John James kindly linked here to info about an online arbitration company called judge.me that handles "small claims cross-jurisdictional disputes" at the astoundingly low price of $150.
We've been disputing on these forums the relative merits of different digital currencies, especially the one that takes up most of the hot air in the room, Bitcoin.
The obvious problem with Bitcoin is that it is completely unbacked. This is also what makes it possible to use Bitcoin in an untraceable way.
There are plenty of digital gold currencies which purport to allow users to exchange "gold-backed" digital tokens. The concept is indeed very attractive. However, there are two problems. First of all, the government has demonstrated its will to shut down any meaningful competition to FRNs through the use of intimidation and extra-legal seizure of assets as it did with e-gold and Liberty Dollar, two of the biggest alternative currencies with market caps far larger than Bitcoin at the time they were each raided. Second, any attempt to solve this problem by "going underground" also has the self-defeating side-effect that it thwarts any claims that the DGC is actually backed.
I call this the "auditing versus anonymity problem". On the one side, the cheapest way to be secure from government seizure is to simply hide and remain anonymous (cheaper than having an army to fight them off). On the other hand, the only way to have a trustworthy, backed currency is for its reserves to be regularly audited.
The missing piece of the puzzle is that legal disputes are costly and this is why reserves must be large and centralized. If you order gold from someone and they don't ship it, you're going to be faced with the prospect of spending at least $10K just filing suit and collecting from them. Gold is uniquely vulnerable to theft and reneging on shipment because it is highly liquid. So, shipments must be either heavily insured or large enough to justify this legal risk or both.
This opens up the possibility of something I've speculated on elsewhere (sorry, not going to dig up cites right now, too lazy) that I call "cash Tor" - basically, the government's worst money-laundering nightmare ever. For those not familiar with the term, Tor is an anonymity network that re-routes internet packets in a random fashion and uses multiple encryption to make it extremely difficult for an adversary (e.g. NSA, FBI, Dept. Treas. etc.) to spy on the traffic patterns of any particular member of the Tor network. If you think about it, Tor is the data-equivalent of money-laundering.
So, Cash-Tor would basically be a network of "micro-reserves" or "micro-banks" which agree to transfer small amounts of cash/gold between each other in the settlement of other transactions to which they are not a final party. Imagine Alice wants to transfer $10 to Bob but she doesn't want the IRS to be able to figure out that she transferred $10 to Bob. Well, she could transfer $10 to Charlie who, in turn, transfers $10 to Bob. But the authorities might still be able to figure that out. So, she could transfer through Charlie, David, Evan, Frank, Gary, Heather and Ivan who transfers the final amount to Bob.
Of course, at some point, the costs of these intermediate transfers will become prohibitive, so there can only be so many transfers. But the demand for anonymity is what will set that price. As the government continues to clamp down on the economy to the point where people are considering the use of unbacked digital tokens, the price they will be willing to pay for secured, anonymous transactions will grow.
How to make the transactions anonymous and secured? Enter judge.me. Basically, we ask Alice, Bob, Charlie, David, Evan, Frank and so on to sign an agreement to enter judge.me arbitration if there is a failure-to-deliver on a contracted transfer. Of course, anyone who doesn't immediately satisfy a transaction that they were contracted to satisfy will be instantly and permanently booted from the network. That will maintain the network's integrity. But someone will have been victimized and they need a way to get recompense at a reasonable price. $150 is a lot more reasonable than $10K (minimum) and it allows the size of the reserves to be scaled down to where (a) very large numbers of people can participate in the network (thus enhancing anonymity and making the network difficult or impossible to "shut down") and (b) the amount of money "at risk" in any given transfer is made very small.
Binding transaction agreements would, of course, be non-anonymous. If Gary agrees to transfer $10 to Heather, both parties must have the real-world name, address, etc. of the other party in order to submit their case to arbitration should it come to that. But the network of binding transaction agreements would be de-centralized so that there is no "master list" that the FBI can seize to shut down the network. For example, Evan can sign up with Frank and Bob but none of the others. Frank, in turn, might be signed up with Evan, Bob and Heather. And so on. Each "node" in the network maintains its own list of potential binding partners.
But end-to-end transfers between network participants who are not in a binding transaction agreement (do not have the name, phone, address, etc. or a prior agreement to use judge.me in place) would not only be possible but the primary purpose of the network. Alice does not have a binding transaction agreement with Bob but she doesn't need it because she does have a binding transaction agreement with Gary, who has one with Heather, who has one with Evan, who has one with Bob. And so, Alice can transfer $10 to Bob in a secured chain of transactions which will be very difficult (particularly if a Tor network is used to handle the logistics of the transactions) for the FBI to untangle yet - should something go wrong along the way - the point at which trust was breached will be able to be brought to arbitration and the transaction damages eventually resolved.
