14 ms·

How to Start Disrupting Cryptocurrencies: “Mining” Is Money Transmission

59 points by slowhand09 5y ago

bmsd_0923 5y ago
What a terrifyingly dumb perspective... "it has helped facilitate a whole lot of bad things" is his whole hand-wavy argument for why people (presumably lawyers) need to go around "throwing sand in the gears." IMO we should be throwing sand in the gears of the government. Starting wars and killing hundreds of thousands of people is much worse than ransomware attacks.
- slowhand09 5y ago
  When I first saw this I was thinking "Gee, what other technology will some gov't entity decide is dangerous to its centralization of power".
- toomuchtodo 5y ago
  I derive significant utility from my government, and prefer it to continue to function, despite its flaws that need addressing. Less needless wars, for sure, but also less crypto please (if the crypto evades democratic government regulations and laws). If this is a path to applying more regulatory pressure on crypto, by all means, full steam ahead.
  - aww_dang 5y ago
    Much of cryptocurrency's value comes from the lack of regulation. People are not satisfied with the existing solutions, thus the need for innovation. BTC emerged after the US destroyed LibertyReserve and eGold. Government could eliminate the some of the needs for cryptocurrencies by removing regulatory barriers to transact. As an example, compliance costs prohibit PayPal from efficiently processing 25 cent arcade or in game transactions. >Instead of the standard 2.90% + 30p per transaction that PayPal charges, you’ll be charged a 5% + £0.05 fee on every transaction. This would mean that on a £1 transaction, you will pay 10p as transaction fees, rather than 59p, and you save 41p. Ordinarily, this does not look much, but if you sell very high volumes at low prices, it quickly adds up to become a significant saving. After all, it’s a small leak that sinks great ships. Additionally, for electronic goods most processors require the merchant to offer a no questions asked refund policy.
    - deleted 5y ago
      [deleted]
    - sdenton4 5y ago
      "People are not satisfied with the existing solutions" s/People/Criminals and twenty jackasses on hacker news/ Actual people are sick of completely unchecked scamming taking over every interface of their lives. Ransomeware is out of control. This week I'm personally dealing with some credit card fraud which ended up with $18k stolen and spent on a cryptocurrency exchange. Phone networks are nearly useless because they are overrun with endless phishing attempts, meaning I miss calls from doctors, etc. Cryptocurrency is money laundering as a service: it's enabling and exacerbating the whole ball of terrible. A few people have gotten rich off it, and will loudly try to defend it. Cigarette company executives did the same. It's a net drag on society, and needs to be dealt with.
    - cainxinth 5y ago
      > People are not satisfied with the existing solutions, thus the need for innovation. IMHO, that describes maybe a tenth (maybe) of crypto buyers. Everyone else is just speculating on volatile new assets that are gaining value rapidly.
      - sklearncowboy 5y ago
        Exactly. The irony to me is no one really wants price discovery in order for volatility to be reduced so that crypto can actually function as money. Function as money in the sense of signing a year long apartment lease for x amount of BTC a month. Not just paying in USD after a conversion. That is almost the last thing people want.
        aww_dang 5y ago
        As someone who develops sites which use cryptocurrency, USD price volatility isn't a concern. Users are riding the same wave. What is important is that it is technically possible. I realize this isn't the majority view, but that doesn't make it any less valid. There are many things which are popular with the masses that are arguably irrational. https://mises.org/wire/why-wild-swings-crypto-prices-are-not-really-problem https://mises.org/wire/why-wild-swings-crypto-prices-are-not... >Weston Nakamura in an interview with Real Vision’s Jack Farley made the trenchant point, “This is what markets look like when you don't have global central banks artificially suppressing volatility, intervention of central banks buying every dip, putting a safety net under every single slight tremor or taper tantrum or whatever it may be, this is what happens.” >He explains, “Bitcoin is not a US asset, just like oil is not a US asset, just like gold is not a US asset. Now, those are denominated in USD.” Sure, Americans think in US dollars, but “it's BTC/fiat, and it's not an American asset. People need to get that in their head. If you actually look at BTC/JPY (Japanese yen), the levels make a hell of a lot more sense.”
- BitwiseFool 5y ago
  The organization's name "Lawfare", has some pretty negative connotations in-and-of-itself.
- raintrees 5y ago
  I agree. Using the same logic, the USD should definitely be banned.
bko 5y ago
> All cryptocurrency assets, not just Bitcoin, are zero sum. So every dollar “made” in cryptocurrency was simply provided by someone else. Can't you say that about any other asset? If I sell my house for more than I paid for it, it's zero sum since someone simply provided me that money. But that's not how we determine value. It's positive sum because the buyer attributes a value higher than he had paid for it, otherwise he wouldn't have bought my home to begin with. You can say no one can reasonably "value" a crypto currency, but there's 100+ billion dollars that says otherwise. > There is no silver bullet, but there are a lot of things that can throw sand in the gears, degrading Bitcoin and other systems into unusability. Ironically, the author goes on to describe a way to attack the value of Bitcoin and presumably drive its price down (destroying value). So it doesn't seem zero sum after all
- miked85 5y ago
  > it's zero sum since someone simply provided me that money By your definition, every transaction ever made is zero sum.
  - bko 5y ago
    It's not my definition of zero sum. It's the author of the post. I was attempting to poke holes in it.
  - asah 5y ago
