I don’t think legislators should be panicked into making emergency laws about Bitcoin. Let’s think about what the principles should be and regulate accordingly.
The regulation of Bitcoin should be about the principles of something rather than the specific nature of the technology used, but without talking to a lawyer at length it is not immediately obvious to me what those principles might be. Supposing that there is something like a blockchain where the ownership of a digital asset is established by “the community” in some way, then what regulation is needed? The digital asset in the distributed public ledger is “owned” by a public key. Anyone or everyone with the corresponding private key can do what they like with it. No private key, no can do. If I steal your private key, say, and transfer away a digital asset that you control, will then that will be fraud (or whatever, please don’t email me about this if it turns out that it is actually some other form of specific criminal activity) and that is already illegal. This seems to me the essence of the discussions about smart contracts and cryptocurrency scripting that are closer to the heart of the future cryptocurrency landscape than the Bitcoin currency today is. If you have the cryptography, if you have the scripting, and if you have the smart contracts that they create, then what you need regulation for?
As far as the means of exchange (ie, retail payments) is concerned, I don’t see an issue. Overstock.com can accept anything they like as payment. They can take Bitcoins, soya beans or pork belly futures: it is up to them and their customers. I’ve written before that I think there is something of a misunderstanding about what Anglo-Saxon legal tender laws mean and imply. If you are a merchant and I am a customer, it’s a matter of private contract between us as to how I might pay. Obviously we can’t form private contracts that break the law, so we can’t decide that I will pay using sex slaves or Ketamine, but you get my point. I’m sure somewhere in the Canon of US Federal and State Laws there are statutes concerning what the currency is, but I wonder if there’s any such statutes concerning what a currency is? If there are, I’m genuinely interested to hear from people that know about this topic, as I’m pretty sure they wouldn’t include Bitcoin. This is why don’t really understand the story about Californian legislators AB-129 “Lawful Money” bill.
“This bill makes clarifying changes to current law to ensure that various forms of alternative currency such as digital currency, points, coupons, or other objects of monetary value do not violate the law when those methods are used for the purchase of goods and services or the transmission of payments.”[From California Bill to Legalize Bitcoin and Alternative Currencies]
So it’s against the law to pay people using Amazon vouchers? I doubt it. I’ll have get back on to the lawyers to explain all of this me again, since I’ve no idea what this bill is for. If you and I agree to an swap Bitcoins, Marks & Spencer’s vouchers or old copies of The Daily Telegraph for lawnmowers, train tickets or cups of coffee, it’s up to us. There’s no law that says that I have to accept US Dollars or Visa cards or cheques.
As was observed in the discussion of the Snap Cafe, you cannot force a retailer to accept cash. If, however, you buy something from them and there is no contractual barrier to the use of cash, and you offer legal tender in payment, and they refuse it, then they cannot enforce the debt in court.[From Payment and tender – Tomorrow’s Transactions]
This is not to say that no regulation at all is required. In Mark Hochstein’s brilliant cover story on Bitcoin in American Banker he makes the point that exchanges (the in/out points for fiat currency) are a special case. If I am going to convert cash into Bitcoins or Bitcoins into cash, that’s a business that needs to be regulated. But it already is.
For many bankers, guidance released last year by the Treasury Department’s Financial Crimes Enforcement Network, which subjected virtual currency firms to the same know-your-customer requirements as traditional money services businesses, hasn’t sufficed to remove the scarlet “A” (for anonymity) from these startups.[From Why Bitcoin Matters for Bankers – American Banker Magazine Article]
This seems to be an appropriate general approach and it isn’t a surprise to see other jurisdictions adopting the same approach, most recently Singapore, for example.
The Monetary Authority of Singapore will require intermediaries that facilitate the exchange of digital currencies to verify customers’ identities and report suspicious transactions to a unit of the city-state’s police[From Singapore to Regulate Bitcoin Operators for Laundering Risk – Bloomberg]
I might have my own opinions on the extent to which the Financial Action Task Force (FATF) guidelines should be applied (broadly speaking I’m in favour of relaxing controls at the low-end and toughening controls at the high-end, as the FATF recommend in their risk-based approach) but I can see that the principle of this regulation makes sense. But regulating whether consumers can or cannot use Bitcoins to buy things or not doesn’t fit. Therefore, when comparing regulatory environments and trying to work out which might be appropriate, I would have thought that Bitcoin was more of a form of barter than anything else and, as it happens, the Bank of England agree with me.
As such they may have more conceptual similarities to commodities, such as gold, than money[From Bank of England: Digital Currencies are Similar to Commodities]
Maybe the lawyers can tell us whether there is appropriate regulation that can be extended to the digital world, and I’d be interested to hear about it, but I really don’t think we should be panicked into emergency regulations about Bitcoins at all