The Monetary Future

Featured Archives: A New Approach at Next Bank Europe

noreply@blogger.com (Jon Matonis) — Mon, 23 May 2022 08:10:00 +0000

By Dave Birch
Consult Hyperion
September 26, 2014

https://chyp.com/2014/09/26/a-new-approach-at-next-bank-europe/

I think I got a clear steer on areas for innovation at Next Bank Europe in Barcelona, and you won’t be surprised to discover that the top ones are all related to identity, not money.

. @dgwbirch having great fun. So are we ! #NBEU14 pic.twitter.com/HUcD2kbvLU
— John van der Heyden (@Jvdheyden) September 19, 2014

Well, the lovely people at Next Bank Europe 2014 (#NBEU14) invited me down to the lovely city of Barcelona to take part in their September event and it was well worth the trip. Apart from catching up with some old fintech friends, always the most enjoyable part of any trip, and meeting some new people, something I always enjoy, it was interesting to see the fintech startup scene from a different perspective.

The reason that the #NBEU14 folks asked me to come along was to have an onstage discussion with Forum friend Jon Matonis, now of the Bitcoin Foundation, in order to educate the audience about the state and potential of bitcoin and associated technology. Now, I had noticed a tweet from Sam Maule in which he said that the stage looked like his daughter’s bedroom: there was sofa and a couple of chairs and a table and stuff all around. During the morning panel, it had occurred to me that the panelists weren’t really using the set, they were just sitting on the chairs and answering questions as if they were lined up on normal conference chairs. So that gave me an idea.

As we came to the end of the coffee break, I went over to Jon (who was expecting a conventional Q&A session) and said words to the effect of “just go sit on the sofa and we’ll be two old guys having an argument”. Jon, who is a great sport, said OK. We went up on stage and Jon sat back on the sofa. I sat down casually in one of the chairs and, began casually leafing through a copy of The Economist, before casually remarking on the XBT price. From there on, things gradually escalated into an all-out argument on stage.

We ignored the audience completely and got into it. Jon is a smart guy, and in my experience arguing with smart people is a pretty efficient method of learning, so I enjoyed every moment of it. I could see the countdown clock out of the corner of my eye, but the audience could not, so I kept the debate going until I saw the clock hit zero, at which I point I put down the microphone and somewhat over-theatrically flounced off stage!

“You’re a monetary terrorist, I can’t listen to this anymore. I’m done [walks off stage]” @dgwbirch at @jonmatonis #NBEU14 #Bitcoin
— Dom Pym (@dompym) September 19, 2014

Now, as it turned out, this fireside chat greatly exceeded expectations and, if Twitter reaction is anything to go by, the delegates really appreciated this rather different approach to the traditional managed Q&A session on new technology.

The panel between @jonmatonis and @dgwbirch at #NBEU14 is one of the best ever > deserves standing ovation
— Peter Vander Auwera (@petervan) September 19, 2014

Read the rest of the article.

Featured Archives: Should Bitcoin Cooperate with Government Regulators?

noreply@blogger.com (Jon Matonis) — Sun, 22 May 2022 08:10:00 +0000

By Jerry Brito
Reason Magazine

July 15, 2013

https://reason.com/2013/07/15/should-bitcoin-cooperate-with-government/

The choice before Bitcoin users is not whether they should want regulation, but what to do about it.

As the digital currency Bitcoin continues to grow and evolve, regulators are taking notice. From anti-money-laundering rules issued by the Treasury Department in March, to reports that the Commodities Futures Trading Commission is "seriously" examining the currency, to a recent Government Accountability Office recommendation that the IRS issue guidance on Bitcoin-related income reporting, government seems to be getting serious. The question for the largely libertarian Bitcoin community is, should it engage those regulators or ignore them?

Ignoring the regulators, perhaps with middle fingers firmly extended, is an option, some argue, because Bitcoin is a decentralized peer-to-peer network with no centralized point of control. It exists outside of government or corporate control and can't be easily shut down or controlled. This is what attracts many to the currency, especially a large contingent of crypto-anarchists who made up Bitcoin's earliest adopters and boosters.

As Jon Matonis, the incoming executive director of the Bitcoin Foundation has put it, attempting to regulate Bitcoin would be like trying to regulate the specifications of air guitars. But he points out that while the protocol itself can't be touched, there are centralized points of control in the Bitcoin ecosystem susceptible to regulation: the exchanges that allow one to trade bitcoins in and out of national currencies. Indeed, they are the targets of the money-laundering rules that require firms to report on their customers.

This doesn't concern those who see Bitcoin as a way to completely opt out of state control, however. After all, if you're trying to escape the legacy banking system and government fiat currencies, interfacing with that system is more than a little beside the point. Even if exchanges were to be shut down in the U.S. for regulatory non-compliance, they could prosper in freer jurisdictions, and ultimately the goal for many is to be able to operate on bitcoins alone so that exchanging ceases to be a concern. So, many argue, there's no point in going along with regulation.

"The solution is to create decentralized exchanges and to promote business models and closed-loop paradigms that make fitting into the current institutional structure irrelevant," Matonis says. "It is a perpetually losing battle to seek minor legal victories within the confines of an arbitrary, subjective court system."

Read the rest of the article.

Featured Archives: Dawn of Bitcoin Price Discovery 2009 – 2011: The Very Early Bitcoin Exchanges

noreply@blogger.com (Jon Matonis) — Fri, 20 May 2022 08:12:00 +0000

By Ronan Manly
Bullionstar
January 28, 2021

https://www.bullionstar.com/blogs/ronan-manly/dawn-of-bitcoin-price-discovery-2009-2011-the-very-early-bitcoin-exchanges/

With the rapid growth of Bitcoin and the proliferation of cryptocurrency exchanges, it’s easy to forget that a mere 12 years ago, there were no trading markets for Bitcoin and no market established Bitcoin prices.

In fact, following the mining of the first Bitcoin block on 3 January 2009 by the eponymous Bitcoin creator Satoshi Nakamoto, it would be another 9 months until the first known Bitcoin price was recorded on 5 October 2009.

Some common themes among the early Bitcoin exchanges were that they were operated more or less as one man outfits, they quoted extremely low Bitcoin prices, the exchanges had limited interest even among the Bitcoin hobbyists, and the exchanges were prone to attacks from hackers and fraudulent activity.

New Liberty Standard (NLS)

The first known Bitcoin price, or exchange rate, recorded on 5 October 2009 was published on what was the world’s first Bitcoin exchange site, New Liberty Standard (NLS), a site which offered a service to buy and sell Bitcoins in exchange for US dollars using PayPal. The site was operated by “NewLibertyStandard”, who was a frequent contributor to the early Bitcoin forum Bitcointalk.org, and who discussed his exchange site on the forum in posts such as here.

The very first Bitcoin / USD exchange rate published on the New Liberty Standard site on 5 on October 2009 was USD $1.00 = 1,309.03 BTC, which equated to an incredible $0.00764 per Bitcoin, or in other words 7.6 US cents per 100 Bitcoins.

NewLibertyStandard calculated this exchange rate using a formula based on:

“dividing $1.00 by the average amount of electricity required to run a computer with high CPU for a year, 1331.5 kWh, multiplied by the average residential cost of electricity in the United States for the previous year, $0.1136, divided by 12 months divided, by the number of bitcoins generated by my computer over the past 30 days.”

New Liberty Standard’s first Bitcoin / USD prices, 5th – 11th October 2009. Initial price 1,309.03 BTC per USD

As you can see, this Bitcoin price in the early days was determined not by buying and selling activity of Bitcoins, but by the price of electricity and the site owner’s personal Bitcoin mining output. The calculation became a bit more complicated in early 2010 using rolling averages and the addition of broadband internet costs, and can be seen in another archive imprint from the New Liberty Standard site in late April 2010 here.

A list of the daily USD / Bitcoin prices between 5 October and 28 December 2009 can be seen on a 29 December 2009 Wayback Machine (Archive.org) imprint of the New Liberty Standard exchange rate page here. If the Wayback Machine page is slow to load, these historic exchange prices can also be seen on NewLibertyStandard’s webpage here.

28 Dec 2009: NLS quoted that it would sell 1,578.76 Bitcoins for US$ 1.00 plus a Paypal transaction fee.

The best rate quoted for buying Bitcoins on the NLS exchange in 2009 was on 17 December 2009 when you could buy an incredible 1630.33 BTC for US $1.00.

NewLibertyStandard was also known to Satoshi Nakamoto, as for example, Satoshi thanked NewLibertyStandard on 16 December 2009 for helping to test Bitcoin 0.2 (see Bitcointalk discussion topic here).

Interestingly, it was NewLibertyStandard who came up with the Bitcoin symbol ฿ and the Bitcoin ticker BTC, when on 5 February 2010 he posted on the Bitcointalk.org forum that:

“I propose that we adopt the Thai baht currency symbol, ฿, as the official bitcoin currency symbol and BTC as the official bitcoin three letter currency code.”

NewLibertyStandard proposes BTC ticker code and Thai baht ฿ for use as Bitcoin symbol

In early October 2009, there was also an historic Bitcoin / USD transaction which consisted of a Finnish programmer and early Bitcoin supporter named Martti Malmi selling 5050 BTC to NewLibertyStandard for US$ 5.02, which was the equivalent of 9.94 US cents per 100 Bitcoins.

This transaction is confirmed by a Tweet on Martti Malmi’s Twitter account as below

This transaction was, as Malmi explains below, to help support the Bitcoin trading service of New Liberty Standard.

Malmi also interestingly went on to launch his own Bitcoin for fiat currency exchange service for a time in 2010, which he called bitcoinexchange.com. Although there are no Archive.org imprints of this site, Malmi (who went by the name Sirius in the Bitcointalk,org forum) discusses it in January 2010 here, and also mentioned it last month (December 2020) in a Tweet below:

Not only was Martti Malmi known to Satoshi, but be also helped Satoshi code and test Bitcoin 0.2, as can be seen from this Bitcointalk posting on 16 December 2009 here.

Satoshi Nakamoto thanks Martti Malmi and NewLibertyStandard for their help with the Bitcoin 0.2 release, 16 December 2009

By 19 January 2010, the New Liberty Standard exchange was seeing a small volume of business, as attested by the site owner NewLibertyStandard in a post on Bitcointalk.org:

“I have had people buy bitcoins from me and sell bitcoins to me. Supply and demand, albeit only a small amount, already exists and is all that is really needed. Offering to exchange bitcoins for another currency is ultimately no different from exchanging bitcoins for goods or services.”

Exchange rate of 221.65 BTC per $ 1.00 on the NLS exchange, 6 June 2010

On his website, NewLibertyStandard descried Bitcoin as an “economic revolution”, saying that “Bitcoin is the gold standard of digital currency. The availability of bitcoins cannot be manipulated by governments or financial institutions and bitcoin transactions occur directly between two parties without a middleman.”

Bitcoin Market (BCM)

The second pioneering initiative to create a price for Bitcoin also came from someone who became a well-known contributor to the Bitcointalk.org forum. This was a Bitcoin exchange site called Bitcoin Market (www.bitcoinmarket.com), created in early 2010 by Bitcointalk’s ‘dwdollar’, whose real name ironically is Dustin Dollar.

Website imprint of the bitcoinmarket.com Bitcoin exchange on 26 August 2011, price $10 – $15 per BTC

The very first post of ‘dwdollar’ on Bitcointalk.org was to announce his plans to create a Bitcoin exchange, when he posted on 15 January 2010:

“Hi everyone. I’m in the process of building an exchange. I have big plans for it, but I still have a lot of work to do. It will be a real market where people will be able to buy and sell Bitcoins with each other. In the coming weeks I should have a website with a basic framework set up. Please bear with me.”

dwdollar’s announcement of Bitcoin Market on 15 January 2010

Again on 6 February 2010 in an update he added that:

“I am trying to create a market where Bitcoins are treated as a commodity. People will be able to trade Bitcoins for dollars and speculate on the value. In theory, this will establish a real-time exchange rate so we will all have a clue what the current value of a Bitcoin is, compared to a dollar. I have an early version up at http://98.168.168.27:8080/”

‘dwdollar’ was adamant that the exchange should reflect real trading between market participants and not the production costs of Bitcoin:

“Unless there is a way to determine demand, no one will be using them as a currency. Even now, every Bitcoin has a value. The key is finding it and tracking it.

I want this to be a real market where buyers and sellers determine the value based on their demand. It will match buyers and sellers (it can already do that) accordingly. I will only be a broker. I don’t think we should be worried about what the value is.

Our main concern should be accurately determining that value as it fluctuates…. The fact we are worrying about people dumping Bitcoins suggests we haven’t determined an accurate value yet."

The Bitcoin Market (a.k.a. BCM) site went live in March 2010 and used PayPal for cash handling (also adding Pecunix gold grammes (GAU) and Liberty Reserve (USD) at later dates). On 16 March 2010, dwdollar posted on the Bitcointalk.org forum saying that he had:

“created an account and placed a bid for 500 Bitcoins @ $.0067/BC which I think is NewLibertyStandard’s current exchange rate.”

This 16 March 2010 rate of $0.0067 per coin, which was 67 cents for 100 coins, was 8.77 times more than the NewLibertyStandard’s starting price that had been specified on 5 October 2009, less than 6 months earlier.

On 17March 2010 (St Patrick’s Day), dwdollar posted another message that:

“There are 9 people signed up but only 3 have made a deposit so far. Myself makes 4. Looks like we had our first real trade around noon!”

Interestingly, a few days later on 20 March 2010, there was a reply to dwdollar’s post on the Bitcointalk.org forum from the now famous (in the cryptocurrency world) Jon Matonis, who said:

“Hi, very exciting news about the momentum building for Bitcoin. I just posted a summary on my economics blog, “The Monetary Future", which can be found at http://themonetaryfuture.blogspot.com/2010/03/bitcoin-peer-to-peer-electronic-cash.html

The blog focuses on digital online exchangers and anonymous digital currencies penetrating the market so that we may all protect our financial privacy. Should be interesting and entertaining for many on this forum.”

Bitcoin Market in its ‘About page" claimed that “it was the first to offer a free-floating exchange rate and an escrow trading system.” It incorporated as Bitcoin Market LLC in September 2010. A new site Bitcoin Market site was rolled out in October 2010 with Dustin Dollar (a.k.a dwdollar) as the “developer of the Bitcoin Market website and owner of Bitcoin Market LLC.”

The earliest captured imprint of the site via the Wayback Machine is September 2011 and can be seen here. Some Bitcoin Market trades (from 26 August 2011) can be seen on an archived page here, where prices by then had reached the range of $10 – $17 per Bitcoin.

Mt. Gox

Following the launch of Bitcoin Market in March 2010, the next major development for Bitcoin Exchanges came a few months later with the launch of the now famous (and infamous) Mt. Gox on 18 July 2010, which described itself as an exchange that “allows you to trade US Dollars (USD) for Bitcoins (BTC) or Bitcoins for US Dollars with other Mt Gox users. You set the price you want to buy or sell your BTC for.”

Launched by Jed McCaleb, the exchange and website name is an abbreviation of a previous site of McCaleb’s called “Magic: The Gathering Online”, hence the name Mt Gox. McCaleb would later reach fame as the co-founder and CTO of Ripple, and the co-founder of Stellar (where he is also currently CTO).

McCaleb announced the launch of his exchange on, you guessed it, the Bitcointalk.org forum, in a short post here, where he said:

“Hi Everyone,
I just put up a new bitcoin exchange.
Please let me know what you think.
https://mtgox.com“

Screenshot of Mt. Gox Bitcoin exchange homepage from 3 February 2011, one week before BTC reached parity with the US dollar.

The prices on Mt Gox were basically in the form of last traded price, High, Low and volume (over 24 hours), as well as Current Lowest Buy and Current Highest Sell Prices offered by exchange users. According to the Mt Gox homepage, “all trades are between users. So the current buy price and current low price is just what someone else entered.”

An early website imprint of the Mt. Gox home page from 3 February 2011 can be seen here.

An archive imprint of a page from website Bitcoin Charts (bitcoincharts.com) on 19 November 2010 shows Bitcoin prices in US dollars for both Bitcoin Market and Mt Gox, with the BTC price in US dollars in a range from $ 0.23 to $0.28 per Bitcoin.

There was even technical analysis of the Bitcoin price on the Mt Gox site from as early as November 2010, with user ‘S3052’ (who was also active on Bitcointalk.org) posting daily updates, such as on 6 December 2010. In hindsight, these Bitcoin prices look miniscule now and practically unbelievable:

“Overall, the decline is continuing. Unless 0.3 – 0.35 $ are taken out substantially, the trend is DOWN. A strong target remains 0.1 – 0.14 $.

Analysis

1. Long term outlook: BTC/USD have broken the long-term trendline (now around 0.23 $ and slowly rising) to the downside. Support lies in the 0.11-0.14 $ area. As long as prices find support there, there is “light in the end of the tunnel”, meaning an end of the decline with continued rally.

2. Short term update “A break down below 0.20 would deteriorate the technical picture heavily and open the door for fast declines”. We have breached the 0.20 level with a low of 0.185 $ today, so unless prices move back above 0.20 and more importantly, the trendline quickly, a sell off towards ultimately 0.1 $ is quite probable. As you can see in the volume picture, huge buying volume came in between 0.09 and 0.10 $, which makes this a likely strong support level.

Less than a month later, Bitcoin prices had rallied nearly 500% as a range of prices on the Mt. Gox ‘Buy Bitcoins’ page (3 January 2011) were in the range of US$ 0.93 to US $ 0.955 per Bitcoin.

