Bitcoin Forum

Bitcoin's Greatness Not Realized By Succumbing To Regulation (http://www.forbes.com/sites/jonmatonis/2012/12/09/bitcoins-greatness-not-realized-by-succumbing-to-regulation/) - Jon Matonis (obvi)

The title is so much fail

Why?

Interfaces with the legacy financial are transitional technologies that help make the conversion easier.

Most people right now can neither obtain a salary in bitcoins, nor use bitcoins to  pay for their expenses whether or not regulated companies like this exist.

What these transitional technologies allow individuals do is take the first step towards Bitcoin adoption by using it to store their savings. A smart European customer of Bitcoin-Central could use them to convert his paychecks automatically to bitcoins, immediately withdraw them to an offline wallet under his own control, and then add small amounts bitcoins to the account to fund the debit card. This provides the maximum amount of security and usability.

As more companies begin to accept bitcoins directly the user will have less need to use the debit card, and eventually won't fund it at all. The final stage will come when his employer is willing to pay him directly in bitcoin. At this point the transitional technology will no longer be necessary and Bitcoin-Central will either move on to provide other services or will close shop.

I agree, this is part of the transition phase from sovereign currencies to a worldwide internet currency. In the end, "edge" processors that convert BTC to other vehicles will slowly go away, in addition to banking "bridges".

It is also amusing to see the confusion from people who want to hate bitcoin, but can't wrap their heads around a banking bridge existing alongside it.

I totally agree with this. Bitcoin-Central is also giving bitcoin huge CREDIBILITY for normal Joe who is not aware of bitcoin and how the banking system works. Bridges are very important and inevitable for the transition of wealth toward bitcoin.  

This article is a massive pile of fail.

My reply

Although it's well known that I'm not a big fan of Bitcoin foundation, I think your question here is a bit unfair to Jon, especially since mtgox is likewise effectively heavily regulated. I think what you read is Jon's view that he really believes in and I don't think he had alternative motives writing about it.

You're right, statement removed.

That's yet to be confirmed by a mtgox representative.

I think Jon has been pretty consistently on the "less regulation is better regulation" side of the debate. Given that the big criticism of the Bitcoin Foundation (and Mt. Gox) around here was that it is on the "more regulation" side of the fence, I find your comment kind of amusing.

As for it being "a big pile of fail" :  I think reasonable people can disagree here.  I have no idea whether trying to work inside the existing system or working around the existing system is a better approach. You have your opinion, Jon has his, I think we'll be arguing about it for years to come; happily, there doesn't have to be One True Answer.  I just hope we don't spend all our time sniping at each other over the best One True Way to reach the goals that we all share.

I mean the title of the article, of course. The article is full of bullshit, and the title too is bullshit.

Go Jon!

Testify, dude!

Tell the banker wannabes like it is!  :D

It doesn't matter what is true officially that's why I said -effectively- which they are, they are effectively regulated given their actions of requiring their customers to provide all sorts of personal identification and are required to follow strict rules how they may access their site. If they're doing this out of fear of regulations preemptively or because they have agreed to these measures is irrelevant.

I haven't really criticized the foundation as being "more regulation", that would have shown a quite weak understanding of Bitcoin.
My opinion on the foundation overally is "Good thing for Gavin, he gets a salary, he deserves it after all. Also meh."
I'm however eagerly awaiting to see how the foundation will cover this as it, IMHO, undoubtly deserves at least as much attention as "the banks dirty secrets" :)

I'm not even arguing his opinion is right or wrong, we all know there is no such thing as the Absolute Truth™. But I do point out that he's kinda making big deals about stuff that's really not the main point of this news "will we be able to remain anonymous using BC ?", well, you're not anonymous on any exchange as soon as banks get involved.

The way he talks about graph analysis forgets all we learnt with Shamir's paper.

His statements about how Linux didn't start by integrating with Microsoft are laughable as someone pointed out on Reddit : "Linux did coexist in a sense with Solaris, HP-UX, and other proprietary UNIX(r) OSes, which is the market in which Linux eventually came to dominate."

