Bitcoin, the world’s most popular cryptocurrency, continues to inch towards government regulation–an idea that both scintillates and terrifies its proponents.
In regard to world currencies, government regulation is a facet which most take for granted.
When it comes to the regulation of Bitcoin, one of the world’s newest (and most controversial) currencies, however, users have been, shall we say, slow-to-warm.
Government regulation, though always a common concern amongst “Bitcoiners,” has never seemed quite as imminent as it has in recent times.
Some, like Peter J. Henning of the New York Times’ Dealbook are now speculating that the world’s leading cryptocurrency, may be on the precipice of an inevitable regulatory shift.
So, is today’s unfettered version of the $3 billion Bitcoin market endangered?
It’s difficult to say with certainty, but below are four facts which indicate a more serious race towards regulation, unlike anything we’ve seen before.
Bitcoin just got its first regulated U.S. exchange
Though Bitcoin exchanges, like the now infamous Mt. Gox, have popped up intermittently over the past five years, they have remained strictly peer-to-peer, and like most aspects of Bitcoin, sans government.
San Francisco- based Bitcoin startup, Coinbase, however, is putting an end to that model. In late Jan. 2015, Coinbase launched its new (and insured) Bitcoin exchange which currently has regulatory approval in 25 states.
Coinbase’s $106 million in first round funding also carries with it some big backers, such as The New York Stock Exchange and the Spanish bank BBVA.
New York has already proposed regulatory guidelines
In Dec. 2014, New York’s Financial Services Superintendent Benjamin Lawsky announced a stricter set of state regulations for virtual currency.
According to the New York Times, the set of rules included provisions on “consumer protection, capital requirements, the prevention of money laundering, and cyber security.”
One provision which proposed a “BitLicense” for Bitcoin firms, however, drew the ire of public commenters and has since been revised. The concern centered mainly around upholding one of Bitcoin’s most championed characteristics–anonymity.
Lawsky has stated that such a proposal is meant as a “beginning—not an end—to a healthy, vigorous public discussion about what the final regulation should look like.”
Bitcoin can be easily used for illegal activity
As evidenced by the recent prosecution of Ross Ulbrich, the founder of online drug bazaar Silk Road, Bitcoin has been used–and not infrequently–as a means for money laundering and anonymous sale of various illegal items.
As a result, Bitcoin has increasingly caught the eye of regulators around the world: namely countries like France where lawmakers have descended on those who distribute crypto-currency, requiring them to register the identity of their users.
To put it lightly, Bitcoins terrify regulators, which makes them highly susceptible to further guidelines.
Since virtual currency is not yet subject to the same scrutiny as other legitimized tenders, the freedom with which it can be dealt is unparalleled.
For instance, if one wanted to transfer a million dollars to another bank account, they would be hard-pressed to do so without notifying authorities. Bitcoin, however, could feasibly be transferred with just a few keystrokes.
Some are worried about consumer protection
Bitcoin, like any virtual currency, can be subject to wild fluctuations in price. For example, in 2014 the value of Bitcoin declined by a jaw dropping 65 percent.
This, coupled with the fact that Bitcoin’s lack of transparency attracts fraudulent dealers who are looking to scam users out of money, have regulators concerned over Bitcoin’s consumer impact.
An extreme example of Bitcoin fraud left one exchange in Hong Kong missing $386 million of investors’ money.