Regulators Need to Take It Easy on Bitcoin Startups

http://www.wired.com/opinion/2014/03/safe-harbor-for-finance-startups-regulation/

by peter123 • 12 years ago

16 57 12 years ago

thinkcomp2• 12 years ago

Jerry has a few things right here, but he's mostly wrong.

Regulators should do anything but "take it easy" on Bitcoin startups. Bitcoin has proven to be in practical terms one of the most risky potentially legitimate investment classes known to man. I'm not discussing its potential use as a currency because it's in fact so risky that it hasn't even made it there yet. All of this means that regulators should be forcing Bitcoin startups to justify themselves.

I have proposed a bill to amend 18 U.S.C. § 1960 that I think would be a step in the right direction:

http://www.plainsite.org/issues/index.html?id=2

I think the notion of a proportionally and increasingly scaled premium paid to an FDIC-style insure is the right way to go (bigger institutions put slightly more in per dollar held in trust to account for systemic risk), but if you handle Bitcoin? Multiply the premium times 30.

a3voices• 12 years ago

If you don't want the risk, then don't invest. Nobody is forcing anyone to put money into Bitcoin or Bitcoin-related ventures.

thinkcomp2• 12 years ago

I haven't. But it's not fair or sensible for Bitcoin-related companies to get a free pass (when they present higher levels of risk) while other companies that aren't similarly risky get normal levels of scrutiny.

mycroft-holmes5• 12 years ago

Everybody has varying levels of comfort with the amount of risk they're willing to take. There's no need for regulation. Let the companies operate how they want to operate and let people decide if they want to do business with them. We don't need bureaucrats telling us the level of risk we're allowed to get ourselves into.

jlarocco3• 12 years ago

That ship's already sailed.

Governments regulate things that are risky. It's the main reason we have agencies like the FDA and SEC.

normloman3• 12 years ago

When too many people take bad risks, it can take the whole economy down with it, affecting people who never took the risk in the first place. So yes, we do need bureaucrats to regulate risky investments.

cecilpl• 12 years ago

Leaded gasoline. In my 70s-era car, I want to use it instead of unleaded, since it improves my fuel economy significantly. However, the total cost of the lead in the environment far outweighs the economic benefit. We needed regulation to fix this.

Thalidomide. Regulation prevented thousands of deformities in the US by imposing a proof-of-safety barrier before the drug was allowed to be sold. Other countries were not so lucky as to have that regulation in place.

More to the point... How, as an individual, am I supposed to make an informed judgement about the relative risks of MtGox vs Bitstamp, say? I have no inside information about how those companies operate. There's a huge information asymmetry problem that regulation alleviates.

AndrewBissell3• 12 years ago

If I want to keep my BTC at an exchange or bank with deposit insurance, I can choose to do so for myself, thanks.

Don't get me started on the notion of deposit "insurance" backed by razor-thin reserves against the total level of liabilities, like what the FDIC represents today. It's hard to imagine a more effective engine for creating moral hazard (and ultimately systemic risk, although we still have yet to see this manifest itself with the FDIC, I think it's coming). As I see it, one of the biggest potentials wins from the Bitcoin ecosystem is bringing back the possibility for custodians to compete on terms of liquidity and safety. It would be a shame if that potential was squandered by a meddlesome intervention like yours.

pjc502• 12 years ago

compete on terms of liquidity and safety

But this doesn't work, because the public have no real means of assessing either of these and Akerlof's Market For Lemons applies.

notahacker• 12 years ago

The interesting thing about Jerry's article is that beyond the "take it easy" headline, he seems to be suggesting that even unlicenced Bitcoin startups should have to pay a bond proportionate to the level of transactions they're handling (presumably in dollars) and could be shut down relatively swiftly if they attract consumer complaints. That's placing a higher bar for entry than exists in a regulatory environment where many BTC startups think they can worry about money transmissions licences later anyway.

mariusz79• 12 years ago

No they don't.

tlrobinson4• 12 years ago

Thank you for your valuable insight.

