Bitcoin Forum

I discussed some of the ways in which the regulatory landscape in the US did not achieve the government’s policy goals.  In particular, I spent a few minutes just going through the ambiguity in the March FinCEN Guidance, and emphasized the importance of supporting innovation in the Bitcoin industry.  I hit some points very hard – like how the regulatory environment has disincentivized businesses from launching in the US and from servicing US customers.  I also discussed how some businesses were simply picking up and leaving the US entirely.

Thank you sir , for this update. I was beginning to wonder what came of it.

I am skeptical over engaging TPTB in any fashion. BTAIM, I am appreciative of the follow-up report. I would welcome additional missives from your colleagues, if they deign to inform us -- the great unwashed masses.

Were the attending community members "invited" or issued a "subpoena" to attend? The difference would set the tone of the meeting. Did the government representatives offer any advice to the Bitcoin businesses operating in the US currently as a friendly gesture to keep more seized bank accounts from happening? I'm sure Mark Karpeles would like to know how to get back his 5 million dollars.

I trust a thief in the night more than I trust the US Federal government because I always know the exact motivation of the thief.

I think that is highly unlikely.  They would have to announce a public meeting.  I suspect the BF requested a meeting and was granted a meeting and then they chose who would attend and they probably ran the list by FinCEN to make sure they wouldn't object.  (I am just speculating but this is usually the way it goes).

I think this course is the only chance we have at softer interaction from the inevitable collision of the two communities, and therefore entirely appropriate. Your post puts a huge grin on my face, though.  :D

...and with that, my work here is done.

waitaminnit - nope, not quite

MSantori - was this meeting recorded? Is there a transcript available? If not, why not?

As many of you know, in addition to being an attorney in private practice, I am Chairman of the Bitcoin Foundation's Regulatory Affairs Committee.

The Foundation was invited to a private conference held yesterday by FinCEN in Washington, D.C.  In attendance were high-level representatives from FinCEN, IRS, FDIC, Federal Reserve, OCC, FBI, DEA, Secret Service, Department of Homeland Security and more.  It was a packed house.  FinCEN did an impressive job of bringing together in one room nearly all of the agency stakeholders in the Bitcoin issue.

At the conference, Patrick Murck, Peter Vessenes, Brian Klein, Jim Harper and I each gave presentations totaling about an hour.  We canvassed Bitcoin the protocol, bitcoins the currency, regulatory challenges, enforcement and investigation methodologies – everything under the Bitcoin sun.  We then responded to questions from the agency representatives for about an hour.  Our goal was to begin a frank dialogue with the federal government about Bitcoin and dispel some of the publicly-available misinformation.

It was a smashing success.  

First and foremost, we received a very friendly reception.  The attendees were engaged and interested in learning about distributed finance in general and Bitcoin in particular.  Each Foundation member lit the subject matter through his own lens.  Peter walked the government through a discussion of the core technology.  Brian, an ex-federal prosecutor, discussed investigative methodologies.

I, of course, discussed regulatory challenges.  I discussed some of the ways in which the regulatory landscape in the US did not achieve the government’s policy goals.  In particular, I spent a few minutes just going through the ambiguity in the March FinCEN Guidance, and emphasized the importance of supporting innovation in the Bitcoin industry.  I hit some points very hard – like how the regulatory environment has disincentivized businesses from launching in the US and from servicing US customers.  I also discussed how some businesses were simply picking up and leaving the US entirely.

Our message was straightforward: It is critical that the industry and the regulators work together to create a safe and sane regulatory environment for Bitcoin businesses in the United States.

To be sure, they asked the tough questions.  The agencies have some very real and legitimate concerns.  We often had to give the tough answers.  By the time we were through, though, many of the representatives approached me and some the other presenters to say that they had a much better understanding of the industry and the technology.  I don’t think anyone believes we achieved world peace, or solved the regulatory challenges once and for all.  

We started a dialogue – the first steps in understanding each other.

