DATA Series: Interview of Patrick Murck, General Council of The Bitcoin Foundation
Patrick is originally from Washington DC, the city hosting the DATA annual conference next week, but is currently living in the Pacific Northwest. He has been part of the Bitcoin movement in 2011 and really became known in the community after fall of Bitcoinica in 2012. Here’s the cover of 123Cryptocurrency around that time.
Ruben Alexander: What made you want to become a lawyer?
Patrick Murck: That’s a great question. I was tricked into it.
(laughs) My wife tricked me into taking the LSAT and I ended up in law school. Before I knew it, I was on the path to being a lawyer. Both of my parents are lawyers so in some ways you could say I was raised by wolves.
How long have you been a lawyer?
Too long. I’m on year 8 now.
What was the most difficult case you’ve worked on?
Woah. In what way were you involved with Bitcoinica?
I helped recover funds from Zhou and negotiated the placement of those funds into what we thought was safe keeping. I also worked with creditors to come up with a strategy to move Bitcoinica into liquidation.
It was a situation where no one had an interest in cooperating so it was quite difficult. More difficult than it needed to be. And of course there was a lot of drama.
Yes, thats what Ive heard. Was this the first Bitcoin company to go under?
It wasn’t the first, but there was a lot of drama.
Were you introduced to Bitcoin through Bitcoinica?
I was employee #1 at a digital currency startup called BigDoor before the Bitcoin whitepaper came out. It was probably in 2010 that I saw the Bitcoin whitepaper. And then I got more interested in learning about Bitcoin, because I was already involved in digital currency and this was a different approach that solved a lot of the big problems I was experiencing firsthand.
I wasn’t involved with Bitcoin because I had a day job that occupied all of my time. I was also a digital currency attorney and there weren’t many around at that time so a number of Bitcoin people reached out to me. Jon Matonis emailed me early on. I met Charlie Shrem and Jared Kenna in San Francisco and they officially roped me into the Bitcoin space.
What are your thoughts on the recently published IRS notice?
I thought it was a net positive. It is good they published the guidance. At the same time it is not perfect. As usual, the mining is the most difficult thing for everyone to wrap their heads around and that’s where some of the issues crop up.
If you read the guidance, you book revenue the day you mine your Bitcoin and you receive your block reward. The block doesn’t mature until 100 blocks so there could be some cases where that’s not in the same day.
That is a very good point.
Does that mean you are forced to book revenue at a mark to market value that is on a non-fungible asset? Shouldn’t you be booking that revenue when the block has ripened at 100 blocks? It is not a big deal, but it is clear that those were the things that were missed. Those are the kinds of things, had it been put out for notice or public feedback, that probably would have been caught early.
Gmaxwell changed the block maturity from 120 blocks to 100 blocks 7 months ago.
That’s why I always try to get the regulatory community to put guidance, which doesn’t have to go out for public notice and comment, put it out for public comment anyways. With complicated matters involving new technology that isn’t easy to understand, let the people in that community inform the regulations through standard Administrative Procedures Act procedures.
At a higher level, I think it is interesting that from a policy perspective you have an incongruity happening. With FinCEN’s guidance they appropriately are very neutral on encouraging how Bitcoin is used, whether it is for investment or as a medium of exchange. FinCEN’s guidance probably favors medium of exchange slightly, because there is no registration requirement when you are transacting within the digital economy itself for goods and services. Whereas on the tax side from the IRS, which is also in the Treasury Department, clearly encourages investment and speculation and discourages Bitcoin’s use as a means of exchange or as a payment system. Which isn’t really a great outcome. It doesn’t treat Bitcoin the same way it treats other similar payment systems. It discriminates against the Bitcoin technology as a method of payment. It is never a good thing, from a policy perspective, for rules, regulations, or guidelines to discriminate against one technology over another or pick winners and losers in the market. That is usually a bad outcome and needs to get sorted out.
It is not clear to see how the IRS can do that given their current rules. But I think there is enough flexibility that you don’t need to go to the legislative branch. It is another thing that could have been called out early through public comment.
The approach they took towards mining was peculiar. I know that Germany declared Bitcoin private money and charges a sales tax on Bitcoin transactions…
Germany has a unique history in that regard that the US doesn’t have with private monies. They are familiar with that concept where each village has a private currency. You are going to see this happen where in some cases Bitcoin fits into one [government] framework better than another.
