Regulating Regulates Regulations: How Bitcoins are Already Regulated

Over the years in this forum we've looked at things people get wrong about bitcoin.  The trouble is one that is present in any field, that of the quick formation of memes and soundbites which are immediately grabbed onto by our feeble minds and repeated regardless of their applicability or accuracy.  In this case we are going to be looking carefully at a statement I'm going to wager you have heard:

"Bitcoin is unregulated"

Yes, perhaps you've heard it: the unregulated currencies, an unregulated space in which unregulated currency evades regulation.  Trouble for the regulators.  Bitcoiners demand regulation!

Well let's stop for a minute and ask:  what are we talking about?  If we ask this question clearly we find immediately that this is total nonsense, as bitcoin and all public currencies are in fact much more well regulated than any other.

What would it mean for a currency to be regulated?  Well there are a few things that are important to have regulation of:

1-   Money Supply  

This is probably the most important thing to look at in terms of managing a currency, and regulating it.  Who can create new units and when?  Bitcoin here is both algorithmically and transparently regulated, with the money supply increasing by a known amount and the records of all creation events being public and viewable by any interested auditor.  Let's stop and compare this to some other currencies here.  Are there any that are so well regulated?  No there aren't.  Obviously fiat currencies are grossly unregulated in this regard, as nobody can know how much was created and no issuance events are publicly verifiable.  Even gold doesn't compare to the regulated nature of bitcoin as issuance events (gold mining) is again not publicly viewable.  Sure, companies might issue statements reflecting what they have done but that is hardly up to the regulated nature of a public currency.  In fact many critics of cryptocurrency highlight this over-regulated nature of bitcoin as a weakness - in that it doesn't allow for people to evade the regulation in times of emergency, to increase the money supply in an economic downturn for example.

2-  Transactions 

Another thing that can be regulated is transactions.  Who is allowed to pay whom and how much and when, that kind of thing.  Here we see that public coin is again regulated algorithmically and transparently, under the watching eyes of all participants and anyone else who cares to look.  Transactions must have the proper form and are broadcast publicly so that all can confirm the amounts, origins, and final destination of the funds.  Compare this to the various transmission of private coins and again we see that bitcoin is more regulated.  How many alipay bucks were sent in total last month?  Well you can find some people to tell you that number but they might not agree and you can't verify it.  How many recipients received paper federal reserve notes?  No way to know that or to regulate it.  How much gold changed hands really?  Well we can't know that either.

To be fair, we also don't know exactly how much bitcoin changed hands because people can pass private keys to each other or use other off-chain mechanisms, and also can generate transactions to themselves to make it look like transactions took place.  So the regulation of bitcoin transactions isn't perfect, but it sure is better than private coins like dollars and wechatbucks.

3-  Commerce

Regulation of people doing business isn't regulation of a currency, so it shouldn't be described as such, but will discuss it here anyway because this the small grain of truth that built up to the grossly erroneous "Bitcoin is unregulated".  If a person wants to do business with another, perhaps trade for an item from them, work together, or otherwise: sometimes conflict can arise.  There are a whole slew of regulations about this, to deal with these potential conflicts.  There are procedures for those who have been defrauded, procedures for paying taxes in various jurisdictions, procedures for dealing with accusations of price gouging and more.  Public coins are simply tradeable commodities, like any other monies or goods, and so are traded in the same way.  Thus they are already regulated by all the regulations regulating trade and commerce.  So what's the problem?

There are two things that have led to this claim of unregulated currency.  One is that many new businesses are popping up, and when new businesses pop up new problems pop up with them.  A new dunkin donuts might appear and people might make an illegal U-turn to enter the drive through.  Then we could call these "unregulated donuts".  There simply aren't time-honored and well established through generations protocols to deal with various problems that can arise, so we say "unregulated".  The term is accurate in the sense that we might refer to some parts of Chicago as "lawless", despite the fact that the state of Illinois does have laws and they technically do apply even in those areas.  Yes, people accepting bitcoins have been known to run off with them.  It's not that bitcoin is unregulated, or even that bitcoin commerce is unregulated - it's that you'd better watch your ass when you are in the wrong area of Chicago - or watch your private keys carefully if you have coin.

The other new issue here is that public coins provide the potential for instant physical delivery.  A lot of commerce doesn't allow for such a thing, as physical delivery typically requires a truck or an airplane and a lot of work, at least a business day or so.  The novelty of this arrangement and what it means for markets and for mistakes and conflicts again has elicited the term "unregulated", simply because we aren't used to it yet.

Where do we go from here? 

One option is to find some used car salesmen who can advertise their prices as "unregulated".  We can have "unregulated cola" advertised for sale and "unregulated fitness" clubs.  This will take some of the sting away from the word.  Until then I have another proposition:  we regulate it.  Regulators of regulation will ensure that discussion of regulation and use of the word regulation conform strictly to regulations.  In case of regulation regulators falling to regulatory capture, regulators of the regulations regulators can be employed to regulate the regulation of regulator regulation.  The departement of RRRR can be formed with a new seal to be approved by the regualatory commission on regulation of regulatory commissions.  Or perhaps we could just STFU and deal with problems in a rational manner as they arise, and acknowledge that bitcoin and public coins are the most regulated currencies ever developed by man.  What do you think?