The emergence of the virtual or digital currency that we know as Bitcoin has been a real game-changer. For the first time we have seen the establishment of a currency that is truly international, not controlled or regulated by an issuing national bank.
One of the fascinating aspects of the development of Bitcoin is to observe how different countries around the world have responded.
There has been a vast range of responses from various governments to Bitcoin and other cryptocurrencies – some have embraced it and taken steps to explicitly recognize the virtual currency as a legitimate and authorized payment method; others have taken steps to try and ban or restrict the use of the currency.
How do countries regulate Bitcoin?
The European Central Bank has stated that traditional financial regulation doesn’t apply to the Bitcoin currency because it doesn’t operate within the normal financial frameworks of control. While a number of countries are exploring the possibilities of bringing Bitcoin within their current framework regimes it appears that a new approach will be required.
Most western countries have legislation and regulation in place that can be applied to money laundering or terrorist financing activities. To some extent this anti-crime legislation may be one way in which governments can try to track and keep some oversight of the anonymous Bitcoin transactions but it is a long way short of full regulation and control.
Some countries have taken the step of declaring Bitcoin illegal – examples include Bangladesh, Bolivia, Ecuador, Russia, and Vietnam – however such a move is largely symbolic and is almost impossible to enforce in practice.
Why do countries want to regulate Bitcoin
There are numerous reasons that Bitcoin makes governments, regulators, and crime-enforcement agencies interested in this virtual currency. One of the primary concerns is that the anonymous nature of Bitcoin transactions makes the currency particularly appealing to anyone that might want to conceal their identity – for example people involved in criminal or terrorist activity.
Another point of concern in relation to Bitcoin is that it is a decentralized currency. Unlike traditional currencies, Bitcoin is not issued or underwritten by a central bank – instead it is underpinned by the peer-to-peer computer network of its users.
What are the benefits of being unregulated
One of the common criticisms of traditional currencies is that their value is never really certain – exchange-rate fluctuations can impact the value of the funds you are holding, or the relevant central bank may use a quantitative easing strategy which effectively injects more of the currency into the system, again reducing its value. The Bitcoin system was designed so that the total number of Bitcoin that could be mined is limited to approximately twenty-one million. While speculative trading may increase or decrease the value of the available Bitcoin, there is no central bank that can make policy decisions that will directly impact the value of the currency.