The thing is, these central parties also provide an enormous amount of benefits.

Take your average stock exchange. There's an enormous amount of regulation governing its operation, with the goal being to protect market participants from mischief.

Enforcing this protection requires control.

Forgoing this control also means forgoing this protection.

The shit-show that was Mt. Gox (and a few other exchanges) -- and I don't mean just its demise, but all the market manipulation going on when it was still active, etc. -- would have been all but impossible if these operations would have been governed like modern exchanges.

Centralized institutions do provide a safety net, but is there anything necessarily wrong with a group of people saying they don't want or need that? And isn't this better than conservative activists trying to strip those protections away from the existing institutions with the "enormous amount of benefits" bit by bit until their profit is maximized and no protections are left?

edit: regarding the Mt. Gox situation. You present it as something that should have never happened in civilized society, but I think it's growing pains on the way to something better.

> Centralized institutions do provide a safety net, but is there anything necessarily wrong with a group of people saying they don't want or need that?

Not at all! However, within the context of cryptocurrencies, I can't help but note that there seems to be a certain tendency to blindly idealize decentralization, and especially to blindly demonize regulation, without giving any thought as to why things are what they are right now.

> regarding the Mt. Gox situation. You present it as something that should have never happened in civilized society, but I think it's growing pains on the way to something better.

Here, I disagree. Growing pains are no excuse for being as reckless as they were. If your clients entrusted you with hundreds of millions of their USD (either directly, or through Bitcoin), then I don't see "but startup" as a valid excuse; you owe them a certain amount of diligence in your conduct.

Note that this isn't investors losing hundreds of millions on some innovation gamble (à la Uber), but on an operation where there are literally hundreds of years of precedent to learn from, namely: exchanges.

I didn't mean to use growing pains as an excuse for Mt. Gox. What should come about because of this is more focus on decentralized exchanges, seeing as this was a painful example of the problems we still face with centralized exchanges. We're now seeing more decentralized exchanges coming into existence for this very reason, there are a lot of drawbacks to centralization when it comes to wealth, and all of those are felt by the people/customers and not the institutions. And they are the ones who can afford to make the rules and pay off politicans to make sure it doesn't change. You say there's a tendency to blindly idealize decentralization, but are you sure you're not missing all the very real drawbacks to centralization by taking that position?

I'm just saying, before we leap to regulations that will take decades to roll back when we actually understand what this crypto space is all about, maybe we can improve on what we have and take a different route. Which is what bitcoin, ethereum, and now the third generation crypto projects are trying to do. Incremental improvements are the only way to explore this new frontier, not regulating the shit out of it from the very beginning.

>Centralized institutions do provide a safety net, but is there anything necessarily wrong with a group of people saying they don't want or need that?

That depends on a case by case basis. If the actions of this group of people negatively and significantly affects others who are not part of the it then regulation becomes necessary. As an example if a group uses cryptocurrencies for money laundering, smuggling, or other similar activities then they can't claim they must be left alone because they don't want central control by choice. On the other hand if all people want to do is avoid mega banks, the PayPals etc. then all power to them.

That said, it is equally important for people to make sure that the central authority is a representative of society, at large, of their own choosing and not some dictatorial regime, corporation, party, or what have you.

>Centralized institutions do provide a safety net, but is there anything necessarily wrong with a group of people saying they don't want or need that?

Unfortunately, there is. Until pyramid schemes and Ponzi schemes came under strict regulation, enormous social harm was caused when people lost their life savings to such schemes.

You might think, as a technically sophisticated HN reader, that you don't need the nanny state to protect you in this way. But well-educated people tend to be one of the biggest victims of these schemes, because 1) they have newly-acquired wealth; 2) they are too arrogant to realize that their expertise in their own field does not translate to expertise in investing; 3) they probably know people in their social circle who have gotten rich (temporarily) on one of these "investments", and then let greed and envy override common sense.

Even Isaac Newton is reputed to have lost a large fortune in the South Sea Bubble (though sources are unclear) [1]

So no, you are not allowed to waive the safety net.

[1] http://www.businessinsider.com/isaac-newton-lost-a-fortune-o...

> as a technically sophisticated HN reader, that you don't need the nanny state to protect you in this way.

Thanks for your compliments, but I think of myself more as a fairly well-informed American who graduated college in 2010, the same year I found myself in a lecture hall for a career planning class and 5 out of 300 students raised their hands when asked "Who here has a job lined up after graduation?"

