IRL Bitcoin Maker Shut Down by U.S. Government

Michael Epstein

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IRL Bitcoin Maker Shut Down by U.S. Government

The government's problem with creating a physical version of digital currency? It's the same thing as making actual currency.

Michael Caldwell had a pretty cool idea: He wanted to make a physical Bitcoin so people could actually hold their virtual wealth in the palms of their hands. Seems like a simple thing to make, right? Unfortunately, the U.S. government doesn't think that's so: The Treasury Department has stepped in and forced Caldwell to stop making his shiny e-money, at least for the time being.

Casascius [https://www.casascius.com/] Bitcoins are a set of "collectible" gold coins representing everyone's favorite "cyrptocurrency." Bitcoin holders can pay to have a predetermined amount of money transferred to a keycode, which is printed on the coin. (Interestingly, while there was originally a 25 Bitcoin version, one Bitcoin is now the highest denomination available.)

It's that last part that caught the Treasury department's attention. By creating pieces of physical currency with an designated monetary value, Casascius is technically considered a "money transmitter business," a type of company that is regulated by the federal government and 47 out of 50 states. So, while Caldwell's coins aren't illegal, he will need to receive a federal license to continue making them. He might also need to apply for individual licenses at the state level. It would be a very long, expensive process.

Regardless of what Caldwell decides what to do, Casascius is closing its doors for now.

Source: The Verge [https://www.casascius.com/]

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Baresark

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Grabehn said:
Ok I got a bit lost here... What exactly are these and what are they for?
Bitcoins are a virtual currency. They have no real world value. But this guy has been basically minting physical bitcoins for people, as a business. Now, they still aren't worth anything, but minting any kind of currency is federal and state regulated. Meaning that as soon as he started moving these for money, he was in violations of operating without the right license/permit to do so. So, his business's doors are shutting for an indeterminate amount of time.

Edit: I forgot to inject my opinion on the matter. Stupid me. It's kind of hilarious if you think about it. It's a currency whose value cannot be changed, but the government is scared of competing currencies and especially a currency that they have no say over. That is to say though, all the worlds governments have the same or similar policies. It just happened to have taken place in America in this story.
 

Therumancer

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Nov 28, 2007
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Grabehn said:
Ok I got a bit lost here... What exactly are these and what are they for?
Okay, as I understand things a Bitcoin is pretty much a virtual currency backed by donated computing power. The idea being that basic idea is that you "mine" a Bitcoin using a computer running special software which effectively networks it to other systems doing the same thing, which the guys controlling the network then rent out for specific tasks. The Bitcoin is pretty much how they pay you for the rendered service you provided. The value of the bitcoin largely being backed by the issuer and it's promise to potentially pay real money, which is in turn backed by the profits made by renting out the computing power of the computers running the "mining" software... at least that is how I understand it, and I could be wrong.

The Bitcoin wound up getting a lot of attention because it's not something that's easily traced or tracked by governments being an entirely private currency. As a result it was being used for a lot of illegal transactions, one particularly infamous site called "The Silk Road" was selling illegal pornography and drugs for bit coins for example since the transaction couldn't be traced. The site itself was however eventually shut down. On a lot of levels the entire "Bitcoin" controversy seems to be similar to the whole "Linden" controversy from Second Life, where the fact that people would be willing to exchange real money for the virtual lindens reliably allowed a lot of money laundering transactions as well as criminal activities to take place through the linden exchanges. Second Life having become a haven for pervs and such largely because it was a place where one could more or less publically sell things like child pornography under a veil of relative anonymity and without an easily tracable money trail.

Bitcoins are undergoing something of a crackdown globally at the moment, and honestly I'm kind of surprised it took as long as it did, especially in the US, where legally speaking all transactions are supposed to take place using US dollars. I look back at huge crackdowns on people being paid with company script, or even the government initially having to force people to use paper money as opposed to coins with an intristic value early on. It's an example of a legal system that has become so convoluted and out of control that even the most basic common sense foundations of our society are falling apart. As I understand Bitcoins it's very similar TO company script being issued by a private individual/organization backed by their promise, being given to people for basically providing computing power to "mine" the coins.

