By Beautyon
Irdial Discs
Friday, April 20, 2012
https://plus.google.com/104476128363316281935/posts/G8fFSkgNW4E
Should people who want to see the widespread and rapid adoption of
Bitcoin seek tight regulation and integration with the State, or should
they rely only on their skills as developers, marketers and
entrepreneurs to create the rock solid, reliable and trustworthy
products that people will use in their millions, like the other well
known internet companies that have changed the way we do things?
A
Bitcoin innovator has just applied for and received a registry entry
from the US Federal Government's Financial Crimes Enforcement Network:
http://www.fincen.gov/financial_institutions/msb/msbstateselector.html
On that linked page you can read the following statement clarifying FinCEN's position on each entry they list:
"The
inclusion of a business on the MSB Registration Web site is not a
recommendation, certification of legitimacy, or endorsement of the
business by any government agency."
This disclaimer appears on
the certificate as the first paragraph, in large letters. The
certificate also says that, “FinCEN does not verify information
submitted by the MSB. Information provided on this site reflects only
what was provided directly to FinCEN”.
It appears that anyone,
can register as an MSB, and the department does no thorough checking
into the business, its capitalization, the backgrounds of the directors,
who funds it, where those funds originate, the security of the software
that powers the service or anything else about it. Registrants are not
required to be insured, or make a deposit of money as a guarantee to
their customers should something go wrong. Applicants simply fill out a
form, and then are entered on the FinCEN database unscrutinized. If
registration with FinCEN is being done by anyone in the vain hope of
securing some sort of government legitimacy or seal of approval, it
really does not pass muster by any stretch of the imagination.
Showing that you are registered with FinCEN cannot act as a guarantee of
any kind whatsoever, and FinCEN explicitly warns consumers not to rely
upon a company's appearance on their register as proof of suitability,
solvency or fitness for any purpose of any kind.
On the other
hand, registration with FinCEN should serve as a warning to anyone
thinking about using a business that is registered with them, and who
also wants to maintain their privacy. A company listed with FinCEN has
explicitly entered into a legally binding agreement with them to spy on
its customers and partners and has a duty to report 'large and
suspicious' transactions to the State. This means that in order to be
compliant, you as a customer of a FinCEN registered business must be
authentically identified and contactable by the registrant so that they
can interrogate you should you move 'too many' of your own Bitcoins
through their service.
For the record, there is no case law, no
legal requirement, no legal precedent, and no legal opinion on the
status Bitcoin of any kind. As is the case with almost all of the
software that connects to the internet, what you think Bitcoin is, and
what you choose to do with it is entirely your business, and that is how
it should be. You are responsible for who you get into bed with, and it
is not the place of the State to hold your hand and bottle feed you.
The
real problem behind this FinCEN registration is the thinking driving
those entrepreneurs who so desperately seek a stamp of legitimacy from
the State. Rather than build secure services that are sticky, viral,
disruptive and useful, it appears that these well meaning people are
trying to get a psychological boost by receiving the blessings of the
State. This simply will not work to catapult their businesses into
widespread acceptance and profitability. And it will not help to gain
them users; on the contrary, in the long term, it may make it impossible
for them to even operate at all.
We have been here before. Other
very fine, insightful people have initiated contact with 'the financial
authorities' in the hope that they can integrate their businesses with
the State to gain credibility, thankfully, only to find themselves
rebuffed with the retort, "Bitcoin is not money".
Entrepreneurs
breathed a sigh of relief and a little surprise on reading this correct
conclusion from the State, for it means that there will be a significant
amount of time before they reverse their position and weigh in to crush
Bitcoin businesses, if they ever bother to do so at all. If they do, it
will mean going back on their previous lengthy categorical statement
that Bitcoin is not within their purview.
The bottom line
question is this; do the advocates and entrepreneurs who pine for the
mass adoption of Bitcoin want this world-changing event to be stillborn
or not?
If they want it to succeed, and become rich and famous in
the process, it is logical to refrain from doing anything that will
prevent a miscarriage from happening, and any sort of registration other
than that which provides operators with limited liability protection is
surely a grave error.
