[2020-08-13] What Bitcoin Can Learn From Gold About Staying ‘Clean’

[gentlemand]

https://www.coindesk.com/bitcoin-gold-staying-clean

This is an interesting one about gold's walled garden and the potential of something similar being applied to bitcoin.

In days gone by I would've immediately pooh poohed it, but with the ever increasing amount of  professional money and its use of custody, which means their bitcoin is already tucked away and thumbsed up, it seems like the type of thing they'd be very interested in investigating.

Is the wider market too powerful and dynamic and would this one be too stunted for it ever to work?

We've heard tales of virgin coin premiums from miners. An entirely 'safe' market may have quite the appeal. Obviously gold has its own problems which this market rose to deal with. Bitcoin doesn't have those problems but there are still those willing to pay for a seal of approval.

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[LeGaulois]

To me it's a bit like looking for a problem where there is no problem and looking for solutions even when we don't need them.

Since the number of bitcoins in circulation is limited, it will happen eventually all of them will be considered tainted. So what? We close the shop? Currently, with gold they act as if the resources are unlimited, and if it's not the problem would be similar, and it doesn't matter since there will always be a demand for Tier 2 (the gold not enough swag for LBMA). With Bitcoin, we are the tier 1 not tier 2

The problem with trading platforms refusing to accept tainted coins (this is a bit of a problem already) is they'll just shoot themselves in the foot.
So the exchanges won't be able to accept the majority of bitcoins, and when they do, once it's out there of the platform it will be a short time before the coin is considered tainted and no longer accepted.

(I suppose the author is in love with KYC  )

[gentlemand]

To me it's a bit like looking for a problem where there is no problem and looking for solutions even when we don't need them.

But as you point out exchanges already are making it a problem. And this class of investor will like the idea of all potential question marks being removed. I can imagine they may attempt to go down this road but the question is when and what will cause it to fall apart as it's likely to do.

[figmentofmyass]

To me it's a bit like looking for a problem where there is no problem and looking for solutions even when we don't need them.

But as you point out exchanges already are making it a problem.

this is why self-regulatory organizations are so useful for government regulators. members self-police, for fear of losing their whitelisted status. it's exactly the same with the LBMA and gold. the real pressure to mandate KYC for gold refiners to prevent money laundering, or remove conflict gold from circulation, comes from governments, but the actual policy comes down from the LBMA and is self-enforced by its members.

the cartel that will form bitcoin's version of the LBMA is obviously being established. BAKKT will be on the list, no doubt. fidelity and any of the legacy financial institutions who get into custody too. bitgo, coinbase, gemini, and similar tier exchanges/custodians would probably make the cut too. i assume platforms like bitmex, binance, and bitfinex will become de facto second tier exchanges. at some point in the future, their coins may be unwelcome on whitelisted exchanges, and depositing them will get your account closed.

[odolvlobo]

If it can’t be traded in London, it isn’t as liquid. And so it’s not as valuable.

Is that actually true, and if it is, does it really matter? If I want to buy or sell gold, the price for me will be the same whether it is LBMA gold or not. Likewise, I don't use Coinbase, so it doesn't matter if my coins are "dirty" or not.

Also, bitcoins are automatically "cleaned" by usage.

[Carlton Banks]

This is essentially the "speculative asset vs money" argument


People consistently forget the unique properties Bitcoin has as money:

• difficult to block/censor transactions
• difficult to confiscate
• transaction types will become increasingly indistinguishable from one another

...and so people (who want any of the above qualities) will always use Bitcoin as money (as they do now), regardless of the speculative asset properties


And because Bitcoin is still in the "speculative asset" bracket of consideration, whitelisting schemes can appear to be functioning, at least in the meanwhile and within that narrow framing


But if you forget that Bitcoin transactions are:

• actually scripts
• the types of scripts will proliferate in future

....then you can forget about the effectiveness of such schemes. It's highly likely that even without any new script operations being enabled in the code, that money can seamlessly transfer between the whitelisted pool of coins and the majority of the rest without the blockchain recording that it happened.

