bitcoin – Page 2 – Lifeboat News: The Blog

06.10.
2019

Blockchain, Bitcoin, and Law: A Distributed Disruption

The future of the legal industry is being reshaped by a number of rapidly advancing technologies and the disruptive ideas they enable. Today’s lawyers are being advised to learn to code, develop an artificial intelligence (AI) application, and outsource discovery to machines. Of the many new technological drivers impacting law firms is the secure information exchange platform known as blockchain. Some see it as a the basis for the reinvention of economies while others simply see it as means of secure and incorruptible information exchange between counterparties. This cloud-based distributed ledger technology provides a source of irrefutable record of every transaction. In legal it is enabling fully automated self-executing “smart” contracts, and has the potential to help attorneys provide new services and create new value for clients and law firms. Blockchain is known as the structure underlying Bitcoin and other digital currencies, but its applications in the legal sector are still evolving. This article provides an overview of the technology, highlights example applications and case studies, and presents a possible timeline of future developments over the next decade or so.

Overview: Blockchain and Bitcoin

Blockchain and Bitcoin have gained notoriety lately as a potential solution to an outdated and burdensome system for managing financial transactions between counterparties. Today most financial transactions between counterparties are settled via financial intermediaries which adds time and cost to the settlement process. Blockchain offers a distributed ledger model whereby the parties settle directly with each other, the transactions are recorded, secure, and immutable, and the counterparty identities remain anonymous. The goal is to enable a simplified and trustworthy financial ecosystem- but these digital peer-to-peer networks, also challenge the authority of institutions (banks, regulators, and governments) and are thus creating disruption.

According to its advocates, the decentralized nature of blockchain and Bitcoin will cause much-needed disruption, with reverberations far beyond the financial realm. There is an element of social revolution in blockchain, thus it is often portrayed as a conduit for challenging the status quo. Though Bitcoin, a digital currency, is an explicitly financial innovation (i.e., for payments, transfer of funds) blockchain is far less specific. Blockchain serves a critical role in the administration of Bitcoin, and that of other digital currencies, but it can actually be used to complete other objectives and track the movement, transfer, and ownership of all sorts of things besides money (examples include luxury goods, education credits, property titles, and patents, to name a few). Though blockchain is structured like a traditional accounting tool—it’s fundamentally a ledger that tracks deposits in and payments out, and maintains a running balance—its uses go far beyond counting coins.

Lest we assume blockchain and Bitcoin are solely the tools of the far-left, libertarian, anarchists, and socialists among us, this technology has captured the attention of global business and industry to the tune of millions of dollars. Among banks alone, one source projects spending on blockchain solutions to grow to over $200 million in 2017, $300 million in 2018, and $400 million in 2019. Perhaps ironically, a great wave of enthusiasm for blockchain now emanates from the business establishment, including stalwarts like banking, finance, real estate, and law.

Applications to Law Firms

While the basic metaphor for blockchain is an automated checkbook register that instantly reconciles transactions, several concepts are inherent to blockchain which are ideally suited for applications to law firms. Current legal industry activity around blockchain ranges from the simple—payment for services rendered, verification of contracts, representing companies conducting business on the blockchain—to the highly complex—formulation of an entirely new legal system altogether. Regarding the latter, which would usurp local or national laws to create a globally agreed upon set of codes that govern rights during a dispute, one can see how incredibly large-scale blockchain’s legal applications could potentially become. In terms of contracts and payments, though, the firms now adopting blockchain are attracted to its practicality: it reduces the resources needed to complete day-to-day operations. For example, Goldman Sachs estimates that $11 to $12 billion per year could be saved with blockchain-based clearing and settlement of cash securities, and $2 to $4 billion yearly savings from moving real estate titles to distributed ledgers.

A growing number of industry examples demonstrate the diversity of applications of blockchain and bitcoin to legal services:

International law firm Steptoe & Johnson helps clients in all industries manage application of the blockchain in their businesses, and accepts Bitcoin as payment for fees.
King & Wood Mallesons (headquartered in Hong Kong) has more than a few dozen lawyers who have a focus on blockchain, including smart contracts.
Perkins Coie LLP partner Dax Hansen (US) launched the first blockchain legal industry practice in 2013, which has grown to over 40 lawyers focused on blockchain technology, digital currencies, and distributed applications of all types.
Selachii (UK) will implement self-executing smart contracts on blockchain, starting with wills, title registries, and shareholder agreements.
Allens (Australia) wrote a report suggesting that the future of the legal business model, which profits from an absence of trust between organizations, is imperiled by the rise of blockchain technology.

Outside of law firms themselves, the startup ecosystem is packed with examples of services geared toward marrying procedural business practices with blockchain:

Juro uses blockchain technology to underpin the creation and signing of legal contracts.
The Decentralised Arbitration and Mediation Network (DAMN) operates as a network of smart contracts on the Ethereum blockchain creating an “opt-in justice system for commercial transactions” as a new form of cross-border dispute resolution.
CommonAccord is creating global codes of legal transactions, automating legal documents such as master service agreements.
DAO.LINK is an initiative which facilitates brick-and-mortar business interactions with blockchain-based organizations.

Timeline of Possible Future Blockchain Developments in Law

Next 3 years

DAOs: Distributed autonomous organizations with no workers and no bosses, just algorithms.
Merger and acquisition on “auto pilot”.
Elimination of some jobs and roles (banker, advisor, lawyer).
Merging AI and blockchain; robolawyers on blockchain.

Next 5 years

DAMN – a global legal system for international dispute resolution.
Automated arbitration, dispute resolution, and various legal and banking processes eliminating more roles in law firms and banks.
Creation of new professional roles to deal with legal ramifications of blockchain.

