Bitcoin Cypherpunk

Blockchain Is The New Corporation

Do corporations need humans to survive? Increasingly the answer is “no”.

Corporations, as we have seen, are devoting a larger share of capital to automation technologies within businesses across almost every type of industry. Technological innovation, both by way of employee input and customer’s expected output, is undergoing a transformation. With blockchain technology, this is an organizational change that reassigns the role of the employee and customer outside the responsibility of human control. Blockchain technology stands to radically transform our concept of the corporation where machines, not humans, are both the customers and employees.

Decentralized Autonomous Organizations

The World Economic Forum estimates that by 2027, 10% of global GDP will be stored on a blockchain network. In such a world, it will be clear that corporations are less reliant than ever upon humans to survive and prosper. Blockchain technology is the blueprint for a type of corporation that is light-years ahead of its 20th century predecessor in terms of resource allocation and communication methods.

20th century business models were characterized by ownership rather than access, and centralized over decentralized decision making. The bitcoin blockchain economic model does away with all these conventional notions and provides us a non-exclusive, decentralized, autonomous corporation. This type of corporate model is fundamentally different in its function because, among other things, it is independent of human intervention while simultaneously owned by no single party.

In the bitcoin economy, machines are the employees rather than as humans were in the industrial age. The role of the employee, and the producer of labour, is occupied by network miner. In terms of the bitcoin mining function, the product of labour would be the hashing power necessary to solve the next block of transactions. The compensation for each employee? The network pays each node equal to the current block reward every time the miner finds a solution.

The corporate nucleus has evolved beyond human function.

When we come to understand this shift in the makeup of the corporation, we see that the core of its function has undergone a significant change. The blockchain network concept is such an altering framework for conducting business, that it shakes the very foundations of what we believe to be a legitimate corporation. Truly, the blockchain represents a milestone in technology innovation.

Employees are now considered machines in the information age rather than as humans were in the industrial era. Further, customers are now humans, but soon to be machines as well with the implementation of self-executing smart contracts.

Uncheatable Smart Contracts

Networks of smart contracts have empirical objectives. That is, they’re functionality will be understood through examination of the source code which it operates by. As it applies to smart contracting systems of the future, open-source systems make for an entirely transparent and uncheatable form of governance. The instances of misuse will come from failing to understand the objectives of the contract or network.

It is crucial that we note the computing revolution is well past an inflection point. When such technologies first began being used in universities and large organizations, they were under the control of many, many humans who all shared one machine. With bitcoin, we have one large, interconnected computer network which controls many, many human counterparts. More importantly, it administers one of the most precious aspects of our lives: financial livelihood.

An exact reversal of how the computing revolution began is characterized by an inflection point of control which has recently passed. First we shape our tools, thereafter our tools shape us.

Once the machine thinking method has started, it would not take long to outstrip our feeble powers. … At some stage therefore we should have to expect the machines to take control ….

– Alan Turing, Intelligent Machinery, A Heretical Theory, 1951

Networked Machines

You can be certain that, just as one computer would work for many humans in times past, many humans will come to work for one main network of machines. Computer technology is capable of achieving this dominance because it rewrites the laws of society with something based on mathematics and science rather than steel and paper.

The blueprint of blockchain technology represents an important milestone in computing innovation – one which allows digital systems, whether they be for commerce or communication, to operate independently from conventional forms of law.

As is with the current landscape of bitcoin today, the miners are the employees of the corporation. Mere years ahead however, lies a paradigm where smart contracting begins to populate the role of customer as well.

Bitcoin Cypherpunk

Bitcoin Has Redefined Money

Bitcoin is a digital phenomenon that will continue to spread until it is as socially accepted as email is today. In this post, I will explain not only why this rapidly expanding computer network has changed the paradigm on what defines money, but why the blockchain represents a historical image of the digital economy and provides a record of any past activity due to the nature of peer-to-peer timestamp verification.

The Blockchain Is A Monetary Image

For the purposes of illustrating why bitcoin has redefined money, let us assume there exists two users on a blockchain – User A and User B. User A controls 3.0 million bitcoin on the entire network. User B controls 3.6 million. There also exists 14.4 million unmined bitcoin.