Because the consequences of betraying the network far outweigh any potential benefit (individual transactions are small, so you can only get ahead by a small amount of cash), the network itself should be extremely reliable. Most importantly, the network could not be shut down with the usual dragnet, intimidation and summary seizure tactics of the government. They might even target a few users but seizing a few thousand dollars between 5 "money launderers" somehow doesn't have the same headline splash as seizing $20 million (IIRC) of customers' silver bullion coins from Liberty Dollar.
Clayton -
Your idea is good. However, this is already how many hawala style transaction networks operate. It also similar to how Bitcoin works when used within the Tor network.
One issue with what you refer to as an 'obvious problem with Bitcoin' - how do you value the Internet? The value of Bitcoin comes not from being tied to a static, physical object, but because it is a commonly recognized item. I could rephrase the question to ask - what is the value of the word "twenty"? We have a common understanding of what that means, and that is a primary component of what gives Bitcoin its value. Mind you, it is a primary component, not the only one.
It is also important to keep in mind that Bitcoin incurs no counterparty issue. Gold has many cases where it will be out of your hands or prone to confiscation/theft. Bitcoin can be transported with an individual at all times and in arbitrarily large amounts - control need never be relinquished.
Bitcoin enhances the judge.me operation in one major way by enabling a double-blinding of identity. The potential for arbitrator corruption is greatly reduced, and party identity is protected if steps are taken to engage in proceedings using intermediaries.
Trying to shoehorn Bitcoin into traditional molds simply does not work because it is not just a commodity, or a currency, or a payment network. It is a combination of things that are reasonably familiar, but the result is greater than the sum of its components.
*shrug - it's based on nothing and not even backed by a government so there's no protection whatsoever against collapse.
Bitcoin incurs no counterparty issue. Gold has many cases where it will be out of your hands or prone to confiscation/theft. Bitcoin can be transported with an individual at all times and in arbitrarily large amounts - control need never be relinquished.
Agreed. We can go around in circles until the heat death of the universe on this point - the unbacked nature of fiat digital currencies such as Bitcoin is either a feature or a bug - depending on how you look at it. Using micro-arbitration as a basis for setting up an inter-network of legally-binding transaction networks is another way to solve the anonymity/inflation-protection/tax-haven problems that unbacked digital currencies address without the same risk of total currency collapse.
Why don't you just trade gold futures or something?
a) I don't know how
b) I think such transactions are required to be handled through official dealers (i.e. registered, i.e. they will record it for the IRS's future reference)
c) Anonymous paper doesn't seem to be solving the problems entailed in escaping the global financial control grid. That's probably because paper of all sorts is well-understood by the Establishment and they've thought out every possible method of escape and addressed it.
A case could be made that there's no protection whatsoever against collapse even with a government, whether via catastrophic upheaval or internal destruction a la currency debasement. Somalia is a rare example of a region genuinely sans government until somewhat recently, and its economy grew rapidly during that period - especially in energy and telecommunications. Another example is gold - no government 'backs' gold, yet it has seen many rise and fall.
As offered previously, the value of a language or network is nebulously quantifiable at best, yet immense in impact. Bitcoin is a protocol - a common language, one that is facilitated by a unique combination of tried-and-true technologies. To say that Bitcoin is backed by nothing is to apply traditional dogma to a phenomenon as powerful as the Internet or the printing press.
Dwelling on the economics of Bitcoin is like the neo-Keynesian and MMT views on gold - narrowly focused and missing the technical underpinnings of the structure that shape fundamental factors.
Just like Bitcoin, Hawala networks have their own issues. The two have a significant amount of overlap, with Bitcoin providing more of a structural foundation like gold, and Hawalas offering a flexible and resilient credit system built upon Bitcoin/gold. A Bitcoin-compatible, digital Hawala network already exists - Ripple http://ripple-project.org/
Only a problem if you don't know how, I guess.
Creating your own currency is illegal anyway, so who cares?
Well, set up your own system here. As long as your currency is backed by you and your buddy(s)' personal gold stash, it should be good to go.
Um, actually, I don't think it's illegal, at least, not in the US. But they'll never let you do it, all the same. So it might as well be illegal.
To say that Bitcoin is backed by nothing is to apply traditional dogma to a phenomenon as powerful as the Internet or the printing press.
Sorry, that obfuscation won't work on me, I'm a computer engineer by day and I've read the Bitcoin whitepaper. There is no secret sauce, there is nothing that imbues Bitcoin with any mystical or intrinsic value beyond the confidence of those holding or desiring to hold Bitcoins. If the confidence goes bye-bye, so does the value of a Bitcoin.
Nothing about it is obscure. The whitepaper outlines a very simple interaction between various existing technologies that arrives at a result greater than the individual components. No 'secret sauce' necessary, as you put it - only perspective. Witness emergent properties.
Bitcoin has already attained a critical mass sufficient to cement its existence irrespective of any attempts to stamp it out. That simple kernel of an idea combined with incentive is enough to disrupt and consume the existing system in entirety.
Value is highly subjective. Any currency is subject to the whims of a user base, so you're spouting truisms. The tighter the grip of control, the more illusory that very control becomes. Counterparty liability begets fear.
