
Bitcoin Is an Existential Threat to the Modern Liberal State - dmitriy_ko
http://www.bloomberg.com/news/2013-04-05/bitcoin-really-is-an-existential-threat-to-the-modern-liberal-state.html
======
gojomo
FTA: _Taxation: How do governments collect taxes on transactions in Bitcoin?
The answer is they don't, and they can't._

Though many Bitcoin fans don't quite realize it, Bitcoin's radical
transparency could in fact be a tax-collector's wet dream. Every public-key,
balance, and transaction is public.

A government that wants to coopt and efficiently tax Bitcoin could announce
the following policy, based on the idea of 'tainted' or 'clean' balances:

 _"You can make your Bitcoin legal inside our jurisdiction by registering your
public keys. (No, we don't need your private keys.) All transactions between
registered keys are great, just make sure they match up with your tax filings,
because we can see the endpoints.

"You should not receive money to your registered address(es) from an
unregistered address. If you do, you can file a disclosure with 30 days,
identifying the origin and nature of the transaction, paying all applicable
taxes, and then the balance is yours to keep."

"If you do not, the entire amount that's mixed with the unregistered-origin
balance is subject to forfeit. Your registered keys with any such balance will
be blacklisted, making your previously-registered balances unspendable until
you come back into compliance."_

Any above-ground business would then stick with clean balances. Both clean and
tainted coins could circulate in the same blockchain, but rarely mix... and
would have different de facto values. (Would a clean or dirty satoshi be worth
more? I'm not sure!) Trying to buy above-ground things with dirty money would
face the same 'laundering challenge' as today: making it look like legitimate
income via front operations.

Except, the blockchain would be a perfect record of earlier related
transactions. That means big-data traffic analysis, and occasional meatspace
busts discovering the identities of unregistered keys, would create a very
strong map of unsanctioned economic activity -- much _better_ than is possible
with physical cash.

~~~
jlgreco
What happens if I send dirty money to my enemy's registered address?

~~~
gojomo
Your client/wallet detects it and offers a pop-up with registration or
forfeiture options. Up to a certain amount (per person, per year) you can
probably just pay a small excise tax (less than 100% forfeiture) to 'clean'
it. Larger amounts without explanation would mean a visit from the taxman or
Justice Department, however.

------
itistoday2
What a gigantic piece of FUD.

 _> How do governments collect taxes on transactions in Bitcoin? The answer is
they don't, and they can't. Crypto-currency's strong protections on anonymity
make it impossible for any state to know who is buying what, who is paying
whom, who earns what, and who has what in savings._

BS! The state seems to be surviving just fine with its "inability" to track
who is buying what with cash, and it could easily require and enforce
documentation of large purchases (such as houses, cars, etc. as it already
does btw).

 _> 2\. Police:It would be almost impossible for states to detect certain
crimes. One of the major alleged uses of Bitcoin -- though, of course, one can
never truly know -- is buying illicit drugs._

Ohhhh noooo!! Cry me a river!!

You mean the batshit insane war on drugs that has destroyed countless lives
will become even more ineffective than it already is?!? Please oh please,
don't throw me into the briar patch!

Every one of these points applies equally to cash. Might as well write a
second article titled: "Cash: An Existential threat to the modern liberal
state"

BTW, there's nothing liberal about the war on drugs, the very existence of
which is a cruel affront to basic human liberties.

 _> In a world where many transactions are anonymous, it’s unclear how
governments could even compile accurate economic data, without which
macroeconomic policy is impossible._

How exactly does having a public history of every transaction ever made
somehow make it "impossible" to glean any useful economic data from it?

Add to it knowledge of certain transactions (such as those that go through
companies), and you start to get a pretty clear picture of exactly what's
going on.

~~~
readme
"Bitcoin is interfering with the ability of the government to stop consensual
transactions between adults."

UH OH

~~~
sliverstorm
I wonder how anyone can think that is the case. Can the government stop me
from buying something with USD? Not a chance.

~~~
coldtea
> _Can the government stop me from buying something with USD? Not a chance._

What? Of course they can. They can get a warrant and bust into your house and
put you in jail if they have basis to believe you have bought something they
think you shouldn't have (drugs, child porn, slaves, and tons of other
things).

