SYS-CON MEDIA Authors: Elizabeth White, Liz McMillan, William Schmarzo, Yeshim Deniz, Jason Bloomberg

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Is The Looming Bitcoin ‘Hard Fork’ Illegal?

As the Bitcoin community struggles to reach a broad consensus over how to expand the blockchain’s block size, thus allowing Bitcoin to scale, a pro-Bitcoin attorney has sounded an important alarm: any hard fork of Bitcoin may be illegal, and furthermore, exposes the developers of the newer code to substantial liability.

“The creators of the new software face potential liability and criminal sanctions unless they register with the Feds,” according to Daniel Friedberg, a principal at the law firm of Riddell Williams PS in Seattle. Furthermore, “the implementation of a ‘hard fork’ would require exchanges to differentiate between bitcoin and ‘Bitcoin Classic’ or ‘Bitcoin XT’ Bitcoin, as its customers would inherently have rights to either one or the other.”

In a recent article on his law firm’s web site, Friedberg points out several legal issues with the looming hard fork – a situation where two incompatible versions of the underlying Bitcoin software coexist until a consensus of miners (transaction processors) switch from the old to new version, thus rendering the old version obsolete.

Bitcoin Developers become Money Services Businesses

The first issue: the potential liability of the software developers working on Bitcoin Classic or Bitcoin XT, two contenders for the new fork of the Bitcoin platform code. “Unlike Satoshi, the mysterious creator of the original Bitcoin software who has remained anonymous and therefore outside the reach of law enforcement, the developers of both Bitcoin Classic and Bitcoin XT are publicly named,” Friedberg explains. As a result, “the creators of Bitcoin Classic or Bitcoin XT would need to register with FinCEN [the US Treasury’s Financial Crimes Enforcement Network] as a Money Service Business (MSB). Failure to register can result in imprisonment of not more than 5 years, as well as civil penalties.”

This regulatory requirement also throws a wrench into the near-anonymity that Bitcoin users currently enjoy. “An MSB is required to maintain effective anti-money laundering (AML) programs, recordkeeping, and reporting of suspicious activities,” Friedberg continues. “In order to do so, the MSB must know who its customers are.”

AML regulations already require Bitcoin exchanges to know the identities of Bitcoin users. However, in the case of the upcoming hard fork, Bitcoin developers must maintain this information as well. “These requirements will require the replacement Bitcoin protocol to maintain the personal identifying information of its users,” Friedberg explains. “The adherence to such requirements will be a large deviation from the current Bitcoin protocol which does not maintain personally identifiable information about its users.”

‘Old’ vs. ‘New’ Bitcoin: Legal Morass

Perhaps the more serious legal issue with the upcoming hard fork results from the fact that it creates two different kinds of Bitcoin, and furthermore, forces owners of the older type to switch to its replacement.

Read the entire article at http://www.forbes.com/sites/jasonbloomberg/2016/02/13/is-the-looming-bitcoin-hard-fork-illegal/.

Disagree with this article? Feel free to comment – but illegal attacks on Forbes or the author’s web sites will be reported to the authorities and dealt with to the full extent of the law. Intellyx advises companies on their digital transformation initiatives and helps vendors communicate their agility stories. As of the time of writing, none of the organizations mentioned in this article are Intellyx customers. Image credit: Daniel Friedberg, Antana.

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More Stories By Jason Bloomberg

Jason Bloomberg is a leading IT industry analyst, Forbes contributor, keynote speaker, and globally recognized expert on multiple disruptive trends in enterprise technology and digital transformation. He is ranked #5 on Onalytica’s list of top Digital Transformation influencers for 2018 and #15 on Jax’s list of top DevOps influencers for 2017, the only person to appear on both lists.

As founder and president of Agile Digital Transformation analyst firm Intellyx, he advises, writes, and speaks on a diverse set of topics, including digital transformation, artificial intelligence, cloud computing, devops, big data/analytics, cybersecurity, blockchain/bitcoin/cryptocurrency, no-code/low-code platforms and tools, organizational transformation, internet of things, enterprise architecture, SD-WAN/SDX, mainframes, hybrid IT, and legacy transformation, among other topics.

Mr. Bloomberg’s articles in Forbes are often viewed by more than 100,000 readers. During his career, he has published over 1,200 articles (over 200 for Forbes alone), spoken at over 400 conferences and webinars, and he has been quoted in the press and blogosphere over 2,000 times.

Mr. Bloomberg is the author or coauthor of four books: The Agile Architecture Revolution (Wiley, 2013), Service Orient or Be Doomed! How Service Orientation Will Change Your Business (Wiley, 2006), XML and Web Services Unleashed (SAMS Publishing, 2002), and Web Page Scripting Techniques (Hayden Books, 1996). His next book, Agile Digital Transformation, is due within the next year.

At SOA-focused industry analyst firm ZapThink from 2001 to 2013, Mr. Bloomberg created and delivered the Licensed ZapThink Architect (LZA) Service-Oriented Architecture (SOA) course and associated credential, certifying over 1,700 professionals worldwide. He is one of the original Managing Partners of ZapThink LLC, which was acquired by Dovel Technologies in 2011.

Prior to ZapThink, Mr. Bloomberg built a diverse background in eBusiness technology management and industry analysis, including serving as a senior analyst in IDC’s eBusiness Advisory group, as well as holding eBusiness management positions at USWeb/CKS (later marchFIRST) and WaveBend Solutions (now Hitachi Consulting), and several software and web development positions.

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