
Technical feasibility of regulating public Blockchain explored - alokashtikar
https://techtake.info/2017/12/22/regulating-public-blockchains/
======
ripberge
If this is the financial world you want, you just need a government database
(ledger) of who has what currency and an API. Would be a lot simpler than
blockchain which is designed to be de-centralized. Using blockchain for this
is putting a square peg in a round hole.

~~~
gizmo686
There is an arguement to be made for starting with a secure system and adding
in regulatory features. For instance, if we adopt the articles proposed
regulatory node idea, where the only role of the trusted nodes is to approve
transactions, then a complete compromise of the trusted systems would only
allow an attacker to perform a DOS attack or bypass the regulatory checks. In
contrast, in a traditional system, compromising the central party gives you
the keys to the kingdom.

~~~
JumpCrisscross
> _compromising the central party gives you the keys to the kingdom_

What does this look like in practice? The Federal Reserve being hacked? Why
would an immutable blockchain make that more pleasant than our current,
reversible system where something like the 1933 eight-day bank holiday [1] is
possible?

Practically speaking, central banks get compromised by political factors much
more frequently than by hackers.

[1]
[https://en.wikipedia.org/wiki/Emergency_Banking_Act](https://en.wikipedia.org/wiki/Emergency_Banking_Act)

~~~
nske
Slightly off-topic but something doesn't have to be hacked to be compromised.
In my book, manipulation by government for political or plain self-interest
reasons counts as compromising.

~~~
JumpCrisscross
> _manipulation by government for political or plain self-interest reasons
> counts as compromising_

Some countries, _e.g._ the Cayman Islands or Zimbabwe, peg (or have pegged)
their currency to a foreign currency [1]. There has also been discussion of
rule-based monetary policy [2], where central bankers' discretion is limited.
A blockchain would be a stricter form of both, amplifying their benefits as
well as downsides.

TL; DR We don't understand monetary policy well enough, broadly enough, to
have a set of rules everyone agrees are good. Such strictures are better than
an economy being left to incompetent central bankers, or in certain limited
cases ( _e.g._ Hong Kong or Bermuda's financial proximity to much-larger
economies). For general cases, or in a permanent structure such as a
blockchain, however, much more work needs to be done.

[1]
[https://en.wikipedia.org/wiki/Currency_board](https://en.wikipedia.org/wiki/Currency_board)

[2] [http://www.frbsf.org/education/publications/doctor-
econ/2001...](http://www.frbsf.org/education/publications/doctor-
econ/2001/april/monetary-policy-fixed-money-supply-taylor-rule/)

~~~
DenisM
The Federal Reserve acts algorithmically. New money is only created when new
loans are requested by big commercial banks, and those loans are demanded on
behalf of retail loans, which are initiated in proportion with economic
activity by economic actors. The only discretion involved is the interest
rates on those loans, which indirectly controls people’s willingness to take
out loans.

~~~
smokeyj
> The Federal Reserve acts algorithmically .. only discretion involved is the
> interest rates

I built a self driving car. The only human discretion is the steering wheel.

------
runeks
In my opinion, this article conflates two separate phenomena: technology and
politics.

Bitcoin is technology. It’s assembling different parts into a tool that people
can choose to use. Much like a car is assembled from different parts.

Regulation is politics. It’s a social phenomenon that concerns _how_ we use
the tools offered to us by technology.

The issue is that most, if not all, tools can be used both ethically and
unethically. This reveals the fact that regulation has nothing to do with the
tool itself, which means trying to modify the tool itself — as a form of
regulation — doesn’t make sense, since it ends up hurting the people who use
the tool for doing good.

By all means, prosecute people who break the law, but do we really need to
regulate the shape and size of vases, such that they can’t be used to hit a
spouse over the head during an argument?

~~~
nske
Unfortunately with governments it's no longer about what makes sense but about
what they can get away with. Much like you can expect a giant for-profit
business to do anything to maximize its profit, one can expect a government to
do what it can to maximise its control. That's just an observation.

Regulating cryptocurrencies can have the same effectiveness that regulating
information exchange through the internet had. Yeah sure it can be a bit
impractical or scary for most to go around artificial limitations imposed by
their state but it is practically impossible to keep the really motivated from
doing what they want.

------
ErikAugust
The technical feasibility isn't really explored here - and the 'regulatory
node' aspect is essentially a 'trusted 3rd party' that power over the
mutability of the blockchain.

It would seem like this layer would be fighting the very nature of systems
like Bitcoin, or Ethereum.

------
gitgud
I am not sure how this could possibly work. To govern and regulate a public
block-chain is fundamentally against what they stand for. A public block-
chain-based cryptocurrency is meant to be resistant to government forces. They
shouldn't be allowed to enforce rules on who or what you trade.

A better approach would be to regulate the exchanges, which is probably not
too far off. However, even in this case decentralised exchanges like BISQ
could most likely completely avoid any regulation.

