For a cell to turn from white to black (a person starting to use bitcoin), fiat must be converted into bitcoin at a KYC/AML entry point. This happens in a thin line at the edge of the fuzzy gray mass, via compliant companies that provide this conversion service.
Everyone outside in the white zone is either unbanked or using only fiat currency and banks. Everyone inside the mass in the black zone uses bitcoin. Those in the black zone do not ever engage with KYC/AML, because they already have bitcoin , and regularly send it anywhere, to any person, globally without further permission of any kind.
The central mass increases in size as it absorbs fiat currency. It will keep growing until either it absorbs all fiat currency, or a lower-than-total absorption equilibrium point is reached. A lower-than-total absorption equilibrium could be caused by the Bitcoin network reaching a technical upper limit (like the transaction rate limit, which is now impossible on a practical level thanks to Elizabeth Stark’s Lightning Labs “Layer-2” network) or a psychological or political distortion (banning, taxation, FUD, usability, or some other artificial pressure).
We can see from this illustration and thought experiment that eventually, there will be a huge number of users who will never again need to be KYC-/AML-verified, because their money exists and circulates freely only as bitcoin . This means that inside the Bitcoin ecosystem, KYC/AML is worthless after the first conversion. It also becomes immediately clear that any bitcoin leaving the mass on a peer-to-peer basis when new bitcoin users are brought in, creates more mass without KYC/AML, and this amount will be very large once the central mass is large.
This simple illustration shows what will happen as bitcoin absorbs fiat currency. KYC/AML will have a short life, after which it will be worthless as a tool to track people, since a large number of users are in bitcoin and never touch fiat.
Rather than go through this completely pointless stage of KYC/AML, a nation with competent leaders will understand the inevitable, and race to attract companies into their jurisdictions by eschewing the regulation of Bitcoin services.
The benefits of the virtuous circle of Bitcoin firms all incorporating and working in the same small area of the same city cannot be overstated. As a long-term strategy, abandoning KYC/AML is the only logical path.
Inside the absorption zone is where all the businesses touching Bitcoin will operate. That is where Bitcoin “pure play” businesses will flourish, and that means software companies, providing the very important wallet and merchant services, new classes of services built on multisig and the other tools in Bitcoin; powered escrow services, time-triggered conditional payments, and many other things.
All people, institutions, and governments in the future will be equal peers on the Bitcoin network where no person or entity has any more control over Bitcoin than any other, and everyone has access on the same, provably fair, equal basis.
Bitcoin is the pure, level playing field where no one can cheat and everyone is guaranteeing the network for the benefit of everyone else. This is not “democratic” as some very stupid people might want to convince you; this is voluntarism in motion.
All corruption comes from the law produced by crony capitalism and democracy and unethical companies using it to distort economics. Under a Bitcoin regime, it will not be possible to print money for any reason whatsoever. That former privilege of the State is permanently revoked in Bitcoin. Now money is allocated by merit alone; you cannot accumulate money if you don’t serve other people. That is true on an individual level, the business level, and the governmental level also. Everyone will have the absolute power to refuse to pay for anything they would rather not pay for. This will become a universal law under Bitcoin.
In Bitcoin, everyone will have a free choice to be a slave or not, but not with other people’s money. You can voluntarily choose to subordinate yourself to liars, democracy boosters, and warmongers, but you can’t forcibly enlist other people and their money . Since most people are not interested in “Spreading Democracy”, demonizing and murdering brown-skinned strangers and other vile, disgusting things, you can be sure that the ills of the 20th century spread by democracy and its evil boosters will come to a sharp, abrupt, permanent, and most welcome end.
Naturally the question that follows is, “Which of the current nation-states has the best chance of dominating in this Bitcoin-mediated world?”. Oddly enough, the country whose government behaved the worst in the 20th century has the best chance of turning itself around and becoming a beacon of light again. The United States of America .
The Founding Fathers of the greatest country in the history of the world, the United States of America, gifted that nation a system borne of genius, ethics, and subtlety. That astonishing system, when combined with and constrained by Bitcoin, will create a nation that will last longer than the Roman Empire and be more prosperous. All that is required is that it follows the law as laid down by the Founders.
