Welcome to the CoinDesk Weekly Review 5th July 2013 — a regular look at the hottest, most controversial and thought-provoking events in the world of digital currency through the eyes of skepticism and wonder. Your host … John Law
Send guns and lawyers
There are many civil servants in the UK’s Foreign and Commonwealth Office who harbour a secret fondness for gunboat diplomacy. It’s a simple concept: if some overseas power displeases you, command a few well-armed warships to fussily anchor within range of Johnny Foreigner’s HQ, then send in a chap in a funny hat to make your wishes plain. It’s not clear that the hat is important, but you do need lots of guns where the other lot has none. Works a treat.
California’s Department of Financial Institutions is another fan. The state financial regulator sent the Bitcoin Foundation a reasonably terrifying legal shot across the bows last week with a ‘Cease and Desist’ order telling it to cease, also desist. (John Law has never quite understood whether one can cease without desisting or vice versa.)
This is very close to HMS Thug pointing its 36-pounder at your greenhouse. The DFI has quite awesome powers of shutting people down, refusing to license them in the first place, and in general never having to explain why. If you’re any sort of a money transfer business in its eyes, you conform or you ship out – and it clearly thinks that anything to do with BTC is its lawful remit. Further, the DFI thinks that anyone who trades in bitcoin with anyone in California is fair game and must be licensed or die – which would chill the market to near absolute zero.
Unfortunately for the DFI, we are no longer in the 18th century. This week, the Bitcoin Foundation wheeled out its own legal guns and showed every intent to use them. Some of its points seem unanswerable: it’s a foundation that advises and promotes, not any sort of trader, so they really have no idea WTF the DFI is on about. And the idea that anyone selling bitcoin is a money transfer agent? Don’t be so daft.
There’s a lot more along those lines: it now transpires the DFI’s C&D was merely “an invitation to enter a discussion” – roughly akin to “Gunships? Oh, THOSE gunships! No, just having a nice cruise somewhere sunny”.
These and other regulatory matters were a big part of the discussions at the Bitcoin London conference this week – where somewhere north of 200 venture capitalists and other interested parties turned up to chew the cyberfat. No gunboats and no funny hats, but plenty of positive vibes tempered with admirable caution – as TechCrunch put it, bullish at the base and bearish at the top. Which sounds like the sort of sandwich John Law would have been happy to have found in a relatively undercatered event. You can relive events as they unfolded on the #btclondon Twitter hashtag, and your host’s thoughts both elevated and banal on @Scotonomist.
Houses of the Holy
It’s always fun to watch the mainstream media grapple with bitcoin. By now, it’s heard of the Winklevii, who failed at Facebook and are now trying investing in BTC – wisely, perhaps, with the help of other people’s money. Also breaking through to the financial pages, every twist of the Mt. Gox saga is seen as either spelling doom for cybercurrencies or proving that they will take over the world – this week, it’s the latter, as the Japan-based exchange restarted dollar transactions and announced it was forming relationships with lots more financial institutions.
But John Law, being mischievous at heart, is tempted to try and get something entirely fictitious into the papers. Being of good Fife Presbyterian stock – his conversion to Catholicism in 1719 was merely a bureaucratic necessity before taking over the French financial system – he might as well involve the Vatican.
And it is ripe for involvement. Examine the evidence. In the grip of a major financial scandal involving money laundering the Church of Rome is also looking at declining revenues. It is now, oh sad times, part of the Eurozone, despite a long history of minting its own money (a tradition started, pleasingly, during the reign of the first and only English pope, Adrian). And it has just announced the installation of a large bank of powerful servers (no, not the sort in ruffs), ostensibly to store digitised images from the Vatican Library.
As if. For a start, the servers are highly secure, with all manner of video monitoring and cyber-protection – which, despite Dan Brown, is a bit strong for a book digitisation project. It seems more likely to any reasonable person that the Vatican is preparing to abandon its dependence on the Euro and reinvigorate the church finances by a massive programme of bitcoin mining. Slipping gratefully back into the veil of anonymity it has only recently lost due to recent regulatory agreements, it will be free to pursue its holy path free from the gaze of the moneychangers. The Papal Mint will resume its rightful role.
Even if this isn’t true – and if it isn’t, it should be – the new Pope, Francis, is a tough-minded, practical and resolute soul who can be relied upon to find innovative ways out of the various problems confronting the Holy See. Expect a large bull on the subject shortly. And remember – you read it here first.
Learning the ropes
And finally, just to bring us all down to earth, here is a sane, useful and competent overview of what cybercurrencies actually are and how they might be sensibly classified, from OReilly.com. It’s all very well tweaking the tail of the mainstream media for not quite getting bitcoin and its cohorts, but how many people actually involved in the field would be happy to select it for their specialist subject on Mastermind?
The piece goes into the core four innovations that bitcoin linked together, and then shows how variations on this theme produces different sorts of currencies – and what the practical implications are. It’s important not to get scared by the technicalities – John Law only once had elliptic curve cryptography explained to him by a unicycle-riding Cambridge researcher in a way that made sense – but, rather, to understand what they do more than how they work.
What’s just as impressive as either the basic invention of cryptocurrency or the fact bitcoin has proved it practicable, is the sheer variety of new variations being invented. Very secure anonymous messaging, for example, and document verification. This is another one of those basic tests of worthiness for any new concept – is it fecund? Does it lead to lots of new ideas in their own right? Some bad ideas, sadly, generate their own shower of unhappy invention – the TV talent show, or American chocolate – but in general when you see a field take off in lots of different directions at once, there’s something good at the heart of it.
It also means there’s a lot of flexibility to evolve around problems and cope with changing environments; this is the same basic driver that took the Internet from an experimental engineering project to the globe-spanning monster that’s engulfing us all, and kept filesharing alive and well despite decades of highly-motivated, highly-funded attempts to stamp it out.
Exciting times for the young bitcoin. Perhaps, one day, it’ll even be possible to buy a sandwich in London with the stuff.
John Law is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.
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