Newspapers just have to print the words “Bitcoin regulation” to send its price plummeting and cause traders to break out in a sweat. For those who believe in its founding principles, regulation is a threat to be fought at all costs: a threat to the advancement of technology.
But let’s be honest; Bitcoin isn’t perfect. It consumes more power than most African countries, for a start. Nobody is doing much about it. Hodlers are constantly educating newbies not to leave cash on an exchange in case it goes under. That’s not sustainable either.
Even the most ardent Bitcoin supporter has to concede that there are… issues. Could regulation help?
Why the resistance to Bitcoin regulation?
Bitcoin was developed by self-proclaimed “cypherpunks” — a nebulous group of programmers and activists who believed that privacy is a fundamental right. And there’s certainly no arguing with that.
You wouldn’t leave your bedroom curtains open at night, or leave the bathroom door open while you took a shower. You have a right to privacy in most countries — at least in theory.
But among the general public, getting people to care about personal privacy is difficult. Cambridge Analytica have been caught red-handed using personal data captured without consent, yet still we use Facebook, and still we share our lives on it. Most people don’t care that much about privacy.
The issue really comes down to Bitcoin’s hardcore supporters, and how far they will allow it to stray from its original use case.
Bitcoin is un-regulatable: true or false?
Bitcoin itself is a decentralised system. There is no single party in charge of it. And its pseudo-anonymous nature means that it is neither private nor public.
Transactions are visible, but obfuscated. This will never change, regulation or no regulation.
Governments would like to restrict the transfer of bitcoin for money laundering, terrorist activity, and other questionable causes. But they could never track every Bitcoin transaction, much as they can’t track cash. Law enforcement agencies can already track notable accounts and make educated guesses about their owners; so can anyone else, for that matter.
Regulation would only affect the interaction between Bitcoin and the touchpoints with the existing banking system: in other words, the exchanges we use to cash out and cash in. In that respect, regulation may not be that different to the Know Your Customer (KYC) checks that many bitcoin exchanges already carry out.
Looking specifically at exchanges, regulation may actually help. It could limit the ability of rogue exchanges to continue trading even after they spot problems with dodgy transactions. It could require a modicum of financial or coding experience before being let loose with other people’s money.
Determined fraudsters and ne’er-do-wells will always find a way to move money. They will always find ways to rob banks and steal cars. There will always be unregulated exchanges in far-flung places. And there will always be alternative currencies that bypass the rules.
Governments don’t understand Bitcoin
Speaking of governments, let’s not over-estimate the capabilities of lawmakers to do anything about regulating Bitcoin.
It has taken the British government more than two years to negotiate a barely cohesive proposition for exiting the EU. It also rolled out the Snooper’s Charter, a hopelessly clumsy surveillance law that may be incompatible with EU law, and is already being hit by legal challenges.
Yes: Theresa May has form when it comes to privacy invasion. That’s worrying, but she’s no more au fait with the technology than the rest of her cabinet, and she has bigger things to worry about before bitcoin.
If governments can’t get it together to ban encryption, as they’ve been threatening for more than twenty years now, it’s very unlikely that they’ll know what to do with cryptocyrrency. It’s a bit like expecting the UK Home Secretary to know the difference between hashes and hashtags: slim to none.
Bitcoin – an environmental catastrophe?
In 2014, Bitcoin mining used as much power as the entire island of Ireland. We’re four years on from that study, and — driven partly by increasing difficulty — mining has moved from nerds’ basements to massive power-hungry server farms.
Data centers are already a huge drain on the grid, even without the massive energy consumption associated with mining.
Regulation might help to curb this unsustainable and environmentally catastrophic growth in Europe, following in the lead of the Chinese government. It may force mining farms to follow the lead of the data centre industry in using greener energy, or using the warm air from equipment to heat people’s homes.
Whatever you think of regulation, this has to be a good move, both for bitcoin’s image and for our climate. If any other industry was draining this much power, we’d be protesting in the streets — and we’d have every right to complain.
Could regulating Bitcoin be a positive move?
Right now, Bitcoin is viewed with suspicion by the public in the UK. It’s been linked with kidnapping and hacking. Newspapers regularly dedicate column inches to its unpredictable price. And it’s a risky proposition for businesses too, due partly to the fact that they can gain or lose thousands in seconds.
It’s hard to see Bitcoin ever entering the mainstream in a climate of mistrust and suspicion.
Bitcoin regulation does have privacy risks, and governments could abuse that. Handing over the keys to the car is not wise. But there are other coins better suited for private transactions anyway, and there will always be exchanges in other territories that sell them.
More importantly, regulating exchanges would give the whole system an air of legitimacy while potentially boosting our economy, as is the case in Japan. Some might say that legitimacy is what Bitcoin really needs.
With just 1% of the world’s internet users dabbling in Bitcoin, there’s little chance that it will be anything more than a curiosity to the remaining 99%. And the UK government says it has no plans to regulate in the near future — perhaps because it has neither the time or the technical understanding.
But if it does, there may be no need for the average user to panic. Bitcoin will always be Bitcoin, and no regulator can change the technology behind it. Bitcoin users who are concerned about the distant threat of regulation may be better off campaigning against the Investigatory Powers Act, which is a much more immediate threat to our privacy.