Archive for February, 2014

The “Bitlicense” is a bad idea that must die

Saturday, February 22nd, 2014

There is much talk about the arbitrary imposition of a nonsensical “Bitlicense” on businesses based in New York that use Bitcoin to make a profit.

Apart from the nauseating and unimaginative use of the prefix “Bit” in yet another context, this idea is of course, completely absurd and unethical. It’s also guaranteed that this bad idea will face a robust and successful legal challenge that will remove the possibility of any sort of “Bitlicense” from being required anywhere in the United States, potentially causing that country to become the center of all Bitcoin business for the entire world.

Let me explain why.

Some say that Bitcoin is money. Others say that it is not money. It doesn’t matter. What does matter are two things; 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 distributed ledger system, 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 nodes in the network, 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 that 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. I will show you why.

In 1995, the US Government had on the statute books, laws that restrict the export of encryption 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 BBS 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 making it happen legally.

The source code for PGP was printed out.

Its 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 US government ridiculously tries to assert that immaterial software is a device, and not text. Clearly this 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, and then transfered to a machine by OCR, resulting in a PGP executable that was legally exported from the United States.

The direct analogy to Bitcoin should be clear to you now. PGP and Bitcoin are both:

  1. Pieces of software that can be rendered as text
  2. Software that generates unique blocks of human readable text
  3. Designed to generate text that is 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 ownership of a pice of text that is 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 clients 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.

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.

Copyright gives the generator of these texts privileges under the law imposing fines on someone copying your message without your permission, but that law has nothing to do with exporting 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 US agency or other bored bureaucrat busybody 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 US 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 does; 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 its stored in a private database, but that’s another story. Wink wink.

Allowing legislation to touch Bitcoin means that any software of any kind will suddenly be liable to arbitrary and unethical restriction. It will set a precedent that will be highly damaging to all software development in the USA.

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 different company? Would that suddenly change the nature of each Tweet that is sent on their network? 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 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” 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 the services and 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 twenty years 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 and endpoints 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 removed the restrictions. They knew that “French e-commerce” would take place inside “le pays Roosbeff” if it were not possible to secure French websites with SSL on demand without friction. American Bitcoin businesses since the endpoints 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 2.2 billion unbanked people in the world, and provide them with an easy way to access internet e-commerce, world-wide, with a system that makes payment fraud impossible. The potential benefit to the unbanked and the websites that sell goods online is without precedent. Only a fool would do something that could harm the advent of this transformation.

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 fine; there are plenty of 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 of 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 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 bas over night. This is a far more powerful incentive to do right, which most people do by default in any case, than some arbitrary “Bitlicense”.

All the “Bitlicenses” in the world could not stop MTGOX from having a software problem, and no law can bring back the money lost either directly or through the disruption the event caused by the software error. Once again, entrepreneurs powered by the internet 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”. Don’t waste everyone’s time and money and resources knocking down this stupid 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 people who want a “Bitlicense” forced on the public say? That they don’t trust themselves? That’s patently absurd. That they do not trust their competitors? If its the case that their competitors are not good actors, then the good actors have a market advantage, and 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” advocates actually want is a guaranteed market advantage. They want to prevent the “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 its un-American.

Let the American dream flourish and extend its power to Bitcoin.

Or else.


Azteco Bitcoin: BTC for the masses

Thursday, February 13th, 2014

For the last two years, we have been developing our latest project “Azteco”. It is the easiest way to buy Bitcoins, of which we have written some blog posts previously.

Our first Azteco outlet is now open in Shoreditch at 19 Goulston Street. There, you can buy an Azteco voucher and then redeem it at immediately. You only have to wait 70 seconds to receive your bitcoins.

Azteco vendor sites can be described as an “ATM-less ATMs”. Another way of putting it is that we have created virtual ATMs in software. This has an obvious advantage over physical ATMs; we do not have to manufacture and ship them. We can set up a new vendor in minutes, no matter where they are in the world. We do not have any physical parts to assemble and maintain, and we can control a vendor’s account in a fine grained way, instantly. Azteco is orders of magnitude more efficient and flexible than any Bitcoin ATM.

