Are Public Blockchain Systems Money Services Businesses in Disguise?


In this essay I use Bitcoin as a case study for a general analysis of public blockchain governance. I begin by describing the evolution of an ideological civil war within the community. I find that that civil wars such as this put businesses using the protocol under a tremendous amount of legal risk. The most efficient way to avoid confusion and consequently legal risk, is to associate a brand with a software development team therefore transferring legal risk to it. Due to states’ overwhelming preference for consumer protection, if businesses join an attempt to wrestle control of the brand from an unwilling incumbent, they assume the legal risks associated with loss of customer funds. I show that this thesis finds support in how many businesses, despite originally supporting a new software client with new rules to assume the brand “Bitcoin” or “BTC”, have now backtracked in the face of legal threats from both supporters of, and members of the developer team for the main Bitcoin reference client, Bitcoin Core. They will instead issue the new currency with the ticker ‘B2X’. A similar outcome favouring the incumbent team occurred when the Ethereum network split in 2016.

These outcomes, in my opinion, constitute backdoor trademark enforcement and have revealed what amount to some very uncomfortable truths for proponents of public blockchains. It first of all told us that some entity must control the brand in order for a cryptocurrency system to be functional without legal risk from brand confusion to businesses that build on top of the protocol. Secondly, it told us that ultimately it is the state that attributes control of a cryptocurrency brand even if it doesn’t officially make a ruling on it. Thirdly it showed us that since proof-of-violence is the ultimate consensus mechanism in defining the rules of the system, that phenomena like client heterogeneity, proof-of-work and decentralised consensus on the order of transactions are arguably obfuscations of the reality that administrators of public blockchain brands are administering networks that represent unincorporated, unlicensed money services businesses.

Both non-mining and mining nodes are effectively working on behalf of those that code the software and ultimately enforce the system’s rules via their enforcement of naming rights. If there are multiple software clients competing for the same brand and one or more fall out of consensus – whether intentionally or otherwise – a decision is made by someone with power on which one is the ‘official client’ for the brand in question. The person (or persons) that makes that decision is responsible for the rules and is therefore logically responsible for the whole system. Bitcoin, Ethereum and all other public blockchain-based currencies are thus, in my opinion, merely convoluted versions of E-Gold. The question is: Are they convoluted enough for brand administrators to avoid the long arm of the law?

The Bitcoin Story Thus Far

*If you are well versed in Bitcoin politics you may want to skip this section

The Bitcoin civil war has now raged for a number of years and has reached a point where it appears compromise is impossible. The ideological schism first reared its head within the informal institution that is Bitcoin Core. This group, via the control of the access rights to the Github repository for the main Bitcoin reference client, has control over its development. As developers of the main client, Bitcoin Core group is the natural Schelling point for community leadership to form. It is the arena where protocol Bitcoin policy-making has occurred. It follows from this assumption that in order for protocol upgrades to happen, Core must either come to a consensus over what changes to make or come to a consensus that majority rule voting applies to decision-making.

When an ideological dispute arose over how much space the protocol should allow to store transaction data in each block, no such consensuses could be reached. Aside from the role of lead developer, which itself is unlikely to grant much extra influence beyond membership of the group, no sources of power other than the power of numbers are identifiable to me. (The person(s) who controls access to the repository may be considered as having outsized power but if this power was used unilaterally a new repository under a new account would simply be instigated and I suspect most likely recognised as the official repository. The ideology of the majority has duly prevailed and little by little the influence of the minority group in this schism was eroded to the point that they are now frozen out of development decisions with their commit access revoked. Since the Github repository’s access is permissioned and the majority of users used the Bitcoin Core client, this meant that the dispute was settled without any confusion or disruption for politically passive members (the vast majority) that simply want to use “Bitcoin”.

