Friday 23 June 2023

Feedback for "Better Money" by Lawrence H. White or, I like the book but think like an engineer


I recently read "Better Money: Gold, Fiat, or Bitcoin?" by Lawrence H. White, and attended a webinar where Prof. White was presenting it. I found it sufficiently interesting to motivate me to give feedback. I wouldn't call it a review, it's more of an extended reaction. As for the review, the book is good and suitable for a wide range of people, has minor problems, which I will describe below, but they may or may not be important for people who read it.

The overarching principle of my reaction is that people writing about Bitcoin bring in their own expertise into the writing. This is a double edged sword, because even experts can't be expert on everything. Given the current amount of knowledge that has been accumulated by humanity, people can at best be an expert in a very narrow area of an area of an area. This is not necessarily a bad thing. The problem is when experts start to believe that just because they are experts, they are experts on everything, or perhaps from a different point of view, every phenomenon can be reformulated to fit into their area of expertise, and therefore evaluating such a phenomenon from the point of view of their area of expertise is useful. Just to make it clear, I don't think professor White is suffering from this expertise delusion. You can see that he is very cautious and thorough in presenting his arguments. This is more of a general complaint about people writing about Bitcoin. However, professor White still thinks like an economist.

I don't. I have been programming for about 35 years. I dabbled in some other areas, and my university degree is in Business Administration, however I still mainly write and review code and build computer infrastructure (or manage people who do). I think like an engineer.

What would an engineer do?

When you ask why the gold standard failed, you'll receive a different response depending on the background of the person responding. Even though all the answers shown below are technically correct, they lead to vastly different conclusions about what should be done as a consequence of the end of gold standard.

If you ask a mainstream economist, he'll respond along the lines of: There were bank panics and depressions and it wasn't good for the economy, on fiat the government is more able to conduct countercyclical policies and prevent bank runs. Going back to gold would be stupid.

If you ask an Austrian economist, his answer would be more like: The government needed more money to wage wars or expand in general. We need to go back to gold standard to reduce the size of the government.

If you ask an engineer, he'll say: Gold standard failed because gold was diluted and censored. Therefore, we should have money that resists dilution and censorship.

Does the last one look familiar? This is basically what Satoshi Nakamoto wrote in a now famous post on the P2P foundation website shortly after launching Bitcoin. This is why Bitcoin is as it is and why for an engineer nothing else makes sense. Resistance to dilution and censorship should be the top priorities if you want to get rid of fiat. If something else is a priority, then it will be diluted and censored and we're back to fiat again. It will fail again, like gold did.

It also explains Bitcoin Maximalism. Bitcoin Maximalism, for an engineer, is an ideology accompanying Bitcoin in order to preserve and enhance its resistance to dilution and censorship.

What non-engineers think about Bitcoin

Here are some examples of what non-engineers think about Bitcoin.

Nassim Nicholas Taleb thinks that that Bitcoin does not provide any revenue stream nor traditional services and therefore, US dollar denominated expected value of Bitcoin is zero. Taleb is a financial expert. Taleb is not an engineer.

John Paul Koning thinks that Bitcoin is a gambling tool with a potentially positive expected value. Koning is a hybrid economics / financial expert. Koning is not an engineer.

Lawrence H. White thinks that Bitcoin is great, but could be improved by having a more elastic supply. White is an economics expert. White is not an engineer.

Why non-engineer critiques of Bitcoin are useless

An engineer's analysis of the gold standard explains his attitude towards criticism of Bitcoin from the point of view of economists or financial experts. A criticism only matters if it explains why it makes Bitcoin more dilutible and / or more censorable, and thus fiat more inevitable.

But even then a criticism is still only halfway done. The reason for this is not an engineering one but an economic one: demand for liquidity exists. People want to be liquid (they want to be in control of media of exchange). It doesn't necessarily mean that everyone will always choose an option to remain liquid / increase liquidity. It just means that if people are using X to be liquid, and X stops being able to provide liquidity, they will look for a substitute, Y, to remain liquid. Conversely, as long as there is no Y, they will keep using X. In the absence of Y, they have no other option. Therefore, a critique of Bitcoin, even if valid, still would have to explain what better alternative there is available to provide liquidity.

It's kind of like critiquing a computer for spying on you, and then silently implying that, well, because computers are bad, mathematics needs to end, instead of saying "use pen and paper or an abacus because they don't suffer from this problem". It's a half-assed argument. Proposing pen and paper may be an extreme alternative, but is still a valid alternative, as opposed to nothing.

So what are my responses to the critiques above? They are all the same: if Bitcoin was altered to address the concerns you have, it would cause it to fail. It would cause Bitcoin to be diluted and censored and ultimately replaced by fiat. Therefore, in order for Bitcoin to succeed, your complaints must be rejected. If this was a code review, I'd write "You're optimising for the wrong thing".

If Bitcoin had a US-dollar denominated revenue stream or was providing some traditional service, it would be diluted and censored and replaced by fiat.

If Bitcoin was less suitable for gambling, it would be diluted and censored and replaced by fiat.

If Bitcoin had a more elastic supply, it would be diluted and censored and replaced by fiat.

The critiques use an invalid area of expertise. They aren't wrong, it's way worse: they are useless. Instead of taking us away from fiat, they take us closer to it. Often, they do not even enhance our understanding of the world, or contain actionable information (White however does present some other interesting information). They don't propose an alternative to Bitcoin (again, White does, gold).

Just as I was about to publish this post, yet another comment by Taleb appeared on the news:

At least with Federal Reserve, you have transparency, we know what's going on, we can influence it.

My response: run a Bitcoin node. That's how you get transparency and influence the policy. Taleb's expertise is useless for Bitcoin.

Cantillon effect explained: macroeconomics is bullshit

In order to understand the problem of dilution, it is critical to understand the Cantillon effect. And I mean really understand. Cantillon effect is often presented in the context of printing money. However, there is nothing special about the mechanism of the increase of the quantity of money that causes a relative change in allocation of money. The correct interpretation of the Cantillon effect is: any increase in the money supply is merely a redistribution of wealth (minus the costs incurred by the increaser). The relative change to allocation of the individuals' holdings of monetary units is unavoidable. In a commodity money standard, the producer of the base money has a comparably smaller gain, due to the expenses needed to produce said money, but the redistribution happens anyway.

This process unfortunately tends to be misrepresented. Maybe you recognise some of the following:

  • The central bank isn't redistributing wealth, it's conducting open market operations or countercyclical policies.

