Should Bitcoin be regulated?
After nearly a decade since its invention, Blockchain has not yet reached to its full potential. Billions of dollars of investments are made every day, but none of the great potentials come to reality, despite only serving Bitcoin for its payment system and allows illegal payments to occur in the Dark Web. The government has started to underestimate the value of Bitcoin and thinks that regulation is the best way to solve its issue.
First created in 2009 by a person with the alias Satoshi Nakamoto, Bitcoin became the pioneer of cryptocurrency and Blockchain technology. Bitcoin is a digital currency in which encryption and cryptography are used to control the value and verify the transactions. While traditional currency goes to central payment processors, such as Visa and MasterCard, Bitcoin transactions are processed by computers running special software. Every time a transaction occurs, the network records both the sender’s and the receiver’s Bitcoin addresses, and the amount of money into the end of a “Ledger” or a record called Blockchain. After nearly a decade since its invention, Blockchain has not yet reached to its full potential. Billions of dollars of investments are made every day, but none of the great potentials come to reality, despite only serving Bitcoin for its payment system and allows illegal payments to occur in the Dark Web. The government has started to underestimate the value of Bitcoin and thinks that regulation is the best way to solve its issue. On the other side, the majority Blockchain developers do not approve the regulatory framework proposed by the government, as they think Blockchain will still reach to something significant in the long run. Many tech investors view the Blockchain in the future as a host for applications, such as crowdfunding and online voting. Although cryptocurrencies have several downsides, strict regulations from the government are not the right solution as they would decrease the market value and prevent the Blockchain from reaching its full potential, such as managing personal identity and improving representative democracy.
The core technology in Bitcoin which is called Blockchain is what makes Bitcoin special as many tech experts claim it to be hacker proof. Back when Bitcoin and computers have were not yet invented, the most popular way for people to keep their secret documents is by keeping them in a vault and making a lot of copies. Thus, when someone else stole the person’s document without breaking into the vault, the victim would still have other copies in different locations. Similar to Blockchain, files or any pieces of information are encrypted so that only a specific person could read or write the file, which are stored in thousands of computers but still linked together with the internet. The computers combine which store all the files are called node-blocks and the network connecting all the files are called chain. The encrypted code will get updated every several hours which makes the entire system almost impossible for a hacker to break in.
1.) Blockchain for identity management
Because of Blockchain’s strong security system, it has the potential in managing our personal identity more securely, which could prevent identity theft. According to Jerry Cuomo, IBM Fellow and VP of Blockchain Technologies in an interview with TechCrunch says there is a high possibility for theft identity when we are asked to show our identification to read information online, complete business deals, and access websites. Cuomo envisions a world where we have the full control of how much data we want to share with the public. He believes that Blockchain will guarantee privacy and trust between the two parties in a transaction. Cuomo adds, “This is self-sovereign identity, and it is already here. The Blockchain is the underlying technology paving the path to self-sovereign identity through decentralized networks.” Although Cuomo is convinced that Blockchain could ensure identity privacy, Steve Wilson who works at Constellation Research as an analyst and Blockchain technology enthusiast thinks the opposite. Wilson explains, “We need to remember that the classic blockchain is an elaborate system that allows total strangers to nevertheless exchange real value reliably. It works without identity and without trust. So it’s simply illogical to think such a mechanism could have anything to offer identity” (Miller). Wilson thinks that the typical mechanism in Blockchain does not require a user to submit their identity, so it would be nonsense for people to store their identity in Blockchain. On the same side as Cuomo, Andre Durand who is the current CEO at Ping Identity, believes that identity management through Blockchain is possible but it may takes longer at least five years. Durand explains, “What is much more likely is that the things distributed ledger technology is uniquely designed for, keeping accurate records in a distributed system, will become part of the identity management ecosystem and help improve aspects of it”(Miller). Durand thinks how distribution data works after a person completes a transaction in Bitcoin should work in other life situation. When a person completes a Bitcoin transaction, the system will automatically copy all the information and send them to several random blocks (computers running special software) to finally get encrypted. Durand statement shows that Blockchain’s speciality is not only its security about also its distribution method. With nearly 105% of market value growth of Bitcoin from 2016–2017, it would not be impossible for another new tech investors to be involved in Blockchain and help solving the technical challenges.
2.) Blockchain for representative democracy
Other than the potential to manage personal identification, a group of tech experts in the Bay Area, California are thinking of a new way to improve representative democracy with Blockchain. It is called liquid democracy. The basic concept is to allow citizens to contribute to political discussions by giving feedback about some policy issues. Since not many people usually have the time to do this, by using liquid democracy platform, citizens can be represented by a representative who has the authority to be their proxy vote. Each representative can be changed any time the voters want. Additionally, those representatives can proxy their votes with another representative and eventually create a linear network graph which connects all voters to their respected chosen candidates or politicians and being publicly verified with Blockchain. Today, there might be over 700,000 voters in a congressional district, but with Blockchain, it could potentially be only several hundreds of proxies or representatives that represent hundreds of thousands of voters. David Ernst who is one of the leaders of the liquid democracy and current candidate for California Assembly District 19, believes that our current political system is broken and says,
“If I get elected, I promise to vote on every single item as directed by our local District 19 liquid democracy, using www.united.vote. It’s not about me, but giving everyone a more equal opportunity to be a part of the legislative process. And for the vast majority of us that are too busy for day-to-day participation, we can pick personal proxies for much more trustworthy representation, with instant accountability” (Crichton).
