In Fifty Days, Payments Innovation Will Stop In Silicon Valley
quora.com
quora.com
Thus, if a money transmission business steals someone's money you can sue them and when you win you can take your money from the 500,000 bond so you are sure they will not run out on you.
I am not sure whether it is a good law (I have not done enough research to figure that out), but I just wanted to clarify. The quora post made it look like the state was just greedy and taking all the money for themselves.
you could easily base the bond on volume.
the more transactions you do the more you must put in bond.
this again perpetuates the unnecessary division between individual and institution.
I'd like to add that this is a good practice in the financial industry, and isn't a bad thing at all. It's consumer protection.
And, $500k is actually a pretty low figure for this type of 'bond'.
For example, in Australia I believe you would need a banking license (or a guarantor with a banking license) which requires a deposit of at least $40M in to an escrow account which is managed by the central bank.
Another reason to use alternative currencies...
Yes. Paraphrased:
Bank agent: “You'll also have to sign this.” (Hands over a sheet of paper.)
Me: “Let's see here… […] ‘comply with the Deposit Agreement and Disclosure’. I need to see a copy of the Deposit Agreement and Disclosure, please.”
Agent: “Of course.” (Hands over a booklet.)
Me: “All right. Well, you may have to wait a bit…” (Starts leafing through the booklet. Cut to analog clock, then to clock fifteen minutes later.)
It was the same thing with signing up for public storage. “… ‘agrees to the Privacy Policy, which is incorporated by reference’. I don't seem to have a copy of the Privacy Policy here.” “Here you go,” and another sheaf of paper appears.
Note that in these cases I'm still basing my interpretation on a lot of contextual and cultural information, because while the alternative of trying to get them to lock down all the definitions separately would be amusing, it would fail. In many cases, every one of the relevant providers is in a position to drop me, whereas I'm reliant on at least one of them accepting me, so the power balance is tipped heavily in their favor.
No one chooses a bank based on their balance sheet.
there's only traders.
this protects the criminal banking industry by keeping people out. you think these monkey bankers can't afford $1 million?
this is market entry barriers and you paranoid idiots are letting them get away with it.
In this case, the government is saying, "make any new innovative money transmission system you want, but keep $100,000 in an account so when you fuck up someone's paycheck, they can sue you and you can pay the damages you owe." Not too unreasonable.
Regulation is bad for businesses individually, but it's good for society in aggregate. Progress may be slowed, but it's still happening and happening with fewer horror stories along the way.
I think the more relevant point is that all regulations have overhead - even ones that don't charge a $500K bond. This is something governments sometimes seem to forget. No matter how innocuous your regulation, every single one simply adds to the pile of overhead businesses must deal with, and every single regulation contributes towards preventing more businesses from competing in the market.
The balance of regulation is a tough line to walk, to be sure.
The difference between non-coercive (private) entities and government is that non-coercive entities adapt better. So, for example, if you're planning to transfer billions over many years with one bank, you'd want the bank to have all kinds of security. But if you just want a quick, cheap way to transfer 25 cents in a micro payment over the web, you probably don't care if the startup "bank" you use has a $500K bond.
Do you have any examples from reality where this has happened? Are insurance companies and ratings agencies really trusted agencies that would function even better in an unregulated market?
I posit that with no regulation, these entities would become even more unscrupulous than they are now.
We're seeing the same thing now with the money transmitters.
Go back and read your exchange. It looks to me like he answered your question, and you're changing it now.
- http://en.wikipedia.org/wiki/Certificate_authority
- eBay feedbacks
etc.
Furthermore, magazines, blogs and retail store all act as rating agencies in some ways. Magazines have a strong incentive to only recommend quality products since their reputation is at stake. The same goes with retail store. They make sure they sell quality product because their reputation is at stake and they don't want to lose business.
Of course, the incentive for building those kind of companies is very low given the uncertainty that the government might decide to assume your role, putting you out of business.
eBay feedbacks can be gamed and I generally don't trust them.
