Bitcoin Companies and Entrepreneurs Can't Get Bank Accounts | Hacker News Reader

Bitcoin Companies and Entrepreneurs Can't Get Bank Accounts

forbes.com

120 pointsmrb85 comments

Welcome to the world of the banks.

I worked at a currency exchange for years, and this was a constant problem. I wrote software that would allow us to easily switch banks and accounts, because it happened at times once per week.

At one point, we had spent 6 months negotiating with a bank to get a solid account that would supposedly never go away. They spent that time auditing us and assessing all risks. They gave the green light, then mysteriously one week in, they closed our account. They wouldn't tell us why immediately, but we found out later through back channels that 'someone from the government called us, and we were at risk of losing (some license, certification, whatever), so we can't do business with you'. We just accepted that we'd have banking problems indefinitely, and kept going.

The gov't and the bank don't like the competition with USD. They're under pressure from the Treasury, the Fed, and FinCEN to make difficult transactions for exotic currencies (we bought and sold the Iraqi Dinar).

I'm not surprised BTC consumers and traders are seeing this. I'm hoping that it'll help put pressure on the government to change its policies.

> we bought and sold the Iraqi Dinar

I recall a lot of extremely scammy sites doing that a few years back.

http://www.dfi.wa.gov/consumers/alerts/iraqi-dinar-scams.htm

http://www.mint.com/blog/investing/iraqi-dinar-scam/

A lot of scam only proves that there is a lot of genuine demand. Instead of respecting consumers and really protecting them from scammers, government simply says them to fuck off. It's like with bad parents: child wants to ride a bike, but instead of helping him with safety, he's denied to have a bike.

"What consumers are not told is that the Dinars can be redeemed only in Iraq, as most of the established currency exchange houses and banking institutions cannot convert the Dinar to US dollars. Since no exchange exists for the Iraqi Dinar, dealers can charge whatever they want to sell and buy back the Dinars. "

So, it's not "a lot of scam", it's ALL scam.

> A lot of scam only proves that there is a lot of genuine demand.

There's lots of demand for Nigerian princes' fortunes, too.

Not many people wind up with one, though.

Was your company a Retail Foreign Exchange Dealer or Forex Dealer Member?

It seem strange/unlikely that the government is regulating self regulating bodies, since that usually results in the self regulating body giving up and any semblance of regulation going away.

>He made a dozen trips to U.S. Bank because they wouldn't give him more than $30,000 at a time.

This is illegal. Checking accounts are legally known as "Demand Deposit Accounts," and you are allowed to show up (at any time) and demand as much money as you have available, in cash, and the banks are absolutely obligated to deliver. They cannot close their doors without first paying you, even if you show up moments before closing trying to withdraw millions of dollars. (They are, however, allowed to stay open late, if needed, should an armored car delivery be required.)

I dunno about the legality of this or not, but banks absolutely will refuse to give you over a certain amount in cash at any given time unless you notify them ahead of time of your withdrawal. They don't actually keep that much cash on hand. If you go to your local bank and try to take out $20k chances are they'll tell you here's $10k, come back in two days for the rest and call us ahead of time next time.

http://www.consumerfinance.gov/askcfpb/953/what-difference-b...

From the Federal Reserve's Consumer Compliance Handbook, section II, Regulation CC ("Availability of Funds and Collection of Checks"), pp 11-12:

  Some small financial institutions do not keep cash on 
  their premises and do not offer cash withdrawal services 
  to their customers. Others limit the amount of cash on
  their premises, for reasons related to bonding, and as a
  result reserve the right to limit the amount of cash a
  customer may with draw on a given day or to require advance
  notice for large cash withdrawals. Nothing in the 
  regulation is intended to prohibit these practices if 
  they are applied uniformly and are based on security,
  operating, or bonding requirements and if the policy is
  not dependent on the length of time the funds have been
  in the customer’s account, as long as the permissible
  hold has expired.  However, the regulation does not
  authorize such policies if they are otherwise prohibited
  by statutory, regulatory, or common law.

(source: http://www.federalreserve.gov/boarddocs/supmanual/cch/efaa.p...)

