Bitcoin Complaint to Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau issued a misinformed statement about the dangers of bitcoin other cryptocurrencies. The advisory was intended to instill fear and uncertainty about the new form of currency. Some of the inane statements include (italics ours):

• Exchange rates are volatile and costs unclear (stock market and broker fees? Exchanges typically charge a flat rate 0.2% fee or less, which is as clear as it gets.)
• Hackers and scammers pose serious security threats: Virtual currencies are targets for highly sophisticated hackers and scammers. Individuals, digital wallet providers, and exchanges are all at risk. (Bitcoin has already been tested and found secure. That is why individual companies like GOX that had not properly implemented bitcoin are touted instead of bitcoin as a technology being presented as flawed or insecure. Bitcoin can't be hacked by the US government, thus the attacks via advisories. Small hackers don't pose any risk. )
• Companies may not offer help or refunds for lost or stolen funds (How is this specific to cryptocurrency? Isn't this why some people shop at Nordstrom )

The press release did help destabilize the bitcoin market and millions of people lost money. It was enough to inspire a mocking complaint with the CFPB about the CFPB.  The complaint is tongue-in-cheek, but also attempts to make some basic points.

Describe what happened so we can understand the issue:

The Consumer Financial Protection Bureau released a press release that adversely affected millions of individuals and businesses by erroneously implying that cryptocurrencies are more risky than traditional currencies and credit cards. Thousands of volunteers have worked in the open source development community to bring this innovative and promising new technology to the public. At the macro level, cryptocurrencies will reduce or eliminate credit card fraud, reduce bank fees, lower small business costs and untie money from government corruption and bad monetary policy. At an individual level, exposing personal identity information and credit details to strangers over the internet, to be viewed, copied, stolen and abused is an unnecessary risk associated with all credit card transactions and is directly addressed by cryptocurrencies like bitcoin. 

Stifling this technology through government power will hinder the economy and needlessly contribute to the harm done to millions through identity theft and credit card fraud annually.

It is apparent that the government is putting power above the public interest and is preying upon the uninformed. This sort of misinformation campaign is used to instill FUD (fear, uncertainty and doubt) in competitors, innovative ideas, improved products and superior technologies. Using the power of government in this way is deeply disturbing.

Further, there is no form on their website to submit a complaint relating to bitcoin or other cryptocurrencies. The form only allows complaints about money transfers.

 What do you think would be a fair resolution to your issue?:

The CFPB can resolve this issue by releasing a press release explaining cryptocurrencies are more safe than credit cards and promise to end billions in credit card fraud annually. With
cryptocurrency, as with cash, consumers do not expose their the personal identity information, credit card number or PIN. This information is not transferred, processed, and stored and thus can't be stolen and abused by third parties. Credit card fraud, where not only personal identity of the owner is stolen, but also the credit card information is stolen with it, is rampant when purchasing goods and services. This incurs a financial barrier of compliance costs and liabilities on small business related to processing and storing credit card information. 

Large retailers are increasingly victims of data security breaches. Target had more than 1 million customer records stolen, including credit card information. Smaller retailers are less able to
prevent data security breaches.  A 2013 ITRC survey shows that 15.6% of all data breaches expose credit card information. http://www.idtheftcenter.org/ITRC-Surveys-Studies/2013-data-breaches.html  

Futher, the credit card system was designed in the 1960's and was never intended for use on the internet. The Internet is a public network where the transmitted data is easily visible to unknown third parties. Recent revelations that SSL (the security layer used on websites) was compromised by spy agencies adds another level of concern with regard to the use of credit cards over the internet.

Lastly, if someone somehow gains access to a cryptocurrency wallet, it is strongly password encrypted, unlike a credit cards or cash.

Feel free to use this text, or improve it and submit further mocking complaints with the CFPB: click here

p.s.
The fact that the US Government is the largest holder of bitcoin in the world, did not make it into this complaint.  Oops. Click here to see their wallet.

Government Strikes at Bitcoin Investors

Background

Bitcoin is a technology that allows for trade over the internet without the possibility of credit card fraud and without bank fees. Where credit cards were created for the pre-internet world and require account information to be traded, bitcoin is like cash. You pay someone Bitcoin, not your bitcoin account information. This is why bitcoin is a cryptocurrency.