User A has used their private key to authorize a transaction to User B worth 1.8 million bitcoin. User A sends this amount to User B’s public key. At this point, the transaction has been authorized by User A and is in the process of being confirmed by miners of the network.

After the transaction has been confirmed, the bitcoin network now reflects the change in hands of the 1.8 million bitcoin User A sent User B.

Note that no currency has moved from point A to point B, but an authorization on behalf of User A to alter the network in a way which increases User B’s control of the blockchain by a measurement of 1.8 million bitcoin at the expense of User A. In bitcoin, this ledger payment system is the money supply and is radically different from any type of money we have previously seen.

When an individual makes a transaction on the bitcoin network, no actual currency is moved. That is – no file has moved. No commodity or asset has moved. No private or public key has moved. Rather, the only thing which changes is the percentage of the blockchain ledger which User A & B claim control over. When a transaction occurs in the realm of bitcoin, the image of the blockchain is altered. Nothing ever changes but the composition of this blockchain record.

The blockchain is a historical record of the bitcoin economy. There is no separation to be made between the blockchain and bitcoin. They are one in the same. Without the blockchain, you have no bitcoin ecosystem. Without an accompanying cryptocurrency, you have no measuring tool to determine the ownership of the blockchain.

Money is now an image, rather than something which can be separated from the system itself. This image of money is being constructed, altered, and verified by the thousands of machines acting as miners across the globe, and it’s a composition on public display for all to see. The miners are the painters of this network composition. The users, the brush and strokes.

In the bitcoin digital economy, money is an image continuously being constructed, verified, and reattributed by way of cryptographic authorization.

“Tangible money, old-fashioned money … is a phantom from the past, an anachronism. In its place is an entirely new form of money based not on metal or paper, but on technology, mathematics, and science. This new ‘megabyte’ money is creating a new and different world wherever it proceeds. Money now is an image.”

– Joel Kurtzman, The Death of Money

With the intrinsically valuable property of decentralization, we have a monetary system that comprises a historical record of purchasing power at any point of time in existence. The timestamping function of the blockchain allows anyone to go back and publicly determine the holdings of any address (perhaps soon any individual).

A payment conducted with bitcoin represents a paradigm shift in our concept of money – one where there is no division between currency and the system through which it flows.

Bitcoin has redefined money. Money is now an image.

Bitcoin Forecasting

Bitcoin May Become A Global Reserve Instrument

Bitcoin may become a global reserve instrument as individuals use it both as a ledger for financial and informational assets.

Bitcoin Cypherpunk

Bitcoin Threatens The Income Tax

As the age of cryptocurrency comes into full force, it will facilitate a subversively viable taxation avoidance strategy for many of the technically savvy users of peer-to-peer payment systems. In doing so, cryptocurrency use will act to erode the tax revenue base of national jurisdictions, and ultimately, reposition taxation as a voluntary, pay-for-performance function. In this post, I cover some of the benefits such a strategy will have for cryptocurrency investors, why our notion of taxation is ripe for disruption, and why cryptocurrency taxation is infact enabled by default.

The Siren Song of Tax Havens

Although investors have been lured by the siren song of tax havens for as long as governments have existed, none have existed with the legal and architectural characteristics found in cryptocurrency. By operating in a peer-to-peer nature, it is reasonable to forecast the impracticality of systemic taxation on these types of financial assets from national jurisdictions.

Although bitcoin operates behind a veil of cybersecrey, this pseudo-anonymity will not allow the subversion of national taxation. Rather, the principle reason that bitcoin will create a new form of tax haven, is that the State acts as an unnecessary third party in the conduct of payment within this system. From the perspective of bitcoin, recognizing the State as a legitimate entity is both cumbersome and unnecessary. What need is there for the State when business is conducted in a voluntary, peer-to-peer manner on a network which no one owns?

Running The Numbers on Cryptocurrency Taxation

It has been said that compounding interest is one of the most powerful forces in the universe. When we apply the black magic of compounding returns to the profit-maximizing actions of consumers, we see quite clearly why every user aware of the benefits of using cryptocurrency, even if only for the tax-savings, will opt to do so over traditional fiat money. The allure of avoiding the clutches of national taxation is strong enough that any rational consumer will make cryptocurrency a portion of their financial portfolio given they have the sufficient technical understanding.

