Bitcoin Forum

So, we've all had our fun scoffing at regulators, but now that we've got that out of our system (and our portfolio's are down 60%) are we ready to make a regulated US exchange?

This would have the perks of inviting more liquidity from larger market participants, as well as more stability and predictability.

Playing around with other experiments such as decentralized exchanges and colored coins just invites unpredictable illiquidity and instability.

The Securities and Exchange Commissions offers plenty of regulatory exemptions for the kinds/sizes of companies that have so far "IPO'd" in bitcoin land, the exchanges might have a more uphill battle but its time to cross the bridge

no

Sure go for it man, sounds like a good idea, best get started on that right away.

Why?  What's the point?  There's plenty of exchanges now.  Heck ASICMiner could be on an exchange in a week by going reverse merger with a shell.  Would probably get a higher valuation then now and since they don't mine they aren't even remotely shady or unlicensed in any way.

Exactly. Options exist for legitimate companies but require trading in USD, which also has the benefit of exposing the security to a much larger market of investors. The BTC denominated securities market is too small, and costs of compliance too high, for there to be a legit BTC denominated exchange in the foreseeable future.

First you have to lobby the congress and get them to pass a law to define what a Bitcoin exchange is and what the rules should be.

The SEC has no exemption for Bitcoin and it should either create an exemption or customized laws will have to be constructed based on the advice of the Bitcoin community and the lobbying efforts which Bitcoin businesses will have to work for.

I see no easy way of creating a regulated Bitcoin exchange in the next 6 months unless somehow the people in DC who can't even pass a budget can be made to get off their asses and pass a Bitcoin specific bill which you and I know probably wont be happening in 2013. This is why all the talk of a decentralized exchange is gaining steam, there seems to be no way to do a regulated exchange forcing people to figure out a technological solution.

My opinon, push the technological and political solution simultaneously.

Since most of us are programmers and not politicians, which solution do you expect to be popular on Bitcointalk?


They could go on the NASDAQ but that isn't a Bitcoin exchange. It probably wouldn't let anyone in the Bitcoin community buy shares so what does that have to do with Bitcoin?

That is like telling someone with Euros to register with a completely different system and currency in order to trade shares in Dollars. Only in this case Bitcoin isn't a national currency and all the regulations on the books don't really apply to Bitcoin as Bitcoin is a type of barter.

So if you set up an unregulated unlicensed exchange to trade baseball cards, then at what point does the SEC regulation apply to that? What if the baseball cards are virtual baseball cards on the Internet? Then what? If you're not trading in dollars, it's just not realistic to regulate in that way. And if Asicminer is made to go to the Nasdaq they would have to sell out the entire Bitcoin community. Why would that be an alternative?


I'm glad you see the situation clearly. It's not possible to start a regulated Bitcoin exchange until after a critical mass builds up from the unregulated Bitcoin exchanges.

It's supply and demand. At this point all the region locks have done is create demand for a decentralized exchange. Demand will build up there and then when there are millions or perhaps billions of dollars to be made a Bitcoin specific exchange will come about, that or lobbying efforts have to be made in the next 6 months to create some rules specifically for decentralized exchanges or for centralized exchanges running decentralized technology.

Law enforcement does not want money laundering and I can understand that.
The community is going to have to propose both a technological and political solution.

The political solution could rely on centralized exchanges with know your customer or whatever but the decentralized technological solution could ID people as well. The real question is why should people have to be ID'd? Dark money flows into political campaigns through PACs which don't have to be identified.

There is a legit need for laws and regulation in this space to protect people, but too much law and regulation hurts people.

You are confusing two different issues.  One is currency and the other is investments.  If you want to raise capital it doesn't matter what currency it's in because you'll still spend it anyways for capital expenditures or other expenses.  BTW in response to the retarded notion that companies in euros don't list in dollars feel free to look up something called ADR. 

No?

The SEC doesn't need an exemption for bitcoin, read the definitions of the Securities Act of 1933, the denomination was never NEVER a concern of the SECm even 80 years ago.


The exemptions already exist for the size of the offerings these. There are like a dozen (exaggeration) regulation D exemptions that the "publicly traded" bitcoin denominated companies can already have used. And this has nothing to do with the pending crowdfunding regulations

Regarding the exchanges themselves, I am not that familiar with the regulations, but I'm going to go on a limb and say the primary denomination isn't an issue either. So neither Congress or the SEC are the real concern, FINRA on the other hand would be a concern, as the SEC is basically an extension of them and it is very protectionist with their licensing and fining regime

You're not being realistic. Trying to adapt current SEC laws to Bitcoin is like trying to adapt the the law to the Internet. It's just not possible to rely on laws from 80 years ago to govern technologies 100 years+ into the future. That is the problem with the set of laws, they are too old to make sense anymore and are now a detriment to progress.

I'm not saying we shouldn't have laws in place, but these laws are not technologically and socially unenforceable. You're not going to be able to keep the current set of laws and have a Bitcoin stock exchange.

