Revisiting the Bitcoin bubble

by on April 25, 2011 · 12 comments

Here is [a chart](http://bitcoincharts.com/charts/mtgoxUSD#rg180ztgCzm1g10zm2g25) of the Bitcoin-dollar exchange rate for the past six months. The arrow notes the date [my column on the virtual currency](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/) was published in TIME.com. The day after that piece was published, the Bitcoin exchange rate [reached an all time high at $1.19](http://www.bitcoinnews.com/post/4703632837/daily-2011-04-17). Yesterday, just over a week later, [it was pushing $2](http://www.bitcoinnews.com/post/4897524633/daily2011-04-24).

A wiser fella than myself once said, correlation is not causation, and no doubt my article was just a contributing factor in Bitcoin’s recent run-up. It’s simply getting increasingly mainstream attention, and with that more speculators and speculation about mainstream adoption. The chart above lends a lot of credence to Tim Lee’s [bubble critique](http://timothyblee.com/2011/04/18/the-bitcoin-bubble/), so I wanted to make sure I wasn’t giving that argument short shrift.

There may well be a Bitcoin bubble, and it may even be likely. But again, I think that misses the greater point about what Bitcoin represents. Bitcoin may be tulips and the bubble may burst, but the innovation—distributed, anonymous payments—is here to stay. Napster went bust, but its innovation presaged BitTorrent, which is here to stay. Could the Bitcoin project itself go bust? Certainly, but the innovation solving the double-spending problem I’ve been talking about, will be taken up and improved by others, just as other picked up and ran with Napster’s innovation.

I want to start thinking through the practical and legal implications of that innovation. If you don’t think the innovation could ever allow for a useful store of value, then mine is a fool’s errand. I guess I’m betting on the success of a censorship resistant currency.

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A Smarter Way to Tax Internet Sales

by on April 25, 2011 · 7 comments

Consumers are buying more and more stuff from online retailers located out-of-state, and state and local governments aren’t happy about it. States argue that this trend has shrunk their brick and mortar sales tax base, causing them to lose out on tax revenues. (While consumers in most states are required by law to annually remit sales taxes for goods and services purchased out of state, few comply with this practically unenforceable rule).

CNET’s Declan McCullagh recently reported that a couple of U.S. Senators are pushing for a bill that would require many Internet retailers to collect sales taxes on behalf of states in which they have no “nexus” (physical presence).

In his latest Forbes.com column, “The Internet Tax Man Cometh,” Adam Thierer argues against this proposed legislation. He points out that while cutting spending should be the top priority of state governments, the dwindling brick and mortar tax base presents a legitimate public policy concern. However, Thierer suggests an alternative to “deputizing” Internet retailers as interstate sales tax collectors:

The best fix might be for states to clarify tax sourcing rules and implement an “origin-based” tax system. Traditional sales taxes are already imposed at the point of sale, or origin. If you buy a book in a Seattle bookstore, the local sales tax rate applies, regardless of where you “consume” it. Why not tax Net sales the same way? Under an origin-based sourcing rule, all sales would be sourced to the principal place of business for the seller and taxed accordingly.

Origin-based taxation is a superb idea, as my CEI colleague Jessica Melugin explained earlier this month in the San Jose Mercury News in an op-ed critiquing California’s proposed affiliate nexus tax:

An origin-based tax regime, based on the vendor’s principal place of business instead of the buyer’s location, will address the problems of the current system and avoid the drawbacks of California’s plan. This keeps politicians accountable to those they tax. Low-tax states will likely enjoy job creation as businesses locate there. An origin-based regime will free all retailers from the accounting burden of reporting to multiple jurisdictions. Buyers will vote with their wallets, “choosing” the tax rate when making decisions about where to shop online and will benefit from downward pressure on sales taxes. Finally, brick-and-mortar retailers would have the “even playing field” they seek.

Congress should exercise its authority over interstate commerce and produce legislation to fundamentally reform sales taxes to an origin-based regime. In the meantime, California legislators should resist the temptation to tax those beyond their borders. Might we suggest an awards show tax?

Continue reading →

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And the Winner Is . . . !

by on April 25, 2011 · 0 comments

Melissa Yu is the winner of first prize in the middle school category of C-SPAN’s StudentCam 2011 competition. Her video, “Net Neutrality: The Federal Government’s Role in Our Online Community,” is an eight-minute look at the push for regulation of Internet service with an emphasis appropriate for students on how the three branches of government have each been involved in the story up to now.

Many TLF readers already know the story and the key players, but if you haven’t been following along, or if you want a refresher, here’s a better video than I could have produced in eighth grade. Or now. Congratulations, Melissa Yu!

