The SEC Shows Why Bitcoin is Doomed.

[Peter R]

It is my understanding that bitpay is a "third party payment processor" which is EXEMPT from "money transmitter licensing"

Essentially Bitpay has a contract with their clients, the merchant and when a consumer sends bitcoin to bitpay and bitcoin converts that to cash and sends it to the merchant, the consumer is "legally" sending "other value that substitutes for currency" directly to the merchant. There for bitpay is not a "money transmitter."

But is it not possible for a drug dealer to sell drugs for btc then buy a couple of lamborghinis at a dealership for btc and sell them for dollars. In that scenario isn't BitPay enabling money laundering?

That's a good question.  I'm certainly no legal expert, but my take is that it is no different than that same drug-dealer buying his Lamborghini in cash.  In Canada (where I'm from) a drug-dealer could do this, but the car-dealership would need to report the transaction to FINTRAC (our version FinCEN).  So regardless of whether the drug dealer purchases the car in cash or in bitcoin, the dealership knows who the buyer is and reports the transaction.  BitPay is just facilitating the transaction between buyer and seller; they are outside the scope of any reporting requirements.  

[BCB]

If I'm reading this right, you are predicting the inevitable failure of Bitcoin as a mainstream financial tool. Start-ups can't afford the cost of entry and power-brokers with deep pockets will crush new legislation, yes?

Well the US isn't the entire world, the rest of the world doesn't really care how dysfunctional the US regulatory structure is.  So I see two potential outcomes (and I should state this is my personal opinon doesn't reflect the views or intentions of my employer).  One potential outcome is that startups abandon the US market.  They operate when regulation while not non-existent is at least not an impossible burden.  The ones which are successful gain the resources to handle the large fixed overhead that MT licenses creates.

The other scenario is startups in the US comply with federal requirements, and are able to grow faster than the response from states; in essence grow to survive.

It certainly is an obstacle to growth, and innovation but progress already routes around the damaged parts of the system.  Bitcoin will survive, however the US may simple lose its status as the "tech capital" when it comes to Bitcoin related enterprises. I am not saying that is a forgone conclusion but the regulatory risk and uncertainty doesn't help.

Here is what we will see in 2014.  Companies like circle.com with $9M invested, Coinbase.com with $25M invested and any of the other companies that receive significant investment moving quickly to spend a lot of that money to become licensed in all the US State.

I believe, but I'm don't know, that coinx.com has application in 30 or 40 states (since march 18th 2013) and have only received licenses in about 14 or 15 states so far.

And another issue with NO federal regulator is the there is ABSOLUTELY no list of all the money transmitters in every state that requires licensing so there is really no way to tell.

[BCB]

It is my understanding that bitpay is a "third party payment processor" which is EXEMPT from "money transmitter licensing"

Essentially Bitpay has a contract with their clients, the merchant and when a consumer sends bitcoin to bitpay and bitcoin converts that to cash and sends it to the merchant, the consumer is "legally" sending "other value that substitutes for currency" directly to the merchant. There for bitpay is not a "money transmitter."

But is it not possible for a drug dealer to sell drugs for btc then buy a couple of lamborghinis at a dealership for btc and sell them for dollars. In that scenario isn't BitPay enabling money laundering?

That's a good question.  I'm certainly no legal expert, but my take is that it is no different than that same drug-dealer buying his Lamborghini in cash.  In Canada (where I'm from) a drug-dealer could do this, but the car-dealership would need to report the transaction to FINTRAC (our version FinCEN).  So regardless of whether the drug dealer purchases the car in cash or in bitcoin, the dealership knows who the buyer is and reports the transaction.  BitPay is just facilitating the transaction between buyer and seller; they are outside the scope of any reporting requirements.  

What you are discussing is called "Trade Based Money Laundering" and it is a bit problem.  Auto dealer are required to file currency transaction report (CTR's) with FinCEN for the reason.

EDIT: http://www.ice.gov/cornerstone/money-laundering.htm

[bovcan]

Also, have you read the transcripts or watched the recent Federal Senate Hearings?

http://www.hsgac.senate.gov/hearings/beyond-silk-road-potential-risks-threats-and-promises-of-virtual-currencies
http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=955322cc-d648-4a00-a41f-c23be8ff4cad

Law Enforcement and Regulators clearly state that bitcoin is NOT illegal it is only the illegal use that they are concerned about.