  • A fractional reserve bank isn't redistributing wealth, it's economizing the use of gold (sorry, Prof. White).

  • An economist isn't attempting to obscure redistribution of wealth, he's working with aggregates.

  • A redistribution of wealth isn't happening, just the economy is growing or shrinking.

One may perhaps debate whether redistribution is desired or not. However, it still doesn't explain why a person would want to prefer to hold money that redistributes their wealth away from themselves. A masochist-coin? A virtue-signalling-coin? As Daniel Krawisz explains in "Bitcoin's Shroud of Subtlety and Allure", even if a person has a logically correct objection against Bitcoin, they are still motivated to accumulate it.

Fractional reserve banking

Unfortunately for Professor White, this doesn't bode well for the idea of fractional reserve banking. The users of any money have good reasons to avoid it: it both dilutes their wealth as well as increases the risk of losing control over them. With Bitcoin, the transaction costs of using the base money is low, and even lower if transactions are conducted on additional layers on top of Bitcoin. This reduces the transaction cost benefit of using Bitcoin substitutes. To be fair, White recognises this (unfortunately I don't have the quote in my notes), and doesn't seem to draw any conclusions regarding Bitcoin FRB, which I applaud.

The protocols for using Bitcoin are specific to using Bitcoin, claims on Bitcoin can therefore be discriminated against directly on the protocol level, something which is impossible with a non-digital base layer.

For Bitcoin Maximalists, avoiding using Bitcoin-substitutes is an important principle to follow. Some of the memes to promote this behaviour are:

  • "Not your keys, not your coins" (don't use Bitcoin substitutes).

  • "Don't trust, verify" (run your own node).

This isn't a novel idea

The idea that money substitutes make gold standard more vulnerable certainly didn't originate with cypherpunks.

In "The Theory of Money and Credit", Mises writes regarding his proposal to return to the classical gold standard:

Gold must be in the cash holdings of everyone. Everybody must see gold coins changing hands, must be used to having gold coins in his pockets, to receiving gold coins when he cashes his paycheck, and to spending gold coins when he buys in a store.

If Mises was still alive, he may just as well have said "not your keys, not your coins" and "don't trust, verify".

Price stability is overvalued

Ever since I started studying Bitcoin over a decade ago and read articles and books about money, I was getting a bit suspicious about the argument, often repeated by people criticising Bitcoin, that people choose money based on its price stability. Superficially it seems to make sense. However, I found too little evidence for that in the books I read or in evaluating historical events. I recall these sources regarding price stability:

In "On the origin of money", Carl Menger writes something along the lines that precious metals had a more stable price on account of being more liquid. However, it isn't clear to me to what extent he thinks it's a catalyst, rather than just a symptom, of the monetisation process.

In "Denationalization of money", Hayek writes that people would choose such a private money candidate which provides the best price stability. He doesn't further elaborate how he came to that conclusion. In "The Case for a Genuine Gold Dollar", Rothbard criticised Hayek, I'm paraphrasing here, that people choose money based on liquidity, not price stability.

The third such example is the very book that I'm reacting to. Professor White's explanation isn't in the book, but during the webinar he mentioned something along the lines that without price stability one needs to perform complex hedging operations. However, we already have technology to solve this problem. It's called a credit card and it allows you to spend fiat without having any. And, if you collateralise your Bitcoin (or gold, for that matter), you can spend even more fiat you don't have.

To me, when I was studying Bitcoin and still now, the argument that people choose money based on price stability sounds like something that was made up after Bitcoin appeared, because it didn't fit well into pre-existing frameworks. Or, it was implied earlier, as a proxy variable for something else (e.g. stability of the money supply), and the emergence of Bitcoin got people confused. I may entertain an argument that a central bank's plan is to stabilise the price level, but that is an entirely different problem. I'm even starting to think that this is less of an economic issue, and more of a cultural issue, or, at the risk of sounding rude, a "boomer" argument.

At the very least, people do not always choose the money based on price stability. White recognises that. He writes, for example,

It is noteworthy that residents of Latin America adopt the US dollar, rather than the Swiss Franc, even though the Swiss Franc has a better track record than the dollar for low and steady inflation.

I.e. in this case, people prefer liquidity to price stability, as Rothbard predicted. Similarly, during the webinar, one of the participants asked (I'm paraphrasing both the question and answer) "I don't care about price stability, why is it relevant?", and White replied "If more people think like you, then Bitcoin may become money".

As a side note, the argument that people always prefer a more liquid good for monetary purposes, is also wrong. If it was true, then, as I explained in "The Origin, Classification and Utility of Bitcoin", once money (a generally accepted medium of exchange) appears, there can never be another medium of exchange. Indeed, fiat money couldn't exist and we wouldn't have the problem of gold standard ending because a commodity standard couldn't end.

Dealing with price volatility, and what is a medium of exchange

If price volatility isn't necessarily a reason to switch to a different source of liquidity, is there something that a Bitcoin Maximalist can do to deal with price uncertainty? Well, the obvious answer is, if you have expenses denominated in fiat, you borrow fiat. Then, you have an option of either

  1. paying with the borrowed fiat, or

  2. paying with Bitcoin and using the fiat to re-buy Bitcoin.

This isn't a "complex hedging operation". However, it brings up another issue with the analysis of demand for Bitcoin. According to most classifications I'm familiar with, including that used by White, the first person has a speculative demand for Bitcoin, and the second person has a transaction demand for Bitcoin. Only the second person uses Bitcoin as a medium of exchange.

Well, I'm sorry to say, but that's wrong. In both cases, the person in question holds the same amount of Bitcoin pre- and post- transaction, minus transaction cost, the size of which doesn't necessarily favour either scenario. In both cases, they take on the same amount of debt. From the point of view of finance and microeconomics, for that person, both are equivalent. And, merely based on observing their behaviour, we don't have sufficient information to conclude whether either have a speculative or transactional demand for Bitcoin.

We could try to analyse the aggregate (yuck) demand for Bitcoin, but for that we need to look at what happens at the payee's end. Do they end up holding Bitcoin or fiat? That is what is relevant, but not for the payer. So, depending on what exactly you are analysing, it may or may not be relevant, but you need to use a different terminology, not "medium of exchange".

Furthermore, Mises disagrees with such a definition of a "medium of exchange" as well. In "Human Action", he writes:

Money is an element of change not because it "circulates," but because it is kept in cash holdings.

