The “Bitlicense” is a bad idea that must die

There is much talk about the arbitrary imposition of a nonsensical “Bitlicense” on businesses based in New York that use Bitcoin to make a profit.

Apart from the nauseating and unimaginative use of the prefix “Bit” in yet another context, this idea is of course, completely absurd and unethical. It’s also guaranteed that this bad idea will face a robust and successful legal challenge that will remove the possibility of any sort of “Bitlicense” from being required anywhere in the United States, potentially causing that country to become the center of all Bitcoin business for the entire world.

Let me explain why.

Some say that Bitcoin is money. Others say that it is not money. It doesn’t matter. What does matter are two things; that the Bitcoin network does what it is meant to do completely reliably, and what the true nature of the Bitcoin network and the messages in it are.

Bitcoin is a distributed ledger system, maintained by a network of peers that monitors and regulates which entries are allocated to what Bitcoin addresses. This is done entirely by transmitting messages that are text, between the nodes in the network, where cryptographic procedures are executed on these messages in text to verify their authenticity and the identity of the sender and recipient of the message and their position in the public ledger. The messages sent between nodes in the Bitcoin network are human readable, and printable. There is no point in any Bitcoin transaction that Bitcoin ceases to be text. It is all text, all the time.

Bitcoin can be printed out onto sheets of paper. This output can take different forms, like machine readable QR Codes, or it can be printed out in the letters A to Z, a to z and 0 to 9. This means they can be read by a human being, just like “Huckleberry Finn”.

At the time of the creation of the United States of America, the Founding Fathers of that new country in their deep wisdom and distaste for tyranny, haunted by the memory of the absence of a free press in the countries from which they escaped, wrote into the basic law of that then young federation of free states, an explicit and unambiguous freedom, the “Freedom of the Press”. This amendment was first because of its central importance to a free society. The First Amendment guarantees that all Americans have the power to exercise their right to publish and distribute anything they like, without restriction or prior restraint.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

This single line, forever precludes any law that restricts Bitcoin in any way. I will show you why.

In 1995, the US Government had on the statute books, laws that restrict the export of encryption products from America without a license. These goods are classified as “munitions”. The first versions of the breakthrough Public Key Encryption software “Pretty Good Privacy” or “PGP”, written by Philip Zimmerman had already escaped the USA via BBS systems from the moment it was first distributed, but all copies of PGP outside of the United States were “illegal”. In order to fix the problem of all copies of PGP outside of America being encumbered by this perception, an ingenious plan was put into motion, using the first Amendment as the means of making it happen legally.

The source code for PGP was printed out.

Its as simple as that. Once the source code for PGP was printed in book form, it instantly and more importantly, unambiguously, fell under the protection of the First Amendment. As a binary, the US government ridiculously tries to assert that immaterial software is a device, and not text. Clearly this is patently absurd, but rather than waste money arguing this point in court, printing out PGP removed all doubt that a First Amendment act was taking place.

The printed source code was shipped to another country, and then transfered to a machine by OCR, resulting in a PGP executable that was legally exported from the United States.

The direct analogy to Bitcoin should be clear to you now. PGP and Bitcoin are both:

  1. Pieces of software that can be rendered as text
  2. Software that generates unique blocks of human readable text
  3. Designed to generate text that is covered by the First Amendment

The purpose of PGP is to absolutely verify the identity of the sender of a message and ensure that the message was not read or changed in transit. The purpose of Bitcoin is to absolutely verify the ownership of a pice of text that is a ledger entry in the global Bitcoin network. Both of these pieces of software are messaging systems and services that absolutely fall under the First Amendment in every aspect, from the source code used to generate the clients to the text the compiled clients generate, send, receive and process.

Bitcoin is text. Bitcoin is speech. It cannot be regulated in a free country like the USA with guaranteed inalienable rights.

Bitcoin and PGP generate messages that are initiated by their users. Each of the messages that are generated by these two pieces of software are unique. The only bodies of law that could possibly be invoked regarding their output and source code are Copyright and Patent law respectively. The Bitcoin source is not copyrighted and the core idea of it is not Patented, and in any case, none of this has anything to do with the nature of Bitcoin messages.

Copyright gives the generator of these texts privileges under the law imposing fines on someone copying your message without your permission, but that law has nothing to do with exporting or imposing a tax on the messages themselves, and of course, forbidding the copying of your Bitcoin payment message rather negates the purpose of using Bitcoin.

Taking all of this into account, if any legislator, regulator, three or six letter US agency or other bored bureaucrat busybody dares to try and regulate Bitcoin, they will be on a hiding to nothing. A legal challenge will be mounted, and will have to be mounted, because if the State can legislate against a single piece of software that generates messages, a legal precedent will be created allowing the US government to regulate all software no matter what it does.

Bitcoin’s operation is fundamentally no different to what all email, text messaging and internet connected software does; relay messages. The only difference is in the software that tracks how the messages of the sender and recipient relate to each other. Email is no different to Bitcoin, save for the fact that a record of the sender and recipient and content of your email is not stored in a public ledger one against the other. We know its stored in a private database, but that’s another story. Wink wink.

Allowing legislation to touch Bitcoin means that any software of any kind will suddenly be liable to arbitrary and unethical restriction. It will set a precedent that will be highly damaging to all software development in the USA.

Twitter for example, could find itself being regulated; it transmits messages that are no different in nature to the messages that Bitcoin transmits; the only difference being the publicly maintained ledger and application of the messages. In fact, twitter could turn itself into a Bitcoin company quite easily by adding a few fields to its message JSON schema to include a bitcoin address for each of its users, adding a page to its client and running its own Bitcoin server pool. Would that extra text suddenly transform Twitter into a different company? Would that suddenly change the nature of each Tweet that is sent on their network? How is having a Bitcoin address integrated into your Twitter account different to making a promise by hand on Twitter to your followers or in a direct message?

Essentially, Bitcoin allows you to make contracts with people without knowing them or signing paper; the network and software takes care of identifying and fulfilling the promise, all with cryptographically signed pieces of text. What the people calling for “Bitlicenses” are asserting is that because Bitcoin right now has a particular use, it should be exempted from the basic law of the United States of America. That is completely insane, and will have unintended consequences that would be absolutely disastrous for the American economy since almost everything today is mediated by or touches software.

