Andrea Borroni. Banking & Finance Law Review. Volume 32, Issue 1. November 2016.

Over the past years, the virtual world has given rise to a new conceptualization of money and currency exchanges, fostered by the ongoing progress in the field of Information Communication and Technology (ICT). Cash payments seem to be obsolete, supplanted by mobile payment systems, electronic money, and the flourishing category of virtual currencies and cryptocurrencies, whose most debated example is represented by bitcoin.

Presently, another regulatory challenge lies ahead: identifying the proper legal framework-if any-applicable to cryptocurrencies.

So, the essay aims at analyzing the main features characterizing these innovative “currencies,” the risks inherent in their architecture, as well as the benefits they offer, with a specific focus on of bitcoins and on the subjects best suited to regulate them.

Introduction: The Latest Frontier of Money

Typically, the advent of a new technology brings forth a potential revolution along with it. In contrast to the scientific and technological breakthroughs that changed social and economic patterns throughout history, today’s greatest innovations involve information, communication, and technology (ITC). In particular, the technological improvement which has had the broadest impact on our daily life is, without any doubt, the Internet: by means of a computer connected to the Internet every individual can immediately become part of a universe of information, products, and services.

Obviously, the influence of such innovation does not spare the law. The introduction of new technologies into our society is inevitably associated with the rise of new legal issues and the need to make adequate regulatory choices. As a matter of fact, the advent of the Internet actually reshaped the domain of economics and finance, allowing for less expensive and more efficient commercial transactions and, at the same time, prompting a new conceptualization of money. Money could now easily be transferred via mainstream IT devices (such as, ATM, credit or debit cards) and the Internet. But the innovations did not stop there, and new forms of “money” were invented, namely, the so-called cryptocurrencies, such as bitcoins.

Hence, the gradual adjustment of the concept of money to the new social and economic circumstances which occurred over time has been tremendously expedited in the past decades by the technological achievements of the ITC domain.

Since the repeal of the gold standard in most (if not all) countries, money is considered a numeraire, that is, a “nominal signifier of value that does not contain any value itself,” but which represents the final outcome of a social convention. Such a concurrent ordinary and obscure nature of money was already described by Savigny, who, in 1851, wrote about the rather mysterious legal quality of money as opposed to other goods.

On top of that, in recent times, the notion of money has become more and more linked to economy, and in particular, to the monetary policies adopted by governments, rather than to the law, which consequently further complicates the task of providing a clear-cut definition or outline of it.

This essay, therefore, hopes to offer some suggestions as to how the germ of the new means of payment may be incorporated into the current legal systems, by investigating the latest developments in the domain of digital payment systems, addressing specifically bitcoins and their architecture. In particular, this article will focus on the challenges currently faced by the legal domain in dealing with such innovations, taking into account the contingent developments and the challenges cryptocurrencies pose to regulators.

Bitcoins

Bitcoins represent the ultimate and successful outcome of a number of (failed) attempts, starting from the 1990s, to create an online decentralized currency. They have been described as a “masterpiece of technology” whose peculiarity consists in being a purely market-based cryptocurrency.

In 2009, Satoshi Nakamoto (a pseudonymous hacker) published a paper on the Internet, where he delineated a system consisting of a network of computers running a special software that enabled each machine (called a miner) to solve specific algorithms and be consequently awarded bitcoins; he was successful in concretely implementing such a project and, thus, bitcoins were born. Bitcoins are thus distinct from conventional commodity-backed currencies.

Furthermore, bitcoins are not denominated in an existing currency; therefore, the price of each bitcoin is uniformly determined by the market price, and there is no fixed exchange rate between them and conventional currencies.

In practice, bitcoins are private digital resources that can be traded online via an established peer-to-peer network.

It is noteworthy that, even though bitcoins are digital, “every individual bitcoin is unique and can only be held by one entity at any given time.” Besides, the amount of available bitcoins is finite, meaning that only 21 million are planned to ever be produced.

