9 ms·

Inside the Bitcoin advocates’ closed-door meeting with federal regulators

81 points by jnazario 13y ago

lmg643 13y ago
I love the phrase "excessive regulation could drive innovation in virtual currencies overseas". Depending on your view of the US dollar, the US is already the world leader in virtual currencies - trillions of dollars created out of thin air by the federal reserve. bitcoin deserves a better classification - "digital gold" - anonymous and resistant to inflation as is gold, but portable and easily divisible for use as a medium of exchange. corrects some key faults of gold, although secure long-term storage is a different kind of challenge. since all inflation is created by the US government as an unofficial policy (or official, depending on how you look at it) to fund an ongoing operating deficit, I can't see them taking lightly to any serious challenger to currency transactions. the pricing of oil (among other things) in US dollars around the world is a major pillar of US economic strength and the government probably will tolerate bitcoin as long as it is a diversion, but will get serious if it grows, and try to ban it on money laundering grounds (because USD clearly can never be used for money laundering, right?). i also think the "innovation in virtual currencies" is an interesting claim because there are plenty of other non-US virtual currencies to use for transactions - yuan, rubles, etc. they just don't have the gold-like aspects of bitcoin.
- joelhaasnoot 13y ago
  I recently finished reading "Crypto: Secrecy and privacy in the new code war" by Steven Levy - and it sounds like bitcoin is going the way of cryptography in the 90s. The US Government wants to control it but doesn't get it enough to be very effective, and it's out of the bag so it is used internationally. I seriously wonder if this is a bug that can be squashed - who says there won't be more variations of digital currency that's based on cryptography.
  - ha-ha-ha 13y ago
    It can be squashed easily - declare it an illegal, terrorist financing activity; send a few guys to Guantanamo and the 80% of the population, that matter, won't touch it.
- ajross 13y ago
  > since all inflation is created by the US government ... no. You're confusing currency with money. Governments create the former. The latter (which is a much larger number) is the result of any lending (be it by the Fed or a private bank), and "inflation" is a virtually inescapable side effect. Any macroeconomics textbook would have told you this. Even a google search for "how banks create money" should do pretty well. But you can continue feeding your macroeconomic intuition with stuff you read on WND or see on Fox if you like.
  - richcollins 13y ago
    It depends on whether you consider the fed a part of the government I suppose.
    - ajross 13y ago
      It really doesn't. Even including the bailout loans (and the argument about whether they constitute "loans" per se, yada yada), the overwhelming majority of lending is done by private banks. And that's where money comes from. The idea that inflation happens because of "printing money" is a fiction. And a harmful one, IMHO, because it gets used as above as an argument to support some pretty ridiculous policies.
      - ha-ha-ha 13y ago
        Well, one can say that a bank giving a loan in a fractional reserve banking system is printing money.
        nhaehnle 13y ago
        Yes, though ajross's point was about the causality of things. Printing money by itself does not cause inflation, no matter who does the printing. Inflation is a matter of supply and demand. As long as there is excess supply, one can buy the supply with newly created money without raising prices. That's supply and demand 101. The only tricky part is figuring out how much money can be safely printed. Central planning tends to be bad at this (which is why so-called military Keynesianism is a bad idea from an economics point of view, even if you don't care about pacifism). The trick is to figure out a decentralized and automatic approach. That is, an approach that automatically increases the amount of money creation when there's slack in the economy, and automatically scales back when the economy is operating at full capacity.
- GauntletWizard 13y ago
  Nit: Bitcoin is not anonymous - It is hard pseudonymous. Wallets are known, balances are public, you can be tracked; It's really the IRS's dream, in some ways.
  - olefoo 13y ago
    So clearly the answer is: you can remain anonymous, so long as you pay tax on your income. So if you're reasonably careful you can earn an income on bitcoin and spend it in bitcoin, you just have to issue payment to the IRS for (.25 * income_in_BTC) otherwise they go after you and aggressively deanonymize you and hit you with a bill for (.9 * income_in_BTC). And the IRS really doesn't care if you're using your share to buy weed on Silk Road; they only care that you're not contributing your fair share. Bonus: We get to tax income of non-US-Citizens ( benefits of empire ).
- nhaehnle 13y ago
  since all inflation is created by the US government as an unofficial policy [...] to fund an ongoing operating deficit This is crackpot conspiracy theory stated as fact. There is a very obvious reasons why this theory doesn't make any sense: People know about inflation, and are free to adjust their behavior accordingly. The simple fact is that if inflation were lower, nominal interest rates would be lower to match as well, and vice versa. In the end, the real interest rate will end up in the same place. So the real story is much more nuanced. One important aspect is that monetary policy works better with higher inflation, because it takes longer to hit the Zero Lower Bound. This is why many economists have recently advocated raising the inflation target, with the hindsight experience of the ongoing aftermath of the Great Recession. Another important aspect is essentially the Red Queen Hypothesis of economics. Due to the way pricing works in the real world outside of financial markets and auctions, prices move up more easily than they move down. For markets to work well, relative prices must adjust quickly to reflect changing underlying conditions. This relative adjustment is easier to get when the overall price level tends to move upwards.
  - reedlaw 13y ago
