> All cryptocurrency assets, not just Bitcoin, are zero sum. So every dollar “made” in cryptocurrency was simply provided by someone else.
Can't you say that about any other asset? If I sell my house for more than I paid for it, it's zero sum since someone simply provided me that money. But that's not how we determine value. It's positive sum because the buyer attributes a value higher than he had paid for it, otherwise he wouldn't have bought my home to begin with. You can say no one can reasonably "value" a crypto currency, but there's 100+ billion dollars that says otherwise.
> There is no silver bullet, but there are a lot of things that can throw sand in the gears, degrading Bitcoin and other systems into unusability.
Ironically, the author goes on to describe a way to attack the value of Bitcoin and presumably drive its price down (destroying value). So it doesn't seem zero sum after all
> If I sell my house for more than I paid for it, it's zero sum since someone simply provided me that money.
No transaction between rational individuals is ever zero-sum.
If Bob values a house at $300,000 and Alice values the house at $300,000, the house will __never__ be sold. Because by the time transaction fees come about, Bob would have lost money in the transaction.
In reality, Bob values the house at $250,000, and Alice is happy to buy at $350,000. Maybe some negotiations happen, and after transaction fees, Bob receives $270,000 while Alice pays $330,000 (both happy), with the Banks / Real Estate agents pocketing the $60,000 spread.
-------
This is called the Bid-Ask spread, and its always, always, always non-zero. Stocks have bid-ask spreads of a penny, but Pokemon Cards, Houses, Lumber, etc. etc. all have a spread in reality. There's never one price for things, there's a buyer's price vs a seller's price, the bid and the ask.
------
The difference in the bid-ask spread gives you an idea of how much value any transaction created. If Bob was willing to sell the house for $270,000 and Alice was willing to buy the house for $330,000, then there was at LEAST $60,000 of value created by the transaction.
>This is called the Bid-Ask spread, and its always, always, always non-zero. Stocks have bid-ask spreads of a penny, but Pokemon Cards, Houses, Lumber, etc. etc. all have a spread in reality. There's never one price for things, there's a buyer's price vs a seller's price, the bid and the ask.
If a bid-ask spread can be positive (as in a stock where the bid is lower than the ask) and can be negative (as in your house example where the bid is higher than the ask), why can't it be zero?
It seems like you're conflating the bid-ask spread with consumer/producer surplus that arises from being willing to buy/sell at prices higher/lower than the market clearing price.
even if the bid-ask spread is zero, the fact that someone put a bid at that price implies they value the item more than that at most that exact amount of money, and if someone put a ask at that price, that implies they value at least that much money more than that item, so it is STILL a non-zero trade.
Note that the bid-ask spread is a LOWER BOUND ESTIMATE on the amount of utility created by a trade, which is almost always nonzero.
Of course values are subjective, so you could press the "issue bid" or "issue ask" button and a fraction of a second later have your values shift, and then have the automated system execute trades... But I would say... that's life. Maybe don't click certain buttons if your preference schedule is so flighty?
Also, sure, someone could have a (metaphorical) gun to your head when you place the bid, which introduces external factors which could violate the platonic ideal that these trades must create positive value.
> If a bid-ask spread can be positive (as in a stock where the bid is lower than the ask) and can be negative (as in your house example where the bid is higher than the ask), why can't it be zero?
It can be, and indeed the Micro 101 model is that in ideal conditions it will be for an infinitesimal slice of transactions that actually take place, as all potential transactions with a 0-or-higher bid-ask spread will occur, but that the average across the market of all voluntary transactions will always be positive.
>as all potential transactions with a 0-or-higher bid-ask spread will occur,
bid-ask spread isn't a property of transactions, it's a property of markets. Transactions will occur when someone is willing to pay at least as much as a supplier is charging.
The bid-ask spread is how much less the highest bidder is willing to pay than the lowest seller is asking. It's a measure of how far apart buyers and sellers are from making a transaction, at a moment of time in a market.
