As Bitcoin becomes more and more popular as a form of payment, there are still governments that would rather people stayed away from it altogether. Left wing activists would have us believe that this is due to governments scheming with their totalitarian doctrines, but I believe mostly this is just due to the less sinister reason that the government must maintain some regulation over its own economy.
I remember when I was about 6 years old my mother introduced me to the banking system. She helped me gather all the coins and new bills I had saved up from Chinese New Year red packets, rolled them up and took me to the bank to open a bank account. I remember not really grasping what was going on, but I do recall the strange notion that I had just “lost something” when all I got back for my troubles was a little book that had a number printed on it. That feeling, that the banking system was essentially taking something of value from me and I had to trust it to keep it safe was something that took a while to get accustomed to. Indeed, owning that trust, or credit is something that the banking system has been very protective of as it is the bases of their business model. The government on the other hand, not being a for-profit entity, has a more high level goal of maintaining economic growth and stability. Part of doing that successfully means controlling the flow of wealth into and out of the country. As banks being linked to a national central bank system have a record of all deposits, withdrawals and transfers within the system, you can see why the banking business and government have both a natural proclivity to work together to achieve their individual ends.
So what does Bitcoin represent that is such a threat? Well with any large scale connected money system, the danger is that funds obtained by illicit means have a large ecosystem in which to resurface as clean money. Which of course allows for criminal elements to become organized and grow as quickly as legal businesses. This is the basis of Anti-Money Laundering (AML) and money transmission regulations. The idea of course is to identify and prevent the movement of money which come from the proceeds of crime. This creates a deterrent to the business of crime and presumably makes the society a safer place for law abiding citizens.
I digress; back to why Governments are apprehensive about Bitcoin –because Bitcoin is the first successful implementation of electronic cash, and governments have been trying to get rid of cash since the advent of the central banking system. This is because cash is difficult to track and therefore essentially “invisible” to the government. The only saving grace is that moving around a lot of cash is difficult (1million USD weighs 20 pounds). Bitcoin allows the equivalent amount of wealth to be brought across borders as simply as one can bring a smartphone or even a piece of paper, so on the surface, governments have a reason to be apprehensive.
Regulation therefore should be at the points where fiat currencies are exchanged for Bitcoin, as exchanges are well equipped to keep a watchful eye for suspicious transactions the same way they have been doing all along. At the end of the day, everyone has to pay their taxes so there will always be an intrinsic demand for fiat. For Bitcoin to Bitcoin transactions industry watchdogs or government funded agencies can keep watch on the movement of illicit wealth through the system. Merchants can register their addresses or use BIP32 wallets in order to report their transactions to authorities when demanded of them. There is no legitimate reason behind the “criminal element” argument, and yet governments keep on harping on this. Why? Opinions vary, but my money is on the fact that it sounds sufficiently scary enough to ward away people from using Bitcoin. One saying that has become very near to my heart having worked with traders on Wall Street for over 14 years; “When in doubt, follow the money”. In this case the money happens to be RMB and it’s leading us right to the largest bitcoin trading volumes in the world, China.
China has been openly negative towards Bitcoin, and one doesn’t have to dig too far to find out why. China’s currency is being artificially suppressed in order to keep the competitive advantage of Chinese labour. This point has been a contentious issue with US lawmakers for the better half of the last decade. As the currency is being artificially kept weak that implies that the black market rate for RMB is much higher than the official rate, giving a strong incentive for the wealthy and well-to-do in China to try to move their wealth overseas. Bitcoin’s strong suit, is in its electronic cash like qualities which helps facilitate this movement of capital. At it’s base, Bitcoin is the freedom of money and in countries where the freedoms of the people are tightly controlled, Bitcoin is a clear and present threat to that control.
So if governments who control their citizen’s freedoms stand to lose the most from Bitcoin usage, one must take a long hard look at US lawmakers stance on Bitcoin, and decide whether it is really being driven by a desire to protect the greater stability and good of the economy or is it more to protect the existing or potential government controls and agendas?
As President and founder of Bittoku, one of the reasons why I founded the company in Japan is because I firmly believe that being placed in between the political influences of China and US, lawmakers in countries like Japan and Korea will be able to find the pragmatic happy middle ground for Bitcoin, and make the choices that benefits the greater economy and freedoms of people. Having lived in Japan for over 10 years and having family in Korea, I can say that Japanese and Koreans tend to favour efficiency and practicality over political rhetoric.
I hope that taking a strong political lead on Bitcoin is something that Japanese lawmakers can do, which will set an example for other countries which may not have the best interests or 和 of the community that they serve in mind.