So no, I don't accept that we must submit to a nanny state controlled by centralized banks, and I will continue fighting for these projects to exist and thrive. And not just for a quick buck like you seem to think this is. You can see it as "investments" and miracle money or whatever, but it's more than that. It's a way for people like me to finally say "fuck you" to the banks that have ruined so many lives (and for what, exactly?) and finally in a way that makes them listen.

I understand the sentiment; there is a lot wrong with the current system. But any new world that you create should have at least the same level of protection against fraud, theft, and speculative bubbles as the current (imperfect) world; otherwise even more people will be hurt. The world of crypto-currencies has not been very reassuring in this regard, unfortunately.

I agree. Most of the issues you describe are related to the terrible experience of what to do with your currencies after you've bought them. None of them are very useful at the moment, so there needs to be a safe way to store them, and the easiest thing to do is just leave them sitting in your exchange accounts. There are ways store them properly (hardware wallets, which aren't perfect either), but there's no way any non-tech/non-determined folks will consider a free solution like a paper wallet. I'm looking forward to seeing what Omise comes up with on their multi-currency wallet and supposedly instant conversion via a decentralized exchange.

However, I think the real hope for this (and yes, a community-driven approach rather than government-controlled) is what's already changed the world in my lifetime through open source communities.

The most successful distributed ledgers have so far been open source. This is another sentiment, but I started using Linux in 1996 because I hit too many brick walls in Windows as a kid. Just simply learning how it works always resulted in at least one headache (I recall trying to learn C++ in windows at that time, and then seeing a friend's Debian environment, and that was that)

Since then I've seen those philosophies (more social than technical I think) creep into so many previously off-limits proprietary areas. It blows my mind what we've achieved, not just creating a system where we have more control but forcing the "evil" companies many of us hated at the time, like Apple and Microsoft, to adapt. I never thought Microsoft would open source anything, yet here we are with dotnet core and more. I don't see any reason why we can't carry that over into banking and fintech, and this does feel a lot like the clunky early days of Linux. But a well-organized decentralized movement can topple major centralized institutions, and while a complete takeover by the people probably won't happen, already every major bank is adapting to this new world. And they have much less control in this one, too.

"edit: regarding the Mt. Gox situation. You present it as something that should have never happened in civilized society, but I think it's growing pains on the way to something better."

But they're growing pains that don't need to happen. They've literally already happened in the past. There is nothing new about BTC that makes those lessons irrelevant.

Im surprised there arent any trustless decentralized exchanges built off of ethereum yet. Seems like a no brainer, but perhaps this is difficult or impossible to implement?

The difficult bit is transferring to Real Money, which can't be the subject of smart contracts.

There's EtherDelta running on the live network, and others on the way.

You're pretty much stuck trading ETH and ERC20 tokens with those. Another technology coming is atomic swaps for transfers between chains.

For actual fiat the only decentralized option is stuff like localbitcoins. That's ok for small occasional trades but it's physically risky for large trades and legally risky for frequent trades.

I’ve been thinking, shouldn’t it be possible to exchange Bitcoin for Ethereum trustlessly? It requires that Ethereum smart contracts recognize Bitcoin (secp256k1) signatures over arbitrary hashes, though. It would work like this:

1) create an unsigned Bitcoin transaction that pays 1 BTC from Alice to Bob

2) create an Ethereum address (smart contract) that can be redeemed either a) by Alice using a signature for a pubkey specified by Alice in advance, plus an secp256k1 (Bitcoin) signature over the hash of the Bitcoin transaction or b) by Bob after a timeout (e.g. 7 days)

Bob sends the number of ethers he wants to pay for 1 BTC to this Ethereum address/contract, and if Alice takes the offer she will redeem this amount, thus revealing the signature for the Bitcoin transaction, which Bob can then publish and get his 1 BTC.

I think you independently invented atomic swaps!

Ethereum uses the same signature algorithm; you can sign arbitrary data from Ethereum's javascript library and check it from a contract.

https://ethereum.stackexchange.com/questions/2256/ethereum-e...

https://ethereum.stackexchange.com/questions/710/how-can-i-v...

You can implement a distributed application as an application running on a blockchain. This can achieve comparable throughput to a centralized exchange. Tendermint outlined this use case for their Cosmos network.

