US will identify Bitcoin users, the beginning of the end of crypto-privacyIt is known that one of the most attractive features, more future, and more native Bitcoin, which earned him since its inception the unconditional support of the influential cyberpunk community, is privacy. Privacy is that eternal workhorse that has been disputed since the internet is internet by governments and privacy activists.
Everyone is also aware of how one of the antagonistic forces justifies the almost complete abolition of citizens’ privacy in pursuit of greater national security, while the other argues that it invades the right to privacy of individuals, and that it also it puts us in danger that there is a massive control over the population. Without entering fully into the eternal debate, the fact is that in this battlefield has been recently a new offensive by one of the opponents, and in this case it has been the Bitcoin community that has suffered the attack. We analyze today whether or not Bitcoin has the loss with this new twist.
The Bitcoiners come to light, and also with retroactive effects
As you can read in this news from The Verge, the attack on Bitcoin’s privacy comes no more than a judicial defeat. It is a defeat that has suffered the US platform Coinbase, specializing in the purchase and sale of crypto-assets, before the so-calledInternal Revenue Service (IRS for its acronym in English). The IRS is the federal agency of the Government of the United States, under the Department of the Treasury, in charge of tax collection and compliance with tax laws.
This federal agency and Coinbase had been open a judicial battle for a year, which was being resolved in federal court in California. As you may have read, now said court has already issued a resolution to the conflict, and Coinbase has come out very (but very) badly stopped, going inevitably accompanied in this judicial setback by all the crypto-community as a whole. The ruling in particular requires Coinbase to provide the IRS with the identification data of all its users who have purchased, sold, sent or received an amount exceeding $ 20,000 to the change in a single year within the period from 2013 to 2015.
Coinbase estimates that this ruling affects 14,355 users of its platform, and for each account opened in Coinbase that meets the above requirements, it must provide the IRS with the user’s name, date of birth, postal address, tax identification number, as well as all the activity of the account and its extracts.
As reported by The Verge, the IRS is behind its claim that only 1,000 Americans have declared having crypto-assets, while Coinbase boasts of having 6 million customers. On the other hand, through the mouth of the Coin Center, the Bitcoin universe is deeply dissatisfied with the resolution, mainly due to the lack of justification on the part of the IRS. They argue that, given the lack of evidence as to why these specific transactions are suspicious, there is a dangerous precedent , which opens the door for any institution or financial entity to request this type of data in a similar way, violating financial privacy.
The important implications that this controversial sentence brings
As usual in judicial matters related to tax issues, retroactivity is imposed by sentence. In tax offenses, retroactivity is really necessary, since it would not be fair that, by the fact of having broken the law, the offender is exempted from his tax obligations during the period in which he has not complied with the legislation. This would only lead to everyone doing it to save money in taxes for a time until sentence was passed. But Coinbase’s case does not really fit this scenario, so the retroactivity in this case is as little questionable.
As far as Bitcoin is concerned, it is not that the Bitcoiners have skipped any legislation: there was no legislation or jurisprudence. Bitcoin was not regulated, and had been moving in the field of alegalidad. For this reason, applying forcefully a sentence in this case with retroactive effects is raising blisters among the crypto-community.
As you will have read before, the information to be delivered completely identifies Bitcoiners that have used Coinbase in some way in the indicated period, blowing up the privacy that brought crypto-currency, the result of the design and technical architecture with which Satoshi Nakamoto created Bitcoin.
The US authorities have attacked by the only flank by which they could do it
Really, it was to be expected the intention of the IRS (and also of other fiscal authorities of other countries) to enter the crypto-sphere “like an elephant in a china shop”. We already put them in antecedents with our premonitory analysis “Bitcoin is the biggest fiscal (black) hole of the century” and besides the intention, the movement that the authorities have made was also to be expected. Analyzing the issue a bit more carefully, where could they attack Bitcoin’s privacy?
Well, they really could not do it from within the crypto-universe, where cryptography does the work with which Satoshi Nakamoto introduced it into Bitcoin. For that reason, the only flank of attack left to the authorities was the interface between the real economy , where (almost) we are all identified and supervised, and the crypto-economy, where (almost) nobody is. Precisely, the authorities could only aspire to control the flows between a (mostly) opaque crypto-universe and citizens with first and last names.