[Money] is necessarily an economic good and as such it is valued and appraised on its own merits, i.e., the services which a man expects from holding cash.

See? Mises would be a HODLer too.

I came to the conclusion that determining whether people holding Bitcoin are speculating with it or using it as a medium of exchange merely based on observing their behaviour (i.e. empirically) is not possible. In the past, I also didn't always fully realise this so I made some hasty interpretations of this or that situation. The deciding factor is: are they looking for an opportunity, even a distant one, to dump Bitcoin or not? Merely because they expect Bitcoin to appreciate against fiat isn't an adequate criterion, because they may also simultaneously expect hyperbitcoinisation (meaning the disappearance of fiat). I think that while it can't be decisively concluded, we see the second aspect in the publications of Bitcoin Maximalists.

We can also investigate an opposite scenario, a hyperinflation. As a money hyperinflates, everyone is trying to get rid of it. If White's classification criteria was correct, observing a hyperinflation, he would have to conclude: look what a wonderful medium of exchange, there is no speculation and everyone is paying with it. I'm terribly sorry, dear economists, this is nonsense. Analysing the act of payment isn't helpful, instead we need to investigate the motivation of the payer, which is ultimately obscured from direct observation (maybe we could observe it using an MRI brain scan) and can only be inferred indirectly.

The end of Bitcoin?

Even though so far Bitcoin is the best solution so far to the problem of the end of gold standard, it doesn't necessarily mean it's adequate. It may yet fail and be replaced by fiat. However, if it was to be replaced by a non-fiat medium of exchange, it would need to be something that still addresses the problems of dilution and censorship. A person who would come up with such a solution would have to understand the problem and propose and implement said solution. It would either be a person who can build, or a person who deals with trust or application of violence. Apart from engineers, it could thus also be, for example, a psychologist, a salesperson, a politician, a diplomat, a soldier, a conman. But I'm skeptical whether an alternative would come from an economist or a financial expert, or even be recognised by them once it appears.

What does all of this have to do with the book?

Based on the notes I made while reading the book, I think Professor White is aware of the issues I brought up, even using the Bitcoin Maximalist lingo on several occasions, however prefers to treat them implicitly and neutrally (with minor exceptions). This is why I try to make them explicit, and why I don't consider my feedback a critique per se. If there was a critique, it would be that Professor White doesn't take the Cantillon effect seriously, and uses an incorrect definition of a medium of exchange.

Correction requests

There are a couple of corrections I would like to recommend for the book. These are mainly technical in nature and not of primary import for the readers of the book.

The book says:

Transfers of "Chaumian banknotes" were "blinded" from the issuer.

This is an unfortunate formulation, I suspect this is due to misinterpretation of the word "blinded". Blinding is a technical name for one of the steps during issuance. In the final step of the issuance process, the signature is unblinded by the issuee and the subsequent transfer uses this already unblinded signature. At least this is a description of the implementation of blind signatures that I worked with, which is newer than the Chaum's, but I think the steps are the same. The point is, the transfer can happen publicly, but the issuer won't be able to identify the transferer based on the observed transaction data. It's probably better to say "the transferer is anonymized from the issuer", rather than blinded. The issuer may know the transfers happen, but they only know the transferer is one of their customers, not which one.

In another place:

The source code that governs the issue schedule is changeable only by consensus of the validators. .... Because they earn Bitcoin rewards for their work, the validators have been called "miners" by analogy to gold miners.

This is a common misconception, an issue that was fought over during the 2017 blocksize wars. All nodes validate the consensus, not merely the mining nodes. The power of developers and miners over the network isn't zero, but it is severely limited in case of changes which aren't backwards compatible. In order to reject a backwards-incompatible change, a node operator has to do exactly nothing. It's rejected by default. As a result, the protocol has a status-quo bias. This is why Bitcoin Maximalists promote operating your own bitcoin nodes ("don't trust, verify"), why it's desirable to keep the cost of operating such a node low, and why hard forks (backwards incompatible changes) in Bitcoin are shunned.

Tuesday 21 March 2017

The great Bitcoin blocksize debate as an ideological battle

I'm greatly saddened by the fighting between the two big Bitcoin camps. Even though they don't have official labels and my own labels may not be fully accurate, I have to use some labels, otherwise my article will make no sense. I'll simply label one of the groups "Bitcoin Core", and the other one "Bitcoin Unlimited".

Even though I'm not involved in research of Bitcoin anymore because my work on Bitmessage takes almost all of my time, as a dedicated HODLer I feel it as my obligation to try to explain to the people interested in Bitcoin why the discord exists, and why it's pointless to spend time on it. I hope that it will help people deeply think about their own values, and use them productively instead.


The conflict is often explained as a governance problem. I think this while there is an element of truth in it, misses the point. The reason for the conflict isn't a lack of procedures, but an emphasis of the differences in values.

Main axis: conservative versus progressive

The main reason why there is discord is the conservative vs. progressive affinity of the members of each groups. The "Bitcoin Core" group tends to be more conservative whereas the "Bitcoin Unlimited" tends to be more progressive. For the purposes of this article, I'll differentiate betwen the groups by their reaction to obstacles with respect to the existing rules; when facing an obstacle, the conservatives delay changing the rules and try to find a solution within, while the progressives more readily embrace a rule change and consider it as a part of solution. Conservatives view the rules as containing a historic wisdom which may not be apparent. Progressives view them as contextual and as a reaction to contemporary phenomena.

These tendencies are a naturally occurring phenomenon and are largely influenced by psychology. They reflect themselves in all areas of life. People are unlikely to change their affinity. They associate themselves with people with similar affinities, and the community membership gives them a sense of belonging. If someone tries to treat obstacles in a way conflicting with their affinity, they will view it as an attack on their values, and follow by an immediate counter by any means available. Typical reactions are accusations of being a traitor (collaboration with the enemy), segregating their opinions (censorship), ridicule and other ad hominems. It happens in politics (Brexit, Trump), or in religion (the different branches of Christianity or Islam). Even in cases when there is some element of truth in the accusations, they are mainly a symptom rather than a cause of the problem.

Unfortunately, psychology tends to catch up even well educated, highly experienced and an otherwise reasonable people, and they go full retard. This causes an enormous waste of resources, which otherwise could be spent on productive endeavours. Perhaps millenia ago, in hunter / gatherer societies, such a reaction to conflict made more sense, as there may not have been enough time to discuss the allocation of resources rationally.