~~~
sliverstorm
Sure, they can penalize me after, but they can't actually stop me from buying
something I shouldn't have. Precisely the same with bitcoin.

~~~
tantalor
You're implying that there are always back channels?

What if they could effectively limit the supply of something? Can you buy a
live sample of measles?

~~~
sliverstorm
You're getting way off track here. The assertion was that the government is
afraid that it can't stop you from spending bitcoins, the implication being
that it can with cash. Bitcoin vs. USD doesn't solve your ability to purchase
weaponized measles.

~~~
tantalor
Generally I agree with you, but in some cases a government does interfere to
limit, inhibit, discourage, or prevent purchasing to varying degrees. They
make it very hard. Controlled substances for example.

They can even do it automatedly, such as freezing the ability to withdraw or
deposit funds electronically.

~~~
sliverstorm
Even in those cases, they don't control your dollars, they control the
companies that you have asked to hold your money.

~~~
coldtea
Sure, but also notice how they never (in history) tried to control your
dollars in such a manner.

If they had set their mind to do just that, I bet they would succeed. For one:
forbid all cash, arrest at once anyone using or accepting it (or any self
issued barter system) and only allow credit cards and e-money.

~~~
tantalor
I doubt it.

The right of the people to be secure in their persons, houses, papers, and
effects, against unreasonable searches and seizures, shall not be violated,
etc., etc.

------
trotsky
The only way you could think bitcoin is a threat to state revenue is by
misunderstanding methods of taxation. Income and corporate taxes are
determined almost entirely by self reporting and laws that shift tax burdens
from one entity to another which require disclosure. It's relatively easy to
evade taxes as long as you operate in a closed loop where no one reports even
with modern financial instruments.

The problem only comes when you want to use the money to buy things from
taxpayers, which is, you know, most business. This is such a problem that
money laundering is primarily concerned with finding ways to pay taxes not to
avoid them, so that people can pay for houses and such. Bitcoin actually makes
this far more difficult than USD because of the encoded transactional history
- just ask anyone sitting on the large piles of stolen bitcoins that have yet
to be retransfered.

The methods of enforcement would change, for sure. But anyone who thinks that
revenue offices would be unable to model monetary distribution via the
blockchain hasn't been paying attention to what US security forces have been
doing with the databases of how groups interact based on who they call
(association graphs).

~~~
skore
> just ask anyone sitting on the large piles of stolen bitcoins that have yet
> to be retransfered.

Wow, I never thought about that. Very interesting! Does anybody have more
insight into this?

~~~
eurleif
I wonder to what extent it may contribute to BitCoin's deflation: drug dealers
make money on Silk Road, can't readily transfer it out of BitCoins, and
probably think there's a good chance BitCoins will continue to become more
valuable anyway, so they leave the money sitting in BitCoins.

~~~
skore
The other datapoint may be dead wallets. I think it's very likely there are a
good number of wallets from the early days of bitcoin where mining was still
possible with normal hardware. A lot of people probably tried bitcoin out,
mined a couple (which would now be worth hundreds of dollars) and then lost
their wallet because there was nothing you could really do with them.

Makes me wonder whether we will ever see the day when people will try to fake
ownership of dead wallets. It should be possible to figure out which wallets
are dead. Not sure whether it's possible or feasible to fake ownership,
though.

Then again, if it IS possible and if the people who predict four digit dollar
values for a single BTC end up being right, the _incentive_ would surely be
there.

~~~
davidjohnstone
There are a lot of dead Bitcoins around. This thread [1] documents about
70,000 lost Bitcoins, and you can be sure there's a lot more.

The other way to lose Bitcoins, apart from losing a wallet or forgetting its
password, is to make a transaction to a bad address (as in, a valid-according-
to-the-protocol address that isn't anybodies).