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Event: The FCC’s Wireless Competition Report: A Preview

by on April 25, 2011 · 0 comments

Every year since 1995, the Federal Communications Commission has released a report on the state of competition in the wireless market, and it will soon release the fifteenth. Last year’s report was [the first not to find the market “effectively competitive.”](http://techliberation.com/2010/05/21/the-underlying-desperation-at-the-fcc/) As a result, expectations are high for the new annual report. How it determines the state of competition in the wireless market could affect regulatory policy and how the Commission looks at proposed mergers

Join the Mercatus Center at George Mason University’s [Technology Policy Program](http://mercatus.org/technology-policy-program) for a discussion of these issues, including:

– What does a proper analysis of wireless competition look like?
– What should we expect from the FCC’s report this year?
– How should the FCC address competition in the future?

Our panel will feature [**Thomas W. Hazlett**](http://mason.gmu.edu/~thazlett/), Professor of Law & Economics, George Mason University School of Law; [**Joshua D. Wright**](http://mason.gmu.edu/~jwrightg/), Assistant Professor of Law, George Mason University School of Law; [**Robert M. Frieden**](http://comm.psu.edu/people/rmf5), Professor of Telecommunications & Law, Penn State University; and [**Harold Feld**](http://www.publicknowledge.org/user/1540), Legal Director, Public Knowledge

**When:** Wednesday, May 18, 2011, 4 – 5:30 p.m. (with a reception to follow)

**Where:** George Mason University’s Arlington Campus, just ten minutes from downtown Washington. (Founders Hall, Room 111, 3351 N. Fairfax Drive, Arlington, VA)

To RSVP for yourself and your guests, please contact Megan Gandee at 703-993-4967 or [mmahan@gmu.edu](mailto:mmahan@gmu.edu) no later than May 16, 2011. If you can’t make it to the Mercatus Center, you can watch this discussion live online at mercatus.org.

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Video: Debating Privacy & Online Advertising on the Stossel Show

by on April 22, 2011 · 0 comments

On this week’s John Stossel show on Fox Business Network, I debated Internet privacy, advertising, and data collection issues with Michael Fertik of Reputation.com. In the few minutes we had for the segment, I tried to reiterate a couple of keep points that we’ve hammered repeatedly here in the past:

  • There’s no free lunch. All the free sites and service we enjoy online today are powered by advertising and data collection. [see this op-ed]
  • There is no clear harm in most cases, or what some argue is harm also can have many benefits that are rarely discussed. [see this paper.]
  • There’s little acknowledgement of the trade-offs involved in having government create an information control regime for the Internet. [see this filing and these three essays: 1, 2, 3.]
  • The ultimate code of “fair information practices” is the First Amendment, which favors free speech, openness, and transparency over secrecy and information control. [see this piece.]
  • “Hands Off the Net” is a policy that has served us well. There are dangerous ramifications for our economy and long-term Internet freedoms if we continue down the road of “European-izing” privacy law here in the States. [see this essay and this filing.]
  • At some point, personal responsibility needs to come into the equation. With so many privacy enhancing empowerment tools already on the market, it begs the question: If consumers don’t take steps to use those tools, why should government intervene and take action for them?

Anyway, here’s the 7-min video of the debate between Fertik and me:

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For The Last Time: The Bell System Monopoly Is Not Being Rebuilt

by on April 22, 2011 · 6 comments

Believe it or not, this argument is being trotted out as part of the pressure from consumer activist groups against AT&T’s proposed acquisition of T-Mobile. The subject of a Senate Judiciary Hearing on the merger, scheduled for May 11, even asks, “Is Humpty Dumpty Being Put Back Together Again?”

It seems because the deal would leave AT&T and Verizon as the country’s two leading wireless service providers, the blogosphere is aflutter with worries that we are returning to the bad old days when AT&T pretty much owned all of the country’s telecom infrastructure.

It is true that AT&T and Verizon trace their history back to the six-year antitrust case brought by the Nixon Justice Department, which ended in the 1984 divestiture of then-AT&T’s 22 local telephone operating companies, which were regrouped into seven regional holding companies.

Over the last 28 years, there has been gradual consolidation, each time accompanied by an uproar that the Bell monopoly days were returning. But those claims miss the essential goal of the Bell break-up, and why, even though those seven “Baby Bell” companies have been integrated into three, there’s no going back to the pre-divestiture AT&T.

Continue reading →

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DC event on Internet governance

by on April 20, 2011 · 0 comments

“Global Internet Governance: Research and Public Policy Challenges for the Next Decade” is the title for a conference event held May 5 and 6 at the American University School of International Service in Washington. See the full program here.