Anyway, let's not waste our time here, I respect his opinion but I think he could've made a much better article out of it.


It does matter, because if you act like you're regulated without actually being you only get the negative side and reap no benefits out of it. MtGox was doing AML/KYC when they got kicked out of France, they got the bad side of regulation and still got everyone angry by suspending their EUR business for a while. They neither had nor ate their cake.

I posted my views on the main thread:

https://bitcointalk.org/index.php?topic=129461.msg1388723#msg1388723

I'm not so sure that the main defence being put up here for more regulation actually stands up that well to close scrutiny. The defence is along the lines of "the more bridges we build the faster we can flow the mainstream funds into bitcoin and out of the fiat system"

Ok, so let's take a look at what happens when one person decides to change all their fiat money into bitcoin (say I'm Rick Falkvinge :)) ... before the transaction the bitcoin network had 10.5 million btc and the fiat system had XXYY fiat pesos ..... and amazingly after the transaction there are still 10.5 million btc and XXYYXX fiat pesos in the respective systems. So how is that all these "funds flowing into bitcoin" have not changed the number of units in either system? Of course the answer is that there was another willing seller of btc to exchange with Falkvinge's fiat pesos.

The conceptual error here, and what undermines the "building bridges" argument, is that funds are NOT flowing from one system into the other, it is VALUE that is flowing. But what is value in this case? It is the collective illusion/delusion/belief, call it what you will, that we all choose to engage in to make this thing we call money a reality. For example, just imagine that tomorrow we all wake up and bitcoins are valued at $10,000 a piece (or equally say $0.0001), have any funds been "flowing" to and fro to achieve this? Maybe, but not necessarily so, there will still be the same number of BTC in circulation, and ~ the same number of fiat pesos but massive amounts of value can flow without any exchanges functioning whatsoever.

Just something to consider, how much do you VALUE your financial privacy?

Matonis continually points out the problem but does not give a solution.  Right now the only clear deregulated website is silk road.  How does one build a non deregulated business without getting arrested?  Move to africa where system D thrives?  Any volunteers?  :P

You're neglecting the velocity component of the money supply. There's a huge difference between 10.5 million BTC sitting idle in the blockchain and the same amount being continually spent.

If people are converting their paychecks to bitcoin, and then converting back to fiat as needed to pay expenses the total amount of bitcoins they will move in a year vastly exceeds their balance at any given time.

I liked the article

Precisely, jimbobway.

Many of the goldbugs think in strictly either/or terms and miss the main point of Bitcoin which is in its ability to transmit value over distance and not necessarily in its ability to store value over time. So likewise I think Matonis may have missed the main point with Bitcoin which is censorship-resistance and not privacy.

Pretending that by not interfacing with the legacy financial system will help preserve the psuedo-anonymous nature of Bitcoin transactions and therefore increase anonymity because there are less data points to engage in blockchain graph analysis is simply folly and the result from such economic isolationism will be decreased Bitcoin liquidity.

It is the censorship-resistant nature of Bitcoin that makes possible untraceable truly anonymous digital cash transaction systems with COMPLETE destruction of account history (See Open Transactions/Ripple, etc.).

This really is not an either/or use for this particular tool, Bitcoin. Bitcoin is just one tool, an indispensable one due to censorship-resistance, in realizing this anonymous financial future. The more liquidity Bitcoin has the more useful it will be in performing its role in allowing the settlement of untraceable truly anonymous digital cash transaction systems with COMPLETE destruction of account history.

Trace, since you just pasted your Forbes comment here, I'll re-post my reply to it here as well. I think that if you re-read the article and comments, some alternative solutions are offered. It is not going to be an easy or fun road for exchanges in 1st world KYC/AML countries that embrace OECD/FATF guidelines (that is just a fact). I have seen too many unpleasant things happen to not know what lies before them. They may try if they wish, but experience will show that it is not necessarily the road to success.


