 Welcome to Lecture 7. In this lecture, we'll talk about all the ways that the world of Bitcoin and the technology touches the world of people. We'll talk about the community, we'll talk about politics within Bitcoin and the way that Bitcoin interacts with politics, and we'll talk about law enforcement and regulation issues. In Lecture 7.1, we'll talk about consensus in Bitcoin, the way that the operation of Bitcoin relies on the formation of consensus among people. Now there are really three kinds of consensus that have to operate for Bitcoin to be successful. The first kind is a consensus about the rules. This is a consensus about things like what is it that makes a transaction valid? How can you tell a valid transaction from an invalid one? Second, what makes a block in the blockchain valid? Which block should be accepted and which block should be rejected? Third, how the nodes in the P2P network should behave? How they should interact with each other? And what kind of protocol they should use to discuss with each other? And more generally, all the protocols and data formats that are involved in making Bitcoin work. You need to have a consensus about these things so that all the different participants in the system can talk to each other and agree on what's happening. And so the first form of consensus that goes into Bitcoin is just a consensus about what these rules should be in order for the system to go forward. The second form of consensus in Bitcoin is consensus about the history. That is a consensus about what's in the blockchain and what's not in the blockchain. And therefore a consensus about which transactions have occurred. And once you have a consensus about which transactions have occurred, what follows from that is of course a consensus about which coins, which unspent outputs exist and who owns them. And so this consensus obviously flows from the processes that we've talked about in earlier lectures by which the blockchain is built and by which nodes come to consensus. The processes that we hope push Bitcoin toward a consensus about the contents of the blockchain. So that consensus about what's in the blockchain and therefore what the history is, is the second important form of consensus that Bitcoin relies on. The third form of consensus that Bitcoin relies on is just the consensus that coins are valuable. That is the general agreement that Bitcoins are valuable, that Bitcoins are a good thing to have. And in particular, the consensus that if somebody gives you a Bitcoin today, that tomorrow you'll be able to redeem or trade that for something that is of value. Any currency needs this, whether it's a fiat currency like the dollar or a cryptocurrency like Bitcoin, you need a consensus that the thing has value. That is you need people to generally accept that it's exchangeable for something of value now and in the future. And so that's the third kind of thing that Bitcoin needs. Now this form of consensus unlike the others can be viewed as a little bit circular. In other words, my belief that the Bitcoins I'm receiving today are of value depends on my expectation that tomorrow other people will believe the same thing. So consensus on value relies on believing that consensus on value will continue. And this is sometimes called the Tinkerbell effect by analogy to Peter Pan, where it's said that Tinkerbell exists because you believe in her. The same thing is kind of true here, that the consensus that Bitcoins have value exists because of the consensus that Bitcoins have value. So circular or not, it's a thing that seems to exist. And it's important for Bitcoin to operate. Now what's important about all three forms of consensus is the way that they're intertwined with each other. And this diagram shows a little bit about what I mean when I say that. First of all, the consensus about the rules and the consensus about history go together. Because it's the rules that determine which kinds of transactions can go into a block, and which kinds of blocks can come into existence. If you agree on the rules that is which blocks are valid, then it's possible to build a consensus about the blockchain and about history. Whereas without a consensus about the rules, then people are going to disagree about what's in the history, and you won't be able to come to consensus in that way. So consensus about rules and consensus about history are tied together. In a similar way, consensus about history and a consensus that coins are valuable is are also tied together. Consensus about history means that we agree on who owns which coins and agreeing on who owns which coins is a necessary prerequisite for believing that the coins have value. Because if there's not a consensus that I own a particular coin, then I'm not going to have any expectation that people will accept that coin from me in payment in the future. So consensus about history is a prerequisite for consensus that coins are valuable. But in the same way, the consensus that coins are valuable is needed to make the consensus about history work. And we heard about this in the earlier lecture when we talked about the incentive arguments, the ways in which the block reward that is built into the mining process creates an incentive for people to follow the expectations about mining. So the consensus that coins are valuable is what creates the incentives that allows us to get to a consensus about history. And so we have all three forms of consensus here which are tied together, such that if any one of them failed, then the other ones would fall apart as well. And in a sense, the genius of Bitcoin, the genius in Bitcoin's original design, was in recognizing that it would be very difficult to get any one of these forms of consensus by itself. Consensus about the rules in a worldwide decentralized environment where there's no strong notion of identity, that's just not the kind of thing that's likely to happen. Consensus about a history, similarly, that is a very difficult distributed consensus data structure problem, which is not likely to be solvable on its own. And a consensus that some kind of cryptocurrency has value was also a very difficult thing to put together. What the designer of Bitcoin and what the continued operation of Bitcoin shows is that even if you can't build any one of these forms of consensus by itself, you can somehow stand up all three of them together and get them to operate in an interdependent way. And so when we talk about how things operate within the Bitcoin community, we have to bear in mind that Bitcoin relies on consensus, it relies on agreement by the participants, and that that consensus is a fragile and interdependent thing. In section 7.2, we'll talk about the Bitcoin Core software. This is a piece of open source software, which is a focal point for discussion of and debate about Bitcoin's rules. The Bitcoin Core software is a body of open source software, it's licensed under the MIT license, which is a very permissive open source license. It allows the software to be used for almost any purpose. As long as the source is attributed in the license, the MIT license is not stripped out. The Bitcoin Core software comprises the most widely used Bitcoin software. And even those who don't use it tend to look to it to define what the rules are. That is people who are building alternate Bitcoin software typically try to mimic the rule defining parts of the Bitcoin Core software. That is, they look at the parts that check which transactions are valid, they look at the parts that check which blocks are valid, and they try to behave in the same way as the Core software. So this is the focal point for talking about what the rules are. In fact, the Bitcoin Core defines the de facto rulebook of Bitcoin. If you want to know what's valid in Bitcoin, if you want to know what the rules are, this is the place to look. This or explanations of it. Another related piece of machinery is Bitcoin improvement protocols or BIPs. These are formal proposals for a change to Bitcoin. And typically an improvement proposal will include a technical specification for a proposed change as well as a rationale for it. So if you have an idea about how to improve Bitcoin by making some technical change, you're encouraged to write up one of these documents, you're encouraged to publish it as part of the Bitcoin improvement proposal series, and that will then kick off a discussion within the community about what to do. They're published in a numbered series. Each one has a champion. That is sort of an author whose job it is to evangelize in favor of it, to coordinate discussion, and to try to build a consensus within the community in favor of going forward with or implementing a particular proposal. Now what I've talked about so far are proposals to change the technology. There are also some BIPs that are purely informational just to tell people about things that they might not otherwise know or that are process oriented that talk about how things should be decided within the Bitcoin community. But nevertheless if you have an idea about how to improve Bitcoin, typically you would make a Bitcoin improvement proposal