Escrow services work, but they are generally regulated.
Your retail store example is laughable. I'm sure Walmart really cares about the quality of its products.
> eBay feedbacks can be gamed and I generally don't trust them.
Do you think the government would do a better job at providing CAs or rating eBay sellers? Do you think the government is somehow immune to fraud?
> Your retail store example is laughable. I'm sure Walmart really cares about the quality of its products.
"I'm sure Walmart customers really care about the quality of products they buy at Walmart."
Walmart offers what customers want: cheap prices at the cost of lesser quality. Luckily we are still free to buy low quality products, because the government might "fix that" someday.
The ratings were issued by companies that had been given a monopoly by govt. Securitized mortgages were a creation of govt.
The idea that you're missing is regulatory capture combined with govt encouraging transactions that didn't make economic sense otherwise. (One of the underappreciated consequences of RC is that it amplifies "private" bad behavior and shuts out good behavior.)
The government didn't corrupt Moody's. Commerce did. The government supplied no oversight, and Moody's sold its ratings to the highest bidder.
More like the companies selling mortgages were desperate to get the loans off their balance sheets so that they could release the capital for new mortgages. As they didn't keep the mortgages for very long the level of risk they were accepting was low so they didn't do much checking on whether people could actually pay or not - they really didn't care.
I remember comparing my experiences of first getting a mortgage 20+ years ago where it was a difficult thing to do with how younger colleagues described things immediately before 2008 and things were totally different - they were giving mortgages to pretty much anyone who asked not because the government made them (I'm not in the US) but because it made them a lot of money!
Selling them to GSEs. You do know what the "G" stands for, right?
And speaking of the GSEs, they lied about how many of the loans in their portfolio were subprime. As a result, no one knew that those loans were as common as they were, which threw off everyone's risk calculation.
Information and resource asymmetry are not easily overcome; how is your argument any different than a naive assessment of economics that fails to take into account the impact of information asymmetry on the decisions of otherwise rational actors?
The best way to "overcome" information and resource asymmetry is through a free market. In particular prices and word-of-mouth/"the Internet" do this work as well as possible. If a company does a good job for a good price, its fame will quickly spread. If it rips off customers, its infamy will quickly spread. No need for government to get involved a priori, although government can get involved in fraud prosecutions and to help defrauded victims get their money back.
> how is your argument any different than a naive assessment of economics that fails to take into account the impact of information asymmetry on the decisions of otherwise rational actors?
Not sure what you mean by this, but free market competition and innovation through new/better services is a way rich societies increase wealth. Government regulation just slows down the process.
So what happens when that company is bought out by new owners, starts skimping on product safety, and 1,000 people die before the market notices?
If 1,000 people die, is the company held liable by the government?
If people band together to enforce preventative measures in the community (even through private means), such that such a thing doesn't happen again, have they created a regulatory government?
Intentional or negligent killing is prosecutable. I doubt, though, that not requiring bonding for a money-transfer startup will cause the deaths of 1000 people. As to businesses generally, tort lawyers as a class make a pretty good living holding businesses accountable. The Ford/Firestone controversy comes to mind. (http://en.wikipedia.org/wiki/Firestone_and_Ford_tire_controv...) In that controversy plaintiffs suing Firestone and Ford alleged that people died because tire failure caused rollover accidents in Ford Explorer SUVs. As a result, both Ford (maker of the vehicle with the defective tires) and Firestone (maker of the tires) had to pay a lot money and their stock price suffered. Also, one of Firestone's tire manufacturing plants was closed and Ford and Firestone no longer do business together. So there are consequences when private companies screw up.
On the other hand, when government screws up and thousands of lives are lost, like when it holds up the sale of a new drug, fails to defend the airspace against terrorist attacks, or goes to war on bad intelligence, there don't seem to be consequences.
but whatever, I always call these things. Internet communities refuse to be elitist about quality because they 1. believe in democracy and 2. are made up people who like to be inclusive because they were excluded as kids.
