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Monday, February 23, 2015

Why Bitcoin Could Explode With The "Shadow Economy"

Bitcoin’s most visible advocates have spent much of the last year begging congress to go easy on their baby so it can grow into the new powerhouse payment system they so badly want it to become in the global economy.

The economy has been mostly inhospitable, probably because Bitcoin’s future remains uncertain in a hostile environment of conflicting tax and regulatory schemes, efficient competing payment systems and public apathy. But as Jon Matonis pointed out in a Forbes piece back in March 2012, Bitcoin may find a surer footing in the unregulated “shadow” economy that has been expanding globally in the wake of the 2008 crash.

Of course, many Bitcoin fans don’t want to think that such an incredible new invention will be forever known as the currency of drug dealers. But the shadow economy isn’t just the black market; it includes all unreported income. All over the U.S., Americans are increasingly going off the books as they pursue opportunities to generate income in the face of ongoing structural unemployment, Obamacare mandates, and other issues that appear to be facilitating an expansion of the “informal” or “shadow” economy. As its growth collides with the growth of internet usage for day to day business, Bitcoin could become the payment method of choice for the millions of Americans for whom working off the books is the best option available.

As U.S. News & World Report reported last year, the decline of the labor force participation rate to 30-year lows is believed by some economists to reflect a shift to the off-books economy. The percentage of Americans who are "unbanked" or "underbanked" likewise rose from 25.8 percent in 2009 to 28.3 percent in 2011. Many of the underbanked are poor or have bad credit. But the rise in consumer spending over the last few years is larger than the sagging labor market suggest it should be. This may indicate that substantial unreported profits are being reaped. These “shadow” entrepreneurs appear to be electing to keep their earnings-- from consultant, dog walking, babysitting, repair or even online sales businesses-- off the books.

Economists estimate the shadow economy may reach about $2 trillion worth of US GDP. Much of the informal economy is happening online, with billions of dollars in profits on sites like Etsy and eBay. The latter is considering adding Bitcoin to its menu of payment options. This move alone could mean a bright future for Bitcoin as a currency option for shadow entrepreneurs who don’t want to leave bread crumbs for the IRS to follow.

Internationally, the shadow economy is a much larger piece of the pie. By 2020, the Organization for Economic Cooperation and Development (OECD) predicts it will employ two-thirds of the world’s workers. It is also the world’s fastest growing economy, already second in size to the U.S., and is likely to be the largest source of new jobs in the coming years—all unregulated, untaxed and off the record. While mainstream consumers may be unimpressed with Bitcoin’s alleged benefits—better anonymity than dollars, better security and cheaper transactions than credit cards—those who need that anonymity for more than just buying mushrooms for the next Phish concert may find investing in bitcoins more interesting.

Despite the negative connotation, the shadow economy’s existence can prevent the real economy from falling apart during lean times, according to some economists. Milton Friedman pointed out that shadow economies are stimulated by overbearing government regulations and excessive taxation. As governments reeling from the impact of 2008 apply new banking restrictions in an effort to stabilize their own institutions, they are likely to find growing numbers of people comfortable going off the books. With access to consumer technology getting cheaper and easier around the globe, cryptocurrencies and anonymizing networks will likely play a significant role as anonymity grows in importance, internet penetration deepens and cash transactions continue to decline.

Tightening capital controls, the introduction of bail-ins, a rise in financial warfare against non-compliant companies, banks and governments, as well as the push by some nations to embrace a cashless society have become the new standard response to the world’s growing economic and debt problems. The vision may not be unified among global leaders, but it is part of an increasingly appealing menu of policy options they have proven more than willing to exercise.

Countries such as Cyprus, China and Argentina have already seen a surge in Bitcoin adoption as a means of circumventing capital controls. Immediately following the advent of a “deposit tax” and strict capital controls in Cyprus, Bitcoin saw a surge from $47 to $88 in just a week in March 2013 as foreign investors sought safe haven from the new policies. Similarly, China’s “sophisticated arbitrageurs” have used Bitcoin to circumvent the country’s strict capital controls, often through falsified trade invoices and offshore exchanges. Argentines flooded into Bitcoin in 2013 to hedge against the instability of the Peso. Since then, the overheated market has cooled. But as investment pours into the Bitcoin market infrastructure and related blockchain technologies, improvements could be around the corner.

Governments around the world committed to crackdowns on free market interactions may find the winds of change sweeping their authority from under them. When a crisis strikes, governments have usually reacted by removing existing options. Markets react by providing new ones. With technology empowering the average person today in ways that encumber restrictions, it is increasingly difficult to see how government will win out in the end.

Edward Snowden Endorses Civil Disobedience

Via his Reddit AMA today...

"We should remember that governments don't often reform themselves. One of the arguments in a book I read recently (Bruce Schneier, "Data and Goliath"), is that perfect enforcement of the law sounds like a good thing, but that may not always be the case. The end of crime sounds pretty compelling, right, so how can that be?

"Well, when we look back on history, the progress of Western civilization and human rights is actually founded on the violation of law. America was of course born out of a violent revolution that was an outrageous treason against the crown and established order of the day. History shows that the righting of historical wrongs is often born from acts of unrepentant criminality. Slavery. The protection of persecuted Jews.