After these inflows and outflows of fiduciary money, Coinbase had to identify the users who made them, in addition to collecting bank or credit / debit card data from which to withdraw or in which to reimburse funds. There was the valuable information of a platform that had to comply with the legislation of the real world in which it had one of its “legs” , and the information that Coinbase has resisted with nails and teeth to deliver, because it knows that it is going survival in it as we will analyze later. The IRS had its eyes on this succulent database of Coinbase, and in the end it has got away with it.
Can you put doors to the field?
The IRS movement was the expected one, but it was also the most intelligent. The most intelligent in the short and medium term, yes, because in the long term it does not seem that it will be of much use if what the IRS pursues is to control Bitcoin and its users. We will not enter into this analysis in the debate on whether to do it or not: we have already addressed this issue in the analysis linked before.
Here we are going to reflect on what this sentence entails in the longest terms, which are the ones that will eventually draw the future of the crypto-sector, at least in the United States. If you think about it, the movement is literally like putting doors into the field. The crypto-universe is a universe parallel to the real economy, which interacts with it in a few clearly defined channels, at least until the expected massive adoption as currency and means of payment has just arrived.
And we say to put doors to the field for the simple reason that the trading platforms of Bitcoin are global, it is operated by internet, and it can be perfectly operated with an Asian or New Zealand intermediary. If in the United States the negotiation becomes ugly, it will end up going to click on a country that defends the privacy of its citizens and clients such as Iceland, Switzerland or any other bastion of privacy. And it is because of this fact that we told you before that Coinbase was fighting for its simple survival: it knows perfectly well that, if its clients have less rights to be an American company, they will flee to other platforms where they do, especially when the flight is just to enter another address in the browser.
And why new measures can the crypto-hostile authorities then choose?
What the US authorities do not realize is that, in the way they have acted, the field will still be out there. The only thing they will get is that in the middle of the meadow there is a door made in the USA, planted in the middle of nowhere, pretending to be the entrance / exit of the Bitcoin universe to the United States, but that will be easily fordable a few meters beyond where its door. Fence fence as such, which confines the Bitcoins of the Americans as a physical border, much I fear that it is practically impossible to put today with a software currency.
Because the true risk, both for the crypto-community and for the United States economy itself, is that, once the authorities of the North American country realize this fact, they may fall into the temptation to legislate at the stroke of a ban. It should not seem so outlandish to you. In this issue, the world is now divided between countries that have embraced the crypto-economy for a vision of the future or awareness that it is inevitable, and countries that have chosen to prohibit, as we discussed in the article “Bitcoin is already a “Too big to (make it) fail” for some economies, and that’s why a black Bitcoin market will emerge in China.”
The truth is that, in a world in which the crypto-economy is going to survive spurred by the countries that have opted for it , the countries that decide to legislate against it really have all to lose. Once the existence of the crypto-universe is guaranteed by others, the global nature of the internet and of the economy as a whole makes its extension inevitable to a greater or lesser extent to all countries.
And where legislation becomes ironclad and bans sharply by law, a parallel black bitcoin market is likely to emerge. As it happens in any country that prohibits a good or asset, or sets an official price that has nothing real, if its citizens see value in that good or asset (as seen in Bitcoin in China), the theory of training of prices will give a market value, which will end up being translated into a black market alien to unrealistic prices or radical prohibitions. This is concrete is the history of the economy in its purest form: without going any further, remember how avidly the American dollars or the German marks in Eastern Europe were bought at a change infinitely more favorable than the official one.
The truth is that, being fair and assuming the kindness of both parties (which in some cases I recognize that it is too much to assume), there is no lack in either of the two opponents: tax authorities and privacy activists. The arguments of both are weighty, but really here the problem is another. Because governments go through, and really the issue is what kind of president can end up in the future? ruling a country and inheriting those “tools” of mass control that now enter to also break Bitcoin’s privacy.
And even leaving discreetly aside the possibility that there may be a general policy of mass control of the population, the other eternal question is who controls the controller. This point is especially relevant in the issue of privacy, including Bitcoin, which remind that it is also a portable software currency. The special relevance comes from the almost absolute control that in the virtual world a specific agent of the State ends up having on the life of a citizen, who can always end up being “monitored” by him arbitrarily. Citizens can end up being the victim of a rotten apple in the basket (and some will always be): the problem today is that, with this level of absolute virtual control, to which the victim is exposed is practically everything in the most literal sense of the word.