Investors and traders in the financial world have been expressing a growing interest in bitcoin trading. It is becoming to be the preferred medium of exchange and is starting to be widely-used in the mainstream markets. What makes it attractive to most traders is that it does not necessitate the presence of central authorities, which is akin to replacing the government as issuers of money.
The use of bitcoins is slowly evolving and this has not escaped the attention of regulators. There are several issues that have been raised, primarily to prevent undermining the power of the government in many of the economic policies on financial instruments used today.
The Treasury Department has issued a set of rules in bitcoin trading in March this year, along with the recommendation from the Government Accountability Office for the IRS to issue guidelines on income reporting of bitcoin-related transaction. The Commodities Futures Trading Commission is also considering to examine the currency to regulate its use.
Challenges Surrounding Bitcoin Regulation
The mechanics of using bitcoins have never been easy. And as its popularity rise, several challenges develop along the way. Because bitcoin mining happens in a peer-to-peer network, it exists outside of government protocol. Without a centralized point of command, it cannot be shut down or controlled.
The incoming executive director of the Bitcoin Foundation Jon Matonis said that even if this is the case, the bitcoin ecosystem allows for centralized points of control that can be cited for regulation. One, in particular, is the bitcoin exchange that allow for national currencies to be converted and used for bitcoin trades. This is within the jurisdiction of money-laundering rules that can be reported to regulatory bodies.
Many argue that there is absolutely no need for regulation. Some would opine that even if exchanges will be shutdown in US shores for non-regulatory compliance, these exchanges could still operate in places where there is a more liberal jurisdiction and out of state control. Their ultimate goal is to escape the legality of a banking system and government currencies. However, since there is always the possibility of interfacing with the mainstream financial systems, it is inevitable that the government could take aggressive actions in the future.
Victories for Regulation
Bitcoin users do not totally reject the proposed regulation. They are more concerned on what to do about it. Within the bitcoin community are a group of entrepreneurs that invite legitimizing the use of virtual currencies. Even if there are a number of traders who see a bitcoin exchange as a disruptive innovation, there are also those who would want to get rich with the use of this technology.
The Winklevoss brothers- the twins who became known for suing the popular social networking site Facebook- own about 1% of all bitcoins This is according to the bitcoin chart which reflects its number in current circulation. The brothers have recently filed regulatory application with the Securities and Exchange Commission seeking permission to launch a fund that would allow investors to easily get into bitcoins. And they are not alone. The outgoing executive director of the Bitcoin Foundation Peter Vessenes feels that regulation is sensible as it would bring new innovations into bitcoin trading.