"But even on less extremist topics, we can find similar examples. How about the prohibition of alcohol? Gay marriage? Marijuana?

"Where would we be today if the government, enjoying powers of perfect surveillance and enforcement, had -- entirely within the law -- rounded up, imprisoned, and shamed all of these lawbreakers?

"Ultimately, if people lose their willingness to recognize that there are times in our history when legality becomes distinct from morality, we aren't just ceding control of our rights to government, but our futures.

"How does this relate to politics? Well, I suspect that governments today are more concerned with the loss of their ability to control and regulate the behavior of their citizens than they are with their citizens' discontent.

"How do we make that work for us? We can devise means, through the application and sophistication of science, to remind governments that if they will not be responsible stewards of our rights, we the people will implement systems that provide for a means of not just enforcing our rights, but removing from governments the ability to interfere with those rights."

He goes on to endorse natural rights...

"You can see the beginnings of this dynamic today in the statements of government officials complaining about the adoption of encryption by major technology providers. The idea here isn't to fling ourselves into anarchy and do away with government, but to remind the government that there must always be a balance of power between the governing and the governed, and that as the progress of science increasingly empowers communities and individuals, there will be more and more areas of our lives where -- if government insists on behaving poorly and with a callous disregard for the citizen -- we can find ways to reduce or remove their powers on a new -- and permanent -- basis.

"Our rights are not granted by governments. They are inherent to our nature. But it's entirely the opposite for governments: their privileges are precisely equal to only those which we suffer them to enjoy.

"We haven't had to think about that much in the last few decades because quality of life has been increasing across almost all measures in a significant way, and that has led to a comfortable complacency. But here and there throughout history, we'll occasionally come across these periods where governments think more about what they "can" do rather than what they "should" do, and what is lawful will become increasingly distinct from what is moral.

"In such times, we'd do well to remember that at the end of the day, the law doesn't defend us; we defend the law. And when it becomes contrary to our morals, we have both the right and the responsibility to rebalance it toward just ends."

Big takeaway:

Some people don't see the point in debating the origins of rights in the academic sense. Do they come from God? Government? Nature? Votes? But there is a huge lesson here. The idea that rights are an essential part of our nature can motivate people to do extraordinary things in defiance of authority. For the Sinn Fein, convincing the Irish that their meager rights were not bestowed by the British Crown were an essential factor in motivating them to battle to restore them. For Edward Snowden, such an idea seems to have underscored his headline-grabbing act of defiance. For if rights do not emerge from legislative sessions, then those rights cannot be legitimately struck down by those sessions, only suppressed. Something to keep in mind.

Tuesday, February 17, 2015

Want to get involved? Interesting OpenNet projects worth following

This list will get updated periodically. These are a few organizations dedicated to building a resilient, open and totally uncensorable internet. Some of them are meshnet projects, while others are providing tools to dissidents in particularly repressive countries. All are worth a look if you are doing research or want to get involved.

Telecomix: A European hacktivist group that helps dissidents route information around blockages placed on the web by oppressive regimes, particularly in the Middle East.

The Chokepoint Project: An open web project that states its mission as "To identify chokepoints, understand the issues behind who owns what and has the power to turn off connections or control aspects of internet control like domain names."

The Freenet Project: Freenet is prototype meshnet that includes free software which lets you anonymously share files, browse and publish "freesites" (web sites accessible only through Freenet) and chat on forums, without fear of censorship. Freenet is decentralised to make it less vulnerable to attack, and if used in "darknet" mode, where users only connect to their friends, is very difficult to detect.

The Free Network Foundation:  An Iowa-based 501(c)(3) meshnet project.

Commotion Wireless: An open-source tool for democratic activists that uses meshnet like features and turns devices into routers to create a P2P network.

Electronic Disturbance Theater: An activist group that made headlines when they developed a device called the Transborder Immigrant Tool (essentially a cracked Nokia phone with a GPS) enables immigrants from Mexico to navigate through the desert and even find water left by activists.

FreedomBox Foundation:  Developing proxies and hardware for activists to facilitate a free and uncensorable web.

Hyberboria: The new virtual P2P meshnet currently existing within the regular internet has entirely encrypted communication between participating nodes and does not rely on a central server or ISP. This is the larger global "mesh" network that could be the future of the internet.

Project Meshnet:  Meshnet page that provides CJDN routing software download. 

Project Byzantium:  Project is creating an ultra lightweight Porteus Linux-based program that can fit on a flash drive to create an easy-to-use meshnet resource.

People's Open Network: Oakland, CA based meshnet.

Local mesh in Maryland:

Seattle meshnet project: 

Meshnet wiki:

Relevant Reddit subforums:


Monday, February 16, 2015

The Changing Face of American Radicalism

Libertarians have chosen to walk an unusual path in American political history, but one that perhaps by accident may see them become the defining political force of the 21st century.

