Wendy McElroy: Crypto and the Structure of Class Warfare

Crypto and the Structure of Class Warfare

The Satoshi Revolution: A Revolution of Rising Expectations
Section 4: State Versus Society
Chapter 9, Part 2
Crypto, and the Structure of Class Warfare

The wall separating state and society is crumbling. Or, rather, the state is taking a jackhammer to it in an aggressive attempt to control every aspect of productive and cooperative life…The people you deal with on a daily basis are ceasing to be good neighbors, honest merchants, and disinterested strangers. They are becoming state informants who monitor your expression, your money, your behavior and attitude in order to report you to the authorities. They are ceasing to be “society” and becoming instead “the state.”

Murray Rothbard

Cryptocurrency has an advantage that almost every other alternative money in the past has lacked. It does not mimic state-issued currency or state-controlled transfer systems, such as banks. Its revolutionary structure and function are as uniquely compatible with society as they are antagonistic to the state.

State versus society: Libertarian class analysis is based on the interaction of the two categories, which are in irresolvable conflict with each other. The structure of each class–the arrangement of their parts according to a unifying theme—are also antagonistic. Into this analysis, crypto enters with a framework that rebukes the state and provides society with what it has sadly lacked: a free-market money for the average person. The compatibility of crypto and the free market and crypto is born out by their remarkably similar structures. (“Society” and “the free market are used as synonyms here because, in its broadest definition, the free market” is more than an economic dynamic; for example, there can be a free market of ideas. Broadly defined, the term refers to any free exchange.)

The Structure of State, Society, and Crypto

“Form follows function” means that the basic shape of a thing is determined by its purpose. For Frank Lloyd Wright, the two were inseparable. “Form follows function-that has been misunderstood,” Wright observed. “Form and function should be one, joined in a spiritual union.”
This is true of government or the state; it is also true of society.

The function of a state is to regulate society in a manner that maintains its own existence and privileges. The state uses force or the threat of force to impose its policies; behind every law is a gun and its intimidation value. The purpose of the state defines its form; coercive agencies, such as law enforcement and the military, abound. Intrusive practices, such as the widespread collection of personal data, are the norm. In turn, the agencies and practices require intense centralization and bureaucracy.

The function of society is as a venue where individuals interact peacefully for mutual benefit, whether that benefit is defined in economic, spiritual, or other terms. Society is voluntary, with legal obligations arising only from contract and consent. Because individuals are diverse and unpredictable, the form of society is fluid, quick to respond, and highly decentralized.

The two classes are at war because the state produces no wealth of its own; it takes what is needed from society through taxation in its various manifestations, including inflation. To do so, the state asserts its authority over the peaceful behavior of others, which the others resent.

The state does more than loot society, however. It usurps the functions of society—the interactions that should occur on the free market–such as road construction and financial institutions. Over time, segments of society are reshaped to resemble arms of the state. Banks are a prime example. Free-market banks would serve the needs of customers, including privacy. Current banks are information gathering centers for the state, with customer requirements being secondary.

In the past, the state’s encroachment upon society enjoyed a huge advantage; the state controls the legal definition of money, its issuance and much of its flow. Society had to accept fiat, to tolerate monetary policies, and to live with banking rules. At least, society had no real choice until the explosion of cryptocurrency. Suddenly, individuals became their own banks, and they made their own exchanges…all without the state.

Crypto is the money of society, the money of people. This status is not negated by the fact that some people become ridiculously wealthy through crypto; the free market has always rewarded successful innovators and early adopters. The status is not damaged by crypto experiments that fail; the free market is a brutal laboratory, with many dead ends. Imprudent people, who lose money through foolish acts, discover that the free market is also a corrective mechanism, without compassion. Even fraud does not cast a shadow on crypto as the money of society. Fraud haunts all human activities, especially lucrative ones. And those who appeal to the state for a remedy should remember that the state is institutionalized fraud and theft. Over time, the free market tends toward self-regulation.

What can threaten crypto’s role as the money of society? The greatest danger is the drive to change the function and form crypto from being an expression of society into an expression of the state. The drive for so-called “respectability” involves regulation, state-issuance, and other measures that would reduce crypto to another form of fiat, another form of central banking.

