That said, the writers of this article don't know shit about economics and abuse terminology. They would be better off sticking to cryptography.

Abstract:
The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power
costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost
of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result
is a breach of Gresham's Law: stolen electricity will drive out honest mining. This has unfortunate effects for the
stability of the Bitcoin economy, and the result is inevitable collapse.

Conclusion:
The security of Bitcoin relies on a single party or cartel of parties not being able to dominate the capacity for mining.
Therefore Bitcoin relies on a large and diversified network of miners. Yet, the proof-of-work mechanism, the
existence of free entry and no limits to honesty ensure that botnets will cause a breach of Gresham's Law: stolen
electricity will drive out honest miners. Once botnets take over, criminality increases, honest users decamp and
collapse follows.

Hence, the requirement of diversification is broken by Bitcoin's very mechanism to make diversification work fairly:
proof-of-work. Attempts to repair the design generally result in the replacement of Bitcoin with some other
architectural base.

The Bitcoin economy is highly vulnerable to attack. If an agent were to decide to attack Bitcoin, he has several
strategies available. One could operate a mining botnet and slowly lower the Bitcoin market price by regularly selling
small amounts of bitcoins with a declining price. As the honest miners are squeezed out, further manipulations of the
Bitcoin system are possible. A second strategy is to pump & dump to generate volatility. Both strategies result in the
honest mass market decamping for other fields. Once the market takes on the taint of criminality, the Feds are
encouraged to shut it down by targeting the exchange makers; fear of criminality and the appearance of the Feds
work together to cause the collapse.

of course the rich, if acting out of self-interest, would advocate a top-down cyber-currency backed by gold or by big corps (google, facebook) rather than a digital grassroots bottom-up currency like bitcoin.

Maybe we should advertise them as pieces of mathematical art because that's what they are, really

Dear Bitcointalk members,

Thank you for your active participation in this thread. We're now working on the official response regarding this matter and hopefully we can clear things up.

Meanwhile, we want to make clear a few things:

- Bitcoinica is no longer a product of xWaylab Inc., and we no longer operate in the jurisdiction of Delaware. We have registered a new entity outside of United States and we are now a fully licensed financial services provider in that country. (We will announce our new corporate structure with proof of financial services license available from a government site.)

- Bitcoinica is a Bitcoin CFD (Contract For Difference) trading platform, not a bucket shop. Even though our trading facilities don't deliver actual Bitcoins, there is actual trading of Bitcoins among Bitcoinica customers or at other exchanges. The benefit of trading CFDs instead of Bitcoins is the possibility of margin trading of commodity-like assets, instead of contract-like assets. The underlying trading process is absolutely legal.

- We have a legal deadline for doing KYC procedures, and currently we are still far from that. However, we are considering requiring identification documents from our customers. We will launch a poll to hear your voices.

It's surprising that the OP didn't give us more than 3 days to announce the changes at the corporate side of Bitcoinica, and this thread has forced us to put aside our technical development and focus on the legal problems right away. We will address these issues soon.

We are selling a reloadable ATM Mastercard which you can loard with Bitcoins.
Bitcoin-Debit.com The Bitcoin Debit Card

An executive at Paxum has been working with me since this happend. They have been more surprised at this than we were. Not only that, but they have been super responsive and extremely helpful in this matter.
I harbor no bad feelings toward them. Licensing takes years to obtain but can take minutes to lose.

More and more information is coming to light and although I cannot go into details *yet* alot of what has been said above is not accurate.

Paxum and I have a few conference calls with their partners set up for this week and if all goes well, we can have this resolved and back online in 1-2 weeks

As a payment processor we aggregate merchant sales once per day, so we do have methods in place to comply with this.

And since payments are made from our business bank account to the merchant's business bank account, everyone's identity is already known to the banking system, so money laundering with our service is not really possible.

The question becomes what type of data needs to be collected from the customer?  Can a customer purchase something online without giving out their name?  Just like they can do in a retail store?  Bitcoin makes that possible, and this is where everyone wants to stick their noses in.  

Businesses transfer millions of dollars internationally every day, with no trouble.  It seems like the trouble comes in when you start offering international consumer services, which are dominated by Visa/MC/PayPal and Western Union.

It sounds like some arm twisting from MasterCard. Why else would she mention them?  What does MasterCard have to do with the legality of Bitcoin?

It will be interesting to see if MasterCard takes the same heavy handed approach with their merchants.

What could they be afraid of? 

Thank you for your comment, but I am confused by the thesis, "This is just not true," and the following sentence.  From that second sentence it is apparent that you agree that there is some regulation that the U.S. may impose on bitcoin-related organizations.

I do agree that regulation is limited relative to the regulation that would apply if bitcoin was a security, e.g., "Can the U.S. Regulate Bitcoin Brokers? (parts 1 and 2)" (http://blog.bitcointitan.com/post/16271054719/can-the-us-regulate-bitcoin-brokers). Clearly, however, there is regulation.  Thus, my thesis, "The U.S. may also regulate other bitcoin organizations" is correct.  Determining what the limits to regulation are will be the subject of many more papers.

A lawyer argues here: http://www.ferner-alsdorf.de/2011/06/bitcoins-wahrung-oder-ware/wettbewerbsrecht/strafrecht/rechtsanwalt/verkehrsrecht/ that Bitcoin is a commodity according to German law.

You bring up a great point, I only argued what bitcoin is not.  I will focus my next post on what bitcoin is.  I do not know the legal definition of "commodity" off the top of my head, but I will find out and let you know.

