Bitcoin Is an Existential Threat to the Modern Liberal State

http://www.bloomberg.com/news/2013-04-05/bitcoin-really-is-an-existential-threat-to-the-modern-liberal-state.html

by dmitriy_ko • 13 years ago

100 98 13 years ago

mrb6• 13 years ago

"The volume of transactions in Bitcoin is growing only slowly, relative to the massive increase in demand for the currency"

The author states this without presenting data. He is wrong. In fact, data shows the opposite:

- The exchange rate increase by 5x between February (low of $20) and March (high of $100)

- BitPay alone recorded a merchant transaction volume increasing by 7.6x between February ($687k) and March ($5.2M): http://www.marketwatch.com/story/bitpay-eclipses-silk-road-i... (and this is just BitPay - there are many more Bitcoin-accepting vendors who make sales without using BitPay - so total transactions increased by a lot more than 7.6x, maybe 10x, 20x, who knows)

Therefore the volume of transactions is increasing faster than the exchange rate. How can a Bloomberg article (edit: opinion piece) be so wrong about such a stupid simple fact that can be easily found? https://news.ycombinator.com/item?id=5499377 is right: a lot of journalists get a lot of facts wrong about Bitcoin.

Edit: BitPay is not the only datapoint. Many other metrics and merchants generally show big increases in transaction volume in the short past:

- Estimated volume of USD transactions (attempting to ignore "change"): http://blockchain.info/charts/estimated-transaction-volume-u...

- Silk Road going over 2 years from zero to $2 million/month of Bitcoin revenues: http://arstechnica.com/tech-policy/2012/08/study-estimates-2...

- A bitcoin casino went from 0 to $0.5 million profits in 6 months: http://arstechnica.com/business/2013/01/bitcoin-based-casino...

- Etc

lwat• 13 years ago

Maybe bitpay is growing faster than other payment processors?

dcc12• 13 years ago

How is this for data? http://blockchain.info/charts/market-price http://blockchain.info/charts/n-transactions

There is a big discrepancy between number of transactions and the value

mrb6• 13 years ago

Wrong graph. You need to look at the volume of transactions, not at the number of transactions:

http://blockchain.info/charts/estimated-transaction-volume-u...

As you can see, the graph is similar to the market price.

Guvante• 13 years ago

> there are many more Bitcoin-accepting vendors who make sales without using BitPay

Who have independent increases. If I accept bitcoins and I didn't see an increase in transactions, that decreases the total transaction volume change.

You can't just look at one particular vendor and apply their results to the aggregate.

And BitPay's numbers are odd, they reported an average transaction size of 10 bitcoins, that seems awfully large.

mrb6• 13 years ago

The datapoint I cited was the most concrete irrefutable one. Firstly, BitPay is a big enough payment processor that their growth generally reflects accurately enough the growth of Bitcoin (their market share is actually slighly decreasing over time, as other payment processors sprang up in the recent past). Secondly, all other datapoints show as well that the volume of transactions increases:

- Estimated volume of USD transactions (attempting to ignore "change"): http://blockchain.info/charts/estimated-transaction-volume-u...

- Silk Road going over 2 years from zero to $2 million/month of Bitcoin revenues: http://arstechnica.com/tech-policy/2012/08/study-estimates-2...

- A bitcoin casino went from 0 to $0.5 million profits in 6 months: http://arstechnica.com/business/2013/01/bitcoin-based-casino...

- Etc. Generally all vendors and payment processors report huge increases.

It is wrong for the author to silently ignore all these facts.

rayiner5• 13 years ago

> How can a Bloomberg article

Because it's not a Bloomberg article, it's an opinion piece.

kiba• 13 years ago

The # of translations is linked in the article but not the actual USD volume of the graph.

