Rule of law at stake in Bitcoin wars

Just because our government is in the wrong doesn’t mean that its critics are always right

On Nov. 11, four MIT students, including Jeremy L. Rubin ’16, won the “Innovation” award at the online Node Knockout programming competition for their project, Tidbit. Tidbit would enable websites to monetize traffic by utilizing consumers’ computers to mine Bitcoin while they browse the site (presumably in lieu of advertising). Tidbit consequently attracted considerable attention for its potential to disrupt advertising markets. But, recognizing potential legal issues, our peers declined to make the code operative, although it is available for download on their website.

Their caution and respect for the law was met with a New Jersey subpoena. On Dec. 4, Rubin was served with a mandate to provide source code and identification of every computer his code had caused to mine bitcoins. The subpoena intimated that he might have violated the New Jersey version of the Computer Fraud and Abuse Act (the federal law under which Aaron Swartz was prosecuted). Fortunately for Rubin, the Electronic Frontier Foundation (EFF) agreed to represent him, and if the facts are as Rubin’s lawyer alleges, his prospects for jail time are slight.

Nonetheless, if the code did work and was used, why would anyone care that consumers’ computers would had been used to mine bitcoins? Suppose, contrary to fact and intention, the code was deployed and allowed websites to covertly use a reasonable amount of processing power from consumers’ computers. Would that justify jail time? More likely, suppose that you visited a website that conspicuously gave you the choice to either mine bitcoins or watch an ad (or even directly remunerate the website). I cannot think of a reason for an informed consumer to object to this practice.

The Rubin subpoena is a manifestation of broader series of disputes between the technologically innovative and our state apparatus. While the government’s case against Tidbit is absurd, many of the same techno-libertarians who rightly support Rubin also go too far in their other condemnations of the government’s attempts to regulate technology.

Consider the following examples. Our state is often captured by vested interests that oppose disruption. Many state governments have attempted to impose a sales tax on Amazon purchases, partly to protect politically powerful brick-and-mortar retailers. Libertarians, disliking how governments often squander taxes and incensed at state capture, rightly take exception.

But we have sales taxes to fund the operation of our government so that it can provide services and fulfill other obligations. True, those advocating Amazon pay sales tax are attempting to protect vested interests. But this would merely remove an unfair advantage — not paying taxes — not create an artificial disadvantage. Paying (sales) taxes is the fundamental obligation of being a citizen; the only reason Amazon customers might not pay sales taxes is an accident of federal law combined with a self-serving and anti-social desire to avoid paying taxes. And such a desire suggests a fundamental contempt for government and the rule of law.

Next, consider the money supply. Reasonable people can criticize excessive regulation of financial products (including over-enforced anti-money laundering statutes) that, among other things, protect the interchange fee that credit- and debit-card issuers make on every plastic transaction. They can also complain about excessive inflation.

Bitcoin responds to these complaints by removing transaction fees (Bitcoin transactions are processed by miners), increasing anonymity, and pre-determining the money supply. But Bitcoin and its proponents often go too far. Recent arrests on charges related to money-laundering regulations suggest that many techno-libertarians don’t understand that money laundering is a crime that facilitates actions like terrorism, embezzlement, and illegal trading with Iran.

Additionally, the Bitcoin money supply is not just pre-determined, it is capped. The result, as any macroeconomist would tell you, is that the currency is deflationary. This means that, if it’s truly used as a currency, the value of one bitcoin would (and does) go up over time. Consequently anyone with bitcoins has no desire to spend them. They can be sold to someone who wants to buy bitcoins later and at a higher price, and anything priced in bitcoins is going to see its price fall over time. So why would a Bitcoin user actually use bitcoins in commerce, when the price of a good will be lower tomorrow? Popular or not, Bitcoin and its proponents sometimes overreact to our state’s inadequacies.

It’s important not to lose sight of the fact that, in the words of former federal prosecutor Ken White, “idiocy is not a zero-sum game.” In other words, both sides can be wrong, and just because our government is in the wrong doesn’t mean that their critics are always right. Millennials are, for good reason, hardly inclined to support our governments’ actions — hence techno-libertarian ferment. But even if the state might be a hassle, the first thing we do, let’s not kill all the lawyers.