As Bitcoin and other digital assets continue to grow in adoption and popularity, a common topic for discussion is whether the U.S. government, or any government for that matter, can exert control of its use.
There are two core issues that lay the foundation of the Bitcoin
regulation debate:
The digital assets pose a macro-economic risk. Bitcoin and other cryptocurrencies can
act as surrogates for an international currency, which throws global economics
a curveball. For example, countries such as Russia, China, Venezuela, and Iran have all explored using digital
currency to circumvent United States sanctions, which puts the US government at
risk of losing its global authority.
International politics and economics are a very delicate issue, and
often sanctions are used in place of military boots on the ground, arguably
making the world a safer place.
The micro risks enabled by cryptocurrency weigh heavily in aggregate.
One of the most attractive features of Bitcoin and other digital assets is
that one can send anywhere between a few pennies-worth to billions of dollars
of Bitcoin anywhere in the world at any time for a negligible fee (currently
around $0.04 to $0.20 depending on the urgency.)
However, in the hands of malicious parties, this could be very
dangerous. The illicit activities inherently supported by a global
decentralized currency run the gamut: terrorist funding, selling and buying
illegal drugs, ordering assassinations, dodging taxes, laundering money, and so
on.
Can Bitcoin Even Be Regulated?
Can Bitcoin Even Be Regulated?
Before diving deeper, it’s worth asking whether Bitcoin can be regulated
in the first place.
The cryptocurrency was built with the primary purpose of being decentralized
and distributed– two very important qualities that could make or break
Bitcoin’s regulation.
By being decentralized, Bitcoin doesn’t have a single controlling
entity. The control of Bitcoin is shared among several independent
entities all over the world, making it nearly impossible for a single entity to
wrangle full control over the network and manipulate it as they please.
By being distributed, Bitcoin exists at many different locations at the
same time. This makes it very difficult for a single regulatory power to
enforce its will across borders. This means that a government or other third
party can’t technically raid an office and shut anything down.
That being said, there are several chokepoints that could severely
hinder Bitcoin’s adoption and use.
- Targeting centralized entities: exchanges and wallets
A logical first move is to regulate the fiat onramps (exchanges) , 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 to
run. However, the government started stepping in when cryptocurrency starting
hitting the mainstream.
The SEC, FinCEN (Financial Crimes Enforcement Network), and CFTChave 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 not be able to shut down the underlying technology that
powers Bitcoin, but they can completely wreck the user experience for the great
majority of cryptocurrency users, which serves as enough of an impediment to
diminish the use of cryptocurrency for most.
2.
Targeting users.
The government can also target individual cryptocurrency users. Contrary
to popular opinion, Bitcoin (and even 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 certain addresses and pinpoint the actual individual with it.
Companies such as Elliptic and Chainalysis have already created solid
partnerships with law enforcement in many countries to track down illicit
cryptocurrency uses and reveals 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 the majority of cryptocurrency-related cybercrime. In
fact, 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
Final Thoughts
Ultimately, it’s going to take a lot to enforce any sort of significant
global regulation on Bitcoin, with the most important factor being a
centralization and consensus of opinion. The majority of the U.S. regulatory
alphabet agencies fall into the same camp of “protect the good guys, stop the
bad guys”, but there isn’t really a single individual piece of guidance to
follow. Currently, cryptocurrencies are regulated in the US by several
institutions: CFTC, SEC, IRS, making it difficult to create overarching
regulatory guidelines.
In short, yes– Bitcoin can be regulated. In fact, its regulation has
already started with the fiat onramps and adherence to strict KYC & AML
laws. While in countries such as Ecuador, Bolivia, Egypt and Morocco Bitcoin
ownership is illegal, in the US, it would take some bending
of the moral fabric of the Constitution in order 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.
- https://news.bitcoin.com/rare-joint-statement-from-u-s-regulators-proves-crypto-centralization-is-here/?utm_source=Rare%20Joint%20Statement%20From&utm_medium=telegram&utm_campaign=Telegram%20Channel
- http://www.oecd.org/tax/beps/public-consultation-document-secretariat-proposal-unified-approach-pillar-one.pdf
- https://www.marketwatch.com/story/heres-how-the-us-and-the-world-are-regulating-bitcoin-and-cryptocurrency-2017-12-18
- https://medium.com/nakamo-to/whats-the-difference-between-decentralized-and-distributed-1b8de5e7f5a4
- https://cointelegraph.com/news/fdd-assesses-risks-of-crypto-use-by-countries-under-us-sanctions
- https://news.bitcoin.com/most-privacy-coins-arent-that-private/
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