People in the Bitcoin community of all should acknowledge that some people are naturally more conservative and some more progressive. This would help to calm down the situation.

Secondary axis: collectivism versus individualism

A second characteristic, orthogonal to the conservative / progressive one, is an affinity towards collectivism versus individualsim. Collectivists want everyone to adhere to a broad set of rules, whereas individualists want just a very narrow set of rules for everyone. In the forking debate, collectivists want there to be only one Bitcoin and the other to either die or never start in the first place, whereas individualists are either indifferent or prefer that both survive. In the forking debate, collectivists point to lost network effect, consumer confusion and similar things. Individualists argue that a fork would prevent oppression and allow to refocus resources productively.

While this axis explains a smaller proportion of the debate, it is perhaps more important. You see, conservatives and progresives can get along, as long as they are individualists. Once they calm down, they will leave each other alone and try to resolve conflicts peacefully. But there is no such solution with collectivists. They will appeal to the higher good and demand your subjugation to it (i.e. them).


Next time you're reading, writing, listening or talking on the topic of the blocksize, try to see the arguments from the point of view of the two axes I outlined. You'll be surprised how much of the underlying implications can be explained by the affinities. Please recognise that the conservative/progressive split is more or less a given and both sides have a legitimate reason for their position, and therefore there is a legitimate potential for a conflict. Remember that the real danger is collectivism and its most encroaching manifestation, the state. If afterwards you still think that a common solution cannot be found, then calmly prepare for a fork, and spend your time and resources in your part of the community, in a productive way.

Wednesday 13 July 2016

I'm still around

You may have noticed that there hasn't been a new blog post for a long time. It's not that I lost interest in Bitcoin or economics, but my goals with respect to its economic research I more-or-less reached. I studied the concept of liquidity and how it relates to Bitcoin. My papers about the topic have been referenced by economists that I admire (Lawrence White, Robert Murphy, Walter Block). I was able to meet many other extraordinary people, in person, including, in no particular order: my dear friend Stephan Kinsella, Jeffrey Tucker, Jörg-Guido Hülsmann, Doug French, George Selgin, Rahim Taghizadegan, Frank Shostak, Philipp Bagus, David Howden, Deidre McCloskey, Nassim Nicholas Taleb, Konrad S. Graf, Roger Ver, Eric Voorhees, Andreas Antonopoulous, Tuur Demeester, Jason King, Meni Rosenfeld, Johann Gevers, Juraj Bednár, Pavol Lupták. If I forgot to mention you, it's all my fault because I have a bad memory for people. This has been an amazing experience and I'm very satisfied about it.

Last year I rediscovered Bitmessage, a project / protocol for anonymous, censorship-resistant, secure and decentralised communication. I had heard about it before but didn't realise all of the possibilities it opens. I became more and more involved in it. I joined the reference client/software (also known as PyBitmessage) and successfully iterated it through a new cycle with the version 0.6 being released in two months ago. At the moment I'm transitioning into the lead position as the original author of Bitmessage, Jonathan Warren, does not have time for it anymore. I hope that I can help to make it into a sustainable and more formally managed open source project with clear goals and path for the future. I would also like to use this opportunity to thank all contributors, translators, and other people who work on a different Bitmessage implementation (like Daniel Krawisz and Justus Ranvier).

Nevertheless, I am still interested in Bitcoin (my Bitmessage-Email gateway,, takes bitcoin payments), and the Austrian School. I think that every now and then, I can probably still make a new post about something interesting. So don't delete me from your RSS feeds yet!

Monday 20 October 2014

My comments on the BitLicense

I spent a lot of time researching the proposed BitLicense and associated issues, and today I submitted my comments to the NYDFS. Here it is.

Dear Superintendent Lawsky,
dear General Counsel Syracuse,

kindly allow me to add my own comments to the proposed regulation Title 23, Chapter I, Part 200, henceforth “BitLicense”.


I specialise in economic research of cryptocurrencies, with emphasis on the economic theory. My activities involve publications, lectures, reviews and consulting. I have started my research three years ago. Prior to that, my professional focus was in computer networks and security, for about fifteen years, including traditional payment processing, where I was mainly responsible for implementing security policies (PCI-DSS) and disaster recovery. This combination allows me a broad insight into the types of activities and problems of cryptocurrency companies. While my own business is unlikely to require to apply for the BitLicense, several of the companies that I have contractual relationships with might.

Even though it is customary to give recommendations in comments to proposed regulation, I typically try to stay neutral. I strive to help people to understand rather than to tell them what to do. In this spirit, I hope that my comments will cause the NYDFS to become more aware of the consequences of the proposed regulation, which, according to my impression, are not well understood.

I read many of the publicly available comments to the proposal, and used some of them as input for my own comment, in order to make my arguments more complete. Nevertheless, I think that I bring new important insights, and my comment should not be simply be treated as a duplicate of other comments. Links to some of the sources that I used can be found at the end of the comment.

My comment is divided into four sections. The first one lists two issues which, in my opinion, make the BitLicense proposal unworkable. The second one lists issues which, while possible to adapt to, nevertheless cause significant hindrances for cryptocurrency companies. The third one lists issues which are comparably minor, such as omissions and unclarities. The fourth one is an attempt to ascertain the goals of the proposed regulation, its efficacy and is perhaps more “meta” in nature.

Grave issues

Affects unrelated companies

The grave issues follow from the nature of cryptocurrencies. Unlike with traditional monies and financial systems, cryptocurrencies are just numbers. In particular, private keys in the Bitcoin protocol (which I presume is what the “digital unit” in 200.2.m refers to) are 32 bytes long. For a more casual explanation, four of such keys comfortably fit into a single SMS or a tweet. 32 bytes can be stored on any object, digital or analogue, and transferred by a wide variety of means (I explain this in my master’s thesis). Once you realise this, the terms “transmission” (200.2.l) and “storing” (200.2.n.2) gain a whole new meaning. As long as this storage or transfer involves a third party, at least one of the participants is potentially subject to BitLicense. This has the perhaps unexpected consequence of a wide variety of businesses, not merely those who use cryptocurrencies in a non-financial way (as has been pointed out by others, such as Sean King), but who do not even have a cryptocurrency-specific business, being faced with BitLicense requirements. For a better emphasis, let me reformulate that. Anyone storing or transporting data or physical objects, on behalf of their customers, is potentially subject to BitLicense. Some examples of businesses that will unexpectedly be affected:
  • warehouses
  • vault providers
  • physical transport (e.g. trucking companies, car rentals, moving companies)
  • data centers, online hosting (e.g. DropBox)  data processing (e.g. email), or ISPs. If I send an email to the superintendent and attach a private Bitcoin key, Microsoft, who process NYDFS’ email, will become subject to BitLicense. If he views my email on his mobile phone, his mobile phone provider will become subject to BitLicense.
  • decentralised hosting systems like bittorrent (or newer ones like StorJ or MaidSafe). This affects all kinds of non-commercial entities who merely participate in the provision of online storage or data transfer
Companies have no good way to identify whether whatever they store or transport is or isn’t a private key unlocking a positive balance. Even if they realise that they store data that might be a private key, if the key is encrypted, they have no way of knowing the balance or what cryptocurrency it is related to.

