Coin Center’s Peter Van Valkenburg on Preserving the Freedom to Innovate with Public Blockchains

Audio interview transcription — WBD049

Note: the following is a transcription of my interview with Peter Van Valkenburgh, Research Director at Coin Center. I use Rev.com from translations and they remove ums, errs and half sentences. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

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In this episode, I talk with Peter Van Valkenburgh, director of research at Coin Center. We discuss the state v federal legislation, money transmission regulations and how Coin Center works to preserve the freedom to innovate using public blockchains.

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Interview Transcription

Interview Date: Tuesday 20th Nov, 2018

“A system money that can move millions of dollars across borders are going to have some uses which are unsavoury, it is also going to make the world freer, better and a buttress for human dignity.”

— Peter Van Valkenburgh

Peter McCormack: Thank you for inviting me over here. How are you?

Peter Van Valkenburgh: I’m great. Thanks Peter. Thanks for having me on your show.

Peter McCormack: Yeah, it’s good. Nice to finally meet you, especially after watching your senate testimony with Nouriel, which I will ask you about. But I want to learn about Coin Center today, so it would be good if you could tell me firstly, your background, how you became to be part of Coin Center, and why it is so important for you.

Peter Van Valkenburgh: Sure, so the two things that are important to doing this job are law and technology, because Coin Center is a none profit advocacy organisation that’s focused on crypto currency policy, and so my background from a technology standpoint, I had a lost three or four years, where I tried to be an actor in New York City. Most of my friends paid the bills by waiting tables and tending bar, and I did that for a little, but then figured out that I could teach myself web design and build them all websites and charge for that. So that’s kind of how I paid the bills when I was an actor, and it got me into front end web coding, and it got me deeper into the internet, which I always loved.

Peter Van Valkenburgh: After deciding that that was not a fruitful life path, you’re really just trying to get people to take your resume, and you’re doing auditions all the time. Almost every one of which you will do horrible at, or be rejected from. I decided, “Okay, I should go get a real degree.” So I went down to northern Virginia, where I’d grown up. This was in New York at the time. But I moved back down to northern Virginia, and I went to George Mason, got a degree in economics, undergrad. And that’s where I got connected, actually with the group of folks that included Jerry Brito, who’s our executive director. He was at the Mercatus Center, teaching also a law class there.

Peter Van Valkenburgh: And then I went to law school, back up in New York City at NYU, and I focused on internet policy. That was what I was interested in, because of my self-taught tech background and my strong feelings about digital copyright policy and how we shouldn’t be villainising people who share five seconds of a song on YouTube and slamming them with statutory damages and things like that. We had a lot of law suits back in the late 90s, early 2000s about … It was around the time of the Snowdon relation so I got into digital privacy law. So I focused on those topics in law school.

Peter Van Valkenburgh: I was pretty sure I didn’t want to work at a big law firm, because even if you’re working on internet law, you’re going to be defending the big copyright holders and things like that. Not that there’s anything wrong with that. We need people to do that work. So I figured I would just go down to DC and work on advocacy. I was lucky enough to get a fellowship from Google. They have this fantastic thing that they do every summer called a Google Policy Fellowship. They pay you to work with different civil liberties organisations in DC and in other places. So I did that. Got a job at a cool think tank called, Tech Freedom that was focused on copyright, and telecommunications law. And then, Jerry, who, as I said I kind of knew from previous circles at George Mason, found me and said, “Hey Peter, do you want to be the director of research at a crypto currency think tank?” Actually he said, “Bitcoin think tank.” At the time of course, because most of all that was going on. This was back 2013, 2014. I looked at him and I laughed and I said, “That’s crazy. Are you doing this?” And I said, “Sure, where do I sign up? That’s the best opportunity ever.”

Peter Van Valkenburgh: The reason why I felt like it was the right choice, I’ve obviously never been that risk averse, at least given the crowd of lawyers, who are typically very risk averse. But also, I think that internet policy has sort of hit a standstill in many regards. Net Neutrality was something new and the large debate over that, although it was a difficult issue and one that really, I didn’t actually have a strong opinion one way or the other, because I’m mistrustful of the FCC sometimes, but also mistrustful of the big corporate telecoms. Don’t know how to find a good way forward, so I never liked working on that issue.

Peter Van Valkenburgh: But copyright and privacy law, this was after the Stone revelations. The USA Freedom Act was moving, we were trying to fix these like government survey lance policies, but it was very slow going and hard, dealing with the weight of decades of precedent about the fourth amendment and things like that, that were sort of set in stone. Copyright was reasonably … It had hit kind of a reasonable compromise, so the Digital Millennium Copyright Act had done some bad things with respect to making it illegal to traffic and materials that allow you to break TRM, the anti-circumvention preventions, but it was a compromise bill. You also got the safe harbor, the notice and take down safe harbor, which is the thing that allows a blog to have user comments on it. And the user comments, if they violate copyright, won’t get the blog maintainer in trouble.

Peter Van Valkenburgh: Similar, also with YouTube. YouTube won’t get in trouble, as long as they take down stuff, even if their user’s uploaded copyright infringing data. I’ve probably given you too many details, but those legal issues were sort of at a standstill, I think in 2013. In ’14, when I was looking to do something in DC, on internet policy, and Bitcoin was a complete green field or blue sky or open questions, yet to be determined. Unfortunately, when I was in law school I thought like, “Oh well, I’ll just do internet policy.” So I took a lot of copyright classes and privacy law classes. I avoided the finance classes like the plague. Maybe it was just … I was at New York and I didn’t want to be too hooked up with the biz dev people and things like that.

Peter Van Valkenburgh: But, it was a bit trial by fire, when we started Coin Center in 204, we immediately filed a comment with the New York Department of Financial Services in the bit license proceeding. That was already going at that point. I think we helped bring about some meaningful improvements, but we still were very unsatisfied with where it came out. We started working out money transmission licensing. And then, gradually we saw that we would need to really focus on anti-money laundering and securities law. So I sort of learned by doing, with respect to those areas of law. I think we’ve come up with really good policy as far as how we can still enforce those laws, but carve out as much freedom to innovate as possible, accepting that those laws are going to apply anyway, and figuring out how they apply to these novel new things, where there weren’t good answers before, because that really was something new.

Peter McCormack: Right, and how do you feel that the crypto industry, its current state of regulations and oversight by regulatory bodies, how do you feel that compares to say the early days of the internet, is it very similar?

Peter Van Valkenburgh: It’s similar and different. The similarities are disruption. The innovators dilemma. You see legacy industry incumbents who don’t see this as a threat. They think it’s silly or irrelevant to their business model, or something separate, and I think they’re becoming surprised and they’ll be increasingly surprised by it. From a policy standpoint, there’s similar hard questions. Like that copyright question, if you’re running YouTube and a user … You have millions of users. One uploads a video that is a copyrighted music video, for example. Under the previous legal regime, before the Digital Millennium Copyright Act, you could’ve been held fully liable, for all the damages incurred by violating that person’s copyright, because of your user’s actions.

Peter Van Valkenburgh: And you have millions of users, so take … I don’t know, it could be two million dollar statutory damages for that one violation. Multiply it by your millions of users, you can’t run YouTube in that world. That liability regime, which was reasonably calibrated for a world before user generated content platforms, like YouTube and Facebook and things like that, just didn’t make sense in the new world of the internet, where people wanted to build websites that would just be meeting places, and users would provide the content. And users should be liable for copyright infringement, if you believe in copyright, which is a bigger conversation. But, should this open platform be liable for all the actions of their users? I hope not, because if it is, it won’t exist.

