The responses to Bitcoin from different camps that encounter it have been fascinating to read. Bitcoin, like the Internet, is a mirror reflecting the philosophy of the person who is talking about it.
Libertarians see it as a way out.
Statists see it as a way of receiving the blessings of the state.
and so on…
One of the many interesting sets of thoughts swirling around Bitcoin is the idea that somehow, the State must be involved in Bitcoin, and there are people out there who are keen to try and shoehorn any legislation or rule that is out there to fit the Bitcoin case.
Take a look at this:
FinCEN Brings KYC Requirements To Bitcoin?
The U.S. Department of the Treasury (“FinCEN”) issued a Final Rule making non-bank providers of pre-paid financial instruments subject to comprehensive Bank Secrecy Act (BSA) regulations similar to depository institutions.
Why this particular rule, and not the first amendment of the constitution? Cryptography, it has been argued, correctly, is a form of speech that falls under the first amendment protections guaranteeing your right to write whatever you want.
Bitcoin is made up of cryptographic signatures that can be printed out as text. This means that they are clearly protected speech and not financial instruments.
Why should FinCEN have anything to do with Bitcoin at all? If FinCEN applies to Bitcoin, should it also not apply to Baseball cards?
Baseball cards or comics or YuGiOh cards could be used as money because someone somewhere values them.
They could be stored in a vault and then certificates issues against them that could be traded automatically at online exchanges.
Does that mean that these certificates are money? Does that mean that FinCEN rules should apply to them?
Of course it doesn’t. Applying FinCEN rules to Bitcoin, quite apart from the immorality of these regulations, is improper and ridiculous.
The regulations affecting “stored value” now use the term “prepaid access” which is more broad and technology-neutral. Though FinCEN has not formally asserted that Bitcoin would fall under prepaid access regulations, earlier contact with the agency referred to bitcoins as a form of stored-value. If correct, then Bitcoin sales to U.S. customers would likely be a regulated activity per this Final Rule.
The new regulations become effective on September 27, 2011, 60 days after its July 29, 2011 date of publication in the Federal Register.
This is absurd. Who made contact with FinCEN, and where is the written record of this contact? Who did the contactor represent, and whoever she was, she did not represent ‘Bitcoin’ or any of its users, but was acting on her own. The details of that contact are something that would be interesting to read.
To comply with the Final Rule, providers of prepaid access must register with FinCEN. Because bitcoins are decentralized, it is uncertain who a provider would be. Might every exchanger be considered a provider, for instance?
This is all springing from a false assumption, that Bitcoin is a store of value that FinCEN has jurisdiction over. It is not.
Also under the Final Rule, sellers of prepaid access must collect personal information from customers, maintain transaction records, file suspicious activity reports and comply with other requirements of money service businesses (MSB). Last month FinCEN issued a ruling that was intended to clarify the definition of an MSB and includes the possibility that even businesses outside the U.S. conducting money transfer over the Internet could still be classified as U.S. MSBs. Additionally, the definition no longer requires that an MSB be a business — any individual who receives funds in exchange for a stored value might be considered an MSB.
This is of course, absolutely absurd. Even if you concede that FinCEN has jurisdiction over U.S. companies and persons that deal in Bitcoin, to assert that people and companies outside the USA would need to register with FinCEN betrays a complete lack of understanding of the concept of jurisdiction.
Its like those very sad webmasters in the UK who put up DMCA takedown notification pages on their sites. The DMCA does not apply anywhere in the world other than in the United States of America, and no webmaster, publisher, company or person is required to obey its strictures who is not based in or who does not have servers in the USA.
If FinCEN actually tries to attack Bitcoin, and then tried to demand that entities outside the USA register with it, they should be met with this type of response.
Though the ruling has exemptions to not impact the typical prepaid debit card found at grocery stores, for example, the exemptions would likely not apply to Bitcoin. These exemptions give a pass to providers and sellers when the following conditions are met:
- The funds cannot be transmitted internationally.
- Funds cannot be transferred from one user to another.
- No additional funds can be loaded except from a depository source (e.g., from a bank).
There is no way to limit where bitcoins can be spent and the value is easily transferred from one person to another so Bitcoin will not likely be considered exempt from the AML regulations.
Bitcoin, being a form of speech, should not be regulated by anyone. In the same way that you have protections against fraud (someone misrepresenting some reproduction Baseball cards to you as genuine, or someone stealing your YuGiOh cards) you have those same protections with Bitcoin. If someone defrauds you or breaches a contract they have with you, take them to court or arbitration.
The state is not needed to control Bitcoin, police it, regulate it or have anything whatsoever to do with it. It has, like the internet, grown in popularity all by itself, will grow in utility just like the internet has by virtue of people adopting it and using it, and any interference in it is illegitimate on its face.
