Bitcoin Q&A: Regulation and the bank boycott

"Do you see any restrictions or regulations
coming for the U.S. in the next six months or so?" I think it is unlikely that we'll see anything
happening in the next six months. If anything, we might see some regulations
or policy-making around ICOs. But in terms of regulating exchanges or the
use of bitcoin, I don't expect much to change. The vast majority of those regulations are
applied on a state by state basis in the United States. On a federal level, what really has application is the SEC,
FinCEN for crime enforcement, and of course the IRS. One of the regulations that I would very much
like to see, which would be useful, is… At the moment, when you do transactions with
cryptocurrencies, no matter what the amount you have to do capital gains reporting. That is just ludicrous. If I bought some cryptocurrency for a dollar,
then I buy a cup of coffee, and in the meantime that amount of cryptocurrency has appreciated [in value]
to $1.05, I have to report $0.05 of capital gains. The problem isn't the reporting of $0.05 of
capital gains and paying a 20% tax on 5 cents. But for these ridiculously tiny amounts, you could
end up spending hundreds or thousands of dollars in accounting and reporting costs
to produce these monster tax returns, full of tables of transactions which
are completely useless to everyone, just to report $100 in capital gains. There's a proposal to introduce an exception
to the law that says any transaction under $600 does not require capital gains reporting. That would be smart, but I'm not holding my
breath for governments to do smart things. Oh, very good. Someone [in the chat box] actually
mentioned the bill for the capital gains exception for [transactions under $600] is HR-3708. "In 2014, you told the Canadian Senate
Committee on Banking & Finance… to hold off on regulation for five years." "What would you say to them,
and regulators in general, now?" First of all, we still have [about two years]! What I would say to them is, continue to wait. There are places where regulation is necessary. The places were regulation is necessary, are
places where companies are offering services around cryptocurrencies that are not decentralised, that
in fact are highly centralised and custodial in nature. That means they hold keys on your behalf. There's a reason we have regulations for people
who have custody of money; the reason is that eventually, in almost every case, they try
to run away with the money. Theft, embezzlement, Ponzi schemes, and things
like that happen in banking every day. They happen in cryptocurrency exchanges that
have custodial control over funds. If someone is holding money and not doing
cryptocurrency [services] in a decentralised fashion, that represents a risk towards consumers. I think those entities should be regulated
from the perspective of information security, capital reserves insurance, etc. just like banks are. I don't believe in KYC/AML regulations
but unfortunately that's not up to me. I would say there are areas where regulation
can protect consumers from custodial systems that put their money at risk. But beyond that, this is still a very early
and developing space. Regulating without understanding how this technology
works is going to suppress the technology. If anything, I would say that Canada has benefited
tremendously by having a sensible and light-handed approach to regulation. It has caused the ecosystem of developers,
innovators, creators, companies, and start-ups to flourish in Canada; with that
came a lot of jobs and investment. "Banks are increasingly refusing to work with
[cryptocurrency] exchanges and brokers." "How do you think that will play out in 2018?" The funny thing is that boycotting your competition, an
industry that is rapidly changing, is not a very good idea. Sitting on the sidelines, covering your eyes and ears…
that kind of approach to competitive innovation historically doesn't work out for the incumbent. What happens if banks cut off the
on-ramps and off-ramps to Bitcoin? Do the exchanges go away?
Do they stop operating? Does Bitcoin stop operating?
No, not really. What happens is, a lot of the interactions
move to other places. They move to over-the-counter (OTC) exchanges,
where people don't wire money to the exchange but instead set up an escrow payment with
the bitcoin and then wire money to each other. How do you stop people from
wiring money to other people? How do you know that money is for bitcoin? You don't. Effectively, by banning exchange traffic and
closing down the accounts of exchanges, the banks are encouraging OTC trades
where the wire transfers are happening from the buyer to the seller directly,
not through an exchange. Ironically, what that does is encourage the
development of decentralisation platforms, especially decentralised exchange
platforms with escrow. Things like Bisq but also LocalBitcoins and
various other platforms that allow you to escrow bitcoin while you wait for a wire transfer. That's one aspect. The other is that when banks cut off these
wires, they usually also make it difficult to withdraw money from exchanges. That means you can't easily convert
your bitcoin [back] into fiat. Well, perhaps unknowingly what they're doing is
encouraging more of a 'hold' attitude by the buyers. They are also encouraging the buyers to seek
out ways to either hold on to their bitcoin or spend it directly without converting it into fiat. If you cut off the on-ramps and off-ramps,
and someone is really enjoying driving on the freeway, they're just going to stay on the freeway. Pretty soon, you're going to have drive-thru businesses
coming up on the freeway to serve them there, instead of waiting for them to get off
and convert into the other currencies. To mix my metaphors a bit. What that does is encourage more and more people
to operate within the cryptocurrency economy, rather than treating cryptocurrencies
as merely an intermediary currency. They treat it as their main currency in
many cases and they stop converting. It also encourages those who are investors
to simply hold for long term. When they do want to get out they'll find less liquid,
less convenient ways [to convert] like OTC markets.

38 thoughts on “Bitcoin Q&A: Regulation and the bank boycott”

  1. I've seen arguments that gold and silver are not commonly used as currency anymore because of the tax reporting associated with these transactions. I'm not sure about this, but cryptocurrencies cans sidestep this restriction with software. It'd be relatively trivial to include this kind of accounting in cryptocurrency wallets. Also, vendors can immediately convert cryptocurrencies into a local currency with various services.

    This kind of reporting is even more rediculous if you consider the limits on barter trades between individuals. If I write a simple website for the local pizzaria in exchange for a dozen pizzas, I have to report the pizzas to the government in terms of dollars, so that they can take a couple of slices from each one (in dollars). But I never received the dollars to pay the government, so I'm stuck…

  2. Regulation for custodial accounts may be necessary but I also think custodial accounts should be discouraged. Well protected or memorized seed words are basically our FDIC. Rather than trust an institution trust yourself or a relative or a good friend.

