Friday, December 30, 2011

The Ten Most Anticipated Bitcoin Projects for 2012

By The Bitcoin Trader
Friday, December 30, 2011

I'm not so sure that Satoshi Nakamoto could have anticipated the wave of projects that have been and continue to be inspired by his creation. At this very moment, one can only imagine the development progressing in secrecy among the hundreds, if not thousands of computer programmers, investors, financial types, marketing gurus, or otherwise, that have found their second wind thanks to the possibilities of Bitcoin.

Unfortunately, I'm not privy to the closely-guarded secrets behind most of Bitcoin's projects, however many there may be. Many developers, however, are more than happy to share their ongoing work with the community, enough to definitely get us excited about Bitcoin's prospects for next year. So, without further adieu, these are The 10 Most Anticipated Bitcoin Projects for 2012:

10) BitSynCom and the MeshNet

Though somewhat mysterious about their plans, BitSynCom recently announced a massive project to assist the growing effort to launch what can only be described as "the peoples' Internet." Called MeshNet, it would be a peer-to-peer version of the Internet, dependent on its users for owning and operating the supporting infrastructure.

BitSynCom hopes to integrate Bitcoin with MeshNet to act as a payment system to reward those who maintain the infrastructure and provide bandwidth, and to charge those who use it. The development time for such an ambitious project will likely extend well past 2012, but we may see it get legs next year, especially if SOPA comes to pass in its current form. For more information, you can watch an interview with Yifu Guo of BitSynCom, here.

9) The Bitcoin Bond

"JackH" first mentioned the concept of a Bitcoin Bond back on October 25th of this year. The idea is that a publicly traded entity could be used as a vehicle through which investors could buy a piece of the Bitcoin pie while not directly purchasing any Bitcoins. The Bitcoin buying would be the responsibility of an agent associated with the "company." It's an arrangement that would sound familiar to anyone who dabbles in gold and silver ETFs.

The main driver of the project is to mitigate the fragility of the current relationship between banks and Bitcoin exchanges, as there were several instances of banks suspending their accounts with Mt.Gox, Tradehill, and Intersango over the last few months (though it's been quiet as of late).

The latest hurdle facing "JackH" is the cost of developing the legal framework for the company, which was quoted at over 200,000 British Pounds. Yikes! Apparently Mr. H. does have interested investors, though their pockets aren't quite deep enough to come up with that chunk of change. He continues to look for cheaper lawyers...

8) Bitcoin Browser Extensions

Though several attempts have been made at a browser extension, none have really proven effective nor have caught on with Bitcoin users, and most of the development in this field came to a grinding halt when the bubble burst in June. At the moment, it does not appear that anyone in the community is working on an extension, but with the pending implementation of the URI scheme and release of a thin version of the Satoshi client, a browser extension would be the next logical step and would make Bitcoin incredibly user-friendly. Hopefully we'll see one develop in 2012.

7) Bitcoin Options and Futures Trading on the Major Exchanges

2011 will no doubt be remembered as the year that Bitcoinica took Bitcoin by storm. With leveraged trading, playing the Bitcoin markets went from tee-ball to the big leagues, seemingly overnight. 2012, however, will take things to a whole new level. Mt.Gox and Tradehill have both hinted at the fact that they will be unveiling futures and options markets as part of their development plan, with Mt.Gox possibly bringing the features online as early as next month when they are set to unveil... well, something.

6) ICBIT Stock Exchange

Giving Mt.Gox, Tradehill, and Bitcoinica a run for their money will be the ICBIT Stock Exchange. Currently in alpha testing, the exchange promises options and futures trading, as well as the ability to buy traditional stocks using Bitcoins, all of the above on margin, of course.

Having access to derivatives will help to smooth out the volatility that we currently see in Bitcoin trading, and will also give merchants and miners the ability to hedge their holdings (or future holdings). These are key components to establishing a respectable currency market, and will surely generate a lot of interest outside of the Bitcoin community.

5) Electrum Overlay Network

Still looking for an official name to distinguish itself from the Electrum client (I like Overbit, myself), the Electrum Overlay Network is looking to integrate many of the services that are currently found elsewhere, as well as some that do not already exist, and bring them under the umbrella of a single platform. Features will include:
  • Client integration of BTC/fiat exchanges;
  • Wallet storage for diskless or extremely low-resource clients;
  • Server-side escrows (sending bitcoins to an email address);
  • Integration of bitcoin laundry;
  • Exchange calculators (to display the “fiat” equivalent value of BTC in clients);
  • Firstbits support;
  • Mining support for clients; and
  • Various transport protocols (especially HTTP Push, which allows PHP websites to integrate easily with Bitcoin).
This feature-rich software will be extremely popular and likely catapult Electrum to the front of the client-race, though you never know what the next guy has in his back pocket. Speaking of which:

4) Bitcoin Client Upgrades

Though not scheduled for the 0.6 version of Bitcoin, Gavin Andresen has hinted several times at his increasingly urgent desire to release a thin version of the standard client. Motivated primarily by the poor first-time user experience that comes with the full blockchain download, Gavin's dev team will likely deliver a thin version of the client in 2012. The blockchain is already topping out at 1.2 GB, and we'd hate to see what it will look like by the end of next year. In fact, most of us would rather never see it again as long as we know the friendly miner community is keeping tabs on it. Please Gavin, make the blockchain go away!

Also sorely needed is the implementation of the Bitcoin URI scheme. Currently, most Bitcoin transactions happen through the copying and pasting of ugly-looking strings of numbers and letters (i.e. public keys) that have to be manually checked and re-checked before a transaction can take place. With the URI Scheme, the click of a link in a browser will automatically launch the client and incorporate the address into a transaction. It's much needed, and we hope to see it next year.

3) New Bitcoin Transaction Types

I touched on this topic with my post about Bitcoin 0.6, but it's important enough that it needs to be repeated. The upcoming version of Bitcoin, and there will no doubt be more than one iteration in 2012, will support new transaction types. Essentially, the new version will allow for transactions with multiple signatures, thus allowing for escrow-type contracts with third-parties involved.

Having the option for multiple signatures will also add a new layer of security to Bitcoin, where you will be able to require that your transactions be signed by two different private keys, stored in physically separated devices. This added level of security will stop potential hackers and wallet thieves in their tracks, and make credit cards look downright irresponsible. It's the reason why new transactions types are number three on our list.

2) Open-Transactions (OT)

Already in private alpha-testing on a live server, OT, the brain-child of Fellow Traveler, is going to be extremely important in 2012. Really, its relationship with Bitcoin only tells part of the story, but it's an important relationship nonetheless. Bitcoin is the oil lubricating an OT machine that will enable such a vast array of financial instruments and contracts that lawyers everywhere will beg for retirement packages before they are inevitably smacked in the face with pink-slips as their jobs are made redundant.

OT will allow for truly anonymous, off-the-blockchain, instantaneous transactions, thus silencing some of Bitcoin's harshest critics. This will be a capability so powerful that integration with TOR will almost be a necessity. Multi-asset trading and smart contracts will be OT's killer apps, though the power of OT will only be limited by the imagination.

1) Max Keiser and the Campaign

Announced at the European Bitcoin Conference, Max Keiser is teaming up with with the goal of bringing 1,000,000 new users to Bitcoin in 2012.

In addition to his radio and web presence, Max (I'm assuming we're on a first-name basis) has his own segment on Russia Today called the Keiser Report, with a huge audience that is sympathetic to the Bitcoin cause.

Equally important here is the structured marketing organization starting to develop within the Bitcoin community that will be extremely important to promoting the technology in 2012.


2011 was a year of growing pains for Bitcoin. It was both loved and hated by the media and subject to a huge bubble that topped out with a market cap of over $200 million. Hackers and miscreants took shots at exchanges and Bitcoin users alike, yet the currency and the community proved their resilience.

Bitcoin is positioned better than ever to prove to the world its significance and utility. These incredible projects only hint at some of what's to come in 2012, which will no doubt be the year that Bitcoin comes of age.

Reprinted with permission.

Tuesday, December 13, 2011

Digital Currency Systems: Emerging B2B e-Commerce Alternative During Monetary Crisis in the United States

By Constance J. Wells, M.S.
Aspen University
Tuesday, February 8, 2011

From the Abstract:
Digital currency systems form the triumvirate nexus of government policies, money, and technology. Each has a global reach and responds to the needs of business and consumers. E-commerce depends on private and government financial institutions to enable payment transactions; the basis of e-commerce. As the United States financial crisis continues B2B enterprises may need to abandon traditional payment transaction systems and look to alternatives, in the form of Web based digital currency systems accessed via the Internet. The various types of digital currency systems generally fit into five categories: Barter Exchange Software Systems, Non-Bank Digital Currency Payment Systems, Digital Precious Metal Systems, Online Value Transfer Software Systems, and Online Stored Value Transaction Software Systems. Digital currency systems are not online banking. Digital currency systems use private electronic monies: electronic tokens, barter-exchange currencies, digital cash, and stored value e-cash vouchers. We explore the history of money against a backdrop of banking and government policies that cause cyclic monetary crisis's, how these current digital systems operate, how business can thereby benefit in their use, and why digital currency systems are such an underutilized service in the United States.