Peter Van Valkenburgh: So we had to have this compromise with respect to how we create liability for intermediaries and it was the Digital Millennium Copyright Act, which said … Notice and Take Down Safe Harbor said, “Look if you see somebody violating your copyright, file a claim with the intermediary. They’ll have a certain period time to respond and then take it down if they feel like your claim is justified. And if you follow those processes, you, the intermediary, you’re not going to be liable for all the damages that you could incur by violating copyright.” It makes it possible to operate these websites, both big websites, like Facebook and YouTube, but as I said, also a blog.

Peter Van Valkenburgh: So take that, and look at Bitcoin. Bitcoin works, because it’s a peer to peer network where people all over the world run full nodes, they run mining nodes and they relay transaction messages on the peer to peer network, and if they’re mining, they perform the proof of work, and create new blocks and validate the transactions and create the Canonical ledger of all Bitcoin transactions. Those people are doing that. They’re doing that, because they’re self-interested, especially the miners, not really the full node, just none mining full node operators. But they do it, in order to create a public good. An open platform, just like Facebook or Google, or in many ways an open platform for content. The Bitcoin blockchain is an even more open … Because it’s not owned by one corporation, platform for data in the blockchain. Which is usually just Bitcoin transactions. But that’s nothing to scoff at, because that’s like digital gold potentially and a way to move money across borders without relying on anybody, which is amazing.

Peter Van Valkenburgh: A liability regime that could crush that, just like there were liability regimes with copyright that could crush Facebook and Google. What is it? Well, it’s money transmission licensing law. In the US, for example we have state regulations. So every state, expect Montana, oddly enough … Big sky. Every city except Montana, has money transmission licensing laws that say, “If you’re a money transmitter, you can’t do that with customers in our state unless you first come before us and get a license.” Now, their definition of money transmitters are so broad, in several states, and they’re different in each state, because it’s the state law, not federal law.

Peter Van Valkenburgh: Then in several states, a miner or someone running a full node, and god help you if you start talking about multi sig wallets, and holding one out of three keys or something like that. You might be a money transmitter if you’re doing those things, which is silly, because the ill that money transmission regulation was meant to address is shady companies losing your money. And a miner, especially just someone running full node, can’t lose your Bitcoin. That’s the whole point. They’re part of a peer to peer network, where you trust the system as a whole and the consensus mechanism. You don’t trust any one party. So licensing those persons, aside from making it none viable to do that activity, and therefore none viable to build part of the Bitcoin peer to peer network in the US at least … Unless you were willing to break the law, also wouldn’t address the kind of harms that those laws are supposed to address.

Peter Van Valkenburgh: So it’s just a bad fit. It’s sort of like in the internet context, nobody wants there to be this liability regime that would make it impossible for YouTube to operate. Nobody in the state governments wants there to be a liability regime to make it impossible for people to run Bitcoin nodes, but there was this existing law, that if interpreted the wrong way, would crush this thing. And so that’s why that was one of our first efforts at Coin Center was to work with the uniform law commission, which is just this body that creates model laws for the states to then pass in legislation, and to work with the states themselves, to develop … Either come up with better interpretation of the existing money transmission licensing law to make it clear that you’re not going to be liable for running a full node, or holding keys in a multi sig, if you can’t transact. Or, if not reinterpreting state law, creating new state law, and the uniform law commission creating this model act that states are now contemplating passing into law that would create the same result.

Peter McCormack: Is it still not actually clear who is a money transmitter, then?

Peter Van Valkenburgh: Mm-hmm (affirmative). No, it’s not. Not really.

Peter McCormack: But it wouldn’t make sense to pursue miners, for example, but it does probably make sense to look at Shapeshift?

Peter Van Valkenburgh: Okay, a bunch of things there. It does not make sense to pursue miners, and we haven’t seen states pursuing miners, but that’s not good enough I think. We have the rule of law in this country and there shouldn’t be this sword hanging over your head that even if it never falls, it just shouldn’t be there. So the fact that you could interpret these laws to cover things like mining is a real problem, even though we haven’t seen states try to do that. Now, companies like Shapeshift, or companies like Coinbase or companies like Circle, we think, at Coin Center, that the heart of the matter generally should be if you hold custody of consumer funds, then you’re in that position of trust. You could get hacked, you could have bad internal controls, you could have corrupt people working for you, or your systems could just fail massively, and you’d lose people’s money. And that’s the ill that state money transition licensing was meant to address, because Western Union can lose your money.

Peter Van Valkenburgh: So if you’re doing something that puts you in that position of trust, then it makes sense to treat you just like any other financial institution that’s in a position of trust. Now, you might then ask me, “Okay, Peter, should these companies get money transmission licenses?” That’s another conversation though. I think the first thing we want to advocate for, just as a reasonable policy organisation is parity with existing financial institutions. So in some states, where they’re going to license these organisations that are in a position of trust, then crypto currency companies should as well. But then, the second thing we should think about, aside from just parity, is can we make this better? And not just better for crypto currency companies, just better.

Peter Van Valkenburgh: It’s silly that PayPal and Venmo have to get licenses in 53 states, because they have customers all over the world. They should just be one US regulator at the very most, because they have regulators all over the world, in other countries as well. So the next conversation is, “Okay, can we get away from this process, where you’re going to have to go state by state and explain your business …” which is especially hard if it’s a Bitcoin business, because you’re running into a state regulator who doesn’t know what Bitcoin is, and you have to explain that, and why you’re different than Western Union, who’s the normal company they regulate.

Peter Van Valkenburgh: So you’ll have to go 53 states, explain your business, get licensed, in all of them where you expect to have customers. You get examined by 53 different authorities, which you welcome into your business, to look through your books. Some of them do now cooperate on joint examinations, but it’s a small fraction of the total. So what could we have that’s better there? Well, we could have a federal money transmission regulator. Maybe it would be within treasury or maybe if it was crypto currency focused, and also had concerns about market manipulation, it could be at the CFTC or something like that. We’ve written reports about how we need a federal alternative to the money transmission licensing regime. Because it’s simply so complicated.

Peter McCormack: How did something get elevated from being state regulated to becoming federally regulated? How do you elevate from one to the other?

Peter Van Valkenburgh: You are forgiven for living in a rational country, with a much simpler system.

Peter McCormack: Well, you say that though, we’ve got a problem at the moment with Brexit, where we’re trying to have a-

Peter Van Valkenburgh: Okay, you used to be a rational country.

Peter McCormack: We’re trying to have a part of our country, which is Northern Ireland now, which doesn’t want to have a hard border with the customs union, yet is trying to have the same rules as the UK. So we’re starting to invent problems.

Peter Van Valkenburgh: You’re starting to invent problems.

Peter McCormack: But, yeah how does something get elevated from being state regulated to federally regulated … God I can’t … Its tongue twister.

Peter Van Valkenburgh: It’s an act of congress. The constitution, which is the highest law of the land has a supremacy clause in it, which says that it sort of is an order of operations for government, at the lowest level is the county law. Then if the states pass a law over the county law, the county law’s null, if it pre-empts. The term is pre-emption. And then if the federal government passes a law that somehow conflicts or explicitly overrules the state law, then the federal law pre-empts the state law. And then there are some limitations on that, like congress isn’t supposed to do things that are very local. They’re supposed to regulate national things, like interstate commerce. And if they’re going kind of outside of their lane and doing something very local, you could bring a challenge to say this isn’t permissible powers of congress. But if it’s interstate commerce, it definitely is the permissible powers of congress. And I can’t think of many things that are more interstate commerce than Bitcoin, or money transmission, broadly including PayPal and Venmo. It’s literally money crossing state lines.

