Every important person in BitCoin just got subpoenaed by NY financial regulators | Hacker News Reader

Every important person in BitCoin just got subpoenaed by NY financial regulators

forbes.com

324 pointsmartin_189 comments

Unpopular opinion of the day: bitcoin is real money, and the government will regulate it and control it as such.

In my opinion, the end-game is this: bitcoin addresses are taxable, with occasional tax agents spot-checking large accumulations of bitcoin to determine if said addresses fall within their jurisdiction. Bitcoin has the unusual ability to have a very tight trace on where a given virtual coin goes: that just makes the ability to watch the money easier.

I don't know why this should be unpopular, except among people who see the Internet as a new Wild West. The basic advantage of Bitcoin, that its controlled by an algorithm rather than a central bank, exists whether or not financial regulations apply to Bitcoin. Does it destroy the utility of a crypto currency for exchanges and processors to be required to detect e.g. money laundering?

> the Internet as a new Wild West

I thought that idea died, was buried, exhumed, and reburied back in 1996.

I don't think it's dead. I think a lot of people romanticize things like Bitcoin as being part of a world that's lawless relative to the real one. And as hackers, it's one where the lack of order favors them, just as the lack of order in the Wild West favored those with the most horses and guns.

I'm not sure that analogy plays out well for hackers in the long term. Ultimately, the wild west was not won by cowboys with some horses and guns, but large-scale ranchers with title to hundreds of thousands of acres. The cowboys may still have movies made about them, but the likes of King Ranch came out on top economically.

Yeah, there are some fairly lawless places on Earth today and you don't see many people (other than rdl) moving there to make their fortune. People subconsciously prefer the rule of law but it's cool to romanticize Bitcoin data havens and whatnot.

In fairness, people might want laws about not being stabbed, while still being okay with not having laws about sharing information online.

I believe it is more correct to think of cowboys along the terms of freelancers and lifestyle business folks... people who don't need massive success, just freedom from having to be at a highly structured job from 9-5.

Or at least that is the idea that I get from the many I know or have met.

In that sense, the larger market "winners" like the king ranch aren't really a factor, except as their presence begins to foment regulations that must apply to every single person and begin to restructure the world into one where it is increasingly difficult to live outside of a corporate structure.... ie. they fence off formerly commonly held land.

BRB, need horses and guns.

Nope. A casual perusal of Hacker News and reddit will show this mentality is very much alive, and that people believe this is the only way the internet should be. Free, international waters where anything goes and there shouldn't be any government involvement.

No, that meme lives. It just refashioned itself. Look carefully at HN + Reddit to see its traces.

> Does it destroy the utility of a crypto currency for exchanges and processors to be required to detect e.g. money laundering?

It introduces a mandatory third party (the government) to transactions where only two parties are intended.

Such a virtual currency could be designed, and I don't believe it would be successful.

The Bitcoin protocol allows two parties to transact without any outside interference. If governments can restrict using a protocol remains to be seen.

"The Bitcoin protocol allows two parties to transact without any outside interference"

...other than the entire Bitcoin network, right? When last I checked the design of Bitcoin called for transactions to be checked by other Bitcoin users and then broadcast to the entire network. That is about as far as one can get from a two party transaction.

If you want real two party transactions, you probably want this sort of thing:

http://blog.koehntopp.de/uploads/chaum_fiat_naor_ecash.pdf

the network doesn't interfere, they do nothing to the transactions. They are there to act as a safe-guard against double spending, among others, by "validating" them.

It's the wild west, except not a single person ever died from it. It's a communications network. I'm all for treating it as the wild-west, self regulating thing it is.

Applying this logic, mail is the old Wild West.

Nobody has died in the Internet, but money has been stolen and commerce has been interfered with, and that was one of the major drivers behind the taming of the Wild West. Stage coach robberies and train holdups.

I'm assuming the reason somebody downvoted you is the implicit assumption that saving fat cat bankers from middle class teenagers justifies turning the Internet into cable TV. I want to make the other point.

You're claiming it was about commerce rather than loss of life and then using examples where there was often loss of life.

That is the characterization, isn't it? Middle class teenagers versus fat cat bankers. But in reality it's often middle class teenagers or even organized Russian criminals against gullible old people who are susceptible to pishing tricks. 140 years ago, you might as well have been talking about middle class guys versus fat cat railroad companies.

There was often loss of life during train robberies, but the economic disruption was a major component. People knew Jesse James for all the trains he robbed, not the people he killed.

lolwut

A bitcoin address is just a container for some amount of BTC. Holding an amount of currency isn't taxable, and exchanging currency often isn't taxable either. (I'm generalizing across jurisdictions, but I think what I'm saying is true for most of them.)

If you move money from one pocket to another, or one savings account to another (that you own), that's not taxable. Very many transfers between bitcoin addresses is just like that: the 'change' from a transfer goes to a new address owned by the same person.

Even when the addresses are owned by two different people, the transfer often isn't taxable. You don't pay a tax when you pay a bill, but that's a currency transfer between two parties. Even when you buy something it isn't necessarily taxable; in many jurisdictions many products are sold tax-free based on either the type of product or where the buyer and/or seller are based.

I don't think there's a way to enforce taxation on bitcoin that's not already being used to enforce cash sales taxes and cash income, despite the tracability of the coins, because the address owners may not be identifiable, and the nature of the transfer is definitely not identifiable from the blockchain.

Great explanation.

Ignore my ignorance in crypto stuff, so, what's stopping us from creating a hundred accounts in one computer and having a couple of bitcoins in each one of them?

Or even spread in one hundred shared peer-to-peer bank services?

Nothing stops you from create hundreds or even millions of bitcoin addresses, which can act as "accounts."

Edit: A bitcoin address is a 160-bit number. That number is associated with a public and private key. The only way you can spend bitcoins stored in an address is if you know the private key of that address.

For more information, this video gives a fairly in depth explanation: http://www.youtube.com/watch?v=Lx9zgZCMqXE

Not only does nothing stop you, it's fairly trivially automatable.

