Ripple fined for acting as a money services business without registration

http://www.fincen.gov/news_room/nr/pdf/20150505.pdf

by zmanian • 11 years ago

177 154 11 years ago

tomasien4• 11 years ago

I think the title is wrong, they didn't register with FinCen or comply with BSA AML. Money Transmitter stuff is a really different thing, did I miss something?

sctb• 11 years ago

We updated the title to use language from the news release, which didn't use the term "money transmitter".

lambda2• 11 years ago

The title currently reads "Ripple fined for acting as a money services business without registration", and the complaint says "Ripple Labs willfully violated several requirements of the Bank Secrecy Act (BSA) by acting as a money services business (MSB)and selling its virtual currency, known as XRP, without registering with FinCEN".

That looks like the title matches the contents. Did the title change since you wrote the question? It is important on Hacker News, when addressing anything about the title of a submission (or about the precise URL of the submission), to quote the title or URL you are talking about, as moderators sometimes silently change the title or update the URL to point to the actual underlying story rather than blogspam.

lambda2• 11 years ago

Ah, while I was writing that sctb replied explaining that they had changed the title.

colinsidoti3• 11 years ago

Oh! I've been waiting for a good place to ask this. I made www.stripepal.com as a weekend project. It's a super lightweight wrapper built on top of Stripe Checkout and Stripe Connect. Does anyone know if that makes me a money transmitter or money services business?

anigbrowl5• 11 years ago

There are multiple reasons that you should talk to a lawyer before going ahead with this, not least the cease-and-desist letter you are sooner or later going to receive from Paypal complaining about infringement of their trademark.

TTPrograms• 11 years ago

PayPal has a trademark on "Pal"?

mschuster91• 11 years ago

Ask a lawyer.

MCRed6• 11 years ago

You are as soon as they want you to be. I'm not being facetious. The laws, especially those relating to regulating finance, are written as broadly as possible to give them as much power as possible. If you hit their radar, they can send you away for a very long time.

On top of that, the legal system has little to no understanding of technology and it appears from the cases I've seen (as a layman) that the courts take analogies as fact. Thus if someone testifies "it's like doing X with Y" even though X is very different because it's digital than the literal concrete X, they take it at face value.

This is why scraping data on a public website is treated as if it was breaking into a computer system, because "its like trying all the doors and finding one that's unlocked and then going in and taking the houses contents, your honor!!!1"

patio11• 11 years ago

Long version: http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=d5570d7646c5...

Short version: You're a money transmitter, and hence a MSB, if they determine that you're providing payment processing services w/o there being an underlying good/service which is being paid for.

Shorter version: Pick a different weekend project, or your successful outcome is "Stripe disables your account due to fraud risk."

matthewarkin• 11 years ago

IANAL. You're using Stripe Connect (and assuming you're doing this the old connect way), its your user's Stripe account that is processing the charge and receiving the money. Your Stripe account isn't processing the charge and nor sending them money hence you're not transmitting anything. Stripe would be the MSB.

colinsidoti3• 11 years ago

Hey - I recognize you from Stripe IRC

This is the interpretation I'm hoping for. I am indeed using "the old connect way" (assuming you mean charging directly instead of through the platform). I wonder if taking a fee has an effect, though.

I pushed a question through to Stripe support. Will update here when I find out.

dd36• 11 years ago

Stripe is not a licensed MSB per their agreement. They seem to structure everything to avoid being called one.

https://stripe.com/us/terms

astrocat• 11 years ago

You've basically made cash.me - which is run by Square (squareup.com). And I have to agree with patio11: pat yourself on the back for being as smart as the bright minds Square, have a beer, then pick a new weekend project :)

jasonisalive6• 11 years ago

Alternative advice from someone with an anarchistic bent: ignore the law and join the resistance against government. The more people who do it, the less power they have to stop it. People convincing themselves that they need to stay out of trouble and play by the government's rules is what Nietzsche would call internalising the slave mentality, and Foucault "self-policing."

unethical_ban• 11 years ago

I wonder how sustainable this is in the long-term: trying to shut down every website/protocol where imaginary numbers that are valued by multiple people are hosted.

xyzzy1232• 11 years ago

You police the interactions between the virtual currency and $COUNTRY banking system. To have any real liquidity, such exchanges need to have valuable reputation, i.e, be organisations subject to the law.