Recent history has demonstrated amply that
the State is not needed to make the magic of the market happen. The
evidence for this is all over the internet and is represented by the
internet itself. Bitcoin is a threat to traditional banking and the
State, just as the internet is a threat to censorship, telecoms
businesses, companies like Kodak, Penguin, EMI and many others. Anyone
who has even a slight grasp of history understands that Bitcoin is
dangerous to the status quo in a very real, and absolutely lethal sense.
Why then would you even think of asking for permission to operate from
the very people who stand to be wiped out by the success of the
innovation you are working on? Not only that, but if other companies
eschew registration and avoid all the inevitable fees and restrictions
that are to come, they will be able to out compete you in terms of price
and ability to pivot, putting you out of business. Trying to force
Bitcoin to behave like money from a legal standpoint doesn’t make any
sense either in terms of the definition of money, or the entrepreneur's
requirement of a frictionless market space.
The FinCEN
registration in question lists the company's MSB Activities: as 'Money
transmitter', with the Number of Branches equaling 1. Clearly the
language of this certificate is meant to refer to physically located
bricks and mortar money services with branches on the street, not a
network based Bitcoin business. More importantly are the facts of how
this business actually works. The company accepts money and then
provides its clients with Bitcoins, and it accepts Bitcoins from its
clients and remits money to them in return. It does not at any stage,
transmit money directly from one client to another. Quite how this
business has been construed as a money transmitter is baffling; it is no
different to Amazon, in its role as a second hand book trade
intermediary, because all Bitcoins are second hand goods, if they are
goods at all.
As I have said before, Bitcoin is not money. I say
this both because it is not money, and because it is money. If Bitcoin
is money, it will either be regulated to death or hampered into a
crippled, non disruptive form, or taken over by the State. On the other
hand, if Bitcoin is not money, it can flourish on the strength of its
features just like SSL has, protecting everyone's transactions and
communications world-wide.
If no regulation touches it, what you
believe Bitcoin is, and how you choose to characterize it will
ultimately not affect its utility; only the software built on it will
define its nature. Building services based around Bitcoin is what
counts, not registering with the State. Registering with the State will
not cause users to adopt Bitcoin; only a compelling service will do
this.
You need only look at the newest companies with tens of
millions of users like Pinterest, Tumblr and Tinychat to understand what
a compelling service looks like, and of course, none of those companies
sought the registration of the State before gaining many users.
What
we are seeing now is a myriad of experimental Bitcoin services
emerging, as developers try and discover the correct balance of features
that will make up the killer Bitcoin service. You will know what this
service is when the number of people using it is increasing
exponentially. No registration with the State, no banking license or
other poisonous anointing will cause users to flock to your service.
But
what if Bitcoin really is money? If Bitcoin is declared money by fiat,
then this will kill it as a platform for small software developing
entrants to write and launch services. Hysteria over money (which is
actually the unquenchable thirst of the State for tax) has erected very
large barriers to entry for anyone who wants to set up a disruptive
financial service. In the USA, entrepreneurs have the Federal Government
and then the State Governments to contend with. See Facebook's recent
adventures in approval, licensing and certification, as they went from
State to State paying exorbitant and ridiculous license fees and
submitting applications. Facebook has the money and manpower to do this,
so for them it is as simple as making a decision, allocating staff and
sitting back and waiting. For the starving entrepreneur however,
registering as a money service in every state of the Union is an
impossibility. Bitcoin as it stands now, has no such artificial and
offensive barriers, and you can operate at will across the entire USA,
without having to expend capital on anything other than the bones of the
service itself and Ramen to keep you alive.
If Bitcoin is not
money, everything changes. Essentially, it means that the world of money
transfers is subjected to the same network effects that caused the
internet to explode over the last twenty years, with benefits to all
mankind of a similar if not greater extent.
