9 ms·

Authorities are looking to close the gap on crypto unhosted wallets

69 points by guiambros 5y ago

api 5y ago
It seems inevitable to me that if cryptocurrencies don’t fail or eat themselves with scams and bubbles, they will be banned by most nations. Outlawing unhosted wallets is basically a ban, since hosted wallets are essentially the same thing as a regular bank account. At that point there is little reason to bother with the cryptocurrency P2P layer. There’s two reasons countries would do this. One is obvious: control and law enforcement. The other is to prevent the emergence of any threat to sovereign fiat currencies which are effectively weapons of economic warfare. “The fed is a weapon,” as one finance person once said, and he called it a kind of economic Death Star. Countries with major sovereign currencies used internationally can in effect levy an imperial tax on users of the currency by exporting inflation. Seeking to “end the fed” is basically akin to trespassing on a military base and sabotaging ordinance. The US isn’t the only country they does this, but it’s probably the largest. Countries like China might want to displace the dollar, but they don’t want Bitcoin. They want to displace the dollar for the Yuan so they can pull the same trick.
- testific8 5y ago
  In any case, I think this is a good thing. If crypto-currencies are regulated against, the remaining crypto-currencies must succeed on their technical merits as a currency (privacy, security, byzantine fault tolerance, speed, etc.) in order to evade regulation. So this would shift the focus towards systems like Monero, Zcash, and maybe even systems like GNU Taler that work alongside existing taxation/banking institutions.
  - wallacoloo 5y ago
    It’s true that there’s some lens to view it from where this causes positive things. Bitcoin itself is a fairly direct response to novel government action following 2008. But it’ll set back adoption so heavily. There are a lot of applications in the space that only become feasible once adoption is so high, so development of everything above the base layer is liable to slow down significantly.
rsync 5y ago
Under the hood, I think that bitcoins, etc., are just blobs of text that can be saved in regular files. Probably ascii-armored, like a PGP key, correct ? So I think that an "unhosted wallet" just refers to a blob of text in a regular file ... which is exactly how I would store bitcoins if I had any. In the United States, this is a clear-cut free speech / First Amendment issue. In the United States I can write, or say, any number I choose to. There's a lot of hand waving reference to magic technology when discussing things like key escrow or "encryption" or "unhosted wallets". In the end, they are protected speech and cannot be limited under any interpretation of the First Amendment.
- ASalazarMX 5y ago
  >In the United States I can write, or say, any number I choose to. Nope, you can't: https://en.wikipedia.org/wiki/Illegal_number https://en.wikipedia.org/wiki/Illegal_number Edit: About an unhosted wallet being a clear case of freedom of speech because it can be encoded as text; even if it was, what are you expressing? The intent to evade cryptotaxes?
  - rsync 5y ago
    I am well aware of these, of course, and they have not been tested at the supreme court where they would fail. You'll note that one of the numbers in question[1] is published, in full, on the wikipedia page that you link to. [1] 09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88 C0
    - ASalazarMX 5y ago
      That one was everywhere at the time, it's still a trade secret, but utterly unenforceable. As you say, it's one number, Wikipedia is not publishing all of them for a reason.
    - karmicthreat 5y ago
      I think you are making a pretty big assumption that it would fail in the supreme court. It's not like the supreme court has abolished asset forfeiture either.
botwriter 5y ago
At this point I've really got the view of just go get fucked. If its in a cold / unhosted wallet then the brokers can't make any money from it. If you buy bitcoin as an investment and stick it in a cold wallet then companies like coinbase can't make money from it. You can tell the big players have been lobbying government.
privilegizer 5y ago
By this logic a leather wallet with cash will soon be outlawed as well. Central bank digital commie coin or bitcoin. Not choosing is choosing. Choose wisely.
- lukifer 5y ago
  It's worse than that: cash is at least nominally provided and supported by governments themselves; whatever stupid or unjust constraints are on paper dollars [0], they are at least currently "legal tender for all debts public and private". Criminalizing "unauthorized" wallets amounts to outlawing all "off-books" exchange relationships, from time-banks to babysitting clubs [1] to "I'll trade you three apples for two oranges". At the end of the day, a blockchain is merely a fancy way to implement a spreadsheet, and any sufficiently advanced (and encrypted) spreadsheet can be used to establish economic relationships that escape tax liability. I'm far from a "taxation is theft" libertarian (if anything, I skew democratic socialist [2]). But this is a root problem with our system of taxation and public goods funding as it exists today: it can only be fully enforced in the context of a surveillance state. We currently tolerate some small amounts of non-compliance (no one taxes teenagers mowing lawns in exchange for cash), but as these "off-books" transactions scale into the billions, a clash between free speech and tax obligation is inevitable. [0] https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United_States https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United... [1] http://www.pkarchive.org/theory/baby.html http://www.pkarchive.org/theory/baby.html [2] https://theblockchainsocialist.com/ https://theblockchainsocialist.com/
  - youalreadylost 5y ago
    'Legal tender' is an evolution of redeemable for real money. 'Trust us', and btw we have a monopoly on violence. I take exception the premise that a fully commie surveillance state is required for society to function. City states. Government at local scale. Living with the decisions made. Today's take: https://www.freeprivatecities.com https://www.freeprivatecities.com. > a blockchain is merely a fancy way to implement a spreadsheet, and any sufficiently advanced (and encrypted) spreadsheet can be used to establish economic relationships that escape tax liability. Sorry, 'blockchain' is a corporate buzzword or shitcoin scam. People who spend time to understand the significance of proof of work get it - I mean this with sincerity and hope that you will take the time to understand the implications of pow.
ilaksh 5y ago