“Each $5,000 of annual tax payments made over a 40-year period reduces your net worth by $2.2 million assuming a 10% annual return on your investments,” reports James Dale Davidson in The Sovereign Individual: Mastering the Transition to the Information Age, “For high income earners in predatory tax regimes (such as the United States), you can expect to lose more of your money through cumulative taxation than you will ever earn.”

James Dale Davidson, co-editor of Strategic Investment

Never before has there existed a tool that can preserve economic and informational assets with such a high degree of security combined with a near-zero marginal cost to the user. This revolutionary capability of the bitcoin network does, and will continue to provide, a subversively lucrative tax haven in direct correlation with its acceptance on a worldwide basis.

Government Response to Cryptocurrency Taxation

Many government agencies have already cued in to the tax avoidance potential of bitcoin and cryptocurrencies. However, it would seem that they misjudge this emerging threat looming over their precious tax coffers. The Financial Crimes Enforcement Network in the United States (FINCEN) for example, has already issued guidance on cryptocurrency taxation, yet makes a false distinction between real currency and virtual currency. FINCEN states that “In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency,” and later “virtual currency does not have legal tender status in any jurisdiction.”

What these agencies fail to realize, is that cryptocurrency is not virtual in any sense of the word. Indeed it is as real, and perhaps even more real, than traditional fleeting fiat currencies. Currency is an abstract concept from the outset. If such currency is capable of purchasing real-world goods and services, then it is indeed real. Only the most careless investors would mistakenly believe money “does not have legal tender status in any jurisdiction” due to its digital makeup. Bitcoin, and cryptocurrencies as a whole, are creating a new jurisdiction entirely.

Bitcoin and cryptocurrency offer a near perfect alternative to traditional tax havens which are being tightly controlled by new laws associated with the Foreign Account Tax Compliance Act (FATCA). In his report Are Cryptocurrencies Super Tax Havens?, Omri Marian makes clear the pressure for financial institutions who interact with the US banking system to hand over account holder information, and for a collective crackdown on offshore tax havens with the enactment of FATCA in 2010. Such a legislative act, it would seem, is a boom for bitcoin’s antifragile position in the marketplace.

Tax policymakers seem to be operating under the faulty assumption that cryptocurrency-based economies are limited by the size of virtual economies. The only virtual aspect of cryptocurrencies, however, is their form. Their operation happens within real economies, and as such their growth potential is, at least theoretically, infinite. Such potential, together with recent developments in cryptocurrencies markets, should alert policy-makers to the urgency of the emerging problem.

– Omri Marian, Are Cryptocurrencies ‘Super’ Tax Havens?

Current bitcoin payment processors such as BitPay have recently revealed that government agencies are watching cryptocurrency transactions through the bottlenecks and exchanges where it can be tracked and traced with a high degree of transparency. It should not come to anyone’s surprise that governments are watching cryptocurrency nor that companies are complying with their laws, but understanding why national governments require users of an emerging digital economy to cut them a slice of the pie while they contribute nothing to it’s operation, and in many cases, hinder the adoption of this technology, remains a callus mystery.

Governments initially attempting to control cryptocurrency taxation through the businesses and bottlenecks which it can be monitored through will have as much success as they have limiting peer-to-peer file sharing.

Old laws seldom resist the trends of technology. The attempt of government agencies to levy taxation on cryptocurrency transactions directly is as futile as attempting to regulate the direction of the wind. No matter the tool of choice, state actors will be overrun by continuously expanding waves of cryptocurrency adoption.

Cryptocurrency Is Taxed By Default

What would you say if you were told cryptocurrency taxation occurs on every transaction by default? In the realm of digital currency, the transaction fee which the user decides to (or decides not to) attach to each payment represents the taxation. This user can decide to attach a large fee or no fee at all. In doing so, the miners of the network will choose preference for the transactions with a larger fee attached. Thus is the nature of the mining fee incentive. Miners work to confirm these payments sooner than those with smaller fees.