What is, to me, surprising, is that this is not an unforeseeable problem. Other types of regulations do contain a variety exemptions, and they actually do exempt at least some of these business types. For example, federal regulation, 31 CFR 1010.100(ff)(5)(ii), has exceptions, among other things, for physical transport of cash, network services, payment processors, and facilitating sale of goods/services. California financial code, division 1.2, chapter 2, section 2010-2011 also has some exemptions. There are no equivalent exemptions in the BitLicense. BitLicense does not even exempt local, state or federal agencies, foreign governments, or the US Postal Service. These might also become subject to BitLicense. The police, if they, during exercising their duties, confiscate physical objects that store private keys (such as computers), will also become subject to BitLicense.

Even prior to cryptocurrencies, money transmitter laws already affected businesses in absurd ways. In “Regulating the New Cashless World”, professor Kevin V. Tu explains some of these problems. The proposed BitLicense makes no use of professor Tu’s analysis and only exacerbates the issue.

No way to comply with BitLicense

Even if a company realises it is subject to BitLicense and attempts to act according to it, they cannot comply with the identification requirements (200.12.a.1 and 200.15.d.1) or avoid “involving New York or a New York Resident” anyway. Once an address has non-zero balance, it is publicly visible on a ledger, and anyone can send transactions to that address, without identifying himself to anyone. The superintendent himself (being a “New York Resident”), if he desired so, could troll and send bitcoins to addresses of companies that try to exclude New York residents, forcing them to qualify their activities as “involving New York or a New York Resident” (200.2.n). The recipient cannot prevent this. If you think that I am exaggerating, similar things already happened in the past. Spammers sent small amounts of bitcoins to random addresses to advertise their products, for example the “Enjoy Sochi” or “Laxo Trade”.

The requirement to identify both of the parties involved in a transaction is akin to requiring a mail server or relay operator to identify the senders and recipients of each email. At least the mail server operator can reject an incoming email. A holder of a private key cannot prevent receiving a transaction, as required by 200.15.i. When Jeremy Allaire argued that the regulation is “technically impossible to comply with”, with other industry leaders (e.g. Wences Cesares) concurring, they were not exaggerating. My conclusion is actually that it is even more problematic than the comments of those gentlemen allege.

Significant hampering

200.8.b requires the BitLicensee to invest retained profits in a few types of US-Dollar denominated investments. It is not clear whether this prohibits retaining profits in other fiat currencies (e.g. Euros or RMB). It however excludes investing into analogous types of investments issued in other countries and denominated in other currencies. Why should BitStamp or Huobi, who are not located in the US, be forced to interact with the US financial markets? Furthermore, here we have a paradoxical situation where most of the BitLicense treats non-financial uses of cryptocurrencies as financial, this restriction treats financial uses of cryptocurrencies as non-financial. Companies that use cryptocurrencies as functional currencies, for example to pay their suppliers or employees, might get cash flow problems due to this restriction. Some companies, such as CoinBase, need stashes of bitcoins to sell to their customers quickly. This could also be potentially hampered by this restriction.

Some companies do not use fiat money at all. In the past, presented itself as having no bank accounts (however, according to Jeremy Liew, who is or soon will be on their board, this is no longer the case)., for example, is another company that, based on their business model, do not need a bank account (I do not personally know whether they do have one). Other types of businesses that do not require a fiat account are mining pools or sellers of physical bitcoin media, such as Casascius coins. Why should they be forced to obtain a bank account and/or services of a broker? What if they cannot find anyone that is willing to provide them such services?

This restriction also creates problems for companies that want to have more than 100% of reserves. According to audits published earlier this year, OKCoin, Kraken and Bitfinex were confirmed to have more than 100% reserves. This can be beneficial, for example, if the company wants to store 100% reserves in cold storage and a small amount in hot wallet. The additional reserves could also be used for other services, such as hedging or facilitating margin trading. If the company needs to liquidate excess reserves according to accounting deadlines rather than business demand, this would have negative impact on security and the provision of variety of business services.

Conversely, the requirement to hold no less than 100% reserves (200.9.a) is in conflict with certain business models (see the paper by Brito, Shadab and Castillo). It is also sometimes in conflict with other regulations, such as CFTC or SEC, as pointed out by Ryan Selkis in “Bitlicense letters #3”.

BitLicense seems to apply to certain type of intermediation services, for example escrow. This would include not only cryptocurrency businesses, but also others like notaries or lawyers. While I assume that in a typical escrow situation notaries and lawyers do identify the parties, why should they be subject to the other restrictions of the BitLicense?

BitLicense also applies to situations where encrypted keys are stored or transmitted by a third party and the holder/transmitter cannot use them in the financial sense (such as the aforementioned Why?

Companies that bring together buyers and sellers are not specifically exempt. While they probably do not qualify as “Virtual Currency Business Activity”, perhaps they should be specifically exempt.

If I travel to New York, say for a conference, companies that I have contractual relationship with might become subject to BitLicense due to my trip. Why? Are these companies supposed to track my movements? My bank does not care whether I travel to US, why should a cryptocurrency company do?

Minor issues and pointless requirements

All BitLicensees are required to have a cyber security program (200.16). This includes companies that do not deal with bitcoin electronically (e.g. sellers of Casascius coins) and in such case is pointless.

In some business models, the identity of the parties is known to another business involved in the transaction. In the case of, Amazon knows the identities of both the buyer and seller of bitcoins (it knows the credit card data of the bitcoin buyer and the shipping address of the bitcoin seller). If NYDFS wished to do so, they can obtain this information from Amazon by a court order. Why does also need to identify these two? This just makes the participants more vulnerable to identity theft.