Well of course, how else do you think democratic governments were invented? The market created them.
For example, all of a city's private garbage collectors may do a poor job, so a very capable mayor may convince residents to allow the city to do the collecting. Years later, when situation is reversed and the city is doing a poor job in comparison with private collectors, it will be a lot harder to replace the government collectors with private ones. The correct response to poor private-sector service is not to bring in the government, but to bring in more private competition.
"The difference between non-coercive (private) entities and government is that non-coercive entities adapt better."
it's not clear if you are equating non-coercive with private entities. If so you are very much wrong.
Private companies have killed, enslaved, tortured, kidnapped, etc. There are a tremendous amount of examples of private companies being coercive.
As to ratings agencies, some spectacularly demonstrated 3 years ago that they can fail and be captured (akin to regulatory capture) by other private entities.
These are instances of private companies acting like governments. What characterizes private companies is that they do not use coercion (except of course when it's justified as in enforcing voluntary agreements and protecting property.)
So for example, the original post was about banking regulation. Private bank regulators could not force banks to operate according to their standards. Instead, they would rely on banks' cooperation. If a bank did not cooperate it would run the risk of being rated badly and shunned by customers relying on regulator's rating. In no case would a non-cooperating, non-conforming bank be subject to being "killed, enslaved, tortured, kidnapped, etc" by a private regulator. On the other hand, a bank which does not conform to government regulation is in danger of killed (dissolved) and its officers "enslaved, tortured, kidnapped, etc." (arrested and imprisoned.)
Can we officially acknowledge that this part of the thread --- which is notionally about bonding requirements for money transfer companies, but is now discussing torture --- has officially gone off the rails?
Thanks for the discussion, very interesting!
Free market capitalism is, at it's core, evolution. It leads to amazing responsiveness, complexity, and, arguably, beauty. It also has made 99.99% of all species that have ever existed extinct. There are homeostatic forces that keep the aggregate more or less balanced, but evolution isn't good for the species involved, it simply is true.
There's no mechanism in non-random selection with random mutation to prevent Asian Carp from taking over the Great Lakes, Pine Beetles from destroying forests in BC, invasive kelp in the Mediterranean, etc. Similarly, the free market has no mechanism to prevent credit fraud, market collapse, rampant speculation, or any of the other mechanisms of economic calamity we've seen. Your "coercive" government regulation plays the same role that we play in attempting to prevent environmental disasters through the spread of invasive species. Would a global ecosystem entirely managed by direct human intervention be desirable? No. Would be be well-advised to ignore threats to ecosystems and "let nature take its course"? Of course not.
Free market supremacists seem to fail to see the forest for the trees when arguing against regulations. The Free Market isn't an end unto itself, it's an effective means to the ultimate end, which is the improvement of the human condition. It isn't the only means, and it isn't the most effective means in all cases. The role of effective, well-considered government regulation is to harness the benefits of the free market while mitigating its risks. This can only be described as a Good Thing.
Rather than rail against all regulation, we should be trying to ensure that the regulations that are created are wise and impartial. Our energies would be much better spent ensuring that legislative bodies are free from undue influence than by trying to remove their power to regulate in the first case.
Pine beetles in BC are an interesting point, as it seems like it is precisely the lack of ownership over valuable forest land that is preventing the type of extensive research we would need to protect that resource. While research outcomes are entirely uncertain, it seems that ownership and the forecast loss of value is a pretty solid motivator for solving problems.
Take this payments law for example. Its intended objectives are admirable but I don't believe it will accomplish them nor benefit consumers in the long run.
By artificially imposing a high barrier to entry (licensing fee), the consequence will be to encourage the formation of monopolies.
Furthermore, payment companies will have a lesser incentive to secure their service or build a reputation of trust since consumers will be led to believe that "all payment companies must be secure since they are all approved by the government". What was once an important competitive advantage will lose a lot of its importance.