It is hard to
imagine the scale of the cascade of the prosperity that will flow from
Bitcoin becoming 'the money of the internet'. The imaginations of
millions of people will be focused on creating new and exiting services
built around it and fueled by it, in the same way that there are new
websites and services popping up that no one could have imagined in the
time before the internet.
Bitcoin in the hands of millions of
innovators who are free to experiment and fail with it without any cost
or regulation will change everything for the better, just as the
internet has. What the people who seek the baptism of the State for
Bitcoin are saying is analogous to saying in 1997 that anyone who wants
to run a website should be forced to obtain a license from government
before she puts it online. The internet that has so changed the world
for the better simply would not exist in its current form if all
entrants were forced to register with the State and pay for a license.
The net would have ended up as a MiniTel 2.0. Go Google MiniTel.
I
find the thinking behind the idea that Bitcoin services should be
registered to be perplexing and fascinating. No one would dare suggest
that a man wanting to publish a magazine, newspaper or book should be
required to register with the State, but when it comes to money, or
something that is money-like, that people are not even sure what its
true nature is like Bitcoin, a different set of rules springs into
being. It is well understood and accepted that, despite being an
incorrect use of the word 'right', the power to publish is a right that
all free men have. Why do people not understand that this right extends
to publishing anything, not just words on a page?
Extending this
line of thought, if Bitcoin services need to be registered by default,
why then should not booksellers be registered? Why is there no 'PubCEN'
for book publishers, or any other type of seller, and why do the people
who advocate registration of Bitcoin businesses not advocate the
registration of book publishers? There is a long history of book banning
in the west, but publishers in free countries have never been required
to register before they enter the business of book printing and
distribution, and books are always banned after publication, not before
publication and passing through a censorship board.
There are
people who assert that financial regulations and registration are needed
because money can be put to bad use. If you accept this premiss, you
must also accept that plain information is as dangerous as money. The
Dutch government works from this position, and does not allow scientific
papers to be published without the permission of the State. Yes, that
is correct; scientists need to obtain export licenses to publish
academic papers; sheets of A4 with type on them. This is because the
information in scientific papers “could be put to bad uses”. Correctly
thinking people are scandalized by the idea of having to obtain a
license to publish a scientific paper, but for some reason, when it
comes to money or something that is money-like, like Bitcoin, the
'thinking' changes and all of a sudden, not only is registration seen as
correct, desirable and beneficial but it is actively sought out, before
the applicants even have a client base.
Why does the
registration fetish not apply to every good that can be sold or
transferred between two people? In the USA the parasites from the State
have asked this question and answered, "Why not?!". This is the reason
sellers of Raw Milk and organic vegetables have found themselves raided
and placed in handcuffs as armed thugs point automatic weapons at their
heads. It is why people who sell their old possessions in 'garage sales'
are being harassed by the State. People who are thinking properly
understand that these examples of State interference in publishing and
exchange are unacceptable on principle; the question that I have not had
a good, fallacy free answer to however is this, “Why is a money
business a special case for registration by the State?”.
Bitcoin,
living on the internet as it does, can be sent and received from
anywhere and on any device. If the Americans developing Bitcoin services
cripple themselves with a self inflicted wound of onerous regulations,
the Bitcoins will see this as damage and flow around those services. The
only answer to this effect is a world-wide harmonized Bitcoin law, so
that there is no jurisdiction to escape to. This is not going to happen
any time soon, as we have seen with ACTA. The various states of the
world reflexively imitating the American way of doing things is coming
to an end, and there are markets out there that are bigger than the USA,
whose government and its malignant influence has been
disproportionately large. Take for example, the fallacious idea of
copyright and its term of the life of the author plus 70 years. China
has just passed a law essentially limiting copyright exclusivity to
three months:
http://www.techdirt.com/articles/20120409/09381318430/chinese-copyright-proposal-would-allow-compulsory-licensing-music-after-three-months.shtml
If
Bitcoin becomes popular in any jurisdiction other than the USA, any
American FinCEN regulations will become meaningless. American companies
will simply be Balkanized, marginalized and excluded from the action.