Friday, December 9, 2011

Friday, November 25, 2011

Air Guitars and Bitcoin Regulation

By Jon Matonis

No one really sends or receives bitcoin. They merely transfer their ownership and specific control rights to the block chain on the giant public ledger in the cloud. It's like an air guitar. The bitcoin itself exists because we all say that it exists.

The same can be said of bitcoin's exchange value – it has value because we all say that it has value. That is both its weakness and its brilliance. Its intangibility prevents its confiscation. Where are your bitcoins Mr. Anarchist? Well sir, they are right over there stacked next to my new air guitar. What, you don't see them? I swear that they are there. I don't think governments will ever declare that they can see them too! Because if governments did see them, then bitcoin would be imputed with tremendous legal monetary value and they don't want to do that. Governments will want to diminish the credibility of bitcoin – not enhance it.

Now, to the exchanges. This is where the enforcement and regulations will hit first. Trading bitcoin in and out of national currencies is currently necessary because many transactions still have to be settled in that manner. Of course, this will adjust over time as more and more bitcoin value can remain in the bitcoin ecosystem for necessary daily transactions. But in the meantime, regulation is increasingly possible in this area due to exchanges requiring a certain degree of jurisdictional presence and centralization. As with buying and selling air guitars on eBay, regulators can exert influence because there is a centralized point of exchange. It matters not what is being exchanged.

Regulatory Bias With Some in the Bitcoin Community

"We are working with the government to make sure indeed the long arm of the government can reach Bitcoin."
--Jeff Garzik, Bitcoin Developer

"Regulation would allow the proper authorities to find and charge those who use bitcoins for illegal activities." 
--Amir Taaki, Co-founder of Bitcoin Consultancy

"Norman is pushing to bring Bitcoin away from its roots and closer to a traditional currency — he is reaching out to regulators, looking to get legislation to oversee the system."
--CNBC on Donald Norman, Co-founder of Bitcoin Consultancy 

These are the big three bitcoin regulatory proponents within the bitcoin community. There are certainly many more outside of the community. Now, let me see if I can summarize their rationale because these quotes are not isolated incidents and they are not taken out of context. I believe that the rationale is twofold: (1) a reaction to the anonymous online drug company Silk Road tainting the fledgling currency; and (2) a belief that bitcoin exchanges given a regulatory blessing will be in a position of strength for customers exchanging in and out of national currencies.

Both of these rationales are misguided, especially when bootstrapping a decentralized P2P cryptocurrency. Bitcoin was designed from the outset to route around centralized, authoritarian interference. Bitcoin's designer(s) anticipated regulatory termination and asset confiscation because bitcoin itself is a direct challenge to the privileged money monopoly of the sovereign. The issue is not whether bitcoin as a digital currency embodies libertarian political and economic beliefs – it was simply designed to survive. However, it is supremely naive and daft to think that a government will not soon erect laws and regulations to prevent anonymous and untraceable transactions. Additionally, government tends to tax that which it regulates and a sanctioned bitcoin will soon be transformed into an 'approved' and useless digital currency.

Bitcoin exchanges are constantly under attack in various parts around the globe and even with partially-regulated exchanges, laws can always be modified to accomplish the aims of the State. The solution is to create decentralized exchanges and to promote business models and closed-loop paradigms that make fitting into the current institutional structure irrelevant. It is a perpetually losing battle to seek minor legal victories within the confines of an arbitrary, subjective court system.

In differentiating between the fear of punishing coders and the fear of punishing the consumers and merchants that openly choose to transact in bitcoin, James Westlock summed it up nicely in his comment to the "Bitcoin and Agorism" article:
"Everyone here understands that a Bitcoin exchange is nothing to do with Bitcoin clients and the source code that is compiled into them. The imbeciles who run exchanges in police states like the USA will be scrupulously avoided by anyone with a brain cell, and those who set up exchanges in free(er) countries will reap the benefit. Anyone developing a Bitcoin client cannot be charged with conspiracy with regard to the uses that the client is put to, in this case exchanges. The client is neutral, just as browsers are neutral. You can use a browser to commit a crime, but culpability for that criminal act cannot be passed to the people who code the browser (Mozilla, Google, Apple)."
To be sure, David Norman and Amir Taaki have many more pro-regulation references and citations available at their website. For instance, Taaki gives a radio interview with the Katherine Albrecht Show in the U.S. Then, reporting in the Independent, Stephen Foley quotes David Norman on the hackers that brought down the largest bitcoin exchange:
"In the UK, supporters of Bitcoin made an urgent appeal to the Financial Services Authority to regulate the largest London-based exchange, so as to reassure people that using Bitcoin is safe. 'Unregulated businesses don't usual cry out for regulation,' said Donald Norman, co-founder of the exchange Britcoin. 'But because we are unusual, and because we are dealing with people's money, and because of all the scary stories around Bitcoin, we would like nothing more than to have a government authority looking into our accounts – especially now.'"
In order to gain legitimacy for a decentralized P2P cryptocurrency that comes with user-defined anonymity and user-defined traceability, the Statist apologists have gone out of their way to seek clear and concise guidelines from the government on what will and will not be permitted with respect to bitcoin activity. They may soon get their wish. 

UK Financial Services Authority on Bitcoin Regulation

A response purporting to be from the FSA appeared recently in the Bitcoin Forum. In reading the well-referenced text, it appears obvious that bitcoin itself cannot be regulated as money but that exchangers would fall under the guidelines of FSA regulation because they are deposit takers and holding balances in national money before and after the bitcoin exchange takes place. A bitcoin service that simply provided a matching service, such as bitcoin-otc, where buyers and sellers settled on their own would not therefore fall under the regulation.

This is important because of various claims circulating that there is a coordinated effort on the part of EU-based financial institutions to freeze or impede bank accounts that are acting as agents for bitcoin exchanges or bank accounts of bitcoin exchanges themselves. In August 2011, the French bank CIC froze MtGox client funds and closed the bank account paving the way for a court case and final decision on October 18th, 2011. Then on October 21st, 2011, MtGox released this statement:
"While Bitcoin at a European level is so far not directly impacted by this decision, the Bank de France (France's central bank) has confirmed that because of European banking rules, monetary transfers (deposits and withdrawals) through a single entity are subject to financial regulation and therefore can only be performed by licensed financial institutions such as banks or Payment Service companies (the European Equivalent to a Money Service Business). This decision has forced us to find other payment processing partners within Europe that will allow us to quickly resume all EUR transactions for our European customers soon."
Seeking legal opinions and regulatory clarification will only result in more disappointments. Therefore, in order to obtain the ruling that the bitcoin regulation proponents seek, bitcoin exchanges and bitcoin merchant applications will have to be adapted to support the enforcement of AML rules regarding money service businesses and identity verification for prepaid access products, such as the recent FinCEN regulatory changes from the United States.

In the future, we are likely to see regulations and enforcement against the bitcoin exchange infrastructure as well as restrictions on bitcoin transactions at the large online and offline merchants subject to establishment transactional reporting requirements. Both enforcement avenues will be deployed in an effort to undermine the usefulness and acceptance of bitcoin, because quite frankly that will be the only option available to authorities. 

Cryptocurrencies are Not Virtual Goods

Vili Lehdonvirta works as a researcher at the Network Society research programme at Helsinki Institute for Information Technology in Finland and he is Visiting Scholar at the Interfaculty Initiative for Information Studies at the University of Tokyo. His research examines the social and economic impact of new information technologies, especially online games, social networks, virtual currencies, and virtual taxation.

He believes that the bitcoin currency goes way too far in providing user-defined anonymity and user-defined transaction traceability. Although he doesn't mention how the transition to a digital cash society can justifiably deny the very same attributes enjoyed with physical paper cash today, he seems to promote his own "ideal" vision of how the future cashless society should be constructed. This is the most dangerous type of thinking when discussing a cashless society because we are at a critical nexus that will define our relationship with money in the cyberspace frontier. Either we respect individual financial privacy or we restrict it and pave the way for an even more frightening and suffocating vision of the future.

