The Story Behind Bitcoin
Bitcoin has been controversial ever since it started to emerge in 2011. For those who don’t know, Bitcoin is essentially a type of currency and a payment network that doesn’t require banks. It’s an experimental currency that has attracted all sorts of criticism for everything from the extra degree of privacy that it provides when making payments for illegal items to the fact that it doesn’t offer any consumer protection. It was inevitable that at some point regulation would come up in discussions with respect to Bitcoin, particularly given the way that it has taken off in recent years as a popular payment method – more people now have a Bitcoin wallet than you might realise.
Bitcoin and regulation
However, the problem with trying to regulate Bitcoin is that, at its heart, Bitcoin is not designed to be regulated. It’s an innovative online currency with characteristics such as anonymity that are fundamentally at odds with the idea of regulation. For example, the 2014 BitLicense proposal from the New York Department of Financial Services, which on the face of it seems to be an attempt at regulation of Bitcoin exchanges, online wallets and merchant processing services that understands the fundamentals of the Bitcoin currency. However, if you look further into the proposals actually what is being suggested will take away one of the fundamentals of Bitcoin – anonymity. This is because what the BitLicense does is require vendors who are accepting Bitcoins to collect names and addresses from purchases for even the smallest of transactions. So, if you went to buy a newspaper for example you would be required to give your name and address to do it. You wouldn’t even be inclined to do that with a regular payment method, let alone one that is built on the principles of anonymity.
How is the problem addressed?
Some might say then that the simple answer is to simply make Bitcoin not anonymous but then that rules out what many see as one of the fundamental benefits for society as a whole from Bitcoin gaining momentum as a currency. Currently, Bitcoin is not anonymous in the sense that all Bitcoin transactions are publicly stored and permanently on the network – so anyone anywhere can see transactions and balances that are attached to a Bitcoin address. The big difference between paying for something with Bitcoin or using a debit card, for example, is that the identity of the Bitcoin user is not revealed. While many people have highlighted the negative issues that arise as a result of this, such anonymity could also solve many of the problems with current payment systems that result in billions of pounds worth of data theft every year. Hackers would have a much harder time getting hold of personal data from a Bitcoin transaction than payments that have been made by credit cards or debit cards.
So the answer seems to be that, yes, it’s likely that Bitcoin will be regulated sooner rather than later – it has to be if it’s going to be part of a consumer society. However, whether that will change it so fundamentally that it is no longer as Bitcoin was intended to be is another question entirely.