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Comment by thinkcomp | Hacker News Reader

This is naive in the extreme.

We all live in nation-states and are required to abide by their laws as a result. Though it's theoretically possible to separate currency from governments, if that's not what the governments want, it will never be legally permissible. As it is, Bitcoin operates in a legal gray area. That's not going to improve.

Most of the VCs I talked to about FaceCash refused to invest because they were afraid of the regulatory implications. But throw in some bad economics (verified as such by Paul Krugman, see http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfett...), a catchy buzzword or two, and some political philosophy, and you've got yourself an investor?

Venture capital is even more broken than I thought.

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Most of the VCs I talked to about FaceCash refused to invest because they were afraid of the regulatory implications.

Having followed your comments on this topic for a while, it seems just as plausible that VCs did not invest in FaceCash because they believed that you cannot take on the challenges(regulatory or otherwise).

VCs invest all the time in enterprises that are in the gray area because the potential upside negates the obvious risks.

I think you have more of a problem with me than any of the VCs I talked to.

Besides, I'm the only one suing the government over this issue, so the hypothetical case you reference wouldn't even be correct.

Willingness to sue the gov doesn't say much about your ability to take on a challenge. In fact, your inclination to litigate may well have scared VCs who'd rather you get traction with your product even if it means operating in a gray area and litigate when forced.

I'm sure if payPal tried to meet every rule and take on what they deemed as unfair laws in their early days they'd never be able to focus much on their product.

I didn't even think about suing California until months after meetings with VCs, so your implications are false.

PayPal had to scramble at the last minute to deal with licensing issues right before its IPO, because it had ignored them up until then. This is well-documented.

I have no idea who you are. I do know that you are critical of my abiding by the law, and critical of my challenging it. You don't think that building an incredibly complex technology from scratch and suing a government demonstrates an "ability to take on a challenge." (Which leads me to ask, what does?)

I guess you can't please everyone.

Which leads me to ask, what does?

You answered your own question:

PayPal had to scramble at the last minute to deal with licensing issues right before its IPO, because it had ignored them up until then. This is well-documented.

I see: in your opinion, unless I'm willing to risk incarceration--a risk PayPal never faced because the USA PATRIOT Act had not yet been passed--I'm not willing to take on "the challenge."

You have a strange view of the world, my anonymous friend.

So you weren't able to raise money because the VCs were scared you'd be incarcerated?

No, the VCs were scared that they wouldn't earn a high return on investment with most of the money going to license fees, application fees, and surety bond premiums; and that in the alternative, they might be at risk of going to jail themselves. See 18 U.S.C 1960(a):

"(a) Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both."

So how are your competitors, who you claim are breaking the law, able to raise money?

You'd have to ask them.

Most of the VCs I talked to about FaceCash refused to invest because they were afraid of the regulatory implications.

Given you have competitors that have raised money, this leaves two possibilities:

1. You were talking to the wrong VCs

2. You got rejected by the VCs for reasons other than the mere existence of the regulatory challenge(for example, they may have rejected you because they believed the regulatory challenges were surmountable but that you did not possess the skills etc. to deal with them in the manner that they'd like)

In either case, your attributing your failure to fundraise to the regulatory implications seems dishonest and/or misguided.

A sample of e-mails from VCs explicitly stating that regulations were a primary factor in their refusal is available as an appendix to the white paper I wrote about the laws, here:

http://www.thinkcomputer.com/corporate/whitepapers/heldhosta...

In addition to those references, several more investors told me verbally that the laws were the primary issue. Beyond that, I'm not sure what skills you would be referring to that you are absolutely certain I (but not other entrepreneurs) lack, in order to deal with regulations.

Furthermore, the two possibilities you listed are not the only two, and I'm not clear as to why you are so insistent on refusing to acknowledge the possibility that regulations might be a hindrance in my case. Specifically, it's also possible that:

3. I was talking to the right VCs, but I was more honest in my assessment of the regulatory situation than the few other competitors I know of that recently did raise money;

4. I was talking to the right VCs, but both my competitors and their investors were genuinely unaware as to the situation regarding a brand new law.

If you'd like to continue the discussion you are welcome to e-mail me.

A nation-state may move to adopt bitcoin (think Cayman Islands or similar) or it could operate outside of the old political regimes, like Sealand.