Crowdfunding legislation doesn't really apply for Bitcoin. It applies for dollars and has limits for different kinds of investors and other rules which are technologically and socially unenforceable.

Trying to enforce the SEC rules is like trying to enforce these rules with a group of friends playing for chips at a poker table. You simply cannot stop people from playing poker, from gambling, from making deals like these and technology allows all sorts of barter deals which weren't even possible before. The current laws simply don't govern or apply to Bitcoin because Bitcoin wasn't thought of when those laws were made 80 years ago. Ask any lawyer and you'll see why all the centralized exchanges are shutting down, it's simply not possible to regulate with the current set of laws in place.

The problem is there is no definition of what Bitcoin is. There is no definition as to what a Bitcoin exchange is. The SEC doesn't even have jurisdiction to deal with it because its taking place on the Internet. So in a decentralized exchange there is no concept for where the exchange takes place. You can say the SEC applies globally or something based on the law as it was written 80 years ago but that is not technologically or socially enforceable.

Trying to enforce those laws would be like trying to enforce the law on copyright infringement. We who know technology know what is going to happen in this space and they who make laws should be consulting with us. If a lawmaker or if law enforcement would like to contact me and ask me about how to deal with this I'll give my opinions on the matter for free. If lobbyists or think tanks form then I'll help with policy.

But the SEC 80+ years ago had no concept at all of this. The crowdfunding legislation was designed for dollars and has no concept of Bitcoin. At best Bitcoin is barter, so when you try to talk about who is or who isn't an accredited investor and put dollar limits on it, that is not really possible. It's also not possible to stop people from forming unlicensed exchanges and it never was possible. So basically there is no enforceable regulation and the DATA authority has to explain Bitcoin and determine how to deal with/nurture innovation while also figuring out how to regulate when the time comes.

Right now it's not really time to regulate but when you shut down all the unregulated central exchanges then unregulated decentralized exchanges will form. I'd like a regulated decentralized exchange or a regulated central exchange, but its impossible to do it with the regulation on the books from the SEC. It costs too much to start an exchange, it has weird limits for accredited or unaccredited investors which cannot be enforced technologically or socially, so the only thing you can do is ignore the situation until a legal structure is in place to allow a regulated licensed exchange or deal with the decentralized unregulated exchanges until enough political pressure builds to pass the laws exempting cryptocurrency exchanges from the current regulation and then figure out what regulations to put based on actual studies and research of the cryptocurrency market.

I wish there were another way but that is where we are. There also is ambiguity with mining Bitcoins but that wont stop people from becoming miners even at the risk of being declared money transmitters someday. There will be miners until the rules are clear on what a miner is.


That is not what I'm saying. I'm saying the current SEC laws did not even know what crowd funding was until recently and there was no concept on how to deal with it until Kickfunder and other technologies pushed the issue. There would be no crowdfunding legislation if technology companies didn't push forward.

I'm saying that you cannot wait for the SEC or politicians to make legislation to determine the technology. The technology should determine the legislation and regulation. I'm not claiming there should be no regulation, or that there should be no rules. I'm claiming that the current set of rules were blindly put in place and don't make much sense for cryptocurrencies or the cryptocurrency economy. China banned virtual currencies because they didn't understand QQcoin. That stupidity cost them an economic opportunity where China could have been the center of the global virtual currency economy.

The US government is stupid enough to do the same sort of thing by demanding impossible regulatory barriers of entry for Bitcoin exchanges. The difference here is Bitcoin is already global so if you ban Bitcoin stock exchanges in the USA they'll benefit everyone but US citizens which damages the economy of the USA. The decentralized exchange is really the only way for US citizens to be a part of the Bitcoin stock market economy and there is no discussion going on in congress about how to regulate any of it which means they probably don't care.

okay? forget I even mentioned crowdfunding, the SEC rules on it are still nonexistent.

things like number of shareholders before reporting requirements are triggered still apply to company shares denominated in bitcoin
things like the kind of offering still apply to company shares denominated in bitcoin

and now lets talk about the exchanges, anyone familiar with the Securities Exchange Act of 1934?

The question is for what reason does it apply? Taxes? There are no Bitcoin taxes yet and if its barter how is that taxed?  I'm not against it applying but there should be a debate about each rule and why it should apply and what purpose it serves. I'm sure that rule had some purpose for the dollar economy, now we need lawyers to have a round table discussion about the Bitcoin economy and to examine each rule thoroughly to determine which can apply and which can't. Then we need technologists to take part in the debate to explain the technology to the lawyers and finally we will have a consensus. The only consensus we seem to have right now is that some reporting is necessary, but report what and why and to whom?

