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“They’ll Just Make It Illegal” (eaves.ca)
124 points by erlend_sh on June 23, 2018 | hide | past | favorite | 186 comments

All of the same concerns also apply to cash. Businesses can conceal payments they receive in cash. Money laundering doesn't really depend on the currency or form - explaining where wealth cames from is probably easier to fake with cash than with Bitcoin. In terms of providing stability and market integrity, both cash and cryptocurrencies have mechanisms to prevent counterfeiting - for cash, it is by incorporating features that are hard to duplicate, and for cryptocurrencies, it is through the use of digital signatures and proof of work schemes. Many cash transactions are inherently high risk for consumers (and anyone who invested in cash would also be taking a high risk).

The solution is the same as for cash, and is already happening - people will create financial derivatives, and people will have accounts with financial institutions rather than directly holding Bitcoin themselves. So just like how the existence of cash doesn't stop banks from having a value proposition, similarly the existence of cryptocurrencies won't either.

Except that it's much harder to transfer large sums of cash across borders.

This is the drug business hardest problem, getting the drugs into the country is easier than getting earnings out.

That's why the €500 note was taken out of circulation: https://www.nytimes.com/2016/05/05/business/international/ec... .

Cash is also harder to collect and manage. It has a scaling problem that cryptocurrencies do not.

Also cash is issued by the government at will. And nobody else can create cash. It's diametrically opposite to bitcoin's decentralized approach.

I hope I don't come off as too glib but:

"Also bitcoin is issued by the consensus algorithm at will. And nobody else can create bitcoin."

The superficial syntactic similarity of those statements is all they have in common. The mechanisms are, as one might expect, almost completely opposite.

Oh, everyon can create their own cash. The problem is not printing some form of currency. The problem is getting other people to believe in the value of your money.

What I don't understand is how little this argument has changed over the past seven years.

Once policy makers understand crypto-contracts and cryptocurrencies for what they are they'll either regulate them to the point of where libertarians rue the day they were invented or they'll ban possession with jail-time as a punishment for knowingly holding them.

This isn't a novel insight. It's what I've said for the past seven years. It didn't stop me from buying Bitcoin in 2011 because I could see the medium term upside, but if anyone seriously thinks that these will become the backbone of our economy in their present form is delusional. Governments are not going to allow such a shift in power.

Governments are anwerable to the people. There are many actions that would allow governments to better enforce a whole suit of laws, including banning public use of strong cryptography and banning cash, but they don't do because we don't live in a tyranny where governments have a free hand to impose any restrictions they want to increase their relative power.

I've never understood this deification of governments, as if people are their subjects. Governments are created by the people to further their interests. Government power is not a public end on to itself, and the polity is suspicious of and to a large extant restrains government power.

Depends on the country, but the west uses the financial system to enforce law internationally. I do not think that then end of law enforcement is a good thing. It's not the deification of the state; merely pointing out that it will not suffer the loss of this power and, in my view, we shouldn't hope that it does.

So it's about what you think we in the West should hope for, not about what you think the government will tolerate. You support the current gateeeping of the financial system, and think the West would be harmed by the circumvention/disarming of laws that make it possible.

I don't agree that ending the financial surveillance state means the end of law enforcement. The surveillance state is a relatively new phenomenon, and I believe it has only one destination: extreme concentration of power, erosion of private property rights, and enablement of tyranny. There are many more means of gathering evidence of crimes besides warrantless surveillance.

As an alternative future, the one I want to dee and am actively working torwards. Cryptocurrency platforms offer a way forward to begin again with how we design governments. I'm particularly excited about joining many different types of governance systems that are borderless and for the most part, resistant to attack by the legacy power structures. As these new types of governments grow and accumulate power we should see a diminished requirement for traditional border control and military might accumulation. It's a long shot, but it's the future I want.

> "In terms of providing stability and market integrity, both cash and cryptocurrencies have mechanisms to prevent counterfeiting - for cash, it is by incorporating features that are hard to duplicate, and for cryptocurrencies, it is through the use of digital signatures and proof of work schemes."

Anti-counterfeiting schemes only solve the inflation problem, but not the deflation problem.

If you have a deflation problem in a cash based economy you just print more cash (or lower the central bank's interest rate and let the commercial banks lend out more cash, with the central bank acting as the lender of last resort as a guarantee). If you have a deflationary problem with most cryptocurrencies, well ... too fucking bad.

The deflation problem is easily solved by creating more cryptocurrencies. A crypto world isn't like a new gold standard, it's more like the system of competing private currencies advocated by Hayek, who claimed it would naturally lead to stability.

And who determines which new cryptocurrencies can be created and accepted? Because that risks runaway inflation again if anyone can do it and everyone has equal acceptance.

Whether "everyone has equal acceptance" is the issue; if there's no shortage of currency then there's probably no demand for a new one. People won't just automatically accept any new currency that comes along.

Hayek argued that the market would effectively govern such an economy and prevent both inflation and deflation. I don't know whether he was right; possibly we'll find out by experiment.

> People won't just automatically accept any new currency that comes along.

Eventually they will. You’ll have assets in billions of denominations, and you’ll be able to pay for coffee with a bunch of fractions of pennies and the markets will clear and consolidate value for you.

The future is not Bitcoin replacing the dollar. The future is the idea of a dollar replacing the dollar.

Anyone can do it. The resulting cryptocurrencies do not have equal acceptance. Neither of these circumstances seem likely to change.

Anyone can make a cryptocurrency. They surely have to deal with the very clear and necessary risks associated with creating what will likely be an unregistered security. Adoption is another story entirely. The cryptocurrency scene has now gone through its 3rd or 4th wave of sh#tcoins and scams, so it's highly unlikely that there will be adoption at a level to be concerned about, unless the token provides real value. Existing tokens had to set their capital controls in the Genesis event, and those tokens that print money haphazardly, won't last. Token economics are delicate, and difficult to get right. In the case of Bitcoin, new tokens can only be minted according to the existing rules, which shift towards deflationary over time.

>Existing tokens had to set their capital controls in the Genesis event, and those tokens that print money haphazardly, won't last.

For all the other discussion topics, this is one of the most interesting aspects of crypto-economics for me. We can bake in different economic models and see how they work without it being easy to manipulate them later.

It's sort of disappointing that most platforms I've seen are either going for a basic deflationary model (token emissions dwindle and stop) or a fairly flat inflationary one (every block produces 25 new MeatloafCoins forever).

There's a lot of research that could be done into "how much do we have to expand the token supply to correlate with increases in actual economic activity and attrition while keeping token values flat against real-world goods". Not by actually pegging the value with a backing fund or guaranteed redemption, but rather by a self-regulating algorithm.

There's an interesting rabbit hole there: Can we get a proxy value for "actual economic activity" by crunching the blockchain, or will we need externl information feeds? Can it be made resilient enough to reject trying to game the system?

And then, there's the matter of "does anyone want to botstrap a truly stable currency?" Would you get many early participants if you say "it's explicitly designed to discourage speculative HODL behaviour?"

And sometimes you need to break that deflationary spiral, if for example all wealth has accumulated among a few people who don't want to spend or invest. If we see breaking this as a public good this needs to be initiated in some way by people representing have-nots.

That's what economists like to call a "Market".

Yeah, and the stability of that market is what we're discussing. If this market is either unstoppably deflationary or unstoppably inflationary it become unstable.

There was a market for tulips and a lot of attention and money went there. Tulips have an intrinsic value, but it turned out to be small.

Analogies are good for teaching things you know to be true. But they are not logical grounds for an argument.

But up to now, crypto seems to have only led to chaos. Value changing by huge amount, pretty much constant stealing of massive sums by supposedly safe and large institutions. Even the relatively trusted coinbase has endless claims of poor treatment of their customers, losing funds.

I don’t think the thefts were by institutions considered safe or large. MtGox was always a tiny sketchy company (and I held coins there). I never kept more than half of my coins anywhere because I knew they could disappear at any moment. I don’t see how a conscientious person could have concluded otherwise.

Value has changed a lot, but that was expected too. There are stable broad trends. Seeing the stability is just a matter of seeing timescales.

I guess I don’t share your definition of chaos. Chaos means you can’t predict anything reliably. You can predict many things about Bitcoin.

