Major Bitcoin exchange shuts down, blaming regulation and loss of funds
arstechnica.com
arstechnica.com
https://bitcointalk.org/index.php?topic=63749.msg746954#msg7...
Aaron Greenspan predicted this last summer:
http://www.quora.com/Aaron-Greenspan/Posts/In-Fifty-Days-Pay...
TLDR: Old school money transmitters like Western Union lobbied to get a bill passed in CA that requires domestic money transmitters to get licensed (previously was international transmitters only). Now costs $500,000+ (just in CA, not including the 43+ other states with similar licensing requirements), full background checks, and possibility of jail under the PATRIOT Act if you violate any parts of the licensing.
As a side note, Peter Schiff runs a semi-alternative currency operation with his Euro Pacific Bank, LTD., and hides the website from US IP addresses:
It's a bank that stores gold, not cash, and issues a debit card that draws on it. But even that is apparently borderline illegal enough in the US that he won't even show the website to US citizens.
I imagine Tradehill could have done something similar, and may have had they not also had $100,000 taken from them.
The TH guys are a good group, really smart, and doing progressive things. It's unfortunate that they keep getting screwed by the payment processors, who themselves have acted shadier than TH ever did. cough Dwolla cough http://tradehillblog.com/2011/07/26/why-we-are-no-longer-acc...
You can follow the progress of the lawsuit against the Money Transmission Act at http://www.plainsite.org/flashlight/case.html?id=716056.
You can learn more about the companies behind the Money Transmission Act here at http://www.plainsite.org/issues/index.html?id=1.
The unnamed payment processor in this article is Dwolla, which is itself an unlicensed money transmitter in California and most other states. Their connection to a credit union subsidiary does not render them exempt from the law. (Of course, there are thousands of other unlicensed money transmission companies as well, from lawyers to universities to escrow services to payroll processors to real estate agents to construction companies.)
The most expedient way to solve this problem is to contact your state legislators whether you live in California or any other state.
New Hampshire yesterday held a hearing on HB 1700 (http://www.gencourt.state.nh.us/house/committees/housebillsi...), which will repeal New Hampshire's money transmission laws. We should be holding such hearings in every state where money transmission laws exist. They typically cost more to have on the books than they generate in revenue, and they absolutely destroy payments innovation.
Call and e-mail your state legislators! (And if you don't mind, BCC help@facecash.com if and when you do!) The people to e-mail in Silicon Valley are:
Jeremy Dennis - jeremy.dennis@asm.ca.gov (Assemblyman Richard Gordon, Palo Alto)
Brock Winstead - brock.winstead@sen.ca.gov (Senator Joe Simitian, Palo Alto)
Gibran Maciel - gibran.maciel@asm.ca.gov (Assemblyman Jerry Hill, San Mateo)
Eric Dang - eric.dang@asm.ca.gov (Assemblywoman Fiona Ma, San Francisco)
Other people to CC:
Nick Hardeman - nick.hardeman@asm.ca.gov (Principal Assistant, Assemblywoman Fiona Ma, San Francisco)
Bob Twomey - bob.twomey@asm.ca.gov (District Director, Assemblywoman Fiona Ma, San Francisco)
Eileen Newhall - eileen.newhall@sen.ca.gov (Staff Director, California Senate Banking, Finance & Insurance Committee; where the MTA originated)
Mark Farouk - mark.farouk@asm.ca.gov (Legislative Consultant, California General Assembly; had input on the MTA)
May I ask what role those people have? Why is it a good idea to email them?
Cody said it better:
http://news.ycombinator.com/item?id=3379164
The kernel of Greenspan's problem: to operate a business that allows random people in California to transfer funds using you as a middleman, you need to (in effect) post a bond, so that when you do something dumb and put yourself out of business, you don't lose millions of dollars of consumer money.
Greenspan would like the amount of these bonds to be more transparent and, by repeated implication, much lower than they are; their current amounts can best be described today as "if you have to ask, you can't afford them".
Give the guy a break. This particular topic is important to the success of his business.
We're mostly all adults here. It would be nice if HN police limited themselves to matters of civility and trusted everyone else to figure out the rest on their own.
They wanted to charge me a stop check fee and reissue a check. Personally, after that experience, I chose not to do business with TradeHill. They are not entirely honest with their customers, and I'm sure there is something going on behind the scenes related to fraud or perhaps the owners are skimming profits off the top.
I do business only with MtGox now, who has proven to be a mostly trustworthy exchange, despite their past security flaws which allowed data loss.
Security flaws are like roaches - where there's one big fat obvious one (plaintext or weakly hashed pwd database in this case), there at least ten more behind the walls. MtGox is clearly being run by a bunch of amateurs when it comes to security.
MtGox is still the easiest way to deal with BTC <-> USD. I don't trust them enough that I have a lot of either currency in the account at one time but I didn't have a lot before the breach either.