    I think that's precisely his pointy: every transaction is "money transmission"... (not saying I agree with his motives)
- Grustaf 5y ago
  Sure, if your house increases in value it is in fact not creating any value. Same with stocks. But if you invest in stocks you increase the amount of risk capital in the world, so more companies will be started, companies that can create value. So it's not the rising stock price that creates value when a company is successful, but is an indication that the company is creating value, since people are buying its product.
- 5y ago
okareaman 5y ago
How would this prevent scenarios such as refurbishing a nuclear powered Russian icebreaker to sit in international waters mining Bitcoin?
- Clewza313 5y ago
  If a rogue actor beyond the control of state governments gets its hand on nuclear-powered ships, we have bigger problems than Bitcoin mining.
  - okareaman 5y ago
    Mine was an example. There are other examples. The long arms of governments don't reach everywhere.
- cwmma 5y ago
  there are treaties that deal with crimes in international waters, so you'd probably get a visit from the navy of the country you pissed off the most. But they might just go after whoever is giving you internet instead as that would probably be easier.
Tycho 5y ago
It is possible to store short messages on the public Bitcoin blockchain. If somebody were to publish extremely sensitive official secrets on the blockchain, would the government be forced to attack the whole network?
- dvh 5y ago
  https://www.schneier.com/blog/archives/2021/03/illegal-content-and-the-blockchain.html https://www.schneier.com/blog/archives/2021/03/illegal-conte...
- kaliali 5y ago
  The government wouldn't be able to attack the network if they wanted to and I guarantee they've already tried.
jacknews 5y ago
Of course bitcoin is about transmitting money, almost by definition. I can't believe it has gone this far without regulation. If the argument is that is just an asset (which I believe was strongly argued against by bitcoin proponents, at least in early days), then what kind of asset is it? It has absolutely no value beyond it's monetary value.
- biztos 5y ago
  Maybe it’s a new kind of asset. A consensus asset, in which the value lies in the consensus itself and does not require any other utility? (I’m speculating but this is how I interpret a lot of the defenses of Bitcoin I have heard.)
TechBro8615 5y ago
No good idea starts in the Lawfare Blog. For people who aren't familiar, this is where many Democratic staffers on the hill get their information that ultimately ends up in legislation.
shadowgovt 5y ago
In practice, it appears this approach would make most BTC transaction validation illegal in the US in the common case (exceptional cases would still be authorized; specific users could have their public key allow-listed and some due-diligence would then occur). This wouldn't end BTC; it would simply constrain how much American citizens could be involved in the mining process (and, practically, basically cede ownership of the network mostly to Chinese nationals IIUC current distribution of mining hardware ownership).
runbathtime 5y ago
The reason why I believe mining isn't being labeled as money transmission is because the miners never take custody of any bitcoin, they collect/handle transactions themselves, but these transactions are p2p, the bitcoin do not go into the hands or control of a money transmitter. Where the author is correct is that the miners are the chosen ones for writing to the central ledger of bitcoin, but writing to a ledger including transactions, is not the definition of money transmission- the miner would have to take custody - which they do not. Now where money transmission I believe is running rampant is any smart contract built on ethereum, like uniswap, that is taking custody of any token and holding that token- all of them are violating money transmission laws.
- DennisP 5y ago
  Nobody human or corporation has custody of tokens deposited to Uniswap. It has no admin keys, just an autonomous script running on chain. I guess you could try to go after the guy who wrote Uniswap's code but that has First Amendment issues according to US vs. Bernstein: > the Ninth Circuit Court of Appeals ruled that software source code was speech protected by the First Amendment and that the government's regulations preventing its publication were unconstitutional. https://en.wikipedia.org/wiki/Bernstein_v._United_States https://en.wikipedia.org/wiki/Bernstein_v._United_States
  - runbathtime 5y ago
    Did Uniswap3 write itself? Are there humans that wrote the code and deployed it? Why is Uniswap3 protected with copyright law and who does that protect? Why is there a company called Uniswap? Why were they funded? Does the protocol receive tokens (sole control) and can it send them? How would you define custody?
    - DennisP 5y ago
      I addressed the question of going after the dev above, after the first paragraph. My point on custody is that no human has the ability to do anything other than trade on uniswap as a regular user. You can trade one token for the other (in a given pair contract), and you can provide both tokens as liquidity and collect fees on the trades. The contract handles the rest according to its code, which is run by every Ethereum full node.
thecrash 5y ago
This is an interesting exercise in legal argumentation, but it assumes that the US Government wants to push miners out of the US. It's not that they can't, it's that they don't want to. Outlawing mining in the US would not disable cryptocurrency networks, because miners could still operate in other jurisdictions (and covertly in the US). It might cause a panic and disrupt some American-based crypto companies, but cryptocurrencies have already been shown to withstand panics and business upheavals. Crashing the price of Bitcoin doesn't actually reduce its usefulness to cybercriminals, as long as the market is still liquid. Worse, banning US mining would ensure that no mining rewards can be taxed by the IRS, excluding the US from the growing cash stream coming from blockchain rewards.
- inlined 5y ago
