Will Bitcoin Ever Be Regulated?
This article is initially published in Albaron Ventures.
As Bitcoin and other digital assets continue to grow in adoption and popularity, a common topic of discussion is whether the U.S. government or any government can exert control over its use.
Two core issues lay the foundation of the Bitcoin regulation debate:
Digital assets pose a macroeconomic risk. For example, will Bitcoin Ever Be Regulated? In addition, other cryptocurrencies can act as surrogates for an international currency, which throws global economics a curveball. Countries such as Russia, China, Venezuela, and Iran have all explored using digital currency to circumvent United States sanctions, which puts the U.S. government at risk of losing its global authority.
International politics and economics are delicate issues, and often, sanctions are used in place of military boots on the ground, arguably making the world safer.
The micro risks enabled by cryptocurrency weigh heavily in aggregate. One of the most attractive features of Will Bitcoin Ever Be Regulated and other digital assets is that one can send it anywhere between a few pennies-worth to billions of dollars of Bitcoin anywhere in the world at any time for a nominal fee (currently around $0.04 to $0.20 depending on the urgency.)
However, this could be very dangerous in the hands of malicious parties. The illicit activities inherently supported by a decentralized global currency run the gamut: terrorist funding, selling and buying illegal drugs, ordering assassinations, dodging taxes, laundering money, etc.
Will Bitcoin Even Be Regulated?
Before diving more profound, it’s worth asking whether Bitcoin can be regulated in the first place.
The cryptocurrency was built to be decentralized and distributed– two essential qualities that could make or break Bitcoin’s regulation.
By being decentralized, Bitcoin doesn’t have a single controlling entity. Instead, the control of Will Bitcoin is shared among several independent entities worldwide, making it nearly impossible for a single entity to wrangle complete control over the network and manipulate it as they please.
By being distributed, Bitcoin exists at many different locations simultaneously. This makes it difficult for a single regulatory power to enforce its will across borders. This means a government or third party can’t technically raid an office and shut anything down.
That being said, several chokepoints could severely hinder Bitcoin’s adoption and use.
- Targeting centralized entities: exchanges and wallets
A logical first move is to regulate the fiat onramps (trades), which the United States government has finally been getting around to. In cryptocurrency’s nascent years, cryptocurrency exchanges didn’t require much input or approval from regulatory authorities. However, the government started stepping in when cryptocurrency started hitting the mainstream.
The SEC, FinCEN (Financial Crimes Enforcement Network), and CFTC have all played a role in pushing Know Your Customer (KYC) protocols and Anti-Money Laundering (AML) policies across all exchanges operating within U.S. borders.
Cryptocurrency exchanges have no options but to adhere to whatever the U.S. government wants. The vast majority of cryptocurrency users rely on some cryptocurrency exchange to utilize their cryptocurrency, so they will automatically bend to exchange-imposed regulation.
Regulators might be unable to shut down the underlying technology that powers Bitcoin. Still, they can completely wreck the user experience for most cryptocurrency users, which serves as enough of an impediment to diminish the use of cryptocurrency for most.
- They are targeting users.
The government can also target individual cryptocurrency users. Contrary to popular opinion, Bitcoin (and some privacy coins) aren’t anonymous. An argument can be made that Bitcoin is even easier to track than fiat because of its public, transparent ledger.
Combined with every cryptocurrency exchange’s willingness to work with U.S. authorities, a federal task force could easily track money sent and received from specific addresses and pinpoint the actual individual with it. In addition, companies such as Elliptic and Chainalysis have already created solid partnerships with law enforcement in many countries to track down illicit cryptocurrency uses and reveal the identities behind the transactions.
Beyond that, we dive into the dark web and more professional illicit cryptocurrency usage. Although trickier, the government likely has enough cyber firepower to snipe out most cryptocurrency-related cybercrime. For example, coin mixers (cryptoMixer.io), coin swap services (ShapeShift), and P2P bitcoin transactions (localbitcoins.com) have been investigated for several years now, and most of them have had to add KYC and adhere to strict AML laws.
Final Thoughts
Ultimately, enforcing any significant global regulation on Bitcoin will take a lot, with the most critical factor being centralization and consensus. Unfortunately, most U.S. regulatory alphabet agencies fall into the same camp of “protect the good guys, stop the bad guys.” Still, there isn’t a single individual piece of guidance to follow. Currently, cryptocurrencies are regulated in the U.S. by several institutions, such as CFTC, SEC, and IRS, making it challenging to create overarching regulatory guidelines.
In short, yes—Bitcoin can be regulated. Its regulation has already started with fiat onramps and adherence to strict KYC and AML laws. While Bitcoin ownership is illegal in countries such as Ecuador, Bolivia, Egypt, and Morocco, in the U.S., it would take some bending of the moral fabric of the Constitution for cryptocurrency ownership rights to be infringed.
However, it cannot be shut down. There are still ways to buy, sell, and trade Bitcoin P2P without a centralized exchange. It would take an enormous effort by any government to completely uproot something as decentralized as Bitcoin, but that future seems more dystopian than tangible.