Digital currencies like Bitcoin are back in the news in a big way. Major influxes of investment, increased usage, and public votes confidence from influential financial industry players seem to be validating a technology once thought to be solely the realm of hobbyists and tinkerers.
During a speech last month, Fidelity CEO Abigail Johnson declared that she still believes in digital currencies and revealed the company’s forays into the technology.
She went on to outline several hurdles that she sees the technology needing to clear before it reaches mainstream adoption, one of which she called “the policy challenge.” Johnson correctly pointed out that innovation in the space “is outpacing the regulator’s ability to keep up.”
It’s not hard to see why this technology is exciting the world of payments. Traditionally we’ve had to rely on intermediaries like PayPal to maintain a database of account balances and transactions in order to send money online.
In Bitcoin that database is maintained by thousands of nodes in an open network and constantly validated by the work of countless miners. Suddenly you don’t need to trust PayPal anymore. Since there is no intermediary, Bitcoin works a lot like cash, but online.
Many applications of digital currencies like Bitcoin don’t fit into traditional legal buckets and some legal concepts may need to be rethought.
If a regulator tries to apply old legal concepts to this new technology, companies that were never intended to be covered by existing laws could find themselves in a costly grey area. This undoubtedly chills innovation in the space and likely will drive it overseas.
Two decades ago, early Internet developers found themselves in a legal gray area. If old laws were strictly applied to them, they could be held responsible for the content that their users uploaded to their websites. In the 1990s, Congress passed the Communications Decency Act (CDA) and the Digital Millennium Copyright Act (DMCA).
The laws protected Internet companies from liability for what their users did. Without these laws, the Internet would probably still exist today, but it would be a very different, and likely less useful, tool.
Regulators should be looking at Bitcoin in the same way. Bitcoin could become critical infrastructure that one day revolutionizes the online economy. Like the open Internet, support from government is key to fostering its growth.
Fortunately, there are concrete steps that the U.S. government can take to ensure the country’s competitiveness in this booming sector.