Would federal regulation destroy Bitcoin?

Bitcoin on the verge of being regulated?

Bitcoin is a digital currency based on peer to peer technology and is completely decentralized and was established in 2009, already accepted by companies like WordPress and Wikileaks and over 1,000 other companies as cash. The currency recently grabbed headlines for rising in value then swiftly plummeting, and even though it regained a lot of lost ground, it affirmed the criticisms of traditionalists that no economy can truly be self-stabilizing as Bitcoin was designed to do.

Nonetheless, even though the currency has been around for several years, it was not taken very seriously by economists or even government officials, as if it were no more than a game being played by hackers living in their mothers’ basements.

This spring, the U.S. Treasury Department asserted publicly that Bitcoin exchanges should be subject to the same regulations as services like Moneygram which is monitored closely by the government for money laundering.

Government could regulate if they wanted to

Now, Bart Chilton, one of the five commissioners at the Commodity Futures Trading Commission (CFTC) has pushed staff to look into regulating Bitcoin to protect consumers against any mishaps, according to Reuters. Bitcoin falls under the CFTC as there are no physical coins and people are investing in the currency to speculate a rise in its value.

“Here’s what I know for sure: we could regulate it if we wanted. That is very clear,” Chilton told Reuters. “There is potentially a federal role here, and we have to make sure that we’re on guard that whatever is traded is appropriately regulated.”

Chilton added, “If you’re buying Bitcoin and you are hoping that their value increases … and you could purchase something with them in a day or a week or a month or a year, that is clearly a derivative of the actual Bitcoin.”

But would regulation destroy Bitcoin?

Bitcoin was designed to be an alternative to the traditional economy and has been embraced by many people looking to get out from underneath the Orwellian thumb of the government, and while there are shady practices (like drug practices), the idea is not to hide but to be free in many peoples’ minds.

Federal regulation could be a double-edged sword, as purists that engaged in Bitcoin trading did so for their perceived freedom, while the attention of being regulated could actually attract more traders, making the virtual currency more mainstream.

There are advantages and disadvantages of federal regulation, and it remains to be seen where the chips will fall, but we believe federal regulation will destroy the very fabric of Bitcoin and likely cause early adopters to jump ship.