We are working with the government to make sure indeed the long arm of the government can reach Bitcoin
Jeff Garzik, Bitcoin Developer
Two days ago, on the show, What’s Trending, Bitcoin developer Jeff Garzik remarked that despite the opinions of the libertarian user base of Bitcoin, the success of Bitcoin required cooperation with government regulation. This echoes the opinions of Bitcoin technical lead, Gavin Andresen. Here, “regulatory cooperation” specifically refers to “regulatory compliance” of Bitcoin exchanges. A Bitcoin exchange is where government fiat money is exchanged for the Bitcoin “free market” fiat money and vice versa. Regulatory compliance means reporting the details of each of these transactions, including the user identities linked to a Bitcoin address for each exchange transaction, to the Government.
It’s not like the Bitcoin development team has nefarious motives. Even though the original whitepaper by “Satoshi Nakamoto” was perhaps ideologically motivated by crypto-libertarianism, the development has since been turned over to a team more concerned with practical adoption than ideological ends. A fiat currency requires a “network effect” to ultimately succeed. Since Bitcoin “mining,” that is the creation of new bitcoins, is (1) an incentive reward for a clearinghouse node completing a proof-of-work requirement for verifying the current block of unverified transactions and given (2) that the increase of CPU power of the Bitcoin network(i.e., the addition of new nodes) dictates that clearinghouse nodes specialize(following a “division of labor” hierarchy) as “number-crunchers,” so most nodes now will no longer participate in block transaction verifications(they will “turn off” the Bitcoin mining option), it follows that (3) most new entrants(new “nodes”) who want to acquire bitcoins will do so by buying them from a currency exchange.
Hence, the Bitcoin development team’s position that the network effect(wide-spread adoption) depends on “white-market” currency exchanges as entry points. Without regulatory compliance, these exchanges won’t exist and/or continue to exist. The Bitcoin development team consider themselves acting in the capacity of entrepreneurial agents, not ideological agents. In other words, they have an entrepreneurial interest in wide-spread adoption(the “network effect”). But the means here conflict with the original ideological intent. This is an example of why I am not a Rothbardian Agorist.
In Rothbardian agorism, you would have:
(1) no white-market currency exchanges. You would acquire bitcoins by exchanging a product of your labor. In other words, if you wanted a product/service being offered in bitcoins, you would have to discover and offer a product/service that others would be willing to pay for with bitcoins. In the limited Bitcoin ecosphere, this would likely entail huge opportunity costs. These opportunity costs are exactly why the libertarian economist Walter Block dismissed agorism as being “economic suicide.”
(2) you could have grey-market exchanges. Agorist theory would require “protective agencies” to evolve, in an entrepreneurial capacity, to defend these transactions. However, we are seeing that the entrepreneurial actions of the Bitcoin development team working against this outcome. From a practical sense, you can see why. “Conspiracy” in US Law is totalitarian. A grey-market exchange + “a bitcoin market trading in illegal services/goods” = criminal conspiracy that could land anyone associated with the project in jail.
Bitcoin, Laissez-Faire and Bureaucratic Compliance
Bitcoin fantastically illuminates the distinction between “regulation” and “compliance.” Statists rely on conflating the two concepts. In the “Laissez-faire” tradition, the entrepreneur is a “regulatory mechanism” and the bureaucrat a “compliance mechanism.” Statists will call Bitcoin an “unregulated monetary ponzi scheme.” But what they really mean is that it is simply “non-compliant” with the lawlessness of the US Political economy. What Statists call “unfair advantage of early adopters” is simply the entrepreneurial reward for resolving a coordination problem. There is no need for “regulation” because it works quite regularly as expected, according to the rules adopted.
A fair, non-compliant(!=unregulated) exchange between government fiat money and free market fiat money resolves the opportunity cost problem outlined above, and absent that constraint, it’s likely that the free market fiat money would experience it’s network effects. However, compliant(!=regulated) exchange between government fiat money and free market fiat money is not likely to result in any network effects. It should be realized that if the State, particularly one that has “oligarchicalized money and credit,” particularly one whose currency serves as the global reserve, lost it’s monopoly on money, it would likely collapse. So, it’s a bit naive to think that the State would comply with such an outcome.
A valid criticism of the Bitcoin development team would be stop using the term “regulate,” and instead use the more accurate term, “compliance.” Compliant Bitcoin Exchanges would have to be considered “Snitch nodes” on the Bitcoin network. Snitch nodes obviously compromise your anonymity in terms of participating in the Bitcoin network, but whether this is sufficient, along with other techniques, to compromise your anonymity for any given transaction, is another matter.
What’s clear, in observing the rapid appreciation of Bitcoin on the exchanges the past 30 days, is that this matter is soon coming to the fore…
Libérale et libertaire 
One interesting possibility is that the Bitcoin developers are crypto-crypto-libertarians. They know that if they use Bitcoin to directly challenge the U.S. government, they’ll end up in jail and Bitcoin will be driven into obscurity. However, Bitcoin has an open source codebase (from what I understand), so it can theoretically be forked into a new project that works like the Ur-Bitcoin, but doesn’t have a mechanism for reporting transactions to the state. In this case, the compliant Ur-Bitcoin can be operated openly, allowing time for the development of the codebase and for the discovery of bugs and allowing the public to become familiar with how it works. Then, when it’s in a strong position, the forked Bitcoin can be released (possibly with some mechanism for the conversion of Ur-bitcoins) in a polished form that the state will have trouble suppressing.
And even if this isn’t the intention of the Bitcoin developers, it’s possible that the source could still be used for this purpose.
Just to note, a “Snitch Node” is not one where the Bitcoin client(the “software”) is reporting transactions to the State directly. “Compliance” works like it does in every other case, as a separate reporting/audit action.
