2020 was unforgettable, especially for Bitcoin. To help memorialize this year for our readers, we asked our network of contributors to reflect on Bitcoin’s price action, technological development, community growth and more in 2020, and to reflect on what all of this might mean for 2021. These writers responded with a collection of thoughtful and thought-provoking articles. Click here to read all of the stories from our End Of Year 2020 Series.
2020 AD. An off-the-charts year in every meaning of that phrase. An annus horribilis. And yet, the synthetic price of Bitcoin has reached all-time highs, well beyond what any normie would have predicted five years ago, and people of the class reflexively hostile to Bitcoin in its early days are now buying hundreds of millions of fiat dollars’ worth of Bitcoin, eschewing altcoins and anointing themselves as the next wave of breathless clumsy gurus. This change in sentiment was very predictable, and is an essential part of “The Transformation” from the fiat economy to the Bitcoin economy.
President Donald John Trump mentioned Bitcoin in a tweet. The greatest fraudster in Bitcoin was finally and irrefutably exposed as a liar and fraud. The EU decided that it needs its own altcoin, demonstrating that it knows absolutely nothing about Bitcoin (or economics), why it was created and that it can do nothing about it. Mnuchin unilaterally declared that the Constitution is now “out of service” as he laid down a diktat that U.S. persons are forbidden from doing multiplication.
PayPal decided to expose synthetic bitcoin to its 350,000,000 users, and my own startup Azteco exposed actual bitcoin to 760,000,000 users, processing over $1,000,000 in just under three months of full launch. A new strain of the flu, first detected in 2019 in the U.S., drove everyone out of their minds in one of the biggest mass hysteria events ever recorded.
When I said “off the charts,” and “annus horibilis” I really meant it.
2021: The Dawn Breaks
There is hope. Bitcoin is now considered by ordinary people to be totally reliable, safe, not a scam and a very good way to store wealth. Every shred of doubt about Bitcoin in the psychologically normal has evaporated, and it is becoming increasingly hard to find mainstream media fake news outlets that have a bad thing to say about Bitcoin. Whenever they talk about it, they tilt their heads down a little, as if they’re looking over their spectacles, do not smirk and treat Bitcoin with the same deadpan reverence as they do discussion of the U.S. dollar. Clearly, the word has come down from the boardroom that Bitcoin is to be taken seriously from now on. It’s a safe bet to wager that the board members of every news organization have a large “position” in Bitcoin and do not want to damage the value of their portfolios.
Which brings us to the future; specifically, the future position of the United States of America as the best, most powerful nation state in history. How will the greatest nation on Earth approach the new reality created by Bitcoin?
Hearings on Bitcoin and its derivatives are being held in the U.S. on a regular basis, and invariably the expert witnesses called to testify fail to properly describe the actual processes going on underneath the hood. Some of them are lying deliberately, some are misleading out of ignorance. If the ones intending to tell the truth used the correct language and excluded all analogies, the only possible conclusion they could come to would be that America cannot regulate Bitcoin under its current legal system. The Constitution guarantees the inalienable rights of American citizens, and therefore Bitcoin is protected by virtue of it being text. The only way Bitcoin can be made regulatable is if the Constitution is changed; and that does not mean adding a new amendment, it means removing the First Amendment entirely.
Inevitably, the anti-Bitcoin protagonists will face a robust and ultimately successful legal challenge that will remove the possibility of any sort of “BitLicense” or interference from the CTFC, FinCEN or any other U.S. agency. It will also remove any possibility of interference at the U.S. State level. The consequence of adhering to the basic law of the United States will cause America to become the center of all Bitcoin business for the entire world, and will cause trillions of dollars worth of ecommerce to flow through the U.S.
Let me explain why this is the case.
Some say that bitcoin is money. Others say that it is not money. It doesn’t matter what these people say. What does matter are three things; that Bitcoin is, 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 computers in the network (known as “nodes”), 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 and the numbers 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.
In 1995, the U.S. government had, on the statute books, laws that restricted the export of encryption software 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 U.S. via Bulletin Board 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.
It’s 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 U.S. government ridiculously tried to assert that immaterial software is a device, and not text (software or “binaries” is text that can be run on devices). Clearly the idea that software is a device 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, perfectly legally and beyond challenge, and then transferred to a machine by OCR (Optical Character Recognition, a software tool that can turn a printed page into a text file, removing the need for a person to manually type out a printed page), resulting in a PGP executable that was legally exported from the United States.