Of course this is not where it ended however. In the absence of a name that is protected by a system with strong guarantees of private property rights and physical force, mounting attacks to take control of a brand are eminently possible if you have the resources to do so. The minority opinion within Bitcoin Core thus set about convincing the right people of the merit of their ideology. It of course helps matters when this ideology happens to further the economic interests of the leadership of another political group with veto powers over any legislative proposals – this group being the dominant Bitcoin mining interest group who hold veto powers since it is they that implement software updates in the process of adding blocks to the ledger. Since the larger blocks favoured by the dissenting opinion in Core result in higher revenues for the miners, a natural coalition of interests formed. When it did, the mining interest group was able to successfully veto a Bitcoin Core proposal without unanimous community backlash. This is because former Core developers and other politically active, influential members of the community granted the veto political legitimacy. With Core’s grip on access to the main client’s development process and the miners’ grip on the power to veto legislation, an inevitable stasis occurred.

Legislative deadlock is never a desired situation in any system of government. In order to overcome the deadlock, supporters of Core’s policy began to work on a solution that would bi-pass the miners. Separately, economically powerful actors began to become politically active in order to seek a resolution to the impasse. Digital Currency Group, a relatively big player in the industry brokered an agreement – known as the New York Agreement – in which 58 companies in the space committed to a compromise between the big block and small block factions. Notably the vast majority of miners supported the compromise whereas Core would not despite it meaning their legislative proposal would pass under the agreement. Core claimed that they would not compromise for ideological reasons – primarily because they have an aversion to the method used to increase the block size limit – but it is also quite possible that they wished to continue wielding the power to initiate legislation as they consider themselves the most competent policy-makers. I suspect both these theories are true.

When Core’s proposal passed subsequent to the NYA, and Core had cast doubt on the viability of the block size increase proposal, another faction saw an opportunity to make a move. ViaBTC, a Chinese company with interests in both mining and exchange initiated a split of the protocol and labelled it Bitcoin Cash. Given that their version (forks as they are known in the industry) involves an increase in the block size, they were also able to claim a certain amount of legitimacy by representing well-established ideology within the community. A number of exchanges listed it, albeit under a different ticker (BCH), and when this happens, pressure is exerted on others to do so in fear of losing market share and/or being exposed to risk of legal action from users wishing to access the new version of the currency. It is evident that there is potential for a lot of upside with very little risk for those seeking to commandeer the Bitcoin brand for financial gain. All that is required is a marketable story.

Despite the existence of Bitcoin Cash meaning both prominent ideological divides within the community were technically represented, the majority of the signatories of the NYA committed to continuing with their plan. At this point it became clear that the motive was no longer compromise but rather a putsch. The aim is to not simply make a spin-off of Bitcoin such as BCH, but commandeer the brand outright by claiming the BTC ticker on the exchanges. Supporting evidence for this thesis can be found in the NYA group’s initial refusal to implement a feature called replay protection, meaning many users could lose coins on Core’s blockchain when moving coins on their version. It’s difficult to interpret this in any other way than this is an overt attempt to kill off Core’s version by making it insecure. Further evidence of these motives can be found in leaked chats in which an admission of the aims of the NYA can be found.

As is the case in most political power struggles, the other side will use any tools at its disposal too. If the omission of replay protection was the NYA group’s nuclear option, Core’s nuclear option is the threat of state legal action. Core developers have openly threatened legal action on Twitter and one has also written to the SEC in order to instil fear of prison into the NYA developers. They have also published a list of companies that support the protocol change and clearly insinuate that anybody that represents the new version as with the BTC ticker will be acting fraudulently. To an objective observer this is clear signalling for those looking for people to blame in the event of a loss of funds from the political infighting. Many of Core’s supporters took up the fight and began declaring that the NYA signatories would be committing fraud if they persevered with their actions.

These events are very interesting as not only is it a tacit admission by Core developers that Bitcoin can be – and is in fact – governed, it is a request to the government to define what Bitcoin is. It therefore contravenes the very foundation of Core’s stated ideological perspective of what Bitcoin is. In their eyes it is supposed to be a system that nobody controls – especially not the state.

