Anonymity and Regulations – A Bitcoins Perspective by Kartik Chawla

About the Author: Kartik Chawla is a IInd year Law Student at NALSAR University of Law, Hyderabad

Introduction – The Philosophy of Bitcoins

In a recent article, Steve Klabnik, self-noted Bitcoin hater, discussed his experiences with Dogecoin.[i] In the same article he also discusses Bitcoins and the philosophies behind both the cryptocurrencies, but the essential part of this article is his final reaction to the virtual ‘coins’, which can be summed up in the following quote:

“Before, I just laughed. Now, thanks to a joke, I’m scared.”[ii]

Most of the currencies in the world right now, and all the reserve currencies, are fiat currencies.[iii] The term ‘fiat currencies’ refers to currencies that are issued by a government, and the government promises to pay the holder of such currencies an equivalent amount in gold, if needed.[iv] Thus, these currencies usually have a central regulatory body which issues them, and are consequently called ‘centralised’. And at the end of the day, they have the value they have because somebody said so.[v] The modern state can make anything it chooses as acceptable currency, without any further backing of any kind, even without a connection with gold.[vi]

Satoshi Nakamoto,[vii] the creator of Bitcoins, saw a problem with this, which is clear from the following excerpt from one of his earliest works:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”[viii]

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