  Technically taxes must be paid on illegal activities too, so if someone gets caught with Bitcoin they also get slapped with a tax evasion suit.
- eloff 5y ago
  Only because they don't feel threatened by it. The uptick in high profile infrastructure ransomware attacks is the first penny to drop there. A second will one day be high inflation rates for the USD. I don't pretend to know when that happens, but history of fiat currency is clear that it will happen with certainty eventually. Bitcoin cannot succeed past a certain level because then it competes with the USD and becomes a threat. One way or another its days are numbered. Don't forget the US outlawed gold at one point. Competition with the fiat currency monopoly will not be permitted because it undermines the sovereign power wielded by the state.
  - bingbong70 5y ago
    >Bitcoin cannot succeed past a certain level because then it competes with the USD and becomes a threat. It already is a threat to the USD and the game theory ensures anyone fighting against Bitcoin loses in the long run. If the US wants to lose miners/nodes, large holders, and fintech innovation to other more free countries, they should take the view that you are sharing, but they will also lose the future in the process.
losvedir 5y ago
I guess I can sort of see it for a cryptocurrency that exists solely to send tokens back and forth, but what about Ethereum where the miners are running some global VM, one function of which is to send tokens back and forth? There you're not paying a fee necessarily to the miner to transfer money for you, but to execute some opcodes and update the global ethereum state. Maybe you're registering a new domain in their DNS equivalent. He mentions Ethereum offhand in the post, but I feel like that's a legally harder case to prove. Do the servers that transmit, say, wire transfer packets have to worry about KYC?
gamblor956 5y ago
The blog post is premised on a fundamental misunderstanding of what a "money transmitter" is for regulatory purposes, presumably because they based their understanding on FinCEN's overview page rather than reading the regulations themselves. The definition of a money transmitter is a person or company that receives money (or other measure of value) from one party and sends that money/value store (sans any charged fees) to a third party. (https://www.law.cornell.edu/cfr/text/31/1010.100#ff_5 https://www.law.cornell.edu/cfr/text/31/1010.100#ff_5) Miners verify transactions, but crucially don't take custody of the money/value store at any point. Paypal and Venmo are money transmitters, because they do take custody of money in transit. (Stubhub and Airbnb are not money transmitters because the regulations exclude companies that only act as payment processors to facilitate the exchange of goods and services, see (ff)(5)(ii)(B) and (F) of the exclusions in the linked regulation) So this blog post is much ado about nothing and will generally be ignored by the people who actually matter, i.e., FinCEN and other regulatory agencies with jurisdiction, because they generally tune out people who can't get the basic foundational things right.
jjk166 5y ago
Bitcoin is legally an asset. Processing the transfer of bitcoin is legally no different from processing the exchange of baseball cards. Transferring $100 worth of baseball cards might be a money transmission, but transferring a signed Barry Bonds card regardless of its value is not. Likewise, sending $100 dollars in the form of bitcoin might be money transmission, but sending 0.03 BTC regardless of the dollar value is not. And those are exactly the sort of transfers processed by miners. To subject miners to FinCEN rules, the US would have to recognize bitcoin (and any other cryptocurrency one wanted to so regulate) as a legal currency. Further the idea that removing a transaction, which is functionally equivalent to moving funds back, is not a money transmission while the original movement of funds is a money transmission is absurd. Otherwise it would be trivial to create a cryptocurrency where initial payments are never validated and you simply rely on removing the superfluous transactions to achieve the same effect.
- effie 5y ago
  > To subject miners to FinCEN rules, the US would have to recognize bitcoin (and any other cryptocurrency one wanted to so regulate) as a legal currency. Isn't this just a detail, consistent with author's call for action? To him, participating in the bitcoin network means facilitating money transfers. If the gov. decides to adopt this viewpoint, calling bitcoin a foreign currency won't be difficult.
  - jjk166 5y ago
    Yes, but recognizing it as a foreign currency would be a huge gain in legitimacy, which would seriously work against the author's stated goal of disrupting cryptocurrencies. Further, it's not enough to only require this for bitcoin, people would just jump to the next cryptocurrency. You'd essentially have to recognize all mined cryptocurrencies as valid foreign currencies (which would probably lead to a whole slew of complications) or significantly amend many existing laws to create some third category, which again goes against the author's "use existing laws to deal with bitcoin" approach. Of course once we get into this quagmire of trying to determine what exactly counts as a money transmission, there will be a whole host of financial institutions who will throw quite a bit of money at the prospect of creating new loopholes in existing regulations. All in all I would be very surprised if the author would desire the actual outcomes of their stated plan.
tzumby 5y ago
