That is incorrect.  The 0.8.2 client prevents the creation of dust (transactions with output below the dust threshold).  There is no reason one ever needs to either intentionally or accidentally create an output below the dust threshold (unless one explicitly wanted to transfer an amount below it).

This idea that price won't go down due to cost of mining is just foolish.  There is plenty of times when the price of Bitcoin crashed to below the production cost.   Price drives difficulty,  difficulty never has and never will drive price.

If the price falls below marginal cost of production.  Miners still stop mining and then difficulty will decline which lowers the marginal cost of production for the remaining miners.  When price rises the profit margin of miners is higher and more hashing power comes online.  Some of that is new hardware and some of it is existing rigs being turned back on because they are profitable.  That process happens continually and there is a time lag but price has always driven difficulty not the other way round.

This full stop.  I would go further and say "Fungibility is a required aspect for a medium of exchange".  Period.  It isn't something optional or cool it is part of the DNA that makes something a medium of exchange.  If Bitcoin doesn't have fungibility, then it isn't a medium of exchange, and is worthless, a failed experiment.

I guarantee you the first time a merchant though no fault of their own accepts Bitcoins that later the "we need to control everything" cartel says "sorry those are tainted and worthless" that is the last time that merchant will use Bitcoin.  The resulting news story will mean hundreds if not thousands of merchants will cross Bitcoin off their list before they even start.

Loss of fungibility is death for a medium of exchange.  Period.  There is no other outcome.

You miss the point.  Anyone who exchanges virtual currency for real currency is an exchanger is one way to interpret the guidance.   So say MtGox becomes a MSB.  Great now every on of MtGox clients would need to also.  They all are "exchanging virtual currency for real currency".  The guidance provides no exclusion that those exchanging with regulated exchangers are themselves exempt.  This would make anyone who ever has or ever will exchange real currency need to register as an MSB.  It seems implausible that is FinCEN intent however by the letter of the guidance it is what is stated.

The guidance is unclear, it is just my opinion but only clarity from FinCEN will resolve that lack of clarity for me.  That is the point of an administrative ruling. It certainly is possible that the AR will result in more clear guidance one that advises that the example in section c is not binding any such trade of BTC for USD constitutes an "exchanger".  The good news is it would remove ambiguity from the definition and force FinCEN to clean up their guidance.  Is it FinCEN intent that anyone who ever buys or sells Bitcoins for real currency needs to register as a MSB?  I really doubt it but if so the AR will require them to state so in black and white.

Whatever someone is willing to pay which it would appear currently is ... nothing.

Well that is the entire point.  This "guidance" on virtual currencies is incompatible (or at least illogical) with the specific guidance given for decentralized virtual currencies (which of the three subclasses is the only one even remotely applicable to Bitcoin). It is possible since this is just a guidance letter than the phrasing used in the "section c" is an error however it warrants clarification from FinCEN rather than an assumption.  However the general definition is overly broad.  It would by the letter of the guidance make anyone an "exchanger" even if they use a licensed "exchanger" maybe that is FinCEN intent but once again it seems excessive and vague.  

If FinCEN wants to define regulation then they are obligated to provide clear and exact lines.  Regulation which is vague, arbitrary, capricious, and overbroad is generally overtuned.  Now FinCEN may lack sufficient understanding of the mechanics of Bitcoin to properly define those lines and hence provide conflicting and confusing guidance but if they intend to regulate it they damn better understand it in order to answer very exact questions on which activities fall inside or outside of their scope.

In general terms do you know why this has not been found to violate the prohibition of states regulating interstate commerce.  That prohibition clearly applies on states which do commerce other than MSB which cross state lines yet MSB related services seem strangely treated differently.

To avoid confusion I am not talking about State X regulating a business which reside in State X and provides regulated services to residents of State X but rather a business in State X offering services remotely (i.e. through mail, internet, or phone) to a resident in State Y.

Yes you can.  The "application specific" part of BFL's (and other) ASICS is a double SHA-256 hash used by Bitcoin.  Any current or future coin which uses the same hashing algorithm would work fine.  The chip has no idea what Bitcoin is.  It simply is programmed to increment through nonces, and perform a double SHA-256 hash of a blockheader and current nonce.  It does so very fast having a specific purpose.

If (and it is highly unlikely) the hashing algorithm of Bitcoin were ever to change then the ASICs would be unusable for Bitcoin mining because the specific purpose isn't Bitcoin mining it is a double SHA-256 hash.

Of course you could.  If your rule/master allowed freedom of speech, dissent, etc. 

Nothing wrong with a King as long as he is just.  The problem is just the tendency for a King to not be just.