There are probably other perverse effects I could think of but my point is that things are much more complex than they might seem.
Once you are licensed, nothing prevents you from committing a fraud except for the potential risk of losing your bond. This risk could be insignificant given a large amount of money to defraud.
All this law does is guarantee that from now on, only rich people are allowed to commit fraud.
Edit: Check out PayPal's list: https://www.paypal-media.com/licenses
I don't have anything to say about the 43 other states that want bonds to conduct money transfers in them, but some of the coverage here seems a tad breathless.
I might put together a spreadsheet this evening if I have time.
I think we can agree that's a far more likely scenario than premeditated fraud.
Incidentally: $500k is the floor of the bond value needed. It scales up to $7MM with transaction volume. Personally, I think they should uncap it altogether.
So you're fighting for the little guy to be able to commit fraud too? FWIW the rich guy is not just risking losing the bond, but also going to jail. That's the threat, the bond is just so customers can get paid.
Absolutely. Given that this regulation doesn't help with fraud, why not at least encourage competition.
Meanwhile, if you're against basically all licensing and bonding, you're naturally going to be against this one too. Personally, I think that if we're going to require bonds to move furniture, it seems sane to require a bond to move cash.
I wouldn't do business with a payment company that can't afford a 500k expense. Requiring insurance for moving furniture is also important to me, I wouldn't let a company move my furniture without them offering a solid warranty.
What I question though is whose role it is to impose those requirements, the government or the customer? I believe it should be the customer's role.
> Personally, I think that if we're going to require bonds to move furniture, it seems sane to require a bond to move cash.
It is sane, but why not let companies choose whether or not they want to get licensed and let customers choose whether or not they want to take the risk of doing business with an unlicensed company. Note that I do not object laws that deal with misrepresentation, lying, breach of contract, etc.
Anyways, as you said, it's more a question of principle than anything particular about this specific regulation.
If you don't believe in regulations at all, you don't believe in this regulation. Fair enough!
But if you're basically happy that we have an FDA and an FDIC and an NTSB and an FAA (as artificial examples; substitute your favorite California regs bodies): how is it unreasonable or surprising that California would want money transfer companies bonded? You can't build back porch decks without bonding. You can't move pianos without bonding. You can't sell cars without a license bond. But we want people to move cash without them?
Reasonable people, I suppose, can disagree about whether the bar for accepting and moving cash from people should be as high as the bar for re-siding a garage. But I don't think reasonable people can call the bar a conspiracy against the public.
> But if you're basically happy that we have an FDA and an FDIC and an NTSB and an FAA (as artificial examples; substitute your favorite California regs bodies): how is it unreasonable or surprising that California would want money transfer companies bonded?
I might seem pretty emotional about this, but in fact I'm not even American ;). Among the things you mentioned, I only know about the FDA and I do think Americans would be better off without it, for pretty much the same reasons I outlined previously (as a side note, I believe Health Canada bases its own regulations on the FDA). Milton Friedman explains it better than I can here: http://www.youtube.com/watch?v=OazixMEY9I0
What happens when someone runs over you with a car and they have no liability or personal injury protection with which to compensate you for your medical bills and they have no money and therefore are judgment proof? Too bad, so sad? Shouldn't have been walking down the street?
Yes, this happens now, but now it's a criminal act to drive a car without insurance so you're breaking the law by potentially putting other people at risk.
Nearly every large earthquake proves you wrong on building codes. Compare deaths for a given magnitude quake in areas with strong building codes vs. areas with weak or no building codes.
I don't see what societal benefits structurally unsound buildings provide.
Regulation reflects a lack of creativity. It says, "There is no other way to do this." But maybe there is another way and the politicians just can't think of it. They shouldn't be allowed to limit other, more enlightened people.
The above assumes that regulations are honestly designed to promote the public good, a dubious assumption. Often I suspect that regulation is designed to protect influential but inefficient businesses against competition.