If I understand how it works correctly, you wouldn't fake ownership of a
wallet per se; you would need to come up with private keys to match the public
keys of the transactions that belong to that wallet, which I believe is
equivalent to breaking SHA256. That would be unexpected. Also, there's no way
to tell if a wallet is dead or just not in use (that is, all you can know is
that there are transactions that have not been spent yet, and if the same
address is used to receive multiple transactions you have additional
information that indicates the wallet is not in use… but it can never indicate
that it's dead).

If you managed to claim ownership of a dead wallet, there's nothing at all
stopping you from claiming ownership of an in-use wallet too. But SHA256 is
looking pretty secure right now.

As for the way Bitcoins will inevitably be lost over time, it's generally
considered in the Bitcoin community [2][3] that there's nothing to worry about
(it will just add a bit more deflationary pressure). I don't like this aspect
of the currency — money disappearing into the void with no hope to correct for
mistakes might make it perfect for computers, but it's not so good for humans.

As for tracking stolen Bitcoins, if the transaction hashes of the thefts were
made public, an exchange should be able to tell if the Bitcoins that somebody
is trying to turn into real money were once stolen. This is because the
blockchain contains the entire history of Bitcoins — the way Bitcoins are
spent is by taking the Bitcoins from a previous transaction and making a new
transaction based on them; all this information is stored in the
blockchain[4]. Some work has been done[5][6] at looking at what can be
discovered by looking at the blockchain — it's not nearly as anonymous as many
think it is.

1\. <https://bitcointalk.org/index.php?topic=7253.0>

2\.
[https://en.bitcoin.it/wiki/Myths#Lost_coins_can.27t_be_repla...](https://en.bitcoin.it/wiki/Myths#Lost_coins_can.27t_be_replaced_and_this_is_bad)

3\. <https://bitcointalk.org/index.php?topic=109117.0>

4\. <https://en.bitcoin.it/wiki/Transactions>

5\. <http://arxiv.org/pdf/1107.4524.pdf>

6\. <http://eprint.iacr.org/2012/584.pdf>

------
mrb
_"The volume of transactions in Bitcoin is growing only slowly, relative to
the massive increase in demand for the currency"_

The author states this without presenting data. He is wrong. In fact, data
shows the opposite:

\- The exchange rate increase by 5x between February (low of $20) and March
(high of $100)

\- BitPay alone recorded a merchant transaction volume increasing by 7.6x
between February ($687k) and March ($5.2M):
[http://www.marketwatch.com/story/bitpay-eclipses-silk-
road-i...](http://www.marketwatch.com/story/bitpay-eclipses-silk-road-in-
bitcoin-sales-with-explosive-52m-march-2013-04-02) (and this is _just_ BitPay
- there are many more Bitcoin-accepting vendors who make sales without using
BitPay - so total transactions increased by a lot more than 7.6x, maybe 10x,
20x, who knows)

Therefore the volume of transactions is increasing faster than the exchange
rate. How can a Bloomberg article (edit: opinion piece) be so wrong about such
a stupid simple fact that can be easily found?
<https://news.ycombinator.com/item?id=5499377> is right: a lot of journalists
get a lot of facts wrong about Bitcoin.

Edit: BitPay is not the only datapoint. Many other metrics and merchants
generally show big increases in transaction volume in the short past:

\- Estimated volume of USD transactions (attempting to ignore "change"):
[http://blockchain.info/charts/estimated-transaction-
volume-u...](http://blockchain.info/charts/estimated-transaction-volume-usd)

\- Silk Road going over 2 years from zero to $2 million/month of Bitcoin
revenues: [http://arstechnica.com/tech-policy/2012/08/study-
estimates-2...](http://arstechnica.com/tech-policy/2012/08/study-
estimates-2-million-a-month-in-bitcoin-drug-sales/)

\- A bitcoin casino went from 0 to $0.5 million profits in 6 months:
[http://arstechnica.com/business/2013/01/bitcoin-based-
casino...](http://arstechnica.com/business/2013/01/bitcoin-based-casino-rakes-
in-over-500000-profit-in-six-months/)

\- Etc

~~~
andylei
> BitPay alone recorded a merchant transaction volume increasing by 7.6x
> between February ($687k) and March ($5.2M): ... so total transactions
> increased by a lot more than 7.6x, maybe 10x, 20x, who knows)

your math is not good.

one provider having a large percent increase does not imply that the total
market had a larger percentage increase. its entirely possible that BitPay
gained a larger share of bitcoin transactions to achieve these numbers.

your argument is like saying: people using Google Chrome have increased by
1.2x over the past year, therefore, people using the internet must have
increased by a lot more, maybe 5x or 10x, who knows.