georgemcbay2• 12 years ago

I agree. Bitcoin exchanges should be free to lose and/or steal all the bitcoins they hold at any time with no repercussions. As a non-participant in bitcoin, lack of regulation makes the whole bitcoin economy so much more interesting to read about.

sp3325• 12 years ago

It's already illegal to steal bitcoins. And if an exchange represents that it takes certain measures to secure wallets when it really doesn't, that's fraud. Other than that, what is there to regulate?

sillysaurus32• 12 years ago

Well, I lost all of my Mt. Gox bitcoins, and it seems to me there were no repercussions for the founders. They could have stolen the coins and nobody would be the wiser. It's already become clear that there was much more to the story than Gox has revealed, e.g. that they knew about malleability since 2011 and then were reminded again in November.

lern_too_spel• 12 years ago

The great thing about bitcoin being unregulated is that governments haven't yet gone after mixers, so it's trivial to launder bitcoins. If you want to steal and not get caught, bitcoin is the place to be.

alex_c• 12 years ago

Curious what you think about PCI Compliance and whether it should exist. After all, stealing credit card numbers is already illegal.

czr804• 12 years ago

I'm sure this is a silly question, but... under what law is it illegal to steal bitcoins, exactly?

bertil• 12 years ago

Define relevant measures for protection: too many exchanges (three so far) have gotten away with the equivalent of bacon advertising as “without any added sugar”.

I find it amusing when it’s about stupid-mocking the content of my breakfast, it's a lot less enjoyable when the security protocols being explosively undermined by jerks also protect and ensure trust in non-BitCoin economy.

You are not alone. Stop arguing that is your libertarian right to lick plague-ridden rags.

smtddr2• 12 years ago

Article says: >>Not because protecting consumers isn’t important — it is — it’s just that regulators should balance their goal of protecting consumers with the equally important goal of fostering a climate that welcomes entrepreneurs and innovation.

Of course nobody wants random mass-bitcoin-holding businesses imploding with robberies and scams, but I don't think I want it to be like Banks/WesternUnion/etc either. One issue in particular; I don't want this[1] to be possible with bitcoin.

1. http://falkvinge.net/2012/11/20/europarliament-scolds-visa-m...

boon• 12 years ago

The bitcoin community needs to come together and prove that legitimate self-regulation and sufficient transparency can work. We need to shed the Mt. Gox's by choice, and choose firms that are willing to undergo third party audits (like Coinbase did recently).

I'm a firm believer that there are better avenues than regulation-at-gunpoint, and cryptocurrencies are looking like a big part of that, but the community needs to prove this.

sp3325• 12 years ago

To self-regulate, we need to convince people not to keep balances in third-party wallets. This was one of the main features of bitcoin, and people are just ignoring it. I don't hold out much hope for other reforms like "don't trust faceless websites with your money".

gutnor• 12 years ago

Money and self-regulation is never a good mix and it has not even been 10 years since the last time we have all suffered the result.

Of course, the point is not doing it too early to avoid chocking the potential of bitcoin, but eventually, as bitcoin grows, after the power has shifted from the original believer to greed-driven finance professional, you will need regulation to rein them in.

Of course, we can dream that communities will be strong enough. But let's be realistic - financial world has the money and it is their job to play with it, it would make no sense for them to ignore something as important as bitcoin is becoming.

wyager• 12 years ago

Money and self-regulation is never a good mix and it has not even been 10 years since the last time we have all suffered the result.

Unless you have unyielding cryptographic primitives to help.

I'm at the Austin Bitcoin conference right now listening to a talk about Open Transactions and cryptographic exchange auditing. It sounds like exchange theft is pretty much a solved problem. Using crypto, we now have ways to make theft or coin loss pretty much a problem of the past, because we can make operating a fractional reserve exchange impossible and make stealing coins very, very hard. It seems like cryptographic regulation is drastically more effective than government regulation.

Regulators Need to Take It Easy on Bitcoin Startups

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