I read a couple news articles on this. I believe everyone was invited by FinCEN. One news article said the Foundation was 'host' which fits with MSantori's account. The Foundation was essentially presenting information and answering questions about Bitcoin to a regulatory community very much curious about and new to it.

Try accomplishing that without a The Bitcoin Foundation.

+1(+) for The Bitcoin Foundation.

I guess it's time for me to become a member and support them.

What regulatory and enforcement methodologies did you endorse?

I guess it's time for me to become a member and support them.

Did the Foundation convey to the agencies of Bitcoin's existential threat to fiat currencies?
Do they understand what the implications to governments would be if a significant portion of all commerce was done using bitcoins as opposed to the USD?

It is disinformation that governments would suffer in a Bitcoin economy.

Governments will still raise tax revenue but the emphasis would move from income tax to asset and sales taxes. They would have to live within their means, but this will actually benefit them in the long run. Governments that live perpetually beyond their means eventually undergo systemic failure. There are countless examples. In Western countries it is a bloated welfare/entitlement state and participation in non-defense wars of choice which wreck government finances. Without printable fiat the electorate would fully understand that governments could only offer welfare which is affordable and participate in wars which are truly matters of defense.

In attendance were high-level representatives from FinCEN, IRS, FDIC, Federal Reserve, OCC, FBI, DEA, Secret Service, Department of Homeland Security and more.

We could use some additional transparency. What were the "tough questions" and the "tough answers"?

What about the SEC? They're the regulatory agency for brokers and exchanges.

If Bitcoin were a commodity or currency you could trade on major exchanges, we could get rid of all those clowns trying to run Bitcoin exchanges.

We could use some additional transparency. What were the "tough questions" and the "tough answers"?

Why wouldn't he be allowed to disclose a meeting with public officials?

We, the bitcoin users,  don't need the bitcoin foundation to represent us. We have no faces. If any user, US government included, has any problem using Bitcoin, we can help him in the bitcointalk forum. But nearly all the questions a government could have about Bitcoin are very well explained in satoshi's paper and the source code. The only words the foundation had to say in that meeting: read the paper and the code as all of we did, it's all explained there.

To address a few questions:

FinCEN hosted the meeting, not the Foundation.

It did not subpoena the foundation. We went willingly :)

As far as I know, it was not recorded.  It wasn't open to press either.

The Foundation did not endorse any particular investigative or regulatory methods, nor did we lobby for any particular policy position.  The meeting was the beginning of a conversation, not a debate.  Moreover, the Foundation has not developed any particular policy position as of yet.  It is in the midst of determining its policy positions by democratic, community-driven process.  If you'd like your voice heard in this process, or would like to know more about how it works, you should consider joining the Foundation.  

I should say that we made one particular point very strongly, that the Foundation does not represent "Bitcoin".  We represent our constituent members.  We tried to be as transparent as possible about that.

It is disinformation that governments would suffer in a Bitcoin economy.

Governments will still raise tax revenue but the emphasis would move from income tax to asset and sales taxes. They would have to live within their means, but this will actually benefit them in the long run. Governments that live perpetually beyond their means eventually undergo systemic failure. There are countless examples. In Western countries it is a bloated welfare/entitlement state and participation in non-defense wars of choice which wreck government finances. Without printable fiat the electorate would fully understand that governments could only offer welfare which is affordable and participate in wars which are truly matters of defense.

Senator Ted Stevens of Alaska described the internet as "a series of tubes"... in 2006! What makes you think any government is going to read source code to understand a technology?

It's time to pull our collective heads out of the ground and recognize that doing nothing is the worst possible approach. If we (as a community) don't communicate with US government officials, Bitcoin will remain over-regulated, preventing legitimate businesses from springing up.

You can want "no regulation" as much as you want, but it's not going to happen with Bitcoin any time soon. Accept it.