Taken to the extreme, your comment seems to come from a “anything that’s not a US treasury bond is total chaos” viewpoint. But I know that’s not what you intended... perhaps you can clarify?

Why would I want to live in that world?

What would be wrong with such a world?

Multiple competing private currencies?

Exchange rates between them. Middlemen to pay to perform exchanges before you can actually use the currency to buy something. That doesn't immediately sound worse to you?

Instability is not a desirable trait in currency.

Instability is a necessary feature of literally every currency in history. You can’t change scales without instability.

Once these currencies hit their natural scale we will see some stabilize.

Cryptocurrencies are not "just like cash". I cannot teleport 1 billion dollars in cash across state borders. I cannot store it my head while imprissoned. I cannot manage it without accomplices and theft risk.

The whole premise "exchanges as identity gatekeepers" is in contradiction with the promise of stable world wide cryptocurrencies that ar just as good as fiat. When that happens, nobody needs exchanges and money laundering becomes a fundamental feature of the financial system.

Why would the powers that be allow this to happen? I don't understand this fairy tale view

I don’t see how a government could stop it without basically banning writing code.

Also, if blockchains prove to be a valuable technology then jurisdictions that ban them will be at a competitive disadvantage.

I make the same argument about self driving cars: yes they could be banned, but SOME government will allow them and then global media will make that difference stark.

The ecosystem is quite dependent on fiat crosses... the U.S. government alone has the power and the tools to destroy crypto.

You can't hurt the rentiers, e.g. large American banks, and expect them to not get compensation or destroy you in turn. They are the law. To think that it matters that the technology is better (and it's debatable that it really is) is ludicrous.

One thing to consider: as per a recent Bloomberg article, with the tax code as it is now in the US, for the really rich with tax exempt structure over family offices, if you are paying any income tax on income that you haven't yet spent, you're not doing it right. Why shouldn't everybody demand to be under the same tax regime as the wealthy? Why is this not a debate? Who owns the debate?

Obviously, the wealthy own the debate. And that is no accident but the result of a highly successful political project that has been instituted over the past 40 years. Hey, there was even a study about it[1]:

Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence

It wasn't always like this.

[1] https://www.cambridge.org/core/journals/perspectives-on-poli...

It’s a new nation, really, with a new standard of citizenship.

It probably was bound to happen after extending the vote to all persons.

Well, if you're living paycheck to paycheck, it amounts to the same thing.

Regarding "if you are paying any income tax on income that you haven't yet spent, you're not doing it right"

I'm doubtful of this - if you live off capital, and you have no dividend paying stocks or bonds, isn't that unnecessarily risky? It seems like some assumptions are likely to be made, where you pre-plan your income according to your expected expenses, as opposed to selling shares of stock whenever you need money. Also, dividends or interest payments inherently provide a barometer of whether you're living beyond your means, assuming you're wealthy enough to live off of them.

How do you mean shurly all "income" is taxed how does what you do with it come into it. Also if your rich any "unspent income" would get reinvested to avoid losing value to inflation?

Define "rich".

IMO the correct threshold is "earns more than needed over some longish period of time", which is another way of saying "has income that isn't spent". If you use that definition, everyone who spends all of their income gets that treatment, because their unspent income is zero and the tax on that is zero.

Not really. The very lowest level I would consider someone rich is that he/she has enough passive income (income independent of any day to day activity) to support himself anywhere they want to for an indefinite period of time.

Very rich is to be able to do that for both themselves and a staff.

Also: you should broaden your economic knowledge ... it's cute that you think unspent income isn't taxed. Directly taxed ... perhaps not. Now what happens if you want to do anything with that money (different from spending it). Tens of different taxes suddenly apply.

I do not think so, and I did not say so. On the contrary. What I said that people who have zero unspent income are taxed zero on that amount.

poor homeless people don't sell products, and hence don't collect sales tax. analogy with your example: shops don't need to pay sales tax because homeless people sell zero things.

In some countries, for example the Netherlands, unspent income is taxed if it is above EUR 25000 per person.

So would you not just spend that money investing into stocks / property etc and presumably you paid tax on receiving that income in the first place.

Yes you've paid income tax for it and have to pay VAT if you buy something.

The idea is you are going to invest / save the money and earn interest, get dividends or profit from the stock price itself.

The old system used a virtual profit of 4% a year, and over this 30% tax needs to be paid. That's 1,2% over the amount above EUR 25.000 (per person, so 50.000 if you're together with someone)

Mind you do not have to pay tax over the real profits, and also pay if you loose.

So if you make 8% a year, you are only taxed as if you've made 4% , but if you lost 8% you're still taxed for 4%

They are changing it to a way the rate reflects the real interest rate better, and many people want the real profits to be taxed.

I personally don't, because if you're just a bit good with ETF's you're easy beat the 4%

Oh that's strange I have had one stock that did 100% plus in a year in the uk - so in Holland I would only pay 4%.

They don't separate income vs capital gain ?

On your possessions above 25.000 (ex first home) on January 1st, you pay as if you will be making 4% the coming year. The tax is 30% over this virtual 4% gain. So 1,2% tax over the amount above 25.000 But mind if you keep the possessions, next year you again have to pay 1,2% over their value.

In the case of profit tax, you only pay tax once over the real profit. (And can deduct loses)

So in case you have 100.000 at the start of the year, you pay 900 tax. (1,2% of 75.000)

Now if you make 100% profit and start the next year with 200.000, you'll pay 2.100 tax. Let's say you stop here and keep this amount for 4 years on a 0% interest account, you have to pay 2.100 every year. So a total of 9.300 tax

If there would be profit tax of 30% you would pay 30.000 once. (30% on the 100.000 profit)

So if you're an active succesful investor, the Dutch system mostly is way better.

But now people are complaining it is not fair, because a savings account doesn't return 4%.

Being an investor myself I fear we will get profit tax in the future.

There is income tax (interest / gains on stocks / crypto etc is not seen as income).

And there is tax on your valuable possessions on the first of January, exceeding 25.000 a person, so 50.000 if you're together, ex. your first home and substantial ownership of a company. First home is tax free. Subtantial company ownership is taxed differently.

Valuable possessions include art and cars kept only as investment (gray area), cash (exceeding a certain limit), crypto currencies, second home(s), stocks, bonds, savings.. but not the things you use in your household, such as the family car(s)..

There is no "unspent income tax" in the Netherlands. There is however a tax of 1.2% on savings and investments over 25000 euros.

You're right it is a tax on the possessions (except your primary home) you have.

so if you've bought a second home, it is also taxed, so not unspent , but if you put more than 25.000 on a current account with 0% interest rate, you still have to pay tax as if you have made 4% (the system changed, this is to keep it simple for non Dutch readers). In that case it at least feels like unspent income tax.

Anyway, if you're in the position you need to pay this tax, you usually have nothing to complain about financially..

Maybe but around 25 k euros would not be an uncommon deposit on a house / flat - so your not exactly taxing the super rich here.

True, but until recently it was very uncommon to save first to buy a house.

This is because you could get a mortgage for up to 125% of the price of the house bought and the interest on this loan could be fully deducted from income tax.

And to worsen things, you were not obliged to pay back on a monthly basis, but after 30 years you cannot deduct interest anymore the bank can ask for their money back (in practice it is mostly no problem if you can still pay the interest)

Now you can 'only' get a loan upto 100% of the price and need to at least save up for the extra costs (bank, notary, taxes) And you have to pay back a monthly amount to be allowed to deduct the interest paid from income tax.

But saving up very large amounts, which is common in many other countries, still is not done by most people...

You are propping up a very weird straw man definition to tear down which has absolutely no basis in material reality, so that you can simply state that taxes are bad.

From an actual real world level, it’s unfair that the stock market is used to decide how good the economy is when 84% of the stock market is controlled by the top 10% richest segment of the population. It’s unfair that corporations get massive tax breaks provided by local municipalities for short term political wins in the establishment of jobs that they will summarily destroy if another town comes in wit better incentives 5 or 10 years down the line living that town in ruin when they leave. It’s unfair that companies are allowed to offshore their headquarters and pay no income tax at all to their countries of origin. It’s unfair that these giant companies can control and manipulate our political system with money.

