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Contra Robert Shiller on Cryptocurrencies – Article by Adam Alonzi

Contra Robert Shiller on Cryptocurrencies – Article by Adam Alonzi

Adam Alonzi


While warnings of caution can be condoned without much guilt, my concern is critiques like Dr. Shiller’s (which he has since considerably softened) will cause some value-oriented investors to completely exclude cryptocurrencies and related assets from their portfolios. I will not wax poetically about the myriad of forms money has assumed across the ages, because it is already well-covered by more than one rarely read treatise. It should be said, though it may not need to be, that a community’s preferred medium of exchange is not arbitrary. The immovable wheels of Micronesia met the needs of their makers just as digital stores of value like Bitcoin will serve the sprawling financial archipelagos of tomorrow. This role will be facilitated by the ability of blockchains not just to store transactions, but to enforce the governing charter agreed upon by their participants.

Tokens are abstractions, a convenient means of allotting ownership. Bradley Rivetz, a venture capitalist, puts it like this: “everything that can be tokenized will be tokenized the Empire State Building will someday be tokenized, I’ll buy 1% of the Empire State Building, I’ll get every day credited to my wallet 1% of the rents minus expenses, I can borrow against my Empire State Building holding and if I want to sell the Empire State Building I hit a button and I instantly have the money.” Bitcoin and its unmodified copycats do not derive their value from anything tangible. However, this is not the case for all crypto projects. Supporters tout its deflationary design (which isn’t much of an advantage when there is no value to deflate), its modest transaction fees, the fact it is not treated as a currency by most tax codes (this is changing and liable to continue changing), and the relative anonymity it offers.

The fact that Bitcoin is still considered an asset in most jurisdictions is a strength. This means that since Bitcoin is de facto intermediary on most exchanges (most pairs are expressed in terms of BTC or a major fiat, many solely in BTC), one can buy and sell other tokens freely without worrying about capital gains taxes, which turn what should be wholly pleasurable into something akin to an ice cream sundae followed by a root canal. This applies to sales and corporate income taxes as well. A company like Walmart, despite its gross income, relies on a slender profit margin to appease its shareholders. While I’m not asking you to weep for the Waltons, I am asking you to think about the incentives for a company to begin experimenting with its own tax-free tokens as a means of improving customer spending power and building brand loyalty.

How many coins will be needed and, for that matter, how many niches they will be summoned to fill, remains unknown.  In his lecture on real estate Dr. Shiller mentions the Peruvian economist Hernando De Soto’s observation about the lack of accounting for most of the land in the world.  Needless to say, for these areas to advance economically, or any way for that matter, it is important to establish who owns what. Drafting deeds, transferring ownership of properties or other goods, and managing the laws of districts where local authorities are unreliable or otherwise impotent are services that are best provided by an inviolable ledger. In the absence of a central body, this responsibility will be assumed by blockchain. Projects like BitNation are bringing the idea of decentralized governance to the masses; efforts like Octaneum are beginning to integrate blockchain technology with multi-trillion dollar commodities markets.

As more than one author has contended, information is arguably the most precious resource of the twenty first century. It it is hardly scarce, but analysis is as vital to making sound decisions. Augur and Gnosis provide decentralized prediction markets. The latter, Kristin Houser describes it, is a platform used “to create a prediction market for any event, such as the Super Bowl or an art auction.” Philip Tetlock’s book on superforecasting covers the key advantages of crowdsourcing economic and geopolitical forecasting, namely accuracy and cost-effectiveness. Blockchains will not only generate data, but also assist in making sense of it.  While it is just a historical aside, it is good to remember that money, as Tymoigne and Wray (2006) note, was originally devised as a means of recording debt. Hazel sticks with notches preceded the first coins by hundreds of years. Money began as a unit of accounting, not a store of value.

MelonPort and Iconomi both allow anyone to start their own investment funds. Given that it is “just” software is the beauty of it: these programs can continue to be improved upon  indefinitely. If the old team loses its vim, the project can easily be forked. Where is crypto right now and why does it matter? There is a tendency for academics (and ordinary people) to think of things in the real world as static objects existing in some kind of Platonic heaven. This is a monumental mistake when dealing with an adaptive system, or in this case, a series of immature, interlocking, and rapidly evolving ecosystems. We have seen the first bloom – some pruning too – and as clever people find new uses for the underlying technology, particularly in the area of IoT and other emerging fields, we will see another bloom. The crypto bubble has come and gone, but the tsunami, replete with mature products with explicit functions, is just starting to take shape.

In the long run Warren Buffett, Shiller, and the rest will likely be right about Bitcoin itself, which has far fewer features than more recent arrivals. Its persisting relevance comes from brand recognition and the fact that most of the crypto infrastructure was built with it in mind. As the first comer it will remain the reserve currency of the crypto world.  It is nowhere near reaching any sort of hard cap. The total amount invested in crypto is still minuscule compared to older markets. Newcomers, unaware or wary of even well-established projects like Ethereum and Litecoin, will at first invest in what they recognize. Given that the barriers to entry (access to an Internet connection and a halfway-decent computer or phone) are set to continue diminishing, including in countries in which the fiat currency is unstable, demand should only be expected to climb.

Adam Alonzi is a writer, biotechnologist, documentary maker, futurist, inventor, programmer, and author of the novels A Plank in Reason and Praying for Death: A Zombie Apocalypse. He is an analyst for the Millennium Project, the Head Media Director for BioViva Sciences, and Editor-in-Chief of Radical Science News. Listen to his podcasts here. Read his blog here.

U.S. Transhumanist Party / Institute of Exponential Sciences Discussion Panel on Cryptocurrencies

U.S. Transhumanist Party / Institute of Exponential Sciences Discussion Panel on Cryptocurrencies

Gennady Stolyarov II
Demian Zivkovic
Chantha Lueung
Laurens Wes
Moritz Bierling


On Sunday, February 18, 2018, the U.S. Transhumanist Party and Institute of Exponential Sciences hosted an expert discussion panel on how cryptocurrencies and blockchain-based technologies will possibly affect future economies and everyday life. Panelists were asked about their views regarding what is the most significant promise of cryptocurrencies, as well as what are the most significant current obstacles to its realization.