5–10 years

Algocracy: Law is code, code is law.
DAS: distributed autonomous societies with automation of services, justice, rights, and laws.

Blockchain and cryptocurrency have gained unprecedented ground. The central bank of China is piloting a blockchain-based cryptocurrency, a very loud signal about the rising status of the technology which will legitimize its use. Another recent indicator came in the form of headlines screaming about Bitcoin’s price trends, earning investors millions.As futurists, we expect that for every big wave of change there are dozens of small ripples; the revolutionary nature of Bitcoin and blockchain means it will disrupt businesses of all kinds. Because it involves money, contracts, and ownership, this is a special consideration for lawyers and firms.

Starting now, law firms owe it to their staffs and teams to begin a conversation about blockchain, Bitcoin, and other digital currencies. Information, in this case, is power—blockchain’s distributed disruption of banks, laws, and most traditional social institutions will generate new conflicts, anxieties, and tensions for which legal remedy will be the only solution. It is a likely topic of future legal matters.

Keep in mind that the best way of describing blockchain is “distributed,” in other words, absent of central authority. A lot of the projects in the works seek to apply this thinking to society at large through distributed autonomous societies (DAS) and distributed legal systems. If a distributed mindset prevails, this will concern lawyers, judges, law enforcement, and anyone in occupations that rely on a centralized legal system.

Furthermore, the entire basic model of business conduct stands to be disrupted on the same scale as it was during the rise of the internet as a business tool—blockchain, in combination with other technologies like artificial intelligence and cloud computing—will eventually transform the very basis of business and productivity, possibly even money itself. By decentralizing the powers that be, blockchain seems to be the high-tech disruption that will challenge law at every level and function.

ABOUT FAST FUTURE

Fast Future publishes books from future thinkers around the world exploring how developments such as AI, robotics, and disruptive thinking could impact individuals, society, and business and create new trillion-dollar sectors. Fast Future has a particular focus on ensuring these advances are harnessed to unleash individual potential and enable a very human future. See: www.fastfuture.com

Rohit Talwar is a global futurist, keynote speaker, author, and CEO of Fast Future where he helps clients develop and deliver transformative visions of the future. He is the editor and contributing author for The Future of Business, editor of Technology vs. Humanity and co-editor of a forthcoming book on Unleashing Human Potential—The Future of AI in Business.

Alexandra Whittington is a futurist, writer, faculty member on the Futures programme at the University of Houston, and foresight director at Fast Future. She is a contributor to The Future of Business and a co-editor for forthcoming books, Unleashing Human Potential—The Future of AI in Business and 50:50—Scenarios for the Next 50 Years.

04.01.
2019

Acknowledging Risks in Institutional “Stablecoin” Cryptocurrencies and Fractional Reserve Banking

(Originally posted March 7, 2019, on the Crowdfunding Professional Association’s website.)

The purpose of this memo is two-fold:

To highlight the possibility of risks to banking and finance sectors arising from new financial instruments based on blockchain technology; primarily from novel financial accounting methods and products called “stablecoins,” digital tokens, and cryptocurrencies.
To encourage regulators and policymakers to engage blockchain thought leaders, product developers and the community in general to better understand the economic and policy implications of public, private and permissioned blockchains; their application to banking and finance regulations; and how innovation may be encouraged in a safe, sound and responsible manner.

Like any technology, blockchain can and may be used to improve a variety of operational, identity, security and technology challenges that the future of digital banking, business and society face. Blockchain technology is also poised to create new and increasingly clever methods and economies for value, commodities, assets, securities and a slew of yet-to-be discovered financial instruments and products. However, no leap in technology and finance is ever made without risk. As policymakers and stewards of the current and future digital economy and ecosystem, we have an obligation to our constituents and the global banking and finance community to guide the growth and adoption of emerging fintech technology in a safe and sound manner.

To that end, three areas that have the potential for regulatory and compliance issues as companies such as JP Morgan Chase, embrace and develop blockchain technologies to leverage digital tokens, cryptocurrencies and novel accounting systems such as the so called “JPMCoin,” are highlighted:

Stablecoin — The industry needs a common definition. There is presently not an industry definition of a stablecoin, digital token, or cryptocurrency. Before it is even possible for governmental agencies to draft useful regulations the industry must come up with common definitions. We believe that establishing a common definition is an important step to growing a rich and innovative framework and sandboxes for not only novel blockchain applications but other emerging fintech technologies.

Fractional Reserve Banking and Stablecoins — How will cryptocurrencies, digital tokens and stablecoins be treated in an ecosystem of fractional reserve banking? Much like the introduction of collateralized debt obligations, synthetic credit default options and other novel, complex financial instruments, the introduction of institutional “stablecoins” and digital tokens may present hereunto unknown risk. As technology evolves to facilitate machine learning, artificial intelligence, high speed frequency trading and novel blockchain applications such as “stablecoins,” careful consideration should be given to how these blockchain applications (and other emerging technology) may unintentionally encourage risky behavior that creates systemic financial risk and operational risk that undermines confidence in markets.

Operational Safety & Soundness — The creation of institutional stablecoins, digital tokens and cryptocurrencies poises new financial safety and compliance questions. From the basic, “How is the value of these stablecoins determined?” to: “What are the standards for digital token custody?”. To the more complex questions of: “Can the terms stablecoin, digital token and cryptocurrency be used interchangeably?” to: “How will these instruments be reflected on company balance sheets, managed day-to-day in accounting systems and taxed?”

Conclusion

Emerging technology such as blockchain promises great leaps in operations, transparency and accountability. However, as we prepare to leap headlong into these technologies we should also consider where we will land.