I just wondered to myself how long it would take you to use up all the addresses if you created a trillion per second.

3.6e+17 times the current age of the universe. So, it looks like there are enough addresses for you to really go nuts, if you like. Block chain might get a bit bloated though.

when you create addresses, you can do them offline. Has nothing to do with the blockchain.

Addresses are not added to the block chain unless they receive Bitcoin. There are no checks in place to ensure the uniqueness of the address, since it's virtually impossible to generate the same address twice, let alone an address with a positive balance.

This is exactly what the standard bitcoin client does - it creates 100 addresses when installed.

Nothing. For that matter, nothing stops you having a hundred bank accounts, but doing so will certainly increase your chances of an audit.

> exchanging currency often isn't taxable either

Exchanging currency often generates "exchange differences" which (often indirectly) increase/decrease the profit.

I'm not sure that's an accurate representation of how things work in the tax world. You don't pay a tax when you pay a bill, but it's likely the recipient of your money includes it as income on their tax return. Same goes for any seller - whether or not a sales tax is involved. If you were to transfer a large amount of money from your bank account to a friend's, your friend would likely have to count that money as income on their tax return (as a gift).

The way the US tax code is set up, any income is taxable unless there's an exception for it.

Theory question:

If I gift my friend $X, and then he gifts it right back to me, and we proceed to do this back and forth ad infinitum, is it the case that the IRS would eventually bleed that money to $0?

Yes, but only via the gift tax and after you've reached the gift tax exemption, which is pretty big.

It's not that big. It's $14,000 per person per year.

I'm trying to think of a way to "test" this, like set up a couple of accounts and programmatically transfer money back and forth. I imagine most banks/processors have some sort of mechanism to limit transactions that would be considered suspect (such as automated back-and-forth transfers). But the lower limit's not a problem -- by repeating the transaction, you'd be contributing to the limit of $/year, even with a miniscule amount.

The bank doesnt report you. It is up to you to report yourself as receiving a gift. The entire US tax system works on self reporting and the fact that during audits if you have wilfully lied you will go to jail. So you can transfer some amount a million time and then just say you transferred it once and the IRS will probably never even look into it.

The bank will mandatorily report the transaction if it is $10k or greater (or a series of transactions constructed to fall under the $10k limit).

The first $5M is exempt.

You are thinking of the inheritance tax. If I recall the gift tax and the inheritance tax interact, but you only pay the inheritance tax once, when you are dead.

Minor quibble: Inheritance tax is paid by the beneficiaries, not the deceased.

36% of single filers in the US make less than $14000 per year.

But it's not strongly enforced.

Actually it'd be very interesting if it was. A lot of 20-somethings in New York get more than that from their families.

Enforcement could put an end to many unpaid intern jobs.

It's possible they could take that position, but I suspect you or your lawyer would be able to come up with a way out of most of it. For example, you could argue they were a series of interest-free loans, so there was no income to anyone (other than the forgiveness of any interest the IRS would impute to the loans). Or maybe there's an exception in the tax code for the situation you describe - I'm not a tax attorney :)

And as ebiester noted, there's an exemption for gifts under a certain amount.

Well, it'd probably get you flagged for investigation as an unusually incompetent money launderer, but I suspect you could convincingly argue that it's not taxable.

No, because the amount will get lower and lower until it gets below the exemption threshold, at which point it will remain constant.

In Canada, even if you destroy all paperwork and tell the taxman that you don't remember anything, the law permits them to look at your assets and decide how much you owe. Then it's your burden to prove otherwise. Is it different in the US? Hell they could even force exchanges or code mainteners to build in a tax system.

It's the same in the US.

Yup, same in the rest of the civilized world. People scaremongering about Bitcoin and taxation really have no idea how taxation works.

Sure, there will be small amounts of fraud— there always is— but if cash didn't kill taxes, Bitcoin sure won't. The incentives are just setup to make tax fraud at any real scale unattractive.

Nobody can force opensource code maintainers to build anything. More importantly, nobody can force all exchanges to run any particular code; exchanges can exist in any political jurisdiction.

However, a government can probably make it very difficult to impossible to get money in and out of an exchange for it's citizens, if that exchange chose not to implement whatever features it requires.

Whilst way you say may technically be true, the government could just declare this:

Each person must publicly declare the bitcoin addresses that they hold. Any legitimate business accepting payment in bitcoins can only receive bitcoins from other registered addresses, else they are black flagged and no longer a registered address.

Now, your average business and the banks are not going to circumvent these rules. The Banks will probably give their business customers payment gateways that enforce these rules without the business having any choice. Black market bitcoins will still exist, they will just be useless as "normal" currency and will be completely separate, with no way to cross over. Since all transactions are public it is trivial for the government to enforce these rules.

You'll still be able to run your exchange in some other political jurisdiction, but unless the Government white lists your addresses, nobody will be able to spend those coins on legitimate businesses in your country.

>Any legitimate business accepting payment in bitcoins can only receive bitcoins from other registered addresses, else they are black flagged and no longer a registered address.

This particular implementation wouldn't actually work. Anyone can send BTC to any address, so it would be easy to poison the well.

(But I suspect some similar scheme could be feasible. You might be able to enforce the rule on BTC->$ withdrawls? I wonder about mixers, though.)

This particular implementation wouldn't actually work. Anyone can send BTC to any address, so it would be easy to poison the well.

You could easily have software that would automatically turn over to the government any coins sent from addresses that are not registered. It's like if you found a briefcase full of money: you'd turn it over to the police (or maybe you wouldn't, but that's what you should do). With software, it could just be automatic.

If you refuse to run software that does this, or you don't turn over coins received from blacklisted sources within some period of time, you get blacklisted.

Except that because of ECC you will eventually leak your private key if you reuse the wallet for too long. So now you need to report every new wallet. Good luck with that...