and that would be the process for discussion going forward of proposed rule changes. And so we have a rule book and we have a process for proposing, specifying, and talking about rule changes. Now the other group we need to talk about with respect to the Bitcoin core software are the core developers. We have these six people, maybe arguably five, Satoshi Nakamoto, who I'll talk about a little bit later, is not currently active. But the other five are currently involved as core developers of the Bitcoin core software. So these are the people who are leading the effort to continue development on the Bitcoin core and who are in charge of which code gets pushed into new versions of the Bitcoin core. So how powerful are these people? Well on the one hand they're very powerful in one sense and in another sense they're not all that powerful at all. On the one hand you could argue that they're powerful because the rule changes, that is the changes to the code that gets shipped in the Bitcoin core will be followed by default. These are the people who actually hold the pen that writes, that can write things into the de facto rule book of Bitcoin. On the other hand because it's open source software and anybody can copy it and modify it, anybody can fork the software at any time. And so if the lead developers start behaving in a way that the community doesn't like, strongly rejects, the community can go a different direction. So one way of thinking about this is to say that the lead developers are leading the parade. So they're out in front of the parade marching and the parade will generally follow them when they turn a corner. But if they try to lead the parade in the direction that's disastrous, well then the parade members, marching behind them might decide to go in a different direction. They can urge people on and as long as they seem to be behaving reasonably the group will probably follow them but they don't have formal power to force people to follow them if they take the system in a technical direction that the community doesn't like. So it's worth in this respect thinking about what you as a user of a system can do if you don't like the way the rules are going or the way it's being run and to compare a centralized currency like either a fiat currency or a currency that's issued by a central entity against something like Bitcoin. So in a centralized currency if you don't like what's going on you have the right to exit. You can leave the currency which means that you can stop using it. You can sell any currency you hold or try to sell it and then you can just stop using it. Just like any business that you do business with almost any business you have the ability to just stop dealing with them if you don't like what they're doing. On the other hand if it's a currency and you've got a lot of business you've got a lot of assets tied up in it it might be expensive or difficult to actually exit. But with a centralized currency that's really your only option. With Bitcoin because it operates in an open-source way you have the right to fork the rules. That means you and perhaps some of your friends or colleagues can decide that you'd rather live under a different rule set and you can fork the rules and go a different direction from where the lead developers have gone. The right to fork like this is more empowering for users than the right to exit. You can exit if you want but you have the right to fork and that actually gives you more power and therefore the community has more power in a system like Bitcoin which is open source than it would have with the purely centralized system. So although the lead developers might look like a centralized entity controlling everything in fact they don't have the power that a purely centralized manager or software owner would have. Let's look a little bit more at what happens if there's a fork in the rules and I'm talking here in a previous lecture we talked about the distinction between a hard fork and a soft fork. I'm talking about a hard fork here. So what happens is the following. So here we have the blockchain which is coming along building up the history and at some point there will be a fork in the blockchain if there's a disagreement about the rules and you get two branches. You get one branch of let's say this one up here which is valid under rule set A but invalid under rule set B and conversely you have another branch down here which is valid under rule set B and invalid under rule set A. If there's a hard fork as to what the rule should be then there will be some transactions that are valid on each side and not the other and this will eventually happen. And once these branches go apart they can't come back together because this branch is illegal under the B rules this branch is illegal under the A rules they're permanently separate. So if if the currency that we had over here on the left we can think of as being Bitcoin the big happy Bitcoin that everyone agreed on after the fork it's as if there are two new currencies which you can think of as being a coin corresponding to rule set A and we'll call this one down here B coin corresponding to rule set B and it's as if at this moment where there was a fork everyone who owned one Bitcoin at the moment of the fork will receive one A coin and one B coin at that time and from that time on A coins and B coins will operate separately as if they were separate currencies and and they might operate independently the A group and the B group might evolve their rules different in different ways and certainly their blockchains will continue to grow in ways that are probably inconsistent across the two coins. So when this happens we might say that the currency forked that it's not just the software or the rules that forked or the software implementing the rules that forked it's the currency itself that forked and that's an interesting thing that can happen in a system like Bitcoin that couldn't happen in a traditional currency where the option of forking is not available to users. Okay so what happens if a fork like this goes on what act what do people actually do how do they respond? Well after a hard fork like this there are really two cases the first case is where the fork was really not intended as a disagreement about the rules but the fork was designed as a way of starting an altcoin that is of starting a new kind of cryptocurrency with different rules and if somebody just wanted to start their own currency and they found it convenient to start with a rule set that was very close to bitcoins they found it convenient maybe even to start with bitcoins blockchain and to fork off as I as I illustrated on the previous slide then that's not really a problem the altcoin goes its separate way the branches coexist peacefully and some people prefer to use bitcoins some prefer to use the altcoin the interesting case is what happens if the fork actually reflected a fight between two groups about what the future of bitcoins should be if that's the case then the two branches are rivals and the branches will fight for market share we after the fork there's an a coin and there's a b coin and each branch will try to get more merchants to accept it each branch will try to get more people to buy it the branches will fight for market share though the branches will fight to be seen to be perceived as being the real bitcoin probably each branch says claims to be the real bitcoin and there's a public relations fight between them which goes along with the fight for market share each one wants to be seen as the real thing and the other one to be seen as the weird splinter group probably eventually one branch will win and the other one will melt away these sorts of competitions tend to tip in one direction once one of the two gets seen as more legitimate get seen as having a bigger market share gets perceived more broadly as being the real one the other one becomes kind of a niche currency and eventually will fall away so this is the likely future if you had a fork that reflected a fight over the future of bitcoin and what this amounts to is a kind of rebellion within the bitcoin community where a subgroup decides to break off and say we think we have a better idea about how this should be run and you have a competition between the new and the old which eventually one of them probably wins and become seen as the de facto new rule set and the de facto new governance structure in section 7.3 we'll talk about who are the stakeholders in bitcoin really the question is who's in charge we've talked about how bitcoin relies on consensus and about how the rule book of bitcoin is written in practice we've talked about the possibility of a fork or a fight about what the rule should be so now I want to come to the question of who actually has the power to determine who might win a fight like that okay so who is the power well suppose there's a negotiation about rule setting there's a discussion within the community there's a disagreement about which rule set should be used who actually controls the outcome now if you think about it as with any negotiation one of the most important factors in in