Regulating Bitcoin Companies

Regulation Feb 27, 2020

It is now clear that the adoption and evolution of Bitcoin has reached a critical juncture — regulators are beginning to sit up and pay attention. Balancing the mandates of regulators while putting forward a case for what Bitcoin is, how it’s used, and why we’re here will be imperative for this action to be constructive. Regulation is usually a one-way street — difficult to undo once there — so we ask for prudence, but above that, that regulators and policy makers come to genuinely understand Bitcoin. You can not govern that which you do not understand.

In the past few posts, we looked at what Bitcoin is and is not, and took a dive into the fundamentals. We looked at ways people have explained Bitcoin using existing paradigms, showing where they fall short. The more refined model defined two information spaces that are important to understand. Later, we looked at what it means to interface with the Bitcoin protocol as a user, touching on how these two information spaces are engaged.

Beyond the mechanics of Bitcoin however, we need to take a moment to speak about regulation broadly. This includes the political nature of the movement, and what it will mean for regulators and policy makers to achieve their mandates without undue harm.

The mandate of regulators and policy makers in a space like Bitcoin is to protect consumers and investors, retail or otherwise. We welcome this intention, especially considering the amount of harm that companies like QuadrigaCX have caused in Knox’s home jurisdiction of Canada, where consumers were left roughly $200M CAD out-of-pocket following their 2019 bankruptcy.

However, we also believe in supporting Bitcoin and our fellow Bitcoin companies, and guiding the ecosystem to sensible policy. Respecting the mandate of the regulators and the freedoms of Bitcoin companies need not be mutually exclusive efforts. In the long run, allowing Bitcoin to progress will be a boon to society. Small missteps today can have disastrous effects tomorrow.

Guiding Policy

Policy makers and regulators wishing to achieve their stated goals have a lot of work ahead of them considering the break that this paradigm presents compared to what came before. We are prepared to help guide this effort, knowing full well that they will engage with or without our input, but believing that we can do our part to help guide reasonable policy. Bitcoin is something we believe in, otherwise we wouldn’t spend our time building Knox with the intention of ushering in a responsible financialization of Bitcoin. But our desire for sound policy transcends the company.

Building the technologies that pave the way forward should be priority number one. However, we can’t shy away from the other arena, which includes persuading society to appreciate what is being built and why it is important.

Fundamentally, I believe we will have the kind of society that most people want. If we want freedom and privacy, we must persuade others that these are worth having. There are no shortcuts.

Hal Finney on Politics vs. Technology

Bitcoin is Amoral

We’ve said this before, but it bears repeating: Bitcoin, the protocol, is amoral. It is uncompromising in its execution, and lives by a set of hard rules. People can project onto Bitcoin whatever politics they wish, but this fact remains.

Bitcoin Is an Experiment with an End-Goal

It would not help us to pretend otherwise. Bitcoin is an experiment in a new kind of monetary system. As a monetary revolution, the act of engaging with Bitcoin is inherently political.

And the genie is out of the bottle. While many governments around the world would put it back in if they could, they can not. This itself should not be a concern for regulators. At the end of the day, we all have to live with reality as it exists. It is probably worth the time for regulators to understand and absorb where the desire for this new monetary system stems from, while recognizing that this does not neuter their mandate: protecting consumers, investors, and the public at large.

Bitcoin Has a Community, and It Cares About Freedom

A community, as a diverse collection of people and organizations with a spectrum of views and goals, is impossible to pigeonhole. This is as true for the Bitcoin community as any other. At the same time, a particular community may still display a strong set of broadly shared beliefs and philosophies. We believe an important first step in approaching all of this is gaining a genuine understanding, appreciation, and respect for some of the philosophical and political leanings exhibited.

It is no secret that there is a heavy overlap between libertarianism, anarchism, and Bitcoin. It would be surprising if it were any other way. Many early Bitcoiners adhered to the same philosophical underpinnings that drove the cypherpunk movement, and this continues to this day. The right to privacy and the right to use and distribute strong cryptography are core tenets. As we progress through an increasingly network-connected age, the heroes writing code and wielding cryptography to protect old freedoms will press on.