> bid-ask spread isn't a property of transactions, it's a property of markets
The upthread poste by dragontamer which introduced it seemed to ascribe it specifically to particular transactions, and I responded to what waa described in that post, viewing terminological minutiae as less interesting than the concept being discussed for which there seemed adequate clarity in context.
Well yeah, that's why I felt like they were conflating two different topics. The bid-ask spread on a stock exchange doesn't really the same as my be willing to pay $350k for your house when you would be willing to go as low as $300k.
> The bid-ask spread on a stock exchange doesn't really the same as my be willing to pay $350k for your house when you would be willing to go as low as $300k.
It kind of is if its a transaction that both parties are considering because the buyer has no more attractive properties (considering asking price) to buy, and the seller has no better bids.
Its a different kind of market because houses aren't non-differentiated mass commodities, but from the perspective of either the buyer or seller the opposing offer is equivalent to the price on the opposite side of the market in stock trade, once things have been narrowed to the best alternative to either do the transaction or not.
It can be exactly 0, but that's the exception, not the rule.
If you treated them as true real numbers, the odds of bid and ask being exactly identical are zero. In reality we round the prices to some minimum unit of currency (or rational fraction thereof), so it's not impossible for the difference to be precisely zero.
Nonetheless, it demonstrates why it's not zero sum in general. If it happens to sum to zero, it's by coincidence, not a fundamental truth of the market.
I value HN for these moments in which someone lucidly debunks an abstraction and undoes the epistemic closure that it had performed. Attempting to articulate my thanks brought to my attention this general idea, that all abstractions are [perhaps I should say 'also'] epistemic closures, so thank you twice.
Right, I was using "zero sum" by the author's naive definition to show that it doesn't make sense. My argument is that all voluntary trade has to be positive sum to both parties
Old retired couple have a 6-bedroom house for their former 4-kids (+masters bedroom + guest bedroom). All their kids have moved out, and they're tired of vacuuming so many empty rooms. They want to move to a retirement community.
New up-and-coming couple not only have 4-kids, but one more is on the way. They suddenly got an opportunity to work in... Chicago (or insert any other city here), and are looking for a new home to raise their kids in.
-----------
The old-couple will likely be willing to sell the house below market value, while the younger couple may be stressed out and otherwise willing to pay above market value.
Clearly, value will be created as the new couple buys the home from the old couple. The majority of transactions between rational individuals are of this nature. The only detail remaining is how to proceed with negotiations, but assuming they're rational, the two sides will come to a price point that's favorable to both sides.
> If Bob was willing to sell the house for $270,000 and Alice was willing to buy the house for $330,000, then there was at LEAST $60,000 of value created by the transaction.
Where each participants marginal utility function is represented by their name, and P is the actual transaction price, there is exactly Bob(P-$270k) + Alice($330k-P) value created.
Calling this “at least $60k value” is wrong, and even calling it “$60k value” ignores the fact that value of $ is no more constant across different market participants than any other item, and that the benefits accrue in particular places.
In your example, the bid is 350K and the ask is 250K; this is not like a bid-ask spread in a regulated market, in which the bid is by definition lower than the ask, and any bids that exceed the ask take the ask off the books at exactly the ask price.
What you are describing is more like arbitrage, and it creates no value, but instead exploits inefficient markets, disparate regulatory environments, or unequal access to markets.
How do you distinguish between true value creation and simple asset inflation? Low interest rates cause soaring asset prices, which can create an illusion of "value creation", but I don't see it actually increasing the value much.
Low interest rates actually do increase preferences (and hence value) for cash-generating assets. The competition (keeping the money in risk-free assets, usually expressed as T-bills) becomes less valuable, which means that other assets become relatively more valuable. There are a bunch of results from both behavioral economics and psychology that suggest humans can't actually determine absolute value, and can only determine relative value, comparing two alternatives against each other.
This also gets at the paradox behind a lot of our intuitive notions of "value creation". If a person buys high and sells low, taking a loss, they've lost value. Or have they? At the time they made the first transaction, they valued the new asset higher; at the time they made the second one, they valued it lower. As my therapist used to say, "The past and the future don't actually exist; there is only the present."
