Tipping Points: When Law, Sensationalism and Ecosystem Converge

Posted by scounsel on Feb 2, 2014 in Bitcoin, Home Page Feature | 0 comments

Last week, a reporter and my father each asked me if Bitcoin was past the tipping point. A clever answer would have been, “if a reporter for an international news organization and my father ask whether a technology is past the tipping point, then it’s past the tipping point.” However, I decided to give this more thought and articulate my gut instinct that this is one of the more significant technological innovations, and that we are past the tipping point.

Whenever there is a new technological movement, seasoned Silicon Valley investors, entrepreneurs and professionals look for past analogues. For attorneys, this is especially important because our legal system requires precedent if our prognostications are to have any accuracy.  I’ve toiled through numerous “paradigm shifts” and “disruptive technologies”: web publishing, user generated content, peer-to-peer networks that traverse national boundaries ad hoc, cryptographic security, targeted advertising, social media, semiconductor and device miniaturization. 
 
The only thing to which I can compare Bitcoin and digital currencies with any justice is the commercialization of the internet itself in 1994-1996.  Both are not mere technological improvements.  They are not bubble jet printers becoming laser printers, or browsers gaining the ability to manage richer objects.  The advent of the commercial internet fundamentally overhauled how everyone would do nearly everything.  Bitcoin will enable the same scope of change, and we are past the tipping point.
 
The indicators are:

• Does the technology not merely improve the way we have done something, but change who can do it and how they can make money from it?  In 1994-1996, publishing became massively decentralized.  A person who could not have been a publisher or a retailer found out that she could become both, and a massive ecosystem of businesses grew around that possibility.

• Do regulators and courts find it hard to apply highly developed statutory regimes to the new commercial and interpersonal activities enabled?  If they adapt the laws, will that enable people and business to massively increase their interactivity and commerce? 

In 1995, my client NETCOM was sued by the Church of Scientology for copyright infringement when a NETCOM ISP subscriber posted secret church documents in a usenet group.  The U.S. District Court ruled that NETCOM could be liable for contributory copyright infringement when a subscribing member directly infringes a copyright.  Most legal commentators agreed that it was the correct decision when considering the two hundred years of legal precedent, but an absurd conclusion.  Congress changed the law.  Had it not changed the law, YouTube, Craigslist – really most of what we use daily on the internet – would not exist now. 

In my mind, the tipping point isn’t when the law is changed, it is when legal experts see that the law should change and must change. Today, many lawmakers and regulators are wondering how it can be that a hardworking American can spend $250 trying to get $3,000 to family members in Latin America when he sends them a share of his month pay. Losing $250 may not seem like much, but that’s a considerable amount to the worker, and a huge amount when compared to the median income of many Latin American countries. If Bitcoin transfers can cost that worker and his family only 1% or less of the transaction, many lawmakers are questioning which technology really deserves scrutiny and which deserves support.

Perhaps not as significant but no less telling, Ben Lawsky, the New York State Superintendent of Financial Services, said during his hearings on Bitcoin last week that he was amazed that he has to wait three days for his bank to pay his credit card — at the same bank. “That’s a little crazy, in my opinion” Mr. Lawsky said. Lawmakers and regulators often find themselves challenged by new technologies. When they realize that the it’s the law that needs to change, e.g. that there needs to be a “BitLicense” so that the State of New York can properly promote and regulate digital currency businesses, it indicates to me that the forces growing the ecosystem have pushed past the tipping point.

• Is the investment community funding not only one aspect of the ecosystem but the entire ecosystem?  With the internet, we saw concurrent investments into browsers, server technologies, security technologies, encoding technologies, ISPs, and e-commerce.  With Bitcoin and virtual currencies, we are witnessing an increase in investments across the ecosystem: transactional security equipment (mining rigs and semiconductors), exchanges, payment processors, wallets, ATMs, and more, in the United States and internationally.
   
•  Does it capture the public mind even before they know how to use it? Is it fascinating to thought-leaders? 

 The Shrem arrest is terrible news for the Bitcoin community as it works hard to bring positive stories forward, and leave the sensationalism of Silk Road behind. However, the fact that it made the news – all the news – tells you what side of the tipping point we are on. 

Just like eBay built a solution for reducing fraud between purchasers who don’t know each other and live far from each other, the virtual currency ecosystem will build solutions to the concerns voiced now by regulators.    For example, BitGo has a wallet that utilizes multiparty signatures in a way that makes someone stealing your Bitcoin or you accidentally losing your Bitcoin nearly impossible. These issues were seen as the most serious consumer protection concerns only a few months ago.  If we let the ecosystem thrive, it will fix what isn’t working. 

Adam Ettinger
Strategic Counsel Corp.