Note that only companies will be affected by this; individuals on the
internet spending Bitcoins in China or anywhere else will not be
affected at all. Anyone who has had the experience of buying
exceptionally well made and inexpensive hand made clothes from Hong Kong
knows what this will mean.
Thanks to the resilient nature of the
internet, a Balkanized Bitcoin at the user level is not possible. There
is no way that Bitcoin transfers can be stopped as they cross borders,
just as it is not possible to prevent people from pirating Warez or
downloading copies of films and TV shows.
What the State can do
however, is prevent entrepreneurs from building a large central hub
service built on top of Bitcoin. They can make it impossible to build a
business based on Bitcoin or that overtly accepts it as a payment
option. As long as some countries take no action against businesses
accepting Bitcoin, there will be a vibrant market on the internet
running with it. If that country is China, or Indonesia, or India or
Brazil or any combination of countries with large populations, there
will be a huge market operating on Bitcoin. The question then becomes
how can people from the repressed western economies get a piece of the
action? True entrepreneurs will smell the coffee (more likely, green
tea) and simply flee the evil, crony capitalist jurisdictions for freer
shores. Whatever solution is found by the creative people, the public
that could use and benefit from the services is the ultimate loser, as
they are reduced to using buggy, buggy whip, legacy surveillance systems
from the twentieth century to make purchases online. That's credit
cards over the internet by the way.
If you want to have a glimpse
of what the repression of a service provider that is a central hub for
Bitcoin might look like, you need look no further than the recent
Hollywood sponsored armed raid and shut down of the file locker service
Megaupload. People are still sharing files by the billion, but this
business has been shut down and has had its assets seized. Rapidshare
and several other file locker services have unilaterally capitulated and
neutered their services so as not to attract the vicious attentions of
the State. The Megaupload raid demonstrates the lengths parasites will
go to to violently attack entrepreneurs.
Fundamentally this is a
problem in morality and ethics. There is a difference between creating a
piece of software and keeping its source code proprietary and secret,
like Adobe's Photoshop, and using the State to kill competition. One is
selfish and evil, and the other is a legitimate form of business
practice arising out of the technology.
In crony capitalist
countries, businessmen have the ability to use the State to kill and
restrict competition. They do this because they do not have the will or
the ability to survive in a free market; its easier to kill the
competition than to be creative.
People who try and gain
advantage through the leverage of the State are evil in my opinion;
through no one's fault but theirs, they are not able to compete on a
level playing field, and so they use violent tactics to keep competitors
from entering.
It's rather like mobsters setting fire to
businesses that try to emerge in their territory that compete with
existing firms that they 'tax'. It is immoral, unethical, criminal and
short sighted, and ultimately will fail, because the world is not
suffering under a single mob's jurisdiction.
Now that computing
in hand held devices has permeated every corner of the globe, we are
beginning to see beneficial services emerge that are changing
everything. M-PESA is a good example, where in a country with a
population that is mostly unbanked, mobile phones have served as the
platform for prolific money transfers. Superimpose the features of
Bitcoin on the M-PESA success and then scale it to the entire world and
you begin to see just what sort of revolution we are on the cusp of.
People
talk of Bitcoin in terms of revolution. I agree with this sentiment,
however a revolution, by definition, cannot happen by command or
sanction of the State. The State is the carbon rod for your back that
prevents critical mass. The State destroys revolutions in the field of
business especially when those businesses constitute an attack upon it
and its ability to control. Bitcoin cannot become a revolutionary
service if it is regulated by the State. If you want this revolution to
happen therefore, asking the State to authorize, shackle and penalize
you doesn’t make any sense.