Hearings on Bitcoin and its derivatives are being held in the USA on a regular basis, and invariably the expert witnesses fail to properly describe the actual processes going on. If they used the correct language and excluded all analogies, the only possible conclusion would be that America cannot regulate Bitcoin under its current legal system . The Constitution guarantees the inalienable rights of American citizens, and therefore Bitcoin is a protected act or practice by virtue of it being a form of published text. The only way Bitcoin can be made regulable is if the Constitution is changed; and that does not mean adding a new Amendment — it means removing the First Amendment entirely .
Inevitably the anti-Bitcoin “protagonists” will face a robust and ultimately successful legal challenge that will remove the possibility of any sort of “BitLicense” or interference from the CTFC, FinCEN, or any other agency. It will also remove any possibility of interference at the State level. The consequence of adhering to the basic law of the United States will cause America to become the center of all Bitcoin business for the entire world, and will cause trillions of dollars worth of e-commerce to flow through the USA.
Let me explain why this is the case.
Some say that Bitcoin is money. Others say that it is not money. It doesn’t matter. What does matter are three things: that Bitcoin is, that the Bitcoin network does what it is meant to do completely reliably, and what the true nature of the Bitcoin network and the messages in it are.
Bitcoin is a database, maintained by a network of peers that monitors and regulates which entries are allocated to what Bitcoin addresses. This is done entirely by transmitting messages that are text , between the computers in the network (known as “nodes”), where cryptographic procedures are executed on these messages in text to verify their authenticity and the identity of the sender and recipient of the message and their position in the public ledger. The messages sent between nodes in the Bitcoin network are human readable, and printable. There is no point in any Bitcoin transaction at which Bitcoin ceases to be text. It is all text , all the time.
Bitcoin can be printed out onto sheets of paper. This output can take different forms, like machine-readable QR codes, or it can be printed out in the letters A to Z, a to z, and 0 to 9. This means they can be read by a human being, just like “Huckleberry Finn”.
At the time of the creation of the United States of America, the Founding Fathers of that new country in their deep wisdom and distaste for tyranny, haunted by the memory of the absence of a free press in the countries from which they escaped, wrote into the basic law of that then-young federation of free states, an explicit and unambiguous freedom, the “Freedom of the Press”. This amendment was first because of its central importance to a free society. The First Amendment guarantees that all Americans have the power to exercise their right to publish and distribute anything they like, without restriction or prior restraint.
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
This single line, forever precludes any law that restricts Bitcoin in any way .
In 1995, the U.S. Government had on the statute books laws that restricted the export of encryption software products from America without a license. These goods are classified as “munitions”. The first versions of the breakthrough Public Key Encryption software “Pretty Good Privacy”, or “PGP”, written by Philip Zimmerman had already escaped the USA via bulletin board systems from the moment it was first distributed, but all copies of PGP outside of the United States were “illegal”. In order to fix the problem of all copies of PGP outside of America being encumbered by this perception, an ingenious plan was put into motion, using the First Amendment as the means of legally making it happen.
The source code for PGP was printed out .
The original print-out of the PGP source code.
It’s as simple as that. Once the source code for PGP was printed in book form, it instantly and more importantly, unambiguously , fell under the protection of the First Amendment. As a binary, the U.S. government ridiculously tried to assert that immaterial software is a device , and not text (software or “binaries” is text that can be run on devices). Clearly the idea that software is a device is patently absurd, but rather than waste money arguing this point in court, printing out PGP removed all doubt that a First Amendment act was taking place.
The printed source code was shipped to another country, perfectly legally and beyond challenge, and then transferred to a machine by OCR (Optical Character Recognition , a software tool that can turn a printed page into a text file, removing the need for a person to manually type out a printed page ), resulting in a PGP executable that was legally exported from the United States.
The direct analogy to Bitcoin should be vividly clear to you now. PGP and Bitcoin are both:
Pieces of software that can be rendered as printed text on paper.
Software that generates unique blocks of human readable text.
Designed to generate text that is 100% covered by the First Amendment.
The purpose of PGP is to absolutely verify the identity of the sender of a message and ensure that the message was not read or changed in transit. The purpose of Bitcoin is to absolutely verify the ability of the owner of a cryptographic key (which is a block of text) that can unlock a ledger entry in the global Bitcoin network. Both of these pieces of software are messaging systems and services that absolutely fall under the First Amendment in every aspect, from the source code used to generate the software clients that do the message signing to the text the compiled clients generate, send, receive, and process.