My view is that the most promising direction for making government and large companies less horrible are things like blockchains, smart contracts, digital autonomous organizations, and more generally shared protocols. What I envision is that somehow the de facto rules of society could operate a bit like using a decentralized software package registry. Or perhaps even explicitly that. The biggest challenge in my mind is that humans are, in fact, animals, with strong instincts that push towards hierarchies. This creates conflict with the ideals of protocol-based free society. But whatever form of hierarchy or authority we are stuck with, deploying these distributed protocols and tools will aid both those in power and the common man. Because ultimately most of the activity of regulation or market-making (and monopolization) is about solving logistical problems. And the leading edge for scaling logistics are decentralized technologies. One more fantasy. Maybe the problems we have with government are due to monopoly. If we had a way to vote with our feet for better rules, such as using protocols that are more effective or fair.. but ultimately authority is enforced by killing. What if somehow we could just collectively get together and ban killing (execution of dissidents or mass killing i.e. warfare) as a way of resolving conflicts over control? Lol. Of course, that might only make it easier for those without morals to take over. But just to keep hope alive for the human species, we should consider how our developing technologies might inform questions like that.
- moksly 5y ago
  The reason why distributed trust is never going to work is because authority doesn’t exist without the threat of violence. We’ve done a lot of interesting things in terms of POCs in the public sector over the last decade, and we’ve yet to find a way for blockchain to have a real world impact. In countries with high amount of trust in the public sector and low levels of corruption, it’s a burdensome, inefficient and expensive way to handle trust. In countries with high corruption and no trust, the smart contract doesn’t change the fact that a bunch of people with guns can still just take your land and nobody is going to come after them. It’s sort of similar with money. The only real appliance or Bitcoin and crypto currencies is for criminal enterprises to move and exchange money. The thing about that is that these organisations have as much of an authority or violence as some nation states. Considering Bitcoin can’t control where you use it, or how you turn it into real money, it’s really got not authority.
shiado 5y ago
It's important to understand that heavy unhosted wallet regulation in conjunction with PoS transition pretty much ruins cryptocurrency in the US. People will be forced to keep their coins on exchanges and they will not have enough coins to stake but the exchanges will stake from their wallets and claim the rewards for themselves. Then they can use the coins gained to manipulate the markets how they wish collecting fees and more coins from their clients further centralizing control.
- salawat 5y ago
  Ding ding ding. This is why people like me have been saying, it's just best to stay away from it, or escrow everything until minds have been made up on taxation. It will be regulated. It will look like everything else in the financial system, and tooling will be made to retroactively pin down crypto transactions at the injection point into the financial system.
crocodiletears 5y ago
The Biden administration seems to havebeen cracking down on cryptocurrency fairly aggressively, I don't think I've seen so many stories concerning regulation and enforcement in the domain in such a short period.
- krono 5y ago
  They have no choice but to gain more control over it. Crypto could very well be a make or break factor in whatever strategies they have planned to stop inflation.
  - wallacoloo 5y ago
    > They have no choice but to gain more control over it. That’s a cop out. They have a choice.
    - krono 5y ago
      Semantics. But yes, the US government is likely one of the few entities in the world that actually gets to choose.
  - gher-shyu3i 5y ago
    Their money pumping caused inflation in the first place.
    - krono 5y ago
      Yes and I'm certain they have extensively planned for the consequences before they went all overboard with it. It looks now that crypto wasn't taken into account to the extend that perhaps it should have been.
- belltaco 5y ago
  Nothing in the government moves this fast. These regulations have been in the works for years and it took so long. However they might be prioritizing it more than the previous admin because Trump gave huge tax breaks to companies and had lax enforcement.
13415 5y ago
If this is really enforced, it should lead to a huge devaluation of crypto currencies. After all, the reason why Bitcoin was invented in the first place was to decentralize currencies. Moreover, most crypto wallets should still be offline so a lot of value will be lost of no loopholes can be found. A crypto currency forced to be managed by centralized authorities is pretty much useless, the equivalent of having a savings bank account in some extremely volatile foreign currency. I suppose there will be enough loopholes in foreign countries to prevent these negative effects in the short term.
- emerged 5y ago
  Most of the supposed features of crypto, and Bitcoin in particular, become impractical once the government starts to become motivated to stop it. It’s largely all one big utopian wishful thought.
  - testific8 5y ago
    it is regretable that the bitcoin network and related networks are so dependent on modern computer infrastructure which is controlled by a handfull of institutions. But perhaps it does not need to be this way
    - salawat 5y ago
      This is why law enforcement and regulators would love nothing more than to have cash disappear and have everything go digital. No untraceable transactions.
drummer 5y ago
Unhosted wallets is the only way crypto should be used. That was the whole idea behind Bitcoin. No middle men, users transact directly with eachother. This protects them from the criminal government mafia such as the IRS.
- nybble41 5y ago
  I agree that unhosted wallets are how crypto was meant to be used, and the only way it makes sense—you don't need a decentralized BFT protocol with proof-of-work if all transactions involve a limited set of centralized exchanges, and proof-of-stake is meaningless if only exchanges hold coins. However, it's wrong to say that this offers any protection against the IRS. Legally speaking the tax obligations are exactly the same for hosted and unhosted wallets, and in practical terms merely keeping your coins in unhosted wallets is not an effective means of hiding income from the tax man.
antpls 5y ago
"In the Netherlands, the Dutch National Bank (DNB) now requires that crypto service providers looking to officially register with the central bank must demonstrate their compliance with verification requirements under the 1977 Sanctions Act. It involves establishing the identity and place of residence of the counterparty, screening it against the sanctions lists and establishing that this person or legal entity is actually the recipient or the sender." I believe that is no longer true : "DNB has now revoked the registration requirement and said it will remove the wallet-verification measures as soon as possible." https://www.coindesk.com/dutch-court-rules-bitonic-no-longer-requires-crypto-wallet-verification https://www.coindesk.com/dutch-court-rules-bitonic-no-longer...

