Regulation Series by Siân Jones - Brian Skarlatos, Estaban van Goor, Jerry Brito, Luis Cuende

Transcript

[Music] hello and welcome to epicenter Bitcoin show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution my name is Sebastian KU and I'm Brian fman cran as you know back in may we were in Amsterdam for the Bitcoin 2014 conference while we were there Sean Jones conducted a series of interviews with a number of people on the topic of cryptocurrency Regulation we think that given the recent European banking Authority opinion paper warning uh financial institutions to stay away from virtual currencies this is an extremely appropriate time to release those very valuable opinions by these people and dive more deeply in this

topic this is the first episode of two episodes covering these regulation interviews first Sean talked to Brian scarlatos he's a tax lawyer based in New York and he discusses the RS tax position and how it compares to the regulatory situation in certain European jurisdictions then estaban vanor a Dutch tax lawyer specialized in vat and gaming talks about V roles in the Netherlands and Europe Sean then talked to Cherry brdo he's a research fellow at George Mason University he's also the director of their technology policy program he talked about the regulatory situation in us and also discussed a recent paper he wrote on bitcoin regulation the last interview is with Lis gend he's a young hacker and activist he's an advisor to the European commission and discusses

the position of the EC with regards to bitcoin and [Music] cryptocurrencies so this is Sean Jones still in Amsterdam at Bitcoin 2014 I have Brian scalos with me uh he's a tax lawyer partner in costalat uh have I pronounced that correctly calanit and think you did and um oh that's that's that's a mouthful I can't promise to do that if I've had a few drinks I'm sorry and you're going to be talking this afternoon about tax um I'm going to ask you in a few minutes to tell us a little about the theme of that talk but

I know that the t's been a a challenge for regul well tax authorities in pretty much every jurisdiction they don't know how to classify this thing that's cryptocurrency that's Bitcoin and it's only been in the last few months that um tax authorities have started to come out with opinions in the UK that I'm familiar with hmrc came out with a a briefing on the subject and broadly speaking um considered that for vat purposes uh European sales tax that it's um it operates like money so it it should be considered like money but in all other respects it's it's like an

asset now in was it in March or or or April even that IRS came out with their with their their statement it was in March when they finally got around to telling us what they're going to do with it but of course C you knew it had to happen right it's the say go absolutely it's like two things certain in life death and taxes we knew the taxes were coming and and I suppose it's it's a good thing that taxes have now been clarified because a lack of clarity tends to make running a business very difficult right running a business or even just handling your personal Affairs if you've made some money on bitcoin for example you didn't know what to do with it and that's exactly why the IRS came out with this

position in March because people had to file their tax returns in the United States by April 15th so lot of lot lot of notice plenty of time yeah a lot of scrambling around in the last four weeks that's for sure I guess um that there's also a difference in approach between the US and a European approach certainly in the UK in the UK they've said okay we have thought about this now and we've published our position and that is the position as it is going to be now um technically speaking that's how you should have treated it since the Year Dot of of Bitcoin uh but uh we we'll look favorably on on on any reasonable excuse why you might have treated it

differently since we hadn't previously come out with a an approach uh on our tax treatment I understand that in the US it might not be quite so sympathetic is that right well you know it may not be so sympathetic but if you hire a good tax lawyer do you know any as a matter of fact I do um so the point here is is that if you say listen you just told me how you were going to tax it four weeks before my return was due uh you know you have to give me a break I think that in most cases the IRS will I think what they really expect you to do though is go on extension for your April 15th tax return get an additional 6 months what you can do until October 15th and then get it right for October 15th but you

know the real question is is not that's for your 2013 return the real question is not what you're going to do for 2013 but what if you made some money in 2011 or 2012 you know what they're going to want they're going to say you have to go back and amend your return and pay the taxes plus interest so they're not being quite so lenient then they they they're expecting their pound of flash you should have known that this was going to be their position and and you should pay the taxes with interest yeah they always want they're going to want the money even in 2012 or 2011 does the new IRS um publication their their statement on tax treatment does that have some implications for the way in which you keep your records because

