By Jon Matonis
Sunday, December 9, 2012
with a licensed and regulated Payment Services Provider (PSP) ignited a
heated debate within the bitcoin community. Eventually, Bitcoin-Central
tempered their overly-enthusiastic initial announcement.
"It feels like these French dudes are bringing saltpeter to a rave," declared Daniel Stuckey, a writer at Motherboard ridiculing the company for dismissing the founding concepts of bitcoin.
singling out the Paymium effort, there is a powerful undercurrent
rejecting the notion that bitcoin exchange companies should seek
approval to operate within the existing regulatory framework at all.
That undercurrent has some validity. That is if larger forces at work
the issue before then. However, it is the jurisdictions that they elect
to operate within plus the specific exchange types that determine the
level of required compliance. Legal counsel willing to challenge the
status quo is sorely needed for the days ahead.
Floating-rate, rather than fixed-rate,
exchanges are going to require the holding of customer funds in
national currencies. Exchanges for actual delivery, rather than
cash-settled futures exchanges quoted only in bitcoin,
will also require holding customer funds in national currencies.
Customers with large balances simply aren't going to use exchanges that
don't identify their legal jurisdiction, delineate funds, and adhere to
some type of recourse for insolvency and stolen funds. So, certain
jurisdictions and their financial regulators tend to get involved. This
is also the case with Mt.Gox being based in Japan.
Here's the real issue -- regulation in this context is only a bad thing if it leads to crony capitalism
or if it suggests that "still-in-beta cryptographic play money" bitcoin
requires regulation similar to a national political currency.
an individual's bitcoin transactions may still be semi-private, the
auditable address links on the block chain and identity requirements for
entering or exiting the exchange will remove any doubt as to how much
bitcoin was spent or earned. Also, the case can be made that, despite
bitcoin's basis in mathematics and being devoid of ideology, graph
theory analysis of the block chain can be significantly improved by
having more 'regulated' data points thus cumulatively degrading the
privacy of all bitcoin transactions. Bitcoin address logs for a bitcoin
exchange are like IP logs for a VPN.
Yes, debit cards with a
bitcoin logo are cool and they can facilitate easy movement of funds
associated with bitcoin balances. But legacy debit cards are
institutionalized vehicles of identity and they promote half-way
measures. Any role for current financial institutions in the societal
wealth transfer to cryptocurrency will come from embracing bitcoin on its terms.
If banks want to participate in a meaningful way, they will have to
adapt to Tor exit nodes, coin mixing services, escrow provisioning
without identity, and underwriting private insurance on balances.
great promise lies in its potential ability for both income and
consumption anonymity. It is this feature alone that allows users to
maintain the same financial privacy as physical cash today and it is
this feature that will also lead to liberating advancements such as a
thriving and interconnected System D, unhampered and undiluted freedom of speech, and superior asset management that can truly be said to be off-the-grid.
who support the antithetical overlay of bitcoin on the current
financial system ensure us that it will only be temporary and that we
must build bridges. That would be nice but it's a fairy tale. It reminds
me of the Marxist theory of historical materialism and the Marx-Engels
ideology that if we only tolerate the bourgeois state during the
transitional advancement to a higher phase, we will see the complete "withering away of the state."
True revolutionary transformations just don't evolve that way. Linux didn't first co-exist within the Microsoft
DOS and Windows environment and then decide to spin-off into a
competing operating system. File sharing under the BitTorrent protocol
didn't conduct a Hollywood outreach program and explain what the
technology would mean for the film and recording studios.
One doesn't request freedom, one claims freedom. As Bitcoin Forum member btcbug stated
about bitcoin's acquiescence to legality, "It's kind of like a bunch of
slaves breaking out and then running straight back because they were so
brainwashed they didn't even recognize freedom." However, the sad
reality is that most of the slaves don't really want to be free which is
exemplified by voting for ever-increasing State services that have to
be funded through confiscatory levels of taxation and inevitably that means diminishing financial privacy.
real people! This is about more than just "agreeing to disagree" when
it comes to stricter regulation being a good thing. Bitcoin without
user-defined anonymous transactions is a neutered bitcoin.
Paper cash comes with more financial privacy. In circular logic fashion,
the pro-regulation adherents must then answer to their success, "what
have we really accomplished?"
For further reading:
"Necessary conditions for the long-term success of Bitcoin", ShadowLife, November 7, 2012
"Problems with State Money Transmission Laws Generally", Letter from Aaron Greenspan, November 7, 2012
"FaceCash Founder Claims New Financial Regulation is Unconstitutional", Elise Craig, February 2, 2012