As the world’s first decentralized digital currency, Bitcoin has the potential to revolutionize online payments systems in a way that benefits individuals and businesses. Instead of using an intermediary such as PayPal or submitting credit card information to a third party for verification—both of which often include transaction fees and other restrictions—Bitcoin allows individuals to pay each other directly for goods or services.
However, the characteristics that make Bitcoin so innovative have also made it a target for regulators, who fear the cryptocurrency will aid tax evasion, money laundering, and other crime. While it is true that it can be used for nefarious purposes, the same can be said of cash. And unlike cash, Bitcoin transactions are recorded in an online ledger.
A new Mercatus Center at George Mason University study addresses many of the common misconceptions about Bitcoin and describes how the digital currency works. The study also analyzes current laws and regulations that may already cover digital currencies and warns against preemptively placing regulatory restrictions on Bitcoin that could stifle this new technology before it has a chance to grow. In addition, the paper gives policymakers several recommendations on how to treat Bitcoin going forward in a way that helps the free market and provides clarity for law enforcement.