This provides a lot of public good. People can buy from anywhere in the world without bank imposed fees or the worry that an unknown foreign company will steal their credit card information. Bitcoin users are also immune to things like bank account freezes or non-sufficient fund charges. Each bitcoin user has their own independent encrypted wallet. When combined with a long, strong pass-phrase (passwords are too short for effective security), bitcoin in a users wallet are more secure than money held in a bank account.

The government frowns upon bitcoin. Many governments oppose it, but not because bitcoin is evil. Governments use various rationalizations that boil down to the governments greed for power to control money. Bitcoin is money backed by mathematics, not governments.

Bitcoin is created in limited quantities, so it cannot be printed and artificially inflated. There is a fixed total amount of Bitcoin. Bitcoin must be "mined" which means computer algorithms reward people for cracking codes. The codes become harder the more computing power is thrown at bitcoin, so no one can make all the Bitcoin. There is also an element of randomness to ensure that little guys have a chance.

When laws are used against the public good, or to empower the powerful, we nerds call this "lawful evil". Slavery, fascism, communism are all examples of the law being used to enrich some at the expense of others. All governments are prone to the temptations of "lawful evil" because government is the concentration of power. Government can be looked at as the monopoly of the use of force. Which is why George Washington explained, "Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master."

The War on Bitcoin

The government really has no bigger role in the technology of bitcoin than it would in some foreign currency. As a matter of fact, we sometimes forget that the power to "regulate" was intended to promote trade by making it "more regular."  Bitcoin is self-regulating, it can't be stolen, hacked, monopolized or counterfeited. It is just a new currency of trade designed for the internet. Not only is there no need for government regulation of bitcoin, intervention doesn't serve the public good.

Regardless, the most powerful government in the world, The U.S. Government, has crafted a Machiavellian strategy to stop bitcoin.

Some of the earliest adopters of bitcoin were people trading drugs and other illegal items on a website called Silk Road, so the U.S. Government shut down the website. They seized 29,656 Bitcoin from the accounts users stored on the Silk Road servers (not held in their personal encrypted wallets). In the beginning, Bitcoin were only worth a few dollars, so this really wasn't much money. The operator of the site accumulated 144,000 Bitcoin through fees. These coins were also seized but were held in a secure wallet that the government could not access. The U.S. Marshals took the 29,656 bitcoin from the website's servers and the FBI took the 144,000 Bitcoin wallet from the proprietor, Ross Ulbricht aka “Dread Pirate Roberts".

We are not condoning illegal activity, but Bitcoin wasn't the problem with silk road. The U.S. Dollar is the actual currency of the drug trade and illegal activity. But, the U.S. government learned that Bitcoin was a threat to their income stream because they couldn't just seize cash and bank accounts. Instead they held an encrypted wallet they couldn't crack.

Civil Asset Forfeiture Law allows government agencies that seizes assets to then charge the assets with a crime and sell or use those assets themselves. Most Civil Asset Forfeitures are not associated with a criminal case. As a matter of fact, if you carry $10,000 in cash, it must be declared or it can just be seized. Unlike normal due process, you must then prove that the money is yours and how you earned it. There is no presumption of innocence.

"Cato Institute, a libertarian think-tank, found that 80% of people whose property was seized by the federal government were never charged with a crime. Forfeiture proceedings are brought not against people, but against property that law enforcement need only allege is connected to criminal activity."

When the government seized Bitcoin from Silk Road, some of the coins were being traded for legitimate goods, but it would be impossible for someone to fight on behalf of their Bitcoin as the Bitcoin would themselves be charged with money laundering due to the Silk Road system through Civil Asset Forfeiture.

However, because Bitcoin is now seen as a threat to the revenue stream of the government a strategy appears to have been developed to suppress the revolutionary technology.  The U.S. Government doesn't see Bitcoin as a threat to the dollar because the price of bitcoin would have to be above $4,600 to allow $1 trillion in transactions value to take place globally. At $500-600, bitcoin is just a nuisance for law enforcement asset seizures. So, the anti-bitcoin strategy appears to be aimed at minimizing this strategy by suppressing the price of bitcoin.