[hv_]

No need for doing sth except see what is defined by the Satoshi White Paper, the only true definition of BitCoin as Physics define what gold is

B S V


Segwit makes btc to sth different

[stompix]

We've heard tales of virgin coin premiums from miners. An entirely 'safe' market may have quite the appeal. Obviously gold has its own problems which this market rose to deal with. Bitcoin doesn't have those problems but there are still those willing to pay for a seal of approval.

There are few things in the article the author is focusing on and is ignoring the fact that most of the users behind bitcoin don't care, a thing we always see in gold bugs that have also dabbed in bitcoin.

He speaks of the gold transacted by LBMA standards but if forgetting that's one point the world and at the same time tons of gold is exchanging owners without caring of those, let's be serious, how many of you know where the gold for your engagement ring was mined? And, do you care? I don't!
I some "elite", "crème de la crème" services wan to deal only with clean coins, good for them, unlike stolen jewelry that can be traced and can't be dumped on any pawnshop without you getting tracked bitcoin doesn't have that problem, you can't monitor all the addresses and once dirty coins are hitting an exchange cod storage what are you going to do, blacklist all of them? 

Probably some people have seen this as a new opportunity for a business, just like chain analysis, a paid service to ensure your coins are clean and you're a model citizen and they are trying to test the waters.

If it can’t be traded in London, it isn’t as liquid. And so it’s not as valuable.

Is that actually true, and if it is, does it really matter?

It was, then Brexit came 

[Darker45]

I'm sorry but the whole article personally appears to me smacked of hypocrisy.

While I am not privy to how LBMA meticulously screens and filters their gold all the way from the tiny muddy hands of a poor African or Chinese boy down in the pit or tunnel up to their "carefully walled garden['s]" gate; from the gold bar's size, purity, weight, stamping, and so on up to how the gold was actually extracted in relation to human rights; from how the gold is totally free from any taint of money laundering to conflict financing; I am more or less certain that theirs are still not angelic nor morally perfect gold bars.

Anyway, let those interested exchanges and custodians create their own "Bitcoin LBMA." We'll see how it would fare out in relation to a very limited amount of Bitcoin in actual circulation. And, if they stay true to their perfect standards, they should automatically strike out any Bitcoin produced in China as the country does not respect human rights.

[Kakmakr]

If exchanges stop accepting "tainted" coins, it would be a nice attack vector for government sanctioned hacks to destroy Bitcoin. We know some governments are funding specific hacks or actions to harm other nations.

Let's say China or Russia wants to destroy Bitcoin and the whole economy around it, then they can create a massive "scam" or "Ponzi scheme" and push massive amounts of coins through that system and if those coins are tainted and not accepted by exchanges, a huge reduction of coins in circulation will happen and it will effectively influence the whole ecosystem that surrounds it.

Gold is not that clean..   Do you think the Gold fillings that were removed from Jews in the concentration camps, never went back into circulation again?

[gentlemand]

There are few things in the article the author is focusing on and is ignoring the fact that most of the users behind bitcoin don't care, a thing we always see in gold bugs that have also dabbed in bitcoin.

But we are seeing a different class of buyer and user rising - corporate and institutional types. They will care a great deal about the origins of what they'll buy as they'll be like frightened fawns entering a dark forest. There'll be enough people ready to take them under their wing. Whether a premium develops for that is the question.

Gold is not that clean..  

If you purchase your way to the right stamp of approval it is. I'd like to know how they do figure out how certain gold is 'evil' considering it's an inert lump that's infinitely changeable.

[coolcoinz]

I don't see any benefit in trying to keep coins clean, especially when coins ate mixed almost anywhere you go. In wallets with multiple addresses unless you really pay attention to imputs and outputs, in all centralized wallets like casinos, exchanges and such. Trying to keep them clean is like an impossible struggle for an average user.
Also we cannot forget that a large number of coins is already "dirty" and owned by people who were not even aware of the concept of clean coins.

[gentlemand]

I don't see any benefit in trying to keep coins clean, especially when coins ate mixed almost anywhere you go.

Once they're 'in the system' that's where they'll stay. These high level types will want to buy and sell to each other inside it without any odious little people scrabbling around below them and infecting them.

[bbc.reporter]

Some people have mentioned before, a large part of the cryptospace's future for trading and commerce will be in grey market exchanges and services. It might also be that users will prefer dirty bitcoins because they are more available, cheaper and easier to use hehehe.