In March 2011, Jed McCaleb sold the Mt. Gox Bitcoin exchange to Mark Karpelès (who went by the name MagicalTux on Bitcointalk.org). The sale was announced on the Bitcointalk.org forum on 6 March 2011 by user mtgox (Jed McCaleb) where he posted:

“Hello Everyone

I created mtgox on a lark after reading about bitcoins last summer. It has been interesting and fun to do. I’m still very confident that bitcoins have a bright future. But to really make mtgox what it has the potential to be would require more time than I have right now. So I’ve decided to pass the torch to someone better able to take the site to the next level.

MagicalTux has already contributed a lot to the bitcoin community and in many ways he will be better at running the site than I was.

…Thanks to everyone that has supported mtgox so far. Can’t wait to see BTC hit $10! “

Interestingly, Mark Karpelès became one of the founding member of the Bitcoin Foundation when it was established on 23 July 2012, along with such names as Roger Ver, Gavin Andresen and of course Satoshi Nakamoto.

Founding members of the Bitcoin Foundation, established 23 July 2012. Source

Following the sale, Karpelès, who had moved from France to Japan in 2009, moved the Mt Gox operation to the Shibuya business district in Tokyo and structured Mt. Gox as part of his Japanese company Tibanne Co Ltd. A revamped Mt. Gox website was launched on 1 December 2011. See press release here.

Homepage of the Mt. Gox Bitcoin exchange after it had moved to Japan

By that time, Mt Gox described itself as “facilitating the exchange of Bitcoins between users globally in the currency of their choice. Multiple currency markets allow users to purchase and resell their Bitcoins in up to 16 different currencies, along with the ability to securely store Bitcoins in a virtual “vault” for safe keeping”

The revamped Mt. Gox website from late 2011 can be seen here in a Wayback machine archive imprint from 11 January 2012, where the prices at that time were – Last price: $6.849. High: $7.138. Low: $6.500. Volume: 100,958 BTC, Weighted Avg Price:$6.84563

Bitcoin price chart in USD, MTGOX 2012 March – April. Price range $4.50 – $5.50 Source: Mt. Gox archive website

The rest, as they say is history. For anyone not aware of what happened to Mt. Gox, it filed for bankruptcy on 28 February 2014, citing insolvency and seeking protection from creditors, announcing that it had lost approximately 850,000 Bitcoins. This comprised 750,000 Bitcoins belonging to clients and 100,000 Bitcoins belonging to Mt. Gox. Mt Gox claimed it had been hacked and the Bitcoins stolen.

According to the Wall Street Journal as cited by the LA Times:

‘“There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble,” said Mt. Gox Chief Executive Mark Karpeles at a news conference in Tokyo.’

A few weeks later, Mt Gox said that it ‘found’ 200,000 Bitcoins after it was pointed out by blockchain watchers that these coins were still moving among Mt Gox BTC addresses. For a good recap about Mt Gox at the time see a March 2014 article from Wired here.

According to the Japan Times, a US task force investigating Mt Gox traced the bulk of the 600,000 hacked Bitcoins to a Russian programmer called Alexander Vinnik and arrested him in Greece in 2017 for “allegedly laundering funds From hack Of Mt. Gox”. Vinnik had been the co-founder of an early Russian Bitcoin exchange in 2011 called BTC-e (old site here). Not to be confused with another early Russian Bitcoin exchange (also started in 2011) called BTCex (old site here).

Conclusion

Looking back on the pioneering Bitcoin exchanges, its hard to believe that it was less than 12 years ago. In some ways, these early Bitcoin exchanges of New Liberty Standard, Bitcoin Market, and Mt. Gox even look like they are from a bygone era. It wasn’t that the technology didn’t exist in 2009 – 2011 to create robust, sophisticated and secure Bitcoin exchanges. Its just that there was no institutional interest and investment to do so.

Hence, the pioneering exchanges were launched by a smattering of interested individuals who were enthusiastic and active in the Bitcoin space at that time. Its striking also that the main players in this drama all knew each other in one way or other, that they believed in sound money that cannot be inflated, and that many of them are still major figures in the cryptocurrency world.

While the prices established for Bitcoin during those times, from 1500 BTC for a $1 in October 2009 to even 1 BTC for $1 in February 2011, are historically interesting, maybe the more lasting contribution of these early exchanges is that they paved the way for the massive and ever accelerating crypto ecosystem which has been built on their foundations.

Featured Archives: California Sends Bitcoin Foundation Cease and Desist Order

noreply@blogger.com (Jon Matonis) — Thu, 19 May 2022 17:08:00 +0000

By Mike Bruschini

Reason Magazine

June 24, 2013

https://reason.com/2013/06/24/california-warns-bitcoin-foundation-of-m/

California's message to Bitcoin supporters: if you "may be" doing the crime, we'll tell you what you'll do in hard time.

The California Department of Financial Institutions' cease and desist order dated May 30 wasn't as explicit in implicating the Bitcoin Foundation, a nonprofit with a mission to standardize and promote the Bitcoin technology, of any legal wrongdoing as it was in outlining punitive consequences if the electronic currency advocacy group was to be transmitting money without licenses or the state's authorization. Jon Matonis, who sits on the Board of Directors for Bitcoin Foundation, brought California's order to attention in a column for Forbes published yesterday.

Read the rest of the article.

Featured Archives: Bitcoin Raises Its Profile But Investors Demand More

noreply@blogger.com (Jon Matonis) — Thu, 19 May 2022 08:14:00 +0000

The Irish Times
Monday, August 4, 2014

https://www.irishtimes.com/business/bitcoin-raises-its-profile-but-investors-demand-more-1.1884918

The Bitcoin Foundation’s executive director, Jon Matonis, travels the world to promote the virtual currency as a replacement for traditional money. Some of his members want him to focus on a less lofty goal: helping them make lots of old-fashioned cash.

Matonis, a longtime advocate of what he calls “non- political money”, has built the group into a kind of a bitcoin governing body. Last week, he unveiled a website aimed at raising the virtual currency’s public profile. Some foundation members are dismayed by Matonis’ leadership and grander plans.

Investors from Silicon Valley, in particular, would like the group to focus on more technical matters, particularly fortifying the underlying bitcoin software so it can grow into a viable, large-scale payment network.

Running the foundation is like “going downhill in a go- cart trying to keep the wheels on,” Matonis said. “There are different constituencies going in different directions.”

Venture capitalists and entrepreneurs, lured by the technology’s promise, have ploughed time and money into bitcoin businesses – and they’re demanding software upgrades to develop the digital currency’s commercial potential.

“The impact of the bitcoin protocol is economic,” Jeremy Allaire, chief executive of Circle Internet Financial, a bitcoin start-up. “These are higher stakes than with other open-source software.”

The organisation, established in 2012 and modelled on the Linux Foundation, the open-source operating system created in the early 1990s, has tried to mix stewardship of the code with political advocacy.
Digital assets

Unlike Linux, bitcoin rapidly became a channel for billions of dollars in transactions, making security and capacity bottom-line issues for entrepreneurs.

Matonis said that pressure to invest more in bitcoin’s computer code reflects a “fight over who controls the policy dialogue”, and whether the group will continue to fund lobbying. “Tech investors want to make sure that all the resources in the world are there on the tech side,” he said.

Bitcoins are part of a software system that transfers digital assets from owner to owner without using a third party. Start-ups are seeking to use the innovation to disrupt the existing payment system dominated by firms such as JPMorgan Chase, Visa and Western Union.

The core software managed by the foundation contains instructions that let computers communicate with one another to verify transactions on bitcoin’s public ledger, called the blockchain.

Another program enables users to conduct those transactions. Software upgrades are made through an informal system of mostly part- time developers who communicate in internet chat rooms.

Gavin Andresen, the foundation’s chief scientist, was until May the only paid coder working on bitcoin. Online discussions sometimes devolve into virtual shouting matches, according to Andresen.

This year, the bitcoin network processed between $20 million and $580 million per day in transactions, according to the data aggregated on blockchain.info.

“This is not sustainable,” said Mike Hearn, one of bitcoin’s core developers. “You can’t have an infrastructure held together by chewing gum and sticky tape and people who work evenings and weekends.”

Software upgrades have helped ward off hacking and increased commercial utility. A change in March, for example, improved the security of transactions conducted through online merchants by adapting bitcoin software to the Internet’s existing system for authenticating websites.

That tweak pales in comparison to the “non-trivial problem” of raising the number of transactions the bitcoin network can process, Allaire said. The system can handle about nine transactions per second, far off the roughly 2,400 on Visa’s network. Investors have raised the idea of earmarking donations to the foundation for work on the software.

“A lot of people would give a million dollars if it would go solely to development,” said Brock Pierce, a venture capitalist who was recently elected to the foundation’s board. Under pressure from the entrepreneur side, the foundation has commissioned a “feasibility study” to determine whether the software development could happen as part of a partnership with a major university, Matonis said.

Digital wallets

“If we don’t have the underlying core development, it diminishes the other policy and advocacy work we do,” he said. Matonis has frequently argued that bitcoin is a political project that will displace money issued by governments, and has at times disavowed close work with regulators.

“The foundation is not pro-regulation as some have claimed, but it is pro-education,” he wrote when he became its director in 2012. He has dismissed money laundering as an overly broad category of crime, “like buying a drive-thru donut in a stolen vehicle”.

Many entrepreneurs are keen to dodge the politics that Matonis courts. Nic Cary, the chief executive officer of Blockchain, the largest website for creating digital wallets to hold bitcoins, said the group should improve software and promote consumer adoption of the virtual currency.

“What we’ve seen is a lot of mission creep,” Cary said. “We need to fund the people who are working on development.”

Matonis and the other founders of the group have rules on their side. They set up a system in which individual members elect the same number of board members – three – as do all the corporate members. That has raised the possibility, mentioned by Matonis at a meeting in Amsterdam in May, that the foundation could split. The Electronic Frontier Foundation, an early Internet advocacy group, spun out the Washington-based Center for Democracy and Technology in 1994 after similar conflicts.

Matonis told his members that he won’t go quietly if the Bitcoin Foundation cracks. “If we’re going to fracture,” Matonis said in May, “I want to make sure I’m running the one we remember.” – Bloomberg

Featured Archives: Real Crypto-Anarchy

noreply@blogger.com (Jon Matonis) — Thu, 19 May 2022 08:13:00 +0000

By Oleg Andreev

December 28, 2015

http://blog.oleganza.com/post/71410377996/real-crypto-anarchy

По-русски: http://bitnovosti.com/2014/01/02/cryptoanarchy-and-anonymity/

Crypto-anarchy is not some crazy utopian ideology, but a very viable thing that unfolds in front of our eyes this very moment. The Internet and Bitcoin will soon allow people solve social problems in a novel way: instead of ancient formula “the strongest wins and beats the shit out of the loser” we all can achieve a peaceful society where both rich and poor, strong and weak can protect their property and freedom on more equal grounds without relying on violent institutions like governments.

But first, lets start with some history.

Cypherpunk movement started as a mailing list in 1992. In 1993 Eric Hughes publishes a “A Cypherpunk’s Manifesto” [1]. In 1994 Timothy C. May publishes “Cypherpunks FAQ” [2].

Here’s an excerpt from the FAQ:

2.3. “What’s the ‘Big Picture’?”

Strong crypto is here. It is widely available. It implies many changes in the way the world works. Private channels between parties who have never met and who never will meet are possible. Totally anonymous, unsinkable, untraceable communications and exchanges are possible.

Transactions can only be voluntary, since the parties are untraceable and unknown and can withdraw at any time. This has profound implications for the conventional approach of using the threat of force, directed against parties by governments or by others. In particular, threats of force will fail.

What emerges from this is unclear, but I think it will be a form of anarcho-capitalist market system I call “crypto anarchy.” (Voluntary communications only, with no third parties butting in.)

In 1994 Nick Szabo coins the term “smart contract” [3] and describes all use case categories that are talking about today: from digital cash to synthetic financial assets and smart property.

In 1998 Wei Dai & Nick Szabo came up with the ideas for “b-money” [4] and “bit gold” [5] during their conversation on the libtech-l mailing list. Wei Dai captured the essence of the movement in an immortal quote:

I am fascinated by Tim May’s crypto-anarchy. Unlike the communities traditionally associated with the word “anarchy”, in a crypto-anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary. It’s a community where the threat of violence is impotent because violence is impossible, and violence is impossible because its participants cannot be linked to their true names or physical locations.

In 1999 Nick Szabo coins term “intrapolynomial cryptography” [6] for the entirety of proof-of-work algorithms and describes what we call now a “private blockchain”, a chain of property ownership enforced by a consensus of “property club” members [7]. The latter article is especially valuable today as it explicitly states that the job of voting in the consensus mechanism is used only for secure execution of the agreed-upon rules and database replication, but not for changing the rules themselves.

In 2004 Hal Finney implements a RPOW server [8] (“Reusable proof of work”) inspired by the bit gold proposal. The RPOW scheme uses a secure processing module that simultaneously acts as a mint and as a custodian for the ledger of proof-of-work tokens.

In late 2008 Satoshi Nakamoto publishes an overview of Bitcoin [9] and on January 3rd, 2009 releases the code and begins the blockchain.

Bitcoin is the exact implementation of the system envisioned by Tim C. May, Wei Dai and Nick Szabo. The only requirement is for transacting parties to remain anonymous. If there’s no trace to physical persons, there is no place for the violent intervention and thus the contracts can only be enforced according to the voluntarily agreed-upon rules between the parties. Bitcoin allows encoding these rules right in the transactions so they are automatically enforced by the whole network.

In practice, we cannot imagine living in full anonymity. Human beings live in a physical world and enjoy a lot of physical things. Anonymity is not something you can easily manage like a single encryption key. It must be maintained via careful dissemination of one’s actions among actions of others. And since the network activity is easily recordable, one mistake is enough to reveal oneself. In other words, the cost of anonymity is rather high compared to the benefits. Does this mean crypto-anarchy is an utopia?

I would argue, it’s far from it. Cypherpunks being rigorous scientists made a much stronger assumption than needed in practice. For transacting parties it is enough to have costs of cheating (e.g. resorting to violent coercion) meaningfully higher than the cost of following the contract (that is, keeping the promise). If that condition holds for the majority of interactions in society, there will be a great incentive for people to protect themselves against remaining rare cases of cheating thus keeping the system sustainable. Anonymity is simply one of the ways to raise the cost of the attack.

Bitcoin raises the cost of many kinds of attacks, going far beyond protecting against central banks meddling with money supply.

First, all sorts of computational services will flourish. Machines never need to disclose their physical locations and can freely automate both payment verification and payments themselves. Denial-of-service and spam can be largely eliminated by simply requiring a smallish payment for every request.

Second, personal services can be protected by peer-to-peer insurance deposits [8] that literally raises the cost of cheating by making both parties agree to a greater sacrifice (“bilateral insurance deposit”).

In a similar manner, crowdfunding can be fully insured by allowing raised funds to be reverted if the majority of shareholders decides to do so.

Finally, systemic predation by the state becomes economically impossible. Most modern states fund themselves by debasing money supply (also known as “bond issuance”, “budget deficit”, “inflation”, “quantitative easing”, “stimulus package”). Bitcoin-based economy simply does not allow this as it is very cheap to store bitcoins and verify transactions yourself and completely avoid all kinds of fraud associated with modern banking. As central banking disappears from the state’s arsenal, federal government activities including wars become unfunded and quickly come to an end.

Local governments may continue their operations funded by local taxes, but that would become increasingly voluntary. Extracting bitcoins costs much more than protecting them. There is no highly centralized and monitored banking network, so it’s much harder to track taxable transactions. Every additional tax evader defunds the local police department and makes it safer for the next person to underreport earnings if he wishes to do so. Considering that the law enforcement is paid only a small portion of the total budget to be extracted (50% goes to bureaucrats and the rest to other public services), consistently extracting bits of information from millions of individuals is unsustainable in the long run. If anyone is good at stealing bitcoins, they are much better off doing it alone and taking all profits for themselves.

Governments, of course, can also tax in kind (like your underreported Ferrari or a house), but this would be even costlier than seizing any kind of money and those costs must be paid by the state in bitcoins that it does not have to start with.

If this speculation does not sound to you like a complete lunacy yet, here is the fun part. Most governments are completely broke already and can only pay with the IOUs they print. When people start a massive run for bitcoins to protect their wealth, everyone will be able to earn bitcoins for their work, except those who work for the government. Policemen, public school teachers and alike will be the first ones to notice prices rising faster than their salaries. They will be the first ones to switch jobs or become largely corrupt on all levels, like it was in Russia after the fall of the Soviet Union. Bureaucrats will smell the approaching panic and, instead of trying to retain control over the employees, will privatize as much public goods as possible. Again, exactly like during the fall of the Soviet Union. People will see how all promised public services are either abandoned or stolen, and this time everyone will have a method to protect their own property and do business voluntarily and in an even safer and cheaper way than before. Crypto-anarchy will quickly become a boring reality without the need for anyone to remain fully anonymous.

[1] http://www.activism.net/cypherpunk/manifesto.html

[2] http://www.cypherpunks.to/faq/cyphernomicron/cyphernomicon.txt

[3] http://www.virtualschool.edu/mon/Economics/SmartContracts.html

[4] http://www.weidai.com/bmoney.txt

[5] http://unenumerated.blogspot.co.uk/2005/12/bit-gold.html

[6] https://web.archive.org/web/20011217091748/http://szabo.best.vwh.net/intrapoly.html

[7] https://web.archive.org/web/20020202165211/http://szabo.best.vwh.net/securetitle.html

[8] http://cryptome.org/rpow.htm

[9] http://bitcoin.org/bitcoin.pdf

UPDATE on March 22, 2016: correct attribution and timeline for Nick Szabo’s proposals.