Following these regulations will be a serious burden to sellers. For instance, compliance requirements as specified in an article by Perkins Coie LLP include:
Identifying information includes the customer’s name, date of birth, address and identification number. Sellers must retain this information for five years from the date of sale.
The records must be easily accessible and retrievable upon request from FinCEN, law enforcement or judicial order.
The bigger impact of following AML may not necessarily be the cost of compliance but instead will be the likely result — to effectively de-anonymize Bitcoin.
Following these regulations is unthinkable. Even if you accepted that these regulations were in some mysterious way beneficial, it would not and could not stop people from trading Bitcoins client to client, without identifying themselves to a parasitic third party.
When Bitcoin usage reaches critical mass, there will be trillions of transactions happening on a daily basis. The people who serve as enter and exit points for it would be recording meaningless details that would serve no use whatsoever after the first purchase of Bitcoins.
Bitcoin is not anonymous, despite what people think. There are services out there however, that can make it completely anonymous, and these will be improved and will multiply in number as the precise nature and level of anonymity in bitcoin becomes well understood by everyone. In the same way that The Anonymizer, Hide My Ass and the many proxy services that have come into being to cater for those who want anonymity, its a safe bet that the same entrepreneurs will apply their knowledge to the problem of making Bitcoin completely untraceable.
As for the cost of compliance, only US companies will be forced to pass the expense of these ridiculous regulations on to their customers. It will mean that customers, who see high prices due to regulation as damage and route around it, will choose exchanges outside the USA, simply because it is cheaper. This will create another tier of middle man in America; businesses that will take your money and then interface with foreign exchanges for you, rather like the Dorian Grey services we have written about.
Ironically, these new regulations may drive even faster Bitcoin adoption. These restrictions may cause many retailers to discontinue offering the prepaid cards that can be used at ATMs internationally. Since global redemption of stored value is a service that is legal to offer, is in huge demand and is something that Bitcoin does well — using digital currency might become the more popular alternative.
And of course, as Bitcoin passes critical mass, it will become absolutely impossible to clamp down on the international flow of ‘money’, since Bitcoin is a peer to peer system.
When the global economy becomes dependent on Bitcoin, as it does now on SSL, no politician will dare raise a finger to control (damage) it, just as it is now completely unthinkable to regulate the cryptography behind SSL, as the French tried to do and which Dominic Strauss-Khan put pay to.
A more immediate consequence will likely be the employment of lawyers to specifically consider how this Final Rule affects Bitcoin.
Maybe so. Certainly there are people out there who are desperate to interface with the State when it comes to Bitcoin.
One way or another, the State is not going to control Bitcoin. Either because it is not in their financial interest to do so because it is a world-wide phenomenon, or because they cannot possibly stop the hundreds of millions of people who are going to be using it.
There are 2,095,006,005 people on the internet. That is 30.2% of all the people on earth and an increase of 480.4% in ten years.
If only ten percent of all people use Bitcoin. No. Lets say five percent. That is 104,750,300 future users of Bitcoin. There is no reason why this number cannot be achieved, and of course we are working only with today’s assumptions; there is no knowing what new innovations related to the block chain that are around the corner. Or innovations in the shape of client that people will be using. Imagine new versions of Google Chrome or Firefox that are not only browsers, but Bitcoin clients.
Every browser, doubles as a Bitcoin client.
Think about that for a moment. An HTML5 Bitcoin client, with an interface designed by Google or Mozilla. Easy to use and absolutely everywhere; on every computer in the world, by default.
One thing is for sure, there is no going back.
People have complained that ‘the next Google’ could not come out of Britain, because Britain is toxic to business.
If Bitcoin is going to be the biggest revolution since the internet itself, and the British establishment are desperate to entice companies to set up here and take root, then any regulation on Bitcoin (or for that matter, Internet Business which is serious business) is, to put it lightly, not a good idea. In fact, the smart thing to do would be to draw an arbitrary area on the map in London, and declare that area an Internet Free Trade Zone, where there are no restrictions, taxes or regulations, for a period of 150 years.
This would instantly attract every Internet business on the planet to the UK. There would be an unprecedented inflow of brains and money into London, making it the ‘Internet Capital of the World’.
Or, you could regulate Bitcoin, and be an also-ran gaggle of losers, while Hong Kong, Dubai and other jurisdictions suck up all the brains, money, skills and entrepreneurs.
To sum up, Bitcoin is to money as PDFs are to hardback books. Bitcoins are speech, not financial instruments. The State has no business interfering in Bitcoin in any way, and US regulations and laws do not apply to people and companies outside of the continental USA.