The point is it’s irrelevant how you define rich, we have real unfair realities that we can look at and address. Coming up with an arbitrary definition of rich is a distraction rooted in no reality.

This is a very naive statement, with a heavy helping of dog whistling libertarian utopian memes and philosophical navel gazing.

> it’s unfair that the stock market is used to decide how good the economy is

But the stock market swings in response to economic reports like unemployment rate. The government doesn't report unemployment based on stock prices.

There's a bit of a feedback cycle :-). If stock prices fall, then they fall more usually. Then that can hurt the economy for real, instead of just the stock market part.

Most of the stock market is owned by John and Jane Doe's pension funds

A quick Google said pension funds own [16%](http://www.businessinsider.com/chart-stock-market-ownership-...).

That's just hedge funds and etf's, I ll be nice and assume don't think Hermes (BT pension scheame) invests like that average person or even the average millionaire?

Resistance to state control is one of the axioms Bitcoin is built upon. If you think it is not possible, then Bitcoin cannot make sense to you.


Let's assume that the axiom is true, and despite bitcoin being declared illegal by all jurisdictions, people still use it.

What do you think it's market cap will be? What number of people will willingly use an illegal good with harsh punishments?

So yes, bitcoin will still exist. But it will be kind of meaningless if it gets declared illegal, at the fringes of society.

Just look at torrents and the high fines that go along with it.

Still pretty popular, no?

I imagine it's still popular because those harsh fines are not issued very often.

If cryptocurrency actually enables greater economic efficiency etc. then nations that outlaw it will be left behind, like nations that outlawed the free market in the previous century.

There’s a flip side to especially permissive banking laws: your country’s cash flow becomes overweighted with dirty money, and that dirty money takes over your country’s political discourse. The most extreme example of this is Pablo Escobar or the Mexican drug cartels; both of which have been able to rally large factions of the population against governments that attempt to crack down.

Plus adoption of fiat currency has huge network effects. Cryptocurrency could easily be made illegal with the surveillance tech in place today. Your password is only as strong as your resolve with a gun in your mouth.

Like the drug economy?

Ok, let's go with that. How many of your friends would associate with the drug economy? Would you tell your employer that your are associated with that?

And I'm talking about dealing drugs, not about smoking a joint which is socially acceptable in many places.

Cryptocurrencies do not need to be adopted on the same level as state-issued fiat currencies in order to achieve this goal. So long as they provide a means for some people who wish to live outside the state, evade taxes, launder money, and channel resources into actions which harm the state and its ability to enforce laws, it succeeds. As long as there are privacy problems being solved by their use, they will appeal to people who value that privacy over living under the control of state governments.

Apparently, quite a few.

"The United Nations Office on Drugs and Crime's World Drug Report 2005 estimates the size of the global illicit drug market at US$321.6 billion in 2003 alone. With a world GDP of US$36 trillion in the same year, the illegal drug trade may be estimated as nearly 1% of total global trade."


So to a first order approximation, 1% of people are involved in the drug business. Not a huge number.

Marijuana alone is the largest agricultural product by value in most states by a pretty wide margin. And that’s been true for a decade before it was legalized anywhere recreationally.

Bitcoin is not an ideology, it’s a technology. Dread Pirate Roberts was an ideologue and an idiot and now he’s behind bars. Plenty of others have run darknet markets and made their pile without ending up in jail.

The European Parliament and the Chinese government can be hostile to the ideology of the internet without renouncing the technology. Ideology is downstream of economic realities.

I don’t want to get into a pedantic debate about where “Bitcoin” specifically starts and ends, but can you agree that Bitcoin presented a solution to the Byzantine Generals Problem which is more of an idea than a technology?

And can you also see that if a person starts trying to apply that solution broadly to systems of control throughout their life that this becomes a kind of ideology?

> If one assumes it is not possible for a system to resist state controls, conclusions do not make sense in the context of Bitcoin;[...] For example, without the axiom, how can Bitcoin be trustless and a sound money? Does not sound money in this case require trust that the state will not subvert its foundations?

This was exactly why I didn't jump in back in 2010.

If bitcoin works as a massively scaled decentralized currency: States or Federal government would prevent it from being used to pay taxes - which effectively prevents it's use for commerce

If it doesn't work: It's a waste of money

Crypto currency represents the fantasies i had about the financial system as a young person. I then actually worked inside the financial industry. This article is hitting on something very important.

The thing is, I don't know if its possible to understand how important regulation is to the financial system until you work inside the financial system. Its kind of hard to explain, especially because the system has had so many big failures and abuses. But basically, it seems like one of those systems where if you dont notice it, then it means its working. Like sewer or water or electricity. It takes a lot of behind the scenes work for that to be a smooth experience for the user.

100%. Many of the "features" of cryptocurrencies are actually bugs to people who know how financial systems actually work.

The govt won't make it illegal, it will never get to that. Most people can't secure their passwords, let alone their digital currencies. Most folks are going to get wiped out. If your money is stolen from a bank, you have FDIC insurance up to $250,000. This is enough for most people. For those that have more cash, banks put their reputation on the line to secure your money. These digital exchanges don't care, they have hundreds of millions stolen and keep operating without remorse and blame it on everyone else but themselves.

The blockchain allows two strangers to interact without needing to trust eachother, and without needing to bring in a trusted third party. That is an incredibly valuable service, and one that adds a lot of consumer protection to services that are able to leverage it well.

For example, using blockchain based contracts, we are able to empower consumers and enterprises to store data on foreign machines, without needing to know much about those machines besides their IP address. Using the blockchain's native currency, we can ensure that all payments are guaranteed, that no unfair chargebacks can happen, and further that the storage providers on our network cannot make money unless they actually keep the files for the duration of the contract.

No fraud, no chargebacks, no payment for unfulfilled services, with lawyers or courts or claims processes required. We can protect our users much more easily and cheaply than traditional services or marketplaces, and this is made possible through a blockchain.

> The blockchain allows two strangers to interact without needing to trust eachother[sic], and without needing to bring in a trusted third party


> For example [...] Using the blockchain's native currency, we can ensure that all payments are guaranteed, that no unfair chargebacks can happen

How do you do that while still ensuring that fair chargebacks do happen, without bringing in trusted third parties?

One method is to transfer the money if any two of three people agree: buyer, seller, and trusted third party.

If there's no dispute, buyer and seller agree and they have a nice cheap transfer just between themselves, without paying a percentage to the third party.

If buyer and seller disagree, then you bring in the third party, who makes a decision and takes a percentage.

I don't think there's any way to have fair chargebacks without bringing in third parties at all, but you can at least restrict their role to the transactions where they're actually needed. (This means they'll charge more for those transactions, but that's arguably more fair than charging buyers who've used reputable sellers, and/or sellers who've treated their customers well.)

For digital services like cloud storage, you can use cryptography. Have the storage provider give a cryptograpic proof that they are still in possession of the data that is under contract, and you don't need a third party. Either they are online and can build the proof, or they are going to get hit with a penalty for dropping their end of the contract.

> The blockchain allows two strangers to interact without needing to trust eachother

This is false. It would only be true if said strangers were very skilled programmers having the time and know-how to audit smart contracts.

In practice, cryptocurrencies rely on users trusting the operators and intermediaries and ultimately the state to prevent or at least strongly punish fraud.

Blockchains don't so much remove trust as distribute it. Instead of trusting one entity that holds my money, I can trust open source code, multiple independent auditors, a bug bounty process, a contract's history of successful use by lots of people, etc. It takes relatively little skill to check for the existence of these things.

(It just occurred to me that we probably need independent rating services that do these checks for popular contracts. That could have warned people away from Parity's multisig wallet.)

The theory of blockchains might entail a distribution of trust amongst well-audited third parties.

In practice, crypto rely so heavily on centralised intermediaries of dubious quality that at one point 70% of BTC trades went through MtGox, a closed-source platform with well-documented problems with security, payment processors and regulators even before it lost 7% of all Bitcoins.

That's a function of an early industry, and increasingly the trend has been towards decentralization. There are more large exchanges, more small exchanges, and increasingly large parts of the cryptocurrency stack are being further decentralized and open-sourced (a great example is the BTCPay project, which replaced a closed source SAAS API with an open source wrapper around the open source bitcoin client).