Featured Archives: Economic Fallacies and the Block Size Limit

noreply@blogger.com (Jon Matonis) — Sun, 01 May 2022 08:13:00 +0000

By Justus Ranvier

February 9, 2015

Part 1, Scarcity:
http://web.archive.org/web/20160423041910/https://bitcoinism.liberty.me/economic-fallacies-and-the-block-size-limit-part-1-scarcity/

Part 2, Price Discovery:
http://web.archive.org/web/20160318120539/https://bitcoinism.liberty.me/economic-fallacies-and-the-block-size-limit-part-2-price-discovery/

The average size of a block is approaching the 1 MB protocol limit for the first time in Bitcoins history, and not everybody agrees regarding what to do about it. Many objections to raising or removing the block size limit are based on misunderstandings about the nature of economic scarcity and operation of markets in general.

ECONOMIC FALLACIES AND THE BLOCK SIZE LIMIT

This is the first article in a series about the economics of the Bitcoin protocols block size limit. This article covers scarcity. The second article covers price discovery and the third article will cover why the block reward is fundamentally different than the block size.

Production Quotas

As you may have heard, Bitcoin usage is growing. In every way, that graph represents the kind of healthy exponential adoption that we all want to see.

Unfortunately there's a problem on the horizon which threatens to stop or even reverse Bitcoin adoption.

Several years ago, Satoshi added a protocol limit to the maximum size of a Bitcoin block. Prior to this change, there was no explicit limit, just an implicit 32 megabyte maximum message size. This limit was explained as a temporary anti-spam measure, and Satoshi said at the time that it could be raised when the network needed the additional capability.

The economic effect of having a maximum block size is that of a production quota. Production quotas are tools of economic central planning that either mandate or limit the amount of production of a good or service, as opposed to allowing the production rates to be governed by supply and demand.

Production quotas are inherently harmful to an economy, as shown in the 1920 essay, Economic Calculation in the Socialist Commonwealth, and so do not represent a sustainable long term strategy for allocating the supply of Bitcoin transactions.

From the time it was implemented until now, the harm caused by the block size limit has been hypothetical rather than real since there has not yet been enough demand for Bitcoin transactions to be hampered by the limit. For the last few years, the block size limit has been like a minimum wage law that forbids salaries lower than $0.01 per year. There is no market demand for salaries that low, and so such a minimum wage law might as well not exist it has no effect on the economy. Likewise, the 1 MB block size limit has not yet had any effect on the Bitcoin economy since there has not yet been a market demand for more than 1 MB of transactions every 10 minutes.

Since its inception, Bitcoin has been operating as if there was no block size limit at all. If this limit is kept in place when the market demand for transactions rises above 1 MB/10 minutes, then suddenly Bitcoin will be in uncharted economic territory.

People will want to use Bitcoin, but they will be forbidden by protocol from doing so. No matter how much they are willing to pay, no matter how willing miners are to include their transactions in a block, no matter how willing the full node operators are to forward their transactions, they simply wont be allowed to transact.

A block size limit that is low enough to have a real effect on actual block sizes is the ultimate blacklist.

The Alternative to Central Planning

The best alternative to a production quota on Bitcoin transactions is, like in any other situation of central planning, to allow the market to decide the optimum block size.

Nobody gives McDonalds a maximum number of Big Macs they are allowed to produce each day their customers tell them how many they want to buy and McDonalds responds appropriately. At any given time, there exists a price at which the willingness of McDonalds to produce Big Macs is exactly equal to the willingness of their customers to buy them, and that determines the number that will be produced. The process of price discovery is an emergent property of the actions of millions of independent actors expressing their preferences in a competitive open market.

This is exactly how we want Bitcoin to behave. The Bitcoin network, like any other product or service in the economy, should change its production capability to respond to supply and demand.

It is not currently designed to do this, however, and one of the barriers preventing Bitcoin from being improved in this way is a series of economic fallacies or misconceptions that cause otherwise skilled people to distrust market-driven price discovery over central planning, or to assume that resource allocation in computer networks operates in a manner fundamentally different than resource allocation in any other part of the economy.

Objections to Market-Determined Block Sizes

"Transaction fees are too low and won't rise unless space in a block is scarce. We need a block size limit to ensure block space scarcity and thus price transactions."

This objection is based on a common misunderstanding of the word scarcity as it applies to economics.

In economic terms, something is scarce if people cant have an infinite amount of it at a price of zero.

On the surface of the Earth, air is not scarce. Its not scarce because every human can breathe as much as they are capable of breathing, without paying for the air, and theres still enough to go around. Because everybody can consume as much as they are capable of without reducing anyone elses ability to do the same, air does not require allocation. In practical terms, the amount of available air at a price of zero is infinite, therefore air is not scarce.

Almost everything else is scarce, certainly any services that require time and/or energy to produce.

The space in a block will always be scarce as long as our computers are still made of matter and still occupy space. Constructing a block isn't free, storing a block isn't free, and the bandwidth needed to transmit a block is not free.

There will always exist some cost to a miner to add a transaction to a block. That cost may be very small, but it will never be zero.

If transaction fees emerge from the operation of a competitive open market, then we would expect them to approach the marginal cost of production, plus a small profit margin.

What if the the market-set block size is so big that only Google can afford to run full nodes?

This is a real problem that could emerge, and is actually the reason that the block size limit was enacted in the first place.

The reason this could happen is because of poor P2P network design: miners do not need to pay the cost of relaying blocks throughout the network, therefore this cost becomes an externality which is not reflected in their marginal cost of production.

The solution to this objection is a better P2P network design, not a production quota that limits the maximum transaction rate.

A description of how to build a better P2P network will be the subject of a future article.

What if the market-set transaction fee doesn't pay enough for a hash rate that protects the network for well-funded adversaries?

If there is not enough market demand for Bitcoin transactions such to pay for sufficient hashing power to protect the network, then Bitcoin will fail.

This will happen with or without a block size limit.

Since its inception, Bitcoin has been on a collision course with extremely well funded, entitled, and politically powerful interests. Its only hope of surviving this collision is by attracting a very broad base of support.

Bitcoin needs millions, and then billions, of users who demand better money. The demand for Bitcoin must be strong enough that they will break the law if that's what it takes to obtain it.

The above strategy isn't particularly novel or extreme this strategy has been employed in the conflict between peer-to-peer filesharing networks vs the copyright mafia, and more recently by ridesharing companies vs the taxi licensing cartels.

When a new technology has to compete against entrenched interests on a non-level political playing field, civil disobedience is a proven effective tactic.

We don't yet know whether or not Bitcoin will gain enough of the right kind of support it needs to survive.

We can say, however, that arbitrarily rationing the transaction rate is counterproductive toward achieving that end.

What if competition results in the profitability of mining being so low that it drives out smaller pools and Bitcoin mining converges to a monopoly?

This objection is a restatement of the natural monopoly argument, and is in no way specific to Bitcoin.

Natural monopoly as an economic theory has been conclusively debunked, and the same principles that explain why natural monopolies do not emerge from free market forces in classically-cited industries apply equally well to Bitcoin mining.

Rather than repeat those arguments here, anyone who is concerned about natural monopolies should read The Myth of Natural Monopoly by Thomas J. DiLorenzo.

If the market should set the block size, why shouldn't it also set the block reward?

This objection is based either on a fundamental misunderstanding on the nature of money, or else on the misconception that Bitcoins value is not derived from its monetary properties.

Exploring these misconceptions fully will be the subject of a future article.

This concludes part 1. Future articles in this series will address the subject of how to build economically-scalable P2P networks, and why the block reward is fundamentally different than the block size limit.

The Fate of “E-gold” As a Warning To Cryptocurrencies

noreply@blogger.com (Jon Matonis) — Wed, 13 Apr 2022 08:07:00 +0000

By Pieter Cleppe
Brussels Report
April 13, 2021

https://www.brusselsreport.eu/2021/04/13/the-fate-of-e-gold-as-a-warning-to-cryptocurrencies/

The large gains in the price of bitcoin over the last year have once again increased attention for this so-called “crypto currency”. Meanwhile, however, regulators are preparing a response.

While the ECB has published an opinion paper advising the EU Commission to enable it to require crypto currencies to obtain a license, India would now even be considering to criminalize possession, issuance, mining, trading and transferring of crypto-assets, something which was later contradicted by the Finance Minister, who stated that India would still “allow certain windows for people to do experiments on the blockchain, bitcoins or cryptocurrency.”

Belgian Bitcoin enthusiast Tuur Demeester belongs to bitcoin’s early adopters and is considered an eminent expert in the field. Before he was into bitcoin, he translated the magnum opus of one of the leading representatives of the Austrian school of economics, Spanish Professor Jesús Huerta de Soto. This book, called “Money, Bank Credit, and Economic Cycles”, is a fundamental critique of the contemporary banking system, which allows people to assume they are always and at any point able to collect 100% of their bank deposits, while in reality they can only dispose of a small fraction, if everyone would decide to exercise the right they assume to have at the same time.

Like other libertarians, he gained an interest in bitcoin. In a 2012 interview with well-known bitcoin prophet Max Keiser, he explained that “when there is a link [between money] and the real world, the authorities can go there, confiscate, regulate, intimidate. This is what happened with E-gold”

E-gold: crucial to understand the whole point of Bitcoin

“E-gold” was a digital payment system, created in 1996, in the early days of the internet, by an American oncologist, Douglas Jackson, and an attorney, Barry Downey.

The idea was simple: develop a system which enables people to pay each other with gold, instead of with U.S. Dollars, whereby the transfer of the physical gold between clients of the website is facilitated through the use of internet technology, obviously with all kinds of safety precautions. The Gold that was owned by E-gold clients was stored by banks in Europe and Dubai. Without the internet, such a system could have never been as performant. In the 1990s, with the arrival of the internet, it really was an idea whose time had come. Technology made it possible for people to easily pay each other in gold, and avoid state money.

The E-gold system of facilitating payment in gold turned into a great success. E-gold, which was founded two years before PayPal, was described by the Financial Times in 1999 as “the only electronic currency that has achieved critical mass on the web”. By 2004, it counted two million users and by 2006, 3 billion of transactions had been happening through E-gold.

There were of course hacking attempts, while also criminals have used the system, but according to founder Douglas Jackson, a lot of criminals were also caught as a result of their use of the system.

How the government ended the party

The “Patriot Act”, American legislation passed in the wake of the attacks on September 11th, 2001, which violated civil liberties, according to its opponents, introduced new restrictions on transmitting money. The U.S. Treasury and Justice Departments came up with a stricter interpretation on what was legally allowed in 2006, on the basis of which E-Gold was been charged with several federal charges, including money laundering, conspiracy, and operating an unlicensed money transmitting business. This eventually led to the company’s demise.

Despite founder Douglas Jackson denying that the tough treatment by U.S. authorities was inspired by fears E-Gold or similar initiatives could eventually emerge as a viable alternative to the U.S. Dollar, this was effectively something many in the so-called “crypto start-up community” believed.

“The end of E-gold renewed interest in crypto currencies”

In an interview last year, Jackson pointed at an article on the history of crypto currencies, which recalled that the first crypto currency, called “E-Cash”, had been developed in 1991 and that no big developments had really taken place between the development of “S/Key Unix login” in 1994 and bitcoin in 2009. This, according to Jackson is because “E-gold exposed the disutility of crypto-based monetary schemes and as long as E-gold was active, none of them could get a foothold.”

The official launch of bitcoin in January 2009 noted that it was a “decentralised”digital currency, “without the need for a trusted third party”, according to the bitcoin white paper, a technical manifesto published by Satoshi Nakamoto, the pseudonym of the inventor of bitcoin.

Looking back on this in 2012, Jon Matonis, who then served as the Chair of the Bitcoin Foundation, wrote:

“The timing of Bitcoin’s appearance, and subsequent growth, is no accident either…An alternative money provider that was centralized would probably not survive long in any jurisdiction. The emergence of Bitcoin was baked into the cake already. We can see from the case against digital money provider e-gold that an efficient challenger to the provision of a stable monetary unit will not be permitted… really.”

E-gold founder Douglas Jackson refers to this quote to back up his case that E-Gold delivered for a while what bitcoin ultimately was created for.

Read the rest of the article.

Cypherpunk Holdings Joins the Cypherpunk Guild Council

noreply@blogger.com (Jon Matonis) — Tue, 22 Jun 2021 13:46:00 +0000

News Release

Tuesday, June 22, 2021

https://www.newsfilecorp.com/release/88201/Cypherpunk-Holdings-Joins-the-Cypherpunk-Guild-Council

Toronto, Ontario--(Newsfile Corp. - June 22, 2021) - Cypherpunk Holdings Inc. (CSE: HODL) (OTC Pink: KHRIF) (the "Company"), a sector leader for privacy technology investments, is pleased to announce it has joined the Cypherpunk Guild Council on NEAR Protocol, which is focused on funding the deployment of the next generation of privacy solutions.

Chief Economist and director of Cypherpunk Holdings, Jon Matonis, has joined the Cypherpunk Guild Council as a representative of the Company. The Cypherpunk Guild Council is a new initiative funded entirely by the NEAR Foundation in order to support the development of privacy infrastructure on the NEAR Protocol blockchain platform and beyond, and to increase the overall deal flow for the sector.

"Cypherpunk Holdings' support for the Cypherpunk Guild Council is rooted in our belief that privacy solutions must be encouraged and actively developed across different crypto ecosystems," said Mr. Matonis. "As an organization that seeks to embody the original cypherpunk mission, we look forward to supporting a host of new privacy applications that will both strengthen the community over time and engage a new generation of users. Through its participation in the Cypherpunk Guild Council, the Company aims to benefit from early deal flow access to investment opportunities."

Seeded with 100,000 NEAR, the Cypherpunk Guild is led by second-generation cypherpunks Arto Bendiken and Frank Braun. The initiative was created to incubate a community of privacy advocates, developers and entrepreneurs interested in building robust privacy solutions on NEAR Protocol.

As a core member of the Cypherpunk Guild Council, the Company expects that Mr. Matonis will hold a direct influence and voice on the funding and resource allocation of the Guild. Since launching in early April, the Cypherpunk Guild Council has funded two projects to fully develop privacy transactions on NEAR Protocol, Suter Shield and Zecrey. Support is actively being provided to a third project: ZeroPool.

A Fund For Privacy Solutions Is Here: Submit a Proposal Today

As an experienced community of privacy advocates, the Cypherpunk Guild has emerged as one of the most popular guilds on NEAR Protocol, and one of the most serious privacy organizations in crypto. With hundreds of thousands of dollars in funding available, the Cypherpunk Guild is openly encouraging privacy-related proposals for new applications. Any project in line with the mission of NEAR Protocol is considered and evaluated after the project proposal is posted on the NEAR Governance Forum.

To join the Cypherpunk Guild community or to stay up to date with the latest updates, interested users can follow on Twitter (https://twitter.com/CypherpunkGuild) or join the community Matrix group.

About Cypherpunk Guild:

The Cypherpunk Guild is a group of privacy-minded developers, marketers and entrepreneurs, collaborating to pioneer a future built around private transactions on NEAR Protocol and the larger crypto ecosystem. Led by two second-generation cypherpunks, the Cypherpunk Guild supports the development of privacy applications on the Open Web as a means of safeguarding user privacy and freedom.

About Cypherpunk Holdings Inc.

Cypherpunk Holdings invests in companies, technologies and protocols which enhance or protect privacy. Its strategy is to make targeted investments in businesses and assets with strong privacy, often within the blockchain ecosystem, including select cryptocurrencies. Current equity investments include Samourai Wallet, Wasabi Wallet, Chia Network, NGRAVE, and Hydro 66.

Cautionary Note Regarding Forward-Looking Information

This news release contains "forward-looking information" within the meaning of applicable securities laws. Generally, any statements that are not historical facts may contain forward-looking information, and forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or indicates that certain actions, events or results "may", "could", "would", "might" or "will be" taken, "occur" or "be achieved". Forward-looking information includes, but is not limited to the Company's planned participation in the Cypherpunk Guild Council and the Company's expected benefits therefrom. There is no assurance that the Company's plans or objectives will be implemented as set out herein, or at all. Forward-looking information is based on certain factors and assumptions the Company believes to be reasonable at the time such statements are made and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. Such factors include the historical price volatility of bitcoin; uncertainty regarding the regulatory treatment of bitcoin under various securities, commodities, and other regulatory regimes; the potential for significant impairment charges to the Company's earnings in the event of a decrease in the price of bitcoin and resulting volatility in the Company's reported assets and earnings; the potential for security breaches or other cyberattacks that could result in a partial or total loss of the Company's bitcoin assets; and other risks detailed in the Company's disclosure documents filed under its profile on www.sedar.com. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.

Investor Relations Contacts:

veronika@cypherpunkholdings.com, Veronika Oswald, Investor Relations

Cypherpunk Holdings Inc.,

Office: +1 416.599.8547 & +44 (0) 20 3143 7418

The Alt-Currency Martyr

noreply@blogger.com (Jon Matonis) — Mon, 15 Mar 2021 10:37:00 +0000

By Brian Doherty
Reason Magazine
Monday, March 15, 2021

https://reason.com/2021/03/13/the-alt-currency-martyr/

In the mid-1990s, just before the arrival of PayPal and more than a decade before bitcoin, an oncologist from Florida named Douglas Jackson created a system by which people could send each other digital payment tokens backed by gold. Jackson's e-gold became the world's first truly successful digital currency, serving over half a million customers and doing billions of dollars' worth of business.