We encourage regulators and policymakers to engage banking, technology and compliance leaders to better understand the implications of private-permissioned decentralized ledger technology (aka blockchain) and what steps we can take now to encourage and enable innovation, while also landing safely in the future of banking, finance and an electronic cash-less ecosystem.

Authors:

Grant Gulovsen, Esq., Attorney at Law, Gulovsen Law Office, [email protected]

Maureen Murat, Esq., Of Counsel, Cogent Law Group, [email protected]

Samson Williams, Adjunct Professor, UNH School of Law, [email protected]

Supporters:

Wesley Williams, Attorney at Law & Consultant

Olta Andoni, Esq, Attorney and Adjunct Professor at Chicago-Kent College of Law

Roxana Nasoi, Co-Host, The CryptoLawPodcast

Crowdfunding Professional Association Legislative & Regulatory Affairs division

01.15.
2019

BTC Plunge: Why I don’t worry

Join me for a quick review of the spikes & dips in the Bitcoin exchange rate. This time, it’s all about one very simple chart…

The chart below shows a history of BTC price spikes, dips and recovery. Click to enlarge, then start at the top—and move down.

Consider the percent-pullback after each spike (red label)
Think about the stellar rebound after each drop (green label)

This is why I do not get too worked up over the plunge in the BTC exchange rate. There are no fundamental flaws in Bitcoin math or mechanisms. The market need for the benefits conveyed by Bitcoin is terrific, and the most popular arguments against Bitcoin are severely flawed. Skeptics and Critics typically say something like this:

“Even if blockchain currencies are beneficial and inevitable, Bitcoin can be displaced by another, better cryptocurrency.”

—OR—

“A viable crypto may emerge—but it will be one that is backed by a tangible asset or issued/sanctioned by government.”

These arguments are false. They are made by individuals who don’t yet fully appreciate the mechanism and its relationship with trust, money, government and free markets.

What Bitcoin currently lacks is education, familiarity, standards, simple commercial tools (built upon clear analogies), definitive best practices, a widespread understanding of multisig & security, and limited recourse for certain commercial & retail transactions. But Bitcoin is still an infant, just like the early TV or the early telephone. All of these are under development—without a hint of significant obstacles. Even the messy process of democracy among the various stakeholders is heading toward harmony (miners, developers, vendors, exchanges and consumers).

Of course, I am bullish on Bitcoin, and this may color my analysis. But, I try hard to keep an open mind. There have been moments in its history where I have questioned the market need or the potential for a setback in politics, legislation, or the mechanism itself. Those doubts are in the past. Bitcoin has demonstrated the elegance and value of the blockchain—and the ability to evolve beyond the blockchain with SegWit and Lightning Network. It has achieved a fluid, robust and growing two-sided market.

No one holding assets likes to see a big price pullback. It’s natural to look at the market as if we each got in at the peak—and then tally the “losses”. But I, for one, am not glancing toward the exit. I see the future and I sleep well at night. I am comfortable participating in the Bitcoin era.

Philip Raymond co-chairs CRYPSA, hosts the Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation and is a top writer at Quora. Book a presentation or consulting.

12.13.
2018

BTC plunge: Why I don’t worry

Join me for a quick review of the spikes & dips in the Bitcoin exchange rate. This time, it’s all about one very simple chart. _{[continue below graphic]…}

The chart below shows a history of BTC price spikes, dips and recovery. Click to enlarge, then start at the top—and move down.

- - Consider the percent-pullback after each spike (red label)
  - Think about the stellar rebound after each drop (green label)

The table at right illustrates why I do not get too worked up over the plunge in the BTC exchange rate. There are no fundamental flaws in Bitcoin math or mechanisms, the market need for benefits conveyed by Bitcoin is terrific, and popular arguments against Bitcoin are severely flawed. Skeptics and Critics typically say this:

“Even if blockchain currencies are beneficial and inevitable, Bitcoin can be displaced by another, better cryptocurrency.”

—Or—

“A viable crypto may emerge—but it will be one that is backed by a tangible asset or issued/sanctioned by government.”

These arguments are false. They are made by individuals who don’t yet fully appreciate a distributed, consensus mechanism and, especially, its relationship with trust, value, government and free markets.

Philip Raymond co-chairs CRYPSA, hosts the Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He advises The Disruption Experience in Singapore, sits on the New Money Systems board of Lifeboat Foundation and is a top writer at Quora. Book a presentation or consulting engagement.

12.11.
2018

Best Bitcoin wallet: Hardware or hosted?

The question asked in the title has been edited from what was asked today at Quora, the Q&A forum at which I participate as expert columnist. The original question was a bit more ambiguous: “Which is better? — a digital bitcoin wallet or a physical one?” I have included the original question, to better distinguish products and terms. All bitcoin wallets are all digital—even a paper wallet, whether a character string or a QR code. Conversely, an exchange may use “physical” wallets to host client assets, individual application wallets, or they may simply keep records of client assets that are stored, collectively, in their own master wallet. To complicate matters, Bitcoin is never really “stored” by you or an exchange service. It is stored on a public blockchain, where assets and transaction history can be traced through time by anyone. Therefore, all forms of user access are “digital”. What the reader really wants to know is “Which form of access control is better? — custodial or personal?” Type 1: Custodial Wallets are Managed by a Trusted Party They hold your assets. You view a statement balance—just like a bank account.

The reader uses the term “digital wallet” to mean a hosted wallet in which a trusted 3rd party holds the private keys, or aggregates the assets of many customers and tracks their individual ownership in their own accounting system, like a traditional bank or broker. In this case, the 3rd party is trusted to maintain security, privacy, and constant, robust user access.

