Why Bitcoin lives in a “legal gray area”
arstechnica.com
arstechnica.com
However, given the way that Bitcoin works, I really wonder if governments do want to shut it down. This may be controversial but it seems with the blockchains the psuedo anonymity of bit coin that the transaction history (if its used primarily for crime) is creating something of a map of nodes as to who the 'big' guys are and who the 'little' guys are. This isn't an 'id' based strategy more along the lines of 'where has this bitcoin been' and then tracing all of them to see how they flow. If all you do is download transaction blocks once a day and note which coins have transacted, then compare that with the coins you find in the wallet of the guy you just arrested, it might leak more data than you would hope. Pure speculation though, based on how current law enforcement identifies criminals by watching bank balances change.
[1] They had great properties, you could take them into any casino and get their face value in dollars.
In Vegas, the Secret Service was pretty clear that their 'goal' was to mitigate criminal activity not clamp down on people who bought a slurpee at 7-11 and only had a $5 casino chip in their pocket.
While there are perfectly libertarian reasons for not wanting your transaction history or cash flows viewable, it is essential in many (most?) criminal endeavors. For better or worse this is an aspect that the US Government uses to uncover those operations. As we've discussed on HN before there are waaaay more federal laws than are necessary which result in making a lot of things "illegal" which I and perhaps others would not agree made sense ( the whole 'lying to the FBI' which is waaaaay overly broad for example ). My point is that if you ask Eric Holder or any Treasury Agent if using BitCoin as the currency for buying or selling goods or services in the US to people in the US they will say "No, it is not." And if you tell them you have been doing so, they may decide to arrest you at that point.
Policy debates (and really that is what this is) are messy and heated, but its unreasonable for a print publication to say that BitCoin is in a 'legal gray area' when calling up the Treasury would disabuse them of that notion. Just like saying paying Income Tax is optional. From the point of view of the IRS that is not true, regardless of the number of scholars and researchers who will create a chain of reasoning to show that it is.
31 U.S.C Sec 5103 only states what is legal tender - and that only comes into force if you end up owing money and the courts order you to pay - you must pay in legal tender.
The most common place you'll encounter this is at certain payment locations at which bills over a certain denomination (generally $20) aren't accepted, or credit/debit cards must be used. However these requirements must be stated in advance of creating the obligation/debt. I'd be interested to know how this applies, say, to automated toll collection systems as well.
Just as it's perfectly legal to have any portion of your wealth invested in gold or silver, which you can freely buy and sell at any time, shouldn't it be legal to have any portion of your wealth invested in bitcoins, which you should be able to buy and sell at any time like any other commodity?
Edit: Note that the same argument can be made for bartering. According to the IRS, in the US, it's perfectly legal to barter any product, commodity, or service for another product, commodity, or service, so long as any taxes due are paid as required by tax law.[1]
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[1] http://www.irs.gov/businesses/small/article/0,,id=188095,00....
For example, I suspect anyone who conducted business in gold or silver, who bought or sold goods and services using gold or silver, would be seeing the black helicopters in fairly short order. I could be wrong and the Feds might only show up once such entity had a little of traction but I am 100% certain they would stop any which seemed like plausible alternative to dollars, especially considering their legal right to do so is spelled out.
The IRS would like like to know if you bought some proxy thing, it appreciated in value, and then you sold it for a gain (or loss). BitCoin exchanges should send a 1099 of all transactions to the IRS (I don't know if they do that or not).
"The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins. Under current federal law, coins are considered collectibles, and are liable for capital gains taxes. Short-term capital gains rates are at income tax levels, up to 35 percent, while long-term capital gains taxes are assessed at the collectibles rate of 28 percent. Furthermore, these taxes actually tax monetary debasement. As the dollar weakens, the nominal dollar value of gold increases. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases, the federal government considers this an increase in wealth, and taxes accordingly. Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals.
Just as pernicious are the sales and use taxes which are assessed on gold and silver at the state level in many states. Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry. Inflation is a pernicious tax on the value of money, but even the official numbers, which are massaged downwards, are only on the order of 4% per year. Sales taxes in many states can take away 8% or more on every single transaction in which consumers wish to convert their Federal Reserve Notes into gold or silver."
