This essay first appeared at SilentVault.com.

The people who want bitcoin and similar currencies to be regulated by the New York state authorities which regulate financial activities in that state are going to get their wish. It seems like they are “really asking for it,” judging by what has been issued by the regulatory authority there. Or, to paraphrase a famous Beatles song, “You say you wanna regulation? Well, you know, we’d all love to see the plan.”

If you want to know all about that plan in New York, you need to visit this page: http://www.dfs.ny.gov/about/press2014/pr1407171-vc.pdf(external link)

Fair warning: that is the New York state government’s web site, and it may want to run scripts through your browser to do all kinds of things you don’t want. If you don’t have something like “no-scripts” installed to your browser, you might want to review that choice.

In my career over the last few decades, I’ve worked in industries such as real estate development, port development, finance, accounting, management, consulting, and within information systems: software development, software documentation, custodianship of records for a healthcare enterprise, and digital currency systems. Naturally, I’ve encountered laws for these industries, been expected to have familiarity with these laws, and in some instances been expected to critique proposed laws and regulations on behalf of the enterprises I worked with. I’ve seen a lot of laws, and I’ve seen very few that come close to being as bad as the proposed regulations from the state of New York.

For example, and it seems trivial in some ways, but noteworthy in others, the proposed regulations are intended, quite clearly, from their timing among many other factors, to regulate Bitcoin activities in the state of New York. These regulations have been developed in order to establish regulatory control and authority over businesses that deal in the buying and selling of bitcoin. Discussions of these regulations dating back many months have indicated that bitcoin regulation was coming, that it was to be included in these regulations, and that people should sit up and pay heed if they were engaged in dealing in bitcoin. Not only has all the publicity and discussion of these regulations been about the bitcoin phenomenon, but also the regulations themselves, on page 35, refer to timing of virtual currency events being recorded on a “‘block chain’ ledger.”

So, you would think, as a diligent and responsible consumer of legal documents, that the term “block chain” would appear in the definitions of the law in question. They use the term, they should explain what it means, don’t you think? But the definitions pages, starting on page 4, beginning with Section 200.2 Definitions, includes (a) Affiliate and (b) Cyber Security Event, and proceeds alphabetically throughout, and does not include the term “block chain.” So, when you get to page 35, if you don’t know what a “block chain” is, you are out of luck. Turning back to page 4 isn’t going to help. The definitions page makes no mention of bitcoin, either. There is no mention of blockchain-type virtual currencies in the definitions, nor anywhere else in the law, except suddenly on page 35, the timing of certain economic events is supposed to be recorded on this block chain ledger. Whee.

Yes, that is trivial. It is possible for a reasonable person to go out in the wild, connect to the Internet, and find definitions for block chain and lengthy, even academic, peer-reviewed discussions of block chain virtual currencies. But, in terms of law, things that aren’t defined in the law shouldn’t be included in the law. Unless, of course, you are promulgating bad law.

Now, from the perspective of freedom-loving, individualist, anarchistic persons, such as myself, people who have no reason to respect the concept of government, there are a lot of things wrong with this law that I wish to mention. The law talks very actively about the importance of money-laundering, especially the prevention of money laundering. Section 200.15 “Anti-money laundering program” runs to four pages, beginning on page 25 of the document. I should certainly take a moment to note that Section 200.2 never defines money laundering. Enormous costs for each licence holder are indicated in this anti-money laundering programme, alone. Enormous invasions of customer privacy and a clear requirement that the licencee spy upon all of its customers are indicated. The business costs and the violations of civil liberties indicated ought to be enough to give anyone pause, but nobody in the New York state department of financial services makes any effort even to define money laundering, let alone justify these regulations.

In fact, money is money, whether it is used for buying a bottle of wine, a bottle of water, or a bottle-rocket. Money isn’t tainted by its contact with the merchant selling the wine, even though such sales are illegal in a great many nations where Islamic laws, and in many USA jurisdictions where Baptist and other religious convictions make the sale or purchase of alcohol illegal.