Peter Van Valkenburgh: So there would definitely be authority. The problem is … You know, I made it sound easy. Oh you just have the federal government pre-empt the state governments, but you need an act of congress to do that. And congress, for all its virtues and faults, it doesn’t do very much these days, because there’s so much partisan gridlock, and state pre-emption also tends to be a hot button issue, politically, because a lot of people are elected as representatives from their states and they have to make nice with local politicians. And if you’re sort of stomping on your own local politicians, it could be hard back in your home district, so these things become difficult very fast. We can talk about how good a system would be, and I think a lot of people agree that it makes total sense, but getting that law passed is very hard. We’re working on it though.

Peter McCormack: Are there any additional complexities as to where the Bitcoin is? So for example, if I was in New York and I sent Bitcoin to you and you were in Washington, but is strictly speaking even in New York or Washington, and it’s distributed on computers around the world, so really have I sent it to 20,000 nodes around the world? Does that become an additional level of complexity or is that ignored?

Peter Van Valkenburgh: It’s certainly a level of complexity when you’re explaining these things to regulators, because I think often their first question is, “Okay where is it at this moment in transit?”

Peter Van Valkenburgh: And at that point, if I want to give them a real understanding of Bitcoin I say, “Okay, hold on. We got to go back. First there are no Bitcoins. There just aren’t. They don’t exist. They are ledger entries in a ledger that’s shared, 10,000 or so computers across the country and the world. And so they don’t exist in any physical location. The ledger exists in every physical location essentially. And so geography doesn’t make sense here, and it’s not going to help you figure out your policy here. What you want to focus on, are the harms to people in your state, and the persons doing those harms. And so you want to think about the geography of the person selling the service to customers in your state, which would be a company like Coinbase, potentially or Zap or whatever and then the people in your state. And don’t start thinking about bigger issues of geography, because you won’t achieve any useful policy outcomes, either protecting consumers, and you’ll just make innovation difficult, because no one will know what the heck you’re talking about.”

Peter Van Valkenburgh: It comes up, actually more specifically, and this is a little interesting, in the federal definition of money service business. I know you said you would like to keep this podcast sort of more entry level, so I’ve like …

Peter McCormack: Let’s just go with it.

Peter Van Valkenburgh: Okay, so there’s state money transmission licensing, and that’s for consumer protection. You’ve got to get a license in all the states where you have customers if you’re holding their Bitcoins for them, maybe. Complicated. Then, there’s federal money services business regulation for anti-money laundering purposes, so not solvency and making sure you don’t lose people’s money, but making sure you know your customer, and you’re watching out for people laundering money through your service.

Peter Van Valkenburgh: So, the federal definition of money services business for anti-money laundering policy, is slightly different than the state definitions for money transmission, again, because these are different regulatory bodies, and they created their laws at different times. And it says, “Money transmission, which is a sub category of money services business, shall be accepting and transmitting currency, or currency substitutes …” So therefore, Bitcoin probably right?

Peter McCormack: Mm-hmm (affirmative).

Peter Van Valkenburgh: How could you argue it’s not? “… From one person to another or from one location to another.” That predates Bitcoin, of course. That’s old, bank secrecy stuff from the ’70s and the implementing regulations that happened in the ’80s and ’90s. The purpose of that was, what if you have a US person with a US bank account, who transfers their own money to a Swiss bank account, from one location to another, but same person to a person. And that was the purpose of that. But it makes things rather confounding or interesting, in the context of crypto currencies and Bitcoin, because we know when people send Bitcoin from one person to another … At least we can know quite easily, but what does it mean when one sends Bitcoin from one location to another? And I think the only sensible way to interpret it is when you’re sending it from one institution that’s holding your Bitcoin, to another institution that’s holding your Bitcoin. Not necessarily anything else, because no other interpretation really makes sense.

Peter Van Valkenburgh: But this comes up, interestingly in the context of ICOs. And I’m sort of diving even further into crazy territory here. But there’s this open question whether an ICO is itself, a money services business. You wouldn’t think so. I think a reasonable interpretation is that they’re not. Say what you will about ICOs, I think a lot of them are fraud and whatever, but at the end of the day, the genuine ones are somebody made something and they’re selling it to people. They’re not an intermediary in a money transmission sense. They’re not taking from Alice and giving to Bob. They are Alice, who invented X Coin and selling it to Bob, who probably shouldn’t buy it, but you know, whatever. Bob wants to buy it.

Peter Van Valkenburgh: Are they a money transmitter? Do they accept and transmit money from one person to another? No. They’re just selling something to another person, but I think there are folks at FinCEN, which is the regulatory authority for anti-money laundering, and lawyers in a space, looking at the ICO question from a money services business standpoint, who would say, “No, they accept money from Bob in one location, I.e. the Bitcoin or ether they take in the ICO sale, or maybe even the dollars, and then they transmit it to another location, which is the new blockchain that they created when they launched their coin.”

Peter Van Valkenburgh: And that’s weird, but that is one location to another, and so that’s how maybe you could squeeze an ICO promoter, into the bundle of money services businesses. And that’s completely separate by the way from securities law, which they might also be transgressing, if they’re actually offering investment contract. At which point, the SEC would be the anti-money laundering authority on point, as well as the investor protection authority on point, and not FinCEN. So it gets really … Don’t do ICOs. That’s the take away.

Peter McCormack: So an interesting therefore, question for you is, have ICOs massively complicated your work, and have they become a distraction? And also, how do you prioritise what to work on?

Peter Van Valkenburgh: That’s an awesome question. You actually nailed our internal conversations over the last two, three years now. They’re not a distraction, because they are a real subject of real regulations, that could also bleed into the things that we care most about, which is preserving the freedom to innovate, using open blockchain technology. A pre-sold token, where you have … I don’t know, some kind of Google spreadsheet keeping track of who you owe tokens to once you build your network, and who’s paid you Bitcoin, is not open blockchain technology, but what you end up using the money you raised to build, if you’re genuine, might be.

Peter Van Valkenburgh: If we think about the specifications for all the file storage networks. Storj, Sia, Filecoin, if those things work, they’re great. The decentralized storage, which is still this choke point in internet architecture. You know, Amazon runs almost every website in the world now, which is kind of alarming. And that would be great. That’s the kind of thing we’d love to see open blockchain technology do. We’re not just in it for Bitcoin. I think Bitcoin is fundamentally important, because it’s the first open blockchain network and it does something real. It allows people to send money and pay, and store value, potentially. But we’d also like to see open blockchain networks used for these other things. So the ideas behind a lot of the ICO boom, to me were compelling. It’s this pre-funding aspect that I think is not within Coin Center’s wheelhouse to sort of defend, because we were never out to revolutionise capital formation. That’s not Coin Center’s mission. Coin Center’s mission is to preserve the freedom to innovate, using open blockchain technology, not revolutionise how companies raise money to build things.

Peter Van Valkenburgh: To that extent it is a bit of a distraction. However, it’s linked, and the definition of a security, at least in the US, is a flexible standard, because the statute, the 33 Act, it has this undefined term called, Investment Contract, within the definition of the security. And so you’re left thinking, “Okay, well what is an investment contract? That sounds like a lot of things.” And the courts created a standard for determining when something’s an investment contract, and it’s called the Howie Test. It comes from a case in the late 1940s, early 1950s that dealt with orange groves, which we won’t talk about.

