Wednesday, January 29, 2014

Bitcoin Civil War: Moneyed Interests Are Taking Over the E-Currency and Dumping the Libertarians

The result will be government regulation of Bitcoin.

Rob Wile at Business Insider has the important story. It seems that Even Fred Ehrens of CoinBase is throwing the libertarians under the bus. To the degree Bitcoin survives, it is going to be a government regulated instrument. Here's Wile:
A civil war is emerging between Bitcoin's earliest and most libertarian adopters, and a more moneyed wing seeking to embrace regulation as a means of legitimizing Bitcoin commerce.
The divide came into focus this week with two key events events. One was a hearing on Bitcoin regulation by the New York Department Of Financial Services. The other was the arrest of BitInstant CEO Charlie Shrem on money laundering charges.
Until the moment of his arrest, Shrem, 24 had been something of a darling in the Bitcoin venture capital community — the Winklevoss brothers were one of BitInstant's earliest investors, and Shrem was scheduled to co-headline a Bitcoin conference in Miami this past weekend. 
But on the first day of hearings about the future of Bitcoin regulation convened this week by the New York Department of Financial Services, a panel of VCs were quick to disavow Shrem as an example of a more immature wing of Bitcoin. The Winklevoss twins said they were gratified the Department was discussing ways to help legitimize Bitcoin commerce. Their Bitcoin ETF is awaiting regulatory approval from the SEC.
Bitcoin was founded as a "currency" free from any central authority, and quickly gained popularity among internet idealists and anti-government types, many of whom were the digital version of goldbugs. 
Perhaps it is not surprising that this ultra-libertarian faction was not represented at this week's hearings.
But it could be seen at the NYC Bitcoin Center on Broad Street in Manhattan — where a follow-up cocktail party was held Tuesday to discuss "fallout" from the first day's hearing — and online, where this faction railed from afar against regulators.
These individuals may seem extreme, but, until recently, they represented the core of Bitcoin evangelism.
But their influence seems to be fading. The division may come down to those whose businesses run on Bitcoin, and those looking merely to advance its decentralized spirit.
Fred Wilson — whose Union Square Ventures spearheaded a $5 million investment round in Bitcoin wallet firm Coinbase — comes the closet to straddling both worlds.
On Tuesday, Wilson warned against anything but the lightest-touch regulations, comparing the dangers Bitcoin startups would face to what happened to early-stage music streaming platforms, which were inundated with lawsuits from record labels. Should Bitcoin startups be subject to similar legal scrutiny from financial regulators, he said, they would be snuffed out before they even had a chance to bloom.
Wilson's views were countered by no less than Fred Ehrens, Coinbase's co-founder, who told  DFS regulators Wednesday, "Although I love Fred Wilson, there's probably some minimal requirements and procedures that should be put in place if you're facilitating that kind of exchange." 
Barry Silbert's Bitcoin Investment Trust is now worth 10s of millions of dollars. In an email Wednesday, he said he agreed the crypto-anarchists who dominated the digital currencies earliest incarnations were getting left behind.
"There are certainly a handful of folks that are hardcore libertarians (some anarchists) that believe that bitcoin should be completely unregulated, but I believe they are in the minority and, as a percentage of bitcoin believers, is shrinking very quickly.  I respect their viewpoint, but unfortunately, don’t see how there vision is viable in today’s society."

More here.


  1. No one can "take over" bitcoin

    1. Agreed. Lot's of FUD out there while Bitcoin marches on. There will "regulated" points in the ecosystem but only those that interface directly with the legacy banking system. P2P payments will continue to grow outside of this legacy banking system as that system becomes less and less relevant.

    2. It's human action that will be coerced. You simply are not able to grasp that it seems.

  2. An interesting thing occurred to me today. I went to a JPM Chase bank where I have an account to deposit a check. (A check, not cash). The teller informed me that from now on, cash deposits will require identification, as opposed to just my debit card. Also, after March it seems Chase will not accept cash deposits at all. They say they will make exceptions for business accounts...for now.

    So while we study how the Feds can or cannot easily track bitcoin, it turns out they can pretty easily regulate even more than before, their own federal reserve notes. Notice they did not even need RFID chips on 100 dollar bills (easy and cheap with today's tech)

    The point is, there is definitely a market for financial secrecy and it will grow as the government demands to track every single penny in existence. I suspect eventually someone will manage to provide least better than current alternatives, if not entirely perfect. Whether that is bitcoin or something else remains to be seen.

  3. Thanks again Robert. We can always count on you to, in the spirit of Dorothy in the Wizard of Oz, 'click your heels three times and say, bitcoin will be regulated (i.e. controlled in your view) by government.' . Wilson is right, anything but a light touch and it will be pushed underground. Because in the world of fiat money on steroids, internet, meshnets and darknets, it is now abundantly clear to everyone that we don't need government to have a means of exchange for people wanting to exchange goods and services for their mutual self benefit (i.e. the free market) where people will be able to maintain anonymity (example being Dark Wallet) and hedging against runaway QE in fiat currencies ( example being Ultracoin) and the best they can hope for is to have a light role in regulating any digital currency. Anything else it will go underground and when the dollar blows up (as we can already see with capital controls and the limits which HSBC put on withdrawals with similar events happening up in Russia) and the underground economy will just grow.

  4. Wait, so you're saying you're willing to take risk State punishment in order to use bitcoin?