Does this make any reasonable sense? You can't get in trouble for selling code can you?
I don't understand why he doesn't GPL the code if he really wants to stick it to the government. The fact that he's doing this means he just wants to make money from some sort of auction.

This is fine because what should we expect? but it also highlights the primary weakness of a centralized exchange.


NeoBee is very important. Investors will come back to NeoBee when they can do so. NeoBee probably should get in contact with the Data Authority http://info.datauthority.org/  and see what can be done politically but in this moment of time I don't think there is any solution other than to buy time by using Havelock until Havelock shuts down. If Havelock isn't on the same shutdown time scale as the American exchanges then time may be on the side of NeoBee investors.

A long term solution for US investors will involve either changing the laws or waiting for crowd funding legislation and trying to fit NeoBee into that matrix. If NeoBee does go to direct shares couldn't NeoBee somehow reserve the shares for people who purchase for Bitcoin and convert it to real shares at some point in the future when it's legally possible?

This would mean no dividends or anything like that, just reserved status until there is a legal way to claim the shares conforming with KYC and other laws. I'm not a lawyer though and I cannot think up a workable scheme. I can think up ideas like lotteries and other mechanisms, but each one probably has some arcane esoteric regulatory law discussing it.

But that doesn't mean anything is going to happen in the next 6 months. It buys time to move to Havelock but no one knows how much.

These are difficult problems which will require the best minds of the cryptocurrency community and Bitcointalk to come together.

Coercion resistant blockciain code voting for example is an important idea I propose. If we could figure out how to do that then we could as a community reach consensus and solve all sorts of problems. Bitcoin is nice but it's not resistant to coercion as it is now and it needs to be in order for voting to work. I haven't figured out a way to do it right but I think code voting could be one way provided there is a secure channel to voters to send code sheets. This secure mechanism probably could be their smart phones, where you send a code sheet to each individual smart phone with the KASUMI encryption of the smart phone acting as the secure channel.

Now lets say you want to create a virtual jury? You could randomly select users to create a virtual jury to arbitrate certain situations. The jury could swing on the side of the buyer or the seller. Everyone who participants in the jury could be compensated (perhaps by taking a portion of the coins for that or some other means?). In addition you could set the jury up so that only specific trusted individuals from the community can take part on the jury and it could be pseudo-anonymous. Perhaps let them choose individuals to serve on their jury or just randomly select addreses from the blockchain and treat it as a way to earn Bitcoins.

If we have voting, and juries, then the community can start to regulate and govern itself.  

http://people.eng.unimelb.edu.au/vjteague/PGD.pdf

The solution in that paper relies on a Bulletin Board to act as an authenticated broadcast channel. Maybe we could have the Bulletin Board be the Blockchain?  Perhaps miners could act as the trustees? Theoretically is it possible to have coercion resistant verifiable code voting as a protocol built on top of the blockchain? Yes. I think this is easily possible. The hardest part is making it coercion resistant but the way to do that would probably be to have someone else or something else vote on your behalf but that is the area I don't know what to do about.

Ultimately the Bitcoin community has to figure out how to govern itself or an altcoin is going to come along with this voting and other self governing functionality and have a competitive advantage.  The Bitcoin community cannot accept money laundering if it's supposed to last in the long term, which means the community will have to develop a way to make decisions using the blockchain itself. If that means coin taint or if it means voting, it has to happen sooner or later unless Bitcoin goes anonymous in which case it will potentially lose its competitive advantage or gain one depending on how regulators respond. If regulators don't accept anonymous transactions due to money laundering then Bitcoin loses legitimacy.

Your ideas are good.

If we have taint capabilities does the community get to vote and decide which coins are and aren't tainted? What if there is a dispute about whether the coins are stolen or not? How can we maintain the decentralized and democratic mechanism of Bitcoin and avoid situations where the political atmosphere in a specific nation results in coins being tainted for political reasons because a prosecutor says so (like in the case of Wikileaks and Paypal).

Additionally what is your opinion on the use of time lock encryption to reduce the possibility of unjustly confiscating coins? If the coins are locked in time then they cannot be confiscated by the government until the time limit is up even if the government were to torture the individual and retrieve the password. This could allow an individual dissident under a certain political environment to lock their coins up and wait for the laws to change in their favor as society becomes more enlightened.