Whereas previous radical movements saw themselves as passionate defenders of the disadvantaged or virulent nationalists, the reawakening of libertarianism over the last decade has occurred in  the context of political and economic stability and relative prosperity. Provoked by a serious recession and an overall frustration with mainstream political ideas, the radical impulse that arises every generation or two was channeled not into flag-burning protests or calls to hippie communes but in bookish philosophers who were more inspired by the nuts and bolts of economic efficiency than calls to arms.

It's a nerd's movement for sure. But it could hardly be anything else. Using the state as an agent of radical political change has become passe after killing 100 million people in the 20th century. Violence as a means to justify utopian ends has, for all intents, fallen out of favor. But seeking political change through a democratic system designed to resist major shakeups is likely a futile endeavor under all but the most unusual circumstances. With the intellectual frontiers of politics closed, modern radicals need new territory to conquer and leave their historical impression upon.

So where does someone who is interested in dramatic changes invest his energy? Technology. This is where revolutionary ideas in human governance are taking root and the most significant breakthroughs in human achievement are currently underway.

Among the most promising of the seemingly ever-accelerating technological achievements is the blockchain. The potential in this new network system to radically liberate human interaction from government and institutional control all over the world in the next few decades is unprecedented in the human experience. While some of the sharpest minds in the tech space are working to realize its potential, even the IMF is beginning to take notice.

Unfortunately, the potential for digital authoritarians to seize control of the web and define internet behavioral and security norms is equally enormous and a battle in courtrooms, cyberspace and the media  will be required to determine the freedom of individuals to interact beneficially without coercion or other interference.

If the bloody work of the 20th century was figuring out the best possible political systems to maintain political stability and prosperity for human civilization, the work of the 21st century could transcend this entirely, empowering individuals through technological democratization and challenging the presumption that underpinned the much of the work of the 20th century: that governments know what is best. This could mean that in terms of human empowerment, constitutional democracy was only a crude prototype; the job of decentralizing authority and information begun by lawyers can be completed by programmers as laws governing interpersonal transactions enforced by violence evolve into benign, but impregnable scripts written by coders and enforced by the laws of physics and principles of mathematics.

Computer technology has inherently egalitarian feature, empowering individuals with easy access to unfathomably vast amounts of data that at one time required expensive teams of researchers and archivists to locate and maintain. But the blockchain could be the ultimate equalizer, replacing authorities with networked consensus verification. How that develops remains to be seen, but with the enormous amount of talent and capital dedicated to realizing positive outcomes, a significant impact seems well assured.

Modern libertarianism is perhaps by happenstance perfectly tailored to push against digital authoritarianism and both defend online freedom in the halls of power and define cyberspace intellectually as a free and open anarchic world. Currently, radical libertarianism is the only major political philosophy in the U.S. to have built distrust of traditional institutions into its core philosophy.That distrust enables libertarianism to position itself as the sole enemy of state control and protector of flourishing new technologies as well as the guardians of privacy and freedom. Friedrich Hayek anticipated this need in his exhortation to keep new technological capabilities from being misused by authoritarians in his classic essay The Road to Serfdom:  "While it is true, of course, that inventions have given us tremendous power, it is absurd to suggest that we must use this power to destroy our most precious inheritance: liberty. It does mean, however, that if we want to preserve it, we must guard it more jealously than ever and that we must be prepared to make sacrifices for it."

There is a significant chance that libertarians are anticipating a change in how government itself functions, and the relationship between the government and governed may never be the same if the concepts that underpin projects like Ethereum, Namecoin, Codius, Counterparty, Factom and iNation succeed.

The broader acceptance of libertarianism may be dependent on this technological experiment--political libertarianism seems unlikely to be able to garner majorities in congress or even in the most conservative state legislatures any time soon. Actuating an anarchist economy, entirely outside of regulatory control and with all of the crowd-sourced information efficiencies we now enjoy, is a grand experiment in liberty in a new technological context that could radically change the human experience.

This is why the two movements-- political libertarianism and techno-libertarianism-- absolutely need each other. One provides the justification, philosophical underpinning and political muscle. The other provides the necessary economic laboratory. Libertarians will always have a hard time outflanking progressives as advocates of the poor and disadvantaged, a source of immense political power for the Left. But as the bookish and rational advocates of tech freedom, they can not only help humanity achieve new frontiers in communication, they can do it without betraying core principles, stumbling over their own values or trying to out-compete "statists" on their own political turf. They can do this because they are at the cusp of a new frontier that is already free from political control; they begin the battle from the castle ramparts, rather than the moat.

Libertarians will of course continue to remain active on many political fronts, but tech freedom offers a unique opportunity to distinguish themselves from status quo politics and adopt a core set of issues that neither major political group has whole-heartedly embraced and the public does not generally comprehend. Given the flouting of laws and lack of respect for privacy by intelligence organizations and the evidently poor congressional oversight, it is an issue that could merit a much more significant commitment to change than simply lobbying congressmen, marching or donating money.

An electronic guerrilla war has already begun. Leading the charge are whistleblowers like Edward Snowden and Wikileaks. On the front lines are also innumerable hackers, journalists, bloggers, activists, government agents from all over the world, and even terrorist organizations like ISIS and al Qaeda. This is the battle that will shape the future of information technology and the winner will determine how free human communications will remain for future generations.