Taxing, hacking and the one key innovation to ensure BTC victory

Welcome to the CoinDesk Weekly Review 12th July 2013 — a regular look at the hottest, most controversial and thought-provoking events in the world of digital currency through the eyes of skepticism and wonder. Your host … John Law

What made Britain great? The weather? The food? A pragmatic approach to the acquisition of wealth from others? As you munch your cheesy chips in the first sunny spell since last April, you may suspect what the rest of the world knows: if it involves other people’s money, we’d like some, please.

This may not be the public reasoning behind Her Majesty’s Revenue and Customs declaring that bitcoin exchangers don’t have to worry about registering as regulated money changers (at least, not yet), but it’s an interesting contrast with the Land-Of-The-Free Californians. They give the impression that if you’ve ever used the letters B, T and C in the same sentence, you should lodge a seven-digit bond or risk losing three of your favourite organs. Over here - hey, let’s give it a go and see what happens.

Perhaps some of the UK’s relaxed attitude comes from being involved with currencies from the groat to two-pound coins containing blue turtles (just don't go into the politics of those) via a system based on three different number bases simultaneously. After all, we currently have eight entirely separate sets of banknotes from eight different issuers on the go. The latest examples of this wild free-for-all are Northern Irish banknotes apparently issued by Vikings: John Law is not sure that the last example of Danegeld portends well.

But the underlying principle is that when people do transactions between themselves in the UK, it’s up to them how they agree the details - and that includes any intermediate bartering. You can force settlement with legal tender - basically, Bank of England notes - but only in England and Wales; otherwise, the state leaves you to it. Anything that makes you richer interests the taxman, anything that involves fraud or terrorism interests the plod, but if you want to buy your Marks and Spencers knickers with dried goat dung and M&S is happy with the idea - go ahead. It would at least make till design more interesting.

And so, the humble bitcoin retains the same legal status as goat dung, at least as far as the money changing laws of the United Kingdom are concerned. Whether this will perk up the great and troubled financial masters of the City - well, we’ll have to wait and see. But for now, the doors are open for the next gold rush. Just bring waterproofs.

New technology is like a child - when it grows up, you stop taking an interest in its internal workings. Bitcoin isn’t there yet, so every fever is a worry, every growth spurt a matter of joy, and every chance to check up on whether it’s doing All Right is a chance taken. (Non-parents will have to remember back to how much more satisfying it was to be proper ill before you had to get your own sorry carcass to the docs.)

So it was very satisfying to read CoinDesk's interview with BTC developer Jeff Garzik, who spends a lot of quality time protecting and nurturing the core code at the heart of the reference Bitcoin system. John Law, whose peak fiscal innovation was during the 18th century when secrecy and running people through with swords was quite the thing, is all in favour of open source: not only is the working there for you to look at if you understand it, the people who make it are entirely free to talk if you do not. Compare that to the hallowed halls of Barclaycard.

Lots of fascinating detail came out, including more tales about how the original Nakamoto code looked (“unconventional”) and how it was turned into something that could stand up to the real world. That meant giving it a more traditional open source structure and group of developers: right now, the process of building up the protocol is similar to how the early Internet core systems evolved. How did that turn out again?

But like all really good developers, Garzik really gets excited about the future - both technical and practical. The developing world could win big, and there’s enormous potential to build mutiple layers of services on top of BTC itself to create an entire financial system.

The thing that John Law likes most, although not as important in big, grown-up terms as some of the other things that Garzik foresees, is coloured coins, slang for attaching stuff to a bitcoin. That stuff can be anything digital - a picture, an ID code, a link, a short video clip of a goat rampaging through Marks and Spencers - and turns the bitcoin into a token. That’s the sort of concrete feature that will help you explain cryptocurrency to your granny, and without which anyone not wired to be comfortable with digital abstraction will prefer to stick to the stuff with pictures of famous dead people on, thanks. (And credit cards and cheques, but they’re obvious, right?)

But don’t hang around here. Go and read the interview.

That breakthrough technology will be the physical cryptocurrency holder that’s cheap enough to give away in a transaction but secure enough to be accepted on sight. And if the Firmcoin isn’t that technology, it’s certainly very close.

Coming from Argentina - another hotbed of BTC interest - the Firmcoin is a little perspex gizmo that contains a digital wallet, an optional e-ink screen like a tiny Kindle, and a near-field communication transceiver (NFC), like a contactless credit card. When stuck together with the appropriate digital signature code and verification technology, it turns into something rather like a banknote, albeit one that, optionally, you can give whatever value you like.

Indeed, you can think of it like a credit card but without the credit card account, Instead of presenting it for verification and cash deduction, you just give the whole thing over in exchange for your goods or services (potentailly with some change in real cash or another Firmcoin), It gets all its power from the NFC when needed, so doesn’t run out of batteries, and doesn’t need to be in range of any network or authority to be useful.

Although inventor-cryptographer Sergio Lerner doesn’t say, it is almost certainly possible to put a picture of a famous dead person - or even a kitten - on it. Not so much a Lolcat as a Lollycat, perhaps.

If that doesn’t bring the revolution thundering in through the gates ready to park its heels on the desks of power, John Law is at an utter loss to know what more you lot want.

John Law 

is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.