2013-03-30 Market-Ticker (Karl Deninger) - Bitcon: Don't

[Stephen Gornick]

Karl Denninger, writes on Bitcoin:

The dealer can (and might) take steps such as using "throw-away" wallets to try to unlink the transfer from his person, but that's dangerous.  In all jurisdictions "structuring" transactions to evade money laundering or reporting constraints is a separate and unique crime and usually is a felony.  Therefore, the very act of trying to split up transactions or use of "throw-away" wallets in and of itself is likely to be ruled a crime, leaving any party doing that exposed to separate and distinct criminal charges (along with whatever else they can bust you for.)
[...]
Since the records never go away your exposure, once you engage in a transaction that leads to liability, is permanent.\
[...]
Because Bitcoin is not state-linked and thus fluctuates in value there is an FX tax issue.  Let's say you "buy" Bitcoins (whether for cash or in exchange for a good or service you provide) at a time when they have a "value" of $5 each against the US dollar.  You spend them when they have a "value" of $20 each.  You have a capital gain of $15.  At the time of the sale you have a tax liability too, and I'm willing to bet you didn't keep track of it or report it.  That liability never goes away as it was wilfully  evaded and yet the ability to track the transaction never goes away either!
[...]
Those who are using Bitcoin as a means to try to foil currency controls or state prohibitions on certain transactions are asking for a criminal indictment not only for the original evasion act itself but also the possibility of a money-laundering indictment on top of it, and the proof necessary to hang you in a court of law is inherently present in the design of the currency system!
[...]
I do not now and never will support Bitcoin or its offshoots, nor will I accept and transact in it in commerce.  I prefer instead to effort toward political recognition of the duties that come with the privilege that is bestowed on a sovereign currency issuer in the hope of solving the underlying problem rather than sniveling in the corner trying to evade it.

 - http://market-ticker.org/akcs-www?post=219284

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[Stephen Gornick]

For many years I've made sure that every one of Karl's posts are in my daily list of required reading.

I'm not sure his point about using a throwaway EWallet being something that could be considered structuring.  We should never allow our natural right to financial privacy be interpreted as some violation of the law.

[kiba]

 We should never allow our natural right to financial privacy be interpreted as some violation of the law.

I think it's safe to assume that the state don't give a flying **** about financial privacy.

[Gabi]

Tons of bullshit

[Jutarul]

reading articles like those make me sad, because the authors are either naive or are willingly giving away their civil sovereignty to an elite of people calling themselves leaders for the greater good.

Bitcoin is a financial tool to exacerbate civil disobedience, which is heavily needed in todays crisis - which, by the way, is engineered from the top down.

[apetersson]

his arguments are not totally outlandish. they are a bit far-reaching, since they imply governments are putting in substantial effort in auditing the blockchain. this will eventually happen, but not today.
His argument against "structuring" relies on a very literal application of fiat money laws to bitcoin. For technical reasons most transactions appear structured already, and today this is not illegal.

[justusranvier]

I used to be a Gold donator on Tickerforum with a high post count and might have even considered Karl a friend at one point.

This position is just one manifestation of a deep-seated authoritarianism that lies below his libertarian facade. It's really a shame because he's brilliant when it comes to fiscal and macroeconomic analysis, but a few years ago when the bulk of the intellectual energy in libertarian circles began to recognize the futility and contradiction of political activism and started to move in the direction of voluntarism he couldn't make the transaction, perhaps because of his religiosity. Because of his increasingly bizarre and contradictory positions on issues like this a lot of talented thinkers left his board in the last few years. I stuck it out over there a lot longer than I should have.

He can't accept Bitcoin because he's fully capable of recognizing its potential and he'll do everything he can to oppose the idea of a stateless society. Expect more venom from him as Bitcoin becomes increasingly successful.

[Stephen Gornick]

For many years I've made sure that every one of Karl's posts are in my daily list of required reading.

And the previous post of Karl's is a video by former Presidential candidate Bill Still  (Libertarian Party) who weighs in on Bitcoin:

 - http://www.youtube.com/watch?v=qDgnu5B1SJM

Offensive anti-Bitcoiner Bill Still just lost a fan
 - http://bitcointalk.org/index.php?topic=161325

[solex]

I too have read a good proportion of Karl's posts for years.  He is normally expert and right about most things.

There is a lesson in humility here: being right most of the time is not the same as all of the time. Karl is evaluating Bitcoin incorrectly. He has a strong legal background and this is confusing his mind so he is not considering how Bitcoin can be a force for making smaller, efficient governments.
He is not even bothering to learn how 3rd-party systems can work with the blockchain. He is not properly considering Bitcoin's triple benefit as a currency and payment system with user anonymity.

He has written a long article, which is probably longer than what he has read on it.

Eventually he will settle down and realize that Bitcoin is the answer to many of the perversions of fiat that he has railed about for years.

[cypherdoc]

he's always been against gold too and missed the entire runup from 2000-2011 so i'm not surprised he'll miss this one as well.

[cypherdoc]

man is he rambling.  i'll have to break this one up into pieces...

the first half of the article deals with the permanency of the blockchain as a public record.  first of all, he comes from the position that most of the tx's will be for illegal purposes, which quite naturally is ridiculous.  then he underestimates the anonymity of the system if one takes proper precautions and assumes that eventually illegal users will "get tagged".  unlikely given the ways to obfuscate tx's if one wants to.

then he argues about spending BTC after appreciation results in capital gain avoidance.  FinCen just ruled that users can spend BTC for goods and services so that is no problem either.

