Every important person in BitCoin just got subpoenaed by NY financial regulators

http://www.forbes.com/sites/kashmirhill/2013/08/12/every-important-person-in-bitcoin-just-got-subpoenaed-by-new-yorks-financial-regulator/

by martin_ • 13 years ago

324 189 13 years ago

forbes.com

aspensmonster• 13 years ago

Well, my own submission just got [dead]ed --no indication as to why-- but I'll paste my comment here as well:

I know very little about Bitcoin or money transmission laws. Unlike other currencies it does not seem to have fundamental dependence on any centralized arbiter, though the practicalities of large exchanges like Mt. Gox seem apparent to me. That lack of dependence on a Fed-like body appears to me like its biggest advantage, above any other potential for anonymous payment and laundering. I'd like to know what exactly is entailed in becoming compliant with money transmitting and laundering regulations and whether Bitcoin in its current form could become effectively compliant. Is that even a meaningful concept, or does the structure of Bitcoin fundamentally preclude coming into effective compliance?

[dead]ed submission: https://news.ycombinator.com/item?id=6201643

pyre• 13 years ago

whether Bitcoin in its current form could become effectively compliant

Why couldn't it be? The entire transaction history of a wallet is preserved into the future. As soon as you correlate a BitCoin wallet with a person, you have their entire history with that wallet. It seems more like a government's wet dream than anything else.

lubos• 13 years ago

ehm, no. you can create brand new wallet for each transaction and wallet on its own is not connected to your real identity in any way. it's more like government's worst nightmare.

hyperplane• 13 years ago

"I'd like to know what exactly is entailed in becoming compliant with money transmitting and laundering regulations."

This. Someone with more understanding of financial regulation, please step in and explain what it is the government would actually want from the currency. This sounds scary to some extent but there's no real reason that it needs to be. I assume it is to enforce real-world identities at the USD/BTC exchange point.

thinkcomp• 13 years ago

http://www.thinkcomputer.com/corporate/whitepapers/heldhosta... is a good place to start.

rayiner6• 13 years ago

Financial regulations have little do to with the Fed. They apply to transactions in money, not money itself. It doesn't matter whether the transactions are denominated in USD or Euros, and now apparently Bitcoin.

It's not meaningful to ask whether Bitcoin could become compliant. Bitcoin exchanges and processors could become compliant. This means having in place systems to detect money laundering, etc. it might be even easier in Bitcoin, given how much transaction state is stored in a distributed fashion forever.

gamblor956• 13 years ago

The government doesn't want anything with the currency. It couldn't care less. The government is concerned with the businesses that transmit or transact the currency.

Money transmittal laws vary from state to state and country to country. The exact requirements thus depend on the very specific circumstances of the business at issue.

runarb• 13 years ago

Looks like the price of Bitcoins just made a good jump at https://www.mtgox.com/ . Are speculants thinking that if the us government are geting involved it validates Bitcoin further?

Edit: Screenshot of the jump: http://i.imgur.com/G5Dk7Nh.png

phreeza• 13 years ago

possibly also something more along the lines of 'anything that keeps bitcoin in the news is good news', keeping up the influx of new people wanting to try bitcoin.

drcode• 13 years ago

All publicity is good publicity.

pmorici4• 13 years ago

mtgox isn't an accurate measure of the real price of BitCoin right now. Since all USD withdrawals are effectively shut down the USD price on Mt. Gox is artificially high right now.

pnathan3• 13 years ago

Unpopular opinion of the day: bitcoin is real money, and the government will regulate it and control it as such.

In my opinion, the end-game is this: bitcoin addresses are taxable, with occasional tax agents spot-checking large accumulations of bitcoin to determine if said addresses fall within their jurisdiction. Bitcoin has the unusual ability to have a very tight trace on where a given virtual coin goes: that just makes the ability to watch the money easier.

rayiner6• 13 years ago

I don't know why this should be unpopular, except among people who see the Internet as a new Wild West. The basic advantage of Bitcoin, that its controlled by an algorithm rather than a central bank, exists whether or not financial regulations apply to Bitcoin. Does it destroy the utility of a crypto currency for exchanges and processors to be required to detect e.g. money laundering?

antitrust2• 13 years ago

the Internet as a new Wild West

I thought that idea died, was buried, exhumed, and reburied back in 1996.