As a result of this pressure, one by one, the exchanges and businesses folded and announced that the new software client would be represented by the ticker symbol B2X. In my view there was a realisation that there would inevitably be legal problems ahead and the most prudent thing to do was to surrender to Bitcoin Core. Those outliers that have remained open as to which ticker they will choose have been vilified and I believe a world of legal hurt awaits if they don’t fall in line.

So What is Bitcoin?

Let me begin with a short analysis of the events that transpired. When I began writing this essay prior to the outcome of the power struggle, it was intended to be an analysis of the various power distributions in the ecosystem. I was going to employ established political science theory and anarchy was to be the rules of engagement. I concluded that the exchanges were the most powerful actors due to their control of liquidity and were thus kingmakers. As events unfolded it became abundantly clear that this theory was useless.

Since not all the exchanges and wallet providers supported the NYA we’ll never know for sure whether the theory would have held but the events that followed tell us that we don’t need to. The bottom line is that Bitcoin Core and its supporters feared that this coup would be successful. This tells me that if the game was being played in anarchy, they believed they’d lose. As a result, they engaged in a campaign of legal threats, some thinly veiled and some outright. They let businesses know that the coordination problem they faced amongst themselves would quickly turn into a legal one as they would face claims of fraud and be directly in the firing line if customers suffered a loss of funds in the confusion. Essentially they let the NYA signatories know that the problem was not actually a coordination problem in anarchy, but a legal one. Core and its supporters may not have enforced the “Bitcoin” trademark in the past so can no longer own it in full, but they left the exchanges under no illusions that the “BTC” ticker belonged to the Bitcoin Core software client (other clients that follow its rules are tolerated) and was not at all up for grabs. At this point the exchanges came out and conceded that BTC would not only remain the ticker for the “legacy chain” (Bitcoin Core’s rules) after this particular schism in the hope of avoiding situations like this in the future, intonated that it would always represent Bitcoin Core as exchanges cannot change ticker symbols “for operational reasons”. If it wasn’t obvious that the BTC ticker was the prize the antagonists in the dispute sought, it became obvious subsequent to these declarations. The Bitcoin Core side knew they had won.

So what is Bitcoin if not Bitcoin Core? Well for starters it it is now abundantly clear Bitcoin cannot rely on being defined by slogans or memes. Slogans such as Bitcoin is: “math-based money”, “non political money”, “the chain with the most work”, “cheap international transactions” “banking for the unbanked” “defined by its users” are not going to fly. It must be defined by something tangible so that agents can efficiently come to a consensus on what Bitcoin actually is. Since the only tangible parts of Bitcoin are the distributed ledger of transaction history, miners and the software people download to join the network, it means Bitcoin must therefore logically be defined those. Since the distributed ledger history can be adopted by new software with new rules at any time, and pseudonymous miners can enter and exit the system at will, they are not reliable entities for the purposes of defining Bitcoin. For example, if we relied on accumulate work in order to define what Bitcoin was, it could be possible that the exchanges would have to regularly change the ticker symbols on account of hash rate changes. The same would apply to new software such as the BTC1 client proposed by the NYA group. As we have seen exchanges will not tolerate the legal risks that arise from this and have sided with the status quo software client. As a consequence, we are left with only the incumbent software clients for the purposes of definition. Since we know there is one dominant client that also happens to carry the brand name of the very first client, we know that that is the most reliable entity with which to define Bitcoin. We know that the rules everyone must follow are encoded into the software and that the software development process must also be controlled by a single group in order to avoid a brand consensus failure (and legal risks to all involved). In essence, the choice of what constitutes Bitcoin needs to be forced on all users or the system fails. This, as we have seen, requires hierarchical governance, and I have concluded that at the top of these hierarchies sits the Bitcoin Core team. Bitcoin, in my view, is the BTC ticker symbol. BTC, in my view, is currently Bitcoin Core.

Is Bitcoin a Money Services Business?