Crypto and Society Share the Same Basic Form

One indication of crypto being the money of society is that the two have the same basic function and form. The function is to empower the individual; form follows. It is no wonder that crypto’s structure parallels that of society itself. The parallels include,

  • A hard structure underlies them both. For crypto, it is the immutable blockchain that is remarkably immune to manipulation or exploitation; for society, it is the inviolable principle of non-aggression.
  • The frameworks do not inhibit diversity. Their security and freedom encourage almost infinite innovations. A major reason: Adopting the underlying structure is not a matter of law but of choice, which is unrestricted thereafter.
  • Third parties are not necessary for many of the transactions. For a complicated exchange, such as one that demands escrow, a third party is useful. Even then, however, the amount of trust required can be limited by strategies like getting in and out quickly.
  • There is no barrier to entry. No state license, no permission, no legal forms.
  • Both crypto and society are decentralized. Among the many advantages of this is that neither has a single point of failure where the entire system is vulnerable to bad actors.
  • The individual is the locus of power. As long as a person retains his or her keys, that person controls their use. The parallel in society is the individual’s right to say “no.”
  • Transactions can be pseudonymous or announced to the world, depending on individual preferences. Crypto purchased with a faux identity, which uses a different wallet for each transaction, can be almost as anonymous as cash.
  • Exchanges are not ideological or political. Crypto and the free market are great levelers of traditional social distinctions, such as the race or religion of a buyer or seller.
  • Crypto and society are both worlds in which wealth is based on merit, including the profits that properly come from taking risks that succeed.

By contrast, the structure of the state is antithetical to that of crypto and the free market. It is based on coercion rather than consent; it is centralized rather decentralized; its wealth comes from confiscation rather than merit. Form follows function.


There is a popular myth about crypto. Namely, that free and state-controlled crypto can co-exist. In theory, it is possible. In practice, it will not happen because state-issued or state-controlled crypto does not merely differ in terms of its origin but also in terms of its form. Crypto cannot serve both state and society; it cannot express both centralized control and decentralized choice. The two may exist in parallel for a time but, inevitably, the state will reach for a monopoly.

Crypto is becoming a new frontier in class warfare between the state and society. The state will try to reshape crypto in order to serve its own purposes. Instead of privacy and individual choice, state crypto will involve total disclosure and regulation. Instead of accessibility for all and the absence of trusted third parties, there will be licenses or bank-like exchanges becoming an unavoidable third party. The incredible benefit of crypto to society will be turned upside down, and it will become a benefit to the state.

State-issued or controlled crypto will be a bitter mockery of the original vision, but it is coming. And one of the major impacts of the Brave New money will be almost invisible; the basic form of crypto will become the opposite of what it was created to express. This goes with the function of crypto changing.

The best hope for free-market crypto is that concepts, such as decentralization, are so deeply embedded into its structure that a state-issue is doomed to fail. As a next resort, of course, the state will regulate what it cannot create. Society’s money will become a bit riskier and more difficult to use.

[To be continued next week.]

Reprints of this article should credit bitcoin.com and include a link back to the original links to all previous chapters

Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.

The post Wendy McElroy: Crypto and the Structure of Class Warfare appeared first on Bitcoin News.

Source: Bitcoin News

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Arbitration on a Governed Blockchain: EOS’ Crisis of Dispute Resolution

As EOS finds itself in trouble again, big changes in platform governance might be on the way.

Another week, another squabble involving the beleaguered EOS blockchain. The platform that has recently sustained a round of criticism for its lack of decentralization and its underwhelming technical robustness is now going through a governance crisis. The problem partly stems, quite ironically, from the lack of the system’s mediating capacity and centralized enforcement over the pool of Block Producers – twenty-one entities elected by token holders and responsible for validating transactions under the Delegated Proof of Stake consensus mechanism.

The latest controversy unfolded as the EOS Core Arbitration Forum (ECAF), effectively the ‘judicial branch’ of the EOS ecosystem, failed to handle a series of alleged security breaches, prompting Block Producers to take unilateral action and freeze the endangered accounts. The fallout highlighted immaturity of the system’s quasi-institutional structure, at the same time exacerbating the EOS’ skeptics’ over-centralization concerns. Despite the EOS token currently standing as the fifth cryptocurrency by market cap, and its $4 billion ICO remaining unmatched to date, the developers and core community behind the project seem to be fine with large-scale experimentation with a live blockchain.

The crisis

On June 17, shortly after the EOSIO mainnet launch, a Block Producer EOS42 drew the community’s attention to the fact that the accounts compromised during the registration process could now be unlocked, putting some $15 million worth of EOS tokens on the spot. Block Producers turned to the ECAF for guidance, but after the arbitration body fell short of immediately delivering an unambiguous decision, the network’s stakeholders have settled the issue via a conference call. By a unanimous vote, they decided to ‘freeze’ seven suspicious accounts, meaning that no transactions involving those addresses would be processed.