In other words: Unless they're violating some technicality in the law (probably a state or local law), it's probably entirely legal. Probably safest to talk to an attorney before coming to any conclusions on the matter.

I work at such a company. In real life, I have also lived in a whole lot of countries and thus have experienced the joys of attempting to get both business and personal accounts opened, even those wholly unrelated to Bitcoin, across many countries.

The current global situation is essentially an unspoken global monopoly on the world financial system that has been standing since at least the 1970s through the unholy triumvirate of SWIFT, ISO, and SIX Interbank Clearing. Credit cards are an adjunct to all this, essentially representing systematized usury and privacy loss as a requisite convenience, but they do not stand at the core. Western Union and so on are similarly edge case, but guilty.

If you are a country, you first need to be recognized by the UN in order to be recognized by the ISO. Then, you need to have your currency recognized. Finally, your central bank and national banking system need to play ball with SWIFT. If you refuse to play ball, then you don't get connected (North Korea), or get disconnected (Iran).

What do we mean here by play ball? We mean agree to give the US all of the information about all of the international financial transactions that anyone within your entire economy either does or attempts to do that cross a border. If you are a small country, this essentially draws a very accurate picture of your above board international economy including key players, volume of trade, key supply chain links, etc. To put it simply, SWIFT is one of the US' most important global intelligence assets and despite the best efforts of Europe to rid itself of SWIFT-based surveillance, it has persisted in a complete fashion (100% of all transactions) since at least 2001 (source: FOIA response, European Data Protection Supervisor, http://www.asktheeu.org/en/user/walter_stanish). (I would argue since at least the establishment of its first, hush-hush, 'International Operations Center' in the questionable location of CIA-friendly Virginia, way back in the 70s. But I digress.)

Understanding that this is the general government and international relations level background, then, let's now turn to the commercial. In order to actually create a bank account ('financial endpoint'), you basically need to be a bank. While there are often financial service provider (money transmission provider, or whatnot) categories that act as extremely limited alternatives, in reality any form of serious innovation does require being a bank. Unfortunately, to become a bank within a UN-recognized country and actually innovate, one must simultaneously face the wrath of both the entire established international system and the national government and industry of your home jurisdiction.

The solution which we are charting, is four pronged:

(1) to collaborate simultaneously with regulators across multiple jurisdictions such that a jurisdiction attempting to erect unfair barriers to innovation simply faces a direct loss of capital (as scaleup occurs);

(2) to establish forward looking financial settlement paradgims which empower the initiator to enable routing around specific assets or nations based upon their own priorities ("ethical settlement" as an adjunct to "ethical business") while using arbitrary settlement systems or assets: http://www.ifex-project.org/our-proposals/ifex ;

(3) to democratize the creation of individal financial endpoints ('bank accounts') by embracing and extending the emerging dominant financial standard for such, the IBAN, to a nominally familiar and interoperable system that can be decentrally allocated through a neutral party (IANA): http://www.ifex-project.org/our-proposals/iiban

(4) To standardize the intersystem identification of non-ISO approved currencies (new release of this about to come out; ISO reformatted their source release so slightly delayed): http://www.ifex-project.org/our-proposals/x-iso4217-a3

Regulators as well as banks and a lot of private sector businesses can see clearly that massive paradigm change is coming within global finance. Nobody quite knows how it will play out, but there are numerous significant factors supporting a shakeup: (1) the rise of China and the CNY as a reserve currency (2) Chinese parallel settlement networks (3) India and Iran's need to trade oil (4) cryptographic currencies (5) the increasingly globalized 24x7x365 nature of business (6) the inability of established banks to meaningfully innovate (is there even one globally with no downtime, where downtime includes evenings, weekends, holidays and scheduled systems maintenance?) ... we're talking 365 - 52*2 (= 104 weekend days) - 10 public holidys = ~251 days per year of actual availability, in which 80% of services are unavailable for at least 1/2 the time (6pm-6am) ... a far cry from five nines. (6) the coming rise of distributed manufacturing (7) the unsustainable social, environmental and economic costs of the current global consumer system.

We live in interesting times.

