Do we want to work with money regulators, or keep Bitcoin unregulated?

[Peter Todd]

There was an interesting post on the Bitcoin Foundation's private forum today:

Hi! I would like the board to discuss opening up lines of communication with money regulators - particularly FinCEN and AUSTRAC (I'm from Australia). FinCEN and other government money regulators need to write new rules as they obviously don't understand Bitcoin's inherent structure.

I think it would be better if some organisation like the Bitcoin Foundation could offer guidance draft rules and work with the regulators.

Otherwise we'll have a situation pretty soon where they try to implement something unworkable, the criminals flood into the Bitcoin system then the argument for 'shutting down bitcoin' grows in popularity.

-Bitcoin Foundation board meeting agenda requests (only viewable by foundation members)


You know, Bitcoin is at an interesting stage of it's development. We've got a lot of money flowing in to the ecosystem and for the first time we're seeing interest from big businesses - even PayPal and Western Union are looking into accepting Bitcoin.

We're also under a lot of attack; big heavily protected exchanges and other websites like Mt. Gox, blockchain.info, and The Silk Road are getting DDoSed; services like Instawallet and mining pools are having funds stolen; exchanges getting shutdown by regulators; (including Mt. Gox suddenly shutting down their off-chain payment service) even child porn related data being uploaded to the blockchain:

It is widely speculated, based on common forum comments in the crypto-anarchist community, that this current round of data spam is intended to force bitcoin users, developers and governments of the world to take action to censor -- or not -- certain bitcoin transactions.  Trying to force the issue, to establish a precedent one way or the other.  Or, more pessimistically, a party could be simply trying to shut down bitcoin.

-Jeff Garzik

The Bitcoin Foundation itself is in a difficult position: we all know who it's funded by, and everyone involved is publicly known. This can be a problem: in the last round of grant proposals at one point Gavin suggested someone submit a grant for a trust-free mixer service to help people make the coins in their wallet more anonymous by mixing them with a large pool of other users. I asked Gavin about that later, and he said the foundation lawyers nixed the idea because efforts to make Bitcoin users more anonymous could be seen to be aiding money laundering, especially if the foundation itself was paying for development and to run the servers.


We can work with regulators to make sure Bitcoin is acceptable to them. For instance we can ensure that it remains possible to track the flow of money through Bitcoin. We can also ensure that there are options if certain funds need to be frozen and blacklisted, due to fraud, theft, or because they encode illegal data. We can work with them to find ways to apply AML rules to Bitcoin transactions and to the exchanges. There are ways to put taxation into Bitcoin itself, so that taxes are automatically applied when a transaction is made. Maybe even one day we'll be required to prevent dangerous levels of deflation. A lot of these changes are technical, such as improving scalability so transactions can remain on the blockchain, developing P2P blacklist technologies, and preventing deflation.

We can also go the other route, and give Bitcoin users even more tools to remain anonymous and transact on their own terms. Technologies like mixing and off-chain transactions to let you make transactions without revealing where the coins came from, technologies like P2Pool to ensure mining stays decentralized, and colored coins to let us trade our assets without involving third party exchanges.

I think this discussion needs to happen out in the open, and we need to have it now. I'm sure you have a pretty good idea what I think, but what does the rest of the community think?

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[hello_good_sir]

I am very much anti-regulation, but we live in the real world.  Regulation is coming.  Who is going to write it?  Well it won't be politicians, because politicians don't write regulations.  They don't even write legislation.

Special interest groups write legislation which is then approved by legislators.  This legislation creates new goverment offices or expands the scope of existing offices.

These offices are the people who decide what regulation will exist.  Usually they write the regulations, but quite often they allow special interest groups to help write the regulations.

So what does this mean for bitcoin?  It means that the regulations will be written primarily by special interest groups.  The question is whether the banks will be the ones writing the regulations, or whether the Bitcoin Foundation will be writing the regulations.

Thus I would support an effort by the Bitcoin Foundation to aggressively pursue regulation.  This is despite the fact that I am very much opposed to regulation.

Of course the entire point of helping to write the regulation is to reduce the severity of the regulation.  Anything where we help them collect taxes or blacklist addresses is simply unacceptable.

