This paper will provide a short introduction to the Bitcoin network, including its properties, operations, and pseudonymous character. It will describe the benefits of allowing the Bitcoin
network to develop and innovate, while highlighting issues of concern for consumers, policymakers, and regulators.

It will describe the current regulatory landscape set by policymakers and explore other potential regulations that could be promulgated. The paper will conclude by providing policy recommendations that will assuage policymakers’ common concerns while allowing for innovation within the Bitcoin network.

The first question that many people have when they learn about Bitcoin is: “Why would I want to use Bitcoins when I can use dollars?”. Policymakers need to gauge the correct response to this. Bitcoin is still a new and fluctuating currency that is not accepted by many merchants, so the uses for Bitcoin may seem mostly experimental. To better understand why people might want to use Bitcoin, it will help them to think of it, not necessarily as a replacement for traditional currencies, but rather as a new payments system.

Bitcoin could ultimately fail as an experimental digital currency and payment system. An unanticipated problem could arise and undermine the Bitcoin economy. A superior cryptocurrency could
outcompete and replace Bitcoin. It could simply fizzle out as a fad. However, its innovation should always be encouraged. Policymakers should work to clarify how Bitcoin is regulated and to normalise its regulation so that we have the opportunity to learn just how innovative Bitcoin can be.