Hint: Don't believe everything that politicians say in public.

[QuestionAuthority]

If I'm reading this right, you are predicting the inevitable failure of Bitcoin as a mainstream financial tool. Start-ups can't afford the cost of entry and power-brokers with deep pockets will crush new legislation, yes?

Well the US isn't the entire world, the rest of the world doesn't really care how dysfunctional the US regulatory structure is.  So either startups will route around this problem, they will grow based on non-US business until they can handle the regulatory cost, or they may survive in the state long enough to grow to handle any push back from the states.   It certainly is an obstacle to growth, and innovation but progress already routes around the damaged parts of the system.  Bitcoin will survive, however the US may simple lose its status as the "tech capital" when it comes to Bitcoin related enterprises.

I should point out I am not saying that is a forgone conclusion but the regulatory risk certainly doesn't help.

That concept "the rest of the world will save us" really doesn't seem to be working anymore. I think it's not working because most of the worlds governments/regulatory systems are as dysfunctional as the US system. I agree with your main point, Bitcoin will survive. Tech creations have a trendy, geeky, cool timeline. Bitcoin is very fashionable and edgy right now. Businesses that survive will need to base their business model of survival on real merits that are timeless because Bitcoin won't be cool and new forever. The US only has a partial hold on being the "tech capital" right now. The regulatory framework is killing more than just Bitcoin.

[QuestionAuthority]

It is my understanding that bitpay is a "third party payment processor" which is EXEMPT from "money transmitter licensing"

Essentially Bitpay has a contract with their clients, the merchant and when a consumer sends bitcoin to bitpay and bitcoin converts that to cash and sends it to the merchant, the consumer is "legally" sending "other value that substitutes for currency" directly to the merchant. There for bitpay is not a "money transmitter."

But is it not possible for a drug dealer to sell drugs for btc then buy a couple of lamborghinis at a dealership for btc and sell them for dollars. In that scenario isn't BitPay enabling money laundering?

That's a good question.  I'm certainly no legal expert, but my take is that it is no different than that same drug-dealer buying his Lamborghini in cash.  In Canada (where I'm from) a drug-dealer could do this, but the car-dealership would need to report the transaction to FINTRAC (our version FinCEN).  So regardless of whether the drug dealer purchases the car in cash or in bitcoin, the dealership knows who the buyer is and reports the transaction.  BitPay is just facilitating the transaction between buyer and seller; they are outside the scope of any reporting requirements.  

What you are discussing is called "Trade Based Money Laundering" and it is a bit problem.  Auto dealer are required to file currency transaction report (CTR's) with FinCEN for the reason.

EDIT: http://www.ice.gov/cornerstone/money-laundering.htm

How does BitPay convert their Bitcoins to cash? Surly they must use an exchange and then need to do record keeping on the businesses they deal with. So, they must have some AML/KYC reporting requirement, no?

[BCB]

EDIT: Bitpay does perform extensive Know Your Customer(KYC) vetting on it's merchants to prevent being caught up in any fraudulent or illicit activity.  This is a MUST for any legitimate virtual currency business.  See e-gold ltd.

[DeathAndTaxes]

Here is what we will see in 2014.  Companies like circle.com with $9M invested, Coinbase.com with $25M invested and any of the other companies that receive significant investment moving quickly to spend a lot of that money to become licensed in all the US State.

That is possible but they are going to stop all business and wait 6-9 months?   For a license they may or may not need?
By definition apply for a license (a defacto admission that unlicensed activity is unlawful) while engaging in unlicensed activity is not smart.   I can't see any state granting a license to an entity which is operating without a license while seeking said license.  The time required to obtain a license is an obstacle.

And another issue with NO federal regulator is the there is ABSOLUTELY no list of all the money transmitters in every state that requires licensing so there is really no way to tell.

Not sure what you mean by this.  There is no unified list but pretty much all states make licensure a public record and most (all? I want to say all but there may be one or two exceptions) make these records available online.  If xyz claims to be a licensed money transmitter, license #12345679 it is pretty hard to verify if there is no way to verify.

Examples:
CA money transmitters: http://www.dbo.ca.gov/Licensees/money_transmitters/money_transmitters_directory.asp
VA money transmitters: http://www.scc.virginia.gov/bfi/reg_inst/trans.pdf
NY money transmitters: http://www.dfs.ny.gov/about/whowesupervise/simoneyt.htm

Pretty much just google "[name of state] money transmitter" and you can find a list within a link or two.

