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Measuring How Much Poorly Thought Out Regulation Hurts The US Consumer?

Reggie Middleton's picture




 

Following on the footsteps of "BitLicense Part 1 - Can Poorly Thought Out Regulation Drive the US Economy Back into the Dark Ages?" by our CTO Matt Bogosian, I'd like to explore the real world effect of ill planned regulation vs the benefit of letting innovation prosper.

Matt compared the proposed "BitLicense" with a theoretical "PacketLicense" issued in 1994 which, if using the same proposed language as the proposed rules today, would have had the Internet landscape go from looking like this...

to this... 

What wasn't covered in that entertaining and thought provoking intro was the actual cost of giving the banks - or any group - an effective monopoly over a business segment while technologies such as the Internet protocol or Bitcoin protocol race to make the world a more effecient place. Case in point, the Internet, unfettered and unencumbered by legislation that choked innovation has increased efficiencies and dropped the prices of practically every industry that it has even came near.

This is an excerpt from a Slashgear article in 2011:

Blockbuster went into bankruptcy after its expensive rentals and high late fees helped to drive the average consumer to kiosk rentals and streaming services. Blockbuster was for a long time the biggest rental chain in the country and had multiple stores in many areas. The company isn't alone, the entire DVD market is seeing profits drop. Blockbuster was recently purchased by Dish Network and the rental store has now announced some changes to their in store rental policies.

Blockbuster is lowering prices to appeal to users that have been renting elsewhere. As of May 27, the price of "thousands" of in-store movie rentals dropped to 99 cents per day. The price on new releases was also reduced. The new price is $1.99 for the first day and then 99 cents per additional day. The price of just released films will be $2.99 for day one and then 99 cents daily after.

That's right! Blockbuster DROPPED prices to 99 cents per day, per movie. How does that sound to you? Well, those companies that took advantage of the Internet protocol (and without the benefit of a PacketLicense, like was proposed by the NY DFS) are the cause of Blockbuster's price drop.

Netflix

Netflix charges $7.99 per month for tens of thousands of movies, to be watched on demand and as often as you wish - streamed to your desktop or portable device. Now, let's look at this from an analytical perspective. Without even bothering to adjust for inflation, Blockbuster (even after a dramatic price cut) is literally multiples more expensive that Netlfix. Why? The technological advances of the Internet protocol were allowed to be leveraged unfettered and superior business models simply displaced the inefficient, legacy business models. This would not have happened if Netflix had to have a PacketLicense, along with the draconian (at least to sparsely funded startups) measures that are proposed to go along with the BitLicenses. As a matter of fact, if the PacketLicense would have been in effect, Blockbuster would not have went out of business and it would not have faced competition from innovative companies such as Netflix. As an additional matter of fact, you would probably be paying $3.50 per movie rental, per day (as in before Blockbuster dropped its fees) as compared to $7.99 per month for all of the movies you can consume per month. We're talking a 30x difference in price for avid movie watchers - and this doesn't tell the whole story because real wages increased by a 1/3rd percent, making the Netflix price discounts even steeper in reality. In addition, you'd probably be renting these movies through a bank (the NYDFS Bitlicense excludes banks from the rigors that Bitcoin startups are held to)!

These rapid drops in pricing due to the Internet protocol affects more than just movie rentals. Look towards the ubiquitous smartphone industry. In 2011, An unsubsidized iPhone 4S cost anywhere between $649 and $849.

Today you can get better functionality in an LG D90 Android phone for $179. I can personally attest to this because I bought 3 of them for less than the cost of the bottom of the line iPhone from 2011 model year (which I purchased as well).

LG Optimus L90

The cheaper phone is faster, has a better screen, expandable memory and a vastly superior OS and incomparable battery life (at least as compared to the iPhone).

BUTTTTTT...... When you look towards the financial industry you find protection by clauses such as those proposed in the NY DFS proposed BitLicense. These proposed protections are actually coming at the cost of innovation, the same innovation that Netlfix and LG brought to their customers. As proposed, the NYS DFS proposes Bitcoin startups have:

  1. 100% reserves,
  2. inability to invest in the currency one does business in,
  3. fingerprinting requirements for ALL employees,
  4. bond requirements,
  5. KYC and AML requirements, etc. - among other things.