This is a load of bullshit. The regulators dont respond to anything but powerful people. And the established financial industry is way more powerful than some measly bitcoiners. All you are doing is giving credibility to an institution that has done nothing but stifle innovation, and rack up costs when it comes to the financial market. They couldnt predict the housing bubble, they couldnt stop bernie madoff, they gave trillions of dollars to institutions doing shady buisnesses. Credit Default Swaps. Very shady stuff. Now some people apparantly want to mingle with these guys. What the fuck, they are nothing but bad news. It might not seem like it, but they will work tirelessly to restrict bitcoins ability to compete with the dollar regardless of a little q & a with some bitcoiners

I still don't like what you are doing and do not understand why this is needed.

While you may be experiencing these "successes" in the meetings all you're doing is helping bring the enemy up to speed. Government is going to government. It's hubris to think that anything any of us do is going to change how they approach/regulate bitcoin. The only thing you are doing is bringing that regulation about faster. Additionally you are making it possible for them add a level of precision to their legislation that would not have been there had you not educated them, or you cut down on the time it would take them to get to that level of precision.

In all, I cannot justify or support what you are doing. In fact I would say that it is harmful, regardless of where your intentions are. In the end, I believe that all the foundation will have accomplished is solidifying it's members as lobbyist/shills for regulators.

No Thank You.

We, the bitcoin users,  don't need the bitcoin foundation to represent us. We have no faces. If any user, US government included, has any problem using Bitcoin, we can help him in the bitcointalk forum. But nearly all the questions a government could have about Bitcoin are very well explained in satoshi's paper and the source code. The only words the foundation had to say in that meeting: read the paper and the code as all of we did, it's all explained there.

Senator Ted Stevens of Alaska described the internet as "a series of tubes"... in 2006! What makes you think any government is going to read source code to understand a technology?

It's time to pull our collective heads out of the ground and recognize that doing nothing is the worst possible approach. If we (as a community) don't communicate with US government officials, Bitcoin will remain over-regulated, preventing legitimate businesses from springing up.

You can want "no regulation" as much as you want, but it's not going to happen with Bitcoin any time soon. Accept it.

The "government" may be a faceless institution, but it is also made up of individual people, and those in the room were those who have some modest decision making power.  Creating person to person relationships, being sane and reasonable (and on the side of right) as well as pointing out how by exercising government power without knowledge hurts their own goals is the best way to knock them back on their heels.  It has a chance, greater than zero, of changing minds.

In international negotiations, reasonable people may disagree whether having an embassy in "enemy" territory is good or not.
You are completely right that it is optimistic hubris to imagine that we can make a change in the way people think, but to not try is just to assure that it won't happen.

And your other point, about the risks of these ambassadors getting corrupted and seduced by their position and the process of diplomacy is a valid one.  Its up to the rest of us to check in on them and keep them on the right track.  Since they are asking for that input too, lets not abandon them.

I suppose my stance is one where I don't see the business folk needing to comply with regulation at all. I think we have the tools and ability available to us to say "This is our sandbox you need to lobby us."

I think it's a better strategy. Let them come to us and beat on the door. We should respond to their regulation by out-innovating them. "Oh now it's illegal to transfer money to an exchange. OK, it's a set back. Let's create our own way to do this without them." I think bitcoin ATMs and localbitcoins and onion sites are great ways to achieve this, for example.

I always see regulation as an excuse for a lack of innovation. It's a slipper slope. I would rather push the mindset of "We're better than them" than "We need to work with them"

Great critical job being done, thanks for taking this seriously. You seem to have done a very profesionnal job and I wish that you continue this education effort. You're helping them to better understand Bitcoin and make more informed and coherent decisions about it.

We, the bitcoin users,  don't need the bitcoin foundation to represent us. We have no faces. If any user, US government included, has any problem using Bitcoin, we can help him in the bitcointalk forum. But nearly all the questions a government could have about Bitcoin are very well explained in satoshi's paper and the source code. The only words the foundation had to say in that meeting: read the paper and the code as all of we did, it's all explained there.

It was a smashing success.  

I hit some points very hard – like how the regulatory environment has disincentivized businesses from launching in the US and from servicing US customers.  I also discussed how some businesses were simply picking up and leaving the US entirely.