Sure, but if the theory that what people really needed and wanted was the ability to choose and audit providers was true and this alone was sufficient to protect most people, MtGox would never have become the dominant crypto platform. Particularly not at a point when ample evidence that it was utterly terrible already existed, and in an era of early adopters including the small minority of the public actually capable of auditing smart contracts.

Since then we've seen more exchanges, but again the largest exchange - Bitfinex - is a project with a history of hacks and auditors walking away, before we even start getting into the "is Tether fraud on a massive scale" debate. If "more large exchanges, more small exchanges" were the solution to the dodgy exchange problem, that wouldn't be the case. It's almost like the distribution of trust isn't remotely close to an adequate substitute for a legal system for the average person

> Blockchains don't so much remove trust as distribute it.

That's true about govt issued currency too.

I don't trust any conventional online broker in itself, I trust the regulatory framework that keeps them under control. I'm having increasing anxiety that what I see as the cryptocurrency mental virus, as well as the current US Presidential administration's anti-regulatory tendencies, will undermine conventional finance in some unforeseen way. Especially when I read about Vanguard getting into "blockchain".

From articles I've read about Tether,[1] I've become extremely doubtful that the cryptocurrency community has any understanding of what audits really are, and suspect they are completely off in cargo (or other) cult land when it comes to validating "trust".

The more "independent rating services" we have, the more we need rating services for the rating services. I feel like the popularity of cryptocurrencies is a harbinger of the financial system unraveling much more than in 2008, and people cheering it on won't benefit like they expect.


The rating services I'm imagining would provide links to everything: public audits, unit tests, verified source code, bug bounties, contract transaction history, etc. It could write a summary and give a rating, but since everything is public, it'd be more of a convenient time saver than someone you have to trust. It'd focus on public smart contracts, rather than centralized, private, commercial situations like Tether.

> That is an incredibly valuable service, and one that adds a lot of consumer protection to services that are able to leverage it well.

From my perspective, the blockchain significantly reduces consumer protection.

If I buy a product online, to be shipped to my house, how does the blockchain provide consumer protection? It doesn't. If the seller absconds with my money, and fails to ship the product or ships a counterfeit product, then there's absolutely nothing that I can do about it. With a credit card, I can report that fraud to the credit card bureau, who will reverse the transaction by default, then investigate and require the merchant to provide proof that the transaction was authorized and legitimate. I can take a photo of an obviously counterfeit product and send that to the credit card company as evidence of the fraud. Or if the product never arrived, it's on the merchant to prove that they shipped something to my address, and they'll need to provide a tracking number. As a consumer, this is a significant protection for me, and it's a significant fraud deterrent.

Merchants who are bad actors and engage in fraud will be cut off from the network. Furthermore, buyers who are bad actors and issue an unreasonable number of chargebacks will also be cut off. There is no similar oversight of blockchains.

If my credit card is stolen and used by a thief, then that's no problem for me. All of the fraudulent transactions are reversed, and the only real inconvenience is waiting for the replacement card to arrive. That's another important consumer protection: my money can't be stolen. With blockchain technology, thieves can steal anyone's money in an irreversible way if they get access to it.

Chargebacks are one of the most valuable and most important consumer protection capabilities of the traditional banking system. Removing chargebacks significantly reduces consumer protection.

Blockchain-based payment systems that do not involve a trusted central party will have worse consumer protection, not better. The only circumstance in which they'll be better is if the entire transaction, and delivery of goods and services, can be validated by a smart contract. That will only be possible for a small number of real-world transactions. It will not apply to the majority of day-to-day commerce.

I am not claiming that the blockchain has no redeeming qualities. It has a bunch of valuable characteristics and benefits that I'm not mentioning here. However, consumer protection is not one of them.

The service we provide is not a physical one that gets shipped, it's a digital one where we can use the blockchain to escrow payments until there is a cryptographic proof that the digital service has been provided according to the contract created between the consumer and the storage provider.

Blockchains are most powerful when dealing with purely digital transactions, such as data hosting, information trading, prediction markets, digital currency exchange, non-fungible tokens, digital gambling, micropayments for digital services (like CDNs, viewing web articles, etc.).

How can I cryptographically prove that the seller shipped me a brick, instead of an iPhone?

This can't be proven in a traditional market either. The reverse is also true: as a seller, you can't prove they shipped the iPhone and not the brick the user claimed to receive (or that it wasn't tampered with by someone in between). The big difference in the existing marketplaces is that the marketplace is usually both the service provider and the escrow, where Bitcoin allows these two services to be separated.

In the case of Paypal, they will side with the buyer in most disputes, which puts you at a big disadvantage as a merchant. You're basically relying on the majority to be honest, and take into account that small scale fraud is not going to be a major risk to your business.

There's also the disaster that is buying digital goods with Paypal, where the seller has virtually no comeback in the case of fraud, and is one of the means people use to empty hacked accounts, since it leaves no physical trail. The seller of the digital service almost always takes the hit. This is the real biggest use-case for Bitcoin, as cryptography can be used to prove the sale of the digital goods.

In the traditional market, I send a photo of the brick to PayPal or my Visa issuer, and they refund me.

You've explained how transferring all this risk to the customer is great for the merchant, but how is it great for the customer?

There's nothing stopping you from receiving an iPhone, taking a photo of a brick, and getting a refund either. The payment provider will most likely side with you and refund your money, unless you do it repeatedly, in which case they'll investigate before just refunding.

The difference with a third-party escrow is that they should not have a bias towards either the buyer or the seller. The traditional markets are clearly biased towards the buyers because they don't want to lose buyers from their platforms. They don't want to lose sellers either, but the risk is smaller, because it's more difficult for a seller to switch to using another platform, and a certain amount of fraud is kind of expected from sellers.

The use of one or more independent escrows can prevent the marketplace from unilaterally taking money from the seller and refunding the buyer without performing their due diligence (which PayPal frequently do not)

You can't, but that doesn't mean you can't do the same for fully digital services like cloud storage.

Regarding charge backs, why can validation node not simply make a transaction back from the fraudulent vendor to the consumer.

Obviously, there would need to be adequate proof that the nodes then review, but once that is given, what's the problem.

Furthermore, the fraudulent vendor would be investigated for fraud and facing a fine or jailtime.

This could be a dapp on the blockchain.

I don't see why this can't be done by a team of trained lawyers and judges that review these fraudulent transactions.

In theory, theory and practice are the same thing. In practice, not so much.



Is there a huge amount of fraud in the online storage industry now? You can put as much as you want on s3 or whatever for almost nothing right now.

What an amazingly well thought and balanced article. Exceptionally level-headed.

I wish we had such attitude towards different challenges that our societies are facing.

The biggest public good provided by financial services providers that's missing is credit creation and allocation. Crypto does have a mechanism to grant people who need to borrow access to spendable funds in the form of the ICO, but the problem is ICO investors are going to make subprime mortgage investors look like Warren Buffet (and also the comparative lack of development of solutions for short term borrowing with predictable returns). And the problem isn't that some ventures will fail (which no financial system can or should even attempt to prevent), and more that the entire ethos of crypto - everything from code is the contract principles to the next big coin/ICO hype - is that if the digital assets and growth in their spot price can be verified, real world assets and risk estimation are comparatively unimportant.

Sometimes the right answer is to change the regulation or taxation rather than tighten it. If tax evasion is the problem, for example, shift the taxation toward meatspace.

Secondly, the answer is to take the great plank out of our conventional economy's eye before examining the mote in the eye of cryptocurrency. Real estate is a large vehicle for money laundering, and it goes on largely unexamined until it becomes a state actor problem in the news. Elizabeth Holmes probably thinks, correctly, she is a piker when it comes to white collar crime. Cleaning up the world of conventional money would leave less room and incentive for crimes using cryptocurrency.

Money laundering means concealing the origins of illegally obtained money.

The effort to eradicate it results in terrible laws that necessitates the institution of a surveillance state that requires you to report how much money you have and everything you do with it.

