Saifedean Ammous
Associate Professor of Economics - Lebanese American University
Part of the Spotlight on Bitcoin & Blockchain

Bitcoin Regulation: It’s best to stay out of digital pioneers’ way

Takeaways

  1. Bitcoin is the only monetary asset whose supply is completely independent from, and inelastic to, changes in its value and demand.
  2. It creates a monetary system that does not rely on government or a central bank, so regulators need not do anything to control of support its development.
  3. Younger digital-first generations can more easily see bitcoin’s value proposition and the appeal of a decentralized, automated approach to money and value.

Action

Bitcoin is the automation of the functions of central banking. If it works, no political regulation or legislation is needed for it. Attempting to regulate bitcoin will not change or affect bitcoin, but will only hurt Canadians who are pioneering this new digital frontier.


What makes bitcoin unique as a currency, and how do you think it can re-shape our lives and future economy?

Bitcoin is the only monetary asset whose supply is completely independent from, and inelastic to, changes in its value and demand. With every other monetary asset, as people hoard it, its price rises, and more of it is produced, which in turn brings its price down. Gold was traditionally the one asset whose supply was the hardest to increase, which gave it a large monetary role, but bitcoin will soon be even harder. Provided bitcoin continues to survive and operate, I find the implications very interesting.

“Bitcoin might just be the most advanced technology we’ve ever invented for transferring value into the future.”

People can now store the value of their labour in something whose value cannot be diluted by others producing it. The harder a monetary asset is to produce, the better it is expected to hold on to its value for the future, the more people are likely to save for the future and delay consumption, and that leads to more capital accumulation and economic growth. Bitcoin might just be the most advanced technology we’ve ever invented for transferring value into the future. When you consider that it is also politically neutral, and its monetary policy and payment settlement are controlled by transparent rules, you realize this is an astonishingly interesting experiment in building a completely free-market alternative to government central banks, and after ten years, it’s exceeded anyone’s reasonable expectations as to what it could achieve.


How do bitcoin and blockchain redefine the way we are interacting with the digital economy, and how do you see this evolving in the future?

Bitcoin is a technology that allows for the automation of the functions of central banking: monetary policy and payment settlement. It replaces the central bank and all the attendant political and economic conflicts that central banking inevitably creates with neutral, apolitical, predictable, and reliable machinery. I believe that separating the political process from money supply management and payment processing will have an enormously beneficial impact on the world. Bitcoin is also a form of hard money. In other words, its supply cannot be increased as a response to increasing demand. Everyone in the world today has access to a hard asset protected from inflation, and if this continues to spread, I would imagine it would strongly encourage capital accumulation and improvements in living standards.

“Separating the political process from money supply management and payment processing will have an enormously beneficial impact on the world.”

Contrary to some of the more enthusiastic supporters of blockchain technology, I think that its only valuable function is that it has made bitcoin possible. In fact, I do not even believe it makes sense to talk of a “blockchain technology” outside bitcoin. It is more accurate to just understand the mechanism as an engineering solution that allows bitcoin to work.


What approach would you advise Canadian governments and regulators’ to take with bitcoin in order to lead the global pack in terms of its development and the opportunities that stem from it?

I do not think regulators need to do anything special to help bitcoin. They only need to stay out of the way of the people building it. Bitcoin creates a monetary system that does not rely on government enforcement. There is no need for any government intervention to make bitcoin work, nor can government rules overrule the stipulations of its code. Bitcoin is also unconstrained by political borders, and so any onerous regulation on bitcoin will be relatively easy to subvert by registering operations in another political jurisdiction. As such, regulating bitcoin is a fool’s errand. It is at best going to be ineffective as bitcoin companies leave the country. I believe the countries that will lead the world in building the bitcoin economy will be the ones that have the most hands-off approach to bitcoin regulation.

“The countries that will lead the world in building the bitcoin economy will be the ones that have the most hands-off approach to bitcoin regulation.”

Put simply, in the Canadian context, bitcoin is the automation of the functions of central banking. If it works, no political regulation or legislation is needed for it. Attempting to regulate bitcoin will not change or affect bitcoin, but will only hurt Canadians who are pioneering this new digital frontier.


Aside from government and regulators, who do you identify as the other key stakeholders in the bitcoin ecosystem, and what roles must they play to increase and accelerate the development and adoptions of bitcoin?

Although I am highly interested in bitcoin, I must say that I am not interested in promoting it and accelerating its development and adoption. I am not a salesman for bitcoin, I am an economist who studies it and is fascinated by it as an experiment. Bitcoin should grow at the pace of new people being interested in it and willing to invest the time to study and understand it. If bitcoin continues to operate successfully and continues to generate new demand, then its development will continue without anyone trying to accelerate adoption. If bitcoin fails for whatever reason, or if demand for it decreases, then no amount of promotion will save it.


How would you characterize the outlook of younger generations regarding the future of our global digital economy and the possibilities for innovation therein?

It is much easier for younger people to see the value proposition, because almost everything in their life is digital and automated, and yet, they find that at their heart banking and money continue to be run by sclerotic old institutions with government monopolies. Ultimately, money is a mechanism for communicating prices, which are information and knowledge, and information travels around the world at the speed of light. There is no reason why money should be different. And the shackles around its movement are largely a relic of a government monopoly system for the administration of bank clearance, which was itself a function of the fact that gold clearance is always expensive and requires the centralization of reserves. For the generations that have grown up online, it makes sense that a decentralized apolitical automated technology would do a better job in this than bureaucrats.

“Attempting to regulate bitcoin will not change or affect bitcoin, but will only hurt Canadians who are pioneering this new digital frontier.”