Right now with a powerful enough computer, in some cases a specialist system, you can pretty much make bitcoins just by leaving it running and running the mining software. To be honest it seems like a bubble waiting to burst to me, I imagine it will explode and leave a lot of people with overpriced mining machines hanging, while a handful of people who got in at the beginning managing to make a bundle and escape on golden parachutes (so to speak).

A big warning sign should be the Winklevoss twins being heavily involved (the guys who fought Zuckerberg over the ownership of facebook). They always seemed to pretty much define business sleaze to me... but people keep listening to them for whatever reason, despite the fact that the only ones who seem to get rich off their schemes are them and their closest cronies.
 

rees263

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Jun 4, 2009
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MinionJoe said:
Is the problem because they're made of metal? Because otherwise, pre-paid debit cards could be construed as "minted currency" as well. Or hand-written I.O.U.s for that matter.

If they stopped minting metal coins and instead issued plastic cards with the same ID number, that should solve their problem with the hella-jelly U.S. Treasury.
My thought was along this line - by this logic you could write the code down on anything and "create currency" right? Even though there's no intrinsic value in the medium which carries the code, only the code itself.
 

DjinnFor

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Baresark said:
Grabehn said:
Ok I got a bit lost here... What exactly are these and what are they for?
Bitcoins are a virtual currency. They have no real world value. But this guy has been basically minting physical bitcoins for people, as a business. Now, they still aren't worth anything
Please do not pretend like you know what you're talking about. Bitcoins are not a "virtual currency" in the way that Microsoft Points are. They are a proper currency, traded on exchanges like any other currency, and have value like any other proper currency.
 

Sean951

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Baresark said:
Grabehn said:
Ok I got a bit lost here... What exactly are these and what are they for?
Bitcoins are a virtual currency. They have no real world value. But this guy has been basically minting physical bitcoins for people, as a business. Now, they still aren't worth anything, but minting any kind of currency is federal and state regulated. Meaning that as soon as he started moving these for money, he was in violations of operating without the right license/permit to do so. So, his business's doors are shutting for an indeterminate amount of time.

Edit: I forgot to inject my opinion on the matter. Stupid me. It's kind of hilarious if you think about it. It's a currency whose value cannot be changed, but the government is scared of competing currencies and especially a currency that they have no say over. That is to say though, all the worlds governments have the same or similar policies. It just happened to have taken place in America in this story.
The government is in no way scared of Bitcoin, if only because there will never be enough bitcoins to actually be useful for every day life. The US economy produces over $16 trillion in goods and services, or a value equivalent to 16 billion bitcoins. There are currently 21 million bitcoins. What the government IS worried about is how easy it makes money laundering and illegal transactions.
 

DjinnFor

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rees263 said:
MinionJoe said:
Is the problem because they're made of metal? Because otherwise, pre-paid debit cards could be construed as "minted currency" as well. Or hand-written I.O.U.s for that matter.

If they stopped minting metal coins and instead issued plastic cards with the same ID number, that should solve their problem with the hella-jelly U.S. Treasury.
My thought was along this line - by this logic you could write the code down on anything and "create currency" right? Even though there's no intrinsic value in the medium which carries the code, only the code itself.
True, but that technicality is not something that the average U.S. FinCEN agent understands. Although, pre-paid debit/credit cards are actually regulated, last I checked, so that analogy doesn't help this guy.
 

medv4380

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Feb 26, 2010
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It was a scam waiting to happen.

The minted metal bitcoin represented a virtual bitcoin. When you got the metal bitcoin you could send it to someone, or rip off the little tamper proof hologram to see the private address and utilize the virtual bitcoin as originally intended.