On the other hand, if Bitcoin is left to flourish and the market allowed to define the services and means of setting the value and resolving disputes, Bitcoin as an ecosystem will be extremely robust and widespread, just like the internet is today, after having grown for twenty years without any regulation or oversight from the State.

Furthermore, as I have said previously, the country that does not enact Bitcoin legislation will become the starting and endpoints of all Bitcoin transactions globally by first mover advantage. All other jurisdictions will see Bitcoin passing through them untaxed, and there will be nothing they can do about it, as Bitcoin is an unassailable peer to peer network.

We have seen a similar phenomenon with the legal position of encryption in France. SSL was regulated in France until Dominique Strauss-Khan removed the restrictions. They knew that “French e-commerce” would take place inside “le pays Roosbeff” if it were not possible to secure French websites with SSL on demand without friction. American Bitcoin businesses since the endpoints will be in their jurisdiction, will be taxed on their profits, and this will be a percentage of the trillions of global transactions made on the network for every conceivable and inconceivable purpose.

The same is true for any other country. The United States looks set to cripple itself by enacting “Bitlicenses” and declaring by fiat that Bitcoin is a currency, or a commodity or legal tender. As I describe above, Bitcoin is none of those things by nature, and the myriad number of applications it can be put to is only just being discovered. Our project Azteco is but one of them, with the potential to reach the 2.2 billion unbanked people in the world, and provide them with an easy way to access internet e-commerce, world-wide, with a system that makes payment fraud impossible. The potential benefit to the unbanked and the websites that sell goods online is without precedent. Only a fool would do something that could harm the advent of this transformation.

No legislature will be able to keep up with the advances in software that are taking place; there are too many developers and efficient tools in the wild all over the world, all with equal access to the market. The best the State can possibly hope for is to tax new businesses that use the new tools as they emerge, and encourage entrepreneurs to incorporate in their jurisdictions. If America wants to drive away Bitcoin developers, exchanges and new businesses fine; there are plenty of other places in the world where fast internet pipes have been laid and where the government is not so backward. Skype was founded in Estonia, not Silicon Valley, and this is for a reason. All the big Bitcoin exchanges are outside of the USA. There is a reason for that. No one wanting to start a Bitcoin business is planning to move to New York from anywhere, because they know that their business models will immediately come under attack.

For those of you who are frightened of a free market in Bitcoin, rest assured, all the laws that currently exist to do with fraud, theft, misrepresentation and everything else, continue apply to all people and corporations who use Bitcoin. Bitcoin does not make laws or your personal or corporate obligations moot. When you deal with a company, you retain access to the law and recourse to it. When someone makes a promise to sell you goods with Bitcoin, that promise is not nullified because you are paying with Bitcoin. Good Bitcoin businesses will build dispute resolution systems the way that eBay and Amazon have, so that you never have to go to court to obtain justice if there is a problem. Online, reputation is everything, and bad reputations can destroy your credibility and customer bas over night. This is a far more powerful incentive to do right, which most people do by default in any case, than some arbitrary “Bitlicense”.

All the “Bitlicenses” in the world could not stop MTGOX from having a software problem, and no law can bring back the money lost either directly or through the disruption the event caused by the software error. Once again, entrepreneurs powered by the internet make life easier and better, not laws and regulations. Regulation does not make software correct; developers do.

I have one recommendation for anyone advocating that there should be a “Bitlicense”. Don’t waste everyone’s time and money and resources knocking down this stupid idea. The EFF has better things to do with their time than teach the PGP “Munitions Case” lesson all over again. If it goes to court, your side will lose, and as a consequence, America will lose its head start as all Bitcoin entrepreneurs flee the USA for environments that will allow them to innovate, grow and prosper.

And what can the people who want a “Bitlicense” forced on the public say? That they don’t trust themselves? That’s patently absurd. That they do not trust their competitors? If its the case that their competitors are not good actors, then the good actors have a market advantage, and remember; a license cannot protect the public from fraud or provide any guarantee of any kind, it can only distort the market.

What these “Bitlicense” advocates actually want is a guaranteed market advantage. They want to prevent the “Golden BB” entrepreneur that might destroy their business, they want to slow down and stifle innovation, so that they can become the entrenched and unassailable gatekeepers. They want to bar new entrants to the market. It simply will not work. And its un-American.

Let the American dream flourish and extend its power to Bitcoin.

Or else.

Posted in Bitcoin, Economics

Bitcoin is not a threat, it is a boon

The Financial Times has published an astonishingly blinkered and short-sighted article, where Bitcoin is mischaracterised as a threat, instead of the greatest business opportunity of the century.

The fact of the matter is, and I have said this before, the country that puts a 150 year moratorium on all Bitcoin regulation and ‘supervision’ will reap all the Bitcoin entrepreneurs in the world, who will run to incorporate in that territory. This event will spark a Hong Kong style boom without precedent in size, and of course, all the businesses located in that territory, should it be the UK, will be paying corporation tax on the profits gleaned by providing services to Bitcoin users world-wide.

It seems however, that the socialists and Keynesians at the FT are squarely ant-British, anti entrepreneur, anti progress and computer illiterate to boot.

Lets take this article to pieces, starting with the sensationalist and irrational title:

Taxmen, police and spies look at bitcoin threat
By Jane Wild

This is an entirely misleading title. Unless you believe that profit and human progress are threats. The advantages Bitcoin will bring to commerce world-wide are easy for even a child to see.

Mobile phones are everywhere. MPESA is absolutely huge in Kenya. It doesn’t take much to understand that Bitcoin is MPESA for the entire world, only orders of magnitude bigger and better because it can never be gamed or corrupted.

The country that ends up being the “Home of Bitcoin” will have trillions of dollars worth of transactions flowing through it, and will skim taxes off of the top of the activity. Anything that hinders this is going to cause the entrepreneurs building these fledgling systems to go to other jurisdictions. The UK must shun the voices that call for regulation and exchanges as the legalized model, because exchanges are not the only possible business model and regulation will drive entrepreneurs away.

Bitcoin has come onto the radar of the UK government, with officials gathering in London on Monday to discuss the security threats and tax concerns posed by the digital currency.

