Federal Reserve

Yellen: Federal Reserve Has No Business Regulating Bitcoin

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Isokivi \ Wikimedia

Thursday Federal Reserve Chair Janet Yellen demonstrated a stronger grasp of Bitcoin than the senator who proposed banning it. In comments to the Senate Banking Committee, Yellen stated, "The Federal Reserve simply does not have the authority to supervise or regulate Bitcoin in any way." She also expressed doubts about any regulator's ability to manage the decentralized currency.

Wednesday Sen. Joe Manchin (D-WV) addressed a letter to the U.S. Treasury, Federal Reserve, Security and Exchange Commission, and a few other regulatory agencies, requesting a wholesale ban on digital currencies. Manchin cited the criminal behavior facilitated by Bitcoin. On the other hand, Manchin didn't propose banning, you know, cash. And he left out the revolutionary benefits of a peer-to-peer platform. 

Reasoning that the U.S. should follow China's lead, he wrote, "I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans."

On Thursday, Yellen responded to the request. She said that the currency does't fall under the central bank's jurisdiction, but other financial regulatory agencies could work in conjunction with the legislature to implement rules. However, she told the Senate Committee:

I think it's not so easy to regulate Bitcoin because there's no central issuer or network operator to regulate.

Yellen's successor, Ben Bernanke, espoused a similar approach in a letter to U.S. Senators last November. After acknowledging that the central bank doesn't have the authority, he wrote that cryptocurrencies "may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system."

The most recent demands for regulation come amidst a particularly turbulent era for Bitcoin. Bitcoin's former king exchange, Mt. Gox filed bankruptcy with Japan Friday morning. Mid-Feburary a few of the major exchanges – Bitstamp, BTC-e, Mt. Gox – suffered through a DDoS attack and Russia "banned" Bitcoin. The digital currency has countenanced bad news layered upon bad news. Despite these struggles, the price hovers around the $500-700 range.

While Yellen said the Federal Reserve doesn't have the authority, she assured senators that the central bank was still looking into the matter.

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  1. Yellen’s successor, Ben Bernanke

    Predecessor, or do you know something we don’t?

    1. Ben Bernanke, the Grover Cleveland of Fed Chairs

    2. Time is cyclical. If you look at it from the outside, it’s just a disc.

      1. Who takes their philosophy on life from some burnout junkie cook who likes to torture children?

        1. All we are is dust in the wind, dude.

          1. I’d rather be the turd in someone’s punchbowl.

            1. You’re just a black star in Carcosa, Brett. You’re already there.

              1. Death is not the end.

    3. All of this has happened before and will happen again.

      1. “Bernanke’s a fucking angel-thing?! You gotta be fucking kidding me!”

  2. “We don’t have the authority, but if you were to give it to us…”?

  3. Auric and I are going to launch a new, private currency based on precious metals currently located in space.

    1. My understanding is space can print more gold.

      1. Yes. We’ve laid claim to suns about to supernova us some more gold.

      2. We need to regulate these “too big to just nova” stars.

        1. So far, we’ve been able to keep Earth governments out of space.

          1. If only they appreciated the gravity of the situation.

  4. Supervision and/or regulation could imply taking responsibilty for any subsequent problems that may occur.

    1. The Federal Reserve taking responsibility for creating a disaster?

      AHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!

      Stop… please, your killing me! HAHAHAHAHAHAHAHAHAHAHA!

  5. Not even central bankers can be wrong all the time.

    1. Hmm, I’m now trying to figure out why Bitcoin should probably be regulated.

  6. Wednesday Sen. Joe Manchin (D-WV) addressed a letter to the U.S. Treasury, Federal Reserve, Security and Exchange Commission, and a few other regulatory agencies, requesting a wholesale ban on digital currencies.

    Don’t forget witches, Joe.

    We should totally ban them.

  7. The Feds just can’t handle more than one fake currency at a time.

  8. On the other hand, Manchin didn’t propose banning, you know, cash.

    Yet.

    1. I’m sure the feds would love to have every financial transaction being via credit card or something else that leaves an electron trail.

  9. In Scarlet town where I was born
    There was a fair maid dwellin’
    Became the chair of the Federal Reserve
    Her name was Janet Yellen

  10. Reasoning that the U.S. should follow China’s lead, he wrote

    That line should scare anyone.