To my knowledge, bitcoin is not recognised as a currency by my country (or any other country), therefore it has no special properties. I'm an individual citizen buying something for one value and selling it for another. This is well established in civil law and tax taw.
When I see a story about bitcoin I read it once, then read it again substituting the words pet rocks for the word bitcoin. I ask 'is there anything specific to bitcoin about the concerns being raised?' and the answer is almost always no.
If I buy some pet rocks at a garage sale in August and sell them at my garage sale in September for more money, I record the profit or loss, report it on my tax return and pay the appropriate income tax on it. This is not advice, but its what I'm going with until I learn otherwise.
edit: This statement is false. Thanks for the clarification, nullc.
http://www.irs.gov/publications/p550/ch04.html#en_US_2011_pu...
"For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Some examples are: [...] Any property you own is a capital asset, except the following noncapital assets."
I would expect that the laws would be written so that anything people (try to) use as a currency would be treated as one, rather than having a list of currencies that someone has to keep up-to-date.
Freshly minted coins are obviously anonymous, and so are the ones awarded for transaction fees (they come from whatever transaction your mining rig managed to solve).
It is expected that mining fees will rise to match the cost of mining once the free supply has dried up.
As long as you can find an electricity supplier that looks the other way, mining can be used for laundering.
Because nobody mentioned them yet: They forward money for a fee. With enough users one can then not trace the transaction anymore.
And that makes Bitcoins a anonymous method to pay. Readily availble to launder money. Governments will not look away if this becomes widespread.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2115203
reported on in the Ars Technica article kindly submitted here is a student law review article, specifically a "note," a classic form of first publication for innovative legal reasoning on a novel issue. I can report, as a one-time law student who was a member of my law school's law review, that every law student's dream (if the law student has a scholarly bent) is to publish a law review article that in turn is taken up by an appellate court and then cited as the basis for the court's opinion. That happened to one of my classmates--his comment on a case in the Minnesota Law Review was cited by the United States Supreme Court in a decision that agreed with his reasoning.
So the author here interviewed by Ars Technica is young, early in his career, and speculating on what COULD happen or opinionating about what OUGHT TO happen. He hopes to persuade a court that his reasoning is correct. But the article is not a sure-fire prediction of how any court or any law enforcement agency will respond to Bitcoins. The Bitcoin experiment has some novel features, and litigation related to it will probably produce new court case holdings (at a minimum) and possibly new statutes as well. "The life of the law has not been logic; it has been experience." Oliver Wendell Holmes, Jr., The Common Law (1881), page 1.
As I have written before, perhaps the greatest contribution the Bitcoin experiment will make to humankind is to teach you and me and our neighbors more about the realities of economics. Here we see that the Bitcoin experiment will also teach us more about the reality of the law (in several different countries of the world, and how law from one country can be applied to transactions that involve another country.) Where there is legal uncertainty, there is transaction risk, and persons using Bitcoins to engage in commercial transactions will have to figure out how to price that risk.
AFTER EDIT: There is an interesting idea in another comment submitted before mine.
I would really like to see a full-frontal assault by a first-world government on Bitcoin, just to test how resilient it is to such an attack
I hazard the guess that significant resources have already been devoted by the National Security Agency in the United States and by comparable government agencies in other countries to figure out multiple attacks surfaces in the Bitcoin ecosystem. It may be that those attacks will not be publicized by any government, but held in reserve for a time of need. Perhaps operatives of this or that government can better conduct covert operations with the help of Bitcoins, in one case, while perhaps they can disrupt the activities of a hostile government by disrupting Bitcoins, in another case. I'm sure there are plenty of interested onlookers analyzing the Bitcoin experiment.
Is this even remotely true? I thought they were all basically trying to brute force a valid hash, with no time-based guarantees at all.
edited for clarity.