The coins would essentially be locked up in the blockchain itself. Another feature could be setting coins so that out of a wallet the coins can only be spent at a certain rate over a certain period of time. It may even be possible to configure a wallet with features to lock down or do a dead mans switch if certain recurring transactions are not made in a certain sequence.

If the wallet is completely emptied within an hour then the coins are considered stolen if the user defines this scenario as something they would never do. Allow the user to set different parameters for their wallet through scripting and you can make theft more difficult. Additionally the time release functionality could make scams more difficult because the coins cannot be spent until a certain period of time passes or can only be spit at a certain user defined rate. This would not completely prevent scams but it would make the scams more time consuming to pull off and give people more time to uncover the scam.

I still don't see any viable technical solution to dealing with money laundering and terrorist finance possibilities. If Bitcoin is going the anonymous transactions route then an alt coin can experiment with taint and blacklist procedures to find out if it can work or not. A simulation can be conducted where a contest can be held to see if anyone can trace a transaction which has been mixed or to role play a scenario where a team of terrorists are trying to finance something and then let another team roleplay trying to stop them. The result of this role play could be used in an academic research paper to determine whether or not the threat of terrorist finance is a realistic possibility.

If it's a real threat then my opinion is we have to create the tools to mitigate the risks. If it turns out it's not a real threat then it's not a problem. But I don't think we can avoid doing the simulations and research because we have to know what the risks are if we want to regulate cryptocurrencies ourselves through technical means.

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

Sell your shares and buy it back again later. They shouldn't cancel the IPO.
I'll buy their shares later, it's not a big deal provided I have enough money later on to buy shares.

Just like tainted coins.

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.

Possibly. But when you donate to non-profits do you have to give your identity to donate or can you send a bag of cash? if the answer is no, why would there be a different expectation if its a business? Money laundering? We need a lawyer to explain that difference.

Okay so money laundering is the actual problem and not anonymous trading, not Bitcoin, not a decentralized exchange. Money laundering is the problem along with terrorist finance. How do we isolate that problem and work with regulators to come up with regulations and technological solutions which everyone can live with?

The current set of regulation obviously the community cannot live with. That is why Bitfunder and btct are shutting down. If it were just a matter of KYC then Bitfunder would have no reason to shut down. Bitfunder could just verify the current shareholders and let them continue trading. None of this had to happen except for the fact that the current laws in place have a lot of other stuff added to it which go beyond solving the problem of terrorist financing and money laundering.

A lot of the laws exist because traditional banking institutions involve trusting people and so there needs to be a lot more regulation of the industry. Bitcoin doesn't have as many people who have to be trusted so there is just too much regulation which serves no good purpose for Bitcoin users.

And that is why you can use Litecoins which doesn't have the MAX_BLOCK_SIZE limit. People are fine using any blockchain with colored coins on top if Bitcoin isn't acceptable.

Mastercoin can work for Bitcoin and colored coin can be used with Litecoin.


A) We need KYC data to prevent money laundering and terrorist financing (correct?)
B) We need decentralized exchanges because the current regulations are impossible for US investors to comply with (correct?)

If both of are correct then read below for my opinions.

A distributed company isn't run from the USA and may not have to comply with US law. A company registered in the USA would have to comply. If it got big enough it would be pressured to comply because it would be capable of compliance.

But that is not likely to matter in the Bitcoin world. Bitcoin businesses will simply register anywhere but the USA and then there is no "name your investors" rule unless that rule exists in every country on earth.

The whole global economy isn't based in the USA and businesses are global. Bitcoin is a global currency. The Internet is a global communication system. We do not have laws and regulations which can easily regulate the Internet as it is and to have Bitcoin too and say everyone must name themselves is equal to saying everyone must have a drivers license to access the Internet. It's an unrealistic regulation if we were to try and do that because people wont follow it for many social reasons. KYC doesn't take effect usually unless you're dealing with beyond a certain amount of money, and in that case I would agree that money laundering becomes a serious danger. But we don't make people give their ID to send their cash back and forth offline, and we don't make people use their ID to send small amounts of money. Small businesses should not have the same level of regulation as large businesses because compliance is expensive. Little investors shouldn't have to give their ID to invest but I agree if they are accredited investors or trying to move over $10,000 then it should be just like with bank accounts and it should be flagged. So why not flag them when they try to cash out the $10,000 or more or when they try to withdraw more than a certain amount of Bitcoin? If someone is literally trading hundreds of dollars why should they have to give up pseudo-anonymity?

