Two Ways the Bitcoin “Crackdown” Could End

crypto currencies bitcoinI read a story recently about a group of dandies who want to “help regulate Bitcoin, for its own good.” The thing about these guys is that they don’t really care about Bitcoin as a beautiful, disruptive technology or even for the great benefit it brings to mankind. Instead, they see Bitcoin as their ticket into the halls of the elite.

These people are not the agents of a new age. Rather, they’re trying to get into the upper levels of the old, hierarchical system.

When Charlie Shrem of BitInstant was arrested, these people jumped in on the side of the ruling elite, saying things like:

We were only passive investors in BitInstant, and we’ll do everything we can to help law enforcement. We fully support any and all governmental efforts. We want to ensure that money laundering requirements are enforced, and look forward to clear regulation being implemented on the purchase and sale of bitcoins.

First of all, none of these people – Bitcoin investors or government regulators – care anything about money laundering. When HSBC and Wachovia were caught red-handed, laundering hundreds of billions of dollars for violent drug cartels, no one was arrested. No one even lost their job! This talk about money laundering is nothing but theater for suckers.

Yet now, after holding no one accountable for laundering half a trillion dollars for the cartels, they found themselves with a chance to hurt Bitcoin – over a few million dollars of drug sales to peaceful users. So, they sent their goons to arrest poor Charlie Shrem (very publicly), who was positioned a full two steps away from the drug transactions in question.

And then, these elite wannabes – supposedly pro-Bitcoin – sucked up to the hypocritical ‘enforcers’ with everything they had. And I quote:

There are certainly a handful of folks that are hardcore libertarians (some anarchists) that believe that bitcoin should be completely unregulated, but I believe they are in the minority and, as a percentage of bitcoin believers, is shrinking very quickly.

In other words, “Please don’t think of us as anything but your faithful companions, our overlords.” It’s disgusting.

New or Old?

The people who are grasping for prestige from the old system are making themselves enemies of the new. This is not about money, you understand – the people I’m talking about are already wealthy. This is about their desire to stand in the highest levels of the ruling hierarchy. Once their heart has gone there, anything that threatens the old system threatens them, and they will end up fighting it.

What these people are trying to do, as best I can tell, is to form a new “smart wing” of the hierarchical elite, then to enlighten the world from that position. It seems like they still imagine themselves to be libertarians. But to get their new “smart wing of the elite” way, they have to minimize, discourage, or fight the authentic new way.

In an email, one of these dandies said that the crypto-anarchists who dominated Bitcoin were “getting left behind.” In fact, however, I think the truth will be just the opposite.

Cryptocurrencies Will Survive; Fiat Currencies Will Not

It may seem very flamboyant of me to say that the dollar, the pound, the yen, the euro, and all the others are doomed, but it’s quite a very safe comment to make. Every fiat currency has crashed and burnt within a century or two, with no exceptions that I can point to. They’re all built upon a flawed model, and they all eventually go away.

Government money requires a large number of accountants, apologists, promoters, cooperative bankers, and supplemental players. It also requires violence – forcing people to use it. That is the essence of “legal tender” laws. If people don’t use the mandated currency, violence is applied.

Cryptocurrencies, on the other hand, are based upon mathematics, something that will never go away. Beyond that, all that’s necessary are computers (which don’t seem in any danger of going away) and people who wish to make money by running them. This desire to make money is also rather unlikely to vanish.

So, on the one hand we have government money – a complex, expensive system that requires violence in order to survive. On the other, we have cryptocurrency, a distributed system that operates just fine on a completely voluntary basis.

As a practical matter, cryptocurrencies are more durable and more profitable for more people.

The War on Cryptocurrencies

Make no mistake: “Team Violence Money” is making war on “Team Voluntary Money.” Those of the old way either want to turn Bitcoin into a tool of their system or simply to kill it outright. Here is how those scenarios will likely play out:

The old way captures Bitcoin:

If the wannabe elites get their way, they will turn Bitcoin into a decentralized version of PayPal – a currency that requires full customer information in order to use. A fully controlled currency.

But if that happens (and it looks like it will take some time), there will still be a Bitcoin underground. Black-market Bitcoin will find a variety of ways to thrive beneath official Bitcoin.

The old way kills Bitcoin:

If the old way decides to use a lot of actual and coordinated violence, they may disrupt the Bitcoin market badly. They will have to do this more or less worldwide, which will not be easy – but if they cage enough people, they can probably pull it off.

There are electronic-based ways of hurting Bitcoin badly, but these will succeed only if Bitcoin users choose not to adapt.

That said, if Team Violence Money goes full Stalin, the weak and the cowardly will flee Bitcoin. The brave and the desperate will continue, of course, but Bitcoin will remain a shadow of its former self.