Once a bitcoin has been mined or purchased, it becomes “similar to a computer file that can be visualized as a coin on a desktop” stored within a virtual wallet and transferred as easily as e-mails via the Internet. Security protocols embedded in the online bitcoin network provide users with the necessary protection against (many types of) fraud, while ensuring the system’s proper functioning.

In particular, the Bitcoin network relies on the principles of cryptography to process and validate transfers of bitcoins. Each transaction on this network is recorded on a decentralized public ledger, called a blockchain, that is visible to all computers on the Bitcoin network and does not reveal the identity of the parties involved in the transaction, because each user’s identity is encrypted. This public ledger verifies that a user transferring a specific number of bitcoins has in fact transferred the specific amount to the user and that the user is in fact receiving that very number of bitcoins.

In short, this peer-to-peer network serves a twofold purpose: mining bitcoins and recording bitcoin transactions. Hence, the entire network keeps tracks of all transactions as if it were a huge public ledger.

So far so good.

Yet, the fuss about bitcoins is justified by a noteworthy peculiarity of the system: It was expressly designed to function without any interference or control by a third party (be it either a bank or a credit card company) or a central issuing authority, which could manipulate the system; in light of this, some have gone as far as suggesting that: “currency [.. .] is exactly like religion. It’s based entirely on faith.”

Given the architecture of the bitcoin system, individuals engage in transactions with each other directly, without any intermediary and, in some cases, even anonymously, without third party’s oversight.

As a matter of fact, all cryptocurrencies, like bitcoins, may “have the potential to challenge government supervision of monetary policy by the disruption of current payment systems and the avoidance of existing regulatory schemes.”

Furthermore, since such currencies offer the possibility to carry out transactions anonymously, they could be employed not only for licit privacy reasons, but also to accomplish unlawful (and even despicable) activities, as in, for instance, the Silk Road case. Silk Road was a largely known online marketplace for drugs, erotica, fake IDs, and other illegal goods. In October 2013, the FBI shut down the website and arrested the owner, William Ulbricht; furthermore, according to the reports, by the end of the same month, U.S. government authorities “had seized more than 33.6 million USD worth of bitcoins belonging to Ulbricht.”

Besides, some argue that cryptocurrencies do not grant the necessary protection to consumers, especially in relation to consumers’ rights to prompt and full redemption of funds.

On top of that, another problem is that national governments would never allow a massive storage of value in a currency beyond their control, because this would undermine their exclusive seignorage rights arising from the issuance of legal tender.

It follows that states are having a hard time deciding how to handle this issue, and, specifically, whether or not and how stringently they should regulate it.

And it is not uncontroversial that bitcoins should be considered money.

Those in favour of such reconstruction (i.e., most proponents of bitcoins) draw a parallel between the aforementioned evolution of money and the creation of bitcoins. In particular, they argue that bitcoins have been launched into the market as if they were one among several commodities available to users, and, owing to their scarcity and ease of circulation, they have gained in value and, consequently, they may evolve into a form of money if the majority of market participants eventually acknowledge their benefits.

The main shortcoming of this argument, however, lies in the fact that people already have a medium of payment and exchange in traditional currencies; hence, bitcoins could at best constitute an alternative or a competing monetary system.

Nonetheless, the conventional understanding of money, as described above, is challenged by an alternative constitutional theory, according to which money is a “constitutional project […] with transfer-enabling properties that have a ‘real value.'”

In fact, owing to historical and practical circumstances, people could not have spontaneously turned to coins, but rather started to mint them as a form of governance, i.e., as a way through which the sovereign authorities could carry out their activities.

However, either way, today, bitcoins can hardly be considered money, for they constitute “a difficult medium of exchange and a poor unit of account and a store of value.”

Regardless bitcoins have been relatively successful for “micropayments and crowdfunding, but also payments related to the online sale of illicit goods [. ..] or subversive actions against oppressive regimes like Iran and Russia” owing to the fact that transaction costs are much lower, as opposed to the traditional methods of payment, in addition to the fact that such transactions can be completed more quickly than traditional wire transfers, and that bitcoin transactions may help circumvent attempts at censorship.