Those convicted under anti-money-laundering laws are often only found guilty of flouting one of these privacy-violating reporting requirements, rather than actually illegally obtaining money.

This is an important distinction. The state does not need to prove you obtained money from an illegal enterprise to convict you under anti-money-laundering laws. So technically, no money laundering needs to be proven to have been committed, for someone to be imprisoned for violating these laws. The scope of such laws is therefore enormous, and goes far beyond the traditional limits of due process.

If the concern is people obtaining money from illegal enterprises, then the solution is to shut down those enterprises and convict people for running them.

But it's hard to fight real crime, so we sacrifice the basic liberties of the entire population, by making it a crime for anyone to conduct a transaction above a certain size without reporting it to a financial surveillance agency.

Naturally, with such an expansive idea of what constitutes crime, and what liberties the government is entitled to restrict to stop it, any technology that enhances privacy will be viewed as dangerous, whether that be encrypted communication, cash, or cryptocurrency.

But the problem is not these technologies. The problem is with laws like those created under the umbrella of stopping money laundering, which accept as a priori that people have no right to conceal from others the origins of their money.

What you suggest, going after the illegal enterprises and not the money laundering, works when the money is from an illegal enterprise. It does not cover, for example, paying a bribe by overpaying for duff real estate.

Paying a bribe is an illegal act. That's what should be punished. And gathering evidence for such crimes is not a justification for instituting a total surveillance state that makes it a crime to not report how we use our money.

It is odd that governments have not shown more interest in electronic cash systems specifically designed to address their issues like Taler[1].

[1] https://taler.net/

It is not crypto currencies that are dangerous, it is the idea of crypto currencies that is dangerous. No government is worried about any of the crypto currencies that currently exist (they are all too crude), but the idea that money could be independent of government (and hence those that own the government) is very dangerous. If this idea were to catch on in the public mind who knows where things could end up.

The solution is to let the current crude crypto currencies run wild burning all who touch them creating a hatred in the population towards the whole concept. So much more subtle than just making them illegal.

> the idea that money could be independent of government (and hence those that own the government) is very dangerous

that's how things were quite recently (before the ~19th century)

Sorry, but no. Coinage was the right of kings for millenia. According to historians, the entire history of using coins as money started with governments basically inventing the use of coins as a technique for simplifying the logistics of their armies (soldiers would be given coins that they could use to pay local populations for food; in exchange, the government would accept the coins instead of physical goods as payment of taxes).

Even during the period of largely unregulated private banking that reached its peak in the 19th century, the private banks largely just issued paper money that was denominated in coins that were issued by governments.

As the Romans and many others found being able to mint coins doesn't give you as much power as paper money since you need to find the gold and silver to make the coins (debasing the currency is a great way to destroy your economy). This really limited the practicable power of government.

It took a while for the idea of paper money to catch on, but once fully accepted the modern state became possible.

Those coins the government issued were either gold or silver. The notes the banks issued were a promise to give the bearer a certain amount of a precious metal.

As to the monopoly on coinage that’s just wrong. Best example


There was also an excellent example to be seen in the US during the gold-rush era. This started by the late 1830s with early gold discoveries in Georgia, and exploded in California.

Many private firms would assay gold and strike it into coins. Even though there were many problems with questionable and underweight coins, they circulated because the usability was still far higher than having to manually weigh and test loose gold, and government coinage was scarce, especially on the West coast.

It's interesting that many of the private issues were boldly badged by the name of the issuer. I wonder if the goal there was to establish themselves as trusted third party in other people's transactions. You can't trust this stranger's loose gold, but you can trust it once we've weighed and stamped it.

Yes and once some genius worked out that you could make money out of thin air (John Law) governments became very powerful. Nobody who has control of this system will give it up easily, certainly not to a bunch of nerds with a cool idea.

Government has been very powerful as long as it has existed. The most powerful political organisation in a given territory is a reasonable definition of government.

Governments were far weaker in the hard currency days. Not only were they limited to a fairly small tax take (10% max), they had huge problems raising the money to run the state. Governments of the past did little beyond protecting you from other governments.

Sure any one individual could end up on the sharp end of the pointy stick of state, but overall most people lived their lives almost completely free of government because the state lacked the funds needed to do much beyond fight wars.

This is just completely untrue.

It is unclear to me if control of currency had anything to do with it, but looking at the power that feudal governments had over serfs[1] (as an example) it difficult to see how your argument stacks up.

Far from being free, a serf's entire life was dictated by the demands of the government. The size of the family unit was dictated by the amount of labor a serf household owed the lord, and that could be as high as six days of labor per week (hence the size of the family unit was dictated: the if the serf could provide children to do the labor that counted as one person-day).

Another example, English villeins (peasants) in the early middle ages owed their lord (ie, the government) 117 days work per year. Thats a little more than the 10% you claim.

[1] https://en.wikipedia.org/wiki/Serfdom

The "lord" was not the government for starters and the serfs paid no more than 10% tax to the government. The serfs paid the owner of the land (the lord) for their home and business. The interesting thing is how little has changed over time - most people are still paying about the same amount of their labor to their landlord, the only difference is it is paid in money not kind.

The lord certainly was government in a feudal society.

No the lord was the lord. Yes they had powers over their serfs, but they weren't the government and they could not make laws.

Certainly being a serf was not ideal, but most serfs had very little interaction with government. They paid a small amount of tax and beyond that they were left alone by government.

Feudalism was government. It's even listed on the Wikipedia page as a form of government: https://en.wikipedia.org/wiki/List_of_forms_of_government

The definition is perfectly government: "In its classic definition.. feudalism describes a set of reciprocal legal and military obligations among the warrior nobility revolving around the three key concepts of lords, vassals and fiefs." (https://en.wikipedia.org/wiki/Feudalism)

The feudal system filled exactly the role government fills today. It did it differently, but the local lord was just as much a part of government as a state or local government is in the US today (indeed more-so, since they had legal power over life and death).

I think we are arguing past each other.

Er no the state could do what it dam well liked one of the things that got Charles the 1st into trouble was the use of Saltpetermen - who where allowed to dig up your property to look for Saltpeter

Forgery had been a thing log before John Law.

Yes but government issued paper money wasn't.

if cryptocurrencies are crude, cash is also very crude... crypto currencies are more secure in some sense if you dont account for the value that is not very stable

> When I talk to cryptocurrency advocates, they typically argue about private benefits but I want to hear more about the public benefits

I find it easier to imagine cryptocurrency providing public goods in areas of hyperinflation or other massive macroeconomic malfeasance. The article is right that governments have lots of tools to suppress it--raiding exchanges, sting operations--but it is unlike bullion in the sense that you can't hide your entire bullion stash with encryption. The outcome of that cat and mouse game is highly contingent on local conditions.

I guess soon we will have the concept of separation of state and money much like the separation of state and religion.

I would highly recommend to anyone interested the newly released book ‘The Bitcoin Standard’ which goes into great detail regarding the current financial system and its origins and discusses the Bitcoin impact from an economics perspective.

My response was the VC was shocking disconnected from the actual world if they thought an actual problem was that cryptocurrencies might make normal currencies obsolete any time soon. Maybe in 30 years? Let's get one in actual use to buy things like groceries. A couple of stores or pizza places that instantly convert your bitcoin to fiat currency hardly matters, as you could have used gold. Also I'm not cool enough to know what those "magical 3 letters" mean, HKS? Hong Kong S? Harvard Kennedy School? HKS Japan, HKS architects? Probably the school.

There is a valid case where crypto will occupy the place of black-money in countries like India. There is a minimum rate fixed by the government, especially for land. But the market rate is (many times) a multiple of that rate. So when you buy land, you pay the minimum government rate (plus tax) so you can enter into ‘legally binding’ sale agreements. The rest you pay in crypto.

In other worlds fiat currency issued by governments will continue to the extent of the legal sanctity they provide to any transaction. The rest is crypto.

>The status quo comes at great cost — high rents paid to financial intermediary institutions along with other various and protected oligarchies.

So far so good.

>However, it also provides benefits in the form of public goods.


>It generates and sustains core functions of the broader state and economy such as tools to capture tax revenues, prevent money laundering and terrorism financing, capacity to control the money supply, protect consumers and investors, and ensure market integrity and even (a degree of) financial stability.