Peter Van Valkenburgh: But the test says, “Okay something’s an investment contract when there’s an investment of money, in a common enterprise, with an expectation of profits, relying on the efforts of a third party promoter.” And so sure, that sentence, I think you could make a case that that applies to a lot of these pre funding activities. “Here give me your money. I’ll build Future Coin. It’ll be better than Bitcoin, and then I’ll give you Future Coin.” Investment of money, expectation of profits, reliance on the efforts of this person, who’s promising Future Coin.

Peter Van Valkenburgh: Pretty clear cut case there. But what about Bitcoin? People invest their money in Bitcoin. And let’s just leave out exactly who they bought it from or how, usually expecting profits. It’s just true, and it’s sort of an unfortunate reality of how these systems all have to begin. If you’re creating money from scratch, there’s going to be opportunities to make money. And a lot of people are going to want to get rich. They’re going to see their friends getting rich and they’re going to get FOMO and they’re going to make bad decisions. With an exception of profits, reliant on the efforts of a third party promoter, I don’t know, I mean I don’t think Bitcoin fits that test, primarily because there is no discernible third party promoter, upon whom Bitcoin users really do rely upon. Not in the sense that you rely upon Steve Jobs to make … Or you did rely upon Steve Jobs to make Apple profitable, or Tim Cook today.

Peter Van Valkenburgh: Sure there are people that play roles in the Bitcoin eco system that create value, and lead to the price going up, or maybe they fail to create value and the price goes down, but none of them are as central as the sort of corporate management structure of a normal security or a normal investment.

Peter McCormack: I think the difference being though, that most ICOs kind of look like a company or are a company.

Peter Van Valkenburgh: That’s right. And especially in that pre-funding stage, because at that point, in the pre-funding stage, there’s no open source software, or there’s a little, but it’s incomplete, doesn’t work the way it’s really intended to work yet. So there might be a good hub repository, but it’s not functioning. And there’s no blockchain that’s running, generally speaking. So there isn’t a peer to peer network, there aren’t people staking or mining or doing whatever they’re supposed to do on the open consensus protocol, participating. And so, you don’t have all the people out there, who are or could be a stakeholder or a miner, or whatever, to power the decentralised infrastructure. You just have the person promising to eventually have that happen. And you don’t have, necessarily a wide base of people developing the software. You probably just have one or two. Might even be proprietary, or it might just be a white paper, and not even developed yet. In which case, yeah you’ve got obvious reliance on a third party promoter.

Peter Van Valkenburgh: But as I said, with Bitcoin, it’s still kind of tricky. Bit pay used to sponsor … And god bless them it was great, but the Bitcoin bowl, the college football with the Bitcoin sponsor. And this was part of a way to get more people to understand Bitcoin and like Bitcoin, and see the real value in the system, and yes, ultimately make the price go up. So were people relying on them? No. No more than you would rely on one particular subsection of the gold industry. Like dentists who make gold fillings for teeth, or scientific uses, where they use it in industrial applications, or miners who are actually digging out of the earth. No more than you rely on any one of those for the price of gold. Oh, and Peter Schiff also relying on for the price of gold, because he sells shiny rocks.

Peter Van Valkenburgh: So are any of them promoters of gold, as a security? No. That’s nonsense. Everyone knows that’s nonsense, but the bottom line is Bitcoin, miraculously is kind of similar. There’s that many people out there in the world doing different things with Bitcoin, and all their accumulative actions together do impact the price, but no one is every relying on anyone. And that’s a long winded way of saying that it is really decentralised. And so, one of the things that’s been really rewarding for us at Coin Center is being on the vanguard of working on these legal issues.

Peter Van Valkenburgh: Back in 2015, we were writing about securities law. It was mostly before the ICO boom. Ether, I think was having it’s pre-sale or was about to have its pre-sale, and we started saying, “Look, people are going to ask questions. People are going to say, does Bitcoin fit this test? Does Ethereum fit this test? Does anything fit this test?” And we started writing about it. Said, “Look, you want to look for two things. Is the network functional? Because then the creator maybe could step away and it would be okay. And is it decentralised, because then the creator’s really, truly irrelevant.” And that was what we developed, and it’s come to, I think be very valuable to both policy makers in this space, and hopefully to some people who were thinking about doing ICOs but maybe didn’t, because they read a little bit of our materials, which would be great if that’s … Didn’t make a huge dent if that’s the case, because god knows we’ve had a huge ICO boom.

Peter McCormack: But it’s therefore a strange position for you, because there’s so much benefit to Bitcoin, there’s so much work that you guys can do to promote it, to advocate for it, to support regulators. But because you’re supporting open Blockchains, you’re also therefore supporting Ethereum and I think we probably … Almost everyone now is realising the whole ICO boom is probably net bad. It could get regulated to the point where maybe next year we’ll start to see regulated ICOs that have some kind of benefit, that are quite good. But I feel like potentially it’s taken some time and effort away from the good work you could’ve been doing for say Bitcoin.

Peter Van Valkenburgh: Coin Center is pretty aggressively coin agnostic. I’m still personally most interested in Bitcoin, because it’s conservative. I like Ethereum though, because I like the dynamism that seems to be occurring on top of that platform. And yeah, part of that dynamism is people doing their ERC 20 token sales. And that has regulatory consequences, and that has reputational consequences for everything. But you can’t just be driven by your fear of negative reputational consequences, because if you were you’d stay the hell away from Bitcoin as well. A system that can move millions of dollars across borders is going to have some uses that are very unsavoury. It’s also going to, I think make the world freer, better and be a buttress for human dignity and prosperity, but it’s going to have some unsavoury use cases.

Peter Van Valkenburgh: I wouldn’t presume to be smart enough to call it at this point and say, “It’s going to be Bitcoin. We should focus 100% on Bitcoin.” And also, the way policy works, unless you’re really unscrupulous, which your listeners will have to take my word for it, that I’m not really unscrupulous. But unless you’re really unscrupulous as a lobbyist, you’re usually trying to work for policy that just sets general rules that apply to everything in an equal way. So we’re not going to go to Capitol Hill and say, “We need the Bitcoin promotion act of 2019.” Where the Bitcoin crypto currency will somehow be given preferential regulatory treatment compared to other crypto currencies.

Peter Van Valkenburgh: We’re going to argue for neutral legislation that allows Bitcoin to flourish, and if somebody creates a new Bitcoin, and maybe they don’t pre-sell it. Maybe they just do what Satoshi did, which I think is actually the right thing to do, and they just do the work, uncompensated, release the software, release the open consensus protocol and if people want it, and it’s useful, it’ll run. And maybe it’s not Bitcoin, and maybe it’s something new.

Peter McCormack: A bit like Grin’s doing. Have you followed Grin?

Peter Van Valkenburgh: That’s right. Grin is doing this. And so, our work and securities law is still relevant there, because if Bitcoin might be a security even without the pre-sale, under a loose interpretation of the Howie test, then so could all these other things. And especially the new ones, frankly because people are looking at them more askance, because they’re new.

Peter Van Valkenburgh: The silly interpretation of securities laws that I’ve often heard is that, “Well, Bitcoin slipped under the radar, because it was so early.” And, “Ethereum slipped under the radar because it was so early.” And there’s some truth to those statements, like yes, people were not paying attention back then, but the statute of limitations on these things is long. And we should want good rules, and a good rule that Coin Center advocates for is if you build something that really is decentralised and functional, then what it is today, once it’s decentralised and functional, is not a security.