Quoted on the Bitcoin Forum,Vili had this to say:
"I am fascinated by Bitcoin, and I also think I have something of value to contribute to the Bitcoin community. The first is that as a researcher, I have studied payment and digital currency design and user adoption issues, and I think this is an area where the Bitcoin ecosystem could do better. The second is that as a long-time member of Electronic Frontier Finland, I have spent a lot of time thinking and publicly debating about privacy and digital freedom issues. I am worried that Bitcoin is a step too far as it leaves no possibility for even democratic governments to enforce their laws. This is a topic I would love to debate with the community and hear opposing views. I think the end result could be a better understanding for me, but also a better understanding for the Bitcoin community on how to live in harmony with democratic authority."
In the co-authored 2010 landmark paper, "A New Frontier in Digital Content Policy: Case Studies in the Regulation of Virtual Goods and Artificial Scarcity", Vili Lehdonvirta states:
"The law has commenced its long course to recognize digital goods as a form of property. One finds it in court decisions concerning the interpretation of criminal law and related damages. The behavior of gamers and other online users has, both in quantity and quality, exceeded the limits of contract law (Fairfield 2008). Other areas of law, including but not limited to those of criminal law, law of damages, defamation, and law of property, will slowly step into play. But the natural inertia of law can sometimes be a good thing in creating the rules that shape behavior (Bohannan 1965)."
For the most part, I respect Vili Lehdonvirta's academic work on virtual goods ownership, but he harbors confused thoughts on the broader acceptance of bitcoin through dilution of its most beneficial properties, because he mistakenly extends the notion of virtual goods legal recognition to virtual currency legal recognition. While this might be appropriate for a virtual currency that evolved out of a virtual commodity within a proprietary gaming environment, it is wholly inappropriate for a decentralized P2P cryptocurrency that does not depend upon physical property rights for its valuation. 

Lawyers' Take On Bitcoin Regulation

Just as the economics profession, the legal profession is still struggling to catch up with bitcoin. I expect much more detailed legal research in the coming months. One of the lawyers in the forefront, John William Nelson, had this to say in his article, "Extending real-world laws to virtual worlds is a terrible idea":
"Government regulation, either directly or indirectly by forcing common law theory into a virtual world setting, will destroy the ability of virtual worlds to create these fundamental characteristics. The game conceit—the imaginative construct upon which the world is based—will, as Dr. Bartle says, 'evaporates upon contact with . . . reality.' The world will no longer be free to evolve—its evolution will be constrained by the laws injected into its sphere. The world’s support for the hero’s journey will be conditional upon the rules and regulations of laws from the outside—laws from the real world."
In a follow-up piece, "Bitcoin Isn't a Security", Nelson also concludes that bitcoin in-and-of-itself is not a security that can be regulated under U.S. federal securities law:
"But if currency can be a security, then Bitcoin is a security because it’s a type of currency, right?
Wrong. Bitcoin is not really a type of currency, at least not of the type recognized as securities. No entity or assets back up Bitcoin value. Bitcoin value is entirely virtual—a Bitcoin is only worth what another person thinks its worth. This is different than currency issued by countries.

A country’s currency is backed by that country’s government. This backing can either be by fiat (government regulation or law) or by commodity (such as the gold standard the U.S. used to use). Some compare Bitcoin’s value to the value of fiat money, because like fiat money it is not backed by a commodity, but this is where the similarities between Bitcoin and fiat money end.

Bitcoin is backed by no entity, no commodity, no organization. Bitcoin value is not based on government regulation or law mandating its use in a country. Similarly, it is not backed by a whole bunch of gold sitting in Fort Knox."
In answering the question of whether bitcoin investors should worry about securities regulations or laws, Nelson emphasizes that securities law is generally broad enough to capture any enterprise where investment for profit is involved, because a common economic scheme exists where a profit is expected based on the efforts of a third party. In "Bitcoin Isn't a Security", Nelson states:
"Bitcoin investors should absolutely worry about securities laws. The securities definitions outlined above might not apply to Bitcoins themselves, but they are flexible enough to apply to Bitcoin exchanges that convert a Bitcoin to real-world currencies. Securities law might even apply to exchanges converting Bitcoin to other virtual currencies such as Lindens."
Ultimately, laws erected to protect the State's coveted monopoly over the issuance of money will not be slayed through a minor technicality nor will bitcoin suddenly be blessed by a newly-converted regulatory regime. At Yale Law School, Reuben Grinberg writes in "Bitcoin: An Innovative Alternative Digital Currency":
"Most importantly, Bitcoin currently operates in a legal grey area. The federal government’s supposed monopoly on issuing currency is somewhat narrow and statutes that impose that monopoly do not seem to apply to Bitcoin due to its digital nature. However, a bitcoin may be a 'security' within the meaning of the federal securities laws, subjecting bitcoins to a vast regime of regulations, including general antifraud rules. Furthermore, other legal issues that have not been analyzed in this paper are probably significant, including tax evasion, banking without a charter,  state escheat statutes, and money laundering."
The great promise of a nonpolitical bitcoin lies in what its decentralized nature immune to shutdown actually enables – the ability to maintain financial privacy and to transact with entities that may be despised by the government.

This article was also reprinted by the Ludwig von Mises Institute of Canada and Center for a Stateless Society

For further reading:
"Why the quoted price of Bitcoin doesn’t matter", Blogdial, October 17, 2011
"WikiLeaks and the protect-ip Act: A New Public-Private Threat to the Internet Commons", Yochai Benkler, September 15, 2011
"Precursors to Bitcoin legislation emerge", Blogdial, September 2, 2011
"On the virtual money?", Charis Palmer, Banking Review, August 7, 2011
"Bitcoins are Baseball Cards", Blogdial, August 3, 2011
"Bitcoin: A Bit Too Far?", Edwin Jacobs, Journal of Internet Banking and Commerce, August 2011
"Innovation and Legal Panic—Bitcoin", Joseph Skocilich, June 27, 2011
"Is Bitcoin Legal?", TechnoLlama, June 16, 2011
"Bitcoin exchanges offer anti- money-laundering aid", Reuters, June 15, 2011
"The Coming Attack On Bitcoin And How To Survive It", Anthony Freeman, June 7, 2011
"Money Transmitter Legislation and Bitcoin’s Legal Status"Bitcoin Money, June 2, 2011

Tuesday, November 22, 2011

Switchpoker Adds Bitcoin as Deposit and Withdrawal Method

Press Release
via Marketwire
Tuesday, November 22, 2011

World's First Real Money Poker Site for Apple Mobile Devices is First to Offer Revolutionary Online Virtual Currency Bitcoin
DUBLIN, IRELAND (Marketwire) --, the world's first real money online poker site compatible with the iPhone, iPad, and iPod Touch, today announces it is the first real money poker site to offer the revolutionary virtual currency Bitcoin as a deposit and payment method.

Bitcoin is a distributed currency that operates without any central point (such as a bank) and without any governmental control. It is very much like gold is in the offline world. Bitcoins can be exchanged from one person to another directly, anonymously and without fees. 

It has proved controversial due to its decentralized nature and the inability of governments to track its use. It has already attracted the negative attention of the Chinese government, the CIA, the US government and many lobby groups around the world. 

Conor McCarthy, spokesman for, said, "The advantage of the Bitcoin currency is that it has the ability to remove all payment processing related barriers of entry for poker and gambling sites around the world. It would allow any person to play for real money completely anonymously. 

"Players will be able to now send us funds directly without a 3rd party being privy to the transactions, and we will be able to send funds directly back to the user. It also means that people without a Skrill or Neteller account will be able to play. Players can get Bitcoins on sites such as", launched in October 2010, offers a simple web-based solution to online poker players who wish to play their favourite games on the move - no download is required, simply visit using your mobile Apple device, sign up for an account and start playing immediately. can be played by anyone over 18-years-old with an iPhone, iPad, iPod Touch or using standard web browsers including Internet Explorer 8, Internet Explorer 9, Firefox, Chrome, Safari or Opera. is not currently available to U.S. residents.

About is the world's first real money online poker site for use with iPhone, iPad, and iPod Touch mobile devices. The software company which developed the platform used by Switch Poker was formed in Ireland in 2010. 

