Hardcoding compliance into protocols

On the 5th May 2015, FinCEN reported a fine against Ripple Labs on a number of counts of violations of the Bank Secrecy Act. We have reported this on Merkle Tree here and here. There was an interesting comment in the FinCEN report:

“Pursuant to the agreement [this is the settlement between Ripple and FinCEN], Ripple Labs will also undertake certain enhancements to the Ripple Protocol to appropriately monitor all future transactions.”

There are two interesting observations that arise from this statement:

  1. If you pre-mine your coins and control your network like Ripple do then is technically feasible to make an “enhancement” to your protocol, however, the same cannot be said for decentralised digital currencies such as bitcoin.
  2. There is a ‘silver lining’ in this judgement for Ripple in that if Ripple ‘hardcodes’ compliance into its protocol then it is almost like FinCEN is approving the protocol to be used. An interesting result. So for anyone out there building a new protocol, take note of this.