~~~
mrb
You are right. I assume that the share of the Bitcoin transactions that are
handled through BitPay were roughly the same in February and March.

This may be only an assumption, but I do believe it is correct. The other data
points I added to my post seem to confirm it: trades and transactions are
widely increasing everywhere.

------
hazov
"which, for many of its libertarian-anarchist advocates, is the whole idea"

The politics the community built around is for me the only reason why it sucks
right now, the idea is interesting and it can certainly have some use. Selling
all that I have.

TL;DR: Well, the link speaks for itself:
<http://imgur.com/r/cringepics/gkLJswu>

EDIT: Ultimately what I hate about it is that the almost anywhere you go do
discuss it there's this tribal mentality of believers vs. deniers. What about
those guys in 2009 that thought it was a good idea to work as a currency and
does not care about libertarianism/keynesianism talk?

~~~
waterlesscloud
I think of bitcoin the same way I think of the music of Led Zeppelin: I don't
let the fans stand in the way of my appreciation of a good product.

------
josephby
"Taxation: How do governments collect taxes on transactions in Bitcoin? The
answer is they don't, and they can't."

Grossly misleading.

You tax something at the point at which it gets exchanged into an externally
viewable good or service. If either party refuses to disclose the value of the
transaction, then the state just assigns one and uses its monopoly on force to
collect.

That said, an increasing dependence on opaque stores of value would likely
shift taxation away from income and towards consumption.

------
rd108
I've been a bitcoin supporter. But there is a twinge in me that remembers
government, properly set up, can often protect the weak from the strong.
Extremely wealthy corporations and individuals moving around anonymous money
would make it impossible to tax and impossible to know where political
contributions were coming from. I don't know the answer-- I flip flop back and
forth between total openness for everyone and total secrecy for everyone.

~~~
hazov
On the contrary I believe, suppose bitcoin explodes national fiat currency as
I saw a couple of guys wishing, once governments put some regulation, double
booking accountting for companies who will have no incentive to avoid taxes
and pay a lot later and the fact you can trace all transaction would kill any
anonymity unless it remain a currency for black markets.

------
davidjohnstone
Crypto-currencies might be, but I don't think Bitcoin is an existential threat
to the modern liberal state.

The anonymity that every mainstream article claims Bitcoin has is not nearly
as strong as it's made out to be[1][2][3].

The built-in deflationary aspect of Bitcoin seems to prevent it from being
used as a "serious" currency. Hiding money under your mattress should never be
the optimal approach to making more money. (It might not prevent people from
using the currency, but it's highly sub-optimal.)

The fragility of the currency concerns me (by which I mean the way it's
possible to lose massive amounts of money by losing a file or forgetting a
password). Maybe this is a technical problem that will be solved with a more
mature ecosystem, but I like the way that a real bank always has ways to
access money when bad things happen (at least in a functioning banking
system). This thread[4] documents the loss of about 70,000 Bitcoins, which is
worth about ten million dollars today. Related to this, if somebody hacked the
EFF's Twitter account and posted that they were accepting Bitcoin donations on
some address, a lot of Bitcoins would disappear into somebodies wallet. You
could argue that Bitcoin is a more perfect sort of system, but it's not
without downsides.

Maybe another crypto-currency will come along and solve these problems. I
think I hope it does. But I don't see Bitcoin supplanting modern state-backed
currencies. I find it hard to see Bitcoin being used more widely than by the
idealogues, the speculators, and those who find utility in it (like Silk Road,
but not just that).