I've heard here in Europe that that they're quite honorous um in terms of capital gains as we would call them in in in Europe um the profits that you've made on buying and telling that that you you you've got to have pretty comprehensive records to to to know how to file your tax return return I think that's one of the real issues here it's extremely complicated to keep the records that you need to file your tax return and it's not just when you buy and sell the Bitcoin itself one of the unusual things about the way the IRS treated it is they said every time you use it to get a cup of coffee for example that's treated as a sale of the Bitcoin so you're going to have gain for just buying a cup of coffee and so every time you transact fact you're going to

have to keep records of how much you paid for that portion of the Bitcoin and what it was worth at the time you converted it into the cup of coffee and so the recordkeeping is actually very honorous and very much against the sort of ethos of uh micro payments that is one of the potentials for for for Bitcoin and it really creates frictions around that um now at the same time it creates opportunities there are companies that are coming up with programs that will keep track track of the spending of your Bitcoin and do the automatic conversions and produce the records so as fast as the IRS can come up with regulations the technology is you know following in place to do what they need yeah so they're going to be wallets that you pay your Bitcoin from

that'll keep track of what you spent it on and and provide you with the information you need for your tax returns exactly there are companies that have add-ons to those wallets that will just keep track of it all and then I guess spit out um all the data which as I say again will be a headache then for the accountants to go through it's almost like if you're engaged in day trading in and out of stocks in and out of stocks they will be able to track the in and- out of Bitcoin on a daily basis as you make all your micro purchases and is that going to make um adoption less attractive do you feel adoption of the of the currency of cryptocurrencies if the technology is really good I think it will help but certainly I think any friction like that will make it somewhat

less attractive but again if the um the technology can keep pace and make it easy to keep track of then it'll be a little bit easier you know so you can keep track of it perhaps but now you have the accounting fees in the United States most people have an accountant to prepare their tax returns that accountant if you purchased a lot of things with Bitcoin over the year it may he may charge you 5,000 you know dollars to go over and track everything so that's a real friction so we've got away from paying the rich bankers and we're now going to pay the rich accountants there you go I think it's the full employment for uh accountants andx lawyers act all right so tell me a little bit about the presentation that you're going to make

uh later on this after well what I want to do is I just want to give people a sense of how the IRS approaches tax principles and the bottom line is is because it is the IRS and they need all the money for the schools and bridges and Roads and whatever else they spend money on uh they try to get taxes from wherever they can of course like every country and there's some interesting Concepts in the United States for example if you find gold in your backyard that's going to be taxable to you or if somebody you win the lottery that's going to be taxable to you and so those types of analogies could carry over into Bitcoin whereas if you're mining Bitcoin and you get Bitcoin now that's going to be taxable to you you've received something of value and so they said when you mine it it's taxable to

you and then when you spend it it's taxable because you've now essentially sold it and of course if you sell it for cash that's taxable and if you receive Bitcoin for the payment of services you're working and you get paid that's going to be taxable and the government says the person who pays it has to withhold withholding taxes and also in a little known fact about Bitcoin is it is subject to backup withholding so if you're paying somebody from the United States and you're paying somebody in another country for services that were performed in the United States you have to withhold 30% of the value of that payment and so there are these frictions on the transfers of Bitcoin that you know is such a the special thing about Bitcoin and there are very few frictions and you can transfer around the world

now you can still do it but you better track it and there may be a lot of tax due because you do it do you feel that that's likely to drive Bitcoin underground or do you think that um folks will just get on with it they'll use their super apps that will keep track of all all of their spending and so on right um so I don't know exactly how people are going to react I think what they'll do is they'll get on with it and use their super apps but maybe in the end that would be better for coin as it gains more legitimacy maybe it loses some of the enthusiasm that's caused it to uh grow so fastly so quickly but with the um legitimacy comes a more widespread

acceptance right so you see positive rather than negative features of of the IRS approach in the end it was going to be regulated and it was going to be taxed so just knowing how it's going to work and having uh the businesses and the software develop around it to make that easy is positive in the end well that's a very nice note to to to leave it on tax is positive I coming from a tax lawyer well yes of course well that's your that's the I suppose just to to to to wrap it up um now that things are clearer in in in the US on a tax from a tax perspective um does that make the US an attractive place for Bitcoin startups or

can you see some other jurisdictions that you would perhaps point a uh a startup towards well I think the United States is an attractive place for the reason I just said once you have you you're going to have regulation no matter what and once you know what it is that creates stability and you need stability for any startup for any business and so you do have the stability in the United States however um there may be certain jurisdictions that adopt a more lenient attitude which would then have a lower tax rate so if you know what the tax rat is going to be and you know what the system is and it's going to be less expensive in the United States that may be a better jurisdiction because you can combine the stability with the lower cost but for now the United States is a good place that's