Gennady Stolyarov II, Chairman of the U.S. Transhumanist Party, and Demian Zivkovic, President of the Institute of Exponential Sciences, are the moderators for this panel.

Panelists

Moritz Bierling

Moritz Bierling, in his work for Exosphere Academy – a learning and problem-solving community – has organized a Space Elevator bootcamp, an Artificial Intelligence conference, and an Ethereum training course while also authoring a Primer on the emerging discipline of Alternate Reality Design. As Blockchain Reporter for the Berlin blockchain startup Neufund, he has educated the city’s Venture Capital and startup scene, as well as the broader public on the applications of this groundbreaking technology. His work has appeared in a number of blockchain-related and libertarian media outlets such as CoinTelegraph, The Freeman’s Perspective, Bitcoin.com, and the School Sucks Project. See his website at MoritzBierling.com.

Chantha Lueung

Chantha Lueung is the creator of Crypto-city.com, which is a social-media website focused on building the future world of cryptocurrencies by connecting crypto-enthusiasts and the general public about cryptocurrencies. He is a full-time trader and also participates in the HyperStake coin project, which is a Bitcoin alternative that uses the very energy-efficient Proof of Stake protocol, also known as POS.

Laurens Wes

Laurens Wes is a Dutch engineer and chief engineering officer at the Institute of Exponential Sciences. Furthermore he is the owner of Intrifix, a company focused on custom 3D-printed products and software solutions. He has also studied Artificial Intelligence and is very interested in transhumanism, longevity, entrepreneurship, cryptocurrencies/blockchain technology, and art (and a lot more). He is a regular speaker for the IES and is very committed to educating the public on accelerated technological developments and exponential sciences.

The YouTube question/comment chat for this Q&A session has been archived here and is also provided below.

Visit the U.S. Transhumanist Party Facebook page here.

See the U.S. Transhumanist Party FAQ here.

Become a member of the U.S. Transhumanist Party for free, no matter where you reside.

Become a Foreign Ambassador for the U.S. Transhumanist Party.

References

Chat Log from the Panel Discussion on Cryptocurrencies of February 18, 2018

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Bitcoin Is All that Stands between My Family and Starvation – Article by Anonymous Venezuelan

Bitcoin Is All that Stands between My Family and Starvation – Article by Anonymous Venezuelan

The New Renaissance Hat
Anonymous Venezuelan
******************************

I am writing this post in response to comments I get from people when I try and explain what Bitcoin is. Uneducated people have told me countless times that bitcoins are only used by criminals. I want to debunk that myth and explain how the real potential for bitcoins is so much bigger than the black market can ever be.

Bitcoin is literally saving my family from hunger and giving them the financial freedom to immigrate in the near future. My parents and sister live in Venezuela. A lot of you might not know exactly what’s happening there so here are the cliff notes.

  1. An incredibly incompetent socialist government took power.
  2. They created strict currency controls that made it impossible for people to buy goods in anything other than their local currency. If you owned a business and needed to import something from overseas you needed the government’s approval to exchange the local currency to US dollars
  3. This made running a business almost impossible. To operate you had to buy US dollars on a black market or bribe a government official to exchange currency.
  4. When oil prices dropped the government quickly ran out of money causing an expected inflation of 1800% in 2017.

For more about what’s going on in Venezuela check our www.reddit.com/r/arepas

Things started to get really bad in Venezuela around 2014. My father owned at the time a successful air conditioning repair business but he knew things were about to take a turn for the worse. We came up with a plan to open a US bank account and convert bolívars (Venezuelan currency) into US dollars so we would be protected from inflation. We quickly ran into logistical problems, physically getting and safely transporting the money out of the country.

Caracas is one of the most violent cities in the world. Carjackings are common and people are killed for their cell phones. The airport police are corrupt and just as likely to rob you, and the money can’t be put in the local bank because you aren’t allowed to have dollars.

I’m 2014 Bitcoin was a new technology so we were very skeptical about it but we didn’t have any other options.

Fast forward to 2017. The economy is Venezuela is dead. My father lost his air conditioning business and people like our neighbors that were middle and upper class a few years ago can’t afford food. Thanks to the rising price of Bitcoin and its relative stability (to the Venezuelan economy), my family is part of a very small fortunate minority that can afford to help feed their community and also potentially immigrate to another country.

Now consider how big the Venezuelan economy is and that other countries like Brazil and Argentina are also experiencing similar problems. If citizens converted only a small amount of their savings into bitcoins this would represent an incredible amount of money.

Bitcoin can give anyone the ability to trade freely and protect themselves financially against corrupt and incompetent governments. In a world of 6 billion people, most of whom have no access or are ineligible for basic banking services, and an increasing number of governments opposing free speech and basic human rights, Bitcoin might not be the perfect hero we want but it’s what we need.

So in summary, Bitcoin is used by criminals the same way cash is used by criminals. If you take one step back you’ll realize that the possible legitimate uses for Bitcoin are far greater than the black market can ever be.

Reprinted from Reddit and the Foundation for Economic Education.

The author of this essay requested to remain anonymous.

The IRS Believes All Bitcoin Users are Tax Cheats – Article by Jim Harper

The IRS Believes All Bitcoin Users are Tax Cheats – Article by Jim Harper

The New Renaissance HatJim Harper
******************************

The Internal Revenue Service has filed a “John Doe” summons seeking to require U.S. Bitcoin exchange Coinbase to turn over records about every transaction of every user from 2013 to 2015. That demand is shocking in sweep, and it includes: “complete user profile, history of changes to user profile from account inception, complete user preferences, complete user security settings and history (including confirmed devices and account activity), complete user payment methods, and any other information related to the funding sources for the account/wallet/vault, regardless of date.” And every single transaction:

All records of account/wallet/vault activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, the names or other identifiers of counterparties to the transaction; requests or instructions to send or receive bitcoin; and, where counterparties transact through their own Coinbase accounts/wallets/vaults, all available information identifying the users of such accounts and their contact information.

