Bitcoin, since its inception has been hailed for the decentralized model that allows the transaction of digital currency between users without the involvement of governments and financial institutions. People do not want government’s involvement in the Bitcoin economy. Attempts by the governments to bring about regulations for bitcoin is being met with stiff opposition. However, this can’t go on forever and for a good reason. There needs to be an active involvement of both government and the public in order to see Bitcoin emerge as a mainstream economy.
Currently, the value of Bitcoin is calculated against fiat currencies, and fiat currency is still the preferred mode of payments in most of places. The Bitcoin protocol is built in such a way that the transactions over the network are anonymous, making it virtually impossible to track them.
Why should governments get involved?
The anonymity and decentralized nature of Bitcoin transactions makes it hard to track. Unlike fiat currencies, Bitcoin usage lacks a proper overseeing authority to monitor transactions and its legitimacy. In the absence of government involvement, declaring earnings, finances and payment of taxes will turn into a voluntary affair. Ask yourself, when was the last time anyone was keen on paying taxes? Never! Therefore, lack of regulations will encourage people and businesses to default on their taxes.
Taxes are one of the major sources of revenue for the government. The tax money is utilized by the government for development, maintenance of public facilities, economic infrastructure, benefits etc. Without that, the whole system will collapse.
How can governments get involved ?
Governments can set up a mechanism similar to clearing houses linked to Bitcoin exchanges in the future. They can also provide an option to link individual’s/legal entity’s tax account numbers or social security numbers to wallets for regulatory oversight in order to ensure that Bitcoin users aren’t shortchanging the state.
Simultaneously, the governments and financial institutions should find a fine balance between implementation of regulations and privacy of Bitcoin users. It will also help mitigate the risks associated with Bitcoin and once the governments are convinced that it is not a threat to stability and security of their respective nations, it will be easier for Bitcoin to go mainstream.