How does regulation work for illegal drugs, prostitution, or other black markets, which can overall amount to double-digit percentages of economies?
Bitcoin only needs the black market to be a huge success. If it can avoid any surveillance ramps, that is ideal. It doesn't need to be everywhere.
IMO, the surveillance on/off ramps are going to have a hard problem ahead of them, of their own making. Black markets are only going to accept "cleaned" bitcoins because they won't put themselves at risk of being surveilled. The "cleaned" bitcoins will not be usable on AML exchanges. The "unclean" bitcoin can be cleaned through CoinJoins and such, at the risk of whoever obtained them in their unclean state, but once cleaned, they'll be back on the black markets.
Trading fiat currencies for Bitcoin will happen mainly in person, with cash, to avoid the surveillance.
You will be able to tell, to an extent, whether bitcoin are clean or unclean through their transaction history - a clean coin will be one which originates as the output of a CoinJoin. All transactions on the black markets will be a CoinJoin of some kind.
For most purposes, this won't matter because the majority of trade will be conducted over the Lightning Network, which has sender anonymity, and will very likely get receiver anonymity in the near future. Node operators can use Tor to avoid being surveilled - and the transport protocol used is fully end-to-end encrypted and authenticated.
Since the majority of trade will be happening on the black markets, exchanges which built their castles in KYC land will eventually fail. Nobody will care for "unclean" bitcoin if they are too heavily regulated. There will probably be a premium on clean bitcoin due to the risk involved in anybody who decides to wash unclean bitcoin.
Savers will not care if they have to resort to black markets to protect their wealth from theft or seizure. As long as they can find some local black market vendors who'll trade them for some other goods or fiat cash.
For governments to attempt to stamp out the black markets, the solution involved will be much worse than anything you could imagine being caused by Bitcoin - complete totalitarianism is the only way it could be enforced, and your open internet will be finished long before then. Careful what you wish for.
How does regulation work for illegal drugs, prostitution, or other black markets, which can overall amount to double-digit percentages of economies?
Very few people want bitcoin for itself, most are in it purely to get rich through speculation, and even those who use it to transact will find it less attractive if it can't easily be converted.
Your Heath-Robinson process of money laundering there is hilarious, and reads like a how-to for lengthy jail terms.
Very few people want bitcoin for itself, most are in it purely to get rich through speculation, and even those who use it to transact will find it less attractive if it can't easily be converted.
From an outside perspective, it might seem that way. There is a plentiful, and growing crowd who understand Bitcoin as a means of saving and avoiding state interference in their finances. Conversion of fiat to Bitcoin is highly desirable because people want to save over long periods. The conversion of Bitcoin back to Fiat is less desirable because it is trading good money for bad money. People only do the latter when they have a liquidity crisis. The bulk of bitcoin users are HODLers, as can be seen through the UTXO ages on the blockchain. Market speculators are a minor subset of bitcoiners.
Your Heath-Robinson process of money laundering there is hilarious, and reads like a how-to for lengthy jail terms.
I wasn't talking about money laundering at all. What are you reading? Not sure you know what money laundering means. I'm referring to people taking their legitimate earnings and storing them in Bitcoin for the purpose of avoiding devaulation by inflation and illegal surveillance without warrant.
People pay their income taxes when they earn (Usually with no choice because it will be deducted fromn their wage via a PAYE scheme). They also pay their sales taxes when the purchase any items from outside of the black markets. The Bitcoin saver who merely interacts with this black market as a means of exchanging fiat money for bitcoin is not engaging in illegal activity. It is the black market vendors who provide the services who are.
Consider this: You go to a shop and purchase an item which costs $0.99 (inc. sales tax). The owner of that shop decides to pocket the sales tax and does not pass it on to the tax authority. Have you engaged in illegal activity by purchasing this item? It has nothing to do with you whether the shop owner pays his sales tax - you paid yours.
Ok, it might be possible to dodge sales taxes by purchasing within black markets, but the black market doesn't necessarily provide all the commodities one would want. The most common use case will be converting back to fiat cash to use at local stores, where every purchase has a sales tax.
If money laundering is a concern, then a government would really want to deregulate bitcoin and encourage its use in paying taxes. By utilizing the blockchain and its auditability, they could largely automate the process of tax collection and save significant amounts of money. People will still be paying their income taxes via PAYE, but the process can be fully automated by every participant involved (employer, employee and tax authority).
By attempting to overregulate, they push most of the activity underground, where they are no longer collecting sales taxes on the transactions.
All that stuff about clean coins, joins and mixers. Money laundering.
The use of a CoinJoin does not imply money laundering. Launderers can and do use these tools. Merely using the tool does not make you a launderer. If you are suspected of laundering, you can prove your money movements to a law enforcement body which offers a warrant to search them. This is how things should be. Innocent until proven guilty.