But, you say, in my musing mind, “What about the war on drugs?” And I reply, you mean, the war on individual liberty developed in the early 20th Century through a series of international treaties on “narcotics trafficking” which were created by racists, Progressive movement politicians, and diplomats determined to force their will on the entire world’s population? You mean the policies which result in millions of arrests in the United States, each year, for the non-violent acts of owning, possessing, buying, selling, or using “illegal” narcotics? You mean the policies which deny and disparage the Biblical command by God to “behold!” that He has given mankind every herb bearing seed and every tree bearing fruit to be as meat (Genesis 1:29)? You mean the racist policies of discrimination, authoritarian control, and police brutality which are a direct subsidy to the military supply contractors, the prison industries, and the surveillance industries? You mean the unconstitutional policies that invoke “civil asset forfeiture” based on admiralty law to seize private property without trial and hold it until the erstwhile owners prove that it was not used in criminal activities? You mean the policies that result in tens of thousands of deaths each year in overdoses and gun fights over criminal turf and in fights with police because the racists who control the governments of the United States and its several states don’t think people should be free to put “drugs” in their bodies without permission from the state, or a licensed doctor?

You can imagine how little I care about the drug war.

But, you say, in my imagination, “What about the war on terror?” And I reply, you mean the fake war on a strategy or tactic, the war on individual liberty posing as a means of protecting people from criminal and war-related violence but actually robbing those same people of their constitutionally guaranteed freedoms? You mean the policies to centralise responses to incidents which are, by their very nature, decentralised? You mean the policies of the USA and other nation states to pretend never to negotiate with “terrorists” while frequently encouraging terrorists through clandestine activities and very frequently negotiating with them? You mean the policies to prevent the free flow of persons and goods over national borders so as to maintain control over territories and populations, to secure for existing nation states a continuing supply of tax dollars and fees without any possible threat of rebellion, insurrection, or non-compliance?

You can imagine how I am not taken in by the lies told and the hobgoblins shaken in the faces of the public in the name of fighting “terror.”

But, you say, “What about human trafficking?” And, I am very much against slavery, including slavery for sex, including slavery for child pornography. I am in favour of consent in human relationships, which is why I oppose not only these forms of slavery, but all other forms of slavery, such as taxation without consent, and regulation without limit. It is my view that human trafficking is not being reduced by having more and more espionage, including by financial institutions on their own customers. Anti-money-laundering laws are not ending human trafficking, and won’t.

There is no justification for invading your privacy, attacking your civil liberties, and turning financial enterprises against you that I would find agreeable. You cannot make doing evil things okay by saying that it is meant for a good result. The saying that the road to hell is paved with good intentions may relate to a similar saying by Jesus, quoted in Matthew chapter 7, verses 13 and 14, that the gate which leads on to destruction is wide while the one leading to life is narrow. Or, to quote Shakespeare, “Show me the steep and thorny way to heaven, Whiles, like a puff’d and reckless libertine, Himself the primrose path of dalliance treads,” and heeds not his own warnings.

If the government should not engage in anti-money laundering practices itself, and it seems clear that it should not, then it should not require such activities on the part of its licence holders. So, why do you suppose the State of New York has promulgated these regulations, including the extensive anti-money laundering section?

It seems very clear from the responses we’ve seen in the part of the online media devoted to the bitcoin industry that the proposed regulations are not a spur to greater innovation. Indeed, the regulations specifically prohibit innovation in section 200.10 which requires prior written approval for any “material change” such as introducing a new product, service, or activity, or changing an existing product, service, or activity. Moreover, innovation is discouraged in a number of uniquely regulatory ways by requiring the disclosure of business plans and strategies in the application (200.4, item a 8), and in reports and disclosures (200.14, item a 3). You are a trusting soul indeed if you believe that the things you put on your application and in your reports and disclosures and turn over to the New York state government are going to be kept private from your competitors.

It also seems clear from the comments we’ve seen on these regulations and from the regulations themselves, that enormous costs are indicated. Our own technology chief, Justin Turrell, said in his first reaction to the regulations: “Utterly draconian, completely unworkable, and probably nobody who isn’t already a bank would be willing or able to comply. Which may be the intention.”

