgent need for stronger oversight of virtual currency exchanges, including robust standards for consumer protection, cyber security, and anti-money laundering compliance.
Turning a blind eye and failing to put in place guardrails for virtual currency firms while consumers use that product is simply not a tenable strategy for regulators.
So it should be obvious that he is not welcoming Bitcoin exchanges because he believes in Bitcoin itself and wants to encourage its wider use, but rather by encouraging Bitcoin exchanges to set up shop in his jurisdiction, he can fully control both the exchanges and the people that use them. So this is a very slippery slope indeed and one that is negative for Bitcoin overall.
What then is the answer to this situation? The answer is threefold.
- The development of effective and seamless peer to peer exchanges that enable users to easily convert Bitcoin to fiat and vice versa without ever being exposed to a centralised exchange and therefore regulation and loss of privacy and anonymity.
- Educating Bitcoin users as to the implications of using a centralised exchange versus a decentralised peer to peer exchange.
- Educating users in how to use Bitcoin effectively and securely and thereby take full personal responsibility for their own actions and transactions.
The future success of Bitcoin globally ultimately lies on keeping Bitcoin true to its roots as a fully distributed, peer to peer, anonymous global monetary system, for the people, by the people, without any external interference by governments, banks or other self-interested entity.