All of these requirements are waived for anyone with a banking license (Hmmmm!) but required by startups with a mere $100,000 in funding. So what does such protective regulation do for banks and the consumer in the face of Internet and now Bitcoin protocol technology driving down prices EVERYWHERE else?

Just Google it?

Seriously? Bank Fees Shoot Up Again - Business - Time

business.time.com/2012/08/20/seriously-bank-fees-shoot-up-again/ 

Aug 20, 2012 - Not only is it harder to find a free checking account, but fee increases have made it more challenging for people — especially those in lower ...

  • Bank Fees: Big Banks Charging Higher -- and Weirder ...

    business.time.com/.../youll-never-guess-what-banks-have-started-ch...
    Feb 20, 2013 - Sovereign Bank Increases Fees, Adds New Ones Boston Globe; UnionBank ... the airline model, where everything — even a shorter hold time — has a price? ... It will show up as a debit when it comes through your account.
  • Get ready for increased bank fees - CreditCards.com

    blogs.creditcards.com/2013/11/get-ready-for-increased-bank-fees.php

    Nov 15, 2013 - You may want to take a closer look at your bank's fee schedule next year ... are cautiously increasing the fees they charge on a variety of services in order to make ... interest rates, since they now have to give 45 days' notice ahead of time. ... they used to get away with, such as high over-limit and late fees.

  • Fees for Banking Services 2013 Report...

    www.bankers.asn.au/.../Fees_for_Banking...
    Australian Bankers Association

    This resulted in a higher than usual increase in bank service fee revenue .... Over this time average growth rate in fees paid by large businesses has been 13.6% ...

  • online.wsj.com/.../SB1000142405297020343690...
    The Wall Street Journal

    Already, banks have introduced new fees for wire transfers, certified checks and banking through tellers. Others have raised monthly maintenance charges on ...

  • Banks Quietly Ramp Up Consumer Fees - NYTimes.com

    by Eric Dash - Nov 13, 2011 - Bank of America abandoned its $5 a month debit card usage fee in late ... new charges or taking fees that have always existed andincreased them, ... so over time you win more business and make more money,” said Todd ...

     
    So, why and how do banks get away with charging higher fees to their customers and consumers when the rest of the world benefits from lower fees AND superior products due to Internet and Bitcoin protocol technology? I suggest you ask the banking regulators who, whether purposely or inadvertantly, protect the banking cartel's oligarchy and effectively pass the cost of such on to you - the banking consumer. This costs EVERYBODY more - consumers, businesses, investors, speculators and savers. 
    Do you want to do something about it? Do you, as a banking customer or client, want to start spending less money rather than more just like those Netflix and smartphone and (fill in the blank, it's just about the whole world, sans bank customers)?
    Well, now you can do something about it.
  • Step one: Download the future of money, now! See for yourself what the banking industry is up in arms about. More importantly, witness first hand, the power of Bitcoin technology. 
  • Step two: Stop the BitLicense proposed legislation that simply furthes the forces that allow these price increases in the face of global price deflation.  I strongly urge you to  voice your own opinions to Superintendent Lawsky, the man who has the authority to put a stop to this overpricing power (althought current actions are heading in the opposite direction) right now.  

Step three:Become proficient in the “new” way of performing trades of value. I’m quite confident that once investors, traders, speculators and those in need of hedging services become aware of what’s possible with programmable money, there’s no turning back – regardless of legislation. Think of how far Uber has gotten in the livery industry simply by offering superior services! Look here for a strong example, and remember this is not going though and exchange, is peer to peer, and has less credit or counterparty risk than any comparable product I can think of.

