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The Bitcoin Policy Institute (BPI) has submitted a report to the US Department of Commerce highlighting how Bitcoin can serve US interests. It explores the unique attributes of Bitcoin and its potential to support matters like financial inclusion, energy, and national security
Why Bitcoin is Special
The BPI is a think tank dedicated to better understanding the policy implications of Bitcoin and other emerging monetary networks. Its cohort of economists, coders, and scientists look to advance the pro-Bitcoin narrative among policymakers.
As reads its report released on Monday, Bitcoin “warrants particular consideration” for qualities that distinguish it from other digital assets. These include its size, relevance, and relative levels of decentralization and immutability.
The protocol’s exceptional decentralization stems from the 10,000+ users running Bitcoin core software and validating blocks worldwide. It also benefits from having an anonymous, missing founder, meaning no single entity controls the network’s fate.
Meanwhile, its immutability is supported by its proof-of-work consensus mechanism, which awards block publishing rights based on a “lottery.” By contrast, proof of stake blockchains award this right to those with the greatest “stake” in a given system. As the report argues, such network inevitably “afford their wealthiest users the greatest control.”
“Despite competition from thousands of cryptocurrencies, the market reflects an overwhelming demand for bitcoin and Proof of Work, revealing a preference by consumers for a neutral cryptocurrency with a fair initial distribution,” states the institute.
Regarding Bitcoin’s benefits, the report posits that the network can bring financial inclusion to unbanked and underbanked Americans. Polling shows that many Americans can’t afford the fees associated with bank accounts, or don’t trust financial institutions.
This distrust has pushed those Americans towards more costly forms of transactions. In 2018 alone, this population spent “$189 billion in fees and interest on financial products.”
Alternatively, Bitcoin’s lightning network provides an avenue for instant and virtually feeless transactions outside of banks.
Energy and Mining
Furthermore, the report presents Bitcoin mining as a boon for green energy production and a stabilizer of electricity grids.
“While it is tempting to think of bitcoin miners as merely users of electrical power, it is more accurate to view them as revenue sources for power producers when other grid-connected buyers for renewable generated electricity do not exist,” it reads.
On one hand, miners can be guaranteed, 24/7 buyers of renewable energy, which typically comes from intermittent sources. On the other, miners can be an energy buyer of last resort when the electricity grid lacks demand.
Texas Governor Greg Abbott is keen on this use case and is already inviting miners to his state to help stabilize the state’s grid.
On top of that, miners can be used to efficiently flare methane captured from oil wells in a highly controlled manner. By seeking out methane, mining operations can therefore help reduce methane greenhouse gas emissions.
Digital assets are likely to become a growing national security concern for the United States. Alarm bells are already ringing around Bitcoin’s potential use in illicit finance, sanctions evasion, and ransomware schemes.
Nevertheless, the report urges policymakers to also consider how open digital asset networks can “counter the closed systems of [American] adversaries.” Bitcoin’s properties arguably align with the United States’ own “open” society, and can therefore help advance US interests.
For example, Bitcoin demand is already surging in less-developed countries that grant their citizens less financial freedom. It also provides an escape from inflation states with extremely weak currencies.
“Just as the internet (and privacy-preserving technologies like the TOR network) have been used for nefarious purposes, it’s fair to say the net effect has been to increase human liberty, freedom of expression, and liberal values,” it continues.
Policy: What’s the Way Forwards?
Using these arguments, the BPI presents a policy framework for the US to harness the first-mover advantage in Bitcoin adoption.
Firstly, the institute suggests steering away from “picking winners and losers” with regulation. It suggests fair application of securities laws to certain digital assets, while treating Bitcoin like any other commodity. Similarly, it advises government to avoid passing laws that influence Bitcoin’s inner workings (ex. Proof of stake transition.)
Next, it calls for “light regulation” on the crypto industry to avoid stifling innovation. One idea is to apply a de minimis capital gains tax exemption on Bitcoin to allow for its reasonable use in payments.
Thirdly, the report advises protecting Bitcoin self-sovereignty (ex. cold storage) as a human right. Finally, it claims that the US should study how the lightning network could spread the dollar’s adoption abroad.
“A slow and deliberate approach that includes all relevant stakeholders—not just those with CEOs and lobbying firms—to inform policy is the best way to proceed,” it concludes.