[BCB]

DeathAndTaxes, I've checked EVERY state. State licensing is NOT public information in every state.

Regarding operating with out a license: that may be exactly what Coinbase.com is doing.  They don't seem to have a state money transmitter license, yet they have not been shut down.  They would not receive a $25M investment unless the investors are pretty certain what they are doing it legal. 

It's all a mystery to me.

[TheButterZone]

Regarding operating with out a license: that may be exactly what Coinbase.com is doing.  They don't seem to have a state money transmitter license, yet they have not been shut down.  They would not receive a $25M investment unless the investors are pretty certain what they are doing it legal.  

Talk about "Libertarian kooks"! This is anarchy! How will the roads be built if Coinbase doesn't blast tens of millions of dollars into the government's black hole!?

[BCB]

This guy is a little nutty but if you have an hour he has some interesting point.

WRITTEN STATEMENT OF
AARON J. GREENSPAN
CHIEF EXECUTIVE OFFICER, THINK COMPUTER CORPORATION
BEFORE THE
U.S. SENATE COMMITTEE ON HOMELAND SECURITY AND GOVERNMENT AFFAIRS
NOVEMBER 18, 2013

http://www.aarongreenspan.com/writing/20131118.hsgacstatement.pdf

[BCB]

And speaking of coinbase

This is very interesting...

http://youtu.be/jkMhOchu9G8#t=1h30m12s


That is Fred Ehrsam, Co-Founder at Coinbase speaking...

[bovcan]

That concept "the rest of the world will save us" really doesn't seem to be working anymore. I think it's not working because most of the worlds governments/regulatory systems are as dysfunctional as the US system.

Yes exactly...China and India have already both come down hard on BTC.  Those are the two most populous countries on the earth and something like 2.8 billion people.  So next is #3 to come down hard on it and that is the USA. 

And no it won't "kill" bitcoin as we all know you can't really kill the protocol but it will kill the chance for many more hundreds of millions of people to use it to make their lives better.  And it will also hurt the value/price of BTC of course.

[Nagle]

We need someone to sell a pound of bread flour for btc and have the flour mill pay it's workers in btc.

http://www.bitcoinclassifieds.net/ad/5233_Bobs_Red_Mill_bread_mix_220oz_bags/

Bread mix at $12 a loaf. Right.

That's the problem with pricing in Bitcoin.  Everything has to be way overpriced in case of a big price change.

Also, it's a dead offer. "Buy this before midnight tonight", 27 days ago.

[TheButterZone]

We need someone to sell a pound of bread flour for btc and have the flour mill pay it's workers in btc.

http://www.bitcoinclassifieds.net/ad/5233_Bobs_Red_Mill_bread_mix_220oz_bags/

Bread mix at $12 a loaf for a pair of loaves of healthy bread. Right.

Also, it's a dead offer. "Buy this before midnight tonight [i.e. midnight on whatever day you're going to make the call, instead of claiming you can't make it 'til the next day or the weekend, then pretending to be comatose, jailed, or deceased, like hundreds I've had experience with]", 272 days ago.

ftfy

[Nagle]

Yes exactly...China and India have already both come down hard on BTC.  Those are the two most populous countries on the earth and something like 2.8 billion people.  So next is #3 to come down hard on it and that is the USA. 

China and India have exchange controls. The US doesn't. If you want to do a wire transfer of a few thousand, or a few million if you've got it, out of the US, the US doesn't care. It gets reported to FinCen, but they won't stop you. Nobody reports any problems wire transferring money to Mt. Gox. (The fact that all of Mt. Gox's "banking troubles" are on the outbound side is a strong indication that they're crooked or broke.)

Bitcoin's problems come mostly from the slimeballs associated with Bitcoin businesses. Over half of the Bitcoin exchanges have gone bust, most of the "online wallet" businesses went bust, and they usually kept the customers' money. Anonymous remote irrevocable money transfer is the con man's dream.

