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Comment by joshgrib | Hacker News Reader

This is an important point - I think a lot of us tech people like to think "no it only exists on the internet the govt can't touch it! It's like international waters!", but then you have countries that can completely restrict or shut down the internet. As long as the infrastructure exists in the real world and is controlled by a govt, then the "imaginary online stuff" is still ultimately under their control. Even in "the matrix" someone was still running all those computers and could turn them off if they wanted.

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Countries can just ask you to prove how you earned income, and jail you if your proof is unsatisfactory to them.

India banning cryptocoins doesn't mean that people will automatically be jailed for mining on day one. It just means that anyone using cryptocoin to avoid paying Indian taxes can end up jailed when their expenditure exceeds their provable income, or when their documented income is traceable to cryptocoin, or etc.

The United States IRS doesn't have to make cryptocoins illegal to convert into currency; they just have to demand that you pay taxes, and have you jailed for tax evasion if you fail to do so. They don't actually care if you earn income through selling cryptocoins for currency, as long as you report the income earned without attempting to evade an honest assessment of value, and as long as you pay your taxes on that income earned.

At least concerning the tax issue, the US government doesn't even need to do that. If they squeeze the credit card and banks as they've done for the adult industry and marijuana industry, we will see the entire market deflate. The only reason crypto is okay in the West is because an offramp into fiat is provided. Once that offramp gets closed, it's game over and we are back to 2010 in terms of crypto value.

The US has instead taken the view through various upcoming 2022 IRS procedural rules that — as long as there's a complete paper trail documenting who the origin of, and who is responsible for paying taxes for, the cryptocoin when it is converted into currency — then there is no harm in offramps that collect tax ID information and report it appropriately.

Their focus on requiring "origin of and taxation of" attestation may impact the perceived value of cryptocoins when traded for currency, but they don't seem to much care if people want to generate hashes and sell them to each other, just as long as it's not used to launder money or avoid taxes.

It is of significant debate whether the perceived value of cryptocoins is in part due to its value for both laundering money and avoiding taxes, but that's distinct from whether the perceived value is in part due to the ability to sell cryptocoins for currency.

Eventually efficient systems will implement zero knowledge proofs. Not necessarily because of "privacy", but because of the efficiency gains of such a system. Privacy is just a bi-product of this information theory reality.

The efficiency gains of these systems are irrelevant. Governments of the world want monetary control, and they cast that desire in the form of laws like "know your customer" or "anti-money laundering." These laws are antithetical to what you're talking about. If the government requires legitimate institutions to implement these forms of laws then to engage in actual society (i.e. - school, groceries, business, rent, banking, and most importantly taxes) then the existence of zero knowledge proofs and their implementation are irrelevant. At some point you come back to the inescapable problem with crypto: the real economy is based on trust and an immutable digital blockchain is, at best, a gloss on this system.

Many chains, L1's, defi products, etc., have already expressed their eagerness to comply and implement KYC and other regulatory controls.

My warning is that the open-source Pandora's box of zk proofs is necessary, technically feasible, and inevitable. ZK proofs are coming, and there will be systems built on top of them. Our governments and societies need to be ready for this reality.

You're missing the point. It doesn't matter what the technology can do. There is a system that currently exists, and that system will protect itself through regulation. Cryptocurrencies will come within the fold or they will be outlawed. It is irrelevant what is technologically feasible. Governments and state actors don't exist in stasis, any advance in technology will be met with an appropriate response even if that response is "banks are not allowed to accept any funds that have any connection to X cryptocurrency." If that doesn't work, the response will be "banks are not allowed to accept any funds without perfect knowledge of the two parties transacting and where the cash is coming from." What bank would possibly risk going against the government? Even the well-known money laundering banks balk in the face of government scrutiny. What company would possibly risk losing their relationship with their bank?

Cryptocurrency fanatics think that they can digitally outcompete physical reality. They cannot. The governments of the world are the Borg - you will be assimilated.

>Cryptocurrency fanatics

I am a person with nuanced thoughts and opinions, unique and diverse from the rest of the world.

>cryptocurrency

Let's not confuse zk proofs with cryptocurrency. Powerful, non-cryptocurrency systems that use zk proofs are coming. Alone their power is something we must reconcile, even before combined with distributed, autonomous systems.

And that's my point. ZK proofs are astoundingly powerful. Our societies and governments should be getting ready to deal with them.

>protect itself through regulation

Yes, this is a tool of the state. But it's just that, a tool. People have tools too.

The assertion of absolute state control is contrary to the state loosing the Crypto Wars (https://en.wikipedia.org/wiki/Crypto_Wars). The Crypto Wars were one of the first examples establishing the limits of state power in the face of the Internet. This is before other global projects like BitTorrent or Gnutella.

The world is wide and I suspect the future is going to be weird.

The problem with this sort of reasoning is that it conflates an e.mail or a downloaded movie (or a bag of cocaine) with a cryptocurrency or token. E.mails/movies/dope etc are all basically consumer goods. Read the e.mail, wipe it. Put the coke up your nose, watch the movie.

It only has to go as far as the person you are sending it to, and it's journey is finished, and it's value is realised. Crypto is entirely different in that it has no value unless you can sell it on to another person. That final step is it's weak point.

PGP had no economic value when published in defiance of the State Department. Why publish PGP when the personal incentives seemed to far out way the consequences? Phil Zimmerman still lives overseas.

That's my point. You can ignore economics entirely and zk proofs are still going to radically transform our societies and IT systems, long before considering their impact to the cryptocurrency industry.

You are wrong in a subtle way. Yes, if you are doing scaling, than adding hiding using zk is almost free. Problem is - you are hiding things from literally everyone. And while it works for payment systems like zcash, it is a problem for most of DeFi. For some protocols it is impossible (there is proof that you can't do it for AMMs, like uniswap). In general case implementing zk means you need to have a separate layer of information delivery that is capable of discerning parties that Need To Know from the rest.

> I think a lot of us tech people like to think "no it only exists on the internet the govt can't touch it! It's like international waters"

Do people really think that today? I did, when i was a teenager discovering the Internet, and then quickly realised how naive that is when my favourite torrent site got taken down, and when a public digital library website got taken down like a terrorist organisation with a SWAT team taking their servers.

Ah yes, the easy solution is just to ban all the exchanges. That'll do it! And then they'll just have to ban the peer-to-peer decentralized exchanges (dydx, sushiswap, uniswap, xrpl). That might be a little tricky though...

It's just like governments trying to ban torrenting and p2p file sharing. Look at how well THAT went.

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