I've seen writers try to resolve the paradox by introducing the idea of "time preferences" or "future selves". You, right now, are not the same person you will be in the future. You can express compassion for your future self by taking action - like delaying gratification, investing in personal development, or saving money - that benefits your future self. The degree to which people preference their future self over their present self is culturally dependent, which is why certain ethnic groups and social classes tend to amass large amounts of wealth while others are perpetually living on the edge of subsistence. The rate of interest is a quantitative measure of how much people preference their future self over their present.
> If a person buys high and sells low, taking a loss, they've lost value. Or have they? At the time they made the first transaction, they valued the new asset higher; at the time they made the second one, they valued it lower.
Right, it seemed like a good idea at the time. But they're experiencing regret because an alternate past action (just holding cash, or buying a better performing asset) would have given them more value now.
Of course you can regret any suboptimal action (anything less optimal than buying the best performing asset), but that's not most people's baseline. I think the baseline for most people is holding cash, hence they mostly feel regret when their assets' cash value decreases.
Unless interest rates stay low forever, at some point the asset inflation they cause has to deflate.
> How do you distinguish between true value creation and simple asset inflation? Low interest rates cause soaring asset prices, which can create an illusion of "value creation", but I don't see it actually increasing the value much.
This is exactly the problem with inflation. It creates all sorts of distortion of what people value, by fucking with our concept of what cash is worth. Do keep in mind that "value" is not some sort of objective thing. Everyone values things differently. Someone who is allergic to peanuts, may have a negative value for peanuts, someone who thinks peanuts will give them immortality might have an unreasonably high value for peanuts. And capitalism just doesn't care. Live and let live. Important thing is that it's not just true for things, it's also true for money. (note that value is not price, though often times it's rhetorically convenient to conflate the two).
So the phrase "value creation" does not refer to some sort of intrinsic improvement in any given thing. What it means is, say the peanut allergy guy comes into posession of peanuts somehow, and he exchanges to peanut immortality gal for a wad of cash. This created VALUE for the allergy guy because he values cash more than the peanuts, and created value for immortality gal because she values peanuts more than (that amount) of cash.
Moreover, using amount denominated in money to track value creation is dangerous (note I didn't say necessarily wrong, I said dangerous), because it assumes that money is equally valued by everyone. That's not really true, and we probably shouldn't, in policy, implicitly judge people in one way or another for having different values for money.
I do not think home buying is exactly this. It's much emotional and sometimes both parties involved are green - this may describe a transaction between two veteran RE investors.
Funny, how is money put into circulation? A big portion is being paid directly from the government to their employees. They need houses, food etc, so they spend it. That gets distributed to all the people from those companies and so on. Through taxes we return a bit to the government. So that they don't need to keep printing new money ALL the time.
And that is exactly the same for crypto, except there is no country/government behind but only a ledger. The money is being transferred for doing work, mining. And that is distributed again.
To buy any cryptocurrency a buyer and a seller must agree on a price and an amount. The idea that the money was "made" by someone else is irrelevant when both parties have agreed to make the trade.
My father had a rather clever way of explaining the bid-ask spread:
“Every time you have an exchange of goods and services between two parties, you have an agreement on price and a disagreement on value.”
i.e. Given an exchange between a seller and a buyer selling a widget for $100, the seller by definition values the $100 more than the widget while the buyer values the widget more than they value the $100.
> If I sell my house for more than I paid for it, it's zero sum since someone simply provided me that money.
I think the point the author was trying to make is that you can participate in the housing market by building and selling houses, with the former being “positive sum” (since the land and building materials have a cumulative value less than that of a finished dwelling). The positive sum stuff seemed to be describing markets, not individual transactions
Sure, if your house increases in value it is in fact not creating any value. Same with stocks. But if you invest in stocks you increase the amount of risk capital in the world, so more companies will be started, companies that can create value.
So it's not the rising stock price that creates value when a company is successful, but is an indication that the company is creating value, since people are buying its product.
