Enabled By Blockchain Technology

Many crypto-currencies, Bitcoin being the most prominent, are reliable electronic payment systems that operate without a central, trusted authority. They are enabled by blockchain technology, which deploys cryptographic tools and game theoretic incentives to create a two-sided platform. Profit maximizing computer servers called miners provide the infrastructure of the system. Its users can send payments anonymously and securely. Absent a central authority to control the system, the paper seeks to understand the operation of the system: How does the system raise revenue to pay for its infrastructure? How are usage fees determined? How much infrastructure is deployed?

A simplified economic model that captures the system’s properties answers these questions. Transaction fees and infrastructure level are determined in an equilibrium of a congestion queueing game derived from the system’s limited throughput. The system eliminates dead-weight loss from monopoly, but introduces other inefficiencies and requires congestion to raise revenue and fund infrastructure. We explore the future potential of such systems and provide design suggestions.

The paper, Monopoly Without Monopolists, is here. 1

Enabled By Blockchain Technology

Show 1 footnote

  1. One of the things we’ve always found interesting about blockchain technology that they can not only form the basis of a currency, but also the basis of an e-contract: If Y occurs, X will receive… The best part is this is “auto-magically” enforced, without courts.

Bitcoin

When the Honduran police came to evict her in 2009 Mariana Catalina Izaguirre had lived in her lowly house for three decades. Unlike many of her neighbours in Tegucigalpa, the country’s capital, she even had an official title to the land on which it stood. But the records at the country’s Property Institute showed another person registered as its owner, too—and that person convinced a judge to sign an eviction order. By the time the legal confusion was finally sorted out, Ms Izaguirre’s house had been demolished.

It is the sort of thing that happens every day in places where land registries are badly kept, mismanaged and/or corrupt—which is to say across much of the world. This lack of secure property rights is an endemic source of insecurity and injustice. It also makes it harder to use a house or a piece of land as collateral, stymying investment and job creation.

Such problems seem worlds away from bitcoin, a currency based on clever cryptography which has a devoted following among mostly well-off, often anti-government and sometimes criminal geeks. But the cryptographic technology that underlies bitcoin, called the “blockchain”, has applications well beyond cash and currency. It offers a way for people who do not know or trust each other to create a record of who owns what that will compel the assent of everyone concerned. It is a way of making and preserving truths.

That is why politicians seeking to clean up the Property Institute in Honduras have asked Factom, an American startup, to provide a prototype of a blockchain-based land registry. Interest in the idea has also been expressed in Greece, which has no proper land registry and where only 7% of the territory is adequately mapped.

The Hash

Bitcoin

CthuluCoin

It was just a matter of time: welcome, CthuluCoin! Oh…and right before you go insane? You’ll go broke…

During the first and second weeks of the ritual, sacrificial amounts are placed in special, once a day blocks. These blocks are a reward to the worshipper for sacrifice made. During the third and fourth weeks of the ritual the rewards build, small at first, then larger as the worship increases with fervor. During the last five days, the ‘Tharanak shagg,’ or “promise of dreamland,” the ritual reaches final pitch and the daily special blocks are highly increased. Finally Cthulhu will return after the xx665th offering has paid tribute to the Great Old One and he will bestow a bounty deserving of Him upon one lucky worshiper. The ritual can be repeated after six months time, following the great halving.

CthuluCoin

Bitcoin Murder

Last month I received an encrypted email from someone calling himself by the pseudonym Kuwabatake Sanjuro, who pointed me towards his recent creation: The website Assassination Market, a crowdfunding service that lets anyone anonymously contribute bitcoins towards a bounty on the head of any government official–a kind of Kickstarter for political assassinations. According to Assassination Market’s rules, if someone on its hit list is killed–and yes, Sanjuro hopes that many targets will be–any hitman who can prove he or she was responsible receives the collected funds.

