Recently, Mark Wetjen, a commissioner of the Commodity Futures Trading Commission, published an op-ed in The Wall Street Journal calling for the regulation of the digital currency, Bitcoin. ((See Mark Wetjen, Bringing Commodities Regulation to Bitcoin, Wall St. J., Nov. 3, 2014, http://online.wsj.com/articles/mark-wetjen-bringing-commodities-regulation-to-bitcoin-1415060058.)) Citing the need of merchants to hedge exposure to fluctuations in Bitcoin’s value, trading platforms beginning to list Bitcoin derivatives contracts, its financial innovative capabilities, and the need for enforcement action against Bitcoin currency manipulation, Wetjen makes a strong argument for regulation. ((Id.)) As the digital marketplace continues to expand its footprint into all corners of the world and connects consumers, the need to regulate digital currencies like Bitcoin becomes all the more prevalent. With digital currencies still only representing a small fraction of the U.S. financial system, it is encouraging to see a government regulator take a proactive stance and begin to propose regulatory solutions before problems swell up to an uncontrollable level. ((See Andrew Ackerman,
CFTC’s Mark Wetjen Says Regulators Should Act to Help Bitcoin Fulfill Potential, Wall St. J., Nov. 3, 2014, http://online.wsj.com/articles/cftcs-mark-wetjen-says-regulators-should-act-to-help-bitcoin-fulfill-potential-1415070684?mod=WSJ_Business_LatestHeadlines.))
Because of its unconventional roots and digital nature, Bitcoin presents tremendous challenges to government regulators. “Bitcoin is a digital currency, a protocol, and open-source software and enables instant worldwide peer to peer transactions for little or no processing fees and no risk of chargebacks or fraud while being immune to seizure or confiscation.” ((Bitcoin, CrunchBase.com, http://www.crunchbase.com/organization/bitcoin (last visited Nov. 10, 2014).)) The peer-to-peer technology and payment network “removes the need to trust a central authority,” an attractive characteristic for Bitcoin users. ((Id.)) The question becomes: how can the government regulate Bitcoin so as to preserve these benefits most valued by its users? Commissioner Wetjen believes Bitcoin has the potential to provide financial services benefits to consumers in emerging markets, as well as the potential to be used for “financial innovation in the digital transfer of currency, securities, contracts, and sensitive information.” ((See Wetjen, supra note 1.)) In order for Bitcoin to reach such potential, however, government regulation is necessary, at least according to Wetjen’s reasoning. It is reasonable to assume that such government regulation goes against the foundation of Bitcoin’s philosophy of removing the need for a central authority. This tension between technological innovation and government regulation is not uncommon this day and age, and it highlights the need for the government to be thoughtful, effective, and holistic in its approach. Otherwise, it could destroy the possibility of Bitcoin reaching such great heights in revolutionizing the financial services marketplace.
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