Monday, May 19, 2014

Federal Reserve’s Bitcoin Policy Begins to Take Shape

Brian Cohen writes for Bitcoin Magazine:

 [T]he Fed is pro Bitcoin regulation:
“Regulation is advisable; considerations include protecting consumers, addressing illicit use, and avoiding Balkanization.”
In this regards they recommend, “Regulatory oversight to ensure that exchanges invest in appropriate cyber and other security measures. This includes fully secure storage of Bitcoin wallets.”
If (?) the adjective “fully” in regards to “secure storage of Bitcoin wallets” means that an exchange must hold the private key of a Bitcoin wallet it does not address how this would even be possible with a decentralized exchange. Actually I’m not entirely certain what the Fed actually means by ”fully secure storage of Bitcoin wallets” (a Google search first)? Perhaps they mean secure storage of Bitcoin? If (?) they mean wallets then we circle back to the theory that they would require that an exchange hold a user’s private key. Not just semantics?
The Fed’s direct involvement in Bitcoin at a policy level is likely to be triggered by one of two events.  The Fed notes that “Should adoption accelerate, banking could participate increasingly in Bitcoin fund flows, especially as multicurrency accounts proliferate and reputational concerns subside.”  Moreover Bitcoin could develop into a “systemic contagion of instability.” This would make Bitcoin no longer as Chairwoman Yellen put it, “taking place entirely out of the banking system.”
If Bitcoin were to be regulated by the Federal Reserve we could see an amendment to  12 U.S. Code § 262 if regulators were to clearly define the purpose of the Federal Advisory Council as related to Bitcoin.

The most significant point here is the Fed's call for "protecting consumers." I expect that at some point, under the guise of protecting consumers, government regulation will require that Bitcoin middlemen at the retail level, such as Bitpay, allow chargebacks against purchases made with Bitcoin, , in a manner similar to the chargeback process required of Mastercard, Visa, and American Express, if a consumer is unhappy with a product.

This will wipe out the low transaction cost advantage that Bitcoin now has. And, note well, as I have reported, Mastercard has recently hired 5 lobbyists to lobby on behalf of Mastercard and against Bitcoin.

5 comments:

  1. Oh boy, I can hear the army of bitcoin keyboard warriors clicking their way to this comment section now. I'm pretty sure some of them believe bitcoin will give them eternal life. I have to give the intelligence agencies credit here, bitcoin has been one hell of a success for them.

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  2. Dear Anonymous
    seems like the "army of bitcoin keyboard clickers' hasnt arrived yet ! !

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    1. You have to allow time for Mommy to wake them from their nap and feed/burp them. After they use the potty like big boys, then they'll log on and commence ranting. Patience, young padawan.

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  3. I believe the Fed is still to be audited. Who is going to protect the consumers from the Federal Reserve and its policy of lying and counterfeiting?

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  4. Bitcoin has stabilized in the past month in the $440-$455 price range. Maybe the Fed (or treasury) is undertaking transactions already to maintain 'price stability.' I believe they want digital payment mechanisms that they can control and manipulate. The Bitcoin early adopter crowd thinks they can't, they are dead wrong!

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