Samuel Barnes 05/08/2014 Bitcoin Analysis, Bitcoin Education, Bitcoin Politics, Bitcoin Regulation, News 3 Comments
The concept of “black” and “white” Bitcoins are a solid prediction of the implications laws and regulations could have on the way cryptocurrency is used in different contexts.
Reddit user whitslack posted to /r/bitcoin predicting and explaining the emergence of “white” and “black” bitcoins. I wholeheartedly agree with everything in the post and think it offers previously unforeseen insight into how cryptocurrency payments might integrate with state regulation and laws in future. “Black” and “White” bitcoins are technically identical, existing on the same network and Blockchain, but the context of which they will be used will be different.
How are White and Black Bitcoins different?
Bitcoins that are held and pass through “registered addresses” that are in some way associated to an identifiable individual or businesses.
Bitcoins that are held and transacted through addresses that are not connected to an identifiable owner and are effectively anonymous.
To What Ends?
There are likely to be two opposing forces when it comes to Bitcoin classification moving forward. Governing bodies who’s prerogative it is to regulate and ultimately have a degree of control over circulated cryptocurrencies and their respective networks and those who want to retain the open and potentially anonymous nature of cryptocurrency for reasons political, personal or legal.
Imagine that a country implements a law that states all digital currency payments have to be sent from and received by addresses that are connected to a business or individual in some identifiable means or else face punishment if caught (financial fine, forced closure ect.). This would mean law-abiding merchants of cryptocurrencies in that jurisdiction would have to disclose the addresses they use for cryptocurrency transactions and let customers know they have to pay from a similarly registered address. These merchants will also likely have to implement some kind of bounce-back system if somebody attempts to pay from an anonymous address to protect themselves from unintentional law-breaking. These kinds of laws and corresponding systems would allow governing bodies to keep better track of transactions and business assets than is currently possible with fiat currency. The underlying decentralized nature of cryptocurrency networks would not affect the capacity of states to keep track of the surface “white” transactions.
The most upvoted comment in the original thread was made by user Sir_Wabbit and questions the feasibility of the prediction:
“I don’t see this being done, how on earth will “they” (who exactly?) maintain this accurate database? with mixing services, alt coin exchanges, not to mention needing these same regulations across the world, with all the laws the same spanning the globe? Not going to happen. It cant be centralized, it wont be.”
Firstly it is unclear at this current time how such a database could be kept, it might not even be centralised and kept across several separate parties. But it is ignorant to underestimate governing powers and dismiss such an undertaking as impossible. You can already see the beginnings of such records on Blockchain.info, for example simply look at the recent transactions. Although at the current time a couple dozen unidentifiable transactions will fly past before you can see one involving an address from an identified business (usually a registered business ‘hotwallet’). This number would undoubtedly increase and even expand to individual persons if states implemented a requirement for legal transactions to be sent form “white” addresses. This record that is already being kept in a certain capacity on the blockchain could be expanded and added to by governments that wanted to attempt to track Bitcoin transactions. It is also a fair point to say that even if one country implemented this type of law other countries wouldn’t be subjected to it’s implications. But in the nature of a globalised economy if a substantially economically influential country implemented such hardline control of digital currency it would incentivise and even force other nations into following suit.
It is inevitable if the cryptocurrency market cap grows to an amount that governing bodies can no longer ignore that steps will be taken to either control or at the very least regulate the new technology. Many businesses working with cryptocurrency are law-abiding and they will have to work within the confines of their respective jurisdiction. The forced use of identified addresses is a likely avenue for law-makers to take. Other businesses or individuals who want to retain their privacy for whatever reason will not be using registered addresses for their activities causing a fracturing between these two contexts of cryptocurrency use. This is likely to lead to an increasing scarcity of “black” coins as a result of a desire for legitimate practice. “White” bitcoins will be worth less than black bitcoins as the only way to create “black” bitcoins once registered will be theft or fraud. Whether or not you agree with the way such laws might affect cryptocurrency use this is one of the most likely scenarios proposed at the current time and if you are actively using cryptocurrency personally or for business you should be wary of this prediction.