Heh, no actually. 100% non-Apple *nix. :)
Actually if I were going to trade BTC, the only one I would probably consider right now would be Intersango.com:
Then I discovered KeePass2, and switched that. It also does generated passwords. It stores everything locally, but you can sync the datafile to a secure backup service like Tarsnap, SpiderOak, or Wuala (maybe, not 100% sure about Wuala).
Nothing, and I mean nothing about how MTgox handled their problems should inspire confidence or lead you to conclude they are trustworthy. They were caught in lies and shoved their fingers in their ears to lost of typical and easy security suggestions and as far as I know, went forward with an inanely stupid hashing policy for "better" security than bcrypt.
Here is a quote from Ruth Blair, a Paxum representative: “We had been in discussions with our banking partners, Mastercard and our auditors for the last couple of weeks, and on Friday our banking partners ended the discussions with us and stated that it was too much of a potential risk to continue doing business with Bitcoin and Bitcoin Exchangers and instructed us to close all Bitcoin-related accounts,” Ms. Blair wrote on Friday in the forum for adult site webmasters, GoFuckYourself. “We had no choice but to follow those instructions and therefore, all Bitcoin associations were severed on Friday.”
Edit: Anyone care to speculate which corporate interest will kill the internet first: copyright holders or financial services?
It's a pattern. Established corporate interests are threatened by disruptive innovation. Said interest then lobby for regulation to criminalize disruptive innovation. Rinse repeat.
Anyone calling themselves an entrepreneur should be pissed. We ARE the disruptive force bringing about change in the marketplace. This is how we make our livelihood. When change becomes criminal - innovation and entrepreneurship become impossible.
But if "entrepreneurs" are not required to follow the same regulations, then that's just not fair. Am I allowed to call MY company an "entrepreneur" and thereby not be required to submit to strict scrutiny and regulation?
By the way, this comment is intended as a defense of general regulation of certain industries (like banking). I am NOT defending or endorsing California's MTA which I know very little about but what little I know is universally negative.
Wal-mart could lobby for states to require a 'retail license' that costs one million annually. You would have one camp who says we need to be safe from bad business, but the other camp would see this as a ploy to destroy competition and fatten their market-share.
The entire point of bills like the California one is to reduce the public's responsibility for when these kinds of startups go belly up and cannot pay out what they owe to all their customers.
With the current regulations, if the transfer company goes belly up, the state, who would be forced to cover any transfers that were not completed, is not 100% liable for the damages. Customers still get their money moved. The company goes under, but the state isn't left footing the entire bill(like they normally would if the company filed chapter 7).
Let's do a thought experiment between the impact of circa 2005 Paypal versus Youtube(pre-Google) going under. Youtube goes down, people lose cat videos. It doesn't really effect anyone's checkbooks, except for the employees and investors of Youtube.
Paypal goes under. Accounts that were in the process of getting credited suddenly are never going to get their money. Payments stop, which screws over basically every single user that should have been paid their money. Everyone involved with Paypal, from consumers to investors, is out money, and the states have to step in to make sure that all the accounts are closed out and finalized.
There is a seriously high amount of risk for everyone involved. Having a high capital barrier helps to ensure that the risk to the consumer is much less, because they won't be completely screwed out of their money if the company goes under at the wrong time. Also, the taxpayers won't be left footing the bill.
Also, I haven't even touched on fraud or money laundering cases. Having these kinds of barriers to entry helps stop most of these kinds of crimes, because it's just too much risk.
Scale is crucial. I think MtGox had market depth >0.5M$ on the bid side. That's one modestly wealthy client account in a bank. No way could you register a bank with that kind of capital, heck even 100x that. If it grows then you can argue about regulation, but if you're going to require everyone to have >0.5M$/year legal teams to enter the market then yes there's going to be very little competition from the small/disruptive innovators and it's using regulation to keeping the competition out. (Not that I think BitCoin is competition but other services could be).
"If you aren't an entrepreneur on HN, you are a lame poser"? Sounds like someone has a superiority complex.
American Used Car Dealers Funding Terrorists: http://abcn.ws/yGdGGv
How a big US bank laundered billions from Mexico's murderous drug gangs: http://bit.ly/xR3Uxa
I understand why everybody wants to have their privacy, but there's a reason why these services are under a lot of scrutiny by a lot of governments.
Probably.
The problem here is banks and established payment processors banding together to squash their potential competition. Not only do these regulations touch upon bitcoin (a rather insignificant collateral victim), but on startups that may want to reshape the money transaction business.
People who want to do evil things are not really limited in their scope by these rules. It's frighteningly easy to make explosives or to build weapons. A dedicated madman can do a lot of damage, with scarcely anything "authorities" can do against it. Curtailing fundamental freedoms and keeping dossiers on every citizen is a tool to create tyranny rather than protect the people from random murder.
To keep rich entrenched corrupt interests rich entrenched and corrupted? Yes.