Contact Information:
Poker Media Consulting
Brendan Murray

Sunday, November 20, 2011

Why Facebook Never Built P2P Credits Payments

I have always maintained that a 'true' virtual currency will have at least three attributes: two-way convertibility, floating exchange rate, and privacy (or anonymity). Any currency without those attributes is merely an extension of the existing payment structure or a surrogate currency like a glorified coupon. There are some strong legal reasons for companies electing not to support those attributes, including regulation as a US-based licensed money service business and strict AML (anti-money laundering) guidelines. In writing for TechCrunch, Josh Constine explains why Facebook doesn't allow its Facebook Credits virtual currency to be used for person-to-person payments:
"But why hasn’t Facebook built its own way for friends to send money to each other using its virtual currency Credits? Because of significant fraud risks and its focus on making Credits work better for virtual goods purchases where it earns 30%."
"The primary reason Credits can only be spent in games and apps, not sent to other users, is fraud. There are several ways for users to earn Credits instead of paying for them, such as completing on-site offers, or making off-site purchases that are incentivized with Credits rewards through companies like ifeelgoods. If users could transfer Credits to someone else, the occupation of 'Credits Miner' would emerge. These people would earn Credits any way they could and sell them to others for more than they cost to earn but less than Facebook sells them for. This would essentially create a secondary market for Credits and undermine Facebook’s ability to make money on them."
Mining for 'credits' is not necessarily a bad thing and it can tend to increase the overall demand for the nonpolitical currency unit. The so-called fraud (or unfair profit) can always be addressed by floating, rather than fixing, the exchange rate for Credits in the way that Linden Labs has done for the economy of Second Life. Constine correctly hints that the close partnership between PayPal and Facebook is what prevents Facebook from entering the payments business directly:
"To be competitive, Facebook would only be able to take a few percent on transactions, and still it wouldn’t have the base of merchants PayPal cultivated through eBay. Instead, Facebook is focusing on Credits as its platform’s mandatory virtual goods payment processor for developers, where it earns its juicy 30% cut. That business is growing thanks to gaming giants like Zynga, so there’s no need to move into a risky sector such as P2P payments that’s outside its core competencies and dominated by incumbents."
While I believe that to be true for the moment, if Facebook were to address the fraud issue and the legal and regulatory issues of two-way convertibility, it would have an enormous opportunity that PayPal would not -- the ability to create currency at will and earn seigniorage.

For further reading:
"Virtual Currencies, Real Potential", Keith Button, Bank Technology News, November 1, 2011

Monday, November 14, 2011

Alan Szepieniec Presents Bitcoin at Polish Mises Institute

In a step ahead of their U.S. namesake, the Polish Ludwig von Mises Institute hosted Alan Szepieniec to present bitcoin during the 2011 Summer Seminar in Warsaw.

Some of the more recent Mises Institute discussion surrounding the decentralized cryptocurrency bitcoin and its Austrian detractors can be found here and here.

Another notable video presentation was given at DEFCON 19: "Hacking the Global Economy with GPUs or How I Learned to Stop Worrying and Love Bitcoin".

Also, watch Jeffrey Paul presenting Financing The Revolution @ Chaos Communication Camp.

Saturday, November 5, 2011

U.S. Treasury's FinCEN Issues Guidance on Prepaid Access Rule

By Financial Crimes Enforcement Network
Wednesday, November 2, 2011

The Financial Crimes Enforcement Network (“FinCEN”) is issuing these Frequently Asked Questions (“FAQs”) to assist providers and sellers of prepaid access in understanding the scope of the final rule imposing certain recordkeeping and reporting requirements under the Bank Secrecy Act (the “BSA”). The Prepaid Access Final Rule (the “Rule”) was issued July 29, 20111 and has generated many questions. These FAQs are intended to provide interpretive guidance for the Rule; they do not supersede or replace any part of it.

The Rule establishes a more comprehensive approach for regulating prepaid access and requires providers and sellers of prepaid access to (1) file suspicious activity reports (“SARs”), (2) collect and retain customer and transactional information and (3) maintain an anti-money laundering program. These BSA requirements are similar to those that apply to other categories of Money Services Businesses (“MSBs”). The Prepaid Access Rule amends some of the provisions within FinCEN’s MSB regulations.

1. What types of prepaid access arrangements are covered under the Rule?

The Rule defines a “prepaid program” as “an arrangement of one or more persons acting together to provide prepaid access.” Prepaid access arrangements can vary greatly, ranging from travel programs to university campus programs to public transportation programs and many others, all with specific features and characteristics targeted to different audiences and activities. The Rule details types of activities that would and would not subject a specific prepaid access arrangement to BSA requirements. The Rule excludes certain low-risk prepaid access arrangements from being subject to regulation.

Three types of prepaid access arrangements are excluded from the definition of a prepaid program under the Rule, those that: 1) provide closed loop prepaid access to funds not to exceed $2,000 maximum value on any day; 2) provide prepaid access solely to funds provided by a government agency; or 3) provide prepaid access solely to funds from certain pre-tax flexible spending arrangements for health care or dependent care expenses, or from Health Reimbursement Arrangements for health care expenses.

There are two types of prepaid access arrangements that have a qualified exclusion but that, if they can be used in any of three particular capacities, are not entitled to that exclusion and are therefore prepaid programs subject to regulation. The rationale is that the expanded capacities may obscure financial transparency. Open loop prepaid access that does not exceed $1,000 maximum value on any day, and prepaid access to employment benefits, incentives, wages or salaries (”payroll”), are not prepaid programs subject to BSA regulatory requirements so long as the prepaid access cannot (1) be used internationally, (2) allow transfers of value from person to person within the arrangement, or (3) be reloaded from a non-depository source. If any one of these features is part of the arrangement, it will be a covered as a prepaid program under the Rule.

2. Who is a provider of prepaid access?

A provider of prepaid access can be determined in one of two ways under the Rule.

A. The provider of prepaid access for a prepaid program is the participant in that prepaid program who registers with FinCEN as the provider of prepaid access for that program. Determination of which participant should register is a matter left to the participants. However, it is presumed that the participant registering as the provider of prepaid access has agreed to perform all of the duties required for providers of prepaid access under the Rule.

B. If none of the participants in a prepaid program registers with FinCEN as the provider of prepaid access for that program, the provider of prepaid access is the participant in the program with principal oversight and control over the program.

See also question 9 below.

3. Who is, and who isn’t, a “seller of prepaid access” under the Rule?

A person that accepts payments for an initial or subsequent loading of prepaid access, including a general purpose retailer such as a pharmacy, convenience store, supermarket, or discount store, is not considered a “seller of prepaid access” if:

(a) it does not sell prepaid access under a prepaid program that can be used before the user’s identification needs to be verified; and
(b) it has policies and procedures in place that are reasonably adapted to prevent the sale of more than $10,000 of any type of prepaid access to any one person on any one day.

Such a person is considered a “seller of prepaid access” if it either sells prepaid access described in item (a) above or doesn’t have policies and procedures, and does engage in sales, described in item (b) above.

Seller Questions:

4. How do I know whether my policies and procedures are “reasonably adapted” to prevent a sale of more than $10,000 to any person during any one day?

There is no one set of policies and procedures that is “reasonably adapted” to prevent sales of prepaid access that exceed $10,000 to any person during any one day. Such policies and procedures must be risk-based and appropriate to the particular retailer in question, taking into account facts such as its typical customers, its location(s), and the volume of its prepaid access sales. The fact that a retailer sells over $10,000 in prepaid access to one person in one day does not in and of itself mean that the retailer’s policies and procedures are not “reasonably adapted to prevent such a sale.”

5. Are businesses deemed “sellers” under the Rule for distributing prepaid access to other businesses ?

No. Distribution of prepaid access products to other businesses for further distribution or sale to end users/consumers by those other businesses is not the type of activity intended to be covered by the Rule. This type of activity would not subject a business to the prepaid access regulation regardless of whether the activity exceeded $10,000 to one business (i.e., person) in one day. The definition of “seller” is intended to address sales to the end user/consumer of the prepaid access product, not to apply to businesses in the distribution channels that move the prepaid access products to the market.

6. Are businesses deemed “sellers” if they provide non-depository reloads to prepaid access under the Rule?

It depends. An entity reloading prepaid access from a non-depository source is a “seller,” subject to the provisions of the Rule, if it (1) reloads funds onto prepaid access that is part of a prepaid program not subject to initial customer verification, or (2) both reloads in excess of $10,000 for any person on any given day, and does not have policies and procedures reasonably adapted to prevent such reloading for any person on any given day.

Persons providing non-depository reloads of funds or the value of funds to prepaid access are not sellers if:

  • they reload less than $10,000 of prepaid access that is not part of a prepaid access program covered under the Rule for any person on any given day;
  • they reload less than $10,000 of prepaid access that is part of a prepaid program covered under the Rule, but is subject to verification procedures after the initial sale of the prepaid access, for any person on any given day; and
  • they have policies and procedures reasonably adapted to prevent the reloading of $10,000 for any person on any given day.

7. What does the Rule require sellers to do with respect to non-depository reloads? Do these requirements include customer information collection requirements?

A person that qualifies as a “seller of prepaid access” because of the person’s reload business (see question 6 above) has the same obligations as any other “seller of prepaid access,” including AML program, SAR filing, and recordkeeping requirements. However, such a seller does not have to obtain customer identification information under 31 C.F.R. 1022.210 from customers that have already provided customer identification information with respect to the prepaid access that they are reloading.

8. What are the Rule’s requirements for “sellers of prepaid access?”

Sellers of prepaid access will need to develop and implement an effective AML program, report suspicious activity, and comply with recordkeeping requirements related to customer identifying information and transactional data. Sellers, as agent MSBs, will not have to register with FinCEN as MSBs.