Tools to capture tax revenue, prevent money laundering, and prevent terrorist financing? I thought tax evasion and money laundering were some of the services they offered! Protect consumers and investors? Secure financial stability? What?? Did everybody forget about 2008 already? A small elite set of people KNOWINGLY wrecked the world economy, calculatedly corrupted our political, regulatory, and academic bodies to ensure no responsibility ever come to them, let alone demands of repayment, flipped the incentives around to become fabulously rich and rewarded for driving their companies into the ground and ruining their clients, got paid to lie and deceive, to give lectures and papers and audits saying everything was a-OK, to lie to clients about the junk they were peddling, to take regulatory roles and stand aside... If you want to see it this way, doubtless millions of excess deaths are attributable to their actions. Make no mistake, if they could get away with it they would murder your entire family in cold blood for a hundred bucks.

The current financial/banking scheme can very well go fuck itself. It's difficult to do worse than this; it's a broken in almost every way, except in securing power and vast wealth to a select group of people. Note, I'm not saying blockchain will surely bring about anything better.

Regardless of whether the banks deserved to fall after 2008 or not, I'm struggling to of any way in which things would have been different with cryptocurrencies.

Do you seriously think that one wouldn't be able to construct fraudulent financial instruments on top of cryptocurrencies just like you can with the regular financial system?

If you think that there is a difference in this regard I recommend you investigate how these financial instruments were actually constructed.

Perhaps one fundamental difference between the normal financial system and the more popular cryptocurrencies is in the way the money supply is managed. In the traditional system money becomes very cheap in specific periods, coincidentally or not right before major crisis events, which can act as gas on fire. In contrast, cryptocurrencies like Bitcoin or Ethereum have a more restrained issuance schedule, which some people or schools of economic thought argue that can lead to better emergent outcomes in the overall economy, avoid the boom and bust cycle. But of course, you can still build financial tricks based on them, but they might not have the same effect on the overall economy.


I could go and found a bitcoin bank in which anyone can open an account. The catch? The bank runs a single wallet to back all accounts. The only promise made by the bank is that if you deposit X bitcoins, you'll get X bitcoins back when you request to withdraw them. I'll also allow you instant transfers between the accounts. They are off the blockchain, managed only in the bank's database, so these transactions can be arbitrarily fast.

If the wallet accumulates enough bitcoins so that it exceeds the normal volume of deposits and withdrawals, I'll take the rest and put them to work. Maybe buy shares in companies or so. I'll keep the earnings of these investments. If I make a loss, I'll have to recover the loss somehow. That's the risk I take.

At that point, I'd have created virtual bitcoins in the market. And who would be stopping me?

In today's world, a regulated exchange is prevented by law and auditors from doing that. Banks can do it because they're backed up by deposit insurance and central bank lending. A crypto exchange doing it would likely go bust sooner or later; this may have already happened and been called a "hack," but people are learning not to trust sketchy exchanges.

In some future crypto-based world, exchanges can be fully audited on a blockchain. Using technologies like Plasma you can even have a cryptographic guarantee that you'll be able to get your money back out, even though the exchange itself runs on a fast central database. The sort of crypto bank you're describing would have a hard time competing with that.

The crypto bank that puts deposits to work can pay interest. The 100% reserve bank can’t. That’s how it competes.

Consumers will use it because they already use banks without 100% reserves such as Bank of America, HSBC, any current bank in the banking system...

Yes but banks are protected by the mechanisms I mentioned.

What happens if financial institutions cannot "create money", i.e. make loans?

I don't have all the answers about how a new economic system might work, but some possibilities I can think of include:

- New cryptocurrencies (possibly built on smart contract platforms) could replicate some features of the banking system

- Some loans could be based on deposits instead of new money creation (i.e. the naive view of how banks work)

- Easier creation of equity instruments based on crypto tokens could substitute for debt financing

One thing that fascinates me about all this is the ease of experimenting with new ideas. I don't know where we'll end up, but I'm optimistic that this messy process will end up advancing civilization.

That outcome is certainly possible. But even that scenario would be quite a departure from what we have now, where banks have almost no reserve requirement and they can create as much money as can be absorbed in the economy, which in turn is influenced mainly by central bank interest rate. Lending money entails risk and in a situation where the interest is set by a central bank and there are little to no reserve requirements, that risk gets shifted to the population that has to bailout the banks.

In the scenario that you outlined, its probable that the reserve would much higher than the current 1-3%, which would lead to risk being more directly held by the bank making the loans and the depositors of that bank. And the argument goes that this might lead to more skin in the game and probably less reckless behaviour. Also, in such a system interest rates would be set by the market, based on the amounts of savings in the economy and the demand for loans.

> But even that scenario would be quite a departure from what we have now, where banks have almost no reserve requirement and they can create as much money as can be absorbed in the economy, which in turn is influenced mainly by central bank interest rate.

I don't see how a Bitcoin bank as outlined above can be regulated to have a reserve requirement either. Arguably, this offers even less protection than a traditional bank, due to the inability of the public sphere to regulate it. And still, as long as a Bitcoin bank is perceived as sufficiently trustworthy based on past behavior, people would use it.

Next, I don't share your view that interest rates being set by the market is a good thing. Economies were far more fragile and volatile back when they were backed by bullion. The vast majority of people who have income from labor comparable to their net worth prefer that their net worth not fluctuate so much that they may not consistently maintain their standard of living, and this is helped by a steady interest rate. A rational agent prefers this unless their net worth greatly eclipses their ability to obtain wealth from other forms of capital.

I don't have full conviction that the situation I described will lead to better outcomes but I am not convinced by the current system either, and it's worth considering how the system could work with the newer tools that we now have.

> I don't see how a Bitcoin bank as outlined above can be regulated to have a reserve requirement either. Arguably, this offers even less protection than a traditional bank, due to the inability of the public sphere to regulate it. And still, as long as a Bitcoin bank is perceived as sufficiently trustworthy based on past behavior, people would use it.

The reserve requirement is something set through the political process so is independent of the properties of the money, so that can go either way both in a fiat or cryptocurrency system. The difference with cryptocurrencies is that you don't have as much need to store them in a bank. One reason to loan them to the bank is to get some kind of return on the money. In this situation reckless behaviour might be driven out faster, just like in the hedgefund industry.

> Next, I don't share your view that interest rates being set by the market is a good thing. Economies were far more fragile and volatile back when they were backed by bullion. The vast majority of people who have income from labor comparable to their net worth prefer that their net worth not fluctuate so much that they may not consistently maintain their standard of living, and this is helped by a steady interest rate. A rational agent prefers this unless their net worth greatly eclipses their ability to obtain wealth from other forms of capital.

Since I get most of my income from labour, I can tell you that I would prefer to have a slight deflation in prices every year and maintain my purchasing power, without having to go through all kind of hoops and loops to invest my money in bonds, stocks and other risky things.

As to old economies being backed by bullion, I tend to agree there. Bullion can be a poor monetary base due to its lack of divisibility. But there were probably more things that lead to fragile economies than the fact that money was backed by bullion.

Of course, there are problems with limited money supply systems. How would governments finance wars? You would have to finance things through taxation which is very unpopular.

I just don't see your reasoning. By what mechanism that is not provided today would the banks stop doing what they do today? What mechanism would control the exposure that banks take on?

Bitcoin and other cryptocurrencies are easier to store securely compared to bunches of cash, which would lead to less pressure to store them in a bank. Deposits would be incentivised using interest rates (set by the market). That and the banks not being able to create money would lead to them being more dependent on deposits; this in turn would put more pressure on banks that exhibit risky behaviour and favour banks that keep a healthy balance sheet.

And why would there be more pressure to adjust risky behaviour? Because people would take their money out of banks that exhibit that behaviour, which would re-inforce behaviour that has the right ratio of risk/return. This does not happen now because banks don't need almost any deposits to make profit.

This risk adjustment already happens in financial sectors that have skin in the game. For example, if a hedge fund looses money, sooner or later people will take their money out of it.

Not that long ago there was this article posted on HN: https://hacked.com/last-years-crypto-boom-was-fixed-research...