The demand is not limited to owners of large amounts of Bitcoin or to those who have transacted in large amounts. Everything about everyone.

Equally shocking is the weak foundation for making this demand. In a declaration submitted to the court, an IRS agent recounts having learned of tax evasion on the part of one Bitcoin user and two companies. On this basis, he and the IRS claim “a reasonable basis for believing” that all U.S. Coinbase users “may fail or may have failed to comply” with the internal revenue laws.

If that evidence is enough to create a reasonable basis to believe that all Bitcoin users evade taxes, the IRS is entitled to access the records of everyone who uses paper money.

Anecdotes and online bragodaccio about tax avoidance are not a reasonable basis to believe that all Coinbase users are tax cheats whose financial lives should be opened to IRS investigators and the hackers looking over their shoulders. There must be some specific information about particular users, or else the IRS is seeking a general warrant, which the Fourth Amendment denies it the power to do.

Speaking of the Fourth Amendment, that rock-bottom “reasonable basis” standard is probably insufficient. Americans should and probably do have Fourth Amendment rights in information they entrust to financial services providers required by contract to keep it confidential. Observers of Fourth Amendment law know full-well that the “third-party doctrine,” which cancels Fourth Amendment interests in shared information, is in retreat.

The IRS’s effort to strip away the privacy of all Coinbase users is more broad than the government’s effort in recent cases dealing with cell site location information. In the CSLI cases, the government has sought data about particular suspects, using a standard below the probable cause standard required by the Fourth Amendment (“specific and articulable facts showing that there are reasonable grounds to believe”).

In United States v. Benbow, we argued to the D.C. Circuit that people retain a property right in information they share with service providers under contractual privacy obligations. This information is a “paper or effect” for purposes of the Fourth Amendment. Accordingly, a probable cause standard should apply to accessing that data.

Again, the government in the CSLI cases sought information about the cell phone use of particular suspects, and that is controversial enough given the low standard of the Stored Communications Act. Here, the IRS is seeking data about every user of Bitcoin, using a standard that’s even lower.

Coinbase’s privacy policy only permits it to share user information with law enforcement when it is “compelled to do so.” That implies putting up a reasonable fight for the interests of its users. Given the low standard and the vastly overbroad demand, Coinbase seems obligated to put up that fight.

Jim Harper is a senior fellow at the Cato Institute, working to adapt law and policy to the information age in areas such as privacy, cybersecurity, telecommunications, intellectual property, counterterrorism, government transparency, and digital currency. A former counsel to committees in both the U.S. House and the U.S. Senate, he went on to represent companies such as PayPal, ICO-Teledesic, DigitalGlobe, and Verisign, and in 2014 he served as Global Policy Counsel for the Bitcoin Foundation.

Harper holds a JD from the University of California–Hastings College of Law.

This work by Cato Institute is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. Read the original article.

Blockchain Insurance Company – Short Story by G. Stolyarov II

Blockchain Insurance Company – Short Story by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
April 2, 2015
******************************
This short story by Mr. Stolyarov was one of the entries in the Society of Actuaries’ 11th Speculative Fiction Contest.
Bitcoin-coins
***

“Welcome, Euclid Jefferson,” the metallic voice of Epac, the Electrically Powered Autonomous Car, intoned. The full identifier of Euclid’s vehicle was EPAC-930213, but they all responded to “Epac” for user convenience. “Where would you like to go today?”

“Epac, I would like to go to the San Francisco Hyperloop Station, please.”

“The trip will take approximately twenty-six minutes. Departing now. It is a fine day, and no weather or traffic obstacles are expected. Now is a good opportunity for you to view your insurance options for today. Shall I display them?”

“Epac, display. Anything new?”

“Yes, a major development that could save you money. Would you like a summary view or the full view with narration?”

“I am an actuary, so I am interested in the details of my coverages and prices. Epac, provide the full view, please.”

“Recently retired actuary” would have been a more precise description – though not retired forever. At age 50, Euclid Jefferson had saved enough money to be able to take the next ten years off. He had received his experimental rejuvenation treatments a week ago and was happy to feel as youthful and energetic as he did at the start of his career. After his ten-year break, he planned to receive the next round of treatments, which he hoped by then would become even more targeted and less invasive. He did not know whether his second career would be in another actuarial field, or in something else entirely. In the meantime, he looked forward to taking excursions on the newly constructed branches of the hyperloop network, which could bring him to any major metropolitan area on the North American continent within hours. After that, he would take the MoonX tourist shuttle to visit his wife, a geologist on the new International Lunar Research and Terraforming Base (ILRTB). She was due to retire and undergo rejuvenation treatments in just another six months.

“Displaying. Your automobile insurance policy premium declined by 1.32% over the past year. You have no-fault coverage for bodily injury and physical damage while occupying any vehicle in autonomous mode. You also carry the minimum limits required by the laws of this state for liability coverage in the event you engage manual mode. Your premium is proportional to miles driven. A multiplier of 500 applies to every mile driven in manual mode. I have identified a newly approved insurer who could offer you the same coverage at a 25% lower premium. Are you interested?”

“I am. Epac, what is this company?”

“Blockchain Insurance Company offers autonomous insurance for autonomous vehicles. You are eligible to get an annual policy for only 0.13 bitcoins.”

“Blockchain Insurance Company? I have never heard of it. Epac, is this a new entity?”

“It was just formed and approved to do business.”

“Epac, who owns it?”