I love Lawfare and listen to their podcast quite often, but the argument presented is so odd: 1) specifically calling for not introducing new
legislation to deal with this and 2) trying to fit mining into a bucket of legislation designed to kill it. This is not in good faith at all.
Money laundering is despicable, specially when it happens at high level. And we have to admit that Bitcoin, ZCash, Ethereum (Tornado Cash) and other cryptocurrencies are facilitating that. But we're getting better at tracking that. After all, transactions are all public and once you can label one wallet address, you can perform all sorts of graph analysis and learn a lot. Contrast that with trying to subpoena banks to follow money trails.
The other aspect of this is that, like it or not, banks are not playing by the rules all the time. See HSBC laundering almost 1 billion for Mexican and Colombian cartels. See Austria’s Raiffeisen Bank enabling former Ukraine's president to steal money with offshore accounts (https://www.occrp.org/en/investigations/former-ukrainian-pre...)
We should absolutely deal with this, but the first place to start is the Bank -> Cryptocurrency (and vice versa) transfers, or as they call them, the fiat gateways. You still can't pay for stuff with cryptocurrencies so ultimately, whoever steals or launders using cryptocurrencies, will need to eventually convert back into fiat money.
What do you mean? The article is arguing that crypto-currencies (as they are run today) are illegal under existing laws, therefore we don't need new laws.
Regardless of whether this is true or not, how is this a "bad faith" argument?
It sounds like you just didn't like the conclusion but couldn't find anything actually wrong with the logic...
I explained why I think this is argued in bad faith: trying to frame mining in a law framework for the single purpose of killing it vs something like: "ok, this is bad, let's try to fix it. here's how we can fix it"
If the author believes it to be illegal, why should they care about "fixing it"?
Murderer: <kills a person with a hammer>
You: Let's introduce a new law to make killing people with hammers illegal.
Author: We don't need to introduce a new law, murder is already a crime.
You: That's a bad faith argument, because it means we can't kill people with any kind of implement, not just hammers!
There are two ways you can argue this:
1) Either you believe that the crime should not be illegal.
2) Or you disagree that the act falls under the definition of this crime.
In neither case is the author acting in bad faith, they're just disagreeing with you. It sounds like you would argue (2) but in that case you should provide some reasoning for that.
Money laundering is "despicable"? That's quite a strong sentiment for a white collar crime which basically states that money not tracked by the government is illegal.
Cash enables crimes. Guns. What about cars? I don't agree with this argument, but then again, I'm talking more in a philosophical way than a practical one.
Here are a few reasons why I called it despicable:
- Laundering money in poor countries directly hurt the citizens of those countries because the government doesn't collect the taxes it is entitled to
- Most of the money to be laundered comes from illicit activities: drugs, prostitution, human trafficking. I don't have any citations here for proportions, sorry.
> Laundering money in poor countries directly hurt the citizens of those countries because the government doesn't collect the taxes it is entitled to
Minior nitpick: Poor countries typically have authoritarian, corrupt governments, so keeping money out of their hands is actually a good thing :)
But more to the point: the whole idea of money laundering is that criminals WANT and DO pay taxes on their illegal income by pretending it came from legal sources. If they just kept those money under the mattress they would never pay a penny of taxes, but they also wouldn't be able to actually spend the money. So, money laundering in poor countries actually increases the tax income of their governments.
>Poor countries typically have authoritarian, corrupt governments
The western national media has been effective at propagandizing you toward this end. The "typical poor country is corrupt" trope is circulated widely and is used to discredit any attempt at wresting control over a country's fiscal future away from a cohort of wealthy western nations.
Corruption in the west is normalized and simply labeled "lobbying." "Corruption" elsewhere is used as an excuse to overturn elections, topple governments and assassinate leaders.
>And we have to admit that Bitcoin, ZCash, Ethereum (Tornado Cash) and other cryptocurrencies are facilitating that. ... After all, transactions are all public and once you can label one wallet address, you can perform all sorts of graph analysis and learn a lot. Contrast that with trying to subpoena banks to follow money trails.