CoinJoins are necessary to evade warrantless surveillance, because transactions on the blockchain can be linked to your person when the state obtains parts of that information from KYC exchanges. Since you have a right to secure against unreasonable searches, you have a right to thwart these efforts to illegally monitor your financial activity.
Who are doing so because they expect the price in fiat to go up, so regulating on/off ramps would likely kill that.
They expect the price to go up because they understand the subjective value of commodities, Gresham's law, and human self-interest. It has nothing to do with regulation. Bitcoin will grow with or without state involvement because it solves real problems that governments and others have created. More people are becoming aware of this, and Bitcoin has propelled some of the issues into the spotlight. The role of the state could slow down or accelerate Bitcoin adoption, but it cannot stop the inevitable - particularly when their own policy of infinite inflation is the major driver of Bitcoin adoption.
As said above, a government would be unwise to attempt to push the activity underground, where they can no longer monitor and collect taxes on it. If the regulatory burden on exchanges ends up making it more difficult for me to obtain bitcoin through a KYC exchange than via the black market, then I will end up doing the latter, and by doing the latter, I might then potentially increase my interaction with the black market (reduced sales tax), hide my earnings (less income tax), hide my profits (less capital gains tax), hide my wealth (bye bye inheritance tax). Isn't going well for the government, who will see a reduced tax income.
The government just wants people to pay taxes. It shouldn't really care much about whether people are using dollars or bitcoin - only that Bitcoin can potentially make it easier for people to dodge tax. The best option for a government is to make it easier to use bitcoin for legitimate services than the black market so as to discourage black market involvement.
A government should be working on ways for it to utilize Bitcoin for the purpose of tax collection, and then encourage its widespread use in retail and in PAYE, such that it can have an almost live view of the economy and can see who is paying their taxes. Any delays in mobilizing such systems will ensure that superior, more privacy preserving systems will instead be adopted, and will give limited benefits to the government.
The use of a CoinJoin does not imply money laundering.
Cleaning coins and obscuring their origins between black market and AML compliant exchanges does though. You described a great way to get jail time.
you have a right to thwart these efforts to illegally monitor your financial activity.
Good luck with that, but it seems that you actually don't, nearly every country now has a variety of monetary controls and monitors flows of cash with a warrant or otherwise. Merely disguising money flows is often enough to get you investigated. See also things like "structuring", a crime involving moving money in such a way as to avoid checks, which is illegal even if no other crime is committed.
The rest of your post is just more nonsense. If people found they couldn't exchange cryptocurrencies for fiat, HODL would be a thing of the past, and black market uses would also drop because people don't want bitcoin for itself. BTC is dead without conversion being available.
There is nothing illegal about keeping your own money private, and requiring that a lawful warrant be issued for you to reveal your full financial activity. The warrant must also be issued with probable cause. It's questionable whether merely using a CoinJoin is probable cause - and given how prolific CoinJoins will be for perfectly legal uses, I can see many magistrates requiring more than just a CoinJoin to issue warrants. Different jurisdictions may have a different opinion, and will see their economies suffer as a result.
In the USA, you are protected from government overreach of your possessions by the fourth amendment. Some places have already declared bitcoin to be property.
The rest of your post is just more nonsense. If people found they couldn't exchange cryptocurrencies for fiat, HODL would be a thing of the past, and black market uses would also drop because people don't want bitcoin for itself. BTC is dead without conversion being available.
If you have no background in Austrian economics it may sound like nonsense. Mainstream economics thinks that economies are influenced top-down. The outside perspective ignores that the majority of hodlers have a very low time preference and treat Bitcoin as a long term saving, perhaps even a pension strategy. No early adopters ever expected Bitcoin to grow as rapidly as it did, but many held on anyway. They don't intend to convert back to fiat because they have a firm belief that they won't need to - enough people will desire Bitcoin in the long run that they won't have much trouble acquiring services or goods in exchange for Bitcoin in future, and their purchasing power may be increased too. (So far, has increased beyond their wildest imagination, before governments have even decided what they want to classify it as. Regulation never had anything to do with it.)
Your belief that Bitcoiners can't wait to convert back to dollars is absurd. If you take a look at the value of a dollar relative to Bitcoin[1], then it's quite clear that HODLers aren't merely investing in bitcoin, they're divesting in dollars. Bitcoin is the escape route from a failing fiat system, and some are just ahead of the curve.
While there is a market for exchange, the market will be filled, whether it is KYC exchanges or black markets. People will mostly chose the one which is cheapest, which is currently the KYC exchanges. Increased red tape will increase the costs of exchange, and the black market will fill the gap.
