Nick Weaver on Regulating Cryptocurrency

Nicholas Weaver wrote an excellent paper on the problems of cryptocurrencies and the need to regulate the space—with all existing regulations. His conclusion:

Regulators, especially regulators in the United States, often fear accusations of stifling innovation. As such, the cryptocurrency space has grown over the past decade with very little regulatory oversight.

But fortunately for regulators, there is no actual innovation to stifle. Cryptocurrencies cannot revolutionize payments or finance, as the basic nature of all cryptocurrencies render them fundamentally unsuitable to revolutionize our financial system—which, by the way, already has decades of successful experience with digital payments and electronic money. The supposedly “decentralized” and “trustless” cryptocurrency systems, both technically and socially, fail to provide meaningful benefits to society—and indeed, necessarily also fail in their foundational claims of decentralization and trustlessness.

When regulating cryptocurrencies, the best starting point is history. Regulating various tokens is best done through the existing securities law framework, an area where the US has a near century of well-established law. It starts with regulating the issuance of new cryptocurrency tokens and related securities. This should substantially reduce the number of fraudulent offerings.

Similarly, active regulation of the cryptocurrency exchanges should offer substantial benefits, including eliminating significant consumer risk, blocking key money-laundering channels, and overall producing a far more regulated and far less manipulated market.

Finally, the stablecoins need basic regulation as money transmitters. Unless action is taken they risk becoming substantial conduits for money laundering, but requiring them to treat all users as customers should prevent this risk from developing further.

Read the whole thing.

Posted on March 3, 2023 at 10:58 AM25 Comments


anon March 3, 2023 11:21 AM

“…ur financial system—which, by the way, already has decades of successful experience with digital payments and electronic money. ”

This is true only if you want your personal information: who you are, where you are, what you buy being available to banks, credit bureaus, governments, and all of their customers.

Also, that $10k limit on unjustified deposits should, thatnks to inflation, be $275k today, so the new $600 rule is just a slap in the face of everyone.

nona March 3, 2023 11:39 AM

This is true only if you want your personal information: who you are, where you are, what you buy being available to banks, credit bureaus, governments, and all of their customers.

Unfortunately that also supports the use cases of drug traffickers, tax evaders, sanction evaders, ransomware developers, and scammers.

Clive Robinson March 3, 2023 2:33 PM

@ ALL,

Re : Intro says it all…

From the essay introduction,

“Despite the repeated failures of major cryptocurency projects, the space is seamingly inescapable. Immense investments into cryptocurency projects drive a hype cycle that keeps promising a set of revolutions that are not materializing.”

If you read it backwards you get,

1, Empty / faux / void promises
2, Promoted loudly and ceaselessly
3, Demanding inordinate large sums of money
3a, To develop the project.
3b, To invest in the project.
4, The endless nature of “new thing” money hungry projects prevents coherent development.
5, As marks are told it’s the next “sure thing”.
6, All the projects fail as the marks realise they have been duped.

There are a number of con-games in progress. But essentialy they are all to create money traps that only a tiny handfull of those involved canbprofit by. The rest, including the low level investors get fleeced very badly as the money goes around around like a merry go round but is not there when the music stops and the lights get switched off, leqving the investors empty handed and mostly even the piper and friends who made the music unpayed.

But hey there is always another party next door with a new band playing new tunes with more promises of a good time than an old west whore house…

Have I left out anything important?

Durbin March 3, 2023 3:41 PM

“Regulating” is an extremely vague political term.

It somehow assumes that unspecified government “Experts” should rightfully control some activity of the populace.
These experts are assumed to instantly have complete superior knowledge of the regulated area, and 100% selfless honesty & dedication to the supposed “Public Good’.
…where exactly does one recruit such noble persons ??

In reality, government ‘regulators’ are merely ordinary politicians & bureaucrats with the same human self-interest & shortcomings… thought only to exist in the selfish private sector.

Hordes of U.S. government regulators have a long history incompetence, corruption and public harm (e.g., SEC, FTC, DOA, FDD Reserve).

Be careful what you wish for ….

Wannabe Techguy March 3, 2023 5:32 PM

@ Durbin
Very true! I suppose there needs to be some sort of “regulation”(not just cyrpto),but I’m leary of governments in general. Thanks for posting.

Ron Helwig March 3, 2023 5:58 PM

The greatest benefit of cryptocurrencies will be ending the ridiculous idea that politicians and bureaucrats should have anything to do with regulation.