Even if it was technically possible[1], I don't think it's any more feasible than forcing citizens to publicly declare the serial numbers of dollar bills that they hold.

[1] By design, Bitcoin addresses are supposed to be single-use. Reusing them is a security risk and not recommended (recent android vulnerability is a good example - it only affected reused addresses). Every transaction done with the standard client usually creates a new address (to send the change), which is not even visible in the interface. Merchants accepting Bitcoin usually create a new address for each invoice, etc. etc.

In other words, the way Bitcoin is used is fundamentally incompatible with the public declaration of addresses. If the government has the power to change this, it might as well make Bitcoin completely illegal and not bother.

It's trivial to make a wallet program that would report the new addresses as it makes them, one for each new transaction. That's really not a big limitation.

The ZeroCoin extension to BitCoin has already been developed, but not implemented, to take care of this exact problem. ZeroCoin effectively destroys Bitcoins only to have them recreated in a new address with no connection to the originating address. These "transactions" have zero traceability (provided there are a few of them happening each block), thus the name ZeroCoin.

Which government would that be?

> Holding an amount of currency isn't taxable

It is in Norway - any cash or deposits in excess of 750.000 NOK (around 125.000 USD or so) is taxed in addtion to interest being taxed as income.

Now, cash isn't easily detectable, so it is a very easy asset to hide -- but while possible, that would be tax evasion and is illegal.

Taxed at what percent? Ludicrous.

I agree, the thought of merely holding money being a taxable event seems weird (speaking as an American). That said, it's a great way to ensure that people don't hoard cash and instead spend it or invest it (in theory, keeping the economy moving).

Well if you put it into a bank account the money will actually be being invested by the bank anyway.

Why ? Seems like a great tax to me. The people who are most likely to be hoarding large sums of cash are the type of people who you want to be taxing.

So that they take their money somewhere else?

Seems like a great way to discourage saving and keeping people living hand to mouth.

Which, of course, is the basis of modern macroeconomics -- keep people spending as much as possible.

You are making assumptions on a system you know nothing about (otherwise you wouldn't have written what you wrote).

Read about how this tax work before complaining about it, please. It's only for generally big amounts of money, and your mortgage and other stuff is subtracted, making it a non-issue for almost everyone. And you can fine invest the money instead.

Indeed. Why, if the government applies small taxes to cash savings of over 125k, I just won't save at all!

Wait, what?

Which is how you keep the economy growing.

Nobody hoards large sums of cash. Cash is deposited into a bank, and the bank loans it out to someone who spends it. That's how banks make money, and why they are able to pay you interest on your deposit.

> Nobody hoards large sums of cash

i completely disagree.

first of all, you're arguing semantics, and you know very well that there are many fractional reserve bank accounts with lots of accumulated cash available for withdrawal at any time. that is a working, popular, valid definition of "hoarding cash".

second, do not underestimate the amount of cold, hard, paper (polymer?) cash hidden in safe deposit boxes distributed around the world. you can bet your bottom dollar (har har) that this cash isn't being lent out to commercial banking clients and mortgage buyers. it's sitting in boxes, unused. in a certain sense, it's an anti-inflationary savings mechanism.

that's not even counting the gold, platinum, pearls, diamonds, precious gems, and etc.

I understand fractional reserve banking. It's a percentage (I think around 10%) of the deposits the government requires a bank to keep on hand. The rest of the deposits are all loaned out back into the economy.

Note that the government requires this reserve because otherwise the bank will loan it out, i.e. the bank doesn't actually desire to keep cash on hand. Neither do rich people. Even drug lords don't want cash hoards, it's why they launder it.

It's not splitting hairs over semantics. People who have money in the bank do not have a cash hoard that they are withholding from the economy.

As far as people keeping assets in safety deposit boxes, nobody has any idea how much is in them, so it's rather pointless to talk about them. I do find it hard to believe that Apple's billions in "cash" is really a hoard in a safety deposit box that's withheld from the economy.

>that is a working, popular, valid definition of "hoarding cash".

Not in the sense we are discussing of it being withheld from the economy.

(For fun, watch Breaking Bad, where one of Heisenberg's biggest problems is trying to convert cubic feet of cash into something he can spend.)

1. Wealthy people hoard large sums of cash.

2. Banks stopped making most of their money from deposits a long time ago.

> Wealthy people hoard large sums of cash.

I'm curious where you think they put all that currency. You could argue they're hiding it from the tax authorities by putting it in a safe deposit box, but by definition nobody knows how much cash there actually is in those boxes, and of course raising taxes on such cash hoards isn't going to affect such.

> Banks stopped making most of their money from deposits a long time ago.

Consider this advertisement:

https://www.key.com/personal/promotions/dda/200cash.jsp?sqkl...

If banks were not making money from deposits, why are they offering $200 in cash to open a checking account?

Banks make money from charging you for the privilege of using your own money.

Monthly account-maintenance fee. ATM fee. Fee if you don't have direct deposit. Fee for cashing checks. Fee for using a teller. Fee if they process debits before credits so as to push you into overdraft even though, by chronological transaction order, you never overdrafted.

They don't make money by accepting deposits and making loans; they make money by squeezing fees out of people who don't have much money.

Key bank has free checking and free atm usage and free teller usage. Perhaps you should transfer your checking account there, especially since they're offering $200 for new accounts.

> they make money by squeezing fees out of people who don't have much money

They do make money from people who don't pay attention to their balance - regardless of whether they are poor or not.

> They don't make money by accepting deposits and making loans

That perplexes me since they constantly try to sell me loans.

They do make money from people who don't pay attention to their balance - regardless of whether they are poor or not.

It is unfortunately the case that being poor is much more expensive than being rich. Banks on average know and take advantage of this.

Where does my bank make its money then?

https://www.coastcapitalsavings.com/Personal/Banking/Chequin...

Unlimited debit/atm/teller/billpay/cheque/dd/dw transactions, no minimum limit, no requirement for direct deposit (but if you use it, its free too), no monthly fee.