However, you have no grantee that the person who made the metal bitcoin and hologram didn't already have the private address. They could sell you the physical bitcoin, wait a year, then sell the virtual bitcoin before you break the hologram. A very basic double spending scam.

This was clearly a scam to everyone who isn't under the influence of bitcoin mania. However, it would be important to know if anyone at the Escapist has any financial incentive to spreed these bitcoin stories.
 

DjinnFor

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Grabehn said:
Ok I got a bit lost here... What exactly are these and what are they for?
They are a cryptocurrency; digital currencies designed specifically to imitate features of real currencies using cryptography. They can't be doublespent or counterfeit (subject to certain technical considerations), and can be sent to anyone almost instantly (if you have an internet connection). Most importantly, they're designed to be decentralized; i.e., not issued or escrowed by a bank-like organization; that means that you can't chargeback the currency or shut down a bitcoin bank account without physically seizing the users computer and their secret keys, but you also have no recourse if the keys are stolen off your computer or sent to the wrong party.

medv4380 said:
This was clearly a scam to everyone who isn't under the influence of bitcoin mania.
It was clearly a scam despite any evidence indicating that it was. They could potentially break your trust, so they obviously always will. Nice logic.

Like those internet service providers. They clearly don't actually give you all the bandwidth you pay for. They obviously throttle it down as low as possible to steal your money from you. Since they could potentially get away with this, they obviously do it.

And your local grocery store; the manager always makes sure to order the special scam quantities from his suppliers. They always put less chips in than the weight listed on the bag so he can save a few cents. We know this because he could be doing this, so obviously he will.

If it can be done, it will be done! It's impeccable logic.

medv4380 said:
However, it would be important to know if anyone at the Escapist has any financial incentive to spreed these bitcoin stories.
It's important to know they generate a high quantity of clicks? Okay, I suppose.
 

Sniper Team 4

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Does anyone else find the idea and concept behind Bitcoins a bit worrying? I mean, what if this market collapses and you've put everything you had into it? The only thing that keeps it going is the faith people have in it, and as we saw earlier this month, all a country has to do is simply question how much they're worth and the stuff drops like a stone. This whole thing seems like a very dangerous wave to be riding on.
 

Mid Boss

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Therumancer said:
This guy has it dead on but there's a few things I'd like to ad. For those of you contemplating doing this, here's a splash of cold water.

As more CPU power is put into mining the coins from all the people around the world that are mining for them the more difficult the bitcoins become to mine. If you doubled the amount of cpu being put into it, the coins would become twice as hard to earn. This ensures that only a set amount of bitcoins are released a day. It also squeezes out anyone who aspires to mine with just their home computer. Technically it's possible, but you'll spend more on electric to power your computer than you'll make getting bitcoins. The difficulty of getting them has long since moved beyond a normal PC. You have to get a specialized rig for it to be profitable.

Now, as more people get rigs, that's more CPU power put into the coins, coins get harder. Rigs will take about three to six months to make enough to pay themselves off and then and will continuously make less and less money until, after about two years, wont make enough to pay for their own electric consumption. You need to constantly buy more advanced rigs to keep up with the people who are constantly buying more advanced rigs.

It's a race and, unless you got in on it years ago, it's one you can't hope to win.

All for a market that could burst at any moment.
 

Baresark

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DjinnFor said:
Please do not pretend like you know what you're talking about. Bitcoins are not a "virtual currency" in the way that Microsoft Points are. They are a proper currency, traded on exchanges like any other currency, and have value like any other proper currency.
They are a virtual currency, as in they don't have a real physical counterpart. The value of bitcoins is hightly debated, but it's debated in a manner like your dad's baseball card collection. They aren't tied to anything, so they are a fiat currency, making them extremely volatile and almost useless on the open market. I never said they weren't traded or used for transactions, but that doesn't make them non-virtual. Also, there is no reason to be a dick by opening like you did, it's just uncalled for. The fact is, there are very few actual definitives in regards to bitcoins.

