Forgetting for a second that we live in a real world, I would argue that Bitcoin has been the single most important invention on the internet since our ability to follow lives of celebrities in short messages of 140 characters. Unfortunately it feels that in the real world we are throwing the baby out with the bathwater.
Recently I was among a few dozen central bankers across Europe together in an event and I could not help asking in a more informal setting, how do they think about Bitcoin? From what I hear, there are good reasons to disagree with economist Simon Johnson, who argues that goverments want to suppress bitcoin.
While I truly appreciate the honesty in the straight debate I got from central bankers and the EU representatives, I still disagree with the approach. They had studied bitcoin for sure and they are some of the smartest people we have, but I would like to argue – they ditched it too soon.
I have argued before that the worst effect regulators can have on BTC is saying nothing. It is crucial that there is some clear agreement on what it is – or at least a debate around it. We have some progress when a US federal judge ruled that BTC is real money. Later the court in Germany followed suite recognising BTC as private money so that they could tax profits. However, Germans specifically decided that it is not e-money and thus does not fall under the e-money regulation. Central Bank of Thailand decided that BTC is just illegal.
Leave it alone
For now it is quite clear that regulators, at least in Europe, don’t want to regulate or supervise BTC. There have been suggestions that it is not because they don’t get it or they don’t want to put in the effort, but rather to leave this fragile phenomenon alone and give it a chance to grow on its own.
Unfortunately this does not work, because it makes it impossible for the bitcoin industry to successfully integrate with traditional money, payments and banking. The beaten-up traditional banks take the approach that if it is not deemed legal, then it most probably is not legal.
Apparently when FBI seized 5% of all bitcoins from Silk Road, they went to great lengths making sure everyone understands that there is nothing illegal about bitcoins.
“Bitcoin is not money …”
… and therefore it does not need to be regulated. This is certainly an ongoing debate among economists and it is easy to agree and disagree with the arguments on both sides. While it may be true, it is not too helpful agreeing what bitcoin is not. It does not give us any rules of engagement. Do we not want it to be money? Or at least “money” to have some of the bitcoin properties?
Small and irrelevant
This argument is again very true. Bitcoin volumes are not that big today, especially when you compare with cards or any other payment systems. There are so limited uses today and honestly, I have not found a good use of the few bitcoins that I personally own.
We have the same problems with self-driving cars. There are not many around and we can get along without them. But these are not reasons to ignore innovation and not come up with rules how these cars should behave if they ever became more mainstream.
Anything we can do?
We can leave it alone as a feisty teenager to find its own way in the world, dismiss it as not money or just because there are still limited use cases. The civilisation would be missing an opportunity.
I hope the brightest regulators spend long evenings and weekends in their dark halls letting their fantasy fly to imagine a world, where we can move value across the globe instantly, securely, at no cost and 3rd party involvement. Bitcoin may not be the answer, but it certainly is the first promising experiment straight out of the lab.