Concerns, however, have been expressed as to the vulnerability of the system, and the need to improve cyber-security so as to avoid any breach or violation of users’ accounts. Moreover, the degree of vulnerability of the system is further enhanced by the fact that bitcoin transactions do not occur at the same time, namely with “an instantaneous debit and credit of the payer and the payee, respectively.” The period of time between the payment and the receipt of such payment depends, in fact, on the mining activity. The nonsimultaneous occurrence of bitcoin payments may lead to the so-called ‘double spending:’ since such transactions are not completed in real time, fraudulent bitcoin users may employ the same bitcoin to purchase two different goods or pay two different people, splitting, in so doing, one bitcoin transaction into two (which is named fork transaction).

Bitcoins From a Legal Perspective

De iure condito

Legal systems, faced with the new challenges posed by bitcoins, have, to date, adopted four different approaches. There are countries where no action has been taken to regulate cryptocurrencies as an independent entity. There are countries where bitcoins have only been regulated for tax purposes, others where the use of bitcoins has been prohibited or otherwise curtailed, and, finally, a few countries where cryptocurrencies have been recognized as a form of currency.

At this time, the majority of countries do not regulate cryptocurrencies. Among these, are Alderney, Argentina, Australia, Belgium, Canada, Chile, Croatia, Cyprus, Denmark, Estonia, the European Union, France, Greece, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Malaysia, Malta, the Netherlands, New Zealand, Nicaragua, Poland, Portugal, Russia, Singapore, South Korea, Taiwan, and Turkey.

This should not surprise, since cryptocurrencies are a comparatively novel phenomenon that have not yet gained much traction in mainstream society; by nature, legislation generally only occurs when a phenomenon has become relatively common.

Among the countries which have only regulated cryptocurrencies for tax purposes, it is possible to include the United Kingdom, where bitcoins have been classified as “single purpose vouchers … [subject] to a value added tax of 1020%,” but also Norway, Spain, and Finland, which “assess bitcoins as capital property subject to a value-added tax of up to twenty-five percent,” whereas Slovenia and Israel tax bitcoin-derived profits as income.

While these countries have begun to regulate cryptocurrencies, they only do in a limited fashion, which does not resolve most of the doubts concerning the nature and regulation of virtual currencies.

The countries which have banned or curtailed the use of bitcoins include Thailand, China, and Iceland. In particular, in Thailand, the national bank declared the use of cryptocurrencies illegal; on the other hand, China did not outlaw the use of bitcoins, but “the People’s Bank of China and four other ministries and agencies announced that banks and payment companies were prohibited from dealing with the coin.” Finally, in Iceland, the use of bitcoins has not been forbidden per se, but it has been clarified that “engaging in foreign exchange trading with bitcoins is prohibited, based on the country’s Foreign Exchange Act.”

The most interesting countries, however, are the ones where cryptocurrencies have been recognized as a valid form of currency, for “in doing so, these jurisdictions appear to be leveraging concepts from traditional financial regulation and adapting them for use with virtual currencies.”

One such country is Brazil, where Law No. 12,865 of 9 October de 2013, Article 6-VI allowed for the creation of “electronic currencies.”

But bitcoins are regulated also in Germany and Sweden.

In particular, Germany considers “Bitcoin exchanges as financial service companies that “must fulfill strict standards of operation” including meeting initial capital requirements, maintaining certain professional qualifications, and reporting transactions to Germany’s financial regulator, BaFin,” whereas Sweden has found that Bitcoin constitutes “a financial service, subject to a mandatory reporting requirement.”

This short overview makes it clear that, to date, there has been no uniform regulation of cryptocurrencies. Most countries have not yet tried to regulate this phenomenon, and the ones which have tried have adopted widely differing approaches.