Unfortunately I'm not a lawyer, I'm a technologist. I'd like lawyers to give some advice but the lawyers are the ones telling the centralized exchanges to shut down. It was the lawyers who triggered this chain of events and now the technologists are being forced to solve the problem because lawyers can't due to the SEC not having any rules at all for lawyers to follow.

yeah I was skeptical at first but I now I'm sure you have no idea what you are talking about for this thread


yes: for bitcoin to have any easier chance of surviving for commerce while its market cap is so low, then it would need exemptions from expensive regulations

no: this has nothing to do with securities or the concerns of the securities regulators

see, we agree

now lets talk about the exchange

Any BTC exchange is going to have to comply with the same rules and regulations as existing broker / dealers. Specifically:


So we're back to the same question... why go through the trouble when the OTCBB already exists? Even putting aside the SEC and SRO regulations, there is no incentive to become properly registered and compliant with all of the states. The money is just not there.

The money is just not there ... yet. As bitcoin grows and takes over the world, the money will be there because bitcoin will be the money.

I like the list you include, that is the useful sort of information we need to get this rolling.

If Bitcoin takes over the world it will be because it will have a special regulatory status. It's never going to be able to grow if you have to register in all 50 states, pay almost 10 million dollars, just to comply with regulations designed for banks. Banks need all that regulation because of all the people involved in a bank. Bitcoin is just the blockchain and it's very hard to corrupt that system, so a lot of the regulation doesn't make any sense for Bitcoin.

Face it, unless there are special laws written of for Bitcoin it's not realistic to even think about building a compliant exchange. It makes more sense to push to change the laws than to worry about compliance.

Very few people have the time and resources to even attempt to do something like this. It's not as simple as just filling out some paper work you will have to hire a law firm to help you through the process. The cost is essentially guaranteed to pass six digits.

The more realistic alternative for majority of us would be to pursue a stock exchange that, like Bitcoin, could not be shut down.

It's not going to happen.

There aren't rules in place for Bitcoin already and there isn't anyone rich enough presently involved in Bitcoin who has the huge amounts of money necessary for such a venture. If you are going to have an SEC approved exchange, you need the money required to comply with all the regulations and fees.


The answer is to make a distributed stock exchange, that is decentralized, anonymous and peer-to-peer much like Bitcoin itself. It isn't even really that hard, and I have been working on some ideas for one in my free time and I know I'm not the only one.

we already have sec-regulated exchanges, just need to get them to support bitcoin

tada!

Name some. I haven't heard of any SEC regulated exchanges that take unaccredited investors.

Wow at how easy opening a regulated exchange the op makes it sound...  ::)

No. If you want regulated US stuff check out the dollar, it might be more up your alley.


Like many people posting about this stuff lately, you seem a bit confused as to what the problem is, and what solutions exist.

Have a read (https://bitcointalk.org/index.php?topic=308026.msg3326259#msg3326259).

You've found the main problems but you're not offering the solution.
A decentralized exchange is neutral and will not solve the main problems.

The problem is a problem of trust. Investors cannot trust issuers and issuers have to be audited which means there will be centralization in the form of a concentration of trusted nodes or entities. Trusted entities in the community will have to audit issuers to make sure they aren't a scam like Labcoin.

Mastercoin is a great technology but it lacks the ability to create an environment where investors can trust anything on the decentralized exchange. It's decentralized but untrusted which means technologically it might work but practically it will fail until there is enough trust between investors and issuers that scams and fraud is brought under control.

The SEC cannot solve the problem. Laws cannot solve this problem. It has to be solved technologically, and it means some layer of centralization will be required to have trust.

Even if a virtual auditing service or a distributed auditing corporation has to form there has to be something to certify the issuer as trusted enough that people can buy and sell shares and know it's not a complete scam.

For instance say a company forms on Mastercoin offering a currency backed by Gold called Goldcoin. People have to know without a doubt that this company really has Gold in a vault somewhere otherwise their Goldcoins are a scam and people will lose their real coins for their speculation on the scam. So for this reason there has to be centralization even atop the Mastercoin protocol.

Then after all of that you're going to have to deal with accusations of stolen coins, disputes, and accusations of money laundering. How do we deal with these problems? Ignoring the technical problem doesn't work if we want a legitimate investment platform just like following the law doesn't work if we want a legitimate technological platform.

The law doesn't regulate this space, but the technology doesn't either and that is the problem. We need technological regulation for a global currency because there is no nation in charge of Bitcoin and no uniform set of laws. The people who write the code are going to have to do a better job dealing with scams and fraud.

See here (http://trilema.com/2013/the-anatomy-of-a-scam/). See my entire post history. See scores of people refusing to read, and refusing to think for themselves, based on various broken notions chief among which is that people should be given money because they are nice, irregardless of whether they're competent or whether they actually have something to offer.

Still, the tools are here, and the tools are being used.



This is an open problem which the ROTA (http://trilema.com/2012/the-mpex-rota/) attempted to solve. As it is, the problem remains, open (http://trilema.com/2013/rota-post-mortem/).

BTC@(bit)FOREX ~ they will take it on seemlessly!  8)  = done deal!