It is possible that the reader may have used the term “digital wallet” to additionally refer to PC and smartphone applications, such as Bitcoin Core, Armory or Electrum. But, these are really personal and private wallets — because they are created and configured by the owner, and only the owner has the private keys. And so, we classify device wallet applications as “personal/private” along with hardware or paper wallets. Type 2: Personal Wallets are Private —but with privacy comes risk!

Wallets are personal if the private keys are generated and stored by the user, either on paper, in their PC or smart phone, on a thumbdrive, in a hardware wallet, or even uploaded to cloud storage. As long as the asset owner holds the keys and securely encrypted any uploaded file that contains the keys, the assets are accessible only with his consent.

So, which wallet class is better for securing cryptocurrency access credentials? Custodial or Personal? Which of these models best fits your needs?

A custodial wallet is like a bank a statement. Your assets are maintained by an exchange, rather than tucked into your mattress. The wallet and keys are not under your control, but the process that governs backup and security is rigorous & standardized. Availability to your heirs is governed by documents and laws.

—OR—

A personal wallet is completely controlled by you. The private keys must be stored where you will always find them (in your head, a lock box or an encrypted file that is distributed to family in a way that they will always be able to unlock it!). Ensuring future availability, swift transactions or passing wealth after death requires careful attention to tools, process and a secret.

A crypto purist or Libertarian might insist on taking full control of the assets. That is, storing them locally and with only the owner having the private keys. This is analogous to storing bars of gold in a safe and then burying the safe in a deep, covered hole in your yard—and in a spot that only you can find. Even if your children can find the safe after you die, it is equipped with explosives that will completely obliterate the gold, if it is unearthed without the correct password. I am privacy zealot. And yet, to the dismay of some followers, I believe that—for most cryptocoin owners—a hosted, custodial wallet is better than taking possession of a hardware wallet, paper wallet or digital wallet (anything that the user personally stores in a PC, phone, on paper or in a personally encrypted cloud account). To explain, I shall call out [1] a critical requirement, and [2] the deciding factor in determining this advice applies to you. 1. Critical Requirement The host must have impeccable credentials, a solid and ongoing regimen of security reviews and unscheduled audits — and they must be sufficiently capitalized by large, respected organizations, such that widely recognized individuals and organizations are at substantial risk if anything were to go wrong. Trust among strangers is easily scammed. So let me be clear. Regarding the investors, board, executives and security auditors of a custodial wallet service, both their reputations must be at risk as well as their worldwide assets across other business areas. Coinbase in San Francisco is such an exchange and hosting service. Currently, there are only two others that meet this extreme level of vetting. If Fidelity Investments enters the market as a crypto-hosting service, they would likely meet this bar. 2. Deciding Factor There are few individuals for whom direct and private ownership makes sense. In fact, until this month, it did not make sense for me. I am only now configuring my first hardware wallet. I still trust Coinbase to host and control most of my assets. The reasons boil down to security, forgetfulness, errors, legacy ownership and instant access. The ONLY factor that is arguably better with personal custody & control is privacy. Due to a lack of education, standards, and definitive best practices, this option makes sense for fewer than 5% of Bitcoin owners. Take me, for example… I have been involved with Bitcoin since the first years of its existence, and have been a Bitcoin educator since shortly after Satoshi’s original bombshell. Today, I am a keynote presenter at blockchain and cryptocurrency conferences. I teach blockchain seminars, design courseware for colleges, and am co-chair of the Cryptocurrency Standards Association and partner in Blockchain Research Council. Yet, I am only now configuring my first hardware wallet. I still trust Coinbase to host and control most of my cryptocurrency. How do I know if I am a candidate for full / private control? Using an exchange hosted wallet service is best for most individuals. But, for some, it makes sense to maintain private, local control of blockchain assets. If all criteria in the bulleted list below applies to you, then local and private ownership might make sense. But if you fail even one criteria, then WAIT! Wait until multisig becomes uniform and ubiquitous — and wait until a larger fraction of society is comfortable with the concept and practice of managing private keys. These are gradually becoming new norms. But, it will take a few more years for the world to become comfortable with an unfamiliar concept: personal control of a decentralized asset. You are a candidate for using a personal wallet if you plan to control and secure your own private keys, and if you meet all conditions listed below. The technical criteria will not be requisite in the future—but they are necessary today, because the market currently lacks simple, standardized, widespread tools and uniform practices for safely securing, accessing and passing on these credentials to your heirs. Do all of these criteria apply to you?

You have a comprehensive understanding of cryptography, including the principals of RSA public-key crypto.
You have practiced multisig decryption for at least a year. For now, you will need to roll-your-own multisig, to ensure that your heirs or executor can access your wealth in the event of death, forgetfulness or incapacitation.
You have experience and a clear, documented and standardized plan for separately encrypting and distributing your private keys.
You understand how to implement a hard fork and have the time to do it after any hard fork split.
You have an exceptional need for privacy or anonymity, and you feel that a custodian is more likely to “sing” in the event of an audit or court order.
You have a rehearsal plan for testing your multisig recovery and a willing group of trusted friends (most of them younger than you) who can combine their keys to access your wealth.
After ensuring that encrypted wallet works, is completely secure and is accessible to your heirs, you have replicated it in a sufficient number of places, that you are certain that your heirs will find it after you die, even if it is 90 years in the future.It must not only survive your lifetime, but the knowledge of where to look and *IF* to look, must be certain, even if your home burns down, your cloud accounts have been deleted and/or Google, Amazon, Microsoft & Apple are no longer in business.

If all conditions apply to you (and only if they apply), then you may be among the 5% of enthusiasts for whom a personal hardware wallet makes sense. At some time in the next few years, it will make sense for a far greater fraction of cryptocurrency holders, rather than just the most disciplined and knowledgeable Geek-enthusiasts.

