While I abhor financial reporting regulations and find them to be the efforts of a totalitarian regime that feels entitled to know all of its subjects financial dealings, after reading a recent WSJ article on Bitcoin regulations, I have come to realize that, in the long run, they don’t really matter. As long as the regulators stick to monitoring the exchanges, everything will still work out in the end.
The WSJ article quotes FinCen director Shasky,
Administrators or exchangers of virtual currencies have registration requirements and a broad range of [anti-money-laundering] program, recordkeeping, and reporting responsibilities. Those offering virtual currencies must comply with these regulatory requirements, and if they do so, they have nothing to fear from Treasury,” said Jennifer Shasky Calvery, director of the Treasury’s Financial Crimes Enforcement Network, or FinCen, in prepared remarks for a conference on the virtual economy.
Shasky is giving away her hand with that statement. It seems clear to me that the state is strictly going to focus on who is moving fiat into and out of the Bitcoin monetary system. They are treating Bitcoin as if it was a foreign currency, which is good news for Bitcoin. The reason why this doesn’t matter is because once the currency reaches a “critical mass,” people will not need to deal with the exchanges at all.
Ultimately, users of the Bitcoin currency will not need to use the exchange system. The Bitcoin currency exchanges have a limited life span, in regards to the exchange of fiat money for Bitcoins at least. If a person can get paid in Bitcoins, and buy whatever they want in Bitcoins, then that person has absolutely no reason to ever exchange their Bitcoins for fiat money. As long as the state sticks to monitoring the currency exchanges, these measures will not impede the growing adoption of Bitcoin.
The only thing that would really put a crimp on Bitcoin would be the state outright banning its use. I don’t see that happening until things get much further down the road. Eventually the regulators will wake up to the fact that Bitcoin is not just another foreign currency. However, that progression from fiat-to-Bitcoin vs. pure Bitcoin happens so casually and gradually, that by the time they realize what’s going on, I think it will be too late for them to stop it.
If you have an international supply system established that is running entirely on Bitcoins, with no fiat exchange needing to take place, a ban by US regulators wouldn’t amount to much at all. Further, by that point, they would be facing stiff political opposition. Even if just 5% of the US economy was flowing through Bitcoins, their value and economic integration would make it too disruptive for FinCen to ban. Imagine if they tried to stamp out 5% of the US economy today. People would scream bloody murder.
It’s the international nature of Bitcoin that makes it so resilient. A normal fiat currency is only useful within the borders of a given state. This is not the case with Bitcoin, which has value and usability internationally. Fiat currencies always need to be exchanged with one another in order for them to be useful internationally. This fact is what sets the mind-set for FinCen’s current regulatory regime.
While gold is also useful internationally, it’s such a damn pain in the ass to use as a currency that no one bothers to do it on an individual level. In order for gold to be useful, it needs to be represented by a digital account, and those accounts need to be controlled by an issuing agent, and those agents are obviously susceptible to having their accounts confiscated. Again, this is not the case with Bitcoins. FinCen can’t stop the Bitcoin network like it squashed e-Gold.
The markets move in subtle, yet powerful, ways. As long as FinCen doesn’t ban the use of Bitcoins outright, eventually they will topple the existing monetary monopoly.