Welcome back to our blog series: 11 Myths of Bitcoin. Continuing with Myth…
#5: Bitcoin is not regulated and therefore cannot be safe.
Regulation has become a very important topic in the Bitcoin industry. Bitcoin is extremely difficult for regulators and governments to get their arms around because it is a very broad technology. It has the characteristics of a commodity, currency, security, and simply a technology which stores strings of numbers. Regulators have never seen anything like Bitcoin before simply because nothing like Bitcoin has ever existed.
What many people fail to understand is that part of the Bitcoin industry is already being studied by regulators and some regulations have already begun to be implemented. For example, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCen) has issued guidelines which classify any business which transmits or converts Bitcoin as a Money Service Business (MSB) . MSB’sS are highly regulated.
“Money Services Business – The term “money services business” includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:
(1) Currency dealer or exchanger.
(2) Check casher.
(3) Issuer of traveler’s checks, money orders or stored value.
(4) Seller or redeemer of traveler’s checks, money orders or stored value.
(5) Money transmitter.
(6) U.S. Postal Service.”
FinCen includes those who deal in Bitcoin within this definition. This is how the services like Coinbase and Circle are regulated. In order to comply with these regulations, these companies must maintain careful control records of all customers through the KYC and AML addressed in earlier sections. At the request of a federal grand jury, they must be prepared to turn over all relevant information.
Few people in the industry oppose the regulation of companies that maintain custody of client funds. The true debate is how software providers that merely provide the software with no access to funds will be regulated.
It remains to be seen how regulations affecting Bitcoin will be adopted around the world. At a recent hearing with the Canadian Senate, the Bitcoin entrepreneur Andreas Antonopoulos proposed a 5 years moratorium on regulation to allow for Bitcoin technology to develop to its full potential.. In his warning, Andreas provided this statement to the senate:
“Imagine if in the early 90’s, the Federal Trade Commission had stated that the internet is a sophisticated form of CB radio and required a license from every website operator. The internet was too important to end there so it would have simply driven the innovation outside of the US”.
While the future of Bitcoin remains uncertain, the upcoming years should provide clarification. Many countries are applying the “wait and react” approach and are letting the development and technology grow before taking any steps which may be potentially damaging. The truth is that sophisticated Bitcoin industry players welcome regulation which protects the public, so long as the regulations are meaningful, efficient, efficacious and do not stifle innovation. It is all too clear to regulators that it may very well have been the lack of regulation which allowed the Internet to germinate and blossom.
Stay tuned for next week when we will publish myth #6 – Bitcoin is only a currency.