My own review found specific problems such as:
200.2 (a) affiliate is defined to suggest criminal conspiracy; (d) fiat currency refers to a law http://www.law.cornell.edu/uscode/text/31/5103(external link) identifying legal tender but not establishing any punishment for refusing to accept it; (h) does not have any geographic limitations on persons coming under the jurisdiction of this supposed authority; (j) is so defined that a person can be a principal shareholder without owning any stock; (m) defines virtual currency to include bullion, coins, and other manufactured items such as tokens; (n) defines virtual currency business activity very broadly to include any receipt of virtual currency;
200.3 prevents anyone without a licence from accepting virtual currency unless exempt as a merchant or consumer (thus, anyone);
200.4 (a) (2) and (3) requires very complete lists of names and particulars invading the privacy of everyone involved in the licence holder; (5) by requiring fingerprints you are presumed criminal and by requiring photographs you must participate in the fallacy of the identity state; (7) none of your officers have any financial privacy and must incriminate themselves through extensive disclosures; (8) all your strategies and advantages must be disclosed and will get around to your competitors; (11) you are presumed guilty; (13) you have to explain things to the ignorant people who claim authority to regulate you;
200.4 generally: you apply, they deny, until you run out of money;
200.5 fees are not refundable no matter how frivolous their reason for denial;
200.6 (a) extensive weasel words about the confidence and trust of the community and the efficiency of applicants that makes it clear that anyone can be denied unless they have a very cozy relationship with the superintendent; (b) you cannot expect any results because the superintendent can extend the time he/she has to review your application as much as he or she wants; (c) additional weasel words to allow any licence to be revoked for any reason or no reason so you cannot expect to keep a licence unless you already have enormous economic power; (d) revocation comes after an administrative hearing, there is no appeal process indicated;
200.7 (a) you must comply with millions of pages of state and federal regulations without fail; (b) and be able to prove that you have done so at whatever that costs you; (c) you must spend (as entrants into heavily regulated industries such as Tesla Motors seem to have done, for years and to the tune of millions of dollars) on compliance with regulations even if you are not yet or have ceased doing business;
200.8 (a) your books are completely open; (a) (4) if you are a bank or otherwise already regulated you may be presumed to have carte blanche if we understand this section correctly; (c) you cannot keep any earnings or profits in gold, silver, virtual currencies, shares of your own stock, or in any way but certificates of deposit, money market funds, state or municipal bonds, USA government securities, USA government agency securities – in other words, there is no escape from inflation, and this provision is obviously meant to extend further funds to the out-of-control warfare and welfare state that has to be financed with endless debt upon debt;
200.9 (a) the superintendent can require a bond of any amount at all, can change that amount at will, and can close your enterprise if you don’t get all the bond to satisfy the superintendent that the bonded amount is acceptable, and your enterprise can have a completely different bond amount from every other enterprise even if they are exactly the same as you in all major ways, and you have no appeal to anyone else, ever; (b) you cannot have any fractional reserve of virtual currency in your operations, which is going to be a source of dismay to the banking cartel that the New York state department of financial rigmarole is usually jumping through hoops to please; (c) don’t go using client funds without their knowledge the way various brokerage and banking concerns during the 2006-2013 financial crisis have been proved to have done;
200.10 see above concerns on innovation being prohibited;
200.11 (a) you cannot sell your controlling interest in a licence holder without permission; (a) (2) control does not apply to enterprises that are not stockholder corporation type; (a) (3) change of control takes longer than it does to get a licence in the first place, and this time may be extended indefinitely, so you can be prevented from selling your ownership forever at the whim of the superintendent, and, oh yeah, you still have no way to appeal any such action by the superintendent; (b) you cannot merge without permission; (b) (1) you have no privacy; (b) (2) it takes less time to get a licence than to get a merger approved, the merger review time can be extended at the whim of the superintendent; you cannot appeal any part of the actions of the superintendent ever; (b) (3) extensive weasel words to excuse the superintendent for refusing a merger for no reason;
200.12 (a) you have to keep data for ten years or more, which is longer than phone companies are required to keep the records of phone calls, texts, and Internet activity for the federal espionage agencies; (a) (6) you have enormous costs to keep all this information; (b) you have no privacy; (c) a time period is referenced from an Abandoned Property Law, which is not cited as to what chapter of which part of the New York state code it might be found in, and the time period itself isn’t indicated – presumably there is a definition fail here, as well;
200.13 (a) at the whim of the superintendent you can be examined every hour of every day without recess; you have enormous costs for examinations which you bear entirely; there is enormous uncertainty about doing business anywhere else in the world if you have a licence; there is no way to know whether you will be allowed to continue operating because of the onerous nature of the examinations; you have no right to appeal at all, ever, any whim of the superintendent;
