In a recent article, Jon Matonis stated that “bitcoin requires forceful and aggressive legal defense, not complicity with governments in crafting policy and regulations”.

The current global political climate has resulted in the development of laws that are increasingly pervasive and intrusive on the rights of private individuals. In many countries, forceful and aggressive legal advocacy is necessary to protect civil rights and civil liberties against draconian laws.

However, the bitcoin community is not fighting a battle against law enforcement. Bitcoin is not a revolution against government. It is an evolution of the way we transfer value, an evolution of the concept of money, and an evolution from centralised opacity to decentralised transparency.

When viewed this way, it is easy to see why bitcoin must be allowed to continue to evolve. But this aggressive and confrontational approach to bitcoin’s legal issues only perpetuates an already common misunderstanding of how the legal system works in many countries.

Understanding governmental roles

Government actors usually play one of three roles: policy makers, regulators or law enforcement. Policymakers make the laws and regulations. Regulators interpret the law and administer the framework that is built around the law. The focus of law enforcement is to uphold the law by catching law-breakers and bringing them to justice.

These distinct roles result in each area of government having a different focus when it comes to bitcoin.

Policymakers want to win elections. The laws and policies they make are invariably targeted towards appeasing their electorates and winning votes. This means policy makers usually ask the “Why?” questions. Why should the law facilitate the adoption of bitcoin? Why should bitcoin be regulated?

Regulators ask the “How?” questions. How does bitcoin affect what we do? How does bitcoin fit within the existing legal framework? How can we effectively supervise the industry?

Law enforcement officials are usually asking the “Who?” and “What?” questions. Who used bitcoin to break the law and what did they do?

The uncertain regulatory and legal environment for bitcoin has created risks for bitcoin users and bitcoin businesses. However, it has also created a unique opportunity in many countries for the bitcoin community to write their own narrative. Governments all over the world have opened up public inquiries into digital currency and asked for dialogue from the local and international bitcoin communities.

This unique and arguably unprecedented opportunity should not be taken for granted.

In the lead up to the Australian Senate inquiry into digital currency, Senators Matthew Canavan and Sam Dastyari encouraged actors in the digital currency industry to let their voices be heard:

“If they do not help shape their operating regulations, then regulation will soon shape their operations”.

Regulation of bitcoin use is inevitable

The blockchain can’t be regulated, and it is difficult to see how regulation of peer-to-peer transactions could ever be effectively achieved. However, regulation of the conduct of bitcoin businesses is inevitable.

If you strip back the technology, a bitcoin transaction is a financial transaction. Bitcoin as a technology will revolutionise the mechanics of the banking and finance sector. However, bitcoin as a currency is simply a better way to move value from point A to point B.

Regulatory oversight for financial transactions plays an important role in protecting consumers and the economy as a whole. Arguing against any form of regulation for bitcoin businesses is fighting a losing battle.

The Global Financial Crisis highlighted the need for governments to protect the integrity of their financial systems. The crisis is largely blamed on regulatory failure and deregulation of the financial services sector.

Factors that contributed to this crisis include insufficient liquidity and capital reserves, inadequate microprudential supervision, poor corporate governance and risk management practices, and insufficient transparency in the financial sector.

Bitcoin has the potential to address some of these shortcomings, but governments are concerned about the soundness of bitcoin as a payment system, consumer protection issues, money laundering or other illicit activity, and financial transparency and accountability.

Put simply, if a bitcoin business handles other people’s wealth, then both internal and external oversight is necessary. Bitcoin technology may have removed the need for trusted third parties, but it hasn’t removed the need for consumers and the government to trust bitcoin businesses.

Selling the technology

Instead of railing against the government, the bitcoin community needs to make the most of the current opportunities to influence the government’s decision-making process.

If somebody asks a “Why?” question, you don’t respond with forceful aggression. You take the opportunity to explain why, and to respond with informed and persuasive reasoning.

Policymakers want to hear how bitcoin will win votes. Bitcoin conversations with policy makers need to highlight how this technological evolution will stimulate the economy, create jobs, help small businesses and increase the free flow of capital.

In contrast, regulators aren’t trying to win popularity contests. As Charles Littrell, executive general manager of the Australian Prudential Regulation Authority described it:

“Anybody who joins a prudential regulator hoping to become popular has made a serious career mistake”.

A regulator’s focus is on doing their job right and ensuring that the businesses are also doing their job right. Regulators need to hear how bitcoin businesses can ensure consumers are protected, and they need to understand how bitcoin can actually make this protection easier – not harder.

For example, bitcoin is desirable to a regulator because the technology itself can facilitate internal self-government and self-regulation.

In its ‘BitLicense‘ commentary, the Institute for the Future’s Crypto-Economy Working Group outlined a number of potential technology solutions that can address regulators’ concerns.

Multi-signature governance and escrow has the potential to mitigate the risks of mistake or internal fraud. Continuous real-time auditing can ensure operational integrity of bitcoin businesses and include mechanisms to prove reserves or solvency. Blockchain data analytics, fast transaction scoring, and entity identification, can all help to address concerns about exploitation of bitcoin by illicit actors.

Seize the opportunity

Policy makers and regulators don’t need to hear about how bitcoin will remove government monopoly over currency or stop the government from collecting tax. They need to hear about how bitcoin can offer the global community a safer, more secure, and more transparent alternative to the traditional banking and financial system.

The bitcoin community needs to engage in informed discussions that directly address the concerns that governments have about bitcoin and offer suggestions for how bitcoin can make a difference. As the chairman of the Australian Securities and Investment Commission (ASIC) stated, “Both regulators and industry must work together to harvest the opportunities, while mitigating the risks”.

Consultation with government doesn’t guarantee the bitcoin community will get everything on its regulatory wish-list. But even a small win can have a big impact. Whether it is a submission to the BitLicense proposal, a consultation with the Australian Taxation Office or a one-on-one discussion with a local member of parliament, every discussion counts and every contribution helps shape the overall form.

Be tenacious and determined in the legal defence of bitcoin. Just remember: honey beats vinegar. Hands down. Every time. Don’t underestimate the power of persuasive reasoning and don’t waste these incredible opportunities to take part in shaping bitcoin’s future.

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, either CoinDesk or Adroit Lawyers.

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