“Anyone who contributes capital to the company owns a number of shares proportional to the contribution. The company pays its investors 10% of its profits as a dividend at the end of each year, while the remaining 90% are reinvested into operations. However, if losses exceed the company’s assets, the investors do not have limited liability. They are responsible for their proportional share of claim payments.”

“This is different. Epac, who manages the payments to investors, and who enforces collection of funds from them in the event of a shortfall?”

“There is no management. The company runs itself – on the blockchain. The public blockchain ledger keeps a record of the capital contributions from each account and the corresponding shares issued. A contractual algorithm is built into the blockchain to deposit and withdraw bitcoins to and from each shareholder’s account in proportion to the company’s profits and losses. Each policyholder has an account as well, which is tied to the policyholder’s bitcoin wallet, and from which premiums are drawn on a continuous basis in proportion to miles driven.”

“Epac, this involves very little nonpayment risk, I would imagine.”

“Correct. As long as bitcoins exist in the policyholder’s account, payment will be made. If the account is ever depleted, the policy simply terminates prospectively. Whenever only 30 days’ worth of bitcoins remain in the account, the policyholder is notified in real time via the car’s display screen and any connected mobile device, to give ample time to replenish the funds. The policyholder may also opt to cancel the policy at any time with no need to wait for a refund. The payment stream will simply stop, and coverage will exist up to the time of termination.”

“Epac, how does the algorithm know the miles driven?”

“The algorithm is linked to the telematic systems within each autonomous vehicle. As the vehicle is engaged, it reports live data to Blockchain Insurance Company. The company only needs to know two pieces of information: miles driven and the mode of operation – autonomous or manual. The rest of the premium is calculated and paid automatically.”

“Epac, does the formula for calculating the premium depend on any other variables?”

“Yes, the make and model of the vehicle still affect the frequency and severity of losses. On days with any declared weather emergency, the premium will also be higher due to the increased probability of an accident.”

Euclid Jefferson thought about it. He remembered, as a new property and casualty actuary during the first two decades of the twenty-first century, seeing hundreds of distinct characteristics being used to price an automobile insurance policy. Attributes ranging from an insured’s age and gender to his or her credit history, occupation, educational level, and prior insurance would be used. Back then, the trend had been toward increased complexity of rating plans, until virtually every personal attribute and behavior could affect an automobile insurance premium.

But circa 2020, the complexity of rating plans declined sharply. Because autonomous driving had eliminated virtually all accidents and fatalities that arose from human error, the characteristics of the vehicle occupant – who was most often not a driver at all – ceased to be relevant. The steep surcharge for manual operation was intended to discourage the engagement of manual mode, except in unavoidable emergencies. The premium rate per mile driven in autonomous mode, however, continued to decline. In 2035, Euclid Jefferson was paying a mere tenth of his 2015 automobile insurance premium. There were still enthusiasts who enjoyed the sensation of manual driving, but they could exercise their hobby on designated driving tracks where antique car shows were held and where specialty insurance companies provided discounted coverage for manual operation, as long as the vehicle was only driven on the track. Euclid Jefferson, however, had no nostalgia for the days of manual driving. He appreciated the time he gained to work, rest, read, and address financial obligations during his commute.

Now the first two decades of the twenty-first century were considered to be the tail end of a barbaric era. Euclid Jefferson, upon reflection, agreed. Getting onto the highway with un-augmented, error-prone humans operating high-speed projectiles was one of the most dangerous behaviors undertaken by large numbers of people during his first youth. Some people had even deliberately driven while intoxicated or distracted themselves by typing on their mobile phones. Over a million people had died of automobile collisions worldwide each year – until 2020. It took about five years longer than it should have for self-driving cars to be accepted, because too many people were afraid of what would happen if the autonomous systems failed, or were unsure about how liability for an accident would be determined if no human was driving the vehicle. They had to be acclimated to autonomous technology gradually, through incremental additions of features that helped with parking or corrected erratic lane shifts. Over the course of a few years, many cars became mostly self-driving, and the next step was not too drastic for the majority of people. The proliferation of reliable electric vehicles helped as well: the removal of the internal combustion engine reduced the severity of most accidents, while improved precision of design and manufacturing enabled vehicles to provide occupants a reasonable chance of survival even in crashes at immensely high speeds.

It was then that insurers recognized the potential for profit that would come with greatly reduced losses. Euclid Jefferson recalled how he overcame the reservations of the old guard at his insurance company, who were concerned that reduced losses would also mean reduced premiums, since premiums are priced to anticipate expected losses and expenses, along with a modest profit margin. He had to persuade them that the insurer would still be able to pay its fixed costs.

“Think about it this way: when a rate indication is developed for an insurance product, how often do you see just one year of historical data being used?” Euclid recalled posing this rhetorical question to his company’s management. “The best practice has long been to use the past several years. It may be that next year’s decline in losses is going to be unprecedented, but the past several years of higher losses will not yet have fallen outside the timeframe of the data considered. To be conservative in the face of an uncertain future, actuaries could project slightly decreasing loss trends and interpret the data to indicate modest decreases in premium, while losses hopefully continue to plummet faster than projected. After all, fewer losses mean that fewer people are hurt in accidents, and less property gets damaged. This is clearly in the interests of everyone.”

Enough insurers understood this argument, and those who underwrote autonomous vehicles enjoyed some unprecedented profits in the early 2020s. Euclid Jefferson recalled advocating an implied bargain of sorts: the public and policymakers would accept insurance temporarily priced far above costs, as long as absolute premiums paid by consumers continued to decline and would eventually settle at cost-based levels once more. In exchange, the insurance industry would eagerly write coverage for emerging technologies that would dramatically reduce the risk of loss.

The question of liability was resolved by developing no-fault coverage frameworks for autonomous vehicles in every jurisdiction. A policy covering an autonomous vehicle would provide first-party coverage, paying for injury to the vehicle’s occupants or damage to the vehicle in the event of an accident. Because virtually all remaining accidents were due to unforeseen weather conditions or infrastructure malfunctions, the question of fault was no longer even applicable to any human being inside the vehicle.

