The Mercatus Center at George Mason University is noted for its market-oriented ideas – bridging the gap between academic ideas and real-world problem. Its latest publication Bitcoin: A Primer for Policymakers provides an insightful lesson for Korean policymakers, especially financial regulators.
In a recommendation, Jerry Brito and Andrea Castillo, at the Mercatus Center at the university advised policymakers not to ban cryptocurrency.
“Making the use of Bitcoin illegal would not undermine the network. It would only serve to ensure that law-abiding users are denied access to the technology. Restricting the use of Bitcoin will only ensure that criminals alone will use the technology,” the report said.
It added, “Banning Bitcoin is not the solution to ending money laundering and illicit trading, just as banning cash is not a solution to these same ills.”
“Even if the United States prohibited the use of Bitcoin, it is likely that many other countries would not, recognizing the technology’s many potential benefits,’’ the report said.
It noted, “The United States could put itself at an international disadvantage in the development and use of what may be the next-generation payment system.”
Secondly, they call on policymakers to clarify regulation and encourage further development.
“Rather than overreact to illicit uses of Bitcoin, policymakers would be wise to take a calm and careful approach to the challenges posed by the new technology,’’ the report said.
It further noted that “Doing so would allow law enforcement to pursue its interests in detecting and preventing money laundering and terrorist financing while ensuring that society does not forgo Bitcoin’s many benefits. It is wise to slowly integrate Bitcoin into the existing financial regulatory framework.”
It categorized Bitcoin as neither a foreign currency nor a traditional commodity. “Nor is it simply a payment network,” it said.
It advised: “Policymakers should not only allow Bitcoin’s development to continue unimpeded, but they should also help foster the growth by revising existing regulatory barriers. One of the greatest obstacles to Bitcoin’s legitimate adoption is the requirement that businesses engaging in money transmission acquire a license from each state.”
“Bitcoin is an exciting innovation that has the potential to greatly improve human welfare and jumpstart beneficial and potentially revolutionary developments in payments, communications, and business,” it said.
According to the report, Bitcoin’s clever use of public-key encryption and peer-to-peer networking solves the double-spending problem that had previously decentralized digital currencies impossible.
It added that “Bitcoin would ultimately fail as an experimental digital currency and payment system. An unanticipated problem could arise and undermine the bitcoin economy.”
It said, “A superior cryptocurrency could outcompete and replace Bitcoin, or it could simply fizzle out as a fad.”
“The possibilities for failure are endless, but one reason for failure should not be that policymakers did not understand its workings and its potential.
It is important that policymakers allow this experimentation to continue. Policymakers should work to clarify how Bitcoin is regulated and to normalize its regulation so that we have the opportunity to learn just how innovative Bitcoin can be,” according to the report.