In particular, “various regulatory bodies have acted independently to provide guidance as to the treatment of virtual currency under the laws within their purview,” which has led to increased clarity, but has also resulted in “(1) a lack of inter-agency communication such that the resulting regulatory framework may be fragmented and lack cohesion; (2) difficulty in developing regulation tailored to the unique characteristics and risks of virtual currency; and (3) a failure to give sufficient consideration to the full breadth of regulatory issues raised by decentralized virtual currency such that the resulting regulatory framework may suffer from an unintended oversight in scope.” This is particularly problematic, for it makes the international circulation of bitcoins difficult, if not impossible.

De iure condendo

Bitcoins present a number of challenges in comparison to the other digital means of exchange which have preceded them. Because of its decentralized nature, the bitcoin system evades the traditional patterns of state regulation, the lack of a provider or issuer that may be held accountable, or a central database; instead, there is a community of users which exists merely in cyberspace.

In light of this, it is worth examining which regulatory alternative would actually be the most efficient in terms of interests of both bitcoins’ users and national governments.

Three potential regimes are therefore investigated: (i) prohibition, (ii) selfregulation, and (iii) intermediary regulation.

Typically, prohibitive measures are adopted only when the harm that may derive from the use of a technology outweighs the social benefits resulting from it.

Hence, regulators are likely to take prohibitive measures against bitcoins if this cryptocurrency were primarily used for unlawful purposes, and only few advantages were acknowledged. Besides, bitcoins might be outlawed if they actually posed a threat to an existing fiat currency, and, in particular, to the seignorage income of governments.

However, according to the proponents of this alternative system, so far, none of the aforementioned reasons actually exists: Bitcoins are used mainly for legitimate purposes, and the economy created by the system is still too small to compete with national currencies or undermine international economic stability. Furthermore, the recourse to prohibition commonly leads to inefficiencies from an economic viewpoint. First, banning bitcoins would result in ruling out also its inherent benefits; second, the prohibition of its use may inhibit the evolution of technology in the domain of e-commerce. Finally, enforcing such a prohibition would entail very high costs and turn out to be a legal fiasco because it would restrain the use of the system solely on the part of law-abiding citizens, but not on the part of criminals. It follows that, presently, the prohibition of bitcoins seems unlikely.

Some, however, oppose regulating bitcoins, arguing that doing so would stunt the natural development and growth of this system, would “drive exchanges to countries with lower compliance standards,” and would cause a surge in transaction costs.

These arguments fail to convince.

In particular, it stands to reason to expect that regulation would boost investors’ confidence, leading to an increase in the number of bitcoin transactions. And while it is true that this may lead to an increase in transaction costs, these would “would be minimal compared to the costs of losing bitcoins due to lack of consumer protection,” especially in light of the fact that, currently, such transaction costs are the lowest, compared to all alternative online payment methods, and, therefore, would continue to be competitive even if increased.

Furthermore, if a market is faced with the threat of prohibition, it commonly reacts through self-regulation, and this is precisely the regulatory pattern presently characterizing the bitcoin system. Many maintain, in fact, that the relationships among users within cyberspace should be governed by “social norms and market mechanisms [. . .] without the need for state intervention.” Nonetheless, since the Internet has evolved over the decades and has become an important medium for commercial exchanges, self-regulation may no longer be the best solution, for inequities are bound to arise.

Moreover, as regards bitcoins, a specific problem lies in the fact that the system’s transactions are virtually irreversible owing to the computer power which secures them, which ends up benefiting merchants and retailers, who are safeguarded against fraudulent practices carried out by dishonest buyers, but, at the same time, fails to protect buyers from dishonest merchants or retailers.