~~~
IncRnd
> To govern and regulate a public block-chain is fundamentally against what
> they stand for.

A block-chain has no stance for or against anything. Saying that a block-chain
could be for or against governance is similar to saying that b*trees are pro-
life.

~~~
nicky0
Decentralisation and censorship resistance are fundamental properties of
Bitcoin.

~~~
yipopov
A blockchain is just a data structure. Bitcoin is more than just a data
structure.

------
oppositelock
By all means, write that software, add KYC tokens, and release it on Github as
a more trusted, regulated Bitcoin. See how many miners and users adopt your
nonsense.

This article shows a deep misunderstanding of why crypto currencies took off.

------
alokashtikar
Most of the debate seems to be around "corruptible" politicians and how they
want to control the financial system. Some purists in Blockchains are afraid
of regulation it seems.

What does a world without regulation look like? In my opinion it is like
playing with fire. It may cause forest fires or it may cook delicious meals.

In the interim, it is better to deal with a "known enemy" (personally I dont
view regulation as an enemy). Decentralize regulation. If someone wants to
create his own regulation, sure go ahead. Its just that your country's
regulation may agree to trade with your regulation or may be not, based on
what you have created. Negotiate well with your country's regulator, and get
coins flowing across "your borders".

------
GistNoesis
I believe there is an elegant way for regulation. Regulation authorities just
have to "taint" the coins according to some rules and publish the result.

For example they say which coins are clean and which are dirty and define a
rule that upon a transaction you must first spend away your clean coins (the
clean and dirty coins sets are updated by watching the blockchain).

By creating such an overlay currency over an exiting one they can provide
incentive for actors to self regulate (i.e. you won't be willing to accept
coins which you know are dirty if it means you won't be able to cash them
out).

Anyone can create such an overlay coin (I call them rainbow coins). For
example you can define a rule which will add a stamp to coins which go through
a specific address (The idea being that people then send coins to this
address, you send them back a fraction but this fraction is now "stamped").

What is great about this solution is that it can be applied to all public
ledgers.

It doesn't work for the crypto currencies which don't have a public ledger
(like Monero, Zcash, ...) but those are more risky per nature, as any
implementation bug could mean that all the money can be diluted away and
nobody would know.

~~~
IncRnd
Other than people not being able to use all coins in their possession, how
does tainting coins achieve "an elegant way for regulation"?

~~~
GistNoesis
It is elegant because you don't need to force people to switch to another
complex crypto-blockchain that no-one will adopt. But there is more depth to
it :

As an authority, you express your policy goals via a set of rules which grants
you a fine policy-making abilities, and then either the market takes you into
account and self-regulate to respect your policy or they give you ground for a
global ban (but most likely some people will endorse it through fear and the
others will have no other choice than to follow or be the one with the "hot
potato" (divide&conquer) ).

But as every good tool/technology there are always multiple facets, and it can
also be used to create value :

The beauty of decorating the ledger is that it allows to tie ethic to money.
For example you can define some decoration rules, which can help promote
environmental practices. For example you receive green coins when you donate
to wwf, or when you interact with an eco-friendly business. (green token
aren't new but the fact of it being public info is)

The great strength of this is that you are no longer bounded to be a summing
to zero ledger for your decorated coins.

It can also helps people to cluster and transact only with people which shares
some common values. For example if you want to avoid touching drug related
money, then you can choose not to.

You can also reward with some coins certain behavior, like transactions
between different communities which create out of thin-air coins received by
both parties. It gives you fine knobs to adjust your economy.

You can build an e-reputation system upon these.

It probably can be exploited but it's not so easy as because all the books are
public it removes incentives to cheat as you risk being marked.

You can create "coins that can't be bought". It is kind of fingerprinting your
economic behavior to tell society what you want it to become.