11.01.
2018

Will we all be using a blockchain currency some day?

At Quora.com, I respond to quetions on Bitcoin and Cryptocurrency. Today, a reader asked “Will we all be using a blockchain-based currency some day?”.

This is an easy question to answer, but not for usual Geeky reasons: A capped supply, redundant bookkeeping, privacy & liberty or blind passion. No, these are all tangential reasons. But first, let’s be clear about the answer:

Yes, Virginia. We are all destined to move,
eventually, to a blockchain based currency.

I am confident of this because of one enormous benefit that trumps all other considerations. Also, because of flawed arguments behind perceived negatives.

Let’s start by considering the list of reasons why many analysts and individuals expect cryptocurrencies to fail widespread adoption—especially as a currency:

It lacks ‘intrinsic value’, government backing or a promise of redemption
It facilitates crime
Privacy options interfere with legitimate tax enforcement
It is susceptible to hacks, scams, forgery, etc
It is inherently deflationary, and thus retards economic growth
It subverts a government’s right to control its own monetary policy

All statements are untrue, except the last two. My thoughts on each point are explained and justified in other articles—but let’s look at the two points that are partially true:

Indeed, a capped blockchain-based cryptocurrency is deflationary, but this will not necessarily inhibit economic growth. In fact, it will greatly spur commerce, jobs and international trade.
Yes, widespread adoption of a permissionless, open source, p2p cryptocurrency (not just as a payment instrument, but as the money itself), will decouple a government from its money supply, interest rates, and more. This independence combined with immutable trust is a very good thing for everyone, especially for government.

How so?…

Legislators, treasuries and reserve boards will lose their ability to manipulate the supply and demand of money. That’s because the biggest spender of all no longer gets to define “What is money?” Each dollar spent must be collected from taxpayers or borrowed from creditors who honestly believe in a nation’s ability to repay. Ultimately, Money out = Money in. This is what balancing the books requires in every organization.

This last point leads to certainty that we will all be using a blockchain based cryptocurrency—and not one that is issued by a government, nor one that is backed by gold, the dollar, a redemption promise—or some other thing of value.

Just like the dollar today, the value arises from trust and a robust two sided network. So, which of these things would you rather trust?

a) The honesty, fiscal restraint and transparency of transient politicians beholden to their political base?

b) The honesty, fiscal restraint and transparency of an asset which is capped, immutable, auditable? —One that has a robust two sided network and is not gated by any authority or sanctioned banking infrastructure

Today, with the exception of the United States Congress, everyone must ultimately balance their books: Individuals, households, corporations, NGOs, churches, charities, clubs, cities, states and even other national governments. Put another way: Only the United States can create money without a requirement to honor, repay or demonstrate equivalency. This remarkable exclusion was made possible by the post World War II evolution of the dollar as a “reserve currency” and the fractional reserve method by which US banks create money out of thin air and then lend it with the illusion of government insurance as backing. (A risky pyramid scheme that is gradually unravelling).

But, imagine a nation that agrees upon a form of cash that arises from a “perfect” and fair natural resource. Imagine a future where no one—not even governments—can game the system. Imagine a future where creditors know that a debtor cannot print paper currency to settle debts. Imagine what can be accomplished if citizens truly respect their government because the government lives by the same accounting rules as everyone else.

A fair cryptocurrency (based on Satoshi’s open-source code and free for anyone to use, mine, or trade) is gold for the modern age. But unlike gold, the total quantity is clearly understood. It is portable, electronically transmittable (instant settlement without a clearing house), immutable—and it needn’t be assayed in the field with each transaction.

And the biggest benefit arises as a byproduct directly of these properties: Cryptocurrency (and Bitcoin in particular) is remarkably good for government. All it takes for eventual success is an understanding of the mechanism, incremental improvement to safety and security practices and widespread trust that others will continue to value/covet your coins in the future. These are all achievable waypoints along the way to universal adoption.

10.25.
2018

You don’t understand Bitcoin because you think money is real

Maria Bustillos is founder of the blockchain supported publication, Popula. I stole the title of this post from her essay at Medium.com (linked below).* I hope that Maria considers it a tribute rather than title-plagiarism. Her article is blocked by a pay wall, so allow me to explain a concept that confounds even a Nobel Prize winning economist. My take on the issue is somewhat different than Ms. Bustillos.

The difficulty understanding or appreciating Bitcoin boils down to a misconception that the dollar is backed by something more tangible, such as gold, guns or the promise of redemption. Not only is this an illusion, but Bitcoin is backed by something far more tangible, intrinsic and durable.

The illusion that “real” value emanates from government coupled with a robust consumer economy has been woven into our DNA for millennia. But, the value we attribute to a Dollar, Euro, or Yuan is a result of conditioning rather than any intrinsic value. That same conditioning has led us to believe that there is something sane and inherent in a nation that controls its money supply and its monetary policy.

Most public works projects—power generation, space ships, or the telephone network—were controlled by government in the past. If not, they were regulated as a licensed monopoly. This creates a choke point, a lack of competition, and a gaping opportunity for inefficiency, mismanagement or graft. It defies a free market economy and it concentrates power in the hands of politicians. But, at one time, it seemed necessary.

You might assume that government controlled these industries because they relate to areas of critical infrastructure and public welfare. That’s part of it, but it’s not the real reason. In each sector, a distributed or free market solution was prevented due to technology limitations or issues of scaling and geography.

Government issued money exists because in the past, we had no mechanism to arrive at a consensus on the value of something that is portable, fungible, secure, anti-forgeable and easily transmitted. Not even Gold fits the bill (pun intended). Prior to 2009, the only thing that met the criteria for money in a modern society was government issued fiat. At least someone, somewhere said that this is money and that this is what we must use to pay our taxes.