Please reread my last sentence.

become fabulously rich and rewarded for driving their companies into the ground and ruining their clients, got paid to lie and deceive, to give lectures and papers and audits saying everything was a-OK, to lie to clients about the junk they were peddling, to take regulatory roles and stand aside.

Have you seen what many ICOs are like?

The crisis was largely due in part to deregulation and private companies getting kick backs for their ratings. Crypto currency is mostly unregulated and rated on a private market. Also, there is a small elite group of people who own most of the crypto currency, which very quickly and easily could result in market manipulation at the expense of small holders. While your anger is understandable and banks are indeed criminal, cryptocoins are just as susceptible to criminal behavior as any other market place and even more so do to the lack of regulation. And I’d just like to note that major banks like Goldman are saying that btc is bullshit while quietly buying a massive stake in it. So, the fact is, the banks will get involved if it’s worth money and they will manipulate the market, so we will be right back where we started.

With one important difference. There will be no QE ever.

Unless you rename QE to something like "hard fork".

In order to preserve the integrity of the blockchain the following actions must be taken...

Except that users are in control.

> But the blockchain community’s trumpeting of features they love without attention to the public goods that citizens actually value is dangerous for the future of this technology.

Steinbeck's famous quip about Americans, "socialism never took hold in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires," can be adapted for Canadians as something along the lines of, "libertarianism isn't plausible in Canada because the middle class see themselves not as minor property millionaires, but as a nation of deputy ministers and professors on sabbatical."

As a non-cryptocurrency holder, and non-libertarian, some critics take a a tone that I think prevents meaningful debate and discussion.

The strength of cryptocurrencies is that they facilitate capital flight, so regardless of their localized legality, so long as this use case is viable, they will have both liquidity and value. Arguments that they cannot exist if they do not provide an intrinsic mode of enforcement with appeals to "crime," are relative to jurisdiction.

Nobody would care if Putin, Mugabe, Maduro, or many other leaders complained something was being used for crime against their states. We'd probably even advocate it.

The argument of, "build something that facilitates the existing distribution of privileges among current coalitions or we will round you up for prison," is what many might call "on the wrong side of history."

This seemed to me a key point of this article:

"...those public goods^ which, through hundreds of years of government, business, and democratic processes, we’ve agreed are priorities and values our finance and currency systems should reflect."

I think your opinion on this statement colours how you think about the rest of the topic. How do you see this process, and what it produced. Are we, via Hegelian pendulum swings, Smithian invisible hands or democratically aggregated will... are we producing a better money system all the time. Incorporating good ideas. Reacting to changing needs and wants. Keeping everything relatively bug free.

Or... if you fall on the other side of this... do you see this process as a mature game, hijacked democracy, corrupted capitalism or bougie conspiracy.

I think most everything else traces back to this disagreement. If you're in the mature game camp, you do not accept that the way money works is at core determined by rational trade-offs between anonymity and governance or more mischievous dynamic.

Interestingly, this explicitly does not divide along any possible left-right spectrum. It's more of a conservative-radical divide. Your radicalism can equally be of a marxist, schumpeterian or modern variety.

^The Public Goods he lists are tax compliance, anti-money laundering^^, stability and market integrity, and consumer & investor protection.

^^Anti Money Laundering deserves it's own little rant. AML has little to do with money laundering in 2018. It is (legally) a euphemism for a broad set of controls that (if successful) will make it enforceably illegal to accept a robber's money with a positive responsibility.

Governments make money on the movement of money. For this reason they encourage all types of money movement from spending to investment, much of the latter is encouraged by adjusting interest rates so that wealth needs to invest to gain or lose out to inflation. It doesn't matter if it is a state run fiat currency like the USD or a cryptocurrency or a foreign currency or any type of gain that isn't a loan, gains and money movement are taxed and will always be.

Taxes are collected on spending (sales tax), on earning (income tax), on gains from investment (dividend/capital gains) on gifting and more. Governments are there to collect on those areas no matter the currency.

If anything cryptocurrencies are a hedge on state issued fiat currencies in case they crash or ones that stop transactions, that doesn't mean money isn't moving and that doesn't mean governments aren't there to collect. The IRS sees no difference in USD or BTC gains or any other currency.

Money laundering is also part of even very well controlled fiat currencies, sure they might get the small fish but large fish are money laundering in real estate, art, political campaigns (with Citizens United), offshoring hoarding, offshoring investment, banking fraud and all sorts of fronts even in fiat. Cryptocurrencies also have that aspect but every currency known to humans will have some amount of money laundering. You might argue that many benefit from this type of behavior as well including banks, real estate and more regardless of currency. If anything money laundering increases market values, up to 30% of high end real-estate even with fiat currencies or the USD is suspect to money laundering. [1] There are also major holes in hoarding with our current fiat currencies in findings such as the Panama Papers. [2] In a way, money laundering is bad but in another way money laundering legitimizes money and that money goes on to be spent, thus some collection of taxes eventually happens down the line, hoarding or discouraging investment is the real problem.

The only real issue of a cryptocurrency would be hoarding and a non fiat currency that is constantly increasing in value that would discourage spending and investment. Right now fiats have interest rates controlled so that they lose value to encourage wealth to invest to retain and advance their wealth, money sitting in fiat currencies is slowly losing value due to inflation. Investment must take place to gain through creating revenue streams and collecting interest/gains on investments. Poor people pay interest and rich people collect it, that is the compounding difference in wealth almost solely regardless of starting wealth.

Fiat currencies and cryptocurrencies all are gains and money movement that governments will collect. In a least case scenario, taxes may have to shift to more sales tax and VAT tax type of systems but governments will get their cut of the money movement no matter the currency, nothing really to worry about. The argument of too much money laundering is also moot when things like the Panama Papers and offshoring exist and are allowed, or the bulk of money laundering in real estate, art, political campaigns and more via shell companies and foreign infusions whether incoming or outgoing.

Hoarding and inequality is the major problem as it leads to stagnation and lack of investment, money laundered eventually becomes legitimate and is the money re-entering the system which isn't always bad. Right now we have a hoarding problem or in inequality problem that is worse than money laundering, the latter which legitimizes money again to be taxed somewhere down the line. Right now the M2V is at all time lows, money movement is stagnant and that is a major problem [3]. If governments and economies make money on the movement of money we need to do better, crypto helps that problem rather than exacerbates it.

Even if there are more 'hidden' transactions in cryptocurrency there is still movement into income for income tax, spending via sales tax and transaction fees. You'll never have to worry about the government getting their cut, they will get their cut. What you should be worried about is money movement in the lower/middle class which leads to stagnation if hoarding and inequality are prevalent, which in the end harms all including the wealthy.

[1] https://www.cnbc.com/2017/08/24/a-third-of-luxe-real-estate-...

[2] http://www.newsweek.com/panama-papers-finance-business-mossa...

[3] https://fred.stlouisfed.org/series/M2V

This piece seems to be arguing from the same position as people who want to ban strong crypto in general. The gist of the argument is, "you can't do X, Y and Z if this thing becomes pervasive, and we really want to be able to do X, Y and Z, so we need to ban it".

Look, cryptocurrency - like cryptography itself - is just math. You don't argue with math. If it makes it impossible to reliably catch money laundering, or to tax transactions, then we'll have to figure out some way to structure our society such that these things simply aren't relevant. And we know this can be done, because that's how the world functioned for most of its history.

You seem to have skipped the first paragraph of the article. Governments can't keep BTC from existing with the stroke of a pen, but they can certainly keep it from becoming the primary currency and replacing the dollar.

>If it makes it impossible to reliably catch money laundering, or to tax transactions, then we'll have to figure out some way to structure our society such that these things simply aren't relevant.

Why? Banning cryptocurrency is definitely possible. It wouldn't be 100% effective because making things illegal is never 100% effective, but it would probably be made even more marginal than it was before it got popular.

Banning anything is possible. Effectively enforcing that ban is another matter.

Just like the dot-com bubble and burst, economics always wins, someone will find another way to make it work. The resistance of banks is short term and futile

The "benefits of the existing system" are a straw-man argument. They are actually there to compensate for the the weaknesses of the existing system: terrorism - inability to cope with fear and unjust oppression of foreign countries, tax collection - complicated (otherwise) unenforceable tax code, etc.