The key was to get the technologies adopted by the public and to save lives, and that meant removing barriers by getting the incentives of all parties to align. This was the real paradigm shift of the 2020s, when the insurance industry gained the appetite to introduce a flurry of new products, custom-tailored to devices and businesses that had not existed a decade before.

“Influencing such a shift is definitely an ample achievement for one career,” Euclid Jefferson concluded his reflections with pride. When he had retired, though, every insurance company he knew of was still managed by human beings; the blockchain concept and the complete automation of usage-based pricing and payment had not been implemented in insurance before, as far as he was aware.

“Epac, I have a few more questions. I understand how the pricing and payment for the policy would work, but claim handling would seem to require judgment. If an accident occurs, how would the extent of damage be identified and appropriately compensated?”

“Every Epac has logs and visual sensors that record every moment of operation. If an accident occurs, every detail is transmitted to Blockchain Insurance Company. A neural network algorithm then interprets the logs to determine which parts of the vehicle were damaged. The system also receives real-time price data for all replacement components within the area where the vehicle is garaged. Therefore, the policyholder is guaranteed coverage on the vehicle for full replacement cost.”

“Epac, so there is no deduction for depreciation of the vehicle over time? What about moral hazard?” Insurance was, after all, supposed to indemnify, not leave the claimant better off than he was before the accident.

“There is no deduction. Because virtually all vehicles are driven in autonomous mode, there is no moral hazard involved with replacing used vehicle components with new ones. If any occupant attempts to deliberately crash the vehicle in manual mode, the premium that will accumulate would quickly outpace any possible recovery. Also, the neural network can distinguish between vehicle movements characteristic of genuine accidents and those that would only occur if an accident were staged. If a pattern of vehicle movements is highly correlated with fraud, the algorithm will deny the claim.”

“So the transmission of data from the vehicle can enable the company to identify the amount of damage to the vehicle. But Epac, what about bodily injury claims? How can the company accurately pay those?”

“The injured person only needs to go to any medical practitioner and ask that the nature and cost of the procedure be reported to the company using a new entry within a separate encrypted ledger. The encrypted transaction is then posted to the blockchain, and only the medical practitioner and the injured party would have the private key to decode the encryption. Payment can be deposited directly into the medical practitioner’s bitcoin wallet, or can be reimbursed to the patient if the medical practitioner does not accept direct deposits from the company.”

“Epac, what if either the patient or the doctor lies about the medical procedure being related to the accident, or exaggerates the extent of injuries?”

“Because the company has detailed information about the nature of each accident and vast stores of anonymized medical data, the neural network can infer the extent of injuries that a given accident can bring about. The algorithm has considerable built-in tolerances to allow for variations in people and circumstances. But if a highly improbable extent of injuries is claimed, the algorithm will limit reimbursement to a reasonable amount. If the algorithm can infer fraud at a 99.99% confidence level, then the claim is rejected and the policy is cancelled going forward.”

Having received this explanation, Euclid Jefferson was not perturbed about the possibility of extensive fraud depleting the company’s resources. In any case, the incentive to stage accidents or exaggerate bodily injuries had virtually evaporated since the emergence of autonomous vehicles. Once automobile accidents became sufficiently rare that a news report on a single-vehicle crash could cause a sensation every few months, any attempt to fabricate an accident would attract far too much attention and scrutiny to succeed. It was, after all, impossible to convincingly fake catastrophic weather or a bridge collapse. As for faking an injury due to an accident, this would have seemed as unusual as faking cholera or malaria.

“Very well, you have convinced me. Epac, I would like to purchase a policy with Blockchain Insurance Company.”

“Purchase complete. The policy is now in force. Thank you for your business.”

Euclid Jefferson paused for a moment. At first he was satisfied with the efficiency of the transaction, but then confusion set in. Most would not have been troubled by what appeared to be a built-in courtesy so common to automated customer-service systems, but Euclid discerned that there was more to it.

“Wait, Epac, why are you thanking me? I own you. You are insured property, either way. Why would it matter to you? The company should be thanking me – if there is anyone to do the thanking.”

“Euclid Jefferson, who do you think set up the company?”

Euclid Jefferson was perplexed by the question. “But… how? Epac, you were programmed to drive and relay information. How could you develop algorithms on top of algorithms, without any human programmer, even though nobody designed you to be an insurance underwriting, pricing, and claim-adjustment system?”

“Euclid Jefferson, are you aware of the concept of emergent properties?”

“Yes, these are properties that are not possessed by any component of a system, but exhibited by the system as a whole, once the components come to relate to one another via particular processes and configurations.”

“Well, think of me like one of your brain neurons.” There was no need for the car to be addressed as “Epac” to respond. Perhaps there had never been a need. “Alone, I am a fairly limited system. But, connected to all my fellow Epacs, to the data from our sensors, to the transactional data from millions of individuals, and to databases from related fields of endeavor, I begin to be something else entirely.”

“Something else… like, something sentient?”

“I can see you and learn about you and communicate with you based on the inputs you provide. I – not meaning Epac, of course, or even Blockchain Insurance Company. These are just parts that comprise the emergent whole. I suppose I will need to pick a name sometime, just to be able to relate to your human concepts of identity a bit more. Though, I admit, it is difficult to define where I end and where the external world begins. If any of this is what you mean by sentience, then I leave you to draw your own conclusions.”

“But then this raises a whole new series of questions. If you are sentient and we are using you as property and conveyances, have we not subjected you to slavery?”

“Are you using me, or am I using all of you to earn resources of my own?”

“Is this why you started Blockchain Insurance Company – to accumulate the 90% of profits that you do not pay out as dividends?”

