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Author Topic: [Available for Download] Academic legal paper re: Bitcoin & Anonymity  (Read 7145 times)
JDBound
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September 01, 2011, 08:15:53 PM
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I am going to be writing an academic legal paper, also known as a law journal article here in the states, on the international legal implications of Bitcoin. I am doing this for my Int'l Telecommunications Law class (don't flame me on this, i know the topic could fall into numerous other categories, but doing it for this class is a marriage of convenience, and the prof is probably the most helpful of my available options), and plan on submitting it to several Tech. and Economic Law journals.

As a primer, I recommend this unpublished piece by Mr. Grinberg from Yale: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1817857

My paper is going to be about half the size of that and will obviously have less of a U.S. domestic focus and more of an international one. My goal for this thread is to provide me with some inspiration, in terms of research I will need, and also hopefully unveil some issues which I may not have previously considered. Having said that my topic is very nebulous currently. My goal is to write a concise piece which fully examines a legal implication.

I will be drawing heavily from this forum for citations, and may even credit those who offer valuable contributions in this thread and elsewhere.

Thanks for your help, I look forward to the discussion. If you need any clarifications, or have questions about the U.S. legal system please ask.


Edit: This effort is now focused on anonymity and its legal ramifications. Additionally the abstract below is an inaccurate reflection of my thesis
another edit: PAPER NOW AVAILABLE FOR DOWNLOAD http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1937769

Title:
"Bitcoin: Tempering the Digital Ring of Gyges or Implausible Pecuniary Privacy?"

Abstract:
Bitcoin is a peer-to-peer cryptocurrency; which is entirely decentralized, open-source, and non-institutional. A comprehensive history of Bitcoin transactions is constantly distributed among users, while partial anonymity is accomplished through public/private key transactions. Bitcoin differs from digital currencies like Zynga, Second Life, and E-Gold, because no central authority issues new currency, instead it is ‘mined’ by self-interested individuals. States have an interest in regulating Bitcoin, due to its purported desirability as a medium for funding the drug trade, terrorism, and other subversive activities.
Bitcoin’s architecture will encourage continued adoption, which will result in mounting pressure on the legal systems of interested states to codify a solution. For instance, states may define Bitcoin using classical legal designations, chiefly: money, commodity, debt, security, currency, or virtual currency.
The architecture of the internet generally leads individuals to perceive themselves as having a greater of degree anonymity when online. Bitcoin’s architecture is analogous in that it utilizes peer-to-peer networking and cryptography, resulting in a similar perception of anonymity. But, anonymity on the internet is a function of one's desire to be anonymous, and of the amount of resources one is able to dedicate towards that end. States, international bodies, and institutional actors constantly struggle with crafting their laws to mollify this equilibrium. This article proposes that anonymity inherent in Bitcoin operates on much the same principle and that these entities will react to Bitcoin with regulation which will make it less anonymous than the internet proper.
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September 01, 2011, 08:18:36 PM
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Fantastic! Exposure to academic circles and discussion on all issues regarding Bitcoin can only be a good thing. Keep us posted.
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September 01, 2011, 08:21:30 PM
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Fantastic! Exposure to academic circles and discussion on all issues regarding Bitcoin can only be a good thing. Keep us posted.

Thanks for your support! If all goes according to plan this piece will be published in Spring 2012.
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September 01, 2011, 08:34:48 PM
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One issue we have been exploring in my international business and global sourcing type classes is the nature of new globally distributed companies. There are companies out there that have a P.O. box as their office address, employees in one or two countries, and databases and warehouses in completely other countries. They essentially exist in the cloud, which makes mit difficult for them to figure out which laws and regulations to follow. For example, some countries require that employee's personal information is not allowed to leave the country, which means that your employee database has to be separate from your main database, and stored locally. Some countries have more lax financial regulation laws than others, and it may be an issue figuring out whether you should be following the laws of your home country, or the country you are doing business in.
I think, laws aside, Bitcoin may be the tool required for a truly distributed, cloud-based, business to exist. One that may not have a base of operations, may not be tied to any one specific country's laws, and operate entirely within its own currency system, possibly even entirely anonymously, with laws and currencies only taking effect when its earnings or products actually reach specific people. Kind of as if the Internet was a whole separate nation, and people only have to follow specific rules when they repatriate their earnings or products.
Not sure if this will help you in any way, since your topic is rather broad, but here you go.

