We are working with the government to make sure indeed the long arm of the government can reach Bitcoin

Jeff Garzik, Bitcoin Developer

Two days ago, on the show, What’s Trending, Bitcoin developer Jeff Garzik remarked that despite the opinions of the libertarian user base of Bitcoin, the success of Bitcoin required cooperation with government regulation. This echoes the opinions of Bitcoin technical lead, Gavin Andresen. Here, “regulatory cooperation” specifically refers to “regulatory compliance” of Bitcoin exchanges. A Bitcoin exchange is where government fiat money is exchanged for the Bitcoin “free market” fiat money and vice versa. Regulatory compliance means reporting the details of each of these transactions, including the user identities linked to a Bitcoin address for each exchange transaction, to the Government.

It’s not like the Bitcoin development team has nefarious motives. Even though the original whitepaper by “Satoshi Nakamoto” was perhaps ideologically motivated by crypto-libertarianism, the development has since been turned over to a team more concerned with practical adoption than ideological ends. A fiat currency requires a “network effect” to ultimately succeed. Since Bitcoin “mining,” that is the creation of new bitcoins, is (1) an incentive reward for a clearinghouse node completing a proof-of-work requirement for verifying the current block of unverified transactions and given (2) that the increase of CPU power of the Bitcoin network(i.e., the addition of new nodes) dictates that clearinghouse nodes specialize(following a “division of labor” hierarchy) as “number-crunchers,” so most nodes now will no longer participate in block transaction verifications(they will “turn off” the Bitcoin mining option), it follows that (3) most new entrants(new “nodes”) who want to acquire bitcoins will do so by buying them from a currency exchange.

Hence, the Bitcoin development team’s position that the network effect(wide-spread adoption) depends on “white-market” currency exchanges as entry points. Without regulatory compliance, these exchanges won’t exist and/or continue to exist. The Bitcoin development team consider themselves acting in the capacity of entrepreneurial agents, not ideological agents. In other words, they have an entrepreneurial interest in wide-spread adoption(the “network effect”). But the means here conflict with the original ideological intent. This is an example of why I am not a Rothbardian Agorist.

In Rothbardian agorism, you would have:

(1) no white-market currency exchanges. You would acquire bitcoins by exchanging a product of your labor. In other words, if you wanted a product/service being offered in bitcoins, you would have to discover and offer a product/service that others would be willing to pay for with bitcoins. In the limited Bitcoin ecosphere, this would likely entail huge opportunity costs. These opportunity costs are exactly why the libertarian economist Walter Block dismissed agorism as being “economic suicide.”

(2) you could have grey-market exchanges. Agorist theory would require “protective agencies” to evolve, in an entrepreneurial capacity, to defend these transactions. However, we are seeing that the entrepreneurial actions of the Bitcoin development team working against this outcome. From a practical sense, you can see why. “Conspiracy” in US Law is totalitarian. A grey-market exchange + “a bitcoin market trading in illegal services/goods” = criminal conspiracy that could land anyone associated with the project in jail.

Bitcoin, Laissez-Faire and Bureaucratic Compliance

Bitcoin fantastically illuminates the distinction between “regulation” and “compliance.” Statists rely on conflating the two concepts. In the “Laissez-faire” tradition, the entrepreneur is a “regulatory mechanism” and the bureaucrat a “compliance mechanism.” Statists will call Bitcoin an “unregulated monetary ponzi scheme.” But what they really mean is that it is simply “non-compliant” with the lawlessness of the US Political economy. What Statists call “unfair advantage of early adopters” is simply the entrepreneurial reward for resolving a coordination problem. There is no need for “regulation” because it works quite regularly as expected, according to the rules adopted.

A fair, non-compliant(!=unregulated) exchange between government fiat money and free market fiat money resolves the opportunity cost problem outlined above, and absent that constraint, it’s likely that the free market fiat money would experience it’s network effects. However, compliant(!=regulated) exchange between government fiat money and free market fiat money is not likely to result in any network effects. It should be realized that if the State, particularly one that has “oligarchicalized money and credit,” particularly one whose currency serves as the global reserve, lost it’s monopoly on money, it would likely collapse. So, it’s a bit naive to think that the State would comply with such an outcome.

A valid criticism of the Bitcoin development team would be stop using the term “regulate,” and instead use the more accurate term, “compliance.” Compliant Bitcoin Exchanges would have to be considered “Snitch nodes” on the Bitcoin network. Snitch nodes obviously compromise your anonymity in terms of participating in the Bitcoin network, but whether this is sufficient, along with other techniques, to compromise your anonymity for any given transaction, is another matter.

What’s clear, in observing the rapid appreciation of Bitcoin on the exchanges the past 30 days, is that this matter is soon coming to the fore…