Congratulations, you've got a relatively customer-friendly bank. If you think you can generalize from that to banking in general, you need to read up on what banks in general do these days.

Seems like a horrible tax because it's not your property. It doesn't matter if the person in question has many resources or few, those resources are not yours to steal (or "tax", or whatever euphemism for aggression you want to use).

If you insist of using politically biased terms like "steal" for it, conversely your opponents can just as easily justify reaching for Proudhon and his "property is theft".

How is that any different than controlled dilution of a fiat currency, like the Federal Reserve does? The net result is the same.

It's actually sort of the opposite. Interest based money is designed so that the numeric value grows over time. A tax on holdings makes its numeric value decrease over time. See http://en.m.wikipedia.org/wiki/Demurrage_(currency)

No, it's the same thing, as that link points out:

Both inflation and demurrage reduce the purchasing power of money held over time, but demurrage does so through fixed, regular fees while inflation does so through expansion of the money supply by a central monetary authority distributing newly issued currency or through endogenous money creation (such as fractional reserve banking).

The Fed controls reserves, not net financial assets. The net result from a fiscal injection and a financial composition shift is not the same at all.

Exactly how do they differ? My impression is that the net result (depreciation of cash assets) is the same.

Increasing the amount of available reserves doesn't really transmit to inflation as it's constrained by demand for loans. The loanable funds model which says that increases in reserves leads directly to increases in loans doesn't really apply under a floating-rate non-convertible currency regime.

Interesting, thank you.

Yeah, direct tax is a lot more fair.

Around 1%. The reasoning is partly to encourage reinvestment (stocks are taxed differently).

In the Netherlands, all assets over €21K (roughly $28K) are taxed at 1.2 %. This includes cash, bonds, stocks, real estate held for investment, paintings held as investments; everything that is not for personal use (so cars and yachts are not included, nor are second homes for personal use).

Yes it is preposterous.

Same in Switzerland. http://en.wikipedia.org/wiki/Wealth_tax#Existing_net_wealth....

How is it more ludicrous than property tax?

Same in France,you're taxed on the capital (accounts, real-estate, etc) above a certain amount (something around .75M I believe)

I'm considering to open an account with a Norwegian bank, say Bank Norwegian, as a low risk investment. What is currently the untaxable annual income? I believe it used to be 30K NOK a few years ago.

(For Americans) If you earn income in bitcoins, you still have to pay tax in USD. If you earn income in Euros, you still have to pay tax in USD. Bitcoin does not absolve you of your tax obligations, even thought it might help you to evade them.

The interesting part would be what exchange rate you would use. The IRS publishes rates for major currencies, but Bitcoin is so volatile that a single yearly exchange rate could dramatically shift things one way or another.

But do you pay based on what the bitcoin was worth in USD when you made the transaction, or when you pay your tax bill. Which exchange does that valuation come from?

I am pretty sure it is at the time of the transaction. This is no different than buying or selling stock.

Believe it or not, we've had taxes for a long time on non-dollar-but-store-of-value things whose values fluctuate over time. Bitcoin does not present any sort of radical new challenge to the tax system.

Ok, I had a feeling that would be already settled but a lot of people seem to think you should be paying taxes now and I don't see how can that can be done without knowing which of the many exchange rates to use.

This is why I don't believe in BTC for the long term. It's not anywhere near anonymous.

Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner (good luck buying stuff on SR using gold).

Unfortunately, BTC is traceable if governments decide to spend the resources monitoring transactions, and I suspect this would be the primary motivator in the demise of BTC and a replacement with a more anonymous currency - the other motivator being that there's a huge financial upside for being an inventor or early adopter of a successful cryptocurrency, as BTC shown us.

Isn't BTC's public ledger public? (https://blockchain.info/)

While it's possible to generate a new wallet to mask who the user is, the transaction flow can be traceable. This seems easier to trace than the flow of money through our banking system.

Yes, the BTC can be traced, but they cannot be associated with physical people until they identify themselves. Your anonymity is limited by trustworthiness of the person selling you the coins and the person you are buying physical goods from.

There is this proposed extension for anonymity, but I don't think it's very likely it will be implemented:

http://zerocoin.org/

People claiming BTC has no inherent value aren't talking about the general concept or code—they're referring to this particular blockchain.

However, BTC is just a great example that might find followers who will make it hmmmm... more anonymous.

Money has just two functions: (1) It has to maintain its value over time (2) People must accept it as means of setting payments

BTC seems to meet both.

It's not anonymous "enough", but I guess this could be fixed with another iteration. (another electronic currency).

It would be great for the world to have more currencies than the monopolistic currencies enforced by the modern states (fiat currencies). Just to own something that doesn't have its monetary base doubled in 4 years, would be awesome! (USD base rose two times from 2008 to 2012).

Full anonymity can be had with the addition zero-coin. Currently the bitcoin team doesn't feel that it has a place in the main protocol, but that may change in the future.

If the government steps in to "de-anonymize" bitcoin, then people will simply begin using tumbling services. People don't use those services right now because there's no impetus to. But as soon as the trust inherent to the public ledger is violated by creating a large-scale effort to track the flow of bitcoin, then people will counter that action with tumblers.

Yes, because tumbling services aren't designed to launder money or anything...

Just using Bitcoin for transactions doesn't eliminate legal obligations. I imagine that if they ever got popular, tumbling services would be the first things that would be regulated (or shutdown by the gov't).

...except that anyone can set up a tumbling service in any political jurisdiction. It is not practically possible for the US to shut them down; the best they could do is try to police domestic users of tumbling services, which is a much harder problem.

It is also difficult to tell the difference between a tumlbler service, and some other various more legitimate uses.

The level of regulation it would take to actually trace lots of tiny transactions between pseudonymous parties is next to impossible. How is me paying a friend back for half the pizza we shared to a new address of his going to be handled?