Also, the blockchain data doesn't tell us much because for all we know it might be that somebody is merely moving coins from one wallet to another.

mrb6• 13 years ago

"Also, the blockchain data doesn't tell us much"

This is precisely why I give numbers from BitPay, SR, casinos, etc, to show that these transactions are associated to actual spendings on goods and services.

andylei• 13 years ago

> BitPay alone recorded a merchant transaction volume increasing by 7.6x between February ($687k) and March ($5.2M): ... so total transactions increased by a lot more than 7.6x, maybe 10x, 20x, who knows)

your math is not good.

one provider having a large percent increase does not imply that the total market had a larger percentage increase. its entirely possible that BitPay gained a larger share of bitcoin transactions to achieve these numbers.

your argument is like saying: people using Google Chrome have increased by 1.2x over the past year, therefore, people using the internet must have increased by a lot more, maybe 5x or 10x, who knows.

mrb6• 13 years ago

You are right. I assume that the share of the Bitcoin transactions that are handled through BitPay were roughly the same in February and March.

This may be only an assumption, but I do believe it is correct. The other data points I added to my post seem to confirm it: trades and transactions are widely increasing everywhere.

samuelroberts• 13 years ago

If I'm not mistaken, 60% of BitPay's revenue from February and March came from Avalon ASIC devices being sold through BitPay. Avalon have now completely sold their 3 planned batches so BitPay's April figures should be a lot lower.

It might have been a once off for them as even if other ASIC manufacturers use BitPay, the demand will surely be lower as the ROI of ASIC devices will take much longer after the current ASIC batches in production get on the network and push the difficulty up.

itistoday2• 13 years ago

What a gigantic piece of FUD.

> How do governments collect taxes on transactions in Bitcoin? The answer is they don't, and they can't. Crypto-currency's strong protections on anonymity make it impossible for any state to know who is buying what, who is paying whom, who earns what, and who has what in savings.

BS! The state seems to be surviving just fine with its "inability" to track who is buying what with cash, and it could easily require and enforce documentation of large purchases (such as houses, cars, etc. as it already does btw).

> 2. Police:It would be almost impossible for states to detect certain crimes. One of the major alleged uses of Bitcoin -- though, of course, one can never truly know -- is buying illicit drugs.

Ohhhh noooo!! Cry me a river!!

You mean the batshit insane war on drugs that has destroyed countless lives will become even more ineffective than it already is?!? Please oh please, don't throw me into the briar patch!

Every one of these points applies equally to cash. Might as well write a second article titled: "Cash: An Existential threat to the modern liberal state"

BTW, there's nothing liberal about the war on drugs, the very existence of which is a cruel affront to basic human liberties.

> In a world where many transactions are anonymous, it’s unclear how governments could even compile accurate economic data, without which macroeconomic policy is impossible.

How exactly does having a public history of every transaction ever made somehow make it "impossible" to glean any useful economic data from it?

Add to it knowledge of certain transactions (such as those that go through companies), and you start to get a pretty clear picture of exactly what's going on.

mbetter2• 13 years ago

I'm not sure why that second sentence is there, it doesn't really make much sense. The rest of the point is valid, especially regarding money laundering.

guard-of-terra5• 13 years ago

Why should we ever care about money laundering when they didn't punish HSBC?

They aren't serious about this issue, why should we care?

readme• 13 years ago

"Bitcoin is interfering with the ability of the government to stop consensual transactions between adults."

UH OH

sliverstorm5• 13 years ago

I wonder how anyone can think that is the case. Can the government stop me from buying something with USD? Not a chance.

rd108• 13 years ago

I've been a bitcoin supporter. But there is a twinge in me that remembers government, properly set up, can often protect the weak from the strong. Extremely wealthy corporations and individuals moving around anonymous money would make it impossible to tax and impossible to know where political contributions were coming from. I don't know the answer-- I flip flop back and forth between total openness for everyone and total secrecy for everyone.

hazov2• 13 years ago

On the contrary I believe, suppose bitcoin explodes national fiat currency as I saw a couple of guys wishing, once governments put some regulation, double booking accountting for companies who will have no incentive to avoid taxes and pay a lot later and the fact you can trace all transaction would kill any anonymity unless it remain a currency for black markets.

Evbn4• 13 years ago

Lucky for you that bit coin is 100% non-anonymous, and every transaction is published to every entity in the economy.

hazov2• 13 years ago

"which, for many of its libertarian-anarchist advocates, is the whole idea"

The politics the community built around is for me the only reason why it sucks right now, the idea is interesting and it can certainly have some use. Selling all that I have.