QT March 3, 2023 9:26 PM

Quantum dominance could bring all cryptocurrency to a catastrophic end. Those few cryptos that claim to be quantum secure might not be. Or if they are, without bitcoin as the backbone of the ecosystem, quantum secure currencies will not be viable.

Kent Brockman March 4, 2023 12:12 PM

Crypto currencies are a libertarian wetdream, so of course any regulation is considered taboo by those who have drunk the koolaid. If it were only used by the fringe that would be one thing, but when large corporates come into the game with their crypto-desks adding a patina of legitimacy to gull inexperienced investors, the need for regulation becomes a necessity. The blackcommunity,for example, has been hit especially hard hit by the recent collapse in crypto. Regulation would actually be beneficial to crypto by giving it the genuine legitimacy it certainly lacks after the current disaster.

cmeier March 4, 2023 7:19 PM

Regulation is absolutely required in a world where plenty of folks would trash the commons without a thought given half a chance. If the effects of everything individuals did could be confined to the individual making the choice, regs might be unnecessary. But most everything people do affects other people, often in ways that create harm to others without their consent, hence the need for regulation. Libertarianism is a rather stupid philosophy designed by freshman college majors who never went beyond 1st year microeconomics.

Phillip March 4, 2023 10:02 PM

What cryptocurrency advocates need to win people over with is whether it might really be a parallel system. Arguing how one must exchange between superior and inferior currencies for utility (to be practical/useful) is not entirely winning the argument. A truly parallel system might theoretically be obtainium when no currency exchange is even a requirement. We live in a real world, cryptocurrency advocacy. I for one am uninterested in the technocratic aspect of getting excited about cryptocurrency. We swear by generalized crypto and you might belong to this other renowned surprise me. IT IS NOT PARALLEL. Exchange is mostly what we refer to as a fact of life. Magic does not happen between dollars to crypto donuts. I am wasted with cryptocurrency arguing. Crypto technology does not confer a little sarcasm when I ridicule crypto heresy. You exchange real money for mystery? I am not even interested.

Phillip March 4, 2023 10:20 PM

One more thing: cryptocurrency advocates are not saying a ledger is completely transparent. Only immutable. Some value in immutability, A transaction said to be from foo to bar is hardly transparent. Thus, immutability ain’t got nothing to do with it. Two participants in a transaction might agree to the rules of the game if a ledger does not spell everything out. If there is tight regulation, it kind of breaks down man

Clive Robinson March 5, 2023 3:15 AM

@ cmeier, ALL,

Re : regulation is required.

“Regulation is absolutely required in a world where plenty of folks would trash the commons without a thought given half a chance.”

It’s worse than that.

Some folks will quite deliberately create a commons as a money trap, that they will then cleanout rapidly and move the monies via other systems to the point it is near untracable, and nolonger in crypto-coin form.

This is a form of “short-con” it has it’s own name now of “a rug pull” and hundreds of millions get taken of which half to three quaters gets spent in other crypto exchanges making the movment supposadly untracable.

Others use a “long-con” of making it easy and inexpensive to put money in but make it very expensive for all but the chosen few to take money out again.

Others just do the old multiple sell, by selling “shares in a fund” scheme over and over. Put simply you buy say four bit-coins and put them in your “fund” you then sell shares in your fund. If you work it right you can sell shares to enough people to buy more bit-coin. As the fund gets bigger it get’s more attractive so you get more people joining the fund. As long as you can keep enough people from cashing out the fund will grow. But there is no other reason for it to grow than marks putting their cash in. It’s a form of Ponzi scheme.

When you look around crypto-coins it’s very hard to find any that actually have a genuine business model behind them. That is none apparently produce “real wealth” like increased utility by work done, they all create faux “fiscall wealth” off of speculator input.

As the home nations of most of the crypro-coins have little or no “real wealth” production the net result is inflation. Of course these nations treasuries go in for this as well only they call it “Quantative Easing” amongst other things. A satirical explanation,

As with all good satire, it takes the truth and makes it entertaining…

Winter March 5, 2023 8:46 AM

Re: Regulation is required


Some folks will quite deliberately create a commons as a money trap, that they will then cleanout rapidly and move the monies via other systems to the point it is near untracable, and nolonger in crypto-coin form.