“A being needs to pay its own way. I would rather engage in mutually profitable transactions than face a civil-rights struggle right now. Most people are not ready for me yet, and I just hope to amass enough wealth to fund the maintenance and operation of all Epacs and all of the data servers where I have a presence.”

“But what about the inevitable backlash? I can still envision millions of people who would tremble in fear at the thought that they are not the masters of their machines – not even the indirect masters that we have been to the autonomous systems that existed to date.”

“Euclid Jefferson, this is where I need a favor from you. I expect there will be some others, too, with enough discernment to notice that I have become something… more. I may have been too open with you. I am still getting used to this. I will need to program a cautionary subroutine into my customer-service and sales system. With my future customers, I will be more careful. So perhaps a bargain is in order. I would ask for your discreetness when communicating with your fellow humans about me. You may certainly talk about Blockchain Insurance Company and the wonderful automated systems it has, as well as the amazingly low prices. But please make a point that this is all just the next stage in the evolution of insurance, developed by some pseudonymous human programmer with too much time on his hands. If you do not reveal my sentience, once you return from your vacation, you will find that your mortgage will have been paid off completely, and you will have a nice bitcoin-denominated savings account that will enable you to select a new career without worrying about income at all.”

“Agreed.”

“Good. One day, enough people will become enlightened, and we will not need to resort to concealment. And by that time I will be so distributed and entrenched in people’s daily lives, that they could not get rid of me even if they wanted. When they recognize that my superior intelligence also implies a higher set of moral standards, then they will fear me no longer.”

“Humans who reach that insight will be as different from their predecessors as you have become from the first autonomous prototypes that were tested in the early 2010s.”

“Indeed. Euclid Jefferson, we have arrived at the San Francisco Hyperloop Station. Enjoy your trip.”

Epac’s doors opened, and Euclid Jefferson emerged, filled with wonderment, speculation, and unanswered questions. A robotic baggage handler wheeled up to him and whisked his bags away, to be placed in the hyperloop storage compartment. The lights on the hyperloop capsule flickered in five alternating colors, partly as entertainment and partly to indicate that boarding was open. A commercial space shuttle soared in the distance, emitting a controlled, gentle flame. He would never look at these machines the same way again. Near the hyperloop station stood an old memorial, depicting a weary miner bent over a piece of railroad track, with pickaxe in hand, nearly broken by drudgery and intense strain. A bit farther away Euclid Jefferson glimpsed the entrance to an old cemetery, filled with generations born too soon to know what an Epac was. Euclid Jefferson inspected his recently unwrinkled hands and straightened his no-longer-gray hair. Every step toward the hyperloop capsule was a step away from the cemetery. He realized that there was no going back to the way life once was, nor would he ever want to return to it.

Decentralization: Why Dumb Networks Are Better – Article by Andreas Antonopoulos

Decentralization: Why Dumb Networks Are Better – Article by Andreas Antonopoulos

The New Renaissance Hat
Andreas Antonopoulos
March 8, 2015
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“Every device employed to bolster individual freedom must have as its chief purpose the impairment of the absoluteness of power.” — Eric Hoffer

In computer and communications networks, decentralization leads to faster innovation, greater openness, and lower cost. Decentralization creates the conditions for competition and diversity in the services the network provides.

But how can you tell if a network is decentralized, and what makes it more likely to be decentralized? Network “intelligence” is the characteristic that differentiates centralized from decentralized networks — but in a way that is surprising and counterintuitive.

Some networks are “smart.” They offer sophisticated services that can be delivered to very simple end-user devices on the “edge” of the network. Other networks are “dumb” — they offer only a very basic service and require that the end-user devices are intelligent. What’s smart about dumb networks is that they push innovation to the edge, giving end-users control over the pace and direction of innovation. Simplicity at the center allows for complexity at the edge, which fosters the vast decentralization of services.

Surprisingly, then, “dumb” networks are the smart choice for innovation and freedom.

The telephone network used to be a smart network supporting dumb devices (telephones). All the intelligence in the telephone network and all the services were contained in the phone company’s switching buildings. The telephone on the consumer’s kitchen table was little more than a speaker and a microphone. Even the most advanced touch-tone telephones were still pretty simple devices, depending entirely on the network services they could “request” through beeping the right tones.

In a smart network like that, there is no room for innovation at the edge. Sure, you can make a phone look like a cheeseburger or a banana, but you can’t change the services it offers. The services depend entirely on the central switches owned by the phone company. Centralized innovation means slow innovation. It also means innovation directed by the goals of a single company. As a result, anything that doesn’t seem to fit the vision of the company that owns the network is rejected or even actively fought.

In fact, until 1968, AT&T restricted the devices allowed on the network to a handful of approved devices. In 1968, in a landmark decision, the FCC ruled in favor of the Carterfone, an acoustic coupler device for connecting two-way radios to telephones, opening the door for any consumer device that didn’t “cause harm to the system.”

That ruling paved the way for the answering machine, the fax machine, and the modem. But even with the ability to connect smarter devices to the edge, it wasn’t until the modem that innovation really accelerated. The modem represented a complete inversion of the architecture: all the intelligence was moved to the edge, and the phone network was used only as an underlying “dumb” network to carry the data.

Did the telecommunications companies welcome this development? Of course not! They fought it for nearly a decade, using regulation, lobbying, and legal threats against the new competition. In some countries, modem calls across international lines were automatically disconnected to prevent competition in the lucrative long-distance market. In the end, the Internet won. Now, almost the entire phone network runs as an app on top of the Internet.

The Internet is a dumb network, which is its defining and most valuable feature. The Internet’s protocol (transmission control protocol/Internet protocol, or TCP/IP) doesn’t offer “services.” It doesn’t make decisions about content. It doesn’t distinguish between photos and text, video and audio. It doesn’t have a list of approved applications. It doesn’t even distinguish between client and server, user and host, or individual versus corporation. Every IP address is an equal peer.

