A familiar game is being played out with governments and regulators scrambling to regulate the “evils” of a new technology that keeps making media headlines. This time it’s Bitcoins. Portrayed as the currency of choice for everything bad online, the very fact that currencies are involved is enough to get them worked up.
Reportedly, the Reserve Bank in New Zealand is playing it softly, softly:
As the currency issuer, the Reserve Bank does not feel threatened by Bitcoin which seems to behave more like a commodity than a currency… The challenge is to promote efficiency and innovation by allowing wider participation in the system, while at the same time continuing to manage system risks.
Wise words. The banks don’t quite see it that way, with Auckland’s Bitcoin ATM shutting down after a month following legal compliance issues.
The extent to which cryptocurrencies and other global currencies prove to be useful payment systems also remains to be seen and depends on regulatory developments. The technology underpinning cryptocurrencies may have applications beyond currencies and payment systems.
Still in the UK, the Treasury has put out a Call for Information on the “views and evidence on the benefits and risks of digital currencies.” Separately, the following five reasons for the call were listed:
1. We want to promote innovation and competition in the banking sector.
2. New types of digital currency are being developed and digital currency businesses are setting up in the UK.
3. We want wants to hear about the benefits of digital currencies for the people that use them and the wider economy.
4. As well as the benefits, we also want to hear about the risks that might come with using digital currencies.
5. We also want to hear your views on whether regulation of digital currencies is required.
As with most tech regulation, attention is and should be on the US. Action by individual states and the views of federal regulators are leading indicators of early moves.
Two recent moves are noteworthy.
First, “BitLicense” which is a plan by Benjamin Lawsky, superintendent for New York’s Department of Financial Services, to both allow and regulate dealing with virtual currencies in the state. His aim is to:
In developing this regulatory framework, we have sought to strike an appropriate balance that helps protect consumers and root out illegal activity—without stifling beneficial innovation… These regulations include provisions to help safeguard customer assets, protect against cyber hacking, and prevent the abuse of virtual currencies for illegal activity, such as money laundering.
EFF wasn’t impressed. The regulations would require digital currency companies operating within the state to record the identity of their customers, including their name and physical address. All Bitcoin transactions would have to be recorded, and companies would be required to inform regulators if they observe any activity involving Bitcoins worth $10,000 or more.
Being EFF, they naturally launched a protest saying:
It’s bad news for privacy and free speech… Virtual currencies like Bitcoin have the potential to be privacy-protective and censorship-resistant, but the proposal from New York could undermine all of that. New York is pushing this regulatory framework under the guise of combatting money laundering, but it will affect everyday users and small businesses that have done nothing wrong. Perhaps worst of all, it could stifle a fledgling privacy-enhancing industry before we even know what virtual currencies could help launch.
The second US move being watched closely is the investigation of Bitcoin 2.0 companies by the SEC (Securities and Exchange Commission). These are wide-ranging enquiries that seem to be aimed at looking at compliance with securities laws, including the “crowdsale” of altcoins (cryptocurrencies inspired by Bitcoin).
This will completely stop or at least limit the mining and issue of cryptocurrencies as a way to fund services using the blockchain in the US. As the WSJ notes:
Ultimately, the SEC will decide whether these new bitcoin-like digital tokens, which seem to defy the standard definitions the agency has used in other offerings, constitute securities in need of regulation or whether they amount to unregulated software products or something else.
And other countries will likely follow the SEC lead.
So that’s a taste of the fast-changing, complex Bitcoin regulatory picture. There is one shining example of a good process- that of Canada- which deserves a full, separate post.