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Author Topic: will KYC laws permanently stifle bitcoin?  (Read 4996 times)
chaord
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August 25, 2010, 08:04:28 PM
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Even though we do not officially advocate "asset concealment" using bitcoin, I feel like many of us deep down like bitcoin for its potential in that arena.  Personally, I would love to have a bitcoin debit card, complete with the near universal acceptance of visa/mastercard.  I would be able to change the bitcoin address associated with this debit card whenever I want.

I am in the camp of people who feel that real world local prices will continue to be listed and paid for in the dominant local currency (whether it be USD or sea shells), not bitcoin.  Therefore, I tend to think that bitcoin's success is dependent upon the ability for a bitcoin user to transfer in/out of his local currency.  Unfortunately it is this transfer process that triggers the KYC and money exchange laws.  And further, once those laws are properly adhered to, I feel like most of the advantages of bitcoin disappear (anonymity being paramount).

There are some incredibly bright people in this group.  I'm wondering if we can have an "thought experiment" about how we could transcend the KYC laws, yet still offer functioning debit cards? Is this even possible?

I hate to say it, but I feel like unless bitcoin can be safely and effectively launder your assets (whether your consider this morally wrong or illegal is for another thread), people as a whole are more likely to stick with the alternative s such as LR and the others.  I would like to have a practical discussion about how to do this on a large scale, where exchangers wouldn't be in constant fear of incarceration or other penalties.  Cash through the mail and pre-paid visa/mastercards, and even paypal just isn't going to cut it for much longer, in my opinion. 
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MoonShadow
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August 25, 2010, 08:12:59 PM
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There are some incredibly bright people in this group.  I'm wondering if we can have an "thought experiment" about how we could transcend the KYC laws, yet still offer functioning debit cards? Is this even possible?


Certainly.  All is required is that a financial institution centered around Bitcoin be established as the trusted third party, and that said institution issue the debit cards and maintain the 'know your customer' database.  It is not an issue with Bitcoin either way, as it neither breaks the system, nor forces those who do not wish to depend on a third party to do so.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
chaord
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August 25, 2010, 08:36:44 PM
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Certainly.  All is required is that a financial institution centered around Bitcoin be established as the trusted third party, and that said institution issue the debit cards and maintain the 'know your customer' database.  It is not an issue with Bitcoin either way, as it neither breaks the system, nor forces those who do not wish to depend on a third party to do so.

Sorry, I reread my post and it may have not made much sense.  I know that it is no threat to bitcoins directly, and it is possible for a third party to do these things.  Let me try to rephrase.  I feel most current holders of bitcoin hold them precisely because they can be anonymous.  If a bank comes in and offers "credibility" to bitcoin at the price of the your privacy, I don't think that bank would get much business from us.  You may say, "well, there are people that use bitcoin who don't care about anonymity and they would like to have a bank like that."  However, my point is that the people who don't care about anonymity and plan to bend over and expose themselves to government scrutiny anyway would rather do it in an easier manner...by just using their government's currency.

Essentially, I feel like bitcoin is in a catch-22.  Expansion ultimately triggers the KYC laws, but the KYC laws turn off most of bitcoins current user base.  People who are not turned off by KYC would probably just rather use alternative investment vehicles.

Perhaps a new business model is required to better protect our exchangers.  Otherwise the community is just going to keep playing monopoly with itself, because the risk is too great for an exchanger to make his livelihood serving anonymous clients;)
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August 25, 2010, 08:44:42 PM
 #4

Wal-Mart, here in the United States, sells VISA debit cards for cash without requiring any form of id.  So, that sort of thing is already occurring today.

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August 25, 2010, 08:52:13 PM
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Certainly.  All is required is that a financial institution centered around Bitcoin be established as the trusted third party, and that said institution issue the debit cards and maintain the 'know your customer' database.  It is not an issue with Bitcoin either way, as it neither breaks the system, nor forces those who do not wish to depend on a third party to do so.