In theory you could have a just authoritarian state.  It is is highly unlikely as it would require a utopian (not to be confused with utopia).
http://en.wikipedia.org/wiki/Benevolent_dictatorship

Democracy is simply a belief that a large group of people is more likely to be just than a small one (or a single one).  In general it true however it is still flawed.  Lots of very horrible things have been done by Democracies.  Genocide, ethnic cleansing, unnecessary war, unfair treatment of "others/outsiders", assassinations, confiscation of private wealth/property, slavery, political prisoners, etc.

Generally a group of people is more rational than a single one but not always.  The Monarchy in England declared slavery to be unlawful long before the Democratic people of these United States did.

This + 1000.  It would be wonderful if developers raised the hard cap and miners at least initially didn't make larger blocks.  The cap should only be a security mechanism.  I disagree that no cap is necessary but the cap should be high enough that the economic decisions of rational miners are setting a "defacto" cap lower than the hard security limit cap.

The point of the 4 hours is so that new users will browse the other forums, read, learn, get basic questions answered.  If you have a real question feel free to post it in a noob forum topic.  Most regular members browse the noob forum too.  The better articulated the question, and the more it shows you already did at least some reading on your own the more likely you will get a response.

The 4+5 reduces the clutter on the main forums and reduces the number of spam bots which make it out of noob land.

Filed a request for an administrative to FinCEN this morning.  It is something which has been in the works for the last month and is overshadowed by other news today but I thought some Bitcoin related enterprises would be interested. The administrative ruling seeks clarification on if certain scenarios require registration as an MSB.  FinCEN guidance on virtual currencies (FIN-2013-G001) includes a number of confusing and contradictory statements.


Issue #1: Who creates Bitcoins?
The first area I asked clarification on was the creation of Bitcoins.  It is "strange" that Fincen makes creators of Bitcoins a special case.  I believe FinCEN has an incomplete understand of what mining is and how it work.  Who exactly creates Bitcoins in the Bitcoin network?  Is it the entity which produces and broadcasts a new block?  Is it the entity that has ownership of the address in the coinbase transactions?   If the case of "pool mining" are the "miners" which only paid for contributing computing resources to a pool operator the creator?  Is the pool operator the creator?  Or is neither?  

In the administrative ruling I provided an explanation of the Bitcoin block generation process and the scenario where individuals don't directly mine blocks, rather they attempt to potential solutions provided by a pool operator who receives newly "minted coins".  The "miners" which I deemed "Computing Power Providers" or CPPs are merely contracting to provide computing power to the pool operator.  The key point is that when a solution is found and a new block broadcast that block's newly minted coins are transferred to an address under the control of the operator not the CPPs.

The mining pool operator contracts with CPPs and pays them an agreed upon amount (either a preset about per unit of work or a % of any rewards found based on computing power).  The CPPs never receive newly generated coins (yes there are exceptions but they were not included in this scenario).  I asked FinCEN to provide clarification on who is the creator.   I also included the scenario where a mining pool operator pays these CPPs directly in real currency.  I stated that by the guidance the pool operator wouldn't be considered an exchanger.  The pool operator is paying for computing power and while that computing power may produce Bitcoins that is distinct from actually exchanging BTC for USD.

There are a lot of potential scenarios on exactly who is the creator. All of these are plusible but FinCEN just leaves the question open with a vague "creator" reference:
a) "Satoshi" as a result of the protocol providing entities that solve a block a preset amount of subsidy
b) nobody - the protocol defines the compensation for miners and miners merely collect it
c) the entity in charge of pool mining that creates the blockheader to be hashed.
d) everyone contributing computing power to a pool reward
e) the entity which has ownership & control  of the address in coinbase tx (generally today this is the same as c but it doesn't have to be)

If FinCEN indicates the creators selling virtual currency for real currency are regulated they have an obligation to provide specific and exact guidance on exactly what make one the "creator" and thus potentially under regulation.  Otherwise the regulation is vague, arbitrary, capricious, and overbroad.

Issue #2: What is the exchanger doesn't involve a "another person"?
The reason I started taking a closer look at "creators" of virtual currency is because FincEN makes creators of virtual currency who exchange it for real currency a "special case"..  Why?  If indeed Fincen is stating in the guidance that any EXCHANGER of virtual currency for real currency is regulated then why also mention creators?.  If the creator exchanges virtual currency for real currency they would already fall under the commonly accepted (and IMHO incorrect) "exchanger" anyways.  While define them seperately.  There is no additional restriction on them no enhanced oversight.  Both "exchangers" and "creators who exchange virtual currency for real currency" both are subject to exactly the same definition and oversight.

Hopefully this provides some clarity:
All persons* who exchange virtual currency for real currency are regulated (unless an exception applies).
All creators who  exchange virtual currency for real currency are regulated (unless an exception applies).
All creators are persons.