The direct analogy to Bitcoin should be vividly clear to you now. PGP and Bitcoin are both:
- Pieces of software that can be rendered as printed text on paper
- Software that generates unique blocks of human readable text
- Designed to generate text that is 100 percent 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 ability of the owner of a cryptographic key (which is a block of text) that can unlock 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 software clients that do the message signing 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 U.S. with guaranteed inalienable rights and a First Amendment that explicitly excludes the act of publishing from government oversight.
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, or your right to publish. Typewriters can include patented methods in their construction, and those patents have no bearing on your First Amendment right to publish what you create with a patented tool.
Copyright gives the generator of these texts privileges under the law imposing fines on someone copying your message without your permission, but copyright law has nothing to do with exporting, regulating 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 U.S. agency or other bureaucrat 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 U.S. 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 it’s stored in a private database, but… that’s another story. Here is another example: The case of Bernstein vs Department of Justice created case law proving that this reasoning is correct.
In Bernstein v. US Department of Justice, it was established that code is speech and is protected by the First Amendment. This absolutely and unambiguously applies to Bitcoin, with eerie parallels to KYC/AML in Bitcoin. The unconstitutional ITAR requirements are exactly the same as asking Bitcoin traders to register as “money transmitters” and seek licenses before they can be paid to transmit text to the Bitcoin network for publication on the public ledger. The Ninth Circuit Court of Appeals found in Bernstein’s favor, and ruled that software was speech protected by the First Amendment and that the government’s regulations preventing its publication were unconstitutional. It is clear to see that Bitcoin falls squarely into the category of protected speech, there is no way around any of this, and the U.S. courts must come to the same conclusion for Bitcoin. Bitcoin is protected speech, and the case law says so explicitly.
The position that Bitcoin is money is fundamentally wrong, and systems like it have existed for many years without gaining the attention of any three-letter agencies. Take for example FarmVille, the massively popular farm simulation game on Facebook.
This hugely popular game is no different to Bitcoin in nature. “FarmBucks” exist in a closed system, just as Bitcoin does. The only difference is the size of the space where the messages are being sent, and in the case of “FarmBucks,” the number of users and transactions (messages sent) was large. FarmVille had 83,760,000 monthly active users and not a single one was subjected to KYC/AML to exchange fiat for FarmBucks or FarmCash.
What happened to that money? Why weren’t FinCEN or the SEC all over that game as they are on ICOs? No one can explain this adequately. This example is very useful as a tool to pull back the curtain on the people who assert that Bitcoin is a money and is fundamentally different to a money kept in a game. All the rationales they use (mostly in the form of word salad run on sentences) to explain the difference are inaccurate, and never address the fundamental processes; if they did, they would have no choice but to conclude that Bitcoin is no more subject to regulation than FarmBucks or PGP are.
The same logic and reasoning applies to Bitcoin exchanges. The Hollywood Stock Exchange, created by Max Keiser and Michael R. Burns was not subject to SEC rules or scrutiny. It dealt with an entirely artificial and fictional idea displayed in the paradigm of a stock market with all the graphs and interfaces associated with stocks, bonds and commodities.
The act of contextualising Hollywood actors and films in this manner did not suddenly make the Hollywood Stock Exchange into a real stock exchange and subject to all of the financial rules of a real stock exchange when it was created, but today, if software developers were to create the Hollywood Stock Exchange from scratch, you can be sure that someone in government would claim that it is a real stock exchange, and that all the rules that apply to the New York Stock Exchange apply equally to the Hollywood Stock Exchange, because both have the words “Stock Exchange” in their description. This is the root of the “reasoning” being used to claim that Bitcoin is money. It is deeply, fundamentally flawed and totally without merit.
Clearly, allowing legislation to touch Bitcoin means that any software of any kind will suddenly be liable to arbitrary and unconstitutional restriction. It will set a precedent that will be devastating to all software development in the U.S., and software is the means by which everything is run, communicated, exchanged and ordered in modern society. In fact, it is now impossible to run a modern society without software.