Sorry, I reread my post and it may have not made much sense.  I know that it is no threat to bitcoins directly, and it is possible for a third party to do these things.  Let me try to rephrase.  I feel most current holders of bitcoin hold them precisely because they can be anonymous.


It's literally impossible to assume that any particular feature of Bitcoin is an overwelming reason for adoption.  It is more likely that, even among the early adopters such as this forum represents, the *potiential* for anonimity is a bonus but not a critical point.  In most of any person's transactions, anominity is irrelevent.  Take those FRN for example, I am as anonymous as I choose to be whenever I buy groceries in cash, since the only other party involved is Kroger, and they have no reason to care who I am.  However, anominity for such a casual transaction isn't critical.  This is the case for most Bitcoin transactions as well, and will continue to be so forever.  It's the potential that, should one desire, one could remain anonymous in a particular transaction.  The choice to forgo (some) privacy in return for convience is one that everyone makes, but the important part is that it remains a choice.  It will, even if BitBanks become a dominate form of institution within the Bitcoin economy.  I doubt that they will, and if they do it will be a limited form of banking; likely restricted by reason of free market forces to a single city.  Such banks would be unlikely to share customers' information with others due to the risk of their other customers finding out and switching en masse.  This is one reason that KYC laws even work in the United States, as there is literally no alternative to the federal reserve banking system for 99.99% of Americans.  Recently, the government in Spain admitted that roughly 30% of their entire economy occurs 'off book' in an underground 'grey' economy.  Similar things occur in many other nations and is considered fairly normal.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
chaord
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August 25, 2010, 09:08:51 PM
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Yeah, I guess I'm just frustrated that in order to stay out of trouble one "should" pay taxes on their bitcoin income and such.  If businesses and people could be reasonably assured that they won't get caught if they don't pay the man, I think bitcoin would take off and the world would never been the same (in a good way Smiley.  Until then, it will always be easier to transact in the government controlled currency.
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August 25, 2010, 09:26:01 PM
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Yeah, I guess I'm just frustrated that in order to stay out of trouble one "should" pay taxes on their bitcoin income and such.  If businesses and people could be reasonably assured that they won't get caught if they don't pay the man, I think bitcoin would take off and the world would never been the same (in a good way Smiley.  Until then, it will always be easier to transact in the government controlled currency.

It has been the holy grail of government to move to a 'cashless' economy for decades.  If they had their way, no one would be using cash today, since in person cash transactions can avoid taxation, and often do.  The revelation that they can no longer even be certain of maintaining a document trail online is certain to upset the apple cart, but that does not mean that Bitcoin will fail because it is opposed by one or more governments.  Hell, just look at the economics of contraband drugs such as MJ.  Even the decades of increasing oppression of otherwise responsible, non-violent adults has done next to nothing to prevent each successive generation from partaking.  This is Bitcoin's great strength.  Just as the Internet itself views censorship as a fault and proceeds to effeciently route around it, so to Bitcoin (upon reaching critical mass, which has not happened yet) will view interference as a fault and adjust accordingly.  There is no single person or institution to persecute, no cornerstone to break, in order to bring down the system.  Centralization was E-gold's greatest error, not the choice of gold or the choice to permit "illicit" transactions.  The latter was the *excuse*, not the cause, that lead to system failure. 

Personally, I looked into E-gold years ago, and never got involved.  I remember that it 'felt' wrong, somehow.  As if something deep in my subconsious was screaming "bullshit" to their claims.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
chaord
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August 25, 2010, 09:39:04 PM
 #8

Hmm...well if our exchangers and market makers are going to actually make a living offering this service, maybe we should recruit some drug lords as consultants Wink

Edit:]   No offense to bitcoin, but MJ at least had considerable intrinsic value from the start, generating a lot of demand.  Bitcoin has the opposite problem.
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August 25, 2010, 10:07:17 PM
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Edit:]   No offense to bitcoin, but MJ at least had considerable intrinsic value from the start, generating a lot of demand.  Bitcoin has the opposite problem.