I love Lawfare and listen to their podcast quite often, but the argument presented is so odd: 1) specifically calling for not introducing new legislation to deal with this and 2) trying to fit mining into a bucket of legislation designed to kill it. This is not in good faith at all. Money laundering is despicable, specially when it happens at high level. And we have to admit that Bitcoin, ZCash, Ethereum (Tornado Cash) and other cryptocurrencies are facilitating that. But we're getting better at tracking that. After all, transactions are all public and once you can label one wallet address, you can perform all sorts of graph analysis and learn a lot. Contrast that with trying to subpoena banks to follow money trails. The other aspect of this is that, like it or not, banks are not playing by the rules all the time. See HSBC laundering almost 1 billion for Mexican and Colombian cartels. See Austria’s Raiffeisen Bank enabling former Ukraine's president to steal money with offshore accounts (https://www.occrp.org/en/investigations/former-ukrainian-president-poroshenko-secretly-controlled-offshore-firms-that-banked-at-austrias-raiffeisen https://www.occrp.org/en/investigations/former-ukrainian-pre...) We should absolutely deal with this, but the first place to start is the Bank -> Cryptocurrency (and vice versa) transfers, or as they call them, the fiat gateways. You still can't pay for stuff with cryptocurrencies so ultimately, whoever steals or launders using cryptocurrencies, will need to eventually convert back into fiat money. Edit: correct typo in first paragraph
- haolez 5y ago
  Money laundering is "despicable"? That's quite a strong sentiment for a white collar crime which basically states that money not tracked by the government is illegal.
  - tzumby 5y ago
    Here are a few reasons why I called it despicable: - Laundering money in poor countries directly hurt the citizens of those countries because the government doesn't collect the taxes it is entitled to - Most of the money to be laundered comes from illicit activities: drugs, prostitution, human trafficking. I don't have any citations here for proportions, sorry. Update: fix formatting
woah 5y ago
The premise of this article is that cryptocurrency must be stopped because it is used in ransomware. Never mind that “ransomware” is now the new “terrorism”, a catch all boogeyman to excuse civil liberties violations. Let’s look at how he proposes to stop cryptocurrency. By making mining illegal, maybe mining can be stopped in the US and in Europe. But it will continue in many other places, and the network will absolutely still function. Maybe the value of crypto will drop, but this doesn’t matter at all for its use in payment. It obvious to anyone that the course of action he is recommending will not have the effect he says it will. To anticipate this author’s next article- I’m guessing that he will propose making buying and transacting in crypto illegal for US persons. This would also make the value of crypto drop, and might actually also stop a few companies from paying a ransom. But soon enough, overseas “security consultants” would pop up, who could unlock your files for a very hefty fee (really just hiring a non-us person to buy and send the crypto ransom). No simple prohibitions or attacks on crypto would actually stop this. But this does point to the actual way to stop ransomware, without the ridiculous and unworkable overreaches that this author is flogging: Make paying ransoms illegal. This would neatly solve the problem by stopping any ransoms from being paid. The fact that the author contorts himself into mental pretzels to avoid stating the obvious legal solution to ransomware shows how little he actually cares about ransomware, and how much he is just grinding an anti-crypto axe. It’s surprising that UC Berkeley allows him to put their name on such obviously facetious and ill-considered articles.
- roblabla 5y ago
  If paying a ransom is made illegal, there's a very good chance victims will pay the ransom, and try very hard to hide the attack from the authorities to the best of their abilities. Punishing the victim rarely has the intended result either...
politician 5y ago
It seems like their argument would also rope in Paxos, Raft, and Two Phase Commit because your distributed databases could be used to maintain a ledger that could be used for $BAD_THING$.
nivertech 5y ago
I have much simpler explanation why miners should be regulated as Money Transmitters than the one described in the article. Thinking from the first principles: what PoW, if not an obfuscated way to buy tokens/coins? I.e. you exchange money for electricity, then electricity for compute power, then computer power for a right to play a lottery, then periodically you win tokens/coins. Money bag → High voltage sign → Personal computer → Slot machine → Coin You can see emojis here: https://twitter.com/nivertech/status/1376446367502114816 https://twitter.com/nivertech/status/1376446367502114816
- runbathtime 5y ago
  I think you provided the right framework for thinking about this question. I would say that the miners are making bitcoin using raw materials, including electricity and computers, as inputs to a process. The miners are producing or issuing bitcoin, rather than buying it or finding it. Even if electricity is provided/given to a miner with the expectation of bitcoin in return, I believe they are working together in a common enterprise for profit, rather than the miner conducting money transmission.
  - nivertech 5y ago
    I would've agreed if their end goal was to build a non-financial entries on a ledger. But in case of Bitcoin they're doing it with the expectation of trading these ledger entries (UTXOs) on the secondary markets. That's what makes them money surrogates / money substitute.
    - runbathtime 5y ago
      Zooming out a bit, I do agree that bitcoin is set up as a fiat money transfer system and that in order for the miners to keep making bitcoin they do need to sell it to people to make a profit, so I can't just narrow in on the production of bitcoin and ignore where profits come from. When the miners sell the bitcoin they make for dollars as a business, that is money transmission. Gold dealers are money transmitters because they sell gold (considered a currency equivalent) for dollars as a business. Gold mining companies invest to find gold as a company, when they sell the commodity for dollars for a profit I'm not sure if this is money transmission because gold is a real commodity that as consuming demand, bitcoin isn't a real commodity because it isn't 'used' so I don't think the bitcoin miners have the same benefit of selling bitcoin for dollars without being money transmitters. Bitcoin miners should be thought of as gold dealers, but also as a common enterprise issuing securities.