TL;DR: Well, the link speaks for itself: http://imgur.com/r/cringepics/gkLJswu

EDIT: Ultimately what I hate about it is that the almost anywhere you go do discuss it there's this tribal mentality of believers vs. deniers. What about those guys in 2009 that thought it was a good idea to work as a currency and does not care about libertarianism/keynesianism talk?

waterlesscloud• 13 years ago

I think of bitcoin the same way I think of the music of Led Zeppelin: I don't let the fans stand in the way of my appreciation of a good product.

ferdo• 13 years ago

Fail.

“It’s very attractive to the libertarian viewpoint if we can explain it properly. I’m better with code than with words though.”

Satoshi Nakamoto 14 Nov 2008

josephby• 13 years ago

"Taxation: How do governments collect taxes on transactions in Bitcoin? The answer is they don't, and they can't."

Grossly misleading.

You tax something at the point at which it gets exchanged into an externally viewable good or service. If either party refuses to disclose the value of the transaction, then the state just assigns one and uses its monopoly on force to collect.

That said, an increasing dependence on opaque stores of value would likely shift taxation away from income and towards consumption.

gojomo4• 13 years ago

FTA: Taxation: How do governments collect taxes on transactions in Bitcoin? The answer is they don't, and they can't.

Though many Bitcoin fans don't quite realize it, Bitcoin's radical transparency could in fact be a tax-collector's wet dream. Every public-key, balance, and transaction is public.

A government that wants to coopt and efficiently tax Bitcoin could announce the following policy, based on the idea of 'tainted' or 'clean' balances:

"You can make your Bitcoin legal inside our jurisdiction by registering your public keys. (No, we don't need your private keys.) All transactions between registered keys are great, just make sure they match up with your tax filings, because we can see the endpoints.

"You should not receive money to your registered address(es) from an unregistered address. If you do, you can file a disclosure with 30 days, identifying the origin and nature of the transaction, paying all applicable taxes, and then the balance is yours to keep."

"If you do not, the entire amount that's mixed with the unregistered-origin balance is subject to forfeit. Your registered keys with any such balance will be blacklisted, making your previously-registered balances unspendable until you come back into compliance."

Any above-ground business would then stick with clean balances. Both clean and tainted coins could circulate in the same blockchain, but rarely mix... and would have different de facto values. (Would a clean or dirty satoshi be worth more? I'm not sure!) Trying to buy above-ground things with dirty money would face the same 'laundering challenge' as today: making it look like legitimate income via front operations.

Except, the blockchain would be a perfect record of earlier related transactions. That means big-data traffic analysis, and occasional meatspace busts discovering the identities of unregistered keys, would create a very strong map of unsanctioned economic activity -- much better than is possible with physical cash.

koenigdavidmj• 13 years ago

> If you do, you can file a disclosure with 30 days, identifying the origin and nature of the transaction

I smell a Fifth Amendment issue with doing this in the US.

wbl• 13 years ago

The IRS already requires this for cash today.

jellicle• 13 years ago

Your nose is wrong.

johnvschmitt• 13 years ago

Excellent points.

This would, of course, lead to any individual, or entity, simply keeping 2 sets of keys. One legit, taxed, & one gray/untracked. That way, they could play either the clean or dirty markets.

But, they still couldn't launder, or cross between dirty & clean easily. They'd still need a collaborative cleaner in between... Such cleaners are easily built in the model you mention. (Out of country, with hands in both clean/dirty channels.)

tantalor5• 13 years ago

You'd still need a good excuse for receiving money from out of country.

"Sold a drawing of my cat on Etsy for $1000" will only work so many times.

mehwoot• 13 years ago

They'd still need a collaborative cleaner in between... Such cleaners are easily built in the model you mention. (Out of country, with hands in both clean/dirty channels.)

Not really, the government could just say any out of country transfer needs to be done through a registered service. So if your aunt wants to give you money, has to go through "Bit Western Union" or whatever.