So I understand the points you're making and I appreciate your candor, but why not go all-in on cryptographic currencies?

I am tempted to take apart your proposed solution point-by-point but I'll wait. Crypto currency apparently is exactly what you want, so can you explain why you are instead attempting to achieve the same through ISO and a collaborative bank revolt against the "established banks"?

(Collaborative bank revolt: a vastly simplified explanation of your proposed solution.)

Your question boils down to: "Why not replace (insert hugely established system) with (completely new system)"?

The answer to this one is obvious. In order to grow, a replacements need to interoperate, ie. provide an "upgrade path". Instead of holding something up as the one true solution we are betting on the trend, which is certain. Besides, cash will always be around.

Cryptocurrencies, despite their huge number and numerous attractive properties, presently lack market depth, limiting both their stability as value stores and feasibility as trade instruments outside of rapid/realtime/automated exchange. Significant issues with the dominant one (Bitcoin) make it difficult to implement securely, hard for non-technical users to properly understand or trust (there is no benevolent dictatorial regulator, as per their established national currencies/financial service providers), they require connectivity or blockchain storage which is unvailable in much of the world's devices, and so on and so forth.

A parallel to your suggestion is the example of existing community currencies, which are essentially geographically bound equivalents of cryptocurrencies with an often more moralistic focus. I have been in contact with these groups and associations thereof, plus theorists in the area, and my understanding is that many face challenges in the same areas as Bitcoin; ie. new user education, balance of trade and interoperation with conventional established systems. Indeed, they are developing an inter-exchange protocol at present known as CXP.

As for your vast simplification, the best (from a moral standpoint) and hardest kind of change to reverse (from a potential opponent standpoint) is that which is is completely decentralized; an 'opt-in' from the edge nodes. I think this is what people are proposing in many spheres right now.

All roads lead to Rome.

> Significant issues with the dominant one (Bitcoin) make it difficult to implement securely, hard for non-technical users to properly understand or trust (there is no benevolent dictatorial regulator, as per their established national currencies/financial service providers), they require connectivity or blockchain storage which is unvailable in much of the world's devices, and so on and so forth.

Download and install Electrum [1]. Open Electrum. Write down the 12 words. Done.

There's your 100% non-technical Bitcoin wallet in three easy steps.

Just takes pen and paper. Or, memorize it instead. Instant, secure brainwallet. No electricity, no Internet, no hardware and no software.

Starts in seconds and syncs across Windows, Mac, Linux and Android devices.

[1]: http://electrum.org

My only issue with something like this, since no one is "in charge" of an account people will fail to remember their wallet or password. If they put large amounts of money and by chance they cannot access their wallet for whatever reasons who is going to give them their money back or is that money gone forever? Doesn't that also mean eventually we will loose track of a fair number of bitcoins?

Would a banker be able to replace your lost or stolen cash?

If you're worried you might lose your Electrum wallet, write down the 12 words on several sheets of paper. Inscribe them in metal. Put them in a document, and put the document in TrueCrypt. Upload it to Dropbox. It's as easy as managing your digital music collection.

That money is gone forever. It is your money, you are responsible for it.

No one will be able to "give your money back", because you didn't give your money to anyone.

If you fear you might lose your password, back it up. Store it in a safe. Send it to someone you trust. Tatoo it on your forearm (although this is not really secretive)

Heck, if you _really_ want to be sure to have someone who could give the money back to you, just give it to someone you trust. Family, friends... or a Bitcoin bank. But if you do that, we're back to square one.

Thank you for responding in detail. I need to think over what you've written to grok the finer points, but here's one I can talk to:

"Why not replace (insert hugely established system) with (completely new system)"?

It's not a total rip-out-and-replace. Bitcoin might be the grease that enables the seriously broken parts of our struggling world economy to slip through the entrenched tax collectors and let the actual consumers reward the actual producers. It fills the niche of Community Currencies without the balkanization.

One thing that the huge, established system misunderstands about the new entrant is where the most effective inroads will happen:

The lower class.

Someone already richly rewarded by the establishment is not going to be very interested in Bitcoin (other than as a toy). But someone in a nation outside the US and Western Europe?

