Nations Mull the Ways to Regulate Bitcoin | Hacker News Reader

Nations Mull the Ways to Regulate Bitcoin

dealbook.nytimes.com

Exchanges can be decentralized. It's technically possible and likely the future of cryptocurrencies. The market doesn't need a centralized MtGox to function. BTC does't need to be stored in exchanges, only transferred. Therefore, vast sums can't be stolen. Only hypothetically BTC hitting a specific node at one time could be stolen. Not the whole batch.

Wallet services on the other hand, need some level of centralization, they have to provide trust and security. People are not good enough at information security to protect their own wallets. Storing BTC on your PC is equivalent to storing money under your bed. Except the thing stealing it is mostly automated malware not people breaking into your house.

Regulation for BTC has been primarily targeted at money transfer businesses and exchanges. Insurance is well oriented towards protecting money storage businesses. Insurance can exist and function for the latter outside of government regulation.

> Exchanges can be decentralized. It's technically possible and likely the future of cryptocurrencies.

Would you mind explaining how? I can't see how it's possible to do the money side of the transfer in a decentralised way

If you are talking about fiat currency, the most obvious and current way of doing it in a decentralized fashion is to pay your power bill while mining for alt-currencies. You pay USD for electricity, the electricity is used for a portion of the payment infrastructure, provides services for it, and you get paid for it with coin. You've effectively turned a payment to your electric company into coin in a highly decentralized way.

For crypto exchanges, there are several ways to do this including Ripple, Ethereum (when it is done) and Mastercoin. See this article on the exchange Mastercoin is launching in March: http://www.cryptocoinsnews.com/2014/01/31/mastercoin-is-laun...

Vendor model, decentralized exchanges serve as the transfer, mediation, and escrow point. Vendors and consumers take care of sending/receiving fiat currency. Ala localbitcoin except decentralized.

Then there is no single point of failure. It then becomes regulation vs (hundreds of)thousands of individuals and small operations. Compared to regulation of a few mega-exchanges. This would result in a critical increase in the complexity of the regulatory environment.

Assuming the government gets serious about it, enforcement of the regulation will become a media side-show similar to the war on drugs. Taking down a few prominent individuals, parading them in the news, but barely hurting market supply/demand.

Why would consumers worry about whether there is a single point of failure in the Bitcoin economy? What they do worry is whether they will be able to take their money out when they want it, and that means fewer, larger, and supposedly more trustworthy exchanges.

> Why would consumers worry about whether there is a single point of failure in the Bitcoin economy?

Consumers will worry when it becomes either illegal or prohibitively expensive to operate centralized Bitcoin exchanges, which is the likely outcome. That will quickly lead to a oligopoly of 2-3 exchanges dominating the market, just like every heavily-regulated market where it's too expensive for small shops to compete legally. Then you'll have a Paypal type experience where money/BTC is constantly withheld and all transactions are under surveillance. Defeating many of the benefits of Bitcoin (privacy and fluidity).

> What they do worry is whether they will be able to take their money out when they want it

Consumers don't need to worry about taking money out of decentralized exchanges. Since exchanges don't hold their money. That's the whole point:

a) Disconnecting the massive BTC wallets storage on exchange servers, instead they are strictly for facilitating transactions (escrow is built into the BTC protocol)

b) P2P distributed hosting of exchange servers so operating "trustless" exchanges can't become outlawed

You do realize that what cryptolibertarians and regular consumers value is drastically different, right?

For now :)

The things I mentioned are the inherent value in BTC.

If you want regulated centralized exchanges then you might as well just keep your fiat currency and PayPal.

http://business.financialpost.com/2013/01/31/apple-files-pat...

It seems apparent to me that 'regulation' in this context is actually a contract. Discussions are already occurring, and code is already being written to implement more distributed contracts between parties and systems. Once that's in place, you won't need the 'government' to 'regulate' anything. Not that they could, if they tried. It'll self regulate, based on an a priori set of rules that prevent a pool of power from operating in a way that hurts others by taking their things.

The issue is, how can a programmed contract control whether the transfer of fiat money occurred? You'd need some kind of unforgeable proof of transfer or trusted public record.

Paper wallets make the most sense to me. It's a low-tech solution to a high-tech problem. Just have a stack of paper, each of which contains the private key of a wallet with 0.1 BTC or whatever. You can make copies, and you can give them to people as payment with whom you have mutual trust. When you want to transfer some money, just scan the private key with your phone, beep boop, it's transferred.

Great until there's a fire or flood, you get burgled and the paper gets stolen or you simply lose them. I don't store cash under my matress for the same reason.

Decentralized systems see regulation as "damage" and route around it.

a super computing cluster spewing nop trades will kill it t scale.

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