69 points by guiambros 5y ago

api 5y ago

It seems inevitable to me that if cryptocurrencies don’t fail or eat themselves with scams and bubbles, they will be banned by most nations. Outlawing unhosted wallets is basically a ban, since hosted wallets are essentially the same thing as a regular bank account. At that point there is little reason to bother with the cryptocurrency P2P layer. There’s two reasons countries would do this. One is obvious: control and law enforcement. The other is to prevent the emergence of any threat to sovereign fiat currencies which are effectively weapons of economic warfare. “The fed is a weapon,” as one finance person once said, and he called it a kind of economic Death Star. Countries with major sovereign currencies used internationally can in effect levy an imperial tax on users of the currency by exporting inflation. Seeking to “end the fed” is basically akin to trespassing on a military base and sabotaging ordinance. The US isn’t the only country they does this, but it’s probably the largest. Countries like China might want to displace the dollar, but they don’t want Bitcoin. They want to displace the dollar for the Yuan so they can pull the same trick.

testific8 5y ago
In any case, I think this is a good thing. If crypto-currencies are regulated against, the remaining crypto-currencies must succeed on their technical merits as a currency (privacy, security, byzantine fault tolerance, speed, etc.) in order to evade regulation. So this would shift the focus towards systems like Monero, Zcash, and maybe even systems like GNU Taler that work alongside existing taxation/banking institutions.
- wallacoloo 5y ago
  It’s true that there’s some lens to view it from where this causes positive things. Bitcoin itself is a fairly direct response to novel government action following 2008. But it’ll set back adoption so heavily. There are a lot of applications in the space that only become feasible once adoption is so high, so development of everything above the base layer is liable to slow down significantly.

rsync 5y ago

Under the hood, I think that bitcoins, etc., are just blobs of text that can be saved in regular files. Probably ascii-armored, like a PGP key, correct ? So I think that an "unhosted wallet" just refers to a blob of text in a regular file ... which is exactly how I would store bitcoins if I had any. In the United States, this is a clear-cut free speech / First Amendment issue. In the United States I can write, or say, any number I choose to. There's a lot of hand waving reference to magic technology when discussing things like key escrow or "encryption" or "unhosted wallets". In the end, they are protected speech and cannot be limited under any interpretation of the First Amendment.

