Why Bitcoin is Not Cash - Computerphile - YouTube

The difference between Bitcoin and cash, is that cash is fungible.

At least if it's a coin - if it's a gold coin.

It's really no different from any other gold coin

and so one is as good as another.

That's not quite as true with notes

because notes have serial numbers

but let's ignore that for the time being.

Now, there's other things that're fungible.

like ears of corn, or in the old days, sheep.

In Roman times,

if twenty sheep wandered from Marcus's farm into Crasus's farm,

then the corp could just simply tell Crasus to give Marcus twenty sheep back.

And any twenty sheep, it didn't matter.

But nowadays, of course

sheep have got electronic passports clipped into their ears.

So if that were to happen between two Italian farmers nowadays,

then Marcus could go and get exactly the right twenty sheep back from Crasus.

So here's an example of how technology has made sheep

from a fungible asset into a tractable asset.

Now Bitcoin's the same, because every Bitcoin carries with it

pointers to its entire history.

So you can see everybody's who's owned that Bitcoin or parts of it

ever since these parts were originally mined.

And so you can see where the parts of Bitcoin were stolen at one time or another

or probably went through money laundering schemes

or probably were used in the drugs trade

or various other objectionable qualities

that might cause the authorities to want to call them in

and have a close look at them.

What about the money laundering thing, then?

How does that work?

At present, in England,

you can't get a good title to stolen goods

um

But until 1995, you could

because there was a law called "The Law of Market Overt."

So if I stole your horse,

and I went and sold it in Cambridge Market

between dawn and dusk

then somebody who bought it from me

in good faith would end up owning the horse

and all you could then do was to sue me

or get me hanged or sent to Virginia.

Now this was abolished in 1995

because it was being abused

but the rule survives in the law of money and banking.

Now, if you go to a Barclays Banking ATM,

for example, and you get out a twenty pound note,

then even if that twenty pound note was stolen last year in a bank robbery,

that's not your problem.

That's Barclays Bank's problem.

because you got it from a regulated financial institution.

And so your title to it is certain

Similarly, if you go to John Lewis's,

and you buy a toaster for 30 quid,

and you pay with a 50 and you get a 20 pound note in your change

Then you own that 20 pound note

because it's another rule that says

that if you get something, for value, in good faith,

right?

Then, so long as that something is money

you get good title to it

So

the Bitcoin people have been lobbying

for at least five years

to have Bitcoin to be declared money.

Because if Bitcoin becomes money

then they think that many of the problems around stolen Bitcoins

and Bitcoins that were used in the drugs trade and so on

would go away.

So we've been looking into this

and it turns out that it isn't quite true.

Now no government has yet admitted that Bitcoin is money

But even if a court were to find that Bitcoin is money,

as courts, for example, found that carbon credits could be treated as money

for some purposes;

then it doesn't get the Bitcoin criminals off the hook.

And the reason for this is

that to get good titles for something that was once stolen

you have to do it in good faith.

Now, what's the meaning of "in good faith?"

Somebody might argue

that you can't a Bitcoin in good faith

because everybody knows that so much bad stuff goes on in Bitcoin.

But even if you don't buy that argument

there's another problem

which is that many people in the Bitcoin world have set up

what they call "Bitcoin Mixers"

or even "Bitcoin Laundries,"

where the idea is you take along your stolen Bitcoin

or the Bitcoin you got from selling hashish on the sheep market, or whatever,

you put this black Bitcoin into a pot

and nine other people come along and put in their white Bitcoins into the pot

and you shake the pot very, very hard

and you kind of hope that you get ten white Bitcoins out.

Now the law is quite clear on this,

that if there's money laundering

then you can't have good faith.

And so if you put one black Bitcoin

and nine white Bitcoins into a pot

and you shake it

then if Bitcoins are held to be money

what you get out is ten black Bitcoins.

Sorry, guys.

Asking for Bitcoin to be money was the wrong thing to ask for.

Because if Bitcoin had simply remained a commodity,

you know, like pig iron bars, or whatever,

then this magic wouldn't happen.

The stolen pig iron bar would still be a stolen pig iron bar.

You would put the one black Bitcoin and the nine white Bitcoins into a pot

and then you'd shake them

and some unlucky sod would get the black one out.

In that case, of course,

economics kicks in

because then nobody's got an incentive to take part in a money laundering scheme.

Now, the interesting thing about this

is that if Bitcoin becomes money

or is treated as money for some purposes

then this is a really mortal threat,

to those cryptocurrencies which provide built-in laundries,

such as Monero and Zcash,

Now in Zcash, for example,

most of the time it works just like Bitcoin

and there's a fully traceable blockchain of who passed on a coin to whom.

But you can, if you want,

take your Zerocoin and you can put it back in the mine

and have it remined

and get one out that's nice and shiny and new,

in the sense that it's indistiguishable from all the other coins mined in that round.

Just the same as if you'd been re-casting a gold bar.

You're taking a gold bar to a crooked foundry

or a bent goldsmith

and got it turned into something that was untraceable.

But the affect of this

according to the law of money and banking,

is actually to poison every single coin that comes out of that mine.

And this would lead regulators to ask themselves

whether or not they should simply instruct regulated Bitcoin exchanges

not under any circumstance to change cash

or other cryptocurrencies

into currencies such as Zcash or Monero

on the grounds that these were designed

for the purpose of money laundering.

and therefore there was an issue of obstruction of justice.