59 points by slowhand09 5y ago

What a terrifyingly dumb perspective... "it has helped facilitate a whole lot of bad things" is his whole hand-wavy argument for why people (presumably lawyers) need to go around "throwing sand in the gears." IMO we should be throwing sand in the gears of the government. Starting wars and killing hundreds of thousands of people is much worse than ransomware attacks.

slowhand09 5y ago
When I first saw this I was thinking "Gee, what other technology will some gov't entity decide is dangerous to its centralization of power".
toomuchtodo 5y ago
I derive significant utility from my government, and prefer it to continue to function, despite its flaws that need addressing. Less needless wars, for sure, but also less crypto please (if the crypto evades democratic government regulations and laws). If this is a path to applying more regulatory pressure on crypto, by all means, full steam ahead.
- aww_dang 5y ago
  Much of cryptocurrency's value comes from the lack of regulation. People are not satisfied with the existing solutions, thus the need for innovation. BTC emerged after the US destroyed LibertyReserve and eGold. Government could eliminate the some of the needs for cryptocurrencies by removing regulatory barriers to transact. As an example, compliance costs prohibit PayPal from efficiently processing 25 cent arcade or in game transactions. >Instead of the standard 2.90% + 30p per transaction that PayPal charges, you’ll be charged a 5% + £0.05 fee on every transaction. This would mean that on a £1 transaction, you will pay 10p as transaction fees, rather than 59p, and you save 41p. Ordinarily, this does not look much, but if you sell very high volumes at low prices, it quickly adds up to become a significant saving. After all, it’s a small leak that sinks great ships. Additionally, for electronic goods most processors require the merchant to offer a no questions asked refund policy.
  - deleted 5y ago
    [deleted]
  - sdenton4 5y ago
    "People are not satisfied with the existing solutions" s/People/Criminals and twenty jackasses on hacker news/ Actual people are sick of completely unchecked scamming taking over every interface of their lives. Ransomeware is out of control. This week I'm personally dealing with some credit card fraud which ended up with $18k stolen and spent on a cryptocurrency exchange. Phone networks are nearly useless because they are overrun with endless phishing attempts, meaning I miss calls from doctors, etc. Cryptocurrency is money laundering as a service: it's enabling and exacerbating the whole ball of terrible. A few people have gotten rich off it, and will loudly try to defend it. Cigarette company executives did the same. It's a net drag on society, and needs to be dealt with.
  - cainxinth 5y ago
    > People are not satisfied with the existing solutions, thus the need for innovation. IMHO, that describes maybe a tenth (maybe) of crypto buyers. Everyone else is just speculating on volatile new assets that are gaining value rapidly.
    - sklearncowboy 5y ago
      Exactly. The irony to me is no one really wants price discovery in order for volatility to be reduced so that crypto can actually function as money. Function as money in the sense of signing a year long apartment lease for x amount of BTC a month. Not just paying in USD after a conversion. That is almost the last thing people want.
      - aww_dang 5y ago
        As someone who develops sites which use cryptocurrency, USD price volatility isn't a concern. Users are riding the same wave. What is important is that it is technically possible. I realize this isn't the majority view, but that doesn't make it any less valid. There are many things which are popular with the masses that are arguably irrational. https://mises.org/wire/why-wild-swings-crypto-prices-are-not-really-problem https://mises.org/wire/why-wild-swings-crypto-prices-are-not... >Weston Nakamura in an interview with Real Vision’s Jack Farley made the trenchant point, “This is what markets look like when you don't have global central banks artificially suppressing volatility, intervention of central banks buying every dip, putting a safety net under every single slight tremor or taper tantrum or whatever it may be, this is what happens.” >He explains, “Bitcoin is not a US asset, just like oil is not a US asset, just like gold is not a US asset. Now, those are denominated in USD.” Sure, Americans think in US dollars, but “it's BTC/fiat, and it's not an American asset. People need to get that in their head. If you actually look at BTC/JPY (Japanese yen), the levels make a hell of a lot more sense.”
BitwiseFool 5y ago
The organization's name "Lawfare", has some pretty negative connotations in-and-of-itself.
raintrees 5y ago
I agree. Using the same logic, the USD should definitely be banned.

bko 5y ago

> All cryptocurrency assets, not just Bitcoin, are zero sum. So every dollar “made” in cryptocurrency was simply provided by someone else. Can't you say that about any other asset? If I sell my house for more than I paid for it, it's zero sum since someone simply provided me that money. But that's not how we determine value. It's positive sum because the buyer attributes a value higher than he had paid for it, otherwise he wouldn't have bought my home to begin with. You can say no one can reasonably "value" a crypto currency, but there's 100+ billion dollars that says otherwise. > There is no silver bullet, but there are a lot of things that can throw sand in the gears, degrading Bitcoin and other systems into unusability. Ironically, the author goes on to describe a way to attack the value of Bitcoin and presumably drive its price down (destroying value). So it doesn't seem zero sum after all

miked85 5y ago
> it's zero sum since someone simply provided me that money By your definition, every transaction ever made is zero sum.
- bko 5y ago
  It's not my definition of zero sum. It's the author of the post. I was attempting to poke holes in it.
- asah 5y ago
  I think that's precisely his pointy: every transaction is "money transmission"... (not saying I agree with his motives)
Grustaf 5y ago
Sure, if your house increases in value it is in fact not creating any value. Same with stocks. But if you invest in stocks you increase the amount of risk capital in the world, so more companies will be started, companies that can create value. So it's not the rising stock price that creates value when a company is successful, but is an indication that the company is creating value, since people are buying its product.
5y ago

okareaman 5y ago

How would this prevent scenarios such as refurbishing a nuclear powered Russian icebreaker to sit in international waters mining Bitcoin?