9. Can a bank be an MSB, such as a provider of prepaid access?

No. The BSA regulations preclude a bank from being deemed any category of MSB; accordingly, a bank cannot be a provider of prepaid access subject to the requirements of the Rule. In situations in which a bank exercises “principal oversight and control,” no participant is required to register as the provider of prepaid access; however, if a participant other than a bank chooses to register, that participant is the provider of prepaid access and has the responsibilities under the rule notwithstanding the bank’s participation in the prepaid program. The Rule does not relieve banks of their existing BSA obligations, including with respect to prepaid programs with which they are involved.

10. Is a prepaid access program manager that is a participant in a prepaid program subject to the Rule if it is not the provider of prepaid access for that prepaid program (i.e., another party has registered as the provider of prepaid access)?

A program manager that is not the provider of prepaid access has no obligations under the Rule.

Prepaid Program Questions:

11. Is an arrangement that provides reloadable temporary prepaid access devices a “prepaid program?”

Such an arrangement is excluded from the definition regardless of whether the temporary device is reloadable or not, so long as the features of that device are limited in specific ways. If its maximum value, use, or withdrawal limit is less than $1,000 on any day, and it cannot be used internationally, reloaded at a non-depository source, or used to transfer value among the users, it is not subject to the Rule. Its temporary or reloadable nature is irrelevant in this analysis.

12. Is a provider or seller of phone cards subject to the Rule as a prepaid program provider or seller of prepaid access?

It depends. There is no specific exclusion from the Rule for phone cards. A provider or seller of phone cards usable solely to obtain phone service is providing or selling closed loop prepaid access. A provider of closed loop prepaid access is not a prepaid program provider unless the amount of the closed loop prepaid access associated with any one prepaid access device exceeds $2,000. Note that the ability to use the device internationally – which we understand is often the case with phone cards – would not change this analysis for closed loop prepaid access. The closed loop exclusion applies irrespective of whether the prepaid access can be used internationally.

A seller of phone cards that are usable solely to obtain phone service is a seller of prepaid access if it both sells in excess of $10,000 in phone cards to any person on any given day, and does not have policies and procedures reasonably adapted to prevent such sales to any one person on any one day. If so, it is deemed an agent MSB and does not have any registration requirements.

13. Are devices sold for future access to products or services (e.g., songs, iTunes, telephone minutes, megabytes, wireless top-up, games, software, etc.) prepaid access devices under a prepaid program subject to the Rule?

Many of these products would likely be considered prepaid access. However, depending on the structure of the program, they would probably be considered closed loop prepaid access and as such would not be part of a prepaid program under the Rule unless they allowed maximum value or loads above the $2,000 threshold.

14. What does “loading additional funds or the value of funds from non-depository sources” mean?

“Loading additional funds or the value of funds from non-depository sources” means providing funds or the value of funds intended for prepaid access by means of an entity that is not a depository institution, where that entity will then arrange for the funds to be available through the prepaid access. An arrangement under which prepaid access devices can be reloaded in this manner is a prepaid program under the Rule. Re-loads that are made through a depository institution would include but are not limited to ACH transfers from a bank account, cash or other deposit at a bank, or a check drawn on a bank and payable to the provider of prepaid access. Re-loads that are not made through a depository institution would include but are not limited to, reloads through retail store transactions (e.g., cash, check or credit card), wire transfers originating at money services businesses, or checks payable to a payee other than the provider of prepaid access.

Closed Loop Questions:

15. Is closed loop prepaid access that can be used domestically and internationally subject to the Rule if it is below threshold?

No, closed loop prepaid access below the $2,000 threshold that can be used internationally is not part of a prepaid program.

16. Is it correct that the $2,000 threshold for closed loop prepaid access attaches to the device or vehicle, not the person?

Yes, that is correct. The $2,000 threshold for closed loop prepaid access is per device or vehicle. It does not require aggregation of all purchases of separate (i.e. distinct) closed-loop prepaid access devices or vehicles bought by an individual in a single day. Note, however, that businesses that sell more than $10,000 of any type of prepaid access to an individual in a day may be sellers of prepaid access under the Rule.

17. How does the Rule’s $2,000 daily limit apply to closed loop prepaid access that can be reloaded?

No more than $2,000 can be associated with each closed loop prepaid access device or vehicle in one day. Accordingly, if the closed loop prepaid access arrangement permits either individual reloads of more than $2,000 per device, or cumulative reloads per device that total more than $2,000 in one day, the arrangement no longer qualifies for the “closed loop prepaid access” exception from the definition of a prepaid program under the Rule.

For example, if a closed loop prepaid access device or vehicle has a value of $1,500, and the holder spends $1,000 and subsequently reloads $600 before the end of the day, this prepaid access would fall within the definition of a prepaid program because $2,100 has been associated with the prepaid access within one day.

18. Is FinCEN developing a special SAR form for providers and sellers of prepaid access?

No, providers and sellers will use FinCEN Form 109, the same SAR form that all MSB filers use.

Wednesday, October 26, 2011

Virtual Currency: Beyond Fun and Games

Karen Epper Hoffman writes in the September 2011 issue of Digital Transactions, "Beyond Fun and Games":
"A fixture in online gaming, virtual currencies are moving into other digital markets and may break into the physical world. But will acceptance costs and regulatory concerns stymie their growth?"

"'Online gaming has been a key driver for virtual currency,' says Beth Robertson, payments research director for Javelin Strategy & Research, Pleasanton, Calif. 'But that's beginning to change because of the move to broaden the use of virtual currency... potentially even to physical goods.'"
After briefly mentioning the decentralized bitcoin and a previous centralized online currency provider, Karen Epper Hoffman provides some insight on potential challenges for the regulators:
"Government oversight could put boundaries around usage in individual countries. But since virtual currency, like the digital goods it pays for and the platforms on which it operates, is global in nature, it's hard to say if that alone would quell any risk."

"In developing a system where users exchanged different currencies for a virtual one, it had created an unregulated foreign-exchange marketplace."

For further reading:
"Facebook currency takes to the web", Paul Dantanus, October 25, 2011
"Getting the Goods on Virtual Items: A Fresh Look at Transactions in Multi-User Online Environments", Justin A. Kwong, William Mitchell Law Review, Fall 2011
"Virtual Currency and Social Network Payments – The New Gold Rush: How Emerging Virtual Transactions Will Alter the Payments Landscape Forever", Javelin Strategy, June 2011

Saturday, October 22, 2011

Bitcoin: Dangerous to Surveillance State

By Hack This Zine, V.13
Fall 2011

BitCoin is an online crypto-currency, computer program, and peer-to-peer network that has been called “the most dangerous open-source project ever created”. Politicians, bankers, and police alike have become terrified that people may be able to untraceably send money to each other through the internet. For those in control of the financial and political systems, this is scary and not without reason: the system they depend on to keep them at the top of the pyramid may very well be replaced by one written by some rebel programmers. So what is this crypto-currency and why should anybody care? Let’s take a look. This article is targeted towards an audience that isn’t technically savvy so please keep reading even if you have no idea what cryptography, peer-to-peer networking, or distributed hash tables are.

Bitcoin, unlike traditional payment methods such as cash, debit cards, or Paypal is decentralized, censorship-proof, provides strong anonymity, and can easily traverse large geographical areas without incurring significant transfer fees. You have hopefully heard about the banking blockade that is currently taking place against Wikileaks. Currently PayPal, Visa, MasterCard, and Bank of America are all refusing to allow their customers to send money to the organization[blockade]. Paypal in particular has a long history of suspending accounts and stealing hundreds of thousands of dollars for no reason from organizations such as Cryptome, Tortoise SVN, a Katrina relief fund, Courage to Resist/Bradley Manning Support Network, and Minecraft just to name a few [paypalfreeze]. BitCoin is one example of a technology that can prevent this type of situation from happening in the future.

So, how is Bitcoin different than current online payment systems? Let’s take a quick look at some of the things that make it so unique and useful for activists.

About Bitcoin Anonymity

In the past couple of years, we’ve seen a number of organizations such as local copwatch programs, groups that support political prisoners, and online news sites for activists start to accept donations through Paypal (and consequently debit/credit cards). This nice as it allows groups and causes to quickly and easily receive money from all over the world. Unfortunately, we’re also taking quite a hit in terms of security.