VMG• 13 years ago

Does it destroy the utility of a crypto currency for exchanges and processors to be required to detect e.g. money laundering?

It introduces a mandatory third party (the government) to transactions where only two parties are intended.

Such a virtual currency could be designed, and I don't believe it would be successful.

The Bitcoin protocol allows two parties to transact without any outside interference. If governments can restrict using a protocol remains to be seen.

revelation• 13 years ago

It's the wild west, except not a single person ever died from it. It's a communications network. I'm all for treating it as the wild-west, self regulating thing it is.

Applying this logic, mail is the old Wild West.

DougWebb• 13 years ago

A bitcoin address is just a container for some amount of BTC. Holding an amount of currency isn't taxable, and exchanging currency often isn't taxable either. (I'm generalizing across jurisdictions, but I think what I'm saying is true for most of them.)

If you move money from one pocket to another, or one savings account to another (that you own), that's not taxable. Very many transfers between bitcoin addresses is just like that: the 'change' from a transfer goes to a new address owned by the same person.

Even when the addresses are owned by two different people, the transfer often isn't taxable. You don't pay a tax when you pay a bill, but that's a currency transfer between two parties. Even when you buy something it isn't necessarily taxable; in many jurisdictions many products are sold tax-free based on either the type of product or where the buyer and/or seller are based.

I don't think there's a way to enforce taxation on bitcoin that's not already being used to enforce cash sales taxes and cash income, despite the tracability of the coins, because the address owners may not be identifiable, and the nature of the transfer is definitely not identifiable from the blockchain.

Thiz• 13 years ago

Great explanation.

Ignore my ignorance in crypto stuff, so, what's stopping us from creating a hundred accounts in one computer and having a couple of bitcoins in each one of them?

Or even spread in one hundred shared peer-to-peer bank services?

TomaszZielinski• 13 years ago

exchanging currency often isn't taxable either

Exchanging currency often generates "exchange differences" which (often indirectly) increase/decrease the profit.

swampthing2• 13 years ago

I'm not sure that's an accurate representation of how things work in the tax world. You don't pay a tax when you pay a bill, but it's likely the recipient of your money includes it as income on their tax return. Same goes for any seller - whether or not a sales tax is involved. If you were to transfer a large amount of money from your bank account to a friend's, your friend would likely have to count that money as income on their tax return (as a gift).

The way the US tax code is set up, any income is taxable unless there's an exception for it.

dendory• 13 years ago

In Canada, even if you destroy all paperwork and tell the taxman that you don't remember anything, the law permits them to look at your assets and decide how much you owe. Then it's your burden to prove otherwise. Is it different in the US? Hell they could even force exchanges or code mainteners to build in a tax system.

e12e3• 13 years ago

Holding an amount of currency isn't taxable

It is in Norway - any cash or deposits in excess of 750.000 NOK (around 125.000 USD or so) is taxed in addtion to interest being taxed as income.

Now, cash isn't easily detectable, so it is a very easy asset to hide -- but while possible, that would be tax evasion and is illegal.

kaonashi5• 13 years ago

(For Americans) If you earn income in bitcoins, you still have to pay tax in USD. If you earn income in Euros, you still have to pay tax in USD. Bitcoin does not absolve you of your tax obligations, even thought it might help you to evade them.

flyinglizard• 13 years ago

This is why I don't believe in BTC for the long term. It's not anywhere near anonymous.

Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner (good luck buying stuff on SR using gold).

