When it comes to Bitcoin, not all regulation is created equal. There are things that all regulatory proposals from national and regional governments have in common for sure. First they are all hated and labeled “theft” or something else criminal by those in the Bitcoin community with a libertarian bent. Second, regardless of what anybody thinks of them, they are all, to a greater or lesser extent, futile.
What legislators seem unable to grasp is that regulating the businesses linked with a technology is one thing but regulating a digital currency per se is a completely different proposition. To do so effectively would entail controlling the internet, and good luck with that! Despite those commonalities, though, there are two distinct types of regulation attempts, and both have been on display recently.
In one case, the state of California resurrected and re-wrote an old bill designed to register, and to some extent regulate, businesses focused on digital currency. Assembly Bill 1326, which had died in the legislature last year, was resurrected, re-written to some extent, read, and amended. The bill as it now sits certainly has its faults, but overall it seems like some attempt has been made to be fair to the Bitcoin community and businesses while providing some protection and reassurance to those businesses potential clients.
The most annoying thing about the bill is that it pretends to do away with the notion of a “license” for Bitcoin related businesses, while requiring them to pay a one off $5,000 and then an annual fee of $2,500 to participate in a so called “Digital Currency Business Enrollment Program.” Given that the bill also allows for a fine of up to $25,000 if a business operates in the space without joining the “program” I would love to hear how those responsible for this assert that it is different from a license.
Aside from that particularly ridiculous example of political distortion of words, however, this bill could be not too bad. If the information used in the license applications and renewals (let’s call them what they are) is used to ensure that public-facing Bitcoin related businesses are legitimate and solvent, then that is not just protecting the consumers of California. It is also protecting legitimate Bitcoin exchanges and businesses from the huge damage that could be done by another Mt. Gox type scenario.
Bitcoin businesses have to fight the perception among the ignorant that there is something “dodgy” about digital currencies every day. Anything that reduces the chances of another major scandal with the accompanying sensationalist news stories is a good thing.
The other regulation story this week, however, is a different matter. The Australian government is apparently about to attempt to regulate Bitcoin under its existing counter-terrorism laws. It is nonsense like this that the Bitcoin community should be getting aerated about rather than wasting time decrying a minimal registration requirement for legitimate businesses in California.
I have had my say on this kind of thing before, but I am happy to repeat myself. Attempting to restrict the use of Bitcoin in the name of anti-terrorism is hypocritical, wrongheaded and, most importantly of all, doomed to fail.
It is hypocritical because there is no similar attempt to “regulate” cash in U.S. dollars: the currency of choice for criminals, murderers and terrorists for centuries, and still by far the most common payment method in those circles. It is wrongheaded because when we penalize legitimate innovation and businesses in the name of “anti-terrorism” the terrorists win a small victory. Their mission is to disrupt and in this case the Australian government is aiding and abetting them in that aim. Lastly, it is doomed to failure because there is, as mentioned above, no way of regulating the internet itself or of breaking the anonymity inherent in Bitcoin transactions.
The best that can be said about this attempt is that it is well-intentioned, but is the result of ignorance and is an ill thought out, knee-jerk reaction to events. If it isn’t that, then it must be a cynical vote grab based on people’s fear. Either way it is a poor reflection on those responsible.
Regulation of the businesses connected to Bitcoin or other digital currencies is not necessarily a bad thing. It can help to instill confidence in an under-educated public and that confidence is needed if digital currencies are to gain wider acceptance and become what they are supposed to be, a viable alternative to fiat currency. Using the threat of terrorism and criminal activity to justify an attempt at controlling the actual currency, however, is another matter entirely.