The mainstream banking system has built up an infrastructure of laws and procedures designed to guarantee transaction and identity confidentiality (e.g., laws alone: RFPA, GLBA, FCRA, GDPR and many more.) These privacy protections aren't some quaint byproduct of another era, they're requirements for any working financial system. You can't have your private banking data oozing out all over the world: this is terrible for business and fundamentally unsafe for users. It's unsustainable in the cryptocurrency sphere as well, but crypto is mostly a toy that nobody uses for real applications so these weaknesses aren't a killer -- yet.
The traditional banking system squares the need for privacy and desire for AML by placing confidential banking data into closed systems which share it with law enforcement upon presentation of a subpeona. Most cryptocurrencies deal with it by, basically, YOLO. But none of that is sustainable.
Worse, it hurts the good guys and hides the bad ones. Traceable blockchains put you into a regime where the clever launderers will find ways to obfuscate their transactions, and everyone else ends up with an unusable system that dumps their business secrets into the hands of any competitor who can write a check to a tracing company.
(Full disclosure: Zcash scientist here. But we created the tech for a reason, and fear of a broken 'panopticon' banking system was a big part of that.)
This is an interesting exercise in legal argumentation, but it assumes that the US Government wants to push miners out of the US. It's not that they can't, it's that they don't want to.
Outlawing mining in the US would not disable cryptocurrency networks, because miners could still operate in other jurisdictions (and covertly in the US). It might cause a panic and disrupt some American-based crypto companies, but cryptocurrencies have already been shown to withstand panics and business upheavals. Crashing the price of Bitcoin doesn't actually reduce its usefulness to cybercriminals, as long as the market is still liquid.
Worse, banning US mining would ensure that no mining rewards can be taxed by the IRS, excluding the US from the growing cash stream coming from blockchain rewards.
Only because they don't feel threatened by it. The uptick in high profile infrastructure ransomware attacks is the first penny to drop there. A second will one day be high inflation rates for the USD. I don't pretend to know when that happens, but history of fiat currency is clear that it will happen with certainty eventually.
Bitcoin cannot succeed past a certain level because then it competes with the USD and becomes a threat. One way or another its days are numbered.
Don't forget the US outlawed gold at one point. Competition with the fiat currency monopoly will not be permitted because it undermines the sovereign power wielded by the state.
>Bitcoin cannot succeed past a certain level because then it competes with the USD and becomes a threat.
It already is a threat to the USD and the game theory ensures anyone fighting against Bitcoin loses in the long run.
If the US wants to lose miners/nodes, large holders, and fintech innovation to other more free countries, they should take the view that you are sharing, but they will also lose the future in the process.
What a terrifyingly dumb perspective... "it has helped facilitate a whole lot of bad things" is his whole hand-wavy argument for why people (presumably lawyers) need to go around "throwing sand in the gears."
IMO we should be throwing sand in the gears of the government. Starting wars and killing hundreds of thousands of people is much worse than ransomware attacks.
I derive significant utility from my government, and prefer it to continue to function, despite its flaws that need addressing. Less needless wars, for sure, but also less crypto please (if the crypto evades democratic government regulations and laws).
If this is a path to applying more regulatory pressure on crypto, by all means, full steam ahead.
Much of cryptocurrency's value comes from the lack of regulation. People are not satisfied with the existing solutions, thus the need for innovation. BTC emerged after the US destroyed LibertyReserve and eGold.
Government could eliminate the some of the needs for cryptocurrencies by removing regulatory barriers to transact.
As an example, compliance costs prohibit PayPal from efficiently processing 25 cent arcade or in game transactions.
>Instead of the standard 2.90% + 30p per transaction that PayPal charges, you’ll be charged a 5% + £0.05 fee on every transaction. This would mean that on a £1 transaction, you will pay 10p as transaction fees, rather than 59p, and you save 41p. Ordinarily, this does not look much, but if you sell very high volumes at low prices, it quickly adds up to become a significant saving. After all, it’s a small leak that sinks great ships.
Additionally, for electronic goods most processors require the merchant to offer a no questions asked refund policy.
