UK.gov eyes up virtual currencies, fingers red tape dispenser The UK government is to review the trade in virtual currencies to investigate whether it should regulated. Chancellor George Osborne said the review would look into the potential of "alternative payment systems" to boost UK growth and would include an assessment of the need to regulate the use of virtual currencies in …
I think you're missing the point that anything the State says is subject to state snooping is subject to state snooping.
If the State decides that crypto-currency transactions are subject to some kind of regulation then they only need to ask you to declare them, like an Income tax return; yes, you can lie, but then if they catch you out they can fine you and/or send you to jail.
"Death and Taxes" applies even in the digital world.
I would argue it's intermediate in terms of snoopability between the two. Even cash is somewhat traceable due to the serial numbers, but generally pretty good. Of course it can only be used in person (or somewhat inadvisedly, by mail). Credit cards on the other hand are very convenient online but heavily regulated and closely tied to the cardholder's identity. The credit card industry is also controlled by just a few companies which makes it easy for governments to turn the screws and get whatever info they want.
Bitcoin is more traceable than cash since a complete record of transactions is available, but only by account number. You can't see that Mark paid Lisa, or Quanto LLC paid Bizmerf Inc, only that 1HiKJwUoK5eP4Rku9kFtwj2N7rXxGKRamN transfered money to 1NEjMXjPtuYRxKvyWtwKJpkkfZ2QhRCK1U. Plus, since it's decentralized* it's harder for governments to directly control.
*Kind of, this isn't as true as it was at one point.
1. You can't regulate it. You cannot block a bitcoin transaction. The only thing you can regulate are things like exchanges and the businesses accepting bitcoin. If more and more people start to use only bitcoin for their entire transaction and not exchanging their coins for fiat currency there will be less and less to regulate.
2. Financial institutions don't like it. The bitcoin network does not need them so in an all-virtual-currency world they would soon perish. Obviously, they are using their financial influence to lobby governments to do whatever they can to discourage the usage of these cryptocurrencies.
3. You can't seize bitcoin. You can't freeze their wallet. If they have bitcoins, they can continue to buy things. Freezing a bank account to dry up resources for people not behaving exactly like the puppets the government would like them to be gain greater freedom, which is of course unwanted.
1. You can't regulate it. You cannot block a bitcoin transaction. The only thing you can regulate are things like exchanges and the businesses accepting bitcoin. If more and more people start to use only bitcoin for their entire transaction and not exchanging their coins for fiat currency there will be less and less to regulate.
"In China, buying bitcoins with yuan is subject to restrictions, and bitcoin exchanges are not allowed to hold bank accounts."
3. You can't seize bitcoin. You can't freeze their wallet. If they have bitcoins, they can continue to buy things. Freezing a bank account to dry up resources for people not behaving exactly like the puppets the government would like them to be gain greater freedom, which is of course unwanted.
"In October 2013 the US FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time."
From: http://en.wikipedia.org/wiki/Bitcoin
I'd agree with point 2) though; but in the end the existing financial institutions will end up trading in crypto-currency just like they do in anything else. As far as consumers are concerned, the lack of protection for transactions will probably scare the majority of them away. If hybrid systems, with consumer protection and support from retailers, are developed, then it will be by the existing players as they already have the infrastructure and marketing power.
Sorry, Martijn Otto, you are fantasising. I am a strong proponent of privacy (see my other posts) and I am a strong supporter of both cash and bitcoin, but I am realistic about bitcoin.
1. The government most certainly can regulate it. As you said, they can regulate exchange. They can also require people to declare bitcoin usage -- and most legitimate users will comply. Bitcoin is much more traceable than cash (although it is easier to anoymise than other financial networks). Money laundering is a serious concern for governments and if large amounts of money are laundered through bitcoin, governments will get very heavy handed with it. You certainly can block a bitcoin transaction: put the participants in jail.
2. Financial institutions have plenty of opportunity to make money from bitcoin. Do you think that the needs for loans and savings accounts go away with bitcoin? Do you think that bitcoin credit cards will have transaction fees any lower than todays credit cards? Banks make a lot of money helping people and businesses handle cash today and they will make just as much money from bitcoin. The only people who could be disintermediated by bitcoin are money transfer networks: but they will find plenty of value to add in making transactions easy, handling taxation and reporting, providing escrow and insurance, etc.
3. You certainly can seize bitcoin. Most user's bitcoins are held in third party wallets, which are easy to seize. Even if they aren't, it is easy enough to order the holder to transfer the bitcoin to a government-controlled wallet.
Bitcoin is certainly very useful, but it doesn't undermine either governments or financial institutions!
1+3) The powers-that-be could certainly block bitcoin transactions. Court orders/national security letters sent to a few of the largest mining pools, ordering that bitcoin transactions from certain addresses shall not be included in any blocks they publish, nor should blocks that contain any of them be validated or built on. Once 51% of the network obeys that court order, viola, transactions from those addresses are blocked and those bitcoins are unspendable. With mining power concentrated in such a small number of actors all liable to the jurisdiction or pressure of the USA, that's a feasible prospect.
And don't try to claim the mining pools would grow a backbone, move offshore and try to resist. They're in it for the money, and going to war with the American government is a quick way to suddenly find yourself very poor and friendless.
With mining power concentrated in such a small number of actors all liable to the jurisdiction or pressure of the USA, that's a feasible prospect.
That's not entirely true. Slush's pool, for example, is hosted in the Czech Republic. I don't believe that they are closely linked with the US.
Admittedly, they are now down to being the 11th largest pool, but still...
That's not the job of politicians, it's why they have civil servants. The definition will be established by the men in grey suits in the Treasury who do know all about virtual currencies. The politicians' job is just to get the rules through Parliament and grandstand about them.
The problem at the moment, which prevents wider adoption of cryptocurrencies, ironically, is the lack of regulation.
I'm talk, of course, about regulation of the Bitcoin equivalents of banks and exchanges, the lack of which pretty much led to the downfall of MtGox, and the crash in price of BTC earlier in the year. If MtGox had been regulated, and forced to provide proper accounting of deposits and withdrawals, then there would have been little scope for funds to go missing.
Of course, MtGox was not a British company, so regulations here would not have affected it, but a proper regulatory framework here would allow British businesses to perform the functions of exchanges. If it becomes less of a risky investment for companies to open exchanges, then it becomes easier for Joe Bloggs to exchange fiat for BTC (and vice versa), leading to both a boost in the value of cryptocurrencies (their value being a measure of their utility as a payment processing mechanism), and the UK economy.
Really, the UK gov should be thinking about regulation as soon as possible, because as soon as one nation gets it right, they will become the de-facto 'exit point' for fiat<->BTC transactions, and we don't want the Merkins getting there before us...
potential [noun]: politcs : a measure of how much money a govenment can extort from an idea
The formula for regulation is quite simple
Wil it make the government lots of money? Yes. light regulation and tax
Will it make money for someone else (except a governemnt friendly corporate paymaster) or make Joe Public's life easier? Regulate heavily, tax, charge hugely expensive licence deals (renewable), set up 'job for the boys' regulatory body.
Will it cost the government money? Yes. Ban it [classified as a 'security threat' or mumble something about 'children/drugs/obesity']
maybe they should first stick to actually regulating the financial sector we already have, and then when they have show competency at doing 'their job', then they can go on to f@#% up something that appears to work completely well without them..
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