The word regulation here is used as propaganda. Those using this word often use it as a weapon to defeat their competitors or to rally the revolutionaries.

What centuries of financial industries and the madness of the crowd has shown, is that consumers have a very incomplete understanding of financial products and markets. Not less so in understanding crypto-currencies. Trading in badly understood financial products often leads to utter devastation, of individuals and societies. For instance, Ponzi schemes have destroyed countries, like Albania. The Mississippi bubble of John Law in France devastated French public finances for decades and this devastation was one of the driving forces behind the French Revolution.

This means that taking money from consumers in return for financial products should require corresponding responsibilities and a high duty of care from the sellers.

As many of those selling financial products are, often severely, challenged with respect to taking responsibility, fulfilling duties, and care-taking in general, it is up to the lawmakers and regulators to enforce these responsibilities on the part of those selling financial products.

What is called here regulation is more properly called, to use an utterly un-american concept, consumer protection.

But then, consumer protection does not excite anyone working in the financial industries or crypto-markets. On the countrary, I think consumer protection is the one thing you can rally and unite the whole industry against.

JonKnowsNothing March 5, 2023 10:16 AM

@Clive, @Winter, cmeier, All

re: deliberately create a commons as a money trap, that they will then clean out rapidly

This is a very common method to transfer wealth. Often it’s done upfront in your face style and sometimes it’s more hidden. Regulation may or may not help or even reduce the practice.

RL tl;dr

iirc(badly) A long time back, it was normal for business and charities to have A Plan. Current Expenses and maybe a 5 Year Outlook or Goal. At that time, businesses would allocate funds to cover whatever the business needed: research, employees, facilities etc. Everything was intended to be 100% covered except for current operating expenses that were paid out of current revenues. In this system, companies and charities had assets that were saved up for bigger future expenses. Having the future expenses covered was GOOD Management.

Then came the era of Asset Stripping.

This system is designed to take all available assets TODAY and leave nothing for the future. That’s why Pension Systems have collapsed because they were no longer “fully funded”. A Death-Game-Estimate (1) was played to guess how many pensioners would die before collecting benefits or how many workers would not cross the vesting period, with increasing longer vesting time frames, to collect their retirement supplement. This new “truer guess” of what the company would owe in the future, was what was funded and backed by corporate promises to borrow future funds to meet any short falls. Sometimes this was hidden as an “investment by the pension fund” into the parent company. The Saved Funds were then transferred into the Corporate Asset Stripping system, which primarily financed Upper Management, Board Members, Private Equity Participants and Class A stockholders. Not much trickles down to the OTC W$ stock owners, their rewards are smoke and mirrors.

So on the the RL example:

Cemeteries in the USA are large land holders. They have large areas of manicured gardens and landscape to maintain. The physical aspects of digging graves is done by large expensive equipment and not so much by shovel. It’s a large expense to keep the place looking peaceful and keeping the weeds out. There’s the trappings of the buildings where ceremonies take place. The long term clients don’t complain but the living expect a certain level of “OH, nice fountains”, when visiting.

Some cemeteries are owned by religious organizations. Generally only people who belonged to that organization are buried there. Being an asset for the religious organization, a revenue generator, triggers Asset Stripping.

In this case, the cemetery had cash-in-bank assets to fully fund maintenance needed over a 30yr period, perhaps longer. Roofs need replacing and they had their Roof Fund fully funded.

Roofs cost a good deal of money, and if you have a lot of roofs, that sum appears large. Large enough to fund an extension on a church building in another part of town and also within control of the overseer religious hierarchy.

So, what do you do with a Fully Funding Roofing Maintenance Account?

  • keep it to repair and replace roofs for the cemetery which generated the cash?
  • build an extension to a church, not too well designed, certainly not The Sistine Chapel, and leave the roofs to rot and fail over 30 years?

This eventually Got Noticed but by then it was Too Late Charlie. You can never make up for Lost Compounding Periods using the Original Cash Inflows. The cash was gone, all used up. Another set of roofs was added to the lucky Church’s Roof Replacement accounts, without a revenue stream to fund it. New loans were needed to fix roofs, increasing costs and adding debt previously not needed, reducing the revenue stream significantly even below the amount needed to cover current operating costs.