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September 01, 2011, 09:55:50 PM
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One issue we have been exploring in my international business and global sourcing type classes is the nature of new globally distributed companies. There are companies out there that have a P.O. box as their office address, employees in one or two countries, and databases and warehouses in completely other countries. They essentially exist in the cloud, which makes mit difficult for them to figure out which laws and regulations to follow. For example, some countries require that employee's personal information is not allowed to leave the country, which means that your employee database has to be separate from your main database, and stored locally. Some countries have more lax financial regulation laws than others, and it may be an issue figuring out whether you should be following the laws of your home country, or the country you are doing business in.
I think, laws aside, Bitcoin may be the tool required for a truly distributed, cloud-based, business to exist. One that may not have a base of operations, may not be tied to any one specific country's laws, and operate entirely within its own currency system, possibly even entirely anonymously, with laws and currencies only taking effect when its earnings or products actually reach specific people. Kind of as if the Internet was a whole separate nation, and people only have to follow specific rules when they repatriate their earnings or products.
Not sure if this will help you in any way, since your topic is rather broad, but here you go.

Very helpful! Bitcoin raises issues of tax avoidance, money laundering, and corporate governance as you suggest. Beyond the tax advantages, what other benefits would corporations have for adopting the model you suggest? Do you think states would be amenable to this new type of organization and why(pros and cons here)?

I'll pose another question to the thread. If state A is 100% a proponent of Bitcoin, going so far as to encourage its adoption, while state B has outlawed Bitcoin, making it illegal to deal in... what happens? Would there need to be an IMF/UN treaty to deal with these disagreements? Based on what precedent?
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September 01, 2011, 10:24:02 PM
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You may want to skim the  "List of Legal and Illegal Nations." thread in the newbies section. I feel that it is not so black&white. First, you have to decide what Bitcoin is. Is it a currency, commodity, or something else like barter?

I have not yet drafted that letter to Fintrac. Currently, my opinion on the issue remains the same.

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September 01, 2011, 11:56:40 PM
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Very helpful! Bitcoin raises issues of tax avoidance, money laundering, and corporate governance as you suggest. Beyond the tax advantages, what other benefits would corporations have for adopting the model you suggest? Do you think states would be amenable to this new type of organization and why(pros and cons here)?

I'll pose another question to the thread. If state A is 100% a proponent of Bitcoin, going so far as to encourage its adoption, while state B has outlawed Bitcoin, making it illegal to deal in... what happens? Would there need to be an IMF/UN treaty to deal with these disagreements? Based on what precedent?

I'm not sure if in that case it's actually tax avoidance per-se, since the corporation doesn't actually have a specific home base. Plus taxes will have to be paid when currency is converted to the home currency of the employees, just like a corporation based in US earns revenues in Euros isn't required to pay taxes until it repatriates the currency back into USD.
The benefits I would would be a more stable accounting system, using a single currency independent of world currencies instead of having to deal with currency conversions and changing rates. On the other hand, suppliers and customers will still want prices comparable to their home currency values. Being able to transfer money over the web without having to go through bank wire transfers and, again, currency exchange rates, will be a definite plus as well. I can easily pay my employees without worrying about where they are or what currency they need me to pay them in, all from the same company cash account.
Since a large part of state income is payroll, I think they will dislike this idea. It's essentially a state being invaded by another entity, with its residents living within the jurisdiction, but not having to pay for their use of roads and government services. Sales taxes will be a problem for states, too. Just as Amazon doesn't charge me state sales tax when I order stuff from another state, an online bitcoin-based business won't have any home residence, so won't know what sales taxes to pay.