Yes, you can launder money through World of Warcraft but the payments usually go through Paypal. Online poker is another obvious way to launder hit hard by KYC.

lectrick• 11 years ago

This will only cause people to flee to the virtual currency and stay there, over time. It literally incentivizes staying in the virtual currency... just like people like to "stay" in cash, now (in fact, just today a contractor offered me no tax if I paid him cash...)

How the powers that be do not see this, astounds me.

As soon as the first cryptocurrency acquires some semblance of price stability, it becomes more dangerous to the old system.

Given 2 options, one with a lot of friction and one without, no matter the "marketshare" of the first, the latter one will eventually win.

The only way fiat can prevent this is to stop punishing good actors with AML/KYC compliance.

The fact that these laws still refer to and try to regulate geographically-focused transfers of money (which make literally no sense in an Internet cryptocurrency context... If I fly in a plane and have a Bitcoin wallet app on my phone which gives me access to spend 15 grand worth of Bitcoins anywhere (including ON the plane, if it has wifi), do I have to "declare" the "carrying" of more than $10,000 "cash"?) shows how behind-the-times this worldview is.

MCRed6• 11 years ago

As these virtual currencies become more practical as currencies, there will be less transactions between them and the banking system. It won't be immediately cashed out after the transaction as they are now.

hurin2• 11 years ago

Ripple is semi-centralized, so unlike Bitcoin they can in fact enforce actions against them in a way that affects all of the protocol users.

27182818284• 11 years ago

I'm really confused on this. I thought that the IRS taxed cyrptocurrencies as property? If that's true, how is the "and selling its virtual currency, known as XRP, without registering" a problem?

I can understand the aspect of transmitting money and how that could get them into trouble, though.

dragonwriter6• 11 years ago

I thought that the IRS taxed cyrptocurrencies as property? If that's true, how is the "and selling its virtual currency, known as XRP, without registering" a problem?

Because tax law and money service business law are completely different areas of law with different applicable definitions, such that what a particular thing is treated as for tax purpose has no bearing whatsoever on how money service business law regards it.

MCRed6• 11 years ago

One thing I've observed many times over the years is that the government likes to have its cake and eat it too. For instance, they ruled that gold coins were legal tender. Then one bright employer started paying his employees in gold coins from the US Mint.

If I give you 12 $50 gold coins that are legal tender, I've paid you $600 dollars, right? Say your salary is one of those a month. What should you claim as your income on your taxes? $600? That's well below the $4k and you don't even have to file.

https://en.wikipedia.org/wiki/American_Gold_Eagle

But the IRS decided that it didn't matter that they were $50 legal tender, and took him to court where the court rules that the "value" of them was what mattered.

So here they are literally claiming it is one way when it's convenient to them and another when that is more convenient.

The laws are written, always, to give maximum power and flexibility to the government and little to none to you.

Expecting consistency out of them would be a mistake.

A_COMPUTER• 11 years ago

It's difficult to use that particular example, because in reality he was still paying them with cash, but just the cash value of the gold coins, rather than the gold coins themselves. I'm not disagreeing with you that the government wants to have its cake and eat it too, but so did that guy. Maybe the case wouldn't have been so clear-cut if he'd actually paid them in gold coins.

wmf3• 11 years ago

Various problems emerge when you dig deeper into this idea. Is the employer paying less than minimum wage? Presumably the employer buys each coin for >$1,000 and thus takes a massive loss by "selling" it to an employee for $50; is that an accounting problem? Presumably the employee takes their "$50" salary and sells it for >$1,000; is that not a taxable gain for the employee?

colechristensen• 11 years ago

Clearly, someone who is trying to pay their employees with gold coins is trying to evade taxes. Of the many grey-legal ways to avoid taxes, this one particularly shouldn't make a person indignant. Find other places to complain about the lack of empowerment of ordinary citizens which are a tad bit more reasonable.

s73v3r2• 11 years ago

Except you would be an idiot who is clearly trying to get around the rules, and would be rightfully shut down.