But after a decade of success, the feds came after him, raiding his company's office, taking computers, freezing bank accounts, and ultimately extracting a guilty plea for conspiring in an "unlicensed money transmitting business." Once trailblazing, e-gold was quickly forgotten, derailed first by legal hassles and then by the tsunami of interest in blockchain technology.

Now Jackson has uncovered information that he thinks can not only overturn his conviction, and thus ease the path to him restarting his business, but help wean alt-currency from what he regards as a ruinous addiction to Satoshi Nakamoto's brainchild. While the value the markets place on cryptocurrency keeps rising precipitously and no e-currency model closely emulating e-gold has grabbed significant market share in its wake, Jackson remains convinced that if he could only get back in the game, things would be very different. The guilty plea that he now insists was squeezed from him through government trickery blocks his doing legal business in the e-currency space.

"It's as if I'm the only person in the world not allowed to go and compete in this area where I'd pioneered the industry," he says. "It's like everything came off the rails and it's been a decade of unprecedented malinvestment."

Read the rest of the article.

Cypherpunk Guild Launches on NEAR

noreply@blogger.com (Jon Matonis) — Wed, 24 Feb 2021 13:44:00 +0000

By Cypherpunk Guild
Medium
Wednesday, February 24, 2021

https://medium.com/nearprotocol/cypherpunk-guild-launches-on-near-dd6c492038f6

Privacy Advocates, It’s Time To Pay Attention

“We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place. People have been defending their own privacy for centuries with whispers, darkness, envelopes, closed doors, secret handshakes, and couriers. The technologies of the past did not allow for strong privacy, but electronic technologies do.” — The Cypherpunk Manifesto

Privacy is a topic that has become more prominent in recent years, as awareness surrounding unwarranted data collection has increased. An entire generation of Silicon Valley products, starting with Google, inaugurated what has been aptly coined Surveillance Capitalism. These products, unlike traditional software services, offer users an experience in return for their personal data. Complex partnerships between intelligence agencies, financial institutions, and tech behemoths have resulted in a march towards dystopia that few would deny, and that Cypherpunks have long foreseen.

On the NEAR Protocol, the Cypherpunk Guild has officially launched as the largest community funded initiative to date. This launch is one of the most exciting events in all of crypto. For the first time, a group of privacy minded developers, marketers, and entrepreneurs, are jointly collaborating to pioneer a future built around private transactions on NEAR, and private applications on the Open Web. It could not be more timely, more necessary, or more in line with the original mission of Bitcoin and related cryptocurrencies.

Cypherpunks Write Code

An excerpt from the Cypherpunk Manifesto

Cypherpunks are not well known today, because they have largely been forgotten or deplatformed. Arto Bendiken, the leading force behind the creation of the Cypherpunk Guild, explains the long and rich history of cypherpunk software contributions in the Cypherpunk Guild Proposal:

“Cypherpunks are advocates for the widespread use of strong cryptography and technologies that enhance privacy and self-sovereignty. Cypherpunks invented/created the EFF, PGP, SSL, SSH, BitTorrent, Tor, WikiLeaks, Bitcoin, smart contracts, Zcash, and Signal, among other notable achievements.”

The Cypherpunk Guild is continuing that tradition today, by incubating a next-generation of privacy solutions on the Open Web.

May/June 1993 cover of Wired (source)

When Eric Hughes wrote the Cypherpunk Manifesto, he spoke to the need for privacy in a free society:

“Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system. An anonymous transaction system is not a secret transaction system. An anonymous system empowers individuals to reveal their identity when desired and only when desired; this is the essence of privacy.”

Open-Source protocols, building in the Metaverse, are equally relevant to the same demand. If NEAR wishes to successfully birth the open, decentralized, and permissionless digital society that it aspires to create, then including privacy is a fundamental and essential component of that vision. That is why the Cypherpunk Guild matters.

The Mission and Activities of the Cypherpunk Guild

The Cypherpunk Guild has applied for funding of 100k $NEAR for the next 18 months, to start building the future of privacy on NEAR. The first, and overarching priority of the Guild, will be to Get Private Transactions built into NEAR. In parallel to completing this milestone, the Cypherpunk Guild will work to recruit the next generation of privacy minded entrepreneurs, developers and Cypherpunks to launch privacy minded and user-first solutions.

An unencrypted transaction.

Encrypted transaction.

What is important to note is that these initiatives come at a time when other Layer 1s are only starting to take privacy concerns seriously. As Arto writes in the proposal, launching Cypherpunk Guild today gives NEAR a first mover advantage in the space, and a high likelihood of attracting other Cypherpunks and privacy minded developers to the protocol.

In summary Cypherpunk Guild aspires to bring the following to NEAR:

Private Transactions to NEAR Smart Contracts.
Developer, Entrepreneur, and Enterprise Support for Privacy Solutions in Web3
A hub for new and existing Cypherpunks, at a time when privacy concerns are increasing significantly.
Starting new conversations, hosting events, and enabling the next-generation of Cypherpunks through meetups, forum discussions, and online events.

Who Sits on the Council of Cypherpunk Guild?

Image source

An important indicator of the seriousness and future potential of the Cypherpunk Guild, are the founding council members involved in growing the guild over the next 18 months.

Arto Bendiken: An original member of the Cypherpunk movement dating back to the 1990s. Outspoken privacy advocate. Digital Nomad, Hacker, public speaker, and software engineer with more than 20 years of experience working in entrepreneurial ventures. For a general overview of Arto’s past experience and beliefs see his Humans of NEAR Interview.
Frank Braun: Doctor in Computer Science (PhD). Seasoned Software Engineer and Cypherpunk Activist. Host of the Cypherpunk Bitstream Podcast, featured in the Down the Deep Dark Web Documentary. For a more detailed overview of Frank’s life and previous ventures see his Humans of NEAR Interview.
Jon Matonis: Director and Chief Economist of Cypherpunk Holdings (the 9th largest Bitcoin wallet in the world). Founding Director of the Bitcoin Foundation. Over the course of his professional career Jon has held senior positions at Sumitomo Bank, Hushmail, VISA and VeriSign.
Evgeny “Eugene The Dream” Kuzyakov: ICPC gold medalist (2008). Eugene brings a career of software development experience starting at Google, moving onto Facebook, and since focused on Machine Learning and blockchain research. He currently works for NEAR.
Yulian Lavysh: Business Development and Marketing Expert at NEAR bringing over 5 years of experience working at high growth startups at the intersection of data, software development, marketing and business growth strategies.
Dani Osorio: Dani brings over 12 years of experience to high-growth startups. Previously having worked for Infura, as Director of Global Partnerships and Marketing, and ConsenSys as Executive Director of developer tools, Dani is intimately familiar with a diverse array of stakeholders across the crypto industry. She currently works on the NEAR Developer Relations team.
Ozymandius: Founder of 4NTS Guild, the first guild in the NEAR Ecosystem.

From what is publicly available, there is no better group of Cypherpunks and privacy advocates working jointly to advance the Cypherpunk mission in the Web3 space. From IPCC Gold Medalists, to serial entrepreneurs, monetary economists, Computer Science PhDs, and long-time business development and management experts, the Cypherpunk Guild is uniquely positioned to incubate and develop a host of privacy solutions on NEAR over the long term.

Get Involved In The Cypherpunk Guild

Learn more about Cypherpunks on the Cypherpunk Bitstream podcast hosted by founding guild member Frank Braun

The Cypherpunk Guild is a new guild. It needs passionate and committed guild members to advance the cypherpunk mission and vision of bringing privacy and freedom to the Open Web and beyond. As Eric Hughes originally wrote:

“For privacy to be widespread it must be part of a social contract. People must come and together deploy these systems for the common good. Privacy only extends so far as the cooperation of one’s fellows in society. We the Cypherpunks seek your questions and your concerns and hope we may engage you so that we do not deceive ourselves.”

To get involved you can join the discussion on the Cypherpunk Community Chat or follow the Cypherpunk Guild on Twitter.

“We have to make privacy profitable.” — Jon Matonis, Director and Chief Economist of Cypherpunk Holdings

Cypherpunk Holdings Inc. Invests in Next-Generation Hardware Wallet Company NGRAVE

noreply@blogger.com (Jon Matonis) — Fri, 01 Jan 2021 13:36:00 +0000

MarketWatch
News Release
Wednesday, December 30, 2020

https://www.marketwatch.com/press-release/cypherpunk-holdings-inc-invests-in-next-generation-hardware-wallet-company-ngrave-2020-12-30

Toronto, Ontario, Dec 30, 2020 (Newsfile Corp via COMTEX) -- Toronto, Ontario--(Newsfile Corp. - December 30, 2020) - Cypherpunk Holdings Inc. (CSE: HODL) ("Cypherpunk" or the "Company") is pleased to announce that it has completed a convertible note investment in NGRAVE.IO ("NGRAVE"). NGRAVE's flagship product "ZERO" - also known as "The Coldest Wallet" - is a fully offline hardware wallet that features the world's highest security certification, EAL7, for its secure operating system.

Under the terms of the transaction, Cypherpunk Holdings invested an initial €100,000 via a convertible loan agreement which also includes the right to participate in NGRAVE's Series A financing round for an additional undisclosed amount, which is expected in first quarter 2021.

The ZERO is the most secure hardware wallet ever made, and the corner stone of NGRAVE's impenetrable security ecosystem. Conceptualised and built from scratch in close collaboration with world leading institutes in chip manufacturing, applied cryptography, and hardware security, the ZERO comes with an unparalleled level of inherent anti-tampering. The ZERO is completely offline, from secret key generation to transaction signing, keeping your holdings away from any online attack vector.

Belgium-based NGRAVE is a digital asset and blockchain security provider offering a secure and user-friendly end-to-end solution for the management of individuals' and businesses' digital assets and cryptocurrencies. Additionally, the company introduces multiple innovations with GRAPHENE, the industry's first recoverable and encrypted backup.

Commenting on the investment, Cypherpunk Holdings President and CEO, Antanas "Tony" Guoga, stated, "The NGRAVE team has a significant lead over comparable competition in the space and they provide an excellent complement to our existing portfolio of secure privacy-based wallets. This initial investment into NGRAVE sets the stage for our continued participation in the company's future growth."

As the sector leader for privacy-technology wallet investments, Cypherpunk Holdings will also contribute advice and expertise on rapid management team development and matters of corporate governance. The Cypherpunk Holdings management team is led by investor, serial poker champion and former member of European Parliament Tony Guoga as CEO, with Moe Adham serving as Chief Investment Officer and Jon Matonis serving as Chief Economist. Moe is the founder and CEO of Canadian ATM leader Bitaccess. Jon is a founding Director of the original Bitcoin Foundation and previously Head of Foreign Exchange Trading at VISA International.

NGRAVE'S CEO, Ruben Merre added, "In Cypherpunk Holdings, we believe we have found not only an investor, but a strategic partner with whom we share common interests and goals regarding privacy. Cypherpunk Holding's ticker symbol 'HODL' is an interesting word play on the most effective use case of ZERO: keeping your crypto safe for the long term. We look forward to working together as we continue to grow the business of NGRAVE."

NGRAVE previously made headlines by onboarding Jean-Jacques Quisquater, legendary cryptography professor and second reference of the bitcoin paper, to its team, as well as raising a record amount of more than 450KUSD in sales through its Indiegogo pre-order campaign in June 2020.

Cypherpunk Holdings Inc. invests in the companies, technologies and protocols which enhance or protect privacy. Its strategy is to make targeted investments in businesses and assets with strong privacy, often within the blockchain ecosystem, including select cryptocurrencies. Cypherpunk's common shares trade on the Canadian Securities Exchange under the symbol(CSE: HODL). For further information on NGRAVE, please contact investments@ngrave.io.

Cautionary Note Regarding Forward-Looking Information

This news release contains "forward-looking information" within the meaning of applicable securities laws. Generally, any statements that are not historical facts may contain forward-looking information, and forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or indicates that certain actions, events or results "may", "could", "would", "might" or "will be" taken, "occur" or "be achieved". Forward-looking information includes, but is not limited to the Company's goal of making investments in businesses and assets with strong privacy, within the blockchain ecosystem, including select cryptocurrencies, or otherwise and enhancing value. There is no assurance that the Company's plans or objectives will be implemented as set out herein, or at all. Forward-looking information is based on certain factors and assumptions the Company believes to be reasonable at the time such statements are made and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. There can be no assurance that such forward- looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.

Investor Relations Contact:
Veronika Oswald
veronika@cypherpunkholdings.com

Cypherpunk Holdings Inc.
130 King Street West
The Exchange Tower, Suite 3680
Toronto, ON
M5X 1B1
Telephone: 416.599.8547
Website: cypherpunkholdings.com

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/71177

Bitcoin Bar 'Room 77' Shuts Down

noreply@blogger.com (Jon Matonis) — Mon, 19 Oct 2020 13:17:00 +0000

By Jeffrey Gogo
Bitcoin.com
Monday, October 19, 2020

https://news.bitcoin.com/mission-accomplished-worlds-first-bitcoin-bar-shuts-down/

Room 77, the German bar and restaurant that claims to be the first retail outfit in the world to accept bitcoin payments, has shut down. Cypherpunk Holdings chief economist Jon Matonis broke the news on Twitter. Bar owner Jorg Platzer later confirmed it on Reddit.

“Room 77 is closing for good,” Platzer revealed in a rather futuristic, celebratory post on Oct. 18. “We think our mission is accomplished and it is time to go back to our home planet. Thanks for all the fish and the generous tips!”

No official reason was given for the closure of the Berlin-based joint. But there’s suspicion this may have been related to the coronavirus pandemic. Lockdown restrictions linked to Covid-19 have hit the global hospitality industry hard.

In Berlin, strict restrictions on the sale of alcohol remain in place, with bar operators banned from selling the product from 11 p.m. to 6 a.m. The measures have badly affected profits.

Located in Kreuzberg, Berlin, Room 77 began accepting bitcoin (BTC) as a means of payment in 2011, becoming the first bar, and most likely the first private retail outlet, in the world to do so. Since then, the drinking spot has developed into something of a pilgrimage site for bitcoiners, who patronize the place for its BTC payments and more.

“Before we did that (accept BTC), all media coverage about bitcoin was about hackers stealing credit card details and selling them on the black markets,” Platzer said in a 2018 interview, highlighting how the establishment had changed media perceptions and coverage around the top cryptocurrency.

In the crypto community, people responded to Room 77’s closure with fond memories of the past.

“End of an Era: Room 77 in Berlin closes doors permanently!” tweeted Jon Matonis, the Cypherpunk Holdings chief economist. “Blame it on Covid or blame it on gentrification. Either way, this Kreuzberg landmark has served as a Bitcoin watering hole for over 10 years, with thousands making the obligatory pilgrimage. Thx for the memories, Joerg!”

Redditor @etrnetm said: “Thanks for providing the unofficial embassy of Bitcoin in Berlin to us earthlings. We shall meet again.”

In his Reddit post, Platzer concluded:

It is clear by now that nobody will stop bitcoin anymore. Sound money on a global scale will soon make it unfeasable to wage wars and it will create economic equality amongst mankind. We estimate it will take you less than another century to rise and join the intergalactic community.

Human Rights Foundation Funds Bitcoin Privacy Tools Despite ‘Coin Mixing’ Legal Stigma

noreply@blogger.com (Jon Matonis) — Wed, 10 Jun 2020 11:35:00 +0000

By Leigh Cuen
CoinDesk
Wednesday, June 10, 2020

https://www.coindesk.com/human-rights-foundation-bitcoin-privacy-tools-developer-fund

On one hand, the bitcoin industry has matured to include traditional brokerages and institutional traders. On the other, bitcoin privacy tech is still shrouded in a legal gray zone.

Read the beginning of the article.

Critics like Reckless VR founder Udi Wertheimer and Jon Matonis of Cypherpunk Holdings, the latter of which invested in both the privacy-oriented Samourai Wallet and Wasabi-maker zkSNACKs, say blockchain analytics firms are overestimating the amount of illicit transactions when they flag mixed bitcoin.

“Exchanges, banks and regulators are being sold a false narrative if they believe that this [analytics] technology provides reliable, or more importantly, actionable results,” Matonis said. “It is purely a dangerous game of probabilities and false positives, disingenuously overstated to peddle more forensic services.”

HRF’s Gladstein recently took Elliptic, another blockchain analytics firm, to task for its “surveillance” work. “The tools you’re building regardless of your intentions will be used for policing bitcoin,” Gladstein said during a panel with Elliptic’s Tom Robinson at an event this month. “At the end of the day what you’re doing is warrantless surveillance against people in other countries.”

For his part, Matonis’s investment thesis revolves around the belief the legal community will adopt compliance norms that don’t restrict or criminalize privacy-tech like mixers.

“The concern around mixing technology, or coin hygiene, stems from the flawed thinking that cryptocurrency transactions are identical to bank transfers using fiat currency,” Matonis said. “This is a grand societal battle that must be won by privacy advocates, not because it is a cute feature or a principled position, but because it is an existential economic necessity. A peer-to-peer value transfer system fails without underlying coin privacy at its core, because the entire system would lack fungibility if all coins were not treated equally the way paper cash is today.”

This is why some bitcoiners continue to work on privacy tech, regardless of exchange policies and other hurdles.

Continued growth

Meanwhile, CoinJoin usage continues to increase, with roughly 13,500 new Wasabi Wallet downloads this year.

So far in June, more than 10,000 fresh bitcoin were used in Wasabi CoinJoin transactions for the first time, the highest record since the all-time peak in August 2019 according to the Wasabi team.