Unfortunately, BTC is traceable if governments decide to spend the resources monitoring transactions, and I suspect this would be the primary motivator in the demise of BTC and a replacement with a more anonymous currency - the other motivator being that there's a huge financial upside for being an inventor or early adopter of a successful cryptocurrency, as BTC shown us.

tazzy531• 13 years ago

Isn't BTC's public ledger public? (https://blockchain.info/)

While it's possible to generate a new wallet to mask who the user is, the transaction flow can be traceable. This seems easier to trace than the flow of money through our banking system.

mtgx2• 13 years ago

There is this proposed extension for anonymity, but I don't think it's very likely it will be implemented:

http://zerocoin.org/

necubi• 13 years ago

People claiming BTC has no inherent value aren't talking about the general concept or code—they're referring to this particular blockchain.

LekkoscPiwa• 13 years ago

However, BTC is just a great example that might find followers who will make it hmmmm... more anonymous.

Money has just two functions: (1) It has to maintain its value over time (2) People must accept it as means of setting payments

BTC seems to meet both.

It's not anonymous "enough", but I guess this could be fixed with another iteration. (another electronic currency).

It would be great for the world to have more currencies than the monopolistic currencies enforced by the modern states (fiat currencies). Just to own something that doesn't have its monetary base doubled in 4 years, would be awesome! (USD base rose two times from 2008 to 2012).

sillysaurus• 13 years ago

If the government steps in to "de-anonymize" bitcoin, then people will simply begin using tumbling services. People don't use those services right now because there's no impetus to. But as soon as the trust inherent to the public ledger is violated by creating a large-scale effort to track the flow of bitcoin, then people will counter that action with tumblers.

betterunix5• 13 years ago

"Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner"

Really? When last I checked the overwhelming majority of criminals were using paper money. This is probably because the overwhelming majority of people in general use paper money and because criminals have to pay rent like anyone else.

lmm3• 13 years ago

Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner (good luck buying stuff on SR using gold).

Alternative equivalents like litecoin work equally well.

That's why I think bitcoin is bound to collapse. There's no a priori reason to use one root over another, and given the choice, why would you pick the one where "satoshi" has already assigned himself 25% of the wealth?

mtgx2• 13 years ago

I think in the short term at least, this is beneficial for Bitcoin, if it's recognized as money, and businesses and "normal" people start trusting to use it without fearing repercussions from the government, as long as they "follow the rules".

This could lead to more centralized exchanges, which again is good in the short term - the more the merrier, so people can easily get Bitcoin with their dollars.

But I think the end game for Bitcoin is to be a "real currency" that gets used everywhere and people get paid in it, to the point where a lot of people won't need to exchange to dollars necessarily.

At that point you could start living entirely with Bitcoins, and you won't need centralized services anymore either. You can just use your own local wallet, whether it's on your PC, smartphone, or NFC ring.

Tracking the transactions through services like Coinbase or Mtgox is obviously going to be trivial for the authorities, since they can just request the data tied to people's names.

But it's going to be a lot harder to see them when you're using local wallets, unless the IRS is still receiving help from the NSA at that point, because you'll probably need something like the mass surveillance system of NSA tracking every transaction from the whole Internet, and using Big Data to identify who's buying what. But hopefully by then we'll fix the NSA "problem".

Nursie• 13 years ago

Local wallets is not a really accurate term - all BTC transactions go in the public ledger. It's kinda one of the flaws of bitcoin, there's no such thing as an offline transaction.

pnathan3• 13 years ago

Right now we're mid-game with btc. It appears that the implicit strategy by the authorities is to treat it as a functioning currency. Fine then; that is good for btc's long-term success. It also implies that the tax-man is coming. btc is not going to live as wildcat currency used by the fringe, untaxed and destroying economic supremacy (That is to say, I disagree with the idea that btc will destroy the economic system that some people favor).

Also, the blockchain is 100% public. So if you can tie a btc address to a real person (perhaps via tax returns requiring you to declare your virtual currency addresses), then the entire pseudo-nymousness of btc goes out the door.

Things to think about.

coinman3• 13 years ago

In a way, bitcoin itself is not really a currency, or money, it's more like an idea for exchanging messages. Bitcoin is really a decentralized messaging system which relies on cryptography and proof-of-work to maintain integrity. Should exchanging messages in the form of "I owe you x amount" over a p2p network be regulated or be made illegal?