In the same ways that email communication and Facebook give the state an incredible tool for mapping and supressing social movements, so do our current methods of sending money to each other. If your area is lucky enough to have a fundraiser for your favourite political prisoner, then you can just donate cash but chances are this may not be the case and the organizers of this event are probably sending the money via bank wire or paypal anyways. The FBI, Department of Homeland Security, and other organizations in charge of repressing dissent know the biggest threat to U.S. power comes from decentralized, leaderless, geographically dispersed groups of people who we call activists, dissidents and revolutionaries. These types of threats are most easily countered by finding important nodes in the network, and removing them. To do this requires a detailed map of the social network. When you see the police coming down on a comrade or an organization in your movement, this is because their social network intelligence has lead them to believe that they are the ‘key players’ whose removal will deal a below to the movement’s effectiveness. Often times their analysis of who/what is important and difficult to replace is true and the data they use to reach that conclusion is given to them by our poor security culture, the methods through which we communicate, and how we send money.

Bitcoin transactions provide you with payment anonymity. There is no central site or organization with whom you must register or send the transaction through. Instead, you simply run the BitCoin software which creates a pseudononymous address for you on the network which is randomly generated and looks something like this: (1QFnuvD5jK6JMVG4PtDv4GUmDrCnpBRShq). Your address is like your bank account, anybody can send and receive money to it. You can create as many addresses as you like which can each have their own BitCoin balances. This identity is not associated with your real name unless you post it on your Facebook or somewhere else that would be. This is comprable to the name you would use on a web forum or a chat room.

Each BitCoin spent is uniquely tracked through the network, so if you receive a bitcoin or send a BitCoin, anybody can see that transaction. This has to be part of the network to insure that any individual bitcoin isn’t spent twice. Since your real identity is not tied to your BitCoin address, this shouldn’t theoretically be a problem.

So let’s take an example: At a large demonstration, a bunch of people are arrested and a group which we’ll call the Defense Committee quickly forms to raise some legal fees. They set up a website with some information on how to donate. Some people live close enough to the events such as parties, fundraisers, and skate nights they are putting on to simply go there and donate cash. Since there is so much repression going on, the group needs to solicit money from outside their local area so they set up a Paypal account. Over 800 people donate a little under $10,000 which covers most if not all of the legal fees (yay!). A couple days after the legal fees have been paid, Agent Smith comes along and decides to see just who donated all this money. He asks Paypal who happily hands the information with no or barely any legal justification and he now has a list of everybody who donated. He has just been given a powerful tool for mapping the social networks of these dedicated activists which he can use to launch campaigns of repression against them. He also has the justification he needs to perform additional surveillance on these individuals who otherwise may not have even appeared on the radar. These are the same reasons that informants attempt to become administrators on mailing lists, get people’s cell phone records, take video cameras to protests, and become treasurers for fundraising groups: so that they can map out who are the ‘key players’ and neutralize them.

Let’s say that instead of PayPal, the defense committee prefers BitCoin and posts their BitCoin address online. Luckily for them, a number of people and groups in their movement are already familiar with BitCoin and send them a bunch of BitCoins (which they exchange for real cash from a BitCoin exchanger which we’ll get to in a bit). Agent Smith now has a problem on his hands: He has no idea how BitCoin works because it’s a new technology, which means his agency has probably never heard of it. He has to send a frantic email to somebody in another branch of the agency asking what the hell BitCoin is. After some investigation, he is able to see all the BitCoin addresses which sent BitCoin to the Defense Committee’s BitCoin address. Like many organizations, the Defense Committee encourages people to contact them for a “private” BitCoin address. Agent Smith has no idea what those addresses are or who sent BitCoins to them. He spends a couple days researching all these addresses and finds that only a couple of them have ever been posted online before and most of those happen to belong to other legal defense groups so he’s at a dead end there. In the end, Agent Smith is left pretty much empty-handed after exhaustive investigative work which he now decides he probably won’t even be doing in the future.

Lack of Intermediaries

When you wire money through a bank, use a credit card, or use an online payment system like Paypal, you usually pay a transaction fee in exchange for the service they provide you. Depending on which method you use to transfer money, the fees may be small or large and the general rule is that if your money has to cross national borders then the fees go up exponentially. You also end up paying an exchange rate so you can convert your money to some other currency.

With BitCoin, you transfer your money through the BitCoin network (which is run by volunteers and anybody who runs the BitCoin program) and there’s no mandatory fee for transfers. Transfers only take a few seconds but take longer for the network to “confirm” in the same way that you might have pending charges on your bank account/debit card. The lack of intermediaries also makes BitCoin extremely resistant to censorship and the ups and downs of many national economies. The latter feature is particularly useful if your country is financially unstable or in the middle of a political crisis. A BitCoin is a BitCoin and it will be worth the same amount no matter who you send it to or where you send it from. This also means you don’t have to trust your bank or its investment decisions.

BitCoin also can’t freeze your account, has no minimum balance or monthly fees, etc.

Actually Using Bitcoin

1. Download BitCoin

This step is pretty easy. Whether you’re on Windows, Linux, or Mac you can get BitCoin running in less than five minutes (think of how long it takes you to open a checking or paypal account if this seems like a long time). Download BitCoin from

2. Get Some BitCoins

Now that you have BitCoin set up and a BitCoin address, we need to get you some BitCoins. You can either buy BitCoins or have somebody give them to you. If you’re setting up BitCoin for an organization that is accepting donations, simply copy your “receiving address” onto your website, blog, or wherever you solicit donations from people. If you have no friends who use BitCoin yet but want to see what a transfer looks like, you can get some free BitCoins at the BitCoin Faucet You do not need to have the BitCoin program open to receive BitCoins. The network will remember the transaction and it will appear in your program when you start it next. If you don’t see a transaction you expect, keep waiting until the number of blocks at the bottom of the program stops going up. If you’re looking to buy things using BitCoin such as web hosting, pre-paid debit cards, or clothing then you’ll need to buy some BitCoins first. There are a number of places online (and in real life) that will sell you BitCoins which are called “exchangers”. They all offer a certain rate which is pretty close to the actual value of a BitCoin and cheaper in bulk. Depending on which exchanger you go with, you can buy BitCoins with cash, money orders, paypal, credit cards, or checks.

There’s a frequently updated list of currency exchangers at: The big exchanges at the moment are Mt. Gox and BitCoin7 but there’s plenty of smaller ones, some of which may be physically near you such as the London BitCoin Exchange.

Since BitCoin is fairly new, the price of BitCoins isn’t incredibly stable at the moment so unless you’re trying to invest in them, just buy enough for whatever transaction you’ll be doing. Keep in mind that your BitCoin exchanger may record your IP address and your BitCoin address, removing much of the anonymity BitCoin

3. Convert Your BitCoins to Cash!

If you have BitCoins left over or just got a bunch of ‘em and want to turn them into your currency of choice, you’ll need to sell them. You can do this through the same exchangers that you bought them through.

Common Questions

Below are a couple common questions about BitCoin. There are a whole slew of myths out there, so please research them before dismissing this online payment system. For a list of a bunch more (or more technical explanations of the ones below), see

How Anonymous is BitCoin?

When used properly, BitCoin can provide you a very high degree of anonymity. The way it is configured by default, it provides you with more anonymity than any major payment system but you probably shouldn’t publicly do anything with it that would get you in hot water. There’s a good explanation of what anonymity it
provides and how it can be improved at There’s an article about an interesting study into the level of anonymity most BitCoin users have at If you want to maintain a high degree of
anonymity, you should use a “mixing service” and proxy your BitCoin connection but that’s beyond the scope of this article.

Can’t Anybody Just Make Fake BitCoins and Spend Them?

This simply isn’t true. BitCoins are made by doing very intensive computations (which become more and more difficult as the network grows). In the same way that counterfeiting money is extremely difficult, counterfeiting BitCoins is because of the cryptography used in it. The “minting” of BitCoins is done by part of the network who donate their spare CPU cycles in order to support it (called mining). In exchange, they get a small amount of BitCoins which often times is less than they spend on electricity and hardware. In other words, you can’t just make a bunch of BitCoins and spend them because you’d have to do the cryptography first which you can’t fake as it’s verified by the rest of the BitCoin network. The more computation that is done, the stronger the network will be.

BitCoin is a Giant Ponzi Scheme/Early Adopters are Unfairly Rewarded

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value while risking time and money. Late adopters profit from the usefulness of a stable and widely accepted p2p currency. The vast majority of the 21 million possible Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.

Isn’t BitCoin Illegal? Don’t People use BitCoin to do Illegal Things?

HELP! THE WORLD IS SCARY! If the in-game currency in World of Warcraft, Gold, and coupons become illegal then BitCoin will be as well. BitCoin is simply a commodity you can buy and sell just like precious metals, jewelry, or cardboard. Their value is determined by what others are willing to pay for them. People use BitCoin to do all sorts of things, the majority of which are legal. Of course people will do illegal things with BitCoin just like they do with cash, cell phones, or knives. Cash is actually more anonymous than BitCoin in many ways and less likely to get you caught. BitCoin also can’t be shut down as long as the internet still exists and is decentralized so the government trying to do so isn’t a huge issue.