Aside from there being a clear hierarchy in Bitcoin, it is also clear that this hierarchy is enforced by violence. The uncomfortable truth for Bitcoiners is that the system cannot function without this enforcement. Imagining how the system would fail is easy. If naming rights aren’t enforced across all third party services that use Bitcoin (BTC) anyone could simply start their own cryptocurrency exchange and sell a unit of a new cryptocurrency as BTC for the same price. Without brand enforcement there is very little cost in doing this and quite possibly a lot to gain if bitcoins are valuable. Of course the law of diminishing returns applies since the more people that do this, the more the value of the original Bitcoin is eroded until eventually a point is reached where nobody would know what the real Bitcoin was, rendering all version useless and sending them all to a price of zero. We know of course this won’t happen as victims of the fraud would resort to the courts and the courts would find in their favour. In order to find in their favour, they would have to define what Bitcoin is and according to my analysis above, I believe they would have to equate Bitcoin with Bitcoin Core.

This may all seem quite logical and inconsequential but the consequences for Bitcoin (and all other public blockchain protocols) could be enormous. For a period, I thought that blockchain communities were simply stumbling on the most efficient way to govern themselves. Far from viewing ownership of a brand being assumed by a development team as problematical, I viewed it as desirable to secure the brand against dilution and end-user confusion through politics. I saw no legal consequences in this since what users did with the software remained beyond developers’ control even if they staked claim to a brand. As long as the brand remained secure from political attack and the rest of the system governed itself via economic incentives, everything should be OK. I now see that this in fact far from clear.

Bitcoin and other blockchain protocols are not like other open source software networks. They are consensus systems that we have seen need to be actively administrated in order for the consensus to hold. If some entity doesn’t represent the brand and that this representation isn’t enforced through (the threat of) violence, the system collapses. A brand administrator is thus a vital part of the system.

Does this mean that the software developers can just change the rules for Bitcoin (BTC) as they wish? No probably not. If they attempted to dramatically changed the rules contrary to a social consensus of how Bitcoin works, they would most likely fail. The problem is there is very little social consensus on what constitutes Bitcoin apart from the recent consensus that Bitcoin Core’s rules will always be represented by the BTC ticker. There is agreement that it’s decentralised but there is no agreement on just how decentralised it should be. There’s agreement that there should be economic incentives but not total agreement on what form the algorithm should take. For some the 21m supply cap is untouchable but for others Bitcoin will become unstable without it. Some people say that the true Bitcoin is the chain with the most work, others say this is not the case.

Since Bitcoin Core now has an undisputed monopoly over the power to propose legislation for Bitcoin (BTC), if they don’t agree with you, your policy won’t be presented to miners and nodes for approval. If they are proposing a policy you don’t like, they can propose it in a way that enhances its chances of being passed and leave it sit there without a competing proposal on the books (see how European Commission has exercise powers far in excess of what EU Member States envisaged as a cause of its monopoly on policy proposals). If the legislation isn’t getting passed, they can force it through in the knowledge they cannot lose control of the brand. If miners or exchanges signal that they would prefer another client to assume the BTC ticker, Bitcoin Core can make the suitably vague populist declaration that “it is users that define what Bitcoin is” and encourage the legal action against the protagonists through use of the word “fraud”. Every business with paying customers now understands that this is a legal battle they can’t win because they understand that Bitcoin Core has always been Bitcoin (BTC) on their platform. Since there is no reliable way for users to express their opinion on which client they prefer to assume the BTC ticker as only one client can feasibly represent that ticker at a time, Bitcoin Core are judge and jury and executioner in deciding what users want. This is despite the fact of course that they can’t possibly know the consensus in a group of unknown size is in a governance system void of clear rules. It is they that decide what the consensus is. In sum, Bitcoin Core may have restrained power but it is the only entity in Bitcoin with any power at all. The only way I can see Bitcoin Core’s power been taken from them is with complete unanimity amongst users. In any large group of people this is impossible. This is especially the case if unanimity requires an active change in software in order to avoid a loss of funds. The fact of the matter is most members (of all groups) are politically passive and don’t follow the politics. As a consequence, in practice the only choice a politically active user has is to lobby Bitcoin Core or emigrate.

