Computer scientist Clive Thompson has an interesting take on Bitcoin and the regulatory landscape surrounding its cryptocurrency: “I can think of three kinds of war about cryptocurrencies.” One, he says, involves the profit motive: instead of buying a loaf of bread, you can “spend bitcoins on any high-risk venture, from cable modems to snake oil businessmen, so you can double your money a thousand times.” This sounds like an oxymoron; lots of people are trying to make money from ICOs and cryptocurrencies in general, however few have succeeded at that.
If the second kind of war he describes is about “freedom from state regulation,” then the third kind is “whether the rules that protect some people from bad actors should also protect property rights,” in essence a massive, metaphorical tax on crypto assets. Think of it as a system-wide tax on coin value to “protect property rights.”
In the past, law enforcement has focused more on currencies whose owners are “known to be engaging in criminal activity.” That doesn’t worry you; you trust your friends to do the right thing (except maybe in the summer, when they play Pokemon Go and expect you to take care of their pesky little middles).
But with Bitcoin, Thompson writes, “the ease with which anyone can invest as little as $2 or $5 dollars in Bitcoin into almost any risky venture could potentially unnerve enough prudish observers of public policy to doom the whole system to failure.” Not only is Bitcoin suffering from a loss of confidence among investors, but there’s no surefire way to ensure your hard-earned bitcoin is going to be safe. Every Bitcoin owner has no legal guarantee that the asset can and will be used for spending.
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The solution seems to be to “force those that control the money into a position where they must destroy the entire thing by a critical date.” In other words, when digital wallets get hacked, the source should be paid a penalty equivalent to the “millions or billions of dollars in value” the wallet contained. There needs to be a way for hard-won customer confidence to be upheld, but that raises questions about the fairness of taxing a system if only the coins you’ve stolen have value.
Bitcoin, a decentralized, decentralized system with strong ownership rights, has so far been open to a more sophisticated approach than most other crypto-assets. But now we have regulation from the Securities and Exchange Commission (SEC), authorities in China, the SEC, and state officials in New York. Bitcoin is in the crosshairs of the executive branch, the legislative branch, and the judicial branch, all in the same place. With all this governmental scrutiny on a system that simply does not fit our established institutions, no wonder it takes so long to get new projects off the ground, let alone innovate in new areas.
Bitcoin and other cryptocurrencies have their own inherent dangers: the supply of digital assets could be constrained by the psychology of the crowd, laws could inadvertently harm customers who can’t afford a stake in the security of privacy-encoding digital wallets, or governments might decide to prevent citizens from using their money for anything else. Whether or not cryptocurrencies will become a serious part of the world economy, governments have much to worry about that goes beyond bitcoin. A better plan could be to limit Bitcoin’s availability (should China, say, decide that lending large quantities of digital assets to ordinary citizens to buy food in times of food scarcity is a bad idea), or restrict the middlemen (like exchanges or exchanges themselves) and charge a premium on the core digital asset price.
The issue is not just security; it’s about who gets to decide what it is that is going to be useful to the people. Where once governments regulated overpasses, bridges, and swimming pools to keep their citizens safe, today they are governing the whole flow of commerce. Autonomous units of currency are a different animal altogether. Surely we can manage them? It’s a formidable challenge.