Featured will be a keynote by the NTIA head, Assistant Secretary for Commerce Lawrence Strickling. TLF-ers may be especially interested in the panel on the market for IP version 4 addresses that is emerging as the Regional Internet Registries and ICANN have depleted their free pool of IP addresses. The panel “Scarcity in IPv4 addresses” will feature representatives of the American Registry for Internet Numbers (ARIN) and Addrex/Depository, Inc., the new company that brokered the deal between Nortel and Microsoft. There will also be debates about Wikileaks and the future of the Internet Governance Forum. Academic research papers on ICANN’s Affirmation of Commitments, the role of the national governments in ICANN, the role of social media in the Middle East/North Africa revolutions, and other topics will be presented on the second day. The event was put together by the Global Internet Governance Academic Network (GigaNet). Attendance is free of charge but you are asked to register in advance.

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Information Control, Market Concentration, and the AT&T/T-Mobile Deal

by on April 20, 2011 · 2 comments

Like Milton, I’m very worried about the political vulnerabilities that might arise if the wireless sector grows more concentrated. Still, I think it’s a big mistake to legitimize one repressive incarnation of coercive state power (antitrust intervention) to reduce the likelihood that another incarnation (information control) will intensify. This approach is not only defeatist, as Hance argues, but it also requires a tactical assessment that rests on several dubious assumptions.

First, Milton overestimates the marginal risk that the AT&T – T-Mobile deal will pave the way for an information control regime. The wireless market isn’t static; the disappearance of T-Mobile as an independent entity (which may well occur regardless of whether this deal goes through) hardly means we’re forever “doomed” to live with 3 nationwide wireless players. With major spectrum auctions likely on the horizon, and the possibility of existing spectrum holdings being combined in creative ways, the eventual emergence of one or more nationwide wireless competitors is quite possible — especially if, as skeptics of the AT&T – T-Mobile deal often argue, the wireless market underperforms in the years following the acquisition.

More importantly, network operators, like almost all Internet gatekeepers, face mounting pressure from their users not to facilitate censorship, surveillance, and repression. Case in point: AT&T is a leading member of the Digital Due Process coalition (to which I also belong) that’s urging Congress to substantially strengthen the 1986 federal statute that governs law enforcement access to private electronic communications. Consider that AT&T’s position on this major issue is officially at odds with the official position of the same Justice Department that’s currently reviewing the AT&T – T-Mobile deal. Would a docile, subservient network operator challenge its state overseers so publicly?

Continue reading →

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Bitcoin, intermediaries, and information control

by on April 20, 2011 · 36 comments

I’m gratified that my recent writing on the Bitcoin virtual currency project has stirred much conversation and I thought I’d take a moment to continue that conversation.

Tim Lee has written two posts critiquing the viability of Bitcoin from the supply and demand side. Dan Rothschild has responded in part. Tyler Cower also weighed in.

To address Tim I’ll simply say this: Do I think Bitcoin will replace the dollar? No. Might Bitcoin have certain systemic design flaws that might impede its success? Quite possibly. Will Bitcoin become the de facto, manipulation-proof currency of the internet? Who knows. Tim’s posts are a somewhat technical critique of Bitcoin’s long-term feasibility. It’s a great contribution, but since I’m neither a gold bug nor a Bitcoin booster per se, I don’t find it especially interesting.

That all said, what I do think is revolutionary about Bitcoin is that its developers have solved, without the use of a middleman, the double-spending problem faced by virtual currencies. That gives us license to realistically imagine a world without regulable financial intermediaries online.

While Tim overlooks what makes Bitcoin radical, Tom Sydnor groks it viscerally. Writing in a lengthy comment on my post, Tom expresses dismay at what Bitcoin represents and offers what I would, with apologies, characterize as the cyber-conservative response. Continue reading →

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An Internet Eraser Button to Protect Privacy? Unwise & Probably Impossible

by on April 19, 2011 · 1 comment

In my latest “Technologies of Freedom” column for Forbes, I take a closer look at the idea of an “Internet eraser button” as one method of protecting privacy or safeguarding reputation online. The child safety group Common Sense Media has suggested it is needed to help kids and others wipe out embarrassing facts we’ve place online but later come to regret. The Eraser Button idea is similar to “the right to be forgotten” proposal currently being hotly debated in Europe.

In my column, I argue that “it is unlikely that such a mechanism could be implemented, and even if it could, it would have troubling ramifications for freedom of speech, digital commerce, and Internet governance more generally.” I dwell a bit on the free speech issues and note that “What we are talking about here is the destruction of history, otherwise known as censorship. Few would have suggested that burning books was a smart way to protect privacy in the past. Is burning binary bits of information any wiser?” But the point seems moot in light of the significant enforcement challenges the notion faces, including the question: Who actually owns the data collected by online sites and services?

Anyway, read the rest of the essay over at Forbes. And here are a few other pieces we’ve run here at the TLF on the issue: 1, 2, 3.

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