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Bitcoins financial network is doomed – The Washington Post

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Tim Lee at Vox argues that Bitcoin is destined to succeed not as a currency but as a financial network.

Its a mistake to think about Bitcoin as a new kind of currency. What makes Bitcoin potentially revolutionary is that its the worlds first completely open financial network. Think about the internet. It didnt seem like a very practical technology in the 1980s. But it was an open platform that anyone could build on, and in the long run it proved to be really useful. The internet succeeded because Silicon Valley have created applications that harness the internets power while shielding users from its complexity. Bitcoin applications can work the same way.

The Bitcoin network serves the same purpose as mainstream payment networks such as Visa or Western Union. you want to build a business based on one of those networks, you have to get permission from the owner. And thats not always easy. To use the Visa network, for example, you have to comply with hundreds of pages of regulations. The Visa network also has high fees, and there are some things Visa wont let you do on its network at all. Bitcoin is different. Because no one owns or controls the network, there are no limits on how people can use it. One obvious application is international money transfers. Bitcoin is a payment network that happens to have its own currency, not the other way around.

This looks, initially, like a plausible and attractive argument. But from a political science perspective, it misses something very, very important. There is a reason why you have to comply with hundreds of pages of regulations to use the Visa network that goes beyond Visas selfish corporate interests. That reason is government. Governments regulate payment networks very heavily, for a wide variety of reasons, which include making sure that people dont use these networks to support activities that governments dont like. They use financial intermediaries as points of controlthat allow them to control who does business with whom. The Obama administrations undersecretary for terrorism and financial intelligence, David Cohen, delivered a speech four days ago that copiously illustrates this point.

Over the past decade or so, one important way that the United States has protected our nations core interests, projected power, and exercised leadership on the world stage is through the increasing use of financial measures. Far from just focusing on terrorist financing and money laundering, my office in the Treasury Department is now regularly called upon to help advance a variety of U.S. national security and foreign policy goals. financial measures have become far more powerful tools of statecraft, and their effects are multiplied in a world defined by economic interdependence.

Compare, for example, Jeffersons failure to our ongoing efforts to use sanctions to prevent Iran from obtaining a nuclear weapon. Together with partners around the world, we have imposed what many believe is the most effective set of financial and economic sanctions in history. Carefully designed and customized to maximize pressure, they have impeded Irans ability to acquire material for its nuclear program, isolated it from the international financial system, drastically slashed its oil exports, and deprived it of access to a sizeable portion of its oil revenues and foreign reserves. Not surprisingly, the impact on Irans economy has been dramatic: its budget deficit and inflation have spiked, the value of its currency has sharply declined, foreign investment has all but dried up, and overall economic activity has stagnated.

The reason that the U.S. can do this is because it has a lot of effective control over financial networks. It can put pressure on banks (including foreign banks, which have been fined billions of dollars for not complying with the U.S. sanctions regime) to isolate Iran from the international system. In Cohens words:

Put simply, financial institutions everywhere need dollars to serve their customers, and thus require access to U.S. banks through correspondent accounts to settle their customers transactions. That means that foreign banks are especially attuned to our sanctions.

Because so many international transactions are (a) settled in dollars and (b) settled across payment systems run by banks and other financial intermediaries that are vulnerable to U.S. pressure, the U.S. can use these systems to exert political control. Now, imagine the likely response of the U.S. (and the E.U., and, for that matter, China) to a payment network which is designed from the ground up to be decentralized, so that it is impossible for any specific intermediaries to really control payment flows from one actor to another. Such a network would be impossible for states to control. The U.S.wouldnt be able to use it, for example, to squeeze Iran out of the world financial system. If such a network ever showed signs of really becoming established (rather than being a relatively small-scale thought experiment, and money suck for libertarians with more ideology than good sense), the U.S.would ruthlessly act to isolate it from the international financial system.

And that is the story of Bitcoin. Up to this point, regulators have largely tolerated Bitcoin as a curiosity and experiment. While Bitcoin allows consumers to buy illegal drugs on Tor Hidden Services sites like Agora and Evolution, they dont do so on a sufficiently large scale to really cause enormous alarm. Regulators still dont know quite what to do with Bitcoin. But if Bitcoin were ever to threaten to become a truly decentralized payments network, owned by no one, and with no one e.g. capable of implementing Know Your Customer rules, regulators would know very well what to do with it. Theyd introduce regulatory guidances and pass laws to freeze it off from the regular financial system. Very possibly, Bitcoin could still survive at the margins (as the Hawala system has survived). However, it would be isolated, and in no position to threaten Visa or Mastercard, let alone the underlying payment and messaging services that really underpin the world financial system.