Bitcoin gives them first-world tools that completely bypass their local currency.

It sounds like the classic innovator's dilemma. Suddenly trade barriers are being circumvented. Chinese currency can escape currency controls. Micropayments and small businesses have an option.

I'm not convinced Bitcoin is that thing, but I'm certain the established system will fail to adapt.

Develop a game plan for what that will look like and where you want to be when it happens. In thinking along those lines, I see that you're working with ISO–and in my mind, that's not where you want to be! :)

Bitcoin might be the grease that enables the seriously broken parts of our struggling world economy to slip through the entrenched tax collectors and let the actual consumers reward the actual producers.

Bitcoin requires middleman, just like credit card processors. It also is significantly easier to trace than current financial systems, which don't assign digital fingerprints to units of currency. Bitcoin isn't going to let the world economy "slip through the entranched tax collectors." Bitcoin is a tax collector's wet dream.

I've met with quite a few Treasury lawyers who work in their policy office. They're so giddy about the prospects of actually being able to trace income from start to finish, including across borders, that they've formed an internal task force to see what they can do about spurring adoption of Bitcoin or other similar digital currencies.

Bitcoin gives them first-world tools that completely bypass their local currency.

In many nations, you can already do that. In the US, businesses must be willing to accept USD for their services/products but they are free to also accept any other currency they wish. At the end of the day (or more accurately, their fiscal year), their books (and taxes) must be converted to USD for determining their taxes.

> Bitcoin requires middleman, just like credit card processors

No it doesn't? Your address exists as a private key, no external middlemen play a part in the maintenance of that unless you want them to.

> It also is significantly easier to trace than current financial systems

No it isn't. Even if you're talking the base bitcoin without extensions like zerocoin, it is still effectively as hard to trace as it is to decrypt a widely distributed shared encrypted wikileaks file, for example. If someone slips up and a key becomes available to allow decryption, it can be done, otherwise no dice. Compare with OP's statements about full visibility into 100% of SWIFT transfers.

And if you add coming enhancements like Zerocoin? No, it's just nowhere near as easy letalone significantly easier.

> which don't assign digital fingerprints to units of currency

Serial numbers are quite common on physical fiat currency. Electronic transfers are done via SWIFT or interbank transfer networks which have the aforementioned 100% visibility.

> that they've formed an internal task force to see what they can do about spurring adoption of Bitcoin or other similar digital currencies.

The church was one of the foremost patrons of science at its peak, that they didn't understand the final implications of those developments would prove fatal to their foundations doesn't change that fact. So it is with states and bitcoin, although from what I've seen, and I look very closely indeed, the sentiment from the state has primarily been fear and trepidation. And they are right to fear, it could and hopefully will kill them.

> > It also is significantly easier to trace than current financial systems

> No it isn't.

He's talking about following a bitcoin's life from wallet to wallet, not about impersonating a wallet. The whole bitcoin principle is that exchanges are made in clear between wallets and shared to all peers, so yes, it _is_ traceable, like nothing before.

Now, the game is to know who is behind a wallet. And if you didn't use some anonymity method, your name will not be a secret to anyone looking for it.

>In the US, businesses must be willing to accept USD for their services/products...

Not according to the U.S. Treasury:

  There is, however, no Federal statute mandating that a
  private business, a person or an organization must accept
  currency or coins as for payment for goods and/or
  services. Private businesses are free to develop their own
  policies on whether or not to accept cash unless there is
  a State law which says otherwise. For example, a bus line
  may prohibit payment of fares in pennies or dollar bills. 

  In addition, movie theaters, convenience stores and gas 
  stations may refuse to accept large denomination currency
  (usually notes above $20) as a matter of policy[1].

>I've met with quite a few Treasury lawyers who work in their policy office...spurring adoption...

Well, they're taking a big risk, since Bitcoin can be easily upgraded to fully anonymous with a protocol upgrade using existing technology (Zerocoin) [2]. I think it's wise to wait until Bitcoin is more entrenched before implementing the extension, but there's no huge technological barrier preventing Bitcoin from being fully anonymous.