understanding who has an advantage in the negotiation is to look at what happens if the negotiation fails and it comes down to a fight and generally speaking whoever has the best alternative to a negotiated agreement is going to have the advantage in a negotiation in other words whoever is likely to win a fight is likely to win the negotiation it's the long standing rule that on the playground the biggest strongest person is likely to get their way even if no blows are exchanged so let's talk about who actually has the power and who would be able to win if there were a fight involving a fork in the rules and a struggle for power over what the future of bitcoin would be so we can make a bunch of claims on behalf of a bunch of different stakeholders the first claim is that the bitcoin core developers have the power whoever it is that develops the core software they have the power they write the rule book they literally have their fingers on the keyboard and have the ability to change the code that gets shipped since they write the rule book since almost everybody does use their code and does follow their rules in practice you could argue that they have the power because they can actually put a change out there that other people would at least by default accept so the first stakeholder is the developers a second claim though that we might make is that it's the miners who have the power why because miners are the ones who write the history the miners are the ones who make the blocks that record the transactions that have happened and so if the miners decide to follow a certain set of rules then arguably everybody else has to follow it we talked in previous lectures about what happens if you have a majority of miners certainly if there's a disagreement among the miners and let's say eighty percent of them want one rule set twenty percent want the other well the eighty percent group is going to be able to build a bigger more impressive blockchain and so they have some ability to push push the rules in a particular direction now how much power they have depends maybe on whether the fork is a hard fork or a soft fork this can get a little bit technical into the details of the dynamics of bitcoin but bottom line is miners have some amount of power because they get to write the history and the history is going to be consistent with whatever consensus rules the miners end up following in the long run so the second claim is that the miners have the power you might also claim though that investors have the power why because investors are the ones who buy a lot and hold a lot of the bitcoins and so it's the investors who decide whether bitcoin has any value if the miners control the consensus about the history and the developers control the consensus about the rules it's the investors who control the consensus that bitcoin will have value or at least that's the way the argument goes so in the case of a hard fork the investors if they all or mostly decide to put their money on one branch on the a coin or the b coin then that one will have a lot of perceived legitimacy and so the investors have a lot of power to decide which way things go if there is a fork on the other hand we could claim that merchants and their customers are the ones who have the power why because merchants and customers are the ones who generate the primary demand for bitcoin yes investors provide some of the demand that supports the price of the currency but the primary demand that drives the price of the currency as we saw in lecture four is is driven by a desire to mediate transactions to use bitcoin as as a transaction technology and because merchants and their customers drive that demand they're the ones who drive the long-term price of bitcoin or so this argument goes investors according to this argument are just guessing where the primary demand will be in the future so investors are guessing where the merchants and customers will go in the future and therefore it's the merchants and their customers who really have the power on the other hand we could argue that no it's the payment services that have the power they're the ones that really handle transactions a lot of merchants don't care which currency they follow they simply want to use a payment service which will give them dollars and ease of use and handle all of the risk and so to the extent that merchants and customers have power and that those people rely on the payment services to actually handle transactions well then maybe it's the payment services that have the power because they drive primary demand and merchants customers and investors will follow them okay now I've argued for a bunch of different parties all of whom I've argued should have the power and there's some merit to all of those arguments but the fact is all of those entities have some power in order to succeed remember a coin needs all these forms of consensus it needs a stable rulebook written by developers it needs investment it needs mining power and it needs participation by merchants and customers and the payment services that support them so all of these parties have some power in controlling the outcome of a fight about the future of bitcoin and there's no one that we can point to as being the definite winner it's a big ugly messy consensus building exercise there's one more player that I want to talk about when I talk about governance of bitcoin and that's the bitcoin foundation the bitcoin foundation was founded in 2012 and it really does two main things first of all it pays the core developers or at least some of the core developers it pays them a salary out of the foundations assets so that they can work full-time on on continuing to develop the software the other thing that the bitcoin foundation does is it talks to government especially the US government as the voice of bitcoin people in the bitcoin community said it that we have a problem that there's no one to talk to government on our behalf and so our case is not being made our arguments are not being heard in government we need to have an entity that will do that and the bitcoin foundation is one of the things that was set up to do that and so that's the other function that the bitcoin foundation was set up to do now the bitcoin foundation is not in charge of bitcoin any more than any of these other parties are it has membership from some members of the community not from other members of the community and its success ultimately like everything else in this kind of open-source consensus-based ecosystem will be driven by how much support it can attract and retain from the community over time and it's worth discussing the points of controversy that have happened with respect to the bitcoin foundation there have been controversies over the membership in the board where some members of the bitcoin foundation board have gotten into trouble they've gotten into criminal trouble or they've gotten into financial trouble and and the foundation has had to struggle with dealing with what to do about members of the board that are become become liabilities and have to be replaced on short notice there's been some controversy from those people who believe that bitcoin should operate outside of and apart from a traditional national governments that bitcoin shouldn't be in the position of negotiating with the government bitcoin should be what it is the independent of government and simply operate across borders not having to explain or justify itself to government at all people who believe in that point of view don't like the fact that there are people in suits who hand out business cards saying bitcoin on them and talk to government is the voice of bitcoin and finally there are people who there have been controversies over the bitcoin foundation and the question of who put these people in charge there are members of the community who feel that the foundation and the people who set up the foundation aren't really true representatives of the community and that they are anointing themselves as leaders of something that they have no right to put themselves in charge of so although the bitcoin foundation is prominent there are still some questions about what its role is going to be in the long run I think it's fair to conclude that the bitcoin foundation in its dealings with government has done a fair amount to smooth the road for understanding of an acceptance of bitcoin at least within the US government but still the foundation continues to be a somewhat controversial organization and one that's going to be the topic of debate going forward so when we come down to the question of who's really in charge of bitcoin who's in control the answer is in one way nobody that there is no one entity no one group that's definitively in control in another sense the answer is everybody because it's really the existence of these consensus about how the system will operate the three interlocking forms of consensus on rules on history and on value that really is what governs bitcoin and any group any rule set any structure that can retain that consensus will in a very real sense be in charge of bitcoin in lecture 7.4 we'll talk about