This article assumes a base level of knowledge about Bitcoin, bitcoin (BTC), blockchain technology, the Silk Road seizure, and the collapse of MtGox. For a helpful summary of how this technology works, see the first portion of this article, written by Matthew Ly of the Journal of Law and Technology.
Bitcoin, and crypto-currency more generally, has risen in the five years since its launch from an academic exercise to what is today a multi-billion dollar system of transacting wealth. Its signature technology is the blockchain, a nearly incorruptible public ledger that replaces many functions traditionally left to trusted intermediaries, such as transaction verification. These trusted intermediaries, like banks and wire transmitters, are highly regulated under our current legal system. The threat of government enforcement or private litigation is meant to ensure that they operate fairly and legally and to provide relief for victims when the intermediaries breach those victims’ trusts.
Bitcoin enthusiasts, however, emphasize that trusted intermediaries often do not operate fairly or legally (e.g. they run off with the money), and that the legal system’s reactive nature is an insufficient deterrent against malpractice and wrongdoing. Blockchain technology, some claim, has the potential to ensure proper transactions in a way that the traditional legal system has never been capable of. With blockchains, so the argument goes, there will be no need for a legal system (including government regulations) to guarantee the success of a transaction because there will be no need for trusted intermediaries to complete a transaction. (more…)