Besides, it's not like the current system isn't fully tracked by the Treasury department. They already have access to everyone's transactions (via Swift, etc). The hard part is figuring out which transactions to investigate, and Bitcoin won't make that any easier.

1. http://www.treasury.gov/resource-center/faqs/Currency/Pages/... 2. http://zerocoin.org/

> why not go all-in on cryptographic currencies?

Because with an armload of cryptographic currencies, and $5, you can buy a cup of coffee at your local coffee shop?

It takes about 0.01 bitcoin to buy a $5 cup of coffee.

But decimal placement is irrelevant and cryptocurrencies are intangible, silly.

No, with 0.01 BTC and nothing else, I can buy coffee at my local coffee shop. The Coupa Cafe in Palo Alto accepts Bitcoin.

On a more serious note: Bitcoin has steadily gained acceptance as a form of payment. In 2010, a guy bought a pizza for 10000 BTC. It was a one-off transaction between two Bitcoin enthusiasts, but a milestone: the first purchase of real goods. In 2011 and 2012, Bitcoin matured from enthusiasts to a wider audience, albeit mostly for illegal uses. The biggest was Silk Road.

Now, in 2013, Bitcoin is starting to be accepted by regular, legal businesses. Shopify, Coupa Cafe, WordPress, Reddit, OkCupid, and new merchants joining every week. There are startups like Coinbase devoted to making this as easy as possible. Someone in Vancouver set up an ATM that takes Bitcoin and gives you cash.

Sure, there's a long way to go. But acceptance has been improving rapidly. And Bitcoin has features--very low transaction costs, no "chargebacks", etc--that make it inherently attractive to sellers. Instead of focusing on "where the puck is", we should skate "where the puck is going to be".

Or 9 acres of land in Florida:

http://bitcoinmagazine.com/6939/seans-outpost-announces-sato...

Very interesting stuff. Thank you for sharing. What readings would you suggest for someone who doesn't have a strong understanding of banking/financial systems?

Debt: The First 5000 Years is a broadly informed anthropological perspective on various human exchange systems and a masterly evisceration of the set of common misconceptions the author dubs "The Economists' Creation Myth".

For a detailed case study of the development of merchant banking (the direct predecessor to modern systems), a fantastic biography of the founder of the Rothschild banking dynasty Amschel Meyer Rothschild is available on Amazon Kindle. Interestingly, it was written by a self-exiled Israeli Jew who gained access to family archives in order to compile the work.

There are many others but nothing really holistic that fully takes in to account modernity.

(Apologies for the delayed reply: I'm switching continents at the moment!)

There's a documentary floating out there on Youtube, called The Money Masters. What is your feeling of the accuracy of this, and does it properly reflect the banking system history?

I've seen it. Can't recall the specifics but I believe it essentially skips the technical aspects of the modern era instead focusing on history leading up to the US Federal Reserve and some subsequent well known major events in an effort to raise concern about the systemic problems of fractional reserve and well known derivative issues versus the realities of globalization.

For example the fallibility of national regulators, corruption of financial institutions, challenges of post-facto manual slapdash policing versus things like HFT and off-market trading, etc.

Notably, I don't recall any mention of SWIFT or the ISO's centralized currency register.

Most of the documentaries I've seen are pretty much like that one: comfortable topics people feel are approachable and that they can easily acquire public faces to discuss. Dated enough to be out of view. Already discussed enough to be not too controversial. Often with slightly corrupting funding influences, eg. from the BBC.

As for investigative journalism at the heart of the matter, I've never seen any. While nobody can assert a complete knowledge of the current situation, there are clearly some places where digging needs to be done in the global public interest.

It's a good thing that the success of Bitcoin does not depend on US banks or the US government. The US could try to delay and slow Bitcoin. But stop?

Like trying to ban US citizens to gamble online.

this is not some tin-hat conspiracy, banks, unlike the bitcoin bucket shops have to abide by a metric tonne of regulations, rules and laws (which are constantly changing)

this is why 3 banks do not go under every week, unlike bitcoin shops

Banks would go under en masse if they were not bailed out with printed money or bailed in with depositors' money. Regulations heavily protect banks against competition: safer, nicer banks and new disruptive tech like Bitcoin.