Today, there is no more reason for a government to control its money supply than there is for it to control communication networks, space travel or package delivery services. Today, a free and competitive marketplace benefits all of these industries and even government itself. And here’s the kicker: No harm will come to a government that uses a completely trusted, transparent and decentralized currency, rather than firing up a printing press whenever a group of transient politicians spends beyond their means.

The economic order facilitated by the blockchain is not as radical as it seems. Aristotle sought to solve the double-spend problem and lamented the lack of an accounting tool that we can now address via the clever combination of encryption and a communications network that is both instant and ubiquitous.

I am not smarter than your average bear, nor am I clairvoyant. But once in a while, I recognize a truth before the masses—and before its time. It’s time to clearly and succinctly illuminate business, banks, consumers, creditors and government:

1. The value we attribute to the dollar is an illusion

2. Bitcoin is not just fair and cost effective. It is tangible and durable. It is good for consumers and good for governments.

Bitcoin ushers in an era of accountability and more fairness. It does not facilitate crime, nor interfere with a government’s ability to tax, spend or enforce tax collection.

Bitcoin is a cryptocurrency with a firmly capped supply. Will it lead to deflation? Could governments lose control over their own monetary policy? Yes to both questions…

But, these are each good things. Capping the money supply and decoupling a nation from monetary policy not only eliminates inflation—it increases access to capital, retires debt more quickly, reassures creditors, imposes transparency and honesty—And it accelerates economic growth, rather than retarding commerce.

Dispelling three millennia of conditioning can be confusing and unsettling. I hate understanding something before my peers. Let’s please get ahead of the curve on this one. I want to enjoy the benefits of using real money in my lifetime.

Related Reading:

* I wrote the first article more than 7 years ago. It is a simple explanation of a geeky, new economic mechanism. Bitcoin had not yet entered mainstream media nor gained attention of Wall Street investors. But consider the similarity to Maria’s tutorial in the 2nd article. Perhaps Maria and I think alike!

Philip Raymond co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He advises The Disruption Experience in Singapore, sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement.

10.07.
2018

Ric Edelman: Bitcoin will be an asset class

Kudos to WallStreet analyst and advisor, Ric Edelman. He drank the Kool-Aid, he understands a profound sea change, and he sees the ducks starting to line up.

Check out the clearly articulated interview, below, with Bob Pisani at the New York Stock Exchange and legendary Wall Street advisor, Ric Edelman, (Not my term…That’s what CNBC anchor, Melissa Lee, calls him). Read between the lines, especially the last words in the video, below.

Ric Edleman has just joined Bitwise as both investor and advisor. This lends credibility and gravitas to the organization that created the world’s first cryptocurrency index fund. Bitwise benefits from Edelman’s affiliation, because the US has been slow (some would say “cautious”) in recognizing the facts on the ground: Cryptocurrency is already an asset class.

Edelman fully embraces a strong future for Bitcoin—not just as a currency or payment instrument, but as a legal and recognized asset class; one that is at the starting line of a wide open racetrack. He explains that the SEC sets a high bar for offering a Bitcoin ETF, but that this will be achieved. It will pave the way for large institutions, pension funds, etc to allocate a portion of money under management for blockchain products.

At timestamp 3:39, Melissa asks Edelman “Why wait for an ETF?” and “If you believe this strongly, why not advise clients to invest a portion of assets into Bitcoin right now?”

Edelman’s response is stunning. He explains that he is frustrated, because this is what he wants to advise. But, his firm is bound by the Investment Act of 1940—and so, they cannot tell a client “Go to Coinbase” or “Invest in a private fund such as Bitwise—that I am such a big fan of. We don’t have that ability in our practice.” [i.e. until the SEC recognizes Bitcoin as an asset].

In my opinion (and in the opinion of Edleman), SEC recognition of Bitcoin as an asset can’t be far off…

It’s already happening in other countries. Reputable exchanges and index funds exist today.
Unlike a traveler’s check or Amazon gift card, it is inherently a store of value, whether or not you believe that its value is intrinsic;
The IRS already considers it an asset for tax purposes (What an odd schism in definition & treatment!)
It is legal to pay staff in Bitcoin and use it to settle debts, for any recipient that accepts it. For employees and consultants, it is a wage or stipend, just like FIAT. They can convert into cash immediately—or retain crypto it to pay their own bills)

It’s not difficult to read between the lines. Edleman makes a clear recommendation, although he can not yet advise this—certainly not on the record. His personal forecast for long term adoption and appreciation, especially of Bitcoin, matches my own analysis. His new affiliation with Bitwise (a pretty bold move) demonstrates certain commitment.

This ends my analysis of Edelman’s strong endorsement. But it raises another important question:

If large financial institutions are likely to offer Bitcoin products
and services—and if credible analysts & advisors are chomping
at the bit to recommend this new asset class—shouldn’t we
invest in Bitcoin now?!

Ironically, I do not recommend hording or investing in cryptocurrency, even as a collectable. Why?! Because of the big “Investment Catch-22”. I don’t discourage investing in Bitcoin because I fear that its value will lessen. It is for a completely different reason. And so, my advice against investing is half-hearted.

Currently, Bitcoin and altcoins are widely misunderstood. Many people have these false impressions…

It is not backed by anything
It interferes with tax collection
Cryptocurrency facilitates crime
Governments will never allow it
They do not convey compelling benefits over government-issued currency
They water down the overall money supply
Their deflationary nature threatens economic growth
They are easier to lose and subject to scams & hacking
They do not facilitate refunds, rescission, recourse and customer claims
They interfere with a government’s ability to control its monetary supply

All of this is untrue, except the last item—and that one is a tremendous benefit.