Clewza313 5y ago
If a rogue actor beyond the control of state governments gets its hand on nuclear-powered ships, we have bigger problems than Bitcoin mining.
- okareaman 5y ago
  Mine was an example. There are other examples. The long arms of governments don't reach everywhere.
cwmma 5y ago
there are treaties that deal with crimes in international waters, so you'd probably get a visit from the navy of the country you pissed off the most. But they might just go after whoever is giving you internet instead as that would probably be easier.

Tycho 5y ago

It is possible to store short messages on the public Bitcoin blockchain. If somebody were to publish extremely sensitive official secrets on the blockchain, would the government be forced to attack the whole network?

dvh 5y ago
https://www.schneier.com/blog/archives/2021/03/illegal-content-and-the-blockchain.html https://www.schneier.com/blog/archives/2021/03/illegal-conte...
kaliali 5y ago
The government wouldn't be able to attack the network if they wanted to and I guarantee they've already tried.

jacknews 5y ago

Of course bitcoin is about transmitting money, almost by definition. I can't believe it has gone this far without regulation. If the argument is that is just an asset (which I believe was strongly argued against by bitcoin proponents, at least in early days), then what kind of asset is it? It has absolutely no value beyond it's monetary value.

biztos 5y ago
Maybe it’s a new kind of asset. A consensus asset, in which the value lies in the consensus itself and does not require any other utility? (I’m speculating but this is how I interpret a lot of the defenses of Bitcoin I have heard.)

TechBro8615 5y ago

No good idea starts in the Lawfare Blog. For people who aren't familiar, this is where many Democratic staffers on the hill get their information that ultimately ends up in legislation.

shadowgovt 5y ago

In practice, it appears this approach would make most BTC transaction validation illegal in the US in the common case (exceptional cases would still be authorized; specific users could have their public key allow-listed and some due-diligence would then occur). This wouldn't end BTC; it would simply constrain how much American citizens could be involved in the mining process (and, practically, basically cede ownership of the network mostly to Chinese nationals IIUC current distribution of mining hardware ownership).

runbathtime 5y ago

The reason why I believe mining isn't being labeled as money transmission is because the miners never take custody of any bitcoin, they collect/handle transactions themselves, but these transactions are p2p, the bitcoin do not go into the hands or control of a money transmitter. Where the author is correct is that the miners are the chosen ones for writing to the central ledger of bitcoin, but writing to a ledger including transactions, is not the definition of money transmission- the miner would have to take custody - which they do not. Now where money transmission I believe is running rampant is any smart contract built on ethereum, like uniswap, that is taking custody of any token and holding that token- all of them are violating money transmission laws.

DennisP 5y ago
Nobody human or corporation has custody of tokens deposited to Uniswap. It has no admin keys, just an autonomous script running on chain. I guess you could try to go after the guy who wrote Uniswap's code but that has First Amendment issues according to US vs. Bernstein: > the Ninth Circuit Court of Appeals ruled that software source code was speech protected by the First Amendment and that the government's regulations preventing its publication were unconstitutional. https://en.wikipedia.org/wiki/Bernstein_v._United_States https://en.wikipedia.org/wiki/Bernstein_v._United_States
- runbathtime 5y ago
  Did Uniswap3 write itself? Are there humans that wrote the code and deployed it? Why is Uniswap3 protected with copyright law and who does that protect? Why is there a company called Uniswap? Why were they funded? Does the protocol receive tokens (sole control) and can it send them? How would you define custody?
  - DennisP 5y ago
    I addressed the question of going after the dev above, after the first paragraph. My point on custody is that no human has the ability to do anything other than trade on uniswap as a regular user. You can trade one token for the other (in a given pair contract), and you can provide both tokens as liquidity and collect fees on the trades. The contract handles the rest according to its code, which is run by every Ethereum full node.

thecrash 5y ago

This is an interesting exercise in legal argumentation, but it assumes that the US Government wants to push miners out of the US. It's not that they can't, it's that they don't want to. Outlawing mining in the US would not disable cryptocurrency networks, because miners could still operate in other jurisdictions (and covertly in the US). It might cause a panic and disrupt some American-based crypto companies, but cryptocurrencies have already been shown to withstand panics and business upheavals. Crashing the price of Bitcoin doesn't actually reduce its usefulness to cybercriminals, as long as the market is still liquid. Worse, banning US mining would ensure that no mining rewards can be taxed by the IRS, excluding the US from the growing cash stream coming from blockchain rewards.