This brings up an interesting question...

Is the BTC -> USD rise due to the loss of USD liquidity? Has it become too difficult for people to exchange BTC into USD?

All this article says to me... is that the BTC -> USD conversion is becoming harder and harder. Are there any economists out there who can muse upon theory and tell me what will happen as BTC -> USD conversion becomes harder?

No - but your point is a feasible reason for a BTC price rise.

Rather, the current BTC/USD rise is due to a influx of investment from China [1]. The Chinese government has been indirectly supporting the rise and adoption of Bitcoin through state-run Bitcoin documentaries [2]. This is seen by some as China pushing for alternatives to the USD as a world reserve currency (following US gvt shutdown) [3].

[1] http://money.cnn.com/2013/11/12/investing/bitcoin-record-hig... [2] https://cryptocointalk.com/topic/226-cctv-bitcoin-documentar... [3] http://www.scmp.com/news/china/article/1330873/chinese-state...

This is a good sign - now we know that all previous attempts of US Gov to destroy Bitcoin were futile. Including attacks on Bitcoin's cryptography (I'm sure that this type of attacks were tried).

What previous attempts has the US Government made to destroy Bitcoin?

The previous attempts were so futile it's not really worth it to go into detail.

Humor me. Give me three cases.

“The real question is why Bitcoin businesses think they need banks”

They may not want to do business exclusively through Bitcoin and Bitcoin exchanges?

Couldn't shell companies that had no direct relationship with bitcoins in theory be used, if that were the case?

I suppose, but that seems (I don't actually know) like a lot more trouble than just not dealing with bitcoins and having a bank account.

A large number of bitcoin businesses are exchanges of some sort - ones where people are looking to exchange dollars to/from BTC. Going BTC all the way down is going to take a long time.

Less trouble than convincing the state and utility companies to accept bitcoin settlement for taxes and bills.

To pay employees, taxes, and utility companies.

You actually can pay employees in BTC, if they prefer that.

Thousands of people work for BTC already.

Utility companies will start accepting bitcoins soon enough, as it becomes more popular.

Taxes are a bit harder, I admit.

>You actually can pay employees in BTC, if they prefer that.

Most don't.

>Thousands of people work for BTC already.

Hundreds of millions don't.

>Utility companies will start accepting bitcoins soon enough, as it becomes more popular.

They don't accept it now.

____

Just because you could do this stuff with bitcoin doesn't mean you can. It's only doable in theory and in very very small amount of companies in practice, that's why "bitcoin businesses need banks”.

Many of the businesses getting involved in bitcoin are trying to get into the business of exchanging them for dollars. Their customers have a pesky insistence on being able to use their traditional financial accounts in the transactions.

What are the banks actual risks in these cases? Why aren't banks showing up and being created to fill this market need?

Well, MSBs are held criminally liable for any illegal activity their platforms help facilitate. Banks can be fined heavily (see: HSBC, Wells Fargo) for such behavior. It's ironic their customers can be held criminally liable but they cannot... that's another conversation though.

But yea it's all a game of risk and how much of it they are willing to take. Bitcoin businesses are in the highest of high risk categories and they currently don't bring in enough money for the banks to justify the potential downsides.

At this point any US based entrepreneurs should consider looking elsewhere for banks. I know of a Caribbean country planning to be a haven for cryptocurrency businesses. Things will be announced soon.

I seem to recall several big banks (Wachovia, et al) being found to have facilitated money laundering of billions in drug cartel profits, yet these big banks were punished by fines amounting to tiny fractions of the amounts laundered...

No one spent a day in prison for these acts, no bank was disbanded as a result, no bank officials were reprimanded, which seems to be blatantly unequal when the big picture is taken into consideration.

Then there is the fact that the USD is backed by nothing other than military might...

Military might and the world's largest economy, but yea other than that, nothing.

It's almost impossible to create a bank. When businesses decide they need to start a bank, they go and buy a shell that already has a banking license. The several million dollars to buy the shell is far cheaper than trying to start one from scratch.