The how. And the cycle continues.
Value is not entirely subjective. Reality forces certain values on us if we want to continue living on this earth. One of those is the value of exchange (if we don't want to live as entirely self-sufficient hunter-gatherers, that is). A currency with high exhcange value is of innate value thereby to nearly all of humanity.
Is bitcoin that currency? Dunno. It could be, one day, assuming mass adoption of the currency. In its current state of currency-without-a-home, it's in a bit of limbo.
Hyperinflation is what usually destroys a currency--not everyone suddenly waking up one day and going "oh my god, these fiat currencies have no commodity value, dear god!" and suddenly the currency is worthless. Yeah, that happens all the time :\
But hyperinflation? Lots of times. So, bitcoin is already 99% insulated against the primary problem currencies face. And if your country began experiencing hyperinflation and you couldn't buy dollars or w/e due to legal restrictions (see recent news in Argentina or Venezuela) you have great incentive to simply buy the only currency left to you: bitcoin.
It may be national currency disasters that, over time, drive people to a currency free of debt-load, free of 'full faith and credit', free of hyperinflation. What happens if the US ever can't pay its bills? The dollar will be the greatest currency crash of all, and it's all but inevitable at this point, just a question of when.
All I know is, if I ever start a new individualist country, it'll be with bitcoin as its founding currency.
From my interpretation of your currency-without-a-home statement, gold would be in limbo as well.
Bitcoin is arguably the opposite of a currency-without-a-home, that description perhaps better reserved for currencies like the old Somali shilling. Instead of being homeless, both Bitcoin's source and resident environment is the Internet, making it fully supranational. Therefore, it is less like a vagrant and more like a turtle, its home being inseparable wherever it goes. This is especially true when considering that Bitcoin is primarily and voluntarily used by its participants for the benefits (carrot) rather than fear of penalties (stick), so far.
Currency destruction isn't even necessary for Bitcoin to gain ground - it's simply a better system, and recognition of that fact is growing. The incentive structure you described is in Bitcoin's favor. Onset of hyperinflation would simply hasten the transition.
A final point - Bitcoin has been viewed with wary interest, many waiting for Bitcoin v2 or v3. I am directly involved to a great degree, and while I initially shared that stance, I no longer do. The Internet began as an experiment and the protocol has remained relatively unchanged for over 30 years. Bitcoin is primarily a protocol as well, and it has held fast through many volatile situations in its 42-month existence.
There are very few improvements currently foreseeable in regard to the protocol, whereas software and services that speak the Bitcoin language can still advance by leaps and bounds. This seems to me to be the difference between revolution (Bitcoin protocol) and evolution (software maturity). It could be compared to using gold coins vs. using gold as a reserve asset; the former is fully functional and reliable, while the latter amplifies gold's effectiveness as a form of money.
You might want to try seasteading :)
Ramon: From my interpretation of your currency-without-a-home statement, gold would be in limbo as well. Bitcoin is arguably the opposite of a currency-without-a-home, that description perhaps better reserved for currencies like the old Somali shilling. Instead of being homeless, both Bitcoin's source and resident environment is the Internet, making it fully supranational. Therefore, it is less like a vagrant and more like a turtle, its home being inseparable wherever it goes. This is especially true when considering that Bitcoin is primarily and voluntarily used by its participants for the benefits (carrot) rather than fear of penalties (stick), so far. Currency destruction isn't even necessary for Bitcoin to gain ground - it's simply a better system, and recognition of that fact is growing. The incentive structure you described is in Bitcoin's favor. Onset of hyperinflation would simply hasten the transition.
I don't disagree. By calling it a homeless currency I simply mean that it hasn't achieved primary-currency status in any national economy. That will be a watershed day, when some country abandons their own currency in favor of bitcoin because people on the streets are preferring it to their own currency. But we're not there yet.
Ramon:A final point - Bitcoin has been viewed with wary interest, many waiting for Bitcoin v2 or v3. I am directly involved to a great degree, and while I initially shared that stance, I no longer do. The Internet began as an experiment and the protocol has remained relatively unchanged for over 30 years. Bitcoin is primarily a protocol as well, and it has held fast through many volatile situations in its 42-month existence. There are very few improvements currently foreseeable in regard to the protocol, whereas software and services that speak the Bitcoin language can still advance by leaps and bounds. This seems to me to be the difference between revolution (Bitcoin protocol) and evolution (software maturity). It could be compared to using gold coins vs. using gold as a reserve asset; the former is fully functional and reliable, while the latter amplifies gold's effectiveness as a form of money.
You may be proved correct here as well. I don't know enough about the technical details of the implementation to say either way. I'm sure there's a small fear that the system could have some flaw hackers could take advantage of. Only time being tested will prove it either way--hacking machines is far easier than hacking the protocol right now.
Ramon:You might want to try seasteading :)
Oh I've gone far beyond mere seasteading, though along similar lines, take a look :) (read down to my first post)