
Every important person in BitCoin just got subpoenaed by NY financial regulators - martin_
http://www.forbes.com/sites/kashmirhill/2013/08/12/every-important-person-in-bitcoin-just-got-subpoenaed-by-new-yorks-financial-regulator/
======
pnathan
Unpopular opinion of the day: bitcoin is real money, and the government _will_
regulate it and control it as such.

In my opinion, the end-game is this: bitcoin addresses are taxable, with
occasional tax agents spot-checking large accumulations of bitcoin to
determine if said addresses fall within their jurisdiction. Bitcoin has the
unusual ability to have a very tight trace on where a given virtual coin goes:
that just makes the ability to watch the money easier.

~~~
DougWebb
A bitcoin address is just a container for some amount of BTC. Holding an
amount of currency isn't taxable, and exchanging currency often isn't taxable
either. (I'm generalizing across jurisdictions, but I think what I'm saying is
true for most of them.)

If you move money from one pocket to another, or one savings account to
another (that you own), that's not taxable. Very many transfers between
bitcoin addresses is just like that: the 'change' from a transfer goes to a
new address owned by the same person.

Even when the addresses are owned by two different people, the transfer often
isn't taxable. You don't pay a tax when you pay a bill, but that's a currency
transfer between two parties. Even when you buy something it isn't necessarily
taxable; in many jurisdictions many products are sold tax-free based on either
the type of product or where the buyer and/or seller are based.

I don't think there's a way to enforce taxation on bitcoin that's not already
being used to enforce cash sales taxes and cash income, despite the
tracability of the coins, because the address owners may not be identifiable,
and the nature of the transfer is definitely not identifiable from the
blockchain.

~~~
dendory
In Canada, even if you destroy all paperwork and tell the taxman that you
don't remember anything, the law permits them to look at your assets and
decide how much you owe. Then it's your burden to prove otherwise. Is it
different in the US? Hell they could even force exchanges or code mainteners
to build in a tax system.

~~~
stickfigure
Nobody can force opensource code maintainers to build anything. More
importantly, nobody can force all exchanges to run any particular code;
exchanges can exist in any political jurisdiction.

~~~
mehwoot
Whilst way you say may technically be true, the government could just declare
this:

Each person must publicly declare the bitcoin addresses that they hold. Any
legitimate business accepting payment in bitcoins can only receive bitcoins
from other registered addresses, else they are black flagged and no longer a
registered address.

Now, your average business and the banks are not going to circumvent these
rules. The Banks will probably give their business customers payment gateways
that enforce these rules without the business having any choice. Black market
bitcoins will still exist, they will just be useless as "normal" currency and
will be completely separate, with no way to cross over. Since all transactions
are public it is trivial for the government to enforce these rules.

You'll still be able to run your exchange in some other political
jurisdiction, but unless the Government white lists your addresses, nobody
will be able to spend those coins on legitimate businesses in your country.

~~~
lalc
_> Any legitimate business accepting payment in bitcoins can only receive
bitcoins from other registered addresses, else they are black flagged and no
longer a registered address._

This particular implementation wouldn't actually work. Anyone can send BTC to
any address, so it would be easy to poison the well.

(But I suspect some similar scheme could be feasible. You might be able to
enforce the rule on BTC->$ withdrawls? I wonder about mixers, though.)

~~~
mehwoot
_This particular implementation wouldn 't actually work. Anyone can send BTC
to any address, so it would be easy to poison the well._

You could easily have software that would automatically turn over to the
government any coins sent from addresses that are not registered. It's like if
you found a briefcase full of money: you'd turn it over to the police (or
maybe you wouldn't, but that's what you _should_ do). With software, it could
just be automatic.

If you refuse to run software that does this, or you don't turn over coins
received from blacklisted sources within some period of time, you get
blacklisted.

------
stfu
Finally - New York is going after financial criminals! Oh wait a minute...

In related news last Friday the Justice Department had to admit that the
success numbers Eric Holder trumpeted on mortgage fraud were massive
overstated - by 80 percent. _The government restated the statistics because it
got caught red-handed by a couple of nosy reporters._ Priorities...

[1] [http://www.bloomberg.com/news/2013-08-11/eric-holder-owes-
th...](http://www.bloomberg.com/news/2013-08-11/eric-holder-owes-the-american-
people-an-apology.html)

------
aspensmonster
Well, my own submission just got [dead]ed --no indication as to why-- but I'll
paste my comment here as well:

I know very little about Bitcoin or money transmission laws. Unlike other
currencies it does not seem to have fundamental dependence on any centralized
arbiter, though the practicalities of large exchanges like Mt. Gox seem
apparent to me. That lack of dependence on a Fed-like body appears to me like
its biggest advantage, above any other potential for anonymous payment and
laundering. I'd like to know what exactly is entailed in becoming compliant
with money transmitting and laundering regulations and whether Bitcoin in its
current form could become effectively compliant. Is that even a meaningful
concept, or does the structure of Bitcoin fundamentally preclude coming into
effective compliance?

