Well, my own submission just got [dead]ed --no indication as to why-- but I'll paste my comment here as well:
I know very little about Bitcoin or money transmission laws. Unlike other currencies it does not seem to have fundamental dependence on any centralized arbiter, though the practicalities of large exchanges like Mt. Gox seem apparent to me. That lack of dependence on a Fed-like body appears to me like its biggest advantage, above any other potential for anonymous payment and laundering. I'd like to know what exactly is entailed in becoming compliant with money transmitting and laundering regulations and whether Bitcoin in its current form could become effectively compliant. Is that even a meaningful concept, or does the structure of Bitcoin fundamentally preclude coming into effective compliance?
Financial regulations have little do to with the Fed. They apply to transactions in money, not money itself. It doesn't matter whether the transactions are denominated in USD or Euros, and now apparently Bitcoin.
It's not meaningful to ask whether Bitcoin could become compliant. Bitcoin exchanges and processors could become compliant. This means having in place systems to detect money laundering, etc. it might be even easier in Bitcoin, given how much transaction state is stored in a distributed fashion forever.
> whether Bitcoin in its current form could become effectively compliant
Why couldn't it be? The entire transaction history of a wallet is preserved into the future. As soon as you correlate a BitCoin wallet with a person, you have their entire history with that wallet. It seems more like a government's wet dream than anything else.
ehm, no. you can create brand new wallet for each transaction and wallet on its own is not connected to your real identity in any way. it's more like government's worst nightmare.
As I understand it, if you want to receive bitcoins with wallet A and send those same bitcoins with wallet B, you would need to transfer said bitcoins from wallet A to B. And each transfer is recorded in the blockchain.
This is correct. However, it is difficult to prove that A and B (or perhaps every wallet in some long chain) are owned by the same person, especially if everyone has a large number of wallets and doesn't reuse them when they are empty.
Let's say the blockcoin shows a transfer of 1 BTC to a new wallet A, and then to a new wallet B, and then from B to a wallet owned by a registered BTC-USD exchange C; to comply with government regulations and protect themselves against fraud, C checks the ID of the owner of the wallet B. A government can now determine the identity of B (and might even force C to provide the information on all transactions in real time, so they know who B is even without an investigation), but they cannot automatically infer the identity of A. There are two possibilities: Perhaps A is owned by a different person, who earned BitCoin for doing some work, and then purchased another service from B. Or perhaps A and B are owned by the same person.
In reality, this might not be the only piece of information available, and governments will probably want to use statistical techniques to estimate the probability that a particular address is owned by a particular person, combining all evidence. They will likely take into account all points where money comes into or leaves a wallet with known identity (e.g. in USD -> BTC transactions or BTC -> USD transactions), and the structure of the network between those transactions. For example, suppose wallet A, B, and C are known to be owned by the same person, and someone moves money from all those wallets into wallet D. Then governments will probably infer that D is owned, with high probability, by the same person as wallet D (because multiple low probability pieces of evidence can combine to give a higher probability). Of course, the transactions are not independent, because the owner of A, B, and C might just be a regular customer of D - timing evidence might be taken into account, along with other evidence about the identity of D (for example, does D only receive money from the owner of A, B, and C, or from other sources? Where does the money go after that)?
> but they cannot automatically infer the identity of A.
They can certainly walk up the tree though, which is impossible with cash but extraordinarily easy with BTC. In this case B could have a tax bill to pay unless they can prove otherwise.
It sounds like you're talking about extremely trivial money laundering; while it might have caused some confusion a century ago when the Mafia started doing it, modern tax authorities deal with a hell of a lot worse.
The government doesn't want anything with the currency. It couldn't care less. The government is concerned with the businesses that transmit or transact the currency.
Money transmittal laws vary from state to state and country to country. The exact requirements thus depend on the very specific circumstances of the business at issue.
"I'd like to know what exactly is entailed in becoming compliant with money transmitting and laundering regulations."
This. Someone with more understanding of financial regulation, please step in and explain what it is the government would actually want from the currency. This sounds scary to some extent but there's no real reason that it needs to be. I assume it is to enforce real-world identities at the USD/BTC exchange point.
I know very little about Bitcoin or money transmission laws. Unlike other currencies it does not seem to have fundamental dependence on any centralized arbiter, though the practicalities of large exchanges like Mt. Gox seem apparent to me. That lack of dependence on a Fed-like body appears to me like its biggest advantage, above any other potential for anonymous payment and laundering. I'd like to know what exactly is entailed in becoming compliant with money transmitting and laundering regulations and whether Bitcoin in its current form could become effectively compliant. Is that even a meaningful concept, or does the structure of Bitcoin fundamentally preclude coming into effective compliance?
[dead]ed submission: https://news.ycombinator.com/item?id=6201643