This is a very bad sign. It is a bad sign because no one really knows what Bitcoin is or what its potential is. No one knows the perfect Bitcoin business model; this is still being actively discovered. No one can even define Bitcoin; people are still arguing over its true nature. It is therefore highly unlikely that anyone is able to predict the future of what Bitcoin bushinesses will look like. Its too early to legislate, if legislation is needed at all, and of course, we hold that it is not.

About 50 civil servants from HM Revenue and Customs, the Serious Organised Crime Agency, Home Office and GCHQ – the intelligence listening service – held a one-day conference which examined how bitcoin works and how criminals might seek to exploit the electronic cash system, which is currently unregulated by any financial authority.

Its interesting that the only thing that is being considered is how to disrupt entrepreneurs; that is of course, the implication of these sorts of people gathering to discuss Bitcoin. They were not there to discuss what they are not going to do, after all.

Imagine such a meeting taking place in 1995, before the internet and the web exploded and increased the flow of goods and knowledge beyond anyone’s imagination. Imagine that these same people met and decided that an unregulated internet was “not acceptable” and that legislation needed to be tabled to regulate who could publish on the internet, who could be an email provider, etc etc. It would have killed the internet in the UK, causing an unimaginable amount of permanent damage. This is what will happen to the emerging Bitcoin economy if anything resembling regulation touches Bitcoin. The businesses trying to start here, that can incorporate and operate anywhere in the world, will simply do so in a place other than Britain. The Bitcoin will flow around this damage, and the UK will not profit, as the money and talent flees to a free jurisdiction. This is undesirable.

The meeting, entitled The Future of Money, focused on the implications that widespread adoption of the currency might have. As bitcoin users are anonymous, authorities worry that it could be used for purposes such as money laundering, and that transactions between individuals fall outside boundaries of tax collection.

Rather than focus on the majority use case that is inevitable with Bitcoin, these ill informed and well meaning people are being entirely mislead.

Once Bitcoin is flowing between devices, it will be impossible to track, and moving very quickly. Bitcoin will suck up fiat currency world-wide. The jurisdiction that allows exit and entry points to operate in it will make massive amounts of revenue, and the Bitcoin will simply flow through the countries where it is either impossible or unfavourable to operate.

It is important to understand what Bitcoin is, not in the monetary sense, but in the data sense. Bitcoin is data. It can flow wherever it is pushed and pulled. It cannot be stopped, any more than Bittorrent can be stopped. Its users will be everywhere, all at once, all the time, always on. Will it be used for unethical purposes? Yes of course; but these will be very rare edge cases, as all crime is an edge case. The difference here is that we are talking about pure information, that is very fluid; as fluid as liquid helium near absolute zero. It flows without friction, up the sides of the container it sits in against gravity. It cannot be stopped; but it can be tapped for revenue. Understanding data and how the world has changed will prevent forward thinking countries from being totally sidelined.

No amount of building projects (“Silicon Roundabout”) or talk will convince entrepreneurs to build their companies in the UK. Anyone thinking about incorporating in the UK to start a Bitcoin service now has cold feet.

If the government decides to act with its Luddite hat on, there will be little point in starting anything here, and those that have, will simply run a shell script to move their businesses to servers in free countries. It will take less than an hour to move operations to any jurisdiction anywhere in the world, and we need only look to The Pirate Bay to see how quickly a high traffic website can move from one place to another. The Pirate bay is an operation under extraordinarily heavy attack; its operators are scattered, its servers constantly being shut down. They do not make a profit and pay no corporation tax; a website that is not doing any infringing or harm, and that is making a profit and paying corporation tax in large amounts, like MTGOX, will be very welcome in many jurisdictions, who will make special rules to accommodate them. Britain must not go down the road of the Luddite and the anti-technology fanatic. There is nothing to gain from doing it. The business will go elsewhere and the British will still be using Bitcoin by the millions.

The Revenue said that its attendance at the conference had been to further its understanding of “current tax-related issues” and that it was monitoring the development of the bitcoin market. “The tax system already deals with transactions in currencies other than sterling,” the department said. “Any such transaction will be potentially taxable.”

Any company incorporated in the UK is subject to tax on its profits. A Bitcoin company operating in the UK will be making a profit and submitting returns every year. This is not an issue different to the operation of any business that currently operates in the UK, and Bitcoin should not be the focus of any kind, since it is just another kind of business, like selling soft ice cream.

Also under consideration was the idea of creating a regulated exchange, which would be the world’s first. Such an entity would go some way to addressing concerns about criminality by requiring users to provide proof of identity. An unregulated exchange was set up in London in 2011 but closed a year later after its bank account was shut down.

This just demonstrates the near horizon thinking of the people who attended this conference. Bitcoin exchanges are not the only business model that can be built on this new technology.

For example, there is a new business, Bitspend (not operating from the UK) that allows you to buy anything in the world with Bitcoin. You select what goods you want, inform the website of your choice, pay them Bitcoin to the amount of the purchase, plus their fee, and they purchase the goods for you and have them dispatched to you directly from the seller. They don’t even have to handle the goods, all they are doing is making purchases on other people’s behalf.

This business has nothing to do with Bitcoin Exchanges. It is a pure service that uses Bitcoin as a money transport. A business like Bitspend could operate in any jurisdiction,  since it is buying goods over the internet. They are based in the USA, and as they grow, their software will become more robust and reliable, and their customer base will grow. New business ideas and opportunities will come to them first.  People in the UK can use this service transparently; it is a perfect example of Bitcoin flowing through the UK without ever touching a UK incorporated entity. The question then is obvious; why should this business leave the USA and incorporate in the UK? What advantage is there for them to do so? What inducements can be put on the table to cause Bitspend to move to the UK so that its profits are taxable in the UK?

These are the correct questions that should be asked; Bitcoin should not be mischaracterised as a threat, but as an unprecedented opportunity, and something that should be used to attract entrepreneurs and visionaries to London.

Many more Bitcoin companies are being planned and developed right now in a myriad number of different models and forms. Conferences are being held in Romania and California. Britain is going to be left out of this important revolution if the wrong noises are made and disseminated.

The web was born in the UK, and the centre of the web’s entrepreneurial activity is all in California.