    Crackpot conspiracy theory? The Fed doesn't think so [1]. As that FAQ explains, the FOMC judges that maintaining a 2% inflation rate is optimal for price stability and maximal employment. The federal government operates at a deficit [2]. The Federal Reserve Banks holds U.S. Treasury debt as collateral for the Federal Reserve notes put into circulation by the Fed [3]. Therefore, although the quoted statement is somewhat inaccurate, the essential idea that government policy is responsible for inflation and finances its operations is true. 1. http://www.federalreserve.gov/faqs/economy_14400.htm http://www.federalreserve.gov/faqs/economy_14400.htm 2. https://www.cbo.gov/publication/21999 https://www.cbo.gov/publication/21999 3. http://www.federalreserve.gov/faqs/currency_12770.htm http://www.federalreserve.gov/faqs/currency_12770.htm
    - a_c_s 13y ago
      Low, positive inflation is the ideal for many reasons that have nothing to do with the federal budget: inflation encourages investment, spending, makes people feel richer when their salaries go up every year, and it reduces debts. Given that most americans carry some form of large debt (student loans, mortgages, etc.), this is good for most citizens.
- kaonashi 13y ago
  All dollars are created out of nothing. That's what fiat is. Worthless bits of paper you have to acquire to not go to jail. It's the way societies have organized themselves since the advent of agriculture.
  - jafaku 13y ago
    Is that right? I thought fiat was a lot more recent.
    - kaonashi 13y ago
      Fiat (credit) came first. As trust in central authorities broke down, barter & convertible currencies came into vogue. A good book on the subject: http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290 http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290
ccarter84 13y ago
Bitcoin is only as anonymous as the blockchain allows. The sooner LE & bitcoin exchangers unify forces and convince Congress to act on a national level (thus removing the regulatory uncertainty), the sooner BTC will be allowed by existing players to be adapted into mainstream financial system. The shifting of BTC abroad aspect is a problem from the LE perspective, because it's akin to everything 'going dark.' Yes there are downsides to more regulation if you're looking for truly being off the grid, or are mainly a user of silk road --- but it will also allow the system to live in the open, much like the recent rulings from FinCEN equating BTC exchangers to MSB's and pulling them in to the existing framework that way.
seanalltogether 13y ago
I found it interesting that last night over the course of an hour the value of bitcoin jumped up by $10. Clearly some people with a lot of money to invest assumed the meeting had a positive outcome.
- ISL 13y ago
  If you look at "market depth" plots, you'll see that a small desire to buy or sell BTC has a disproportionate impact on the market relative to market capitalization. Lots of people are sitting on bitcoin, so the few who make trades on any given day have an amplified effect on price. Right now, ~1 million USD can shift the price of BTC by ~$5. That $5 shift changes the effective market capitalization by ~$57 million. You'll know things are stable when a million dollar purchase of BTC shifts the market cap by ~$1 million.
  - nhaehnle 13y ago
    You'll know things are stable when a million dollar purchase of BTC shifts the market cap by ~$1 million. In all fairness, this is nothing special about BTC. For every financial asset ever, an X$ amount of transactions shifts the market capitalization by more than X$. That's what makes those "X billion $ value destroyed by stock market movement" stories so ridiculous. It would be interesting though to see a comparison of BTC to a range of different stocks and other assets.
fiatmoney 13y ago
The feds should love bitcoin - it stores a record of every transaction ever made. It's an auditor's dream.
- devx 13y ago
  A relevant recent article: http://www.wired.com/wiredenterprise/2013/08/bitocoin_anonymity/ http://www.wired.com/wiredenterprise/2013/08/bitocoin_anonym...
- mpyne 13y ago
  Indeed, and thanks to non-repudiation they simply have to verify once that a given wallet belongs to a certain someone and they've solved that many more layers of that fully-documented transaction history.
shtylman 13y ago
"drives jobs away" please, there are way more things that drive jobs away "3$ to get money out of an ATM" Maybe you should 1) get a bank that refunds the fee 2) consider that there are costs associated with the physical ATM
- drivebyacct2 13y ago
  Watching people grasp at random shit to try to discredit articles about or supporters of Bitcoin is my favorite part of the Bitcoin phenomena.
- zanny 13y ago
  Bitcoin removes the physical costs. Instant competitive advantage. So the proponent argument saying atms are outdated and obsolete, thus meaning they are a drain on the economy to maintain rather than productive, still holds.
- guard-of-terra 13y ago
  It's usually free to get money out of an ATM where I live (using a debit card, in this bank's or affiliated ATM). That is, you get every bit of what's charged to your account.
ballard 13y ago
Bitcoin currently has a tiny market cap (1.3 B USD) compared to USD (~6 T). [1] Average BTC transaction volume is around $35 M USD/day or roughly $12 B USD/year. [2] This is comparable to stock market capitalization (57.5 T) to USD (6 T) currency ratio (10x). If you were a mega kingpin, you'd be forced to use other means of cash washing (art, metals, jewels, etc.). There isn't enough volume in BTC to wash great amounts of money unless something more clever were used (such as using BTC to cover escrow/insurance, but not normally transacted). (Are there black/grey market insurance carriers? I'm guessing there are with %75 confidence.) [1] http://bitcoincharts.com/bitcoin/ http://bitcoincharts.com/bitcoin/ [2] http://blockchain.info/charts/estimated-transaction-volume-usd?timespan=180days&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address= http://blockchain.info/charts/estimated-transaction-volume-u...
justthetip 13y ago
PRIVATE banks OWN the Federal Reserve and therefore control the money supply...and their profit margins. Bitcoin is not(yet) under the control of the Federal Reserve...this eats into profit for the banks. Consider Bitcoin's "independence" on 'borrowed' time.
gambler 13y ago
<img intent in-standard-src="med.png" in-mobile-src="small.png" /> Why not <img intent src="med.png" in-mobile-src="small.png" />?
svasan 13y ago
As mentioned elsewhere here, Modern Money Mechanics booklet published by the Federal Reserve Bank of Chicago is a very good read. It explains the concept of "money" at a very fundamental level. The booklet talks about how and where money is "created", who are the players involved, and a working example of how these things happen. Search for "Modern Money Mechanics" by FRB Chicago. edit - Sorry, just realized this comment might be off-topic.