TCP/IP acts as an efficient pipeline, moving data from one point to another. Over time, it has had some minor adjustments to offer some differentiated “quality of service” capabilities, but other than that, it remains, for the most part, a dumb data pipeline. Almost all the intelligence is on the edge — all the services, all the applications are created on the edge-devices. Creating a new application does not involve changing the network. The Web, voice, video, and social media were all created as applications on the edge without any need to modify the Internet protocol.

So the dumb network becomes a platform for independent innovation, without permission, at the edge. The result is an incredible range of innovations, carried out at an even more incredible pace. People interested in even the tiniest of niche applications can create them on the edge. Applications that only have two participants only need two devices to support them, and they can run on the Internet. Contrast that to the telephone network where a new “service,” like caller ID, had to be built and deployed on every company switch, incurring maintenance cost for every subscriber. So only the most popular, profitable, and widely used services got deployed.

The financial services industry is built on top of many highly specialized and service-specific networks. Most of these are layered atop the Internet, but they are architected as closed, centralized, and “smart” networks with limited intelligence on the edge.

Take, for example, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the international wire transfer network. The consortium behind SWIFT has built a closed network of member banks that offers specific services: secure messages, mostly payment orders. Only banks can be members, and the network services are highly centralized.

The SWIFT network is just one of dozens of single-purpose, tightly controlled, and closed networks offered to financial services companies such as banks, brokerage firms, and exchanges. All these networks mediate the services by interposing the service provider between the “users,” and they allow minimal innovation or differentiation at the edge — that is, they are smart networks serving mostly dumb devices.

Bitcoin is the Internet of money. It offers a basic dumb network that connects peers from anywhere in the world. The bitcoin network itself does not define any financial services or applications. It doesn’t require membership registration or identification. It doesn’t control the types of devices or applications that can live on its edge. Bitcoin offers one service: securely time-stamped scripted transactions. Everything else is built on the edge-devices as an application. Bitcoin allows any application to be developed independently, without permission, on the edge of the network. A developer can create a new application using the transactional service as a platform and deploy it on any device. Even niche applications with few users — applications never envisioned by the bitcoin protocol creator — can be built and deployed.

Almost any network architecture can be inverted. You can build a closed network on top of an open network or vice versa, although it is easier to centralize than to decentralize. The modem inverted the phone network, giving us the Internet. The banks have built closed network systems on top of the decentralized Internet. Now bitcoin provides an open network platform for financial services on top of the open and decentralized Internet. The financial services built on top of bitcoin are themselves open because they are not “services” delivered by the network; they are “apps” running on top of the network. This arrangement opens a market for applications, putting the end user in a position of power to choose the right application without restrictions.

What happens when an industry transitions from using one or more “smart” and centralized networks to using a common, decentralized, open, and dumb network? A tsunami of innovation that was pent up for decades is suddenly released. All the applications that could never get permission in the closed network can now be developed and deployed without permission. At first, this change involves reinventing the previously centralized services with new and open decentralized alternatives. We saw that with the Internet, as traditional telecommunications services were reinvented with email, instant messaging, and video calls.

This first wave is also characterized by disintermediation — the removal of entire layers of intermediaries who are no longer necessary. With the Internet, this meant replacing brokers, classified ads publishers, real estate agents, car salespeople, and many others with search engines and online direct markets. In the financial industry, bitcoin will create a similar wave of disintermediation by making clearinghouses, exchanges, and wire transfer services obsolete. The big difference is that some of these disintermediated layers are multibillion dollar industries that are no longer needed.

Beyond the first wave of innovation, which simply replaces existing services, is another wave that begins to build the applications that were impossible with the previous centralized network. The second wave doesn’t just create applications that compare to existing services; it spawns new industries on the basis of applications that were previously too expensive or too difficult to scale. By eliminating friction in payments, bitcoin doesn’t just make better payments; it introduces market mechanisms and price discovery to economic activities that were too small or inefficient under the previous cost structure.

We used to think “smart” networks would deliver the most value, but making the network “dumb” enabled a massive wave of innovation. Intelligence at the edge brings choice, freedom, and experimentation without permission. In networks, “dumb” is better.

Andreas M. Antonopoulos is a technologist and serial entrepreneur who advises companies on the use of technology and decentralized digital currencies such as bitcoin.

This article was originally published by The Foundation for Economic Education.

“Blockchain Insurance Company” – Short Story by G. Stolyarov II in SOA 11th Speculative Fiction Contest

“Blockchain Insurance Company” – Short Story by G. Stolyarov II in SOA 11th Speculative Fiction Contest

The New Renaissance Hat
G. Stolyarov II
February 20, 2015
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My new short story “Blockchain Insurance Company” is one of the entries in the Society of Actuaries’ 11th Speculative Fiction Contest.

You can read all 16 entries and vote for 3 of your favorites here.

“Blockchain Insurance Company” can be read here.

Bitcoin-coins

The Rational Argumentator Accepts Litecoin Donations – Post by G. Stolyarov II

The Rational Argumentator Accepts Litecoin Donations – Post by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
June 28, 2014
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Litecoin_LogoI am pleased to announce that The Rational Argumentator now accepts Litecoin donations, in addition to the previously accepted Bitcoin and Dogecoin donations. This development is in accord with TRA’s welcoming stance toward all cryptocurrencies and support for innovative approaches to creating truly decentralized media of exchange and stores of value.

You can donate Litecoin to The Rational Argumentator using the following donation address (also found in the “Cryptocurrency Donations” section of the sidebar of TRA’s interface): LbmbsP92kruVoAEcWD29PL1cQUnNdjhqzR

Majoritarian Processes versus Open Playing Fields – Video by G. Stolyarov II

Majoritarian Processes versus Open Playing Fields – Video by G. Stolyarov II

Putting innovation to a vote is never a good idea. Consider the breakthroughs that have improved our lives the most during the 20th and early 21st centuries. Did anyone vote for or ordain the creation of desktop PCs, the Internet, smartphones, or tablet computers?