Why is it that the British invent all the great things and other people in other countries capitalize on them? Why is Facebook everywhere in the world, and Bebo, early star in social networking, filing for bankruptcy protection?

Britain has the brains, it has the talent. Its young people have the entrepreneurial spark. Bitcoin is going to be the biggest thing since the internet itself. If Britain drives entrepreneurs in this sector away, it will not get a second chance.

The Future of Money conference, which included presentations on how the cryptocurrency works, was organised by the government’s Foresight Horizon Scanning Centre, an arm of the Department for Business, Innovation and Skills which develops innovative, long-term policy. Although unofficial meetings have been held previously, this was the first official meeting of civil servants held to discuss bitcoin. No government ministers were present.

Bitcoin and its growing ecosystem was created by developers. It did not need the State to help it, design it or get it going. Like the internet, it will grow at its own amazing pace if left to do so. Anything that touches it will distort its natural geometric growth.

What must be understood here is that the threats presented by Bitcoin are absolutely minuscule, molecular even, when compared to the planetary scale big picture; it is exactly the same as the internet itself. The vast majority of internet usage is absolutely harmless, ethical, beneficial and normal, and the same will be true of Bitcoin.

Policy, if any is to be made at all, and it should not, must be driven only by the facts and economics. If not, Bitcoin will see it as damage and will route around it. The Bitcoin will flow through and out of the UK, rather than coming in and terminating here; and that is what, surely, the government must want – for Bitcoin to begin and end in the UK, so that the businesses that provide the services can aid the economic recovery.

And what an aid that will be. Trillions of dollars and Pounds in Bitcoin on a weekly basis, flowing through UK based nodes that are all as trusted as eBay and built to the highest standards, just like Facebook, but without any regulation, just like Facebook.

This is the ideal situation; The Facebook of Bitcoin incorporated in Britain showing the world that London is the centre of the emergent Bitcoin economy. “If you want to be where the Bitcoin action is, London is your Go To destination”. This is what we want to read!

Michael Parsons, a banking management consultant and chartered accountant who presented at the event, said: “There were a lot of questions. Everyone was very receptive and keen to learn more.”


GCHQ confirmed that it had sent staff to the conference in the interests of its role in helping to deliver cyber security.

Bitcoin is not a “cyber security issue.”

Its very important to characterise these technologies correctly. At the beginning of the Internet, I am sure that there are people alive now, who would characterise ISPs as “cyber security threats”. Of course, acting on any such mischaracterization would have fatally crippled the nascent ISP and web industry, and caused Britain to be an also ran in the internet stakes. As it happened, despite the telephone monopoly of BT, the ISP business in the UK thrived and produced many wonderful spin-offs in terms of new businesses and skilled developers, many being of world importance. This should be the aim with Bitcoin also. Britain should seek to nurture, by keeping an arms length from it, all Bitcoin related entrepreneurial activity.

As we have seen with Hong Kong, once all the work is done, there will be a glistening jewel of activity to collect at the end of the exercise. Only a hands off policy can create such jewels, and in the case of software businesses, the jewel is quicksilver, that can flow very rapidly to the place where regulation is lowest. Business is mercury that always seeks its most efficient level.

And let us remember; Bitcoin is hardly being used for anything at all at the moment. What everybody thinks it is and what it could be used for is pure speculation. A cautious, future centric position is the best one to be taken, because either way, the Bitcoin is going to flow, and that flow cannot be stopped without stopping entire internet.

Some people might say that websites can be blocked, which will stop people in the UK from getting Bitcoin from other jurisdictions  They will cite the blocks on The Pirate Bay and Kickass Torrents as successful examples. This view is entirely incorrect.

A small browser extension called Stealthy makes all ISP blocks moot. It is currently installed by 277,794 users, and it is sure to grow in its user base. This is but one very easy ways to completely circumvent ISP blocks on websites, and of course, once you get your Bitcoin on your mobile phone or laptop, it is a pure peer-to-peer system, that cannot be blocked at the ISP level.

With the Stealthy plugin, all ISP blocks are completely defeated. That means it will be impossible to block any website in any jurisdiction selling Bitcoin.

The normal reaction process of problem, reaction solution will not work in the twenty-first century. A new model must be designed and implemented that utilizes these new tools so that everyone benefits.

Bitcoin and the internet itself are entirely beneficial and should not be regulated, but should instead, be harnessed and their utility leveraged.

Rather than having a meeting to discuss fallacious ideas and imaginary threats, meetings should be held to see how Bitcoin can reduce the cost of government.

Imagine the following applications for Bitcoin.

  • Paying parking fees and fines.
  • Collecting taxes. In micro amounts.
  • Paying usage fees for all government services. In micro amounts.
  • Reducing all money related fees on flows into and out of government, saving billions.
  • Disbursing benefits at a fraction of the current cost.

These are just some the sorts of things that should be discussed at the government level, not how this baby should be killed before it is born.

This is an opportunity for increased efficiency, transparency, speed and effectiveness in the way government collects and disburses money. This is the sort of thinking that should be on the table, not Luddite dreams of wrecking the internet.

Civil servants will now prepare two reports for ministers on their conclusions: one public and one private.


These reports, both the public and the private, cannot possibly present a complete picture. The Bitcoin business models are still being developed and iterated through. No one knows what the final, profitable and viral shape of Bitcoin businesses will be; the only thing that can be predicted is that there will be a final shape, and that the company that hits on it will be incorporated in some jurisdiction, and that it is in that jurisdiction that the money will flow.

The question here is whether or not that country will be Britain. Articles like this, and any move by Her Majesty’s Government to control Bitcoin will cause Bitcoin to bloom elsewhere.

No amount of Silicon Roundabout development, ribbon cutting and pleas to come to Britain will make the UK attractive. Only a guaranteed, decades long moratorium on any interference in Bitcoin activity will attract entrepreneurs and investment in this once in a lifetime event.

The FSA letter on Bitcoin sent to Intersango was an encouraging sign that Bitcoin was to be left to flourish. I will leave it to you to imagine the next MTGOX starting in the UK (or for that matter, the next MEGA that has grown to dominate New Zealand  internet traffic and will be an economic powerhouse there with its soon to be announced new services); there is simply no reason why such a company should not start in the UK and grow to a size greater than MTGOX, as second and third generation successful Bitcoin business models begin to emerge.

