Will Regulation kill Bitcoin?

Since the beginning of the year, the price of Bitcoin and cryptocurrencies skyrocketed and the debate about regulation has intensified. Should Bitcoin be regulated? Who can or should regulate it? Do regulators have the necessary expertise in cryptocurrencies? Will regulation stifle growth and innovation?

In a divided Bitcoin playing field, on one end you have Bitcoin enthusiasts and early adopters, that see it as a decentralized alternative to government controlled currencies, that should not be regulated by any entity or country. On the other end, you have those that believe it should be regulated, citing the Mt. Gox incident that cost one million people over $400 million in bitcoin, or more recent events like the WannaCry hackers asking for bitcoin ransom payments and supporting the naysayers case that bitcoin is the currency of terrorists, drug-traffickers, pedophiles, extremists and criminals.

We can say with certainty that regulation is coming. I mean its pretty clear that governments have anti-money laundering laws, anti-terrorism financing laws and they’re going to apply these laws to whatever new payment system comes along. If you’re a Bitcoin business that provides services to consumers, whether it’s exchanging dollars for bitcoins, processing payments, sending money or trading, your business is going to be subject to these regulations.

Some countries already have put in place their own regulations on the use of Bitcoin, while others are cracking down on Bitcoin use with police raiding people’s homes. Steve Rogen’s post does a great job of presenting the most interesting Bitcoin regulations around the world.

There is no question in my mind that regulations can help build public trust and encourage of more people to use Bitcoin. Look at whats happening in Japan. After the Bitcoin bill was passed in Japan, there was a sharp increase in the volume traded across Bitcoin exchanges in the country. Look at Switzerland. Last June, the Swiss parliament regulated Bitcoin and Blockchain-based startups. Today, Switzerland allows people to use bitcoin to buy train tickets and ticket machines have now turned into Bitcoin Teller Machines (BTMs).

But the flavor of regulation is equally important. Regulators need to understand the limits of their power. The real threat is that regulators might overreact, focusing on the potential negative uses of Bitcoin and lose sight of all the benefits, stifling growth and innovation by entrepreneurs starting Bitcoin businesses.

Bitcoin and centralized currencies can be used for criminal activities. The difference between centralized and decentralized currency is that nobody owns it and nobody controls it. Its a peer-to-peer network of people exchanging money. Anytime a transaction happens on the Bitcoin network, a record of that transaction is made and it’s publicly available for anybody to see.

Regulators must protect consumers, without taking away their freedom to transact with each other and Bitcoin allows just that. Bitcoin is censorship proof. It allows people to transact with each other, without some regulator placing a restriction on that transaction. For example, if you want to support WikiLeaks, you should be able to do it without asking for permission from a regulator that has his own agenda. Money is a form of speech, and we should be able to exercise our freedom of speech and political expression through currency.

Regulations are a sign that Bitcoin is maturing, and this is a good thing. Also I am sure you’ve heard of the saying “if you can’t beat them join them” and this is exactly what’s happening with Bitcoin and all the talk about regulation. At the rate the Bitcoin industry is growing, it will be difficult for any government not to recognize its legality.

But, Bitcoin requires a whole new way of thinking, and a much more flexible approach from governments.

The best way to regulate it, is to allow Bitcoin and cryptocurrency exchanges to operate. Bitcoin companies can implement identity checks and reporting mechanisms for suspicious transactions, but aside from preventing illegal use of digital currency, regulatory frameworks can give room to businesses and initiatives to adopt the use of Bitcoin and thrive.