Topic: I Love the Smell of Crony Capitalism in the Morning (Read 639 times)

http://bitcoinism.blogspot.com/2013/06/i-love-smell-of-crony-capitalism-in.html

I have a lot of sympathy for the difficulties mainstream Bitcoin businesses face with regards to dealing with the legal environment surrounding their activities.  It's difficult enough to meet the needs and expectations of customers while trying to rapidly expand to meet demand, but on top of that they must contend with the reality that their investments, personal assets, and even non-incarcerated status could be threatened at any time by the arbitrary dictates of distant bureaucrats. For that reason I can not condemn those companies who seek to comply as a means of gaining the forbearance of the Sword of Damocles which stands ready to behead them.

This sympathy does not extend, however, to those people who actively seek to expand and extend this regulator power for their own enrichment. The ones who want to recreate in Bitcoin the legacy financial system's revolving doors of regulatory capture where winners and losers are chosen in smoke-filled rooms and gains are extracted from the market via fiat that could not be achieved by offering superior products and services.

In a recent interview Joseph David has, I believe, revealed himself as the latter.

If CAVirtEx wants to get a license for themselves, because unfortunately that's the only way to get the banks to deal with them in certain ways that's their choice to make, however that's not enough for Mr. David. He wants his choice to be imposed by law on his competitors too, and the justifications he gives for this position are entirely specious.

Honest and capable businesses do not need to fear unscrupulous fly-by-night competition. In fact, competition like that is one of the very best gifts you can offer such a company. Integrity and reliability are a brand differentiator. Companies that have this and are surrounded by competition that aren't, automatically distinguish themselves and rise to the top. We've already seen this in the Bitcoin community, as a core group of successful companies stand among the smoking wreckage of numerous other failed ventures. Those companies are doing just fine without regulatory barriers to entry because they have the talent and reputation to differentiate themselves in the market.

The obvious answer to the question of why Joseph David would feel the need for an aggressive regulatory environment to knock off smaller competition could be that he's not confident with his company's ability to compete on a truly level paying field, but there's also a much simpler answer - he doesn't actually want to run an exchange business. As he reveals in the interview, his ultimate goal is not to be an entrepreneur, but rather a career bureaucrat on a regulatory panel that tells entrepreneurs what they can and can't do. Determining the advisability of doing business with a company whose CEO doesn't actually want to be in the business is left as an exercise for the reader.

On the other hand the activities of regulators are ultimately good for Bitcoin, just not in the way they think. Increasingly draconian regulations and pressures to compromise Bitcoin neutrality will act as a catalyst to develop decentralized, censorship-resistant business models. Most Bitcoin ventures are organized along the standard model, with a headquarters and a bank account, and a corporate charter of some kind. The downside to this model is that such a company can be intimidated, regulated, harassed, bought out, taxed, and controlled. Loosely-coordinated swarms of individuals acting in a P2P fashion can accomplish the same tasks and are almost infinitely more robust.

Within Bitcoin we are beginning to see the same perfect storm forming that formed around filesharing technology in the early 2000s. Young, tech-savvy and passionate people are getting excited by the possibilities offered by a disruptive technology and at the same time frustrated because the beneficiaries of the status quo insist that their rules do not permit the use of this technology to its full potential. If past results are any indication attempts to force Bitcoin to conform to the old rules will cause an innovation backlash. Rendering regulations ineffective and impossible to enforce will simply be added to the list of challenges to overcome when it comes to starting a new venture.

The copyright cartel tried to stigmatize file sharing by calling it piracy, but all they got for their efforts was an entire generation of young people who embrace the title of "pirate" as a badge of honor and a technological arms race which they lost. When the legacy banking system, financial regulators, and their myopic collaborators in the Bitcoin business world try to make Bitcoin color within the lines they will create the incentive to gamify money laundering.

When that happens, all I'll have to say is: let the games begin.