Bitcoin Defenders Say The Only Way To Preserve Virtual Currency Is Through Regulation

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Peter Fricke Contributor
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Some Bitcoin supporters are actually asking the government for limited regulations, claiming they would protect investors while preventing abuses of the system.

Virtual currencies like Bitcoin are favored by many who see them as an alternative to traditional currencies, which are subject to the government policies.

In recent years, though, the Washington Free Beacon reports, “The digital currency has become associated with a range of illicit activities, including money laundering, terror financing, and sanctions evasion,” and has suffered several high-profile hacks that have wiped out hundreds of millions of dollars in Bitcoin value.

Together, those drawbacks have given birth to an unlikely alliance of bureaucrats and investors in favor of increased regulation, with government officials hoping to prevent virtual currencies from facilitating criminal activity and investors seeking the same sort of protections that are already available to those who invest in traditional currencies.

At least one company, though, wants to have it both ways. (RELATED: Democratic Senator Wants to Ban Bitcoin, Citing Currency’s Volatility)

Coinbase, one of the largest U.S. Bitcoin exchanges, has proudly billed itself as the “first regulated Bitcoin exchange” in the U.S., hoping to convince potential customers that Bitcoin is a safe investment, though regulators have since denied the claim.

Ironically, even as it was claiming to have official government endorsement, the company made a presentation to investors last year bragging that, “a major advantage of the electronic currency is that it can be used to flout international economic sanctions.”

John Burnett, a financial-services executive with over 20 years of experience, told The Daily Caller News Foundation that, “We need smart regulations to allow things to actually progress,” but also acknowledged that, “It’s a difficult dynamic to balance.” (RELATED: Bitcoin Regulation Likely as States and Feds Warn of Criminal Use)

“You want to make sure that the technology can improve, especially in developing nations,” he explained. “At the same time, you want to do that in a responsible manner to make sure that it is not being used to circumvent the banking system for money laundering and other illicit activities.”

“There’s always a middle ground,” Burnett asserted. “I think we can examine what we already have in place for the banking system, and consider how those regulations can be prudently and responsibly applied to virtual currency.”

For instance, “cyber security is extremely important,” and could be accomplished by requiring Bitcoin exchanges to take the same responsibility for protecting customer information that is already expected of other companies.

“Right now,” he pointed out, “when you get hacked, there’s no FDIC.”

Burnett also said he has “very real concerns about individuals and entities in prohibited countries using the platform to fund and conceal illicit behaviors,” which he claimed “is not only a financial concern, but more importantly, is a national security concern.”

To counter that threat, regulators in New York and California “are making a concerted effort to implement some type of virtual currency license,” which would allow them to monitor the Bitcoin market and potentially prevent individuals and organizations associated with sanctioned countries from using the currency to transfer or receive funds.

“It’s not a secret that regulations always trail innovation,” Burnett pointed out, but added that although there is currently a need for additional regulation of virtual currencies, “We don’t want to come up with, for example, a Dodd-Frank regulatory blanket that keeps the technology from seeing the light of day.”

However, not all proponents of virtual currencies agree on the need for new regulations, and some even go so far as to argue that any government endorsement of Bitcoin would counteract the currency’s main appeal. (RELATED: Libertarian Presidential Hopeful Only Accepting Gold, Bitcoin for Donations)

According to Crypto Coins News, Cody Wilson, a staunch crypto-anarchist who wants to use emerging technologies such as 3D printing and Bitcoin to disrupt “the system,” has repeatedly run for president of the non-governmental Bitcoin Foundation “for no other reason than to disband the organization from within.”

Wilson and other crypto-anarchists are in favor of “a truly decentralized and totally unregulated Bitcoin economy,” which necessarily precludes any form of government intrusion.

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Peter Fricke