the roots of bitcoin how it got started what were the precursors to it and we'll talk about the mysterious founder of bitcoin there were really two precursors to bitcoin that that are worth talking about first bitcoin arose out of the cypher punk movement this was a movement that brought together two trends or arguments first was libertarianism and particularly the idea that society would be better off with either no government or with a very minimal government with government enforcing only the minimum rule set necessary to allow people to coexist at all so together with that strong libertarian notion or perhaps even anarchist notion we had the idea of strong cryptography and public key cryptography which started in the late 1970s these two ideas came together in the cypher punk movement and this was a group of people who believed that with strong online privacy and strong cryptography you could rearchitect the way that people interacted with each other into a world in which people could protect themselves in their interests more effectively and could do so with much less activity action or as they would say interference from government so that was the cypher punk movement one of the challenges on the cypher punk movement was how you were going to deal with money in a future cypher punk world where people were interacting over the net and interacting via strong technical and cryptographic measures and so a bunch of research came along led especially by early digital cash work by David Chum and others that that was designed to create new forms of value that functioned like money like cash in the sense of being anonymous and easily exchangeable but also provided stronger notions of anonymity or or privacy and so early work in that area and there's a whole interesting story about how that developed and why it didn't sweep the world early work in that area came together with the cypher punk beliefs and the desire to have a strong currency that would be decentralized online and relatively private to create the world from which Bitcoin coin was born as well as the philosophy that many of the early supporters of Bitcoin and even many of the supporters today still follow Bitcoin began in 2008 with the release of this white paper called Bitcoin appeared appear electronic cash system that was authored by Satoshi Nakamoto this paper which you can still get online easily is is the initial description of what Bitcoin is basically how it works and what the philosophy behind its design is and so this is still a good thing to read if you want to get a quick idea of the of how the technical design of Bitcoin and how the initial philosophy of its operation what was specified so this was this was the beginning this was released along with open-source software to implement the Bitcoin system back in 2008 and this is where everything started now this was written by this person Satoshi Nakamoto and Satoshi is one of the central mysteries of Bitcoin what do we know about Satoshi well Satoshi is the author of this white paper in the original Bitcoin software the name Satoshi Nakamoto was almost certainly a pseudonym that is a fake name that some person or people have adopted for the purpose of doing doing things related to Bitcoin the identity of Satoshi is associated with certain public keys with certain accounts and certain systems so that there are certain kinds of accounts or statements or certain kinds of digital signatures that would convince the community that something was said by or issued by or created by the real Satoshi so Satoshi while being a pseudonym is also a person who can speak and who has spoken especially extensively in the early history of Bitcoin what do we know about Satoshi well we know that Satoshi writes fairly well in English Satoshi uses sometimes Americans sometimes British spellings there's been a lot of attempts to look at the text to look at the code and try to figure out what is Satoshi's native language where Satoshi from attempts to look at the hours and times and what type of machine does Satoshi use and all these sorts of things try to figure out who is this person or people and what are they doing Satoshi was fairly active in working on Bitcoin on writing about Bitcoin and participating in online forums until around 2010 and since that time Satoshi has said almost nothing there's one notable exception that I'll mention in a minute Satoshi owns a lot of bit coins from early mining in the beginning Satoshi was perhaps the only miner or one of the only few people mining bitcoins and those bitcoins that were accumulated by Satoshi's accounts early on now are extremely valuable and yet those accounts are not being cashed out everybody can see which accounts which Bitcoin addresses probably belong to Satoshi and so if those coins were to be cashed in if they were to be sold and the proceeds transferred into any particular bank account that would be a very notable event and would be an important clue to Satoshi's identity and so interestingly although Satoshi created the the Bitcoin system and has on paper made a lot of profit from it Satoshi is unable to cash in that profit without identifying him or herself something that for whatever reason Satoshi doesn't want to do the real identity of Satoshi still unknown the question of who's really Satoshi is a favorite parlor game at Bitcoin oriented conferences it's also something that a lot of reporters have tried to do people have done all sorts of things they've looked at text the text written by Satoshi try to compare it to other things they've tried to look at other pieces of software to patent applications they've looked at who is writing papers about things that seemed like technical precursors to Bitcoin before Bitcoin came along etc etc in a in a well-known incident last year a reporter from Newsweek found a guy whose birth name was literally Satoshi Nakamoto and fingered him as the as the founder of Bitcoin as the Bitcoin Satoshi that was almost certainly incorrect as we have since figured out in fact one of the few times if any that Satoshi that the original real Satoshi has spoken since 2010 was to issue a short statement saying nope I'm not that guy so as of today and probably and probably or perhaps forever we don't really know who Satoshi is and in some sense it doesn't matter because because of the notable feature of Bitcoin that it is decentralized and with nobody in charge Satoshi is not in charge to some extent it doesn't really matter what Satoshi thinks anymore any special influence that Satoshi has is only because of respect that Satoshi would have within the Bitcoin community should Satoshi become active again so it's possible that we'll never know who Satoshi is so Bitcoin was started in 2008 by Satoshi whoever he she or they are and has grown since then if we look at a graph of the transaction volume the number of transactions per day this starts on the left at the beginning of 2009 and goes up to the summer of 2014 what you see is something roughly like an exponential growth and indeed this is pretty much what you'd expect from something that's spread by word of mouth like the internet like other popular technologies Bitcoin has grown in a roughly exponential way and when there are jumps they typically correspond to bursts of publicity moments when Bitcoin became known in the popular press for example or when there were news newsworthy events transaction volume has gone up over time the total value of Bitcoin also has gone up perhaps in a similar way what you see is this looks like zero but in fact it's just very low and you see a relative arise starting here maybe beginning in the middle of 2012 this is this looks roughly like an exponential growth but with two spikes superimposed on it one here in roughly April of 2013 March or April of 2013 it spiked up and then relaxed back down to the underlying exponential curve and then arguably here around the beginning of 2014 it spiked up to about this value and then relaxed back down again to something near the exponential growth which has happened since then so arguably Bitcoin has grown in a way that is relatively organic and at a relatively constant exponential rate since it was born and those who believe that Bitcoin has a bright future ahead of it believe that this exponential growth will continue thus far in lecture 7 we've talked about the growth of Bitcoin we've talked about how Bitcoin operates who's in charge of it I want to spend the rest of lecture 7 talking about governments governments interaction with Bitcoin and government attempts to regulate Bitcoin and we'll start simply with the moment when governments noticed Bitcoin when Bitcoin became big enough as a phenomenon that governments started to worry about the impact it might have and government started to talk about how to react to it one reason why governments would notice a digital currency like Bitcoin is that untraceable digital cash if it exists can defeat capital controls capital controls are rules or laws that a country has in place that are designed to prevent the flow of value of capital of wealth either in or out of the country and by putting