1\. <http://arxiv.org/pdf/1107.4524.pdf>

2\. <http://eprint.iacr.org/2012/584.pdf>

3\. <https://en.bitcoin.it/wiki/Anonymity>

4\. <https://bitcointalk.org/index.php?topic=7253.0>

~~~
sliverstorm
_You could argue that Bitcoin is a more perfect sort of system_

Which could be exactly why it is wrong for humans- as we are more imperfect
than perfect :)

------
JulianMorrison
Macroeconomics is the part of this that isn't FUD. The BTC money supply will
remain slightly deflationary regardless of what's in your national best
interests. It's not unlike being in the Euro, except that we have pitiless
automation playing the part of Germany. You might want to devalue, or print
money to cover your pension obligations or restart a stagflation death-spiral,
but BTC does not offer you any means to do this.

The old way of maintaining control local macroeconomics was to demand that
"you may use whatever variety of wooden doubloons you please, but you pay your
taxes in USD". For simplicity, people use USD for everything. However if the
economy starts to run on BTC, this rule's traction fails, USD becomes funny-
money you buy at the government's gate, and its inflation saps the government
rather than the taxpayer.

------
bbbhn
Wow, the financial press is falling in love with writing about Bitcoin.

Now that it's been linked to Cyprus there's an increased probability of
Bitcoin being discussed in reference to future Eurozone economic events. Which
means more mainstream awareness & more potential adopters.

I have a hard time seeing Bitcoin going away in the near future. Even if it's
a bubble, and I have my doubts about that, odds are we have yet to reach the
peak.

It's political nature also holds a lot of potential. There are some very, very
discontent people all over the world, both Western and non-Western. Segments
of the Greek population have latched onto neo-nazism -- is it really that
unrealistic that another desperate population might latch onto Bitcoin?

------
Apocryphon
Bruce Sterling considered this, thirteen years ago:
<http://www.time.com/time/printout/0,8816,997255,00.html>

------
alexqgb
The OP is not to be taken seriously, thanks to deep ignorance about how
currency works in general, and how bitcoin works in particular.

In 1998, Paul Krugman described the fatal flaw that will inevitably sink any
currency that includes it; a flaw that Bitcoin's designers have overlooked.

[http://www.forbes.com/sites/pascalemmanuelgobry/2013/04/05/k...](http://www.forbes.com/sites/pascalemmanuelgobry/2013/04/05/krugman-
baby-sitting-co-op-bitcoin/) …

So no, Bitcoin is not an "Existential threat to the Modern Liberal State". Not
even close.

------
matt_panaro
I was just reading some posts about potential BitCoin issues:
<http://www.loper-os.org/?p=1009> <http://www.loper-os.org/?p=939> If the
conclusions about the vulnerabilities of BitCoin are correct, then I'm not
sure it can qualify as an "existential threat"

------
lucb1e
Reality check: billion-dollar company posts news message after news message
about how a their-business-disrupting new technology is bad.

------
Zigurd
Bitcoin is analogous to gold. To the extent it is more of a "threat" than
gold, it is because moving bitcoin across national borders is easier. You also
don't have to assay it.

This article is alarmism. There is no theory of how bitcoin will facilitate
more tax evasion or transactions for contraband, than cash or, or bearer
bonds, or gold do.

~~~
Evbn
Do bearer bonds still exist? It thought they were replaced by electronic
securities because, you know, their only unique purpose is for theft.

~~~
Zigurd
They are pretty much extinct in the US. Not because of theft, but because
transaction in them are hard to track.

------
chrismealy
No, it's not. The government can throw you in jail if you don't pay your
taxes. Money is a get out of jail free card. That's what makes money valuable.

<http://en.wikipedia.org/wiki/Chartalism>

------
skore
Anybody else get the feeling that we see an increasing amount of articles
where the author writes about what he or she _thinks_ bitcoin is?

It's like multiple, recursive generations of FUD.

------
baby
With all those bitcoins thread on HN I'm waiting for a HN Poll to know if you
guys have bitcoins or not.

------
danenania
Well the so-called "Modern Liberal State" is an existential threat to
humanity, so it seems fair to me.