  3. Very informative. Thank you. There is a lot of contradiction out there. We would love for you to take a look at our project and give us your opinion on how it could be affected by SEC fiasco.

  4. Actually AA – the entire "capital gains" reporting requirement for BitCoin is a legal-myth. Why? Because BitCoin does not meet the STATUTORY definition of an asset subject to capital gains. Capital gains taxes in the US are predicated on CORPORATE gains. The key term is "CORPORATE" (as in CORPORATION). This was established in 1909 within the CORPORATE EXCISE TAX ACT which defined statutory "INCOME" as gains arising from CORPORATE activity. This is also why the term "INCOME" is NOT DEFINED anywhere within the INCOME-TAX-CODE (already having been defined in the Corporate Excise Tax Act of 1909). The most obvious and typical example would be a CORPORATE dividend paid to a stock-holder. The dividend gets paid AND the stock-holder still holds the underlying asset – the stock. In other words – the stock-holder sees a GAIN from a CORPORATE-ASSET and loses nothing. Compare this to the EXCHANGE of a crypto asset. When you exchange the asset into currency (whether Dollars or another Crypto), you are SWAPPING one currency for another. Technically, there is NO GAIN because you LOSE the asset you are swapping in the trade. Even if you purchased it at a better price – you are still LOSING the asset when you trade it. The Government wants people to ignore the fact that in trading crypto for dollars — that they no longer possess the crypto. Hello! The purchase/sale price is irrelevant. There may be a million accountants that will argue this point, but they're wrong. This is an area of taxation law that has been grossly misrepresented by the US Govt and I can currently think of about 2 trillion reasons annually why this is so. However — the FACT is, by LEGAL DEFINITION, a BitCoin exchange does NOT meet the statutory-requirement as a taxable event and this principle is also true of most cryptos (&, for that matter, most anything that you may buy for a dime and sell for a dollar). But don't take my word on this. There is a former IRS-CID agent (turned whistle-blower) who has well-documented the nature of this fraud and confronted the agency about it. He is high-profile, a CPA and has weathered legal attacks from the IRS over the last 2 decades (coming out smelling like a rose). His name is Joseph Banister and his website is:

  5. Is it possible to make a DAPP which takes care of the private keys, exchanges, and wallets automatically without burdening the consumer? Basically the computer knows who you are using facial recognition, speech recognition, finger prints etc, and takes care of the rest automatically. Now THAT will be a game changer! Using the Internet in the 90's wasn't very simple either. Fortunately, it became more intuitive.

  6. Holy smokes…. 2014… It doesn't feel like it has been that long. This space moves in dog years and I'm so excited to see what happens next.

  7. yeah but do ppl actually declare their capital gains from cryptos? I mean at 50 or 100k for sure I would assume so, but what about us really small amount investors…talking anything from 500 to 10k dollars.
    None of my colleagues does so at the moment…

  8. lol we should report all this but file via paper filing so they get a massive box of paperwork of all the tiny transactions

  9. Let’s boycott these banks. They’re using our cash to lend out 10X on fake money. Go with credit unions and bitcoin

  10. 4:40 At the age of 13, I was fortunate to be able to watch and directly participate in the changing of the music industry. It was inconceivable to me why they were so resistant to adopting digital distribution, knowing as a "dumb" kid that a file type was never going away.

    Banks taking the music industry resistant approach are outlining both their 15 year business model and roadmap; nostalgia. My 5 year old who owns no CD's and uses a Brain wallet is going to see Banks as quite alien unless they have vision and can adapt in a way Steve Jobs was able to.

  11. I tried to wire money (my money) to a well known licensed in the U.S. exchange and Capital One refused to let me wire it out of my checking account.So, I transferred my money out of Capital One checking account and sent it to one of my other banks: closed my Capital One checking account. You can't tell me what to do with my money!

  12. He hasn’t given a talk in months. No interviews. I think Andreas lost that loving feeling he had back when studied bitcoin on his second viewing. He said bitcoin is in a bubble and he was right as the correction is still ongoing and the entire world now knows about bitcoin. Bitcoin failed to scale while it had the world’s attention for months and offered no solution except some 10 developers working on second layer solutions. Only 10. Hahahahahaha. Multi-Billion dollars and freedom from banks in hands of only 10 people. The public saw the BS being put out. Bitcoin had its day in the sun too soon and it won’t recover anytime soon and Andreas knows it. He wanted the slow build up and downplayed how fast information travels when he made wild claims but he got his millions given to him. If Andreas wants to help, he should become the 11th developer working on Lightning cause so far, it’s not working on the test network and people lost bitcoins using it on main network. I respect their bravery for knowing how or never. If you ask him, he’ll agree bitcoin should be valued at $900 based on the infrastructure in place which is getting reduced in China and must move to Canada which will be a delay. Such potential as Andreas put forth but now due to his public speaking ability, the tech got rushed and proven not ready so we wait another decade for a new brand with proper tech.

  13. I know you spoke highly about Myriad (XMY) years ago. What do you think of it still? I think its still highly undervalued for what it did for crypto. The development has actually picked up lately and there is cool stuff in the works for it.

  14. Bitcoin Cash is definitely going to trigger regulation.. they are trying to defraud the public by claiming that BCH is the real bitcoin.. Bitcoin, the real bitcoin, backs instruments on Wall Street.. which puts the SEC in the picture this year.. definitely.

  15. IRS is a legal-fiction, unable to enforce penalty if the would-be ‘taxpayer’ is well enough informed.

Leave a Reply

Your email address will not be published. Required fields are marked *