Shame, because then its destroying almost free transfers as well. Essentially nothing is gained, but the government can easily track everything.

lmkg• 13 years ago

It's even more simple than that: There's nothing about paper money that enables tax collection either. And yet somehow, taxes continue to exist.

Bitcoin is only a currency, not an entire financial system. It is a replacement for pieces of paper or shiny metal with doodles of George Washington stamped on them. It is not a replacement for banks, or credit cards, most other ephemera that people have constructed on top of currency. In point of fact, people are having to re-invent financial institutions in order to make Bitcoin more useful. And it's those institutions, not the underlying currency, where government attaches taxation.

It may become more feasible in the Bitcoin era to run a financial institution that plays entirely outside the US's jurisdiction. Nonetheless, there would be a large market for legitimized (and taxed) financial institutions, to provide services to the large number of entities that the government would take a hard look at anyways. My gut is that two parallel economies is an unstable situation, and the shadow-economy would not receive must traction compared to the legitimized one.

derleth• 13 years ago

> My gut is that two parallel economies is an unstable situation

Parallel economies are not only inevitable, they can be long-term stable whenever you can't deal in some (desirable) goods in the legitimate economy. Black markets are very difficult to root out and always have been.

> the shadow-economy would not receive must traction compared to the legitimized one.

Depends on how essential the black market is to getting what people view as the essentials of life. In middle-class First World countries, it's pretty marginal, because most salarymen don't really want heroin that badly. In the 1970s Soviet Union, if you didn't trade on the black market you simply could not get certain goods Americans would regard as utterly mundane, such as bananas. The USSR had a horrible time with black markets and goods disappearing from store shelves and being hoarded in peoples' apartments.

nullc• 13 years ago

Just so— and most sane Bitcoin users hold this position too. It's only a small number of vocal extremists that create unrealistic rants.

jlgreco2• 13 years ago

What happens if I send dirty money to my enemy's registered address?

gojomo4• 13 years ago

Your client/wallet detects it and offers a pop-up with registration or forfeiture options. Up to a certain amount (per person, per year) you can probably just pay a small excise tax (less than 100% forfeiture) to 'clean' it. Larger amounts without explanation would mean a visit from the taxman or Justice Department, however.

coldtea6• 13 years ago

The same thing that happens if you deposit them in his bank account?

JumpCrisscross• 13 years ago

Bitcoin is not, practically speaking, going to replace the dollar or euro. This ambition projected onto it by anarchist promoters and alarmist detractors does not have a practical base. Instead, it is competing to be the floating alternative currency of choice. The question of a state taxing on the basis of Bitcoin is thus mis-placed.

The best case for Bitcoin would be inheriting the transactional characteristics of cash, i.e. facilitating transactions that one wishes to keep anonymous (or at least pseudonymous), and asset characteristics of gold, i.e. a fixed supply store of value. It competes solidly as a lightweight and comparatively secure alternative to both.

SkyMarshal• 13 years ago

>The best case for Bitcoin would be inheriting the transactional characteristics of cash, i.e. facilitating transactions that one wishes to keep anonymous (or at least pseudonymous), and asset characteristics of gold

It definitely already has the first, but whether its volatility reduces to a level comparable with national currencies remains to be seen.

Even if it never achieves relative price stability, it could still make a good global money transmission system. People will continue to save in national currencies, and just convert to BTC to send money overseas, or use buy other currencies with lower fees, or buy stuff from global BTC merchant sites.

mkmkmmmmm• 13 years ago

That law would fail because there's no way to prove the transaction didn't come from someone who wants to cause trouble for the registered person but whom the person doesn't actually know. Suppose you are angry at a merchant who takes bitcoin:

1. Create new bitcoin address.

2. Receive bitcoins from someone for cash.

3. Send them to merchant's public address.

gojomo4• 13 years ago

If it's money they're not expecting, no problem: they just declare and forfeit it to the tax authorities, like a bag of cocaine-drenched cash that was found in their store.

If it's money given to them in payment for goods/services, they reject it as non-legal tender. "I'm sorry, sir, we can't take that form of payment, do you have another?"