However, The fact that it's used as a form of currency is just an interpretation of what Bitcoin is. There can be other interpretations for what bitcoin-type system can be used for, for example Namecoin is used for name registrations. The judge declared that bitcoin is money by making an interpretation.

If anything, Bitcoin is just software. It will be very difficult to regulate.

1. Software using encryption is protected speech (http://en.wikipedia.org/wiki/Bernstein_v._United_States). Regulating bitcoin as in bitcoin the software would be a form of censorship.

2. Bitcoin uses many of the standard principles of cryptography we already use in e-commerce. Banning cryptography would have enormous consequences for the economy of the internet in general.

3. Banning or regulating p2p would cause an uproar.

4. If buying bitcoins in exchange for dollars is really exchanging a string of bits for money, then if this is banned or regulated, would it also ban buying software or other digital goods for money?

5. The regulations can't be too broad, but can't be too narrow. Would the laws restrict only bitcoin as a currency or other applications of bitcoin as well? If too broad, then they will unintentionally restrict other uses of bitcoin too. If too narrow, a new system will pop up again.

lutusp3• 13 years ago

In a way, bitcoin itself is not really a currency, or money, it's more like an idea for exchanging messages.

It's a way to convey messages, but the messages represent value in the same way that paper money does. If bitcoins can be exchanged for goods and services, then they represent the value of those goods and services, just like paper money.

An electronic message describing a transaction involving dollars, or euros, or some other wealth representation, is just a message about a transaction. But a bitcoin is the wealth representation -- it doesn't require, or refer to, another medium of exchange.

Your argument tries to deny the identity of bitcoins as currency, but that isn't so -- they're currency.

JoeAltmaier• 13 years ago

They are also disastrous for the planet - bitcoin's carbon footprint is growing, trading our planet for ... imaginary points. This has got to stop.

generalseven• 13 years ago

Bitcoin is really a decentralized messaging system...
The fact that it's used as a form of currency is just an interpretation of what Bitcoin is.

Gold star for your comment.

Many of the other interpretations are not regulated as currency and arguably should not be.

I can understand why people are excited about it being used as a simulation for something financial institutions would want to regulate. But the real potential is in the technology, and the innovation potential that comes out of it.

Recent regulatory moves may lead to attempts to try to kill bitcoin:

http://www.ownlifeful.net/2013/07/how-to-kill-bitcoin/

JumpCrisscross• 13 years ago

Money is, in essence, a messaging system for communicating value. The Minneapolis Fed published a paper in 1996, "Money is Memory". It shows that if one defines money as "an object that does not enter preferences or production and is available in fixed supply" and memory as "knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past," then "any allocation that is feasible in an environment with money is also feasible in the same environment with money." Hence, "from a technological point of view, money is equivalent to a primitive form of memory" [1].

The reference to "fixed supply" equivocates to "fixed prices" in a growing economy, i.e. one dollar has equivalent purchasing power today or a hundred years from now.

[1] http://www.minneapolisfed.org/research/sr/sr218.pdf "Money is Memory" (1996)

meowface• 13 years ago

I doubt they'd bother trying to tax transactions from one Bitcoin address to another. It'd be incredibly infeasible.

They will probably start requiring that all vendors who exchange real world currency or commodities for Bitcoin pay taxes on all such trades, however. Which isn't all that unreasonable.

rsynnott7• 13 years ago

It would seem far less infeasible than taxing cash transactions (far easier to trace), and cash transactions are certainly a thing of great interest to tax authorities.

nilved• 13 years ago

Unpopular opinion of the day: bitcoin is real money, and the government will regulate it and control it as such.