If everyone launders their money in a deliberate attempt to circumvent government regulation, they'll simply impose broader and harsher regulations. If crypto currencies are going to take over the future, then Bitcoin is a huge win for governments because of this. Your anonymity depends on your actions as in the real world, except the paper trail is significantly improved. Central banks may be perturbed by all this but the IRS certainly won't be. The only way to get past this in the long run is either to A) be on the other side of the law or B) use an implementation that forces anonymity, in which case there is still the threat of it becoming illegal once it's considered to be a large enough target.

See my comment here: https://news.ycombinator.com/item?id=6204187.

It's pretty straightforward for the Government to come up with a scheme to defeat tumbling services. Just make it mandatory to only accept payments from whitelisted addresses. Banks and your average business are not going to go all cypherpunk and circumvent such laws.

Meet Zerocoin, the cryptocoin extension adding zero traceability transactions for the low low cost of a few extra bytes per transaction.

http://zerocoin.org/

Correct me if I'm wrong, but zerocoin is essentially a formal, decentralised tumbling service, right? It runs parallel to bitcoin and people on bitcoin can choose to use it or not.

Under my scenario, if you used zerocoin, and anybody else using the service wasn't whitelisted, you would be blacklisted, since there would be a chain of coins being sent from non whitelisted addresses to yours. So it would just be up to you not to use it.

The key is at what stage the Government becomes involved. If they implemented this sort of proposal right now, they would just say "if you're using zerocoin, you'll likely be blacklisted- tough luck". If everyone starts using zerocoin, including all legitimate businesses, and then they try to regulate it- then people would have more power.

> If the government steps in to "de-anonymize" bitcoin, then people will simply begin using tumbling services.

Well, yes. Of course, it's not like tax authorities haven't had to deal with money laundering before.

"Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner"

Really? When last I checked the overwhelming majority of criminals were using paper money. This is probably because the overwhelming majority of people in general use paper money and because criminals have to pay rent like anyone else.

Who did you check with? Jack Bauer? LOL

The biggest criminal enterprise is "outside money" vs. "inside money" and the scale is orders of magnitude larger than the folks peddling narcotics or paying for hookers.

Biggest criminal enterprise? You mean like Bernie Madoff and friends right?

>Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner (good luck buying stuff on SR using gold).

Alternative equivalents like litecoin work equally well.

That's why I think bitcoin is bound to collapse. There's no a priori reason to use one root over another, and given the choice, why would you pick the one where "satoshi" has already assigned himself 25% of the wealth?

Because that's the one everyone else is using. The current blockchain has significant momentum, so any alternative would be working uphill.

Do you have any reason to believe that the wealth distribution of other coins (forked from Bitcoin) looks much different? With an deflationary currency you will always have early adopters that own a large percentage of the wealth.

I believe once a less deflationary alternative arises (which will surely happen sooner or later, there's no inherent reason behind bitcoin's "half every year" mechanism - I'm surprised if all the current alternatives just blindly copy that) it will win out over bitcoin.

I think in the short term at least, this is beneficial for Bitcoin, if it's recognized as money, and businesses and "normal" people start trusting to use it without fearing repercussions from the government, as long as they "follow the rules".

This could lead to more centralized exchanges, which again is good in the short term - the more the merrier, so people can easily get Bitcoin with their dollars.

But I think the end game for Bitcoin is to be a "real currency" that gets used everywhere and people get paid in it, to the point where a lot of people won't need to exchange to dollars necessarily.

At that point you could start living entirely with Bitcoins, and you won't need centralized services anymore either. You can just use your own local wallet, whether it's on your PC, smartphone, or NFC ring.

Tracking the transactions through services like Coinbase or Mtgox is obviously going to be trivial for the authorities, since they can just request the data tied to people's names.

But it's going to be a lot harder to see them when you're using local wallets, unless the IRS is still receiving help from the NSA at that point, because you'll probably need something like the mass surveillance system of NSA tracking every transaction from the whole Internet, and using Big Data to identify who's buying what. But hopefully by then we'll fix the NSA "problem".

Local wallets is not a really accurate term - all BTC transactions go in the public ledger. It's kinda one of the flaws of bitcoin, there's no such thing as an offline transaction.

I think the go is trying to distinguish between wallets associated with a known identity through exchanges/services and ones that are not.

Right now we're mid-game with btc. It appears that the implicit strategy by the authorities is to treat it as a functioning currency. Fine then; that is good for btc's long-term success. It also implies that the tax-man is coming. btc is not going to live as wildcat currency used by the fringe, untaxed and destroying economic supremacy (That is to say, I disagree with the idea that btc will destroy the economic system that some people favor).

Also, the blockchain is 100% public. So if you can tie a btc address to a real person (perhaps via tax returns requiring you to declare your virtual currency addresses), then the entire pseudo-nymousness of btc goes out the door.

Things to think about.

In a way, bitcoin itself is not really a currency, or money, it's more like an idea for exchanging messages. Bitcoin is really a decentralized messaging system which relies on cryptography and proof-of-work to maintain integrity. Should exchanging messages in the form of "I owe you x amount" over a p2p network be regulated or be made illegal?

However, The fact that it's used as a form of currency is just an interpretation of what Bitcoin is. There can be other interpretations for what bitcoin-type system can be used for, for example Namecoin is used for name registrations. The judge declared that bitcoin is money by making an interpretation.

If anything, Bitcoin is just software. It will be very difficult to regulate.

1. Software using encryption is protected speech (http://en.wikipedia.org/wiki/Bernstein_v._United_States). Regulating bitcoin as in bitcoin the software would be a form of censorship.

2. Bitcoin uses many of the standard principles of cryptography we already use in e-commerce. Banning cryptography would have enormous consequences for the economy of the internet in general.

3. Banning or regulating p2p would cause an uproar.

4. If buying bitcoins in exchange for dollars is really exchanging a string of bits for money, then if this is banned or regulated, would it also ban buying software or other digital goods for money?