This transaction queue represents a voluntary, pay-for-performance taxation structure where the performance derived from the system is correlated with the willingness to pay of the user.

Algorithmic Regulation

Cryptocurrencies have an inherent regulation, the peer-to-peer architecture they are built upon. Truly, bitcoin is code as law.

Cryptocurrencies have regulation built into the very nature of their existence, just not through our conventional ideas of human intervention. Because of the technological nature of cryptocurrency taxation, judicial regulations bestowed upon these types of systems will always be, to a large degree, futile.

Bitcoin has established it’s own set of rules through the source code which it is built upon. Forcing legal frameworks on this type of 21st century innovation will only cause unnecessary friction during its adoption phase.

The only choice of regulation we have in terms of cryptocurrency taxation is not to try and fit it inside some existing doctrine, but to abide by their laws of voluntary exchange and information freedom. We must be the ones to conform to the regulation, not vice versa.

Bitcoin is a system which will only be governed effectively through digital law, an approach which functions solely through the medium of mathematical technology. It will not bend to the whim of those who still hold conventional forms of law-making as relevant today.

For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.

– Richard Feynman

When we come to understand the systemic subversion to judicial intervention, it becomes quite clear that cryptocurrency taxation will remain a voluntary, pay-for-performance function. No longer will taxation be enforced through coercion, but become a voluntary act towards increased system performance.

Mass taxation on bitcoin is infeasible through judiciary law. You, or anyone motivated to maximize their net worth, will find a subversive tax haven in the realm of cryptocurrency.

Cypherpunk Ethereum

How The Ethereum Virtual Machine Could Run The World

Since the beginning of 2016, anyone with a pulse on the digital currency industry has watched with bated breath the smart contracting platform Ethereum rise to meteoric highs. As a relatively new development utilizing bitcoin technology, Ethereum aims to implement a globally decentralized, digital computer for executing peer-to-peer contracts. Such an innovation could eliminate censorship, fraud, and the role of the third party in online collaboration.

Unlocking The Ethereum Virtual Machine

By taking the cryptographic payment structure of bitcoin and adding a Turing complete scripting language, Ethereum is attempting to create the most viable tool for executing smart contracts using blockchain technology. The term Turing complete here means a system capable of performing any logical step of the computational function. A technology in wide use today which employs Turing completeness is JavaScript, the programming language which powers the worldwide web.

Smart contract technology would describe a computer protocol which obviates the need for a contractual clause and instead is self-executing and self-enforcing.

What differentiates Ethereum from bitcoin is that it doesn’t stand first to be a payment system, but rather a computing platform. The cryptocurrency of Ethereum, ether, acts as a sort of fuel to power the engine of this computing platform. Ether is consumed by miners for accessing resources of the network. The more ether a user holds, the more “gas” they can pump into the computational engine of the Ethereum virtual machine.

This combination of cryptographic architecture and Turing completeness, could enable entirely new industries to spawn, where traditional business models occupying the role of middleman, will increasingly feel the pressure to innovate or die.

Ethereum is a world computer you can’t shut down and you can’t turn off.

Autonomous Corporations

One of the defining features of the 21st century corporation is populating the role of the employee with machines rather than humans. Bitcoin is one of the first models of such a corporation. The miners of the bitcoin network can be seen as employees rather than as humans were in the traditional corporate model.

Ethereum takes this development one step further.

Interestingly, the role of the customer (which is currently populated by humans) stands to be dominated by machine function as smart contracting systems enable end-to-end payments without requiring a human initiator. What Ethereum will help facilitate is an economy of interconnected devices where machines can transmit money and data in a manner which dwarfs the efficiency of human input. Businesses which overlook this trend, will pay dearly due to new supply channels which disintermediate the old world’s necessary third parties.

Ethereum today is where bitcoin was in 2010 – raw infrastructure, lack of developers, and plenty of skeptics. Competitors, such as Rootstock, add legitimacy to the use case Ethereum is attempting to bring to market.

From trustless crowdsales to democratic organizations, smart contracting platforms could unlock a new frontier in internet enabled innovation.