The winning hash is random with uniform probability. So the more hashes you have, the more likely it is that you have the winning hash.
eta: Each block is based on the "winner" of the previous block. So you can't skip ahead, because you can't know the "winner" of the current block. https://en.bitcoin.it/wiki/Block_chain
Bitcoin mining is stochastic, and for a given current difficult each calculation performed by anyone has an equal very small probability of being a solution. Like throwing dice and trying to get a 1. If Alice mines 10x faster than Bob then Alice will find, on average, 10x more solutions.
(The mental model of 'brute force a valid hash' is often unhelpful. Most people think of "given Y find a specific X such that H(X)=Y", Bitcoin is more like "Given P,B,T find any X,Y such that H(Time||P||H(B||X)||Y)<T")
The problem with Bitcoin is politics. Every country controls how much new money comes into market, lowering the overall value of the currency. With Bitcoin they just can't do that.
It is quite lame to argue that Bitcoin is used to support crimes and so on, since its overall value is by far less than the amount needed to produce every drug USA caught. Let's try not to mix things up. :)
Bitcoin is cool and IMHO, one of the very few viable solution to a unified currency system.
What they deal with seems to have all of the qualities of currency. Ditto: Second Life's Lindens.
Because the miles and points are non-transferable and not exchangeable for cash.
Also, I'm not a believer in bytes carrying out value. You see, a dollar bill is just a paper that represents a value that's not that paper. Having a serial number of a bill "could" be the same as having a bill itself. That makes bitcoins completely impossible to regulate, it will have life by itself. Lack of regulation is not freedom, is stupidity.
Economies with distinct realities cannot share the same currency or indexed currency. See Greece and Germany. Argentina and US.
Currencies will cease to exist. I'll not be alive to see that, but in the future there will be only XP points (just like diablo!) and maybe commodities. Currencies will slowly die out. You will be only capable of producing XP points by working, products itself will never generate XP points.
Maybe I'm just childish, but that's how I see it right now. It's friday, have a great day!!!
Same goes with Tor. Both of these technologies are things that most governments would very much like to see rubbed out before they gain widespread adoption (and, you know, fuck them for that). It's a shame, because even the Internet could probably do with a little bit of regulation, and the monetary system certainly needs it, and yet both of these technologies are in part a reaction to the complete failure of most governments to have any sort of competence with either. In fact in many cases it's just outright malicious. Now in Japan they will begin jailing people for something as harmless as viewing a copyrighted work on fucking Youtube. Time to get a Tor router.
Right now, using bitcoin is a bit of a pain, you have to do a bank transfer, etc. Fix that, and make it as fast as paypal. Money ensues.
IIRC, skirting such rules just last week led to a fine of some two hundred million for banks that anonymised payer data for some transfers that turned out to be for iranian oil.
Well... we'll see how that pans out. I've never had any problems myself, though the new rules only just kicked in. When you consider the conviction rate it can be worrisome, but then again I don't believe they really have the competency or care to really keep track of any of it. Just a slight push and a shove, and anyone who tries to shove back becomes a person of interest.
It's still fucking lunacy.
This isn't a question about technology; as much as the geeks love to obsess over it. Technology is just one part. Non-technology attacks are simply much more powerful. E.g. "Anyone caught using Bitcoin will be executed on the spot by large caliber fire from attack helicopters flying far enough away that you can't see or hear them targeting you", and suddenly Bitcoin is only some obscure and irrelevant thing— even outlaws have no use for outlaw 'money'. There is no question of _ability_ to suppress it, only a question of sufficient motivation.
And motivation is where it comes up short. Bitcoin is just another thing people can barter. Not different from beanie babies or lumps of coal, and it shouldn't be legally or politically different. This whole weird concept of something being unlawful until proven otherwise must be some kind of crazy fallout from the drug and copyright wars, and I fear that thinking will greatly harm society in the long run.
If Bitcoin turns out to be an efficient 'money' then sane and efficient governments should support it: because a more efficient money will make everyone more prosperous. Some people love to feel all counter-culture and subversive with their hobbies, but as disruptive a technology Bitcoin is it's just not politically disruptive. Most of the few establishment risks that go along with Bitcoin apply doubly to cash, the others apply to other valuable commodities that goverments can't just create out of thin air. The motivation to attack just isn't there.
