Following up from our part one interview with Kyle Drake, we are back again with part two which gets even better. This time around we cover topics revolving around New York’s BitLicense, multi-sig Bitcoin addresses, and a little bit more on BitcoinJS.
Your take on multi-sig and what’s your favorite alt-cryptocurrency?
I like multi-sig and definitely see it’s appeal for protecting theft and creating multi-group stores of value. They’re a useful tool. But in practice, I find multi-signature transaction to be a little too complicated for most people to understand. I’m a bigger fan of things like BIP38 (encrypted paper wallets) for protecting user funds than I am with multisig. There’s a lot of snake oil security out there, where people claim that multisig is somehow going to magically stop wallet theft. But if all you’re using multisig for is to sign a transaction with a second key on the server, and that process is automated, how does that prevent an attacker from stealing your funds? The claim that this ends theft is a little over-optimistic to me, and you still run into the problem if trustlessness.
What do you think of New York’s proposed BitLicense regulations?
I’m deeply troubled by them. They require massive privacy interventions in Bitcoin users, make it even harder to transact, and will do absolutely nothing to prevent their stated goals. They will force out web wallets that don’t manage their customer’s keys (a more secure way to make wallets) and replace it with extremely dangerous server wallets/exchanges, which will inevitably lead to more colossal Mt. Gox-like failures, making everyone less safe and reducing Bitcoin’s credibility. And they require profits to be stored in USD, which will choke Bitcoin’s flagship feature: a store of value that is resistant to inflation. Many of the startups out there are profitably solely because of the increase in value of their Bitcoin holdings, and that has allowed them to get better leverage in capital rounds, or avoid rounds altogether, which has allowed for more autonomy to do the right things. I realize that this can go both ways, but why force that choice away from Bitcoin startups?
The regulations (this is something that not a lot of people are talking about yet) are illegal under US law. The fourth amendment of the United States constitution is pretty clear here, it’s not legal to create generic financial dragnets that suck in everyone’s data. “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
Where are the warrants in these financial dragnets? Is probable cause reasonably defined here? I would love to see someone take this to court and challenge it on it’s constitutionality.
But the must concerning thing about BitLicense (and the current FinCEN requirements) to me, is the attempt to make trading Bitcoins between individuals and small groups illegal. This is how Bitcoin became successful – through organic, person-to-person or person-to-small-group trade. If we make it illegal, we’re stuck with the giant centralized exchanges like Mt. Gox. And we saw how well that turned out. Again I don’t care how well run the site is – it’s still a risk, and a single point of failure.
One exception that would make these regulations much better would be to set thresholds, so that anyone dealing with under, say, $500,000 a year are not subject to them. That would give individuals, small organizations and startups some breathing room to be competitive in the space. If I was going to make one change, that would be it.
That said, the regulations in their current form are not very reformable. There are much better solutions here. In Illinois, there is a bill pending to make virtual currencies not have legal tender status. It will exempt Bitcoin users and startups from onerous regulatory requirements, and it’s exactly one paragraph long. I hope all the states introduce and pass similar legislation, and much credit to Elizabeth Hernandez for proposing it. Take a look: http://www.ilga.gov/legislation/fulltext.asp?DocName=&SessionId=85&GA=98&DocTypeId=HB&DocNum=5886&GAID=12&LegID=&SpecSess=&Session=
I’m also extremely disappointed with the endorsement of this regulation from many of the startups in the Bitcoin space. And I’m not alone – BitLicense has exposed the bad players in the Bitcoin space that want to hurt their customers, and I’m happy that people are finally standing up to them.
These regulations would have made it impossible for most of the startups now supporting it to get to where they are today. This is textbook “regulatory capture”, where big players try to smash out the competition using the legal system. Why do these startups even like Bitcoin now, if not for sheer greed? If they have their way, all Bitcoin becomes is a slightly cheaper way for banks to send money to each other. If that happens, what’s the point of using Bitcoin? I strongly recommending boycotting the startups endorsing this regulation until they stop hurting their customers, and stand with us to protect reasonable right to privacy in the Bitcoin ecosystem.
Any last comments? Thanks again!
I wish there was more donor funding for projects like BitcoinJS that enable better wallet solutions, and I wish there was more work to fight things like BitLicense. The “Bitcoin server account” startups that want to use BitLicense to regulatory capture Bitcoin have raised tens, perhaps a hundred million dollars to make the work we’re doing illegal to use. We’ve received less than $100 to work on BitcoinJS. We are really out-gunned right now, and it feels like a losing battle for anyone that wants to use Bitcoin the way it was intended to be used. If the early Bitcoiners don’t contribute to Bitcoin freedom, we’re definitely going to lose this one.