Canadian Economist Prepares Economic Note on Bitcoin Regulation

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Canadian economist David Descôteaux has prepared an economic note on the topic of bitcoin. Specifically, the discussion takes a look at bitcoin regulation, and the Canadian government’s plans to put together legislation on this emerging digital currency and payment system.

In his report, he lists three items that need to be tackled before bitcoin is considered a currency.

[blockquote style=”2″]Three conditions would need to be met for the expansion of the use of bitcoin as a currency, which remains very limited at the moment. First, users would need to receive concrete benefits rather than some other one, a condition that is related to the nature of Bitcoin and its mechanics. Retailers, consumers and investors would also need that there exist clear rules indicating how Bitcoin is treated in terms on taxation and regulation. These rules can bolster the confidence of a growing number of users toward the digital currency and eliminate uncertainty for investors, thereby encouraging investment in Bitcoin companies. Finally, the proposed rules must not hamper the use of Bitcoin as a means of exchange, either with burdensome taxes or with excessive administrative rules for users.[/blockquote]

Descôteaux makes a point that regulation on bitcoin should be flexible, so as to accommodate innovation in the sector:

[blockquote style=”2″]While more precise rules are a precondition for the growing acceptance of Bitcoin, they can also have their drawbacks. Bitcoin is a technology that is constantly evolving, and that has multiple uses. The rules that regulate Bitcoin should ideally remain flexible and be adapted to this fluid character so as to give free rein to innovation.[/blockquote]

There’s no doubt about the fact that when government is left in charge of creating rules, there can be problems. That’s why it’s important for these agencies to consult outside experts (namely those in the bitcoin industry) and consider feedback before penning rules that could possibly have dire consequences.

David Descôteaux is an associate researcher at the Montreal Economic Institute. You can read his report in full here.