Is Regulation Bad For Bitcoin? Affects of Government to Bitcoin


As Bitcoin gains wild acceptance by the crowds, then governments begin to notice the situation. Bitcoin was only a whitepaper in 2008. Satoshi Nakamoto put on the paper what is revolutionary for its age. His peer-to-peer network philosophy gained much popularity as time passed, and it became the precursor for many decentralized cryptocurrencies. The purpose was the creation of the currency, which does not depend on the government and making people owners and controllers of cryptocurrency.

It may seem obnoxious, but the creation of Bitcoin is because of the misactions of the government towards the finance sector. After 2008, the Great Recession, the government suffered from not strictly regulating the housing and finance sector. The government put itself in the savior position of the economy and bailed out some companies. Now the question arises, should the government regulate Bitcoin or any other cryptocurrencies? What could be the drawbacks if the government does not regulate Bitcoin? We will try to analyze regulations and possible outcomes of them.

Is Regulation Good or Bad?

When regulation comes to your mind, you think of it as a bad thing. Naturally, many of you consider it in the same way. We will give you a famous example of lemon cars. It is simple, but it can explain many details. You are in the car market, and you want to buy a car, but you do not have enough knowledge to distinguish good and bad cars. You have a specified amount of money that you will spend on purchasing. There are two sellers, one of them sells lemon cars, and the other one is an honest seller. The candid seller sells it for a premium because his car worth it. The price is the same for both vehicles. If the lemon car seller can market his automobile, then you will buy it, not from the honest seller. So, you make a mistake. Firstly, you buy a lemon car which you will regret. Secondly, the candid seller will be disappointed because he cannot sell a better car at a premium price, and the lemon seller will get all the profit.

We can infer that if the market is not regulated, then there will be lots of lemons. There has to be some regulation to circumvent misbehaviors. This kind of behavior arises when you contact the seller once. You do not have any knowledge about it, or you do not know the seller. To avoid this, regulators can apply for some guarantee programs or reputation for each seller. At least, in this case, many will comply with those rules, and there will be less fraudulence. These examples can help you understand the importance of regulation. Now, let’s move to Bitcoin and regulation.


Regulation for Bitcoin

The bitcoin community demands an environment free from regulation. As the philosophy of the peer-to-peer network, Bitcoin avoids the government operating without third parties. Decentralized systems make it hard to breach in. It is secure and safe in a technological manner. However, if we take into account the individuals, then technology becomes weak. Not all individuals are honest, so it affects the system. There are some examples of the misbehavior of people. Malicious parties can realize some attacks on the systems such as the Sybil attack. Since Sybil attack is hard to achieve nowadays, attackers do not use it. The main barrier is consensus programs, PoW, PoS, and DPoW. There is an inherent regulation system for Bitcoin itself. However, this does not assure that attack will not happen.

If some businesses emerge, then at the beginning, it becomes so vulnerable to malicious intentions. For example, as lemon cars, some people can create fake systems and can attract investment with the purpose of profit. They will hide in the shades of other successful businesses as Bitcoin and create bitcoin-like currencies. Since people do not have enough information about it, they will fall into a trap, and their money will evaporate when the fake system disappears.

According to the examples given above, we can agree that regulation, to some extent, will be beneficial for individuals. We should not forget that creation of Bitcoin is because of a lack of regulation in finance. If we want Bitcoin or other cryptocurrencies to become prevalent, then a little guidance will not hurt.

Current Regulations

Some countries made some regulations about cryptocurrencies. In 2017, China prevented the financing through the token (ICO) because they think that this is unauthorized financing and can be illegal purposes. Some countries have some limits to abroad money transfers. It helps the governments to keep money inside the country and stabilize the flow of funds to other countries. People can use Bitcoin illegally, and the Silk Road is a pure example of this. The founder of it is Ross Ulbricht as known as Dread Pirate Roberts, and he is in jail now. Some anonymity features of bitcoin can encourage you to engage in illegal activities. However, if we consider that the ledger is public, and the time you convert your bitcoin to cash, you will get caught.

We can conclude that regulation is not bad in every case. The purpose of regulating any sector is to guarantee your rights. In any case, the government wants to ensure that the rights of people in the country are properly regulated.