Existing banks could, I suppose, go into this business. But the experience of the IAFCU--being given an excessively hard time by regulators when they started working with BTC businesses--is why they don't. Banks exist because goverment regulators allow them to. Unless they are extremely large (and then the government regulators exist because the large banks say they can, evidently.)

I am a BTC skeptic. I don't think it solves a burning problem for most people. But the government, in trying to keep BTC from succeeding, seems to be creating the very raison d etre, solvable only by crypto-currency, that BTC was lacking.

It only costs around 5-10M to create a bank in the US. If BTC is that profitable, why hasn't anyone done that?

B/c the US Gov would shut it down, seize your accounts and you'd be out at least 5 million USD

As long as the US Gov is against bitcoin, and they should be for their own sake, they will make it impossible to comply with the regulations. Anyone involved in creating the bank would probably face criminal sanctions for some crime. Crypto currencies may eventually threaten the USD's status as a reserve currency. The US Gov will do anything possible to stop bitcoin from growing to that level.

Are there explicit laws against bitcoin? It seems unlikely that the OCC is going to just seize a bank when its following all applicable laws and compliance mechanisms.

Some banks (depending on the location and size) keep foreign currency on their books so you would just need to account for it by the same manner unless there is some definition as to what constitutes a foreign currency for accounting purposes.

I don't see any serious advantages to bitcoin whatsoever if you have to follow the requirements of a banking licence.

Anonymity? Nope, KYC (know your customer) rules would require ID of all wallets.

Untraceability? Nope, AML (anti money laundering) regulations would anyway require you to identify the source and 'final beneficiary' of each transaction; and deny/freeze a bunch of transations matching some criteria. Oh, and you'll be financially liable if you're too soft on verifying which of your users lie.

Finality of transactions? Nope, payers can contest payments for all kinds of reasons, and you'll have to return money to them; But you'll not being able to get fraudulent payments back due to properties of Bitcoin.

Doesn't look like a good business to me; you can be profitable as an unregulated exchange, but doing it "properly" will make you completely uncompetitive.

Cindy Gallop has been talking about this very issue, except when starting an alternative porn site. It seems there's a lot of room for change in payments infrastructure.

stealing the top comment from the article~

That’s good news…we’re already in phase 3:

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

Carl Sagan said: "But the fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright brothers. But they also laughed at Bozo the Clown."

I've never really internalized this, but is part of the reason people like bitcoin because it's the online equivalent of cash - No fees plus guaranteed good funds? This article suggests that, but that doesn't make any sense to me. If THAT'S why you like bitcoin, man you're gonna LOVE what I've been building, it's actually the literal online version of cash.

I'll take you at your word that you have something that can literally work as online cash. So you understand that this is a hard problem, lots of people have tried, etc. etc. etc.

I can't decide yet whether to like bitcoin or hate it, but like it or not, there is now pressure on the banking industry to get their act together. It seems like karmic justice to me that after the 2008 bubble the banks are now facing renewed competition.

Big Bitcoin fan, I'm not going to edit my comment for the sake of being authentic but I wish I could. I just never considered that being an alternative to cash online was ever the point.

An alternative to cash online needs 3 things, IMO (besides being something anyone can use).

1. Has to be secure enough for the person accepting the money to know they're getting "good funds", or money that actually exists. 2. Has to be fee-less. 3. Has to be convenient enough for anyone to use fast.

We're doing that. I can demo what we're doing if you'd like, shoot me an email tommy@thecityswig.com, would LOVE your thoughts!

I doubt you will be able to create anything significantly better than BTC and altcoins.

If your solution is not decentralized, you can stop right now.

It's entirely decentralized, but it's not a new currency, just a way to transfer it. You do have to have your money in a bank, but it can be roughly any bank (we support 70% of US banking customers now, working toward 90 by the years end).

I'm sorry if my first comment came off like a criticism of Bitcoin, I love Bitcoin - I just never considered that being the online version of cash was part of its appeal. To me, it was being an alternative to government currency that was always what made it special.

If you're interested, I could demo what we're working on for you.

I think you should demo it to all of us, not just me.

One person's opinion shouldn't affect your project, since I can be very wrong.