Software makes this very easy... even automatic.

zach• 13 years ago

This must be why hackers never write these kind of polemics. If they take such a strong position on something like this, they end up seeing other perspectives which falsifies that position. They would have to tack on a "...Maybe" at the end of their title, rework their premise or otherwise end up sabotaging their article's readership.

It reminds me of this Calvin & Hobbes: http://jurassikparc.tumblr.com/image/8226642015

BrokenPipe2• 13 years ago

public keys are only available after you make a transaction and usually the bitcoin clients create a new address for each new transaction such that the public key for the account which actually holds the coins is never revealed.

gojomo4• 13 years ago

The constant generation of new balnace-holding addresses on demand, that are not typically shown to the user unless they dig, is an arbitrary choice of the Bitcoin-QT software, not a requirement of the protocol. In the protocol/blockchain, you can see every public key that has ever received any balance. You can have all your 'change' returned to a small set of pregenerated/registered addresses.

So the government just says, "Here, use one of these 12 wallet programs, they are certified as automatically compliant by the IRS. Using other software makes compliance your own headache."

Andrew_Quentin• 13 years ago

That is a bit like having to register your bank account with the government. The opposition I can envision to that is considerable.

Moreover, what happens if everyone decides to ignore it? After all downloading copyrighted material without a license is a crime.

lucb1e• 13 years ago

Reality check: billion-dollar company posts news message after news message about how a their-business-disrupting new technology is bad.

davidjohnstone2• 13 years ago

Crypto-currencies might be, but I don't think Bitcoin is an existential threat to the modern liberal state.

The anonymity that every mainstream article claims Bitcoin has is not nearly as strong as it's made out to be[1][2][3].

The built-in deflationary aspect of Bitcoin seems to prevent it from being used as a "serious" currency. Hiding money under your mattress should never be the optimal approach to making more money. (It might not prevent people from using the currency, but it's highly sub-optimal.)

The fragility of the currency concerns me (by which I mean the way it's possible to lose massive amounts of money by losing a file or forgetting a password). Maybe this is a technical problem that will be solved with a more mature ecosystem, but I like the way that a real bank always has ways to access money when bad things happen (at least in a functioning banking system). This thread[4] documents the loss of about 70,000 Bitcoins, which is worth about ten million dollars today. Related to this, if somebody hacked the EFF's Twitter account and posted that they were accepting Bitcoin donations on some address, a lot of Bitcoins would disappear into somebodies wallet. You could argue that Bitcoin is a more perfect sort of system, but it's not without downsides.

Maybe another crypto-currency will come along and solve these problems. I think I hope it does. But I don't see Bitcoin supplanting modern state-backed currencies. I find it hard to see Bitcoin being used more widely than by the idealogues, the speculators, and those who find utility in it (like Silk Road, but not just that).

1. http://arxiv.org/pdf/1107.4524.pdf

2. http://eprint.iacr.org/2012/584.pdf

3. https://en.bitcoin.it/wiki/Anonymity

4. https://bitcointalk.org/index.php?topic=7253.0

sliverstorm5• 13 years ago

You could argue that Bitcoin is a more perfect sort of system

Which could be exactly why it is wrong for humans- as we are more imperfect than perfect :)

Evbn4• 13 years ago

Google doesn't lose your mail. BofA could keep track of your bit coins.

trotsky• 13 years ago

The only way you could think bitcoin is a threat to state revenue is by misunderstanding methods of taxation. Income and corporate taxes are determined almost entirely by self reporting and laws that shift tax burdens from one entity to another which require disclosure. It's relatively easy to evade taxes as long as you operate in a closed loop where no one reports even with modern financial instruments.

The problem only comes when you want to use the money to buy things from taxpayers, which is, you know, most business. This is such a problem that money laundering is primarily concerned with finding ways to pay taxes not to avoid them, so that people can pay for houses and such. Bitcoin actually makes this far more difficult than USD because of the encoded transactional history - just ask anyone sitting on the large piles of stolen bitcoins that have yet to be retransfered.