Sean951 said:
The government is in no way scared of Bitcoin, if only because there will never be enough bitcoins to actually be useful for every day life. The US economy produces over $16 trillion in goods and services, or a value equivalent to 16 billion bitcoins. There are currently 21 million bitcoins. What the government IS worried about is how easy it makes money laundering and illegal transactions.
False. All governments fear competing currency. They fear anything they can't regulate. It has implied value, therefore it can be used for illegal transaction, but that is like trading drugs with stock futures, it's idiotic. The value is far too volatile. I know it has been used for illegal transaction and that has been tracked, but it's not intelligent as far as drug dealers are concerned. They would be far better using that other fiat currency, the dollar. Also, the dollar is far less volatile, making it a better way to do transactions.
 

medv4380

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Feb 26, 2010
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Sniper Team 4 said:
all a country has to do is simply question how much they're worth and the stuff drops like a stone.
Its actually a basic misunderstanding of economics that made people claim that it was China that caused bitcoins to drop in value.

Bitcoins were in the process of a parabolic bubble. They always pop, and the result is a 40 to 60 percent drop when they do. Followed by a roller coaster deflation of the bubble. Bitcoins have done this 3 times now, and each time the pop is attributed to whatever event people see as the last one. In reality a parabolic curve is a guarantee the price is in a mania, and will crash. However, unlike most stock market bubbles, bitcoins have generated perfect bubbles because real stocks have real values that mask the bubble as it forms.

These bubbles are just going to get closer and form a rare event. Not a unique event, but one that hasn't really happened in a good long time.
 

Sean951

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Baresark said:
DjinnFor said:
Please do not pretend like you know what you're talking about. Bitcoins are not a "virtual currency" in the way that Microsoft Points are. They are a proper currency, traded on exchanges like any other currency, and have value like any other proper currency.
They are a virtual currency, as in they don't have a real physical counterpart. The value of bitcoins is hightly debated, but it's debated in a manner like your dad's baseball card collection. They aren't tied to anything, so they are a fiat currency, making them extremely volatile and almost useless on the open market. I never said they weren't traded or used for transactions, but that doesn't make them non-virtual. Also, there is no reason to be a dick by opening like you did, it's just uncalled for. The fact is, there are very few actual definitives in regards to bitcoins.

Sean951 said:
The government is in no way scared of Bitcoin, if only because there will never be enough bitcoins to actually be useful for every day life. The US economy produces over $16 trillion in goods and services, or a value equivalent to 16 billion bitcoins. There are currently 21 million bitcoins. What the government IS worried about is how easy it makes money laundering and illegal transactions.
False. All governments fear competing currency. They fear anything they can't regulate. It has implied value, therefore it can be used for illegal transaction, but that is like trading drugs with stock futures, it's idiotic. The value is far too volatile. I know it has been used for illegal transaction and that has been tracked, but it's not intelligent as far as drug dealers are concerned. They would be far better using that other fiat currency, the dollar. Also, the dollar is far less volatile, making it a better way to do transactions.
Fiat currencies aren't always volatile. At this point, pretty much every country out there uses a fiat currency because to try and use gold or silver just wouldn't cover the needs of a modern economy.

I stand by my point that the US government isn't afraid of what amounts to pocket change in the scheme of the US economy. You say drug dealers would be better trading in dollars, but the whole point of trading in bitcoins is that they can't be tracked and thus are easily laundered. Just look at the Silk Road, which specialized in illegal activities using bitcoins.
 

Mid Boss

Senior Member
Aug 20, 2012
274
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Sniper Team 4 said:
Does anyone else find the idea and concept behind Bitcoins a bit worrying? I mean, what if this market collapses and you've put everything you had into it? The only thing that keeps it going is the faith people have in it, and as we saw earlier this month, all a country has to do is simply question how much they're worth and the stuff drops like a stone. This whole thing seems like a very dangerous wave to be riding on.
Well, first of all, someone who sinks all their money into bitcoins SHOULD lose everything and perhaps be castrated so they can't pass whatever gene that makes them so damn stupid to the next generation.