controls on banks and investments and so on a country can try to prevent these flows Bitcoin is a very easy way under some circumstances to defeat capital controls because someone can simply buy bitcoins with capital inside the country ship those bitcoins outside the country by electronic means and then sell those bitcoins for capital or wealth outside the country by doing that they could move capital or wealth from inside to outside and similarly you could do the same thing to move it from outside to inside because wealth in this electronic form can move so easily across borders and can't really be controlled a government that wants to enforce capital controls in a world with Bitcoin has to try to disconnect the Bitcoin world from the local fiat currency banking system so that it's not possible for someone to turn large amounts of local currency into Bitcoin or large amounts of Bitcoin into local currency and so we see countries that are trying to beef up or protect their capital controls do that and a notable example is China China has has engaged in increasingly strong measures to try to disconnect bitcoins from the Chinese fiat currency banking system another reason governments might worry about untraceable digital cash is that it makes certain kinds of crimes easier in particular crimes like kidnapping and extortion that involve the payment of a ransom or some kind of a payoff those crimes become easier when payment can be done at a distance and anonymously law enforcement against kidnappers for example often has relied upon exploiting the handoff of money from the victim or the victim's family to the criminals when that can be done by email and that can be done at a distance in an anonymous way it becomes much harder for law enforcement to follow the money similarly tax evasion becomes easier when it's easier for people to move money around when it's easier to engage in transactions that are not easily tied to a particular individual or identity and finally the sale of illegal items becomes potentially easier when the transfer of funds can happen at a distance and without needing to go through a regulated institution a good example of that is Silk Road Silk Road was essentially the eBay for illegal drugs you can see here a screenshot of Silk Road's website when it was operating it calls itself an anonymous marketplace and you can see over on the left some sorts of things that are for sale illegal drugs were the primary thing for sale on Silk Road you can see examples of the sorts of things that were for sale here Silk Road allowed sellers to advertise goods for sale they allowed buyers to buy those goods the goods were delivered typically by through the mail or through shipment services and payment was made in in bitcoins so Silk Road operated as a tour hidden service something that was discussed in an earlier lecture so by operating as a tour hidden service Silk Road the Silk Road servers could be hidden from law enforcement so they were difficult for law enforcement to reach because Silk Road used Bitcoin for payment it was also difficult for law enforcement to follow the money and figure out who the people participating in the market were Silk Road was the largest online market for illegal drugs as I said it ran as a tour hidden service and used payments in bitcoins the site held the bitcoins in escrow while the goods were shipped there was an innovative escrow system which helped to protect the buyers and sellers against cheating by by other parties the bitcoins would be released once the the buyer certified that the goods had arrived Silk Road had an eBay like reputation system that allowed spires and sellers to get reputations for following through on their deals and by using that reputation system Silk Road was able to give the participants in the market an incentive to play by the rules even though they would be very very difficult to find otherwise so Silk Road was innovative among criminal markets in finding ways of enforcing the rules of the criminal market at a distance something that criminal markets have in the past had difficulty doing Silk Road was run by a person who called himself Dread Pirate Roberts and some of you may recognize that reference obviously a pseudonym it operated from February 2011 until October 2013 Silk Road was shut down after the arrest of this guy Ross Ulbricht who was the alleged operator of Silk Road he was arrested in October 2013 and he's currently awaiting trial the government says that he was the operator of Silk Road and that he tried to cover his tracks by operating using various anonymous accounts by using Tor anonymous remailers and those sorts of things but they said that they were able to connect the dots and connect him to Silk Road activity to connect him to the servers and to connect him to the bitcoins that belonged to the operator of Silk Road they charged him with various crimes relating to operating Silk Road they also charged him with attempted murder for hire it if the allegations are true he more than once tried to pay to have people killed fortunately he was bad at it and nobody actually got killed but nonetheless these are some pretty serious charges the government in the course of taking down Silk Road seized about 174,000 bitcoins that's quite a bit of value they then auctioned those off to the public as with the proceeds of any crime under US law they could be seized by the government and the government did seized them so Mr. Ulbricht is awaiting trial will eventually perhaps find out the full evidence against him now there are several lessons from Silk Road and from the encounter between law enforcement on the one hand and Dread Pirate Roberts perhaps Mr. Ulbricht on the other hand first of all one lesson is that it's actually pretty hard to keep the real world and the virtual world separate the operator of Silk Road believed that he could live his real life living in society and at the same time have a secret identity in which he operated a fairly good-sized business and technology infrastructure that apparently is harder than you would think it's difficult to keep these separate worlds completely apart and not accidentally create some linkage between them it's hard to stay anonymous for a long time it's hard to be very active and engage in a course of coordinated conduct in which you're working with other people over time while remaining anonymous the reason being that although you can operate multiple identities if there's ever a connection between two of those identities if you ever slip up and use the name of one while wearing the mask of another or if you ever slip up and create a link between them that link can never be destroyed and over time the different anonymous or identities or masks that someone is trying to use tend to get connected and there's a lesson there as well the third lesson here is that the feds that the law enforcement can follow the money because even before there was an arrest in the Silk Road case the government knew that certain bitcoin addresses were operated by the operator of Silk Road and they were watching those addresses the result is that the operator of Silk Road while wealthy in according to the blockchain was not actually able to benefit from that wealth because any attempt to transfer those assets over into the dollar world would have resulted in a traceable event and probably would have would have resulted in rapid arrest and so although Mr. Albrecht was allegedly the owner of 174,000 bitcoins the fact is he was not living like a king he was living in a one bedroom apartment in San Francisco apparently unable to get to the wealth that he allegedly controlled the lessons here are that if you intend to operate an underground criminal enterprise and I hope you as our students are not but if you are that it's a lot harder to do than you might think that the technologies like bitcoin and tour are not panaceas for people who want to do these things and that law enforcement actually has some pretty significant tools that they can still use and so although there might have been some panic in the world of law enforcement over the rise of bitcoin law enforcement is more and more realizing that they can still follow the money up to a point and that they still do have a substantial ability to investigate crimes and to make life difficult for people who want to engage in coordinated criminal action in section 7.6 we'll talk about anti-money laundering what is money laundering and what are the rules that governments have imposed especially in the U.S. that affect some bitcoin related businesses so the goal of anti-money laundering policy is to prevent large flows of money from crossing borders or moving between the underground and legitimate economy without being detected I talked earlier about capital controls where countries are just trying to prevent money from crossing borders in some cases countries are just fine with money crossing borders but they want to know who's transferring what to whom and where that money came from anti-money laundering is aimed at trying to make certain kinds of crime more difficult especially organized crime organized