There is still a sales tax on Bitcoin or dollar transactions in the US. The difference is [with the current IRS notice], even on very small transactions, I am going to realize a loss or gain. And that is burdensome on your everyday consumer. Even if it was treated as foreign currency it would still book a capital gain or loss on large purchases.
It affects microtransactions the most. If 123Cryptocurrency were to throw up a Bitcoin paywall someday, and I want to pay a bitcent ($0.01 or .023 mBTC) to get to my articles, realizing a capital loss or gain every time I spend a fraction of a Bitcoin is going to be cumbersome. I don’t think anyone wants this outcome, including the IRS.
As you can tell we could go on and on about this.
I figured the exchanges would be the most efficient place to tax. It would cover anyone entering into the dollar and put the burden of tax liability at the exchange. It could also be viewed strictly as a commodity since it can be mined anywhere in the world.
The answer isn’t taxing it as a commodity or as a currency. The Bitcoin Foundation’s position is that Bitcoin isn’t a monolithic object. It is about how people are using it. If you are using it like a currency, it should be treated that way. If you are using it like a commodity or something else, it should be treated that way.
You can never pin Bitcoin down in a regulatory framework as one particular thing or another, especially this early on.
Does DATA have any goals related to public education or policy feedback for 2014?
We haven’t set goals. I’m hoping that will be the outcome of the meeting with DATA members next week. I think it is appropriate to have a conversation with the members first.
The first thing I would like to see is to develop a framework for how to analyze Bitcoin issues. Jim Harper just published a study where we walk through all the potential threats to Bitcoin and assess the likelihood of the risks occurring. Even using this document as a starting point would help prioritize goals and measure success and failure.
The second thing we need to do is set best practices and standards for Bitcoin exchanges. The focus for DATA should be on the Bitcoin exchanges. They are the critical control points of the ecosystem. They have a need to have their own voice in the conversation. To have credibility they will need to have best practices and standards that are adopted by Bitcoin exchanges.
The third thing would be to build credibility in the regulatory and legislative community based on the good work we are doing by establishing best practices and standards, and prioritizing risks.
(reading Jim Harpers study) I will include some content from this paper. This is a great list of the risks that threaten Bitcoin.
This is what I hope to bring to DATA. I want to approach these issues with rigor and take actions that bring value to Bitcoin. When you are lobbying or trying to influence through various government relations, it is good to have some thought, deliberation, and measurable goals so you can understand where you are succeeding and where you are failing.
Here is an excerpt from the document Jim Harper shared on the Bitcoin Foundation’s blog.
There are complexities, but managing risks to Bitcoin involves a relatively simple series of steps:
First, an asset characterization determines in detail what makes Bitcoin special and what the foundation xists to protect.
Next, threat assessment captures the threats that Bitcoin faces and the likelihood and consequences of these adversities materializing. This permits the foundation to prioritize its responses.
Response characterization, finally, determines in the abstract what steps the foundation should take to address the most likely and most significant threats to Bitcoin’s success. This step can guide the activities of the foundation and, to the extent possible, reveal measures of progress toward the outcomes the foundation seeks.
– From page 2 of the Bitcoin Foundation Research Brief No. 1 released during Spring 2014
Will DATA concentrate its time working with the US government, or will you split your time across several governments?
Based on my experience at the Bitcoin Foundation, we need to marshal our resources and focus on where you are going to have greatest impact for the entire ecosystem. The way you do that is you pick, based on your resources, a certain number of jurisdictions. You can’t cover the whole world. You can’t fly on airplanes from capital to capital. You’ll never be effective if you are just responding constantly to events as they come up. You need to proactively identify the jurisdictions where you will have the greatest impact and plan to spend time and resources there.
What is the ideal outcome of the DATA annual meeting where DATA community & board members, the IMF, and World Bank will be gathered in one place?
We will plant a flag so that people can see that DATA exists with real people behind it. We’ll educate people and create a two-way dialog, which is a soft benefit from having this type of event.
Additionally, we would like to raise some funds. Buy tables! Attend. That would all be good.
We also want to engage the membership. If you are a member, please come and help shape the agenda, priorities, and what we are thinking about. Out of everything, getting membership feedback is the most important to help us focus our time.
This interview is part of a series of interviews of the DATA board members Edan Yago, Patrick Murck, Constance Choi, John Beccia, and Stan Stalnaker.
The DATA annual meeting will be in Washington DC on April 10-11. To find out more, visit DATA’s annual meeting website.