Richard Yo, MJLST Staffer
Despite the closure of virtually all U.S.-based Bitcoin exchanges in 2013 due to Congressional review and the uncertainty with which U.S. banks viewed its viability, the passion for cryptocurrencies has remained strong, especially among technologists and venture capitalists. This passion reached an all-time high in 2017 when one Bitcoin exchanged for 5000 USD.** Not more than five years ago, Bitcoin exchanged for 13 USD. For all its adoring supporters, however, cryptocurrencies have yet to gain traction in mainstream commerce for several reasons.
Cryptocurrencies, particularly Bitcoin, have been notoriously linked to dark web locales such as the now-defunct Silk Road. A current holder of Bitcoin, Litecoin, or Monero, would be hard pressed to find a completely legal way to spend his coins or tokens without second guessing himself. A few legitimate enterprises, such as Microsoft, will accept Bitcoin but only with very strict limitations, effectively scrubbing it of its fiat currency-like qualities.
The price of your token can take a volatile 50% downswing or 3000% upswing in a matter of days, if not hours. If you go to the store expecting to purchase twenty dollars’ worth of groceries, you want to be sure that the amount of groceries you had in mind at the beginning of your trip is approximately the amount of groceries you will be able to bring back home.
After the U.S. closures, cryptocurrency exchanges found havens in countries with strong technology bases. Hotbeds include China, Russia, Japan, and South Korea, among others. However, the global stage has recently added more uncertainty to the future of cryptocurrency. In March 2017, the Bank of Japan declared Bitcoin as an official form of payment. Senators in Australia are attempting to do the same. China and Russia, meanwhile, are home to most Bitcoin miners (Bitcoin is “mined” in the sense that transactions are verified by third-party computers, the owners of which are rewarded for their mining with Bitcoins of their own) due to low energy costs in those two nations and yet are highly suspicious of cryptocurrencies. China has recently banned the use of initial coin offerings (ICOs) to generate funds and South Korea has followed suit. Governments are unsure of how best to regulate, or desist from regulating, these exchanges and the companies that provide the token and coins. There’s also a legitimate question as to whether a cryptocurrency can be regulated given the nimbleness of the technology.
On this issue, some of the most popular exchanges are sometimes referred to as “regulated.” In truth, this is usually not in the way that consumers would think a bank or other financial institution is regulated. Instead, the cryptocurrency exchange usually imposes regulations on itself to ensure stability for its client base. It requires several forms of identification and multi-factor authentication that rivals (and sometimes exceeds) the security provided by traditional banks. These were corrections that were necessary after the epic 2014 failure of the then-largest cryptocurrency exchange in the world, Mt. Gox.
Such self-adjustments, self-regulation, and stringency are revealing. In the days of the Clinton administration when internet technology’s ascent was looming, the U.S. government adopted a framework for its regulation. That framework was unassuming and could possibly be pared to a single rule: we will regulate it when it needs regulating. It asked that this technology be left in the hands of those who understand it best and allow it to flourish.
This seems to be the approach that most national governments are taking. They seem to be imposing restrictions only when deemed necessary, not banning cryptocurrencies outright.
For Bitcoin and other cryptocurrencies, the analogous technology may be the “blockchain” that underlies their structure, not the tokens or coins themselves. The blockchain is a digital distributed ledger that provides anonymity, uniformity, and public (or private) access, using complex algorithms to verify and authenticate information. When someone excitedly speaks about the possibilities of Bitcoin or another cryptocurrency, they are often describing the features of blockchain technology, not the coin.
Blockchain technology has already proven itself in several fields of business and many others are hoping to utilize it to effectuate the efficient and reliable dissemination and integration of information. This could potentially have sweeping effects in areas such as medical record-keeping or title insurance. It’s too early to know and far too early to place restrictions. Ultimately, cryptocurrencies may be the canary that gets us to better things, not the pickaxe.
*Dogecoin is the cryptocurrency favored by the Shina Inu breed of dog, originally created as a practical joke, but having since retained its value and now used as a legitimate form of payment.
**The author holds, or has held, Bitcoin, Ether, Litecoin, Ripple, and Bitcoin Cash.