But even if that does happen, the idea of cryptocurrency will remain, and new currencies will keep popping up.

Why? Because the genie is out of the bottle. At this point, anyone who has paid any attention knows that cryptocryptocurrencies work. That will never again be in doubt while history is recorded.

Furthermore, creating new cryptocurrencies is almost trivial. And since mining these currencies can be highly profitable, there will be no shortage of hungry boys and girls willing to take a little risk.

In order to keep their fiat money systems intact, the operators of the old way will have to keep people very confused while making sure they never get interested in questions of truth or morality. Because if they do – and if they ever examine violence-based money – they will rebel against it.

So, even if they seem to win, the old way will never truly get past cryptocurrencies.

Cryptocurrencies are here to stay.

Paul Rosenberg

16 thoughts on “Two Ways the Bitcoin “Crackdown” Could End”

  1. Good analysis. I’d like to know the names of those sell-out slime-balls whose kiss-ass frothing you quote above. Dang, people, have you no self-respect at ALL?

  2. Spot on analysis and great commentary. The fiat money thugs are among the most vicious and destructive people one could imagine. Rest assured that the pseudo-libertarians who support regulations are good little tax slaves too. Anarchists? Never!

  3. My friend Paul,

    I hear echos of St. Paul the apostle in your words! He told Timothy “The love of silver is the root of all kinds of evil.” In context, he of course describes all the grasping for
    power and possessions that mankind is prone to, and the tendency to allow such desires to divert us from moral behavior.

    We of course also *do* see plenty evil activity sprung up around Bitcoin. All functional currencies are really representations of the core source of wealth, human capital. All fiscal criminals, whether the state, or immoral individuals, seek to *take* unearned capital by force or fraud. Hence the unfortunately successful attempts to steal by double-spending Bitcoin, wallet thefts, scams, etc., etc.

    However, crypto-currencies generically are still *far more* noble than your average monopoly fiats, because of the “God factor.” They are at least honest in that, as you have observed, they are founded in the mathematics which God has built into the very fabric of the universe. I love it that math cannot be legislated away! 🙂 🙂 🙂 Inherently honest weights and measures! Honest by design!

    Thanks for another of your *consistently excellent* articles! 🙂

  4. I’ve been to a couple of major Bitcoin conferences recently and would like to add a few points.

    First, regarding the supposed “Pro Bitcoin regulation group”, I think the author mis-characterizes them as “sell outs”. Many new Bitcoin startups are involved in exchanging fiat currency for Bitcoin, and in order for Bitcoin to become mainstream, we need an easy way to exchange our fiat for Bitcoin. To assume governments would allow this activity without regulation is absurd, and to assume that entrepreneurs would risk going to jail just to make a statement as an activist toward freedom is equally absurd.

    It’s one thing to be the arm chair activist and complain about those who willingly comply with regulators and kiss their ass, when it’s not YOUR ass on the line. If the author were taking any regulatory risk posting this blog, he might sing a different tune. As much as we might disagree with the law, most legitimate business people and consumers have no desire to skirt the law and risk their livelihoods for a cause. If successful, Bitcoin will create a new paradigm that is fully legal, and in doing so regulators will perhaps unknowingly contribute to the demise of the current financial system which is the end goal of most of us Bitcoiners.

    Entrepreneurs who are taking real risks trying to bring Bitcoin into the mainstream should be applauded and forgiven for willingly complying with regulators since they still have the power to make arrests, per Charlie Shrem. Bloggers sitting on the sidelines have no right to criticize law abiding business people. Most of us Bitcoiners recognize that regulation will be a necessary evil in the short term and recognition of this fact does not make us sell outs.

    That said, the author is correct that new crypto currencies will emerge and indeed there are new crypto currencies already available that attempt to completely obscure identity and protect privacy. Those who choose to remain anonymous with their crypto currency will be given options to do so, but the idea that we should all be anonymous to me is not realistic nor even desirable.

    Finally, there is a bill in the California legislature that would effectively make Bitcoin and other crypto currencies “lawful money” (see article on and would include things like air miles, coupons and other forms of currency as “not an illegal means of exchange” so while they would not be legal tender they would not be illegal either. This bill passed the early rounds of voting by unanimous decision and could spearhead Federal regulations of a similar format that might then permeate other nations as well. Private business people and venture capitalists (such as those who are pandering to regulators and supposedly selling us out) should be applauded as they are the ones who are pressuring regulators to acknowledge Bitcoin so entrepreneurs can build out the eco-system without risk of prison.