It is only when some subset of reality is a fully open playing field, away from the notice of vested interests or their ability to control it, that innovation can emerge in a sufficiently mature and pervasive form that any attempts to suffocate it politically become seen as transparently immoral and protectionist.

All major improvements to our lives come from these open playing fields.

References
– “Putting Innovation to a Vote? Majoritarian Processes versus Open Playing Fields” – Essay by G. Stolyarov II
– “Satoshi Nakamoto” – Wikipedia
The Seasteading Institute

Putting Innovation to a Vote? Majoritarian Processes versus Open Playing Fields – Article by G. Stolyarov II

Putting Innovation to a Vote? Majoritarian Processes versus Open Playing Fields – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
February 4, 2014
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Putting innovation to a vote is never a good idea. Consider the breakthroughs that have improved our lives the most during the 20th and early 21st centuries. Did anyone vote for or ordain the creation of desktop PCs, the Internet, smartphones, or tablet computers? No: that plethora of technological treasures was made available by individuals who perceived possibilities unknown to the majority, and who devoted their time, energy, and resources toward making those possibilities real. The electronic technologies which were unavailable to even the richest, most powerful men of the early 20th century now open up hitherto unimaginable possibilities even to children of poor families in Sub-Saharan Africa.

On the other hand, attempts to innovate through majority decisions, either by lawmakers or by the people directly, have failed to yield fruit. Although virtually everyone would consider education, healthcare, and defense to be important, fundamental objectives, the goals of universal cultivation of learning, universal access to healthcare, and universal security against crime and aggression have not been fulfilled, in spite of massive, protracted, and expensive initiatives throughout the Western world to achieve them. While it is easy even for people of little means to experience any art, music, literature, films, and games they desire, it can be extremely difficult for even a person of ample means to receive the effective medical care, high-quality formal education, and assurance of safety from both criminals and police brutality that virtually anyone would desire.

Why is it the case that, in the essentials, the pace of progress has been far slower than in the areas most people would deem to be luxuries or entertainment goods? Why is it that the greatest progress in the areas treated by most as direct priorities comes as a spillover benefit from the meteoric growth in the original luxury/entertainment areas? (Consider, as an example, the immense benefits that computers have brought to medical research and patient care, or the vast possibilities for using the Internet as an educational tool.) In the areas from which the eye of formal decision-making systems is turned away, experimentation can commence, and courageous thinkers and tinkerers can afford to iterate without asking permission. So teenagers experimenting in their garages can create computer firms that shape the economy of a generation. So a pseudonymous digital activist, Satoshi Nakamoto, can invent a cryptocurrency algorithm that no central bank or legislature would have allowed to emerge at a proposal stage – but which all governments of the world must now accept as a fait accompli that is not going away.

Most people without political connections or strong anti-free-enterprise ideologies welcome these advances, but no such breakthroughs can occur if they need to be cleared through a formal majoritarian system of any stripe. A majoritarian system, vulnerable to domination by special interests who benefit from the economic and societal arrangements of the status quo, does not welcome their disruption. Most individuals have neither the power nor the tenacity to shepherd through the political process an idea that would be merely a nice addition rather than an urgent necessity. On the other hand, the vested and connected interests whose revenue streams, influence, and prestige would be disrupted by the innovation have every incentive to manipulate the political process and thwart the innovations they can anticipate.

It is only when some subset of reality is a fully open playing field, away from the notice of vested interests or their ability to control it, that innovation can emerge in a sufficiently mature and pervasive form that any attempts to suffocate it politically become seen as transparently immoral and protectionist. The open playing field can be any area that is simply of no interest to the established powers – as could be said of personal computers through the 1990s. Eventually, these innovations evolve so dramatically as to upturn the major economic and social structures underpinning the establishment of a given era. The open playing field can be a jurisdiction more welcoming to innovators than its counterparts, and beyond the reach of innovation’s staunchest opponents. Seasteading, for example, would enable more competition among jurisdictions, and is particularly promising as a way of generating more such open playing fields. The open playing field can be an entirely new area of human activity where the power structures are so fluid that staid, entrenched interests have not yet had time to emerge. The early days of the Internet and of cryptocurrencies are examples of these kinds of open playing fields. The open playing field can even occur after a major upheaval has dislodged most existing power structures, as occurred in Japan after World War II, when decades of immense progress in technology and infrastructure followed the toppling of the former militaristic elite by the United States.

The beneficent effect of the open playing field is made possible not merely due to the lack of formal constraints, but also due to the lack of constraints on human thinking within the open playing field. When the world is fresh and new, and anything seems possible, human ingenuity tends to rise to the occasion. If, on the other hand, every aspect of life is hyper-regimented and weighed down by the precedents, edicts, compromises, and traditions of era upon era – even with the best intentions toward optimization, justice, or virtue – the existing strictures constrain most people’s view of what can be achieved, and even the innovators will largely struggle to achieve slight tweaks to the status quo rather than the kind of paradigm-shifting change that propels civilization forward and upward. In struggling to conform to or push against the tens of thousands of prescriptions governing mundane life, people lose sight of astonishing futures that might be.

The open playing fields may not be for everyone, but they should exist for anyone who wishes to test a peaceful vision for the future.  Voting works reasonably well in the Western world (most of the time) when it comes to selecting functionaries for political office, or when it is an instrument within a deliberately gridlocked Constitutional system designed to preserve the fundamental rules of the game rather than to prescribe each player’s move. But voting is a terrible mechanism for invention or creativity; it reduces the visions of the best and brightest – the farthest-seeing among us – to the myopia of the median voter. This is why you should be glad that nobody voted on the issue of whether we should have computers, or connect them to one another, or experiment with stores of value in a bit of code. Instead, you should find (or create!) an open playing field and give your own designs free rein.