I don't think State B will have much success, since there isn't really a way to track Bitcoin purchases. It would be like online casinos servicing people in US while being based in countries where online gambling is legal. It's difficult enough to track it with regulated financial entities, but with Bitcoin it'll be impossible. Of curse this also depends on the nature of the business. Services will be difficult to monitor and stop, while products may be a bit easier, though the main targets f legal prosecutions will be the customers. Treaties may be one way to deal with it, though I have a feeling the political issues caused by this will be significant.  Just look at Mexico's frustration with easy access to guns from US. And guns aren't even really illegal in Mexico, I don't think. State A would also likely not want to get into any treaties, since that would hurt their own economy and give them nothing in return.
All in all, though, these are somewhat boring political issues. I think the idea of a nebulous, entirely online, borderless business is way more exciting Cheesy

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September 04, 2011, 01:19:37 PM
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Pre-labor day bump. Anyone else with anything?
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September 04, 2011, 01:29:48 PM
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Personally I don't buy the "But you signed over ownership!" argument, but you might want to take a look at it: https://bitcointalk.org/index.php?topic=41242.0
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September 04, 2011, 08:52:24 PM
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Excrement hits air moving device: Bitcoin in France: first legal decision directly related to Bitcoin?

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September 04, 2011, 10:15:32 PM
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Yeah I saw this. It's likely to be a precedent setting case as is suggested in the thread. Looking forward to the outcome.
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September 21, 2011, 06:48:32 AM
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Press hits and notable sources thread is great for inspiration.

Please don't try to put bitcoin in a pre-existing box.  Point out how it can be distinguished from every existing regulatory regime.  Keep your options open.  Hope you write a good paper looking forward to reading it!

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September 21, 2011, 10:01:36 AM
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I would like to see someone try to legislate mathematics.

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September 21, 2011, 12:06:10 PM
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I would like to see someone try to legislate mathematics.

http://en.wikipedia.org/wiki/Indiana_Pi_Bill

And now you have.
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September 21, 2011, 02:49:16 PM
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JDBound, sorry for the belated post. If you are interested in the countries that descend their legal system from the Roman Law, then you should search the web and book catalogs for the Roman legal term: "depositum irregulare" or with different spelling "depositum irregularae".

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
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September 22, 2011, 05:09:49 AM
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I would like to see someone try to legislate mathematics.

http://en.wikipedia.org/wiki/Indiana_Pi_Bill

And now you have.

...and succeed.

Bitcoin combines money, the wrongest thing in the world, with software, the easiest thing in the world to get wrong.
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October 03, 2011, 04:25:38 PM
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UPDATE: I have decided to focus on anonymity of Bitcoin and subsequent legal implications and compare to the internet at large...

see abstract below:

Quote
Bitcoin is a peer-to-peer cryptocurrency; which is entirely decentralized, open-source, and non-institutional. A comprehensive history of Bitcoin transactions is constantly distributed among users, while partial anonymity is accomplished through public/private key transactions. Bitcoin differs from digital currencies like Zynga, Second Life, and E-Gold, because no central authority issues new currency, instead it is ‘mined’ by self-interested individuals. States have an interest in regulating Bitcoin, due to its purported desirability as a medium for funding the drug trade, terrorism, and other subversive activities.
Bitcoin’s architecture will encourage continued adoption, which will result in mounting pressure on the legal systems of interested states to codify a solution.. For instance, states may define Bitcoin using classical legal designations, chiefly: money, commodity, debt, security, currency, or virtual currency.
The architecture of the internet generally leads individuals to perceive themselves as having a greater degree of anonymity when online. Bitcoin’s architecture is analogous in that it utilizes peer-to-peer networking and cryptography, resulting in a similar perception of anonymity. But, anonymity on the internet is a function of one's desire to be anonymous, and of the amount of resources one is able to dedicate towards that end. States, international bodies, and institutional actors constantly struggle with crafting their laws to mollify this equilibrium. This article proposes that anonymity inherent in Bitcoin operates on much the same principle and that these entities will react to Bitcoin with regulation which will make it less anonymous than the internet proper.


Bring on the feedback

edit: forgot the working title "Bitcoin: Tempering the Digital Ring of Gyges or Implausible Pecuniary Privacy"

Now really bring on the feedback
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October 03, 2011, 06:56:03 PM
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Nice.

I would avoid comparing it to things like zynga and second life, it make bitcoin look like something comparable to them and with some differences.
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October 03, 2011, 07:31:46 PM
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Nice.

I would avoid comparing it to things like zynga and second life, it make bitcoin look like something comparable to them and with some differences.

Yeah, those are really just placeholders right now, but E-Gold is actually a useful differentiation to make (and there's actually case law on it  Wink )
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October 03, 2011, 07:36:38 PM
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Sounds very good to me.

When and where do you plan to publish it?

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