    1. Except, apparently, the voters in WV. Guy won almost every county in the state in last election.

      1. He probably brings home the pork like a champ.

        1. And it is pre-gnawed pork. You know because that really helps out all those constituents who ain’t got their original teefus.

  11. Mt. Gox filed bankruptcy with Japan Friday morning.

    Serious question, how do you go bankrupt being a major exchange for Bitcoin? Was Mt. Gox investing in non-bitcoin ventures?

    1. It is alleged that some hacker stole all their bitcoins.

      Maybe on a thumb drive.

    2. If I understand correctly, over the past year bit by bit, something like 95% of their reserves were stolen from their electronic vaults by hackers taking advantage of a security vulnerability.

      While their reserves were sufficient to cover day to day transactions – a bank run will kill them. Declaring bankruptcy converts their depositors into creditors, who will get pennies on the dollar so to speak.

      1. So has the story boiled down to hackers? Because initially the media was vague on what the issue was.

        Also the ‘security vulnerability’, was this a vulnerability intrinsic to Mt. Gox, or bitcoin itself?

        1. Gox’s problem. Bitcoin transactions can be changed until they get mined into a block (for a variety of reasons). When they are, the (poorly named) transaction ID changes.

          Usually not an issue, but in the case of Gox, they had code saying:

          1) user requests withdrawal.
          2) user gets that withdrawal transaction and changes it (same inputs, outputs, maybe just add another input or change the order, lots of things).
          3) Gox software looks on the network and sees that the original transaction ID didn’t get mined.
          4) Resends it, with different inputs

          A correct implementation would have “4” say: resends it, with the same inputs — which will fail if it was messed with, or succeed and you’re done.

          I don’t believe they lost 740k coins to that without noticing. They lost them to something else.

        2. To bitcoin itself, but most exchanges defend against it.

          Basically, the way bitcoin works is that there is a giant public ledger that contains every transaction that has ever occurred.

          Each transaction has an ID that is produced by hashing various bits of data in the transaction. Furthermore, each transaction has a signature that is generated from a subset of the data in the transaction.

          Soooo it is possible to alter the transaction data in a way that alters its ID without altering its signature.

          So, you send a bitcoin to an evil hacker. He does his magic and alters the transaction to modify its ID before adding it to the General ledger. Once the transaction is accepted in one node maintaining the general ledger, the bitcoin has effectively been removed from your accounts.

          But the transaction was stored with a different ID than the one you generated! So, the hacker can come back to you and say, “hey buddy, I didn’t get paid! See, transaction ID xxxxx isn’t in the ledger!” and you might send the transaction a second time.

          There are ways to code around the vulnerability. Mt Gox apparently had not implemented code to protect it and was very vulnerable. I suspect their financial controls sucked too.

          1. So could Bitcoin be changed to prevent transaction malleability? Or is it a feature of some sort? I find this all fascinating but don’t understand it very well. Your explanation was quite good.

            1. It’s a very nice feature for other things you can do, like:

              Set a timelock on the transaction — it’s not valid until time x.
              Create a deposit, and draw down on that deposit.
              Make an assurance contract/kickstarter (anyone can pay, if the transaction reaches 100BTC, it pays out to the specified address)

      2. something like 95% of their reserves were stolen from their electronic vaults by hackers taking advantage of a security vulnerability.

        If you go to MtGox’s web site they say they have like 3.8 billion in assets and 6.3 billion in liabilities.

        So that 95% might be a bit high. More like 50%.

        Then again maybe “reserves” means something other then what i think it means.

    3. They’ve had a trail of mishaps/incompetence.

      $5 million in US bank account seized by some part of the US gov (I don’t remember which, rumors are that it was related to silk road).

      They got hacked and lost a bunch of coins (a couple years ago).

      Probably lost *some* coins leading up to their shutdown of withdrawals, although not 740k, due to the “transaction malleability” issue.

      This latest one — it’s still being put together, but it’s likely they lost access to their cold storage (offline storage, either on paper or on computers air gapped from the internet). There’s a ton of ways they could have done that.

      Since they don’t have the money to pay out deposits? They’re insolvent. Leaked doc suggests they have nowhere near enough left.

