Edmund Moy, the former director of the United States Mint under the Bush administration, first learned about bitcoin in the form of a footnote embedded in a coin demand forecast report.
When he became director of the Mint in 2006, Moy commissioned annual reports that detailed the various market forces and characteristics that have an impact on coinage needs in the United States. These includes the role of digital payment systems such as credit cards and emerging means of moving money around the internet.
In 2009, the report included a footnote briefly describing Satoshi Nakamoto’s original white paper on bitcoin. At the time, bitcoin and the concept of digital currencies were seen from a curious but hands-off perspective.
During the last two years Moy received the report, the footnote grew slightly in size as the first bitcoins were mined and sold and the price of the digital currency rose. But the Mint – and the rest of the US government – stayed on the lookout for future developments but continued to pursue a largely ambivalent approach.
According to Moy:
“It was on the radar, there was interest in it but it was really from the objective observer's perspective.”
He added that in the early days of bitcoin, financial regulators largely shied away from the more robust, government-wide observation and initial rule-making that is now underway in respect to digital currencies. Since then, the digital currency has increased in prominence, prompting Moy to declare bitcoin "a disruptor to the traditional notions of currency" in May.
As Moy told CoinDesk in a new wide-ranging interview, the emergence of new regulations that establish boundaries for how bitcoin will operate within the broader global financial system is one of the key developments shaping digital currencies today.
Why US bitcoin regulation is failing
Despite the promise of bitcoin technology, an unclear regulatory landscape makes it difficult for businesses in the US market to develop. At the heart of the problem, says Moy, is a lack of cohesive regulatory language that defines digital currency.
“Bitcoin is not just one thing. It’s not just currency, it’s not just a payment system, it’s a protocol – there’s multiple things that cross over into many different turfs of government.”
Moy described the array of federal and state-level agencies as a broad cluster of interconnected agencies, all of whom must act within the framework established by law. Given the novelty of bitcoin and, in some cases, the archaic nature of regulatory language established in past acts of Congress, regulators are left to define digital currency as best they can.
There are many past examples of this, said Moy, including a hearing earlier this year during which Federal Reserve chairwoman Janet Yellen said that the Federal Reserve lacks the legal authorization to regulate digital currencies. At the time, she noted that it would be “appropriate” for Congress to investigate bitcoin and potential legislation governing it.
“Every agency has to look at bitcoin from the perspective of what their agency does. So the Commodities Futures Trading Commission looks at bitcoin as a commodity, because it complies with all the issues that commodities applies with. The Federal Trade Commission looks at this as a bartering issue, as a trading issue; the FEC looks at it from an investment perspective; the IRS looks at it as a taxable event.”
Moy said that each agency can “only look at bitcoin through the prism of what they understand”. Consequently, businesses in the bitcoin space find themselves stuck within the complex legal obstacles that arise from this fragmented regulatory environment and risk failing as a result.
The steps to resolving regulatory conflict
For Moy, the solution is simple: the establishment of clear and consistent language for federal and state-level agencies to regulate digital currencies in a pro-active but growth-enabling way.
He said that support for this legislation exists and would help reduce barriers to entry for businesses that want to work with bitcoin. In the past, regulators including former Federal Reserve chairman Ben Bernanke have argued for Congress to eventually move to define regulatory language for bitcoin.
On the other hand, Moy cautioned that the time isn’t quite right for the development of a digital currency bill. He said that more education is needed on the agency level, a process that the bitcoin community can – and should – play a role in shaping.
“I think it’s an important step, now, to educate the regulators, regulate the members of Congress, particularly on the panels that have oversight on this area. So education is one key component.”
Secondly, Moy emphasized the need for self-regulation within the bitcoin community. By moving aggressively to shore up concerns held by regulators, including potential risks to consumers, companies in the bitcoin market can “illustrate to the government how this could work”.
As for whether or not there is a need for targeted digital currency legislation in the near-term, Moy was apprehensive. He said that too many members of Congress simply don’t have a strong enough understanding of bitcoin and the underlying technology to effectively draft laws to govern them.
“It’s probably not a good time to ask Congress to get engaged. Because even when Congress is working well, what you end up getting out of Congress is less than what you wanted at the outset. There’s that old joke in Washington: that the definition of a camel is a race-horse designed by a Congressional committee.”
Bank integration of bitcoin possible
Moy explained that the broader financial and monetary frameworks could come to integrate bitcoin should the regulatory environment clear up. He said that major banks like JPMorgan Chase, Citibank and Bank of America have established teams of experts focusing exclusively on digital currency.
More likely, he said, is that the bitcoin protocol will be integrated within existing banking or payments systems in order to tap the security benefits afforded by encryption. This is a sentiment expressed previously by bankers who have publicly noted the benefits of block chain technology in a payment-system context.
However, Moy said the presence of legacy systems – and a vested interest in maintaining and profiting from them – could pressure banks to stay away from bitcoin. Nonetheless, the technology itself may prove beneficial if adopted in targeted ways.
“They know that legacy systems cost more and more to maintain. It was built for one era but it won’t last another era. [Banks are looking at] ways to improve that, or come up with a replacement using some of this protocol to make things more secure and less costly.”
The evolution of money
Moy explained that ultimately, bitcoin represents a possible step forward in the debate surrounding the exact definition of money itself. What we’re seeing now, he said, is a broad decentralization of money that the technology underpinning bitcoin has made possible.
In its infancy, money was used as a medium of exchange to replace the action of bartering. Precious metals served in this capacity for hundreds of years until paper monies emerged that were backed by the value of gold. This was the framework until the mid-twentieth century, when between the 1930s and 1970s governments worldwide shifted to fiat currencies, which are backed by the legal establishment of the countries that issue them.
This evolution is a process by which our ideas of money – and the trust placed in a given currency – have changed. Moy explained that bitcoin is step away from currencies backed by trust in a government and toward a medium of exchange that is supported by whatever the market deems it to be.
“Does bitcoin have a value? Absolutely it does, because the market says it does. As long as there’s confidence in bitcoin, by the market, that is an evolutionary step from having confidence in a sovereign government.”
Moy said that it’s unlikely bitcoin will replace the US dollar or other fiat currencies directly in the near-term. He argued that digital currencies will co-exist with other currency systems, adding that history demonstrates how diverse mediums of exchange can and often do develop a purpose over time.