inlined 5y ago
Technically taxes must be paid on illegal activities too, so if someone gets caught with Bitcoin they also get slapped with a tax evasion suit.
eloff 5y ago
Only because they don't feel threatened by it. The uptick in high profile infrastructure ransomware attacks is the first penny to drop there. A second will one day be high inflation rates for the USD. I don't pretend to know when that happens, but history of fiat currency is clear that it will happen with certainty eventually. Bitcoin cannot succeed past a certain level because then it competes with the USD and becomes a threat. One way or another its days are numbered. Don't forget the US outlawed gold at one point. Competition with the fiat currency monopoly will not be permitted because it undermines the sovereign power wielded by the state.
- bingbong70 5y ago
  >Bitcoin cannot succeed past a certain level because then it competes with the USD and becomes a threat. It already is a threat to the USD and the game theory ensures anyone fighting against Bitcoin loses in the long run. If the US wants to lose miners/nodes, large holders, and fintech innovation to other more free countries, they should take the view that you are sharing, but they will also lose the future in the process.

losvedir 5y ago

I guess I can sort of see it for a cryptocurrency that exists solely to send tokens back and forth, but what about Ethereum where the miners are running some global VM, one function of which is to send tokens back and forth? There you're not paying a fee necessarily to the miner to transfer money for you, but to execute some opcodes and update the global ethereum state. Maybe you're registering a new domain in their DNS equivalent. He mentions Ethereum offhand in the post, but I feel like that's a legally harder case to prove. Do the servers that transmit, say, wire transfer packets have to worry about KYC?

gamblor956 5y ago

The blog post is premised on a fundamental misunderstanding of what a "money transmitter" is for regulatory purposes, presumably because they based their understanding on FinCEN's overview page rather than reading the regulations themselves. The definition of a money transmitter is a person or company that receives money (or other measure of value) from one party and sends that money/value store (sans any charged fees) to a third party. (https://www.law.cornell.edu/cfr/text/31/1010.100#ff_5 https://www.law.cornell.edu/cfr/text/31/1010.100#ff_5) Miners verify transactions, but crucially don't take custody of the money/value store at any point. Paypal and Venmo are money transmitters, because they do take custody of money in transit. (Stubhub and Airbnb are not money transmitters because the regulations exclude companies that only act as payment processors to facilitate the exchange of goods and services, see (ff)(5)(ii)(B) and (F) of the exclusions in the linked regulation) So this blog post is much ado about nothing and will generally be ignored by the people who actually matter, i.e., FinCEN and other regulatory agencies with jurisdiction, because they generally tune out people who can't get the basic foundational things right.

jjk166 5y ago

Bitcoin is legally an asset. Processing the transfer of bitcoin is legally no different from processing the exchange of baseball cards. Transferring $100 worth of baseball cards might be a money transmission, but transferring a signed Barry Bonds card regardless of its value is not. Likewise, sending $100 dollars in the form of bitcoin might be money transmission, but sending 0.03 BTC regardless of the dollar value is not. And those are exactly the sort of transfers processed by miners. To subject miners to FinCEN rules, the US would have to recognize bitcoin (and any other cryptocurrency one wanted to so regulate) as a legal currency. Further the idea that removing a transaction, which is functionally equivalent to moving funds back, is not a money transmission while the original movement of funds is a money transmission is absurd. Otherwise it would be trivial to create a cryptocurrency where initial payments are never validated and you simply rely on removing the superfluous transactions to achieve the same effect.

effie 5y ago
> To subject miners to FinCEN rules, the US would have to recognize bitcoin (and any other cryptocurrency one wanted to so regulate) as a legal currency. Isn't this just a detail, consistent with author's call for action? To him, participating in the bitcoin network means facilitating money transfers. If the gov. decides to adopt this viewpoint, calling bitcoin a foreign currency won't be difficult.
- jjk166 5y ago
  Yes, but recognizing it as a foreign currency would be a huge gain in legitimacy, which would seriously work against the author's stated goal of disrupting cryptocurrencies. Further, it's not enough to only require this for bitcoin, people would just jump to the next cryptocurrency. You'd essentially have to recognize all mined cryptocurrencies as valid foreign currencies (which would probably lead to a whole slew of complications) or significantly amend many existing laws to create some third category, which again goes against the author's "use existing laws to deal with bitcoin" approach. Of course once we get into this quagmire of trying to determine what exactly counts as a money transmission, there will be a whole host of financial institutions who will throw quite a bit of money at the prospect of creating new loopholes in existing regulations. All in all I would be very surprised if the author would desire the actual outcomes of their stated plan.