Exactly. The irony to me is no one really wants price discovery in order for volatility to be reduced so that crypto can actually function as money. Function as money in the sense of signing a year long apartment lease for x amount of BTC a month. Not just paying in USD after a conversion.
As someone who develops sites which use cryptocurrency, USD price volatility isn't a concern. Users are riding the same wave. What is important is that it is technically possible. I realize this isn't the majority view, but that doesn't make it any less valid. There are many things which are popular with the masses that are arguably irrational.
>Weston Nakamura in an interview with Real Vision’s Jack Farley made the trenchant point, “This is what markets look like when you don't have global central banks artificially suppressing volatility, intervention of central banks buying every dip, putting a safety net under every single slight tremor or taper tantrum or whatever it may be, this is what happens.”
>He explains, “Bitcoin is not a US asset, just like oil is not a US asset, just like gold is not a US asset. Now, those are denominated in USD.” Sure, Americans think in US dollars, but “it's BTC/fiat, and it's not an American asset. People need to get that in their head. If you actually look at BTC/JPY (Japanese yen), the levels make a hell of a lot more sense.”
The premise of this article is that cryptocurrency must be stopped because it is used in ransomware. Never mind that “ransomware” is now the new “terrorism”, a catch all boogeyman to excuse civil liberties violations. Let’s look at how he proposes to stop cryptocurrency.
By making mining illegal, maybe mining can be stopped in the US and in Europe. But it will continue in many other places, and the network will absolutely still function. Maybe the value of crypto will drop, but this doesn’t matter at all for its use in payment. It obvious to anyone that the course of action he is recommending will not have the effect he says it will.
To anticipate this author’s next article- I’m guessing that he will propose making buying and transacting in crypto illegal for US persons. This would also make the value of crypto drop, and might actually also stop a few companies from paying a ransom. But soon enough, overseas “security consultants” would pop up, who could unlock your files for a very hefty fee (really just hiring a non-us person to buy and send the crypto ransom). No simple prohibitions or attacks on crypto would actually stop this.
But this does point to the actual way to stop ransomware, without the ridiculous and unworkable overreaches that this author is flogging: Make paying ransoms illegal.
This would neatly solve the problem by stopping any ransoms from being paid. The fact that the author contorts himself into mental pretzels to avoid stating the obvious legal solution to ransomware shows how little he actually cares about ransomware, and how much he is just grinding an anti-crypto axe. It’s surprising that UC Berkeley allows him to put their name on such obviously facetious and ill-considered articles.
If paying a ransom is made illegal, there's a very good chance victims will pay the ransom, and try very hard to hide the attack from the authorities to the best of their abilities. Punishing the victim rarely has the intended result either...
The reason why I believe mining isn't being labeled as money transmission is because the miners never take custody of any bitcoin, they collect/handle transactions themselves, but these transactions are p2p, the bitcoin do not go into the hands or control of a money transmitter.
Where the author is correct is that the miners are the chosen ones for writing to the central ledger of bitcoin, but writing to a ledger including transactions, is not the definition of money transmission- the miner would have to take custody - which they do not.
Now where money transmission I believe is running rampant is any smart contract built on ethereum, like uniswap, that is taking custody of any token and holding that token- all of them are violating money transmission laws.
Nobody human or corporation has custody of tokens deposited to Uniswap. It has no admin keys, just an autonomous script running on chain.
I guess you could try to go after the guy who wrote Uniswap's code but that has First Amendment issues according to US vs. Bernstein:
> the Ninth Circuit Court of Appeals ruled that software source code was speech protected by the First Amendment and that the government's regulations preventing its publication were unconstitutional.
Did Uniswap3 write itself?
Are there humans that wrote the code and deployed it?
Why is Uniswap3 protected with copyright law and who does that protect?
Why is there a company called Uniswap? Why were they funded?
Does the protocol receive tokens (sole control) and can it send them?
How would you define custody?
I addressed the question of going after the dev above, after the first paragraph.