NeutronBoy• 11 years ago

One thing I've observed many times over the years is that the government likes to have its cake and eat it too

Just like the Bitcoin community, who to this day insist that Bitcoin is a legitimate alternative to 'cash money', then crow that they aren't subject to any of the existing laws governing 'cash money'?

anigbrowl5• 11 years ago

Even you don't buy this argument. Suppose you have one of these coins. I offer you a $50 bill and aa $5 bill in exchange because I like shiny metal things. You refuse, even though I am nominally offering you a profit of $5, because you're not an idiot and like me, you value the coin for its gold content rather than its facial value.

'Legal tender' does not mean 'sole determinant of value,' only that you as a creditor can't reject it if it is tendered to satisfy a debt. If you legally owe me $1 million and offer to settle the debt with a giant diamond, I might take your offer but I'm not obliged to. But if you offer me $1 million in $100 bills I have to take it - I can't reject it on the grounds of inconvenience or anything else. But suppose you owe me $50. Can I require you to pay me with one of the $50 gold coins? No, I have to take a $50 bill if that's what you choose to offer.

OF course, you're referring to the case where Robert Kayre wwent ot prison for 15 years for tax evasion involving gold coins.

http://cdn.ca9.uscourts.gov/datastore/opinions/2013/12/23/09...

What actually happened was his workers would go to a warehouse, where they would receive gold coins (or certificates of ownership of same), which they would then immediately 'sell' - at the same location - for envelopes full of cash. Kahre's wife produced payroll sheets based on the cash amounts. However, employees were never issued W-2 or 1099 forms, for either the cash amounts or the gold coin amounts. Notably, any employees who opted to retain coins rather than sell them had the fair market value of the coin deducted from the 'amount owed' in their payroll records. Generally they didn't, so Kahre and his wife would keep recirculating the same gold coins over and over - withdrawing a bunch of cash from the bank, 'paying' an employee with coins and then 'buying' them back immediately with the cash, 'paying' the next employee with the coins they had just 'bought' and so on.

Kahre was doing this not only for his own business (a drywall/construction services company) but for a bunch of other businesses in his local area, for which he raked off $14 million in fees, but didn't see fit to file any tax returns documenting this fact. All told, the total amount of unpaid taxes in the case amounted to about $57 million.

This wasn't bright,it was fraudulent. there was plenty of notice that where the market value of an asset exceeded the face value (as of these coins) that the asset was taxable as property at the market value, going to back to well before the coins in question were issued. Kahre's legal arguments depended heavily on the fact that the matter hadn't been litigated in court before, even though similar matters had and even though there were clear rules promulgated by the IRS. On top of that, the actual mechanics of the payment operation made it screamingly obvious that the payments in gold were nothing more than a sham, using workers' brief physical contact with the gold coins as justification for not filing taxes while operating a parallel system of buying and selling the same coins over and over as an excuse for getting regular old cash from the employer to the workers.

If you actually think schemes of this kind make sense then you are a gullible person and I strongly recommend you avoid investing on the basis of these beliefs.

ars• 11 years ago

I'm not following your argument. You have to pay taxes on gifts too, or barter. The gold coins are legal tender, and you have to pay tax on the value of the gift (the gold in that coin) you get.

jasonisalive6• 11 years ago

It's almost as if the government as a social institution continuously and inexorably acts to expand and reinforce its power over society, regardless of any constitutional or rational or utilitarian grounds for its expansion... as if the people in government seek to reinforce and expand the job security and fiscal prospects of being an agent of government, regardless of whether their actions are welcomed by or beneficial to the people they are ostensibly meant to serve, or actually just ever more patronising and controlling overreach...

