One of the first things people think about when they heard the word “bitcoin” is all of the illegal activity that has been associated with the digital currency over the past few years.
Having said that, the ability to use bitcoin for illegal or somewhat illegal transactions is what gives it value in the first place. Bitcoin is a form of censorship-resistant digital money, which means there is only so much that governments can do when it comes to curbing its use among the general public.
Let’s take a closer look at some of the bitcoin-related legal actions that have been taken by various government regulators around the world and whether or not these new laws will do any good over the long term.
Is Bitcoin Illegal?
For most of the developed, free world, bitcoin is not illegal. The vast majority of countries are taking a “wait and see” approach to bitcoin, and it’s possible that more regulatory clarity could be found in the bitcoin space after the New York Department of Financial Services finalizes its BitLicense proposal. New York has often been seen as a leader in the field of regulatory finance, so it wouldn’t be surprising to see many countries simply follow the Big Apple’s lead.
There are a handful of countries, such as Bolivia and Ecuador, where bitcoin has been made explicitly illegal, while other countries have hinted that using bitcoin could be a violation of other, existing laws. Current laws that are usually cited when it comes to restricting the use of bitcoin include regulations against money laundering and the use of currencies not approved by the state.
In most countries, central bank regulators have simply warned against the possible dangers of using an experimental cryptocurrency such as bitcoin.
What Impact Can Laws and Regulations Have on Bitcoin?
One of the most important aspects of bitcoin to keep in mind when it comes to regulation is that the technology was designed specifically for the purpose of avoiding regulation and censorship in digital payments. It could technically be possible for the government or group of governments to destroy bitcoin in the future, but various attacks against the network become much more difficult and expensive over time. The mining process would most likely be the point of attack for any entity or institution that wanted to limit the usability of bitcoin among so-called “criminals”, but it’s possible that such actions would end up being a waste of resources because it would just create the incentive for various programmers around the world to find a better solution.
Most of the laws surrounding bitcoin right now do not affect the base protocol, but that could change over time. Right now, the regulations that affect bitcoin are mainly targeted at the various exchanges that allow users to trade dollars, euros, and other forms of fiat currency for bitcoin. These entry and exit points of the bitcoin ecosystem are rather easy to regulate, but it becomes much more difficult for governments to get a handle on digital currency as more people stay within the bitcoin economy. Law enforcement officials can figure out the identity behind a certain bitcoin address when those bitcoins are converted into dollars. Still, it becomes much more difficult for these same law enforcement officials to get a grip on the public blockchain when the majority of users are no longer concerned with owning fiat currency.
One unforeseen side effect of these laws and regulations is that it could actually give certain individuals an incentive to keep their funds in bitcoin rather than converting them to fiat currency if they do not wish for their ownership of those funds to become public.
What Will Regulation Look Like in the Future?
It’s difficult to tell where bitcoin regulation will be in five to ten years, but the rest of the Internet could be a good way to hypothesize about what will happen in the near future. Some countries may decide to ban bitcoin, while others will want to become a hub of innovation and job creation around the blockchain technology. The only question left is which country will be home to bitcoin’s version of Silicon Valley.