Stikkel: Government regulation of Bitcoin has mixed implications
Bitcoin is a new, exceptional type of money. New, exceptional things often draw the attention of government regulators, and unfortunately, Bitcoin did not escape this.
The U.S Department of the Treasury announced it will apply some existing currency regulations to Bitcoin, a peer-to-peer currency with cryptographically verified transactions – and there are mixed implications.
Because some currency regulations now apply to Bitcoin, it is difficult to deny Bitcoin is a serious medium of exchange, which may help it gain recognition.
However, the regulation itself is a new burden on some Bitcoin-based businesses. There are privacy issues, as well.
The treasury, citing the Bank Secrecy Act, plans to regulate “virtual currency” (read: Bitcoin) transmitters the same way it regulates money transmitters that deal in “real” currencies, according to a March 20 article on TheVerge.com. Banks, brokerage firms and other financial services are considered money transmitters under the existing regulation.
For these types of Bitcoin-based businesses, applying existing regulation means bookkeeping requirements and mandatory reporting of transactions of more than $10,000, according to a March 21 article by The Wall Street Journal.
Regarding these bookkeeping and reporting regulations, consistent application of currency law across all currencies, including Bitcoin, is fair application.
However, in general, it is contrary to individual rights to allow the government to monitor peoples’ transactions without warrant in the first place. No court order is required for government to review transactions of more than $10,000 deemed “suspicious,” according to Investopedia.
Additionally, the treasury department’s definition of “real” money is dubious. The document distinguishes “real currency” and “virtual currency.” They say “the coin and paper money of the United States” is “real” because it is “designated as legal tender” and popular, while “virtual currency” is not “real” because it does “not have legal tender status.”
In other words, the government says our money is real because we say it is real and people use it; Bitcoin is not real because we say it is not.
That reasoning is not real. That is fiat. Government wants to regulate Bitcoin as real money, but they refuse to call it real money.
Bitcoin is “real” money because it satisfies the characteristics of money, which are acceptability and stability, both rooted in scarcity, as well as divisibility and portability, as listed in The Basics of Economics by David Edward O’Connor.
It is a peer-to-peer protocol. Cryptography and the nature of the protocol guarantee Bitcoin scarcity, divisibility and portability. The Bitcoin supply is ultimately finite. Defrauding Bitcoin users by attacking the protocol is computationally infeasible.
Bitcoin maintains these characteristics purely by the mathematics that govern its behavior. Notwithstanding an unreasonable amount of computing power or broken cryptographic algorithms, Bitcoin’s behavior is immutable, and its ideal characteristics cannot be altered.
Bitcoin is exceptional because unlike most currencies today, such as the U.S. dollar, Bitcoin does not include or require a central monetary authority to maintain these ideal currency characteristics — nor can the currency be controlled by one.
If the government ever targets Bitcoin with specific regulation that does not apply to other currencies, one must suspect government is disturbed by Bitcoin’s lack of dependence on government.
Michael Stikkel is a junior computer engineering major and MBA candidate in the Martin J. Whitman School of Management. His column appears weekly. He can be reached at firstname.lastname@example.org
Published on March 25, 2013 at 1:15 am