The question is will the correct business conditions exist to facilitate this emergence, or not?

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Posted in Bitcoin, Economics, Fear-mongering, Money, Politricks, TC TI KB

BTC-DPD: Bitcoin Distributed Price Discovery

As you may have seen during the last seventy two hours, problems at a single exchange, the popular MTGOX, have unleashed mass confusion amongst the computer illiterate Bitcoin watchers, as they falsely claim that people have “lost money” or that Bitcoin has “crashed”, or that the “Bitcoin Bubble” has popped.

There isn’t much we can do to make the computer illiterate literate, and really they should not have to understand how Bitcoin works in order to use it successfully to make a simple purchase, any more than they should be expected to understand how SSL works in order to make a credit card purchase privately with their browser.

The recent MTGOX problems are however a serious warning of the flaw inherent in centralized software services in an environment that is under sophisticated military grade attacks from both the State and malicious or curious entities who know how to use a command line.

In the same way that file sharing went through several iterations that took it from centralized index servers (Napster) to distributed content discovery and indexing (Magnet Link powered Bittorrent), Bitcoin price discovery must quickly move to a decentralized model so that there is no single point of failure that can disrupt people’s Bitcoin activities as they use it to interface with the offline world.

As long as there is a single very large price setting node calling the shots and broadcasting dictated prices for Bitcoin that are considered (rightly or wrongly) authoritative, the entire Bitcoin economy is at extreme risk of systemic confusion or even shut-down. Right on que, MTGOX has just announced that it is suspending trading for 24 hours to allow people to ‘cool off’:

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They are the owners of their service, and they have an absolute right do do whatever they like with it. What this means however, is that at the will of a single company, for whatever reason, the entire price discovery mechanism has been suspended for an arbitrary amount of time. This is not acceptable to anyone who wants to use Bitcoin in a serious manner, without any randomly imposed restrictions or self interested corporate oversight.

Something must be done.

The solution to the Bitcoin price discovery problem is the similar to the problem that Bitcoin itself solves; move the discovery mechanism into a P2P network that no one owns and that is invulnerable to a crippling attack from any source.

Here is how it could be done.

Rather than rely on the a small number of large, very exposed and vulnerable one to many exchanges, what is needed is a system of price discovery that is distributed and not vulnerable to DDOS, infiltration, insider manipulation (that is to come, for certain in the present arrangement) or the predation of the State.

Since all Bitcoin users know when they need BTC and are on the network, we can connect them via a P2P app that allows them to:

  1. Make a request at a price and amount
  2. Transmit that request to all other users and nodes
  3. Calculate the current price from aggregate demand
  4. Use GPG web of trust to keep spam out and users honest

When this is done, it will be impossible to disrupt the price finding mechanism because it will be completely distributed and un-attackable.

Since no large files are being transmitted, as in the case of P2P file sharing, the responsiveness of this application should be very high at all times. Also, there is no need to store long term historic data in the network, so there should be no synchronization problems; this system will be “instant on” once your node is discovered and connected.

Built-in public key cryptography via GPG and users signing each other’s keys will keep the aggregated quoted prices free from tampering. The web of trust will reward honest people and push down the system spammers. Successful trades could be detected and used to shape user reputation and ad to users trust score by querying the blockchain and matching the requesters recipient address and the senders address. Ill leave it to you to think up your own mechanisms for verifying and certifying bids and successful trades.

There isn’t a single reason why this or something like it cannot be done, and why the price discovery cannot be real time and completely distributed.

I’m sure that someone somewhere is thinking along these lines, or along better lines; its so obvious in the light of all the file sharing experience, it is inevitable that someone is either building it or is considering building it.

Of course, if it is done right, the people who build this system could charge a tiny fraction of a Bitcoin to participate in it, without having a hand in its day to day, moment to moment functioning. The source of the software clients in their different versions would need to be secured, maintained and improved and this costs money.

Price discovery is something that needs to be addressed urgently. Its a very complex task in terms of software development and the precise model and logic that needs to be used, but the groundwork has already been done in terms of the basic P2P concepts. The question is, who is going to put it together and release it?

If and when it is done, it will be possible to test this software directly in the real world to see if it is reporting the price of Bitcoin correctly, by comparing what it returns, to the prices quoted at the centralized exchanges. Once it is seen that there is a high correlation, then the old price discovery mechanisms can be permanently abandoned for the new robust system I’ve very roughly sketched out here.

Once again, the only proper solution to this price discovery problem is one based on software. There is no need for the State, regulation or anything other than software. The only questions are who is going to write it, release it and how is the maintainance of it to be paid for.

In case you didn’t already understand. the State is not needed to ensure that MTGOX is on-line and available and cannot shut down at its owner’s whim. The State is not needed to protect exchanges from DDOS attacks. The State is not needed for anything. They had no hand in building Bitcoin and the services built on it, and they are not needed now, no matter what happens.

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Posted in Bitcoin, Economics, Fear-mongering, Software, Wishware

FinCEN sounds death knell for US based Bitcoin businesses

It seems that FinCEN has finally decided to opine on Bitcoin, without naming it specifically. This US pronouncement spells death to all “compliant” US Bitcoin companies that choose to remain based in the USA.

There is one thing you absolutely must bear in mind; nothing that FinCEN unilaterally declares has any force outside of the USA. If you do not base your business there, their bespoke rulings, “guidance”, that is not even law in the US, has no effect on you or your business. This is a problem for Americans only, and no one else.

Here is the relevant passage:

De-Centralized Virtual Currencies
A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.

A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

The first thing you will notice about this is that if you are a Bitcoin miner, FinCEN says that what you are doing does not fall under their jurisdiction. This means you can be a Bitcoin miner, with the biggest mining rig in the world, and then take your mined BTC and buy whatever you want without the threat of any interference from them. Even though you must transmit your mined Bitcoin to make a purchase, you are not a “money transmitter”. Its crazy talk.