If you can convince some people to share some set of values these rainbow
coins can help you smoothly go from "ignored by society" values to values
which can bring you new customers.

------
alokashtikar
The regulatory nodes seem to have created quite a stir! I believe this stir is
partly because it is being viewed as a central authority to control the
blockchain. This is an incorrect understanding of the proposal.

The top node of the hierarchy of regulation can be created by anyone.

However, those who want to legitimately (within their jurisdictions) use
blockchains to improve the experience of transfer of coins (not just money,
could be equity as well) can use it with the regulatory framework of the
country.

Also, we must not forget that unregulated blockchains are being used as a
bridge to transfer money between the legal and the illegal businesses.

By adopting the regulatory nodes framework, the transfer of coins will happen
only between (or within) "well intended" regulations.

~~~
runeks
If adopting this technology is voluntary, it has nothing to do with
regulation. It would simply be a superior protocol, that people choose to use.

“Voluntary regulation” is an oxymoron.

> Also, we must not forget that unregulated blockchains are being used as a
> bridge to transfer money between the legal and the illegal businesses.

Nor must we forget that many countries, like Argentina, make it illegal for
people to save up for retirement in currencies that are less inflationary than
the national currency.

In these countries, this makes saving up in bitcoins illegal activity. But it
should be clear who’s committing a crime against whom (the government against
the people).

Bitcoin was built for exactly this purpose: to fight against government
regulation whose purpose is only the survival of government at the expense of
the people, as opposed to being a service to the people.

~~~
alokashtikar
If one voluntarily chooses to trade coins of "out of jurisdictional regulation
part of the blockchain", the person will not be able to get those coins into
the "regulated part of the blockchain". This is how the bridge between legal
and illegal businesses would be broken.

I do not know about the cases you are referring to, as I am not a lawyer, nor
an economist and not a statesman.

Within the reasonable countries (most part of the world) one should be able to
trade legally, transfer the coins without violating laws of the involved
jurisdictions. This would be possible even between different countries.

If you see through it, you will notice that you can create your own
"Regulation" within / between a group of your counterparts. Its not taking
away your freedom, its just breaking the bridge between legal and illegal
businesses.

------
neilwilson
Eventually software people will work out what fiat money is - a way for a
state to obtain service.

Since you need the states money to pay taxes and you need to obtain it or be
jailed then there will always be exchanges. So you just regulate on the state
money side of the fence and ban all exchange transactions into the states
money that cannot prove their source.

Once enough people have been burned in the Wild West the fad will fade to an
eclectic elite. Just like buying fine art.

And the stuff that's useful - like decoupling your account from the
transaction provider - will be adopted by state currencies.

------
Salami-banker
I have been denied a bank account in Canada due to my ethnic background.
Articles like this terrify me.

~~~
kridsdale
As a Canadian I’m curious for details.

~~~
Salami-banker
I went to HSBC Canada to open a Euro denominated account. The bank
representative noted my named, and asked, smiling, what my background is.

I told her I'm from Vancouver. She said that's not what she meant, so I
assumed she was asking whether my background was Iranian to make conversation
(this was the branch in North Vancouver, which has a large Iranian-Canadian
population, so I thought she was going to make a remark about Iranian-Canadian
clients that she knows).

I told her my background is Iranian. She said that anyone of Iranian
background would need to get special approval to open a Euro denominated
account with HSBC Canada due to US sanctions.

I explained to her that I'm a Canadian citizen, that I moved to Canada when I
was three years old, and that I don't have Iranian citizenship or any
connections to Iran.

She said it doesn't matter, and that even if only my parents were born in
Iran, or I had extended family living in Iran, I was considered to be a person
with "connections to Iran", and thus needing special approval to get an
account.

A week later the bank representative called me and told me that my request to
open an account was rejected.

~~~
bigmanwalter
This is outrageous. As a fellow Canadian whose parents immigrated here, I am
fed up with Canada's reputation as friendly and welcoming to foreigners. While
it is to a degree, the racism here is much stronger than people seem to be
willing to acknowledge.

~~~
Salami-banker
Thanks for your words of support. The experience has been surreal for me.

What saddens me most is that in a sense, I'm one of the lucky ones: I
genuinely don't have any connections to Iran. I might be able to complain and
have the policy reversed on people like me.

