Bitcoin to the moon?

Now that the speculative popping of Bitcoin prices has occurred (from $1200 to $400), are Bitcoin, Dogecoin and other similar crypto-currencies (bitcoins) the beginning of the internet or something destined to remain on the fringes of libertarian conspiracy theorists wearing tin-foil hats and posting cat memes on Reddit?  I don’t think there is much value in bitcoins as a means to hide the nature of transactions, as regular cash in a suitcase is better suited for such purposes (at least for now).  I also don’t think bitcoins will replace fiat currencies, meaning legal tender issued by a country’s central bank,  which is required to be accepted for the settlement of debts.  For example, you may be able to go to the moon with Dogecoin or sponsor a NASCAR, but the IRS will not accept Dogecoin to settle your tax bill.

The real value of bitcoins is to undercut the payments and cash management cartel of the SWIFT/CHIPS  cartel (Society for Worldwide Interbank Financial Telecommunication and Clearing House Interbank Payment System). On average banks and other money transmitters charge $40 for per international transfer.  Payments and Cash Management departments are one of the most profitable divisions of banking, as the sheer volume of money practically ensures profit, for example CHIPS handles 1.5 trillion dollars per day.

The  merchant fees charged by Mastercard, Visa, AMEX, etc are around 2 to 3 percent depending on size of the business.  To get an idea of how this amount adds up, WalMart is filing a lawsuit against Visa for 5.7 Billion dollars, based on approximately a 2% transaction fee for customers who use Visa at Walmart.

The size of the payments pie is enormous, and lots of venture capital will be drawn to this pot of gold.  However, for bitcoins to go from fringe to mainstream acceptance, the biggest nut to crack for bitcoin exchange operators to achieve a relatively frictionless anti-money laundering regulatory and the ability to seamlessly track capital gains and losses.  People, myself included, are lazy at their core, and do not want to track these hassles.

The IRS has issued notice guidance that bitcoins are considered property for tax purposes and not currencies, and that all users of bitcoins are responsible for to track their capital gains and losses whenever buying or selling bitcoins, similar to if you were trading in baseball cards or Beanie Babies, hence the need to track capital gains and losses.   However, when it comes to tracking down money laundering terrorists/slash drug dealers the U.S. Treasury Department Financial Crimes Enforcement Network (FinCEN) thankfully has advised that only “exchangers” and “administrators  and not “users” of bitcoin exchanges have a responsibility under the Bank Secrecy Act (BSA), Anti-Money Laundering (AML) and Know Your Customer Laws(KYC) to report suspicious transactions.

Where does that leave peer-to-peer bitcoin exchanges, similar to original Napster or current BitTorrent networks for the purposes of FinCEN enforcement?  Under FinCen’s guidelines, it is possible that anyone buying, selling, reselling bitcoins would be regulated as a Money Service Business on such an exchange.  How will regulators react with the development of technologies that enable users to scramble their payment information with another users?

With yesterday’s ruling by the Federal Election Commission and the combination of emerging technology, soon a user will able to send unlimited and anonymous payments to their favorite local politician.  On HBO’s “The Wire” Senator Clay Davis would’ve slept a lot easier if he didn’t have to worry about all of that cash is his trunk.

What Happens When Computers Replace Attorneys?

Yesterday, I read an interesting article in The AtlanticiLawyer: What Happens When Computers Replace Attorneys?”   The article describes the rise of predictive coding being used in the discovery phase of litigation.  For those of you who are not legal eagles, discovery is essentially when opposing counsel dumps a massive amounts of emails, documents, power points, bank statements, etc in your lap and your job is to sort through it all and find the ones that are relevant to your case.

Predictive Coding allows an attorney to plug in search terms and have the software automatically pull the relevant documents.  The article suggests that predictive coding will eliminate the need for most attorneys.  I agree that as software becomes better at pattern recognition, attorneys will not be needed in the first phase of discovery and other rote tasks, however I don’t think better software will entirely eliminate the need for attorneys for a few reasons:

1.) The interpretation of law is ultimately a value judgment.   Our legal system is designed to be flexible and allow for all sorts of exceptions and based on the facts surrounding each particular situation.  For example, the U.S. Constitution’s Sixth Amendment guarantees a person’s right to a jury by one’s peers.  I don’t really see a day when being judged by robots for a crime will become an acceptable substitute for peers.

2.) Law is a dynamic system.  Just as the interpretation of law is a judgment of another individual’s actions, society’s views of what is appropriate changes over time.  At one time, society thought slavery was righteous, then we went through a civil war and did away with slavery, but still allowed segregation, and then we outlawed segregation, to allowing affirmative action.  Software programs are not dynamic enough to keep pace with society’s constantly changing mores and attitudes toward various topics.

3.) Computer programs are really bad at common sense.  A software program is only as effective as the human programmer.  For example, if you were to ask WATSON (the computer that won Jeapordy!) to mediate a custody dispute between two spouses in the middle of a nasty divorce, Watson may be able to pull up all sorts of case law, precedent, and cite statistics about whether or not kids are better off living with the higher earning parent. However, if the kids don’t want to live with their father, because he’s a raging alcoholic with anger issues, then it really won’t matter what case law or statistics a software program spits out.

So for the time being, I’m not worried about lawyers being completely replaced by robot overlords, but maybe I should be more worried about the rise of Skynet and programmable matter turned into autonomous killing machines?   See,Terminator 2: Genesis of Skynet

-Michael