200.14 (a) more costs for quarterly reports; (a) (3) your plans are going to be exposed; (b) more costs for audits and preparation of financial statements; (b) (2) more costs for proving compliance with everything under the Sun; (b) (3) guess who is totally responsible for the accuracy of all those reports and statements and has no right of appeal, ever; (c) merely being arrested or sued, even in the case of a frivolous suit, can jeopardise your licence, and any conviction includes the promise of double jeopardy, being punished again by the licensing authority; (d) you have to be able to calculate the value in fiat currency and be responsible for what you’ve filed with the New York department of financial shenanigans, but you have no control over the market, so good luck there; (e) you have to report yourself and give up your Fifth Amendment right to be safe from being required to incriminate yourself; (f) at the whim of the superintendent you can be required to spend all of your time filing additional reports on anything, at any time, and in whatever way the superintendent demands; you continue to have no right to appeal any part of any of this stuff;
200.15 you have to have accounting in USA dollars the value of which you have no control over; 200.15 (a) you have to pay for a very expensive and comprehensive risk assessment that you probably won’t ever find useful; every year or at the whim of the superintendent you have to conduct additional pointless risk assessments that, oh, by the way, won’t reduce any risks; (b) you have enormous costs for anti-money laundering compliance; (b) (2) there is a cost here that is an obvious sop to the companies that do “independent testing for compliance,” so, yay for more regulatory capture; (b) (3) there is someone at your company they will come arrest, so, keep this person terrified; (b) (4) enormous costs for training so that everyone is always afraid and wants to rat on everyone else; (d) (1) your customers cannot have any possibility of privacy, and if they provide an address which is not physical you are in violation; (d) (2) there are endless reporting requirements, and a $10,000 limit per day per person plus (g) (4) requires special orifice probes for any customer wanting to do more than $3,000 in business with you, ever; (d) (3) you are required to spy on your customers and, you have to pay the costs for doing so; (d) (3) (ii) even if you aren’t otherwise required to pay for filing some federal forms, you have to file other forms, at the whim of the superintendent; (e) you are liable for assisting in structuring whether or not you have material knowledge that a customer structured transactions to avoid some of the reporting requirements; (g) (1) you have to know and spy upon your customers; (2) all foreigners are suspected of being criminals and you should discourage them from doing business with you, or else; (3) if a business enterprise doesn’t have some brick and mortar “physical presence in any country” you are in big trouble if you do business with them, because bricks and mortar are good; (j) you have to designate a scape goat and pay to have that person do an enormous amount of stuff; yeah, no appeal here, either;
200.16 (a) don’t ever have your computer security fail; (a) (3) don’t fail to detect intrusions; (a) (5) you have enormous costs here; (c) designate someone they can come arrest; (e) enormous costs for audit, penetration testing; audit trail; reconstruction tracking; tamper protection; logs; records; source code reviews; (3) your source code will be reviewed, and presumably exposed to your competitors; (f) you have enormous personnel costs in hiring, training, and updating;
200.17 you have enormous costs in business continuity and disaster recovery, and you better be able to prove you’ve already spent this money by the time you apply or “no soup for you!”; also in this section, you don’t matter in the event of an emergency;
200.18 There are enormous costs to comply here, you aren’t allowed to make any errors in your advertisements, there is a clear restraint of trade by the NY state department of funny business, and there are identifiable prior restraints on your freedom of speech; you have to keep hard copy of your ads so more trees will die; oh, and no right to appeal;
200.19 there are some hints here at multi-language support, so be ready to pay more to comply; there is in (a) (1) prior restraint on your free speech; (a) (2) you are required to instill fear of political risk in your customers; (a) (4) you have to talk about the block chain, whether your virtual currency is a block chain currency or not, and you have to include weasel words about event timing here; (a) (6) you have to include weasel words to discourage all of your customers; (b) more language support, more costs, more fear that you must instill in your customers or else; (d) you have to have one of those nonsensical acknowledgement of disclosure buttons that implies you have disclosed things that most of your customers didn’t read and will ignore; (e) you have to have a very expensive system for handling all complaints, however frivolous; (g) don’t engage in fraud, unless it is one of the many types of fraudulent misrepresentations inherent in fiat currency, investing your retained earnings in doubtful government securities, and misrepresenting how the NY government is pretending to protect consumers; you have to pay for an anti-fraud policy that complies with bizarre standards; you have no rights to appeal any of this part, either;
200.20 complaints are also part of the costs you will bear, and, oh, you have to testify against yourself;
200.21 there will be a brief grandfather clause if you were already doing business when all this stuff becomes the law of the land, so submit an application within 45 days or fail; if you have applied and were already doing business, you are in compliance, unless the superintendent has a whim.