Peter Van Valkenburgh: This is one thing that’s difficult to communicate. You might have raised money in order to build that thing that is today decentralised and operational, and maybe the way you raised money was improper. Maybe that was actually unregistered securities insurance. But that is a separate inquiry from what you ultimately built, and should be a separate inquiry. As I said, we’re not out there to defend people who are raising money improperly, but we are out to defend the things that people built, whether they raised the money properly or not, if they become properly decentralised and functional, because then they become part of this architecture that could make the world a much better place. And I’m not willing to take bets on which project is going to be the foundation of that architecture yet. I think it’s likely Bitcoin, but I’m not going to hedge my policy prescriptions on what I recommend, based on one or the other.

Peter McCormack: And I guess you probably need to be impartial anyway in that and allow currency competition within crypto.

Peter Van Valkenburgh: You don’t need to. If you believe in markets and freedom you should.

Peter McCormack: Let’s talk about regulations and working with the regulatory bodies. Which bodies do you work with primarily, and how does the relationship work? Are you reaching out to them, are they reaching out to you? Is it just some kind of symbiotic relationship? How does this actually work?

Peter Van Valkenburgh: Symbiosis is pretty accurate I suppose. When we first started we were new, but there was already a lot of demand for this work. Bitcoin foundation was struggling a little and doing less and less, so there was a bit of a vacuum, as far as who can we bring in to explain this? So if you’re a member of congress and someone in your district has told you about Bitcoin, maybe for bad reasons, maybe because they got ransomwared or something like that and they demanded payment in Bitcoin, you want answers. Who you’re going to call. It’s not Ghost Busters. It should be Coinbase or Xapo, unless the questions are specific to custodial crypto currency exchanges. But if you just want to learn about Bitcoin you should be learning about it, we think from a none profit that is focused on the technology. And that’s what Coin Center first set out to do. And most of our work was just education.

Peter Van Valkenburgh: And so it’s in those educational briefings, whether it’s one on one with a staff member of a congressman, or one to many, maybe at an agency. But you make the connections and they come to see you, I think fairly in our case, as an honest broker of information, that will help them do their job better, but also won’t make it too easy for them. These are hard questions, how can we promote innovation but still protect investors? How can we promote financial privacy, but still have some level of anti-money laundering controls in place?

Peter Van Valkenburgh: So we, I think became sought out in DC and also in a lot of the state governments that were grappling with the money transmission question, because we had good information. We were always also able to connect people with folks in the industry who are actually building this stuff. Whether they’re core developers, or whether they’re people like Coinbase or the other companies and things like that.

Peter Van Valkenburgh: You asked also, more specifically, I mean it adopts the question, which agencies? It’s really all of them that touch Bitcoin, which alarmingly, and again you have a more rational system where you’re coming from, is a lot of agencies. So in the UK you have the FCA, which does most of the regulation of the financial institutions. In the US, here, you have the SEC for investor protection purposes, where things are securities, so there’s that difficult question whether any of these things, or all of these things are securities. You have the CFTC, which regulates derivatives that are traded where the underlying thing, under the derivative is a commodity. Most things are commodities, including Bitcoin.

Peter Van Valkenburgh: You have FinSEN, which is a division or a bureau of treasury, which means they have an independent budget within treasury, that focuses on financial surveillance and anti-money laundering. So that’s the money services stuff I was talking about earlier. And you have the CFPB, which is a newer consumer protection federal regulator that looks like unfair and deceptive acts and practices of lenders and financial institutions. You have three banking regulators, the OCC, which is not entirely relevant here, because banks aren’t holding Bitcoin, but would be relevant if they offered a Fintech charter, which would be a way to become a licensed financial institution and maybe do like running a Bitcoin exchange, or things that are not traditional bank activities, but close enough. That’s the Fintech charter that they’re contemplating offering that, basically to companies, so we’ve worked with the OCC.

Peter Van Valkenburgh: The other two banking regulators are the Fed and the FDIC. The Fed is sort of … Okay, well you don’t need a full breakdown of all banking law. And then you have all the state regulators as well. So you have state money transmission regulators, who tend to be the department of financial institution with any given state. So they also regulate the state chartered banks, and they also do the unfair and deceptive acts and practices thing that the CFPB does. That’s just the US.

Peter Van Valkenburgh: Coin Center’s vision longer term is to work towards good global policy, but as you can see, we’ve got an alphabet soup and a lot of work to do here just in the US. We’ve worked with all of these agencies.

Peter McCormack: But it does feel like the US agencies, they have a global reach. If they’re not happy with something a crypto company or firm is doing internationally-

Peter Van Valkenburgh: That’s right.

Peter McCormack: … they can reach out to them. So it always feels like follow the US regulations first and the rest of the world will maybe kind of follow.

Peter Van Valkenburgh: That’s right. Yeah. The extra territorial reach of US regulators is very real. So if you think that you’re building something that would be illegal in the US, and your activities would be illegal in the US, and it’s okay, I’ll just locate over here. You better be sure they don’t have extradition with the US, which is a pretty small number of nations across the world.

Peter Van Valkenburgh: And yeah, US policy tends to end up reflected globally. So like our anti money laundering policy for example. FinSEN was one of the early regulators globally to come out and say, “Look, if you’re accepting and transmitting currency or currency substitutes, including virtual currency, including Bitcoin, you need to do suspicious activity reporting and know your customer and all that.” And we’re only now seeing Europe catch up with that. I’m not offering an opinion as to whether those are good policies or not, but they’re policies that definitely do echo and repeat overseas, eventually.

Peter McCormack: One thing I found really interesting is that it’s very easy to see why regulators might be scared of crypto and Bitcoin, because when someone like Nouriel says it’s used by terrorists and criminals, it is easy to, with certain crypto currencies to move value around anonymously. Yet, at the same time, I’ve been surprised how open and forward thinking, and how well researched some of the regulators are. So there was obviously your senate testimony hearing. There was one person particularly stood out, Thomson, Thomasson? One of the … I’ll dig it out and put it in the show notes, seemed to really know what they were talking about. Also we’ve got obviously Hester Pierce, Christopher Giancarlo. There’s actually, it’s been a lot more open minded and a lot more pro Bitcoin and crypto than I would’ve expected. Have you found the same? And is this because of you guys?

Peter Van Valkenburgh: I mean it would be …

Peter McCormack: You can take the credit.

Peter Van Valkenburgh: The world is complex, and when I first started Jerry and I were talking about what’s a win? And I think the most you ever hope for is to just nudge the conversation slightly in one direction. You can never really take credit for something that broad, like this many people finding it okay. I think a lot of it comes from us, and other folks, and people who are just smart, comparing these things to the internet. I know that Nouriel Roubini is especially sceptical of that. He says it’s not like the internet, but I disagree. I just have to disagree, because I can’t think of another technology that’s been as open to experimentation. You can just build on it, without permission as the internet was, other than Bitcoin and crypto currencies. You see this explosion of things happening and that’s to me, all the indicia I need to believe that this is a fundamental piece of technological architecture that will revolutionise life. It might not be Bitcoin, it might be something like Bitcoin, but it’s going to change things substantially, and if we capitalise on that, and bring those innovators here in the US, that’s good for the US.

Peter Van Valkenburgh: So that message, I think especially resonates with congress, because congress does understand the internet. They saw what happened and they saw how members who helped make good policy with respect to the internet were able to hold that up as a trophy. Like I brought jobs to the US in a time when everyone was worried about jobs going overseas. I’m part of what made silicon valley great. I’m part of what made the US the well spring of the worldwide web and the internet. No offense to Tim Burners-Lee.