PS: Not to side track to situation; we are talking about building materials and you can use a wide range of things including straw and dirt in the US so what's missing?
http://www.youtube.com/watch?v=PKH0qoaXR88 Discusses how building codes hinder new and "natural" building methods. In particular, the speaker mentions that older codes have failed to keep up with better techniques for strawbale building.
The deeper issue is not whether new materials can be used to meet code requirements, but whether new ideas of what constitutes a safe dwelling are allowed. Building codes are based on assumptions about what a dwelling should be like. For example, the floor should be relatively stiff. If a floor is too bouncy, it won't meet code even if it's strong enough to support the weight. Walls can't be too flimsy. The idea of a house that just safely collapses in a windstorm or floats away in a flood is, I suspect, outside of most building codes' conception of a safe building. The code focuses on the idea of a strong, permanent structure that will resist nature's forces. If houses were plants, the code would only recognize big trees. However, there are also grasses, which much cheaper to produce and also resistant to nature's forces in their own way (they bend). Yet building codes don't recognize structures that are inspired by grasses, only big immovable trees.
I don't know if grass-like houses are a good idea or not, but I'm sure that if we expand our thinking we can come up with better shelters. The problem is that it's hard to innovate and government regulation only tends to make it harder.
In that video he is trying to build long term structures and he complains not about the building codes, but the fact that there is no data to support the safety of new building ideas. The whole point of a building code is you get to avoid running the numbers, if you build a structure using these methods with these materials it's safe. There are rules for temporary structures like tents, but if you want it to last for 50 years you need to demonstrate it's safe. And, if he was capable of demonstrating he could build a safe house out of toothpicks and spit he could have done so because the only limit on his construction was providing number so an engineer could demonstrate the safety of the structure. And, the compromise of "build a load baring structure from well understood materials and fill it however you like" is vary open.
PS: You can build a floating house.
"Since government innovates more slowly than private industries, government regulation tends to become outdated, going from common-sense prudence to arbitrary burden on innovation. "
The space program spawned a tremendous amount of innovation. Public research universities throughout the nation innovate on a grand scale. The internet is an example of government innovation.
Regulation does not reflect a lack of creativity. It reflects an acknowledgment of a problem and steps to address the problem. Sometimes side effects occur and are bad and the regulation needs to be reanalyzed. Sometimes there is regulatory capture (by private entities).
Government had to mandate the use of seatbelts. This led to airbags because after the government made safety an issue innovations were made in this area. They probably would have been made without government intervention but government got the ball rolling and the innovations occurred sooner as a result of government.
Regulations can be good, bad, or neutral. But talking about "non-coercive institutions" makes your view look extreme.
Which brings up the basic issue, the incentives of car makers / home builders / bankers to create safe products does not line up with society's benefit from safe products without some external input.
There's a give an take here... the government has a perceived duty to protect the citizenry against bad actors, that that introduces a bias against sudden change aka "innovation". "Innovation" isn't always good -- just like to some people, certain "freedom fighters" are "insurgents".
On the other hand, there are entrenched business interests like Western Union (and payday lenders in "red" states) who use their influence to keep the status quo around, even if it hurts consumers. (ie. the poor and ignorant who spend $10 to send $100 to someone)
This is not necessarily the case. Often times, regulation is put in place to address some high-profile case, but ignores the consequences of the regulation.
Currently, infants less than two years of age can fly in an airplane without a separate ticket. Years ago, after some instances where such children were injured/killed in accidents, there was talk of forcing parents to buy separate tickets for infants and require them to use an approved child seat. However, had this regulation gone into effect, the extra cost of flying would have forced many families to drive instead of fly, resulting in a greater amount of injuries/deaths.
there are regulations and there are regulations.
>"make any new innovative money transmission system you want, but keep $100,000 in an account so when you fuck up someone's paycheck,
just for example, a reasonable regulation would just limit the per-transaction(or per-month per-person, etc, ...) amount to, lets say, $100 for unlicensed/unbonded companies.