Some companies act as an agent of the payee (e.g. payment processors). Why do they need to identify the payer? The payee can, with appropriate court order, provide the identity of the payer. During the Senate hearings in November 2013, Tony Gallippi of BitPay said that they do identify the merchant already, but as far as I know, none of the cryptocurrency payment processors identify the payer. The aforementioned professor Tu also uses the example of the agent of the payee, and the California financial code has an exemption in such as case.

It is unclear what happens with the customer's funds after revocation of license (200.6.c) or denial for people already engaged in Virtual Currency Business Activity (200.21). Is the company supposed to return them to the depositors? How much time do they have for it? Will NYDFS confiscate the deposits?

If two BitLicensees facilitate transfers between the two of their respective customers, do they need to identify each others’ customers? E.g. if a payment processor sells bitcoins on an exchange, does the processor need to know the identity of the buyer (of bitcoins) and does the exchange need to know the identity of either the merchant or the buyer of the goods or services?

Storing and transferring the blockchain (as opposed to storing the private key) is not clearly exempted, yet might fall under “Virtual Currency” (200.2.m). This may affect thousands of non-commercial entities and private persons if not rectified.

“Fiat money” (200.2.d.) excludes commercial deposit accounts (only coins and notes are legal tender) and appears to be too narrow. On the other hand, "other value" and "retail conversion" (200.2.n.4) are not defined, can mean anything and appear to be too broad.

“Transmission” (200.2.l) excludes transmission from a person to that same person. I don’t know whether this was intentional, I however think it is interesting.

Exemption 200.3.c.2 does not include the use of Virtual Currency for something else than a payment, i.e. merchants and consumers using of Virtual Currency for non-payment purposes (e.g. document timestamping) are not specifically excluded. Perhaps they should be.

In 200.4.a.13 - "an explanation of the methodologies used to calculate the value of Virtual Currency in Fiat currency" should include "if applicable". 200.19.e.4, for example, does contain "the exchange rate, if applicable". Some businesses do not provide such valuation at all, so they should not be required to explain how they calculate it.

The requirement for a bond or trust account in dollars (200.9) causes a problem for companies that do not operate with fiat money. Perhaps NYDFS should consider signing up with one of the payment processors to alleviate this?

In 200.10 (material change to business), BitLicense does not specify how long the superintendent has to approve or reject it, whereas 200.11 (change of control, mergers & acquisitions) does.

In 200.12.a.1 (books and records), "transaction" is not defined.

In 200.12.c, "non-completed, outstanding or inactive" is not defined.

Achieving goals

We all need to be aware that some of the purported goals of the BitLicense are, to a larger or smaller extent, in conflict with each other. For example, consumer protection and the requirement to conduct an AML/KYC program. If the BitLicensee is required to store personal identification of the customer, this increases the risk of identity theft. NYDFS needs to clarify their priorities. The superintendent’s remarks about not letting “a thousand flowers to bloom on the innovation side” gives us a bit of insight into his personal priorities. However, such attitude is more emotional than rational, and it is very dangerous, as explained by Adam Thierer in “Technopanics”. Jim Harper has been, for a long time, requesting a cost-benefit analysis from NYDFS, and has not received any yet.

NYDFS might consider that certain types of companies, in particular exchanges that deal with fiat, and payment processors, will increasingly tend to do AML/KYC irrespective of regulation. This is because they need good relationships with banks, and the presence or absence of AML/KYC policies at exchanges or payment processors significantly affects banks’ perceived risk.

NYDFS also does not appear to have given much merit to alternative methods to achieve the desired goals. The most obvious method is in my opinion the education of consumers (it is expected that the BitLicensees do this). NYDFS could also perform certification services of public keys or provide APIs for authenticating consumer identities, which would help BitLicensees to identify New York residents without having to store their identities themselves. In “Bitcoin Financial Regulation: Securities, Derivatives, Prediction Markets, and Gambling”,
Brito, Shadab and Castillo attempt to provide examples of many such alternative approaches.

My own impression is that, mirroring the proverb “if you have a hammer, everything looks like a nail”, NYDFS continued in doing what and how it has been doing, the result looking similar to traditional banking and money transmission regulation, and the hearings conducted by NYDFS were moot.


Peter Šurda
Vienna, Austria, October 20th 2014


Jeremy Allaire: Thoughts on the New York BitLicense Proposal,
Jerry Brito and Eli Dourado: Comments to the New York Department of Financial Services on the Proposed Virtual Currency Regulatory Framework,
Jerry Brito, Houman B. Shadab, Andrea Castillo: Bitcoin Financial Regulation: Securities, Derivatives, Prediction Markets and Gambling,
Anthony Gallippi @ Senate Hearing,
Jim Harper (on behalf of Bitcoin Foundation): comments on NYDFS BitLicense Proposal,
Sean King: Here Are My Official Comments on the New York Department of Financial Services' Proposed Bitcoin and Virtual Currency Regulations,
Peter Šurda: Economics of Bitcoin: is Bitcoin an alternative to fiat currencies and gold?,
Adam Thierer - Technopanics, Threat Inflation and the Danger of an Information Technology Precautionary Principle,
Kevin V. Tu: Regulating the New Cashless World,

Saturday 4 October 2014

Review: BitCon: The Naked Truth About Bitcoin by Jeffrey Robinson

Since I read so much, I thought that maybe I can start posting reviews. I have already been asked by publishers to review other peoples' writings about Bitcoin, and I think I'm getting the hang of it. I take it seriously and I fully read everything that I review, and make highlights and comments. So let's start. Today I'll review BitCon: The Naked Truth About Bitcoin by Jeffrey Robinson.


While the author obviously did a lot of research, my main problem with this books is the author’s bias. The proponents of Bitcoin are, with a handful of exceptions, presented as anonymous, hysterical and associated with ad-hominems, for example: “pretend-currency” or “the Faithful”. Their arguments are ridiculed and derided, for example “I’d been hearing this made-up baloney for months, over and over again, thrown out like absolute fact with nothing to back it up”. The sources of proponents he uses are mainly comments and forum posts. Personally, what I found most outrageous was that instead of calling Jon Matonis (Executive Director of the Bitcoin Foundation, who has been researching money for 30 years and held senior positions in banks and at Visa) by his name, he refers to him as “the Bitcoin Foundation Fountain type” [fixed] and “the same chap”.
The opponents, on the other hand are presented as rational, calm, they are named including their credentials and positions, for example “Yermack's explanation is a reasoned and rational one”. Their arguments are taken as unquestionable truth. He sources them from, among other things, personal interviews and blog posts.