Peter Van Valkenburgh: If you can make that case with Bitcoin, then you’re already half way there, because you can also address a lot of concerns that law makers and regulators have. They say, “Well we see this used for ransomware. We see this being used for online drug markets.” And the answer is yes, of course. Criminals always use good technology. In fact, they usually use them before regular people do, because they’re really out for an edge, and they don’t have the benefit of the law to help them, so they need better tools that don’t fail.

Peter Van Valkenburgh: I thought a fun moment during … Tess and I were speaking to a congressman. He’s a southern democrat, about NASCAR, about how, in the early days of NASCAR, all the tech that was there, like the stock cars and souped up automobiles and all the driving skills, they were earned by bootleggers who were trying to outrun the police. They put their ingenuity to better uses eventually, but new tech is always attractive to criminals, especially open tech that anyone can build on. So the early days of the internet, mostly porn and scams. It’s just true. In the early days of crypto, unfortunately, also true, but that doesn’t mean that these things are permanently bad in any way. And so I think that message is fairly easy to understand and it’s part of this sort of American spirit of, things are allowed until they’re prohibited and we like chaotic innovation to a certain extent, because ultimately it leads us to have an edge, globally.

Peter Van Valkenburgh: I think Americans often think of themselves as the well spring of new ideas. We don’t perfect them, and we certainly don’t have like a perfectly sanitised and ordered culture, probably because of these chaotic new ideas, but we at least create the chaotic new ideas. I think that resonates with law makers. And then with regulators, you were saying you’ve got a number who are extremely well informed and not necessarily against it. And that’s because regulators are sharp more often than not. When something might be in their wheelhouse, they will learn fast. And so the number you mentioned, Christopher John Carlo, the chairman of the CFTC, Hester Pierce, commissioner at the SEC, yah. They know this stuff really well. They understand its importance as something larger than just their agency’s per view and they understand, I think very well how their agency should deal with the policy issues that the technology raises.

Peter McCormack: And on a personal level, you know that’s quite a journey to go from creating websites in New York to be sat at the senate testimony, defending crypto and Bitcoin as our … You know the champion for everyone. Just a couple of questions on that. Firstly, how much preparation went into that testimony, how nervous were you, and did you have that kind of, “Whoa.” Moment, like, “Look where I am.”?

Peter Van Valkenburgh: I think the biggest, “Whoa.” Moment, I had look where I am, was the year before when I first testified in front of the house. I actually don’t remember, was it house financial services, or house digital consumer goods, or …? I think it was house financial services, was the first that I had testified in front of. So that was the first time I’d testified in front of any chamber of congress, and that was frightening and cool.

Peter Van Valkenburgh: My background as an actor, I think helped, because I’m used to audiences, I’m used to talking in front of lights and things like that. So I wasn’t maybe as nervous, but I was nervous, because the one thing you can get away with as an actor is, at least you didn’t write the material. You can blame stuff on the playwright. Like, “Oh you didn’t like the play? Well, yeah the source material wasn’t great, or the director wasn’t great.” But when you’re actually being … You’re a witness. It’s both you presenting the thing, and you creating the thing, it’s sort of more vulnerable, if you will, because it’s your ideas and your presentation.

Peter Van Valkenburgh: How much preparation went into the senate banking testimony? A lot, and it was a busy time this past summer for a number of reasons. Fortunately, and we’ve said this in a flip note at the beginning of the written testimony, which is quite long, it’s an adapted version of our open matters paper, because they were looking just like good information about why these technologies are important, and that was a paper that I was really proud of from the year before, where we laid out, “This is what open networks are good for. You need open consensus mechanism driven networks and Ethereum in order to do at least these three things.” And it was electronic cash, identity and improved infrastructure for the internet and things.

Peter McCormack: I also, I re-watched the testimony yesterday and today, and just I noticed specifically that you emphasise the point open a number of times, and specifically in your-

Peter Van Valkenburgh: public. We rebranded. We went on open to public-

Peter McCormack: Sorry, public. That was it. I’ve got it written down here, but you specifically said, public. I couldn’t tell if that was a message you were trying to land with everywhere with everyone, or it was also in response to specifically to one of Nouriel’s points about permission Blockchains. Were you just trying to push that to one side, because it’s not really relevant to the conversation?

Peter Van Valkenburgh: Oh interesting. So a couple of things. The one moment where Nouriel and I kind of agreed was on the permission Blockchain stuff. I’m not as deeply sceptical as he is, about permissioned Blockchains. I’m just not that interested in them because I do think they have fewer implications for both policy and just generally the technological landscape, because they’re kind of like better database products for financial institutions and whoever. But, why did we emphasise public? So we switched from open to public. It’s not like a big ruse or anything, just because we think it’s easier to communicate the message that we want to get across, which is that this is a neutral platform for people to build things on top of. This is a piece of infrastructure, like a road or like a viaduct, or like utilities. This is something that could become the core of a lot of human experience, whether it’s moving money or moving certified identity credentials, or doing god knows what else people will do. Just look at what people are building on top of Ethereum. A lot of it’s weird, but whatever.

Peter Van Valkenburgh: And so if it’s going to be this core infrastructure, it should be public infrastructure. It shouldn’t be something that Facebook made and sees every corner of. And you know, nothing against Facebook, and I feel bad for them. They’ve been getting a lot of like heat lately. Not to mention in the senate and in the house of representatives. But I think, if you really are thinking about longer term how the technical architecture of human interaction on the internet should be built, it shouldn’t be built with these massive corporate intermediaries, being able to see everything that happens and potentially censor anything that happens, on their platform, because that has real and dire consequences for freedom and human dignity. It would be great tools for totalitarian regimes, for example.

Peter Van Valkenburgh: I got into this a little bit in the senate banking testimony, because Nouriel likes to talk about how the real innovation in Fintech is not Blockchain, it’s just the consumer payment apps. It’s apps, it’s WeChat, having We Pay, and it’s Ali Pay. I’m sure there is some truth to that, as in there are probably people who find it easier to transact now, because of those systems in mainland China. It’s also seemingly alarming that almost every payment in China today is going through We Pay, because it’s not private. Quite clearly the government has said, “We can see any transaction we want.” And they of course can sensor that ledger however they want as well, because it’s not a Blockchain. It’s not even a permission Blockchain. It’s just a closed app. So if all your payments in all your country are going through one, massive database that the government can see anything in, and potentially remove people from, if they want to systematically disable them from the financial system, that’s a huge liability.

Peter Van Valkenburgh: That’s why the public infrastructure messaging is important to us. It’s quite genuine. When I say in my testimony, “Look, we have public communications infrastructure, the internet.” That is an amazing thing that happened that I think is very good. It’s one of the better things that happened in the last 30 years, amongst a lot of things that are somewhat alarming. It would be good if we had similar public infrastructure for payments and for other trust essential interactions, like identity and things like that.

Peter McCormack: Right, okay. I also find the work the SEC is doing quite interesting, in that they seem to have taken a hands off approach to begin with, almost to see what’s going to happen, and then react and they are reacting now, with Paragon, and Ether Delta, but then I wonder, is that because they wanted to see how it would evolve, or is it just because it took them some time to say get their ducks in a row and realise what they’re dealing with?