So to get to the question is Bitcoin a money services business in disguise, let’s first ask the question, if the Bitcoin Core team decide what Bitcoin is, do miners and nodes really matter? The honest answer I’d have to give that question is no. When one understands that Bitcoin can only work for everyone when one entity controls the brand, it also becomes clear that all the other rules in the system are subservient to this final consensus. It becomes clear that miners and decentralised consensus on the order of transactions are mere obfuscations of the reality that a trusted third party must administer the system and that that trusted third party (the keeper of the brand let’s call it) is reliant on the state in order to effectively administer it. In sum, it becomes clear that Bitcoin is nothing more than a convoluted version of E-gold. It is perhaps a mirage and a fraud as some have claimed. Unless they enable the trusted third party administrator to evade costly regulations, miners and nodes are a completely unnecessary cost in the system. The question is, does the existence of miners and nodes permit Bitcoin Core to arbitrage money services business laws? Everyone has always assumed they have but I am now very unsure. In fact, it is my suspicion that they don’t as generally in these cases the buck stops with the system’s administrators. Ultimately this is a question for a court to answer but it is clear that there is very much a discussion to be had on the matter. I hope this article starts the conversation.


Although I have concentrated solely on an analysis of Bitcoin, it is my belief that the analysis applies generally. The same forces apply to all. Public blockchains only work when there is consensus on who administers the brand. If the system is functioning without issue it means everyone is in consensus on who the administrator is. This doesn’t mean that everyone explicitly designated an administrator as many can be unaware of its existence. I am now certain there is a tacitly accepted administrator for every public blockchain however. If there wasn’t one, I believe the system would fail. If there is a breakdown in consensus over who the administrator should be in the future, the choice of who controls the brand must be forced. It is ultimately the state that forces this choice and it does so by designating a brand administrator. The obvious consequences of this are that contrary to popular belief there may in fact be a single point of responsibility for nation states to request compliance with their laws. If this turns out to be the case, the irony of Bitcoin Core’s appeals to the state to enforce naming rights is not lost on me. In discovering a single point of failure Nation States didn’t have to go looking for it. It came to them.

9 Replies to “Are Public Blockchain Systems Money Services Businesses in Disguise?”

  1. Could it be that if the community and most importantly the alleged professionals with version control, behaved with more maturity and didn’t resort to legally problematic mud-slinging such as throwing the word fraud around, and then proceeding to brinkmanship, we wouldn’t need to be having this conversation?

    Imagine a community where faux-libertarians pretending to have principles whilst expecting the working world to enrich them by buying into their pseudo-religious pablum were not rewarded with praise, and compromise were not considered selling out, but rather, how adults do game theory.

    It disgusts me how these supposed anti-statists were willing to evoke all the principles that *legally jeopardize* decentralized cryptocurrency as a distinct asset class, just to throw salt on the tribal rift.

    1. Note I disagree that those evoked principles have legal merit in the US. Maybe in the UK, y’all love to make exemptions on Free Speech rights.

  2. Really great article.

    I wanted to flesh out your point on power. I agree that the Bitcoin Core team has managed to gain rights in the BTC ticker and I accept this is your chosen definition for Bitcoin. But would you not consider this power to be on a coercive spectrum?

    What I mean is the Bitcoin Core development team have the ability to put out updates that the community (directly the miners and indirectly through the miners, the users) then adopt. Depending on the nature of the development update, the mining community retain the ability to not take it on board through the open source system.

    If Bitcoin Core put out an update to limit the block size to 1kb (effectively destroying Bitcoin as you define it) people who mine it would drop it in favour of something else, such as Bitcoin Cash or Segwitt2x. I think the accepted reference of Bitcoin within the community as a whole would move from one client to another, the price may crash and correct, but the reference would stay the same for the public. I see this as similar to updates in IP address protocols, these updates are worked on by an established team called Internet Engineering Task Force (IETF) who published updates to IPv4, by creating IPv6. Most people still refer to this internet connection as their IP Address regardless that the protocol technically changed.

    [I wrote an article about this some time ago here:

    Though, I will be arguing that blockchain does need to be regulated when it becomes financial market infrastructure soon.]

