Can Bureaucrats Really Regulate Bitcoin?

Discussion about bitcoin regulation often resembles mixing oil and water. This becomes more apparent as governments and bureaucrats worldwide ponder how they can apply regulatory policy to bitcoin. As the cryptocurrency gains significant popularity, the question arises: ‘Can bitcoin be regulated?’

Also Read: American Black Cross Helps Political Prisoners With Bitcoin

Lawmaker Nostalgia Towards Traditional Regulatory Policy

regulations

2016 was a remarkable year for bitcoin as it increased in value exponentially to become a store of value and financial safe haven. The year also saw lawmakers worldwide investigating possible ways to regulate bitcoin. The problem is government officials do not understand cryptocurrency, and it poses many challenges to the way things traditionally work.

Bitcoin has allowed people to exchange value without the need for government or central banks. The decentralized payment system operates beyond borders with no regulatory permission. Within the bitcoin community, there are those who believe bitcoin needs to be regulated. Additionally, there are many who believe regulatory policies cannot be applied to the digital currency. Over time the agencies and courts of nation-states have classified the cryptocurrency with rules and definitions that are poles apart.

This past weekend, bitcoin luminary Andreas Antonopoulos detailed his opinion of whether or not the decentralized currency can even be regulated.

 Globally There is No Clear Consensus for Bitcoin Regulation

The bottom line is across the world there is no clear consensus on how to regulate the peer-to-peer cryptocurrency. The fact of the matter is it will be a continuous uphill battle for bureaucrats. It’s been eight years with people doing what they want with their wealth, and bitcoin technology has enabled this. However, that doesn’t mean governments will stop trying to enforce regulations. In fact, the nation-states will try harder as each, and every one of them will feel bitcoin’s economic disruption.

For instance, this past year in the U.S. there has been a lot of regulatory discussion about virtual currencies. A handful of states have created their own way to create policy surrounding bitcoin, but each state has a different way of handling regulation. Bills and laws vary from the newly created Bitlicense in New York to North Carolina’s recent virtual currency framework. There’s also been the recent Coinbase tax probe by the IRS and court cases in Florida and New York shedding light on definitions. Interestingly enough these court rulings can’t decide on whether bitcoin is a commodity or form of currency.

In Europe, the central bank has proposed virtual currency legislation to the European Council and Parliament. Authorities detail the main focus is to curb funding terrorism and tax evasion within the region. The European Central Bank (ECB) also is having a hard time figuring out regulation and the classification of bitcoin. The ECB and other regional banks were told by the European Banking Authority in 2014 not to get involved with virtual currencies until authorities figured out regulatory standards. In 2015 the European Court of Justice had declared that bitcoin transactions were exempt from consumption tax. Now EU bureaucrats are steadily moving toward some type of regulation, but like the U.S. they have no idea what to do.

Abundant Banning Rumors from Government Officials but They Cannot Stop an Idea… 

Graphic1Then there are the constant rumors of a country “banning bitcoin” spread by some news outlet or a staunch politician. Just recently it was Colombia, in the past Russia, China, Mexico, and many others have supposedly banned the cryptocurrency. However, nothing typically materializes from these prohibition scares and the threats from bureaucrats never come to fruition.

No one knows how to proceed with regulations towards bitcoin because it’s an extremely difficult task. As growing interest in bitcoin escalates regulators are sure to clamp down on trying to apply law to this decentralized protocol. Most likely the only people who will be affected by these policies are those who use traditional banking onramps and offramps with their digital currency use.

Another factor to consider is whether or not bitcoin is ownable which has significant implications towards future legal frameworks and regulation. For instance, the bitcoin protocol is basically numbers held on a digital ledger which puts forth questions concerning intellectual property (IP) and property rights in general. The Austrian economist and author Konrad S. Graf has written many articles on bitcoin monetary theory and one that specifically covers this subject. Graf’s book “Are Bitcoins Ownable?” delves into property rights, IP wrongs, and legal theory implications.

“Must property be measurable (matter, space, energy) if property rights are to remain an internally consistent and defensible concept?” asks Graf in his book. “Bitcoin provides a fascinating and nuanced test case.”

The fact of the matter is governments worldwide really can’t regulate bitcoin, but they can manipulate the existing financial system’s rules. At times this may hamper people’s abilities to participate, but global cryptocurrency proponents and developers are creating ways to circumvent the nation state’s restrictions. The fact of the matter is governments worldwide cannot stop an idea whose time has come, but they sure like to try.

Do you think governments can create a regulatory framework for virtual currencies worldwide? Let us know in the comments below.


Images courtesy of Shutterstock and Pixabay. 


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  • Andrew Downing

    I think there is one clear enough criteria for regulation.

    Bitcoin businesses may choose to operate in one of two models.

    In the first model, they act as a pure service, probably collecting some fee-for-service. There is very little need to regulate such business beyond the usual consumer protections.

    In the second model, they act as a store of value and effectively have control over that value such that they may invest it or redirect it according to their own business judgement. In this case, they need to be regulated like a bank because they are behaving like one.

    At the core of this though, in just about any functional Bitcoin business, you should not NEED to operate using that second model. It’s a choice.

    Sometimes business people WANT to operate in that second model because they get to do things like invest other peoples money in short term money markets. They may also lose those other peoples money. If they really insist on operating this way, then they should expect bank style regulation to apply to them. Reserves etc.

  • Sure Thing

    What if they make exchanges illegal? I know there will always be some banana republic that will have an exchange, but cashing out 16 billion there isnt really an option.

    • sjs

      We are nearing a point where ‘cashing out’ is no longer an issue. Transactions will remain within Crypto. As soon as there is agreement on an expanding scale that conversion to fiat is superfluous it’s game over for financial institutions and of course they won’t surrender without an awful fight. We are almost there.

      • I agree that even if they regulate and ban the exchanges. The real purpose is not to cash out the digital cash into fiat, the bitcoins just need to remain in the same ecosystem without the need of financial institutions.

        • Sure Thing

          but then I should be able to buy a bread or a house with bitcoin

          • sjs

            You can buy pretty much what you want already without conversion to fiat although naturally goods and services will continue to be priced in various fiat currencies for reference purposes. eg you can buy VPN services by paying in BTC.

      • Comte de Monte-Crypto

        almost where you must be fool a crazy fool you alone imagine stuff that is not even there a shadow of a doubt

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  • Curt

    But … they CAN regulate the merchants. And if the merchants won’t trade in bitcoin because of burdensome regulations (as is the case in New York) then what is the ultimate value of bitcoin (unless of course you limit your purchases to overseas markets only)?