On the surface, everyone knew that it would happen. Some country seeking to control capital would undoubtedly ban or rule illegal a decentralized currency like bitcoin. Now it has happened, but from an unexpected place.
A baffling decision by Thailand
If you would have made a guess a week ago about the first country to ban bitcoin, would Thailand even have been in the top five? The top ten? There are a number of autocratic countries in the world that many could have seen doing something like this, but Thailand’s decision came seemingly out of nowhere.
One of the tenets that Satoshi Nakamoto set in his seminal paper on the Bitcoin network was the abolition of third parties being required for payments. The concept of bitcoin is to avoid third parties, “allowing any two willing parties to transact directly with each other without the need for a trusted third party”. This third party, in effect, is a financial institution.
In Thailand’s case, they did not want Bitcoin Co. Ltd. to circumvent that third party of control. In Thailand, that is the Bank of Thailand. The Bitcoin Co. Ltd. exchange had been trying to get the approval of the Bank of Thailand for some time. But, when they finally understood they would get looped out as the third party, that was enough to hear.
Could corruption play a part?
The CIA World Factbook states that the Thai economy has “a well-developed infrastructure, a free-enterprise economy [and] generally pro-investment policies”. Yet in 2012, Thailand had one of the highest prime lending rates in the world, at 7.1%. The prime lending rate is what central bankers use to set interest rates for loans and guide an economy.
While unemployment figures are very low in Thailand, that interest rate number seems high. This is especially true for a country that suffered a devastating flood in 2011 that left a trail of economic disruption – traditionally banks would provide stimuli to encourage growth. But it may be because corruption is a normal and public fixture in Thailand. This may explain the central banks’ lending policies.
The world corruption index ranks Thailand 88, which is middle of the pack but fairly low for a country that is well-developed and has a thriving services industry that makes up half of the economy. Those factors are commonly associated with a fairly advanced nation.
Think about this: one of the few bitcoin exchanges in Thailand is now closed because the buying and selling of bitcoins is deemed illegal. Does anyone really think that is going to stop Thai citizens from buying and selling them?
The existence of Bitcoin Co. Ltd. is enough to show that there are a number of people in Thailand holding bitcoins. It’s entirely possible that Thailand would be a place that if it was legal, a bitcoin economy would flourish. Just because the baht-based exchange is now shuttered does not mean that bitcoins exchanged there are worthless.
The actions of Bitcoin Co. Ltd. to meet with regulators shows a desire to be a part of the financial system. In fact, no matter what the authorities do, it already is. Yet the recent history of the people of Thailand staging uprisings in 2008, 2009 and 2010 has probably made the government wary.
With what Thailand is trying to do, consider what exchanges in other countries that want to control capital are now thinking. Prior to the meeting with that bank’s officials, Thai officials had signaled to bitcoin.co.th that BTC did not need to be regulated, as it was not part of a money transmission business. It’s clear now that they did not fully understand what bitcoin really was.
In the United States, many previously suspected that federal authorities would crack down on bitcoin. Surprisingly, that did not happen: in fact, the government decided to instead issue guidelines. Financial technology like bitcoin, they concluded, was not something that they could control. But they could regulate and monitor it.
Thailand and its banking regulators should think about doing the same. It’s clear that they did not expect the amount of media attention that such a decision would cause. But it seems, given the fact that bitcoin was deemed illegal in the space of one day, perhaps a rash decision might have been made by officials there.
The bitcoin black market
Thailand is known for its underground economy and loose legal regulations. If anything, they haven’t killed bitcoin. Actually they’ve made it the number one spot for a bitcoin black market. Jon Matonis, Executive Director of the Bitcoin Foundation, recently wrote in an article for American Banker that trying to make bitcoin go away doesn’t really work. “A throttled and neutered bitcoin in the ‘official’ economy would ultimately enhance its overall effectiveness via increased anonymizing measures and more robust decentralization”.
The Bank of Thailand’s Governor, Prasan Trairatworakun, has said that it cannot approve Bitcoin Co. Ltd’s business because it’s based on an exchange rate but bitcoin is not a physical currency (and therefore the company is not an actual currency exchange). What they have not realized or accepted is that bitcoin is a currency, just a digital rather than physical one.
So congratulations, Thailand. You’ve created for yourself a new underground facet of your economy. In your effort to remain in control of your financial system, you’ve created the first bitcoin haven. This to the detriment of everyone working to legitimize and maintain the current state of the bitcoin network.
Anyone who wants to avoid any sort of regulation that may eventually be placed upon bitcoin, anyone who disagrees with the efforts of the Bitcoin Foundation will just go to Thailand to do their bitcoin business. Because, as in what has happened in this instance, if you don’t understand bitcoin enough or take the time to consider it, how do you plan on stopping it?
Do you agree with the decision by Thailand to attempt to boot bitcoin from its financial system? What do you think about the concept of a bitcoin black market, a place where regulation isn’t even possible?