Can Bitcoin be defeated by legislation?

The question breaks down into two parts:

  1. For what public benefit?     —and—
  2. No, it cannot be achieved in this way

Governments are in the business of regulating certain activities—hopefully in an effort to serve the public good. In the case of business methods and activities, their goal is to maintain an orderly marketplace; one that is fair, safe and conducive to economic growth.

But regulation that lacks a clear purpose or a reasonable detection and enforcement mechanism is folly. Such regulation risks making government seem arbitrary, punitive or ineffective.

QR Code_CRYPSA-001«—  This is money. It is not a promissory note, a metaphor, an analogy or an abstract representation of money in some account. It is the money itself. Unlike your national currency, it does not require an underlying asset or redemption guarantee.

Bitcoin is remarkably resistant to effective regulation because it is a fully distributed, peer-to-peer mechanism. There is no central set of books, no bank to subpoena, and no central committee to pressure (at least not anyone who can put the genie back into the bottle). In essence, there is no choke point or accountable administrative party.

Sure—it is possible to trace some transactions and legislate against ‘mixers’ and other anonymization methods—but there is no way to prevent a transaction before it occurs or to know the current distribution of assets. Bitcoin can exist as a printed QR code and it can be transmitted from a jail cell with a blinking flashlight. Sending bitcoin from Alice to Bob has no intermediary. Settlement requires only that one of the parties eventually has access to the Internet. But, there is no credit authority or central asset verification.              [continue below image]…


If you are thinking of legislating against the use of Bitcoin, you might as well pass laws to ban the mating of feral cats or forbid water from seeping into underground basements. These things are beyond the domain of human geopolitics. You can try to shape the environment (e.g. offer incentives to cats and water levels), but you cannot stop sex or seepage.

Fortunately, Bitcoin is not a threat to governments—not even to spending or taxation. A gross misunderstanding of economics and sociology has led some nations to be suspicious of Bitcoin, but this improper perception is abating. Governments are gradually recognizing that Bitcoin presents more of an opportunity than a threat.

I have written more extensively on this issue:

Ellery Davies is co-chair of The Cryptocurrency Standards Association, MC for The Bitcoin Event in NY and monetary systems board member for Lifeboat Foundation. This fall, he will teach Cryptocurrency and The Blockchain in Massachusetts.

Will Bitcoin End the Reign of Government?

When my daughter was just starting primary school, she would look inside a book for the pictures before reading the text. She was old enough to read without pictures, but she wanted to get a quick synopsis before diving in. “Look, Dad! a bunny is carrying a giant clock into a rabbit hole.”

White Rabbt-01This is my first article without pictures. At least none of Bitcoin, because the copper coin metaphors are tired and inaccurate. At the user level, owning bitcoin is simply your stake in a widely distributed ledger. Ownership exists only as strings of secret code and public code. There is no physical coin.

Since the only pictures in this post show a white rabbit with a big clock, let me give you the quick synopsis: The answer is “No”. Bitcoin will not end government, nor its ability to tax, spend—or even enforce compliance.

But there is an irony: Most lawmakers and regulators have not yet figured this out. They perceive a great threat to their national interests. That’s why Andreas M. Antonopoulos runs around the world. He briefs prime ministers, cabinets and legislators with the noble purpose of demystifying and de-boogieing Bitcoin.

Does Bitcoin Help Tax Cheats?

As the original Wild Duck, I tend to be perceived as a Libertarian. (It’s a label of which I am not all together comfortable—but I like that it puts places my ethos far from the ‘Tea Party’). While I hope that my government doesn’t believe fear is a necessary motivator, I understand the need for taxpayer reporting, measurement, and compliance initiatives. After all, it’s human nature to dislike paying taxes. Many individuals dodge taxes, if the perceived risk of being caught is low. Sociologists also point out that people are willing to cheat a system, if they perceive it to be sufficiently big or impersonal—i.e that their individual contribution is meaningless.

[ASIDE]: For this reason, Akamai Technologies ends their free-soda-&-snack policy whenever an office grows beyond 30 people (I learned this during a job interview a few years ago). People who would normally respect the policy begin pocketing free sodas for their home or friends, if (a) they no longer know everyone, or (b) they perceive the extra burden is just a drop in the corporate bucket, and not a burden on their office peers.

I suspect that most early proponents of Bitcoin are partially motivated by a desire for low taxes and privacy. While I don’t feel that these individuals are bad for the cause (after all, I am one), I feel that it is unfortunate that they appear to be the overwhelming majority of users & supporters. Let’s dismiss, for the moment, the fraction of voices that want to completely end government and taxation…If you believe in any taxes at all, then government needs compliancy mechanisms, including methods that measure, verify and ultimately arbitrate or prosecute offenders. (Don’t blame me…I’m not even the messenger here. Just an observer).

My point is that in their effort to control a country’s monetary supply (and the interbank loan rate, etc) and in their effort to ensure taxpayer compliance, a great many governments view Bitcoin as a threat. In the past, I felt that my job was to evangelize the public on the benefits of cryptocurrency, and to a great extent, that’s what CRYPSA is all about. But in recent months, I have become confident that Bitcoin will become ubiquitous. It doesn’t need me to be an evangelist. The freight train is now rolling downhill. But…

Andreas Antonopoulos-01s
But as an engineer, author, speaker and occasional consultant, I have found a new calling. Like Andreas Antonopoulos (my idol), I have found a calling in de-boogieing Bitcoin to lawmakers and regulators. I demonstrate that (a) cryptocurrency represents far more of an opportunity than a threat to a national interests, and (b) the future is coming at ya’.
So, either: Stand pat; Get out of the way; or Hop on!