that's an interesting thought well uh Brian scalas thank you very much indeed for sharing your thoughts with our listeners today appreciate [Music] it so this is Shan Jones still at Bitcoin 2014 in Amsterdam on day two and I've got with me at the moment es ban vanur who's a tax lawyer or is that right tax lawyer here in in the Netherlands in Holland and uh if I understand correctly you specialize in in vat and gaming as well yeah yeah I'm a I'm a tax lawyer here uh working in Nell my specialization is uh digital so everything what has to do with digital

and uh also connects with vat uh I'm interested in that and I have a focus on that that so I always look uh for V implications occurring and uh try to look what uh what could be done to uh solve problems for my uh for my client well that that that vat has been an interesting uh challenge um for most of the EU member states I mean bat itself is very much a European phenomenon and bat is in principle set um at a a europe-wide it's a europe-wide tax in that sense and flows down into the individual member states uh but the

different member states have not necessarily uh applied uh Bitcoin um vat in the same way um I know in the UK which I'm familiar with we um had a a very positive announcement about two months ago yeah um which which clarified the situation and meant that uh vat wasn't due but what was what's the position here in the Netherlands no like I think first to elaborate a little bit on vat vat is B is is in principle uh based on on European law so it's secondary European law uh which is applicable throughout the European Union um it is not it's it's it's based on a

on on a regulation so it's not uh uh direct law so member states are allowed to uh yeah interpret certain things differently so what you will see is currently of course there's no spec particular provision with respect to bitcoin uh so member states are really looking into this and have different positions on on on that so the UK had a good position in my opinion very practical V technical I wouldn't agree with it all uh but here in nland yeah there isn't that much said about V they are comparing V of Bitcoin with uh local exch trade system which is applicable here in in Amsterdam and that local uh

exchange trading system is exempt from that most of the times uh but they do say okay as soon as you have a barter you must look at the economic value and still need to uh to apply for that and if you look within Bitcoin here in an nand yeah currently there aren't any guidelines with respect to V except for that comparison uh which in my opinion is not correct I mean you should look a bit broader and should really look within Bitcoin itself so what do you have you have miners you have uh exchanges you have Bitcoin transactions and if you have a Bitcoin transaction is that a Bitcoin to bitcoin or is it a Bitcoin conversion in Fiat those types of distinctions you can make uh within vat

in order to look at like what is the the the typical vat treatment for this now you're saying that here in the Netherlands if you buy a cup of coffee with Bitcoin you have vat applied to the cup of coffee do you also have vat theoretically applied to the Bitcoin payment uh so is it a Bara transaction according to to to the Netherlands tax authorities no they they they aren't really uh arguing about that like I can be very honest the tax authorities they uh file their view on bitcoin and maybe it's like half a page and they referred to the lead system so the local exchange trading system um I read through it of

course but still not not enough guidelines and Bitcoin is totally different um yeah if if you look at the the the the normal tax treatment if I buy a cup of coffee and I pay it in Fiat money of course there's there's that on it if I consider to pay it in in in Bitcoin in my opinion still V is on because I'm selling coffee for example oh yes on the on the coffee yes of course but what about on the uh The Exchange the mode of payment the Bitcoin uh in the UK before hmrc came out with its uh briefing um they were saying although it wasn't fully clarified at the time but

they were saying that there was VAT on the Bitcoin that was used for pay in payment so it was a Bara transaction and there was VAT on both sides yeah um but you're saying that's not the case here in in the Netherlands so that's also pragmatic then here in N yeah we have tax authorities which are really pragmatic so in case they don't give any guidance I always advise my clients to take a position in that take a good position with um some good arguments and then go to the tax authorities to rule um and yeah with respect to exchanges if I would have an exchange as my client uh I would say that an exchange is almost comparable to a normal money exchange uh

every Financial Service is V exempt so if I then look at it um with it within the Bitcoin space I think it it isn't different I mean you're exchanging Bitcoin into other cryptocurrencies or you're exchanging Bitcoin into viat money um in my opinion you're still providing for uh a financial service as an exchange uh even though Bitcoin is is not a legal tender yet yeah and that's where the pragmatism yeah comes in because I know again in the UK they say that uh the hmlc tax Authority in the UK says that it isn't money but it works like money and because it works

like money for the purposes of vat it's treated like money and that's pragmatic that's a sensible position um I don't know whether that will last um and maybe the situation in other member states for example here in Netherlands might well change do you do you feel that the Netherlands is a good place uh for Bitcoin startups from a tax perspective is this is this a good startup location yeah I think from from various type of perspective so not only from tax um yeah I work a lot with startups and normally you startups come here to the Netherlands specific to Amsterdam of course because the environment you have