Bias continues

The bias is all over the place. On one hand, he argues that “... all suspects are innocent until proven guilty …”, yet that does not prevent him from claiming that Ross Ulbricht is, as alleged by the US prosecutors, indeed Dread Pirate Roberts, prior to his sentencing. When addressing Bitcoin from the perspective of Austrian school of economics, he quotes three negative opinions, and ignores many others who are either neutral or positive about it, and instead of referencing research publications, he references blog posts.
When describing the position of the Federal Election Commission towards using Bitcoin in political donations, he writes that their decisions “... speak volumes about the confidence the FEC lacks in bitcoin”. I listened to recordings of both of the FEC meetings which resulted in this decision. The debate was mainly regarding applications of internal regulations and how to technically implement them and had nothing to do with confidence.
He says that he is “... skeptical of explanations where money is involved that are too complicated for an 8-year old to understand.”, yet I doubt anyone of that age can understand how the current financial system works. It probably takes at least a 12-year old, like Victoria Grant. Many if not most adults don’t understand it either.
The economic analysis is a mixed bag. On one hand, he describes the omnipresent hype, fraud, bubbles, pump and dump schemes, and so on, and how they are present a problem. I have no issue here and even agree to a large extent, just in one occasion, he describes a pump and dump scheme and incorrectly labels it as a ponzi scheme. Another thing that I agree with him is that Bitcoin is not suitable for money laundering (for similar reasons as he presents).
On the other hand, he lacks understanding of largely uncontroversial concepts like the liquidity premium and transaction costs. Mainly he ignores the hidden costs of a trusted third party and the property rights enforcement of media of exchange. An example would be the costs associated with identity theft, which he does not mention at all. Without these, a lot of economic phenomena cannot be understood, not merely Bitcoin.
He lacks a theory of evolution of media of exchange, and appears to think that one day he wakes up and something that didn’t exist before is now a “currency”. Again, without such a theory, a lot of economic phenomena cannot be understood.
He complains in multiple places that merchants tend to use bitcoin only as a payment mechanism rather than a currency, and does not understand the relevance of this (he writes for buyers, “There is no monetary benefit … [n]or is there any benefit of convenience”). He misses that, among other things, merchant acceptance increases liquidity. When in Can Bitcoin Become a Major Currency? Lawrence White and William Luther explained the economic relevance of the usage as a payment mechanism, I thought they were joking for writing something this obvious, but apparently it’s not as obvious as I thought.
Jeffrey Robinson portrays, M-Pesa or Amazon Payments as potential competitors to Bitcoin, but misses, among other things, that they do not work internationally. Amazon Payments only works in the US, the Kenyan M-Pesa only works in Kenya. International trade is a non-negligible proportion of global trade.
The more controversial economic topics, such as deflation, velocity, intrinsic value are portrayed in a one-sided way and again the statements of the sources are taken as undeniable.
I would also complain about Jeffrey’s statist bias, but I think it probably would be unfair, because this is widely present everywhere and I don’t want to single him out.


In summary, don’t buy this book. There are better explanations of Bitcoin, and better critiques of it as well (indeed, it’s probably better if you read the original critiques he references). If you want to read more about bubbles, I recommend Boombustology, and if you want to read more about taxation and Bitcoin, read Jason Tyra’s blog.

If you like this review, send me some Bitcoins: 1MKkciz5zT4Vg8pxkd3VtAwMMcxyWPiQtQ.

Friday 14 March 2014

The contradictions of Smiling Dave continue

Smiling Dave continues to post about Bitcoin and making up more and more ridiculous arguments as the gaps in them are exposed, and continues to distance himself from the Austrian approach more and more. However, I recently noticed something more serious: he created a new contradiction.

In All About a Medium of Exchange Having to Be in Wide Use, he writes this:
"It means a medium of exchange has to be more marketable than most things. It has to be in wide demand."
I will divide this into two parts: (1) a medium of exchange has to be more marketable than most things, and (2) it has to be in wide demand.

Marketability of media of exchange

The first part is the one where he introduced a contradiction. This is because when I previously explained to him that the regression theorem is about the emergence of the function of a medium of exchange from liquidity, he disagreed:
"Pete has done this as well in his last post, confusing liquidity with general acceptance as a medium of exchange." [emphasis added]
Maybe he does not understand that liquidity and marketability are referring to the same phenomenon? In that case we can expect his next post to concentrate on explaining the difference between liquidity and marketability.

Now, as I explained several times already, including in my thesis and earlier posts, the connection between liquidity and medium of exchange function is empirically observable with Bitcoin. It was already liquid in early 2010 when the first use as a medium of exchange was observed. It confirms both Menger's and Mises' observations. Furthermore, Menger emphasised the importance of "organised markets" (exchanges) and speculation in playing a role in the concept of liquidity. We observe these two with Bitcoin as well.

Wide acceptance and marketability

Smiling Dave has erroneously argued that somehow wide acceptance is a characteristic of marketability. However, Menger was very clear both in his definition of marketability:
"A commodity is more or less saleable according as we are able, with more or less prospect of success, to dispose of it at prices corresponding to the general economic situation, at economic prices."
There is no sign of "how widely accepted/demanded it is". Furthermore, Menger explains that the factors influencing marketability can be divided into two categories: time (when the commodity can be sold) and place (where the commmodity can be sold). Again, no sign of "width".

Wide demand is not marketability. There are goods which are widely demanded, yet they are illiquid. A very good example are houses: there is a practically universal demand for houses (apart from people who want to live homeless), yet it is difficult to sell a house easily at an economic price. You need to spend money on marketing, you might need to pay an expert for appraisal, you might need to clean it or fix it, there are often special taxes and fees and the necessity to hire a middleman and/or a lawyer to facilitate the sale, and you probably need to wait quite a while in order to get a price corresponding to the general economic situation. If you want to sell it right now and right here, you most likely need to take a huge price cut. This means that houses are illiquid. And illiquid goods cannot be a medium of exchange.