The main thing is to allow US investors to be able to take part in the Bitcoin economy. Issuers who happen to be US business owners will have to come into compliance. KYC is mainly for money laundering right? So it should focus on the large investors who want to deal with large amounts of money and right now none of the Bitcoin businesses are big enough to warrant the level of compliance and regulation that people are talking about.

Verified and Unverified status could be granted to allow large and small investors to invest. Verified investors should be able to invest as many Bitcoins as they want and withdraw as much as they want similar to coinbase. If the exchange is decentralized via the blockchain then corporations could make large investors verify themselves. But right now most of this is impossible because building an exchange which complies with the web of laws is impossible.

Compliance will have to wait until there are sensible laws to comply with. If you're setting regulations and compliance rules which are in a language which make it impossible for anyone to realistically comply whether decentralized or not, then Bitcoin will end up being decentralized and used in underground fashion until the law is something businesses can comply with. Money laundering sucks, and the possibility of terrorists financing also sucks, but the regulations currently on the books are regulations any technologist will tell you is unrealistic and unworkable.

If you want to have to send your drivers license and ssn just to send an email then keep promoting these sorts of anti-technology regulations and that is where it leads. If you want to be realistic about this then we have to figure out a way to do it which actually makes sense for the technology. KYC is fine and if a corporation is big enough and has a large enough amount of money then that makes sense. Corporations shouldn't be able to be hidden, so if you want to make corporations comply with KYC this would be perfectly fine for anyone trying to dump a bunch of shares or buy a bunch of shares of an established corporation.

It would not be fine to try one sized fits all. If someone is buying shares in a lemonade stand they shouldn't have to deal with KYC because the amount of money moving around might be too small to care. If there is a way to do it through some new legal setup then lets consider that but I don't think its possible to do it as if Bitcoin wallets are a bank and each Bitcoin company or Bitcoin users has to be under those regulations.

Conclusion: We need some form of KYC but the current form doesn't fit Bitcoin and must be customized. We need to build tools and mechanisms in the Bitcoin community to promote transparency and help to prevent terrorist financing and money laundering.

But in exchange for doing this the Bitcoin business community and its users need exemptions from the impossible to follow regulations. This means that a new set of customized laws have to be put in place specifically for cryptocurrencies and they should be carefully thought out. Until that happens there is no possibility of compliance so to discuss compliance at this point is silly. Congress needs to pass special laws to encourage compliance and make clear what the rules are. Smart people need to figure out how to do KYC in a way which is convenient for users. Before that happens it's impossible to build a compliant exchange when there are no laws set up to comply with to make it possible to build it.

Why not store the order book in the blockchain? There is also Hops which is completely trustless, or colored coin which is pretty darn good. Actually Colored coin has some advantages over Mastercoin and some disadvantages, Hops is trustless according to the whitepaper.

Here is the Mastercoin code for Python or Ruby.

https://github.com/maraoz/pymastercoin/blob/master/message.py
https://github.com/maran/mastercoin-ruby
https://github.com/maran/mastercoin-ruby/blob/master/lib/mastercoin-ruby.rb

It's being tested and it looks pretty good. I've seen Colored Coin code also and it looks good too but there is no implementation that I can find of Colored Coin which works. Maybe if you can find some implementation to show then I can change my mind but as of right now neither seem to have functional implementations.

Anyway let the best technology win. I'm following both.

Why don't you try? How do you know before you try?
On the other hand if you think Mastercoin has enough talent then yeah why bother.

You might be trustworthy, but the timing is just bad. I remember you from the Labcoin thread. If you can convince people to trust you then it can work.

After the whole Labcoin experience do you think people will give you money?

For these fees US investors would be better off giving money to colored coin developers. That is a crazy fee man.

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.

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.

Colored coin or Mastercoin, how exactly would you use Namecoin?

Those laws don't apply to cryptocurrencies or Bitcoin.