With this price suppression in mind, the first step is to declare the new currency a "capital or non-capital asset" or property through IRS Notice 2014-21.  Without this declaration, bitcoin would be reported as cash, and companies using bitcoin could trade dollars and Bitcoin and report them on the same part of the balance sheets to investors. By the IRS declaring it a capital asset, bitcoin focused companies will show weaker cash and current ratios than non-bitcoin companies.

Bitcoin companies would have to be big for cash ratios to matter, but Bitcoin seized by law enforcement also allows for a broader attack on the new cryptocurrency. Every company holding Bitcoin will show less assets if the price falls. This could affect their ability to get loans or new investors. So, today June 27th, 2014 is the first run at dumping thousands of bitcoin on the market at the end of a reporting period. The U.S. Marshals timed their 29,656 bitcoin auction to coincide with the end of the 2nd quarter for reporting purposes.

The auction will sell Bitcoin in blocks of 3,000 and requires a $200,000 deposit. This will keep small investors out of the auction and ensure that companies with reporting requirements, public or private, buy the coins. These companies will then have to sell a portion of the coins within the next three days, June 30th, or show a hit to their cash balances.

The Bitcoin sold at discount at auction will then in-turn drive down the market price due to the immediate sales. This reduces the capital assets of every other company with Bitcoin that reports on June 30th as the end of the second fiscal quarter. (Most corporations use year end as their fiscal year end.)

This hit to bitcoin related companies will discourage additional investment, make financing more difficult and allow for the lapdog media to push a narrative headline that bitcoin is failing.

If this strategy works, the remaining 144,000 FBI seized Bitcoin will follow the same strategy. They would be auctioned in blocks just before the end of the next several fiscal quarters.

(The government eventually was given access to the seized Bitcoin after convincing the Silk Road proprietor that they were going to crash the price and that he needed to cash out.)

A New Hope

There is one hitch in this strategy. Bitcoin is not the only cryptocurrency. The second leading currency is called Litecoin. It is newer than bitcoin, transactions are faster, there are more coins, the coins are still only around $10 and the coins are more easily mined by small players due to a newer algorithm called "scrypt." Many exchanges allow for Bitcoin to be directly traded for Litecoin, so companies with Bitcoin can move to Litecoin instead of suffering losses to their balance sheets during the Auctions/dumps.

Due to this flaw in the anti-bitcoin strategy, government agents have had to contend with the #MoveToLiteCoin movement. They primarily must resort to insults and personal attacks otherwise known as FUD (Fear, Uncertainty and Doubt) on proponents of #MoveToLiteCoin to discourage others from joining the movement. In the end, they don't have enough seized LiteCoin to suppress the market.

Shortly after our first report on #MoveToLiteCoin, someone traded 1600 Bitcoin for Litecoin. Last night nearly 100,000 of these were dumped on the market with almost no effect. If this was the government's attempt at stopping Litecoin in order to further their anti-bitcoin strategy, the U.S. Government can't stop Bitcoin.

We expect to see Bitcoin prices to fall through June 30th and Litecoin prices to rise. After the U.S. Marshals Bitcoin dump is over the media will run press release driven stories on "Bitcoin's crash." Review both Bitcoin and Litecoin prices to prove that Bitcoin is just too flexible to stop due to its alternative cryptocurrency partners. Even if Bitcoin prices fall, watch as Bitcoin quickly rebounds as investors return from their #MoveToLiteCoin.

#MoveToLiteCoin #DefundTheFeds Bitcoin Response to Silk Road Auction

The Bitcoin community is responding to the auction of seized Silk Road coins by moving money into LiteCoin and other alternative coins. The government agencies selling seized coins are seen to be "dumping" them on the market in an effort to suppress the internet currency and it is has sparked outrage.  Instead of allowing the government agencies to profit, the community is taking action by moving money via exchanges around the world. The money is being put into so-called "alt coins", led by the second largest cryptocurrency, LiteCoin.

Thus far the Bitcoin fell from $648.89 to $560, with a rebound to $589 as of posting of this article. If this campaign takes hold you might expect further reductions in price, accompanied by increases in LiteCoin and other cryptocurrencies.