Overall, usage has more than tripled since May 2019, when roughly 9,764 total bitcoin were used in Wasabi’s CoinJoin transactions, compared to 35,697 total bitcoin used in May 2020, they said.

And that’s not even to mention the few thousand bitcoin sent using other CoinJoin tools since the coronavirus began, including Samourai Wallet and JoinMarket. Generally speaking, usage appears to be up across the sector.

Matonis said as long as companies and public individuals focus on non-custodial, open source software, he believes privacy-tech projects will actually bear less compliance costs over time as the tools become normalized. For example, mixing protocols could become a “standard default feature” in bitcoin wallets.

“Both the bitcoin industry and law enforcement need to resist falling for the myth of blockchain forensics as perpetrated by the blockchain surveillance firms,” Matonis said of companies that routinely flag mixed coins as suspicious.

“Law enforcement methods will undoubtedly have to evolve beyond simply using money as an identity tracking device or simply relying on metadata through non-targeted driftnet surveillance,” he added. “This means employing real and sometimes cumbersome police work that doesn’t violate the rights of any individuals.”

Blockchain Rock Interview with Jon Matonis

noreply@blogger.com (Jon Matonis) — Tue, 24 Mar 2020 14:44:00 +0000

Blockchain Rock

Tuesday, March 24, 2020

https://youtu.be/ySu-bcPOhqk

We are back, and we open this new season with an outstanding guest: Jon Matonis! A legend of the crypto-world (and you’ll know why by the end of this episode): he’s the Chief Economist at Cypherpunk Holdings, a Forbes and Coindesk recurrent author, and the Founding and Executive Director of the Bitcoin Foundation.

This episode explores Jon’s story as well as the story of digital cryptography: starting from encrypted email, to Verisign, Digicash, eGold, and the work of the Bitcoin Foundation. We also discuss themes such as financial privacy and its importance to economic and political freedom, the Crypto Arms Race, the end game for Bitcoin, and the three primary functions of money.

Also available on Apple podcast:

https://podcasts.apple.com/us/podcast/11-jon-matonis-chief-economist-at-cypherpunk-holdings/id1472671777?i=1000469993407

Also available on Spotify podcast:

https://open.spotify.com/episode/4qUBSLggZUyFZXYJPrpjJ8

Cypherpunk Holdings Inc. Takes 4.5% Stake in Wasabi Wallet

noreply@blogger.com (Jon Matonis) — Thu, 21 Nov 2019 16:20:00 +0000

Press Release

Newsfile
Thursday, November 21, 2019

https://www.newsfilecorp.com/release/49929/Cypherpunk-Holdings-Inc.-Takes-4.5-Stake-in-Wasabi-Wallet

Toronto, Ontario--(Newsfile Corp. - November 21, 2019) - Cypherpunk Holdings Inc. (CSE: HODL) ("Cypherpunk" or the "Company") is pleased to announce that it has completed an equity investment in zkSnacks Limited ("zkSnacks"), whose products include Wasabi Wallet. Wasabi Wallet is an open-source, non-custodial, privacy-focused Bitcoin wallet for desktop use, that implements trustless coin shuffling with mathematically provable anonymity.

Under the terms of the transaction, Cypherpunk Holdings acquired ordinary shares of zkSnacks from its founding shareholders, representing 4.5% of the issued and outstanding ordinary shares of zkSnacks, for an aggregate purchase price of $337,500. In addition, the Cypherpunk Holdings' Chief Investment Officer, Moe Adham, has joined zkSnacks' board of directors.

Commentating on the investment, Cypherpunk Holdings, President and CEO, Dominic Frisby, said: "It's taken a lot of work and several months to get this deal over the line, so I would like to both thank and congratulate everyone involved. We have been most impressed with the Wasabi product and with the growth zkSnacks has displayed. We also believe its role in restoring fungibility to bitcoin will be vital. We are very excited to be coming on board as shareholders and participating in the continuing growth of zkSnacks."

ZkSnacks CEO, Bálint Harmat, added, "In Cypherpunk Holdings, we believe we have found not only an investor, but a strategic partner with whom we share common interests and goals regarding privacy. We are looking forward to participating together as we continue to grow the business of zkSnacks."

Cypherpunk Holdings Inc. invests in companies, technologies and protocols, which enhance or protect privacy. Its strategy is to make targeted investments in businesses and assets with strong privacy, often within the blockchain ecosystem, including select cryptocurrencies. Cypherpunk's common shares trade on the Canadian Securities Exchange under the symbol "HODL".

Cautionary Note Regarding Forward-Looking Information

This news release contains "forward-looking information" within the meaning of applicable securities laws. Generally, any statements that are not historical facts may contain forward-looking information, and forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or indicates that certain actions, events or results "may", "could", "would", "might" or "will be" taken, "occur" or "be achieved". Forward-looking information includes, but is not limited to the Company's goal of making investments in businesses and assets with strong privacy, within the blockchain ecosystem, including select cryptocurrencies, or otherwise and enhancing value. There is no assurance that the Company's plans or objectives will be implemented as set out herein, or at all. Forward-looking information is based on certain factors and assumptions the Company believes to be reasonable at the time such statements are made and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.

Investor Relations Contact:
Dominic Frisby
President and CEO

Cypherpunk Holdings Inc.
130 King Street West
The Exchange Tower, Suite 3680
Toronto, ON M5X 1B1
Telephone: 416.599.8547
Website: cypherpunkholdings.com

Maker of Wasabi Bitcoin Wallet Valued at $7.5M in First Equity Round

noreply@blogger.com (Jon Matonis) — Thu, 21 Nov 2019 11:17:00 +0000

By Leigh Cuen
CoinDesk

Thursday, November 21, 2019

https://www.coindesk.com/maker-of-wasabi-bitcoin-wallet-valued-at-7-5m-in-first-equity-round

The privacy-centric bitcoin wallet Wasabi, launched by zkSNACKs Ltd. in 2018, just raised its first equity investment from Cypherpunk Holdings, a publicly-traded Canadian firm.

Cypherpunk Holdings CEO Dominic Frisby said the firm invested $337,500 in exchange for a 4.5 percent stake, valuing the wallet startup at $7.5 million.

“It’s extraordinary for a tech company, this early in its evolution, to have the revenues that Wasabi already has,” Frisby said. “It’s one of the only forms of a crypto wallet that have a revenue model.”

Although the zkSNACKs team didn’t respond to requests for comment, co-founder Adam Fiscor previously told CoinDesk the company’s mixer transaction fees earned 14 bitcoin in July 2019 alone (roughly $112,000 by current prices). It appears Wasabi Wallet processed at least 5,373 mixed CoinJoins in July, August and early September. If that trend continued for 12 months, it would put revenues at over $1 million.

This newest addition rounds out Cypherpunk’s holdings, which include roughly 2,000 monero and 180 bitcoin, Frisby said, in addition to equity in the rival privacy project Samourai Wallet (valued at $6.6 million, based on Cypherpunk’s $100,000 investment for 1.5 percent equity) and the blockchain startup Chia, founded by cypherpunk legend Bram Cohen.

“Both wallets, and privacy-enabling services, have very impressive network effects in that the more participants there are, the more private each participant is,” Cypherpunk’s CIO Moe Adham said. “Wasabi is well-positioned to capture much of that market … not only for personal use but also for enterprises.”

Read the rest of the article.

Featured Articles and Writings of J. Orlin Grabbe

noreply@blogger.com (Jon Matonis) — Thu, 19 Sep 2019 12:57:00 +0000

James Orlin Grabbe (/ˈɡreɪbiː/; October 8, 1947 – March 15, 2008) more commonly referred to as J. Orlin Grabbe, or just JOG, was an American economist and prolific writer with contributions in the theory and practice of finance. He was known by his book International Financial Markets, and for mathematical models for options and derivatives used in international finance and foreign exchange.

Grabbe wrote articles and essays about personal freedom and governmental abuse, and was an editor of Internet magazines such as the Laissez Faire City Times. Born and educated in the U.S., he pursued his business interests around the world. He died from heart failure around March 15, 2008 in San José, Costa Rica. [reprinted from the Wikipedia page of James Orlin Grabbe]

Featured articles and writings of J. Orlin Grabbe (archived):
https://web.archive.org/web/20110724003357/http://orlingrabbe.com:80/?page_id=1462637635

Read this first for background:
https://web.archive.org/web/20110709112450/http://www.orlingrabbe.com/dcguide.htm

Wikipedia Page of Digital Monetary Trust
https://en.wikipedia.org/wiki/Digital_Monetary_Trust

Ambassador College and Harvard graduate, economist, physicist Orlin Grabbe dies:

http://www.thejournal.org/issues/issue127/orlin-grabbe-dies.html

Quantum Tantra obituary:

http://quantumtantra.blogspot.com/2009/02/j-orlin-grabbe-1947-2008.html

J. Orlin Grabbe Memorial Archive:

https://memresearch.janus-book.com/grabbe/index.html

AgoristRadio.com:
https://web.archive.org/web/20130729094232/http://agoristradio.com/

Cypherpunkd Episode 042: “Bitcoin Mania 4″ – The Social, Economic and Political Disruptive Technology of Bitcoin with Austrian School Economist Jon Matonis (I had the privilege of being interviewed by Hiro White of AgoristRadio.com):
https://web.archive.org/web/20110819123324/http://agoristradio.com/?p=446

Listen to the SoundCloud version:
https://soundcloud.com/jon-matonis/cypherpunkd-ep042

Samourai Wallet Raises First Funding Round in Fight Against Bitcoin Surveillance

noreply@blogger.com (Jon Matonis) — Mon, 03 Jun 2019 15:32:00 +0000

By Brady Dale
CoinDesk
Monday, June 3, 2019

https://www.coindesk.com/samourai-wallet-raises-first-funding-round-in-fight-against-bitcoin-surveillance

The team behind the privacy-obsessed bitcoin app, Samourai Wallet, has gotten its first round of venture funding.

Founded by two former developers at Blockchain.info, Keonne Rodriguez and William Hill, the wallet’s maintainer, Katana Cryptographic, has received a $100,000 investment from Cypherpunk Holdings.

Samourai Wallet has been built for Android users, specifically designed to enhance privacy while using bitcoin.

“There is no other cryptocurrency that is as battle-tested and hardened as bitcoin,” Rodriguez, Katana’s director, told CoinDesk in an email. “The founding team of Samourai has zero interest in working on other coins, or even other layers of bitcoin at this time.”

The wallet has a number of features that provide greater privacy for users, such as a service that puts intermediary hops in a transaction in order to create uncertainty about which wallet pays for what. Another feature makes it difficult to trace the provenance of someone’s bitcoin. The company earns a small fee, in bitcoin, from users that make use of these services.

Samourai also provides a privacy-enhancing service called “stonewall” for free. Stonewall creates doubt about the ownership of bitcoin in a given transaction. The company is also offering a forthcoming hardware product, called Dojo, which is a user-friendly bitcoin node built to work with the wallet.
High marks

Still an alpha release in the works since 2015, Samourai has 27,000 users, according to the company. Its first full version should come out in June. Rodriguez said it will use the funding to expand its development, customer service and quality assurance program, all of which have been put under significant pressure by the wallet’s growth.

The products have personally impressed John Carvalho, a longtime bitcoin user who currently works at Bitrefill. Carvalho told CoinDesk:

“I have respect for any company that adds utility for Bitcoiners and Samourai is clearly willing to go against the grain to add privacy options for users. If Bitcoin is freedom money, Samourai are freedom fighters.”

A similar sentiment spurred the investment itself. Cypherpunk, a venture fund listed on the Canadian Securities Exchange under the ticker symbol HODL, was set up as an investment vehicle to support privacy-enhancing technology.

Read the rest of the article.

Cypherpunk Holdings Inc. Becomes Lead Investor in Samourai Wallet

noreply@blogger.com (Jon Matonis) — Mon, 03 Jun 2019 13:04:00 +0000

Press Release
Newsfile
Monday, June 3, 2019

https://www.newsfilecorp.com/release/45183/Cypherpunk-Holdings-Inc.-Becomes-Lead-Investor-in-Samourai-Wallet

Deal Emphasizes Cypherpunk's Commitment to Funding Outstanding Privacy Technology

Toronto, Ontario--(Newsfile Corp. - June 3, 2019) - Cypherpunk Holdings Inc. (CSE: HODL) ("Cypherpunk" or the "Company") is pleased to announce it has become the lead investor in Katana Cryptographic Ltd., whose main product is Samourai Wallet

Katana Cryptographic is an early-stage, London-based computer software company, focused on developing privacy technologies. Katana has developed numerous algorithms and actively maintains open source software designed to mitigate against common surveillance tactics and enhance transactional privacy.

Its main product, Samourai Wallet, is described by the coinsutra.com as "the most secure and privacy-centric Bitcoin wallet currently available in the market." Samourai is still in alpha-mode, but it already has a user-base of 27,000. Full-release 1.0 is expected before the end of June.

Katana's founders, Keonne Rodriguez and William Hill, were, respectively, Product Lead and Lead Mobile Developer at blockchain.info between 2013 and 2016, overseeing the growth of the user-base from from 1m to 6m.

Other Katana privacy technologies include Open Exploration Tool, Ricochet, Stonewall, Whirlpool and Dojo.

Commentating on the investment, Cypherpunk Director Dominic Frisby said: "We met with Katana, and were most impressed with the technologies they are developing and with Katana's commitment to privacy. We share similar values, so are delighted to be able to aid the future development of Katana's products from such an early stage. This deal shows the edge that we at Cypherpunk have."

Cypherpunk Chief Economist Jon Matonis added: "As transactional privacy by default becomes the norm in digital wallets, Samourai may be leading the way in fungibility innovation and maintaining proper coin hygiene."

Katana's CEO Keonne Rodriguez commented, "Katana is excited to have found a partner in Cypherpunk Holdings. We look forward to their partnership and support as we continue executing on our mission to deploy easy to use, privacy enhancing software on the Bitcoin blockchain. Financial sovereignty is more important now than ever before, with the freedom to transact being tantamount to freedom of speech. Cypherpunk Holdings have demonstrated their commitment to these core values and we look forward to working on delivering this vision with their support."

Cypherpunk Holdings Inc. is a vehicle set up to invest in companies, technologies and protocols, which enhance or protect privacy. Its strategy is to make targeted investments in businesses and assets with strong privacy, often within the blockchain ecosystem, including select cryptocurrencies. The stated mission of Cypherpunk Holdings is "to become the world's leading privacy-focused investment vehicle." This is a seed capital investment of US $100,000.

Cypherpunk's common shares trade on the Canadian Securities Exchange under the symbol "HODL".

More details, and the latest company presentation, can be found at the company website: https://cypherpunkholdings.com/

Cautionary Note Regarding Forward-Looking Information

This news release contains "forward-looking information" within the meaning of applicable securities laws. Generally, any statements that are not historical facts may contain forward-looking information, and forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or indicates that certain actions, events or results "may", "could", "would", "might" or "will be" taken, "occur" or "be achieved". Forward-looking information includes, but is not limited to the Company's goal of making investments in the blockchain and other sectors and enhancing value. There is no assurance that the Company's plans or objectives will be implemented as set out herein, or at all. Forward-looking information is based on certain factors and assumptions the Company believes to be reasonable at the time such statements are made and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.

Investor Relations Contact:
Marc Henderson,
Interim President and Chief Executive Officer, Cypherpunk Holdings Inc.,
Office: 416.599.8547

Cypherpunk Holdings Inc Announces Appointment of Jon Matonis as Chief Economist

noreply@blogger.com (Jon Matonis) — Wed, 13 Feb 2019 10:19:00 +0000

Press Release
Newsfile
Wednesday, February 13, 2019

https://www.newsfilecorp.com/release/42804/Cypherpunk-Holdings-Inc-Announces-Appointment-of-Jon-Matonis-as-Chief-Economist

Toronto, Ontario--(Newsfile Corp. - February 13, 2019) - Cypherpunk Holdings Inc (CSE: HODL) ("Cypherpunk" or the "Company") is pleased to announce that Jon Matonis has joined the company as Chief Economist.

Jon Matonis is a monetary economist with a particular focus on non-political digital currencies and privacy technologies. His career has included senior influential posts at VISA International, VeriSign, Sumitomo Bank and Hushmail. He was a founding director of the Bitcoin Foundation.

Commenting on his appointment, Matonis said, "The financing and support of privacy technologies is more important now than ever before in history. I am honored to join the team effort at Cypherpunk Holdings in funding those critical projects that not only should prevail, but that must prevail."

Cypherpunk interim CEO, Marc Henderson, said, "Jon Matonis is one of the foremost intellects in the blockchain, cryptocurrency and privacy technology sector. This appointment at such an early stage in the evolution of Cypherpunk Holdings shows the scope of what we are looking to achieve with this company. We are delighted that Jon is onboard with that. Things are starting to move forward, and we are very excited. We are hoping to make further announcements in the coming weeks."

Cypherpunk Holdings Inc is a Canadian-based holding vehicle set up to invest in companies, technologies and protocols, which enhance or protect privacy, as well as freedom and trust. Its strategy is to make targeted investments in and acquisitions of businesses and assets with strong privacy, often within the blockchain ecosystem, including select cryptocurrencies. The company believes privacy will be an increasingly strong narrative across the technology sector going forward.

The stated mission of Cypherpunk Holdings is "to become the world's leading privacy-focused investment vehicle." More details, and the latest company presentation, can be found at the company website: https://cypherpunkholdings.com/.