In the USA you are under constant financial scrutiny, and yes, subject to enforcement on things like structuring. You're a fool if you think otherwise
I am familiar with Austrian economics. It's widely regarded as bullshit, and its adherents generally immature financial larpers with bizarre, extreme views like "inflation is theft".
Comments
Regulate on/off ramps. Watch it wither on the vine. Job done.
How does regulation work for illegal drugs, prostitution, or other black markets, which can overall amount to double-digit percentages of economies?
Bitcoin only needs the black market to be a huge success. If it can avoid any surveillance ramps, that is ideal. It doesn't need to be everywhere.
IMO, the surveillance on/off ramps are going to have a hard problem ahead of them, of their own making. Black markets are only going to accept "cleaned" bitcoins because they won't put themselves at risk of being surveilled. The "cleaned" bitcoins will not be usable on AML exchanges. The "unclean" bitcoin can be cleaned through CoinJoins and such, at the risk of whoever obtained them in their unclean state, but once cleaned, they'll be back on the black markets.
Trading fiat currencies for Bitcoin will happen mainly in person, with cash, to avoid the surveillance.
You will be able to tell, to an extent, whether bitcoin are clean or unclean through their transaction history - a clean coin will be one which originates as the output of a CoinJoin. All transactions on the black markets will be a CoinJoin of some kind.
For most purposes, this won't matter because the majority of trade will be conducted over the Lightning Network, which has sender anonymity, and will very likely get receiver anonymity in the near future. Node operators can use Tor to avoid being surveilled - and the transport protocol used is fully end-to-end encrypted and authenticated.
Since the majority of trade will be happening on the black markets, exchanges which built their castles in KYC land will eventually fail. Nobody will care for "unclean" bitcoin if they are too heavily regulated. There will probably be a premium on clean bitcoin due to the risk involved in anybody who decides to wash unclean bitcoin.
Savers will not care if they have to resort to black markets to protect their wealth from theft or seizure. As long as they can find some local black market vendors who'll trade them for some other goods or fiat cash.
For governments to attempt to stamp out the black markets, the solution involved will be much worse than anything you could imagine being caused by Bitcoin - complete totalitarianism is the only way it could be enforced, and your open internet will be finished long before then. Careful what you wish for.
Very few people want bitcoin for itself, most are in it purely to get rich through speculation, and even those who use it to transact will find it less attractive if it can't easily be converted.
Your Heath-Robinson process of money laundering there is hilarious, and reads like a how-to for lengthy jail terms.
From an outside perspective, it might seem that way. There is a plentiful, and growing crowd who understand Bitcoin as a means of saving and avoiding state interference in their finances. Conversion of fiat to Bitcoin is highly desirable because people want to save over long periods. The conversion of Bitcoin back to Fiat is less desirable because it is trading good money for bad money. People only do the latter when they have a liquidity crisis. The bulk of bitcoin users are HODLers, as can be seen through the UTXO ages on the blockchain. Market speculators are a minor subset of bitcoiners.
I wasn't talking about money laundering at all. What are you reading? Not sure you know what money laundering means. I'm referring to people taking their legitimate earnings and storing them in Bitcoin for the purpose of avoiding devaulation by inflation and illegal surveillance without warrant.
People pay their income taxes when they earn (Usually with no choice because it will be deducted fromn their wage via a PAYE scheme). They also pay their sales taxes when the purchase any items from outside of the black markets. The Bitcoin saver who merely interacts with this black market as a means of exchanging fiat money for bitcoin is not engaging in illegal activity. It is the black market vendors who provide the services who are.
Consider this: You go to a shop and purchase an item which costs $0.99 (inc. sales tax). The owner of that shop decides to pocket the sales tax and does not pass it on to the tax authority. Have you engaged in illegal activity by purchasing this item? It has nothing to do with you whether the shop owner pays his sales tax - you paid yours.
Ok, it might be possible to dodge sales taxes by purchasing within black markets, but the black market doesn't necessarily provide all the commodities one would want. The most common use case will be converting back to fiat cash to use at local stores, where every purchase has a sales tax.
If money laundering is a concern, then a government would really want to deregulate bitcoin and encourage its use in paying taxes. By utilizing the blockchain and its auditability, they could largely automate the process of tax collection and save significant amounts of money. People will still be paying their income taxes via PAYE, but the process can be fully automated by every participant involved (employer, employee and tax authority).
By attempting to overregulate, they push most of the activity underground, where they are no longer collecting sales taxes on the transactions.
All that stuff about clean coins, joins and mixers. Money laundering.
Who are doing so because they expect the price in fiat to go up, so regulating on/off ramps would likely kill that.
