In this article, the author relates the activity of Democratic Senator Joe Manchin of West Virginia with regard to Bitcoin, the virtual currency which has become increasingly well-known over the course of the past year or so. Senator Manchin and fellow Democratic Senator Charles Schumer of New York have previously brought up the issue of Bitcoin in a letter to the Justice Department and DEA regarding the Silk Road, an online exchange which often facilitated the sale of various illegal drugs (using Bitcoin as a medium of exchange because of the difficulty in tracing it to a user). This time, Senator Manchin has targeted Bitcoin directly, proposing that regulators restrict it using their existing authority and emphasizing the dangers it poses to our existing economic system.
The author shares the full text of the Senator’s letter to the Treasury, the Federal Reserve, and other parties on the subject of Bitcoin. In the letter, the Senator emphasizes the use of Bitcoin to facilitate illicit activity as a risk of its existence as a medium of exchange, citing the anonymity of users of the crypto-currency and the difficulty in reversing fraudulent transactions made with Bitcoin. He also emphasizes the instability of the value of Bitcoins, noting that the value of each Bitcoin can fluctuate wildly within short spans of time, something which we try to avoid with the dollar. The Senator also notes that China and Thailand have already banned Bitcoin and that a number of other countries are seeking to limit or regulate its use; he suggests that the United States follow suit quickly rather than getting left behind.
The Senator’s letter contains some troubling statements alongside the noncontroversial ones about instability and deflation. For example, he claims that Bitcoin is disruptive to the economy, which is only true to a very limited extent. He needs to consider that Bitcoin is primarily used by a very small percentage of the people in the United States, which means that its disruptiveness will be a very small drop in the large ocean of our economy in terms of its impacts. Also, if he is correct that it is primarily used by those operating on the black market, then why would we seek to stop something that acts as a disruptive force to the black market? Wouldn’t it be a good thing to drive people away from black market transactions by making those transactions unreliable or risky?
Another of his points which stood out to me was his description of “so-called Bitcoin miners” as speculators. The people who mine Bitcoins are no more speculators than people who dig up a bag of gold coins in their backyard because they know that they are there. Mining Bitcoins is not some speculative endeavor at all; it is a built-in and fundamental part of Bitcoin’s existence which bears no resemblance to the sorts of grand risk-taking in which speculators engage. Bitcoin mining involves minimal risk and minimal cost. I don’t use Bitcoin or mine Bitcoin, and I have no plans to do so; I have no real skin in the game here other than a sense of honesty. These sorts of knee-jerk reactions by legislators are typical of politicians who have no real understanding of new technologies and a fear that they will be used for the wrong ends. To be fair, new technologies are often used for the wrong ends, but so are old technologies, including technologies we now consider essential like the automobile or personal computer.
I think that Bitcoin (and other burgeoning virtual currencies) do carry very real risks, but we need to refrain from making rapid fear-based decisions because these molehills look a lot like mountains to the people who are too far distant from them to see them properly.