Many people have opined that Bitcoin is not illegal, such as Chris Kitze. Their argument centers on how the digital currency does not comply with know your customer and anti-money laundering regulations.
But, it’s likely Bitcoin is easily regulatable. In general, it’s business, not the financial instruments themselves, that do the regulating. Incorporated businesses virtually sign documents stating that, if they come across individuals breaking laws, they will report them. This is particularly the case when it comes to the financial industry. Bitcoin companies are generally considered financial companies.
Reports flood the internet about Bitcoin related companies instituting stringent know your customer and anti-money laundering policies – the policies which ensure that people are not profiting from illegal fund moving or terrorist financing.
Although not a Bitcoin company per se, BitGold, a digital gold platform that markets to Bitcoiners, recently came under so much flak, they made a post on Reddit to clear up the situation – something any company wishing to be taken seriously by sophisticated investors would rather avoid.
A redditor posted about how BitGold required additional information for the withdrawal of 10,000 USD. The user received emails asking for proof of source of funds. Otherwise, BitGold would not let the user withdraw funds to a bank account with the same users name. You can read BitGold’s response here.
In short, the firm stated: “We have strict KYC (Know Your Customer) and AML (Anti Money Laundering) policies, and as part of these policies we may request additional information from users for further verification.”
And, furthermore, there’s always some boisterous Bitcoiners complaining about Coinbase, asking for further documents or asking questions about the funds being moved. Sometimes those funds are less than $1,000, meaning Coinbase is doing its due diligence.
Bitstamp was recently granted a license by the Luxembourg government as a fully regulated and licensed exchange in the EU. It applied with the Luxembourg financial regulation, and the Luxembourg FInancial Industry Supervisory Commission (known as CSSF), in what the firm called a “rigorous application process” over two years, including an audit by Ernst & Young Luxembourg. The firm claims the license is “passportable” into 28 EU member states.
In 2013, the New York Department of Financial Services issued subpoenas to numerous Bitcoin companies asking for information on their internal controls.
Further, this has been demonstrated in the past when Bitcoin companies have turned over information to authorities.
These companies don’t have a choice. If they are registered in the United States, they will have to comply with Bitcoin laws. They are dealing in currency as determined by the US vs Trendon Shavers.
In Europe, there will also be regulations with which Bitcoin companies will comply. BitStamp recently became a full licensed payment institution in Luxembourg. Along with this new designation will come a litany of regulatory protocols by which the company must abide. Many EU member states consider BitStamp’s activities to regulated by financial regulations already on the books.
Of course, as in any industry, there will be a gray market or black market. System D – what some call the black market – was a $10 trillion market as of 2011. Some of this, surely, has already spilled over into Bitcoin.
Financial instruments do not regulate themselves. You never hear a case called: SEC vs. Security. The plaintiff is always somebody, or some government body, and not a thing.
Securities, loans and contracts are not self-regulating. Instead, they are regulated by people. Bitcoin will be regulated by people. Not only will regulators working for the government look to regulate the currency, but serious participants in the space will take their role as corporate entities in their respective jurisdictions seriously, and will do what it takes to escape subpoenas, injunctions, fines and other headaches. A stringent AML and KYC program might cost a business some customers, but it will keep the entity within the good graces of regulators – a highly valuable asset.