But what if I _did_ have connections to Iran? What if I had immigrated at 22,
and still had Iranian citizenship? Or what if I never got a chance to
immigrate, and still lived in Iran? In that case, I would be totally rejected
by a world that justifies official discrimination against me, in the name of
enforcing sanctions that are deemed necessary to achieve geopolitical
objectives.

The worst part of it all would be knowing that the world at large considers me
expendable, and would accept policies that lead to my discrimination as a
lesser of two evils.

There would be no way out if I were in that position, because the quality of
mine that is discriminated against is one I was born with, and complaining
wouldn't help, because most people would just say "tough luck". When the crowd
thinks you deserve to suffer because of what you _are_ , rather than what
you've _done_ , it's a crushing feeling. I have a taste of that now and it's
terrifying.

Regarding racism and discrimination in Canada: I agree that there is much more
of it here than people generally perceive. I do think Canada is less
racist/discriminatory than most countries, but the difference is not as big as
commonly believed.

------
jupp0r
Regulation has to be part of the blockchain itself. Trusting a third party
(regulatory nodes) is exactly the system cryptocurrencies were invented to
avoid....

------
flexie
Oh, there are countless ways governments can regulate crypto currencies
without such regulation being built into the currencies themselves. Right now,
crypto currencies are entirely useless for 99 percent of real world purchases.
You cannot buy a cup of coffee with your satoshis. All you can do is to buy a
few digital assets and a tiny fraction of the world's real assets. You might
as well try to buy dinner with your facebook stock or to pay your rent with
cacao or tulips.

Let's say that government decides the only legal tender for purchasing real
estate is the government's fiat currency of choice, for example euros or
dollars, and that the only way to obtain a deed or to legally borrow money is
to show through a government run website that you paid for the real estate
with that fiat currency. That's it. Now government indirectly controls crypto
currencies. You can develop all the crypto currencies you want, but if you
can't use it for purchasing real estate, the ramifications of that constraint
will trickle down through almost anything else. Then receiving rent in crypto
is less interesting. then being paid in crypto is useless.

And about that: Want to pay or receive a salary? What if government says that
can only happen with fiat and that any attempt of paying or receiving salary
in crypto currencies is a felony that will land you in a fiat funded
correctional facility for years? You would think twice. How will government
know? The same way they know that you bought drugs: Through witnesses, agents,
ISPs telling on you etc. It doesn't have to be 100 percent efficient. If they
have the ability to catch 0.01 percent of transactions and the punishment is
severe, most people will not do it. Don't tell me that crypto is encrypted and
anonymous. As soon as you use it for a real world thing, you leave traces. You
buy a car; someone sold it. Someone heard. Someone saw. You can't show a fiat
transaction; that will be the proof that legislator says is enough to convict
you. If government decides to make crypto illegal, or to make certain
transactions illegal when paid with crypto, crypto will only be good for the
grey economy.

Or what if government said that no matter in what currency you make your
money, taxes have to be settled in fiat.

The point is that all government has to do is to ensure that fiat is needed
for certain key parts of the economic system. Then people will need fiat, and
government can then focus on regulating the exchanges between fiat and crypto.
There is a very limited number of banks, and a small number of payment
providers and a small number of ISPs. They just need to ensure that these
organisations enforce the rules (register who bought or sold what crypto
currency etc.). Pretty soon, the only crypto currency that 99 percent would
use would be the government backed one, the one that had backdoors or whatever
government demanded built in.

~~~
Agebor
Good arguments, but I think the most valid one is about land and property - a
government, on the most fundamental level, is a force controlling an area.

However, the control can't really extend to remote work (I'm sure VR headsets
will make it easy enough) - workers can live in N countries and it's not like
the government will start controlling their every minute. Some countries will
surely be on the crypto-economy side too.

And it's not like those countries will stay idle - people will be directly
incentivised to immigrate to them. Some wars may be fought because of it,
sanctions or dictators will try to prevent it.

But in the end there is nothing any government can do really: a tool now
exists to send any kind of value any distance in a matter of a second, without
a trace, using maybe even thoughts alone. It's as if a completely new law of
physics suddenly appeared. Everyone will eventually have to adapt.

------
nickthemagicman
The solution is for the world to adapt to the blockchain, not the blockchain
adapt to the world.

------
omegaworks
Funny how "regulate blockchain now!" is trending after BTC loses 1/5th of its
value in less than a week.

Oh, how quickly the private market looks to the wider community to externalize
its losses.