a lot of well educated people here everybody speaks English and of course tax uh the tax authorities are very open to discussion so yeah it's it's a good place to be uh established here and uh I mean you have a lot of uh investors which also interested n is is a clear gateway to Europe so it's uh it's yeah besides the tax related uh aspects there are also a lot of you make a very good advertisement for for Holland for for start and and and presumably the tax position is also very encouraging and certainly the vat one is is is is on the right side there are still other jurisdictions that make vat a problem at this point in

time I that might change do you see a situation where we will get a a harmonized approach to uh vat and taxes uh within the European Union um yeah interesting question because uh my PhD is about about European V and digitalization uh however what I will include in my PhD is look broader I mean the digital area is not only Europe it's internationally and if I look at Bitcoin in one of my articles I call Bitcoin a super currency meaning our current uh digital needs and in my opinion it's still what it is so if we look at legislation of course we can look within Europe whether we can harmonize it but it will be better if the oecd uh would

like go have a look at more Global uh treatment on digitalization and part of it it's Bitcoin and they're already looking into it so virtual currencies um yeah even though I don't like to call it the currency but I just call it the currency for this uh for this interview uh virtual currencies are uh already included in uh in some research done by by the oecd and I hope they will give clear guidance uh internationally uh on on this topic so that that not only Europe is harmonized but it would be on a global level and that would really help uh Bitcoin cryptocurrencies going uh going mainstream of course so which other jurisdictions uh would you say particularly good for Bitcoin startups

apart from the Netherlands yeah apart from Netherlands uh yeah really like within Europe you can Al also look at maybe some other um non-e considered from a fat perspective countes as I of man or jalar um other typical member states I mean Germany they have some clear guidance I mean in Germany it's not considered to be a legal tender but they treat it equal as as e-money and that's good because then you can have uh you you can you will need to apply for a license of for financial for providing financial services that can give you some certainty but you will need money because that's around 700k to get that

license uh Val perspective there it's that it's exempt so they all they give clear guidelines but yeah really within within Europe I think more on like the yeah like I already said like jalter or Al of man but I I I would rather advise people to uh to look at at a member State and not only like from a tax perspective or regulatory perspective but really what what can you do there because tax and Regulatory can be solved if you have a good lawyer um but I mean grow business growth that's the most important thing so do you have a lot of people around you uh which can help you with with Innovation you have a lot of developers walking around there and if you flying in developers are they willing to live there um so yeah I think that those are

also consider considerations which you will uh need to take into account actually that's very practical advice um not just to take into account the tax and Regulatory aspect well I'd like to thank you very much for sharing those thoughts with us and our listeners on epicenter Bitcoin no problem thank you [Music] byee so Shan Jones still here in a very sunny Amsterdam for Bitcoin 2014 we're into day two and I have bitcoin's leading academ well the leading academic on cryptocurrencies sitting opposite me now Jerry Brito Jerry is senior research fellow at the m center which is as I

understand part of George Mason University which is which part of the states it's in DC so it's actually in Virginia uh right across the river from DC where it all happens government City and and you're a professor of law George George Professor oh I'm so sorry have I under understated overestimated oh that's fine we'll we'll we'll we'll leave that one stand then uh you're a podcaster yourself you are a blogger and definitely an opinion former uh you've written on well you wrote a wonderful primer about a year and a bit ago for policy makers that I think was then used and you were taken up on it um and and invited to to was it I got the

expression right testify sounds so sounds so criminal um yeah so I the primer um was important I think because at that point in the states the The Regulators U were starting to ask questions and there was no one document no easy place where they could go to for for some levelheaded uh sort of discussion of the technology and its potential implications for policy uh and so we we wrote it it was I mean you know I'm glad that it got a great reception but there wasn't much to it except explaining in a in a uh sort of levelhead and manner for a lay person what Bitcoin is and uh sort of pointing

out the obvious places where policy would touch and and it did the job and of course in this you you co-wrote it with Andre Andre Caso yeah and you've recently written a new paper we we'll we come on to that um uh in in in a few minutes but but tell us about um that when you were asked to testify to to the to the to the US Senate because this was the first thing wasn't it that that happened in the states so this was after uh finsen which is the financial crimes enforcement Network which is an agency of the Treasury Department which um deals with the moneya laundering uh regulation and terrorist financing regulation uh they had already issued