Bitcoin businesses will need to
survive on very low margins. In order for them to spread into every
transaction on the internet, the cost of getting them has to be very
low. More market players will drive the cost of getting them down, and
cause entrepreneurs to innovate. Artificially high barriers to entry
will winnow out the small, agile entrants, and allow the remaining large
players to charge a higher percentage for transactions. This will
function as a form of friction when you enter or exit the Bitcoin
ecosystem, slowing down the adoption and rates of transfer of money to
and from Bitcoin. This is why no interference from the State of any kind
is desirable. From a purely business point of view, regulations,
license fees, guarantees, KYC reporting requirements, secured deposits
and all arbitrary rules are very damaging to Bitcoin business models
because the customer ultimately pays for them. Useful services will be
crippled, delayed and even prevented from emerging by the State. What is
needed is a plethora of different businesses and outlets, not a small
number of State protected and sanctioned monopoly players. This is best
for the consumer as well as the entrepreneur.
There is nothing
anyone can do to stop a determined Statist from trying to shut out
competitors by running to the State for protection. I guarantee you
however, that someone is going to go to court to challenge the idea that
Bitcoin is money, and that arbitrary licenses, fees, guarantees,
registrations and everything else that comes from the State are
applicable to Bitcoin businesses. Someone is going to make this
challenge, perhaps on a purely philosophical basis, and the facts are
going to be on their side.
When this happens, the court is going
to either have to declare that Bitcoin is money, or that it is not
money. Both of these outcomes have significant repercussions. If the
court decides that Bitcoin is money, it means that anyone downloading
the source and starting their own Block Chain has de-facto started their
own currency. The last person who tried to start their own currency,
Bernard von NotHaus, faces 15 years imprisonment and a fine of not more
than $250,000 after being found guilty of counterfeiting by a jury. This
will be the penalty for running an unlicensed Bitcoin Block Chain in
the USA, should the Statists get their way and have the court rule that
Bitcoin is money; anyone trying to set up a Block Chain will be branded a
counterfeiter.
The next logical outcome is that the Bitcoin
client will be regulated and re-engineered by the State or its agents so
that it works (or doesn’t work) in ways that they stipulate. The lead
developers of Bitcoin will either be coopeted by the State or replaced.
If Bitcoin is money, the State will demand that it has absolute control
over the network, since it is a part of the national infrastructure.
This is exactly what they are doing now with the internet, threatening
everyone with their vile 'kill switches', Domain Name seizures and bogus
legislation.
Money is like plutonium to the State. They know its
true power, and are obsessed with controlling it because they
understand that by controlling the supply and nature of money and its
flow, they control everything and everyone. To imagine that they will
allow Bitcoin to be regulated with a 'light touch' is naïve in the
extreme. The State will do anything they can to strangle Bitcoin if they
cannot control it absolutely, and as the move to all digital money
gathers steam (see MintChip
http://onforb.es/IKPO5T and the fact that Denmark is openly and seriously considering going cashless:
http://bit.ly/JeRgj9) the threat of Bitcoin will become absolutely clear even to the lowest and most stupid apparatchik.
This
is entirely separate from the threat that the established money
businesses will wake up to when Bitcoin takes off. These established
businesses will work overtime to kill Bitcoin from both sides, the
legislature and the service, to destroy Bitcoin businesses. They will
lobby hard for equal regulation turning Bitcoin businesses into banks,
while at the same time, denying service to any Bitcoin business, cutting
off their ability to remit monies to their clients. Just ask those
Bitcoin businesses that have had their bank accounts summarily
terminated in a coordinated attack what this is like.
Bitcoin is a
threat to the State, and in an all electronic money world, it is an
existential threat. There is no possibility that the State will allow
Bitcoin to supplant or even co exist with their centralized electronic
fiat currency; the only way Bitcoin can win is if it becomes too big to
destroy without dealing a fatal blow to the economy. I assure you that
if SSL did not exist, it would not be adopted now because of 'fears over
terrorists hiding their communications'. At the very least all SSL
communications would require a back door in the form of the secret key
being deposited with the State. This was actually legislated in France
with PGP key pairs. It follows from all of this that what is required is
the building of the world-changing Bitcoin services that are needed,
without running to the State for prior approval or licensing, so that
they become a de facto standard service that if it is tampered with in
any way, will kill society.