Jon Matonis is an economist and e-Money researcher. He serves as an independent board director to companies in the Bitcoin, the Blockchain, mobile payments, and gaming sectors. He has been a featured guest on CNN, CNBC, Bloomberg, NPR, Al Jazeera, RT, Virgin Radio, and numerous podcasts. As a prominent fintech columnist with Forbes Magazine, American Banker, and CoinDesk, he recently joined the editorial board for the cryptocurrency journal, Ledger. His early work on digital cash systems and financial cryptography has been published by Dow Jones and the London School of Economics.

Matonis advocates worldwide for Bitcoin to a wide variety of audiences, including members of the Federal Reserve Bank, the Bank of England, the European Central Bank, SWIFT, the US Department of Justice, retail payment networks, major financial institutions, financial regulatory bodies, mobile money issuers, iGaming operators, information security firms, hedge funds, gold investors, and family offices.

The Company has today granted a total of 900,000 options to purchase shares of the company at a price of $0.07 per share until June 1, 2023.

Following its recent name change to Cypherpunk Holdings, the Company's common shares trade on the Canadian Securities Exchange under the symbol "HODL". The new name references the important contribution of the Cypherpunks and the Cypherpunk Manifesto to the development and ultimate emergence of cryptocurrencies.

Cautionary Note Regarding Forward-Looking Information

This news release contains "forward-looking information" within the meaning of applicable securities laws. Generally, any statements that are not historical facts may contain forward-looking information, and forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or indicates that certain actions, events or results "may", "could", "would", "might" or "will be" taken, "occur" or "be achieved". Forward-looking information includes, but is not limited to the Company's goal of making investments in the blockchain and other sectors and enhancing value. There is no assurance that the Company's plans or objectives will be implemented as set out herein, or at all. Forward-looking information is based on certain factors and assumptions the Company believes to be reasonable at the time such statements are made and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.

Investor Relations Contacts:

Marc Henderson
Cypherpunk Holdings Inc.
Interim President and Chief Executive Officer
Office: 416.599.8547

Original Email from Satoshi

noreply@blogger.com (Jon Matonis) — Thu, 03 Jan 2019 10:36:00 +0000

Nakamoto Studies Institute
March 5, 2010

https://nakamotostudies.org/emails/satoshi-to-john-matonis/

The following email from Satoshi was shared by Jon Matonis. Jon regretfully claims to have lost all other correspondences with Satoshi.

From: Satoshi Nakamoto 
Subject: Re: Introduction
To: “Jon Matonis” 
Date: Thursday, March 4, 2010, 9:55 PM

Nice blog. That’s the first I’ve seen that focuses on this subject. I wish there was something like that when I originally researched this three years ago, there was scant to nothing back then. I think I’ll be a regular reader.

Bitcoin would be right up your alley. Its advantage is that it’s P2P. There isn’t a central mint or company running it. As long as there are users, it survives.

I’m sure you’ve already found the FAQ and Forum at bitcoin.org.

The logo is here:

http://www.bitcoin.o….php?topic=64.0

Was there anything particular you were interested in?

Diamonds: The Portable Tax Haven

noreply@blogger.com (Jon Matonis) — Thu, 07 Jun 2018 12:14:00 +0000

By John Joseph Matonis
Reason Magazine
June, 1979

https://reason.com/1979/06/01/diamonds/

What about off-shore tax havens? Tax lawyers, accountants, and financial and tax consultants sooner or later hear this question. Why the query? Those asking about foreign tax havens are interested in:

secrecy in existence of property,
secrecy in existence of income,
security of property from predators such as governments and legitimate creditors, or
the few remaining esoteric, legitimate tax savings available through international tax planning.

The questioner never cares about the fourth reason. The other three per se do not involve criminal behavior but would if the existence of the tax haven cache or scheme were denied on a tax form or at a conference, examination, or hearing. There is nothing illegal, even under our oppressive law, about a foreign bank account. The law is violated when a citizen confesses on a government form and lies about the off-shore bank account or entity—for example, when the haven seeker files a financial statement as the result of judicial proceedings enforcing an Internal Revenue Service summons and the financial statement understates assets by the amount on deposit in George Town, Cayman Islands.

But who will know—right? Wrong!

Who will know could easily be the Intelligence Division of the IRS. A few years ago, IRS special agents implemented "Project Leprechaun" in Nassau, George Town, and Miami. They had passwords and countersigns. Their lock picks and vans with electronic impedimenta were so sophisticated that the Impossible Mission Force would have been green with envy. The IRS hired prostitutes and gave them the code name "The Mata Hari Corps." Mata would entertain a bank official while Harry would pilfer the john's briefcase for the book with secret account numbers and, in some cases, code names that go with those numbers. In some cases, the IRS agent would look for the names of shareholders in secret haven corporations. Prostitutes were paid out of the Treasury of the United States—literally for once, and not just figuratively. The IRS is continuing its investigation of foreign tax havens with the same lack of gentlemanly courtesy.

IN SEARCH OF SECRECY

Three of these reasons for interest in foreign tax havens center on that precious and elusive quality: anonymity. Yet anonymity, both in the existence of property and in the existence of income, is not as certain as promoters of foreign tax havens have proclaimed. The culprits are the French, notoriously the most adept tax cheaters on the planet.

The French have sought the sanctuary of neighboring Switzerland to hide their wealth from the French Recezeur des Contributions Directes, whose appetite is just as insatiable as that of the Internal Revenue Service. The Swiss yielded to pressure from the governments of France and other nations. Within the last five years Switzerland and the Cayman Islands, a British Crown Colony—the two most popular tax havens for Americans—have set up the machinery to disclose information to nosy government agents. In Switzerland, this machinery takes the form of mutual disclosure treaties. In the Caymans, which have no such treaty with the United States, it takes the form of a new Caymanian law.

Under the new law, any government authority can gain access to Caymanian bank records upon the filing of an affidavit alleging behavior that would be a crime in the Cayman Islands. Although tax evasion is not a crime by Caymanian lights, there are enough crimes common to both the United States and the Gulf tax haven to enable the IRS or the FBI to swear to an entire buffet of criminal behavior instead of tax evasion, and government agents have been known to lie under oath when they really want to "get" somebody.

For access to Swiss banking records, all the IRS need do is claim that the depositor is suspected of tax fraud. The linguistic Swiss, however, through a decision of their federal supreme court, distinguish between tax fraud and simple tax evasion. The former is discoverable under the treaty; the latter is not. Most of what the IRS calls tax fraud, the Swiss call simple tax evasion, and privacy survives in spite of a treaty with the United States. The point is, however: the legal machinery exists to enable the Swiss to divulge bank secrets to the US government. The assurances that this does not or likely will not happen are assurances of government officers who can vacillate—and perhaps even lie as well and as frequently as American government agents.

Yet many are still captivated by the mystique of foreign tax havens with tropical cohorts helping Americans keep wealth from official predators and Zurich bankers regaling visitors with tales of international intrigue involving state treasuries purloined by escaping dictators. Then too, there is the status achieved when one has a foreign bank account or off-shore corporation.

While the prevailing motivation for fascination in foreign tax machinations is anonymity, the need for it becomes critical precisely when a government investigator, lawyer, or judge asks the direct question, "Do you own or have an interest in a foreign bank account or entity?"—a question that can evoke only three answers: "Yes"; "I refuse to answer on the grounds that my answer may tend to incriminate me"; and "No."

The "No" answer would be a lie under oath and the crime of perjury. True, there is virtually no chance of "getting caught" with sophisticated foreign tax planning; however, the anonymity becomes vital to prevent prosecution, and foreign government agents are still government agents and therefore cannot be trusted.

If that is not enough: property with a foreign locus is not portable. Portability is as important to those interested in foreign tax havens as is anonymity, and a foreign tax haven's main deficiency is that it is foreign.

WHY DIAMONDS?

The perfect tax haven is anonymous, portable, not foreign, liquid, and appreciating in value. It, of necessity, would be property of intrinsic value. Gold and silver have too much mass in relation to value to be portable. Art treasures are not liquid. The ideal tax haven is one that is the property itself, property that combines anonymity, portability, availability, and liquidity. And what property haven meets these criteria? Diamonds.

Over the last seven years, diamonds of investment quality have appreciated in value, on the average, better than 25 percent per year. The prospect for more appreciation is even greater.

Inflation increases the value of diamonds, as does whatever happens in Africa. South Africans are buying and hiding diamonds, thereby reducing the supply. Miners must dig deeper into the volcanic pipe to find diamonds. Diamonds found deep in the pipe are poorer in clarity and color than those found near the surface. (The 44.5 carat Hope Diamond was found in a stream in India!) Black majority rule in South Africa, especially if won by rebellion or invasion, most likely would trigger the flooding of the diamond mines with water kept out only by the skill and technology of white Afrikaaner technicians. This is precisely what happened in Angola a few years ago.

The market, uninfluenced by any government and therefore free, in one sense, is yet manipulated upward by the supplier, DeBeers Consolidated Mines of South Africa. Liquidity, however, can still be a problem for short-term investment of less than 18 months, but as investor demand for diamonds continues to increase, so does liquidity.

The biggest obstacle to diamond investment is the mystery that surrounds diamonds and the resultant inability to be certain that the price of the diamonds purchased is the lowest possible price. This mystery can breed sharp practices and fraud.

Yet diamonds remain the hardest of the "hard money" and offer the investor more advantages than foreign tax havens. Hard-money advocates increasingly are adding investment-quality diamonds to their doomsday portfolios. The sparkle has been dulled, however, by certain cloudy practices that have crept into this, one of the fastest-growing new investment markets. Many investors are disappointed because, even though the price of investment diamonds has risen substantially, the resale value of their investment has not risen as much. In some cases, these investors find out a year later that it is difficult to sell the diamonds for what they paid for them and that they must wait 18 months or two years to realize a gain. Diamonds can be a good investment and a near-perfect hedge against inflation, but only if investors understand basic principles of diamond economics and if investment diamond houses avoid the temptation to exploit confusion. For the savvy investor dealing with the credible investment house, diamonds can be the best investment for these sorry times of government money grabbing, double-digit inflation, and monetary uncertainty.

DIAMOND SAVVY

Education in the investment diamond market starts with a basic understanding of these traps for the unwary:

Diamond dealers who don't know much more than neophytes about diamonds. The diamond market is virtually unregulated. There are no tests or requirements for becoming a diamond seller. And many people in this trade lack basic knowledge about the technology and economics of diamonds.

Antique shops, jewelry stores, gold and silver dealers, and pawnbrokers are becoming overnight "experts" in investment-grade diamonds. Usually having built up trust with the prospect from prior transactions, many of these part-time diamond dealers take advantage of that trust by overpricing. The diamond investor can protect against such overpricing by dealing only with professional diamond brokers selling only quality investment diamonds certified by the Gemological Institute of America (GIA), a nonprofit gem-grading laboratory located in New York City and in California in Los Angeles and Santa Monica.

The highest-quality diamonds, and generally the best investments, are called investment-grade, not to be confused with diamonds for jewelry, called cosmetic-grade, or with industrial diamonds. The primary keys to determining diamond quality are the four Cs: carat, color, clarity, and cut.

Carat is named after the tiny carob seed used since ancient times as a minuscule unit of measurement. A diamond's per carat value increases geometrically as the carat weight increases. So, a two-carat diamond of a particular clarity, color, and cut is worth more than two times the value of a one-carat diamond of the same clarity, color, and cut. Until recently, diamonds of less than one carat were not popular as investments in the United States, but that situation has changed, making the investment diamond market more accessible to small investors. An investor can purchase an investment-grade half-carat diamond for as low as $1,500. Currently, it takes $4,500 to start an investment portfolio with diamonds of one carat or larger.

Jewelers classify diamonds by color as white or blue-white, faint yellow, or other colors. True diamond professionals, however, do not grade colors with descriptive terms. In the language of the professional, the best diamond is not classified as white or blue-white. The highest color grade is D on the GIA color table for diamonds. A diamond is downgraded E, F, G, etc., as it takes on a color or becomes cloudy, losing what is called "the ice effect." To the untrained eye, these colors look alike. The only way a buyer can be sure of a diamond's color grade without actually matching it to comparison standard stones is to read the color rating on the GIA certificate. The optimum color grades are D, E, F, G, and H.

The highest clarity grade is flawless and, next to that, internally flawless. Stones of such quality are exceedingly rare, however. Even the next-highest clarity grade, VVS-1, is difficult to find on the investment market. The difference between a VVS-1, which stands for very, very slight inclusion of the first degree, and a diamond that is flawless or internally flawless is the presence in the VVS-1 of one to three tiny pinpoint inclusions in the stone. These only affect the grade when visible under ten-power magnification. As the number and size of inclusions increase, under the GIA clarity rating system, the grade drops from VVS-1 to VVS-2 to VS-1 to VS-2. Clarity grades below VS-2, like SI-1 and SI-2 and lower, are not acceptable as optimum investment-grade stones.

The cut, or "make," of a stone refers to the stone's physical dimensions, computed as ratios and expressed as percentages. The ideal investment stone is the round brilliant cut with 58 facets. Often, in order to save a portion of a rough diamond that excels in color and clarity, a diamond will be cut in a familiar round brilliant shape but not exactly according to the classical blueprint for that cut. To the degree that it varies from the classical exemplar in dimensions and shape, a diamond loses value. The GIA certificate for a diamond shows the stone's depth percentage, crown angles, and table sizes. The depth percentage reflects the relationship between the diameter of the diamond and its depth (Figure 1). Acceptable investment diamonds have a depth percentage between 58 and 63. The ideal crown angle for an investment stone is 34½ degrees. The crown angle will not be mentioned at all on the GIA certificate unless it is 30 degrees or less. The table size is a percentage expressing the relationship between the table, or the flat top of the stone, and the diameter of the stone measured at the girdle. For investment stones, the table percentage should range between 54 and 65 percent, with 60 percent preferred.

Reason

No "pedigree." By this time it should be obvious that the descriptive details of the GIA certificate are absolutely necessary in determining a stone's value. Yet many diamond houses palm off diamonds without GIA certificates! They rationalize that GIA does not evaluate diamonds under one carat—which is not true. People who say that are marketing diamonds with a brand "X" certificate that does not indicate poor crown angles. The California GIA labs have always graded smaller carats, and they always indicate poor crown angles (30 degrees or less), which rates a major reduction in that particular diamond's value.

Buying a diamond without a GIA certificate is like buying an automobile from a juvenile delinquent on a street corner without an automobile title certificate. The GIA certificate shows physical factors that determine value, but it also contains information that identifies a diamond so that the investor can be sure that the stone purchased is the diamond referred to in the certificate. For example, a micrometer is used to measure the dimensions of the stone. Like snowflakes and fingerprints, no two diamonds are exactly alike. Some diamond houses claim they are staffed by GIA graduates using GIA standards. In the same breath they mention the word certificate. But the paper presented upon delivery is not a GIA certificate and will not be accepted as certification by diamond professionals. This is important for two reasons: the diamond is usually worth less than represented because its color, clarity, or cut is not as claimed; and without a GIA certificate the diamond is hardly liquid if the buyer decides to sell.

"I can get it for you wholesale." Many diamond houses claim to be selling at wholesale or at wholesale prices. The term wholesale is a misnomer. Something that is not sold for resale cannot be sold at wholesale, and investment diamonds are not sold to be sold again at retail. Rather than selling diamonds at a set price—the price to the broker—and charging a brokerage fee, diamond dealers have been selling diamonds at a sale price that includes their profit. Most diamond dealers have mark-ups of over 35 percent; some even go over 100 percent. A few have mark-ups considerably below 35 percent.

Leverage. Using a "leverage contract" can be called trading diamonds on margin. A prospective diamond investor with $10,000 who is interested in buying a diamond for $10,000 is told that twice the amount's "value" can be "tied up" at current prices by using the $10,000 as a down payment and paying off the balance in usually six monthly installments with a little interest. There is one diamond house that even allows you five years to pay off your purchase. No diamond is delivered until final payment is made. Before delivery, however, the diamond house representative tells the investor that diamonds have risen in price and prospects look good for further increases—virtually always a truthful statement. The representative then suggests a "roll over" of the position originally costing $20,000 and now worth, say, $25,000 to "tie up" diamonds worth $40,000 to $50,000. Still, no diamonds have been delivered.

The nagging question is: Are those diamonds you are purchasing really there? Or is the whole thing a gigantic Ponzi scheme with no diamonds or very few diamonds to be delivered, with the investor merely moving from one diamond investment position to another on paper only? And some of these leverage contracts are not even on paper. The big danger with this musical chairs game is that the music might stop and you might not get a chair. There are many variations of leverage contracts in diamonds, and some are better than others. For example, a contract to buy specific diamonds in installments with delivery upon full payment maximizes safety in a leverage diamond contract.

The liquidity problem. Investment diamonds are today where gold and silver were in the years 1968-70. Then, liquidity of precious metals was not optimum, but those who invested in metals of proven intrinsic value before precious metal investments became popular realized gains as liquidity increased. Such investors hoped to hedge against inflation. That they did, and more. Eventually competition forced a stabilization of gold and silver prices by narrowing the gap between the bid price and the ask price. Price quotes from markets became common, so that today an investor can make one phone call and find out the current price of gold and silver.

As with precious metals, the liquidity problem in diamonds is being solved by increased competition and volume caused by the popularity of diamonds as an investment. One wire house, or large investment broker, dealing in securities as well as other investments, Shearson Hayden Stone, has formed a company, Polygon, to deal in diamonds. This is a significant step in bringing liquidity to the diamond market because a buyer can be sure of selling a diamond in a known price range on the same day it is purchased if he or she wants to. E.F. Hutton is another wire house considering the brokerage of investment diamonds. In France, the Rothschild Bank and the IndoSuez Bank are already offering diamond investment programs.

Diamond brokers, as expected, are optimistic about the liquidity of investment diamonds.