Lawtonfogle5• 11 years ago

My favorite case of this:

We are going to charge you as an adult for producing child porn by taking a picture of yourself while you were a child.

almost_usual• 11 years ago

"and by failing to implement and maintain an adequate anti-money laundering (AML) program designed to protect its products from use by money launderers or terrorist financiers"

I believe not implementing the AML program is the real issue.

reviseddamage3• 11 years ago

I can see that you have gotten lots of responses about cake and eating cake and candies and sorts. In case you were looking for the direct answer> Selling is ok, Being in the business of exchanging (buying/selling) requires legal frameworks.

gonzo• 11 years ago

I was trying to figure out the 'Why' and then I got to Roger Ver being an investor in Ripple.

aaronbrethorst• 11 years ago

Context: http://talkingpointsmemo.com/edblog/im-so-so-glad-this-guy-e...

zaroth2• 11 years ago

From 'Ripple_Facts.pdf'

  On September 30, 2013, XRP II negotiated an approximately $250,000.00 
  transaction by email for a sale of XRP virtual currency with a third-party 
  individual. XRP II provided that individual with a “know your customer” 
  (“KYC”) form and asked that it be returned along with appropriate identification 
  in order to move forward with the transaction. The individual replied that another 
  source would provide the XRP virtual currency and did not “require anywhere 
  near as much paperwork” and essentially threatened to go elsewhere. Within 
  hours, XRP II agreed by email to dispense with its KYC requirement and move 
  forward with the transaction. Open source information indicates that this 
  individual, an investor in Ripple Labs, has a prior three-count federal felony 
  conviction for dealing in, mailing, and storing explosive devices and had been 
  sentenced to prison, see United States v. Roger Ver, CR 1-20127-JF (N.D. Cal. 
  2002);

MCRed6• 11 years ago

IF you think back to the days when the USA was founded, there was a great many risks facing the new government-- British spies could have been sent to undermine it, criminals of all manner and sort were out there as well. There were any number of excuses to make banks register transactions, limit ownership of firearms, control speech to stop anti-american and pro-british propaganda and the like.

But they didn't. In Britain, they saw the result of onerous regulations piled on top of each other for decades--- always with good excuses and claims of noble intentions-- and how it stifled the spirit.

As a result they fought, and then they went thru two forms of government in rapid succession ending up with the constitution which was only able to be passed after the Bill of Rights was added.

One of the arguments against tacking on the bill of rights was that by naming these rights they would be limited, and no mere 10 amendments could encompass all of mans rights. Thus, if you read the preamble to the bill of rights you'll notice a curious phrase that makes it clear that the rights are not granted by the constitution and not subject to its interpretation, but universal and pre-dating the constitution.

They chose freedom.

In the past 14 years, since 2001, but also since WWII, 1915 and the civil war to different degrees, we have seen our rights eroded, repeatedly and in small increments. Since 2001 it's been fast enough to be shocking to me, but at this point a 20 year old probably has never known a world without mass survielance.

My point is, people can talk about "money laundering"[1], terrorism and tax evasion-- these are all excuses. (There weren't even federal taxes before 1915, and for good reason. It took a constitutional amendment, which some debate was never properly ratified, to even get them.)

If the USA doesn't turn around and start embracing freedom, then more and more quickly we will slide to the despotism that caused use to leave the British in the first place.

Only in this age there are no colonies-- but there is cyberspace.

When bitcoin is illegal, only criminals will have bitcoin. When the black market grew to a certain size, the USSR fell. There's, in fact, an entire revolutionary movement[2] whose goal is to build and grow a black market to such a size that it forces the government to reveal the violence "inherent in the system" as Monty Python put it.