* persons generally means any real person, corporation, partnership, or other legal construct given "personhood" under existing law.  The law rarely makes a distinction between a "real person" (a human being) and a corporation for example.

The second definition is redundant by scope. This is "strange".  Regulations rarely define already completely inclusive subclasses.  The selective service laws don't both say "all males over 18 need to register" and "all males over 18 which have brown hair need to register".  The first class is inclusive of the second.  There is no need to even mention it.  If this doesn't seem strange to you please reread the section above as it is important to understand the basis for the rest.  

What if not all trades involving virtual currency and real currency meet the definition of an "exchanger" then it would make more sense to define the "special case" for issuers if FinCEN wanted (dubious as it may be) to hold them to a higher standard.  The "accepted" interpretation of FinCEN guidance is that anyone who exchanges virtual currency for real currency is an "exchanger" (unless an exception applies as defined by existing MSB & MT regulations).  

However the actual text of the guidance does NOT say that:

Now guidance isn't law, but by the letter of the guidance a trade of BTC for USD between two individuals is not an exchanger. You will notice in the definition above there are three distinct entities.  The regulated entity, the entity that it accepts Bitcoins from AND the entity that it transmits Bitcoins to.  FinCEN is clear to say "one person" and "another persons".  Per the quote above it is accepting BTC from person A AND transmitting it to person B combined with the acceptance of real currency which makes one a regulated entity.

Thus by the letter of the guidance above this would be a regulated entity
BTC:  Person A -----> Exchanger ----> Person B
USD:  Person B -----> Exchanger ----> Person A
Here there is an acceptance of BTC from on person and transmission of BTC BTC to another person.

However by the guidance as written above, the following would not be regulated entity:
BTC: Person A ----> Buyer
USD: Buyer ----> Person A
There is acceptance of virtual currency by the buyer but no transmission to another person.  If this looks familiar to a certain company business model well that is the point.

I also brought up the scenario of operating an eWallet which involve only a single virtual currency and no real currency:
BTC: Person A -----> Wallet Provider -----> Person B
USD:  None

Lastly this would clarify some nagging inconsistencies about the accepted definition of "exchangers".  I have seen a lot that people have made claims that FinCEN doesn't regulate people who exchange virtual currency for real currency on a regulated exchange.   While in may make common sense, FinCEN made no except for an entity which exchanges virtual currency using a regulated money transmitter.  IF ALL exchanges of USD->BTC or BTC->USD are regulated entities by the letter of the guidance it wouldn't matter if a person exchanged with a regulated entity they would STILL need to be a regulated entity themselves.  Now I am not arguing that is the case, I am arguing that this weird scenario exists because the accepted definition of "exchanger" is incorrect.

However if the mere act of trading virtual currency for real currency wasn't the regulated activity then it would make sense that for example the users/clients of MtGox (or any other exchanger) would not be regulated entities themselves.  While they are trading virtual currency for real currency they don't meet the definition of an acceptance of virtual currency and transmission of that virtual currency to another party. Anyways it will be at least 30 days and possibly 90 before I get a response but I thought people might want to start thinking about the issue and looking closer at the guidance.  I am not saying this "is" the proper interpretation but rather that people should take an independent look at the guidance and existing regulations.


DISCLAIMER:  The post is not legal counsel.  You should not rely on it for legal advice.  The definitive response will come from FinCEN or the courts in a legal challenge. The point of an administrative ruling to to ask FinCEN to provide clarification when existing guidance isn't clear.   I believe that existing guidance isn't clear in these two scenarios.  Lastly I believe the second scenario only exists because FinCEN chose to use existing MSB/MT regulation rather than ask Congress to give them regulatory oversight over "virtual currency" brokers as they do with real currency brokers.  However "brokers of foreign currency" while regulated as an MSB are not MT and generally are not regulated at the state level so even that would be a marginal win.





  

No.  Price drives difficulty.  If nothing else changes and price rises 10x we would expect eventually enough new hashing power to come online chasing that massive profitability that difficulty rises 10x and same relationship if price falls 90%.

However difficulty is also driven by efficiency/technology which is what we are seeing now.  Essentially ASICs are creating a new normal where the revenue in USD per GH/s is going to drop by 95% or more.

Dubious as it may be FinCEN believes their oversight authority covers the exchanges of virtual currency for other virtual currencies.

This and this is the problem.  Is the US did this (and other currency issuers didn't) then Americans would as quickly as possible exchange USD for BTC, EUR, etc.  This reduces demand for the dollar drives the value down and inflation up.  The only way a country "could" finance itself solely by printing/inflation would be absolute capital controls even then there those looking to escape would do so by buying commodities (primarily precious metals).