Gerry Hauser of La Jolla Diamonds, a company that buys as well as sells investment diamonds, told this writer: "We handle the liquidity problem by affiliating with a member of the New York Diamond Dealers Club, one of 14 international diamond bourses. This maximizes the current liquidity. Nevertheless, we recommend holding a stone for at least 18 months and preferably longer before selling. This time period not only assures maximum liquidity; it exceeds the required holding period for capital gain treatment of any realized gain instead of tax treatment as ordinary income. Those who invest in diamonds do so as a hedge against inflation and are not interested in short-term gain or in speculating in the diamond market. Some investors 'liquidate' by trading their diamonds for real estate or other forms of property. For instance, you might have a stone appraised at $60,000 which cannot be sold immediately for more than $50,000 but which someone might exchange for real estate worth $60,000."

On the whole, the prospects for better liquidity in investment diamonds are bright. Liquidity is likely to be a factor in the rise of the price of diamonds the way it was in the rise of the price of gold in the early 1970s. So an investor who buys diamonds now before the coming increase in liquidity should realize the same sharp gains realized by early gold investors.

Buy back. The government objects to diamond sellers' promising to buy back a diamond at any price. No doubt this is supposed to "protect" people, but the government's reasoning here is as specious as the justification for government intervention at all. Nevertheless, buy back plans are tricky, and you can get less than you bargained for.

A typical plan involves a promise by the seller to buy the diamond back discounted 15 percent from the seller's list price, plus the seller charges an additional two percent handling fee to cover the seller in market fluctuation. One diamond house tacks on a buy-back commission to the sales price of the diamond when the diamond is sold to the investor. Such liquidity insurance is costly because the investor may never sell the diamond or may sell the diamond through another house, but he still pays the buy-back commission.

The low ball. Mystery still surrounds diamond pricing. An investment diamond dealer may offer, as an example, a one-carat round-cut diamond of fairly good proportions with a clarity grade of VVS-2 and a color grade of F for a bargain $7,000. Unlike security purchases, a diamond deal can never be consummated until the stone actually changes hands. When the dealer goes to the operations manager of the diamond house he finds out, to his chagrin and the investor's, that that particular diamond just happened to be sold as the representative was discussing this transaction with the investor. But, fortunately for the investor, there is another good deal in the inventory that just came in: a VVS-1, G color, 1.05-carat round diamond of better proportions. The price is $10,000. The first, bargain deal was in fact commercially impossible. The second is not good but is realistic and is profitable for the diamond house. If the prospect does not want to invest more than $7,000, a different-quality stone that is not such a good deal can easily be found in the inventory. This stone—one-carat, VS-2, F color—is the one the dealer had in mind all along.

As with buying a new car, the low ball is an effective sales technique because of the many variables that go into pricing. In automobile pricing the variables are automatic transmission, power windows, bigger engine, tape deck. In diamond pricing, the variables are carat, size, clarity, color, table and depth percentages, etc. The many variables in diamond pricing and the interplay between them make it difficult for the investor to spot the gap between the low ball and the commercially feasible price.

The rip off. One reason why investors buy diamonds is for their hard-money features—intrinsic value held anonymously by the investor. This trait of diamond investing is frustrated by the so-called leverage contract. It also is frustrated when stones are turned over to another for any reason, such as certification by a diamond laboratory or appraisal. A wise buyer always asks for a purchase order or confirmation describing the deposit and setting a value, even if this "value" is less than the actual value of the stones. Otherwise, the buyer has no proof of ownership.

Another rule: never show a diamond dealer or anyone else two stones at the same time, but wait until the first stone is examined and taken off the table before the next stone is displayed. Examination of two stones at the same time facilitates a switch of a stone of lesser value or even a fake diamond. Of the fake diamonds, the most realistic is cubic zirconium, a man-grown crystal with a weight about 1.5 times that of diamonds but worth only about $60 per carat.

Again, the GIA certificate and a check with a micrometer to make sure the diamond offered is the one referred to in the certificate protects the buyer from a switch of a phony stone for a diamond. A good way to ascertain the authenticity of a diamond is to instruct the seller to mail the diamond through GIA, which then certifies not only the grading of the diamond but also the authenticity.

DIAMONDS FOR PROFITS

Figure 2 shows the performance of diamonds compared to stocks. Note the smooth, steady, upward rise in investment diamond values. Prices are set by DeBeer's marketing arm, the Central Selling Organization, headquartered in London. This sales entity markets 85 percent of the world's diamonds. When demand is low, it withholds supply, and in the first half of 1978, for example, DeBeers placed four surcharges on rough diamonds in fulfillment of its stated objective of supporting market stability.

Reason

This writer does not advise diamonds as a medium for tax fraud. What the harried American investor does with the anonymity and the portability of his or her diamonds is none of this writer's business. As with foreign tax havens, merely keeping wealth cloaked with anonymity is not a crime even under the Internal Revenue Code. The taxpayer becomes a "criminal" by government standards when the existence of property is denied on a financial statement or when income in the form of gain is not reported on tax returns. The fact that such "crimes" are hard to detect when anonymous wealth is kept in the form of diamonds does not make tax evasion any less a "crime." It merely reduces the government's ability to detect the "crime" and to prosecute.

Perhaps the greatest potential loss in government revenue resulting from the anonymity and portability of diamonds comes in the area of death taxes. An elderly or dying taxpayer with property that appreciated, for instance, from $100,000 to $1,100,000 may well be tempted to liquidate his recorded property holdings and purchase $1 million worth of anonymous and portable investment diamonds to distribute to the objects of his bounty. This lifetime giving is subject to the federal gift tax, which is the same as the federal estate tax and which can be over 70 percent. Even if the cynical entrepreneur once submitted a truthful financial statement to the government or to a bank (same difference), the missing million cannot be traced to the recipients of this "criminal" largesse without their help. Perhaps Daddy Warbucks lost the proceeds from the sale of the estate in Las Vegas or Atlantic City. If the diamond transaction is discovered, which is unlikely in this scenario, that young gold-digger whom Daddy had ensconced in a condominium had cajoled the old fool into giving her those diamonds, thereby defeating the valid probate claims of bereaved heirs, etc.

About the only recourse available to the IRS is setting aside a transfer they can only imagine, assessing imaginary transferee liability, or using their "indirect method" of determining income by computing net worth based on visible purchases, bank deposits, or expenditures. If members of Daddy's family keep their mouths shut and do not flaunt their windfall, the IRS forage is frustrated.

Daddy did not just become a "tax criminal" in the twilight of his life. He probably rode the rising price of diamonds, selling for a gain, failing to report it, and replenishing his diamond investment portfolio with lower-priced stones in the unlikely event he needed diamonds to show the tax collector that he still had the original stones in the same number and even the same total carat weight. He probably gave the diamond broker a fictitious name.

Such opportunities, illegal though they may be, do not present themselves with foreign tax havens. Diamonds are, indeed, a tax haven at home.

John Joseph Matonis practices "antigovernment law" in San Diego, Calif., and Washington, D.C. He has won two cases against Food and Drug Administration regulations. Since 1973 he has been defending against the IRS's assault on property and freedoms.

The Future of Digital Currency Exchanges

noreply@blogger.com (Jon Matonis) — Mon, 29 Jan 2018 15:26:00 +0000

By Globitex
Medium
Friday, January 26, 2018

https://medium.com/@globitex/the-future-of-digital-currency-exchanges-cb74be8c6655

Board Chairman, Jon Matonis, and Managing Director, Liza Aizupiete, both co-founders of Globitex spoke at the Cryptoeconomy Conference in London on January 26, 2018. The following text summary was transcribed from audio:

Jon: I want to start off by saying something about the three functions of money. If anyone takes an Economics 101 class, the first thing you learn in monetary economics are the three functions of money. You have a store of value, a medium of exchange and unit of account. Those three functions are required for what economists refer to as a functionary monetary unit.

Now the confusion around it though is that they don’t all start at the same time. They don’t start with unit of account and go backwards, there is a specific sequence to these functions of money for it to evolve into a successful currency.

An example with Bitcoin was the first transaction, the famous pizza transaction which would be about a $79 to $80 million pizza right now. Actually it was two pepperoni pizzas. But that’s the current value of the Bitcoin that was exchanged for that transaction. It was a transaction from Florida to London.

The reason people take something in exchange as a medium of exchange is because they believe that it has value for them after they accept it. They may not want to hold it but they may want to exchange it obviously for something else. It starts with store of value which is the first state that you have to have for anything to evolve as money. Then it moves to a medium of exchange. It can’t happen the other way around because it doesn’t make any sense for people to accept it if they don’t think that it will have at least enough value for them to hold it and get rid of it.

Then the last function is a unit of account this is the final stage of money. This is when you see goods and services priced in the dominant fiat. So you go shopping in the store in the UK or Europe and on the shelves it will say pounds or euros, this is the unit of account. Bitcoin is not there, no cryptocurrency is there yet. This stage takes a long time to get to unit of account because the government with legal tender has such an advantage in this area through the requirement of paying taxes and so forth that it’s very difficult for a newcomer to break into the unit of account phase. When it happens though it will be a massive disruption.

People are already starting to price their services in Bitcoin, but because it is so volatile they usually price it in another currency and then through that currency they receive Bitcoin. So that’s not really a unit of account. But one of the things that will be required to achieve a unit of account is to have raw basic commodities priced and traded in the digital currency which is Bitcoin. This is one of the things that Globitex strives to achieve in this phase of its rollout, the trading pairs of Bitcoin and raw commodities. So gold, silver, industrial metals, crude oil, agricultural commodities, for example. This will start to set, at least at a wholesale level, set the framework and the basis for using cryptocurrencies as a unit of account which will complete the three functions of money.

I’m not just making this stuff up, you can go to a Bank of England report and they have the same diagram where you have the nested functions of money.

People always ask me what do I fear most about the Bitcoin economy? What keeps me up at night? If I’m such a believer I must have something that I fear. What do I think will kill Bitcoin? Something like regulation, do I fear regulations? OK none of those are things that I fear about Bitcoin. What I fear the most is what is actually happening in the gold market right now. And I fear that we will get to a point where the exchanges themselves are successful but we will have government-sponsored, state-sponsored trading where they will be able to suppress the price artificially because they have an unlimited supply of fiat.

There are a lot of people that believe the gold market today is suppressed — prices don’t reflect what would really be happening if it were a true check on central banking. This is possible because unlimited fiat can be used to do naked short selling on exchanges. The paper market for Bitcoin in the futures exchange can be manipulated through price suppression by making naked short selling. Naked short selling is where you sell the commodity without actually owning it. Exchanges allow this and it’s legal, you just have to have a certain amount of margin, the exchanges have to manage contract limits and they have to warehouse a certain amount for physical delivery.

Now what is the remedy for this though? This is what keeps me up at night. Eventually, I think the Bitcoin market will be manipulated in the same way that gold and silver markets are. The remedy to this is to have enough global exchanges, enough exchanges worldwide in different jurisdictions, and even some that may be jurisdictionless. It doesn’t matter if they are centralized or decentralized, what we need as a defense is to have enough of these so that a single country or a few leading governments can’t control a certain exchange. It’s very easy with gold because most of the gold, paper gold, is traded in New York so it’s very easy to suppress the price through one exchange that has the majority of the supply. With Bitcoin we don’t have the mature exchange market yet, but to the extent that we can get this globally we will be able to apply the remedy before the attack that I fear.

This happens to be one the feature of Globitex as well, I mean obviously we’re going to be one of those exchanges in that ecosystem, but we’re not going to be the only ones. We’re going to need several thousand exchanges in different jurisdictions. Leading to the other point that I wanted to make is, what is the next stage in all of this? So we have a functioning currency which is a store of value and a medium of exchange. We have exchanges that are spread out globally in various jurisdictions, what is the next part of the evolution? Well, this is what I hear from a lot of my client companies, is that they have no way to hedge the balance sheet risk that they’re currently holding.

There are a lot of companies that have Bitcoin and other cryptocurrencies on their balance sheets, the only way to hedge that is to sell it, sell it in the physical market, and remove the risk. They can sell it in the futures market now for the last month, but that’s the cash settlement market, not a physical settlement market. So it’s a little bit like the tail wagging the dog when you have cash settled market without the actual underlying thing being delivered. This allows them to at least reduce some of that balance sheet risk without having to sell the commodity. So it’s very helpful but still not 100% effective.

What I think is going to happen in this space is futures will lead to an options market where you have call option and put option, you’ll be able to pay a premium for a call option and a put option. And you’ll be able to protect the assets on your balance sheet for a known price. This happens all the time in other multicurrency corporations, they’re using derivatives to hedge that risk. At Globitex, the futures and options market is one of the planned phased rollouts, but physically settled. So they’re physically settled on the futures side.

The other thing is that when we get to that stage, and we’re already starting to see it, we start to see an interest rate market develop for Bitcoin, and Ethereum. The Bitcoin interest rate, does anyone want to take a guess at what the annual interest rate is for Bitcoin? It’s about 28–35% annually right now. It’s been as high as 350%.

The reason we know what the interest rate is because the short sellers have to borrow a Bitcoin in order to sell it. There’s an active two-way interest rate market for Bitcoin. You only borrow it for a day or a week, and the rates fluctuate between 28–35%. It’s very volatile so sometimes it goes over 35%. Now I have named that index Bibor, so it’s like Libor but it’s Libor for Bitcoin. So it’s a Bitcoin interbroker offered rate. That is going to be a product one day, and that product and that forwards curve, that interest-rate and the maturities schedules that come out of that are going to be used in capital finance for the crypto-economy. That’s why I love the name of this conference here because we’re building the early capital markets for a new currency. It can’t function any other way, it needs to have an interest rate.

So Globitex will also be market maker in that interest rate curve. So just like we have interest-rate futures now for the dollar, for the Euro, you’re looking at overnight, one week, 30 days those will be the maturities also for cryptocurrencies that are traded on crypto exchanges. And to give you more color around that and more details around that I want to introduce my co-founder at Globitex. She will do a close-up look at what Globitex is planning. We’ve just completed a successful private pre sale, so we are currently closed for any sales. So this won’t be a sales pitch, I want to welcome my co-founder Liza.

Liza: Thank you, my name is Liza Aizupiete. First I’m going to tell you a little more about what Globitex is, second, I’m going to present a case for and against a very popular notion of centralized versus decentralized exchanges. Then I’m going to talk about why we are here, and what actually got us started. And finally I’ll conclude with our actual token sale, which is basically looking into the future of what Globitex is planning to do.

So first of all Globitex is actually an institutional grade crypto-fiat exchange. Globitex was recently awarded an EU EMI license which is an unprecedented license in this space for cryptocurrency businesses, because it gives us the ability to actually act as our own bank for Euro payments across the SEPA payment system. Which means for Euro payments we actually don’t need to integrate with an intermediary bank, we will be able to issue our own IBAN accounts.

Next, we have the features of what actually makes Globitex special. Obviously we’re not the first-comers, we are quite the latecomers to the industry. But what actually makes us special is that we have a completely functional API which actually, to date it would be fair to say that none of exchanges have up to the level that we have developed. The FIX API gives you a direct market access. Obviously, we also support Rest API and web sockets. We are running a superior matching engine with over 1 million transactions per second capacity. If you are a market maker or a high-frequency trader, you will absolutely enjoy working on our exchange.

Now added to that, we are proudly touting our reporting tool. Something so basic that every broker and every exchange should have. And we have taken our time to actually develop it to a detail where you can pull something called the net asset value. Something not everybody understands or everybody needs, but if you’re an institutional broker, or accountant, you would definitely appreciate the ability to have a net asset value report on all trading activities. Our professional trading platform features a well designed GUI interface for day and night traders, and you can switch between night and day modes. You can also choose to move around the modules of the trading platform, so it’s very customizable.

Finally, obviously there’s a lot of security that has been worked into Globitex as a central custodian for cryptocurrencies. We have Bitcoin, Bitcoin cash, soon Ethereum and Litecoin wallets. And as I already mentioned we are EMI licensed, so it’s an amazing development, completely unprecedented in this space and we’ll be very proud to deliver on that and soon upon full integration with SEPA-MMS system.

Now here’s the case for and against centralized and decentralized exchanges. I totally agree with a decentralized monetary system because this is a thing. As for an exchange there is actually a difference. So here are the differences. For a decentralized exchange you still need to do a KYC/AML, in fact in Europe following the banking directive you will actually be forced or compelled to register and actually disclose your personal details. By disclosing your KYC you are submitting these details to a centralized service provider. Therefore by definition, even if the transactions take place off chain, identification is already a central point. Obviously for a centralized exchange, identification is disclosed and centralized, it’s a standard adhering to AML laws.

For volume, for decentralized exchanges you’re absolutely limited by the on-chain transaction capacity, which is around seven transactions per a second for Bitcoin. For Ethereum, in theory, maybe 15 to 30 per second on a good day but that’s it. So on-chain transactions on a decentralized exchange are very limited. Whereas for centralized exchanges it is unlimited, and as mentioned, Globitex supports over one million transactions per a second. Now, of course you are still able to exchange on a decentralized exchange, in a limited way, whereas on a centralized you can list so many things.

Globitex will be listing futures, options, all the various types of securities which cannot actually function on a decentralized exchange, it just doesn’t work, due to transaction speed limitations, impairing price discovery and liquidity. You need one centralized point of reference, one point where all of this is clearly listed, quickly executed and settled. And of course, you need several exchanges to do that, but these must be centralized.

