While the South Korean government has rescinded its proposal of banning cryptocurrency trades, the regulation of online currency such as the bitcoin are still being established globally and may become stricter within the United States as well.
Cryptocurrency is digital and decentralized currency, independent of governments and controlled by its users. The most popular cryptocurrency is the bitcoin, which costs about $10,000 at the time of writing this article. Cryptocurrency is sometimes called “the future of money” because it reduces the frustration of going through banks (especially in international transactions), is available 24/7 and is based on algorithmic puzzle-solving.
Most currencies used by governments are fiat currencies, which means that the money is not backed by physical objects with intrinsic value such as gold. Most cryptocurrencies including bitcoin limit the total number of coins that will exist in the world. In this way, they imitate the gold standard, because unless we manage alchemy, there is only a limited amount of gold.
New bitcoins are added to the economy through “mining,” a process that confirms past transactions of other bitcoins in a public ledger known as a blockchain. In return, the miners earn some bitcoins that are now added to the total number of bitcoins. There will only be 21 million bitcoins total, and no more will be “mined,” or created, after that.
Part of the problem with cryptocurrency, though, is that alchemy is possible. Although the number of bitcoins is limited, the number of cryptocurrencies is not. Altcoins (short for “alternative coins”) are numerous and growing. The blockchain is open-source and so anybody can see and modify it. Because of this, people can and do replicate the success of bitcoin—but not everyone who creates altcoins is moral about doing so. Scammers are more than willing to take advantage of idealistic or trusting people.
Furthermore, cryptocurrency is anonymous in the sense that no personal information is necessary to use it, which makes it susceptible to abuse by criminals. Though the record of transactions is public, the people behind the transactions remain hidden. The anonymity of bitcoin and others like it make it possible for money laundering, extortion and other suspicious deals to occur.
There are also worries of speculation (people taking advantage of fluctuations) in the market for cryptocurrency, which will lead to a market crash and financially ruined investors and users. The market following the news from South Korea has been especially volatile; bitcoin and other cryptocurrencies have dropped over 40 percent.
In response to all these issues, it seems clear that some government regulation is necessary. In the United States, the U.S. Securities and Exchanges Commission, the Internal Revenue Service and the United States Department of Treasury are all keeping track of cryptocurrencies. However, most regulation on cryptocurrencies is met with pushback by the users of the currency.
Those in favor of unregulated cryptocurrency argue that crime such as money laundering will happen regardless of whether or not cryptocurrency is regulated.
The fact that crime would still happen does not mean that people should hand the avenues to criminals, however. If governments (on the federal or the state level) can figure out how to regulate responsibly, then they should absolutely do so. Regulation for the sake of consumer protection and crime prevention is not something that should be fought, as it would increase the security of cryptocurrency as well. Well-researched regulation targeting criminals by tracking suspicious transactions should not affect the majority of the cryptocurrency users other than to protect them, and that is something to be lauded rather than criticized.
Won Hee Kim is a second-year English major with a fraction of a sliver of a bitcoin.