All investments are dangerous and those that are almost completely safe wont make you enough money to keep up with the rate of inflation. Bitcoin worth has gone from 70 dollars to almost 800 in the past year. As opposed to a safe investment where you would make 3% or 4%... a year. It you managed to save up 30,000 bucks to invest, that's about 900 dollars you'll make a year. Makes that same 30k investment in bitcoins at this time last year and you'd have over 300k right now. While other investment avenues are complicated, lock up your money for years, or are outright rigged to steal your money (the stock market) bitcoins are simple and straight forward. So, the allure of bitcoins IS understandable.
 

DjinnFor

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Baresark said:
They are a virtual currency, as in they don't have a real physical counterpart.
Virtual doesn't mean non-physical.

Virtual: almost or nearly as described, but not completely or according to strict definition.

Just because "virtual" is used in the context of computers (virtual reality, virtualspace, virtual machine, etc.) doesn't mean it applies to anything created via a computer.

Having a "real physical counterpart" is not a prerequisite for a currency, ergo a currency that lacks a physical counterpart is still an actual currency, not a virtual one. Debts, for example, are a non-physical form of currency; promissory notes were often exchanged between merchants of different nations in the middle ages, in lieu of actual currency and goods, which could be more easily stolen by highwaymen. The promissory note acted as the medium through which these debts were exchanged between merchants to cut down on the cost of importing.

If you mean that bitcoin lacks physical methods of exchange, Bitcoins have mediums through which they are exchanged, just as a promissory note acts as a medium of exchange for a debt-based currency.

Baresark said:
The value of bitcoins is hightly debated
The value of bitcoins are not up for debate. They're trading for ~$813, or about two Playstation 4s (not counting the tax), last I checked.

Baresark said:
They aren't tied to anything, so they are a fiat currency
That's not what fiat means.

Fiat: a formal authorization or proposition; a decree.

When Bitcoins are declared legal tender in the United States (that is, a debt is annulled if the debtee refuses payment by the debtor in bitcoins), then you can call them a fiat currency, meaning their use as currency has been mandated by fiat.

Baresark said:
making them extremely volatile and almost useless on the open market.
A lack of volatility also means a lack of flexibility. A currency pegged to something by a central issuer creates a risk that the central issuer has to bear. Unpegged currencies, on the other hand, risk the holders of the currency with the effects of shifting.

Baresark said:
Also, there is no reason to be a dick by opening like you did, it's just uncalled for. The fact is, there are very few actual definitives in regards to bitcoins.
It's not uncalled for. If you don't know what a currency is, the definition of "virtual", how value is measured, or what the word "fiat" means, you should not pretend as though you can speak with authority on bitcoins as currency. Period.
 

Nielas

Senior Member
Dec 5, 2011
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DjinnFor said:
medv4380 said:
This was clearly a scam to everyone who isn't under the influence of bitcoin mania.
It was clearly a scam despite any evidence indicating that it was. They could potentially break your trust, so they obviously always will. Nice logic.

Like those internet service providers. They clearly don't actually give you all the bandwidth you pay for. They obviously throttle it down as low as possible to steal your money from you. Since they could potentially get away with this, they obviously do it.

And your local grocery store; the manager always makes sure to order the special scam quantities from his suppliers. They always put less chips in than the weight listed on the bag so he can save a few cents. We know this because he could be doing this, so obviously he will.

If it can be done, it will be done! It's impeccable logic.
Government regulations exist to protect the public from scams that "could be done". There are regulations on how much the actual weight of chips in a bag can differ from the listed weight. Companies who break those rules, are fined.

These kind of businesses has great potential for being a scam which is why they are regulated by the government. They are required to be licensed so the government can monitor that they are not a scam. This guy faaled to get these licenses and thus has to shut down.