IF you're a frog in a pot of water, would you rather think of it as a hot tub or leap out into the fire?

[1] Literally a thought crime, that at the federal level is so broadly written that if you transfer money from your checking account to your savings account in order to pay your visa, you're guilty. IT's a catch all that wins convictions, never mind legal or moral principles.

[2] Counter-Economics, which came from the counter-cultural era, but is taking form more and more technologically these days. Google New Libertarian Manifesto by SEK3

javert6• 11 years ago

Every generation says the next generation is worse. It's actually true.

Western civilization reached it's peak right around 1776, the height of the Enlightenment, and it's been going downhill since then.

Every generation is worse than the last, and Western civilization will not last much longer unless the trend reverses.

You can't turn the United States into a Hugo Chavez-style system and expect a different outcome than the one in Venezuela.

Western Europe is more robust to socialism because the culture within each country is so homogenous, but even they won't be able to last forever. Especially with crackdowns on free speech.

MCRed6• 11 years ago

That's an interesting argument. Certainly to support it one would probably make references to the culture of the time. In the late 1700s there was sufficient level of education to make people think critically and consider alternatives, plus a great deal of philosophical understanding. Probably literacy reached a local maximum, or a higher level than in generations prior.

But one of the big challenges of success is that it's easy to take it for granted, especially each successive generation who grows up used to the benefits that their parents worked hard to win for them (or the results of major global conflicts in some cases. But even those result in post war booms.)

To take this out of the broad country level perspective, where technological and other advancements and history could be argued to be the cause-- we could look at the second and third generation immigrants to the USA. I suspect, and I hear this anecdotally, but I don't have data-- that the first generation kids are more industrious than the third or fourth-- and that this is probably true in the 1800s, 1900s and now.

In fact, I would argue that it was the presumption that prosperity (Which we've had) would result in ever higher levels of literacy (Which we've experienced) and thus higher levels of enlightenment and philosophical perspective due to ever better education and schools -- which we have not had.

Schools have slowly declined to the point where I suspect most schools don't even teach classical literature, let alone philosophy.

So, I think the lesson to learn from the USA is to never let the government take over the schools.

dragonwriter6• 11 years ago

Every generation says the next generation is worse. It's actually true.

Every generation has said that since, at least (judging from the earliest documented case I'm personally familiar with, which is no doubt many generations from when the trend started), the time of Plato.

Western civilization reached it's peak right around 1776, the height of the Enlightenment

[Considers status of the Atlantic slave trade, position of women in society, etc., in 1776]

Um, no. Just no.

Every generation is worse than the last

Its really not.

and Western civilization will not last much longer unless the trend reverses.

Western civilization isn't on any trend to disintegration, even if you may not like its current organization.

You can't turn the United States into a Hugo Chavez-style system and expect a different outcome than the one in Venezuela.

In what meaningful sense is the United States a "Hugo Chavez-style system"?

mtinkerhess• 11 years ago

"internet in the system"

I don't know if that's a typo but I really like it.

MCRed6• 11 years ago

Auto-correct strikes again. I've edited to fix, because it was a stretch to use that phrase anyway. For those who aren't familiar I'm making a reference to a Monty Python skit.

Here it is on YouTube: https://www.youtube.com/watch?v=dOOTKA0aGI0

So, if it's not clear- sometimes I'm baroque- in this situation I'm sorta being Dennis the Constitutional Peasant here. EG: I'm making fun of myself with the reference.

jonnybgood• 11 years ago

They chose freedom.

For white men... And 150+ years after that. Please stop with the romanticism.

skolor• 11 years ago

Don't forget that "they chose freedom" for a population of 2.5 million people[1]. That's less than Chicago or Nevada, today. The original thirteen colonies had a population density slightly lower than Wyoming.

