Bitcoin holds potential to act as “the Internet of money” if regulated correctly, according to a new report from Google policy advisor Andy Yee.
In an article for Internet Policy Review, Yee, who works as an analyst for Google’s Asia-Pacific division, argues that certain sectors of the bitcoin economy should be targeted with regulation modelled on existing digital frameworks.
Breaking the bitcoin ecosystem down into layers, Yee concluded that businesses that connect investors and consumers with digital currency should be subject to regulation.
In contrast, users and developers are a poor target, he added, because of the broader nature of the Internet.
“The logical and user layers are populated by private actors from the bitcoin community and real economy respectively. These actors are small and can easily escape from regulation and enforcement. At the information layer, intermediaries of various kinds have emerged to bridge the two networks. Their position in the Internet architecture enables them to capture information flows and identify wrongdoers. In addition, they are larger and more established actors, making them more amenable to state regulation.”
The paper goes on to advocate for a regulatory approach that allows innovation to take place while addressing the concerns of consumer safety advocates, financial regulators and law enforcement agencies.
Restrictions not needed
A concern often voiced by politicians and policy makers is that bitcoin, as a technology, is too opaque to allow for relaxed legal boundaries. This is why Yee and others suggest that any proposed rules should target services that actually handle people’s money rather than those creating cryptocurrency software.
Yee added that the block chain actually provides regulators with a trove of useful information.
As bitcoin is a pseudonymous transaction network – and research has shown that network identity has the potential to be deduced through pattern analysis – regulation shouldn’t be crafted with the mindset that digital currencies are too far in the digital shadow, he said.
Yee concluded that many of the same rules that apply to financial companies could be used to regulate bitcoin, but only after finding a happy medium that allows companies to thrive, saying:
“These laws and regulations of general applicability can in theory be applied to the emerging non-financial, information-based companies in the bitcoin economy. But a balance needs to be struck between eliminating instances of gatekeeper-aided wrongdoings and avoiding excessive burdens on gatekeepers.”
Illicit use a non-issue
Yee addressed bitcoin’s use in global narcotics markets, as well as other illegal activities, saying that regulators are right to target drug dealers but need to refrain from harming law abiding members of the nascent industry unnecessarily.
The debate shouldn’t be contentious, he adds, because criminals using bitcoin are likely to redeem it for fiat currency. At this point, those persons must interact with service-level companies that would fall under any proposed bitcoin regulation.
“Criminals need to go through intermediaries in this layer to exchange between the bitcoin and real economies. As a result, these exchange mediums collect and retain significant amounts of information, which can be utilised by law enforcement to detect money laundering and the underlying criminal activity.”
He concluded by saying that any legal framework targeting digital currency need to be founded on an “adaptive” approach. By doing so, financial regulators can “ensure that illicit activities can be deterred while ensuring that society can fully benefit from the innovation and creativity on the bitcoin network.”
Google’s bitcoin exploration
Notably, Yee is not the first Google official to go on the record and speak about the possible applications of both bitcoin and block chain technology.
For example, the company’s director of ideas, Jared Cohen, termed digital currencies “inevitable” at this year’s SXSW conference.
Bitcoin has been on Google’s radar as far back as 2011, when embattled Wikileaks founder Julian Assange advocated for the technology in a wide-ranging conversation with Cohen and Google chairman and then-CEO Eric Schmidt.
Further, Google itself now offers bitcoin price and conversion information.