The failure in understanding change lies in believing that the wheel of time is on a stationary axle. We move forward as the wheel does. The wheel of fortune rises and falls, and as it does so, it takes us further along the road. It is a path, a journey in one direction. As one rises, another must fall, but only to rise again further along the road. Such is the nature of revolution, and it is powered by reaction.
Every revolution (anonymous coins, silly ideas of democratising finance) has a reaction.
No reformation can occur without a revolution that is strong enough to create a reaction. The Internet is a commons, and as with all commons, the tragedy is that it leads to exploitation. The criminals, the trolls, and more have exploited the Internet, and have eroded the freedoms we have owned over centuries of battles and struggle.
Now, we start the reactionary response to a revolt.
And, we reform the world.
Rights as property
In its simplest form, a Bitcoin transaction involves the creation of an entry in a ledger.
The value on the ledger is updated such that the original holder of a cryptographic private key is assigned to a new cryptographic key pair.
The cryptographic key pair is associated with a Bitcoin address.
The direct assignment of value across a ledger is not difficult to represent against existing money transfer and currency rules. AML law refers to funds, and Bitcoin is already covered.
It becomes more difficult when some of the more exotic use cases start to be deployed.
Some of the areas that Bitcoin covers include:
- transactions to and from multi-signature and multi-party addresses [i];
- conditional smart contracts;
- linking and embedding information into the Bitcoin blockchain and the tokenisation of real property and chattel goods [ii];
- theft and fraudulent procurement; and
- international and cross-jurisdictional assignments [iii].
Monetary transfer and transmission rules
The exchange of bitcoin for other currencies clearly comes under existing AML [iv] regulations, and where an exchange [v] has been used as a part of the process, KYC [vi] requirements will still apply.
The various requirements attributable to Bitcoin across each of the jurisdictions can vary to both AML and KYC [vii].
Why do I say democratising finance is a silly idea?
Bitcoin doesn’t democratise finance. ICOs don’t. The existing system does. The reason why we have a concept of qualified investors is to protect people without access to information from those who prey on the weak. The creation of ICOs is simply a means to bypass informational controls, a means for those without something of value to take money they have not earned. It’s just something that people use to bring back penny share scams, pink sheet scams, and web-IPO scams. None of them are new, and none of them require blockchain. More importantly, the whole nature of blockchain has nothing to do with this.
A concept known as dematerialisation resulted in shares, derivatives, and other financial assets being moved from paper-based records into computer databases. People have been able to trade shares without going through regulated exchanges for decades. The reason they do not do so is that they lose money. Nearly without exception, every time an organisation seeks to raise money using one of such distributed systems, no company has developed, and the money disappears. In the 90s, webIPOs.com and hundreds of other distributed scams did the same thing. And for the same reason ICOs will be brought low now, the scammers selling you decentralisation of finance will be shown to be pure scammers.
It was never the goal of Bitcoin.
Bitcoin does help organisations and companies maintain their records. It helps them pay their tax. It helps them maintain compliance with the law. It helps them maintain shareholder registries. You see, Bitcoin helps corporations. Bitcoin had been developed and designed before Occupy and the associated idiocy started protesting against banks and companies, and was never intended to attack banks or corporations. Bitcoin does bring honesty to such systems. Bitcoin makes corruption easier to fight. Bitcoin makes tracing illicit drug sales simpler. Bitcoin leaves an evidentiary trail that can be used in fighting human trafficking.
It is a 20-year (at least) process from now. Nothing is quick.
[i] Several offer and acceptance issues that had not been completely resolved remain. The question of online software downloads generates its own difficulties. For instance, does the transmission of a Bitcoin transaction constitute acceptance, or does the inclusion into 6 blocks, etc? In many software-vendor licenses for instance, there exists a condition saying the “loading of the software onto a computer indicates your acceptance of the following terms…” The terms of the agreement are likely to be enforceable if the software company can demonstrate that the user had an opportunity to view the terms prior to installing the software. The issue does not exist within Bitcoin.
[ii] Application of the Definition of Money Transmitter to Brokers and Dealers in Currency and other;
Commodities, FIN-2008-G008, Sep 10, 2008. The guidance also notes that the definition of money transmitter excludes any person, such as a futures commission merchant, that is “registered with, and regulated or examined by…the Commodity Futures Trading Commission.”
[iii] Complications may occur if parties reside in a state different from where they hold their Bitcoin wallet (Hyde v Wrench, 1840) or other form of account (Treitel, 2003);
In such cases, both the location where the Bitcoin wallet is accessed becomes an issue and the time at which the acceptance is made is a critical point. The place where the user accesses the wallet may affect the acceptance. In many jurisdictions, the time and place of receipt of a message derive from when it is available to the recipient (Art.1335 Italian Civil Code; US: Restatement 2d of Contracts, S 56; Germany: case RGZ 144, 292). In the case of a Bitcoin transaction, the time it is available to the recipient is when it arrives on the client’s wallet or when it is accepted in the blockchain at an agreed depth. In such a way, the timing and even validity of an offer and acceptance of a contract may come into dispute and may even come into effect in two or more places (Apple Corps Limited v Apple Computer, Inc. ).
[iv] Anti-money laundering.
[v] 2 31 CFR § 1010.100(ff).
[vi] Know your customer.
[vii] Bank Secrecy Act Regulations — Definitions and Other Regulations Relating to Money Services. Businesses, 76 FR 43585 (July 21, 2011).