Social media hubs like twitter and reddit, alongside bitcoin community forums and exchange chat areas are being used to organize the movement. Hashtags include:

#MoveToLiteCoin
#DefundTheFeds
#SideStepTheDump
#MoveToLTC
#MoveToNMC
#MoveToDOGE

Background

U.S. Civil Asset forfeiture law allows departments that seize cash and other assets to use it for various expenses. This is incentive for the law enforcement agencies to sell assets or spend seized cash, but without the rigor of traditional due process.  For instance, if you are a U.S. citizen carrying $10,000 in cash, it must be declared or it is subject to seizure. If seized, you must prove that it is yours and how you earned it. The legal system may not be impartial in the process because it can use the cash.

"80% of people whose property was seized by the federal government were never charged with a crime. Forfeiture proceedings are brought not against people, but against property that law enforcement need only allege is connected to criminal activity. "

Silk Road bitcoins were seized by the U.S. Marshals Service from servers and 29,656 ($17,793,600) are to be auctioned. These coins are to be sold on June 27th over a 12-hour period to anyone willing to put up $200,000 as a deposit. Additionally, 144,341 ($86,604,600) bitcoins were seized from "Dread Pirate Roberts" or Ross William Ulbricht, the operator of Silk Road. Until recently, these coins were not available for law enforcement to sell on the market because they were unable to crack the encrypted password protection. Bitcoin proponents have pointed to this as proof that bitcoin is more secure than assets held in banks. Mr. Ulbricht apparently gave up this password as the coins have recently been moved into a new wallet.

All bitcoin transactions are tracked automatically via the blockchain, so we can view the two accounts which held the Silk Road seized coins. DPR Seized Coins were moved to DPR Seized Coins 2 on July 12, 2014 in an apparent "shot over the bow" of the bitcoin community by the U.S. Government.  Unfortunately the bureaucrats failed to realized that this warning shot might have consequences.

Money for fleets of shiny new government vehicles, huge salary bonuses and bloated expense accounts may now evaporate when the government attempts to cash in.  Undoubtedly, some government social media workers will then begin pushing a narrative that bitcoin is "unstable" as they did after someone sold down the price of bitcoin to $102, likely due to a trading glitch.  However, the price rebounded in minutes after that incident, which is not widely reported. The #MoveToLiteCoin campaign intends for the price of bitcoin to resume it's epic rise when the alt coin money returns.

Some of the coins being used as repositories of crypto-wealth include: Litecoin, NameCoin, DogeCoin

When To Buy Bitcoin

Recently Overstock, Tiger Direct and many other online retailers have begun accepting the secure internet money known as Bitcoin (BTC or #). Bitcoin cannot be hacked like credit cards because you pay directly with encrypted money instead of entrusting others with credit card account information. It is more like using cash instead of a credit card which limits your vulnerability.

Merchants love Bitcoin for many reasons. There are less transaction fees involved with Bitcoin and unlike insecure credit cards, Bitcoin was designed for use on the internet. That means retailers like Walmart can use Bitcoin securely to purchase goods from anywhere in the world without wire fees and without exchange rate risk.

So, when should you purchase Bitcoin?

The answer is a couple days after a major retailer begins accepting purchases via Bitcoin.

The reason for this is controversial, but allow me to explain.  When a merchant accepts BTC for the first time, they have to get those sales into their accounting system as dollars, so they sell their new coins. Eventually, the merchant will stop selling all their coins as they work out how to use the new currency to their own advantage in international purchases.  In the short term, however, all the purchases against a new retail merchant are effectively a massive dump of coins on the BTC exchanges (aka stock market).

This massive dump of BTC onto the exchange is not met immediately with new demand for BTC because the merchants customers probably do not know how or where to buy BTC. It takes a few days for their accounts to be set up and the US Government and China make it as hard as possible to buy Bitcoin. (They have to protect their printing press money power against a currency backed by math and nerds and they are scared.)

In the next few days or maybe weeks new users begin to buy Bitcoins to shop securely online at the new merchant and the price rises. Here is the market movement as TigerDirect began accepting Bitcoin. Tiger Direct has a lot of users who own Bitcoin because they sell Advanced Micro Device (AMD) based computer hardware used to "mine" Bitcoins.

Other retailers have less BTC wealthy users, and speculation sometimes drives the price up, for instance Google China might sell ads in Bitcoin, but that would not drive large purchases via Bitcoin. Amazon is another example of a merchant who would temporarily drive BTC prices down after adoption. Walmart would be a difficult call.