Unsurprisingly, all hell broke loose in the crypto segment of Twitter, as decentralization maximalists challenged the EOS’ big guns’ collective action as an instance of power abuse. Another twist of this story added some extra spice: the Block Producers’ consensus was meant to be a tentative solution, put in place pending the ECAF’s official ruling to legitimize it. As the arbitrators appeared hesitant to throw their weight behind the emergency measures already in place, a block producer EOS New York demanded that the document be issued before 13:00 UTC on June 19, failing which they threatened to ‘unfreeze’ the suspicious accounts.

As it often happens with EOS these days, events that already seem calamitous enough turn out to be just a prologue. On June 22, less than a week after the first wave of the ‘freezing’ controversy, a new ECAF order to stop processing transactions involving 27 more addresses surfaced on Twitter. The document featured a quaint subscript encouraging the recipients to ‘verify order with trusted BPs before execution,’ and lacked any solid rationale for blocking the addresses beyond the vague promise to clarify the logic of the order on a later date. Since it circulated as a screenshot of a signed PDF, part of the wider crypto world met the order with outright derision.  

As if the waters were not muddy enough, an apparent hoax ECAF order began to circulate on June 24, likely designed to sow even more confusion. It managed to elicit reactions from some BPs, notably EOS New York, which announced that it would suspend execution of any such orders due to inability to tell which ones are legitimate.

Meanwhile, even legitimate decrees proved challenging to execute. One of the Block Producers, EOSStore, had apparently missed an announcement of the second ECAF order and accompanying blacklist, which could be excused by the absence of a specific venue for such communications. The result was a failure to cut the addresses on the blacklist off the blockchain, since it is only possible when all BPs act in unison.

A widely circulated screenshot of an exchange between an EOSStore representative and someone in charge of communicating with BPs on the EOS side staggered the audience once again. It painted a picture of an unenthusiastic person who gets paid ten thousand dollars a day for validating transactions yet misses a crucial conference call for personal reasons on one side, and a sardonic bureaucrat threatening the other party with a lawsuit (sic!) on another. While many observers decried the fact that the whole block-producing business with an enormous yield is reliant on a single person, others spotted ‘emotional abuse’ of the BP. One way or another, the majority concurred that the way Block Producers currently communicate is a mess.

The problem

From all the above, one thing is clear: the EOS Core Arbitration Forum in its current format is a poor fit for the role it is supposed to play in the community. It exists in an ambiguous ‘legal’ space, it operates off-chain, and it doesn’t have a clear procedure to follow. And since a working mechanism of dispute resolution is one of the key elements of a governed blockchain which EOS aspires to be, its current impotence poses a major challenge to the whole governance structure.

Article IX of the EOS Constitution (still not ratified) states that ‘All disputes arising out of or in connection with this Constitution shall be finally settled under the Rules of Dispute Resolution of the EOS Core Arbitration Forum.’ During the time when the ‘freezing’ controversies were underway, the said rules only existed as a proposal discussed on a forum. By June 28, the set of rules became available at the ECAF website, marking a move toward some degree of disambiguation.

Another major criticism of the EOS’ current approach to dispute resolution (if one assumes there is any) is that it is based on off-chain interactions and therefore leaves too much room for human interpretation and error. Some of the notable suggestions to improve the dispute resolution system include moving all the pertinent communications, as well as contract enforcement, to the blockchain. It turned out that Dan Larimer, the mastermind behind EOS and a chief technology officer with its founding entity Block.one, has been having similar thoughts as he watched the recent wave of chaos sweeping through his brainchild.

The solution

In a June 27 Telegram exchange and shortly after in this Medium post, Larimer laid out his vision of a new governance paradigm for EOS. Fed up with watching people wield ‘arbitrary power to resolve arbitrary disputes,’ he put forward a fundamental solution that seemingly avoids both the chaos of off-chain governance (which he calls Free Form Contracts) and the gridlock of code-is-law approach that could yield catastrophic outcomes if the code proves imperfect.

According to Block.one’s CTO, the ultimate remedy lies in redefining community governance according to the logic of Ricardian Contracts. These rules specify both free-form terms (‘intent of code’) and the code itself, combining the seamless execution of terms inherent to pure code-based contracts with room for redress in the event of critical bugs causing serious damage. In other terms, this means taking into account both the letter and the spirit of the law, and referring to the spirit in the event of the letter going wrong. This design of the checks-and-balances system would reinvent the role of arbitrators, prescribing that they step in only in cases when there is a clear mismatch between the code and its intent.