Hot take: people avoid taxes because they don't want to pay money, not because the tax code is complicated

None of those things are going away as long as humanity is human.

The "benefits of the blockchain" exist exactly to exploit those weaknesses.

I’ve always been surprised that governments don’t do anything against it. After all, currency is a Regalian power, and it’s forbidden to pay using other currencies than the country’s one in pretty much all countries.

This is a common misunderstanding. Using foreign currencies is very much legal almost everywhere.

The distinction of "legal tender" is that (1) the state expects payment in the domestic currency and (2) when there is a dispute in court, any fines or financial penalties will have to be paid in the domestic currency.

This does mean that if you enter a contract which states that some payment has to be made in a foreign currency, a court can overrule this and force the payment to be made in the domestic currency instead. That basically never happens in practice, but it is possible.

As to why governments don't forbid Bitcoin & friends: in the larger economy, they just don't matter, so why bother? Now the ICO craze has caught attention because of securities fraud, and governments have stepped in.

>>Now the ICO craze has caught attention because of securities fraud, and governments have stepped in.

Going a bit off tangent, but I just want to clarify that the concern is primarily over token sales not meeting securities law requirements relating to registering a security before offering it to the public, and not securities fraud.

As it is, several token sales that have engaged in fraudulent practices have been pursued by the SEC and no one takes issue with this. Fraud laws are clearly applicable to all financial interactions, including those involving cryptocurrency, and their enforcement is a public good.

The controversy is in applying securities laws to token sales and thus placing the SEC as the centralized gatekeeper with which any party wanting to conduct a smart-contract based token sale needs to register with. Further requirements include meeting disclosure requirements designed for traditional securities which have questionable applicability to a project with no central coordinator that aims to create a protocol utility token that confers no legal claims to an underlying asset.

At least in the United States, as far as I'm aware, you can use any currency that you want. However, the government and IRS only accept tax payments in US dollars. Under these laws, you could transact in cryptocurrency all you want, but you'll need to pay sales tax, income tax, and other relevant taxes in dollars.

You buy your Bitcoins in US dollars, that's all that matters. As long as people, companies and organizations do their business in dollars, cryptocurrencies will be ignored. If someday a large chunk of the economy is done using them, the government will do something.

To generalize, the fallacy of libertarianism as a whole is thinking that (in a democratic society) the government is "other", that taxation is them "taking away", etc., and that the answer is to disconnect from the government as much as possible.

But the government will always be the most powerful institution, and in democracies that's a good thing! Despite all its flaws, it is the only institution that's required even in theory to represent the interests of the many instead of the few. If you're worried about personal liberty, you should be more involved in that, not less.

Democracy and libertarianism are incompatible. This is because democracy is a form of statism. Consistent libertarians understand this and are working to weaken government monopolies as institutions, subvert them, or make them irrelevant outright.

Consistent libertarians realize that all powerful institutions are incompatible with liberty, not just governments.

Well then I'm nearly as afraid of libertarians as I am of fascists.

Not that I'm an anarcho-libertarian, but the ideas he's advancing don't seem very scary when you remember that you can reformulate institutions very similar to governments in a world without states.

They wouldn't technically be government institutions, because everyone subject to their rules would be a contracting party that consented to the arrangement, but these institutions could have many of the same powers that governments have now, including the power to tax, regulate trade, and provision goods.

Anyway, a state-free world is neither plausible nor seen as desireable by the majority kf libertarians, so no point in worrying too much about it.

It seems to me that the government provides a "Schelling point"[1] that we can't do away with for many purposes, particularly trust. We can't just have many private regulators or certifiers, because then everyone has an equally difficult problem of determining which one to trust, and no benefit to doing so, since they are stuck with what the market decides. Trust requires information, (not data) and information is a public good.


Perhaps the fact that the government, which both maintains its own monopolies and props up other regulators and certifiers through threats of violence, distorts this market.

It's kinda hard to trust someone that's either sticking a gun to your head, or got to the position they did by having someone else do it for them.

Monopoly and coercion are an essential part of regulation. You need regulation for the things you can't verify. I can only repeat myself in saying information (as opposed to data) is a public good and systematically undermining its production by government is bound to be catastrophic. Every criticism of how government works should lead us to say "let's fix government" not "let's get rid of government". Libertarians are like fish who want to abolish water because it seems to impede swimming...or a brain that wants to eliminate the heart because of its monopoly on pumping blood.

>>You need regulation for the things you can't verify.

What do you mean by this? Everything not understood should be prohibited, with exceptions provided by a centralized gatekeeper?

This goes against 500 years of Englightment Thought. It's total subservience to Big Brother, and total naivety about what that kind of centralization of power results in.

>>Libertarians are like fish who want to abolish water because it seems to impede swimming...

With the exception of a tiny minority of libertarians who are anarchists, the vast majority of libertarians do not want to abolish government. Yet opponents of libertarianism regularly attack this strawman as if it addresses libertarian arguments.

There is a time and a place for the government, but it is not in restricting voluntary interactions between consenting adults.

We may be a tiny minority, but the argument against libertarian anarchists is just as filled with nonsense and strawmen as it is against any other libertarian position.

It's not worth trying to reason with collectivists. They see aggressive violence as justified. The only interaction to be had with them involves letting them know that's a bad idea, or violence in kind. This is the core truth of all interaction with statists, including those who support democracy; despite their insistence that it is somehow more enlightened, there is a violent threat behind every supposedly civilized "debate."

>We may be a tiny minority, but the argument against libertarian anarchists is just as filled with nonsense and strawmen as it is against any other libertarian position.

Said ruskerdax, an intellectual, before declaring all statists to be psychopaths.



A lot of these issues come down to trade-offs.

For instance, there is the potential for criminals to use e-cash to do crime, just as they use physical cash.

But the flip-side of that is the cash empowers individuals and serves as a guard against encroachments of their liberty.

Cryptocurrency allowed people to donate to Wikileaks when the financial blockade was imposed on it. It's not hard to imagine a future where blockchains are far more scalable, and large numbers of people who are discriminated against by the banking system rely on it for economic integration.

Individuals and organisations on the fringes like Wikileaks are important guarantors against centralized tyranny. Without a payment system outside the control of centralized authorities they can be more easily snuffed out.

In other words, cash is an important institution, and arguably the price of criminals having an easier time getting away with crime as a result of its existence is worth paying, to avoid a future where the only financial system is the one subject to anti-money-laundering-laws, and thus subject to warrantless mass-surveillance system over all private financial transactions.

Perhaps someone on the inside of the political system their whole adult life, like the article's author, can't really empathize with this view point that we should distrust the political elite and its governing structures, but perhaps he can see the danger of not having a healthy apolitical form of finance in a future dominated by a government like China's.

As for the argument that the centralized financial system provides stability and market integrity, it's not clear that this is true.

The US had a free-ish banking system in the 19th century, but it was made more fragile than it would have been under a free market by 1. Civil War era banking regulations that required banks to hold US bonds as reserves and 2. laws against interstate branching.

The former resulted in an unstable centralized money supply that fluctuated with the volume of outstanding US bonds and the latter prevented more diversified banks from emerging that could better weather localised shocks. Canada had neither of these mandates and consequently had a far more stable banking system.

There were proposals before the Fed was created to make the US financial sector more like Canada's, but the banking cartelists won the argument, and the Federal Reserve mandates were passed to cartelize the banking sector under a centralized hierarchy.

A couple of good talks by George Selgin on pre-Fed era and the 100 year performance record of the Fed:



Collect taxes? I'm a leftie but you don't actually need to have taxes for a government to operate. Prevent money laundring and terrorism?? Lol as if that don't happen in the current system. It's more of a question of what group is allowed to do those things. Basically the state today are just eliminating competition. Andreas Antonopolous is pretty much dead on here. There are consumer protection and security aspects which we also should have with decentralised crypto solutions but for the most part the state we have today creates more problems than it solves. On top of that they just throw the rules out of the window if that benefits the little club at the top, not to mention millions of poor brown people who suffer when a state yields the total power of the population and economy to act like evil psychopaths against out-groups for financial gain.. but yes we must make systems that make their power impotent and obsolete

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