81 points by jnazario 13y ago

I love the phrase "excessive regulation could drive innovation in virtual currencies overseas". Depending on your view of the US dollar, the US is already the world leader in virtual currencies - trillions of dollars created out of thin air by the federal reserve. bitcoin deserves a better classification - "digital gold" - anonymous and resistant to inflation as is gold, but portable and easily divisible for use as a medium of exchange. corrects some key faults of gold, although secure long-term storage is a different kind of challenge. since all inflation is created by the US government as an unofficial policy (or official, depending on how you look at it) to fund an ongoing operating deficit, I can't see them taking lightly to any serious challenger to currency transactions. the pricing of oil (among other things) in US dollars around the world is a major pillar of US economic strength and the government probably will tolerate bitcoin as long as it is a diversion, but will get serious if it grows, and try to ban it on money laundering grounds (because USD clearly can never be used for money laundering, right?). i also think the "innovation in virtual currencies" is an interesting claim because there are plenty of other non-US virtual currencies to use for transactions - yuan, rubles, etc. they just don't have the gold-like aspects of bitcoin.

joelhaasnoot 13y ago
I recently finished reading "Crypto: Secrecy and privacy in the new code war" by Steven Levy - and it sounds like bitcoin is going the way of cryptography in the 90s. The US Government wants to control it but doesn't get it enough to be very effective, and it's out of the bag so it is used internationally. I seriously wonder if this is a bug that can be squashed - who says there won't be more variations of digital currency that's based on cryptography.
- ha-ha-ha 13y ago
  It can be squashed easily - declare it an illegal, terrorist financing activity; send a few guys to Guantanamo and the 80% of the population, that matter, won't touch it.
ajross 13y ago
> since all inflation is created by the US government ... no. You're confusing currency with money. Governments create the former. The latter (which is a much larger number) is the result of any lending (be it by the Fed or a private bank), and "inflation" is a virtually inescapable side effect. Any macroeconomics textbook would have told you this. Even a google search for "how banks create money" should do pretty well. But you can continue feeding your macroeconomic intuition with stuff you read on WND or see on Fox if you like.
- richcollins 13y ago
  It depends on whether you consider the fed a part of the government I suppose.
  - ajross 13y ago
    It really doesn't. Even including the bailout loans (and the argument about whether they constitute "loans" per se, yada yada), the overwhelming majority of lending is done by private banks. And that's where money comes from. The idea that inflation happens because of "printing money" is a fiction. And a harmful one, IMHO, because it gets used as above as an argument to support some pretty ridiculous policies.
    - ha-ha-ha 13y ago
      Well, one can say that a bank giving a loan in a fractional reserve banking system is printing money.
      - nhaehnle 13y ago
        Yes, though ajross's point was about the causality of things. Printing money by itself does not cause inflation, no matter who does the printing. Inflation is a matter of supply and demand. As long as there is excess supply, one can buy the supply with newly created money without raising prices. That's supply and demand 101. The only tricky part is figuring out how much money can be safely printed. Central planning tends to be bad at this (which is why so-called military Keynesianism is a bad idea from an economics point of view, even if you don't care about pacifism). The trick is to figure out a decentralized and automatic approach. That is, an approach that automatically increases the amount of money creation when there's slack in the economy, and automatically scales back when the economy is operating at full capacity.
GauntletWizard 13y ago
Nit: Bitcoin is not anonymous - It is hard pseudonymous. Wallets are known, balances are public, you can be tracked; It's really the IRS's dream, in some ways.
- olefoo 13y ago