    Most “freedom fighters” seem to think that solutions to our corrupt society cannot happen seamlessly, so they instead pray for a complete collapse and operate on the fringe in the meantime. I, for one, would support a means to move gradually to a world of decentralized money and commerce that undermines the powers that be, but it need not require a physical confrontation, violent revolution, nor operating on the fringe of the law, but rather entail a frank discussion with the existing system masters, some of whom are more open minded than one might think.

    It’s one thing to bitch about the way things are and criticize anyone who works within the status quo from the comfort of your own VPN, it’s another thing to dig in and find solutions that accept the reality of our current situation, by dealing with lawmakers in a reasonable manner, and using the power of private business as leverage toward the groundbreaking changes we truly wish to make.

    1. Brief comments, Michael:

      1. I never said this applied to everyone. It’s a confused world out there.

      2. I don’t know what it’s like to put my ass on the line??? That’s a mighty big accusation to throw at someone you don’t know. I’ve put my ass on the line more times than I can easily remember. How about asking questions before you hurl insults?

      3. “Legal” is 100% controlled by the corrupt political class. (Insert Thomas Jefferson quote.) Moral is what matters, and sucking up to violence-based power isn’t it.

      4. I do not advocate either changing the system or destroying it. I advocate leaving it behind and building an honest, ethical world. All who fight or forbid that are tyrants, regardless of the smoothness of their words.

      1. My response point by point…

        1. OK.

        2. Read my statement more carefully, never said you didn’t know what it is like to put your ass on the line, only that in this instance, it might change your perspective if your was.

        3. There is a difference between sucking up (or refusing to) and collaborating. A confrontational attitude toward government or any “group” is not the solution. If you think about it, sucking up (or refusing to) implies arrogance and superiority by one or the other party.

        4. A good idea, but there has to be a transitional phase. Why don’t you describe what that transition “looks like” in reality? Does it involve a US Dollar collapse where those with the gold and guns remake the system, or, does it involve Bitcoin infiltrating into the financial system slowly but surely until the old system is no longer, or, do you forsee some other event that will move the masses from their tvs and debt enslavement? Just how will we leave the current system “behind?”

        1. “Why don’t you describe what that transition “looks like” in reality?”

          Ah, yes, I’ve played this game before, so I’ll start with this: I don’t have to answer every objection before living by my morality.

          THE TRANSITION IS NOT MY PROBLEM TO SOLVE. I have thoughts, of course, but the problems of transition will be solved by thousands of people all acting on their own. They will not be solved by one master strategist – that model leads right back to servitude.

    2. Most of us Bitcoiners recognize that regulation will be a necessary evil in the short term and recognition of this fact does not make us sell outs.

      Yes it does. You, and those who think like you, are Exhibit A in what is wrong in the Bitcoin world, and in the world in general. Frightened little sycophants who run to serve their Masters at every opportunity and attempt to chastise those who don’t. Thank God when I look in the mirror I don’t see your face!

  5. That term, “full Stalin” describes such activites fairly well.

    In all probability, “full Stalin” is embedded in a lot of unneeded and unwanted regulations. And what else is old?

  6. You’ve probably read Gary North’s comments on the demise of Mt. Gox. He’s thinking in terms of the currency system as a whole. Alternative currencies are meant to be media of exchange for alternative communities. They’re not meant to be alternative investments prone to the ups and downs on the Forex and other currency exchange markets. These currencies exist to facilitate barter. That’s really all they’re meant do. Bitcoin, too, strikes me as a fiat currency albeit a digital one. That’s not a criticism. What backs Bitcoin and its surrogates other than trust?

    You note, “If people don’t use the mandated currency, violence is applied.” Our Federal Reserve notes are “legal tender for all debts public and private,” but no one is forced to accept them in payment of debt. If you’re in debt to me and I offer to pay the debt in Federal Reserve currency and you refuse to accept it, the debt, legally, is cancelled. A nice distinction, true. But if the debt isn’t denominated in money, the debt isn’t necessarily cancelled. You may have an action for specific performance resulting from breach of contract if the debt isn’t paid in the way you’ve both specified. So far anyway. Who knows what courts will ultimately do.

    The point is that alternative currencies are not meant to be speculative investments. They’re media of exchange among those who are able to or who are forced, by circumstance, to operate independently of government interference: small, quiet, out of the way people and communities too insignificant to bother co-opting or destroying.

    1. I do wish people would stop using the word “fiat”, which means by order of the government, for “not actually backed by gold” or some such (which conventional currencies aren’t either, so why even bother mentioning it?)

  7. Let the Winklevoss brothers do what they want. If bitcoins become regulated I will simply move to an alt crypto currency that is not. As will many others, leaving the value of bitcoin near zero. As with all currencies, faith is required. Bring the guns, lose the faith, lose the currency.

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