Where can I spend BitCoin?

You can spend it at all sorts of places to buy things from web hosting to design services to music and books. Here’s a quick list of places that accept it:

What happens if my computer crashes?

If you lose or have your “wallet” stolen, which is a file on your computer that BitCoin stores your information in, then you will indeed lose access to all of your BitCoins. This is why if you’re going to have a lot of them or use it frequently then you might want to consider making backups and securing your computer. You can also use an eWallet service, which is a site that runs BitCoin for you and holds your wallet. If you do this, make sure the service has a good reputation and is worthy of your trust.

Links and additional resources:

[paypalfreeze] Paypal Freezes Bradley Manning Support Network/Courage to Resist:
paypal-cuts-off-account-bradley-manning-support.shtml http://

Paypal freezes Katrina aid:

Paypal freezes Cryptome:

Paypal freezes Minecraft:

Paypal Freezes TortoiseSVN:


Getting started with BitCoin:

Some BitCoin FAQs:

A good discussion on the Anonymity of BitCoin:

Reprinted with permission.

For further reading:
"Cryptocurrency", James Surowiecki, MIT Technology Review, October 2011
"The World's First Bitcoin Conference", Morgen E. Peck, IEEE Spectrum, October 2011
"An Analysis of Anonymity in the Bitcoin System", Fergal Reid and Martin Harrigan, September 30, 2011
"Easily Anonymous Bitcoins", Michael Hendricks, September 30, 2011
"Anonymizing Bitcoin", Andrew Badr, September 10, 2011
"Why Bitcoin is not as anonymous as most users think", Jacob Aron, July 26, 2011
"Bitcoin: A Technical Introduction" (video), Brian Warner, July 21, 2011
"Bitcoin: More Covert than it Looks", Thomas Lowenthal, July 14, 2011
"Bitcoin, gold and the demise of fiat money", Detlev Schlichter, June 30, 2011

Friday, October 21, 2011

Cash Transactions Banned by Louisiana

By Thad D. Ackel, Jr. Esq.
Ackel & Associates L.L.C.
Tuesday, October 11, 2011

Government Takes Private Property Without Due Process

This summer, the State Legislature and Governor of Louisiana passed a law that bans individuals and businesses from transacting in cash if they are considered a “secondhand dealer”. House Bill 195 of the 2011 Regular Session (Act 389) broadly defines a secondhand dealer to include “… Anyone, other than a non-profit entity, who buys, sells, trades in or otherwise acquires or disposes of junk or used or secondhand property more frequently than once per month from any other person, other than a non-profit entity, shall be deemed as being in the business of a secondhand dealer. ” The law then states that “A secondhand dealer shall not enter into any cash transactions in payment for the purchase of junk or used or secondhand property. Payment shall be made in the form of check, electronic transfers, or money order issued to the seller of the junk or used or secondhand property…” The broad scope of this definition can essentially encompass everyone; from your local flea market vendors and buyers to a housewife purchasing goods on ebay or craigslist, to a group of guys trading baseball cards, they could all be considered secondhand dealers. Lawmakers in Louisiana have effectively banned its citizens from freely using United States legal tender.

The law goes further to require secondhand dealers to turn over a valuable business asset, namely, their business’ proprietary client information. For every transaction a secondhand dealer must obtain the seller’s personal information such as their name, address, driver’s license number and the license plate number of the vehicle in which the goods were delivered. They must also make a detailed description of the item(s) purchased and submit this with the personal identification information of every transaction to the local policing authorities through electronic daily reports. If a seller cannot or refuses to produce to the secondhand dealer any of the required forms of identification, the secondhand dealer is prohibited from completing the transaction.

This legislation amounts to a public taking of private property without due process or compensation. Regardless of whether or not the transaction information is connected with, or law enforcement is investigating a crime, individuals and businesses are forced to report routine business activity to the police. Can law enforcement not accomplish its goal of identifying potential thieves and locating stolen items in a far less intrusive manner? And of course, there are already laws that prohibit stealing, buying or selling stolen goods, laws that require businesses to account for transactions and laws that penalize individuals and businesses that transact in stolen property. Why does the Louisiana State Legislature need to enact more laws infringing on personal privacy, liberties and freedom?

Motivating the introduction of this legislation was an increase in criminal activity, necessitating law enforcement to develop additional tools in tracking potential criminals. Thefts of copper and other precious metals have risen recently with higher commodity prices and mounting pressures from the economic downturn. The added restrictions under this recent legislation have come about under the pretense of cracking down on crime and helping the government take care of you, all at the cost of your individual privacy, economic, civil liberty and freedom.

Interestingly enough, although Pawnshops are still required to obtain clients personal information and transmit their client database information to law enforcement, they are exempt from the restriction of cash payments. A jeweler next door to a pawnshop cannot offer clients the same payment method offered by its competing pawnshop neighbor.

Act 389 passed by unanimous consent of the Louisiana House of Representatives and only mustered one nay vote (Senator Neil Riser) from the State Senate. The governor signed the legislation into law on July 1, 2011.

Thad D. Ackel, Jr. serves as lead counsel at Ackel & Associates L.L.C. and Broker of Tribute Real Estate. Reprinted with permission.

For further reading:
"Tool Time: LA Bans Cash For 2nd Hand Goods" (video), Russia Today, October 21, 2011
"Repealing the Ban on Cash / Constitutional Amendment" Thad Ackel, October 21, 2011
"Louisiana Law Bans Cash for Second Hand Transactions," Chuck Wolk, October 20, 2011
"Turn In Your Bin Ladens", Jonathan Lipow, The New York Times, December 17, 2010

Monday, October 17, 2011

Why the State Demands Control of Money

By Hans-Hermann Hoppe
Mises Daily
Thursday, October 13, 2011

Imagine you are in command of the state, defined as an institution that possesses a territorial monopoly of ultimate decision making in every case of conflict, including conflicts involving the state and its agents itself, and, by implication, the right to tax, i.e., to unilaterally determine the price that your subjects must pay you to perform the task of ultimate decision making.

To act under these constraints — or rather, lack of constraints — is what constitutes politics and political action, and it should be clear from the outset that politics, then, by its very nature, always means mischief. Not from your point of view, of course, but mischief from the point of view of those subject to your rule as ultimate judge. Predictably, you will use your position to enrich yourself at other people's expense.

More specifically, we can predict in particular what your attitude and policy vis-à-vis money and banking will be.

Assume that you rule over a territory that has developed beyond the stage of a primitive barter economy and where a common medium of exchange, i.e., a money, is in use. First off, it is easy to see why you would be particularly interested in money and monetary affairs. As state ruler, you can in principle confiscate whatever you want and provide yourself with an unearned income. But rather than confiscating various producer or consumer goods, you will naturally prefer to confiscate money. Because money, as the most easily and widely saleable and acceptable good of all, allows you the greatest freedom to spend your income as you like, on the greatest variety of goods. First and foremost, then, the taxes you impose on society will be money taxes, whether on property or income. You will want to maximize your money-tax revenues.

In this attempt, however, you will quickly encounter some rather intractable difficulties. Eventually, your attempts to further increase your tax income will encounter resistance in that higher tax rates will not lead to higher but to lower tax revenue. Your income — your spending money — declines, because producers, burdened with increasingly higher tax rates, simply produce less.

In this situation, you only have one other option to further increase or at least maintain your current level of spending: by borrowing such funds. And for that you must go to banks — and hence your special interest also in banks and the banking industry. If you borrow money from banks, these banks will automatically take an active interest in your future well-being. They will want you to stay in business, i.e., they want the state to go on in its exploitation business. And since banks tend to be major players in society, such support is certainly beneficial to you. On the other hand, as a negative, if you borrow money from banks you are not only expected to pay your loan back, but to pay interest on top.

The question, then, that arises for you as the ruler is, How can I free myself of these two constraints, i.e., of tax-resistance in the form of falling tax revenue and of the need to borrow from and pay interest to banks?

It is not too difficult to see what the ultimate solution to your problem is.

You can reach the desired independence of taxpayers and tax payments and of banks, if only you establish yourself first as a territorial monopolist of the production of money. On your territory, only you are permitted to produce money. But that is not sufficient. Because as long as money is a regular good that must be expensively produced, there is nothing in it for you except expenses. More importantly, then, you must use your monopoly position in order to lower the production cost and the quality of money as close as possible to zero. Instead of costly quality money such as gold or silver, you must see to it that worthless pieces of paper that can be produced at practically zero cost will become money. (Normally, no one would accept worthless pieces of paper as payment for anything. Pieces of paper are acceptable as payment only insofar as they are titles to something else, i.e., property titles. In other words then, you must replace pieces of paper that were titles to money with pieces of paper that are titles to nothing.)