I can give an audience filled with old-school conservatives compelling reasons to “hop on”. Ultimately, blockchain technology coupled with true, permissionless, p2p transactions will shake up established mechanisms and enforcement protocols. They will force new ways of thinking. But cryptocurrency will not end the reign of government—nor even end the ability to tax, enforce and spend. It will simply change the way they do these things. It will also change the way we conduct polls, vote, arbitrate disputes, perform scientific research and much more.

Bitcoin and the blockchain are not just technologies. They transform the way in which many tasks are performed. But it’s not just about efficiency. These technologies offer mechanisms to level the playing field. TWhite Rabbt-02hey bring fairness and representation to processes that were opaque and perhaps even relied on the excuse of opaqueness.

Ultimately, Bitcoin may render certain government departments redundant. Nations will begin to question their need to directly control monetary policy. The impact at the department level is no reason to fear Bitcoin. Overall, it represents great opportunity and not a threat. In my opinion, the changes will benefit everyone.

Bitcoin is not an us-against-them instrument. It is win-win. Of course, perception counts. Misunderstanding potential and confusing it for a threat is a fundamental problem. Wild Duck and CRYPSA share a passion to help make it a very short-term problem.

Trust a Bitcoin Exchange without Regulation

Yesterday, after the spectacular failure and bankruptcy filing of Mt. Gox, the world’s largest Bitcoin exchange, Peter Finn, an IBM architect, launched a survey within a LinkedIN discussion group. The single question and multiple choice options were:

“In Light of MTGOX what level of transparency should there be for Bitcoin Exchanges?”

1. None. Exchanges Can do as they please
2. All Public Keys Disclosed and Signed
3. Show Public Keys, Source Code, Processes
4. Fully Regulated, Monitored, Audited

One day after it was published, respondents were decidedly negative on the option #1 (no regulation). They responded like this: 1–14%, 2–28%, 3–28%, 4–28%. I am among the 14%: No regulation. But only because Peter failed to cover all the bases. There is a far better option than regulation. But I am getting ahead of myself…

Regulation in a Decentralized, P2P
market, with Open Source Tools 

Suggesting that Bitcoin be “fully regulated” is like demanding that feral cats be licensed to procreate. Perhaps the point can be better illustrated by a metaphor closer to home: Perhaps we should regulate the use of file encryption or bit torrent clients. After all, they can both be used for circumventing copyright law or transmitting illegal content.

Governments are inevitably weakened by legislating against what cannot be regulated. The US has already tried to regulate encryption (PGP/Zimermann and Clipper chip) and they tried to legislate against the use of torrents (Actually, it was a prelude to torrents. Who remembers Napster?)

You can enact laws and regulations, but when you ignore motives, access and facts in evidence, you promote bureaucracy with a head-in-the-sand morality. Feral cats don’t read edicts. Their compulsion to reproduce is strong and they possess the tools they need to procreate. The same is true for bit torrent, encryption and a fully-distributed, low-cost, p2p payment mechanism that is adding users like a wild fire.

Considered in another light, Bitcoin was created to circumvent—or at least—transcend regulation. For many legitimate users, the whole point of a distributed, p2p network built upon open source tools is to unfetter users and disentangle government.

So the real question is not whether we should engage in useless legislation that ignores the facts on the ground. A better question is “How can we make the Wild West a bit safer?” I understand the need for public trust. ! But trust comes from transparency, accountability and outside audits. It doesn’t come from government regulation. Peter alluded to this in the very last sentence the text accompanying his sruvey. He said:


“Will users decide through consensus that
exchange XYZ chooses to fully disclose?”

Bingo! Create standards and practices—especially for security and transparency. Then, make it simple for anyone choosing an exchange or entering into a transaction to determine if the organization complies with industry best practice. Finally, offer a modest level of consortium insurance (to the user, or at least compliant exchanges), so that public trust can be tied to something tangible.

On Feb 25, one day after championing a joint statement from the few credible Bitcoin exchanges, Coinbase took a big step toward this goal when then invited a research analyst from a competitor to audit their internal security practices and randomly compare a customer transaction log to the public blockchain. The report includes an explanation of the test conditions and the results.

Laws are meaningless in a market that cannot be regulated. But industry standards, audits and certification can certainly step up to the task. They can build trust, confidence and stability. Just as importantly, they won’t interfere with the fraction of users who demand personal, private, p2p transactions without auditing or oversight. After all, we must never forget that these individuals started the revolution from which we will all benefit… even the “legitimate” commercial transactions that require transparency, security and an audit trail.

So, let’s revisit Peter Finn’s survey: What level of regulation should be mandated for Bitcoin exchanges?…

I propose Option #5: None. Exchanges can do as they please. But establish an easily verified, independent certification of standards & practices that can be tested at the URL throughout user interaction. Users can avoid the tool, add the tool, or ignore its warning. The certification (and a gut-simple way to see it & test it), empowers the user instead of the government. It also avoids entangling a new technology with unimaginable potential in red tape.

Incidentally, a group of individuals from this discussion group is working toward this goal right now. Although they have barely completed introductions, the Virtual Currency Collaborative Cryptocurrency Standards Association [CRYPSA] has hammered out a charter that will lead to a set of voluntary standards and practices to facilitate open, transparent, safe and auditable transactions within a community that often takes pride in their inherent freedom from regulation. Taming the Wild West will not be too difficult. And it won’t even be necessary to restrict gunslingers from walking into the saloon at high noon.