Another Internet rebellion is needed
The last piece of legislation that was this important to Internet freedom was the Stop Online Piracy Act (SOPA), in 2012. Back then, activists were able to get major websites to "black out" their pages to draw attention to the problem, and even asked questions of Presidential candidates in a debate. Eventually, they made the bill so poisonous that nobody was willing to have their name attached to it and the bill was shelved.
SOPA demonstrates that Internet activism can defeat bad laws. If this law is to be defeated, people need to start organizing ways to get attention. The problem faced here that SOPA did not face is that these regulations are being created by unelected bureaucrats, rather than elected representatives. Lawsky and people like him have little incentive to act appropriately because they can't be voted out of office or recalled directly. Instead, members of the other party would have to be elected to the legislature, an effort that requires huge resources across many districts.
Another issue is that the regulations here are purported to be aimed at bitcoins, so ignorant people may not read further into how they will affect all areas of their lives. They may believe that the restrictions in open source software development are fine because they are limited to bitcoins, but won't make the connection that Linux contributors will be forced to exclude bitcoin from their package distribution sites to be in compliance. They may also not recognize that it becomes easier to add more types of software to these restrictions once a precedent is set that financial software development is limited.
Why we won't do business in New York
Some contributors are theorizing on what the most harmful consequences of the legislation will be in regards to "undercapitalized" (that word was used in an article yesterday) businesses. I thought it would be helpful to provide a case study of our pool will withdraw from New York if these regulations are passed.
Note that the reasons why we would withdraw are different than the most dangerous aspects of the law. Here's why we will withdrawal:
- Compliance costs outweigh risks: The costs of compliance with the regulations far outweigh the risks that we face. Our primary method of reducing risks is to mandate payouts at regular intervals, so that users cannot hold balances in our custody. As a result, it is unlikely we will exceed $10k in user balances at any time. However, we estimate that filing all the paperwork and spending all the time to be certified will cost at least $100k, which is absurd considering that the amount of money at stake is 10 times less.
- Cannot hold profits in bitcoins: While we could theoretically get enough money to deal with the compliance costs, this is a dealbreaker that there is no way around. We are in business to earn bitcoins, not dollars. I don't want dollars as payment, and neither does any of the other employees. What's the point of going into business other than to get rewarded for your trouble?
- Requirement to back up reserves in dollars: Altcoins fluctuate in value too much for us to have a viable business with a reserve in dollars. It makes sense to back up balances in the currency they are denominated, but to require dollars behind that is absurd. If a bubble happens, we would go bankrupt immediately.
- Market is not large enough to justify cost: The number of people who live in New York is not large enough to justify complying with these regulations. 92% of the country can still be reached otherwise, and 100% of the rest of the world. In order to justify compliance, the amount of profit to be made in New York alone would have to exceed the compliance costs, not just the amount of profit to be made anywhere.
- Not willing to take VC money: Assuming any VCs would care about a mining pool, becoming compliant would require us to accept money from venture capitalists. The whole point of the business is to grant us freedom to work on our schedule and our own terms. VCs impose conditions like moving to a big city, writing status reports, working standard hours, renting an office, and so on. How is that any better than working for someone else?
- No way to advertise: All ads in New York are required to include a lengthy disclaimer. Banner ads are ineffective, but Google AdWords ads and inline text ads don't have enough space to actually advertise the product when this extra text is included. That effectively rules out New York businesses from advertising on Google.
- Competitive disadvantage: These regulations place any business registered in New York at a competitive disadvantage. The committee that is responsible for approving feature requests is likely to become overloaded. While other pools add new innovative features, we would not be able to release them without completing them and then waiting 90 days for a review. If the new feature is rejected, then a huge amount of effort was wasted. This allows non-New York businesses to jump ahead technologically.
- Not willing to store personally identifiable information: Storing personally identifiable information is a legal quandry that requires many safeguards and procedures and encryption. We aren't willing to expose ourselves to liability in the case that a passport photo was leaked. The amount of information being requested here is unprecedented, and is too dangerous for us to have to store.
Effect of regulations on price
The effect of these regulations on price is likely to be positive, because the people who move the markets are the people for whom this regulation is designed. I rarely, if ever, make recommendations, but I would recommend that anyone who was considering creating a bitcoin product to instead buy bitcoins and hold them until this situation is more settled. The profit potential of simply buying bitcoins is higher than working on a product, at least for now.
Other
- I'm not going to post the number of days remaining until July 24 because I don't really care anymore. Why does it matter if bitcoins rise in price if this is the future? Maybe I'll change my mind in a few days and start posting the number of days since July 24.