Bitcoin’s codebase is on GitHub:
https://github.com/bitcoin/bitcoin
Obviously, any attempt to monkey with the code itself to create compliance would create an immediate fork.
It should also be noted that there are a number of different client implementations:
https://en.bitcoin.it/wiki/Category:Clients
Compliance is a matter to be resolved by the people who run exchanges. They should have interviewed MagicalTux, who has already been thinking of these matters. There is a $1000/day withdrawal limit on Mt. Gox unless you agree to have KYC information collected about you. This limit applies to both USD and BTC withdrawals.
” This is an example of why I am not a Rothbardian Agorist.”
Oh come now. Rothbard was content to simply push toward more liberty. There is nothing that says you can’t be a Rothbardian Agorist while working within the limits imposed by the State. I have a job and work for fiat federal reserve notes, but I still consider myself to be an anarcho-capitalist.
Anarcho-capitalism is the ideal. Just because it is impossible to have the ideal in our current system of looting is no reason to give up on promoting it.
Good article in general.
I just want to point out that Bitcoin is not a fiat currency. Fiat means imposed by force, usually by governments. Bitcoin is a 100% voluntary currency and the Bitcoin community does not want to impose it in any way. You are free to use it or not.
If you want to define fiat currency as a currency that is not backed by anything, then you have to realize that only receipts are not fiat. For example, with this definition, gold and silver would be fiat because they are not backed by anything. It makes no sense IMHO. People value gold and silver by their qualities and use it as money voluntarely, exactly as with bitcoins, and opposed to federal reserve notes that the government imposes using force.
A large portion on human brain power is currently aware that the state in its current form is not good for humanity. They/we are working to solve this problem, definitions of the problem have been improving over the last 100 years thanks to von Mises, Rothbard, Konkin, etc. Konkin went further to suggest solutions. Now new unexpected solutions are popping up everywhere. TOR, bitcoins, VPNs, torrents, etc. etc. etc.
I get the feeling it is only a matter of time until we “solve” the problem of government and so reduce the costs of what government “produces” for us that the common man will plainly see it is cheaper on his own.
If bitcoin does not survive, something better will displace it, something with more immunities to government attack.
Remember that the state still does not have global reach and a handful of lenient jurisdictions will spell the end of government currency.
Govt has tobring Bitcoin into its clutches somehow, they’l use the money laundering drug running excuse to impose controls on Bitcoin, The reality is that Govts who commit most of the serious crimes.
Like involvement in the deaths of over 1 million Iraqi’s.
I’m failing to understand what is going on here.
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).
Bitcoin does not illuminate the distinction between “regulation” and “compliance.” As far as the State is concerned, they make regulations, and you are forced to comply with them. There cannot be compliance without a set of regulations. What is happening here is the conflation of the economic meaning of regulation (regulation of a natural system) with the meaning of the word regulation in the legal sense.
In any case, we need to know if the current developers of the current version of the Bitcoin client are intending to cripple new versions of their client so that the state can interfere in the Bitcoin network. If they plan to do this, they are completely insane, because the client will immediately fork and new, clean clients will emerge that use the existing network correctly, actively shunning the snitch nodes. Once the word gets out that the old developers are indeed planning on offering a tainted client, that client will die on the vine, and everyone will move to the new client.
They must know about the Bitorrent clients and how they have evolved, Vuze, uTorrent and al the other clients all work together with the same protocol and there is nothing anyone can do to kill them off. If there were a way to do so, don’t you think that the MPAA/RIAA would have called for the banning of all Bittorrent clients? The same thing will be true of Bitcoin clients.
My advice to the developers of this client is, get Phil Zimmerman’s telephone number and have a chat with him. That man put his life on the line for PGP, and now he is a hero; everyone everywhere is using his software. He survived a withering attack from the state, and now he is a real hero and everyone has benefitted. Do you want to be remembered as the people who changed the world for the better and who freed hundreds of millions of people, or do you want to be remembered as chicken shit losers who crapped their pants at the first hurdle, as real heros took your work, defended it and the users and stood up for humanity. Make no mistake; if you lose your nerve, someone else will take the reins and a firestorm of scorn will rain down on you. Your names will be erased from the book of heroes, and other people in other places will be remembered and hailed for what they did in the coming months.
Don’t be intimidated. Do not give in to unwarranted fear of the State.
I have had ENOUGH of the State, compliance, obedience, regulation, intimidation and all the people who keep braying for the State to sanctify them and their activities.
I will pay money towards the development of an iron clad, State free Bitcoin client, should the current developers lose their nerve and kow tow to the State. I will NEVER use an exchange that is base in the USA. PERIOD.
I am not about to live out my life like a Soviet Union citizen (for citizen, read prisoner), waiting seventy years for the State to collapse and freedom to emerge. I want my Liberty NOW I’m taking it NOW, I am not willing to wait for it, and I’m not putting up with snitches or a back doored or crippled Bitcoin client or exchange.
Think hard about the truth of this situation. The source is out there, the network is up and running, and there is nothing you can do to stop it. Liberty is emerging; do not fight against its birth!
thanx for the response. of course, you are preaching to the choir, here…
However, i think Bitcoin does “illuminate” the distinction between “regulation” and compliance because regulation is “supposed” to denote a mechanism to make something work in a “regular fashion,” or in the more technical sense, as mechanism to internalize market externalities.
However, the term, in practice, usually means a mechanism to force market “compliance” with an end result or political economy objective.
Good analysis of the effects. I think it was important to point out that unregulated markets are seldom fair. But fairness is a perspective of the haves and have-nots. Advantage can be pointed out in nearly everything. In my experience, Bitcoin is best utilized as an alternate tool for trade. I don’t believe it was designed or intended to become mainstream, and working toward that may cause declining usage.