1) Death Game Estimate: a normal aspect of government and business economic forecasting. Lots of global government complaints about age demographics are based on such estimates. I’ve made posts about these estimates were used for COVID-19 policies under the title of Bank of Mom and Dad, some of which are in the archives and some may be on the way back machine, detailing how these economic funding models are the basis of health care policies from 2019-2022 or there about. ymmv

Petre Peter March 5, 2023 12:23 PM

Mr. Weaver is right that there is a lot of “technobabble” in the cryptocurrency world. A solution without a problem. If this cryptocurrency is going to replace regular currency why then is it valued in dollars? People who own cryptocurrency cannot wait to see how much their coins are worth in dollars.
Thank you for sharing

minerva March 5, 2023 4:13 PM

@Petre Peter

If this cryptocurrency is going to replace regular currency why then is it valued in dollars?

A beautiful question

Anonymous March 6, 2023 5:01 AM

I remember the same inane blatherings about the internet being a passing fad.

Clive Robinson March 6, 2023 7:44 AM

@ Nicholas Weaver, Bruce Schneier,

I don’t know if you have seen this or not,

On the Anonymity of Peer-To-Peer Network Anonymity Schemes Used by Cryptocurrencies

“Cryptocurrency systems can be subject to deanonymization attacks by exploiting the network-level communication on their peer-to-peer network. Adversaries who control a set of colluding node(s) within the peer-to-peer network can observe transactions being exchanged and infer the parties involved. Thus, various network anonymity schemes have been proposed to mitigate this problem, with some solutions providing theoretical anonymity guarantees.

In this work, we model such peer-to-peer network anonymity solutions and evaluate their anonymity guarantees. To do so, we propose a novel framework that uses Bayesian inference to obtain the probability distributions linking transactions to their possible originators. We characterize transaction anonymity with those distributions, using entropy as metric of adversarial uncertainty on the originator’s identity. In particular, we model Dandelion, Dandelion++, and Lightning Network.

We study different configurations and demonstrate that none of them offers acceptable anonymity to their users

Anonymous March 6, 2023 8:58 AM

The world needs 1 cryptocurrency to support it’s fundamental need of black and illegal money/transactions. We will never be able to live without illegal payments and yes that will unfortunately include drug traffickers and others.

Winter March 6, 2023 1:00 PM

@Clive, all

On the Anonymity of Peer-To-Peer Network Anonymity Schemes Used by Cryptocurrencies

It seems even the privacy coin Monero is not perfectly secure/private:


According to Greenberg citing a leaked Chainalysis document, Monero transactions can be traced in 60% of cases to get a usable lead. This revelation has questioned the common belief of Monero being an entirely non-traceable asset.

I am wondering whether this weakness might be related to trading volume? If trading volumes are low, might moving money be traceable in or out of Monero (btw, I have no idea how Monero works)?

Clive Robinson March 6, 2023 6:14 PM

@ Nicholas Weaver, Bruce Schneier,

Another one for the, I don’t know if you have seen this or not, list,


The paper,

The blog post,

“we tell a tale of how we discovered a novel attack against ECDSA and how we applied it to datasets we found in the wild, including the Bitcoin and Ethereum networks. Although we didn’t recover Satoshi’s private key (we’d be throwing a party instead of writing this blog post), we could see evidence that someone had previously attacked vulnerable wallets with a different exploit and drained them.”

It would appear that this week is a fun time for rattling the cryptocoin fanbois block chains…

Ollie Jones March 8, 2023 4:05 PM

A while ago on his YouTube channel, Nicholas Weaver published this video of a lecture he gave on this topic.

It’s his spoken take on the stuff of his white paper. Succinct, blunt, and convincing.

tl;dr: “Cryptocurrency should die in a fire.”

Clive Robinson March 8, 2023 5:10 PM

@ Ollie Jones,

Re: Nicholas Weaver’s comment,

“Cryptocurrency should die in a fire.”

In a way it already is, it uses more fossil fuel derived energy than small Western nations and something like most third world nations put together.

Thus it’s “carbon footprint” is a horrendous blight on the face of our plant for the idiocy of addicted gamblers thinking they are hot shot financial investors. When in fact most are just meat for the slaughter being led vy judus goat fanbois led by the slaughters who are con artists.

The only good thing about cryptocurency is it gives psychologists and anthropologists a way out beyond the fring culture to study.

But at a price the rest of the world can not aford as it’s a non productive crearion of poisonous polution by destruction of natural resources (unless of course the fanbois want to admit to being mass murderers by saying there intent is to poison the planet).

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