April 05, 2015
Yanis Varoufakis proposes Greek tax receipts in Ricardian Contracts on a blockchain
The answer is yes: They can create their own payment system backed by future taxes and denominated in euros. Moreover, they could use a Bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free. Let's call this system FT-coin; with FT standing for... Future Taxes.FT-coin could work as follows:
- You pay, say, €1000 to buy 1 FT-coin from a national Treasury's website (Spain, Italy, Ireland etc. would run their separate FT-coin markets) under a contract that binds the national Treasury: (a) to redeem your FT-coin for €1000 at any time or (b) to accept your FT-coin two years after it was issued as payment that extinguishes, say, €1500 worth of taxes.
- Each FT-coin is time stamped i.e. in its code the date of issue is contained and can be used to check that it is not used to extinguish taxes before two years have passed.
- Every year (after the system has been operating for at least two years) the Treasury issues a new batch of FT-coins to replace the ones that have been extinguished (as taxpayers use them, two years after the system's inauguration, to pay their taxes) on the understanding that the nominal value of the total number of FT-coins in circulation does not exceed a certain percentage of GDP (e.g. 10% of nominal GDP so that there is no danger that, if all FT-coins are redeemed simultaneously, the government will end up, during that year, with no taxes).
That first bullet point (my emphasis) is a legal issuance of new value, a.k.a., a bond, a.k.a. a contract of issuance. The offering concept is the same as the tally sticks of old - selling the pre-payment of taxes at a discount, the technicalities are simply how we get a legal contract into a digital framework that accounts for many similar values.
Because it's a contract in law as opposed to say a smartcontract, we need a system that can handle legal contracts. In essence, this is the Ricardian Contract -- a device that takes a human prose and encapsulates it into a hard computer-readable and human-readable document, then gives you a unique identifier in order to allow a technical system of issuance such as Bitcoin to do its job.
We're not there yet - Bitcoin directly isn't good enough, as Bitcoin is only "the one" BTC and therefore has no need to describe another. Hence no contract.
But the newer "generation 2.0" systems are more capable of including the Ricardian Contract form, and some do already while others can do so with minimal tweaking. This means that if Yanis Varoufakis is serious about his ideas, and given recent news from say IBM, there is no reason not to be, he'll be looking at a generation 2.0 system such as those described at WebFunds.
For Bitcoin itself, all is not lost, but it's more of a future deliverable: variants are looking at it but I have no definite information on that. However, there is no doubt that this will come, as Yanis Varoufakis is not the first. At least half the corporate and big players out there say "we can't use Bitcoin because it lacks a contract of issuance" or words to effect.
April 03, 2015
Training Day 2: starring Bridges & Force
Readers might have probably been watching the amazing story of the Bridges & Force arrests in USA. It's starting to look much like a film, and the one I have in mind is this: Training Day.
In short: two agents were sent in to bring down the Silk Road website for selling anything (guns, drugs, etc). In the process, the agents stole a lot of the money. And in the process, went on a rampage through the Bitcoin economy robbing, extorting, and manipulating their way to riches.
You can't make this up. Worse, we don't need to. The problem is deep, underlying and demented within our society. We're going to see much more of it, and the reason we know this is that we have decades of experience in other countries outside the OECD purview.
This is our own actions coming back to destroy us. In a nutshell here it is, here is the short story that gets me on the FATF's blacklist and you too if you spread it:
In the 1980s, certain European governments got upset about certain forms of arbitrage across nations by multinationals and rich folk. These people found a ready consensus with others in policing work who said that "follow the money" was how you catch the really bad people, a.k.a. criminals. Between these two groups of public servants they felt they could crack open the bank secrecy that was protecting criminals and rich people alike.
So the Anti Money Laundering or AML project was born, under the aegis of FATF or financial action task force, an office created in Paris under OECD. Their concept was that they put together rules about how to stop bad money moving through the system. In short: know your customer, and make sure their funds were good. Add in risk management and suspicious activity reporting and you're golden.
On passing these laws, every politician faithfully promised it was only for the big stuff, drugs and terrorism, and would never be used against honest or wealthy or innocent people. Honest Injun!
