[Cryptography] On the 'regulation proof' aspect of Bitcoin

[Lee Clagett]

On Tue, 29 Mar 2016 12:17:02 -0400
Phillip Hallam-Baker <phill at hallambaker.com> wrote:
> I am getting rather fed up of all these BitCoiners telling me how
> their scheme can't be taken down like the Feds took out Gold Age. And
> back when I was predicting the Feds would take out Gold Age like they
> took out Liberty Reserve they were telling me how that wouldn't happen
> because no extradition treaty. And before that they were telling me
> they couldn't touch Liberty Reserve like they took out E-Gold because
> no US servers and before that they were saying E-Gold was untouchable
> because it was incorporated in St Nevis and Kitts.
>
>
> Telling me that something is impossible is like making it a challenge.
> I have seen a dozen of these schemes over the years and every one of
> them has told me how they are utterly unlike any religion before and
> that theirs is the true God. The fact that the genuine innovation in
> BitCoin is that it is a Ponzi scheme without a central mastermind only
> makes matters worse. People never want to be told that Madoff has
> stolen their money rather than getting that 20% return or that the
> Nigerian Prince isn't going to send that money ever.
>
> Greed is a powerful inhibitor of curiosity.

I do not see how any item that has exclusive ownership rights, which is
knowingly being held by someone, can be a Ponzi scheme. No one has been
defrauded if Bitcoin becomes untradeable because that is a risk with
_any_ item expected to have future value. Otherwise every item,
including USD and Gold, could eventually be a Ponzi scheme. Bitcoin
might be a "bubble", which can have similar ROI characteristics to a
Ponzi scheme. And the definition of a "bubble" is a loose one too,
because if the USD happens to implode some day, was it a 100+ year
bubble? Or is there some arbitrary time limit and value swings that
define a bubble?


> 
[...]
> 
> Most EU regulators have the same toolset as the Fed and they have
> recently been using it to impose sanctions on Iran. Unlike Iran,
> suppressing BitCoin does not create foreign policy concerns. Plenty of
> countries wanted to sell exports to Iran or buy cheap Iranian oil.
> BitCoin isn't a country so there isn't the same incentive to protect
> BTC commerce.

The _eventual_ promise of crypto-currencies is anonymous digital
transactions where only the two parties involved know the participants.
Good OPSEC allows for untraceable pseudonymous transactions already,
but trading into physical goods is still likely to be considered risky
without further enhancements to the technology. This is *more* valuable
than the comparative systems you mentioned or the current banking
system for clandestine purposes. I think these current and potential
benefits to these influential segments of governments are enough to
keep cryto-currencies from being banned.

I think the positive feature on Bitcoin by the Economist a few months
ago was very telling. Bitcoin and other blockchain technologies are
likely to be tolerated for some time going forward.


> 3) Start making examples of BitCoiners in the US.
>
> There have already been some arrests of people who were marketing
> BitCoin as a vehicle for evading currency controls. The main
> difficulty in bringing charges being the ambiguous status of BitCoin
> transactions. But once the Fed has ruled that a CTR must be filed,
> merely using BTC becomes cause for criminal complaint.
>
> OK so at this point it is really difficult to transfer money into or
> out of BTC from the US and attempting to do so risks a jail term. do
> you think BTC is going to return to $1000 under those conditions or
> sink like a stone?

I find it interesting that none of your methods for stopping Bitcoin
were technical. None of them prevented the exchanging of Bitcoins,
just attempts to stop exchanges to/from Bitcoins. So is it assumed that
digital items - images, music, video, and software - can still be
exchanged easily? I have no predictions on value or outcome for the
scenario you describe, just an observation.


> Sure you could bring a lawsuit. But on what grounds? Control of the
> currency has been considered a core government function for thousands
> of years. Article 1 Section 8 of the constitution clearly and
> unambiguously gives the Federal government the exclusive right to
> regulate minting of coin.

From law.cornell.edu [0]:

    The Congress shall have power to lay and collect taxes, duties,
    imposts, and excises, to pay the debts and provide for the common
    defense and general welfare of the United States; but all duties,
    imposts, and excises shall be uniform throughout the United States;

    To borrow money on the credit of the United States;

    To regulate commerce with foreign nations, and among the several
    states, and with the Indian tribes;

    To establish a uniform rule of naturalization and uniform laws on
    the subject of bankruptcies throughout the United States;

    To coin money, regulate the value thereof, and of foreign coin, and
    fix the standard of weights and measures;

    To provide for the punishment of counterfeiting the securities and
    current coin of the United States;

    ...

Was coinage an exclusive right to the USG? Is Bitcoin a foreign coin?
And what about game currencies like Second Life, that also have a USD
exchange? I ultimately agree with you here for a different reason
- the federal courts are going to make up a ruling to suit the needs of
the government if necessary.

Currently, the IRS considers Bitcoin property [1], which is a different
classification than a currency [2]. Why would the IRS go through the
trouble of writing these guidance reports if the USG was about to
eradicate its existence? Typical government bureaucracy working against
itself? This seems like a decision large enough for the justice
department to receive advanced warning about. Certainly does not
disprove your case for a possible ban, but Bitcoin became large enough
for one agency in the USG to notice 2 years ago, and there was no
attempt to stop it.


> Even if a lawsuit was brought, it would be three years before any
> final decision and in the meantime, the value of BTC would drop like a
> stone.
> 
> So why doesn't the Fed do this?
>
> My guess is that until ransomware, BTC just wasn't a big enough
> irritation and there is always the knowledge that as fast as one
> scheme is shut down, another pops up to take its place.

Bitcoin ransomware has been around for a couple of years - at least
since Decemer 2013 [3] - so the mere existence of ransomware has
not moved governments. Do you think ransomware usage has been
increasing, and thus complaints about Bitcoin? I recall reading some
articles about banning crypto-currencies due to the recent terrorist
attacks, but none about ransomware. Maybe I missed those articles.
Ultimately, I think terrorism prevention is a more likely excuse to get
governments moving on this topic.

Lee

[0] https://www.law.cornell.edu/constitution/articlei
[1] https://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
[2] https://www.irs.gov/irb/2014-16_IRB/ar12.html
[3]http://www.zdnet.com/article/cryptolockers-crimewave-a-trail-of-millions-in-laundered-bitcoin/