5. The regulations can't be too broad, but can't be too narrow. Would the laws restrict only bitcoin as a currency or other applications of bitcoin as well? If too broad, then they will unintentionally restrict other uses of bitcoin too. If too narrow, a new system will pop up again.

> In a way, bitcoin itself is not really a currency, or money, it's more like an idea for exchanging messages.

It's a way to convey messages, but the messages represent value in the same way that paper money does. If bitcoins can be exchanged for goods and services, then they represent the value of those goods and services, just like paper money.

An electronic message describing a transaction involving dollars, or euros, or some other wealth representation, is just a message about a transaction. But a bitcoin is the wealth representation -- it doesn't require, or refer to, another medium of exchange.

Your argument tries to deny the identity of bitcoins as currency, but that isn't so -- they're currency.

"the messages represent value in the same way that paper money does."

I doubt that, since paper money is guaranteed by law to at least be accepted by the government for tax payments. There are no guarantees at all with Bitcoin.

> I doubt that, since paper money is guaranteed by law to at least be accepted by the government for tax payments.

Fair enough. I think over time that will change -- either the bitcoin idea will evaporate, or they will come to be accepted by all sectors of the economy.

Your argument assumes that individual bitcoins exist...

Bitcoin ties a number to a script. By providing a cryptographic key for that script you can add that number with some other numbers from other scripts and then divide that value into new scripts (throwing away the extra). Bitcoin programs often generate new keys for just about every transaction (so it's hard to link them together).

These scripts are transactions in waiting. They can't complete until someone provides the key that decrypts them, and then puts them in another transaction. Bitcoin is deniable, no one can prove you have the key to some scripts (since you can generate the keys from something in your memory, as opposed to using the easier to use encrypted wallets), and if they tried to, it would be equivalent to a thought crime.

Now, as a legit business, you would be required to collect tax for your services (for sales tax), but you already have to do that, which is how it should be.

> Your argument assumes that individual bitcoins exist...

No, my argument only assumes that bitcoins represent symbolic value, i.e. are "currency".

They are also disastrous for the planet - bitcoin's carbon footprint is growing, trading our planet for ... imaginary points. This has got to stop.

Either Bitcoin is just a bubble, and it'll stop, or it's actually useful, and not just "imaginary points". Either way, it'll probably be decided way before it has any real impact on the global energy consumption.

http://www.links.org/files/decentralised-currencies.pdf

http://www.links.org/files/distributed-currency.pdf

This is yet to be proven. Is the bitcoin network really more costly than existing payment systems? Can the security benefits, instantaneous transmission, and other features be replaced by less costly alternatives?

As the mining reward rapidly dwindles relative to the cost of electricity, there is a huge incentive to reduce the electricity consumption while maintaining the security of the network. At what point does this reach an equilibrium depends largely on the market value of bitcoin. So it should be a somewhat fixed cost in proportion to the adoption of bitcoin, just like the fixed costs of any currency (e.g. minting coins, mining gold, etc.).

Is there a better way of doing it? There needs to be a way to distribute the first bitcoins fairly and anonymously, and it's also a great way to get people to start using the currency. It would be ideal if the bitcoin mining stopped sooner than it does, but it seems to have been enough to jump start the currency to where it is now.

At present we're in a 'gold rush' phase, and the rewards from mining result with a large amount of resources being spent on it.

Mining rewards will diminish over time so it will no longer be feasible to mine as much as in the 'gold rush' phase. So the carbon footprint will not be growing all the time.

In fact, there's a race to make the current hardware to become more power efficient. If you live in a sunny place, you could probably pick up 240 Watt solar panels for around $300, a connect a Raspberry pi @ 3.5 watts, then a 10 GH/s Erupter blade @ 75 watts.

A good comparison:

Current estimated power consumption of the Bitcoin network: 1.67 Mega watts. (6,028.57 megawatt hours http://blockchain.info/stats).

Typical power generated by a single Boeing 747: 140 Mega Watts. There's hundreds of these flying right now, yet no-one is appalled about the carbon footprint. http://en.wikipedia.org/wiki/Orders_of_magnitude_(power)

>Bitcoin is really a decentralized messaging system...

>The fact that it's used as a form of currency is just an interpretation of what Bitcoin is.

Gold star for your comment.

Many of the other interpretations are not regulated as currency and arguably should not be.

I can understand why people are excited about it being used as a simulation for something financial institutions would want to regulate. But the real potential is in the technology, and the innovation potential that comes out of it.

Recent regulatory moves may lead to attempts to try to kill bitcoin:

http://www.ownlifeful.net/2013/07/how-to-kill-bitcoin/

Money is, in essence, a messaging system for communicating value. The Minneapolis Fed published a paper in 1996, "Money is Memory". It shows that if one defines money as "an object that does not enter preferences or production and is available in fixed supply" and memory as "knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past," then "any allocation that is feasible in an environment with money is also feasible in the same environment with money." Hence, "from a technological point of view, money is equivalent to a primitive form of memory" [1].

The reference to "fixed supply" equivocates to "fixed prices" in a growing economy, i.e. one dollar has equivalent purchasing power today or a hundred years from now.

[1] http://www.minneapolisfed.org/research/sr/sr218.pdf "Money is Memory" (1996)

I doubt they'd bother trying to tax transactions from one Bitcoin address to another. It'd be incredibly infeasible.

They will probably start requiring that all vendors who exchange real world currency or commodities for Bitcoin pay taxes on all such trades, however. Which isn't all that unreasonable.

It would seem far less infeasible than taxing cash transactions (far easier to trace), and cash transactions are certainly a thing of great interest to tax authorities.

> Unpopular opinion of the day: bitcoin is real money, and the government will regulate it and control it as such.

Which government?

There is only one, the NSA

Over time, likely all of them.

Was just thinking that. Say the US govt does put regulations on Bitcoin, do those regulations apply to me in as a UK citizen?

Of course it is. If at any point where you think you have created a technology that will be tax free, it will only remain so until it becomes economically viable for the governments to tax it. We only have to look to Mass. software tax to realize this is the case, even when the implementation doesn't make a lick of sense.