crime groups often find themselves getting a lot of money coming in in one place and wanting to ship it to somewhere else but not wanting to explain where that money came from hence the desire to get money across borders or they find their self making a lot of money in an underground economy and wanting to get that money into the above ground legitimate economy so that they can spend it on sports cars and big houses or whatever it is that the leaders of the group want to do anti-money laundering is designed to make that more difficult to either try to catch people trying to do those things or else prevent them from doing it in order to detect certain kinds of crimes or make organized crime more difficult one of the rules that goes with anti-money laundering is something called know your customer sometimes called KYC and the details of this can be a little bit complicated depend on your locale but the basic idea is this that know your customer rules require certain kinds of businesses that handle money to first of all identify and authenticate who their clients are to know who these people are and to get some kind of authentication that they really are who they claim they are and that those claimed identities correspond to some kind of identity in the real world so a person just can't just walk in and say I'm John Smith from 123 Main Street in any town USA they have to actually give an identity and have that be checked in order to engage in certain kinds of business second after identifying and authenticating the clients the business may be required to evaluate how risky it is what the risk is with respect to a certain client engaging in underground activities and this will be based on how the client behaves how long-standing their business relationship is with the company how well-known they are in the community and various other kinds of factors but know your customer rules generally would require some kind of risk analysis with respect to individual clients and would require a company that's covered by KYC to treat clients whose activities seem riskier with more attention and then finally third typically there's a requirement to watch for anomalous behavior to watch for behavior that seems to be indicative of criminal activity or of money laundering or of other sorts of things tying that together with the risk evaluation to understand what's the level of risk with respect to a particular customer and what to watch for with respect to a particular customer KYC will often ask a company to cut off business with a client who looks too dodgy or who's unable to authenticate themselves or their activities sufficiently for the rule as I said this gets complicated but this is the basic outline there are mandatory reporting requirements in the United States that are worth talking about for example companies in a broad range of sectors have to report currency transactions that are over $10,000 they have to file something called the currency transaction report to say what is the transaction who is the other party to the transaction and there's some requirement to authenticate who they are this has to be reported to the government and that goes into databases and then might be analyzed to look for patterns of behavior that are indicative of money laundering companies are also required to watch for clients who are engaged in what's called structuring that is in structuring transactions to avoid reporting for example if someone engages in a series of transactions that are $9,000 in value as a way to get around the $10,000 transaction reporting rule that amounts to structuring it looks like an attempt to evade the reporting requirements and a company that sees structuring is required to report it and they're required to watch for it and so that requires filing of a suspicious activity report again filing that with the US government and that again goes into a database might lead to investigation of the client the requirements here differ by country I am by no means trying to give you legal advice about whether you need this or what you have to do I just want to give an idea of what kind of requirements are imposed by anti-money laundering rules but I do want everyone to note the government the US government and other governments take anti-money laundering rules very very seriously this is not the kind of rule you can just blow off and deal with it if you get a complaint from the government later Bitcoin businesses have been shut down they've been shut down temporarily they've been shut down permanently business people have been arrested people have gone to jail for not following these rules this is one of those areas where government will enforce the law vigorously and where if you're interested in going into any kind of a business that is handling certainly large transactions or for sure currency or fiat currency value in quantity you had better be talking to a lawyer who understands these rules this is an area in which government absolutely does regulate Bitcoin and has ever since they noticed that Bitcoin was large enough to pose a risk of money laundering in section 7.7 I want to talk about the R word regulation now regulation often gets a bad name and it especially has a bad name among the kind of people who tend to like Bitcoin regulation is some bureaucrat who doesn't know my business or what I'm trying to do coming in and messing things up it's a burden it's stupid it's pointless etc now those arguments often are correct but I want to talk in a little more detail in this section about reasons why regulation might sometimes be justified the argument against regulation is pretty common it's pretty well understood I'm not going to repeat it here and so you'll hear me talking mostly about reasons why regulation might be a good idea because that argument is not as well understood and I want to lay it out here a little bit but just to be clear the fact that I'm spending most of this section talking about why regulation might be good shouldn't be read as a endorsement that of widespread regulation or is a feeling that regulation is the greatest thing ever it's simply that I want to bring a little bit more balance to the discussion in a community where regulation is often considered as always bad or just stupid by nature all right so the bottom line argument in favor of regulation is just this that when markets fail and produce outcomes that are bad and often agree to be bad by pretty much everyone in the market then regulation can step in and try to address the failure so the argument for regulation when there is an argument starts with the idea that markets don't always give you the result that you'd like so let me give you an example of a way in which the market can fail and this is a classic example called the lemons market which originated in a discussion about used cars so let's talk about a market in concept a market for widgets some kind of good that we want to sell and let's say that widgets can be either low quality widgets or high quality widgets a high quality widget costs a little bit more to manufacture than a low quality widget but it's much much better for the consumer who buys it consumers like high quality widgets much much better now an efficient market a market that's operating well would therefore deliver mostly high quality or I'll write it HQ widgets to consumers why because the price of the high quality widget will be just a little bit higher but the widget will be so much better that almost everyone will buy the high quality widgets and so this is what you would hope that a market would provide and under certain assumptions a market will provide that but let's suppose that customers for some reason can't tell a high quality widget apart from a low quality widget what if they really can't tell which widgets are good and which widgets are not think of a used car from the classic example you're looking into used cars sitting on the lot well gee it looks pretty good but you can't really tell if it's going to break down tomorrow or if it's going to run for a long time the dealer probably knows if it's a lemon but you as the customer can't tell the difference so you can't tell high quality from low quality so if you think about what happens where incentives drive people in this kind of lemons market you can see that as a consumer you're not willing to pay extra for a high quality widget why because you can't tell the difference and so if the used car dealer says sure this one is perfect it's not a lemon at all go ahead and buy it it's only an extra hundred dollars well it might be that you'd happily pay a hundred dollars for a higher quality car but you don't really know whether that car whether that widget really is high quality so if you really can't tell which widgets are high quality versus low quality then you're not willing to pay extra for the high quality one and if consumers are not willing to pay extra for a high quality one then producers can't make any extra money by selling a high quality widget in fact they lose money by selling a high quality widget because they don't get any price premium they'd be better off buying the slightly