WIRED Is Wrong: We Don’t Need to Regulate Bitcoin
WIRED contributor and faculty associate at the Berkman Center for Internet & Society at Harvard argues: as Bitcoin grows in popularity, it has to be regulated – but only once it is fully understood. This need for regulation, he says, springs from the risks Bitcoin introduces and opportunities its decentralized nature presents for tax-evasion and money-laundering. And if that was not enough, anonymous drug markets like Silk Road should make it obvious that some kind of regulation is required.
When read carefully, the text does not really provide any cogent argument for regulation. Rather it milks the same buzzwords and repeats the same unsubstantiated claims, which we are supposed to take for granted because they come from academia and the press.
It is correct that we do not fully understand the potential of this technology yet. But when will we? How will we define the point when it is appropriate to draft rules which might have a potential impact on millions of businesses, billions of people and trillions of transactions? When do we consider the technology “settled” enough to define a legal framework for it? Anyone answering these questions will have to admit that the supposedly-appropriate point chosen will be arbitrary and, as the technology continues to grow, any regulation will be outdated before the ink on its signatures is dry.
Regulators have a terrible track record in addressing risks related to anything. Which of the existing financial regulations lowered the risk of fraud or negligence we have seen over the past decade? SEC did nothing to stop Bernie Madoff. Some top global banks got away with as little as a wrist-slap for laundering hundreds of billions of dollars. The recent ‘Panama papers’ leaks will uncover only the tip of the iceberg of global fraud, corruption and tax-evasion. On the other hand, a compliance burden imposed on millions of small businesses by regulations supposedly designed to prevent all of this is immeasurable. If anything, regulations always increase risks by lowering the motivation of individuals to do their own due diligence (how many of you know how much of your deposits are held in your bank’s reserves and how much has been lent out?)
One had to be extremely naïve even before the Panama papers to think tax evasion is something new to the Bitcoin world. More to the point, the potential for tax evasion should in fact be considered to belong to the bright side of Bitcoin’s nature. If Bitcoin allows middle class to avoid draconian taxes the way wealthy can dodge them in the legacy financial system, it is merely an equalizing tool in a struggle against unjust confiscation of the fruits of our productivity.
As for money laundering, it should be scrutinized within its full context. How much of it is happening due to genuine violent and property crimes and how much is only a result of bureaucrats arbitrarily moving victimless activities to the black market? Silk Road and all of its successors are, after all, great examples of Bitcoin and other technologies bringing safety to an industry chronically ill from street violence and overdose risk by introducing transparency and feedback mechanisms.
It is easy to regulate anything. It is not only difficult, however, but outright impossible to regulate anything without introducing a whole raft of unintended consequences (which in fact might be fully intended by those usually invited to the regulatory design process). More regulation means more bureaucracy and less prosperity, more budget expenditures and less tax revenues. Instead of trying to stop tax evasion and money laundering with regulations which won’t work, we should be arguing against the root causes of these phenomena – onerous taxes and criminalization of voluntary transactions between consenting adults.
Image Source: Tiger Plxel @Flickr
Austrian school of economics | Liberty | Bitcoin