On the other side, the regulation that have the same $500K bond for any company is just very favorable for big established players. The $500K is nothing for AMEX or PayPal, and provides virtually no coverage for the risks these companies presents to consumers. Ie. if any of these companies fucks up the paychecks in their system, the $500K would be just a drop in the bucket.
Even current banking regulation is designed way much better - basically it forces to keep reserves as percentage of the liability amount.
Personally, I think if you rely on PayPal/etc for your business, you're asking to get financially raped.
This doesn't sound like consumer protection to me. It sounds like an artificial barrier to entry.
Also, PayPal has had licenses in all states that require them since its IPO, and clearly there's no connection between this issue and customer service.
Would you elaborate?
Courts often "trust" people to go free temporarily if they can post bail pending trial. Lenders will "trust" you with their money in the form of a loan if you can post collateral.
Same for a bank. Any customer with an account that's greater than zero is owed money by the bank.
It's not a stretch at all to have a million customers owed money.
My spaghetti monster, do they even have to hold a reserve, or can they just spend all your money on the derivatives market?
If you want to get into banking, you had better have the chops to be able to treat your customers correctly. It's not a hard concept.
This is nothing but downside as it relates to innovation in the payments space. These companies like their business models and don't care for it to be disrupted. They love regulations at this point.
If you have a bone to pick with PayPal, you ought to be wishing for more competition, not supporting barriers to entry for their competitors.
Some might argue that they can only continue to do so due to a lack of competition, competition which is stifled by the very legislation ostensibly aimed at helping consumers.
If I drive a vehicle that acts like a car, I need a drivers license. If I run a service that acts like a bank I need a banking license.
I really don't see a problem here.
You're also dealing with especially sensitive data, life ruining data if it gets into the wrong hands.
Much like copyright laws are abused for business protection, so are regulations. Certainly within the US it would be better to have a federal license framework in order to minimize friction.
More likely it's Yet Another Google Product They Can't Be Bothered To Finish (TM).
I do: it prevents innovation. People should be allowed to run an unlicensed banking service, and customers should be allowed to accept the risks that go with it (by all means, require customers to sign a form saying they understand it's an unlicensed service and they could lose all their money.)
I tend to agree. Surety bonds have been effective for a long time to ensure completion of services in case of fraud or failure on the part of a contractor or service provider. States have been requiring surety bonds for many kinds of licensed professions for years, building contractors being a big one.
There is also a class of money transfer company ("A licensee that engages in receiving money for transmission") that only needs a $250k bond.
They might have provided a service that would be beneficial to the consumer and they might have hired a bunch of programmers once they had established themselves. The established companies already in the market would have had to lower prices and become more efficient to compete. Instead, the competition is crushed, you never hear about it, never know about it.
This is what this law is designed to accomplish. Nothing to do with Paypal. Stop talking about Paypal.
Many regulations serve the interests of politically well connected powerful oligopolies in this way. This is just one example. The reason put forward is always that this is some way of protecting you. That, if this regulation didn't exist, these companies wouldn't have to be responsible. In reality, it strengthens the hold on the marketplace of the oligopoly already in place and makes you more vulnerable to them.
Keeping companies out of the marketplace stifles competition. This is not good for you, the consumer.
This is particularly true of licensing. The standards for licensing and the like are often co-opted by the industry/profession being licensed. As such, they use licensing to raise the barrier to entry, effectively limiting competition.
One example that comes to mind is that the aestheticians in Texas at one point were fighting to require people that do threading to get a license. I believe said license would require thousands of dollars and hundreds of hours to obtain. Ultimately, there was absolutely nothing about threading the license at all. I am not sure if this law was ever passed, but it is merely on example of licensing works in practice to hurt competition, raise prices, and hurt the consumer.
This begs the question: what amount would be a barrier to entry into the market, 1 million, 10 million? Is there any amount of regulation and cost that you would consider a barrier to entry into the market? If as you imply a half million is not a barrier ("no trouble"), why is not a barrier, why is not a hurdle?