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 bank? Would that suddenly change the nature of each tweet that is sent on its network, and cause it to be a “money transmitter”? 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 written contracts with people without knowing them or signing paper; the network and software take 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 the letter of the law is followed and Bitcoin is left to flourish and the market allowed to define the services, 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 decades 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 former managing director of the International Monetary Fund Dominique Strauss-Khan removed the restrictions. They knew that “French e-Commerce” would take place entirely inside “le pays Roosbeef” 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” — new, arcane, anti-American regulations declaring by fiat that Bitcoin is a currency, or a commodity or legal tender. As I described 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 consumer Bitcoin startup Azteco is but one of them, with the potential to reach the billions of unbanked, underbanked and first-world users globally, providing them with an easy way to access this new network, with a system that makes payment fraud impossible. The potential benefit to the unbanked and the websites that sell goods online and the jurisdictions where those websites operate is without precedent. Only a fool would do something that could harm the advent of this transformation, or shun this new technology and the business building on it.
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, there will be unintended, very predictable and disastrous consequences. There are many other places in the world with fast internet pipes where the government is not so backward. Skype was founded in Estonia, not Silicon Valley, and this is for a reason. Some of the biggest Bitcoin exchanges are outside of the U.S. 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 to apply to all people and corporations who use Bitcoin. Bitcoin does not make laws or your personal or corporate or moral 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. In the online world, reputation is everything, and bad reputations can destroy your business credibility and customer base over night. This is a far more powerful incentive to behave correctly and fulfil promises, which most people do by default in any case, rather than some arbitrary and absurd “BitLicense.”
All the “BitLicenses” in the world could not stop Mt. Gox 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 nationwide “BitLicense” in the United States of America. Don’t waste everyone’s time, money and resources proposing this anti-American idea. The EFF has better things to do with its time than teach you 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 headstart as all Bitcoin entrepreneurs flee the U.S. for environments that will allow them to innovate, grow and prosper.
And what can the business people who want a “BitLicense” forced on the software industry say? That they don’t trust themselves? That’s patently absurd. That they do not trust their competitors? If it’s the case that their competitors are bad 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 are Crony Capitalists. They want to prevent the emergence of a “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 it’s unAmerican.
The American legislature must let the American dream flourish and extend its power to Bitcoin, or it will be compelled by the court to obey the law, and this has started to happen. Two judges in the U.S. have now found that Bitcoin is not money, and have thrown out “money laundering” charges against two men:
“U.S. Magistrate Judge Hugh B. Scott ruled in a money laundering case in Buffalo, N.Y. that bitcoin is more like a commodity and is not a form of currency, according to a local news report.
He recommended the money laundering charge be dropped against the defendant since bitcoin isn’t money.
In another money laundering case last year, Miami-Dade Circuit Judge Teresa Mary Pooler stated it is very clear, even to someone with limited knowledge in the area, that bitcoin has a long way to go before it is the equivalent of money.”
Bitcoin is not money. KYC/AML should not apply to it at all. The Hugh B. Scott ruling is highly significant, because it directly contradicts the idea of BitLicence. And lest there be any doubt, all of this, including legal remedies for breach of promise, applies to “ICOs,” which are also nothing more than text stored in a database. The fact that they are called, “Initial Coin Offerings” is irrelevant to the underlying processes, and it is not illegal to parrot the language and terms of finance, which are not trademarked or copyrighted. The Hollywood Stock Exchange wasn’t deceptive because it called itself a “stock exchange.” Opponents of Bitcoin and ICOs have no good arguments, and the threadbare pretexts for regulation they’re able to synthesize are as flimsy as fiat.
No matter what anyone wants, Bitcoin is here to stay. All the lies that were told about it over the last 11 years have been demolished, and Bitcoin is now as familiar and mundane as Coca Cola. The phase we are in now is the beginning of the Consumer Bitcoin era, where new tools and services like Azteco bring this fantastic and overwhelmingly beneficial computer network to ordinary people through an easy-to-understand interface. This era, which we call “The Transformation” can happen in the United States of America spreading outwards, or it can happen outside of the United States of America and be adopted by the entire world. The GSM mobile phone standard and network beat the American CDMA standard and became the way phones work worldwide. The same thing has happened with Bitcoin. The only question now is whether the “Silicon Valley of Bitcoin” is in Hong Kong or Houston.
This is a guest post by Akin Fernandez. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.