As for use cases, obviously decentralized exchanges are going to be exclusively peer-to-peer, whereas for centralized exchanges enable global trade, hedgings, speculating, various types of investment. All of that is enabled by centralized exchanges. It is very biased of course because I am with a centralized exchange, Globitex is a centralized exchange and it cannot really be a decentralized exchange unless we solve the transaction speed per second issue. Maybe once we have streaming prices I think we can revisit that. And if the regulator is also on board with it perhaps one day it’s going to be all decentralized.

So this is just a very quick reminder of why we are all here, having listened to the presentations of this wonderful conference. I just thought that we need to take a look back and see why we’re all here. Obviously it’s because of Bitcoin, Bitcoin came about and basically changed pretty much everything. So just a couple of points, Bitcoin is a distributed completely decentralized network of payments. It doesn’t sleep on Saturdays or Sundays, like SWIFT or SEPA. The most important however is that in 2015 on October 22nd here in Europe, Bitcoin was actually defined as a currency. So on that date the European Court of Justice pronounced that Bitcoin should be exempt of VAT. Which means that it is effectively a means of payment and currency.

Now speaking of exchanges, which diversified further our development into becoming not only a spot cryptocurrency exchange, but actually go after the next license, which will enable us not only peer-to-peer lending, enabling interest rate futures, enabling commodity futures and token indices futures. We are going after a regulatory approval and system revamp in order to be able to actually become an exchange for securities trading, that’s huge.

So for our Globitex GBX ICO, the fact that cryptocurrencies are here to stay, this is our basic premise. Bitcoin or bitcoin protocol based crypto-economy scaling can be achieved by providing better market access and more diversified product offering. The liquidity issue can also be solved by developing cryptocurrency money markets to find an equilibrium between supply and demand. Because money, if you think about it, is also a thing with an inherent demand and supply. And only when and if there is enough of a possibility for that demand and supply to meet, only then would we truly see the relative value of that thing which in our case is cryptocurrency.

We believe that Globitex can be instrumental in scaling the cryptocurrency economy by listing standardised derivatives instruments in money markets and commodities with both cash settlement and physical delivery, with bitcoin or Bitcoin protocol-based cryptocurrencies as the unit of account.

Now we have seen various types of tokens and ours is going to be a utility token. Here’s the thing, you will be able to settle trades with the Globitex GBX token. And if you’re an owner of our token you’ll also participate in loyalty programs, which we envisage as market making activities. We would incentivize you to actually help us make market or provide liquidity by making that trade extremely profitable for you. When we list futures, from gold to crude oil futures and we need market makers to participate, we will be incentivizing you to use your tokens to provide market on these new listings. So it’s a utility token not only for you, but also for us, as an exchange. The token supply is limited, or calculated at a €10 million market hard cap. The redeemed tokens will be burned, and taken out of the circulation, therefore the Globitex GBX token is deflationary, limited in supply and therefore should be appreciating in value.

No Governance for Old Men: Coordinating Protocol Upgrades in the Future

noreply@blogger.com (Jon Matonis) — Sun, 23 Jul 2017 14:06:00 +0000

By Jon Matonis

Bitcoin Magazine
Friday, July 21, 2017

https://bitcoinmagazine.com/articles/op-ed-no-governance-old-men-coordinating-protocol-upgrades-future/

Let’s not deploy the nuclear option for every protocol upgrade.

Make no mistake. We are witnessing a high-stakes protocol standards battle play out in real time. And it is just as important as last century’s battle for the internet’s TCP standard.

Current capacity constraints on the Bitcoin blockchain have brought us to this impasse.

The Bitcoin protocol, as the dominant value transfer “network effect” leader, battles against upstart cryptocurrency protocols like Ethereum and Monero. But it also battles with itself as divergent forces push for either on-chain scaling or off-chain scaling, hard fork or soft fork, SegWit transaction format or original transaction format.

The so-called nuclear option is a prolonged, contested hard fork of the Bitcoin blockchain because it risks splitting the network into two competing chains, which is to no one’s benefit. Therefore, it should be reserved as a planned formality or a last resort for extreme situations rather than a perpetual form of “live” dispute resolution.

With so much individual and institutional wealth essentially stored on the Bitcoin blockchain, it can be extremely disconcerting when others try to “fork” around with your money. Chronic forking is not synonymous with wealth management and prudent capital accumulation, which require stability and predictability. Importantly, smart contracts and non-monetary applications will also rely upon relative stability since the same native digital token also facilitates the proof-of-work security model.

This article will examine how open-source governance was designed to work within the Bitcoin protocol and how users, miners and developers are locked in a symbiotic dance when it comes to potential forks to the immutable consensus. Solutions will be proposed and analyzed that maintain the decentralized nature of the resulting code and the blockchain consensus, while still permitting sensible protocol upgrades. Governance is not only about the particular method of change-control management, but also about how the very method itself is subject to change.

Open-Source Protocols and Bitcoin

Generally referred to as FOSS, or free and open-source software, this source code is openly shared so that people are encouraged to use the software and to voluntarily improve its design, resulting in decreasing software costs; increasing security and stability, and flexibility over hardware choice; and better privacy protection.

Open-source governance models, such as Linux and BitTorrent, are not new and they existed prior to the emergence of Bitcoin in early 2009; however, they have never before been so tightly intertwined with money itself. Indeed, as the largest distributed computing project in the world with self-adjusting computational power, Bitcoin may be the first crude instance of A.I. on the internet.

In “Who Controls the Blockchain?” Patrick Murck confirms that Bitcoin is functioning as designed:

As a blockchain community grows, it becomes increasingly more difficult for stakeholders to reach a consensus on changing network rules. This is by design, and reinforces the original principles of the blockchain’s creators. To change the rules is to split the network, creating a new blockchain and a new community. Blockchain networks resist political governance because they are governed by everyone who [participates] in them, and by no one in particular.

Murck continues:

Bitcoin’s ability to resist such populist campaigns demonstrates the success of the blockchain’s governance structure and shows that the ‘governance crisis’ is a false narrative.

Of course it’s a false narrative, and Murck is correct on this point. Bitcoin’s lack of political governance is Bitcoin’s governance model, and forking is a natural intended component of that. “Governance” may be the wrong word for it because we are actually talking about minimizing potential disruption.

Where Bitcoin differs from other open-source protocols is that two levels of forking exist. One level forks the open-source code (code fork), and another level forks the blockchain consensus (chain fork). Since there can only be one consensus per native digital token, chain splits are the natural result of this. The only way to avoid potential chain splits in the future is to restrict the change-control process to a single implementation, which is not very safe nor realistic.

“Collaborate or fork” has become the rallying cry for Bitcoin Core supporters. L.M. Goodman, author of “Tezos: A Self-Amending Crypto-Ledger Position Paper,” writes:

Core development teams are a potentially dangerous source of centralization.

When it comes to Bitcoin Core, the publicly shared code repository hosts the current reference implementation, and a small group of code committers (or maintainers) regulate any merges to the code. Even though other projects may be more open to criticism and newcomers, this general structure reminds me of a presiding council of elders.

Making hazy claims of a peer-review process or saying that committers are just passive maintainers merely creates the facade of decentralized code. The real peer-review process takes place on multiple community and technical forums, some of which are not even frequented by the developers and Bitcoin Core committers.

The BIP (Bitcoin Improvement Proposal) process is sufficient and it’s working for those who choose to collaborate on Bitcoin Core. Similar to the RFC (Request for Comments) process at the IETF, BIP debates about a proposed implementation can provide technical documentation useful to developers. However, it is not working for many involved in Bitcoin protocol development due to the advantages of incumbency and the false appeal to authority with core developers. If Bitcoin Core no longer maintains the leading reference implementation for the Bitcoin protocol, it will be 100 percent due to this intransigence.

Sensitive to the criticisms of glorifying Bitcoin Core, Adam Back of Blockstream recently proposed an option to freeze the base-layer protocol, but at the moment that will only move all of the politics and game-playing to what exactly the base-layer freeze should look like. It is a nice idea for separating the protocol standard from a single reference implementation and for transitioning the Bitcoin protocol to an IETF-like structure, although it’s extremely premature for now.

Therefore, by default, that leaves us with several alternative Bitcoin implementations in an environment of continual forking.

Even Satoshi Nakamoto was critical of multiple consensus implementations in 2010:

I don’t believe a second, compatible implementation of Bitcoin will ever be a good idea. So much of the design depends on all nodes getting exactly identical results in lockstep that a second implementation would be a menace to the network.

That prevailing standpoint, however, may be changing, which Aaron van Wirdum addresses in “The Long History and Disputed Desirability of Alternative Bitcoin Implementations.” Wirdum cites Eric Voskuil of libbitcoin, who argues that there should not be one particular implementation to define the Bitcoin protocol:

“All code that impacts consensus is part of consensus,” Voskuil told Bitcoin Magazine. “But when part of this code stops the network or does something not nice, it’s called a bug needing a fix, but that fix is a change to consensus. Since bugs are consensus, fixes are forks. As such, a single implementation gives far too much power to its developers. Shutting down the network while some star chamber works out a new consensus is downright authoritarian.”

Multiple alternative implementations of the Bitcoin protocol strengthen the network and help to prevent code centralization.

Politics of Blockchain Forking (or How UASF BIP 148 Will Fail)

Contentious hard forks and soft forks all come down to hashing power. You can phrase it differently and you can make believe that two-day zero-balance nodes have a fundamental say in the outcome, but you cannot alter that basic reality.

A BIP 148 fork will undoubtedly need mining hash power to succeed or even to result in a minority chain. However, if Segregated Witness (SegWit) had sufficient miner support in the first place, the BIP 148 UASF itself would be unnecessary. So, in that respect, it will now proceed like a game of chicken waiting to see if miners support the fork attempt.

Mirroring aspects of mob rule, if the UASF approach works as a way to bring miners around to adopting SegWit, then the emboldened mob will deploy the tactic for numerous other protocol upgrades in the future. Consensus rules should not be easy to change and they should not be able to change through simple majority rule on nodes, economic or not. Eventually, these attempts will run headfirst into the wall of Nakamoto consensus.

As far as the network is concerned, it’s like turning off the power to your node.

UASF BIP148 Nodes (1st August 2017)

There is no room for majority rule in Bitcoin. Those who endorse the UASF approach and cleverly insert UASF tags in their social media handles are endorsing majority rule in Bitcoin. They are providing a stage for any random user group to push their warped agenda via tyranny of the nodes.

The prolific Jimmy Song says that having real skin in the game is what matters:

Bitcoin doesn’t care if you post arguments on Reddit. Bitcoin doesn’t care if you put something clever in your Twitter name. Bitcoin doesn’t care if you educate people, write articles, or make clever Twitter insults. Bitcoin doesn’t care about your wishes, your feelings or your arguments.

Let’s keep “majority rule” antics out of Bitcoin. There is no protocol condition that activates “if we are all united” and that is a good thing.

With enough hashing power, the mob-induced UASF BIP 148 will lead to a temporary chain split. However, the probability of a Bitcoin minority chain surviving for very long is extremely low due to the lengthy difficulty re-targeting period of 2,016 blocks. Unlike the Ethereum/Ethereum Classic fork, that is a long time for miners to invest in a chain of uncertainty.

Responding to a Reddit post for newbies who are scared of losing money around the 1st of August due to UASF, ArmchairCryptologist explains:

Your advice is sound, but realistically, the most likely scenario is that the UASF either wins or dies. If it gets less than ~12% of the hashrate, it will not be able to activate Segwit in time, and it will almost certainly die. If it gets less than ~20% I also wouldn’t be surprised to see active interference with orphaning to prevent transactions from being processed.

If on the other hand it gets more than ~40% of the hashrate, the chance for a reorg on the other chain is large enough that most miners will likely jump ship, and it will almost certainly win. At over ~20% block orphaning attacks won’t be effective, as it would split the majority chain hashrate and risk tipping the scale. Which means that the only situation where you will realistically have two working chains for an extended period is if you get between ~20% and ~40% of the hashrate for the UASF.

The collectivist UASF BIP 148 strategy will ultimately fail and that’s a good thing. It is driven primarily by those with very little at stake expecting the miners to stake everything by supporting a minority chain. Pretty soon, you run out of other people’s money. This commenter on Reddit understands:

The entire premise was that it was very cheap to switch, but very expensive to stay. That’s when I realized the folly of it all; [it’s] only cheap because they’re not staking anything. But someone has to stake something.

And that’s what is going to cause it to fail. That and the lack of replay protection. People like this guy flip it around and genuinely believe the mining problem will be solved by massively increased value. If they do somehow put enough pressure on exchanges that list UASF, despite the lack of replay protection, and if we take his logic a step further, UASFers are going to be pushing everyone to “buy, buy, buy” UASF and “sell, sell, sell” Legacy Coin. But without replay protection, they’re going to be obliterated by a few smart people who realize there are huge gains to be had.

Alphonse Pace has an excellent paper describing chain splits and their resolution. He walks us through compatible, incompatible and semi-compatible hard forks, arguing that users do have power if they truly reject a soft-fork rule change:

… users do have power — by invoking an incompatible hard fork. In this case, users will force the chain to split by introducing a new ruleset (which may include a proof-of-work change, but does not require one). This ensures users always have an escape from a miner-imposed ruleset that they reject. This way, if the economy and users truly reject a soft fork rule change, they always have the power to break away and reclaim the rules they wish. It may be inconvenient, but the same is true by any attack by the miners on users.

The Future of Coordinating Protocol Upgrades

What group determines the big decisions in Bitcoin’s direction? Ilogy doubts that it is the developers:

Theymos almost completely foresaw what is happening today. Why? Because Theymos has a deep understanding of Bitcoin and he was able to connect the dots and recognize that the logic of the system leads inevitably to this conclusion. Once we add to the equation the fact that restricting on-chain scaling was always going to be perceived by the ‘generators’ as something that ‘reduces profit,’ it should be clear that the logic of the system was intrinsically going to bring us to the point we find ourselves today.

Years later these two juggernauts of Bitcoin would find themselves on opposite ends of the debate. But what is interesting, what they both recognized, was that ultimately big decisions in Bitcoin’s direction would be determined by the powerful actors in the space, not by the average user and, more importantly, not by the developers.

The developer role can be thought of as proposing a variety of software menu choices for the users, merchants and miners to accept and run. If a software upgrade or patch is deemed unacceptable, then developers must go back to work and adjust the BIP menu offering. Otherwise, mutiny becomes the only option for dissatisfied miners.

In “Who Controls Bitcoin?” Daniel Krawisz says that the investors wield the most power, and because of that, miners follow investors. Therefore, the protocol upgrades likely to get adopted will be the ones that increase Bitcoin’s value as an investment, such as anonymity improvements being favored over attempts at making Bitcoin easier to regulate.

In the future, miner coordination via a Bitcoin DAO (decentralized autonomous organization) on the blockchain could be the key to smooth and uneventful forking. Self-governing ratification would allow diverse stakeholders to coordinate protocol upgrades on-chain, reducing the likelihood of software propagation battles that perpetually fork the codebase.

Attorney Adam Vaziri of Diacle supports a system of DAO voting by Bitcoin miners to remove the uncertainty around protocol upgrades. He readily admits that he has been inspired by Tezos and Decred.

Prediction markets have also been proposed as a method to gauge user and miner preferences through public forecasting, the theory being that these prediction markets would yield the fairest overall consensus for protocol upgrades prior to the actual fork.

The question remains: Is coin-based voting based on allocated hash power superior to the informal signaling method utilized today? Are prediction markets or futures markets a viable method to gauge consensus and determine critical protocol upgrades?

I’m not optimistic. On-chain voting and “intent” signaling are both non-binding expressions while prediction and futures markets can be easily gamed. Therefore, while Tezos and Decred represent admirable efforts in the quest for complete resilient decentralization, I do not think Bitcoin protocol upgrades of the future will be managed in this way.

The Bitcoin ecosystem doesn’t need to achieve a social consensus prior to making changes to the protocol. What has clearly emerged from the events of this summer is that Bitcoin has demonstrated an even stronger degree of immutability.

There is no failure of governance and there is no failure of the market. The non-authoritarian forces at play here are functioning exactly as they should. Protocol upgrades in a decentralized environment are an evolutionary process, and that process has matured to the current six stages of Bitcoin protocol upgrading, with some optional variances for BIP 91:

(a) BIP menu choices competing for mindshare, strategic appropriateness and technical rigor;

(b) Informal intent signaling based on miners inserting text into the coinbase for each block mined;

(c) Block signaling period where miners formally signal a designated “bit” trigger for BIP lock-in, based on “x” percent over a “y” number of blocks period;

(d) Block activation period after BIP lock-in, which sets a secondary period of “x” percent over a “y” number of blocks for activation;

(e) Primary difficulty adjustment period (2,016 blocks) where “x” percent of miners must signal for the upgrade to lock in;

(f) Secondary difficulty adjustment period (2,016 blocks) required for the protocol upgrade to activate on the network.

Conclusion

This would not be the first fork in Bitcoin and it won’t be the last. If we believe in the power of Nakamoto consensus and probabilistic security, then the secret to uneventful protocol upgrades is smoother and more reliable signaling by miners.

July has been a tough month for Bitcoin, but it has also been pivotal. Even though I doubt the probability of success for UASF BIP 148, some may say that the threat of the reckless UASF on August 1 played a role in the rapid timeline for SegWit2x/BIP 91, and I agree with that. Game theory is alive and well in Bitcoin.

The design of Nakamoto consensus provides the ultimate method for decentralized dispute resolution by placing that decision with the hashing power and the built-in incentives against 51 percent attacks. In fact, Tom Harding considers miners to be the only failsafe in Bitcoin:

Nakamoto consensus for the win. See you in November.

This article was originally published by Bitcoin Magazine.