Friday, January 31, 2014

Wired: Bitcoin’s Fate Is in the Hands of Clueless Regulators

Robert McMillan writes for Wired:
The problem is our financial regulators don’t understand bitcoin well enough to regulate it. That became increasingly obvious during the hearings, and it’s not at all surprising. The five-year-old cryptocurrency is an unprecedented experiment in the power of peer-to-peer networking, open source software, and a certain kind of financial anarchy.

The crystallizing moment came Wednesday when Richard Zabel, a seemingly well-informed deputy U.S. attorney, testified before the New York Department of Financial Services, which has been looking into regulating bitcoin businesses. At one point, the Manhattan prosecutor started talking about bitcoin-mixing services, called tumblers. Bitcoin includes a public ledger that openly displays all financial transactions on its vast computer network; tumblers provide a means of hiding your transactions from the rest of the world — something Zabel doesn’t like.

“There may be, out there, legitimate uses for those, but in the cases that I’ve seen, they serve no other purpose to be automated money laundering and identity concealers,” said Zabel, whose office has brought money laundering charges against bitcoin advocate and Bitinstant CEO Charles Shrem — charges filed the day before New York’s hearings began.

The man holding the hearings, New York State’s Superintendent of Financial Services Benjamin Lawsky, seemed intrigued. “If it turns out that technologies like tumblers are being used for no other purpose than to enhance anonymity and to thwart law enforcement, that may be something as we do our regulatory work we want to make sure the companies that we’re reviewing aren’t using those kinds of things.”

You could almost hear a collective groan from the bitcoin community. If services that merely “enhance anonymity” are banned by New York financial regulators, then it will actually scare away legitimate businesses, and maybe an entire industry.[...]Some bitcoin true believers think any government regulation is an intrusion and a mistake, but others simply hope the government doesn’t make a huge error in judgment. “A misunderstanding by policymakers today could be a major setback to U.S.-led innovation in digital currency,” said Nicholas Carey, CEO of bitcoin wallet-maker

McMillan also comments about tumblers and anonymity:
As we reported in June, there are indeed legitimate reasons why companies, or even individuals, might want to obscure the flow of money. For example, a company using bitcoin may not want its competitors tracking its sales growth via the public ledger. Make it impossible to hide this information with a tumbler and many legitimate businesses simply won’t use bitcoin.
What McMillan doesn't seem to understand is that government regulators are concerned about the anonymity feature, which would make it difficult for them to track whatever transactions they want to track. Regulators don't care about other "legitimate" uses for tumblers. They know that transactions can be tracked via debit cards, credit cards and bank statements, there is no chance they are going to allow a move back,for individuals, into a world where they can conduct financial transactions with greater anonymity. As warned here at EPJ long ago, heavy regulations, if not an outright ban on tumblers is coming.



  1. "As warned here at EPJ long ago, heavy regulations, if not an outright ban on tumblers is coming."

    A few problems:

    1. NY State can't control the world, and bitcoin is a global system.

    2. Even if all the governments in the world ban bitcoin tumblers, there is software being developed right now that will decentralize bitcoin tumbling, making it impossible for states to ban.

    In other words, let the states of the world try to ban bitcoin tumbling. It's like trying to ban file sharing.

  2. Back in my daze as a HS Maff teacher, cell phones were a new gizmo.
    They were banned and mere possession of one was grounds for suspension. The reason: "There is no reason whatsoever for a student to own one of these devices EXCEPT for drug dealing and other illicit activities".

    Now-a-days, a teacher might actually borrow one from a student to make a quick call and not even think about it.

    There's ALWAYS a reason to regulate something new and alien out of existence.


    1. Depending on the school, some of them still ban cell phones or at the very least take them away if teachers, faculty or the hired government thug see them

    2. I teach at a junior college just occasionally for primarily philanthropic reasons(long story), I simply write on the white board "Please silence your cell phones."

      It's an adult class, so I don't have dictatorial powers, but I have to make sure the environment for others to learn in is conducive to such as they paid their money as well.

      Occasionally I get a student that is ADD or passive aggressive and doesn't silence their phone....I simply stop class and wait...all attention focused on them and point to the board when they are finished and say, "Please silence your phone."

      I've never had to do it twice, I suppose if I did I might just either ask them to leave the class or tell them if it happens one more time they will have to leave. Thankfully it's never come to that.

  3. People are starting to articulate the other side:

    “A misunderstanding by policymakers today could be a major setback to U.S.-led innovation in digital currency,” said Nicholas Carey, CEO of bitcoin wallet-maker

    If (I make no prediction about this . . the market will decide) many people adopt bitcoin as a transaction medium, those countries which regulate it to death will fall behind, lose business and give up wealth.

  4. There are no legitimate uses for tumblers. The simple act of using a tumbler proves intent.

    1. Protecting yourself from the government thugs is quite legitimate methinks.

    2. I beg to differ. What you are saying is that there is no need for privacy. Here are a few examples where privacy would be important (maybe not to you though):

      1.) Privacy in paying for medical testing and services (concerned you have a social disease?)
      2.) Businesses keeping their financial records from competitors
      3.) You, keeping your personal finances private from your neighbor's nosy inquiries.
      4.) Private donations to whistleblowers & persecuted minorities

      In my book, anyone who is anti-privacy is anti-life.

  5. There is no way to "ban" tumbling. Simply set up an anonymously-hosted site that implements CoinJoin (or use a Open Transactions federated server - also anonymously-hosted). CoinJoin is "trust-less mixing" and OT creates true anonymous, digital cash. Like someone else already mentioned - they'll have as much success as they've had at regulating file-sharing. Bitcoin is programmable money - data that can be manipulated in so many ways that the cypherpunks will run circles around any regulator. Join the revolution or get left behind.

    1. So anyone the gov't sees putting bitcoins into a tumbler in the first place will suffer the gov't wrath ... doesn't matter if the tumbler itself can still exist and be used ... the entry point can be observed

  6. There is no thanks to \"ban\" tumbling. merely established Associate in Nursing anonymously-hosted website that implements CoinJoin (or use a Open Transactions federate server - conjointly anonymously-hosted). CoinJoin is "trust-less mixing" and OT creates true anonymous, digital money. Like somebody else already mentioned - they will have the maximum amount success as they've had at regulation file-sharing. Bitcoin is programmable cash - knowledge can|that may be manipulated in numerous ways in which the cypherpunks will run circles around any regulator. be part of the revolution or get left behind.

  7. Of course government is scared. Because it is looking to ensure it can extract as much wealth of possible out of the population be it via taxes or QE. The idea of people having privacy in their transactions is an anethema for governments, local, state or federal.

  8. "It's like banning filesharing"

    This type of argument completely misses the point. File sharing isn't banned, first of all. Sharing of certain copy-righted files is banned. But besides the semantics, it's not the same thing. You don't try to buy groceries with a copy of The Hangover. You don't try to pay your mortgage with Call of Duty.

    So no, they can't ban tumblers from a technical perspective. But what they sure as hell can do is say if you are a company that accepts bitcoin payments, they can't be tumbled. They can't ban bitcoin in the world, but they can ban companies in the US from accepting and using them.

    The reality is that while bitcoins may never go away completely, there's no way major retailers will use them in any way that conflicts with the gov't and it's demands. So who cares if you can use a tumbler if you can't buy anything with the bitcoin on the other side?

    When it comes to a govt and money, they don't like anonymous. Period. If they could figure it out, theyd start putting rfids in every piece of paper money they could and make everyone with a cash register track and report the money.