Additionally, blockchain currencies fluctuate widely in real market purchasing power, many altcoins and all ICOs are scams, and acceptance is far from being ubiquitous. Clearly, widespread adoption requires stability, infrastructure, trust and ubiquity.

This cannot happen until two things occur:

The fraction of transactions in normal business and retail commerce (purchases, salaries, debt payment and settlement) must significantly dwarf the fraction that is driven by investors, hoarders and speculators.
A significant number of established brands, services or retailers must begin publishing prices in Bitcoin and honoring those prices throughout a defined sale period (e.g. until the next catalog is published or until the next production run).

Things are beginning to change, but for such a positive and transormative mechanism, that change is frustratingly gradual.

A series of falling dominos is already in process. But, the end game is retarded by those of us who invest in Bitcoin, because we are removing a limited resource from circulation and contributing to volatility. We do this, because we realize that—in the long run—Bitcoin can only go up in value. Yet, our investment at such an early stage (before consumer adoption) makes the infant sick.

09.25.
2018

Disruption Experience Nails It

The Disruption Experience this Friday in Singapore is a blockchain event with a difference. With apologies to the Buick commercial, this is not your grandfather’s conference…

I know a few things about blockchain conferences. I produced and hosted the first Bitcoin Event in New York. My organization develops cryptocurrency standards and practices. We help banks and governments create policy and services. And as public speaker for a standards organization, I have delivered keynote presentations at conferences and Expos in Dubai, Gujarat India, Montreal and Tampa, New York and Boston.

Many individuals don’t yet realize that both Bitcoin and the blockchain are as significant as the automobile, the transistor and the Internet. I was fortunate to grasp Bitcoin and the blockchain early in its history. It is never boring to help others understand the blockchain.

And so, I am an evangelist for both a radically improved monetary system and a transformative tool. During the past eight years, I have honed the skill of converting even the most profound skeptic. Give me 45 minutes in front of any audience—technical, skeptical or even without any prior knowledge—and I will win them over. It’s what I do.

An Atypical Conference Venue

As Bitcoin and altcoins begin the process of education, adoption and normalization, the big expos and conference events have begun to splinter and specialize. Today, most blockchain events market their venue to specific market sectors or interests:

For me, Smart Contracts are one of the most exciting and potentially explosive opportunities. As a groupie and cheerleader, I am not alone. Catering to the Smart Contract community is rapidly becoming a big business. Until this week, I thought it was the conference venue that yielded the biggest thrills. That is, until I learned about the Disruption Experience…

Few widely promoted, well-funded events address the 600 pound elephant in the room: What’s the real potential of blockchain trust, blockchain economy or blockchain AI? Take me beyond tokens and currency (please!). How can an international event help us to realize the potential of a radical new approach to accounting, trust and arbitration? Let’s stop arguing about Bitcoin, Ethereum or ICOs…

How can we unleash the gorilla—and grease—
a fundamental change that benefits mankind,
while providing leapfrog technologies for us?

—At least, that’s my spin on the potential of an unusually practical venue.

That question is slated to be answered on Friday at a big event in Singapore. And get this—It is modestly called a “Sneak Peak”. This is what I have been waiting for. The Disruption Experience premiers on September 28 at the V Hotel Lavender in Singapore. But don’t show up at the door. This event requires advance registration. (I do not offer a web link, because I hate being a conference huckster. If you plan to be in the area at the end of this week, then Google the event yourself).

What’s the big deal?

The Disruption Experience team is populated by blockchain developers, educators and trainers who take issue with existing events that focus on monetization. The purity of intention was overrun by greed. And so, they set out to form an event with a more altruistic purpose: Build technology, relationships, mechanisms and educational tools that better mankind. The focus at this event and the conferences that follow is to educate, expose and innovate. The focus is squarely on disruptive technology.

With their team of blockchain innovators focused on benefits and progress, I suspect that attendees will get what we have been searching for: Education, investment opportunities, an edge on new technologies and job opportunities.

Cusp of a Breakout Year

As an analogy, consider the race to understand Bitcoin and consider the engines & motors.

Bitcoin and the blockchain were introduced simultaneously in a 2009 whitepaper. It’s a bit like explaining the engine and the automobile together—for the very first time. One is a technology with a myriad of applications and the potential to that drives innovation. The other is an app. Sure, it’s useful and important, but it’s just an app.

For 8 years, Bitcoin was a radical and contentious concept. Of course, there was the mystery of Satoshi and an effort to pinpoint his or her identity. And, a great debate raged about the legitimacy and value of decentralized, ethereal money. But, the interest was reflected primarily on the pages of Wired Magazine or at Geek-fests. Bitcoin was complex and costly to incorporate into everyday purchases and there were questions and gross misconceptions about hacking, regulation, taxes, criminal activity. The combined audience of adopters, academics, miners and geeks was limited.

That changed last year. With serious talk of exchange traded funds, a futures and derivatives market began to take shape. A critical operational bottleneck was addressed. Ultimately, 2017 was a breakout year for Bitcoin. You may not be using it today, but the smart money is betting that it will enhance your life tomorrow—at least behind the scenes.

Likewise, 2019 is likely to be the breakout year for blockchain applications, careers, products and—perhaps most importantly—public awareness, understanding and appreciation. Just as motors and engines are not limited to automobiles, the blockchain has far more potential than serving as an engine for decentralized cash. It is too important to be just a footnote to disruptive economics. It will disrupt everything. And we are the beneficiaries.

What is Interesting at The Disruption Experience?

