MSBs and Account-Based Systems
Monero and mixed coins (such as those using Schnorr) are engaged in the activity of money transfers and money handling. Such activity, by nature, makes them an MSB. Any subsystem is required to comply with the BSA obligations that apply to money transmitters. Every node and every software wallet engaged in mixing would need to fulfil the obligations that apply to a money transmitter. They involve complying with the anti-money laundering (AML) program, maintaining records, and issuing against the reporting requirements as defined in their jurisdiction. Compliance would include filing SARs (Suspicious Activity Reports) and CTRs (currency transaction reports). Peer-to-peer exchange is covered under the anti-money laundering (AML) rules. Avoiding the requirements of the Bank Secrecy Act (BSA) in the US is not an option.
A money transmitter is any person engaged in the transfer of funds — any funds, including cryptocurrencies and bitcoin. If you are running a Lightning node, you are acting as a money transmitter. It doesn’t matter that you don’t like it. The law doesn’t care.
The problem with the so-called “experts” is that they have no expertise. They seek to create a narrative and change reality such that it aligns with their beliefs, and believe that doing so will make them experts. Bitcoin is not bit gold, and it never will be.
Bitcoin is not a bearer-bond system. It may be what Blockstream and others are selling, but it’s illegal. Money has a long history in law. When you’re taking other people’s funds, whether from Bitcoin or from non-chattel systems including electronic bank accounts or database entries, a key is not proof. Today, we have many systems based on dematerialised assets. Shares are traded through online databases using tokenised exchanges, and such has been the case since the early 90s. Real-world proof trumps crypto proof. If you sign up for an account with E*TRADE and buy 10,000 shares of Apple, and someone attacks the database and E*TRADE and changes your ownership record or takes your account and uses it to sell your shares, you have a claim for the shares. It is the same with Bitcoin. One of the problems at the moment is the cypherpunk element seeking to make the possession of a key a right to and proof of ownership. It isn’t.
Tim May and others sought such a world. I didn’t.
I created Bitcoin to trump the anarchist ideas of money that could not be controlled and that acted outside of all regulatory controls. I created Bitcoin as an immutable evidence trail that is pseudonymous and cannot be made legitimately anonymous and continue to work. I did so in order to ensure that the system others sought and had developed in part in the form of e-gold and Liberty Reserve would be thwarted.
Arthur Budovsky founded and operated Liberty Reserve, an underworld cyber-banking system that laundered hundreds of millions of dollars in illicit proceeds for criminals around the world. The only liberty that Budovsky and Liberty Reserve promoted was the freedom to commit and profit from crime. Thanks to this truly global investigation that included cooperation from 17 countries, Liberty Reserve has been shut down, and its founder Arthur Budovsky stands convicted in an American court of law, facing the loss of his own liberty.
— U.S. Attorney Preet Bharara of the Southern District of New York
When an individual uses a system such as CashShuffle through a distributed wallet, they are not using an un-hosted wallet. When you’re using an electronic wallet with CashShuffle, you require additional third parties to conduct transactions. In any mixer and when using Monero, multiple parties act together to conduct and complete transactions. Doing so makes them a money handler under the various anti-money laundering (AML) and funding laws throughout the world.
CashShuffle is an MSB. If you are using CashShuffle in the UK, Europe, or the USA and you are not registered as an MSB, you are committing a serious criminal offence. Many other countries will find that you’re an MSB requiring registration, too.
To think that it’s a distributed system which makes you safe is a big error. You’re playing lotto with your future. More importantly, it allows law enforcement to trace your addresses and, in the future, hold you accountable. It doesn’t matter whether you’ve been a criminal before you start using such systems; the mere fact that you are aiding and abetting and allowing criminals to mix money with your funds makes you a part of the system.
Anonymity Is Not Free
Some (foolish) people like to say that anonymous systems create more freedom and that they will bring down government. They are categorically wrong on all counts. Anonymous systems are the way to bring in more government control.
If you want to bring in more government, you bring in more threats.
If you bring in anonymous systems and things that government cannot control, then the reaction is very simple: government is increased. Most people want safety, security, and peace of mind. Most people don’t care and will hand over control very simply. So the thing is, if you make it simpler for crime to exist, the majority of people will hand over the reins of power to government. In creating a more anonymous system, you end up creating a system that oppresses most people, and most people will accept it for safety and security.
You may not like it, but such is the fact of the matter and how it all works. If you create a system that allows terrorist funding, you have also created a system that allows government to crack down. If you want free private communications, the last thing you ever want to think about allowing is anonymity.
Bitcoin may be decentralised, but the individuals involved are not. To be able to continue, the actors within the system need to play within the legal framework and rules. Money laundering is illegal practically everywhere on earth. There is practically no mining or for that matter network activity anywhere that involves legalised money laundering. As such, miners need to act within the law, or they can be shut down and the equipment seized.
As soon as a system is deemed to facilitate money laundering, it no longer matters that you’re running a distributed system. In adding anonymity controls, many coins will find that such facilitation of terrorist funding will lead to their complete removal. One day, a court order will appear, and on the same day, any exchange transacting in Monero or using other similar systems will either have to stop immediately or be aiding the facilitation of a money-laundering system.
Monero, the Lightning Network, Zcash, and all other account-based funding systems and anonymous crypto systems are required, by law, to keep records and logs of the people involved in the use.
What people do not seem to realise is that when a court order stops such systems, it stops them dead. On the day a case of money-laundering facilitation starts that is connected to Monero, all Monero globally stops trading. Any miner or node that attempts to bypass regulation will be instantly criminally liable. The maximum penalty is 20 years for each offence, and every single block could be prosecuted as a separate offence.
When it happens, there won’t be a rush to get your money out. It will be as it happened with e-gold and Liberty Reserve US Dollars. One day they will have value, the next moment they will be unsaleable and totally value-less. One day they could be worth thousands of dollars each coin, the next day they would be worth zero, and worse, the ownership could lead to criminal prosecution.
The error people make is that they think a cryptocurrency is inherently valuable because it can get around law. It cannot. The unfortunate aspect here for many investors is that they will wake up one day and find their holdings worth nothing. I don’t mean that they will see their holdings go down in price, rather, as with e-gold, one day they will have assets that have a value, and a moment later the same assets will have no value at all. It will be an instant drop from whatever market value exists to 0.
Where the Scams Lead…
One thing you’ll understand here is that those who are seeking an anonymous system are those who are seeking to act outside the law. It is people such as John McAfee, whose life has been an endless series of scams. He is a criminal on the run, he has broken law after law, and he fled countries as a result. He takes money to promote scams, profits, and lives awake of destruction. Such is the problem with anarchy; it is people like John McAfee who run Ponzis and scams and the people with money who benefit most from your system without law. He wants anything to get more, and more steps on anyone to try to get it. There are not many people on earth who are lower than him.
I’m still surprised people believe people of such kind. Ones whose lives have been nothing but lies and promises that are empty. But then, many people don’t care to learn or build, and they become prey for people like McAfee.
I would very happily face John McScammer a.k.a. McAfee a.k.a. conman John in court, because the defence for libel is truth, and if I can get conman John into a court, by the time we finish he will be spending multiple life sentences in prison. If I could, I would even get Mr conman John to sue me, because then he would have to go to court, and he would never leave again without wearing an orange jumpsuit.