[cypherdoc]

then he argues that the confirmation time is a negative.  well, that's where companies like BitPay come in.  as their clientele rises, i have not heard any complaints of fraud rising.  they certainly must be mitigating it in some way.

he then assumes that difficulty ONLY rises in perpetuity.  this will only be so if Bitcoin succeeds in recruiting new users and thus more miners.  difficulty certainly can DROP as we saw in summer 2011.  he totally disregards the fact that early adopters, who mined when difficulty was much less, took a risk with their resources and thus Bitcoin is not a ponzi scheme as he alleges.

he does make a good point about the #BTC decreasing with time as ppl lose their keys.  however, i think with time and experience this can be limited. 

[Rothgar]

Karl Denninger, writes on Bitcoin:

I do not now and never will support Bitcoin or its offshoots, nor will I accept and transact in it in commerce.  I prefer instead to effort toward political recognition of the duties that come with the privilege that is bestowed on a sovereign currency issuer in the hope of solving the underlying problem rather than sniveling in the corner trying to evade it.

I do not now and never will drive a car, nor will I accept a ride from someone driving a car.  I prefer instead to effort toward equine recognition of the duties that come with the privilege that is bestowed on horse trainers in the hope of solving the underlying problems of horse travel rather than sniveling in the corner trying to evade it. 

[Wekkel]

He can't accept Bitcoin because he's fully capable of recognizing its potential and he'll do everything he can to oppose the idea of a stateless society. Expect more venom from him as Bitcoin becomes increasingly successful.

He and Bill Still seem to be too locked up in their ideologies to just let go and see what happens with Bitcoin. Even if it fails, there will be another virtual currency. Something that especially Denninger should be able to spot.

It's kind of ironic that he seems to prefer holding on to the thought that politicians suddenly start to act reasonably and in the interest of the people instead of applauding free market market initiatives, regardless whether he likes it or not.

The quote already mentioned sums it up fine:
"For these reasons I do not now and never will support Bitcoin or its offshoots, nor will I accept and transact in it in commerce.  I prefer instead to effort toward political recognition of the duties that come with the privilege that is bestowed on a sovereign currency issuer in the hope of solving the underlying problem rather than sniveling in the corner trying to evade it.".

Government with a self proclaimed privilege ....

But please have a look at Denninger's blog yourselves. He makes good points on all kinds of topics so don't run away just yet. Critical thinking is a depreciating asset nowadays so you just might want to hold on to what we still got.

[lettucebee]

What is bothering me about Denninger's piece is its lack of morality.  He is not talking about the very noble motives behind bitcoin, a response by humanity to financial tyranny of a ruling elite that has oppressed humanity forever.  Rather, he seems to be saying don't do that boys and girls because you're going to get into trouble. 

He seems like a person who has made some money and has built a platform to speak out and now he is defending the establishment that he has worked within.  But does he point out that the establishment system of FBI and secret service who will put us in cages is WRONG?

Is this guy what passes for leadership among mainstream libertarians nowadays?  He does not seem like a brave and impudent man; rather he seems meek and cowardly. 

Denninger as Tory.

[Zomdifros]

Karl Denninger, writes on Bitcoin:

I do not now and never will support Bitcoin or its offshoots, nor will I accept and transact in it in commerce.  I prefer instead to effort toward political recognition of the duties that come with the privilege that is bestowed on a sovereign currency issuer in the hope of solving the underlying problem rather than sniveling in the corner trying to evade it.

I do not now and never will drive a car, nor will I accept a ride from someone driving a car.  I prefer instead to effort toward equine recognition of the duties that come with the privilege that is bestowed on horse trainers in the hope of solving the underlying problems of horse travel rather than sniveling in the corner trying to evade it. 

Haha +1

[Roger_Murdock]

I do not now and never will support Bitcoin or its offshoots, nor will I accept and transact in it in commerce.  I prefer instead to effort toward political recognition of the duties that come with the privilege that is bestowed on a sovereign currency issuer in the hope of solving the underlying problem rather than sniveling in the corner trying to evade it.

Wow, that is just amazingly backwards. The people "sniveling in the corner" are the ones asking their political masters for better treatment year after year (and never getting it). In contrast, bitcoiners are not complaining about a lack of financial freedom, they are simply taking their freedom back.

[lettucebee]

Another thing about this so-called Ponzi aspect of bitcoin where early adopters profit more than later adopters, it just seems that they are being rewarded for their foresight.  If you are slow to recognize the paradigm shift, why is it wrong that you pay a price?

[justusranvier]

Is this guy what passes for leadership among mainstream libertarians nowadays?

He is not. He gained a fairly significant following for his reporting on the ongoing train economic train wreck that started in 2008, and it was his blog that sparked the original Tea Party movement (back when it was about opposition to bailouts) but other than that his forays into political activism have been a complete flop. He's tried twice to form new political parties, and both of them achieved about a dozen supporters.

[whatisthename]

I think he's a very smart guy.

I've exchanged emails with him a few times.

I don't think he has a grasp on Bitcoin though.

For example, say I have 1 Jellybean. I say to Bob: "Bob, this Jellybean is worth the price of your house. I would like to buy it."
Bob says "Okay, I think it sounds like a fair trade."

Then the house is mine. It's a fair, legal, trade.

It's the same thing with Bitcoin.

Karl is just thinking too hard. A good guy, but thinking too hard.

If I convert a Bitcoin to USD and made profit, then yes....I will need to report for tax purposes.

Simple as that.