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Bitcoins financial network is doomed - The Washington Post

Why Bitcoin advocates might like New Yorks new proposed rules for virtual currency

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One of New York's top financial regulators is laying out a new policy on Bitcoin and other virtual currenciesafter a flood of public feedback encouraged the agency to scale back its proposed rules.

New revisions to the proposal would trim some requirements on Bitcoin-related businesses, and clarify others. Among the key changes? Companies covered by the regulationswill no longer be required to store the addresses of every person involved in a Bitcoin transaction an idea privacy hawks have said would deter people from adopting virtual currencies.Now, companies regulated by New York's so-called BitLicense will only be required to gather transaction information from their own customers, said Ben Lawsky, New York's superintendent of financial services, at a Washington conference Thursday.

In addition, covered companies will only have to store that information for seven years, down from the 10 years Lawsky's agency, the department of financial services,was previously considering.

"Virtual currencies really sit at that crossroads of the much more lightly regulated tech sector and themore heavily regulated financial sector," said Lawsky, who added that allfinancial companiesought to be supervised to"ensure thatconsumers' money doesn't just disappearinto a black hole."

That said, the new rules will be clarified to cover only those companies that actually engage in sending money from one place to another, said Lawsky. They won't apply tosoftware companies thatoffer consumers Bitcoin "wallets" where they can store their digitalcash.Nor will the rules apply to retailers that simply take bitcoins as payment for goods and services. Private individuals who "mine"or invest inbitcoins won't be required to apply for a license from the state government, either.

All this is great news for Bitcoin proponents, many of whom feared that too many rules on virtual currencies would strangle an innovative new payment method in the crib. Some advocates would probably prefer to see even weaker regulations. But many in the industry acknowledge that some rules are necessary to enhance Bitcoin's legitimacy, to prevent fraud and to ward off catastrophic implosions similar to the one that befell the popular bitcoin exchange Mt. Gox earlier this spring.

Oncethey'reofficially published, the new proposed rules willbe subject to a new 30-day comment period where members of the public can weigh in on the idea. Lawsky said the last round of feedback drew more than 3,700 comments.

"I'm sure that the new draft is better than the old draft," said Jim Harper, a senior fellow at the Cato Institute who's studied virtual currency issues. "The remainingquestion is going to be whether it's good or not. The thing to look at is, 'Will it create consumer confidence more than it undercuts innovation?'"

Brian Fung covers technology for The Washington Post, focusing on telecom, broadband and digital politics. Before joining the Post, he was the technology correspondent for National Journal and an associate editor at the Atlantic.

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Why Bitcoin advocates might like New Yorks new proposed rules for virtual currency

The future of Bitcoin: live Twitter chat today

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Part of complete coverage on

STORY HIGHLIGHTS

Editor's note: Tomorrow Transformed explores innovative approaches and opportunities available in business and society through technology.

(CNN) -- Today, Thursday December 18, we're hosting a Twitter live chat @CNNTech debating the future of Bitcoin with a panel of experts. Join us at 5pm GMT/12pm ET by tuning into the hashtag #bitcoinfuture. We look forward to seeing you there!

Here's a look at our panel:

Jeffrey Robinson

Jeffrey is the author of "Bitcon: The Naked Truth about Bitcoin," and has been described as the world's 'leading financial crime author' by the British Bankers' Association.

In addition to books on dirty money, he has written a number of investigative non-fiction books, major biographies and half a dozen novels.

Daniel Mark Harrison

As editor of CoinSpeaker, Daniel reports on the latest developments in the world of cryptocurrencies.

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The future of Bitcoin: live Twitter chat today

Deploy Toshi Bitcoin Node with Docker on AWS in 30 minutes. Beginner Friendly! – Video

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Deploy Toshi Bitcoin Node with Docker on AWS in 30 minutes. Beginner Friendly!
Deploy Toshi to an EC2 instance on Amazon Web Services using Docker in 30 minues. Toshi is a Bitcoin Implementation written in Ruby by Coinbase. This step-by...