Larimer proposes nothing less than a constitutional referendum to put the new system in place. As dramatic a change as this might seem, his weight in the EOS community could be enough to initiate a U-turn in the platform’s philosophy of governance. Should this happen, the revolution will transcend just the dispute resolution aspect, redefining the whole platform as it goes. The wheels have already started spinning, as on June 28 Larimer’s Medium post reappeared almost unabridged as ‘Block.one’s Proposal for EOS Constitution v2.0.’ The same day, the EOS’ founding entity announced its participation in voting process (from which it had previously abstained), pledging to act in compliance with Ricardian Contracts. The concept that has been absent from the community’s discourse just a few days ago seems to be gaining a tremendous momentum, showcasing Larimer’s and Block.one’s vast power to shape the rules of the EOS game.

Source: Coin Telegraph

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ICO Round-Up: Social Media Influencers Bypass Ad Ban, Centra Tokens Deemed Securities

Three stories dominate this week’s initial coin offering (ICO) round up: It appears many ICO projects are reaching out to social media influencers in an effort to thwart advertising bans across leading platforms. A study published by the China Banking Regulatory Commission (CBRC) suggested that the country develop a licenced-based regulatory apparatus that permits cryptocurrency activities including ICOs. A U.S. judge has found that CTR, tokens distributed through Centra Tech’s ICO that sought the promotional services of boxer Floyd Mayweather, demonstrate numerous attributes of a security under existing legislation.

Also Read: South Korea Thinks Real-Name System is Working – Stepping Up Crypto Monitoring

ICOs Turn to Social Media Influencers Amid Advertising Ban

ICO Round-Up: Social Media Influencers Bypass Ad Ban, Centra Tokens Deemed SecuritiesA report by the LA Times has looked into the increasing prevalence of ICO promoters employing the services of social media influencers in the midst of the prohibition on cryptocurrency advertisements on a number of leading social platforms.

The report cites research conducted by Solume, which found that approximately 18% of cryptocurrency-related posts on Reddit, Twitter, and Bitcointalk.org now typically originate from bounty campaigns set-up by ICO promoters. In January, by contrast, the figure was 6%.

“It’s really a very cost-effective mechanism for developing a brand,” stated Saransh Sharma, the president of 4new – who are currently conducting an ICO. “Before you know it, there’s a snowball effect,” he added.

Whilst ICO promoters appear to have found a means through which they can advertise on social media platforms despite the ban, some are not convinced that the practice of paying social media influencers to promote ICOs will last for long.

Lex Sokolin, the global director of fintech strategy at Autonomous Research, stated: “Once it becomes clear that financial outcomes can be manipulated not just by trading but [also by] creating perceptions through social media, regulators will take a very hard stance.”

Chinese Banking Commission Suggests Inclusive ICO Regulations

ICO Round-Up: Social Media Influencers Bypass Ad Ban, Centra Tokens Deemed SecuritiesThe China Banking Regulatory Commission (CBRC) recently made public a working paper titled, “The Study of Development and Regulations on Distributed Ledger Accounts, Blockchain and Digital Currency.”

The report argues for the development of an inclusive, license-based regulatory apparatus designed to allow cryptocurrency related activities, including ICOs, to operate legitimately in the country.

“Currently, any capital transaction that relates to distributed ledger accounts, blockchain, cryptocurrency and its derivatives, ICOs and exchange operations should all be regarded as financial services. Therefore they must be put under relevant financial regulatory frameworks so that they can operate legally with a license,” the document states.

Centra Found to be Distributing Securities

ICO Round-Up: Social Media Influencers Bypass Ad Ban, Centra Tokens Deemed SecuritiesIn the latest news regarding the Floyd Mayweather-promoted Centra ICO, a Florida district court has found CTR tokens issued through the company’s initial coin offering comprise securities. The court, citing the Howey test, argued that CTR tokens satisfy the criteria for all three prongs of an “investment contract,” rendering such a security.

The court found that “Because the success of Centra Tech and the Centra Debit Card, CTR Tokens, and cBay that it purported to develop was entirely dependent on the efforts and actions of the Defendants […] the offering of Centra Tokens was an investment contract under the Securities Act, such that the Defendants sold or offered to sell securities by virtue of the Centra Tech ICO.”

The court recommended that “the Defendant’s Renewed Motion for a Temporary Restraining Order, Asset Freeze, Document Preservation Order, and Order to Make Accounting and Other Ancillary Relief […] be granted to the limited extent consented by the Defendants.”

Do you think social media influencers will continue to be used as a means to bypass advertising bans? Join the discussion in the comments section below!

Images courtesy of Shutterstock, Twitter

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The post ICO Round-Up: Social Media Influencers Bypass Ad Ban, Centra Tokens Deemed Securities appeared first on Bitcoin News.

