Ana Park | Williams College
If you are not familiar with the inner workings of Bitcoin, blockchain or cryptocurrency, here is a quick read on what you need to know, and how this technology is transforming the way we think of payments and currency. Bitcoin is a form of virtual currency that is based upon blockchain technology. Blockchain is a protocol that is an open source platform where individual programmers validate the chain of title of ownership of any commodity. The world of cryptocurrency is getting a lot of pushback with Bitcoin’s drop below $8,000 on Friday, and the resulting calls for regulation on the decentralized system. The naysayers are piling on. With Bitcoin being considered potentially one of the biggest bubbles in history and an increase in pushes for regulatory crackdowns, what does the future look like for digital currencies?
During Tuesday’s congressional hearings, Commodity Futures Trading Commission Chairman J. Christopher Giancarlo and Securities and Exchange Commission Chairman Jay Clayton called for cautious steps towards regulation of this technology. They reassured investors that any attempts at regulation will be in small steps, and thus, the prices for cryptocurrencies started to rebound. This demonstrates how regulators need to be careful because the markets are very volatile. Regulators need to make sure that any changes are carefully communicated and gradually imposed. Public policy should not destroy a market before it even has a chance to mature.
With Facebook banning cryptocurrency advertisements on its website, and the beginnings of crackdowns and growing scrutiny around the world, it may seem like the lives of digital currencies are bound to end in some dramatic fashion. South Korea is getting rid of the anonymity aspect of digital currencies by banning the creation of anonymous cryptocurrency accounts. Arun Jaitley, India’s finance minister, made it very clear last week that the country will not accept the use of cryptocurrencies by stating that, “The government does not recognize cryptocurrency as legal tender or coin”. Nevertheless, careful steps towards some supervision and government intervention might benefit both sides of the battlefield. Regulation in some form will be needed if the cryptocurrency world is to continue and thrive. The right balance between decentralization, (one of the main appeals for cryptocurrencies), and regulation of this technology can propel the cryptocurrency market and increase the number of investors. Regulators can assist the cryptocurrency market in many ways starting with steps to level the playing field.
Start-up companies such as Metal are trying to magnify the cryptocurrency world by making it easier to convert fiat money into cryptocurrency and incentivizing people to do so with rewards. Their success will most likely diminish the use of cash and encourage the use and development of cryptocurrencies. Looking at the rate at which technology is progressing, cash will no longer be used, and the concept of money will be revolutionized according to Marshall Hayner, the founder of Metal. Metal is similar to the popular virtual wallet, Venmo. There will be calls to restrict the use of cryptocurrencies, but it will be hard to stop this wave of technological advancement.
The arguments against Bitcoin are that cryptography and the distributed nature of blockchain allow for the payment of illegal activities and allow for international bad actors to fund everything from human trafficking to terrorism. However, as this technology progresses, it can improve as well as grow to all of our benefit with a balanced regulatory approach.