Regulation, or how to make Bitcoin the privilege of the criminals
Whenever you listen someone telling you that Bitcoin’s only real use is for mobsters, tax evaders or drug dealers, you are listening to someone that is intentionally or unintentionally asking for Bitcoin to become the privilege of the criminals.
If “Know Your Client” / “Anti Money Laundering regulations” (KYC/AML) were to be imposed to Bitcoin, then Bitcoin losses two of its main features which is openness and low legal costs. KYC/AML regulations would dramatically raise the barriers of entry for the poorest and also hinders Bitcoin for countless of legitimate use cases that would benefit all of us.
There are billions of unbanked people in the planet, and one of the reasons for that is that they could never overcome a KYC/AML process because they don’t have the means to prove their identity, or they lack from the requirements necessary to comply with KYC/AML.
Most importantly, today’s currencies and financial systems including all fintech services deployed on top of the Banking system, are based on credit. Bank assets are composed mainly by debt instruments such as bonds, mortgages, consumer and business credit. And those assets are the backing of the bank’s liabilities. Bank liabilities are our bank accounts. Therefore, the value of our bank accounts fully relies on those backing assets, and for those debt assets to have value it is necessary a sound legal system so those assets can be enforced if necessary. This legal burden is a hidden and huge cost of today´s monetary and banking system.
Because Bitcoin is not anyone else´s liability it does not need from a complex legal infrastructure in order to work, a smartphone and a basic internet connection are enough, and Internet infrastructure is much more unexpensive to build and develop than a sound legal infrastructure. The proof of this is that many unbanked people do have access to smartphones.
A sound legal infrastructure comprises lawmakers, lawyers, courts, property registrars, notaries, police, prosecutors, arbitrators, judges, a prison system, etc. All these takes many years if not decades to develop. It is a costly and precious resource that we should use wisely.
It could be argued that legal infrastructure is a common good in developed countries and since we need it and have it for many other things, why not use it for currency?. That´s a wrong argument because in any case credit based currencies would still take up resources from the legal system that if freed up could be used for other more valuable purposes.
Bitcoin is a currency that does not need the legal system in order to have value and at the same time is very fast and unexpensive to transfer. This will open an enormous number of new use cases, products and business that we are unable to imagine at this moment, but we do have the responsability of allowing the free market to discover them.
If we impose KYC/AML regulations on Bitcoin, then Bitcoin is pointless and won’t make any difference from Dollars, Euros, VISA or Paypal and the only ones that will be using Bitcoin will be the criminals, as criminals are specialists in bypassing the laws, indeed that’s their “job”! (they will use TOR, VPNs or similar).
Calling for KYC/AML would be a self fulfilling prophecy privileging the criminals, underpinning the bad use of Bitcoin and putting out of reach from the honest and the poorest the many good and useful features of Bitcoin.