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Trace,

Thanks for your comment. Indeed, the censorship resistance feature provides the resiliency. FellowTraveler is a stalwart and he does great work on Open Transactions. I think you may have missed the main point of my article, because no one is suggesting isolationism and no one is suggesting that companies and individuals don’t have the right to seek regulation and to integrate with the legacy financial situation if that is their path. I am saying that playing that game is a misguided road to achieve bitcoin’s promise of a parallel nonpolitical value exchange system. That is the bigger folly.

Jurisdictions and other exchange structures should be considered for more of the end points. I don’t know about you but I find it offensive that a company would require identification papers for trading a math puzzle just as I would find it offensive if a company required identity papers to purchase toothpaste or rubber bands. Globally, liquidity will not be diminished by refusing to participate in the rules of commercial banking endpoints; it is the ease of use on the software side that is currently holding back mass adoption despite the fact that many exchange avenues exist.

Also, as you know from your work in the asset management business, the storing of value is only useful if it is beyond confiscation so depending on the particular situation gold bugs may begin to supplement by storing value on the block chain.

If you trade rubber bands on a the open market you'll probably be required to identify yourself.
Regardless, if it offends you, you always have the option to pass. So I'm not sure what exactly is offensive here, that we ask *you* to provide identification ? Because we don't. Or that we offer a service that requires some level of identification ?

With this move we also offer to any of our users to option to opt-out without providing identification of any kind and get a full, unconditional refund. I really don't see how we could do much better.

Unlike certain exchanges I won't name, we won't lock your funds if you don't identify, we'll refund you. And that's exactly what's stated by KYC regulations : "if the financial entity fails to identify its customer it must sever the commercial relationship and return already sent funds to where they came from". Plain, simple, free and based on voluntary agreement.


I'll beg to politely differ. Liquidity would be really worse than what it is today if exchanges weren't integrating with the current financial system, regardless of licensing and regulatory issues.

Gabi,

Is that the best you could come up with? Be glad that you didn't submit that comment to Forbes. Do you have anything else to add because you're not giving me much to reply to?

The main reason that I can see for preferring bitcoin at the moment is the option to not associate my identity with my money. Others may see something else like low fees and for sending money overseas. But for me personally, I have other payment methods available to accomplish that so the main differentiator becomes the things I can accomplish with Bitcoin that I cannot accomplish in other ways. I suspect that some others may feel the same way.

Also look at some the largest BTC balances on the block chain besides Gox and identified exchange points. You will notice that they did not come from any of the so-called bridges; I'm not saying who they are, but that's point isn't it.

David, I'm not sure why you have to feel defensive and singled out. This is not personal and it is not only about Paymium/Bitcoin-Central. It is a bitcoin industry question. The level of offensiveness comes from the legal guidelines that companies like yours have to follow; of course I know that you didn't make up the various rules of the financial framework.

And, not all markets in all jurisdictions would make you identify yourself for open market trades of seemingly innocuous items. You chose France for obvious reasons, so you must operate within the rules and regulations of France. Bitcoin is neither defined nor stipulated as a "currency" in any country in the world right now, so I reject money transfer/MSB regulatory paradigms that attempt to treat it as such. I also wish that a few attorneys would step up to articulate that defense.

Jon,

Generally I wholeheartedly agree with your articles. We share a common sentiment. However, I disagree with you in this instance. I think this is a big step in the right direction for bitcoin's big picture. Bitcoin is a slippery fish that "the law" will not be able to hold. To me, this event is more of an injection of bitcoin's potency than a neutering of it. Bitcoin will undoubtedly supercede banks and the laws that ground them.

More importantly, this could even be seen as a concession. Banks and goverments are beginning to catch on that the bitcoin is a force to be reckoned with. The financial status quo stands at a crossroads. Snuggle up to bitcoin or smother it. The status quo will be crushed regardless. This is bitcoin's rise to power.

I cannot express how much I agree with this.