[gentlemand]

It might also be that users will prefer dirty bitcoins because they are more available, cheaper and easier to use hehehe.

I guess it depends on which tiers emerge if this ever become a thing. There may be 'investment grade' which never leaves its custodians, then there'll be active mode which moves through exchanges and payment processors but will be easy to fall out of favour with, and then there'll be fuckhead mode which is for druggists and nonces and everyone else.

If none of them can interact with each other the whole thing is going to become a crippled mess, but I expect someone to get a brutal schooling before it gains a foothold.

[stompix]

~

But we are seeing a different class of buyer and user rising - corporate and institutional types. They will care a great deal about the origins of what they'll buy as they'll be like frightened fawns entering a dark forest. There'll be enough people ready to take them under their wing. Whether a premium develops for that is the question.

Yeah, we have a lot of types of users and probably a lot of those are companies that would like to avoid any trouble regarding the origins of their coins, but if they might gain some importance in the amount they holding but it the worse case it will be just like gold is now.
A few trade over at LBMA the rest of us puny peasants will do just as before, we don't care where the gold is from, we don't care about its history, we know it's valuable and we can get rid of it at any time we want without some authority coming to analyze and declared the sale invalid.

If they try and do that with their coins in order for their partners to get more involved god for them, but that ain't a requirement for bitcoin in order to get mass adoption. Just like there is London there is also Dubai and Thrissur who don't give a damn about LBMA.

[Karartma1]

Also we cannot forget that a large number of coins is already "dirty" and owned by people who were not even aware of the concept of clean coins.

Nailed it.
Not to mention that we don't even know the story of our cash banknotes. They could have been used in any "dirty" exchange and we would never know shit about their previous sources.

[gentlemand]

Nailed it.
Not to mention that we don't even know the story of our cash banknotes. They could have been used in any "dirty" exchange and we would never know shit about their previous sources.

Unless you're a bank robber or kidnapper, or forger, worrying about bank notes is not something that anyone will ever have to be concerned about at any point in their entire life.

When a bitcoin's entire history can pop out in a few milliseconds that's a bit more of a thing.

[figmentofmyass]

But we are seeing a different class of buyer and user rising - corporate and institutional types. They will care a great deal about the origins of what they'll buy as they'll be like frightened fawns entering a dark forest. There'll be enough people ready to take them under their wing. Whether a premium develops for that is the question.

there is already a premium for "virgin" coins. i think we can assume any coins blessed by an LBMA-like cartel will carry a premium for the same reason, since it can only limit the available supply for such institutional buyers. LBMA gold is only 5% of the world supply.

the real question then is how big will the premium be, and secondarily what will the world consider the real price to be---the set cartel price, or the unregulated spot price? people mostly defer to the london fix or COMEX for gold prices, but the supply chain issues seen in march/april and the resulting disparity among london, COMEX, and spot prices sure threw a wrench into things. when shit hits the fan, what matters is whether you can get your hands on real bitcoins. they will definitely carry a premium over contracts that can't be fulfilled.

[Harlot]

I doubt something like this will happen for a digital currency not in the foreseeable future. For one Bitcoin unlike Gold isn't a commodity meaning it can't be separated simply because of it's quality, source, or history as in the eyes of the wallet all of them are the same. Yes we do have these cryptocurrencies that are tainted and can fuck someone up if they have one but the thing is the only worst thing that can happen for a unknowing person is that their funds will be freeze temporarily for investigation and that's it they won't take it away from you.

[gentlemand]

For one Bitcoin unlike Gold isn't a commodity meaning it can't be separated simply because of it's quality, source, or history as in the eyes of the wallet all of them are the same.

Bitcoin itself and any non custodial wallet is of course completely agnostic. A buyer, seller or third party platform facilitating a trade is not.

I'm sure there are many, many rent seekers looking for a hole to expand. This may be one of the prime ones they're exploring.

the real question then is how big will the premium be, and secondarily what will the world consider the real price to be---the set cartel price, or the unregulated spot price?

That would be extremely intriguing to observe. A price based on a market that most people can't or won't access won't make any sense for any real world usage when there's a likely bigger one in the real world.

[bbc.reporter]

It might also be that users will prefer dirty bitcoins because they are more available, cheaper and easier to use hehehe.

