[2014-01-29] The Emerging Bitcoin Civil War

[AnhBen]

The Emerging Bitcoin Civil War
http://kculshare.com/2014/01/the-emerging-bitcoin-civil-war/

[westkybitcoins]

And the division seems to be growing more stark every day.

It would help matters if the pro-regulation people would stop talking as if they're just trying to be "realistic" ("well, you just need to have such-and-such or it won't work") and would just admit that they like the entire concept of financial controls and regulation, but also like Bitcoin, and HATE that Bitcoin doesn't have those controls, and are dead set on seeing such controls implemented so that they can have their cake and eat it too. They don't want to bother having that conversation though, so they'll just work to change Bitcoin, and to force everyone involved with Bitcoin to accept the changes, without ever really considering the protests.

Sad, but at least they can't hide their activities, and the community still has final say.

[sickpig]

I don't know if it will be civil war, I prefer to stick to facts. And as far as I can see some of the
things Lawsky and colleagues said are quite peculiar. Amongst all this the one that I found really scary:

"We're always going to choose to squelch money launderers...even if it prevents 1,000 flowers from blooming"

Another disturbing fact is that they think, or worse pretend, thatthe dollar is almost untouched by money laundering, drug trafficking, and such...

fwiw take into account that I'm not an anarchist nor a die hard libertarian


edit1: It would have been a lot better if the New York Department of Financial Services representatives had read
         something like the Brito and Castillo paper ( BITCOIN A primer for Policymakers ) before the hearings

[davidgdg]

And the division seems to be growing more stark every day.

It would help matters if the pro-regulation people would stop talking as if they're just trying to be "realistic" ("well, you just need to have such-and-such or it won't work") and would just admit that they like the entire concept of financial controls and regulation, but also like Bitcoin, and HATE that Bitcoin doesn't have those controls, and are dead set on seeing such controls implemented so that they can have their cake and eat it too. They don't want to bother having that conversation though, so they'll just work to change Bitcoin, and to force everyone involved with Bitcoin to accept the changes, without ever really considering the protests.

Sad, but at least they can't hide their activities, and the community still has final say.

I'm not sure about that. I don't think many of the Bitcoin establishment people think that Bitcoin "needs" regulating. They just think it is going to happen anyway so the best strategy is to negotiate with the bad guys and get the best deal we can.

Personally I think it's a mistake and we should just be honest and argue that regulation is a bad idea in principle. But that's easy for me  to say. I'm not trying to run a start-up in NYC with thugs like Lawsky breathing down my neck.

[Cryddit]

Cash has better anonymity than Bitcoin.

And when the amounts start to get large, the powers that be are scared to death of it.

In the USA there's precedent on the books that says anyone who travels carrying more than $5000 in cash can be detained while an investigation is conducted and the police figure out whether the person can be charged and if so with what crime.  Cash itself, in any moderately large amount, is considered to be probable cause that someone is a drug dealer, smuggler, trafficker, pimp, mule, or whatever. 

So if you're someone who just sold your house in Key West and you're getting on a train with a suitcase full of money that you intend to buy a house in Chicago with, you are likely to rot in jail until you can prove you didn't get the money in a drug deal, you don't intend to spend it on child sex slaves, and you're not just a courier moving it around for the mafia. 

The kind of mind that set and upheld that precedent is the kind of mind that's going to have to interact with the idea of Bitcoin and the fact that someone can send 20 BTC across the world instantly -- and that if they were careful while receiving the coins, careful while doing the transfer, and careful while spending any other coins they had at any of the same addresses or got in change when they did the transfer, there might be absolutely no way to ever know who it was that sent the coins. 

We've already got "silent" nodes sharing subnets with dot-gov's listening on the network to figure out where transactions originate and correlate network addresses to bitcoin addresses.  We've already got snoops dropping 'dust' on addresses to see whose client spends the dust (and therefore reveals who must own the addresses).  We've already got coin marketplaces dealing with know-your-customer laws and providing information on demand to law enforcement.  I don't see us getting rid of any of those things in the current climate. 

I think the writing is on the wall.  They're either going to find a reasonably reliable way to penetrate Bitcoin's anonymity, or they're going to outright make the use of Bitcoin into a crime. 

[justusranvier]

We've already got "silent" nodes sharing subnets with dot-gov's listening on the network to figure out where transactions originate and correlate network addresses to bitcoin addresses.  We've already got snoops dropping 'dust' on addresses to see whose client spends the dust (and therefore reveals who must own the addresses).  We've already got coin marketplaces dealing with know-your-customer laws and providing information on demand to law enforcement.  I don't see us getting rid of any of those things in the current climate. 

Countermeasures for all those can and will develop more quickly than they can keep up with.