Our message was straightforward: It is critical that the industry and the regulators work together to create a safe and sane regulatory environment for Bitcoin businesses in the United States.

To be sure, they asked the tough questions.

The agencies have some very real and legitimate concerns.

We often had to give the tough answers.

I don’t think anyone believes we achieved world peace, or solved the regulatory challenges once and for all.  

We started a dialogue – the first step in understanding each other.

We started a dialogue – the first step in understanding each other.

I guess it's time for me to become a member and support them.

i imagine bitcoin in the same way i imagine a foreign exchange from pound to euro, dollar to yen.. etc.

the country that owns the FIAT should ensure they control that fiat. but they should not try controlling the opposing countries FIAT.

EG USA.. should have controls to protect the dollar but should have no policies to control pounds, yen, euro or bitcoin.

bitcoin is its own country, its own population and community. it is not owned by another country

... to make sure nobody uses Bitcoin again.

I appreciate this response and I think your metaphor was well placed and apt.

I suppose my stance is one where I don't see the business folk needing to comply with regulation at all. I think we have the tools and ability available to us to say "This is our sandbox you need to lobby us."

I think it's a better strategy. Let them come to us and beat on the door. We should respond to their regulation by out-innovating them. "Oh now it's illegal to transfer money to an exchange. OK, it's a set back. Let's create our own way to do this without them." I think bitcoin ATMs and localbitcoins and onion sites are great ways to achieve this, for example.

I always see regulation as an excuse for a lack of innovation. It's a slipper slope. I would rather push the mindset of "We're better than them" than "We need to work with them"

The Bitcoin Foundation won't disclose what legislators they met with on day 2 of their trip.

http://thegenesisblock.com/bitcoin-foundation-on-capitol-hill-day-two-legislators/

The Bitcoin Foundation won't disclose what legislators they met with on day 2 of their trip.

http://thegenesisblock.com/bitcoin-foundation-on-capitol-hill-day-two-legislators/

You read my mind.
When the US gov. does try to restrict usage of bitcoins this is exactly the argument that should be made.
The US should be allowed to control the supply of the US dollar and in which currency taxes are to be paid.
It should have no say in whether or not dollars can be exchanged for wheat, copper, yen, euros, gold or bitcoins.

Poking at the beast.

           USA                                   Bitcoin Foundation
              V                                         V
http://bradleysanimalplace.files.wordpress.com/2008/10/pd_elephant_mouse_071115_mn.jpg

well this is wrong on many levels, every single thing you said is irrelevant or clearly wrong

-there is no bitcoin regulation now... yeah it wont happen soon, it is already the reality...

-he didnt say doing nothing... what he is saying is that we should ALL be doing something, not a few rich corrupt bitcoin business owners behind closed doors

-yeah, because the government agencies funded with BILLIONS cannot understand bitcoin, yet a bunch of young adults on an internet forum can, i cant even believe your serious with that one

"Poking at the beast" may not really be an apt analogy as far as big beats small, because MythBusters showed that elephants give a wide berth to mice if they see them: https://www.youtube.com/watch?v=wXiMs65ZAeU

Would be interesting to figure out what analogy IS apt, though.

What are they doing with that fake pistol?

They should just trade bitcoin directly for a pistol then! After all, that would stimulate the Bitcoin economy!

I'll help! https://bitcointalk.org/index.php?topic=283473.0

http://2.bp.blogspot.com/-aCTvetAPy80/Tek7TRIqR3I/AAAAAAAAAO8/0gmKwGkgUSs/s1600/suicide-gun-point-man.jpg

what model of gun?

This is a BIG problem, something I've been watching for awhile now to see which way the foundation turns.  So far, it looks like an industry insider group intent on preserving their own interests, while work with the larger community has been limited.  If their meetings and actions are kept under a veil of secrecy, I would expect we'll be trading one corrupt banking system for another.  This should inform any community member decisions to back the BF, or not.  The U.S. government already has a monumental trust issue; I don't see any compelling reason that cancer should spread to the foundation as well.  Very troubling, these past few days of relative silence have been...

