The more I understand about Bitcoin and virtual currencies, as well as how it is supposed to work, the more I like it. It will not replace traditional money anytime soon, however, it will likely become a serious means of legal e-tender in the not too distant future. You should be excited too. It’s one of the more free market services the world has seen in some time.
Now, how do proponents of the crypto currency keep Congress and regulators at bay? Reasonable regulations that afford transparency, for example, may be long over due. I can think of a whole series of very serious laws that could cripple efforts to grow virtual currencies including AML, economic sanctions, BSA, and much more. However, allow politicians, and certain regulators, to meddle in something they do no understand and you’re asking for trouble. They will most assuredly ruin the project.
Brian Armstrong of Coinbase told the Wall Street Journal this week:
“Compliance is a large cost of our business. Our method is not battling, but embracing and educating regulators, building relationships with them.”
Mr. Armstrong’s forward looking outlook on compliance is a positive one. However, there are others in the business who believe that any cooperation with federal officials is a non-starter. I think the former group is winning this battle. But it is too early in the process to know how it will sort out.
As for Washington, DC, the Bitcoin business has a serious perception problem that they, as an industry, will need to overcome. Unlike most other consumer new technology products and services, this service puts Bitcoin advocates in direct competition with Uncle Sam and bankers — a powerful lobby in this town. Moreover, most politicos on Capitol Hill, as well as staff, have no idea how this works. The learning curve is very very steep.
Just last week one of the leading Bitcoin trade groups, the Bitcoin Foundation, lost 10 board members over the appointment of Brock Pierce as its new director. Brock, a former Disney child actor, is stuck in legal battles involving alleged child abuse that could politically cripple the new organization. Another board member is suspected of engaging in money laundering, and yet another of misappropriating millions of dollars from customers.
One Foundation member wrote on his website:
“So far, the track record of prominent Bitcoin Foundation members has been abysmal. I no longer want to be associated with these people.”
Perception matters. A lot. This is not how you want to approach regulators or Members of Congress. I can just about guarantee that most serious Members of Congress will refuse to work with groups that have these sort of unresolved perception issues. Growing pains? Possibly. Let’s hope the board is listening to the advice of counsel because you need better headlines than this if you’re going to be taken seriously in this town:
Bitcoin is quickly developing into a serious service that has, for the most part, been off the Congressional and regulator radar. And with more and more folks making statements such as this one …
… the politicians and regulators will not be too far behind.
Just last month Rep. Steve Stockman (R-Tex.) became the first Member of Congress to introduce a bill that would start to define, by law, this market. It’s a tax bill no less and it would authorize the IRS to “treat virtual currencies as a foreign currency for Federal tax purposes.” The Bitcoin Foundation, providers, and other stakeholders in this virtual currency need to get serious and organize accordingly. When the first bill out of the gate on your issue, ever, is before the Committee on Ways and Means, your group needs a better response than this proposal “could lead to unrealistic reporting.”
At some point, I’d like to accept virtual currency in exchange for legal and public policy counsel in our firm. I know a few other K Street lawyers and lobbyists who would like to do the same. Folks are watching as we welcome a new player to town.