Does Bitcoin Require Regulations?

[Ron~Popeil]

Ultimately what we have with bitcoin is the blockchain protocol.  

It means that whatever rules we all agree to (at least about things that can be checked via the blockchain) can be enforced by the laws of mathematics.  No temporal authority is required to prevent violations of those rules.

But there is a difference in kind between that clean, simplistic mathematical universe and the physical and contextual universe that everybody actually lives in.  

Banks etc. exist in a world of temporal security.  The mechanisms that (mostly and most of the time) prevent them from stealing their customers' money are all about laws and licensing and legal conformance and barriers to entry and professional accounting practices and, yes, courts and fines and possibly even jail time.  

Both of these models are limited.  But for particular subsets of applications, both work.  So far the biggest problem is that the handoffs between them have been abysmally bad.

It's the brokerages and exchanges and banks, err, excuse me I mean online wallets - people who handle other people's bitcoin - who have been the biggest stealers of it.  At some point it comes out of that mathematical-security world because someone is holding bitcoin on behalf of someone else.  And that is where it gets stolen, so far because it's not going from there into an environment with a solid framework of temporal security.  

So we need to figure this out.  Either we need businesses at the endpoints (meaning brokerages and exchanges) that are fully a part of that regulatory framework, or we need to extend the mathematical security model until those businesses have nothing left to do and can be done without.  

There will always be a certain number of people that want everything done for them. They will keep these kind of institutions around. We still even have people in bit coin that keep everything they own in an online wallet after MT GOX.

[Cryddit]

So we need to figure this out.  Either we need businesses at the endpoints (meaning brokerages and exchanges) that are fully a part of that regulatory framework, or we need to extend the mathematical security model until those businesses have nothing left to do and can be done without. 

That's simply not possible.

I share your pessimism as regards the odds of completely getting rid of web wallets, exchanges, brokerages, etc.  It just won't happen. 

But there is still a lot we can do in that direction to take away opportunities to steal.  Businesses that are mainly doing some kind of accounting etc, don't require anything that intrinsically has to take place off the blockchain.  So while the blockchain can't enforce that, eg, someone gets a pack of gum or a pizza or a suit or something physical like that when they pay bitcoin, it could enforce that, eg, someone gets a futures contract or a bond or a stock or a title deed or something.

So while the blockchain can't be extended to cover commerce in physical goods, it could be extended to cover most uses of an investment portfolio and wealth management.  And in doing so it could remove well over half the opportunities to steal currently endemic to the system.