If only so simple. Anyone who knows anything about crime or wealth realises within seconds that this is not going to achieve anything against the criminals or the wealthy. Indeed, it may even make matters worse, because (a) the system is too imperfect to be anything but noise, (b) criminals and wealthy can bypass the system, and (c) criminals can pay for access. Hold onto that thought.
So, if the FATF had stopped there, then AML would have just been a massive cost on society. Westerners would paid basis points for nothing, and it would have just been a tool that shut the poor out of the financial system; something some call the problem of the 'unbanked' but that's a subject for another day (and don't use that term in my presence, thanks!). Criminals would have figured out other methods, etc.
If only. Just. But they went further.
In imposing the FATF 40 recommendations (yes, it got a lot more complicated and detailed, of course) everyone everywhere everytime also stumbled on an ancient truth of bureaucracy without control: we could do more if we had more money! Because of course the society cost of following AML was also hitting the police, implementing this wonderful notion of "follow the money" cost a lot of money.
Until someone had the bright idea: if the money is bad, why can't we seize the bad money and use it to find more bad money?
And so, it came to pass. The centuries-honoured principle of 'consolidated revenue' was destroyed and nobody noticed because "we're stopping bad people." Laws and regs were finagled through to allow money seized from AML operations to be then "shared" across the interested good parties. Typically some goes to the local police, and some to the federal justice. You can imagine the heated discussions about percentage sharing.
What could possibly go wrong?
Now the police were empowered not only to seize vast troves of money, but also keep part of it. In the twinkling of an eye, your local police force was now incentivised to look at the cash pile of everyone in their local society and 'find' a reason to bust. And, as time went on, they built their system to be robust to errors: even if they were wrong, the chances of any comeback were infinitesimal and the take might just be reduced.
AML became a profit center. Why did we let this happen? Several reasons:
1. It's in part because "bad guys have bad money" is such a compelling story that none dare question those who take "bad money from bad guys."
Indeed, money laundering is such a common criminal indictment in USA simply because people assume it's true on the face of it. The crime itself is almost as simple as moving a large pot of money around, which if you understand criminal proceedings, makes no sense at all. How can moving a large pot of money around be proven as ML before you've proven a predicate crime? But so it is.
2. How could we as society be so stupid? It's because the principle of 'consolidated revenue' has been lost in time. The basic principle is simple: *all* monies coming into the state must go to the revenue office. From there they are spent according to the annual budget. This principle is there not only for accountability but to stop the local authorities becoming the bandits The concept goes back all the way to the Magna Carta which was literally and principally about the barons securing the rights to a trial /over arbitrary seizure of their wealth/.
We dropped the ball on AML because we forgot history.
So what's all this to do with Bridges & Force? Well, recall that thought: the serious criminals can buy access. Which of course they've been doing since the beginning, the AML authorities themselves are victims to corruption.
As the various insiders in AML are corrupted, it becomes a corrosive force. Some insiders see people taking bribes and can't prove anything. Of course, these people aren't stupid, these are highly trained agents. Eventually they work out how they can't change anything and the crooks will never be ousted from inside the AML authorities. And they start with a little on the side. A little becomes a lot.
Every agent in these fields is exposed to massive corruption right from the start. It's not as if agents sent into these fields are bad. Quite the reverse, they are good and are made bad. The way AML is constructed it seems impossible that there could be any other result - Quis custodiet ipsos custodes? or Who watches the watchers?
Remember the film Training Day ? Bridges and Force are a remake, a sequel, this time moved a bit further north and with the added sex appeal of a cryptocurrency.
But the important things to realise is that this isn't unusual, it's embedded. AML is fatally corrupted because (a) it can't work anyway, and (b) they breached the principle of consolidated revenue, (c) turned themselves into victims, and then (d) the bad guys.
Until AML itself is unwound, we can't ourselves - society, police, authorities, bitcoiners - get back to the business of fighting the real bad guys. I'd love to talk to anyone about that, but unfortunately the agenda is set. We're screwed as society until we unwind AML.