Just like there are widely demanded illiquid goods, there are narrowly demanded liquid goods. Nothing exemplifies it better than early-stage cryptocurrencies. There are very few people demanding them when they emerge. Yet because the internet is accessible anytime and from almost any place, and exchanges allow to place bid and ask offers, the logistical obstacles for the emergence of liquidity are dramatically reduced. If you want to sell a cryptocurrency, you can do it no matter where you are and what the time is, and get a price very close to the current market price. Most exchanges operate 24/7. Then there is, which helps you find people in your area if you want to sell for cash or a national bank transfer (at the time of writing claiming to have offers in 5451 cities in 216 countries). In the last couple of months, Bitcoin  "ATMs" have started being deployed (even though only those that allow to sell, rather than only buy, bitcoins, are rarer and only those count towards liquidity). Furthermore, an increasing number of shops, online and offline, accept Bitcoin as a payment mechanism. This means that holders of Bitcoins can dispose of them in increasingly easier and varied ways at a price corresponding to the general economic situation. Bitcoins are increasingly more liquid, and this means people can use them as a medium of exchange, i.e. hold them for their purchasing power.

The gap between media of exchange and money

Bitcoin shows that the level of demand for liquidity to emerge is lower than many economists have anticipated (and many still don't get). However, we need to be careful when applying this to money. The level of liquidity necessary for money may still lie very high and be unattainable for Bitcoin for all we know. While the implied assumption so far has been that there is a big gap between "nothing" and a "medium of exchange" and a narrow gap between "medium of exchange" and "money", Bitcoin shows that there are goods where the relationship is reversed: there is a narrow gap between "nothing" and "medium of exchange", and a wide gap between "medium of exchange" and "money". This is why it is important to distinguish between money and a medium of exchange, yet another difficulty many economists seem to face: they do not have a theory for media of exchange that are not money. Neither does Smiling Dave.

Tuesday 11 February 2014

Mt. Gox and fractional reserve banking

While Mt. Gox has been long accused of running a fractional reserve system, the accusations increased during the last couple of days due to an escalation of the transaction malleability aspect of Bitcoin, and the inability of Mt. Gox to handle it on the technical, managerial and PR level. Some of the more elaborate accusals have been done by Dave Howden (firstsecond). While I don't know whether Mt. Gox is or isn't running fractional reserves, I thought I'd bring up a bit of my research on the theory of anti-FRB arguments. In an earlier version of the draft of my master's thesis, dating about two years ago (i.e. long before the situation at Mt. Gox started escalating), I had a section analysing the legitimacy of FRB from Austrian perspective. It didn't make it into the final version because my advisor argued that it is outside of the scope of the topic, so I should consider leaving it out (he was probably right). I think that it might be useful to look at the Mt. Gox situation from this perspective. The next section is quote from the draft (with some minor modifications).

Redeeming deposits on demand

de Soto (2009) argues that a deposit contract requires that the deposited item be redeemable on demand, and because it is impossible to redeem all fractional reserves on demand in all cases, it is illegitimate:

"Its [deposit contract, ed.] fundamental purpose is the custody or safekeeping of the good and it implies, for the duration of the contract, that the complete availability of the good remain in favor of the depositor, who may request its return at any moment. ... The obligation of the depositary is to guard and protect the good with the extreme diligence typical of a good parent, and to return it immediately to the depositor as soon as he asks for it." [emphasis added]
I submit that there are cases where redemption on demand is refused even during a full reserve deposit. Following is a list of some of these cases:

  1. it is outside of the opening hours of the bank
  2. the bank is undergoing an audit during which access to reserves is suspended
  3. the particular branch does not have sufficient reserves1
  4. there are technical difficulties in accessing the reserves, for example a malfunction in the lock in the safe, or the person with the key is indisposed
  5. there is an issue with verifying the authenticity of the withdrawal request2
  6. the deposits were stolen by a third party and the bank was unable to obtain enough reserves from the insurance/bank owners/other financing source on time
In none of these cases is there a fraudulent behaviour by the bank. The last three cases could be argued to be a consequence of negligence and give a rise to liabilities, however the first three are perfectly legitimate occurrences. Therefore, the impossibility to redeem the deposit on demand is not a sufficient criterion to conclude illegitimacy.

There is also the praxeological issue of differentiating withdrawal on demand and after a fixed period. The act of withdrawal is a type of action, and as such takes some time. It begins with the depositor initiating a contact with the bank, continues through the bank obtaining identification of the depositor or at least the bearer instrument he provides, verifying it, accessing their reserves, recording the withdrawal in their accounting systems and presenting the specie to the withdrawer3. During this time, the bank can liquidate some of their investments to compensate for the lack of reserves at the time of initiation of the withdrawal request. So from praxeological point of view, it is impossible to differentiate between on demand and not on demand deposits.

Applying the theory onto Mt. Gox

Based on known facts, Mt. Gox suffered from points 2, 4, 5 and 6. Their automated system for processing withdrawals is broken, they cannot verify if a withdrawal did or didn't occur, and have a mess in their accounting as a result and are re-auditing their systems. We don't know for sure if any of the deposited bitcoins have been stolen as a result of this, but previously, the US Department of Homeland Security and the US Secret Service seized (i.e. stole) about 5 million USD from Mt. Gox's bank accounts in the USA.

I'm not going to speculate whether Mt. Gox can fix this mess, but at least theoretically the problems casued by transaction malleability should be possible to audit, and at least there where account holders themselves successfully performed a double spend attack, Mt. Gox knows who they are, and can attempt legal action against them.

What can we learn from this?

I would like to introduce a saying: "Whatever bad happens with Bitcoin happens to Mt. Gox first". In other words, Mt. Gox is a lucrative target, because of its history, market share, poor management and PR skills. Attacks thus tend to affect Mt. Gox first. This generates knowledge, and entrepreneurs and users who observe these attacks, their consequences and reactions of Mt. Gox can learn from this, and not repeat the mistakes. Maybe we can argue that Mt. Gox should have spent more on management, auditing, PR or lobbying (to avoid the account seizures), but not all of this can be known in advance, and thus some level of experimenting is necessary. I don't want to present myself as Captain Hindsight. Nassim Taleb argues that we should honor failed entrepreneurs for showing us what doesn't work. Maybe we should do the same thing with Mt. Gox. After they repay everyone their deposits back.

1 An analogous situation would be an ATM running out of cash.
2 In a security breach in May 2012, Bitcoinica lost their main trading database and they had to gather the data required for the verification from other sources, which was a time consuming process that took many weeks. Recent announcement (June 13th 2012) indicated that the payouts have started, however at the time of writing (June 17th) there were still unprocessed claims. Update for this blog post: Bitcoinica entered liquidation in November 2012 and still hasn't concluded.
3 The process described is exactly the same irrespective of whether the withdrawal is done through a clerk, through an ATM or online banking.