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Politicians who blindly supported restrictive AML guidelines now proclaim disgust as a global bank severs relationships with firms that send money to Somalia. But Barclays is merely exercising understandable caution.
July 24
Almost since Bitcoin arrived on the financial scene in 2009, traders and exchange operators began contemplating the prospects for a self-regulatory organization that would be organized by bitcoin participants for the purposes of outlining and recommending best practices.
Now, more than four years on, an
As a longtime cryptocurrency advocate and the recently appointed executive director of the Bitcoin Foundation, I welcome the emergence of SROs. (Unlike the foundation, the D.A.T.A. will cover a broad range of virtual currencies, including Ven and Ripple). A non-governmental body formed to promote good industry behavior has a distinctly free market heritage. Groups born out of mutually-beneficial community trade can also define a set of common principles that they want to abide by referred to as
Although SROs can be extremely beneficial in advancing an industry, clear political lines must be drawn to mitigate the risk that an SRO would be co-opted by government and this is where it gets tricky. To avoid more direct and onerous regulations, the government may ask the SRO for certain guidelines or rules to be incorporated among its membership. If such modifications are objectionable to the majority of industry participants, the SRO faces the dilemma of challenging the authorities and risking its relevance or being complicit in harmful and over-reaching backdoor legislation.
The path of complicity ultimately leads to an SRO that has strayed from its core constituency and could be absorbed by the government as a direct regulatory body. The SRO should periodically conduct a reality check by remembering Voltaire's words: "To learn who rules over you, simply find out who you are not allowed to criticize."
From a purist perspective, challenging the authorities on points of principle may not necessarily result in irrelevance but it would shift the group's mandate to one of advocacy and most likely even criminal defense. This does not have to be viewed as a negative outcome, but it does have to be anticipated.
As self-regulatory organizations are excellent non-governmental solutions for industry best practices, they need to be vigilant about maintaining the integrity of the original mission. In the case of bitcoin as a
Anything different simply wouldn't be Bitcoin it would be an alt-coin. A toaster does one thing and it does it amazingly well. It makes toast. If you modify it and ask it to do something else, then it's no longer a toaster.
Recently, Govcoin has become a metaphor for alterations to the core bitcoin protocol that reduce its fungibility, irreversibility or privacy to conform to certain government specifications for an "appropriate" digital currency.
In the Juan Llanos'
The
Although it is technically possible to delay a bitcoin transaction, a full reversal of a transaction would require unacceptable developer complicity at the core protocol level and probably the introduction of an intermediary of some sort. This would undermine Nakamoto's vision of a financial system that did not require trusted third parties.
Examples of what would be considered acceptable variables to modify within the core Bitcoin protocol are the block size limit and the
Think about physical paper cash which everyone has the right to use today. The supreme features of physical paper cash, other than security and divisibility, are fungibility, irreversibility, and privacy.
Digital cryptocurrency assets such as bitcoin do not add anything new to that primary feature set. An SRO in the digital asset industry should not remove any.
Fungibility refers to a commodity possessing the trait of mutual substitution among its individual units. A crumpled $20 bill found between the sofa cushions is as good as a crisp one handed out by a bank teller. In the context of digital currency, this means the blocking or banning of "tainted coins" is not permitted. Just because someone once used a bitcoin to buy drugs, it shouldn't prevent a subsequent owner to use it to buy socks or baklava or MP3s.
Irreversibility means that payments in the unit are final and irrevocable no chargebacks. User-defined privacy refers to a sliding scale, based on individual preference, as to how many details of a particular transaction are associated with the user.
"Privacy on the network begets transparency," writes my colleague Patrick Murck, general counsel at the Bitcoin Foundation, in an article on the Cato Institute's Cato Unbound blog. "You can't expect participants to allow full financial transparency at the institutional level if the participants can't choose to guarantee the privacy of their individual transactions."
Rather than a failed patchwork of individual state money transmitter rules, Murck says, "the preferred outcome would be home-rule and reciprocity amongst the states allowing states to compete for industry by creating efficiency and clarity in the regulatory process." Furthermore, multi-state regulation has failed because each state is not required to respect the judgment of another where a company is domiciled.
Over-regulation tends to drive innovation to more
Jon Matonis is the executive director of the Bitcoin Foundation and an e-money researcher and crypto economist focused on expanding the circulation of nonpolitical digital currencies.