The Friday event in Singapore covers many things. The presentations and tutorials that quicken my pulse relate to:

AI
Smart Contracts
Serious insight into blockchain mechanics, applications, adoption, scalability and politics
There’s even an exciting development in ICOs…

If you read my columns or follow my blog, then you know I am not keen on initial coin offerings (ICOs). That’s putting it mildly. They are almost all scams. But a rare exception is the Tempow ecosystem which encompasses three functional tokens. Stop by their exhibit and meet the officers of a sound economic mechanism that facilitates decentralized trading while overcoming the efficiency paradox.

What can I do at Disruption Experience?

The September 28 event is a preview for January’s Inaugural Event.

Listen and learn what Disruption is all about
Experience the first Virtual Reality Expo
Get to know the speakers and founders of Disruption
Hear about the Disruption Utility Token (DSRPT Token)
Meet the Disruption Team
See Disruption Expos

… and much, much more.

If you get to the big event, be sure to find the organizer and host, Coach Mark Davis. Tell him that I sent you. His passion and boundless enthusiasm for the blockchain and especially for transformative disruption is quite infectious.

Is Bitcoin Erasing 300 years of Monetary Evolution?

Today, economist and Nobel laureate, Paul Krugman, wrote in the New York Times, that Bitcoin is taking us back 300 years in monetary evolution. As a result, he predicts all sorts of bad things.

A significant basis for Mr. Krugman’s argument is that the US dollar has value because men with guns say it does.

Is Bitcoin erasing 300 years of monetary evolution?

Running with the metaphor that fundamental change to an economic mechanism represents ‘evolution’, I think a more accurate statement is that Bitcoin is not erasing the lessons of history. Rather, it is the current step in the evolution of money. Of course, with living species, evolution is a gradual process based on natural selection and adaptation. With Bitcoin, change is coming up in the rear view mirror at lightning speed.

The Evolution of Money

When a medium of exchange is portable, fungible, divisible, unforgeable and widely accepted, it becomes money. For at least six millennia, barter was gradually replaced by various mediums of exchange.

Obsidian —» Cowry shells —» Gold —» Promissory notes (backed by a Bank, employer or wealthy industry) —» Fiat (national currency)

But what backs these forms of money? What gives them value?

The first 3 currencies above were accepted as money on 5 continents. They were backed by their scarcity and unique characteristic properties (Aristotle called this intrinsic value). But even gold cannot serve as a widely used currency today. Although it is portable and scarce, it is not easily tested or subdivided in the field; it is risky to transport and difficult to track; and it is not suited to instant electronic settlement. But what about Fiat money. What backs it?

What Backs National Currencies?

Fiat has been backed by various different things throughout history. They are all compromised attempts to establish confidence and trust. They are compromised, because the fall short of one or more facets of trust.

In the list below, monetary backings in Red are what Mr. Krugman calls “men with guns”. That is, he claims that government demands give value to the dollar:

Value tied to gold —» Promise of redemption —» Legal tender (public must accept it for all debts) —» settlement of taxes —» The “good faith and credit” of workers

Unfortunately, the transition away from a trustworthy basis and the constant temptation of kings, dictators and politicians to print money based on credit (or nothing at all—as in the case of our fractional reserve system), has created a house of cards that few people believe is sustainable.

Bitcoin changes all this.

Finally, a crowd-sourced trust basis was invented (or discovered). It is unhackable, un-inflatable, unforgeable and immutable. Most important, it allows a government to be decoupled from its own monetary policy and supply. This is a remarkably good thing for businesses, consumers, creditors, trading partners—and especially for governments.

And Bitcoin is backed by something better than guns, gold or promises. It is provably scarce, capped in supply, completely fair, and built on a massive, crowd-sourced network of bookkeepers and auditors. It is the first currency—and quite probably the last—built on genius math and indisputable trust.

Despite the gross misunderstandings and misconceptions of early pundits, it does not interfere with a government’s ability to tax, to spend or to enforce tax collection—and it does not facilitate crime.

Bitcoin is new, but the goal of distributing trust is not as radical as you might think. It addresses a problem that economists and mathematicians have pondered since Aristotle and the ancient Greeks…

Background

Ever since the transition from real gold to government notes, bank notes and bank ledgers—economists have wondered if value can arise from a public trust that is durable, distributed and stateless. Until 2009, the answer seemed to be that this was impossible because of the double-spend problem.

But 9 years ago, something changed; and the change is dramatic. It will take an additional decade for most people to understand and appreciate this change…

In the first paragraph, I cited Mr. Krugman’s statement that the US Dollar has value because of “men with guns” (a reference to the fact that its use is legally compelled for payment of any debt and for government taxes). But this is not what gives it value. The dollar, the Euro, a Picasso painting and a fresh serving of hot french fries all derive their value from supply and demand. Bitcoin is no different. The trick is to generate viral demand and a ubiquitous infrastructure needed to achieve a robust two-sided network.

In the white paper that introduced both blockchain and Bitcoin (the first blockchain application), Satoshi taught us that a widespread and easy to access communications network (the internet and universal access to smartphones) can give rise to value that is based on a different type of trust. Instead of trust in a government, a bank, or testing the chemistry of a precious metal, value can arise from trust in a formula that is ubiquitous, redundant and constantly monitored and vetted.

All of these things have a value based on demand and the available supply. But with Bitcoin, the medium of exchange (and additionally the store and transfer of value), can be achieved by math, distributed trust and a pure, two-sided network.

So, is Bitcoin taking us backward in time, utility, safety and governance? I have never been awarded a Nobel Prize—but it seems pretty clear to me that Bitcoin is taking us forward and not backward.

Philip Raymond co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting engagement.