their guidance uh so that was really the first uh major regulatory action on bitcoin but the Homeland Security Department uh Department not Department the U Committee in the Senate uh has sort of taken the lead at looking uh basically having oversight over the agencies that are regulating Bitcoin and they decided to have investigation and the report of that investigation uh should be released soon uh as part of that investigation they interviewed a lot of people um and I was one of them and I think having the Prem out there um uh you know sort of got us in the door as it were um and then I was asked to testify um uh which Again by the time you're testifying um you've already

shaped a lot of the uh opinions I you probably imagine um did they read it beforehand and then have questions for you or did they they they they wing it I guess what I mean is that um by the time you have the actual uh hearing with the testimony you've met with uh the committee staff many many times um and so you've already had long discussions about the implications and so the testimony kind of gets it on the record I see so you you actually have a dialogue beforehand with and and and they were getting to getting to grips with it as we would say I think so yeah there very few surprises uh at these hearings and did you find the Senate receptive absolutely I think that um

Senator Carper who's the chair of the homeland security committee um has shown great leadership on on bitcoin he understands that there are challenges that the government's going to face especially law enforcement is going to face with Bitcoin but the more importantly there are a lot of potential benefits to bitcoin um and it's very refreshing to see uh policy makers focus on the benefit side of the equation uh not just on the cost side of the equation uh and I think that's very good because I mean at at the at the outset um there were some uh some some rhetoric coming from from other senators that that was that that only focused on the cost side and so it's good that Senator Carper has sort of shown that leadership and I think he has brought along some of

his colleagues who today you know they they sort of want to uh say that they they've never uh been skeptical about Bitcoin which is fine we'll believe them well we have a kind of view in Europe I think that in the states it's a it's a sort of shoot first and ask questions later uh approach and in Europe we we have a more measured approach and we consult and we find out and especially in the European Union there's an awful lot of consultation uh before we say anything you know you can't but you could you just simply can't draw anyone in any official position or any um legislator to to to say anything about it because they don't know about it they

want to be seen to to whereas you've had some fairly vocal sure so I think that has to do with uh the different structures of our governments right and and the us of course you have um you have a party system but ultimately it is uh individual members individual politicians who people are voting for um and so they have their own grant that they have to to burnish and and so some folks want to make a name for themselves um and so uh yes they will speak out uh even when they don't know all the facts right so a regulator who is a civil servant probably won't do that kind of thing exactly elected official probably

would even when you have appointed officials who have aspir other aspirations in the future they might still uh uh you we wouldn't be thinking about New York here would we well I think it's interesting what happened in New York um so the banking regulator there um when he entered who by the way if you think about back to uh who was it that had this harsh retor about Bitcoin only being good for illegal transactions only good for money laundering it was Charles Schumer who's senator from New York and um the banking regulator uh in New York is a protege of Mr Schumer uh who's former formerly on his staff Etc so it's interesting that um this is

Benjamin Losi who is a bank banking regulator when he came out um he came out pretty aggressively uh announcing an investigation and it was aggressive because rather than saying we're going to have an investigation we'd like to meet with all these folks here some letters inviting you to our offices chat he issued subpoena which are you're compelled to um to respond which is a bit aggressive um but did you get one no no um so it was basically companies that were uh involved in the Bitcoin space Also interestingly investors in the Bitcoin space which is really really dangerous I think um because think about it if you are investing um in GE and then GE comes under investigation for something you're

just an investor you did not direct the so it really would put a chill in in in in the capital markets if you were going to get a subpoena for investing in a companies but let's put that aside he was a very aggressive at first since then I think he has moderated a lot and I think that he um he's understood there are two ways you can make a name for yourself related to bitcoin one could be I'm going to be the tough Law and Order type who is going to put an end to money laundering and whatever else that's happening or you could say I'm going to be the first to completely normalize Bitcoin and bring that Innovation to New York state so it got everybody's attention with the head headline grabbing stuff at the beginning with the

subpoenas and uh that's Maximum Impact I can't read his mind um and so you know I've never spoken to him about it um but I I wonder if he thought that this was a clear-cut case of really this this can only be used for not the best of things uh and then once he started learning about it he said oh you know the the play here is to uh become the first state to make this uh you know sort of embrace this Innovation and bring all of that so he switched story partway through but it looks like it's part of something that's sort of continuous uh you know I couldn't say that right so I don't know what a story ever was okay okay I I won't draw you more on that but