ASalazarMX 5y ago
>In the United States I can write, or say, any number I choose to. Nope, you can't: https://en.wikipedia.org/wiki/Illegal_number https://en.wikipedia.org/wiki/Illegal_number Edit: About an unhosted wallet being a clear case of freedom of speech because it can be encoded as text; even if it was, what are you expressing? The intent to evade cryptotaxes?
- rsync 5y ago
  I am well aware of these, of course, and they have not been tested at the supreme court where they would fail. You'll note that one of the numbers in question[1] is published, in full, on the wikipedia page that you link to. [1] 09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88 C0
  - ASalazarMX 5y ago
    That one was everywhere at the time, it's still a trade secret, but utterly unenforceable. As you say, it's one number, Wikipedia is not publishing all of them for a reason.
  - karmicthreat 5y ago
    I think you are making a pretty big assumption that it would fail in the supreme court. It's not like the supreme court has abolished asset forfeiture either.

botwriter 5y ago

At this point I've really got the view of just go get fucked. If its in a cold / unhosted wallet then the brokers can't make any money from it. If you buy bitcoin as an investment and stick it in a cold wallet then companies like coinbase can't make money from it. You can tell the big players have been lobbying government.

privilegizer 5y ago

By this logic a leather wallet with cash will soon be outlawed as well. Central bank digital commie coin or bitcoin. Not choosing is choosing. Choose wisely.

lukifer 5y ago
It's worse than that: cash is at least nominally provided and supported by governments themselves; whatever stupid or unjust constraints are on paper dollars [0], they are at least currently "legal tender for all debts public and private". Criminalizing "unauthorized" wallets amounts to outlawing all "off-books" exchange relationships, from time-banks to babysitting clubs [1] to "I'll trade you three apples for two oranges". At the end of the day, a blockchain is merely a fancy way to implement a spreadsheet, and any sufficiently advanced (and encrypted) spreadsheet can be used to establish economic relationships that escape tax liability. I'm far from a "taxation is theft" libertarian (if anything, I skew democratic socialist [2]). But this is a root problem with our system of taxation and public goods funding as it exists today: it can only be fully enforced in the context of a surveillance state. We currently tolerate some small amounts of non-compliance (no one taxes teenagers mowing lawns in exchange for cash), but as these "off-books" transactions scale into the billions, a clash between free speech and tax obligation is inevitable. [0] https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United_States https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United... [1] http://www.pkarchive.org/theory/baby.html http://www.pkarchive.org/theory/baby.html [2] https://theblockchainsocialist.com/ https://theblockchainsocialist.com/
- youalreadylost 5y ago
  'Legal tender' is an evolution of redeemable for real money. 'Trust us', and btw we have a monopoly on violence. I take exception the premise that a fully commie surveillance state is required for society to function. City states. Government at local scale. Living with the decisions made. Today's take: https://www.freeprivatecities.com https://www.freeprivatecities.com. > a blockchain is merely a fancy way to implement a spreadsheet, and any sufficiently advanced (and encrypted) spreadsheet can be used to establish economic relationships that escape tax liability. Sorry, 'blockchain' is a corporate buzzword or shitcoin scam. People who spend time to understand the significance of proof of work get it - I mean this with sincerity and hope that you will take the time to understand the implications of pow.

ilaksh 5y ago

My view is that the most promising direction for making government and large companies less horrible are things like blockchains, smart contracts, digital autonomous organizations, and more generally shared protocols. What I envision is that somehow the de facto rules of society could operate a bit like using a decentralized software package registry. Or perhaps even explicitly that. The biggest challenge in my mind is that humans are, in fact, animals, with strong instincts that push towards hierarchies. This creates conflict with the ideals of protocol-based free society. But whatever form of hierarchy or authority we are stuck with, deploying these distributed protocols and tools will aid both those in power and the common man. Because ultimately most of the activity of regulation or market-making (and monopolization) is about solving logistical problems. And the leading edge for scaling logistics are decentralized technologies. One more fantasy. Maybe the problems we have with government are due to monopoly. If we had a way to vote with our feet for better rules, such as using protocols that are more effective or fair.. but ultimately authority is enforced by killing. What if somehow we could just collectively get together and ban killing (execution of dissidents or mass killing i.e. warfare) as a way of resolving conflicts over control? Lol. Of course, that might only make it easier for those without morals to take over. But just to keep hope alive for the human species, we should consider how our developing technologies might inform questions like that.