If however you pay someone to mine for you, and then receive the Bitcoin, all of a sudden, the situation is somehow different, and you are committing an act that they are claiming they have jurisdiction over. Its utter nonsense of course; Bitcoin is no different to Monopoly Money, which presumably FinCEN does not think is worthy of their attention. And if not, why not? How is Milton Bradley’s Monoply Money different from Bitcoin, and why is it not regulated? These are questions that no one asks, like, “why is the Emperor naked?”  If the purpose of FinCEN is to stop people “misusing money” whatever that means, surely if the Bitcoin is mined or paid for is completely irrelevant. The thinking behind this is pure illogic on stilts.

You will note also that FinCEN does not name Bitcoin specifically, but instead generates an arbitrary ruling on an entire class of software technology. This means that you will not, if you are an American, be able to claim that Litecoin is different to Bitcoin, “because FinCEN doesn’t mention Litecoin”.

This unconstitutional and arbitrary guidance has grave implications not only for American Bitcoin companies and users, but for the First Amendment of the Constitution of the United States.

Bitcoin, if it is read out or printed onto paper, is protected speech under the Constitution. Americans had this debate many years ago, where people tattooed RSA code on their bodies and read it out in public in exercise of their first amendment rights. PGP was exported out of America, legally, when its source was printed on paper (First Amendment protected act) and then read back in by OCR in the free world.

All of this precedent applies to Bitcoin, but now, instead of a single book of source code, you will have millions of people printing out Bitcoin and transferring it everywhere, storing it, exporting it, and there is nothing that anyone can do about this.

As more and more money disappears into Bitcoin  we are going to see an escalation in the reach, scope, fines and penalties meted out to Bitcoin users and businesses who in the future will no longer be distinguished from each other, once (for example) services like Local Bitcoins comes into the radar of FinCEN.

Bitcoin is going to be the new Internet Poker, which funnily enough, has started to accept Bitcoin as an alternative to money because Bitcoin is not money.

Clearly, a Supreme Court challenge is in the future over this, and I suspect a coalition of Poker companies, real Americans and sensible people are going to join forces to stop the insanity.

What we can also expect is an attack from the Crony Capitalists who want Bitcoin regulation arbitrary licenses and fees levied by the state and policed by FinCEN to stifle competition and keep out agile upstarts. It will not work.

Like Suprnova, MiniNova, the Pirate Bay, Kickass Torrents and finally MEGA, it will be impossible for America based, FinCEN crippled Crony Capitalists to stop a huge, popular  easy to use Bitcoin business from sucking up all the US Bitcoin business and eventually bankrupting them.

This is what these Crony Capitalists have asked for; a noose around their necks to end their own lives. If you want to see what this looks like in real life, as it has actually happened, you need look no further than the case of Think Computer Corporation and the arbitrary crony capitalist written California Money Transmission Act that caused that company to shut down. Every Bitcoin startup basing itself in California will be subject to this; and most extraordinarily, the license fee applied to corporations operating there is not set. The amount payable for a license is arbitrary, and calculated and levied on a case by case basis. I suggest you research this case. It is astonishing. How a Bitcoin company can know this and decide to move to California is frankly, baffling.

Finally it must be repeated; this document is guidance only. It is not new law, and as a matter of fact, you are free to ignore their guidance and do what ever you want, if you are an American of that vanishing breed. Guidance is not Law, it is guidance; a suggestion of practices, and nothing more.

We are still a long way from a true legal attack on Bitcoin, but you can be sure that it is coming, and you can be just as sure that its effect will be precisely ZERO, just as it has been with Bittorrent recently and Warez for decades. The best they can do is make an example of the high visibility, high earning Bitcoin businesses, but for the billions and billions of transactions taking place daily between iPhones, iPads, Droids and desktops FinCEN will be absolutely powerless and impotent.

Warehouse bankingHawala, and all the other private, person to person money transacting services are going to become more powerful and efficient by many orders of magnitude, thanks to Bitcoin and its frictionless, massless ability to move money anywhere in the world in the blink of an eye.

Finally, this is a great opportunity for a country to cause Bitcoin startups to congregate in their territory. A 150 year moratorium on any law that touches anything to do with Bitcoin / Blockchain technology would create a new Hong Kong island of super prosperity, as it becomes the world’s hub for all Bitcoin business, and the trillions of dollars in Bitcoin flowing through it, leaving the pitiful democracies in the dust.

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Posted in Bitcoin, Economics, Money

FatCat Presents Monster Music 3, Matt Cogger’s “Cosmat Selection”

Our friends over at FatCat records have posted one of our Monster Music Shows from 1992. Dave Cawley remembers the label from those days:

It’s a real honour to share this podcast with you, created by Neuropolitique (Matt Cogger) for Irdial Discs‘ Monster Music radio shows in 1992. I had this mix on cassette and have lovingly held onto it ever since. To think that it’s 21 years since this was first broadcast – and the music on here still floors me.

Irdial Discs were a huge inspiration to me and i know many others who felt the same. They played by their own rules, followed no one and forged a path that left me speechless. If you want to know how to run a “real” record label then go and investigate just what they achieved, from records to books, software to radio shows. There was an attitude too that is so lacking these days, statements of intent. “In Your Hearts Not The Charts…”….”We Suffer To Bring You Beautiful Music..”..

When I read this, it felt like a call to arms and I knew whose banner I wanted to stand by. I always said to myself if we can get to be a tenth as good as them then I would be happy.

Dave Cawley

FatCat Records

The FatCat shop in the West End of London, originating in Monmouth Street were very important hubs of the music scene. They helped many people who were running independent labels, were open eared and open minded, friendly and non intimidating and were not afraid to expose anything that we brought in to the people who shopped there. Compared to many other retailers in London, who would not stock Irdial releases, FatCat was an island of open mindedness.

For example, there were some record shops that put their staff, literally, on a pedestal  standing over the punters, handing down vinyl to insiders as if it was a sacrament. These unfriendly, closed record shops were hostile to buyers and only a fool would attempt to bring in a 12 inch that they pressed themselves  without knowing the high priests behind the long pulpit.

All of these shops are now gone, and FatCat remains. This goes to show that nice guys finish last, which in business, is a good thing.

And here is our description of this edition of Monster Music:

During the summer of 1992 we decided to do some radio shows, since what we were hearing over the pirate airwaves was very similar station to station, and there seemed to be a need for something out of place. This was especially true on a late Sunday morning, after being completely exhausted by high energy music, a different mood on the radio was an idea just waiting to happen, so we made it happen.