Peter Van Valkenburgh: I think it’s actually a very good reason that they move cautiously. These legal questions are not easy. Again, I think our framework and our way of parsing which projects are and are not securities, is a good one, but it’s by no means the only possible way of interpreting the law. And figuring out how you decide to interpret that law is going to have far reaching consequences. So if you’re a prudent regulator, and you’re presented with a genuinely new question of law, and question of how the world is changing in technology, you don’t come out guns blazing. You come out with a report. And that’s what the SEC did. The first thing they did was offer a report on the Dow. And the report said a lot of things. It said, “We think the Dow is probably a security. Here’s why. Based on things that we know about the Dow and how we feel about things right now, we’re not going to bring an enforcement action and put people on notice.”

Peter Van Valkenburgh: I think yeah, I think they wanted to see how the eco system responded to that. And then we saw, what I think are the reasonable progression of enforcement actions from their early enforcement actions were just naked scams. It was like a real estate backed coin, diamond backed coin, kind of thing. And then there were pre-sales of, “Utility.” Tokens that you really were just relying on the promoters to build this thing in the future, like Munchee. And then, eventually they came to exchanges, like Ether Delta.

Peter Van Valkenburgh: The only thing that’s interesting to me … And I don’t have an opinion about what this means yet, because it’s still fairly new, is it’s interesting to me that they went after a decentralised exchange before going after any centralised exchange. They’re certainly complicating questions of law and fact if it’s a decentralised exchange versus a centralised exchange. I don’t yet have an opinion on that, and it’s interesting.

Peter McCormack: Just back to your senate testimony with Nouriel, because it caused quite a lot of commotion, I think we can say. A lot of flak went Nouriel’s way. And one thing I’ve tried to do myself, is try and speak to detractors, and try and see the alternative opinion. One of the struggles I get is that whenever somebody has an alternative opinion, they usually get shot down as not being knowledgeable enough. So, who do you think would have made a good person to debate against?

Peter Van Valkenburgh: Interesting. I mean the format was also strange. I think the senate banking committee wanted kind of a debate, but we don’t talk to each other, it’s congressmen talking to us. It shouldn’t have been a debate, it should’ve been sceptical viewpoint, more optimistic viewpoint.

Peter McCormack: Because a better articulated detractor.

Peter Van Valkenburgh: Maybe one who wouldn’t put the shit in the written testimony. Literally the word, shit. Who would’ve been … You know Angela Walsh has said a lot of things that I think are provocative. I find myself strongly disagreeing sometime, but she’s very genuine and very smart. Her criticism always focuses on, let’s unpack these words like, decentralisation. Let’s unpack these words like trust, and really think about what are the incentives in the system? Who are you relying on? How does information travel through the system? Like, people say, “Well it’s open source software.” But, okay, do people really rely on a get up repository? Do people rely on other things?

Peter Van Valkenburgh: At the end of the day, I’m generally less concerned about a lot of the things she’s concerned about and so we have interesting … She was at the George Town DC Fintech week, and so was I, and we got into a … I should never do this, I was like a fifth panellist from the audience, like shouting. I raised my hand, but I shouldn’t have done that. But we had a really fruitful conversation and I’d love to talk with her more. There are other people who are reasonable sceptics or definitely concerned and asking the right questions.

Peter Van Valkenburgh: Christopher Brommer, at George Town — he’s a professor there, has raised really interesting questions of, “What would a good disclosure regime look like for ICOs.” Because he’s very concerned, and especially with ICOs I don’t blame him. There’s so much fraud in that space. He says things like, “Okay what would we want people to disclose when they promote a project and raise money in an ICO. It’s not just audited financial statements like you do when you’re issuing a security. We also want to know more about your team, and what are their technical backgrounds, and what are you trying to build? Because it’s going to be more broke than a security by default, because it’s this open Blockchain token, potentially.”

Peter Van Valkenburgh: Those are both, just off the top of my head, people who I think are sceptical and have a lot of valuable things to say.

Peter McCormack: And then back to regulations. What is the currency, kind of almost state of play? And I know this is going to sound like a very wide question, and answer as much or as little as you can. But, where do you feel you have good clarity? Where do you feel like you need further clarity, and what are the key issues that you are now pushing with regulators?

Peter Van Valkenburgh: You know, Neeraj and I were chatting earlier. People don’t like us for this, I think, but I think we have good clarity with the SEC. Again, I think the SEC took a really rational, cautious and well-reasoned approach to carving out their jurisdiction in this space. They didn’t claim the whole field, which to me, would have been irrational, because some things aren’t securities, like Bitcoin, but they didn’t do that. They’ve set out a lot of guidance in speeches, and now in more formal documents, that outlines their view as to how you separate the weed from the chaff, with respect to tokens that are and are not securities.

Peter Van Valkenburgh: It comes down … If you look at Director Hinman’s speech from last summer, to what I think is exactly the right question. Is it decentralised and is it functional? Now, is that an easy question to answer? No, but there are some things that can’t be reduced to simple questions, and if you tried, you’d ruin law. You just would ruin it. The world is not binary. The world is grey and we’re going to have to make choices, and we need frameworks that contemplate nuance, in order to eventually come out to have decisions. So I think US policy in securities regulation of open Blockchain systems is the best in the world.

Peter Van Valkenburgh: What else? Anti-money laundering policy got kind of fleshed out early, with respect to custodial exchanges. They are money services business. They have to file suspicious activity reports and things like that. There are some ambiguities, maybe on the horizon, with respect to decentralised exchanges and whether they are money services businesses, and therefore need to know their customers and file suspicious activity reports. That is an ambiguous area and a thorny one.

Peter McCormack: What are you working on right now? What are the key things that you are pushing?

Peter Van Valkenburgh: We’re working on this question of decentralised exchanges and anti-money laundering regulation, because to my mind, they’re not money services businesses. So again, that definition was accept and transmit currency or currency substitutes from one person to another or one location to another. If you are a dex, properly constructed, you never accept anything, or transmit anything. Your users are doing that P to P, through information that you organize, but that’s like running Craig’s List. That’s not like running a bank. So to me … And that’s just in the anti-money laundering context by the way. The SEC is also looking at dexes, because they regulate securities exchanges, and they actually have a broader definition of what is a securities exchange.

Peter Van Valkenburgh: But just on the anti-money laundering side, that’s an issue that I think is very interesting. In general, the emergence of privacy protecting crypto currencies. You mentioned Grin, earlier. There is of course Monero, there’s ZCash, and by the way, I’m a none compensated member of the ZCash Foundation. These are new tools, that are I think critical. We were talking about whether Bitcoin’s the one or not. I think Bitcoin’s biggest weakness is its lack of privacy. Nobody’s going to use a global economic system, where every time you get paid the people in the cubical next to you, pop their head up and say like, “Hey, nice raise, I saw it on the Blockchain.” We can’t have that.

Peter Van Valkenburgh: I’m not being mean to Bitcoin, or I’m being unfair to Bitcoin rather, because even the Bitcoin core developers and the community recognize that long term, we need to find ways to improve privacy with Bitcoin. Confidential transactions, things like that. So this is all coming.

Peter McCormack: Some Bitcoiners would say it’s also its biggest strength. Someone like Saifedean Ammous would say its open nature is its biggest strength because, for example if you’re banking with Bitcoin, or financial institutions are using Bitcoin, you can see their ledger.