My point on custody is that no human has the ability to do anything other than trade on uniswap as a regular user. You can trade one token for the other (in a given pair contract), and you can provide both tokens as liquidity and collect fees on the trades. The contract handles the rest according to its code, which is run by every Ethereum full node.
I would say that the protocol code is conducting money transmission and leave the argument that some humans wrote it aside.
In the docs, Uniswap says they don't currently take a protocol fee, but might add it in the future. This fee would not go to liquidity providers, but to the smart contract itself. Who would receive the protocol fee I wonder, or would the smart contract itself keep the fees, never distributing it to any human.
I haven't even brought up the can of worms of governance tokens. The protocol seems to not need a protocol fee since they can make a fee by issuing themselves governance tokens that have some privileges with the protocol and have a price. It is interesting that you say the code is immutable, but the governance tokens claim to give its holder voting rights to make changes to the protocol code like changing fees. It is a major problem that investors of Uniswap the company received the uni governance token in proportion to the funding of the company which they tell us has nothing to do with the decentralized uniswap protocol. You can't have your cake and eat it too.
Changing a number is not the same as changing code.
I haven't really kept up with V3 but earlier versions had no tokens or governance and were very successful. They're at least an existence proof that defi protocols can be completely autonomous.
The autonomous claim that you have made more than once, whether true or not, does not change the fact that the smart contract is doing money transmission.
Of course bitcoin is about transmitting money, almost by definition. I can't believe it has gone this far without regulation.
If the argument is that is just an asset (which I believe was strongly argued against by bitcoin proponents, at least in early days), then what kind of asset is it? It has absolutely no value beyond it's monetary value.
In practice, it appears this approach would make most BTC transaction validation illegal in the US in the common case (exceptional cases would still be authorized; specific users could have their public key allow-listed and some due-diligence would then occur).
This wouldn't end BTC; it would simply constrain how much American citizens could be involved in the mining process (and, practically, basically cede ownership of the network mostly to Chinese nationals IIUC current distribution of mining hardware ownership).
The blog post is premised on a fundamental misunderstanding of what a "money transmitter" is for regulatory purposes, presumably because they based their understanding on FinCEN's overview page rather than reading the regulations themselves.
The definition of a money transmitter is a person or company that receives money (or other measure of value) from one party and sends that money/value store (sans any charged fees) to a third party. (https://www.law.cornell.edu/cfr/text/31/1010.100#ff_5)
Miners verify transactions, but crucially don't take custody of the money/value store at any point. Paypal and Venmo are money transmitters, because they do take custody of money in transit. (Stubhub and Airbnb are not money transmitters because the regulations exclude companies that only act as payment processors to facilitate the exchange of goods and services, see (ff)(5)(ii)(B) and (F) of the exclusions in the linked regulation)
So this blog post is much ado about nothing and will generally be ignored by the people who actually matter, i.e., FinCEN and other regulatory agencies with jurisdiction, because they generally tune out people who can't get the basic foundational things right.
It is possible to store short messages on the public Bitcoin blockchain. If somebody were to publish extremely sensitive official secrets on the blockchain, would the government be forced to attack the whole network?
Bitcoin is legally an asset. Processing the transfer of bitcoin is legally no different from processing the exchange of baseball cards. Transferring $100 worth of baseball cards might be a money transmission, but transferring a signed Barry Bonds card regardless of its value is not. Likewise, sending $100 dollars in the form of bitcoin might be money transmission, but sending 0.03 BTC regardless of the dollar value is not. And those are exactly the sort of transfers processed by miners. To subject miners to FinCEN rules, the US would have to recognize bitcoin (and any other cryptocurrency one wanted to so regulate) as a legal currency.
Further the idea that removing a transaction, which is functionally equivalent to moving funds back, is not a money transmission while the original movement of funds is a money transmission is absurd. Otherwise it would be trivial to create a cryptocurrency where initial payments are never validated and you simply rely on removing the superfluous transactions to achieve the same effect.
> To subject miners to FinCEN rules, the US would have to recognize bitcoin (and any other cryptocurrency one wanted to so regulate) as a legal currency.
