Since the last post on a proposal for Bitcoin regulation, another 300,000 Bitcoins were mined, [1] the Alibaba Group banned the use of Bitcoin on its e-commerce sites, [2] and the U.S. Department of Justice charged the vice-chairman of the Bitcoin Foundation in a money-laundering conspiracy. [3]
Earlier last week, Benjamin Lawsky, New York State’s Superintendent of Financial Services, held a series of hearings on virtual currency regulations. Speakers included the Winklevoss brothers and the deputy U.S. attorney for the Southern District of New York. Notably, Mr. Lawsky announced his plans to roll out a “regulatory framework for virtual currency firms operating in New York” in 2014. [4]
Although it is admirable that New York is taking the initiative, it remains to be seen whether or not state regulation is a practical option. New York’s regulatory framework for Bitcoin will be necessarily confined within its state borders. It is easy to imagine other states following suit, but enacting different laws, which would result in an inconsistent mess of legislation. On one hand, this could lead to loopholes and allow for regulatory arbitrage. On the other hand, this could become so frustrating as to discourage Bitcoin use altogether. After all, one of Bitcoin’s advantages is that is not subject to regulation. Subjecting Bitcoin businesses and users to multiple regulatory regimes might cripple the virtual currency altogether. As Mr. Lawsky explained, however, “Businesses can deal with regulation. What they can’t deal with is uncertainty.” [5]