The Bitcoin protocol itself cannot be modified without the cooperation of nearly all its users, who choose what software they use. Attempting to assign special rights to a local authority in the rules of the global Bitcoin network – peer-to-peer cryptocurrency – does not seem practical or possible. Of course, a very wealthy organization could conceivably invest in enough mining hardware to control half of the computing power of the network, and gain the ability to block or reverse recent transactions. But there is no guarantee they could retain this power, because the requirement would be to invest as much as all other miners in the world.
Is it possible to regulate the use of Bitcoin, like the dollar? Bitcoin can be used for a wide variety of purposes, and in this regard, it is no different than any other tool or resource, so it could be subjected to different regulations in each country. Bitcoin use could also be made difficult by restrictive regulations, which might hinder the continued use of Bitcoin technology. If governments ban Bitcoin and prevent domestic businesses and markets from emerging, it would probably shift innovation to other countries that didn’t ban Bitcoin.
In 2016, there was a lot of discussion in the USA regarding regulation of virtual currencies, and some states have released their own policies – each one handling regulation differently. It seems that first, Bitcoin has to be deemed to be either a commodity or a form of currency. If the challenge for regulators is to develop efficient solutions, while not impairing the growth of new emerging markets and businesses, then they must first decide what Bitcoin is to be.
One thing is certain, growing interest in Bitcoin has regulators looking to try and apply law to this decentralized protocol. Such policies would most likely affect only those Bitcoin users who employ traditional banking avenues for their digital currency use. It seems that governments can’t actually “regulate” Bitcoin, and will more likely try to manipulate current financial system rules to monetize use of it – but they cannot stop Bitcoin. It seems only “users” of Bitcoin could do that?
It’s difficult to regulate a technology not yet fully understood. The challenge is that most regulations today are defined by known products they are meant to regulate. The recent rise in use of Bitcoin seems to have pressured governments to do something, even if they don’t fully understand what is happening – and regulation of digital currency that isn’t elaborated carefully and well-informed, could easily hinder the future of new technologies.
Regulations – on any scale – have to be enforceable. Bitcoin (and all other cryptocurrencies) are completely decentralized peer-to-peer systems – so there is no server to shut down, no ringleader to capture, no one to prosecute or cause the currencies to dissolve. Regulating or outlawing Bitcoin would really just restrict legitimate businesses and individuals from taking advantage of Bitcoin’s speed, low costs, flexibility, anonymity – and drive criminals underground. If anonymous exchanges didn’t exist, bitcoin could still be traded privately person-to-person, and nothing could prevent fully anonymous Deep Web exchanges and similar services. The only thing conventional regulations – such as mandatory data collection – would ensure is that honest individuals would have to jump through more hoops, and sacrifice even more privacy.
Those governments that take a more laid back approach are the ones likely to benefit most from a bitcoin-fuelled financial revolution – even if we don’t know exactly what that will look like. It would be sensible to set standards for security in public businesses that store or facilitate bitcoin conversions or escrow. Regulations that make it illegal for such a business to move, invest, or otherwise use customer funds without explicitly stating this to customers, who have the right to take their own risks with their investments, would be a good thing. Requiring bitcoin-related companies to maintain good reserves of bitcoin, and publicly publish their balance sheets, would give customers more peace of mind. Make companies liable for their customer’s funds, and if lost, be paid to them personally or to an existing offline wallet linked to a customer account – that would be good. There are regulations that would increase legitimacy, confidence and user protection without affecting innovation in a negative manner.
It is fascinating to be involved – even on a small scale – to watch the cryptocurrency ecosystem evolve so quickly that government regulators can’t keep up, let alone control or plan what to do in advance. This new technology has no precedent, and requires a whole new way of thinking and flexibility – not something usually equated with government regulators.