Recently circulating on the internet is a wonderfully thought provoking article by Micheal Jackson, former COO of Skype, regarding Bitcoin which advocates that bitcoin should learn from skype in how to approach the issue of regulation. It is a well reasoned argument and a convincing call for disruptive technologies like Bitcoin to stop wasting time trying to fit into some pre-defined status quo, and instead to just barrel straight ahead, keep on doing what you are doing, and let the bureaucrats who care about laws worry about determining how Bitcoin fits into the context of them. While this approach has it’s merits, I disagree that this would be the best approach for Bitcoin to take, and here are my reasons why:
1) It’s reckless.
This “shoot them all, and let god sort them out” mentality to the issue of regulation is irresponsible. It may work in the technology sector, where brazen silicon valley startup hot shots are continuously redefining what we the masses ‘absolutely need’, but this attitude is not appropriate for something as ‘hard’ and traditional as cash. Sure, internet redefined information exchange and killed the library, google redefined search and killed the brick and mortar marketplace, and social media killed hanging out with the gang in the school parking lot. But this doesn’t mean the contender for the successor of paper money should play by the same rebellious, ‘punk-rock’ rules. The article even went as far as advising NOT to consult lawyers about their interpretation of the rules in your jurisdiction regarding the use of Bitcoin, instead suggesting that you, the visionary entrepreneur, read the laws and figure out which loopholes you can exploit. I don’t know about you, but I don’t think any advice that advocates not seeking legal professionals and trying and figure things out yourself is ever a good idea.
2) Bitcoin is ‘off the charts’ disruptive
Unlike other disruptive technologies that come from the industry, Bitcoin is disruptive at a level which actually could threaten social institutions which have taken the last 100 years to develop. Said in another way, if a technologies disruptive effect was measured like earthquakes, then Bitcoin would be a 8.6, being beat only by the internet, the splitting of the atom, and the discovery of fire. The notable difference when compared with it’s other siblings of the information age, is that while you could always opt not to use the internet, or Skype, or your smartphone, you cannot easily ‘opt out’ of using money. Bitcoin, as a disruptive technology, needs to cater to the entire demographic of humans. (That means ol’ Granny and Grampy Smith as well). Due to this potential to effect everyone on the planet (except Buddhist monks living atop a mountain), governments will be forced eventually to regulate players in the industry who wish to act as stewards of citizens’ wealth. Granny’s everywhere would demand it, and granny isn’t savvy enough with the technical intricacies of multi-signature wallets and Shamir’s Shared Secrets to be able to trust a business based on its number of Facebook ‘likes’. People like granny will want governments to ensure that her money is safe. This means regulation is an eventuality, and putting it off now is just putting off work that is going to have to be done anyway.
Let me be clear, I’m not arguing for voluntarily and proactively asking for governments legal opinion on your business’ legality. I’m arguing that you should prepare your business plans expecting that regulation will come, lest you be disrupted when it eventually does.
3) Mass adoption required
Unlike Skype, which could be deemed ‘successful’ as a technology so long as just 2 people could connect to each other across the globe and have a chat about cats for free, Bitcoin requires that *everyone* is invested into the system. Skype can afford to take a ‘to hell with them’ approach because if Joe decides that he is not going to use it, it has only a negative effect on Joe’s friends who may want to chat with him using Skype. It doesn’t mean a thing to Dick and Jane, who continue to use Skype daily. This relative insensitivity to detractors, means that the users of Skype are not united as a whole, but distributed, and independent of each other. Skype as a network service has value even if the network consisted of only 2 nodes. Bitcoin’s worth on the other hand, is directly proportional to the number of people who believe in it and use it. If the entire Bitcoin ecosystem consisted of exactly 2 users as in our situation above, the tokens exchanged would have no more value than a hand written ‘IOU’, which is a drastic drop in utility value from the current price valuation of $580.
4) Running from a Bear
One of my favourite phrases that I’ve picked up over the course of my 12 years on Wall Street is, “When you are running from an angry bear, you don’t have to run that fast. Just make sure you run faster than the other guy.” This pearl of wisdom is one of those inalienable truths on the street. Unfortunately, I believe that if you follow Jackson’s advice, as many newcomers to cryptocurrencies may be apt to do, you risk being ‘that other guy’. With large risk, come large rewards, or a horribly mauled corpse. However, if you have the ‘gromba’ to risk it, then heed these words and go into it with your eyes open (and preferably looking behind you). If you are lucky enough to be at the forefront of the pack when the heavy hammer of regulation falls, make sure it’s not you who will get squashed.
Jackson has good points and I have to agree with the main theme of his post, which is that businesses should not let over-worry on uncertainties over regulation or lack thereof from keeping them from taking risks and innovating in this new emergent industry. But I do caution against taking his cavalier approach to working with the regulators. This is not just another cool internet gizmo, this is the future of money itself. The stakes are a lot higher.
Be brave. Seek (qualified) Legal Advice.
As much as we hate them, there are only 3 guarantees in this world: death, taxes, and lawyers always get paid.
(Though with Bitcoin, perhaps one day these too will be a thing of the past)