I guess it depends on which tiers emerge if this ever become a thing. There may be 'investment grade' which never leaves its custodians, then there'll be active mode which moves through exchanges and payment processors but will be easy to fall out of favour with, and then there'll be fuckhead mode which is for druggists and nonces and everyone else.

If none of them can interact with each other the whole thing is going to become a crippled mess, but I expect someone to get a brutal schooling before it gains a foothold.

However, when a large amount of bitcoins never leave the control of its custodians, it would open an argument that it might be failing. That is why I would also argue that grin's monetary policy might be a fix for this.

[Harlot]

For one Bitcoin unlike Gold isn't a commodity meaning it can't be separated simply because of it's quality, source, or history as in the eyes of the wallet all of them are the same.

Bitcoin itself and any non custodial wallet is of course completely agnostic. A buyer, seller or third party platform facilitating a trade is not.

I'm sure there are many, many rent seekers looking for a hole to expand. This may be one of the prime ones they're exploring.

If something like this would exist like people will be selling/auctioning of clean Bitcoin I doubt there will have a big market for it or they will profit much from it. Remember that the confiscated cryptocurrencies in custody of the authorities are also being auctioning of by them after and they sold it more of a wholesale price rather than profit so I really don't expect these untainted cryptocurrencies will have a difference in value just because it hadn't been involved in any kind of malicious activity. Like I said the worst thing that an unknowing person who has possession of Bitcoin connected to crime is just investigation and he will still be in possession of that Bitcoin after that.

[figmentofmyass]

Bitcoin itself and any non custodial wallet is of course completely agnostic. A buyer, seller or third party platform facilitating a trade is not.

I'm sure there are many, many rent seekers looking for a hole to expand. This may be one of the prime ones they're exploring.

If something like this would exist like people will be selling/auctioning of clean Bitcoin I doubt there will have a big market for it or they will profit much from it. Remember that the confiscated cryptocurrencies in custody of the authorities are also being auctioning of by them after and they sold it more of a wholesale price rather than profit so I really don't expect these untainted cryptocurrencies will have a difference in value just because it hadn't been involved in any kind of malicious activity.

the winning auction prices aren't released to the public, at least with USMS auctions. but think about the auctions that have occurred so far. remember tim draper? he outbid every single bidder on every single lot of BTC in that auction, all 30k of them. you think he did that by paying below the market price? logically, i would assume the opposite---he won every lot because he paid a premium. and IIRC this was during the worst of the 2014 bear market. other auctions have taken place during much more bullish times, when i would expect stronger OTC demand and therefore a stronger willingness on the part of bidders to pay a premium.

[Carlton Banks]

the real question then is how big will the premium be, and secondarily what will the world consider the real price to be---the set cartel price, or the unregulated spot price?

That would be extremely intriguing to observe. A price based on a market that most people can't or won't access won't make any sense for any real world usage when there's a likely bigger one in the real world.

that could easily end up like the situation the actual LBMA market is operating under: 5% (likely less) of gold supply is traded on the "clean" market.

The incentive for corruption would be quite high, the LBMA has had issues with their certification licensees standing accused of approving 'dirty' gold for trading, and were recently accused themselves of fudging the inventory numbers for another of their gold mint franchisees/subsdiaries (the bank of england, no less). In the latter case, it is entirely impossible to verify whether BoE are either innocent or guilty, as a key part of the surrounding issues is that the gold deposits that LBMA uses (e.g. BoE) have an explicit clause in their contracts that physical audits of their gold inventory cannot be conducted. "Clean" is not the word that most readily springs to mind (at least not as a noun ).

This sort of behavior (within the model system that the article suggests be adapted for Bitcoin) questions the motives and the need for any such system. I would expect such a system to get starved of liquidity, and also to be used as a way of manipulating the "official" BTC exchange rate. It would quite likely end in a multiple farce;

• Huge profits made from using Bitcoin's flexibility to get BTC both into and out of the cleancoins market without the cleancoins system or the blockchain recording these events
• Eventual loss of confidence in the cleancoins market, either because of the questionable exchange rate or dirty coins being washed on the market
• The open (i.e. black) market (in all it's guises) becomes the legitimate arbiter of the exchange rate