It takes upwards of $500k just to open a McDonald's franchise but they're still growing like weeds.
Or put up a few coins for a surety bond. If you're a financial startup and your investors don't trust you enough to put up bond money, you should probably find a different niche (or investors).
A surety bond means you only have to pay a small portion of the total. It's similar to insurance. You pay a company with larger resources to vouch for you in case you have a problem. Instead of ponying up (the refundable) $500K you pay something like $25k. You don't get it all back if you close up shop, but you didn't need to put much capital out there. This is how a lot if not most licensing bonds work.
If you want to take people's names and then pass them on to mortgage brokers, LowerMyBills style, you have to register as a mortgage broker in almost all fifty states. Requirements vary widely from state-to-state but included obnoxious things like high fees, local residency requirements, and annual written tests.
The end result - mortgage lead generation didn't stop, but it became something that was difficult to legally bootstrap. You needed one hell of a GC, and he needed to have experience. Venture-backed companies had a big advantage in the space.
As long as the rewards are high enough, I suspect the same will be true here. Nothing great, but not the apocalypse.
So what is the significance of California making it 44 states? I doubt a new payment system that only works in a handful of states has much of a chance, so if regulation kills payment innovation it would have have been killed long ago, when the majority of other states adopted regulation.
Some laws exist to protect the establishment. Others exist to protect society from it. I am not sure where this one sits.
What about something like Stripe? It sounds like they may be affected?
This does not sound particularly fun or exciting.
This is why you see most startups gravitating toward niche markets that revolve around the existing infrastructure, but those niches are becoming awfully narrow.
In contrast, I contend that the system itself is flawed and needs to be replaced.
I agree. The system most definitely appears to be flawed.
Isn't Paypal forced to operate as a bank in Europe as opposed to the way they exist in the U.S.?
Note that banking in Europe is in part regulated by national law of the member states. To operate as a bank in Germany, you need not only 0,5-5 million € as starting capital (depending on the type of financial transactions you are getting into), but you also need two reliable* executive managers who have at least three years experience leading a bank of the intended size (or similar experience).
Thus, the barrier to entry is rather high in Europe, too. But after that, if you get big enough, the tax payers will pay all your bills, like in the US.
* no criminal record and no other facts known that would cast doubt on their trustworthiness.
Requirements:
2 limited companies.
Licensing agreement.
Alabama-based Non-executive directors (cousin Ed and Chuck).
Does this mean California is just another state in a long line of similar laws? Or is there something unique about California's situation in this aside from it containing Silicon Valley?
One option: a volume-adjusted average of MtGox.com trades over the last K hours
Another: use 0.001 of the amount to buy options to convert X Bitcoin into the agreed upon amount of (USD, ...). Market-making HFT bots will compete, making X the most fair amount.
All this complexity could be handled by user-friendly software...
If you aren't dealing in USD, it doesn't matter how much value the USD loses.
Similarly, if you had debt denominated in USD, it wouldn't matter how much value the Zimbabwe Dollar or Weimar Republic Mark lost in hyperinflation. Your debt burden would be the same amount of USD. It just depends on your frame of reference.
At some point, you need actual money to do things like pay taxes. Last I checked, no government accepts Bitcoins for this.
So even if you did all your business in them, it's likely prices would have fallen substantially in the last few weeks, and you would be screwed, per the grandparent.
That said, the source of BTC's volatility right now is precisely the fact that few people are doing business in them, and nearly all demand for them is speculative.
Remember the cab companies going after UberCab?
How about the Louisiana Funeral Directors going after the monks for making caskets[1]?
[1]http://www.techdirt.com/articles/20100825/11152810773/funera...
Clearly financial transactions have provided a means for the state to both detect and to a lesser degree mitigate criminal activity. The phrase 'follow the money' works because such activities are at their heart economic in nature (trying to enrich the criminals) and understanding the path to that enrichment often allows law enforcement to disassemble the criminal enterprise behind it.