Which government?

samstave2• 13 years ago

There is only one, the NSA

tg3• 13 years ago

Over time, likely all of them.

lewispollard• 13 years ago

Was just thinking that. Say the US govt does put regulations on Bitcoin, do those regulations apply to me in as a UK citizen?

darkchasma• 13 years ago

Of course it is. If at any point where you think you have created a technology that will be tax free, it will only remain so until it becomes economically viable for the governments to tax it. We only have to look to Mass. software tax to realize this is the case, even when the implementation doesn't make a lick of sense.

kaonashi5• 13 years ago

Real money is a government IOU that can be redeemed to fulfill your tax obligation. Bitcoin fulfills neither of these. It's simply a receipt for wasted electricity.

tudorw• 13 years ago

I like paying tax, I use bitcoin for other reasons, who does not like to have schools and hospitals and the other things that come with taxes ?

cperciva• 13 years ago

Based on the title, I was hoping Satoshi Nakamoto had been subpoenaed.

wmf2• 13 years ago

Maybe he's just dodging the process server.

marshallford• 13 years ago

The issue of bitcoins vs IRS combined with the recent news about the NSA actually scares me. Why does the Gov feel the need to control us?

stfu• 13 years ago

Finally - New York is going after financial criminals! Oh wait a minute...

In related news last Friday the Justice Department had to admit that the success numbers Eric Holder trumpeted on mortgage fraud were massive overstated - by 80 percent. The government restated the statistics because it got caught red-handed by a couple of nosy reporters. Priorities...

[1] http://www.bloomberg.com/news/2013-08-11/eric-holder-owes-th...

mintplant• 13 years ago

This worries me more about other virtual currencies (eg. "game" money) than it does about Bitcoin. The last time something like this happened because of Bitcoin (FinCEN), Linden Lab forced the closure of all third-party Linden$ exchanges [1] to cover itself legally. Those were very scary times for everyone involved in Second Life.

As someone who does business in Linden$ et al, I (selfishly) wish the media hype around Bitcoin would simmer down, lest my own life become a lot more complicated. The way these government announcements always refer to cracking down on "virtual currencies" in general is very disconcerting, especially when the term is so hazily defined.

[1] http://blog.nalates.net/2013/05/08/end-of-linden-exchanges/

pmorici4• 13 years ago

"the department says it wants to make sure Bitcoin company customers’ funds are “safe and sound,” expressing concern about consumer complaints “about how quickly virtual currency transactions are processed.”"

So, are they saying there are complaints that the transactions are processed too quickly? Because I've never had a BitCoin transaction take more than an hour or so to complete where as my regular bank routinely takes about 3 business days. Makes you wonder what their motivations are.

josho• 13 years ago

It's doublespeak for we are taking an interest in this burgeoning opportunity and will likely be adding requirements to exchanges that will help to limit fraud, and ensure that the government gets whatever tax revenue they are obligated.

Frankly, I see it as the powerful interests (banks/gov) taking their first step to assert their control of the new market.

Someone less pessimistic may feel this is a good measure to ensure that something good will stay good by helping to keep fraud out of this new system.

rsynnott7• 13 years ago

I suspect they're talking more about conversion (see MtGox's perennial problems with withdrawing real money, and recently even bitcoins).

bpd1069• 13 years ago

Was interested to see how many posts were going to discuss the possibility of ban following Thailand. Not One.

Is this not a real and probably outcome?

waterlesscloud• 13 years ago

It wasn't banned in Thailand.

ganeumann• 13 years ago

This is just the tip of the iceberg. Of course the government cares about money, and of course it wants to control the money supply. And, as a consequence, the USA will never allow any major currency inside its borders other than the US dollar.

The history of the United States is littered with the fights over who gets to determine what is money and how much of it there is: Hamilton's fight with Jefferson and Madison over the need for a central bank, Jackson during his run for the Presidency denouncing the central bank--and this becoming the main issue in the campaign, the popularity of Williams Jenning Bryan (cf. the famous "Cross of Gold" speech), etc. etc. all the way up to the horrible stagflation of the 1970s ("Whip Inflation Now!") and the recession caused by the ultimately successful efforts by Fed Chairman Paul Volcker's to end it. It is reasonable to believe--and certainly most people in the US government believe--that control of The Money is control of the economy.