 Investment strategy 8: Trade based on decline in Iron Ore Prices

An individual can place bet on expected fall in iron ore prices by taking a long position in Steel producer equity stock like Tata Steel while simultaneously taking a short position on iron ore futures

SWAP CONTRACT DETAILS

RECEIVE: TATASTEEL.NS

PAY: TION13.NYM

 

  • UltraCoin Long steel short coal trade
 

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Tue, 07/29/2014 - 15:48 | 5019239 crazytechnician
crazytechnician's picture

Regulation will fade into irrelevance once the Fiat Debt Ponzi starts unwinding en-masse and starts properly spiralling down the shitter. Cue Portugal ........

Tue, 07/29/2014 - 14:55 | 5018950 PhysicalRealm
PhysicalRealm's picture

Hey Reggie -- am I the only one still having trouble getting to your site?  I stopped trying a while back, tried again just now, still get an Avast warning that says:
"Malicious URL blocked"
http://boombustblog.com/favicon.ico is supposedly the problem object per Avast which says:   Infection:  URL:mal
JFTHOI I tried on four different computers, XP and Win7, and in several different versions of FF, Pale Moon, and Midori and nope.  I _can_ get in using Pale Moon in Linux Mint on a dual boot Linux/win7 machine.  And no, I don't have the problem with any other site, just you.  I saw a while back that you knew you'd had a security issue, wondering what the result of that was... maybe not completely resolved, huh...  Anyway, just fyi and all that...

Tue, 07/29/2014 - 15:14 | 5019044 PhysicalRealm
PhysicalRealm's picture

... and yeah, I have to add that everything else aside, I've quit going to a lot of sites which are pushing bitcoin and I'm sure I don't have to name them, we all know who they are.  It's like divorcing yourself from friends who've gotten into Amway... 

Tue, 07/29/2014 - 13:48 | 5018587 kchrisc
kchrisc's picture

Bitcoin doesn’t pass the "smell test."

I.e. the criminal class--pols, crats, banksters and their elite masters--have embraced it, which means that the fix, as always, is in.

Tue, 07/29/2014 - 15:40 | 5019196 scrappy
scrappy's picture

Bitcoin doesn’t pass the "smell test."

Humming with flys to boot.

Control Freaks Dream.

Tue, 07/29/2014 - 13:45 | 5018565 kchrisc
kchrisc's picture

"Measuring How Much Poorly Thought Out Regulation Hurts The US Consumer?"

There is no such thing as a "poorly thought out regulation." Regulations are designed and implemented to steal, as all government actions are, and steal they do.

Any future negative repercussions just become more opportunities, "never waste a crisis," for the pols and crats to regulate, steal, more.

And round and round it goes until the guillotines show up.

Tue, 07/29/2014 - 12:07 | 5018078 NOZZLE
NOZZLE's picture

Pick an industry like slaughtering and butcher beef on a small scale ($2,000,000 in gross sales) so you can serve a narrow ethnic market like Kosher or Halal and try and imagine the hoops you have to jump thru to get there.  The rules are set up to protect large packing houses not to protect health as is evident from the number of rotten meat recalls that occur every year.

Tue, 07/29/2014 - 11:54 | 5018012 NotApplicable
NotApplicable's picture

Poorly thought out?

Reggie, how can even begin to think about such idiocy, let alone write about it.

You better wise-up, friend. The notion that this shit isn't intentional is beyond belief.

Government is nothing but the most organized form of crime. All of this regulation exists as a PR front for the sheeple while aiding and abetting the theft in progress.

Tue, 07/29/2014 - 13:26 | 5018440 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Amen. I'll add that Bit/Ultra/Whatevercoin is no panacea. The printed dollar in my pocket is anonymous. You may hate who printed it, but no one can really track whether I used it to buy gum, guns or something else. All those Silk Road users may find they're not nearly as anonymous as they'd hoped. And the gov't of course snagged all that loot anyway. The criminality is "legal" when you're the feds...

Tue, 07/29/2014 - 17:32 | 5019652 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

They could if they started tracking serial numbers on bills. But that would call into question the fungibility of the bills then.