ABSOLUTELY going to demo it to the whole community, I can't wait to do that. Can not wait - but we're trying to get people who have demonstrated some knowledge of any facet of what we're doing just a few at a time, because when we release the demo to the whole community, it's got to be ready.

I believe strongly in launch fast, but for a payments system, we have to define what "launch" means, you know?

Do you have any more information about your project that you can share?

It's a way to transfer money bank to bank exactly like cash - it's able to use security algorithms to determine whether the funds being transferred are "good funds" or not, and it doesn't require to know their bank account information, just their online banking credentials.

It overcomes the two major hurdles that have traditionally existed - convenience and security of the merchant to know the funds will actually be there.

So I'm guessing the application logs into a user's online banking interface? Or is there some WS API the banks are making available?

Kind of, there's absolutely no standard way of doing it, you have to do it bank by bank, that's been our challenge but we're up to 70% inclusion! It's the same way Mint works, except we have to do a ton of other stuff to be compliant and to get the information we need.

If you want to see it, email me @ tommy@thecityswig.com , I'd be happy to show you! We're in a super alpha batch of customers right now trying to make sure everything is as it should be, but I'm really really making an effort to get hackers opinions about this.

Where is the business in making a payment infrastructure (which costs money in maintenance, customer service and liabilities for fraud) with no fees?

A payment service provider can earn money on payer fees, receiver fees (like creditcards) or 'float' (holding on to user's money for a few days). If I had a ready made system of literal online cash, instant and with no fees, then launching it wouldn't make any business sense.

Bitcoin only got started because early adopters got distributed semi-free bitcoins, miners will get paid by fees on transactions in the future, and the bitcoin exchanges (which are a necessary part of the ecosystem) live off fees. Cash can exist because government is replacing worn-out bills and prosecuting counterfeiters without charging an explicit fee for that; and any large cash transactions will incur fees for transporting, counting and securing large piles of cash. A no-fee system still needs some profit motive for someone to sustain it.

It's extremely cheap to process payments when you're off the credit card rail, and the security costs can be mitigated down to very, very minimal amounts. Our model is the same as SaaS and will be extremely profitable while reducing the cost of processing payments by 85%-95% (and for some processing very low cost items primarily, as much as 99%). I'd love to talk more about this if your'e interested. tommy@thecityswig.com

A fee of a cent or so per transaction can be reasonable and profitable, if you go on a really large scale, then maybe a fraction of a cent.

I was sceptical about the no-fee concepts or micropayments that would require fees below $0.0001/txn or so.

Security costs are nontrivial depending on which markets you serve (and any 'winning' solution must serve all or most of them) - any system will have some rate of fraudulent payments, and at least in EU, any service provider will be liable for some of that - they'll have to refund their customers who were defrauded by someone else, get stolen credentials, etc.

Maybe! That is something we will consider, but I guess the point is it's ESSENTIALLY fee-less. We're looking at a SaaS pricing model.

Coinsetter has a US bank account. ^_^

What's the risk of coinbase being shut down?

That depends on a lot of things. They are currently licensed up on the federal and state level, so they have that much covered: http://www.fincen.gov/financial_institutions/msb/msbstatesel...

If they defrauded their customers, were subject to a serious heist or were blatantly ignoring the four pillars of a good compliance program they will be shut down. None of those are things we can easily predict however.

False. Coinbase does not have any state licenses. It hasn't even applied in California.

http://www.dbo.ca.gov/Licensees/money_transmitters/money_tra...

http://www.dbo.ca.gov/Publications/summaries/default.asp

Ah yes, my mistake. I had assumed that was the case but I read too far into my FinCEN link.

Coinbase is only licensed as a money transmitter at the federal level. In order to legally provide money transmission services in any state, it must also acquire a license in that state. (Under international and federal legal conventions, digital services performed by software are treated as rendered in the customer's location, so Coinbase would need a money transmitter license in each state in which it wants to do business.)

Coinbase is not licensed anywhere.

It is registered as a Money Services Business with FinCEN, which is a signal that its officers, directors and investors are aware that state licenses are required by law for the business they are in. That's different than having a license, however. In the United States, there's no such thing as a federal money transmission license unfortunately.

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