The whole idea that the Founding Fathers had some perfect vision has always struck me as absurd. Even ignoring technological advances, the country now has more than 100x the population crammed into 9x the space. They made decisions for a country that is vastly different from what we have today.

[1] http://www.nam.ac.uk/exhibitions/online-exhibitions/war-amer...

donatj• 11 years ago

I hear this argument often, does it specify white men in the constitution? If so, point me in that direction as I'm curious.

nmrm2• 11 years ago

limit ownership of firearms

Slavery limited, among other far more obvious things, access to firearms.

control speech to stop anti-american and pro-british propaganda and the like

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

In general and in specifics, not even the founding fathers agreed on the appropriate trade-off between security and personal liberty. Perhaps the one thing they did agree on is democratic self-governance and the rule of law.

jlarocco• 11 years ago

It's more than a little ironic that you're posting this on the internet. People were using your same argument to argue that DARPA never should have funded the creation of the internet in the first place.

Unfortunately for your argument, most people want the benefits the government can provide. They want to be protected from things like money laundering and fraud.

I agree the government over steps its boundaries sometimes, but there's no need for the hyperbole. This is hardly on the same level as the NSA wire taps or the stuff that led up to the American Revolution.

Dylan168075• 11 years ago

It's more than a little ironic that you're posting this on the internet. People were using your same argument to argue that DARPA never should have funded the creation of the internet in the first place.

1. There's nothing wrong with using something you paid for, while also thinking you shouldn't have been forced to pay for it.

2. A much smaller government would still be able to fund research and development. Most states could fund DARPA.

Lawtonfogle5• 11 years ago

The internet would still exist. Slightly postponed, maybe worse, maybe much better. But it would still exist all the same.

tzs• 11 years ago

There were numerous Federal taxes before 1915. Federal taxes on imports were imposed around 1790. Federal excise taxes on domestic goods soon followed, although they were quite unpopular in some circles (Google "Whiskey Rebellion"). Various such taxes came and went many times between then and 1915. There was also a Federal income tax for a while in the mid 19th century to help fund the Civil War.

redbeard0x0a• 11 years ago

They should be going after Proctor & Gamble because Tide is a form of alternative currency. http://nymag.com/news/features/tide-detergent-drugs-2013-1/

desdiv• 11 years ago

That brings a whole new meaning to "money laundering".

zaroth2• 11 years ago

Remember reading this a few years ago, and at the time I was pretty sure this was a submarine ad for Tide.

maxerickson3• 11 years ago

Ripple is not in trouble for using some form of alternative currency. They are in trouble for facilitating transactions between other parties without keeping track of who those people are.

It's fun to pretend that the government is always completely arbitrary in its actions, but it isn't very realistic.

mike_hearn6• 11 years ago

The point is that by manufacturing Tide, that was in some sense also "facilitating transactions". Where the line is drawn is pretty arbitrary and vague.

Animats5• 11 years ago

I'm surprised that Ripple didn't register with FinCen. It's not hard.

After registering, a US money service business has to file reports on "suspicious transactions". This is done electronically, although the data formats are incredibly antiquated.[1] Each record is like a 1000+ column punched card, and they're filed as big batches. On the other hand, there's not much of an attack surface against FinCen, and since their opposition is drug cartels, that's an issue.

[1] http://bsaefiling.fincen.treas.gov/docs/TestingProcedures.pd...

lifeisstillgood3• 11 years ago

Surprised does not come close - the list of deeply connected investors is long (AndresseenHorowitz, GoogleVentures) and yet the phrase "MoneyServiceBusiness" did not cross anyone's mind?

Is this CEO ignoring good advice or fire and forget investors ? Or perhaps even more worryingly, a disconnect between Silicon Valley investors and the FinTech regulators in the East Coast - those three thousand miles will take a lot of bridging.