We figured out the benefits of taking minutes (and using Robert's Rules of Order) for meetings in grade school for club meetings, but that's not really the biggest issue, depending on how they move forward.

The foundation needs to decide if they want to be an Industry advocacy group for the rich kids, or a community based group and/or developer network.  Putting development in the hands of big Industry puts both Bitcoin and the foundation at risk in my opinion.  Bitcoin would be at risk by alienating the interests and trust of the broader user base, and also by putting important code commits at the mercy of a single organization under the influence of a single nation.  My opinion is the current structure and membership of the foundation is perfect as a Industry advocacy group, and as such minimal transparency is really necessary - but they need to reject any influence they might have over the code or the appearance of such.  Riding the fence does not seem to be a wise move here, and puts them at risk, and puts the base code at risk if they hold significant influence over it.

Developers informing Industry about implementation etc., is a good thing, and likewise Industry informing developers about their concerns is also a good thing.  Industry wielding direct influence over code changes puts the entire ecosystem at great risk of Industry insider corruption and government interference.  If the code used by the majority of full nodes is under the direct influence of what amounts to just an Industry insider group, bad things^tm can happen.  If they can't let go of code influence, and want to run it as an exclusive industry group with secret meetings and such, it could get ugly.

If a great coder sees a flaw in this argument please fill me in. I would love to know if anyone believes clandestine code could be implemented successfully.

I don't think anyone is seriously afraid of clandestine code in an open source project, or at least I'm not.  What I'm talking about are forks; FOSS is forked all the time for a variety of reasons, and community <> developer disconnects or big business getting too involved (controlling) are a big motivator.  What I'm saying is if the majority or all of the code commits to master are influenced by a foundation without adequate community input or transparent operations, the decreased trust is more likely to cause a situation where we could see two versions of the blockchain with a hard fork between BF supporters and non-BF supporters, in this example.  The code can be immaculate, pristine, and still see a fork caused by politics, bickering, or fighting amongst user groups.  Any sufficiently large group that feels under-represented by what could be seen as controlling interests can lead to this behavior.

The 80%/20% wealth distribution is another example; if you have a continued accumulation and concentration of wealth, and use that wealth to unduly influence the markets, code, whatever - if the richest quintile loses a majority of the lower 4 quintiles to a chain fork, the same problem occurs, fragmenting something you probably don't want to fragment if you are in that upper quintile.  All I'm saying is that billing an Industry or trade organization as the 'main body' could be problematic for a variety of reasons that should be considered.  I'm also not saying the the foundation has to become a industry lobby group, just that it seems the most likely course given their actions to date.

I don't think anyone is seriously afraid of clandestine code in an open source project, or at least I'm not.  What I'm talking about are forks; FOSS is forked all the time for a variety of reasons, and community <> developer disconnects or big business getting too involved (controlling) are a big motivator.  What I'm saying is if the majority or all of the code commits to master are influenced by a foundation without adequate community input or transparent operations, the decreased trust is more likely to cause a situation where we could see two versions of the blockchain with a hard fork between BF supporters and non-BF supporters, in this example.  The code can be immaculate, pristine, and still see a fork caused by politics, bickering, or fighting amongst user groups.  Any sufficiently large group that feels under-represented by what could be seen as controlling interests can lead to this behavior.

The 80%/20% wealth distribution is another example; if you have a continued accumulation and concentration of wealth, and use that wealth to unduly influence the markets, code, whatever - if the richest quintile loses a majority of the lower 4 quintiles to a chain fork, the same problem occurs, fragmenting something you probably don't want to fragment if you are in that upper quintile.  All I'm saying is that billing an Industry or trade organization as the 'main body' could be problematic for a variety of reasons that should be considered.  I'm also not saying the the foundation has to become a industry lobby group, just that it seems the most likely course given their actions to date.

Then came the community disruption of the announcement of a new Bitcoin Foundation. Needless to say the apparent move toward centralization of power in a community believing supremely in decentralization caused a huge uproar. I was among those strongly raising objections with concerns over unchecked power. This issue challenged the entire project with talk of hard forks and more.