That is a problem with bitcoin is the issue of fungibility due to the way the blockchain is currently implemented.

http://wiki.darkcoin.eu/wiki/FAQ#I_read_that_Darkcoin_is_more_fungible_t...

A central aspect of using currencies is that the unit of the currency has the same properties as another unit of the currency. For example 1 gram of gold is equal with 1 gram of gold. A one euro coin is equal to another one euro coin. In a similar sense, one darkcoin is equal to any other darkcoin.

When the history of each coin is being tracked, from its generation (through mining) up to its last spending, as is the case with the Bitcoin blockchain, certain coins can be "flagged". For example, if one knows that an exchange was hacked and that its BTCs were stolen and that these same BTCs were then spent to acquire a merchandise, it can be seen that that the BTCs spent for the merchandise are a byproduct of crime. So, in this sense, these BTCs are not equivalent with other BTCs because they carry with them a negative reputation or legal implications*. This lack of equality originates from the refusal of some party to accept BTCs that have a certain "history" behind them. Lack of fungibility in a currency is strongly problematic.

If there is a constant "mixing" of coins in the blockchain, as is happening with DarkSend, all Darkcoins remain fungible (=equal to one another) and its use as a currency is not disrupted by the public ledger / blockchain.

[*] Bitstamp has required users to provide evidence of where they got their Bitcoins before cashing them out.

http://www.reddit.com/r/Bitcoin/comments/26apno/bitstamp_will_not_process_withdrawal_unless_you/

...

You don't have that problem with dirty money or darkcoin for that matter. That is why I laugh at the reporting requirements for transactions over 10,000 USD. It is obvious these people have no fucking clue what they are regulating since the bitcoin blockchain is not anonymous. Any regulator can easily catch those transactions with automated blockchain monitoring software as long as the businesses bitcoin addresses are known by the regulators.

 

Tue, 07/29/2014 - 11:40 | 5017939 Toolshed
Toolshed's picture

Just imagine how things would have turned out if the video rental companies and cell phone companies were trying to cut into the banks revenue stream, like ultracoin is supposed to do. Reggie, can you contrast and compare elephants to aardvarks for us now?

Tue, 07/29/2014 - 16:10 | 5019261 crazytechnician
crazytechnician's picture

Ask Lehman bros. how it would have worked out - FYI the big banks are all insolvent zombies. Their true value comprise of a bunch of off balance sheet negative value derivatives.  Their days are numbered. The clock is ticking and the shitter is waiting to be flushed.

Tue, 07/29/2014 - 01:11 | 5016404 hedgiex
hedgiex's picture

Surely any tech analyst will know that after NSA, other countries are furiously building walls and promoting their own ISPs. Some of these domestic ISPs in India/Chinan have more users than the likes of  Facebook. It is the hi tech gears that they want for their enhancements to cloud computing, etc.

As for the Banks, their BS about their global consumer franchise is a smoke. Which emerging country hasn't got domestic EB platforms. ATMs that are upto US standards, if not better. How are they going to defray costs with no growth in their consumer base through global penetration ? So they have to capture the domestic pipeline and even raise fees.

Tue, 07/29/2014 - 06:48 | 5016826 doctor10
doctor10's picture

It's more about the regulation than about the taxpayers.

 

Deficit spending un-hooks government from the taxpayer

 

 

Mon, 07/28/2014 - 19:43 | 5015121 kaiserhoff
kaiserhoff's picture

Nice piece, Reggie, but how many tens of thousands of movies do you watch each month?

Some of the wretched excess of tech is exhausting, and less than useless.  It gets in the way of real choice.

Mon, 07/28/2014 - 19:55 | 5015161 CH1
CH1's picture

Easy answer: Don't obey the fucking thugs.

Mon, 07/28/2014 - 20:48 | 5015321 kaiserhoff
kaiserhoff's picture

 I like that answer, and live by it when I can, but techie stuff, if you use it at all, forces round pegs into square holes.

Mon, 07/28/2014 - 16:05 | 5014221 potato
potato's picture

How long before people are paid in BitCoin rather than direct deposit.

That will be a glorious day.

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