[Kluge]

There's no "civil war," and the division has existed for at least as long as I've been around. I remember the arguments over how to deal with regulation being much more heated, but that was back when flying under the radar didn't take much effort - back when there was an actual choice in whether or not you wanted to comply with law (not that anyone had even the first clue as to how to comply). It's very different, now. You can't, in practice, operate a $xxxk+ crypto business unlawfully anymore and not expect to be incarcerated. Sure, maybe everyone else just mishandled security and you will do it 100x better than those bozos... good luck.

For now, there doesn't appear to be a good solution for conducting illegal activity in front of the entire world while cameras are watching and recording you. I think a lot of us more radical-thinking folks looked at Bitcoin and expected too much. It's one component out of a great many required to reach "true privacy," and really, it's an utterly unrealistic goal. There doesn't appear to be any chance of something like that happening in our lifetime given how easy it would be to simply block wireless communication if it became too much of a nuisance to governments. I think us space cadets will have to just be happy with what we have until our great-great-grandchildren can colonize remote planets and thrive with just a few thousand people.

[Carlton Banks]

This has been clarified to be for the processors and the exchanges. The proposed regulations and licensing are no different to what we're already used to.

So what civil war is this? I don't read reddit

[Cryddit]

We've already got "silent" nodes sharing subnets with dot-gov's listening on the network to figure out where transactions originate and correlate network addresses to bitcoin addresses.  We've already got snoops dropping 'dust' on addresses to see whose client spends the dust (and therefore reveals who must own the addresses).  We've already got coin marketplaces dealing with know-your-customer laws and providing information on demand to law enforcement.  

Countermeasures for all those can and will develop more quickly than they can keep up with.

I sure hope not, because...

I think the writing is on the wall.  They're either going to find a reasonably reliable way to penetrate Bitcoin's anonymity, or they're going to outright make the use of Bitcoin into a crime.

Effective countermeasures will result in Bitcoin becoming worthless for doing any legal trade.

[justusranvier]

Effective countermeasures will result in Bitcoin becoming worthless for doing any legal trade.

So?

Billions of people in the world survive in the informal economy.

[TheButterZone]

When a fraction of an inch is given, government always takes googolplex light years worth of liberty away.

[westkybitcoins]

Effective countermeasures will result in Bitcoin becoming worthless for doing any legal trade.

So?

Billions of people in the world survive in the informal economy.

Yup.

Anyone whining about how the lack of regulation means their yuppie neighbors (or Wall Street, egads!) will turn their noses up at Bitcoin just doesn't get it.

[Cryddit]

I don't care so much about whether my neighbors or the mainstream use Bitcoin except that if they don't, then the demand for bitcoin never grows to support its present valuation, much less the valuation I'm hoping for. 

Mainstream legal adoption is worth two orders of magnitude in price regardless of whether bitcoin remains available for niche and illegal trading or not.

[odolvlobo]

I don't care so much about whether my neighbors or the mainstream use Bitcoin except that if they don't, then the demand for bitcoin never grows to support its present valuation, much less the valuation I'm hoping for. 

People that care only about the price of bitcoin are no better than the Wall Street banksters that it will replace.

[Bitware]

Obviously there are going to be competing forks. It will be quite interesting to see where they money goes.

[Cryddit]

Obviously there are going to be competing forks. It will be quite interesting to see where they money goes.

Just as obviously, there are already competing forks.  That's what every altcoin in the world is.  Some of them are developing stronger anonymity tools than Bitcoin, so there are and will be tools for "the informal economy" whether those tools include Bitcoin itself or not. 

I'm with you about considering it interesting where the money goes. 

Anyway, broader success that goes beyond price and investment value, I believe, mostly means success of a bitcoin-like protocol for transfer of value - and that can be achieved through pretty much any cryptocurrency, whether that cryptocurrency is Bitcoin or not.  It would be nice if the cryptocurrency were fully distributed and free from government meddling, but that isn't what I expect will happen.

Long run?  Here's what I expect to happen.  Nation states will produce fiat cryptocurrencies that represent their own brands of fiat digitally, allow people to pay taxes and settle debts with them, and fully distributed cryptocurrencies like Bitcoin and extant altcoins will thereby lose much of their current advantages as trading media over fiat currencies.  And the government-issued cryptocurrencies will enjoy advantages over Bitcoin etc as being "legal tender" for settlement of any debt and payment of taxes, etc.  Governments will manage the "money supply" in those fiat cryptocurrencies exactly the same way they manage the money supply in their present fiat currencies, and banksters and so on will play exactly the same games with cryptocurrencies that they now play with fiat. 

And the present Bitcoin "civil war" will thereby be rendered completely irrelevant. 

[jmw74]

Obviously there are going to be competing forks. It will be quite interesting to see where they money goes.

Just as obviously, there are already competing forks.  That's what every altcoin in the world is.  Some of them are developing stronger anonymity tools than Bitcoin, so there are and will be tools for "the informal economy" whether those tools include Bitcoin itself or not. 

I'm with you about considering it interesting where the money goes. 