[Coin_Master]

I just read this Timothy Lavin Bloomberg story and wondered if it's been discussed yet. I can't seem to find anything on it. If it has please direct me to the thread. The comments at the bottom are as interesting as the article. He raises some interesting points considering all the recent action from government agencies lately (like Mike Caldwell's recent letter forcing him to close up shop). Will governments simply regulate Bitcoin to death like so many good ideas of the past? Will business competition cease to make Bitcoin a worthwhile alternative? Is this just another naysayer that is missing the "point" of Bitcoin? Is the "point" to provide an outlet for crime or does Bitcoin have a place alongside other payment systems and is simply waiting to claim its market share?

http://www.bloomberg.com/news/2013-08-08/did-the-sec-just-validate-bitcoin-no-.html

Far too often I see the 'government' referred to as this 'thing that wants to stop people from conducting private legal activities'.  Please remember the 'government' are people, elected representatives of the people (at least in democratic countries, sorry to all those that don't get a say in who they would prefer to represent them).  If the people choose to allow Bitcoin, the 'government/elected representatives' will do exactly what they are paid to do, as employees of the state, if they don't they get fired/not re-elected.  Bitcoin will continue to be a success, as it already is (by the people, for the people).

[QuestionAuthority]

I just read this Timothy Lavin Bloomberg story and wondered if it's been discussed yet. I can't seem to find anything on it. If it has please direct me to the thread. The comments at the bottom are as interesting as the article. He raises some interesting points considering all the recent action from government agencies lately (like Mike Caldwell's recent letter forcing him to close up shop). Will governments simply regulate Bitcoin to death like so many good ideas of the past? Will business competition cease to make Bitcoin a worthwhile alternative? Is this just another naysayer that is missing the "point" of Bitcoin? Is the "point" to provide an outlet for crime or does Bitcoin have a place alongside other payment systems and is simply waiting to claim its market share?

http://www.bloomberg.com/news/2013-08-08/did-the-sec-just-validate-bitcoin-no-.html

Far too often I see the 'government' referred to as this 'thing that wants to stop people from conducting private legal activities'.  Please remember the 'government' are people, elected representatives of the people (at least in democratic countries, sorry to all those that don't get a say in who they would prefer to represent them).  If the people choose to allow Bitcoin, the 'government/elected representatives' will do exactly what they are paid to do, as employees of the state, if they don't they get fired/not re-elected.  Bitcoin will continue to be a success, as it already is (by the people, for the people).

Were you the one that voted for the 21 kiloton atomic bomb that was dropped on Nagasaki? I'm against genocide for the greater good so I voted against it. Oh, I voted against Vietnam too, twice.

Don't assume governments will do what the citizens want and don't assume that you are in the voting majority.

[TheButterZone]

I just read this Timothy Lavin Bloomberg story and wondered if it's been discussed yet. I can't seem to find anything on it. If it has please direct me to the thread. The comments at the bottom are as interesting as the article. He raises some interesting points considering all the recent action from government agencies lately (like Mike Caldwell's recent letter forcing him to close up shop). Will governments simply regulate Bitcoin to death like so many good ideas of the past? Will business competition cease to make Bitcoin a worthwhile alternative? Is this just another naysayer that is missing the "point" of Bitcoin? Is the "point" to provide an outlet for crime or does Bitcoin have a place alongside other payment systems and is simply waiting to claim its market share?

http://www.bloomberg.com/news/2013-08-08/did-the-sec-just-validate-bitcoin-no-.html

Far too often I see the 'government' referred to as this 'thing that wants to stop people from conducting private legal activities'.  Please remember the 'government' are people, elected representatives of the people (at least in democratic countries, sorry to all those that don't get a say in who they would prefer to represent them).  If the people choose to allow Bitcoin, the 'government/elected representatives' will do exactly what they are paid to do, as employees of the state, if they don't they get fired/not re-elected.  Bitcoin will continue to be a success, as it already is (by the people, for the people).

Were you the one that voted for the 21 kiloton atomic bomb that was dropped on Nagasaki? I'm against genocide for the greater good so I voted against it. Oh, I voted against Vietnam too, twice.

Don't assume governments will do what the citizens want and don't assume that you are in the voting majority.

Or that the majority is the most evil (deserving capital punishment/life without parole) segment of the electorate, because the worst possible evil always seems to "win" where it counts, regardless of "party".

[Anddos]

Its doomed because there is going to be to many asic on the bitcoin network (Hence the difficulty going sky high) hence people turning off the miners, hence no transactions processed,asics have basically killed bitcoin