Bitcoin Banking, Solving ID Theft, and Why Regulators Should Love Pasties

John Law wonders if cryptocurrencies could secure your cash, BLTs could protect your ID and bitcoin is wrongly named.

AccessTimeIconMar 23, 2014 at 9:44 a.m. UTC
Updated Mar 6, 2023 at 3:14 p.m. UTC
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Welcome to the CoinDesk Weekly Review 21st March 2014 – a regular look at the hottest, most thought-provoking and most controversial events in the world of digital currency through the eyes of scepticism and wonder.

Your host … John Law.

No accounting for the taxman

UK readers may have been too busy drinking beer and playing bingo with their pensions to notice, but this week’s Budget statement had one little snippet tucked away that may do more to promote bitcoin than if Newsweek revealed Satoshi Nakamoto was really Stephen Fry in a kimono.

In the future, muttered Chancellor George Osborne out of the corner of his mouth, the taxman will get the right to empty your bank account directly. No court order, no appeal process.

Oh, it’s not like that, the Treasury said. We’ll leave you with £5,000, and it’s only if you don’t answer our letters. And anyway, we won’t do it just yet. It’s all very reasonable, really.

It might be, if the taxman was always right. But now and again – whisper it – mistakes are made. Ask your friends. That’s why, in general, you get your day in court before the knife comes swishing down.

But if you don’t trust Her Majesty’s Revenue and Customs’ Papal infallibility, what can you do? Traditionally, keeping your assets out of the banks is a good way to add a certain level of security, but unless you’re in a line of work where vast amounts of actual cash is de rigeur, this is not very convenient. Alternatively, if you’re very rich, you can hire people to keep your money offshore. The rest of us? Hmm.

So, one more positive vibe for the bitcoin concept of being your own bank. Your wallet sits on your computer or mobile phone, and if you’re half-way careful about computer security, there it stays. With as much of your money in it as you like, an asset that can only be legally removed from your grasp if the courts say so.

It might seem a bit previous, given all the recent publicity for bitcoin heists and exchange implosion, but the techniques exist for perfectly secure online walletry. It doesn’t need much of a leap of faith to see that the bitcoin ecosystem will evolve to be more generally secure than the current mash-up of financial services, banks and other electronic money handlers.

This won’t happen overnight, and bitcoin is a long way from being stable enough in value to be a secure repository of too much of your personal wealth. The right magic for security, both cyber and value, may not even happen with bitcoin itself: the key lies in the underlying technology, not this year’s implementation.

Yet with the general trend away from bank account sanctity, the pressure on cybercurrency to provide truly personal bank accounts can only grow. That’s something the Chancellor probably didn’t budget for.

You can’t steal IDs if there’s no ID to steal

kid coder
kid coder

Nothing warms John Law’s black, wizened, pickled walnut of a heart than when the Economist nicks one of his themes rather than, as far more often, the other way around. But here the august bible of global capitalism is, saying that we shouldn’t worry about bitcoin’s growing pains, the basic concepts are truly revolutionary, truly useful, and here to stay.

Moreover, it’s keen on the idea of linking bitcoin-like tokens (John Law will not rest until BLT becomes an official industry abbreviation) to actual stuff, which is an intriguing development.

What if, the Economist asks, your car key has a BLT in it and your car will only run if that’s present? That makes buying and selling cars potentially as simple as any online transaction, but without the need to provide the whole supporting legal framework of title. That is, after all, the analogue equivalent of actionably linking ownership to owner. Bitcoin provides just this, by merely existing in a certain place.

This meshes really well with the whole 'Internet of Things' concept, where just about everything we build or use sprouts brains and connectivity. Not only will everything exist with a digital identity in a block chain, unfakeable and unstealable, but your ownership of it will be similarly guaranteed – and transferable – in a way that the thing itself can check.

You won’t need to prove identity to prove ownership. Or partnership, or membership – both of which are different versions of the same idea. Your possession of the right token will do.

Think how much time you spend protecting stuff, or proving who you are to get use of something, or checking that someone else really is who they say they are so they can use something of yours.

This is the sort of thing that government or corporate IDs claim to ensure, but so often don’t – not because of bad faith, but because of overly-complex process, or human error, or an excess of caution. And they all have the real danger of leaking your ID to people who shouldn’t know it.

It is genuinely hard to imagine where removing ID from everyday life will lead. Obviously, things that transfer their allegiance along with purchase will make a lot of stuff effectively unpinchable – if the owner isn’t there, they refuse to work ("Is this your car, sir?” “Why don’t you ask it, officer?”). But how about legal documents? Medical records? You can’t steal someone’s ID if it’s not actually there and the data refuses to reveal itself to people who aren’t members of the “people you’ve given permission to read me” group.

Again,the important thing about BLTs is that there is no need for independent verification, or trust. The system itself enshrines those things.

A workable world with little need for independent ID seems almost beyond imagining. This time last century, the world of 2013 was beyond even the most visionary of pipe-smoking brow-furrowers. They should have eaten more BLTs.

What's in a name?

hello my name is
hello my name is

Such Utopian fantasies necessarily ignore real problems in 2013. One that’s yet to be solved is – what, exactly, is bitcoin? Glass beads, say the Danes. Not a currency, say the Thais. A numerical amount, say the Australians.

A lot of the current regulatory indigestion is because bitcoin is called bitcoin and cybercurrencies are called cybercurrencies. In fact, the Australians are closest to the truth – bitcoin is number – but that’s about as useful as saying gold is a metal.

It’s a problem modern scientists have had in spades. They at least had the sense, when they started to discover that the seemingly normal world was built out of very weird things, to give a lot of those very weird things very weird names. Quarks. Leptons. Bosons. You knew where you were – in new and unexplored lands.

In general, though, they had to re-use old words – particle, spin, colour, wave – that still give fledgling physicists mammoth headaches in having to unlearn what those words mean in the normal world. Is a photon of light a wave or a particle? Yes. And no. Does an electron actually spin? No. But the maths is a bit like that of spinny things.

Bitcoin is like that. It was named after coins, because in many ways it is like coins, and that meant ordinary people could get most of what it’s about very quickly. But in key ways it isn’t like coins – no country is behind it, there’s no central bank – which means it can’t be regulated like physical money. It’s a unit of value, but unlike any other in that it needs nobody to say that it is one.

So, regulators have the same problem as any bright young schoolkid starting to learn physics for real – those words do not mean what you think they mean. They’re just dangerously close.

Bitcoin – and many of the concepts with it – is a new quantum physics of money, and you shouldn’t be surprised that the old words from which its name is built are in themselves part of the problem in understanding what it is and how to use it.

John Law proposes that, for those who have to deal with the technicalities, a decent, new and suitably weird set of names should be decided upon.

In the same way that quark was taken from one of James Joyce’s literary inventions – a poem starting “Three quarks for Muster Mark!” in Finnegan’s Wake – a basic token, be it BLT or bitcoin, could be a 'jurtle'. That’s a word coined by Douglas Adams in the Vogon poetry of Hitchhiker’s Guide To The Galaxy, one of the holy scriptures of cybergeekdom. Units of work – those slippery things that heat up miners – could be 'oggies', the Cornish tin-digger’s word for pasties.

Doubtless you can think of more. Or better. But until everyone with skin in this game – regulators, designers, inventors and economists – are happy with their own quantum theory of oggies-per-jurtle, then nothing will really make sense.

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 300 years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.

Taking money, hacker and name badge images via Shutterstock


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