Regulation: Inevitable, Valid, Valuable
By Juan Llanos
Whether bitcoin advocates should seek regulation is a moot question. They simply do not have a choice. I could leave it there, but I recognize that the issue is more complex than it seems.
In fact, bitcoin itself is a very complex topic. The digital currency’s advocates are not a unified group, and regulations are nothing short of a quagmire.
Let’s first consider regulation in general. We normally talk about regulation when actually referring to a broader legal regime involving laws, policies, and courts created by institutions to organize society. In this broad sense, regulation is in place to mitigate multiple risks, real or potential, facing society, such as the interruption of vital services or the loss of property.
Ultimately, regulation pursues positive outcomes, such as safety, privacy, and health, and is therefore very valid. Granted, the mere existence of regulation creates friction and barriers to entry, and if misguided, ill-designed, or anachronistic, it may not accomplish its policy goals.
Bitcoin’s complexity stems from the fact that it is multiple things at the same time, and some of those things have the same name. It is a technology platform, often referred to as Bitcoin with a capital B, which has very unique architectural features: among many others, its decentralized, shared ledger where transactions are indelibly recorded in chronological order. Then there is its programmable token, denoted as lowercase bitcoin, which can represent anything of value and is itself tradable in the open markets.
Is bitcoin a currency, a commodity, or a security? Is Bitcoin a payments network, a protocol, or a digital bank of sorts?
Bitcoin advocates can be broken down into two distinct groups. First, there are the anarcho-libertarians who see bitcoin, the cryptocurrency that is not subject to political manipulation, as a vehicle for peace and freedom from the oppressions the state. Then there are the entrepreneurs and speculators, who view bitcoin as an enormously transformative technology poised to disrupt the financial services industry, or as a new asset class to be securitized and commercialized.
Clearly, these two constituencies have different views on regulation. The former see it as a threat to their core ideals; the latter see it as a means to the ends of legitimacy and profits. Regardless of ideology, however, anyone advocating for anything would do well to seek to support whatever helps maximize the chances of success of the object of their advocacy, including, of course, regulation.
Bitcoin is a revolutionary technology that combines in a very ingenious manner the latest advances in cryptography and distributed computing. It can potentially transform the world as we know it, but it also creates new challenges that could not have been foreseen by existing regulation.
Everyone who really cares for the future of bitcoin should seek, at a minimum, regulatory clarity about how it will fit in society. And above all, they should seek to influence policy makers as much as possible, so they craft reasonable and sound rules of the game that do not stifle the development of this promising new technology.
Juan Llanos is a seasoned financial-compliance expert and certified anti-money-laundering specialist. He is a mentor and adviser at various cryptocurrency and technology startups, and an adviser in anti-money-laundering and regulatory-compliance strategy. He writes about risk and virtual currencies on his blog ContrarianCompliance.com. Follow @JuanLlanos.
The Anathema of Bitcoin
By Daniel Rybnik
EspañolA decentralized network of peers like bitcoin is a community in which many people participate to share information for various purposes. As a group organization, it is based on a system of decentralized decision-making that simultaneously seeks to provide a control that is similar to Philip Pettit‘s concept of freedom as non-domination.
This control is:
- Individual: each user has a capacity for control equal to that of everyone else.
- Unconditional: the influence of each individual does not depend on the goodwill of others.
- Effective: it sets a clear direction for collective decisions, and in such a manner that when it does not comply with what someone wants, that is seen as a matter of bad luck, not as the imposition of the will of others.
Users can assume different roles and agree to participate to the extent they appreciate its usefulness and trust in the sustainability of its foundations. The possibilities that the Internet and free software give have facilitated the processes of depersonalization and globalization. Thus, they have become a key tool towards the establishment of these networks.
There is no central authority to assign rights or to impose obligations, but all the parties involved create a voluntary link in which the software generates rights and obligations that are also regulated by the software and the protocol.
The very question of whether these networks can be regulated by a state authority is based on a premise that is either verging on the absurd, or nearly reaches totalitarianism.
One’s voluntary use of these networks goes against the potential for any Pareto improvements — otherwise the options would have been exploited already. Thus, any state regulation that supposedly increases the usefulness for a few will decrease the expected benefits for others.
The story is already known: people will create options to satisfy the needs of those harmed, and another system will spontaneously arise to replace the network subject to state regulations, unless the state apparatus achieves full control over access to information and the use of the Internet.
That is equivalent to arguing that the coercive state apparatus can and should regulate physics and control humanity. Cracking down on the first is absurd, and the second one is totalitarianism.
Daniel Rybnik is an Argentinean lawyer, mediator, and professor of tax law. He holds a masters degree in banking, corporate and financial law (Fordham University), and is a PhD candidate in law at Buenos Aires University. He is also a founding partner of EnterPricing. Follow @drybnik.