[Brushan]

WTF do you need Bitcoin for if you can tax it, regulate it, track and seize coins, and on top of all of that fight deflation!?  People, was Bitcoin really made for this? Feels to me like we're executing a u-turn.

[Peter Todd]

Of course the entire point of helping to write the regulation is to reduce the severity of the regulation.  Anything where we help them collect taxes or blacklist addresses is simply unacceptable.

Indeed.

Myself, I want to see the foundation improve the ability of the Bitcoin technology to resist attempts to regulate it, while at the same time working to keep the legal framework regulating Bitcoin as minimal as possible.

Look at the Tor project: they do a great job keeping Tor anonymous by ensuring that governments and law enforcement around the world see that it's valuable, and at the same time improving the technology to ensure that even if they tried there is little they could do to stop it anyway.

After all, the foundation isn't Bitcoin. I'm a member myself, and I want to know what their views are so I can decide if I should be sending my membership fees to them, or somewhere else.

[cbeast]

What is the benefit to regulation? Do gold and silver buyers have regulation? In my opinion, Bitcoin green addresses, whitelisting, colored coins, government provided deterministic wallets, and other schemes can offer full traceability. All there need to be is an incentive to use them.

[theymos]

What's even the point of Bitcoin if it's just another government-managed currency? I guess it'd be a little better than dollars, and Bitcoin investors would make a ton of money if any version of Bitcoin became very popular, but it wouldn't be world-changing. I'd be very reluctant to accept any pro-government compromises; too many of them would destroy Bitcoin's real value.

[bassclef]

The bitcoin community will self-regulate.

DOS attacks? The community learned quickly to hold tight when they happen, and they've already stopped.

Wallet theft? Don't store your damn wallet on a remote server. Learn to secure it properly.

Money laundering/criminal activity? Please, you get that with every currency. You cannot stop black markets from existing.

It is not the regulators' jobs to protect us from any of this. It is our job.

Also remember: If you give them an inch, they will take a mile.

[tvbcof]

I think that most of the people 'in the government' are just trying to do their jobs.  Also that a lot of their jobs are important.  At this point I see a lot of reasonable rational behind many of the laws and regulations and it seems to me reasonable to make a good faith effort to lend assistance and advice.

I also think that a lot of the heads of various parts of at least my government (US) are already fairly rotten from the effects of money in politics and that that situation is going to get a lot worse before it gets better.

I strongly favor a situation where 'bitcoin' operates from a position of power.  That is to say, we 'do the right thing' when it makes sense but retain the option of withdrawing from cooperative arrangements if/when they become it makes sense to do so.

More than anything I am an 'anti-fascist' and look with great alarm at the merger of state and corporate power.  More and more the words 'state' and 'corporate' are words that can be used interchangeably.  With that said:

Two things interfere with the option to operate from a position of power:

 - Attachment to the same forces which corrupt our governments (specifically corporate and financial interests.)

 - Reliance on irreplaceable resources which are provided at the pleasure of corp/gov.  This is the main reason why I am SO negative about 'centralization' and so dead-set on wishing Bitcoin to remain as fully 'peer2peer' as possible.

[charleshoskinson]

Well the foundation is fundamentally pro-regulation. What that means is entirely unclear to me and even as a member I cannot get answers other than attacks by the leadership. I would really appreciate Peter spending the time to leave a thread with his vision for regulation. Instead of just personal attacks or claims we don't "contribute" enough to deserve a voice in bitcoin.

[Dharmadog]

WTF...  Stupid discussion.  Period.

[proudhon]

Regulation of bitcoin in some sense is inevitable and probably desirable, but it's important to recognize that the only sense in which bitcoin can be realistically regulated has to do with the ways that bitcoin interfaces with the traditional financial system.  So, exchanges, like MtGox, can be compelled to behave in certain ways by the financial regulations of their jurisdictions.  They can be held to standards of accounting and reporting, say, and face fines or interference for not complying.

A unique aspect of bitcoin is that transacting only in the bitcoin ecosystem, away from points of contact with the traditional financial system, is to transact in a system that is pretty strongly resistant to typical top-down regulation from entities like states.  Users can more easily choose whether they operate in the regulated space or the unregulated space.