As pointed out countries with unlimited ability to print money generally end up printing a nearly unlimited amount.   Tax collection being difficult acts as a constraint on the system.   It is well known that as the level of tax burden increases the amount of tax avoidance (legal) and tax evasion (illegal) increases.  This reduces the effective collected taxes.   Excessive taxation also leads to capital flows, companies and investors decide to leave a location in favor of one which is "business friendly".

Obviously this system isn't perfect but you can think of the difficulty in collecting taxes as a safety valve on government spending.  In the US the major problem is that the US has too good of a credit history.  The T-bond is still seen as a safe haven (least bad option) this means the government can borrow record amounts at negligible rates.  So while tax burden hasn't significantly increases, spending has exploded because of the ease in borrowing.  Expenditures = Revenue + Debt.  Revenue hasn't significantly increased so the increase in expenditures has gone directly to debt financing.

As long as the US govt can borrow trillions @ less than the rate of inflation don't expect debt financing to be seen as unattractive and thus it won't provide a cap on spending.  However eventually rates will go up and the difficulty in borrowing combined with the difficulty in collecting additional taxes will constrain spending ... well at least in theory. There has never been a country which just printed without limit that lasted more than a decade.  Not rome, not Germany, not Zimbabwe.  History has shown that without some constraint on spending government inevitably overpsend and fail.

I don't.  LTC (or some alternative) also would serve as a store of value.  So if given the choice between:

a) store of value with high transaction costs, low liquidity, and difficulty directly spending
vs
b) store of value with low transaction costs, high liquidity, and ease directly spending.

which is likely to be more popular?  Given the friction between crypto-currencies is very low (compared to crypto to fiat) I would expect a massive decline in the value of a relative to b.

TL/DR Bitcoin's value as a store of wealth is linked to its utility as a wealth transfer mechanism.  If the later if limited so if the former and the price will reflect it.

Well there is no consensus on a quota.  Most pools simply recognize that including "some" no fee tx is worthwhile.  It ensures that (other than low-priority tx w/ no fee which may not even be relayed) that all tx will "eventually" be included.  However if you look closer at blocks they vary rather significantly on how many free tx are included.   

The only consensus really is that at least for the current time "some" free tx should be included to keep the network moving.   

Of course you can put as many free tx in a block as you want.  1 more, 100 more, 1,000 more up to the 1MB limit.  However the larger the block, the longer the propogation delay.  The longer the delay the higher the orphan rate.

Once again miners certainly "can" include more free tx but doing so would result in less net revenue.  How much less well only a large mining pool experimenting (in a very cautious way) by comparing rate of orphans to size of block would know for sure.  Others could analyze from the blockchain but it is harder to get a clean comparison.  

Still miners have no real incentive to try an push the orphan limit for free tx.  1) it just encourage less paid tx and 2) it increases the risk of orphaned blocks (which is worth 0 BTC) how much more is debatable* but it most certainly is more.

* meaning is it that a 500KB block vs 250KB block results in a 0.1% increased orphan rate or 1%.  That might not be known but if it is >0% then adding 0 additional BTC simply results in less revenue.  (25+x)*y% < 25 where x=0 and y <100%.  Now if x is >0 then there is an equilibrium point but where the increased size warrants the increased risk but if x =0 you are just risking more orphaned blocks (loss revenue and higher volatility) for literally nothing.



That will never happen and likely shouldn't.  However as the subsidy continues to decline and tx volume rises fees will become more and more important.  Many pools simply keep all the fees now so members of the pool don't really care one way or another.  However after the next subsidy cut when a block is worth 12.5 and if tx fee volume quadruples to 2 BTC per block fees starting becoming a sizable portion of a miner's revenue.  I would expect mining pools to provide data like average fee per block and miners will gravitate to various pools which meet their risk/reward ratio.  One pool may just scoop the largest fees and keep blocks small.  Sacrificing some revnue for reduced volatility.  Another pool may scoop every tx with a fee greater than 100 satoshis to pull the maximum revenue (and maximum volatility).  

As fees, block size, and orphans become more important I imagine the number of free tx accepted will likely decline (or will only occur during periods of low tx volume).  The fact that miners accept ANY significant number of free txs is merely a distortion of free market caused by the subsidy.  As the subsidy declines the effect of that distortion will decline as well.

You can't redeem that Bitcoin back for the computing power used to create it.  The computing power spent to create a block doesn't create any more intrinsic value than the paper and ink costs at the Federal Reserve does.

You could say the UTILITY creates intrinsic value but it is a broader definition that most people would use.  The ability to transfer wealth anywhere in the world without restrictions and at high speed and low cost is valuable.  The network or what the network allows has value.