Why would any successful government ever voluntarily give up that control?

kaonashi5• 13 years ago

Why would any successful government ever voluntarily give up that control?

They really can't give it up. It's the foundation of government: the ability to issue debt and place an obligation on citizens to offer their goods and services to acquire that debt to fulfill that obligation. Unless the U.S. decides to adopt debt note convertibility to bitcoins, there's really no way for bitcoins to supplant the dollar.

cinquemb• 13 years ago

I pretty much agree with what you are saying : Governments (and central banks) would never voluntarily give up the control they have now, especially when a currency is being exchanged for one they have control over.

It is also interesting because bitcoin may be influenced by governments, but not issued by them nor central banks, which is already a fundamental difference in the battles that have come before.

The amount of time/resources that will be spent to try to control something that was never in their control (like kind of along the same lines as government measures in Argentina), nor under the control of any single entity for that matter, will be extremely telling. As far as I'm concerned the writing is on the wall… what is going on now is just the ongoing manifestation of what is to come next.

Not to mention that as more bitcoins are used/accepted by people in exchange for goods/services between individuals, governments will be and are increasingly being side stepped. It will be interesting to see this dynamic unfold more in places where (local) governments are becoming insolvent.

Bitcoin is in no position to supplant the USD, EUR, JPY, GBP, RNB etc, because bitcoin operates in between them now. And as more people loose faith in their respective currencies but still want ways to exchange between other individuals for goods/services, bitcoin will increasingly operate as well in a realm of its own.

saltyknuckles• 13 years ago

Other unpopular opinion of the day: Ron Paul was right about competing currencies being infringed on.

pmorici4• 13 years ago

Looks like this might be the least of BitCoin's government problems. Check out this appropriations bill currently before congress; http://beta.congress.gov/congressional-report/113th-congress... Search for BitCoin in the text and you get the following gem...

"Money laundering.--The Committee understands that Bitcoins and other forms of peer-to-peer digital currency are a potential means for criminal, terrorist or other illegal organizations and individuals to illegally launder and transfer money. News reports indicate that Bitcoins may have been used to help finance the flight and activity of fugitives. The Committee directs the FBI, in consultation with the Department and other Federal partners, to provide a briefing no later 120 days after the enactment of this Act on the nature and scale of the risk posed by such ersatz currency, both in financing illegal enterprises and in undermining financial institutions. The briefing should describe the FBI efforts in the context of a coordinated Federal response to this challenge, and identify staffing and other resources devoted to this effort."

Talk about a prejudiced statement. Time to call your congress person.

cLeEOGPw• 13 years ago

This is not prejudiced at all. All it states, is that the committee UNDERSTANDS that cryptocurencies have the POTENTIAL to be used for money laundering, etc. It is true, it can be used, and is used for those means.

pmorici4• 13 years ago

Did you read the whole thing? They call it an 'ersatz' currency. Look up the word ersatz it has pretty negative connotations it's hardly a neutral statement.

samstave2• 13 years ago

Explain why not a single banker has gone to prison from both the fraudulent foreclosure crisis and the 2008 wider banking crisis yet these fools all of a sudden want to regulate BTC?

They can't even regulate the US dollar.

ducklamp• 13 years ago

In the end the Federal reserve will protect their monopoly on money. The more legitimate Bitcoin becomes, the more likely a target of Fed action.

nullc2• 13 years ago

Good to know that _none_ of the technical people or authors of the software are important as far as NY is concerned! :P

e3pi• 13 years ago

Coincidentally today:

Crypto-currency for NSA leaker: Snowden fund accepts Bitcoin

Published time: August 12, 2013 14:51

US fugitive Edward Snowden’s defense fund, launched recently by WikiLeaks to raise money for the legal protection of the NSA leaker, has announced it now accepts donations in virtual currency Bitcoin.

http://rt.com/news/bitcoin-snowden-fund-wikileaks-384/

eddywebs• 13 years ago

First they ignore you, then they laugh at you, then they fight you, then you win.

Every important person in BitCoin just got subpoenaed by NY financial regulators

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