Disclaimer: This author’s opinions do not reflect the opinions of coinbrief.net.

Recently, it has been announced that a US task force, comprised of federal regulators, are preparing to release a “Bitcoin rule-book” that will “protect users of virtual currency from fraud without smothering the fledgling technology.” While some hail this announcement as good news for Bitcoin, claiming that it will make the crypto-currency stronger by protecting users from fraud, the announcement is really a negative development in the Bitcoin community. Any kind of Bitcoin regulation will necessarily restrict its ability to expand, thereby making it less likely to replace the system of centralized fiat money.

The Debate Over Bitcoin Regulation

Why do we need any government regulation of Bitcoin in the first place? Some may say that we need such regulation to prevent another exchange collapse, reminiscent of the recent Mt. Gox debacle. However, the market has already solved that problem by itself without any government interference. Exchanges immediately took measures to ensure the security of their users’ funds in order to keep people from withdrawing their money from the exchanges. Now, it is not very likely that we will see another security breach similar to that of Mt. Gox. If we do, it would require a great deal of skill to break through the security measures of the most popular exchanges. So much so that such a hacker, or hackers, would probably be able to bypass any government provided security measures or regulations with ease. If we leave the market to operate by itself, it will develop solutions to problems faster than government, and more effectively than government. In fact, the market can solve problems that consumers don’t even know they have yet! Governments can only take action retroactively, while actors on the market take preemptive action to protect their profits, which makes all market participants safer and more successful.

Now, no specific regulations were mentioned in this recent announcement. However, we can guess, with a fair degree of accuracy, that this regulation will be aimed at the operations of the Bitcoin exchanges, as regulators noted that they were aiming to let the actual technology of Bitcoin to remain free, while protecting the consumers from fraud. The only way to “protect” against fraud, without compromising the core Bitcoin technology, would be to restrict the freedom of the exchanges. Imposing any kinds of restrictive regulations on the Bitcoin exchanges will undoubtedly make running an exchange more expensive, thus limiting the amount of competition on the market. That type of competition killing regulation paves the way for a monopoly to rise and rule the market with an iron fist. We already know what can happen when the majority of exchange activity is concentrated in one firm.

Bitcoin Regulation Can Lead to Unfair Monopolies

Making it easier for single firms to monopolize an entire market will certainly set us up for another Gox-like disaster. If an exchange monopoly arises as a result of government regulation, then we will have a firm that is responsible for 100% of exchange trading in the US without being held accountable to the consumers. If the exchange tanks, the government won’t punish its managers. The government will bail the exchange out to prevent a disaster, and the exchange will continue handling our money irresponsibly.

The beauty of the market is that there are always options. If one business fails, or doesn’t completely satisfy the consumers, there will always be competitors to take up the slack. That type of competition is the essence of innovation. It is what drives the market forward. It is what holds businesses accountable to the consumers. When governments intervene, positive advancements in the market are almost always slowed down, or halted completely. Why would we want to do that to Bitcoin exchanges? Right now, the exchanges are the hubs of Bitcoin activity. Since there are very few jobs that pay in Bitcoin, the only way for many people to stake a claim in the Bitcoin community is to buy coins on an exchange. This gives the exchanges a considerable amount of power, making it a very bad idea to concentrate that power in one exchange, or a small number of firms, through the implementation of restrictive legislation.

Free Market Is Best For Bitcoin

These Bitcoin regulations could be the next Net-Neutrality. We know that Net-Neutrality will induce a huge monopolization of the internet market, due to the fact that the firm with the most money will be able to crush all competitors that are unable to shoulder the cost of being forced to provide cheaper connection speeds. If the US government passes legislation to regulate the Bitcoin exchanges, it will most definitely become much more expensive for smaller, newer exchanges to compete with the much larger and firmly established exchanges.

What if Japan had placed regulations on Japanese exchanges during the Mt. Gox era? What if all exchange trading activity had been forced into Gox as a result of restrictive regulation? The crash would have been much larger and much more devastating. Let’s not make that mistake now that Bitcoin is even more relevant. Crypto-currency thrives on decentralization, and it was born out of anarchy. Bitcoin doesn’t need a harness, and it certainly doesn’t need a national government to take the reins. We don’t need the government to take care of us, or to protect us from Bitcoin, as we are much more resilient than the government gives us credit for. Let the free market run its course. Freedom will bring more prosperity to the Bitcoin community than centralization ever could.