In a discussion on regulation, I think it's important to make this distinction.  If somebody, like some members of the Foundation, are pro-regulation, it doesn't necessarily mean they believe that bitcoin itself should or will be regulated - it probably just can't be regulated in a practical way.  What they are likely talking about are regulations to do with certain ways that bitcoin comes in contact with traditional financial systems where states already enforce regulations.

[marcus_of_augustus]

Someone wants to regulate bitcoin? ... as jgarzik, luke-jr and gmaxwell have aptly stated and demonstrated ...

SUBMIT a PULL REQUEST on GITHUB with your changes and we'll get back to ya 

[QuantPlus]

Gavin comes across as a NSA Trojan Horse.

Now that BTC has hit $1.3 billion in market cap...
Now is the time to purge the Foundation...
Pack it with radicals and take the hard, radical road of Satoshi's Vision.

Bitcoin just got important enough to be noticed...
Govt agencies wanna strangle BTC in it's crib...
Paypal, WU wanna co-opt BTC, neuter it, and take over the Cryptocurrency Space.

When people like David Marcus and Eric Schmidt talk about Bitcoin...
You should shudder and turn away...
They represent everything that Bitcoiners find abhorrent.

The one place I would give a little is on AML and tax evasion...
BTC must stay independent while moving away from being a criminal vehicle.

[mobile4ever]

In the last round of grant proposals at one point Gavin suggested someone submit a grant for a trust-free mixer service to help people make the coins in their wallet more anonymous by mixing them with a large pool of other users. I asked Gavin about that later, and he said the foundation lawyers nixed the idea because efforts to make Bitcoin users more anonymous could be seen to be aiding money laundering, especially if the foundation itself was paying for development and to run the servers.

We can work with regulators to make sure Bitcoin is acceptable to them. For instance we can ensure that it remains possible to track the flow of money through Bitcoin. We can also ensure that there are options if certain funds need to be frozen and blacklisted, due to fraud, theft, or because they encode illegal data. We can work with them to find ways to apply AML rules to Bitcoin transactions and to the exchanges. There are ways to put taxation into Bitcoin itself, so that taxes are automatically applied when a transaction is made. Maybe even one day we'll be required to prevent dangerous levels of deflation. A lot of these changes are technical, such as improving scalability so transactions can remain on the blockchain, developing P2P blacklist technologies, and preventing deflation.

Sounds freakin' dandy. Count me out if it goes this direction.

Maybe litecoin is looking better and better? Seriously, bitcoin is decentralised and distributed. Putting it into the hands of a few people is opposite to the original intent.

[shawshankinmate37927]

We can work with regulators to make sure Bitcoin is acceptable to them. For instance we can ensure that it remains possible to track the flow of money through Bitcoin. We can also ensure that there are options if certain funds need to be frozen and blacklisted, due to fraud, theft, or because they encode illegal data. We can work with them to find ways to apply AML rules to Bitcoin transactions and to the exchanges. There are ways to put taxation into Bitcoin itself, so that taxes are automatically applied when a transaction is made. Maybe even one day we'll be required to prevent dangerous levels of deflation. A lot of these changes are technical, such as improving scalability so transactions can remain on the blockchain, developing P2P blacklist technologies, and preventing deflation.

If Bitcoin heads in this direction, surely there will be a hard fork.  The whole point of Bitcoin for a lot of users is to have a currency that functions independently of the world's most heinous criminals--the bankers and politicians--and makes their destructive, self-serving policies/regulations/legislation irrelevant.  Each of us should be free to transact in whatever currency has the features and characteristics that we want and individually choose.  Similar to religion (in the USA at least), a currency should not be imposed on us.  It's obvious there isn't going to be a one-size-fits-all cryptocurrency as we move forward.

We can also go the other route, and give Bitcoin users even more tools to remain anonymous and transact on their own terms. Technologies like mixing and off-chain transactions to let you make transactions without revealing where the coins came from, technologies like P2Pool to ensure mining stays decentralized, and colored coins to let us trade our assets without involving third party exchanges.

We can go both routes.  It's as simple as a hard fork.

