Regulation: Inevitable, Valid, Valuable

By Juan Llanos

Whether bitcoin advocates should seek regulation is a moot question. They simply do not have a choice. I could leave it there, but I recognize that the issue is more complex than it seems.

In fact, bitcoin itself is a very complex topic. The digital currency’s advocates are not a unified group, and regulations are nothing short of a quagmire.

Let’s first consider regulation in general. We normally talk about regulation when actually referring to a broader legal regime involving laws, policies, and courts created by institutions to organize society. In this broad sense, regulation is in place to mitigate multiple risks, real or potential, facing society, such as the interruption of vital services or the loss of property.

Ultimately, regulation pursues positive outcomes, such as safety, privacy, and health, and is therefore very valid. Granted, the mere existence of regulation creates friction and barriers to entry, and if misguided, ill-designed, or anachronistic, it may not accomplish its policy goals.

Bitcoin’s complexity stems from the fact that it is multiple things at the same time, and some of those things have the same name. It is a technology platform, often referred to as Bitcoin with a capital B, which has very unique architectural features: among many others, its decentralized, shared ledger where transactions are indelibly recorded in chronological order. Then there is its programmable token, denoted as lowercase bitcoin, which can represent anything of value and is itself tradable in the open markets.

Is bitcoin a currency, a commodity, or a security? Is Bitcoin a payments network, a protocol, or a digital bank of sorts?

Bitcoin advocates can be broken down into two distinct groups. First, there are the anarcho-libertarians who see bitcoin, the cryptocurrency that is not subject to political manipulation, as a vehicle for peace and freedom from the oppressions the state. Then there are the entrepreneurs and speculators, who view bitcoin as an enormously transformative technology poised to disrupt the financial services industry, or as a new asset class to be securitized and commercialized.

Clearly, these two constituencies have different views on regulation. The former see it as a threat to their core ideals; the latter see it as a means to the ends of legitimacy and profits. Regardless of ideology, however, anyone advocating for anything would do well to seek to support whatever helps maximize the chances of success of the object of their advocacy, including, of course, regulation.

Bitcoin is a revolutionary technology that combines in a very ingenious manner the latest advances in cryptography and distributed computing. It can potentially transform the world as we know it, but it also creates new challenges that could not have been foreseen by existing regulation.

Everyone who really cares for the future of bitcoin should seek, at a minimum, regulatory clarity about how it will fit in society. And above all, they should seek to influence policy makers as much as possible, so they craft reasonable and sound rules of the game that do not stifle the development of this promising new technology.