> Bitcoin itself is a technology of resistance. Private crypt-currencies more so.

this. Centralization of power arguably removes risks and is "safer" - at least so long as the power holder acts benevolently. At least that's the common assumption.

However, If we are going to argue against the freedom of Bitcoin technologies and for more safety, centralization and control, we should look at the full context of human flourishing when thinking about what "safety" means. Some people will use BTC tech to do some bad things, they will avoid paying taxes, they will buy drugs, they will hire hitmen. Our societies will have to find better ways to detect and prevent this behaviour.

On the flipside though, the USA had a tax revenue of roughly 3.5e9 in 2017 and a military spending of 0.8e9 [1,2]. That's roughly a quarter of all tax revenues. If you think a large portion of that is not leading to the deaths of thousands of innocent people yearly you're dillusional. [3] We need to ask ourselves, and historically we can look at the evidence for/against, whether or not we should trust our Governments to act benevolently.

I think the benefits of more checks and balances on the abuse of power, far outweigh the negatives, which we will have to find other solutions for whether we have a Bitcoin technologies or not.

1. https://www.thebalance.com/current-u-s-federal-government-ta...

2. https://www.thebalance.com/u-s-military-budget-components-ch...

3. https://www.globalresearch.ca/us-has-killed-more-than-20-mil...

> so long as the power holder acts benevolently

History fills in the rest.

History tell us that the powerful always abuse their power, but it also tell us that, government or not government, the powerful always exist.

So, you can see modern governments as a power to defeat or as a way of trying to control power.

> you can see modern governments as a power to defeat or as a way of trying to control power

Summary of all current events

The alternative is to do things off the grid, so to speak - meet people in person, exchange funds for cryptocurrencies. Actually that might be a small side business idea.

Of course, one of the goals of cryptocurrencies is to not have to go through central organizations at all. Not converting your cryptocurrencies back to fiat, and not storing them on an exchange will be the best way to dodge taxes. Pretty sure that if you hide your keys well enough, the IRS and co cannot prove that you have any assets in cryptocurrencies as long as how you acquired them can't be traced.

Sure, you can make tax evasion mainstream. That worked out brilliantly for Greece.

To be fair, Greece didn't have any control over its currency (the Euro).

In case you're not kidding: LocalBitcoins.com has been doing this.

Although you still have to be careful, as one trader found out [1]. His was a little more than a "small side business," though.

[1] https://www.coindesk.com/localbitcoins-trader-pleads-guilty-...

I always think of this quote from the movie, "Body of Lies":

"Our enemy has realized that they are fighting guys from the future. Now, ahem, it is as brilliant as it is infuriating. If you live like it's the past, and you behave like it's the past then guys from the future find it very hard to see you. If you throw away your cell phone, shut down your e-mail pass all your instructions face-to-face, hand-to-hand turn your back on technology and just disappear into the crowd"

> If you throw away your cell phone, shut down your e-mail pass all your instructions face-to-face, hand-to-hand turn your back on technology and just disappear into the crowd

Except we've been fighting tax evasion for as long as there have been taxes.

Only works until they have facial recognition everywhere.

Your supposed "enemy", has barely even noticed you. If the big bad government wants to shut down your little cryptobubble, it can do so anytime it wants with the stroke of a pen.

But yes: please walk into a forest and "life as if you don't exist". I suppose that includes not posting conspiracy fanfic online, right?

Why the vitriol. The comment was meant to allegorically offer a conceptual approach to fighting the dystopian onslaught of oppressive technology.

By oppressive technology I am referring to the kind of tech that obviously oppressive governments would have built decades ago if it had been possible, and that the US will gradually arrive at soon enough without explicitly seeking to do so.

>If the big bad government wants to shut down your little cryptobubble, it can do so anytime it wants with the stroke of a pen.

Let's think this through. How well has government prohibition of what private citizens do in their own homes worked in practice for anything else it's been tried on? Then consider that we're talking about data rather than physical objects, which are even slipperier.

All such an action would do is drive it underground. Anyone who wants to use bitcoin still will.

So two people out of hundreds of thousands, who were running significant money-trading businesses through the network? They weren't targeting regular users or many people at all...

This would be so incredibly to sting if the authorities got interested at all.

Sure, you can tax evade all you want at a small scale, but once you hit remotely interesting figures they are going to wreck you.

Even if you managed to convert all your crypto assets to cash completely off the grid, and not only your bed but also your closet is full of the stuff, what good does that do? You've just moved the "problem" from one asset to another.