That being said, I would not be the least bit surprised (although I did not read through any floor debate if there was any) if the people who voted for this law did so believing that they were addressing a great threat to society, which is the proliferation of payment processors which are not accountable to the state for tracking or even reporting their transactions in any form.
That does cut into 'innovation' as thinkcomp points out but it doesn't preclude it. It changes the conversation from 'build it and see what works' to something more along the lines of a slow plod from idea to implementation while bringing legislators and law enforement along. The bad news is that criminals are motivated to stay ahead of 'the system's abilty to track their money, consumers need a value proposition and a trial period before they switch so adoption rates are probably (not data driven, just intuition here) lower.
Perhaps the next innovation is a payment processing company that provides the regulatory shield for innovative sub companies.
[1] http://www.mercurynews.com/politics-government/ci_15517816
I agreed that the article's portrayal of the fees as extortionate was hyperbole but agreed that raising the barrier to entry would slow down the creation of new payment systems. If you accept that the rate of innovation is related, at least linearly, to the creation of new companies in a product space, then reducing the creation rate would necessarily reduce the rate of innovation.
An alternative look at your question with contractors would be to ask "Has the licensing and bonding requirements cut down on innovation in contracting business models?"
I don't know how to answer that question without first removing the licensing and bonding requirement and then observing the resulting market. It certainly mitigates crime in the contracting market to some extent by making it more difficult for a criminal to pass themselves off as a bonafide contractor. But the current state of affairs don't say about whether or not the contracting market would be more innovative without those restrictions.
I don't think $500k is much of a barrier to them getting into this business however...
However, BankSimple is not a "bank." We partner with chartered banks who provide FDIC-insured products, leaving us free to concentrate on designing the complete consumer banking experience, via the web and your smartphone.
What implications this has on their regulatory requirements, whether banking or money transfering, would be interesting to discover.
Piggybacking off of someone else's banking license isn't trivial, but it beats the delays and capital requirements associated with starting a bank.
Of course, they still have to deal with all the internal industry regulations in order to offer things like ATM cards that work across ATM networks. Those aren't regulatory requirements, but when you're dealing with VISA-size entities they might as well be.
Companies mainly choose Delaware because Delaware is efficient and well-known for processing of paperwork and legal matters.
Why single out Bitcoin? Because it's new?
I can create an anonymous Second Life character at any time, linked only to my account info (an email - Mailinator solves that). I can build something in-game and sell it, creating money with no person bound to it. Or be given money in-game for a real-world purchase, leaving me with money that still has no connection with me. There's barely a central authority, as there's nothing stopping you from passing money around in-game, which would be the major barrier to illegal trading. And what is there is rather impotent, as everything can be done just as anonymously as in Bitcoin - they can get your IP address, but only if they're watching, and that's far from an identification. Just go to a coffee shop.
Bitcoin just makes it easier, and fault/attack-tolerant. It's been possible for quite a while. Though perhaps the most useful aspect to this is that transactions aren't revokable, where they are in nearly any other non-physical system.
Oh, wait. Those are reasons not to use it. My bad.
(Not to be confused with physical bubbles, which are the other way around...)
It's amazing that people who pride themselves in critical thinking and problem solving (hackers), can actually be so naive as to believe this nihilistic Ann Rand crap.
HN is starting to look more like Reddit every day.
I wouldn't be surprised if this is step 1 of a 3 step plan on Bitcoin takedown. Clever too I might add, so props to whoever came up with it.
(What's that? They all think that they'll be him? Statistics would like to have a word, folks.)
I assume they can easily afford any cost involved. I wouldn't be surprised if they already have the licenses while existing as a non-bank.
In most countries outside the US, PayPal is regulated like a bank. This means PayPal can't just lay claim to your money and never give it back to you.
I don't understand what this has to do with PayPal. PayPal is large enough to easily jump through whatever hoops are required to keep doing business. This is a problem for new companies, that would compete with PayPal.