Proposal to track Bitcoins sparks communitywide debate

At odds are one side that wants anonymity, complete decentralization and no intervention by any central authority such as governments, and one side that seeks legitimacy by cooperating with regulators, educating them and ensuring future problems are limited.

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Proposal to track Bitcoins sparks communitywide debate

At odds are one side that wants anonymity, complete decentralization and no intervention by any central authority such as governments, and one side that seeks legitimacy by cooperating with regulators, educating them and ensuring future problems are limited.

An idea that originated from within the Bitcoin Foundation cast that division in stark relief earlier this month.

Mike Hear, who chairs the foundation’s law and policy committee, put forth an idea on the foundation’s internal forum to “redlist” any Bitcoin outputs that have been stolen or used in committing crimes.

Consequently, future transactions involving those outputs would be marked.

From a law enforcement perspective, this makes sense because it leaves some kind of a digital trail back to the scene of a crime.

But opponents argue this victimizes future holders by devaluing those marked Bitcoins. Others questioned why this wasn’t being discussed in a public forum but in a private and influential one.

Then there is Coin Validation, a limited liability company that asks the question: “How do Bitcoin businesses achieve regulatory compliance within the United States?"

Coin Validation’s idea would be to develop a process that verifies Bitcoin address holders’ identities, effectively segmenting a group of Bitcoin users into a “more reliable” list for regulated companies.

This obviously would rub the pro-anonymity set the wrong way, and it could also have the effect of also devaluing certain Bitcoins. To certain businesses, 1 BTC from a validated address would be worth more than 1 BTC from an unvalidated address.

Jaron Lukasiewicz, founder of Coinsetter and someone who has a lot of experience in dealing with regulation, argues that while validation could be good, putting in the hands of a single for-profit group flies in the face of the decentralization of Bitcoin.

And there is a slippery slope that needs to be considered when talking about regulation. Once Bitcoins get marked or addresses validated, what new regulations might emerge to further constrain activity?

Then, the Bitcoin community has to reconcile the desires of both camps. Most aspects of the currency are agreed upon communitywide. So there’s that.

But this emerging divide has the potential to fracture Bitcoin users and undercut the currency’s value. Ironically, seeking legitimacy could cause Bitcoin to suffer in the end. On the other hand, legitimacy and acceptance — which includes minimizing risk for merchants, banks and investors — will drive the value upward, at least in theory.

For now, one step at a time is the way to go. Bitcoin’s meteoric rise in value has a lot of people excited. A careful think-through by Bitcoin community members is necessary so everyone can figure out what are our common priorities and goals.

We can move forward from there.

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