Well, that was a long run-on sentence, wasn’t it? But you were going to have to scroll further if I broke it up and put it into paragraphs, and you were only reading all of it for the laughs, anyway. The page count of these regulations is considerably longer than the original white paper by Satoshi describing bitcoin. Talk about regulatory overkill.

What it all amounts to, it seems clear, is a department of financial services operating in cooperation with the major banks based in New York in restraint of trade to curtail innovation, competition, and consumer choices in the financial services sector. What’s that? A government-big-corporations conspiracy operating in restraint of trade, therefore violating the various federal anti-trust statutes? The deuce you say!

But, even the vaunted Federal Reserve recognises that the finance industry is a cartel operating in restraint of trade, as they report here: https://www.dallasfed.org/assets/documents/fed/annual/2011/ar11b.pdf(external link)

A couple of brief excerpts: “As a nation, we face a distinct choice. We can perpetuate too big to fail, with its inequities and dangers, or we can end it. Eliminating TBTF won’t be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance.” So, doom, right? And if too big to fail is a big problem in the existing finance industry, having the New York state department of fail services promulgate rules favouring the too big to fail entities in the virtual currency realm, too, is not helping.

In Exhibit 2 of the Dallas Fed report quoted here, the consolidation of the financial assets of the United States by the top five banks, which as of 2010 held 52% of the financial assets of the country, is examined. As recently as 1970, that was only 17% of the financial assets. The Dallas Fed comments, “Concentration amplified the speed and breadth of the subsequent damage to the banking sector and the economy as a whole.”

My point here is that the government’s own agency for consolidating financial assets, the Federal Reserve, is saying that concentration is a bad thing. Moreover, it is saying that it is a problem created by the government’s policies. Yes, the big banks help the government make bad policies that advantage them, but the government should have power to stop doing stupid things, unless, as an anarchist would say, government cannot stop being stupid.

So, you have to wonder, who are the financial contributors to the campaigns of the prominent New York state and federal politicians who have been clamouring for the New York state department of financial fail get going with these regulations that clearly have high costs to the virtual currency businesses and clearly advantage the existing banks? Could it possibly be that those politicians are getting campaign contributions, and, who knows, may be pay-offs, from the big banks?

We don’t always quote as extensively from people we admire a great deal as we might, so here is something that should remind Ayn Rand enthusiasts of a conversation between Dagny Taggart and her brother Jim Taggart about how to really get ahead: http://www.freemansperspective.com/business-success/(external link) It isn’t about knowing anything, doing anything well, it is all about getting the people who have power to use that power against the businesses you compete with, and for you, and keep them happy through bribery. Isn’t that…special?!

If you are wondering how we, at SilentVault, are preparing to comply with the New York state regulations, you’ll be pleased, we think, to learn that we have complete terms of service coming soon to this web site. Our terms of service will be based on our technology, and the technologies we use (Voucher Safe, among others) that enables our system to function. We are very, very severely limited in what we can do with the technology of SilentVault as it exists:

We cannot tell who holds which wallet.

We cannot tell what assets are in each wallet.

We cannot prevent transactions from taking place, for any reason.

We cannot report on transactions in any way.

We have no way of discovering the identities, addresses, IP addresses, nor age, gender, religious preference, skin colour, fingerprints, nor photographic likenesses of any of our customers.

We would have no way to help send you to a death camp if, in complying with anti-money-laundering regulations, we were required to spy upon you, report on your activities, or identify you.

In other words, by silencing the block chain, by implementing effective technology, and by providing for person to person transactions, SilentVault is enabling economic privacy in ways that are not available anywhere else.

The freedom you protect may save your life.