The only means developed by the network to ensure part of said protection to consumers are reputation systems and escrow services. The former enable the defrauded buyer to publicly complain about the merchant on a forum, so that the other community members would no longer trust the merchant. However, this mechanism cannot prevent fraud from occurring, and the potential for anonymity provided for by the bitcoin system is likely to exacerbate this problem. As to large-scale criminal activities, the self-regulation attitude of the system has resulted in the development of specific software programs, called autonomous agents, that prevent such activities by scanning large amounts of financial transactions involving the exchange of bitcoins in search for irregularities. However, such programs are not largely applied by bitcoin exchanges. Furthermore, the major shortcoming of the system lies in the fact that it cannot tackle small-scale criminal activities. So, since “Bitcoin software provides no way to punish its users or to stop them from using it criminally, state action will be necessary to prevent such uses.” Hence, self-regulation has a limited impact which is sustainable only within small groups; therefore, this solution appears to be rather ineffective.

Luckily, lately law enforcement has demonstrated an ability to successfully thwart fraud attempts, as was the case when FBI shut down Silk Road; as Jeans pointed out, “the growing number of positive examples where existent laws are used to prevent bitcoin-based crime demonstrate why the creation of a wholesale specialized regime is unnecessary.”

The two above mentioned proposals, however, seem unviable when cryptocurrency becomes widespread. So, a third solution arises, the intermediary regulation, which in this case involves all activities surrounding the bitcoin world, and, above all, bitcoin exchanges.

As a matter of fact, for the most part, the operations involving bitcoins are accomplished through bitcoin exchanges, namely, entities that facilitate the conversion of the cryptocurrency to and from traditional currencies. It follows that also criminals who want to exploit the bitcoin system for money-laundering purposes or similar illicit aims should have to rely on these exchanges. As a result, bitcoin exchanges may constitute the starting point for the implementation of anticriminal mechanisms, which, in turn, represent the major concern expressed by legal systems as regards the otherwise almost neutral bitcoin phenomenon. Hence, to reach said objective, states may apply existing regulatory frameworks to the bitcoin system; for instance, in the case of the U.S., the system may be governed by the regulations of money service businesses, since bitcoin exchangers may be classified as money transmitters. If such regulation were applied, bitcoin exchanges would have to comply with a number of requirements, such as registration with the Financial Crimes Enforcement Network (FinCEN), the compilation of reports or records pertaining to criminal, tax, or regulatory investigations, and the implementation of anti-money -laundering programs, along with the need to keep records of customers’ identities.

The most evident advantage of the application of preexisting legal frameworks like the one just described is the fact that no additional undertaking is necessary to draw a new and ad hoc regulation of bitcoins, because the existing provisions would achieve the desired purpose without any need for amendments. Nonetheless, since bitcoins constitute a transnational phenomenon, domestic regulation is not suitable to handle all issues of private international law that may arise in relation to bitcoin transactions.

Indeed, this shortcoming may be partially tackled by the so-called legal interoperability approach, which is a regulatory mechanism that does not entail regulation through direct state action. The concept of legal interoperability has been defined as “the working-together among legal norms, either within a given legal system of a nation state (e.g. Federal and State legislation) or across jurisdictions or Nations.” Within an increasingly intertwined digital society and economy, policymakers should make attempts to increase the interoperability of policies and rules, in view of the fact that we are heading toward a multilevel governance system, within which cooperation and interconnection of the various layers are unavoidable elements.

This approach would bring forth the following advantages: (i) the reduction of costs associated with cross-jurisdictional business transactions; (ii) the further promotion of innovation, competition, trade and economic growth (at least in the ICT domain); and, (iii) incentives for the worldwide recognition of fundamental values and rights, such as information privacy and freedom of expression.

In short, this is predicated on the idea that more and more legal institutes fall outside the scope of states’ regulation, and therefore have to be regulated at the supranational level.

Regardless, while regulation of the bitcoin phenomenon is necessary to prevent fraud and harm to the international economy and to national currencies, regulators should be careful and adopt a “delicate approach,” for excessively restrictive legislation might “spark innovation to circumvent these controls and foster the development of new cryptos, reduce demand for the established cryptos, and harm the international economy.”

Then again, some scholars argue in favour of an even softer approach, whereby regulators should not create new rules, but rather adapt the existing framework to make transactions safer and more transparent, by “promoting] enhanced public-private cooperation […], pursu[ing] tougher enforcement on non-compliant Bitcoin exchanges […], and advocat[ing] for more active filings of Suspicious Activity Reports.”