Monster Music was transmitted on ten Sunday mornings, around 11:00.

Approaching the licensed radio stations to do this was of course, absolutely out of the question. They were, as they are now, like cold tombs overrun by the living dead and their stiff, lifeless sounds.

Pirate radio on the other hand was free and alive; you could do literally whatever you wanted, and we proved that this was actually true with Monster Music. No one was vetting our shows, looking over our shoulders or telling us what to do or how to do it. To make this happen all we had to do was call up the station hotline of Touchdown FM, talk to someone and they said “yes” to us.

This is exactly how a free world would work. There would be no licenses to operate a radio station, just as there is no license to run a record label, website or publish a book. There would have been dozens of cool stations out there, all operating together, pumping the music scene. Now of course, there is no need at all for radio, as the internet takes care of all your music needs, from discovery of new sounds to the distribution of them. Anyone can do any part of it, and that is a change that you could not have described to anyone in 1992.

Monster Music’s aim was to be different to anything out there on the pirate air, and having access to some of the best people, it was a simple matter of putting two and two together. I invited Matt Cogger, the genius behind “Neuropolitique”, to construct a show in our studio, which was the third in the series.

The hour of Monster Music Number 3, “Cosmat Selection”, is made up of deftly mixed and sensitively chosen “Techno” tracks, of the kind that drove us all absolutely crazy, and which today, still make the hairs on the back of my neck straighten out and stand up. And that really is something. At the half way mark, there is the exclusive, unreleased, “Theme for Rambo” by Derrick May. One can only imagine what it would have been like if this piece had actually been used in the titles of a Rambo film; machine guns firing in sync with the arpeggiated notes, the backward “shoops” punctuating Viet Vet flashbacks, Stallone’s twisted mouth screaming, attack helicopters raining bullets…

But exposures like that were not to be; it was and is “underground music”.

What are we doing now?

We have been running a blog since 2001 and we have been developing some software projects.

We are re-releasing The Conet Project in a new 5 CD edition, that we are crowd funding right now. If you would like to have your name inscribed in the booklet that accompanies this release, you need to pledge right now.

And we are working on some new and exiting software projects that should be released early in 2013.

And here’s Cosmat Selection…

Posted in Beautiful, Music, Remember

The Conet Project TCP / 1111 is funded!

We just received notification that The Conet Project: TCP / 1111, the five disc edition, has successfully reached its funding goal, over by one percent.

Thank you to everyone who blogged, tweeted, emailed, encouraged, and put their money where their mouths are.

The further in to the twenty first century we go, the better it gets. Crowdfunding. Bitcoin. The Free State Project.

Exiting times ahead, for certain.

Happy New Year to all BLOGDIAL readers!

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Posted in Economics, Libertarianism, Post Tipping Point, Yes yes yes!

Thoughts On The Bitcoin Debacle

By Brandon Smith

I was in the midst of the Save America Convention in Tampa, Florida when I heard, first, that Libya was under bombardment by the UN (led by U.S. forces), and, that Satoshi Nakamura of Bitcoin had been convicted of “counterfeiting”.

It was a stressful day, to say the least.

For those not familiar with the Bitcoin incident, In November of 2017, federal officials raided the group’s headquarters nestled in a strip mall and seized all documents and the Bitcoin that backed up the paper certificates and digital currency being distributed through the Bitcoin Services website. The Justice Department asserted that Nakamura was placing Bitcoin, along with precious metals currency, into circulation with the purpose of mixing them “into the current money of the United States.”

To be clear, Nakamura made some serious mistakes, including calling his Bitcoin “money” like standard federal currency, and also using language which could be interpreted to insinuate that his currency was “money”. There are many barter networks in the U.S. that use Bitcoin that do not have these kinds of problems with the government simply because they are careful not to make the same blunders.

However, it wasn’t the conviction itself that struck me, so much as the language of the prosecutor, U.S. Attorney Anne Tompkins, in her post trial statement. Let me reprint my favorite parts for you here:

“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism,”

“While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country,”

“We are determined to meet these threats through infiltration, disruption and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.”

Some in the Liberty Movement have interpreted this statement to be a warning to all of us that the Federal Government is declaring open season on alternative currencies. Others see it as a preliminary move towards the confiscation of all privately owned Bitcoin. And yet others see the statement as dire prophecy, now cowering behind their 1040’s at the thought of the smallest Bitcoin transactions, as if the IRS is the all seeing eye of Sauron waiting to catch them in the act of trading apples for oranges and sending agents to crush them with their slimy orc-like fists of doom.

Perhaps I am the only one, but in contrast, I see the prosecutor’s statement as an expression of blatant fear. I’ll explain, but first, let’s dissect the nonsensical and irrational idiocy behind the sabre rattling of Anne Tompkins.

First, U.S. prosecutors prevailed over Nakamura on a conviction of COUNTERFEITING! Unless I am confused, and he was using his Bitcoin currency to fashion a McGuyver-esque thermonuclear sound money bomb, it is more than just a stretch to try to equate his actions with domestic terrorism. In fact, the post trial statements of Tompkins are so insane it makes one question her level of paranoia, and perhaps her prescription drug habits. After finding no obvious hint of crazy eyed drool mouth in her photographs, I realized that perhaps she was not a zealot, but simply a messenger.

My feeling (and this is only an intuitive notion) is that Tompkins had little to do with the writing of those statements, or had much “coaching” from the Department of Homeland Security, which has been expanding its absurd definition of terrorism to include almost anyone who does not agree with the philosophies of establishment elites and corporate global banks. Even returning military veterans of Iraq and Afghanistan have been listed as possible domestic terrorist threats. Why not proponents of Bitcoin?