That's still a technology problem. Make the use of it undetectable. A sufficiently technology savvy Bitcoiner would just wrap his stuff with some encryption and with minimal hassle, you would need to be much faster and harsher to stop them.
Besides, if we're assuming civilian execution without trial, then we're not talking about the modern major states. Not a single of the major states could even remotely do such a thing without consequences. The harshest punishments for comparable offences would be for the distribution and possession of child pornography and that is not stopping the offenders, on the contrary.
This will result in a positive feedback loop: The utility of Bitcoins for "regular" people will fall and for "criminals" remain about the same, increasing the criminal fraction of the Bitcoin economy. It won't kill Bitcoin outright, but it will prevent Bitcoin from being anything more than a marginal player.
Name one.
Furthermore, there isn't much of a pure-Bitcoin economy. There are a few things you can buy in Bitcoins, but you cannot make your living in Bitcoins and pay for all of the goods and services you need in Bitcoins. As such, Bitcoin relies on the exchanges to keep the economy going. And there aren't that many of them, and they aren't that resilient. Taking down the top couple of exchanges could devastate the Bitcoin economy. Heck, just taking down Mt.Gox would probably do it.
And there are some weaknesses in the current implementation as well. Most discovery of peers is still done through a single centralized IRC channel. There are a few hard-coded peers to bootstrap the network even if the IRC channel is unreachable, but again, for a sufficiently motivated government, that probably wouldn't be too hard to deal with.
But you also have to wonder if a government would want to attack Bitcoin. After all, there are a lot of people who think that it's an anonymous method of transferring money, but it really isn't. It's pseudonymous, but the entire history of transactions is publicly available to everyone. With a little bit of knowledge of who own certain keys (by buying or selling from people, using compromised vendors, or the like), you could start to generate some pretty good data on where money is flowing. Given that you also publish your IP publicly, and someone listening into the network could start to watch for which IP addresses initiate certain transactions, a party with sufficient resources could probably de-anonymize a large amount of the transactions that go over Bitcoin. Yes, there are ways to protect yourself; connect to the network via Tor or a proxy, launder the money through online exchanges or wallet services, be careful about breaking up transactions randomly across addresses and time to hide any laundering. But there are many people who are not going to be sufficiently technically savvy or motivated to do all of that. Bitcoin probably provides a lot of interesting data to snoops; why try to shut that down?
There are similar arguments for Tor. For one thing, running a Tor exit node and snooping the traffic can get you a lot of interesting data. Given the technical and legal risks of a private citizen running a Tor exit node, I wonder how many of them are run by governments looking for interesting data? Anonymity is pretty hard; there are lots of ways to leak information allowing yourself to be uniquely identified, like browser fingerprinting, forgetting to turn off cookies when using Tor, and the like.
There are also reasons why the government might want to encourage the use of Tor and Bitcoin. Remember, Tor was originally funded by the US Naval Research Laboratory. Any type of security or privacy tool can help US interests as much as it can harm spooks. Tor was originally developed to protect government communications, and can be used both by the government's allies as well as its enemies.
So, I don't think that Bitcoin or Tor are under serious threat of full-frontal assault from a first world government, nor do I think they could survive such an attack. But I think that said first world governments are probably more interested in keeping them running and keeping an eye on them quietly than very visibly shutting them down.
Therefore it can be analyzed as if it were a criminal actor. Does the USG have motive, propensity and opportunity to murder Bitcoin? Sadly, the answers are yes, yes and yes.
Motive and propensity - obvious. Opportunity - USG can't shut down Bitcoin trading, but it can smash the BTC price by destroying the exchangers. If it misses one, everyone who owns BTC and sees it as an investment will rush for that exit. Once it is closed, the price is zero by definition.
In retrospect, BTC will look like a very foolish bubble. In fact it is perfectly sound from an economic perspective, but not from a political perspective - it assumes a basically fair, just and sensible global legal order. Or at least a multipolar one. Closing our eyes and believing these illusions exist is not an effective way to make them exist.
BTC is flourishing. It continues to flourish because DOJ hasn't finished its paperwork yet. If you have some - sell it while you can. A big lump of gold feels nice in the hand.