it is interesting the the the proposal I understand is for something called a bit license or is that just a nickname that's been given to this thing so yeah that's the name that he has used um and in fact I think people have been invited to apply apply for a bit license even though there is no application process so um uh but yes so in the US if you're going to start a uh money transmission business right so you're somebody who is uh helping customers send money from point A to point B you have to be licensed and it's not just one federal license you have to get a license in each of of 50 states not really 50 states it's actually 48 states that require um license which is a real hurdle uh if you are a small startup because before

you can begin you know operating on day one you have to have acquired 48 licenses which is very expensive very timec consuming um and today uh it's not clear how Bitcoin fits into the licensing uh schemes um and so the different states are looking at these and developing uh new guidance sometimes even new laws legislators are going to have to PR um and so in New York what they're thinking about is rather than try to issue guidance that tells you how the existing money transmission licensing applies to a Bitcoin business we're going to create a whole new thing called a bit license which is an interesting choice of of name because you know it has it sounds like Bitcoin of course

Bitcoin is not the only cryptocurrency um uh and so there are certain there are certain things what there's good and bad to that right so so the bad is why are we creating a new scheme for uh a technology that ultimately does the same thing it sends money from point A to point B why are we regulating this things in a specific way this is a technology specific regulation and when you do that that's that could be dangerous because you want to kill a technology there's no better way than to make it impossible to to operate in a space so that's the fact that we see a technology specific regulation as opposed to technology neutral regulation just regulation on money transmission doesn't matter what technology you're doing that's worrying on the other hand

they might have a good point for why they want to do a bid license um the money Transmissions law in New York from what I understand is very Antiquated and it would be very difficult and uh and there would take a lot of time to try to modify that law so for example um as a money transmitter you have to um there there only certain number of permitted uh permissible Investments that you can make with the money that you have in custody for your customers so these are very you know highly secured bonds cash Etc well what about Bitcoin is is Bitcoin a permissible investment it's not if you look at the law you you can't

hold Bitcoin but of course if you're a Bitcoin business you have to hold Bitcoin so you're sort of put in this in this Catch 22 creating a bit license might alleviate some of that so it's a it's from your point of view it's a prag a potentially pragmatic solution I think that's what they're doing it's interesting is there any precedent for technology specific uh regulation uh um there are but they're not happy ones go on uh so I'm thinking of uh voiceover Internet Protocol uh if you think about vo when vo first um began to be developed um the FCC which is the Federal Communications Commission the

communications right regor uh didn't know what to do with it because it did not fit into any of their existing buckets it allowed for telephonic communication but it was impossible for this technology to comply with some of the requirements of telephony so for example having an emergency call number having number portability all these things that have been written to law never imagining that there would be this new technology that allowed for telephony without you know and so the FCC um uh sort of uh uh undertook a proceeding to try to figure out what they were going to do and how they were going to squeeze this new technology into their existing um and the bottom line is is that the companies who wanted to develop uh VoIP

technology uh but sort of waited for the FCC to issue guidance or rules on how to do this uh basically they're still waiting the FCC has never done that okay and the companies who decided we're just going to build it like Skype built it and it exists and then on a case-by Case basis they have um made determinations about what requirements um so I don't know if that answers your question but it's it's not always not always helpful so you've written a new paper um in conjunction with Andrea as well Andre Castillo yes and somebody else this time uh whan shadab and hman is a uh professor at New York law school and he's an expert on financial Market

regulation ah so the focus of your new paper is on bitcoin Financial regulation mhm so the first wave of Regulation um related to bitcoin was about Bitcoin as a payment system this is what we've been discussing so that includes the consumer protection uh uh aspects of it which is what Benjamin lski and at the state level licensing deals with and that also has to do with anti-money laundering and terrorist financing which is what uh finsen and the treasury Department deal with so that was the first way oh this is this is a new way of transferring money new way of making payments consumer protection anti-money laundering the next way of Regulation that I see uh coming forward has to do

with uh Bitcoin Securities Bitcoin derivatives um but then also Bitcoin denominated Securities Bitcoin denominated uh derivatives and then more interesting to me personally uh are prediction markets and also gambling and any other kind of decentralized markets uh this is going to be quite some of it is pretty easy I think uh it's going to be easy work for Regulators to to look at um you know a a Bitcoin uh forward contract I think the the commodity Futures Trading commission is is not going to have a difficult time dealing with that um because you're not talking about the Bitcoin itself you're talking

about the the instrument correct U and and so the rules rules exist right um but then when it uh comes to a decentralized market or a Bitcoin denominated instrument or something like a prediction Market um I think it's going to get uh uh much more complex it's going to be very interesting for those of us who find these kinds of things interesting and I guess also the whole idea of decentralized um anything I'm thinking perhaps Beyond Bitcoin to Smart contracts distributed autonomous corporations and organizations and so on admittedly where're we're at a very early stage of of of that but they're going to present some very interesting