[dead]ed submission:
[https://news.ycombinator.com/item?id=6201643](https://news.ycombinator.com/item?id=6201643)

~~~
pyre
> whether Bitcoin in its current form could become effectively compliant

Why couldn't it be? The entire transaction history of a wallet is preserved
into the future. As soon as you correlate a BitCoin wallet with a person, you
have their entire history with that wallet. It seems more like a government's
wet dream than anything else.

~~~
lubos
ehm, no. you can create brand new wallet for each transaction and wallet on
its own is not connected to your real identity in any way. it's more like
government's worst nightmare.

~~~
pkinsky
As I understand it, if you want to receive bitcoins with wallet A and send
those same bitcoins with wallet B, you would need to transfer said bitcoins
from wallet A to B. And each transfer is recorded in the blockchain.

~~~
A1kmm
This is correct. However, it is difficult to prove that A and B (or perhaps
every wallet in some long chain) are owned by the same person, especially if
everyone has a large number of wallets and doesn't reuse them when they are
empty.

Let's say the blockcoin shows a transfer of 1 BTC to a new wallet A, and then
to a new wallet B, and then from B to a wallet owned by a registered BTC-USD
exchange C; to comply with government regulations and protect themselves
against fraud, C checks the ID of the owner of the wallet B. A government can
now determine the identity of B (and might even force C to provide the
information on all transactions in real time, so they know who B is even
without an investigation), but they cannot automatically infer the identity of
A. There are two possibilities: Perhaps A is owned by a different person, who
earned BitCoin for doing some work, and then purchased another service from B.
Or perhaps A and B are owned by the same person.

In reality, this might not be the only piece of information available, and
governments will probably want to use statistical techniques to estimate the
probability that a particular address is owned by a particular person,
combining all evidence. They will likely take into account all points where
money comes into or leaves a wallet with known identity (e.g. in USD -> BTC
transactions or BTC -> USD transactions), and the structure of the network
between those transactions. For example, suppose wallet A, B, and C are known
to be owned by the same person, and someone moves money from all those wallets
into wallet D. Then governments will probably infer that D is owned, with high
probability, by the same person as wallet D (because multiple low probability
pieces of evidence can combine to give a higher probability). Of course, the
transactions are not independent, because the owner of A, B, and C might just
be a regular customer of D - timing evidence might be taken into account,
along with other evidence about the identity of D (for example, does D only
receive money from the owner of A, B, and C, or from other sources? Where does
the money go after that)?

~~~
jonknee
> but they cannot automatically infer the identity of A.

They can certainly walk up the tree though, which is impossible with cash but
extraordinarily easy with BTC. In this case B could have a tax bill to pay
unless they can prove otherwise.

------
ganeumann
This is just the tip of the iceberg. Of course the government cares about
money, and of course it wants to control the money supply. And, as a
consequence, the USA will never allow any major currency inside its borders
other than the US dollar.

The history of the United States is littered with the fights over who gets to
determine what is money and how much of it there is: Hamilton's fight with
Jefferson and Madison over the need for a central bank, Jackson during his run
for the Presidency denouncing the central bank--and this becoming the main
issue in the campaign, the popularity of Williams Jenning Bryan (cf. the
famous "Cross of Gold" speech), etc. etc. all the way up to the horrible
stagflation of the 1970s ("Whip Inflation Now!") and the recession caused by
the ultimately successful efforts by Fed Chairman Paul Volcker's to end it. It
is reasonable to believe--and certainly most people in the US government
believe--that control of The Money is control of the economy.

Why would any successful government ever voluntarily give up that control?

~~~
cinquemb
I pretty much agree with what you are saying : Governments (and central banks)
would never voluntarily give up the control they have now, especially when a
currency is being exchanged for one they have control over.

It is also interesting because bitcoin may be influenced by governments, but
not issued by them nor central banks, which is already a fundamental
difference in the battles that have come before.

The amount of time/resources that will be spent to try to control something
that was never in their control (like kind of along the same lines as
government measures in Argentina), nor under the control of any single entity
for that matter, will be extremely telling. As far as I'm concerned the
writing is on the wall… what is going on now is just the ongoing manifestation
of what is to come next.

Not to mention that as more bitcoins are used/accepted by people in exchange
for goods/services between individuals, governments will be and are
increasingly being side stepped. It will be interesting to see this dynamic
unfold more in places where (local) governments are becoming insolvent.

Bitcoin is in no position to supplant the USD, EUR, JPY, GBP, RNB etc, because
bitcoin operates in between them now. And as more people loose faith in their
respective currencies but still want ways to exchange between other
individuals for goods/services, bitcoin will increasingly operate as well in a
realm of its own.

------
pmorici
Looks like this might be the least of BitCoin's government problems. Check out
this appropriations bill currently before congress;
[http://beta.congress.gov/congressional-report/113th-
congress...](http://beta.congress.gov/congressional-report/113th-
congress/house-report/171/1) Search for BitCoin in the text and you get the
following gem...