Catherine is a fan of bitcoin, and she was innocently asking a question. What I took for her talk was about what our individual decisions should be and how they influence bitcoin's development. We don't exist in a bubble, and our individual ethical decisions help push bitcoin as a cause for good.

BTW is Irdial lonelyminer? He should email me if he wants to write an article.

This is an appalling presentation on many levels. It betrays what I can only describe as a very restricted world view, taking into consideration a narrow and blinkered perspective. It’s useful as a sounding board for people with a better understanding of the topic, and so I welcome it as a springboard.

Ethics is not “about helping good people make good decisions when the best decision isn’t always clear.” Here is a good definition of what it actually is: “Ethics, also known as moral philosophy, is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong behavior.”

http://en.wikipedia.org/wiki/Ethics

Ethics is therefore, not about ‘helping good people’.

What is good and bad in subjects like money is interpreted differently from person to person and country to country. People like Catherine Flicks display demonstrably unethical and immoral thinking in the case of Bitcoin and money and exchange, since she advocates the use of force to control human beings who are interacting with each other voluntarily.

The observation that it is unethical to use force to control people’s private financial transactions is not an opinion. People who advocate the control of others by force and by default can be demonstrated to be immoral and unethical from first principles and logic.

These people are the Statists, who rely on hand waving, generalizations, rules of thumb, received wisdom, poor logic, fear-mongering and whatever irrational motivation is to hand to make their case for the immoral and violent control of other people.

The approach Ms Flick has taken to examine Bitcoin is completely wrong. There is no such thing as ‘the Dual Use Dilemma’ in relation to Bitcoin. This is language carried over from the debate about nuclear technology, where nuclear reactors, which can be used to produce goods for medical examinations and killing cancerous tumors have a ‘dual use’ of also being able to supply fissile material for explosives. Using this term in the context of Bitcoin is an attempt to impart a feeling of imminent danger to Bitcoin, in the same way that FUKUS is trying to do with Iran and its peaceful and perfectly legal nuclear programme; ‘Its not a threat now, but it may be in the near future’.

Bitcoin, like any technology, is neutral. It is a discreet piece of software that can be fully examined without a questionnaire of its users. It is literally like a hammer or any other inert object. If she was undertaking a simple survey of bitcoin users, then this approach would be the correct method, but she is attempting to discuss ‘the Dual Use Dilemma’ of Bitcoin, and this is her error. What people use it for does not in any way change what Bitcoin is. Bitcoin is neither ethical nor unethical.

Think about it this way. If Flics was examining hammers, and surveyed a set of people on them, she might get carpenters and burglars in her survey sample. Burglars use hammers to steal. Carpenters use hammers to build. She could create pie charts and type out their responses and give a talk on her academic results, without actually touching upon hammers at all. This is exactly what she has done with Bitcoin.

She would say that burglars using hammers to steal is, “rather worrying” and then say that carpenters do good work with hammers. None of this has anything to do with hammers as a tool, and yet she would offer that the regulation of hammers is a possibility that is reasonable, rational and perhaps desirable. No one with any sense would advocate the regulation of simple tools, and yet, because Bitcoin is a simple tool that can transmit ‘money’ it is immediately assumed that the State must have something to do with it. It simply does not follow.

Since people insist on conflating Bitcoin with money, ‘The Ethics of Money Production’ by Jörg Guido Hülsmann:

http://mises.org/books/moneyproduction.pdf

is worth buying and reading. Money is a good like any other. As is true with hammers and saws, there is no reason whatever to expect that money should not be manufactured by private individuals and it is entirely correct and beneficial for the public that it should not be regulated by the State, or anything other than market forces.

The problem with discussing Bitcoin as a form of money is that it is not money at all… but this is a digression. Bitcoin, whatever it is, is neutral, just like guns and hammers and all tools are neutral. You as a human being can take actions with it that are either ethical or unethical.

No one has the right to tell you what you may or may not do with your Bitcoins or your goods. If you are trading voluntarily, inside mutually agreed terms and not harming or defrauding other people, then no one has any sort of moral claim against you or your property.

If you do not accept this, then you, by extension, accept that the State (for example) has a claim on the things you own and do, and they have a legitimate reason to control you and your possessions and transactions, wether you act through voluntary exchange or not.

This is the fundamental difference between people who advocate that the State should regulate everything and the people who have a complete understanding of the true nature of human beings and right and wrong.

We, the ethical people, do not want to enforce our will and personal beliefs upon others. The Statists on the other hand, are hell bent on controlling everyone, in every area of their lives in every thing that has been invented and which has yet to be invented.

It is clear who the ethical people are in this equation, and more than that, as a purely practical matter, the State ruins everything it touches. Just look at the built in 2% inflation rate of Sterling as an example. It is designed to steal two percent of everyone’s stored wealth year on year. The absolute last thing that any new invention needs is the corrupting and destroying hand of the state upon its neck.

Academics like Catherine Flicks are used to justify the intervention of the State in everyone’s affairs by spreading FUD through their poorly designed studies and briefings. In the age of the internet however, these presentations can be refuted wherever they appear, both by inline commenting and hyperlinking.

Bitcoin and the systems that are sure to evolve from it and run in parallel with it are now an inevitable reality that is going to permanently disempower the Statists and dismantle the violent ‘society’. One day, Bitcoin will seem as natural and beneficial as sunshine, and the good of it, untouched by the State, will be apparent to all.

With all these professional papers and lectures I've noticed a commonality. None of them promote Bitcoin itself, they promote the idea of Bitcoin. It suggests they they don't really understand the real world evolution of the network of developers, miners, enthusiasts, and what they have been through. This is a revolution. It's like saying, "Hey Arab Spring, you have a good idea, but I think you should do it this way." They can bite me.