The methods of enforcement would change, for sure. But anyone who thinks that revenue offices would be unable to model monetary distribution via the blockchain hasn't been paying attention to what US security forces have been doing with the databases of how groups interact based on who they call (association graphs).

skore3• 13 years ago

> just ask anyone sitting on the large piles of stolen bitcoins that have yet to be retransfered.

Wow, I never thought about that. Very interesting! Does anybody have more insight into this?

eurleif• 13 years ago

I wonder to what extent it may contribute to BitCoin's deflation: drug dealers make money on Silk Road, can't readily transfer it out of BitCoins, and probably think there's a good chance BitCoins will continue to become more valuable anyway, so they leave the money sitting in BitCoins.

bbbhn• 13 years ago

Wow, the financial press is falling in love with writing about Bitcoin.

Now that it's been linked to Cyprus there's an increased probability of Bitcoin being discussed in reference to future Eurozone economic events. Which means more mainstream awareness & more potential adopters.

I have a hard time seeing Bitcoin going away in the near future. Even if it's a bubble, and I have my doubts about that, odds are we have yet to reach the peak.

It's political nature also holds a lot of potential. There are some very, very discontent people all over the world, both Western and non-Western. Segments of the Greek population have latched onto neo-nazism -- is it really that unrealistic that another desperate population might latch onto Bitcoin?

Apocryphon• 13 years ago

Bruce Sterling considered this, thirteen years ago: http://www.time.com/time/printout/0,8816,997255,00.html

baby• 13 years ago

With all those bitcoins thread on HN I'm waiting for a HN Poll to know if you guys have bitcoins or not.

Zigurd2• 13 years ago

Bitcoin is analogous to gold. To the extent it is more of a "threat" than gold, it is because moving bitcoin across national borders is easier. You also don't have to assay it.

This article is alarmism. There is no theory of how bitcoin will facilitate more tax evasion or transactions for contraband, than cash or, or bearer bonds, or gold do.

Evbn4• 13 years ago

Do bearer bonds still exist? It thought they were replaced by electronic securities because, you know, their only unique purpose is for theft.

Zigurd2• 13 years ago

They are pretty much extinct in the US. Not because of theft, but because transaction in them are hard to track.

chrismealy• 13 years ago

No, it's not. The government can throw you in jail if you don't pay your taxes. Money is a get out of jail free card. That's what makes money valuable.

http://en.wikipedia.org/wiki/Chartalism

matt_panaro• 13 years ago

I was just reading some posts about potential BitCoin issues: http://www.loper-os.org/?p=1009 http://www.loper-os.org/?p=939 If the conclusions about the vulnerabilities of BitCoin are correct, then I'm not sure it can qualify as an "existential threat"

alexqgb• 13 years ago

The OP is not to be taken seriously, thanks to deep ignorance about how currency works in general, and how bitcoin works in particular.

In 1998, Paul Krugman described the fatal flaw that will inevitably sink any currency that includes it; a flaw that Bitcoin's designers have overlooked.

http://www.forbes.com/sites/pascalemmanuelgobry/2013/04/05/k... …

So no, Bitcoin is not an "Existential threat to the Modern Liberal State". Not even close.

danenania• 13 years ago

Well the so-called "Modern Liberal State" is an existential threat to humanity, so it seems fair to me.

skore3• 13 years ago

Anybody else get the feeling that we see an increasing amount of articles where the author writes about what he or she thinks bitcoin is?

It's like multiple, recursive generations of FUD.

JulianMorrison• 13 years ago

Macroeconomics is the part of this that isn't FUD. The BTC money supply will remain slightly deflationary regardless of what's in your national best interests. It's not unlike being in the Euro, except that we have pitiless automation playing the part of Germany. You might want to devalue, or print money to cover your pension obligations or restart a stagflation death-spiral, but BTC does not offer you any means to do this.

The old way of maintaining control local macroeconomics was to demand that "you may use whatever variety of wooden doubloons you please, but you pay your taxes in USD". For simplicity, people use USD for everything. However if the economy starts to run on BTC, this rule's traction fails, USD becomes funny-money you buy at the government's gate, and its inflation saps the government rather than the taxpayer.

Bitcoin Is an Existential Threat to the Modern Liberal State

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