challenges because there's no issuer there's no um legal person there's no uh organization in the traditional sense so there are no intermediaries this is the important thing so Regulators um have depended on uh uh on intermediaries to enforce their rules they enforce their rules against the intermediaries and if you take away their intermediaries who are you left to enforce against It's The End parties end users of the contracts and the issue there is that that's much more costly just arithmetically it's going to be more costly because where where before you could uh have regulated or enforced against a handful of intermediaries now you've got uh you know hundreds or

thousands of of IND users that you would have to uh to go after um I think the the relative comparison there um or or the the comp there might be something like what happened uh after bit torrent right so Napster was an intermediary that facilitated file sharing um it was easy to go after Napster and shut it down but within months you had uh peer-to-peer decentralized file sharing emerge culminating in bit torrent which is what we use today and uh there's no shutting bit torrent down so if you couldn't go after the intermediary who did you go after we saw the recording industry go after end users and they sued thousands of end users but that didn't

work and like I know in the UK there's attempts to control the uh isps the internet service providers as The Gatekeepers of the internet as some interesting analogies there aren't there going for The Gatekeepers and and making them responsible liable um for for managing um other people their customers uh file sharing um interesting times and there of course new technologies on the on on the emerging we saw just two weeks ago I think um a fundraising for made safe um a kind of distributed internet I maybe Mak over

over oversimplifying that but but just you know that the the idea is certainly then there is no sort of Central Point uh so you you you now haven't even got users anymore in the conventional sense right um interesting times we we absolutely so as you like prediction markets CU you got you smiled when you were talking about uh something our listeners weren't picked up on but you obviously very excited by them so how about some predictions for the regulation of uh of Bitcoin uh where are we going to be in uh 12 or 36 months um I don't think we're going to be um I don't think there's going to be much more movement uh we might see some more

clarifications related to tax treatment um I don't it's hard for me to predict right ultimately you the beauty of prediction markets is that you can uh you can bet with your you can put your money where your mouth is and if everybody does that you can get a gauge a good probability of different outcomes um uh but if I had to if I had to bet money I don't think the the the cftc which is a Commodities regulator or the Commodities contract regulator is going to do much much there I think the SEC um I think we will see more enforcement actions we've already seen some this is the Securities and Exchange Commission that's correct and uh today you see um some essentially what what are initial

public offerings denominated in Bitcoin um and so companies are making their rpos issuing shares um in a completely unregistered way um and that's against the law uh whether you like that to you know whether you would hope that's the case or not you know uh let's put that aside the fact is it's against the law and I think we will see more enforcement actions so the trendon Shavers case was an obvious Ponzi scheme it seems like um uh but I but there are others where uh we may see some some enforcement of of what really uh maybe are completely legitimate companies but just did not follow the rules so you you you you've done a very good job of not sort of

laying your name down to a specific prediction there um because that we we always love that cuz we can come back and revisit it with you and then say ah but you said this thank you very much Jerry Brito for sharing your time with us this afternoon that's been really lovely and I'm sure our listeners have enjoyed that it's my pleasure thank [Music] you so this is Shan Jones still at Bitcoin 2014 in Amsterdam I'm on day two and I'm sitting next to Louis kuende um who is perhaps a very different kind of regulatory um interviewee for me because Luis uh comes from hacker space and um I

think you were awarded the best hacker in Europe under 18 when you were only 15 years old yeah that was that was great yeah and H how did you get into Bitcoin what took you there so I'm a big deliverer of resware um so I got to know Bitcoin like 3 years ago or four years ago uh almost when it was kind of born uh well a bit later um and first I was kind of skeptic but then I got through the protocol and the peer-to-peer Network and I I love peer-to-peer I love free serw so was my natural love that was your sort of natural place to be and then you engaged with it so you have

um rather unique space in um in the uh in European institutions uh because and I presume because of your award when you were only 15 you you got some visibility and um the European commission reached out to you and I believe you're an advisor to uh neie Cru who's one of the Commissioners and I believe vice president of the commission at the moment um I'm kind of interested in and I'm sure listeners will be in finding out from you a little bit how receptive the European commission is and the the sort of rather stuffy found you know um in institution of of Europe the the the