For others, instead, the way to go is not for countries to regulate this phenomenon directly, but rather to facilitate the creation of self-regulatory organizations, non-governmental organizations that formulate and enforce best practices to protect consumers, or other forms of self-regulation, because, they argue, “there is something special about Bitcoin that makes it inherently resistant to government control.” Specifically, the bitcoin is predicated on an opensource protocol, which can be modified and regulated by those who use it. In particular, the fact that system changes have to be accepted by the system users is evidence of the network’s self-regulating capability.

More problematic than this lack of consensus, though, is that, at present, national parliaments as well have chosen widely differing approaches, as discussed in the previous section, and the most influential supranational entities have so far been silent on the issue. This is evidently not sustainable in the long run. Recent developments have made the situation even more complex.

First, a collective of bitcoin miners has come to light, “controll[ing] over forty-two percent of the computer processing power of the bitcoin network,” a percentage dangerously close to fifty percent, which would give a group of people the power to assert control over the bitcoin system. Contemporarily, though, hundreds of new and competing cryptocurrencies have seen the light (some of which, such as NXT, rely on a system which would make it impossible for anyone to assert control over most of the mining processing power within said system), although they are unlikely to replace bitcoins any time soon, owing to the network effect, namely “the capital investment already made by the system’s participants-miners, merchants, and simple users.”

However, in spite of these difficulties, it cannot be denied that someone needs to regulate cryptocurrencies to protect both individuals and the global economy.

Who Should Regulate Bitcoins?

In light of Internet’s ability to cross borders and allow people from different countries to communicate with, and, more than that, have commercial transactions with, each other, a uniform legislation of the cryptocurrency phenomenon is necessary, otherwise, as Jeans shrewdly pointed out, bitcoins will face the same problems faced by automated cars, “where the necessity of adherence with disparate local legislation impedes the implementation of advantageous technology.”

Among the possible entities that could regulate cryptocurrencies it is possible to include the European Union (E.U.), the World Trade Organization (WTO), and the International Monetary Fund (IMF). Of these, the E.U. is probably the least appropriate, because its scope is too narrow, it being only a regional entity, and so it would only be able to provide a partial solution. And, on top of that, since bitcoins also involve tax matters, regulating them would require unanimity, which is difficult to achieve.

Some maintain that the WTO would be better suited than the IMF to regulate cryptocurrencies, because of its novelty and the fact that the technology behind cryptocurrencies is rapidly changing; accordingly, “suggested IMF regulation will only prove feasible if both the industry stagnates and the regulation does not spur innovation,” which the author does not consider likely. The regulation of financial instruments or similar legal institutions falls squarely outside the WTO’s scope.

The IMF is, in this author’s opinion, better equipped to deal with cryptocurrencies, since “the IMF’s primary purpose is to ensure the stability of the international monetary system-the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The IMF’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.” And among its original aims there was the promotion of exchange stability and, above all, “the establishment of a multilateral system of payments.”

The problem however is that to bring bitcoins under the IMF’s purview, it would be necessary to amend the “separate currency” provisions, which would result in a modification of the quota requirement.

An alternative approach would be to hold an international conference for the purpose of drafting a multilateral agreement under the aegis of the IMF, a process which has been successfully followed on various occasions, to come up with uniform, supranational regulation.

It follows that the process of legitimization of bitcoins would involve a “clean up of the current image associated with criminal activities;” this, however, shall be complemented by the endorsement of bitcoins by large companies (which decide to accept the cryptocurrency as a means of payment) as well as by transnational financial institutions, such as, for instance, the IMF, which Plassaras maintains may “mitigate the impact of bitcoins on foreign currency markets” by bringing [bitcoins] within its reach under the category of ‘separate currencies.'”

Conclusions

In such a morass, legal systems worldwide are currently faced with hard decisions: whether to prohibit bitcoins outright or to regulate bitcoins and bitcoin-like products, and, if so, who is best suited to do so.