Bitcoin is text . Bitcoin is speech . It cannot be regulated in a free country like the USA with guaranteed inalienable rights and a First Amendment that explicitly excludes the act of publishing from government oversight.
Bitcoin and PGP generate messages that are initiated by their users. Each of the messages that are generated by these two pieces of software are unique. The only bodies of law that could possibly be invoked regarding their output and source code are copyright and patent law respectively. The Bitcoin source is not copyrighted and the core idea of it is not patented, and in any case, none of this has anything to do with the nature of Bitcoin messages, or your right to publish. Typewriters can include patented methods in their construction, and those patents have no bearing on your First Amendment right to publish what you create with a patented tool.
Copyright gives the generator of these texts privileges under the law imposing fines on someone copying your message without your permission, but copyright law has nothing to do with exporting, regulating, or imposing a tax on the messages themselves , and of course, forbidding the copying of your Bitcoin payment message rather negates the purpose of using Bitcoin.
Taking all of this into account, if any legislator, regulator, three- or six-letter U.S. agency or other bureaucrat dares to try and regulate Bitcoin, they will be on a hiding to nothing. A legal challenge will be mounted , and will have to be mounted, because if the State can legislate against a single piece of software that generates messages, a legal precedent will be created allowing the U.S. government to regulate all software no matter what it does .
Bitcoin’s operation is fundamentally no different to what all email, text messaging, and internet-connected software do: relay messages. The only difference is in the software that tracks how the messages of the sender and recipient relate to each other. Email is no different to Bitcoin, save for the fact that a record of the sender and recipient and content of your email is not stored in a public ledger one against the other. We know it’s stored in a private database, but that’s another story. Wink wink .
Here is another example of case law proving that this reasoning is correct.
In Bernstein v. U.S. Department of Justice, it was established that code is speech and is protected by the First Amendment. This absolutely and unambiguously applies to Bitcoin, with eerie parallels to KYC/AML in Bitcoin. The unconstitutional ITAR requirements are exactly the same as asking Bitcoin traders to register as “Money Transmitters” and seek licenses before they can be paid to transmit text to the Bitcoin network for publication on the public ledger. The Ninth Circuit Court of Appeals found in Bernstein’s favor, and ruled that software was speech protected by the First Amendment and that the government’s regulations preventing its publication were unconstitutional. It is clear to see that Bitcoin falls squarely into the category of protected speech, there is no way around any of this, and the U.S. courts must come to the same conclusion for Bitcoin. Bitcoin is protected speech, and the case law says so explicitly.
The position that Bitcoin is money is fundamentally wrong, and systems like it have existed for many years without gaining the attention of any three-letter agencies. Take for example FarmVille, the massively popular farm simulation game on Facebook.
From Wikipedia’s entry on FarmVille.
This hugely popular game is no different to Bitcoin in nature. FarmBucks exist in a closed system, just as bitcoin does. The only difference is the size of the space where the messages are being sent, and in the case of FarmBucks , the number of users and transactions (messages sent) was large. FarmVille had 83,760,000 monthly active users and not a single one was subjected to KYC/AML to exchange fiat for FarmBucks or FarmCash. Why not? What happened to that money? Why weren’t FinCEN or SEC all over that game as they are on ICOs? No one can explain this adequately. This example is very useful as a tool to pull back the curtain on the people who assert that bitcoin is a money and is fundamentally different to a money kept in a game. All the rationales they use (mostly in the form of run-on sentences) to explain that the differences are inaccurate, and never address the fundamental processes; if they did, they would have no choice but to conclude that Bitcoin is no more subject to regulation than FarmBucks or PGP are.
Clearly, allowing legislation to touch Bitcoin means that any software of any kind will suddenly be liable to arbitrary and unconstitutional restriction. It will set a precedent that will be devastating to all software development in the USA, and software is the means by which everything is run, communicated, exchanged, and ordered in modern society. In fact, it is impossible to run a modern society without software.