moksly 5y ago
The reason why distributed trust is never going to work is because authority doesn’t exist without the threat of violence. We’ve done a lot of interesting things in terms of POCs in the public sector over the last decade, and we’ve yet to find a way for blockchain to have a real world impact. In countries with high amount of trust in the public sector and low levels of corruption, it’s a burdensome, inefficient and expensive way to handle trust. In countries with high corruption and no trust, the smart contract doesn’t change the fact that a bunch of people with guns can still just take your land and nobody is going to come after them. It’s sort of similar with money. The only real appliance or Bitcoin and crypto currencies is for criminal enterprises to move and exchange money. The thing about that is that these organisations have as much of an authority or violence as some nation states. Considering Bitcoin can’t control where you use it, or how you turn it into real money, it’s really got not authority.

shiado 5y ago

It's important to understand that heavy unhosted wallet regulation in conjunction with PoS transition pretty much ruins cryptocurrency in the US. People will be forced to keep their coins on exchanges and they will not have enough coins to stake but the exchanges will stake from their wallets and claim the rewards for themselves. Then they can use the coins gained to manipulate the markets how they wish collecting fees and more coins from their clients further centralizing control.

salawat 5y ago
Ding ding ding. This is why people like me have been saying, it's just best to stay away from it, or escrow everything until minds have been made up on taxation. It will be regulated. It will look like everything else in the financial system, and tooling will be made to retroactively pin down crypto transactions at the injection point into the financial system.

crocodiletears 5y ago

The Biden administration seems to havebeen cracking down on cryptocurrency fairly aggressively, I don't think I've seen so many stories concerning regulation and enforcement in the domain in such a short period.

krono 5y ago
They have no choice but to gain more control over it. Crypto could very well be a make or break factor in whatever strategies they have planned to stop inflation.
- wallacoloo 5y ago
  > They have no choice but to gain more control over it. That’s a cop out. They have a choice.
  - krono 5y ago
    Semantics. But yes, the US government is likely one of the few entities in the world that actually gets to choose.
- gher-shyu3i 5y ago
  Their money pumping caused inflation in the first place.
  - krono 5y ago
    Yes and I'm certain they have extensively planned for the consequences before they went all overboard with it. It looks now that crypto wasn't taken into account to the extend that perhaps it should have been.
belltaco 5y ago
Nothing in the government moves this fast. These regulations have been in the works for years and it took so long. However they might be prioritizing it more than the previous admin because Trump gave huge tax breaks to companies and had lax enforcement.

13415 5y ago

If this is really enforced, it should lead to a huge devaluation of crypto currencies. After all, the reason why Bitcoin was invented in the first place was to decentralize currencies. Moreover, most crypto wallets should still be offline so a lot of value will be lost of no loopholes can be found. A crypto currency forced to be managed by centralized authorities is pretty much useless, the equivalent of having a savings bank account in some extremely volatile foreign currency. I suppose there will be enough loopholes in foreign countries to prevent these negative effects in the short term.

emerged 5y ago
Most of the supposed features of crypto, and Bitcoin in particular, become impractical once the government starts to become motivated to stop it. It’s largely all one big utopian wishful thought.
- testific8 5y ago
  it is regretable that the bitcoin network and related networks are so dependent on modern computer infrastructure which is controlled by a handfull of institutions. But perhaps it does not need to be this way
  - salawat 5y ago
    This is why law enforcement and regulators would love nothing more than to have cash disappear and have everything go digital. No untraceable transactions.

drummer 5y ago

Unhosted wallets is the only way crypto should be used. That was the whole idea behind Bitcoin. No middle men, users transact directly with eachother. This protects them from the criminal government mafia such as the IRS.

nybble41 5y ago
I agree that unhosted wallets are how crypto was meant to be used, and the only way it makes sense—you don't need a decentralized BFT protocol with proof-of-work if all transactions involve a limited set of centralized exchanges, and proof-of-stake is meaningless if only exchanges hold coins. However, it's wrong to say that this offers any protection against the IRS. Legally speaking the tax obligations are exactly the same for hosted and unhosted wallets, and in practical terms merely keeping your coins in unhosted wallets is not an effective means of hiding income from the tax man.

antpls 5y ago

"In the Netherlands, the Dutch National Bank (DNB) now requires that crypto service providers looking to officially register with the central bank must demonstrate their compliance with verification requirements under the 1977 Sanctions Act. It involves establishing the identity and place of residence of the counterparty, screening it against the sanctions lists and establishing that this person or legal entity is actually the recipient or the sender." I believe that is no longer true : "DNB has now revoked the registration requirement and said it will remove the wallet-verification measures as soon as possible." https://www.coindesk.com/dutch-court-rules-bitonic-no-longer-requires-crypto-wallet-verification https://www.coindesk.com/dutch-court-rules-bitonic-no-longer...