A bit of history on this ruling will be interesting.

wmf3• 11 years ago

We are now in a "post-Uber" world where regulatory arbitrage is considered just another business strategy.

unclesaamm• 11 years ago

Of regulators though, FinCen has more presence than most on the West Coast. It's not a foreign concept, especially once you realize how Visa et al. are headquarted in SF as well.

tomasien4• 11 years ago

It crossed their mind quite a bit. Constant topic of conversation - the implication here that it's "easy" to file as an MSB is ridiculous. It's easy to file, harder to "be".

hurin2• 11 years ago

I think it's not such a rudimentary and obvious question whether they are a money-service-business or not. Their argument would be that they are only providing a protocol, and those using the protocol are money-service businesses.

The counter-argument of course being that they are charging XRP for use of their protocol ergo: money-service-business like any other.

On the other-hand what about Bitcoin in that case? Is Gavin Andresen running a money-service-business because he's developing a protocol? Are the miners because they are collecting transaction fees?

There are a lot of open questions here.

Natanael_L4• 11 years ago

In Bitcoin, I'd argue the developers have the status of a bank's software developers, i.e. no direct responsibility. If anybody were to be regulated it would be the miners and/or pools who actually process transactions and create blocks containing them.

reviseddamage3• 11 years ago

Your comment on Fincen infra is on point. Its sometimes tragic to see that an org directing enterprises to provide confidential info on money launderers/terrorists sets such low security specs for setting up the info transmission. http://bsaefiling.fincen.treas.gov/Why_use_BSA_004.html

morpheous• 11 years ago

Oh fuck!, this is the WRONG kind of publicity.

notsony• 11 years ago

"Pursuant to the agreement, Ripple Labs will also undertake certain enhancements to the Ripple Protocol to appropriately monitor all future transactions."

Can anybody from Ripple comment on what those protocol changes will be?

Natanael_L4• 11 years ago

https://www.coinprices.io/articles/ripple-moves-to-require-i...

drawkbox• 11 years ago

In theory, a smart forward-thinking country could come along and look at themselves as a company/reserve and make a virtual currency + exchange that is desired because they will not touch it. They could create a killer currency, a neutral country that doesn't play in the theatre of games. Like the Swiss used to do with banking.

However banking is also getting more regulated. Money flow is living under a rule where "papers please" is the norm, untracked cash is suspect. Many of the excuses for this much regulation on a currency is the War on Drugs and the War on Terror.

The demand just keeps getting higher and higher for a killer currency.

roymurdock• 11 years ago

The "killer currency" must reach a point where it is robust enough to withstand what Kroll, Davey, and Felten describe as a "Goldfinger" attack. [1]

They use basic game theory to show that any actor participating within the Bitcoin community would not commit a 51% attack. They go on to identify the biggest threat to a budding virtual currency: some outside actor being able to take a sufficiently large short position on Bitcoin (or otherwise gain utility from Bitcoin's destruction), then mounting or simply threatening to mount a 51% attack. This would start a death spiral that would cause rational actors not to participate in the network at an increasing rate.

They conclude that good, active governance is necessary to make sure that Bitcoin and similar virtual currencies survive.

The creators will need to "touch" the currency in order to protect and maintain its value. A true killer currency would be a virtual currency that is pegged to some well-chosen and largely diversified basket of essential goods such as wheat, lumber, metals, energy, etc. Peg the currency to a broad range of economic inputs and raw materials.

[1] Full paper here: https://www.cs.princeton.edu/~kroll/papers/weis13_bitcoin.pd...

Natanael_L4• 11 years ago

Any peg requires a trusted third party. It would be like tying gold certificate ownership to cryptocurrency tokens, like colored coins.

And when you have that trusted third party, why do you have independent miners? In other words, you get Ripple again rather than Bitcoin or an altcoin. You drop the decentralization.

pjc50• 11 years ago

There's no way to do this on a large scale without attracting hostility. Even Switzerland were eventually strong-armed into ending banking secrecy.

Ripple fined for acting as a money services business without registration

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