cheaper low quality widget and selling it and so the result is if consumers really can't tell which widgets are high quality and which are low quality the market gets stuck in an equilibrium where only low quality widgets are produced and consumers are relatively unhappy with them now this outcome is worse for everybody than a properly functioning market would be it's worse for buyers because they have to make do with low quality widgets when in a more efficient market they could have bought a widget that was much much better for only a little bit higher price it's also worse for producers because because the widgets that are on the market are all lousy consumers don't buy very many widgets the widget market is relatively small and so there's less money to be made selling widgets than there would be in a healthy market and so both consumers and producers are worse off in a world where consumers can't tell the difference between high quality and low quality widgets that's a market failure it's called an asymmetric information failure and the result is a market that's sometimes called the lemon's market okay so how can we fix this well there are some market-based approaches that try to fix a lemon's market the first market-based approach relies on the seller's reputation the idea is that if a seller tells the truth to consumers about which widgets are high quality and which are low quality then the seller might get a reputation for telling the truth and once they have that reputation then maybe they can sell high quality widgets for a higher price because consumers will believe them and therefore the market can operate more efficiently the problem with this is yes this sometimes works but sometimes it doesn't depending on the precise assumptions you make about the market but if you think about it this is not going to work as well as a market where consumers can really tell the difference because for one thing it takes a while for a producer to build up a good reputation in order to build up a good reputation they have to sell high quality widgets at low prices for a while until consumers learn that that seller is telling the truth and that makes it harder for an honest seller to get into the market the other problem that can occur is that that seller even if they've been honest up to now if for one reason or another their sales are shrinking or they think they want to get out of the market their incentive is to massively cheat people all at once and then leave the market rather than continuing to be honest and then leave the market and so in the beginning of a seller's presence in the market and at the end of a seller's presence in the market reputation tends not to work this sort of reputation-based approach also tends not to work in businesses where where consumers don't do repeat business with the same entity or where the product category is very new and so there hasn't been enough time for sellers to build up a reputation like say in a high-tech market like say bitcoin exchanges the other market-based approach is warranties that's the idea that a seller could provide a warranty to a buyer that says that if this thing turns out to be low quality if it doesn't work well for you I'll give you a new one I'll pay you back or something like that and that can work up to a point as well but there's also a problem there that this warranty is just another kind of product which could also come in high quality and low quality versions a low quality warranty is one where the seller doesn't really come through when you come back with a broken product they don't really replace it they don't really give you your money they make you jump through all kinds of hoops and so this is not a panacea either so if you have a lemons market which has developed and if these market-based approaches don't work for the particular market that you're dealing with then regulation might be able to help and there are three ways in which regulation might be able to help address a lemons market first regulation could require disclosure they could require say that all widgets be labeled as high quality or low quality and then have penalties on the firms for lying that gives consumers the information that they were missing a second approach to regulation is to have quality standards is to require that no widget can be sold unless it meets some standard of quality testing and have that standard set so that only high quality widgets can pass the test that way you have a market that's all one kind of widget but at least it's high quality widgets assuming that the regulation works as intended or you could have required warranties so that all sellers have to issue warranties and then require then enforce the operation of those warranties so that sellers are really held to the promises that they make so all of these are forms of regulation which obviously could fail which might not work as intended which might be miswritten or misapplied they might be burdensome on sellers and so on but there's at least the possibility that regulation of this type might help to address the market failure due to a lemons market so this is one example of how regulation can be an efficient thing to do if it's done well when there's a certain kind of problem namely the ability the inability of consumers to tell the difference between a high quality and a low quality product offering and so people who talk about bitcoin exchanges for example and argue for regulation of them sometimes point to them as an example of lemons market another example of a market failure or a place where the market doesn't operate the way that you would like it to in order to serve consumers is price fixing price fixing simply is a case where different people are selling a product in a market and they just agree with each other that we're going to raise prices or we're not going to lower prices related to price fixing is an agreement not to compete where companies that would otherwise go into competition with each other agree not to compete with each other for example if there were two bakeries in town they might agree that one of them will only sell muffins and the other will only sell bagels and that way there's less competition between them than there would be if they both sold muffins and bagels as a result of the reduced competition presumably prices go up and the merchants are able to foil the operation of the market because after all the reason that the market protects consumers well in its normal operation is through the vehicle of competition that sellers have to compete in order to offer the best goods at the best price to consumers and if they don't compete in that way then they won't get business so an agreement to fix prices or an agreement not to compete circumvents that competition and prevents competition from operating in the market so another way that the market can fail is when people take steps that prevent competition these kinds of agreements either an agreement to raise prices or an agreement not to compete these are illegal in most jurisdictions this is part of antitrust law or competition law in general antitrust or competition law is aimed to prevent cases where the market gets stuck in a situation where there isn't enough competition to protect consumers or cases where somebody acts in a deliberate way to try to prevent someone from competing with them acting in a way other than simply offering good products at good prices antitrust law is very complicated I've given you sort of a sketch of it but this is another instance where we know that there are failures that can occur and where the law will step in to prevent in the easy cases things like price fixing or agreement not to compete but in more difficult cases even some attempts to reduce competition in the market through say mergers or other kinds of activity another example where regulation might be helpful in section 7.8 I want to talk about New York state's bit license proposal I've talked so far about regulation in general I've talked about a few forms of regulation I've talked in general about why regulation might be justified in some cases why it might make good economic sense but now I want to talk about a specific effort by a specific state to introduce specific regulation of bitcoin we'll dig a little bit into what the bit license proposal would do this is an issue that is current as of the filming of this lecture that will be current as of the release of this lecture and it gives you a snapshot of the kinds of things that regulators are doing okay so the bit license proposal was issued in July of 2014 down at the bottom of the slide here there's a URL where you can go and read it if you like here's the heading on it the New York State Department of Financial Services that's the part of the state of New York that regulates the financial industry and of course the state of New York has the world's largest center of the financial industry in it and so it's a part of the New York State government that is used to dealing with relatively large institutions it's a proposed set of codes, rules and regulations that has to do with virtual currencies so