Isn't this just a detail, consistent with author's call for action? To him, participating in the bitcoin network means facilitating money transfers. If the gov. decides to adopt this viewpoint, calling bitcoin a foreign currency won't be difficult.
Yes, but recognizing it as a foreign currency would be a huge gain in legitimacy, which would seriously work against the author's stated goal of disrupting cryptocurrencies. Further, it's not enough to only require this for bitcoin, people would just jump to the next cryptocurrency. You'd essentially have to recognize all mined cryptocurrencies as valid foreign currencies (which would probably lead to a whole slew of complications) or significantly amend many existing laws to create some third category, which again goes against the author's "use existing laws to deal with bitcoin" approach. Of course once we get into this quagmire of trying to determine what exactly counts as a money transmission, there will be a whole host of financial institutions who will throw quite a bit of money at the prospect of creating new loopholes in existing regulations. All in all I would be very surprised if the author would desire the actual outcomes of their stated plan.
I guess I can sort of see it for a cryptocurrency that exists solely to send tokens back and forth, but what about Ethereum where the miners are running some global VM, one function of which is to send tokens back and forth? There you're not paying a fee necessarily to the miner to transfer money for you, but to execute some opcodes and update the global ethereum state. Maybe you're registering a new domain in their DNS equivalent.
He mentions Ethereum offhand in the post, but I feel like that's a legally harder case to prove. Do the servers that transmit, say, wire transfer packets have to worry about KYC?
I have much simpler explanation why miners should be regulated as Money Transmitters than the one described in the article.
Thinking from the first principles: what PoW, if not an obfuscated way to buy tokens/coins? I.e. you exchange money for electricity, then electricity for compute power, then computer power for a right to play a lottery, then periodically you win tokens/coins.
Money bag → High voltage sign → Personal computer → Slot machine → Coin
I think you provided the right framework for thinking about this question. I would say that the miners are making bitcoin using raw materials, including electricity and computers, as inputs to a process. The miners are producing or issuing bitcoin, rather than buying it or finding it. Even if electricity is provided/given to a miner with the expectation of bitcoin in return, I believe they are working together in a common enterprise for profit, rather than the miner conducting money transmission.
Zooming out a bit, I do agree that bitcoin is set up as a fiat money transfer system and that in order for the miners to keep making bitcoin they do need to sell it to people to make a profit, so I can't just narrow in on the production of bitcoin and ignore where profits come from. When the miners sell the bitcoin they make for dollars as a business, that is money transmission. Gold dealers are money transmitters because they sell gold (considered a currency equivalent) for dollars as a business. Gold mining companies invest to find gold as a company, when they sell the commodity for dollars for a profit I'm not sure if this is money transmission because gold is a real commodity that as consuming demand, bitcoin isn't a real commodity because it isn't 'used' so I don't think the bitcoin miners have the same benefit of selling bitcoin for dollars without being money transmitters. Bitcoin miners should be thought of as gold dealers, but also as a common enterprise issuing securities.
there are treaties that deal with crimes in international waters, so you'd probably get a visit from the navy of the country you pissed off the most. But they might just go after whoever is giving you internet instead as that would probably be easier.
It seems like their argument would also rope in Paxos, Raft, and Two Phase Commit because your distributed databases could be used to maintain a ledger that could be used for $BAD_THING$.
No good idea starts in the Lawfare Blog. For people who aren't familiar, this is where many Democratic staffers on the hill get their information that ultimately ends up in legislation.
Can't you say that about any other asset? If I sell my house for more than I paid for it, it's zero sum since someone simply provided me that money. But that's not how we determine value. It's positive sum because the buyer attributes a value higher than he had paid for it, otherwise he wouldn't have bought my home to begin with. You can say no one can reasonably "value" a crypto currency, but there's 100+ billion dollars that says otherwise.
> There is no silver bullet, but there are a lot of things that can throw sand in the gears, degrading Bitcoin and other systems into unusability.
Ironically, the author goes on to describe a way to attack the value of Bitcoin and presumably drive its price down (destroying value). So it doesn't seem zero sum after all