As soon as you buy a sports car, or a yacht and pay in cash (which is probably at least as difficult as doing it in Bitcoin) the IRS will take notice. You're going to have to explain why you suddenly drive an expensive car without any trace of payments for it, or you're going to lose it.

Unless your money really come from illicit sources, in which case you have no choice, I doubt it is worth it.

Sounds like tax evasion.

this exists - localbitcoins.com

This is true, but unless one feels that he/she should not need to pay taxes, it's reasonable for the IRS to demand records from a firm operating in the US that would allow for very quick and efficient tax enforcement. They already do it with banks, etc.

While I'd like to see much lower Federal taxes and no more expensive wars of aggression, I don't think there is a principled reason to oppose the IRS doing this very basic audit of tax compliance. After all, the ease of doing an audit is a major feature of a public block chain, and KYC requirements were not introduced by accident.

Early adopters of BTC who still use it (or aspire to use it) in an economy that still relies heavily on fiat currencies need to expect this sort of thing to happen. Yes, it's heavy handed but so is everything about the IRS and our massive Federal war/propaganda machine.

I suspect Satoshi would have randomized BTC transactions to make the audit impossible but for his anticipation of this transitional phase when fiat regulators have the power to compel firms to disclose non-cryptographically-secured information and link it with KYC data.

What can we do? Let's hope that enough of the useful organizational structures found in fiat currencies come to exist for crypto-currencies.

Things like insurance markets, dispute resolution, consumer credit, etc. To date most of the benefits of BTC have been related to the ease of sending and receiving funds securely, but there are many more benefits to come as new institutions and mechanisms for cooperation come to exist via blockchain technology that require less trust and authority and less overhead.

so you think going back to pre 1900 isolationism will work let alone the moral issue of abandoning the USA's role in the world is a good idea.

I suppose Liz II could take you back and put Prince Hal in charge :-)

Not isolationism, simply democratic approval for the scope, budget, and success criteria of military action, and an honest discussion of national interest that doesn't involve fear mongering or appeals to xenophobia or racism.

And while I personally view the doctrine of American Exceptionalism as a sort of evil religion that causes much worldwide suffering, I could tolerate it if there was a corresponding definition of national interest that could be used to assess the claims of our political leaders.

Its not a choice between the modern massive federal\military bureaucracy and serfdom.

Not fucking up and have you president do your version of Suez id rather USA have a role on the world stage than welcome our new Mandarin or Russian speaking overlords

The strategic decline of the US relative to China and Russia over the past few decades has been due mainly to the massive cost of the American bureaucratic state. Both nations spend pennies on the dollar and cause our hawks to bluster embarrassingly as they flush our prosperity down the drain.

At least in the case of Russia, this was the objective from day one. The US is strategically weaker today (in terms of alliances, power projection, public support for wars and ability to handle multiple fronts) than it has been at any time since achieving superpower status.

We've seen a massive slide toward authoritarianism over the past few decades as well, with an emphasis on "us vs them" beliefs and other childish mental habits that have become mainstream.

Just remember that tax evasion is criminal and you only get to make 1 mistake.

Well, you can make two mistakes if you want to. Probably even three if you're determined.

Thanks for the essay.

This is on the same topic, from similar angle, also very good one, by Nick Szabo:

"Trusted Third Parties Are Security Holes"

http://nakamotoinstitute.org/trusted-third-parties/

You don't have to go through Coinbase or any other electronic exchange. It's just that, like many things, it's more convenient so everyone submits to it, and therefore the government, voluntarily.

What would be a feasible alternative?

Craigslist

If meeting in person is not convenient enough- well, this is really just the tradeoff you make choosing between Coinbase and Craigslist. Convenience vs security/anonimity.

> Convenience vs security/anonimity

While true for some, let's be real, the real decision will be between convenience vs. tax evasion.

through grapevine I heards that some medium sized chinese exporters already accept coin as a payment. Process already has started, this is a minor inconvenience. Afaik speculating in the first place does not contribute to adoption, not in a direct sense. Music industry did shut down napster digital distribution has grown anyway.

Exactly. And between Coinbase / bitcoin exchanges vs banks, who do you really trust more to keep all your money safe?

This is the main danger of the app store business model.

This is the main danger of a centralized messaging application.

Fascinating article, thanks for sharing.