Real money is a government IOU that can be redeemed to fulfill your tax obligation. Bitcoin fulfills neither of these. It's simply a receipt for wasted electricity.

I like paying tax, I use bitcoin for other reasons, who does not like to have schools and hospitals and the other things that come with taxes ?

Finally - New York is going after financial criminals! Oh wait a minute...

In related news last Friday the Justice Department had to admit that the success numbers Eric Holder trumpeted on mortgage fraud were massive overstated - by 80 percent. The government restated the statistics because it got caught red-handed by a couple of nosy reporters. Priorities...

[1] http://www.bloomberg.com/news/2013-08-11/eric-holder-owes-th...

Well, my own submission just got [dead]ed --no indication as to why-- but I'll paste my comment here as well:

I know very little about Bitcoin or money transmission laws. Unlike other currencies it does not seem to have fundamental dependence on any centralized arbiter, though the practicalities of large exchanges like Mt. Gox seem apparent to me. That lack of dependence on a Fed-like body appears to me like its biggest advantage, above any other potential for anonymous payment and laundering. I'd like to know what exactly is entailed in becoming compliant with money transmitting and laundering regulations and whether Bitcoin in its current form could become effectively compliant. Is that even a meaningful concept, or does the structure of Bitcoin fundamentally preclude coming into effective compliance?

[dead]ed submission: https://news.ycombinator.com/item?id=6201643

> whether Bitcoin in its current form could become effectively compliant

Why couldn't it be? The entire transaction history of a wallet is preserved into the future. As soon as you correlate a BitCoin wallet with a person, you have their entire history with that wallet. It seems more like a government's wet dream than anything else.

ehm, no. you can create brand new wallet for each transaction and wallet on its own is not connected to your real identity in any way. it's more like government's worst nightmare.

As I understand it, if you want to receive bitcoins with wallet A and send those same bitcoins with wallet B, you would need to transfer said bitcoins from wallet A to B. And each transfer is recorded in the blockchain.

This is correct. However, it is difficult to prove that A and B (or perhaps every wallet in some long chain) are owned by the same person, especially if everyone has a large number of wallets and doesn't reuse them when they are empty.

Let's say the blockcoin shows a transfer of 1 BTC to a new wallet A, and then to a new wallet B, and then from B to a wallet owned by a registered BTC-USD exchange C; to comply with government regulations and protect themselves against fraud, C checks the ID of the owner of the wallet B. A government can now determine the identity of B (and might even force C to provide the information on all transactions in real time, so they know who B is even without an investigation), but they cannot automatically infer the identity of A. There are two possibilities: Perhaps A is owned by a different person, who earned BitCoin for doing some work, and then purchased another service from B. Or perhaps A and B are owned by the same person.

In reality, this might not be the only piece of information available, and governments will probably want to use statistical techniques to estimate the probability that a particular address is owned by a particular person, combining all evidence. They will likely take into account all points where money comes into or leaves a wallet with known identity (e.g. in USD -> BTC transactions or BTC -> USD transactions), and the structure of the network between those transactions. For example, suppose wallet A, B, and C are known to be owned by the same person, and someone moves money from all those wallets into wallet D. Then governments will probably infer that D is owned, with high probability, by the same person as wallet D (because multiple low probability pieces of evidence can combine to give a higher probability). Of course, the transactions are not independent, because the owner of A, B, and C might just be a regular customer of D - timing evidence might be taken into account, along with other evidence about the identity of D (for example, does D only receive money from the owner of A, B, and C, or from other sources? Where does the money go after that)?

> but they cannot automatically infer the identity of A.

They can certainly walk up the tree though, which is impossible with cash but extraordinarily easy with BTC. In this case B could have a tax bill to pay unless they can prove otherwise.

It sounds like you're talking about extremely trivial money laundering; while it might have caused some confusion a century ago when the Mafia started doing it, modern tax authorities deal with a hell of a lot worse.

It's more traceable than cash, less than bank accounts.

"I'd like to know what exactly is entailed in becoming compliant with money transmitting and laundering regulations."

This. Someone with more understanding of financial regulation, please step in and explain what it is the government would actually want from the currency. This sounds scary to some extent but there's no real reason that it needs to be. I assume it is to enforce real-world identities at the USD/BTC exchange point.

http://www.thinkcomputer.com/corporate/whitepapers/heldhosta... is a good place to start.

Financial regulations have little do to with the Fed. They apply to transactions in money, not money itself. It doesn't matter whether the transactions are denominated in USD or Euros, and now apparently Bitcoin.

It's not meaningful to ask whether Bitcoin could become compliant. Bitcoin exchanges and processors could become compliant. This means having in place systems to detect money laundering, etc. it might be even easier in Bitcoin, given how much transaction state is stored in a distributed fashion forever.

The government doesn't want anything with the currency. It couldn't care less. The government is concerned with the businesses that transmit or transact the currency.

Money transmittal laws vary from state to state and country to country. The exact requirements thus depend on the very specific circumstances of the business at issue.

This is just the tip of the iceberg. Of course the government cares about money, and of course it wants to control the money supply. And, as a consequence, the USA will never allow any major currency inside its borders other than the US dollar.

The history of the United States is littered with the fights over who gets to determine what is money and how much of it there is: Hamilton's fight with Jefferson and Madison over the need for a central bank, Jackson during his run for the Presidency denouncing the central bank--and this becoming the main issue in the campaign, the popularity of Williams Jenning Bryan (cf. the famous "Cross of Gold" speech), etc. etc. all the way up to the horrible stagflation of the 1970s ("Whip Inflation Now!") and the recession caused by the ultimately successful efforts by Fed Chairman Paul Volcker's to end it. It is reasonable to believe--and certainly most people in the US government believe--that control of The Money is control of the economy.

Why would any successful government ever voluntarily give up that control?

> Why would any successful government ever voluntarily give up that control?