By: Alexander Leishman

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Deploy Toshi Bitcoin Node with Docker on AWS in 30 minutes. Beginner Friendly! - Video

The New Economy – Bitcoin & Collaborative Consumption Documentary [trailer] – Video

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The New Economy - Bitcoin Collaborative Consumption Documentary [trailer]
A documentary about cryptocurrencies, such as Bitcoin, and the new sharing economy that are transforming how economic policy will be established in the comin...

By: Mike De #39;Shazer

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The New Economy - Bitcoin & Collaborative Consumption Documentary [trailer] - Video

Bitcoin is the worst investment of 2014 Quartz

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There was plenty of ugliness to be found in the markets this year. Ukranian and Venezuelan sovereign debt. High-yield, energy-related corporate bonds. Argentine pesos. Russian rubles. Greek stocks.

But none of these investments has been as atrociously awful as bitcoin, the heavily hyped crypto-currency that stormed onto the financial scene in the last few years, threatening to disrupt thecornerstone of global finance that is fiat currency.

It hasnt worked out. Year-to-date bitcoin is down roughly 52% at last glance.

Clearly bitcoin bulls have found themselves on the bleeding edge. But the question is why? One of the clearest answers seems to be that some of the shadier usages of the currencysay for evading taxes and buying drugshave been tougher to execute as governments increasingly try to clamp down on the dark web sites where bitcoin quickly became the cryptocurrency of choice.Collapses of large, unregulated bitcoin exchangessuch as Mt. Goxhave done little to instill confidence in the currency either.

Some of us have argued that bitcoin actually never was a currency, but rather a plaything of speculators.When such playthings start to lose value, speculators have a tendency to abandon them en masse, which they appear to have done in this case.

Now, its worth noting thatsome argue that the value of bitcoin is not in the currency, but in the technology platform. And who knows? Maybe conventional payment systems will come around someday and start incorporating some of the structural advantagesthat transacting in bitcoins provides.

But in the meanwhile, the saga of relentlessly sagging bitcoin pricesas well as stagnant usage indicatorsunderscores an unpleasant fact for libertarian technologists.Money derives much of its value from its government support, in that the government has the power to make it legal tender. That is, the government says not only that currency can be accepted, but it must be accepted. That political choice is what ensures that the currency has an actual utility, that is, it can be used widely for actual transactions. Thats what makes a currency useful. Bitcoin bulls are learning this the hard way.

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Bitcoin is the worst investment of 2014 Quartz

Bitcoin worse investment than the ruble in 2014

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Bitcoin, the online cryptocurrency recently hailed as the most successful of its kind, has been valued as potentially the worst investment in 2014 by business site Quartz.

Bitcoins value has plummeted massively in the last 12 months, currently showing a bigger drop than the Greek stock exchange or the Argentine peso. According to the Guardian, one bitcoin is now worth less than half of what it was this time last year, having devalued by 52% since the start of 2014.

Even the Russian ruble which was declared the worst performing currency of 2014 and which has registered single day falls worse than those seen in Russias 1998 economic crisis, had outperformed Bitcoin as of Wednesday morning GMT.

Jim Urquhart/REUTERS Some of Bitcoin enthusiast Mike Caldwell's coins are pictured at his office in this photo illustration in Sandy, Utah, January 31, 2014.

Currently the rubles rate of devaluation in 2014 is 51%.

According to Andrew Davies, a Newsweek business writer, it isnt highly surprising the cryptocurrency has hit a rough patch as the novelty of bitcoin makes it highly sensitive to changes in the trading climate.

Right now people are feeling very worried and so are dumping holdings that they fear might fall sharply in value, Davies says.

Bitcoin is a prime candidate for this treatment because its value depends always on what I call the greater fool - i.e. someone who is willing to pay even more for it than you did in order to take it off your hands and give you a profit. Davies adds.

A surge in popularity of bitcoin trading over the first half of 2014 caused the value of the currency to skyrocket, hitting the highest ever rate of $900 per single coin and prompting the number of merchants trading in the currency who have made a billion dollars in revenue to increase from zero to 10 by the end of the year.

In the second half of 2014 however, the excitement surrounding bitcoin decreased and volatility in oil, equities, bonds, currencies and commodities has scared traders away from experimental currency such as bitcoin causing the value to drop to $334 per coin on Wednesday.

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Bitcoin worse investment than the ruble in 2014


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