The current thinking about bitcoin has been shaped by the first businesses built around it, the exchanges. This has lead directly to Bitcoin being perceived as an investment that is traded on stock exchange style platforms, with all the problems of people staring at graphs, failing to see the wood for the trees. Bitcoin has had an interesting and exiting start, and this situation is bound to become even more exiting as bitcoin spreads through the population.

Bitcoin is not an investment. Bitcoin is not money. The way to think of it, is to say that bitcoin is a non-disposable, recyclable postage box that you can use to send money. It can be thought of as an unforgeable entry in a public ledger. These boxes or ledger entries, because they are scarce, have a utility and value to the people who want to use them. It is important not to mistake the pipe or the box for what it carries, and in order for Bitcoin to be thought of as a way to buy things online, two things need to happen.

Firstly, the software that will help merchants integrate Bitcoin into their shopping carts needs to be developed. This is happening.

The second thing that needs to happen is that the way bitcoins are bought needs to be augmented by a very simple widespread service that has nothing to do with the public interfacing with an exchange. That is what Azteco is.

Azteco allows you to buy bitcoins in the same way that you buy mobile phone credits. You take cash or your credit card to an Azteco agent at any one of our outlets, buy an Azteco voucher and then redeem it at our website. When you redeem your voucher it is sent to the bitcoin address you specify on the Azteco site.

This means that when you want to buy something online, all you need to do is pop round to your local store and then send the bitcoins directly to the merchant or yourself. If you do not want to run the bitcoin client yourself, you do not have to. You can buy things with bitcoins easily, with a minimum of pointless waiting, fuss or technical knowledge; all you have to be able to do is type in a voucher number and copy and paste a bitcoin address. Everyone already knows how to redeem mobile phone top up vouchers, so the learning curve with Azteco is essentially zero.

This has clear applications for sending small amounts of money anywhere in the world to anyone, not just to merchants. Imagine that there has been a disaster somewhere, and people need money to help recovery. All that is needed is for them to display a Bitcoin addres QR code on TV or in a newspaper, and millions of people can send Bitcoin to it. They can send anything from one Pound, Euro or Dollar upwards, all without ever having to interface with a bank or a charity. The implications for charitable donations and servicing the unbanked are huge; now, people without access to the financial system can recieve money from anywhere in the world instantly, in any amount, without the possibility of fraud.

It means that e-commerce, world-wide is going to explode, as the 2.2 billion unbanked get access to Bitcoin. Clearly, anything that slows this adoption down or makes Bitcoin more difficult to use is anti-human, and of course, any country that enacts legislation that affects Bitcoin is going to be excluded from profiting from this revolution. The simpler Bitcoin services are, and the more relaxed the country entrepreneurs are working on, the quicker this transformation can take place, for the benefit of all mankind.

The number of bitcoins that are used in commerce is relatively small right now. We expect this to change dramatically, and we expect to grow along with that increase in adoption of bitcoin. If other blockchains and bitcoin forks become popular, we can easily add them to the Azteco system so that people can buy the Bitcoin variants of their choice.

As we’ve said before, Bitcoin is a breakthrough in software engineering; the “Double Spending Problem” has been solved. Whoever it was that wrote Bitcoin, they built into it a dazzling array of potential applications that have nothing to do with moving money from A to B, and these applications are only now just being imagined and built. Bitcoin the money transporter and SWIFT replacement (or whatever else a developer or entrepreneur comes up with) is just the first of many new ways to use the Blockchain.

Thinking of Bitcoin as a tool to send money on demand, also removes a problem that many people who store their Bitcoin at exchanges are facing. Bitcoin spread out on millions of devices in small amounts is far less vulnerable than the Bitcoin of millions of people stored at a single site. Sites that have millions of accounts are a very attractive target for attacks of every kind, be they legal or hack attacks. A swarming cloud of millions of Droid phones and jailbroken iPhones running stand alone Bitcoin clients is akin to trying to wound fog with a sword. It cannot be done.

We’re looking forward to working on Azteco, rolling out new features and outlets. Follow us on Twitter @Azteco_ for the latest news.