The use of a CoinJoin does not imply money laundering. Launderers can and do use these tools. Merely using the tool does not make you a launderer. If you are suspected of laundering, you can prove your money movements to a law enforcement body which offers a warrant to search them. This is how things should be. Innocent until proven guilty.
CoinJoins are necessary to evade warrantless surveillance, because transactions on the blockchain can be linked to your person when the state obtains parts of that information from KYC exchanges. Since you have a right to secure against unreasonable searches, you have a right to thwart these efforts to illegally monitor your financial activity.
They expect the price to go up because they understand the subjective value of commodities, Gresham's law, and human self-interest. It has nothing to do with regulation. Bitcoin will grow with or without state involvement because it solves real problems that governments and others have created. More people are becoming aware of this, and Bitcoin has propelled some of the issues into the spotlight. The role of the state could slow down or accelerate Bitcoin adoption, but it cannot stop the inevitable - particularly when their own policy of infinite inflation is the major driver of Bitcoin adoption.
As said above, a government would be unwise to attempt to push the activity underground, where they can no longer monitor and collect taxes on it. If the regulatory burden on exchanges ends up making it more difficult for me to obtain bitcoin through a KYC exchange than via the black market, then I will end up doing the latter, and by doing the latter, I might then potentially increase my interaction with the black market (reduced sales tax), hide my earnings (less income tax), hide my profits (less capital gains tax), hide my wealth (bye bye inheritance tax). Isn't going well for the government, who will see a reduced tax income.
The government just wants people to pay taxes. It shouldn't really care much about whether people are using dollars or bitcoin - only that Bitcoin can potentially make it easier for people to dodge tax. The best option for a government is to make it easier to use bitcoin for legitimate services than the black market so as to discourage black market involvement.
A government should be working on ways for it to utilize Bitcoin for the purpose of tax collection, and then encourage its widespread use in retail and in PAYE, such that it can have an almost live view of the economy and can see who is paying their taxes. Any delays in mobilizing such systems will ensure that superior, more privacy preserving systems will instead be adopted, and will give limited benefits to the government.
Cleaning coins and obscuring their origins between black market and AML compliant exchanges does though. You described a great way to get jail time.
Good luck with that, but it seems that you actually don't, nearly every country now has a variety of monetary controls and monitors flows of cash with a warrant or otherwise. Merely disguising money flows is often enough to get you investigated. See also things like "structuring", a crime involving moving money in such a way as to avoid checks, which is illegal even if no other crime is committed.
The rest of your post is just more nonsense. If people found they couldn't exchange cryptocurrencies for fiat, HODL would be a thing of the past, and black market uses would also drop because people don't want bitcoin for itself. BTC is dead without conversion being available.
There is nothing illegal about keeping your own money private, and requiring that a lawful warrant be issued for you to reveal your full financial activity. The warrant must also be issued with probable cause. It's questionable whether merely using a CoinJoin is probable cause - and given how prolific CoinJoins will be for perfectly legal uses, I can see many magistrates requiring more than just a CoinJoin to issue warrants. Different jurisdictions may have a different opinion, and will see their economies suffer as a result.
In the USA, you are protected from government overreach of your possessions by the fourth amendment. Some places have already declared bitcoin to be property.
If you have no background in Austrian economics it may sound like nonsense. Mainstream economics thinks that economies are influenced top-down. The outside perspective ignores that the majority of hodlers have a very low time preference and treat Bitcoin as a long term saving, perhaps even a pension strategy. No early adopters ever expected Bitcoin to grow as rapidly as it did, but many held on anyway. They don't intend to convert back to fiat because they have a firm belief that they won't need to - enough people will desire Bitcoin in the long run that they won't have much trouble acquiring services or goods in exchange for Bitcoin in future, and their purchasing power may be increased too. (So far, has increased beyond their wildest imagination, before governments have even decided what they want to classify it as. Regulation never had anything to do with it.)
Your belief that Bitcoiners can't wait to convert back to dollars is absurd. If you take a look at the value of a dollar relative to Bitcoin[1], then it's quite clear that HODLers aren't merely investing in bitcoin, they're divesting in dollars. Bitcoin is the escape route from a failing fiat system, and some are just ahead of the curve.
While there is a market for exchange, the market will be filled, whether it is KYC exchanges or black markets. People will mostly chose the one which is cheapest, which is currently the KYC exchanges. Increased red tape will increase the costs of exchange, and the black market will fill the gap.
[1]:https://i.imgur.com/GgPNbyx.png
In the USA you are under constant financial scrutiny, and yes, subject to enforcement on things like structuring. You're a fool if you think otherwise
I am familiar with Austrian economics. It's widely regarded as bullshit, and its adherents generally immature financial larpers with bizarre, extreme views like "inflation is theft".