Bitcoins and “Unlicensed Money Transmitting”

Red TapeA few nights ago I watched a John Stossel special on FOX news focused on government’s war against small business. The special started with Stossel surrounded by mountains of papers representing the federal rules and regulations imposed on businesses. To economists, the theme was a familiar one:  Guised as much-needed regulation, government’s myriad of rules and red tape often has the affect of suffocating small companies.  Discouraging entrepreneurs from pursuing new ideas ultimately benefits those larger companies having more lawyers, political ties and strong lobbies. 

Consider the recent problems of Bitcoin, which were first drawn to my attention in a comment on this website (see Adrian Alatorre’s comment posted on May 16th).  A Tokyo based company named Mt. Gox is the largest exchange involved with trading Bitcoins, and Mt. Gox has an account with Dwolla (a U.S. company that moves money online for a small fee.)   Information pertaining to the Mt. Gox account with Dwolla was seized last week by the Department of Homeland Security.

The alleged crime is a violation of Title 18 Section 1960 of the United States Code which prevents “Unlicensed Money Transmitting Businesses.”  If convicted of such a crime the penalty can be quite harsh.  As stated in the Code, “Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.”

 Certainly the arguments against Bitcoin will be couched by government officials in lofty language and concerns about the “social welfare.”  The real motivation may have more to do with government’s worry that its central bank could face competition in the “money creation” business. 

 I have my own concerns about Bitcoins, but certainly the need for government regulation and scrutiny is not one of them.  My biggest issue with buying Bitcoins is that I am purchasing air.  Of course, if I buy them with dollars then I am buying air with air, so why not?  At least Bitcoins are limited to 21 million, whereas government-created money has no bounds.

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