Bitcoin: The Napster of Currency

Abstract

III. International Response Until recently, there was a major concern that the United States was lagging behind other countries in addressing the Bitcoin phenomenon. (183) Fortunately, an early February report from the Law Library of Congress quelled these concerns. The comprehensive study examined the regulatory responses of forty nations to Bitcoin and concluded that only a few countries had officially addressed the currency from a regulatory standpoint. (184) Following the publication, several members of Congress hastily renewed discussion of the subject in the hopes that the United States could establish itself as an international leader on the matter of virtual currencies. (185) While the regulatory debate continues to take place at the Capitol, other world powers like Canada, China, and Germany have already implemented some form of a government-wide regulatory strategy. It is paramount that Congress and other high-ranking government officials closely monitor these countries' policies when designing the United States' regulatory strategy on virtual currencies. A. China The evolution of the Chinese government's reaction to Bitcoin offers an insightful analysis into the difficulties countries face when developing a regulatory framework for a cryptocurrency. Initially, it appeared that China was going to establish itself as the largest supporter of Bitcoin by allowing it to exist unburdened by regulation. In May 2013, the government unofficially gave its blessing to the currency when the Chinese government sponsored a documentary that aired on the state owned television broadcaster, CCTV, to inform the public of Bitcoin. (186) After this unprecedented public showing of government support, Bitcoin experienced a huge boost in popularity within the country; in fact, more Bitcoin clients were downloaded in China over the last seven months of 2013 than in any other country. (187) The Bitcoin economy in China is different than most other countries due to the fact that the relatively successful consumer market has been overshadowed by the massive investment and mining markets. (188) The immense size of the Chinese Bitcoin investment market is best demonstrated by the historic rise of over 500% in global value Bitcoin experienced solely in the month of November 2013. (189) This unprecedented rapid rise in value has been attributed to a large number of high net-worth individuals who invested millions of dollars into Bitcoin because they viewed Bitcoin as a more profitable venture than either the oversaturated property market or the stagnant stock market. (190) Out of fear that Bitcoin could disrupt currency controls, the Chinese government concluded that a regulatory strategy needed to be implemented. (191) In early December, the Peoples' Bank of China released a report discussing the regulatory framework that was necessary concerning Bitcoin. (192) The major takeaways from the report were that China would not officially endorse the currency as a legitimate form of payment and banks along with payment companies were prohibited from accepting the virtual currency. (193) In addition, the Chinese government announced that online Bitcoin exchanges were now required to file trading records, as well as adopt measures that would actively mitigate money-laundering risks associated with the virtual currency. (194) The government made it clear that citizens could still buy and sell Bitcoin, but the shockwave from this announcement resulted in Bitcoin's value plummeting nearly twenty percent in a single day. (195) As expected, many Chinese companies that had previously accepted Bitcoin announced they would no longer accept the currency as a means of payment. (196) In early January, the Chinese government's anti-Bitcoin stance finally reached the Bitcoin miners when China's largest online marketplace, Taobao, announced it was no longer selling any hardware, software, or tutorials that could be used in the mining of cryptocurrencies. …