Regulations And Two-Tiered Bitcoin Economy – Bitcoin Magazine

On Nov 19, 2022

This is an opinion editorial by Thibaud Marechal, builder of Knox bitcoin custody provider.

There has been a lot of coverage around the FTX catastrophic failure, with current developments and warning signs from the past. Will this have an influence on bitcoin in the coming years? I don’t care about shitcoin casinos, as most of them will probably be regulated as securities exchanges or shut down due to outright fraud or insolvencies. This is almost a done deal. But what about bitcoin?

Let’s play and game and speculate on the effect FTX will have on the future of bitcoin.

Bitcoin usage is going to split — gradually then suddenly. It’s been in the works since the genesis block was produced on January 3, 2009. There will be two ways to use bitcoin: as a black market good or as paper bitcoin on regulated exchanges. This future has almost always been true, but the distinction will become more clear-cut soon enough. What do I mean by that?

Regulators are going to regulate; that’s what they do. Bitcoin cannot be regulated, but custodial ramps such as exchanges, brokers and lenders can and they will be attacked. Self-custody is most likely going to be regulated out of the market for most buyers. It will become very hard to buy bitcoin and take full custody of it on these venues — maybe even close to impossible. This date is coming soon.

Quick, anon! You still have time before the on-ramps are closed, but how much? Three years or six months? The timeline is unclear. It will soon be impossible to buy bitcoin on an exchange and move that bitcoin into self-custody where you hold your own keys. Most custodial entities — which are trusted third parties — will be prevented from allowing users to withdraw under the disguise of regulatory compliance and consumer protection. You will buy paper bitcoin, aka fake bitcoin: These are IOUs to get artificial exposure to the price of bitcoin. You will not be able to claim that IOU and redeem it. Want to hold that bitcoin with keys that you control? Forget it, because it will be very hard. Few exchanges will allow users to self-custody and fewer will fight for the right of financial sovereignty. All they will do is sell paper bitcoin or stop operations for most businesses.

On one end, people will buy bitcoin IOUs on custodial entities giving up full KYC (know-your-customer) details, automated tax reporting and zero privacy. Bitcoin is going to be used as the underlying asset to the global financial surveillance network, the likes of which we have not yet seen. Regulated companies will form a network of compliance on top of Bitcoin and prevent you from holding what could have been truly yours. Perhaps they will even wrap it into a central bank digital currency (CBDC) to protect you against the volatility of bitcoin. You will buy paper bitcoin and you will be happy.

On the other end, bitcoin will flourish as the tool that it always ought to be: black market money. This will be the beginning of a new era for Bitcoiners who have zero fiat, i.e., the Bitcoiners who run full nodes, have full privacy and pay peer-to-peer for stuff with their hard-earned sats. CoinJoins will be the norm for most users to only share what they want with whom they want in order to protect their personal information from being surveilled by chain analysis companies. Some will call it a circular economy, others will call it the black market. It will operate 100% on webs of trust. Bitcoin will be bought without KYC between peers, using cash or bank wires when possible. It’ll be a small breath of fresh air in the era of digital surveillance and it will last until the rest of the fake Bitcoin network, choked by regulation, ultimately collapses under its own weight due to massive amounts of fractional reserves. Bitcoin will have succeeded in freeing itself from any state intervention and financial parasites, but that road will be long and sinuous.

Until then, the bitcoin price could be severely suppressed for many years and self-custody may be demonized, with hefty fines and government-sponsored intimidations similar to Executive Order 6102. Are you ready, anon? Don’t miss out. This is your chance to redeem yourself and choose what’s right for you and your family. Until then: tick tock, next block.

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