Peter Van Valkenburgh: Oh sure, but privacy doesn’t mean you lose verification of integrity. In fact, the goal is to have both. This is why I’ve agreed to be an uncompensated board member of the ZCash Foundation. It’s the only like advisory or other position I’ve taken aside from Coin Center, is because that foundation was constructed to just decentralise development of ZCash, and from what I’d learned about ZCash I liked it. Primarily because of how Zooko and others would talk about the selective disclosure functionality, and the possibility of being able to have a proof, like a really robust mathematical proof that certain things aren’t happening. There’s no counterfeiting there’s solvency, so you could prove that you have this many ZCash and things like that, without leaking all the additional information, hence the zero knowledge proofs.

Peter Van Valkenburgh: That tech is not just in ZCash, it’s going all over the place, and Monero has another approach, using rig signatures and other schemes. And Grin, I need to read more about Grin. It’s fascinating. I don’t yet understand it. But the idea is, you would always be able to prove certain facts about the economy. There are only this many units in circulation. You, as an individual, would be able to prove certain facts about yourself when you wanted to. Okay, I want to be a none profit that accepts donation, so I’m going to make, by sharing a view key or something like that, all of my transactions where I’m receiving money public. Or, if you are, I don’t know, at an adult book store, you should be able to make a transaction that is not public by default.

Peter McCormack: But do the government regulators really, and truly understand privacy coins?

Peter Van Valkenburgh: They understand cash, and that’s actually really valuable that they understand cash. The regulated financial institution has used a completely anonymous bearer instrument to move money around the world for the last two, three centuries. The 1600s is when notes really started circulating.

Peter McCormack: Because I would’ve thought something like Monero would be very scary for regulators.

Peter Van Valkenburgh: Right, you’d think, but cash … Okay, so it’s cash and it’s digital, so maybe scarier. But when we’ve talked to a lot of people, honestly both in law enforcement and in anti-terrorism and things like that, they see it as just another vector. There are so many vectors. There are so many ways to move money to finance your horrible thing. The biggest one by far is still the regulated financial system, and Shell corporations and Shell accounts at big banks. Pre-paid cards are another, and pallets full of cash are another. So this is new, yeah. Is it really a fundamental change? Not yet. Will it be? Maybe, but it might just be another vector, and we’ll see.

Peter Van Valkenburgh: Again, you don’t want to throw the baby out with the bathwater. If we don’t want to move to a fully transparent financial system, like China’s moving towards, because that has incredibly dangerous consequences from the human rights standpoint, where somebody could just be … They wake up one morning, and because they said something against Shi Jum Ping, they can no longer transact. None of their cards work, they can’t even … I don’t know. Internet of things, connected future, they can’t even turn on their car. Who knows? And so we need systems that are less transparent than that, less transparent than Bitcoin, and still have integrity, and to me the only systems that are like that are systems like Monero and ZCash, and maybe Grin when it launches, we’ll see.

Peter McCormack: So therefore, Coin Center’s work isn’t just about defending technology and innovation, but it’s also defending kind of freedom and advocating the positives that come from decentralising power.

Peter Van Valkenburgh: I think that’s right. Yeah, I mean that’s why we got passionate about this stuff to begin with.

Peter McCormack: Are enough people aware of what you’re doing?

Peter Van Valkenburgh: Regulators are, which is good. We get a lot of inquiries, almost more than we can handle now. And the community, we’ve gotten a lot of great support from the community, and especially recently from certain companies in the space and things like that. Kraken gave an incredibly generous donation this past year, and they matched donations from others.

Peter McCormack: Jesse Powell was my last interview. Great guy.

Peter Van Valkenburgh: He’s amazing and he’s said such nice things about us too.

Peter McCormack: He’s also my largest patron contributor.

Peter Van Valkenburgh: Oh really?

Peter McCormack: Yeah, that’s how we got in touch.

Peter Van Valkenburgh: I feel like he’s really interested in creating public good, for these networks, which is excellent. So that’s great. The dark side of that coin, not the Kraken donation, just the dark side of the community, when you’re the one who’s working with government policy, I think a lot of people identify you as being sort of like a brown coat, a fascist yourself or something like that. So we get a lot of hate too.

Peter McCormack: I’ve seen that.

Peter Van Valkenburgh: We get a lot of indifference. People say, “If you don’t ship code, you aren’t helping Bitcoin.” And I think this is very naïve. The code is the most important part, in a fundamental way, but the world is not just hardware, it’s a lot of wetware and hard decisions. I think a lot of this is inevitable, this technology. I think a lot of it is a question of time horizons. Governments, especially totalitarian governments, like perhaps China’s could do a lot to stop this stuff. They wouldn’t succeed ultimately, I think, because I’m an optimist about that, but they could delay it, and make for horrible pain and suffering in the medium term. So even if you’re some sort of crypto anarchist, and you think this stuff is inevitable, I think you should still appreciate the work Coin Center does, trying to just maintain peace in the decades to come.

Peter McCormack: And how can people help Coin Center, what do you want from people?

Peter Van Valkenburgh: We’re a none profit that relies on donations from our supporters. We were talking about Jesse Powell’s very generous donation. We also get half of our donations from just individuals. Some of them small dollar amounts or small Bitcoin amounts, some of them larger. That’s how we survive. We’re a 501C4. It’s not tax deductible when you give to us, but we don’t pay taxes and we rely on those donations.

Peter McCormack: This has been a great interview by the way. We’ve covered some very interesting things, and I think I’d like to come back and really get into some other areas with you at some point, but just to close out, how do you see the next few years playing out? What’s going to be really important for you, for Coin Center, for the wider crypto currency community and regulations, what’s going to be really important?

Peter Van Valkenburgh: I think the most important thing is the financial privacy question that we were getting into earlier, because it’s hard. It’s easy to … I doubt myself sometimes, even. In the consumer protection context, when a company fails, because of a lack of regulation, what’s the worst case scenario? A bunch of people lose their money. When anti money laundering regulations fail, or more specifically counter terrorism regulations fail, the consequences are not … I mean it’s terrible when people lose money, but in many ways that’s a Gaussian or a Linear distribution. The sort of black swan event of somebody using these things to finance terrorism or something like that frightens the hell outta me.

Peter Van Valkenburgh: Now, that said, I don’t think there’s any ability to put these technologies back in the box anyway. And I think, on net, they’ll do much good in the world that will outweigh any bad, but how you develop a balance to protect human dignity and privacy and allow people to transact privately, but still allow law enforcement to get the information they need to stop heinous acts, is a really hard policy question and people feel very passionate one way or the other. You rarely find people who sit in the middle and say, “Well, let’s try and find a reasonable middle ground.” So getting that right … And I’m working on a long paper on privacy protecting crypto currencies right now. Jerry, our executive director is working on a paper on why privacy is a fundamental good.

Peter Van Valkenburgh: Getting those questions right, and getting the messaging right about them and helping people understand that there’s a good way forward here that doesn’t involve banning privacy protecting crypto currencies, but also is maybe not a future where everything is unregulated. Finding that middle road there is so hard. It’s hard everywhere, but it’s really hard there.

Peter McCormack: Okay, and how can people stay up to date, who do you want to hear from and where can they follow you?

Peter Van Valkenburgh: Sure. We love to hear from the community. Our website is Coincenter.org. You can reach out to us there. You can see all our work there, and you can see how we use the community as much as we can. Most of our plain English explainers for topics in this space are written by people who actually built the tech that they’re explaining, or maybe a young lawyer, who’s practicing in the area of a specific legal concern. So if you are building something new, or you’re a lawyer that’s working on … You think you have a novel way of looking at a legal issue, we’re always happy to meet you and talk with you, and maybe publish a backgrounder or something like that.

Peter McCormack: Great, well thank you so much for your time, Peter.

Peter Van Valkenburgh: Thanks Peter.

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