After some bad news for the Bitcoin world, including the demise of its former largest exchange, may be reaching a mature stage. Bitcoin’s price continues to swing wildly, in the last 60 days the price has been in the range of $420-580 USD. Such currency instability has been one of the key features of the movement since its inception, and it is perhaps one of the greatest challenges to its wider acceptability as a currency. Most analysts seem to agree that Bitcoin is not currently operating like a currency, and it is more like a commodity fuelled by speculative investment.
The fact that there is little evidence of any growth in the use of BTC as a currency may be the reason why there have been minimal attempts to regulate it. But perhaps more surprising is the fact that neither the Security and Exchange Commission nor the Commodity Futures Trade Commission in the US have made any attempts to regulate it either. The reason for this could be simply that the BTC market is just too small to warrant any wide-ranging regulatory effort. It is also possible that regulators simply do not understand the technology and its implications, and are awaiting any further developments to act. State authorities in Massachusets have hinted that there will be some sort of guidelines drafted in the future:
“We will be trying to come up with a model law or regulations states can use,” said David Cotney, commissioner of the Massachusetts Division of Banks and chairman of the Emerging Payments Task Force. “This has gotten a lot of attention, and we want to make sure when we act, we get it right.”
Other countries have taken this wait-and-see approach. The UK’s tax authority had made a statement earlier in the year that they would treat as a single-purpose face-value voucher, and no other regulation has taken place. Japanese authorities have also stated that they will monitor for illegal activity with Bitcoins, but will not regulate it for the time being. An article by Canadian regulators would appear to express accurately what is the current state of play around the world when it comes to Bitcoin:
“In addition, governments may become concerned about a number of legal, security and law-enforcement issues associated with bitcoins. For example, given the private nature of bitcoin transactions, bitcoins could easily be used to facilitate criminal transactions and to evade taxes.
As they do with platform-based digital currencies, central banks are studying and closely monitoring decentralized digital currencies such as Bitcoin. There could be potential risks to overall financial stability if Bitcoin became a significant means of payment and the Bitcoin system remained unstable. As well, Bitcoin users need to be aware of the potential financial risks to which they might be exposed, in light of the ongoing volatility of bitcoin prices and the risk of failure of Bitcoin exchanges.”
To my mind, the most exciting development arising from Bitcoin has nothing to do with the currency itself, or with regulation, but it is an idea proposed by a group of developers that turns the blockchain, Bitcoin’s proof-of-transaction open log, into a platform for creating a smart contract decentralised platform called Ethereum. The White Paper detailing the project explains that ethereum will allow the creation of a transaction log (blockchain) “with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications where they can create their own arbitrary rules for ownership, transaction formats and state transition functions.”
I have always felt that Bitcoin is a great idea and the right step in the way of achieving decentralisation, but that it suffers greatly from the current implementation based on libertarian economic dogma. Ethereum would bring everything that is good about Bitcoin and translate it into decentralised applications.
This will certainly merit further monitoring.