This is a complex issue and I also usually agree with Jon but not in this instance. I agree with Trace and davout. I'll go as far as to say that it's stupid to think that the liquidity of the market isn't affected negatively if we choose to disregard legitimacy. Bitcoin is currently mainly used in countries where the so called "System D" is, even though a big market, still a limited niche that not everyone is interested in. This is obviously different in 3rd world countries where Bitcoin or a Bitcoin-like currency will be used very differently.

Even though I consider myself a libertarian I don't want to push away the mainstream. This news about Bitcoin-Central adds a lot of legitimacy and not only that, it adds actual trust. People who want to trade bitcoins with let's say, 10k to 100k euros, will definitely consider Bitcoin-Central because their fiat deposit is absolutely guaranteed. All other Bitcoin exchanges are comparatively bucket shops in terms of fiat deposits. Including Mt. Gox, which hasn't had a financial audit of any sort.

We are still free to use LocalBitcoins and other services that have a lot more anonymity but we shouldn't shut ourselves out from the Western mainstream by not following any rules. Also, if Bitcoin anonymity as a whole becomes weaker, other cryptocurrencies will serve System D in the future. Bitcoin will be a more mainstream cryptocurrency. I don't know what will happen but personally I think this problem of weakening anonymity is a technical protocol level problem that can be solved in other ways. Blaming exchanges or exchange operators is a weak position.

Jon, what makes you think I feel one way or another.
I'm merely commenting on your article, which points I feel are not of the outsanding quality we're all used to.

As for my feelings I actually feel really good about about all this! I feel really good about the support an important share of bitcoiners are showing, I feel good about arguing with the skeptics and I feel awesome about ignoring the haters.

I'm sure you can find a couple, that doesn't make my point less valid, especially in the context of a regulated financial entity.

Which would be ? No, the truth is, I just live there, not much choice involved :)

You got it !

I wholeheartedly agree with you here.
If someone tries to get any Instawallet user-data from us we'll greet him with a nice warm cup of back-the-hell-off.

Sure you won't have have regulatory or identification issues if you trade on exchange trades Bitcoins against Bitcoins, or gummy-bears for the matter. Things get slightly more complicated as soon as you involve their copy-pastable currency.

On a sidenote I'm really curious to see what the Bitcoin foundation has to say about all this, after all this really helps the third point of the foundation's mission statement "Promoting Bitcoin" by making it less scary from a legal point of view to all the businesses who wish to accept them. Maybe thanks to this move we'll score Wikipedia's business, who knows.

Talk about it on your next board meeting and let us all know ;)

And please accept this so called "internet bro-fist" as a token of appreciation for all the outstanding work you've done for this community and the gentleman argument I'm currently enjoying with you.

http://i3.kym-cdn.com/entries/icons/original/000/001/274/brofistcover.jpg

we need cheap safe mixing service badly.

Instawallet.org (https://instawallet.org) like-never-before™

Precisely. Jon, we both agree the State's obsessive compulsive disorder for putting the entire world in a petri dish under a microscope with 24/7 surveillance is the problem that needs to be prevented.

Currently, the Bitcoin protocol is not built to be anonymous. Therefore, we should assume for the sake of argument that with or without integration with the legacy financial system the State can obtain all of data points for the system. Your position of reducing data points does not make this assumption. It instead makes an assumption, which I do agree with, that by not integrating it raises the cost on the State to gather the data points. The solution is not economic isolationism but instead building a system of tools, and Bitcoin is one of them, that makes anonymity possible.

On a side note, a good incremental step towards that goal is to keep raising the cost on those attempting to obtain and use data points in attempting to breach the psuedo-anonymity. This is because even the State has limited resources to deploy. Go ahead, build a million Bluffdales because that will mean less resources that can be spent on drones to assassinate children engaged in political speech about other children being killed as collateral damage (http://www.guardian.co.uk/commentisfree/cifamerica/2011/nov/07/cia-unaccountable-drone-war).


You do not really believe this do you? Bitcoin is marginalized because it is not integrated with the financial system. Even Eric Schmidt publicly said so (http://money.cnn.com/2012/02/28/technology/google_future_of_internet/index.htm).