[proudhon]

We can go both routes.  It's as simple as a hard fork.

Or no fork.  There is no cryptocurrency variant that is immune to regulation where it transacts with the traditional financial system.  Forking bitcoin or creating new alt-coins simply will not solve the problem, to the extent that is a problem, of regulation at points of contact with the traditional system.  Users can already go both routes.  If you choose to only transact in bitcoin, then you can effectively choose to transact within an unregulated system.  If you want to move into and out of bitcoin and the methods you choose to do so interact directly enough with the traditional financial system, then you'll likely brush up about regulations.

[shawshankinmate37927]

We can go both routes.  It's as simple as a hard fork.

Or no fork.  There is no cryptocurrency variant that is immune to regulation where it transacts with the traditional financial system.  Forking bitcoin or creating new alt-coins simply will not solve the problem, to the extent that is a problem, of regulation at points of contact with the traditional system.  We can already go both routes.  If you choose to only transact in bitcoin, then you can effectively choose to transact within an unregulated system.  If you want to move into and out of bitcoin and the methods you choose to do so interact directly enough with the traditional financial system, then you'll likely brush up about regulations.

Not if you transact in cash--actual Federal Reserve Notes.

[franky1]

quick lesson for the OP

money regulators regulate money.

money is a type of currency owned by governments.

virtual currency is not money. its another type of currency

money is the laymans term for FIAT

money regulators only care about money (FIAT) so don't worry about them trying to control bitcoin. they only want to control money (FIAT).

if the government cared about other types of currency then they would have ensured that they stopped the sexual favours and cigarettes trading that happens in prisons. which is alot easier to manage and control in comparison to bitcoin

so if you don't want money regulators involved with bitcoin then you don't want to ever turn your bitcoin into fiat

[proudhon]

We can go both routes.  It's as simple as a hard fork.

Or no fork.  There is no cryptocurrency variant that is immune to regulation where it transacts with the traditional financial system.  Forking bitcoin or creating new alt-coins simply will not solve the problem, to the extent that is a problem, of regulation at points of contact with the traditional system.  We can already go both routes.  If you choose to only transact in bitcoin, then you can effectively choose to transact within an unregulated system.  If you want to move into and out of bitcoin and the methods you choose to do so interact directly enough with the traditional financial system, then you'll likely brush up about regulations.

Not if you transact in cash--actual Federal Reserve Notes.

That goes without saying.  Every cryptocurrency is immune to regulation with respect to physical cash transactions.  But, hopefully it's obvious enough that I don't mean to include ordinary physical cash transactions when I speak of interacting with the traditional financial system.  I'm referring to things like online exchanges.  And in the case of online exchanges I'm referring to those that use banks to store and move customers state money funds.  

[edmundedgar]

The OP's post is very slippery. It's written as if it's describing the situation from a neutral stance, but it's full of political games.

Let's start with the topic:

"Do we want to work with money regulators, or keep Bitcoin unregulated?"

This obviously not the choice. The regulators are going to regulate Bitcoin use whatever the foundation, or anyone else does. The question is whether we think the foundation should lobby money regulators to reduce unhelpful regulation.

Then we get this:

We can work with regulators to make sure Bitcoin is acceptable to them. For instance we can ensure that it remains possible to track the flow of money through Bitcoin. We can also ensure that there are options if certain funds need to be frozen and blacklisted, due to fraud, theft, or because they encode illegal data.

Who is advocating any of that? In any case, the foundation can't do that, because if they did people would just use different versions of the software, or if necessary fork the whole thing.

A lot of these changes are technical, such as improving scalability so transactions can remain on the blockchain, developing P2P blacklist technologies, and preventing deflation.

OK, you might have missed it for the straw men, but there's an actual thing in there. Retep is opposed to improving scalability so transactions can remain on the blockchain. He has some opinions about what the blockchain should be used for, and he wants to cap the network at 7 transactions per second, and blow fees through the roof so that most of the current uses of Bitcoin will have to go somewhere else.

This is a tough argument for him to win and making transactions cost $1 or $10 or $100 would not be very popular, so when the core developers try to scale the network up he's trying to make you think that it's part of some kind of pro-government plot involving the Bitcoin foundation.