Monday, March 18, 2013 26 Comments

RIP Bitcoin, I think

As predicted here last month, USG is killing Bitcoin - I'm pretty sure.  FINCEN has just issued its guidance on virtual currencies.

TL;DR: every currently operating Bitcoin exchange is operating in violation of the law - or, if you prefer, "law."  (Obviously "laws" made in this way are a profound and utter mockery of the good old English word "law," but there you go.)  Here is the complete Bitcoin guidance:
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
IANAL, of course, but as I read this: here are the things it is now perfectly "legal" to do with Bitcoin.   One, you can mine BTC and use them to buy alpaca socks.  Two, you can accept BTC in exchange for your alpaca socks.  Awfully generous of our wise masters, don't you think?

Operating a BTC exchange anywhere in the world, however, is now "illegal" (as I read it).  So, in a particularly ingenious touch, is mining BTC and selling it for money.  Ie, mining BTC.  Ie, it is quite plain that every player in the Bitcoin economy violates this grand ukase of the Holy Procurator - and, if prudent, will begin making plans to shut down permanently, tomorrow.

Unless, of course, it has a money transmitter license.  Obviously, none of these has been or will be issued to any Bitcoiners.  I have not of course seen the questionnaire (ha ha - the first question being, can you afford $2.5M in legal fees?), but I imagine it asks you how you know the monies you're transmitting are not the product of illegal activity.  Of course, Bitcoin provides no such assurance.  By design.  That's because it's well-designed - for a free country that doesn't exist.

It does not matter whether or not USG would issue a BTC exchange an MTL under any circumstances - because BTC will "get dead," as my daughter puts it, before even the friendliest of regimes could act on such an application.  I'm not getting the feeling this is the friendliest of regimes.

Ergo, we can expect the BTC economy to segment rapidly into two groups: those who see the writing on the wall and cash out/cut losses as fast as possible, and those who for whatever reason want to play whack-a-mole with Washington.  Washington will have great fun with the latter.

However, the essential problem is that BTC cannot maintain its exchange rate against USD, for reasons discussed in the prior post, without the present burgeoning white economy.  The BTC black economy has many ways to fight USG - but it ceases to exist if the white economy ceases to maintain the BTC price above zero.  Criminals don't work for free.

But, of course, I could be wrong.  There is certainly no investment advice here at UR...


Anonymous Anonymous said...

Silicon Valley bank which is partnering with coinlab to manage the US books for mtgox presumably already has a license.

March 18, 2013 at 9:25 PM  
Anonymous Anonymous said...

I was under the impression that they were merely affirming the already existing law. Don't exchanges that deal in USD already have to comply with money transmission laws? I thought that was why MtGox was in Japan in the first place.

March 18, 2013 at 9:34 PM  
Anonymous Anonymous said...

Mine BTC->buy gold on ebay->sell gold

March 18, 2013 at 9:40 PM  
Anonymous Anonymous said...

where is the 2.5 million figure coming from?

annoying, but hardly a dealbreaker given the volume of business BTC exchanges are already doing. Couple that with partnership such as the aforementioned SVB deal and I think you actually get good news for BTC. What was a grey area before now has a clear route to legitimacy

March 18, 2013 at 9:48 PM  
Anonymous Anonymous said...

a little late on ball with this one. A miner is still a user as long as they transfer less than whatever the threshold for finCEN is. They just have to exchange it on a licensed exchange now.

March 18, 2013 at 10:00 PM  
Anonymous spandrell said...

Some Lockheed engineer gets fired and replaced by an affirmative action hire -> Flees to some island in the pacific -> builds himself an autonomous drone army -> Builds a bitcoin exchange -> USG invades -> Drone army repels invasion -> USD collapses

Somebody write a cool novel about it and it will happen.

March 18, 2013 at 11:28 PM  
Blogger Peter Šurda said...

It has been known for quite a long time that exchanges probably need special licensing, and in fact in other countries exchanges are either already licensed or have been threatened to purchase a license. Nothing new here.

March 19, 2013 at 12:14 AM  
Anonymous Gilliam Wibson said...

"Somebody write a cool novel about it"

A trilogy? Naurumancer, Coin Zero, Mona Lisa Overdrone.

March 19, 2013 at 4:06 AM  
Anonymous Anonymous said...

> Unless, of course, it has a money transmitter license. Obviously, none of these has been or will be issued to any Bitcoiners ... I imagine it asks you how you know the monies you're transmitting are not the product of illegal activity. Of course, Bitcoin provides no such assurance

This might be how USG would act if it were one sovereign making expedient decisions and directly attacked things it saw as a threat. But USG operates on a massive principle of embrace and neuter (similar to Microsoft's famous embrace and extend). USG encourages competition, just over time it works to usurp control of that competition.

Exchanges will be issued MTLs. They will be required to only use specific wallet addresses so that they have a known identity in the blockchain, and they will be required to report the identity of wallets they interact with directly. These requirements will increase and expand to other parties over time, until bitcoin, not actually being anonymous in the first place due to an extremely naive cryptographic design, becomes the most non-anonymous currency around.

March 19, 2013 at 5:26 AM  
Anonymous Anonymous said...

who gives a $h!t about what the government would make the exchanges do!!? Once you get it you can mix it with thousands of addresses which is already provided by a lot of businesses. Not to mention that there are thousands(millions in the future worldwide) thru local exchanges and not to mention the new bitcoin vending machines that are coming up. You can take all those thing and then add layers of encryption. I think we will be alright. Just a matter of will and ingenuity. WE ARE ALL HUMANS NO ONE GOVERNMENT OR NO GOVERNMENT NO ONE IS INFALLIBLE.

March 19, 2013 at 8:35 AM  
Anonymous Anonymous said...