      1. $5 million in US bank account seized by some part of the US gov (I don’t remember which, rumors are that it was related to silk road).

        Dwolla I think.

        MtGox had an account there so people could use their debit/credit card to put money in a Dwolla account then move it into a MtGox account.

        That was how i got my money into MtGox and noticed that a month or two after that the government had seized the MtGox account and you could not longer use Dwolla to move money into MtGox.

        I do not remember the justification for the US government to seize it was.

        1. http://techcrunch.com/2013/05/…..y-seizure/

          FEDs and they said it violated some sort of money transfer regulations.

          I don’t think this is an example of MtGox being incompetent or crooks. More like the government being assholes while defending their fiat monopoly.

          1. Yup, that’s more or less my thought on it, too. The rumor I had heard was that the account was actually seized as part of the Silk Road investigation, and money transfer regs were just a cover story. Not sure how much stock I put in that.

    1. Privileged white men if I understand the latest critique.

      1. Its all a plan to keep brown people in inflation ruined countries like Venezuela and Zimbabwe from reaping the benefits of socialism and being suckered into global market.

  12. I am going to get hate for this but…I think Yellen, for all her stupid mis-conceptualizations regarding how an economy run and the role of money in it, is better than Bernanke. She’s carrying out the QE unwinding that Bernanke pussied out of. Hard to be worse than the Bernanke, but Greenspan was worse.

    Maybe Yellen will be like The Wise Latina: expected to be absolutely awful but actually semi-okay?

    1. She’s the only one in the administration using ‘recovery’ in a future-tense, as opposed to the rest of those yabos using it as a past or present-tense.

    2. Bernanke is the best appointment Dumbya ever made.

      It was almost like he knew an expert on avoiding the Great Depression 2 was needed.

      BOOSSHH! FUCK YEAH!!! HE GOT ONE RIGHT!

      1. He was an ‘expert’ on avoiding the great depression like a creation scientist might be an ‘expert’ on avoiding antibiotic resistance in bacteria.

        And we haven’t avoided jack. If you weren’t an ignorant retard, you’d know America’s debt situation is even more jacked up than before 2008. The Great Recession was fixing this until Bernanke and the government stepped in the way so we could have an encore.

      2. It was almost like he knew an expert on avoiding the Great Depression 2 was needed.

        Everything about today looks like Depression 2 dumbass.

        And if the Fed did nothing and stimulas was not passed we probably would have avoided it.

        How hard it is it to look at every recession since the depression and see little to no government intervention and a quick recovery yet with the depression and now we see heavy government intervention and no recovery.

        Derpy derp shrike think derpy derp it would it have been derpy worse cuz derpy derp christfag.

    3. is better than Bernanke.

      could be. crappy leftists do exist on a gradient like everything else.

      For instance I think Sotomayor is better then Souter who she replaced.

      1. The horrible thing is that Bernanke is a Republican monetarist, not a lefty by any standard definition of the term. Yellen identifies as a Clinton Democrat, but her chairpersonship is unlikely to be any different from Bernanke’s, as it’s hard to imagine even a hardcore neokeynesian being more inflationary than Helicopter Ben.

        As much as the left hates Friedman, 1950s/60s Friedman doesn’t differ a lot from them in monetary policy during financial crises.

  13. Merry Troll-Outing Christmas, Everyone.

    1. Who else got outed?

      1. No one else. I’m still high on Tulptryptophan.

    2. I never understood the whole sock puppet thing. But, then again, I’m so lazy that most of my comments get deleted before I’m finished writing them because it doesn’t seem worth the effort.

      I used to argue with more people but now I just think of all the typing I’m gonna have to do just to slam my head against someone’s brick wall of stupidity. I figure someone else’ll get it, it’s not like we’re getting paid by the word here.

  14. Despite these struggles, the price hovers around the $500-700 range.

    Reason finally stopped cherrypicking the price against the $ over the past 3-6 mo. now can we please stop quoting this statistic like it somehow adds legitimacy? Even if it did, it comes across as desperate.

    Joe the plumber doesn’t know the exchange rate for a dollar until it drops below some threshold relative to the Euro or Pound and then judges appropriately.

    At least make the switch to mBTC!!!

  15. Manchin 0/2. Should he go for the trifecta?

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