Within the next few weeks, popular public members from the bitcoin community will be summoned to speak on capital hill to some senate committees to begin the public discussion on if/ and how they should regulate bitcoin.This is both good and bad.
The outcome of these hearings will likely address certain issues as that go as deep as the question of if bitcoin is even legal. I feel that large companies in the space (google, microsoft, apple) have stayed out of bitcoin entirely because they can't risk their companies on something that may be illegal.
In reality it doesn't even matter if they decide its illegal or not. the US does not have jurisdiction over bitcoin, and bitcoin is a world wide currency.
The good part is that the government could release an official stance on bitcoin, and the result of which would be more companies adopting it.
The best thing that could happen would be the the US government to say "its legal and we are not going to touch it in any way". Of course this isn't going to happen.
Here is the hard part for the US Government. Bitcoin directly attacks banks and the federal reserve. I fully expect the senate committees to ask for things, such as reversible transactions, be built into the bitcoin protocol. This will never happen, but if they demand it.... it would be like asking algebra to change its rules.... it just can't happen, and doesn't make sense to even ask it.
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Here is something that could be the future of the US banking system, if the US was to be a bitcoin based economy. The US essentially has to build their own rules ontop of the bitcoin protocal, this is how it would be done (this actual works BTW)
Step 1) The US Government would wait until Bitcoin 1.0 software is release with multi-signature transactions. Currently, just 1 private key will move bitcoin around the world, but with multi-signature transactions, you need any 2 of 3 private keys. This is important to understand so if your reading this, make sure you understand it.
Step 2) The US Government then works with banks to implement the multi-signature transactions into the current banking system. To create a series of signatures, a bitcoin holder would go into a bank and request a new bitcoin account. The bank would keep one private key, and would send one the a US Government office(perhaps the federal reserve). The account opener gets the third key
Step 3) When the account holder wants to spend money, the system uses the banks private key and the account holders private key. This is no different than how checks work today.
Step 4) Nobody that receives bitcoins would be allowed to receive them into account that wasn't registered with the banking system
Step 5) If an account holder lost their private key, they would have to contact the government for a replacement, or a new account
Step 5a) If a bank was compromised or robbed, the account holder would work the the government to replace the third private key.
Step 5b) If the account holder didn't pay his taxes, the bank and the government can move your money
Step 6) If the system recognized an input that wasn't part of the system, they would either hold it or just plain reject it. This would be done at the banking level. Again, the banks/gov hold the power to send and receive the account holders money, because they have 1 of the 3 private keys.
Step 7) If a account holder needed to take a transaction from an account not registered with the system, they would need to prove what it was, where it came from, and even pay a tax on it (or something).
Step 8) When the government needs more money in this case, they contact banks and take your money via a bail in.
Step 9) When the government needs to fund a war, they just take whatever money it needs.
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Again, anybody receiving bitcoins has to register 3 keys with your local bank
Anybody spending bitcoins has to register 3 keys with your local bank.
Using an account not registered with a bank would be illegal, but 100% possible.
Now we all know we can bypass the system. I can generate my own keys, and spend money outside this system. There is no way they can stop this, but they can make it illegal to do. It would be similar to buying drugs. Because the blockchain is public information, the IRS would know if you sent money from your registered account to an un-registered account. They would also know if you received money from an unregistered account with your registered account. Registered accounts could not use mixing services because they would be un-registered accounts.
The only want to stay out of the system would be unregistered accounts to unregistered accounts. The only way to get money into an unregistered account would be to mine it, or have it exist before the registration.
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Sender - " do you take outside transactions"
Receiver - "yes, yes I do" or "no thats illegal i'm calling the cops and getting a reward"
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The above system works, it allows the Government and banks to maintain control, but they can no longer simply print money.
I will say though for myself, If they do implement the above in 10 years, bitcoin would be HUGE and i'd move to a more bitcoin friendly country.
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To implement this would be similar to Obamacare. The US would pass a banking law, opening a new government office. Banks would have a deadline to implement their system with the Governments. Bitcoin holders would have a 1 year grace period to integrate their bitcoin, perhaps a 1 year period where unregistered bitcoin was taxed 20%, and another one year period where unregistered bitcoin was taxed at 40%, etc etc..
Its truly a scary system, and if implemented on a world wide scale, would be crushing. Bitcoin would still be better than the current system, but it would lose most of its benefits.
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