this is a new regulatory proposal from the state of New York and this is there's a lot of text here but let's walk through it it's worth talking about what the regulation fundamentally says is that you would need to get something called a bit license from the New York Department of Financial Services if you wanted to do any of the things listed on this slide if you wanted to engage in virtual currency business activity that means any one of the following things if you're dealing with New York or a New York resident so if you're doing any one of these five things and any of your customers are in New York and perhaps consult your lawyer if you have business partners or other aspects of your business in New York relating to this you need a bit license the first thing is receiving virtual currency for transmission or transmitting virtual currency second, securing, storing, holding or maintaining custody or control of virtual currency on behalf of others this might cover something like wallet services or other sorts of things or perhaps exchanges buying and selling virtual currency as a customer business you can apparently buy and sell it for yourself but doing it as a customer business you need a bit license performing retail conversion services including conversion or exchange of fiat currency or other value into virtual currency conversion or exchange of virtual currency into fiat currency or the conversion or exchange of one form of virtual currency into another form of virtual currency so if you're trading virtual currency for fiat currency or virtual currency for virtual currency and finally controlling administering or issuing a virtual currency. If you're doing any one of those things in the state of New York or operating with a New York state resident, then you need to get a bit licensed from the New York Department of Financial Services if this regulation goes into effect. You would have to apply for a license. To apply for a license there's detailed language in the proposed regulation which you can read, but roughly speaking you have to provide information on the ownership of your enterprise on your finances and insurance, on your business plan generally to allow the Department of Financial Services to know who you are, how well back to you are, where your money comes from and what you're planning to do, you have to pay an application fee. You would have to pay. A licensee would have to do the following things once you had a license. You'd have to provide updated information to the Department of Financial Services about the things I talked about before, ownership, finances, insurance and so on. You'd have to provide periodic financial statements so they can keep track of how you're doing financially. You'd be required to maintain a financial reserve. The amount of that would be set by the Division of the Department of Financial Services based on various factors about your business, what's the nature of your business, how well financed it is, who it is, how big it is, etc., etc. The DFS would be able to set rules about that. There are detailed rules about things like how you would keep custody of consumer assets, their anti-money laundering rules which might or might not go beyond what's already required, there are rules related to cybersecurity, having a cybersecurity plan and penetration testing and so on. There are rules about disaster recovery. You have to have a disaster recovery plan that meets various certain criteria. There are rules about record keeping. You have to keep records and make them available to the DFS on certain circumstances for some length of time about certain kinds of activities. You have to designate a compliance officer, someone within your company, your organization who is in charge of compliance and has responsibility and authority to make compliance happen. You have to have written policies about compliance and about certain kinds of things that are satisfactory to the NYDFS. And there's a requirement that you disclose risks to consumers so that consumers understand what are the risks of doing business with you. The exact rules on that are not exactly clear at this point but you might imagine something like the sort of prospectus that comes along with a mutual fund or with a publicly traded stock. Perhaps that's what the DFS has in mind. So these are fairly substantial requirements for companies that have a bit license and anyone with a bit license would be required to do all this stuff. The state of the bit license proposal right now, the situation that it's in as of this filming which is August 2014, it has been proposed by the New York Department of Financial Services. It's been formally proposed. You can go read the document, the proposal at the URL that was on the earlier slide. The DFS has solicited public comments. They have asked members of the public to write in and give them comments about the proposal. Do you like it? Do you not like it? What's good? What's bad? What do you propose changed? And so on. They're gearing up to send comments to the NYDFS. After all the comments are in, in accordance with the normal regulatory process, the NYDFS will decide what to do. They'll decide whether to withdraw the proposed regulation, whether to issue it in modified form, whether to issue it in exactly the original form and along with that decision they'll issue some kind of a document that gives the rationale for deciding what they decided to do. Now various parties have asked the NYDFS to grant an extension on the original date for comments and NYDFS has signaled. They haven't definitively stated, but it seems pretty clear at this point that they're going to grant an extension. Because of that I don't currently know the date. I can't tell you the date by which you have to comment, but you can go and look at the NYDFS website to get the current status. If you're an interested party, by all means I would encourage you to comment. I would encourage you to get together with others and comment together. And I would advise you to make comments which are thoughtful and constructive and give the NYDFS reasoned arguments, comments of the sort of this is the coolest thing ever or you guys are total idiots, you don't know what you're doing, might make you feel good, but they're not going to affect what the NYDFS does. My prediction at the end of the day is that some kind of bit license is likely to be put in place by the NYDFS. Maybe it will be reduced from the scope or changed from what was originally proposed, but some kind of bit license, some kind of licensing regime which calls itself bit license I predict will be put in place by the New York Department of Financial Services. If this happens or if New York doesn't do it and somebody else does something similar, the result will be that if you want to do business in any of the business sectors that we talked about in the previous slide, you would need a bit license from the state of New York in order to operate. And if this goes into effect, this would really be a major step in the history of Bitcoin. You would have a situation where not only NYDFS, but perhaps other jurisdictions would start to step in and regulate and you'd start to see Bitcoin businesses get closer to the model of regulated financial institutions that traditional financial institutions have been in. This would be a step that really is in some ways contrary to some of the initial cyberpunk or cyber libertarian ideas about what Bitcoin was supposed to be. But in a very real sense, I think it's inevitable that as soon as Bitcoin became really valuable, that Bitcoin businesses became big businesses, that government got interested, it was more or less inevitable that regulation would ensue. Because Bitcoin businesses touch real people, because they touch the fiat currency economy, because Bitcoin is big enough to matter, government is paying attention and Bitcoin is getting regulated. This on the one hand represents a retreat from what the original advocates of Bitcoin had in mind. In another way, it represents the Bitcoin ecosystem growing up and integrating into the regular economy, which is much more regulated. Regardless of whether you like it or don't like it, this is a thing that's starting to happen, and if you're interested in starting a business in this area, you need to be paying attention to this trend. Will this be a success? Will it be good or bad? Well I think there's one barometer we can look to to understand whether a regulation like the BitLicense is actually successful from a public policy standpoint at improving the quality of Bitcoin businesses. And that's this. If something like BitLicense goes into effect, and if companies start advertising to customers outside New York that we have a BitLicense, therefore you can trust us. And if that argument that we're regulated therefore you can trust us is convincing to consumers. If consumers see regulation as a positive in choosing a company, then I think the regulation will be working in the way that its advocates wanted it to do. Whether that will happen and how this affects the future of Bitcoin is something that we'll have to wait and see.