Overstock.com reportedly had $130,000 in Bitcoin sales on their first day accepting the currency. So, you can imagine that even a fraction of that volume would push down Bitcoin prices as coin holders are replaced with a massive coin seller.

To wrap up, anytime Bitcoin dips below $800 per coin, it is a bargain. Bank of America released a report estimating the value of a Bitcoin at $1300. These bargains can be found immediately after a large adoption by a merchant who appeals to online consumers. Go get your account ready and jump in on the next big dip. Maybe $750 will buy you $1300 worth of "stuff" and that is a good deal!

Get Bit, The Bitcoin Market

There is a debate in the financial world as to the value of digital (or crypto) currencies. Bank of America recently stated they "could become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers" and assigned a fair value of $1300 per bitcoin. On the other side, critics argue, "It’s a complete joke.  Even a crappy currency has government taxing ability behind it, or some sort of a standing army or something like that." My opinion is that crypto currencies are a revolutionary idea that provides an alternative to fiat currencies (dollars) and precious metals.

The two major online currencies are Bitcoin and LiteCoin. Neither are backed by governments, but instead are generated by deciphering encrypted keys. Each "coin block" found makes the next more difficult to find through increasingly difficult encryption. The code that generates this currency is completely open source which ensures there are no back doors or cheating. Solving these encrypted codes is known as "mining." The coins mined are then traded for goods and services or other currencies. The coins have value for the same reason the US dollar or other currencies have value. People assign them value.

What are the mayor differences between fiat currencies like dollars and crypto currencies?

• There are no governments involved to inflate and manipulate the value of crytpo currencies. 
• Most crypto currencies have an absolute limit in quantity, so they can't be printed. 
• There is an equal opportunity to find or "mine" for crypto currencies with free software.
• Very few transaction fees, no wire fees and quick transactions. 
• The exchange of coins is a completely free market with major players (like coinbase) helping users move money between fiat currencies and crypto currencies.
• You can save your crypto currencies in a file with backups and encryption known as a "wallet" instead of a bank.

Bitcoin Exchange

The value of crypto currencies is mostly determined on exchanges, like other currency exchanges. There are dozens of crypto currencies, some are created as college projects and others by enthusiasts. Most can be exchanged for bitcoins, the dominant player. For instance, the video game Second Life uses Lindon Dollars to transact within the game. An exchange called Virwox allows the purchase of Lindon Dollars and the exchange between bitcoins and Lindons. This is one of the more expensive ways to purchase Bitcoin due to the number of transaction fees.

Where as most crypto currencies have little value, Bitcoin is essentially the gold of cryptos. Litecoin is the silver of crypto currency. You can see this relationship in the markets, with Litecoin slightly above the value of silver and Bitcoin slightly below the value of gold. It is a safe bet that many people are diversifying away from precious metals into cryptos due to recent market manipulation by central banks.

The exchanges are mostly completely free markets with little or no regulation or manipulation by governments. As such people have begun to speculate in the markets as an alternative to stocks or slow moving precious metals. The result is an explosion of wealth creation for both bitcoins and litecoins.

Litecoin Exchange

If you read candlestick charts and indicators, there may be a place for you in the exchanges. If you don't, you can "mine" for crypto currencies like a old-timey gold prospector. You could also buy crytpo currencies while they are cheap as Christmas presents for family members who are always on their smartphone.

As a Christmas present, there is a growing number of markets and apps that accept bitcoin and litecoin. SpendBitcoins and UseLiteCoin are incomplete lists of places where the digital currency is accepted. You will mostly find tech related goods and services.

Right now the risk of holding bitcoin as a currency is about the same as holding currency from Cuba or Zimbabwe based on the market cap of $11,023,236,650. As you can see in the above charts, that market cap is rising fast. As of writing this article, one bitcoin is $840 and a litecoin is $30.50. This is definitely something to look into for yourself.

(Click on some of my article's logos to buy tshirts and spread the word.)

Notes

Basic Information

• Add bitcoin payments instantly to almost any webpage
• How the Bitcoin Protocol actually works
• List of Bitcoin Exchanges
• Get a Bitcoin Wallet (free)
• HOW TO BUY BITCOIN, LITECOIN, AND DOGECOIN

Government vs We The People

• Reuters: U.S. Treasury cautions Bitcoin businesses on legal duties
• China Bans Financial Companies From Bitcoin Transactions