Twitter for example, could find itself being regulated; it transmits messages that are no different in nature to the messages that Bitcoin transmits; the only difference being the publicly maintained ledger and application of the messages. In fact, Twitter could turn itself into a Bitcoin company quite easily by adding a few fields to its message JSON schema to include a Bitcoin address for each of its users, adding a page to its client, and running its own Bitcoin server pool. Would that extra text suddenly transform Twitter into a bank? Would that suddenly change the nature of each Tweet that is sent on their network, and cause them to be “Money Transmitters”? How is having a Bitcoin address integrated into your Twitter account different to making a promise by hand on Twitter to your followers or in a direct message?
Essentially, Bitcoin allows you to make written contracts with people without knowing them or signing paper; the network and software takes care of identifying and fulfilling the promise, all with cryptographically signed pieces of text. What the people calling for “BitLicenses” and the absurd, insulting, and totally anti-American “Lummis-Gillibrand Responsible Financial Innovation Act”, are asserting is that because Bitcoin right now has a particular use, it should be exempted from the basic law of the United States of America. That is completely insane , and will have unintended consequences that would be absolutely disastrous for the American economy since almost everything today is mediated by or touches software.
On the other hand, if Bitcoin is left to flourish and the market allowed to define its services, means of setting the value and resolving disputes, Bitcoin as an ecosystem will be extremely robust and widespread, just like the internet is today, after having grown for decades without any regulation or oversight from the State.
Furthermore, as I have said previously, the country that does not enact Bitcoin legislation will become the starting point and end points of all Bitcoin transactions globally by first-mover advantage. All other jurisdictions will see Bitcoin passing through them untaxed, and there will be nothing they can do about it, as Bitcoin is an unassailable peer-to-peer network.
We have seen a similar phenomenon with the legal position of encryption in France. SSL was regulated in France until Dominique Strauss-Khan, former managing director of the International Monetary Fund, removed the restrictions . They knew that “French e-commerce” would take place inside “le pays Roosbeef” if it were not possible to secure French websites with SSL on demand without friction. American Bitcoin businesses (since the end points will be in their jurisdiction) will be taxed on their profits, and this will be a percentage of the trillions of global transactions made on the network for every conceivable and inconceivable purpose.
The same is true for any other country. The United States looks set to cripple itself by enacting “BitLicenses” and declaring by fiat that bitcoin is a currency, or a commodity, or legal tender. As I describe above, Bitcoin is none of those things by nature, and the myriad number of applications it can be put to is only just being discovered. Our project Azteco is but one of them, with the potential to reach the billions of unbanked people in the world, and provide them with an easy way to access internet e-commerce, worldwide, with a system that makes payment fraud impossible. The potential benefit to the unbanked and the websites that sell goods online and the jurisdictions where those websites operate is without precedent. Only a fool would do something that could harm the advent of this transformation, or shun this new technology and the business building on it.
No legislature will be able to keep up with the advances in software that are taking place; there are too many developers and efficient tools in the wild all over the world, all with equal access to the market. The best the State can possibly hope for is to tax new businesses that use the new tools as they emerge, and encourage entrepreneurs to incorporate in their jurisdictions. If America wants to drive away Bitcoin developers, exchanges, and new businesses, by all means, do so and take the consequences. There are many other places in the world where fast internet pipes have been laid and where the government is not so backward. Skype was founded in Estonia, not Silicon Valley, and this is for a reason. All the big bitcoin exchanges are outside the USA. There is a reason for that. No one wanting to start a Bitcoin business is planning to move to New York from anywhere, because they know that their business models will immediately come under attack.
For those of you who are frightened of a free market in Bitcoin, rest assured, all the laws that currently exist to do with fraud, theft, misrepresentation, and everything else, continue to apply to all people and corporations who use bitcoin. Bitcoin does not make laws or your personal or corporate obligations moot. When you deal with a company, you retain access to the law and recourse to it. When someone makes a promise to sell you goods with bitcoin, that promise is not nullified because you are paying with bitcoin. Good Bitcoin businesses will build dispute resolution systems the way that eBay and Amazon have, so that you never have to go to court to obtain justice if there is a problem. Online, reputation is everything, and bad reputations can destroy your credibility and customer base overnight. This is a far more powerful incentive to behave correctly and fulfill promises, which most people do by default in any case, rather than some arbitrary and absurd “BitLicense”.