INVINCIBLE*** HAHA prove my point kinda

March 19, 2013 at 8:37 AM  
Blogger Cloudswrest said...

The market price seems to have seriously gapped UP after this announcement. Price is close to $60 now.

March 19, 2013 at 9:14 AM  
Anonymous Anonymous said...

As a former online poker player, I'm afraid MM is right about this. The USG has the power to shut down Bitcoin as a functioning currency. It would not hesitate to claim legal authority. Of course, the USG has no compelling interest in busting Bitcoin now; its sights are set on overturning liberties that it finds more annoying at present.

Bitcoin is still pretty low priority.

March 19, 2013 at 10:54 AM  
Blogger DR said...

"not actually being anonymous in the first place due to an extremely naive cryptographic design"

Could you elaborate on this? What do you see as Bitcoin's cryptographic flaws and what alternatives exist?

March 19, 2013 at 11:50 AM  
Blogger Cloudswrest said...

This comment has been removed by the author.

March 19, 2013 at 12:03 PM  
Blogger Cloudswrest said...

Here is Bitcoin Foundation's general counsel's take on the recent FINCEN guidance.

March 19, 2013 at 12:04 PM  
Anonymous Anonymous said...

Bicoin is essentially a "harder" commodity than gold, so by claiming that Bitcoin's status as money depends entirely on what the government decides, you are arguing in favor of the State theory of money, which the Austrian school strongly opposes.

March 19, 2013 at 12:44 PM  
Anonymous Anonymous said...

> These requirements will increase and expand to other parties over time, until bitcoin, not actually being anonymous in the first place due to an extremely naive cryptographic design, becomes the most non-anonymous currency around.

This. This is what will happen. The government already hates 100$ bills and 20$ bills. The government will be able to issue "bitcoin-backed" "fractional reserve" loans, and confiscate bitcoins if needed; maybe they'll force people to use bitcoin software that accepts new issues of bitcoins. But they certainly won't make bitcoins actually anonymous.

Bitcoins are like 20$ bills whose serial numbers are recorded at almost every transaction. You get bitcoin #1234 from your employer it's later confiscated from a drug dealer, so the police ask you where you spent it. If you had spent it at the laundromat or the donut shop or the train station, that would be a matter of public record. If you had given it to your buddy for fixing your bike, where it went from him would be a matter of public record.

Suddenly piracy really does fund the drug trade: anyone who buys an unlicensed DVD from a street vendor runs the risk of having to explain where they spent that bitcoin when it reaches a drug dealer, because no one wants to give bitcoins that can be traced to them to drug dealers.

March 19, 2013 at 2:31 PM  
Anonymous Anonymous said...

Most users don't care what the US government says. Do you really believe that a BTC miner in Guangzhou is shutting down because Obama says so? LOL!

People use cash for illegal purposes and they can use Bitcoin for illegal purposes as long as it's convenient. The US matters less and less in today's world.

About the supposedly naive design: I think I read somewhere about a transfer service for BTC payments that somehow destroys the ability to trace BTC to the sender. I didn't read the article because wasn't really interested in that feature (I don't live in a police state).

March 20, 2013 at 2:39 AM  
Anonymous Anonymous said...

So, because the USG wants to license, tax the exchanges (in US soil) you post a dramatic title to your little blog? LMAO.
the USG has no way to regulate bitcoin (period)
Even if they could, but they can't, the BTC market is still very small for the USG to worry.
If they attempt to regulate it, or kill they will fail miserably.

March 20, 2013 at 7:05 AM  
Anonymous Anonymous said...

US Treasury guidance isn't law. This new guidance only applies to Exchanges on US soil that facilitate transfer of wealth between two independant parties, it does not cover miners or wallet holders (end users) as they are "users" of the currency -- read the guidance again, this is written in there directly.

This guidance doesn't kill bitcoin. In fact it hardens it, because now mega-big-box-corp and venture capitalists see the US Treasury deem the currency a legit mean of trade so long as the businesses at the end points are operating 'by the book.'

March 20, 2013 at 7:40 AM  
Anonymous Anonymous said...

God almighty. This is the dumbest thing I've read to date on the FINCEN document. Really.

Oh well - some guy on a blog...


March 20, 2013 at 8:04 AM  
Anonymous Anonymous said...

Here is a list of live prices from legal bitcoin exchanges

Please note that the price is increasing in spite of the fincen regulations and many think that they will have a beneficial impact on the network

March 20, 2013 at 8:38 AM  
Blogger TGGP said...

J. P. Koning's "Moneyness" blog is a much better intro to "New Monetarist" questions of "what is money" than Steve Williamson's (even if Steve is an asshole to many deserving people), and had an interesting post on how Bitcoin seems to contradict the (predominant) State-centric variety of chartalism, "backing theory" associated with the Real Bills Doctrine, and the Austrian "regression" theorem. Under all three, it should not have ever attained a positive value. I myself don't have a theory of why it does either, but accepting the EMH I say that the market price is right and Mencius is wrong that it will go to 0 any time soon.

March 20, 2013 at 8:36 PM  
Anonymous Anonymous said...

i'm sorry but this article is only going to encourage a few persons to sell their bitcoin and leave the game. do you realize how many millions upon millions are invested in this industry? it's not going away... but evolving and gaining strength. it's being used to support economies in europe as well (micro-economics).

sorry, put that in your pipe man, smoke it, and find another song to sing.

i among thousands of others are elated at this news. it equates to some regulation as well as embrace of the bitcoin community.

bitcoin is stronger than other currencies because it is not DEBT based. you dig? for every $800,000 printed we'll see a bitcoin. that's some strong stuff there. evidently so. ;)

March 20, 2013 at 8:37 PM  
Anonymous Anonymous said...

thanks for sharing.

March 28, 2013 at 4:12 AM  

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