This is true, and whether or not intrinsic value is a requirement for an online currency remains to be seen.  Yet this is not a detriment towards it's sustainablity in the face of government opposition, and may yet prove to be a boon.  The problem with intrinsic value backed currency is that said intrinsic commodity must exist somewhere, which means that it can be taken by an act of the state.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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August 25, 2010, 10:28:02 PM
 #10

I've discussed this with my team of lawyers. They conclude the US gov will have to stop issuing paper FRNs in order to comply with KYC.

Laws don't stop the behaviors they make illegal, they give legitimacy to powerful people to hurt others. They stop Bitcoin like they can stop weed. They can't.

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August 26, 2010, 02:34:10 AM
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Wal-Mart, here in the United States, sells VISA debit cards for cash without requiring any form of id.  So, that sort of thing is already occurring today.


All of the reload-able cards I have seen require you to give personal information before you can use the card. That personal information usually requires a social security number. The "Gift" Cards are the ones you need to get and usually don't require anything(you can only use them for the balance not reload them). Maybe there is some loophole they are using for the "Gift" cards that don't require KYC?
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August 26, 2010, 02:47:05 AM
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I was wondering the same thing.  I bet they found some loophole when it is a "gift card."  Only thing I can think of is that a gift card typically is bought with after-tax dollars, whereas a reloadable card could be easily reloaded with before-tax dollars.
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August 26, 2010, 03:00:38 AM
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I was wondering the same thing.  I bet they found some loophole when it is a "gift card."  Only thing I can think of is that a gift card typically is bought with after-tax dollars, whereas a reloadable card could be easily reloaded with before-tax dollars.

Can you find a coherent definition of before and after tax dollars?

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chaord
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August 26, 2010, 03:08:38 AM
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I was wondering the same thing.  I bet they found some loophole when it is a "gift card."  Only thing I can think of is that a gift card typically is bought with after-tax dollars, whereas a reloadable card could be easily reloaded with before-tax dollars.

Can you find a coherent definition of before and after tax dollars?

Sorry, bad habit from business school Wink.  What I mean was that anyone who is paid by their employer via W-2 would be buying the walmart gift card after taxes have been withheld.  The government already has it's share earmarked so it doesn't really care what you do with the rest of the money.  On the other hand if you are paid as an independent contractor, there will not be any withholding, so you could theoretically buy more of the cards, and disguise some of the purchase/reloading as a business expense.  Either way, the KYC laws really tick me off! lol.
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August 26, 2010, 08:26:12 AM
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I was wondering the same thing.  I bet they found some loophole when it is a "gift card."  Only thing I can think of is that a gift card typically is bought with after-tax dollars, whereas a reloadable card could be easily reloaded with before-tax dollars.

Can you find a coherent definition of before and after tax dollars?

Sorry, bad habit from business school Wink.  What I mean was that anyone who is paid by their employer via W-2 would be buying the walmart gift card after taxes have been withheld.  The government already has it's share earmarked so it doesn't really care what you do with the rest of the money.  On the other hand if you are paid as an independent contractor, there will not be any withholding, so you could theoretically buy more of the cards, and disguise some of the purchase/reloading as a business expense.  Either way, the KYC laws really tick me off! lol.

Okay, gotcha. The idea that some money has already been taxed, and that some hasn't irritates me. It's all taxed over and over and over and there is no realistic way to ever tell how many times. Not to mention it's fungible shit. If I ever get into breaking and entering, I'm going to swap the "after tax dollars" in their underwear drawer for my "before tax dollars". Ha! They'll never even know!


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August 26, 2010, 05:13:12 PM
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Okay, gotcha. The idea that some money has already been taxed, and that some hasn't irritates me. It's all taxed over and over and over and there is no realistic way to ever tell how many times. Not to mention it's fungible shit. If I ever get into breaking and entering, I'm going to swap the "after tax dollars" in their underwear drawer for my "before tax dollars". Ha! They'll never even know!