Anyway, broader success that goes beyond price and investment value, I believe, mostly means success of a bitcoin-like protocol for transfer of value - and that can be achieved through pretty much any cryptocurrency, whether that cryptocurrency is Bitcoin or not.  It would be nice if the cryptocurrency were fully distributed and free from government meddling, but that isn't what I expect will happen.

Long run?  Here's what I expect to happen.  Nation states will produce fiat cryptocurrencies that represent their own brands of fiat digitally, allow people to pay taxes and settle debts with them, and fully distributed cryptocurrencies like Bitcoin and extant altcoins will thereby lose much of their current advantages as trading media over fiat currencies.  And the government-issued cryptocurrencies will enjoy advantages over Bitcoin etc as being "legal tender" for settlement of any debt and payment of taxes, etc.  Governments will manage the "money supply" in those fiat cryptocurrencies exactly the same way they manage the money supply in their present fiat currencies, and banksters and so on will play exactly the same games with cryptocurrencies that they now play with fiat. 

And the present Bitcoin "civil war" will thereby be rendered completely irrelevant. 

How would these "fiat cryptocurrencies" be any different than what we have today, other than offering cheaper or more convenient payments?  Even that would be a win for bitcoin by forcing other currencies to compete with its payment system. 

People who are interested in bitcoin as a store of value or programmable money, they'll stay right where they are.

I agree with you though, that if governments are smart, they'll throw Visa to the wolves and compete with bitcoin's payment system.  However I am not sure they can really compete.  I certainly encourage them to try.

[Cryddit]

How would these "fiat cryptocurrencies" be any different than what we have today, other than offering cheaper or more convenient payments? 

That's kind of the point.  Bitcoin, IMO, is valuable precisely because it is a better solution than the current infrastructure in making cheaper and more convenient payments.  It's a better solution to that worldwide trillion-dollar problem. That's the whole reason I identified it as having economic value in the first place. 

In the long run, I expect that nations which issue fiat currencies will co-opt the technology for that purpose and that purpose only, changing nothing else about their control of the monetary system. 

Bitcoin's fiscal policy is set in concrete from the outset.  There is no possibility of responding to an economic disaster - no way to damp a boom before it goes bust, and no way to nurse an economy through a bust without going all the way to the bottom and a complete economic collapse.  The fact that that's *BETTER* monetary policy than some of these kleptocracies provide is nothing short of an indictment, because nations can certainly do better than that (and many do) if they are smart about it.

Others may identify Bitcoin's value as taking monetary control from governments -- but that's only a valid point to the extent that governments do it extraordinarily badly (places like Greenland, Greece, Cyprus, and Argentina to mention a few of the worst offenders).  I don't believe that Bitcoin's economic value derives from that source (although its ideological value might).

Governments that implement fiscal policy well can and do provide economic stability that I wouldn't expect to see in a purely Bitcoin-denominated economy where regulation of the money supply is impossible.  The USA was very slow to wake up and realize the extent of the economic problem its failure to enforce lending laws had caused, but once the disaster was in full swing, it actually did a damn good job of responding and limiting the economic damage. 

Quantitative Easing, for a nation, is sort of like violence; It can be the best option, but only when you've already made some serious mistakes. It's also sort of like violence in that if you rely on it more than you absolutely must, your life is likely to be nasty, brutish, and short.   But in a situation where the mistakes had been made and there was no better option than that very bad one, The Fed was able to understand, analyze, and respond.  The 'dead hand on the tiller' approach of Bitcoin could not have been made to do so. 

The complete absence of economic controls might give a Bitcoin based economy essentially the (different) problems of the old gold economies, which featured huge year-to-year price fluctuations and deep boom-bust business cycles about seven years long, which economies with effective fiscal controls mostly mitigate and could at least in principle avoid. 

Active mismanagement, however can make such boom-bust cycles both longer and worse, as we have seen.

Even that would be a win for bitcoin by forcing other currencies to compete with its payment system. 

It would be a win for the citizens, because they'd have the ability to make cheap transfers of money.  It would be a win for the governments, because costs associated with transfers are a pure drag on the economy. It would be ideologically a win (though perhaps a pyrrhic victory) for Bitcoin advocates, but not financially a win for Bitcoin holders.

If you want a vision with both ideological and economic wins, consider this.  I think that a Bitcoin-like currency taking advantage of some other aspects of blockchain technology could very actively limit fraud and create an environment that would make it virtually impossible to misrepresent the performance of public companies, derivatives, or portfolios.  An extension, perhaps, of what you're calling "programmable money." -- a powerful idea that hasn't yet had a chance to demonstrate its strengths.  That would be an even bigger win - for everybody.  But the people who misrepresent those things enjoy their financial winnings, are very very powerful, and will fight it tooth and nail. 

[eric345]

The Emerging Bitcoin Civil War.  

It looks more like a start of a classic divide and conquer tactic.

So many things that are suggestive and untrue in that article..

Anyway, if regulation did work for the commercial sector we didn't need bitcoin in the first place.