Technological innovations that make it easier and faster for people to interact directly have spurred some of the largest periods of economic growth in recent memory.
Consumers have benefited greatly from new products and services that have lowered costs and made lives better. Email drastically sped up and increased communications between people. Ride-sharing services connect drivers to riders faster and more cheaply. Massive open online courses, or MOOCs, quickly connect students with professors across the country. The common thread between all of these tools is that they connect peers directly, while also providing entrepreneurs with the tools to control and improve their lives.
Finance is not a place where innovation is always thought of as a good thing. In fact, after the financial crisis, the prevailing wisdom was that most financial innovations, like derivatives, were dangerous. In the last few years, however, Bitcoin has proved to be a financial platform that follows in the tradition of the Internet, empowering people to interact directly with each other, while providing a platform for entrepreneurs to innovate.
For example, in the same way that simple message text protocol, or S.M.T.P., allows messages to be sent and received globally for a fraction of the cost of a stamp, Bitcoin allows for — among other things — value transfer to occur in the same seamless manner. Think of it as digital cash or the “email for money.”
The positive impact of Bitcoin is most clear for international money transfers. Right now, it costs nearly 8 percent of the total amount sent to transfer money around the world, largely because of a complex web of third-party approvers. With Bitcoin and its public ledger, the costly middlemen are unnecessary. But this obvious benefit is only the beginning.
Like the larger Internet on which it’s built, Bitcoin is a global and open system. Anyone with a computer and Internet connection can plug into the network and participate. That is where its most promising potential lies.
As the Internet was allowed to flourish by limiting government’s hand on the underlying protocol and its development, so too should Bitcoin.
For years, Bitcoin sat at the fringes of the technology landscape as developers and users worked to improve its functionality and further its reach. Bitcoin start-ups and the larger digital currency ecosystem have gone mainstream, receiving major venture capital investments from the New York Stock Exchange, Andreessen Horowitz, Goldman Sachs and others. Nasdaq is experimenting with trading assets on the blockchain, and Citibank is reportedly developing its own in-house digital currency.
Most recently, the N.Y.S.E. began a real-time price index that tracks the valuation of Bitcoin based on data provided by Coinbase, a leading Bitcoin platform at the forefront of the industry and the first regulated Bitcoin exchange in the United States. Coinbase was specifically chosen by the exchange because of its commitments to transparency, security and regulatory compliance in the Bitcoin market.
But like other areas, we have to strike the right balance between helpful rules that protect and sustain progress and those that will stifle innovation and economic growth. Indeed, platforms like Coinbase are already carrying out robust protections required by third parties like the N.Y.S.E., illustrating their commitment to consumer protection and security.
Calls to impose burdensome regulations on Bitcoin wallet platforms in an effort to stamp out illicit uses would do almost nothing to solve the root problem. The only real result of such regulation would be to make it more difficult for the Bitcoin wallets to serve all of the legal participants who simply wish to take advantage of the technology’s ability to facilitate frictionless transactions between parties.
Such an outcome would be tragic, especially given that the industry is poised for explosive growth. With a few million regular users, and a vast amount of untapped potential, Bitcoin is well positioned to lead a cultural shift that results in more globalized markets and new business models.
It is essential that policy makers give careful consideration to a balanced approach when determining the most effective regulatory solutions for the platform. For example, government regulators should continue to focus on the connections between physical and digital currency and shun any attempts to force modification or regulation of the underlying protocol itself.
Meaningful, light-touch rules that create necessary safeguards for users are a welcome addition to the evolving Bitcoin ecosystem, but we must not inadvertently stifle the growth and innovation of the service we seek to regulate. When it comes to Bitcoin, we simply can’t afford it.
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