Under competitive conditions, i.e., if everyone were free to produce money, a money that can be produced at almost zero cost would be produced up to a quantity where marginal revenue equals marginal cost, and because marginal cost is zero the marginal revenue, i.e., the purchasing power of this money, would be zero as well. Hence, the necessity to monopolize the production of paper money, so as to restrict its supply, in order to avoid hyperinflationary conditions and the disappearance of money from the market altogether (and a flight into "real values") — and the more so the cheaper the money commodity.

In a way, you have thus accomplished what all alchemists and their sponsors wanted to achieve: you have produced something valuable (money with purchasing power) out of something practically worthless. What an achievement. It costs you practically nothing and you can turn around and buy yourself something really valuable, such as a house or a Mercedes; and you can achieve these wonders not just for yourself but also for your friends and acquaintances, of which you discover that you have all of a sudden far more than you used to have (including many economists, who explain why your monopoly is really good for everyone).

What are the effects? First and foremost, more paper money does not in the slightest affect the quantity or quality of all other, nonmonetary goods. There exist just as many other goods around as before. This immediately refutes the notion — apparently held by most if not all mainstream economists — that "more" money can somehow increase "social wealth." To believe this, as everyone proposing a so-called easy-money policy as an efficient and "socially responsible" way out of economic troubles apparently does, is to believe in magic: that stones — or rather paper — can be turned into bread.

Rather, what the additional money you printed will affect is twofold. On the one hand, money prices will be higher than they would otherwise be, and the purchasing power per unit of money will be lower. In a word, the result will be inflation. More importantly, however, all the while the greater amount of money does not increase (or decrease) the total amount of presently existing social wealth (the total quantity of all goods in society), it redistributes the existing wealth in favor of you and your friends and acquaintances, i.e., those who get your money first. You and your friends are relatively enriched (own a larger part of the total social wealth) at the expense of impoverishing others (who as a result own less).

The problem, for you and your friends, with this institutional setup is not that it doesn't work. It works perfectly, always to your own (and your friends') advantage and always at the expense of others. All you have to do is to avoid hyperinflation. For in that case people would avoid using money and flee into real values, thus robbing you of your magic wand. The problem with your paper-money monopoly, if there is one at all, is only that this fact will be immediately noticed also by others and recognized as the big, criminal rip-off that it indeed is.

But this problem can be overcome, too, if, in addition to monopolizing the production of money, you also set yourself up as a banker and enter the banking business with the establishment of a central bank.

Because you can create paper money out of thin air, you can also create credit out of thin air. In fact, because you can create credit out of nothing (without any savings on your part), you can offer loans at cheaper rates than anyone else, even at an interest rate as low as zero (or even at a negative rate). With this ability, not only is your former dependency on banks and the banking industry eliminated; you can, moreover, make banks dependent on you, and you can forge a permanent alliance and complicity between banks and state. You don't even have to become involved in the business of investing the credit yourself. That task, and the risk involved in it, you can safely leave to commercial banks. What you, your central bank, need to do is only this: You create credit out of thin air and then loan this money, at below-market interest rates, to commercial banks. Instead of you paying interest to banks, banks now pay interest to you. And the banks in turn loan out your newly created easy credit to their business friends at somewhat higher but still submarket interest rates (to earn from the interest differential). In addition, to make the banks especially keen on working with you, you may permit the banks to create a certain amount of their own new credit (of checkbook money) in addition and on top of the credit that you have created (fractional-reserve banking).

What are the consequences of this monetary policy? To a large extent they are the same as with an easy money policy: First, an easy credit policy is also inflationary. More money is brought into circulation and prices will be higher, and the purchasing power of money lower, than would have been the case otherwise. Second, the credit expansion too has no effect on the quantity or quality of all goods currently in existence. It neither increases nor decreases their amount. More money is just this: more paper. It does not and cannot increase social wealth by one iota. Third, easy credit also engenders a systematic redistribution of social wealth in favor of you, the central bank, and the commercial banks within your cartel. You receive an interest return on money that you have created at practically zero cost out of thin air (instead of on money costly saved out of an existing income), and so do the banks, who earn additional interest on your costless money loans. Both you and your banker friends thereby appropriate an "unearned income." You and the banks are enriched at the expense of all "real" money savers (who receive a lower interest return than they otherwise would, i.e., without the injection of your and the banks' cheap credit into the credit market).

On the other hand, there also exists a fundamental difference between an easy, print-and-spend money policy and an easy, print-and-loan credit policy.

First off, an easy credit policy alters the production structure — what is produced and by whom — in a highly significant way.

You, the chief of the central bank, can create credit out of thin air. You do not have to first save money out of your money income, i.e., cut your own expenses, and thus abstain from buying certain nonmoney goods (as every normal person must, if he extends credit to someone). You only have to turn on the printing press and can thus undercut any interest rate demanded of borrowers by savers elsewhere in the market. Granting credit does not involve any sacrifice on your part (which is why this institution is so "nice"). If things then go well, you will be paid a positive-interest return on your paper investment, and if they don't go well — well, as the monopoly producer of money, you can always make up losses more easily than anyone else: by covering your losses with even more printed paper.

Without costs and no genuine, personal risk of losses, then, you can grant credit essentially indiscriminately, to everyone and for any purpose, without concern for the creditworthiness of the debtor or the soundness of his business plan. Because of your "easy" credit, certain people (in particular investment bankers) who otherwise would not be deemed sufficiently creditworthy, and certain projects (in particular of banks and their main clients) that would not be considered profitable but wasteful or too risky instead do get credit and do get funded.

Essentially, the same applies to the commercial banks within your banking cartel. Because of their special relationship to you, as the first recipients of your costless low-interest paper-money credit, the banks, too, can offer loans to prospective lenders at interest rates below market interest rates — and if things go well for them they go well; and if they don't, they can rely on you, as the monopolistic producer of money, to bail them out in the same way as you bail yourself out of any financial trouble: by more paper money. Accordingly, the banks too will be less discriminating in the selection of their clients and their business plans and more prone to funding the "wrong" people and the "wrong" projects.

And there is a second significant difference between a print-and-spend and a print-and-loan policy and this difference explains why the income and wealth redistribution in your and your banker friends' favor that is set in motion by easy credit takes the specific form of a temporal — boom-bust — cycle, i.e., of an initial phase of seeming general prosperity (of expected increases in future incomes and wealth) followed by a phase of widespread impoverishment (when the prosperity of the boom period is revealed as a widespread illusion).

This boom-bust feature is the logical — and physically necessary — consequence of credit created out of thin air, of credit unbacked by savings, of fiduciary credit (or however else you may call it) and of the fact that every investment takes time and only shows later on, at some time in the future, whether it is successful or not.

The reason for the business cycle is as elementary as it is fundamental. Robinson Crusoe can give a loan of fish (which he has not consumed) to Friday. Friday can convert these savings into a fishing net (he can eat the fish while constructing the net), and with the help of the net, then, Friday, in principle, is capable of repaying his loan to Robinson, plus interest, and still earn a profit of additional fish for himself. But this is physically impossible if Robinson's loan is only a paper note, denominated in fish, but unbacked by real-fish savings, i.e., if Robinson has no fish because he has consumed them all.

Then, and necessarily so, Friday must fail in his investment endeavor. In a simple barter economy, of course, this becomes immediately apparent. Friday will not accept Robinson's paper credit in the first place (but only real, commodity credit), and because of this, the boom-bust cycle will not get started. But in a complex monetary economy, the fact that credit was created out of thin air is not noticeable: every credit note looks like any other, and because of this the notes are accepted by the takers of credit.

This does not change the fundamental fact of reality that nothing can be produced out of nothing and that investment projects undertaken without any real funding whatsoever (by savings) must fail, but it explains why a boom — an increased level of investment accompanied by the expectation of higher future income and wealth — can get started (Friday does accept the note instead of immediately refusing it). And it explains why it then takes a while until the physical reality reasserts itself and reveals such expectations as illusory.

But what's a little crisis to you? Even if your path to riches is through repeated crises, brought about by your paper-money regime and central-bank policies, from your point of view — from the viewpoint as the head of state and chief of the central bank — this form of print-and-loan wealth redistribution in your own and your banker friends' favor, while less immediate than that achieved with a simple print-and-spend policy, is still much preferable, because it is far more difficult to see through and recognize for what it is. Rather than coming across as a plain fraud and parasite, in pursuing an easy-credit policy you can even pretend that you are engaged in the selfless task of "investing in the future" (rather than spending on present frivolities) and "healing" economic crises (rather than causing them).

What a world we live in!

Hans-Hermann Hoppe, an Austrian School economist and anarchocapitalist philosopher, is professor emeritus of economics at UNLV, a distinguished fellow with the Ludwig von Mises Institute, and founder and president of The Property and Freedom Society. Reprinted with permission.