We should cheer this development-- the nation-state historically is responsible for great misery and bloodshed, and most nation-states today operate as barely disguised petty criminal syndicates, shaking down their productive citizens.

The popularity and usage of Bitcoin shows there is an emerging trend in the currency and payments market: digital peer to peer crypto-currencies. Wilson is only making a statement that this trend has materialized, and he is excited to see where it would go -- if any viable businesses spring up based on these currencies it would be a smart idea for him or other VCs to invest. Why? Well, Wilson at least is an investor in Internet products, and seeing as how these currencies are looking to establish themselves in a global market (Internet) whose GDP is in the trillions... you get the point.

Though, I do think you are biased. Obviously.

So you're jumping to conclusion based on what one venture capital investor says he will invest in?

I've talked to about sixty, and Fred Wilson's post exemplifies many of the patterns I've observed throughout. So no, I wouldn't say I'm jumping to conclusions.

I think there is a valid argument that Bitcoin is an asset class, not a currency. As such, governments would have to make possession of BitCoin a crime. I would think any democratic state would find it very difficult to make possession of an asset illegal.

BTW, I don't find Krugman's arguments very compelling, in that they don't account for the nearly infinite divisibility of Bitcoin and unlike gold reserves, notes held against them cannot be fraudulently inflated.

What about gold?

To put this in the nicest possible way: Krugman is a highly partian economist.

While I haven't taken the time to try to deconstruct his argument line by line, I would be shocked if it's not disingenuous in more than one way.

Yes, I know he won the economics version of the Nobel prize; no, that doesn't change my opinion of him.

Think what you like of Krugman, this is a completely apolitical issue and he knows his economics.

He's also not the only one. Others who understand economics agree:

http://www.quora.com/Bitcoin/Is-the-cryptocurrency-Bitcoin-a...

this is a completely apolitical issue

This just couldn't me more false. Krugman's whole career is built around big government manipulating the money supply.

and he knows his economics

Lots of people who also "know their economics" disagree with Krugman. Economics, as a field, hasn't risen to the level of a science yet.

I'm not much of a fan of Krugman's blogging (which is fairly partisan), but it's pretty inaccurate to summarize his academic work as "built around big government manipulating the money supply". Yes, he's some variety of neo-Keynesian, but so are conservatives like Gregory Mankiw; Krugman's a vaguely center-left one, solidly in the mainstream (and considerably to the "right" of the modern-monetary-theory group). By "partisan" do you just mean that, like most economists, he isn't a follower of Austrian economics?

Yes, he's some variety of neo-Keynesian

Krugman's a vaguely center-left one

That's precisely what I meant by "built around big government manipulating the money supply"

As for partisan: I think all economists that take a definite position fall under what I meant by "partisan." I meant: advocating a niche view that is not accepted by a majority of experts. (In economics, I don't think there is currently any view that doesn't fall under this description.) That's not to say there isn't a correct view; I think there is.

This is unfair. Some of his work is built around general relativity:

http://www.princeton.edu/~pkrugman/interstellar.pdf

So, instead of looking into the matter emperically, you argue that so and so said it and you believe in those people and therefore anyone with opposite opinion must be wrong, regardless of what they say?

Trolls do what trolls do.

ps. I agree with Krugman that Bitcoin is more likely to be treated as commodity and, as a result, causes the hoarding problem. But whether the hoarding could kill Bitcoin due to lack of activity in the bitcoin economy remains an uncertainty. Especially now that the exchange rate is down.

Nobody understands economics well enough to predict what Bitcoin will become. For a start, both of those pieces hinge on the dangers of a deflationary spiral. But it is far from clear or agreed how such a spiral would work, or whether it would encounter a natural limiting factor. To the extent that deflation might cause a decrease in demand, it's not even clear that that's a bad thing - because we live in such a consumption-oriented economy it's hard for economists to even conceive of - let alone analyze - the idea that people might only spend money when they need to.

[It was a mistake to make an economics argument on hacker news. I'm outnumbered and know I won't get a fair hearing.]

The issue at hand is the return on investments, not the value of goods and services. I still purchase technology because the value of having access to that technology exceeds the current cost - the resell value. No one is buying warehouses of Galaxy Tabs, expecting for a positive return a year from now, and if normal investments (for example, the capital required to build the Galaxy Tab) which normally have a positive return assuming 2% inflation suddenly become outstripped by deflation, then no one will invest.

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