    I just wanted to flesh out that in my opinion the power is coercive over the community but not absolute.

    1. Hi thanks for taking the time to read.

      “Depending on the nature of the development update, the mining community retain the ability to not take it on board through the open source system. ”

      I agree with this but as I said in my piece this actually gives them huge power. See political science studies on the powers of the European Commission as an example.

      “If Bitcoin Core put out an update to limit the block size to 1kb (effectively destroying Bitcoin as you define it) people who mine it would drop it in favour of something else, such as Bitcoin Cash or Segwitt2x.”

      I don’t see how this is any different to the restraints on any company acting in a competitive market place. Customers vote with their feet.

      “I think the accepted reference of Bitcoin within the community as a whole would move from one client to another, the price may crash and correct, but the reference would stay the same for the public.

      As I said I don’t think a situation where Bitcoin can continually change from one incompatible client to another is going to fly for businesses with duty of care to their customers.

      In sum I don’t think anyone has absolute power. The question I’m asking does Bitcoin Core have enough power for us to consider them administrators of the Bitcoin network? My hunch is they do. And my hunch is this will have consequences in the future. It took the US government a number of years to get their hooks into E-Gold too but they got there in the end.

  3. This is a great post, but I feel like you’ve overlooked a few things.

    First, exchanges could take a neutral third option. They could retire the BTC ticker entirely and use specific tickers for every client (BCH for Bitcoin Cash, SX2 for Segwitt2x and BCR maybe for Bitcoin Core). This would undoubtedly make people angry, but seems legally unassailable, as they’re literally just using the names for the clients, the opposite of misrepresentation.

    Secondly, I think you’re analogy of thinking of cryptos as hierarchical businesses is a bit flawed. I think they are closer to pre-modern states or international movements then international businesses. For example, “Bitcoin” is closer to “liberal democracy” or “international communism” then “Google”. Whereas Google was born as a legal entity of the state, something like liberal democracy is much more of a vague and nebulous idea. States might have options on what liberal democracy is, and might enforce them within their boarders (“We’re a liberal democracy and anyone who says otherwise is sent to the Gulag!”), but there is no single entity that declares what a liberal democracy is and which states count as such that everyone can agree on.

    I think Bitcoin is in a similar situation to that. There will be many competing implementations, some backed by various states, some ‘rebel’ implementations that are not backed. Outside of every state putting up their own Great Firewall, I don’t think states will be able to get rid of any implementation entirely. There are too many areas of the globe that have lax laws or weak enforcement to be able to stamp it out completely.

    Finally, I don’t think the loss of the core development team or the BTC brand would mark the end of Bitcoin. There would be a power vacuum, certainly. But that vacuum would be filled either by another group rising to the mantle of “Core” or the users migrating to other, similar implementations such as Cash or S2X that would then expand to fill the gap. The long run effect would not be as large as you might think. I think a good analogy is pre-modern states. An Emperor might die and shatter his empire, but either someone will rise to take his place, neighboring states will absorb the territory, or new states will rise from the ashes.

    1. Hi thanks for reading and commenting.

      “They could retire the BTC ticker entirely and use specific tickers for every client (BCH for Bitcoin Cash, SX2 for Segwitt2x and BCR maybe for Bitcoin Core).

      They could but then you’d have two protocols administrated by two separate teams and it is they that will be the respective guardians of the new brands. It’s not the precise name that matters, it’s the fact that there is a name that everyone associates with software that is actively developed (and administered) by a team. I can’t see any other way these systems can work. If one team walks away and closes their GitHub annother will simply fill the void (as you said yourself).

      It’s not like BitTorrent where you can fork the original client, call it a completely a unique name and it can still connect to other torrent clients all with different names. The same with web browsers that use HTTP. Bitcoin is a consensus system. Bitcoin is money. Everyone has to agree on its name for it to work and the only way it works is for someone to own that name so-to-speak.

      The question I’m asking is, if a team owns the name are they responsible to states’ Money Services Business laws?

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