They really can't give it up. It's the foundation of government: the ability to issue debt and place an obligation on citizens to offer their goods and services to acquire that debt to fulfill that obligation. Unless the U.S. decides to adopt debt note convertibility to bitcoins, there's really no way for bitcoins to supplant the dollar.

I pretty much agree with what you are saying : Governments (and central banks) would never voluntarily give up the control they have now, especially when a currency is being exchanged for one they have control over.

It is also interesting because bitcoin may be influenced by governments, but not issued by them nor central banks, which is already a fundamental difference in the battles that have come before.

The amount of time/resources that will be spent to try to control something that was never in their control (like kind of along the same lines as government measures in Argentina), nor under the control of any single entity for that matter, will be extremely telling. As far as I'm concerned the writing is on the wall… what is going on now is just the ongoing manifestation of what is to come next.

Not to mention that as more bitcoins are used/accepted by people in exchange for goods/services between individuals, governments will be and are increasingly being side stepped. It will be interesting to see this dynamic unfold more in places where (local) governments are becoming insolvent.

Bitcoin is in no position to supplant the USD, EUR, JPY, GBP, RNB etc, because bitcoin operates in between them now. And as more people loose faith in their respective currencies but still want ways to exchange between other individuals for goods/services, bitcoin will increasingly operate as well in a realm of its own.

Looks like this might be the least of BitCoin's government problems. Check out this appropriations bill currently before congress; http://beta.congress.gov/congressional-report/113th-congress... Search for BitCoin in the text and you get the following gem...

"Money laundering.--The Committee understands that Bitcoins and other forms of peer-to-peer digital currency are a potential means for criminal, terrorist or other illegal organizations and individuals to illegally launder and transfer money. News reports indicate that Bitcoins may have been used to help finance the flight and activity of fugitives. The Committee directs the FBI, in consultation with the Department and other Federal partners, to provide a briefing no later 120 days after the enactment of this Act on the nature and scale of the risk posed by such ersatz currency, both in financing illegal enterprises and in undermining financial institutions. The briefing should describe the FBI efforts in the context of a coordinated Federal response to this challenge, and identify staffing and other resources devoted to this effort."

Talk about a prejudiced statement. Time to call your congress person.

This is not prejudiced at all. All it states, is that the committee UNDERSTANDS that cryptocurencies have the POTENTIAL to be used for money laundering, etc. It is true, it can be used, and is used for those means.

Did you read the whole thing? They call it an 'ersatz' currency. Look up the word ersatz it has pretty negative connotations it's hardly a neutral statement.

This worries me more about other virtual currencies (eg. "game" money) than it does about Bitcoin. The last time something like this happened because of Bitcoin (FinCEN), Linden Lab forced the closure of all third-party Linden$ exchanges [1] to cover itself legally. Those were very scary times for everyone involved in Second Life.

As someone who does business in Linden$ et al, I (selfishly) wish the media hype around Bitcoin would simmer down, lest my own life become a lot more complicated. The way these government announcements always refer to cracking down on "virtual currencies" in general is very disconcerting, especially when the term is so hazily defined.

[1] http://blog.nalates.net/2013/05/08/end-of-linden-exchanges/

"the department says it wants to make sure Bitcoin company customers’ funds are “safe and sound,” expressing concern about consumer complaints “about how quickly virtual currency transactions are processed.”"

So, are they saying there are complaints that the transactions are processed too quickly? Because I've never had a BitCoin transaction take more than an hour or so to complete where as my regular bank routinely takes about 3 business days. Makes you wonder what their motivations are.

It's doublespeak for we are taking an interest in this burgeoning opportunity and will likely be adding requirements to exchanges that will help to limit fraud, and ensure that the government gets whatever tax revenue they are obligated.

Frankly, I see it as the powerful interests (banks/gov) taking their first step to assert their control of the new market.

Someone less pessimistic may feel this is a good measure to ensure that something good will stay good by helping to keep fraud out of this new system.

I suspect they're talking more about conversion (see MtGox's perennial problems with withdrawing real money, and recently even bitcoins).

Explain why not a single banker has gone to prison from both the fraudulent foreclosure crisis and the 2008 wider banking crisis yet these fools all of a sudden want to regulate BTC?

They can't even regulate the US dollar.

Coincidentally today:

Crypto-currency for NSA leaker: Snowden fund accepts Bitcoin

Published time: August 12, 2013 14:51

US fugitive Edward Snowden’s defense fund, launched recently by WikiLeaks to raise money for the legal protection of the NSA leaker, has announced it now accepts donations in virtual currency Bitcoin.

http://rt.com/news/bitcoin-snowden-fund-wikileaks-384/

Other unpopular opinion of the day: Ron Paul was right about competing currencies being infringed on.

Good to know that _none_ of the technical people or authors of the software are important as far as NY is concerned! :P

Looks like the price of Bitcoins just made a good jump at https://www.mtgox.com/ . Are speculants thinking that if the us government are geting involved it validates Bitcoin further?

Edit: Screenshot of the jump: http://i.imgur.com/G5Dk7Nh.png

possibly also something more along the lines of 'anything that keeps bitcoin in the news is good news', keeping up the influx of new people wanting to try bitcoin.

All publicity is good publicity.

mtgox isn't an accurate measure of the real price of BitCoin right now. Since all USD withdrawals are effectively shut down the USD price on Mt. Gox is artificially high right now.

The issue of bitcoins vs IRS combined with the recent news about the NSA actually scares me. Why does the Gov feel the need to control us?

Based on the title, I was hoping Satoshi Nakamoto had been subpoenaed.

Maybe he's just dodging the process server.

In the end the Federal reserve will protect their monopoly on money. The more legitimate Bitcoin becomes, the more likely a target of Fed action.

Was interested to see how many posts were going to discuss the possibility of ban following Thailand. Not One.

Is this not a real and probably outcome?

It wasn't banned in Thailand.

First they ignore you, then they laugh at you, then they fight you, then you win.

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