Last week, the Mercatus Center released “Bitcoin: A Primer for Policymakers” by yours truly and Andrea Castillo. In it we describe how the digital currency works and address many of the common misconceptions about it. We also analyze current laws and regulations that may already cover digital currencies and warn against preemptively placing regulatory restrictions on Bitcoin that could stifle the new technology before it has a chance to evolve. In addition, we give several recommendations about how to treat Bitcoin in future.
As I say in the video that accompanies the paper, Bitcoin is still very experimental and it might yet fail for any number of reasons. But, one of those reasons should not be that policymakers failed to understand it. Unfortunately, signs of misunderstanding abound, and that is why we wrote the primer.
For example, New York Superintendent of Financial Services Benjamin Lawsky recently made headlines after his office subpoenaed two-dozen Bitcoin-related businesses and investors. He went on CNBC’s Closing Bell to discuss his action, and here is how he answered the host’s question, “Have you seen specific evidence, or do you sense that there is illegal activity going on using Bitcoin?”
We know it from the Liberty Reserve case, a major indictment that came down recently. Six billion dollars in transactions, clearly finding narco-terrorism. It’s something we’re deeply concerned about.
Huh? What does Liberty Reserve have to do with Bitcoin? In short, nothing. Liberty Reserve was a centralized currency almost assuredly designed to evade government control and facilitate illegal activity. Brian Krebs has had great coverage of that currency. For reasons we explain in the primer, Bitcoin makes a terrible currency for criminals relative to centralized currencies like Liberty Reserve and now WebMoney and Perfect Money. Yet journalists, members of the public, and policymakers very often lump them all together under the rubric of “virtual currencies,” and don’t appreciate the differences that have important ramifications for policy.
In short, before they consider making policy, we hope regulators will better understand Bitcoin and similar decentralized crypto-currencies. We hope our primer helps educate folks about the basics, and we know that we and many other in the Bitcoin community stand ready to answer any questions we can about this revolutionary new technology and its social and political implications.