What we see here is the not so subtle conditioning of average Americans towards categorizing certain innocuous behaviours as being related to possible criminal or terrorist motives. Owning guns is anti-social, and you are a naughty bad person for liking big boom boom stick. What’s that? A pocket Constitution!? Didn’t McVeigh or one of the 9/11 hijackers carry around something like that? You have a survival garden? Hmm, that sounds fishy. I better call the FDA and make sure everything you’re doing is on the up and up. You want to trade Bitcoin? Privately?! That’s obviously “black market” barter, and you are the reason the economy is so unpleasant. I don’t get as many food stamps and free big brother goodies as I used to, and I blame you and your dastardly sense of self sufficiency! The IRS should have your head! And so it goes…

So, I promote private barter networking and Bitcoin to safeguard communities from impending inflationary crisis, and am therefore a “non-violent domestic terrorist which represents a clear and present danger to the economic stability of this country”? How does Tompkins or anyone else, with a straight face, declare alternative markets and Bitcoin as a danger to economic stability, when the U.S. economy has already been annihilated by the derivatives bubble conjured by international banks and the private Federal Reserve? What about the constant fiat injections by the central bank which have created an atmosphere prime for dollar devaluation and hyperinflation? Why in the hell hasn’t the U.S. Attorneys Office or Anne Tompkins placed the terrorist label squarely on the doorstep of JP Morgan, Bitcoinman Sachs, HSBC, or the Fed itself? I mean, if we are going to start equating the destabilization of the economy with white Al-Qaeda, then let’s be fair at least. Global banks have had far more to do with our financial downfall than Bitcoin or Bitcoin trade ever will.

What about the follow up chest beating proclamations of “infiltration and disruption” of any organization which seeks to “challenge the legitimacy of our democratic form of government”?

Wow. Isn’t that comment loaded with bile and stupidity. To begin with, if anyone, including Tompkins, can show me how our current form of government is legitimately “democratic” while both major parties are headed by globalists and corporatists who promote the same exact ideology and support the same exact legislation, while refusing to represent even a minority of Americans beyond the elite, then I welcome them to try. (By the way, Tompkins, I know they didn’t teach you this in public school, and probably not in college either, but America was founded as a REPUBLIC, not a democracy.)

If the IRS or anyone else wants to “infiltrate” barter markets or Bitcoin organizations and attempt to record every chicken egg or gallon of milk traded, then I welcome them to try. Please, expend all your precious energies in a futile attempt to chill barter economies or sound money movements. We would like nothing better. Why? Because you cannot stop barter networks from forming. They are inevitable. Every culture in history which has seen a severe economic implosion has reverted to barter, trade, and now Bitcoin to counter the resulting poverty and lack of mainstream commerce. The need for survival will far outweigh the populace’s fear of government reprisal. That is simply the nature of man. The only difference in respect to the Liberty Movement is that we are working to preempt collapse with supporting networks of commodity trade and community barter. We are not working to “undermine” the current economy, we are simply preparing for its eventual fall, and allowing for the safety of cities and states across the country. Why is this considered devious behavior? Why would the government react with such vitriol, not towards Bitcoin, but to the very concept of alternative currencies and economies? Because it is something they cannot control…

Ultimately, what I see hidden in Tompkins statements are the wringing hands of bureaucracy, sweaty and shaking with a fear of the unknown. When people are desperate, and dominated by emotions, they become predictable, and this is exactly the kind of mindset governments like to insert into the collective unconscious. There are only two paths for any society in the midst of a full spectrum crisis; beg for more government and more dependency, even if that government created the crisis in the first place, or, move away from the ailing government, and towards independence. Today, in the face of possibly the greatest economic catastrophe in the history of the world, Americans are beginning to show an aptitude for independence. We are becoming unpredictable, and this frightens government. If our cities and states become fully sovereign, with our own insulated commerce, our own industries, our own food sources, our own defense, and, god forbid, our own currency, then we may then demand a government which actually represents us, and our Constitutional foundations, instead of global banks, for a change. They are moving to call us terrorists, because they truly are terrified of alternative market systems. They have tipped their hand. Which means, we must keep doing exactly what we are already doing.

We do not live in a country built upon the rule of law anymore. Corrupt leaders have no concern for law as a means of balance, only as a means of dominance. Laws therefore change upon the whims of tyrants to fit whatever goals they happen to hold at the edge of the moment. Unjust laws do not deserve the respect or the compliance of the masses. At bottom, we are human beings. Truth and conscience take precedence over all things. If a law does not follow the inherent auspices of freedom and integrity, if it does not serve the true best interests of the people, then it should not be followed. Period. This goes for any law, current or pending, which would force Americans to abandon their ability to personally protect themselves, their families, and their communities, from financial disaster. I leave you with my final statement given at the Save America Convention to drive the point home:

“Today, we stand at a bottleneck in the flow of history; a nexus of events which challenge our values, our resolve, and our better natures. Our deepest social and political beliefs will be called into question, our sacred principles of individuality and freedom will face an onslaught of malicious legislation and misguided cultural doubt. These principles always do in the face of global crisis.

To waver is not an option. To retreat is unimaginable. To compromise our core, in this kind of conflict, is to welcome defeat. At bottom, we live in an age of wills that only the strongest of hearts can endure.

As overwhelming as these kinds of struggle can be, as frightening as this kind of responsibility sounds, these are also days of truth and providence. Opportunities to right so many past wrongs in the single breath of an era are rare and precious. Men dream of living in the midst of such moments.

As a people, Americans have been challenged. The test is not only one of might, but one of honor and benevolence. How far are we willing to go to not only save ourselves, but to save each other? What are we really fighting for? Personal survival? The temporary stability and solace of the present? Or something more?

Do we intend to hide away, to merely eek out an existence at the dawn of economic and political catastrophe, or to stand steel faced and immovable in the very wake of the storm? To return to our foundations and hold fast. To not only subsist, but to prosper. To leave for the future something truly better than what we now have.

The most powerful position of defiance we can commit to as a movement is to teach average Americans to stand on their own. To become the purveyors of their own destinies. For me, what we call the Liberty Movement is not only a political entity but a vital philosophy driven by decentralized action and intensified by the growing uniqueness of its participants. It is the antithesis of globalization, which aspires only to diminish and dominate the individual, and replace sovereign thought with weak minds and absolute tyranny.

Ultimately, the greatest leaders do not actually seek to lead, but to teach. They do not seek power for themselves; they seek to empower the common man. This is an act of real survival, for a country of steadfast individuals is unconquerable. It is a place without fear.”

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Posted in Bitcoin, Substitution