Typically, in case of particularly groundbreaking innovations, we experience a sort of legal inertia, which may be caused by two things: 1) the initial disorientation pervading the legal domain in dealing with revolutionary legal categories and institutions, and 2) that any regulation, once adopted, would turn out to be-in all likelihood-obsolete due to the extremely fast technological evolution.

This is particularly true in light of the fact that, when it comes to cryptocurrencies, it is no longer possible to follow the same pattern followed in the past, whereby only few intermediaries had to be regulated to pursue public policy goals. In this case, in fact, since the system entails a great number of users all interacting with each other on a peer-to-peer basis, the costs of regulating this network may well end up outweighing the potential benefit inherent in such regulation.

And it is exactly for that reason that experts urge regulators to be prudent and adopt careful policies, aimed at “encourag[ing] resilience and adaptation by existing institutions.”

Furthermore, the difficulty in regulating ICT innovations is enhanced by the very nature of digital technologies which, notwithstanding their impact on domestic legislations, are essentially located outside the conventional boundaries of national jurisdictions.

Cyberspace, and the various activities occurring inside it, amount to a world which is not identified by geographic features, and which, as such, may also be classified under different legal institutions and be governed by specific provisions. Not to mention that, even removing traditional bitcoin transactions from the equation, the next frontier of bitcoin regulations will have to focus on far more complicated issues, such as derivatives and other financial instruments and prediction markets.

By virtue of their understanding, in the past, it has been suggested that online activities ought to be regulated by laws which should not be linked to specific legal or geographical areas, such as for instance the lex electrónica, which would strengthen the case for regulation by a supranational organization or alternatively through international instruments. At the same time, though, careful thought shall be given to the consequences of bitcoin regulation, as well, because if governments and international organizations exceeded in overregulating this domain, the benefits attached to it would definitely disappear.

Perhaps, it might be argued that the adoption of a wait and see attitude may be a valid alternative, at least for the moment, notwithstanding the potential economic benefits arising from the regulation of bitcoins. This option would in fact enable states to observe the evolution of bitcoins over time before taking the appropriate measures. Actually, it is still too early to predict bitcoin’s future and we may even witness an unexpected-though not so unusual-development: The bitcoin system may eventually implode (due to market forces) or be replaced by either more advanced cryptocurrencies or new and still unknown means of payments, and this would make any attempt to regulate the system basically useless. Then again, it seems that the bitcoin phenomenon is not merely a fad and, “just as BitTorrent was not the first file-sharing service and Skype was not the first voice-over-Internet service, it may be that bitcoin will be a pioneer in the field of virtual currencies, but will be overshadowed by an easier-to-use rival.”

And this opinion seems correct, since bitcoins are more and more widely accepted. For instance, Wikipedia, the self-described “free-access, free-content Internet encyclopedia,” started accepting donations in bitcoin form in 2014, and, in the same year, the U.S. Federal Election Commission determined that political contributions could legally be made using bitcoins. Then there is the quaint case of the two schoolgirls who opened a lemonade stand and accepted bitcoins.

In this context, Hayek’s words may ring almost prophetic. In fact, in 1976, the economist proposed that, in order to have “stabler” currencies and less unemployment, states should no longer have the monopoly on money, substituting it with the competition among private banks supplying the market with money just like all other enterprise supplies goods and services, completely dissolving the concept of a central bank capable of generating money. Such a proposal is still topical today, especially now that the E.U. has introduced a common currency. On the other hand, it could be said that it seems an impractical and risky project, so far.

In the end, leaving aside the unproductive effort to categorize and regulate bitcoins themselves, the law, and in particular legislators, will have to, in the first place, acknowledge the existence of cryptocurrencies and focus on what surrounds them and how they can make provisions concerning them, since all the available evidence points to fact that they are here to stay.

And, for that, it is time for regulators to sit down at the table, to start discussing the issue with an eye toward making lasting decisions.