Source: Bitcoin News

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Union Square Ventures to Invest in Crypto and Blockchain Long-Term Without Dedicated Fund

New York-based Union Square Ventures is planning to invest in crypto and blockchain in the long-term, but won’t start a separate fund.

Union Square Ventures (USV), a private equity and venture capital firm, has plans to invest in blockchain and cryptocurrencies over the course of the next 10 years, CNBC reports June 29. Those plans, however, do not include establishing a separate fund.

Albert Wenger, managing partner at USV, told CNBC that “we see a lot of upside to keeping it under the same roof.” Despite prevailing the bear market in cryptocurrency, the company has an optimistic long-term view of the industry. Wenger said:

“Investors are rationally pouring a lot of money into this sector, because I think people are seeing the winning blockchain here might be worth a trillion, or a couple of trillion dollars. It’s not at all crazy to think that.”

Though Wenger echoed Steve Wozniak’s statement, that blockchain is a bubble similar to that of dotcom era, he argued that the risk could be justified for those investors who diversify their investments. “Certainly, for any one particular project there's an extremely high chance it won't work. As a result, if it works, the rewards will be very high,” he said.

Speaking about initial coin offerings (ICOs), Wenger called them an "innovative new financing mechanism," though he said they are not suitable for every blockchain project. CNBC, with reference to research firm Autonomous Next, reported that in 2017, ICOs raised $6.6 billion and have reached $9.1 billion this year. Wenger asserted that the amount investors have raised in an ICO is not necessarily an accurate indicator of success. Wenger reportedly owns Bitcoin (BTC) and says that he is aware of the risks to retail investors:

“I don't think you should be in the space and say 'I'm only going to hold Bitcoin.’ At the moment, this whole space is a high risk space, and I don’t think anybody should be investing all of their life savings.”

New York-based USV specializes in startup financing, investing in organizations that apply technology-supporting applications, as well as Internet and web services that establish large networks. USV’s portfolio exceeds 100 companies, containing a number of crypto investments, which include digital currency exchange Coinbase and Ethereum-based virtual collective game CryptoKitties.

In April, USV and Andreessen Horowitz urged the U.S. Securities and Exchange Commission  to consider a cryptocurrency exemption at a private meeting. The crypto investors argued that ICO tokens should not be considered as investments, but as products that can be used to access services of startup companies. It would reportedly allow startups to carry out token sales without observing formalities such as business reviews and financial reports.

Source: Coin Telegraph

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Austrian Financial Authority Calls for Tighter Regulation of ICOs and Cryptocurrencies

Austria’s Financial Market Authority has introduced proposals for the strict regulation of cryptocurrencies and ICOs.

Board directors of the Austrian Financial Market Authority (FMA), Klaus Kumpfmüller and Helmut Ettl, have have offered proposals for stricter regulations on cryptocurrencies and initial coin offerings (ICOs), Cointelegraph auf Deutsch reports today, June 29.

According to an article published in the Austrian newspaper Die Presse on the June 29, Kumpfmüller proposed a "threshold-dependent" prospectus requirement for ICOs similar to that of securities. The FMA executive committee defined a "reasonable" threshold as two million euros. In addition, according to Kumpfmüller, there should be a concession obligation for distributors of cryptocurrencies and that these "will be treated like securities in the future".

Ettle compared the proposed regulations to existing restrictions on financial institutions, "For the purchase and sale of foreign currency you need a mini-bank license." So far, trading cryptocurrencies has no such analogous regulation under Austrian law. Last year, the FMA submitted around 30 statements regarding suspected legal violations in connection with cryptocurrencies and ICOs to the public prosecutor's office.

According to Die Presse, FMA board members expressed their discontent with Austria's Finance Minister, Hartwig Löger, who wants to strip the agency of some of its authority. In regular disputes between the FMA and the auditing authority (OePR), Löger calls for more "regulatory responsibility at the ministerial level", which the FMA should then "reasonably execute."    

According to the FMA executive board, matters such as money laundering have so far only been superficially regulated by law, and further oversight by the ministry should be seen as a positive development. However, there are "no serious problems" with regard to supervision and accounting, so transfer of competences would likely be regarded as "a political decision". Ettl said it was crucial that the FMA retains "integrated and independent supervision."

However, with regard to tightening regulations on cryptocurrencies, the FMA and the Finance Minister are not so far apart. When Löger called for tighter rules in the crypto sector in February, and for early regulation at the European level, both Ettl and Kumpfmüller approved and offered their participation in a "FinTech Regulatory Council" proposed by Löger.

Source: Coin Telegraph

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