tzumby 5y ago

I love Lawfare and listen to their podcast quite often, but the argument presented is so odd: 1) specifically calling for not introducing new legislation to deal with this and 2) trying to fit mining into a bucket of legislation designed to kill it. This is not in good faith at all. Money laundering is despicable, specially when it happens at high level. And we have to admit that Bitcoin, ZCash, Ethereum (Tornado Cash) and other cryptocurrencies are facilitating that. But we're getting better at tracking that. After all, transactions are all public and once you can label one wallet address, you can perform all sorts of graph analysis and learn a lot. Contrast that with trying to subpoena banks to follow money trails. The other aspect of this is that, like it or not, banks are not playing by the rules all the time. See HSBC laundering almost 1 billion for Mexican and Colombian cartels. See Austria’s Raiffeisen Bank enabling former Ukraine's president to steal money with offshore accounts (https://www.occrp.org/en/investigations/former-ukrainian-president-poroshenko-secretly-controlled-offshore-firms-that-banked-at-austrias-raiffeisen https://www.occrp.org/en/investigations/former-ukrainian-pre...) We should absolutely deal with this, but the first place to start is the Bank -> Cryptocurrency (and vice versa) transfers, or as they call them, the fiat gateways. You still can't pay for stuff with cryptocurrencies so ultimately, whoever steals or launders using cryptocurrencies, will need to eventually convert back into fiat money. Edit: correct typo in first paragraph

haolez 5y ago
Money laundering is "despicable"? That's quite a strong sentiment for a white collar crime which basically states that money not tracked by the government is illegal.
- tzumby 5y ago
  Here are a few reasons why I called it despicable: - Laundering money in poor countries directly hurt the citizens of those countries because the government doesn't collect the taxes it is entitled to - Most of the money to be laundered comes from illicit activities: drugs, prostitution, human trafficking. I don't have any citations here for proportions, sorry. Update: fix formatting

woah 5y ago

The premise of this article is that cryptocurrency must be stopped because it is used in ransomware. Never mind that “ransomware” is now the new “terrorism”, a catch all boogeyman to excuse civil liberties violations. Let’s look at how he proposes to stop cryptocurrency. By making mining illegal, maybe mining can be stopped in the US and in Europe. But it will continue in many other places, and the network will absolutely still function. Maybe the value of crypto will drop, but this doesn’t matter at all for its use in payment. It obvious to anyone that the course of action he is recommending will not have the effect he says it will. To anticipate this author’s next article- I’m guessing that he will propose making buying and transacting in crypto illegal for US persons. This would also make the value of crypto drop, and might actually also stop a few companies from paying a ransom. But soon enough, overseas “security consultants” would pop up, who could unlock your files for a very hefty fee (really just hiring a non-us person to buy and send the crypto ransom). No simple prohibitions or attacks on crypto would actually stop this. But this does point to the actual way to stop ransomware, without the ridiculous and unworkable overreaches that this author is flogging: Make paying ransoms illegal. This would neatly solve the problem by stopping any ransoms from being paid. The fact that the author contorts himself into mental pretzels to avoid stating the obvious legal solution to ransomware shows how little he actually cares about ransomware, and how much he is just grinding an anti-crypto axe. It’s surprising that UC Berkeley allows him to put their name on such obviously facetious and ill-considered articles.

roblabla 5y ago
If paying a ransom is made illegal, there's a very good chance victims will pay the ransom, and try very hard to hide the attack from the authorities to the best of their abilities. Punishing the victim rarely has the intended result either...

politician 5y ago

It seems like their argument would also rope in Paxos, Raft, and Two Phase Commit because your distributed databases could be used to maintain a ledger that could be used for $BAD_THING$.

nivertech 5y ago

I have much simpler explanation why miners should be regulated as Money Transmitters than the one described in the article. Thinking from the first principles: what PoW, if not an obfuscated way to buy tokens/coins? I.e. you exchange money for electricity, then electricity for compute power, then computer power for a right to play a lottery, then periodically you win tokens/coins. Money bag → High voltage sign → Personal computer → Slot machine → Coin You can see emojis here: https://twitter.com/nivertech/status/1376446367502114816 https://twitter.com/nivertech/status/1376446367502114816

runbathtime 5y ago
I think you provided the right framework for thinking about this question. I would say that the miners are making bitcoin using raw materials, including electricity and computers, as inputs to a process. The miners are producing or issuing bitcoin, rather than buying it or finding it. Even if electricity is provided/given to a miner with the expectation of bitcoin in return, I believe they are working together in a common enterprise for profit, rather than the miner conducting money transmission.
- nivertech 5y ago
  I would've agreed if their end goal was to build a non-financial entries on a ledger. But in case of Bitcoin they're doing it with the expectation of trading these ledger entries (UTXOs) on the secondary markets. That's what makes them money surrogates / money substitute.
  - runbathtime 5y ago
    Zooming out a bit, I do agree that bitcoin is set up as a fiat money transfer system and that in order for the miners to keep making bitcoin they do need to sell it to people to make a profit, so I can't just narrow in on the production of bitcoin and ignore where profits come from. When the miners sell the bitcoin they make for dollars as a business, that is money transmission. Gold dealers are money transmitters because they sell gold (considered a currency equivalent) for dollars as a business. Gold mining companies invest to find gold as a company, when they sell the commodity for dollars for a profit I'm not sure if this is money transmission because gold is a real commodity that as consuming demand, bitcoin isn't a real commodity because it isn't 'used' so I don't think the bitcoin miners have the same benefit of selling bitcoin for dollars without being money transmitters. Bitcoin miners should be thought of as gold dealers, but also as a common enterprise issuing securities.