After China says no to Bitcoin, should we stop thinking of it as a currency?
China's largest Bitcoin exchange, BTC China has been forced to stop taking Chinese currency. The move follows a reported meeting this week between payment processing companies in the country and the People's Bank of China, and a decision by national financial agencies in the country earlier this month that effectively banned dealing in Bitcoin, the so-called cryptocurrency -- which Marketplace Tech has been looking at all week -- seems either on the verge of collapse or going to the next level.
Eric Posner is a professor of Law at the University of Chicago who has been studying Bitcoin. He says people should stop thinking of it as a currency.
"It's more like a payment system that people can use to transfer dollars from one place to another, and the way you transfer your dollar is you buy a Bitcoin, ship it through the internet, and then the other person gets it and converts it into a dollar," Posner says.
One reason Posner says he's not bullish on the idea of Bitcoin as a currency has to do with the government's inability to control its supply. Governments, he says, need to be able to control currencies through economic highs and lows.
"f there's a recession, for example, you need to increase the money supply, and if there's a boom, you need to reduce the rate at which money grows," Posner says. "If the government has no control over the supply of the money that people use because people have used Bitcoin, it won't be able to use these instruments to help control the economy. I don't think the government would tolerate that, and I don't think the public would want the government to give up this important instrument. And, so I think the government would find a way to ensure that Bitcoins did not replace the dollar as our currency."
That's why Posner is a fan of the idea of governments regulating Bitcoin exchanges. "The exchanges are absolutely essential," he says. "If I'm a merchant who accepts Bitcoins, I want to be able to immediately be able to convert my Bitcoins into dollars. But if an exchange exists, there's got to be servers, there's got to be employees, there's going to be even a building somewhere with people in it -- and the government can go after those things."
If Posner's advocacy of regulating Bitcoin exchanges sounds like it undermines one of the basic tenents of the cryptocurrency -- frictionless transfer of money from one party to another -- Posner says you're right. Regulation will weaken that feature of Bitcoin. But, regulating the exchanges will help bring Bitcoin out of the shadows and into the mainstream.
"If you think of [Bitcoin] as just a very useful mechanism for transferring value from one place to another, then regulation will not undermine that goal. It will actually improve that by making the use of Bitcoins more secure, protecting people from some of the illegal or undesireable uses of Bitcoin -- for example, to finance criminal activity or to buy drugs."