Running to the State does not confer
legitimacy. Amazon, Ebay and Underwriter's Laboratories didn’t need the
state to confer trust or ensure reliability; they built consumer powered
systems to protect their users and have grown very large and very
trustworthy. Building trust takes time, and the people running to the
State for its stamp of approval as a substitute for building trust over
time and the related mechanisms that manage it are not thinking long
term and are not willing to do the hard work of entrepreneurs.
If
people think that a registration entry with the State will help them
raise capital, they are mistaken. The evil talisman of the State will
not convince any venture capitalist that an idea is sound; voo-doo signs
and badges are not what VCs are looking for. Venture capitalists are
looking for the killer idea, and the team that can execute it. The idea
does not have to be particularly new or innovative, as we can see with
TransferWise, which is as dull and disruptive as dishwater, and
registered to the hilt. What is needed with Bitcoin is a single
compelling idea, an irresistible concept and solution to a problem that
only Bitcoin can solve.
We know that Bitcoin is revolutionary and
extraordinary and that it is as disruptive as the internet itself. What
is missing from the disruption equation is a consumer friendly set of
features and capabilities that will cause its adoption to go viral.
Integrating
with the State is not one of these features. No user out there cares
that you have jumped through some arbitrary hoops for approval by the
State. You need look no further than Skype to see what a proper approach
to innovation looks like. No Skype user cares whether or not Skype has a
license to operate as a telephone service; all they care about is that
they can download the software and make perfect calls world-wide for
nothing straight out of the box. The same is true for Bitcoin. All
people want is to be able to download it, use it, buy what they need and
transfer money to their friends and family as easily as possible. In
order to make that happen, software expressing the correct small feature
footprint and business model needs to be designed and developed, which
has nothing to do with licenses from the State.
This registration
of a Bitcoin business with FinCEN is a mistake, but it is not a big
deal. FinCEN registration is not compulsory for Bitcoin businesses and
they can painlessly de-register. What is wrong here is the signal that
is being sent and the thinking driving the voluntary registrants to
submit themselves to this, and it is this thinking that needs to be
addressed.
As Bitcoin grows, this precedent of reflexively
registering Bitcoin services as money services will be used to compel
other entrepreneurs to register their businesses, and eventually they
will all be made to pay fees and obtain arbitrarily crafted licenses,
and that is an entirely bad thing. For anyone that wants to run a
Bitcoin business in the United States of America that is. Banks in
Switzerland are shunning Americans, closing the accounts of all U.S.
citizens precisely because the U.S. regulations are completely over the
top. The sensible, rational people of the world are simply not willing
to put up with this mania. There is no money in it and it is immoral.
Finally
let me be make my position on Bitcoin developers and entrepreneurs
clear. Bitcoin is a tool and business for heroes. It is an unprecedented
and unique invention, that straddles the abundance world of digital
information and the world of scarce physical money. Bitcoin has the
potential to transform the world. The people who involve themselves with
it at any level are the forward thinkers, the brave and the innovative.
They are the true entrepreneurs and pioneers, the risk takers and
leaders. They are the sorts of people who make the world a better place
to live in. I support them and their efforts.
The urge to succeed
and to be a part of this revolution is very strong for entrepreneurs,
and the desire to cover every possible eventuality to avoid pitfalls is
just as powerful. In trying to reassure a skeptical public, some people
make the critical mistake of believing that obtaining the stamp of
approval of the State will help them reach their goals. This is a
fundamental error, but it does not mean that they are bad people, in
fact quite the contrary. These entrepreneurs are willing to fully expose
themselves to the State and its humiliating scrutiny as a sacrificial
demonstration of their clean purposes, good will and intention to offer a
useful and trustworthy service. In the world of software however, there
is absolutely no need for the State to certify people for any
particular purpose.
The risk of involving the State in the early
stages of Bitcoin's development is high. It could at the very least,
retard the progress of Bitcoin and at worst, prevent the mass adoption
of this new idea. And that would be a tragedy as great as if the
internet had ended up as a world-wide AOL.
Reprinted with permission.