Ernst wants to involve more people to participate in the democracy who were not able before, as he realizes it is possible with Blockchain technology. United.vote is a software application that manages the logistics of selecting representatives, tracks votings, and displays voting scorecard. Ernst is competing against Phil Ting who won the election in 2016 with 80% votes, and Ting has been representing District 19 since 2012. Although the app has not gotten its popularity yet as only nearly 1,000 members who have signed up for liquid democracy, Ernst still believes that these small software changes could improve democracy itself.
• Bitcoin Drawbacks
On the other hand Bitcoin creates some disadvantages, such as its unstable market value and how it helps illegal payments through the Dark Web. Bitcoin is also famous for its unpredictable fluctuation which might harm the global economy. When a new type of cryptocurrency emerges into the blockchain market and catches everyone’s attention, there might be some Bitcoin investors who are only looking for a short-term success decide to sell their coins or pay their loans hoping to gain profit. As a result, this type of speculative tactic might decrease the value of the currency in a matter of seconds since the government has no control of its value (Trautman et al. 1092). If a lot of people are still exchanging money with failing currency, it could hold back the flow of funds of real currency which might impact our economic growth. Other than that, Bitcoin has a key role in providing payment services on the Dark Web. The Dark Web is an online platform in which only accessible through special software where the users do not require to submit their identification details to purchase goods or usually refer as the “eBay” for criminals. Thus, the anonymity feature and lack of regulation benefit criminals, which also annoys American Bank Secrecy Act as it eases the process of money laundering that is untraceable. The Dark Web gives freedom to criminals as it does not require any identities, such as passport number and security number to complete the transaction. American, European, and Chinese banking legal system have agreed that encryption feature in the transaction might benefit criminals in tax evasion and potentially broadened the network of their illegal businesses (Trautman et al. 1047). Regarding this issue, FinCEN, US Department of the Treasury, suggests that the Bitcoin administrator should follow the FinCEN guidelines in 2013 (Piazza 536). The guidance states that any payment services must include an identification registration process between the two parties and must at least obtain the Money Transmitter License. If this rule is implemented, it might solve several security issues in cryptocurrencies. However, like any other emerging technologies, Blockchain’s benefits and drawbacks will always occur simultaneously. In order for us to see the full potentials but still manage the bad possibilities of any outcome, the government should pay more attention on the people who use the technology instead of the technology itself. For Example, when there are many criminals buying illegal goods from the Dark Web, the government should block the site or figure out a way how to make criminals think twice before accessing the Dark Web. Technology never change a person but it exposes the person’s true color.
For us to see Blockchain’s full potential, Blockchain developers are currently figuring out a way on how to connect different Blockchains from different cryptocurrencies. Today, cryptocurrencies are working perfectly fine, but things get overly complicated when people are trying to do a transaction with two different cryptocurrencies. This is because all digital currencies have separate Blockchains and there is no any software that enables us to connect them. Several efforts have been made including the introduction of two new cryptocurrencies which are called Ripple and Stellar. Ripple and Stellar are first introduced to enable transactions between several cryptocurrencies through one Blockchain, but unfortunately, both of them are still far from a success. Today, Stefan Thomas is developing Interledger Protocol. Thomas who is also one of the co-founders of Ripple and Ripple’s CTO (Chief Technological Officer) believes that one day the entire world would agree on only one payment system. Thomas says,
“Interledger Protocol is a top-layer cryptographic escrow system that allows funds to move between ledgers with the help of intermediaries, called “connectors,” which understand the underpinning of each ledger and perform the cross-ledger transactions transparently” (Dickson). The Blockchains does not have to rely on the connector, but instead, they could use cryptic algorithm to complete the transaction in Blockchain.
Thomas adds, “the idea to have a minimal protocol that allows nodes to evolve and change independently”(Dickson). There is no any confirmation from tech experts that Interledger will become something huge in the future, but the idea of the technology itself has caught the attention of some tech giants, including Apple and Microsoft.
The government should not implement the regulation in cryptocurrencies as it could ruin the Blockchain system, but instead, they need to pay more attention to the users of cryptocurrencies to prevent further casualties. What fascinates everyone to invest in virtual currency is its core technology, the Blockchain. Its system is proven to be hacker-proof and has many potentials. Tech experts see Blockchain in the future as a platform that can host many software applications, such as crowdfunding and online voting. The Blockchain secure distribution method in recording each Bitcoin transaction into a network inspires tech experts to improve representative democracy and manage personal identities. Blockchain could bring citizens closer to politicians and their representatives by giving the right to provide feedback about policy issue more efficiently. Although on the other hand encryption feature in the Blockchain serves criminals to do illegal transactions, we need to think positive and keep on developing Blockchain itself for our benefits. The Government should involve tech experts and cryptocurrency investors in their discussion to think of the best solution to prevent Bitcoin’s market value to drop and not inhibit the development of Blockchain technology growth. Another thing that the government should do is to implement strict supervision to suspicious websites, such as the Dark Web. When an online platform sells illegal goods, the government must act quickly block the site before a more illegal transaction occurs online. The problem is not the technology but the people who use them. A world with Blockchain that enables to store transaction or any piece of information securely without the control of a single entity is a fascinating idea to implement in our future. Blockchain could also be applied in many industries although it requires several technical changes and it could take years for process of development. Banking and tech giants such as IBM, JP Morgan, and Intel are now working together on a project called Hyperledger. Their goal is to develop Blockchain to have a reliable data storage or ledger which could support our fast-growing economy. According to Cuomo, “The project will serve as a development library that firms can use to build their own distributed ledgers without needing to rely on public blockchains such as those used in bitcoin and Ethereum”(Dickson). In order for us to see a quicker improvement on Blockchain, the government should support this project by investing some money into the project and do further research about this idea.