This paper explores the technical possibilities and implications regarding the regulation of Bitcoin. Furthermore, it provides an operational implementation of a regulatory system based on redlisting.

A large part of the Bitcoin developer community has voiced a strong opinion against regulation of Bitcoin in any form,
stating that it undermines the foundational principles of the cryptocurrency. In this article, the authors aim to shed a light on these claims and test whether they actually hold in practice and to what extent.

Recent events regarding illicit activities financed with and revolving around Bitcoins have shown that regulation should be, at the very least, considered as a possibility to counter such activities. After discussing the system behind Bitcoin, its implications and principles, the authors look at specific cases in which Bitcoins were used for illicit purposes and discuss why regulation, and in particular redlisting, offers a discussable (partial) solution.

It also discusses why the regulation of Bitcoin could offer viable solutions to societal problems surrounding the cryptocurrency. The authors propose an implementation on top of the reference Bitcoin implementation to regulate the Bitcoin system through redlisting. This implementation is examined in depth on its viability and possible consequences, both on technical level as well as on a foundational level.