Semantics are the human window into the language of thought.
The existing financial terms are in place as ideals and generally accepted principles that businesses are supposed to know and abide by in order to provide consumer protection. The proposed BitLicense by the NYDFS is a perfect example of where existing financial terms overlook the capabilities of blockchain technology. The businesses and customers involved in “Virtual Currency Business Activities” do in fact need to be protected. However, the proposed rules and regulations in Part 200 Virtual Currencies will undoubtedly stifle innovation and the proposal completely ignores the underlying applications and functions of this new blockchain technology. In an effort to classify this technology with existing terms, the IRS classifies Bitcoin as an asset however FinCEN classifies companies in this space as money transmitters. So which one is it? How would you describe Bitcoin? A digital currency|commodity|network that enables the digital transfer and store of value over the internet? How would you describe the Internet? Really what is the Internet? A global network that enables transfer of bits of data? A digital medium that facilitates connection and communication?
The value in bitcoin and blockchain technology is in its transparent and equal cryptography nature. Application Programming Interfaces (APIs) with the blockchain’s and sidechains will create an unlimited range of financial tools and protective measures for consumers and businesses to:
- ensure compliance with domestic and international laws, rules, and regulations.
- augment the ability for anti-fraud, anti-money laundering, cyber security, and counter-terrorism finance.
- protect consumers from privacy and information security events, fiat insolvency and ultimately financial instability.
Bitcoin calls the bluff of the existing financial terms. Software built on top of Blockchain technology does not allow default. The third party needed in so many of our trust based models is replaced by code. The escrow is software built in the form of mathematically bound hedges. Multi-signature cryptographic keys predetermine outputs based upon met or unmet inputs. The blockchain provides a perpetual and irreversible universal balance sheet with the most recent time stamped state of ownership. This universal ledger and medium of exchange is a digitally stored value technology that will bring everyone and everything on the same financial grid.
The existing lexicon doesn’t seem fit. We understand entities in terms of four things:
- who or what brought it about
- what it’s made of
- what shape it has
- what it’s for
There is this idea to get across; a huge, complex idea that value can be transferred as fast as bits of data travel over the internet. There is this narrative. It’s an unwritten script. It’s a public ledger. A universal digital ledger. Mathematically open for anyone to build on top of. The API for transferring assets without a trusted third party. There will only be 21 million coins and these coins are divisible down to 8 decimal places, 2.1 quadrillion units. It is radical, the network is universal. It augments the ability to check, store, and transfer value; human or machine.
The wordsmith, Satoshi Nakamoto, coined the word in a way so that other’s could relate it to what they already know. Language evokes meaning, it is what we use to form the metaphors that bring literal meaning from one dimension to the next . The correct word choice means everything.
Bit = Byte = Data –> Transfer Data over the Internet
Coin = Currency = Exchange –> Transfer of Value
To ease the listeners understanding of the coinage, we create a metaphor that reminds them of the idea and hopes it evokes a similar idea in their mind. Then at some point, the metaphorical ladder is kicked it out, and it just is. At this point everyone agrees on and understands what you mean. Right now, we are just relating it to things we know already know, to be able to understand what it is, when really, what it actually is, is something much more profound than that. So if the listener comes from a financial background then you own shares and that mining is like doing the accounting. If they come from a computational background you talk about the merkel trees.
If someone asked you “What is the Internet?” You would respond, what do you mean what is the Internet, it just is.
If someone today said “I am going to start an Internet company”, it would sound also sound redundant. Information technology has really almost upended the meaning of tech as a whole. “What type of internet company”, you would ask. This will be analogous for fintech companies in the next 20 years, they won’t be saying I am starting a Bitcoin company, it will be something built on top of the Bitcoin network and technology, similar to all of the huge venture backed companies built on top of the internet.
Nevertheless, right now the lexicon we use when dealing with Bitcoin is the difference between riches and jail.
I am mining Bitcoin and then I can use the Bitcoin in an app called Gyft to buy a giftcard to Amazon.com and redeem it online when at check out when I want to buy something. I am printing out a digital currency that I can use to purchase gift cards and then use these gift cards to buy things on the internet. In existing financial terms it, kinda sounds like counter-fitting and money laundering.
Here’s another example:
“A crowdsale of digital tokens” is a lot different then “Initial coin offerings”
One sounds like kickstarter, the other sounds like unregistered securities offerings.
There is this block between what we know we can use Bitcoin for and what this technology has everyone excited about. Yeah we know, we can send an unlimited amount of money to anyone, anywhere with a bitcoin wallet. But this already exists, Bitcoin just makes it much more efficient. But then you take the block chain, the universal ledger that allows for trust-less transactions, an irreversible history of every transaction, and a exponentially growing network; and there is this whole new unknown realm of applications. It is a true technological advancement. People following this are becoming more cognizant of this. People dismissing it still see a fake internet currency. The conventions and abstractions that we are trying to imagine will be the Facebook, the Google, the Twitter, the Amazon, that are going to be created on top of Bitcoin. Why should the businesses that are building the wallets, exchanges, and financial tools that are laying down the foundation for these abstractions be subject to this kind such a strict regulatory environment? How could these regulations affect our advancement if the proposal is used as a guide for future legislation in the United States?
There is this need for a new payment system. Creditcards were not made for the internet. Look at the huge corporate security breaches at Home Depot, Target, and JP Morgan. Information that leads to identity, such as name, physical address, and card numbers all compromised.
The existing terms fall short of the potential of the underlying Blockchain technology of Bitcoin. The recent FinCEN update suggest that all companies in this space are money transmitters when the use cases for decentralized Blockchain technology go far beyond just money. They need to trust the trust-less network and what it is backed by. As Galileo once said, ” Our Universe is a “grand book” written in the language of mathematics.” Bitcoin is the next chapter, waiting to be written.
- If you are going to build a Bitcoin business do not have it involve the transmission of money
- If you are going to, get a money transmission license. (Federal and State Laws)
- Apply for a bank account
- KNC and anti-money laundering reporting is a necessity
- Use the right vocabulary and make it well documented
- Find someone with a talent for cooperation