  So clearly the answer is: you can remain anonymous, so long as you pay tax on your income. So if you're reasonably careful you can earn an income on bitcoin and spend it in bitcoin, you just have to issue payment to the IRS for (.25 * income_in_BTC) otherwise they go after you and aggressively deanonymize you and hit you with a bill for (.9 * income_in_BTC). And the IRS really doesn't care if you're using your share to buy weed on Silk Road; they only care that you're not contributing your fair share. Bonus: We get to tax income of non-US-Citizens ( benefits of empire ).
nhaehnle 13y ago
since all inflation is created by the US government as an unofficial policy [...] to fund an ongoing operating deficit This is crackpot conspiracy theory stated as fact. There is a very obvious reasons why this theory doesn't make any sense: People know about inflation, and are free to adjust their behavior accordingly. The simple fact is that if inflation were lower, nominal interest rates would be lower to match as well, and vice versa. In the end, the real interest rate will end up in the same place. So the real story is much more nuanced. One important aspect is that monetary policy works better with higher inflation, because it takes longer to hit the Zero Lower Bound. This is why many economists have recently advocated raising the inflation target, with the hindsight experience of the ongoing aftermath of the Great Recession. Another important aspect is essentially the Red Queen Hypothesis of economics. Due to the way pricing works in the real world outside of financial markets and auctions, prices move up more easily than they move down. For markets to work well, relative prices must adjust quickly to reflect changing underlying conditions. This relative adjustment is easier to get when the overall price level tends to move upwards.
- reedlaw 13y ago
  Crackpot conspiracy theory? The Fed doesn't think so [1]. As that FAQ explains, the FOMC judges that maintaining a 2% inflation rate is optimal for price stability and maximal employment. The federal government operates at a deficit [2]. The Federal Reserve Banks holds U.S. Treasury debt as collateral for the Federal Reserve notes put into circulation by the Fed [3]. Therefore, although the quoted statement is somewhat inaccurate, the essential idea that government policy is responsible for inflation and finances its operations is true. 1. http://www.federalreserve.gov/faqs/economy_14400.htm http://www.federalreserve.gov/faqs/economy_14400.htm 2. https://www.cbo.gov/publication/21999 https://www.cbo.gov/publication/21999 3. http://www.federalreserve.gov/faqs/currency_12770.htm http://www.federalreserve.gov/faqs/currency_12770.htm
  - a_c_s 13y ago
    Low, positive inflation is the ideal for many reasons that have nothing to do with the federal budget: inflation encourages investment, spending, makes people feel richer when their salaries go up every year, and it reduces debts. Given that most americans carry some form of large debt (student loans, mortgages, etc.), this is good for most citizens.
kaonashi 13y ago
All dollars are created out of nothing. That's what fiat is. Worthless bits of paper you have to acquire to not go to jail. It's the way societies have organized themselves since the advent of agriculture.
- jafaku 13y ago
  Is that right? I thought fiat was a lot more recent.
  - kaonashi 13y ago
    Fiat (credit) came first. As trust in central authorities broke down, barter & convertible currencies came into vogue. A good book on the subject: http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290 http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290

ccarter84 13y ago

Bitcoin is only as anonymous as the blockchain allows. The sooner LE & bitcoin exchangers unify forces and convince Congress to act on a national level (thus removing the regulatory uncertainty), the sooner BTC will be allowed by existing players to be adapted into mainstream financial system. The shifting of BTC abroad aspect is a problem from the LE perspective, because it's akin to everything 'going dark.' Yes there are downsides to more regulation if you're looking for truly being off the grid, or are mainly a user of silk road --- but it will also allow the system to live in the open, much like the recent rulings from FinCEN equating BTC exchangers to MSB's and pulling them in to the existing framework that way.