"Money laundering.--The Committee understands that Bitcoins and other forms of
peer-to-peer digital currency are a potential means for criminal, terrorist or
other illegal organizations and individuals to illegally launder and transfer
money. News reports indicate that Bitcoins may have been used to help finance
the flight and activity of fugitives. The Committee directs the FBI, in
consultation with the Department and other Federal partners, to provide a
briefing no later 120 days after the enactment of this Act on the nature and
scale of the risk posed by such ersatz currency, both in financing illegal
enterprises and in undermining financial institutions. The briefing should
describe the FBI efforts in the context of a coordinated Federal response to
this challenge, and identify staffing and other resources devoted to this
effort."

Talk about a prejudiced statement. Time to call your congress person.

~~~
cLeEOGPw
This is not prejudiced at all. All it states, is that the committee
UNDERSTANDS that cryptocurencies have the POTENTIAL to be used for money
laundering, etc. It is true, it can be used, and is used for those means.

~~~
pmorici
Did you read the whole thing? They call it an 'ersatz' currency. Look up the
word ersatz it has pretty negative connotations it's hardly a neutral
statement.

------
mintplant
This worries me more about other virtual currencies (eg. "game" money) than it
does about Bitcoin. The last time something like this happened because of
Bitcoin (FinCEN), Linden Lab forced the closure of all third-party Linden$
exchanges [1] to cover itself legally. Those were very scary times for
everyone involved in Second Life.

As someone who does business in Linden$ et al, I (selfishly) wish the media
hype around Bitcoin would simmer down, lest my own life become a lot more
complicated. The way these government announcements always refer to cracking
down on "virtual currencies" in general is very disconcerting, especially when
the term is so hazily defined.

[1] [http://blog.nalates.net/2013/05/08/end-of-linden-
exchanges/](http://blog.nalates.net/2013/05/08/end-of-linden-exchanges/)

------
pmorici
"the department says it wants to make sure Bitcoin company customers’ funds
are “safe and sound,” expressing concern about consumer complaints “about how
quickly virtual currency transactions are processed.”"

So, are they saying there are complaints that the transactions are processed
too _quickly_? Because I've never had a BitCoin transaction take more than an
hour or so to complete where as my regular bank routinely takes about 3
business days. Makes you wonder what their motivations are.

~~~
josho
It's doublespeak for we are taking an interest in this burgeoning opportunity
and will likely be adding requirements to exchanges that will help to limit
fraud, and ensure that the government gets whatever tax revenue they are
obligated.

Frankly, I see it as the powerful interests (banks/gov) taking their first
step to assert their control of the new market.

Someone less pessimistic may feel this is a good measure to ensure that
something good will stay good by helping to keep fraud out of this new system.

------
samstave
Explain why not a single banker has gone to prison from both the fraudulent
foreclosure crisis and the 2008 wider banking crisis yet these fools all of a
sudden want to regulate BTC?

They can't even regulate the US dollar.

------
e3pi
Coincidentally today:

Crypto-currency for NSA leaker: Snowden fund accepts Bitcoin

Published time: August 12, 2013 14:51

US fugitive Edward Snowden’s defense fund, launched recently by WikiLeaks to
raise money for the legal protection of the NSA leaker, has announced it now
accepts donations in virtual currency Bitcoin.

[http://rt.com/news/bitcoin-snowden-fund-
wikileaks-384/](http://rt.com/news/bitcoin-snowden-fund-wikileaks-384/)

------
saltyknuckles
Other unpopular opinion of the day: Ron Paul was right about competing
currencies being infringed on.

------
nullc
Good to know that _none_ of the technical people or authors of the software
are important as far as NY is concerned! :P

------
runarb
Looks like the price of Bitcoins just made a good jump at
[https://www.mtgox.com/](https://www.mtgox.com/) . Are speculants thinking
that if the us government are geting involved it validates Bitcoin further?

Edit: Screenshot of the jump:
[http://i.imgur.com/G5Dk7Nh.png](http://i.imgur.com/G5Dk7Nh.png)

~~~
phreeza
possibly also something more along the lines of 'anything that keeps bitcoin
in the news is good news', keeping up the influx of new people wanting to try
bitcoin.

------
marshallford
The issue of bitcoins vs IRS combined with the recent news about the NSA
actually scares me. Why does the Gov feel the need to control us?

------
cperciva
Based on the title, I was hoping Satoshi Nakamoto had been subpoenaed.

~~~
wmf
Maybe he's just dodging the process server.

------
ducklamp
In the end the Federal reserve will protect their monopoly on money. The more
legitimate Bitcoin becomes, the more likely a target of Fed action.

------
bpd1069
Was interested to see how many posts were going to discuss the possibility of
ban following Thailand. Not One.

Is this not a real and probably outcome?

~~~
waterlesscloud
It wasn't banned in Thailand.

------
eddywebs
First they ignore you, then they laugh at you, then they fight you, then you
win.