All the “BitLicenses” and “Lummis-Gillibrand Responsible Financial Innovation Acts” in the world could not stop Mt. Gox from having a software problem, and no law can bring back the money lost either directly or through the disruption caused by the software error. Once again, it is entrepreneurs powered by the internet that make life easier and better, not laws and regulations. Regulation does not make software correct; developers do.
I have one recommendation for anyone advocating that there should be a “BitLicense” or that the reprehensible “Lummis-Gillibrand Responsible Financial Innovation Act” should become law. Don’t waste everyone’s time, money, and resources proposing this anti-American idea. The EFF has better things to do with their time than teach the PGP “Munitions Case” lesson all over again. If it goes to court, your side will lose, and as a consequence, America will lose its head start as all Bitcoin entrepreneurs flee the USA for environments that will allow them to innovate, grow, and prosper.
And what can the business people who want a “BitLicense” forced on the software industry say? That they don’t trust themselves ? That’s patently absurd. That they do not trust their competitors? If it’s the case that their competitors are not good actors, then the good actors have a market advantage. Remember, a license cannot protect the public from fraud or provide any guarantee of any kind; it can only distort the market.
What these “BitLicense” and Lummis-Gillibrand advocates actually want is a guaranteed market advantage . They are anti-American crony capitalists. They want to prevent the emergence of a “Golden BB” entrepreneur that might destroy their business, they want to slow down and stifle innovation, so that they can become the entrenched and unassailable gatekeepers. They want to bar new entrants to the market. It simply will not work. And it’s un-American .
The American legislature must let the American dream flourish and extend its power to Bitcoin, or it will be compelled to obey the law, and this has started to happen. Two judges in the USA have now found that bitcoin is not money, and have thrown out “Money Laundering” charges against two men:
U.S. Magistrate Judge Hugh B. Scott ruled in a money laundering case in Buffalo, N.Y., that bitcoin is more like a commodity and is not a form of currency, according to a local news report.
He recommended the money laundering charge be dropped against the defendant since bitcoin isn’t money.
In another money laundering case last year, Miami-Dade Circuit Judge Teresa Mary Pooler stated it is very clear, even to someone with limited knowledge in the area, that bitcoin has a long way to go before it is the equivalent of money.
–Archive: https://archive.is/pKQJ2
Bitcoin is not money. KYC/AML should not apply to it at all. The Hugh B. Scott ruling is highly significant, because it directly contradicts the idea of BitLicence and Lummis-Gillibrand. And lest there be any doubt, all of this, including legal remedies for breach of promise, applies to “ICOs” and “NFT”s (so called, “Digital Collectibles”), which are also nothing more than text stored in a database. The fact that they are called, “Initial Coin Offerings” or “Digital Collectibles” is irrelevant to the underlying processes, and it is not illegal to parrot the language and terms of finance, which are not trademarked or copyrighted. The Hollywood Stock Exchange wasn’t deceptive because it called itself a “Stock Exchange”. Opponents of Bitcoin and ICOs have no good arguments, and the threadbare pretexts for regulation they’re able to synthesize are as flimsy as fiat.
The longer-term effects of bitcoin becoming the only money will be a total collapse in the public’s belief in the Political Class, who, having had the power to steal and redistribute money revoked from them, will have literally nothing to offer anyone anymore. If a ceremonial class of apratchicks (entirely at their own personal cost of course) should remain, it will attract only the most hard-core and mentally ill participants and spectators.
And these evil people will not have stormtroopers on tap to raid citizen’s houses and steal from them with “Civil Asset Forfeiture” and other measures. All security will be provided by the free market, where the only rule enforced is Natural Law.
This is, of course, anathema to democracy addicts, who will be forced to go cold turkey.
Incompetence will also be permanently deprecated and suppressed by the market, because all money is accounted for in a fine-grained way, and people will only pay for services and goods that actually serve them correctly.
All of this may sound like the most “out there” fantasy, but so did Bitcoin before Bitcoin. And now Bitcoin is , and the effects it will have are what we, the people who predicted it will be, not what some idiotic democracy booster believes or wants it to be. The evil people never saw the need for Bitcoin in the first place; why should anyone believe that they have the crystal ball? We do, they don’t.
And as for the imbeciles that believe that only the State can keep people safe, the facts are against this also. The story of the incandescent light bulb is a perfect example of a scenario that will be absolutely forbidden in the Bitcoin-mediated world.