Ha! I completely agree!  In fact, last time I checked, because it's taxed multiple times (earnings, sales, fees, etc) I think we end up paying some ridiculously high percentage in taxes.  Much more than the "official" tax rate.  It will never happen, but I feel like Rothbard's per-head tax would be the most fair...of course no taxes at all make the most sense.
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August 26, 2010, 06:22:36 PM
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Sorry, bad habit from business school Wink.  What I mean was that anyone who is paid by their employer via W-2 would be buying the walmart gift card after taxes have been withheld.  The government already has it's share earmarked so it doesn't really care what you do with the rest of the money.  On the other hand if you are paid as an independent contractor, there will not be any withholding, so you could theoretically buy more of the cards, and disguise some of the purchase/reloading as a business expense.

It has absolutely nothing to do with taxes.  It is anti-money-laundering:  http://ethics.walmartstores.com/IntegrityInTheCommunity/AntiMoneyLaundering.aspx

KYC rules are intended largely for law enforcement, especially as it relates to anti-money laundering, the drug war, the war on terror.  The IRS typically passes most CTRs on to other agencies.


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August 26, 2010, 06:50:30 PM
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Sorry, bad habit from business school Wink.  What I mean was that anyone who is paid by their employer via W-2 would be buying the walmart gift card after taxes have been withheld.  The government already has it's share earmarked so it doesn't really care what you do with the rest of the money.  On the other hand if you are paid as an independent contractor, there will not be any withholding, so you could theoretically buy more of the cards, and disguise some of the purchase/reloading as a business expense.

It has absolutely nothing to do with taxes.  It is anti-money-laundering:  http://ethics.walmartstores.com/IntegrityInTheCommunity/AntiMoneyLaundering.aspx

KYC rules are intended largely for law enforcement, especially as it relates to anti-money laundering, the drug war, the war on terror.  The IRS typically passes most CTRs on to other agencies.



Yes, I know it has to do with money laundering, which is why i started the thread.  I was speculating about the taxes with regard to the gift cards vs reloadable cards, since it seems like gift cards can be completely anonymous despite the anti-moneylaundering laws.  The reloadable ones, on the other hand, seem to trigger that KYC reporting.  It was definitely a shot in the dark though.
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August 26, 2010, 07:49:52 PM
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Yes, I know it has to do with money laundering, which is why i started the thread.  I was speculating about the taxes with regard to the gift cards vs reloadable cards, since it seems like gift cards can be completely anonymous despite the anti-moneylaundering laws.  The reloadable ones, on the other hand, seem to trigger that KYC reporting.  It was definitely a shot in the dark though.

I guess my explanation was a bit poor, sorry.  The reloadable cards trigger KYC because of the greater ease with which money laundering may occur.  Try to buy 100 US$50 gift cards and you will trigger the same thing.


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chaord
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August 27, 2010, 01:12:42 AM
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Yes, I know it has to do with money laundering, which is why i started the thread.  I was speculating about the taxes with regard to the gift cards vs reloadable cards, since it seems like gift cards can be completely anonymous despite the anti-moneylaundering laws.  The reloadable ones, on the other hand, seem to trigger that KYC reporting.  It was definitely a shot in the dark though.

I guess my explanation was a bit poor, sorry.  The reloadable cards trigger KYC because of the greater ease with which money laundering may occur.  Try to buy 100 US$50 gift cards and you will trigger the same thing.



Yeah, I bet you're right.  It's really a shame.  I think that is the current bottleneck for bitcoins. By this, I mean I think there are enough anarcho-capitalists (or close) out there that truly think taxes stealing that would start the migration.  Yet, because the KYC laws are still a hurdle it's just easier for them to stick with USD for now.  I think most people are both not knowledgeable about their nation's money and too lazy to do alter their interactions with it.  Once bitcoin can show a path towards increased savings (ie: disposable income) I think people will come en masse (for reasons that, to protect us, they probably shouldn't tell us).
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