Bitcoin Preserves Existing Freedoms

At times, this body of work is spoken about as if it exists to open a Pandora’s box that will ultimately damage society. It’s important to understand that this view is misplaced on several fronts, and an understanding of the true intention behind all of this software is important.

The purpose of much of this work has to do with preserving the freedoms that have always existed, while extending them to the digital world. We are proud of the freedoms we have fought for and maintained; it is not a sin to seek to preserve them as we advance technologically, and it would be a travesty to lose them in the new context.

People have been defending their own privacy for centuries with whispers, darkness, envelopes, closed doors, secret handshakes, and couriers. The technologies of the past did not allow for strong privacy, but electronic technologies do.

The Cypherpunk Manifesto does a great job of outlining this set of core objectives. In some cases, we seek to bring to the digital world what we have always enjoyed. Where technology permits, we will seek even stronger guarantees to secure our rights.

In the same way that we may employ strong cryptography to preserve our rights to privacy, we reserve the right to secure our money and construct novel monetary systems as well. We could always transact scarce resources without the involvement of a centralized body. It is natural to want the same in the digital world.

In Bitcoin, the world finally has a working censorship-resistant communication network capable of encoding digital scarcity, without the involvement of any centralized body. This was a natural step in extending the freedoms we’ve always enjoyed to the digital world, and one which everyone has reasons to embrace. You can bet that the right to such systems will be defended.

The Bitcoin Community Hates Scammers and Scoundrels

If regulators aren’t clear on this point, we hope they learn it soon.

There is a real danger that, taking a sweeping and indiscriminate view of every activity adjacent to Bitcoin, regulators see an unscrupulous wild west. That world certainly exists, but it is not Bitcoin. Everyone who has spent a significant time here knows it, and yet it may be entirely lost to those who will soon seek to assert control.

Indeed, Bitcoiners are so conscious of adjacent scams that an awareness of and against them is often a core component of the Bitcoin community. As Bitstein notes in his widely-shared essay Everyone’s a Scammer, ultimately everyone is after more of the scarce information space encumbered by the Bitcoin protocol.

Criminals, con artists, and swindlers cannot rely on violence to get the wealth they desire — it has become too cumbersome. These scoundrels must rely on good ol’ fashioned market forces.

This is one reason why having a deep, nuanced view of the goals of participants will be critical. We are not here to fight the law makers with integrity who are here for nothing beyond their core mandate. We will work with those who have a legitimate intention to protect, and revile those who feign that interest in the name of deploying something more sinister.

Drawing a Line

We should note that restrictions on our freedoms do not only come from lawmakers and enforcers. Much as we ask regulators to be careful with how control is asserted on this space, we plead with both ourselves and every other Bitcoin company as we enter a more heavily regulated age.

Be sure to hew to the spirit of participants with integrity, and remember why you got into all of this in the first place. It is very easy for a corporation or collection of corporations to become corrupt, seeking harmful outcomes — like regulations for the sake of regulatory capture in the name of profits — over supporting the continued growth and evolution of Bitcoin. Don’t let that be you, and don’t let that be your company.

Talk to Us

One of Knox’s pursuits in these early days has been educating different specialists who have needed to understand Bitcoin to do their own work. Recognizing that regulators and policy makers are approaching this ecosystem, we would like to extend an open invitation to speak to us. We will certainly continue airing our views and hoping to guide ours and others’ jurisdictions to sensible freedom-preserving policy.

That said, there have been too many instances in the past of sets of corporations coming to believe they are speaking for the community or its users in ways that result in harm. The heterogeneous nature of any community should be understood and respected, and we would like to see all voices of integrity represented. We have our own opinions about how policy should unfold in this arena, but make no claim to be speaking on behalf of the community or users of Bitcoin. We hope they too will air their views, and to the extent that there is any push-back on what we air, we extend another invitation to speak to us.

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