Sounds expensive for those attorneys with very little potential benefit. There are so many legal issues raised by Bitcoin it is not even funny.


Slippery is a great description. As Jon wrote about with air guitars, trying to craft any type of legislation is going to be extremely difficult as discussed with Future Money Trends (http://youtu.be/YHVVi7M4jbo?t=15m10s). From a criminal defense, asset protection and tax planning standpoint if I were defending a client then I would take the initial position that 'bitcoins' do not exist and even if they do that there is no ownership interest in these mythical bitcoins that do not even exist.

Attorneys can pontificate about this all day long but courts are most likely not going to issue any advisory opinions (https://en.wikipedia.org/wiki/Advisory_opinion) and an IRS private letter ruling (https://en.wikipedia.org/wiki/Private_letter_ruling) would probably be no more favorable than a potential litigation scenario. To be extra safe choose one of the reasonable approaches as discussed in A Lawyer's Take On Bitcoin and Taxes (https://www.coindl.com/page/item/104) and apply that.

So that leaves settling the legal issues to litigation which will differ based on jurisdiction and take many years to settle, particularly if it goes to the USSC due to challenging constitutional grounds like void for vagueness (https://en.wikipedia.org/wiki/Void_for_vagueness), overly broad (https://en.wikipedia.org/wiki/Overbreadth_doctrine) and the rule of lenity (https://en.wikipedia.org/wiki/Statutory_interpretation#rule_of_lenity) (which is why Bitcoin-Central is likely doing what they are doing; its all fun and games until your neck is in the noose). This potential litigation liability is most efficiently borne economically by those institutions and organizations that make the economic calculation to engage in the behavior that gives rise to it, like exchanges, and expect to earn profits a portion of which can fund the legal defense.

Freedom, monetary freedom included, has been and is going to increasingly become a luxury good not available to freeriders. Not all the buffalos make it across the river; some become crocodile food (http://youtu.be/z0g8O34bCE8?t=1m57s). So evolve and grow wings with tools like Bitcoin and Open Transactions. If the crocodiles starve because they fail to adapt; oh well.

There are and will likely always be tools to sever the audit trail with bitcoins and thus preserve anonymity. Plus, additional features could be built into the blockchain to increase costs of performing block chain graph analysis.

But Bitcoin really decreases the costs related to value transfer in three different areas: (1) time, (2) money and (3) privacy. So, just because privacy costs increase slightly due to more data points as a result of increased liquidity from economic integration the value proposition from decreased costs in terms of time and money still make it a winner over substitute services.

What other options besides crypto-currencies are there for sending value are there which have no counter-party risk or custodial risk? Bitcoins having no counter-party risk is a huge feature and boards/CFO's should highly consider this in executing their fiduciary duty.

BitInstant's response to the Paymium controversy, and Matonis' article more specifically.

http://blog.bitinstant.com/blog/2012/12/10/the-controversy-of-bankhood.html (http://blog.bitinstant.com/blog/2012/12/10/the-controversy-of-bankhood.html)

In defense for matonis, a company that operates without regulation will most likely have more profits than one with regulation.  Regulation means time, money, and taxes.  So if the world economy completely transforms because of bitcoin then the companies not subjected to regulation will thrive.

This reasoning makes no sense if what you want is a sustainable business.

Figures I have seen suggest that so-called 'System D', if it were a country, would have an economy in size placing it right between USA and PRC as the world's second-largest. I'd hardly call this a niche, nor nothing that anyone is concerned about. I would think that all the world's largest money-barons would be deeply involved in this vast economy, if they could only figure out some way to get a toehold.

And so it goes with Bitcoin. Or rather, so I would hope would be the future of Bitcoin.

I am thinking that this licensure of Bitcoin-Central might perhaps bring them short-term success, followed by medium-term failure. And very little impact upon Bitcoin proper in the long term.

ETA: 'failure' is too strong a word. I think this cozying up with the money elite will limit the eventual size of the customer base willing to do business with them.

Oh - and I fixed a misspelling