For now, the site’s rewards are small but not insignificant. In the four months that Assassination Market has been online, six targets have been submitted by users, and bounties have been collected ranging from ten bitcoins for the murder of NSA director Keith Alexander and 40 bitcoins for the assassination of President Barack Obama to 124.14 bitcoins–the largest current bounty on the site–targeting Ben Bernanke, chairman of the Federal Reserve and public enemy number one for many of Bitcoin’s anti-banking-system users. At Bitcoin’s current rapidly rising exchanges rate, that’s nearly $75,000 for Bernanke’s would-be killer.

“I believe it will change the world for the better,” writes Sanjuro, who shares his handle with the nameless samurai protagonist in the Akira Kurosawa film “Yojimbo.” (He tells me he chose it in homage to creator of the online black market Silk Road, who called himself the Dread Pirate Roberts, as well Bitcoin inventor Satoshi Nakamoto.) ”Thanks to this system, a world without wars, dragnet panopticon-style surveillance, nuclear weapons, armies, repression, money manipulation, and limits to trade is firmly within our grasp for but a few bitcoins per person. I also believe that as soon as a few politicians gets offed and they realize they’ve lost the war on privacy, the killings can stop and we can transition to a phase of peace, privacy and laissez-faire.”

We’re sure Andy Greenberg’s article is required reading this morning with both intelligence agency leads and the half dozen or so national politicos who can actually find their own ass without their hands. After all…Anonymous is one thing: you simply illegally track them (drones) at all public events and, if necessary, remove them (drones) or disappear them (rendition camps and GTMO.)

But when the rabble decide to start eliminating “the problem”, well, that’s an uprising of another color. Red, we’d guess.

WNBTv - Good TV!

Bitcoin and the IRS

A Notional BitcoinA recent Government Accountability Office (GAO) report has decided that the IRS could do a better job telling people they have to pay tax on Bitcoin transactions. 1

Here’s a couple of primers from the study:

  1. Bill is a Bitcoin miner. He successfully mines 25 Bitcoins. Bill may have earned taxable income from his mining activities.
  2. Carol makes T-shirts and sells them over the Internet. She sells a T-shirt to Bill, who pays her with Bitcoins. Carol may have earned taxable income from the sale of the T-shirt.

Basically the report says the IRS should watch Bitcoin like the proverbial hawk. 2

The GAO believes that providing informal information to taxpayers about how their online activities could result in a real-world tax bill would motivate them to report the attendant taxes. 3

The GAO believes taxpayers might not realize they have a tax liability tied to their virtual activity, or might be aware of the obligation but unsure how to characterize or calculate it for tax purposes. 4

Cutting to the chase we discover that the report was sponsored by the Senate Finance Committee. Those “worthies” requested GAO to review virtual economies and the currencies they use for potential tax issues.

Of course the IRS has already done some survey work on their own. But, given how rapidly the virtual money world is changing (plus, as of this writing, how little virtual currencies appear as yet a  major tax compliance threat) and the fact that the government moves, when at all, glacially, the IRS han’t adopted a compliance framework or published any guidance. 5

Enforcement is yet another hairball; it is one thing to add another tax form or two to the pantheon of forms that describe the tax code, it’s entirely another to audit and enforce taxes on those scofflaws who don’t file. Where’s the money? How does the IRS prove it’s existence, much less establish its connection to a single individual?

If only there was some over arching surveillance program, a system that monitored every thought, email, document, porn site visit and financial transaction Americans engaged in electronically. Oh, if only…

Until such time it looks like Americans using virtual currencies can continue the time honored tradition of flipping off the tax man.

(via)

 

Show 5 footnotes

  1. Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha.
  2. Or an osprey. Or some other eagle-eyed flying…you know…bird thing. Our own two cents? Stay with what you know, play to your strength: the IRS should watch Bitcoin like the cats-paw of the Administration it so obviously is.
  3. Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha.
  4. Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha. Man, that GAO – they crack me up.
  5. In this they’re behind Treasury, which has already issued rules on the topic.