bureaucracy of Europe how that's engaged with with Bitcoin and maybe you can give us some insight on that yeah well um it's kind of complicated because uh Bitcoin is a space that is moving really fast and and the European commission is not moving that fast um to be frank um but I think that NE really likes um you know the internet really likes uh startups and Bitcoin is in the startup space so see kind of um like see the problem is that you know um the European commission as any government in this planet has some very uh intrinsic roots with the you know the banking system the financial system right now um um a big

part of the finan system is not kind of understanding that Bitcoin is an opportunity and not um a dangerous thing so so I think we we we have to wait uh two through three or five years I don't really know uh to see like the European commission and and Europe totally open to bitcoin um because right now they are kind of seeing it as an opportunity but also a danger um and when everybody starts see need only as an opportunity then the European commission will be more receptive I think so I I think what you're saying is the they're interested but they're not

fully engaged yet at this stage yeah yeah it's it's just like like that yeah um do you think that Europe sees or the European institutions see an opportunity for what's known as regulatory Arbitrage you know um if other Juris itions um perhaps most notably the the US take a more restrictive approach in their regulation that this actually is an excellent opportunity for for Europe I think it is um also uh if you have been following the all the laws um about Bitcoin in the US they have a pretty complicated

situation right now where here in Europe um we got lot of legislations but we can I mean you can operate um using a bank uh license for example for a bank partner uh you can operate in the whole Euro Zone and that's really cool I mean in the US you have to get a license from each of the states that's kind of crazy so that's a huge advantage that we have here in Europe um but we have to exploit it obviously and we have CA transfers as well that are way better than the H transfers and they have in the US and uh so yeah we have we have the Dos so Europe is going to be um and some people already think it is um a better um area

in which to to start a Bitcoin business yeah indeed and um long may it continue I would say um do you have any predictions for for Bitcoin in in in in the EU do you have any insight into how that's actually going to pan out you said 3 to 5 years do you know something we don't know yeah well um I think 3 to 5 years is like Mass adoption maybe and and you know um thinking about Bitcoin as something good and not something risky uh as some of they think right now um but I also heard that they are working on a document with some let's say not lws but propositions of how to

regulate Bitcoin in in all of the Euro Zone and that will be out I think in June this is the European banking Authority the ebaa that's that's planning that yeah that's it that's it yeah we we had um one of the panelists uh on the first day of uh Bitcoin 2014 uh was from the European banking Authority and uh yes I think they're they're saying within a couple of months they will have published their so that's really cool and also um not only from the low perspective but I think from the startup perspective we will start seeing more and more Ventures uh because I mean when the US VCS get in and invest serious money then the European VCS will

follow um and the VCS from the US are investing serious money already uh you have to see bit pays uh 30 million 30 million yes yeah 30 million so that's a lot so European BS will follow and and you know more money more startups more Innovation so that's really cool now if I understand correctly your you're starting up something new yourself and and you're moving to Switzerland so you're you're moving out of out of the European Union into an EA country so sort of a half and half yeah yeah so um yeah so I think where of the things we lack here in in Europe is a serious change um I won't be saying names but

the two um most us stains in in Europe uh that have more than the 70% Market sh are in a gray zones they are not compliant um one of them is kind of illegal so uh and we want to fix that so we just raised um 1.3 million euros from the biggest Italian VC um and we are moving to Switzerland to start something serious that that makes you know Europe um because we are we think that an exchange is the base of all the Bitcoin economy I mean then you can build Wallets on top of it you can build you know European bit pay for sample on top of it so so but we want to get the basis right we want to make something perfect

and that is serious and and is Switzerland a better place to do business from at the moment um yeah yeah I think so uh mostly because of the lows there and because of the financial Innovation they have there I mean is the length of money and that's that's pretty clear and they live um of financial sector so so that's that's a place I think and they also have very strong relationship with the European Union so so I think that's a place you have the best of both worlds when you Opera in Switzerland indeed and does your project have a name yet or is that something you're not releasing right now it is called bit serx that means Bitcoin serious change so that's yeah and we are

launching in the end of the year so I think our listeners will be watching this space and watching out for you and your new exchange from Switzerland at towards the end of this year watch this face Louis thank you very much for for sharing your time with us today thank you you're [Music] welcome so we hope you enjoyed this episode about regulation we'd like to thank Shan Jones for her excellent work in capturing these very valuable opinions if you enjoyed this episode please consider tipping us at epicenter bitcoin.com tips you can also subscribe to our Weekly Newsletter at epicenter bon.com newsletter and of course you know follow us on Twitter at enter

[Music] BTC