It Wouldn’t Be So Easy to Ban Bitcoin

A ban, which has been suggested by Sen. Joe Manchin, could follow several possible courses. Each of them would pose major challenges.

National Journal
Catherine Hollander
Feb. 27, 2014, midnight

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Could you make bit­coin il­leg­al in the United States? Sen. Joe Manchin, D-W.Va., wants to, his of­fice said in a state­ment Wed­nes­day. The state­ment ac­com­pan­ied a let­ter from the sen­at­or to six bank­ing reg­u­lat­ors call­ing for them to “take ap­pro­pri­ate ac­tion to lim­it the abil­it­ies of this highly un­stable cur­rency.”

That could mean a lot of things. Manchin asked fed­er­al bank­ing reg­u­lat­ors to ban the di­git­al cur­rency, but if they de­cline to do so (and they’ve giv­en no signs of mov­ing in that dir­ec­tion at the mo­ment), his wish could re­quire an act of Con­gress. It’s not yet clear that Wash­ing­ton’s ap­par­ent em­brace of the de­cent­ral­ized, com­puter-based cur­rency this fall will weak­en in light of the news that a well-known ex­change col­lapsed this week, with users’ money be­lieved to be miss­ing. Sen. Tom Carp­er, D-Del., who chairs the Sen­ate Home­land Se­cur­ity and Gov­ern­ment­al Af­fairs Com­mit­tee, said in a Tues­day state­ment that the news from the Ja­pan-based Mt. Gox ex­change was “un­ac­cept­able” and pledged to work with rel­ev­ant gov­ern­ment agen­cies to make sure noth­ing like that happened in the United States.

As reg­u­lat­ors and law­makers con­tin­ue to con­sider how bit­coin fits in­to the coun­try’s eco­nom­ic eco­sys­tem, there aren’t any signs of mo­mentum for le­gis­la­tion to clamp down on the vir­tu­al cur­rency, which was in­tro­duced by a mys­ter­i­ous pro­gram­mer or pro­gram­mers un­der the name of Satoshi Na­kamoto in 2009 and is “mined” by com­puters that solve com­plex equa­tions. But if Manchin were able to rally the sup­port of his col­leagues for his ban, he could pur­sue a few dif­fer­ent courses of ac­tion.

Law­makers could crim­in­al­ize the crypto­cur­rency, like marijuana, and make it il­leg­al to pos­sess or sell bit­coin. The down­side to that strategy might be the cost of en­force­ment. “It would seem to me that en­for­cing or hav­ing bit­coin be il­leg­al would be an un­wieldy pro­cess,” said Bar­rie Van­Brackle, a part­ner at Man­att, Phelps & Phil­lips who prac­tices in the pay­ments trans­ac­tion busi­ness.

The gov­ern­ment could also ban busi­nesses from ac­cept­ing bit­coin in ex­change for goods and ser­vices. Right now, the Na­tion­al Bas­ket­ball As­so­ci­ation’s Sac­ra­mento Kings and on­line dis­count re­tail­er Over­stock.com are among the high-pro­file busi­nesses that say they will ac­cept the di­git­al cur­rency. Law­makers or reg­u­lat­ors could block banks’ abil­ity to trans­act in bit­coin, as well.

“I don’t think it would very ef­fect­ive,” Ju­dith Rinear­son, a part­ner at Bry­an Cave who has worked with bit­coin com­pan­ies, said of bans and crim­in­al­iz­a­tion. “I think it would just drive it un­der­ground any­way, which would not be in any­one’s in­terest.”

Reg­u­lat­ors or law­makers could try a de­terrent ap­proach in­stead of an out­right ban by, say, telling busi­nesses that if they used bit­coin, they would be sub­ject to a man­dat­ory and auto­mat­ic audit. Fail­ure to reg­u­late bit­coin might also de­ter some wary users from pick­ing up the di­git­al cur­rency, if they knew they wouldn’t have re­course if a U.S.-based ex­change failed, for ex­ample.

For now, state reg­u­lat­ors have been largely mum on their next steps, ex­cept New York, whose su­per­in­tend­ent of fin­an­cial ser­vices said was con­sid­er­ing a spe­cially tailored li­cense for bit­coin firms with­in its bor­ders. So have fed­er­al reg­u­lat­ors. The Treas­ury De­part­ment’s Fin­an­cial Crimes En­force­ment Net­work, which has been the most vo­cal, is­su­ing guid­ance on the vir­tu­al cur­rency, had no com­ment on the Mt. Gox is­sues on Wed­nes­day. Manchin wants them to come out force­fully against bit­coin; there’s just no sign of that — yet.
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