It was during this period that it dawned on me alt-coins could serve a real purpose and have a value Bitcoin never could: by providing alternative. If there was only to be Bitcoin forever, then any single group with growing influence and power could steer it for better or worse for all involved. I saw alt-coins as solving that problem. As a natural part of the free market Bitcoin relied on they could regulate unwanted behavior as free markets do, by providing options and competition. I outlined all this in a post here:

Solution to The Bitcoin Foundation (the announcement) (https://bitcointalk.org/index.php?topic=115303.0)

The lack of transparency is pretty embarrassing.  Every single individual in that room probably contained the means to record the entire thing in his/her pocket.  
I would have stood up and held up my phone and asked the regulators "what do you guys prefer?  That this be recorded and published on the internet or that we keep it casual?"  

And when they chose casual, I would have said "Why?  We aren't going to be breaking any laws here.  But I think i know why.  You just don't want to be seen by the world asking stupid questions.  And you don't want to seem for or against this technology before making an informed determination."

And then I would say, "That's called reasonable privacy and THAT's why we use bitcoin."

Did the Foundation convey to the agencies of Bitcoin's existential threat to fiat currencies?
Do they understand what the implications to governments would be if a significant portion of all commerce was done using bitcoins as opposed to the USD?

On open source code security...


Back door in open source SSL?
http://yro.slashdot.org/story/13/07/02/1241246/nsa-backdoors-in-open-source-and-open-standards-what-are-the-odds

Back door in openBSD?
http://marc.info/?l=openbsd-tech&m=129236621626462&w=2

Back door in open source messaging?
http://arstechnica.com/business/2012/02/malicious-backdoor-in-open-source-messaging-apps-not-spotted-for-4-months/

Yet another Open source planted backdoor
http://www.zdnet.com/blog/security/open-source-proftpd-hacked-backdoor-planted-in-source-code/7787

Even a contest for who can do it best:
https://backdoorhiding.appspot.com/

I'd agree that it is not likely.  It could happen though, so stay vigilant.

"Poking at the beast" may not really be an apt analogy as far as big beats small, because MythBusters showed that elephants give a wide berth to mice if they see them: https://www.youtube.com/watch?v=wXiMs65ZAeU

Would be interesting to figure out what analogy IS apt, though.

I don't think anyone is seriously afraid of clandestine code in an open source project, or at least I'm not.  What I'm talking about are forks; FOSS is forked all the time for a variety of reasons, and community <> developer disconnects or big business getting too involved (controlling) are a big motivator.  What I'm saying is if the majority or all of the code commits to master are influenced by a foundation without adequate community input or transparent operations, the decreased trust is more likely to cause a situation where we could see two versions of the blockchain with a hard fork between BF supporters and non-BF supporters, in this example.  The code can be immaculate, pristine, and still see a fork caused by politics, bickering, or fighting amongst user groups.  Any sufficiently large group that feels under-represented by what could be seen as controlling interests can lead to this behavior.

The 80%/20% wealth distribution is another example; if you have a continued accumulation and concentration of wealth, and use that wealth to unduly influence the markets, code, whatever - if the richest quintile loses a majority of the lower 4 quintiles to a chain fork, the same problem occurs, fragmenting something you probably don't want to fragment if you are in that upper quintile.  All I'm saying is that billing an Industry or trade organization as the 'main body' could be problematic for a variety of reasons that should be considered.  I'm also not saying the the foundation has to become a industry lobby group, just that it seems the most likely course given their actions to date.

The conversation would likely have been different were it recorded.  Folks have egos to protect.
The govt folks would not have wanted to appear as ignorant as they are, and TBF may have not been able to be as candid as they were in explaining the benefits to government for not regulating (some here do not want to offer any information to them even in self defense).
It is what it is.  If it were otherwise, it could have been better or it could have been worse.
Hopefully there will be a future meet that does invite C-SPAN.  The discussion has room for that as well, and C-SPAN will get lots of views on it.