seanalltogether 13y ago

I found it interesting that last night over the course of an hour the value of bitcoin jumped up by $10. Clearly some people with a lot of money to invest assumed the meeting had a positive outcome.

ISL 13y ago
If you look at "market depth" plots, you'll see that a small desire to buy or sell BTC has a disproportionate impact on the market relative to market capitalization. Lots of people are sitting on bitcoin, so the few who make trades on any given day have an amplified effect on price. Right now, ~1 million USD can shift the price of BTC by ~$5. That $5 shift changes the effective market capitalization by ~$57 million. You'll know things are stable when a million dollar purchase of BTC shifts the market cap by ~$1 million.
- nhaehnle 13y ago
  You'll know things are stable when a million dollar purchase of BTC shifts the market cap by ~$1 million. In all fairness, this is nothing special about BTC. For every financial asset ever, an X$ amount of transactions shifts the market capitalization by more than X$. That's what makes those "X billion $ value destroyed by stock market movement" stories so ridiculous. It would be interesting though to see a comparison of BTC to a range of different stocks and other assets.

fiatmoney 13y ago

The feds should love bitcoin - it stores a record of every transaction ever made. It's an auditor's dream.

devx 13y ago
A relevant recent article: http://www.wired.com/wiredenterprise/2013/08/bitocoin_anonymity/ http://www.wired.com/wiredenterprise/2013/08/bitocoin_anonym...
mpyne 13y ago
Indeed, and thanks to non-repudiation they simply have to verify once that a given wallet belongs to a certain someone and they've solved that many more layers of that fully-documented transaction history.

shtylman 13y ago

"drives jobs away" please, there are way more things that drive jobs away "3$ to get money out of an ATM" Maybe you should 1) get a bank that refunds the fee 2) consider that there are costs associated with the physical ATM

drivebyacct2 13y ago
Watching people grasp at random shit to try to discredit articles about or supporters of Bitcoin is my favorite part of the Bitcoin phenomena.
zanny 13y ago
Bitcoin removes the physical costs. Instant competitive advantage. So the proponent argument saying atms are outdated and obsolete, thus meaning they are a drain on the economy to maintain rather than productive, still holds.
guard-of-terra 13y ago
It's usually free to get money out of an ATM where I live (using a debit card, in this bank's or affiliated ATM). That is, you get every bit of what's charged to your account.

ballard 13y ago

Bitcoin currently has a tiny market cap (1.3 B USD) compared to USD (~6 T). [1] Average BTC transaction volume is around $35 M USD/day or roughly $12 B USD/year. [2] This is comparable to stock market capitalization (57.5 T) to USD (6 T) currency ratio (10x). If you were a mega kingpin, you'd be forced to use other means of cash washing (art, metals, jewels, etc.). There isn't enough volume in BTC to wash great amounts of money unless something more clever were used (such as using BTC to cover escrow/insurance, but not normally transacted). (Are there black/grey market insurance carriers? I'm guessing there are with %75 confidence.) [1] http://bitcoincharts.com/bitcoin/ http://bitcoincharts.com/bitcoin/ [2] http://blockchain.info/charts/estimated-transaction-volume-usd?timespan=180days&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address= http://blockchain.info/charts/estimated-transaction-volume-u...

justthetip 13y ago

PRIVATE banks OWN the Federal Reserve and therefore control the money supply...and their profit margins. Bitcoin is not(yet) under the control of the Federal Reserve...this eats into profit for the banks. Consider Bitcoin's "independence" on 'borrowed' time.

gambler 13y ago

<img intent in-standard-src="med.png" in-mobile-src="small.png" /> Why not <img intent src="med.png" in-mobile-src="small.png" />?

svasan 13y ago

As mentioned elsewhere here, Modern Money Mechanics booklet published by the Federal Reserve Bank of Chicago is a very good read. It explains the concept of "money" at a very fundamental level. The booklet talks about how and where money is "created", who are the players involved, and a working example of how these things happen. Search for "Modern Money Mechanics" by FRB Chicago. edit - Sorry, just realized this comment might be off-topic.