Regulating Bitcoin - On What Grounds?

Abstract

This paper assesses costs and benefits of regulating Bitcoin. A review of the main justifications for regulating it shows that scope for efficient regulation is limited. Private governance structures and fee-based services have already begun addressing many of the known problems. Furthermore, since a regulation would discourage use, the costs—in terms of technological gains forgone—are potentially high. Nonetheless, there is scope for regulation, to ensure one has recourse in the event of theft, as long as the following are addressed: 1) provide a clear regulatory framework; 2) supervise transactions to dissuade crime, without compromising the medium; 3) regulate exchanges, rather than users; 4) encourage technological progress by committing to an environment of permissionless innovation.