There’s a lot of discussion about regulating cryptocurrencies like bitcoin these days. The New Jersey Legislature’s Assembly Financial Institutions and Insurance Committee had a hearing on February 5th. In the same week, the New York Department of Financial Services’ released a revised draft version of the BitLicense proposal. One can hope that, regardless of whether the best rules are chosen, some regulatory clarity will emerge soon.
There are many justifications for regulating bitcoin. I take on one common justification in this US News and World Report post:
The U.S. government should find it awkward to regulate bitcoin on the grounds that it facilitates illegal transactions. Its own currency — and the $100 bill in particular — has done so for years.
By my rough calculations, “roughly 76 percent of the currency — totaling $960 billion — is used to facilitate exchange beyond the reach of tax and law enforcement authorities around the world.”
Here’s the punchline:
The government would be mistaken to discourage monetary competition on the grounds that some bitcoin users will purchase illicit goods or avoid paying taxes. It would also be hypocritical, for the dollar is still the criminal’s currency of choice. So long as the United States continues to produce cash — and $100 bills, in particular — it has no business regulating bitcoin.