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Law & Justice

Bitnation Launches World’s First Blockchain-Based Virtual Nation Constitution

Bitnation, a blockchain-based “Governance 2.0” initiative with a collaborative platform for DIY governance, has launched its Decentralised Borderless Voluntary Nation (DBVN) Constitution using Ethereum, International Business Times reports

The Bitnation Constitution was launched at a public event in Rio de Janeiro, hosted by Bitnation founder Susanne Tarkowski Tempelhof and Alex Van de Sande, lead designer at the Ethereum Foundation. The video of the Bitnation Constitution launch event, promoted on Facebook as “Create Your Own Nation In 140 Lines Of Code,” was streamed live and is now online on YouTube.

Bitnation launched several pathfinders and proofs of concept including eBits and the first blockchain passport. The organization also developed and tested workable DIY land titles recorded on the blockchain in Ghana, where 70 percent of land lacks proper title, preventing investment and borrowing in real property markets. In November, Bitnation eBits to offer a public notary service to Estonian e-residents based on blockchain technology.

In a recent U.N. working paper eBits, Brett Scott, the author of The Heretic’s Guide to Global Finance: Hacking the Future of Money, praised Bitnation’s pioneering work on blockchain-based land-titles. “Bitnation has presented a vision – at least in principle – of hosting completely alternative state institutions (such as security and legal institutions) on blockchain systems, describing states as governance service providers that might be outcompeted by technological platforms,” he noted.

At the same time, Scott, whose vision is centered on a communitarian, social-libertarian approach, criticized Bitnation’s vision of a future stateless society as an extreme techno-libertarian position. According to Scott, modern democratic states can represent the interests of all.

eBits.Co reached out to Tarkowski Tempelhof and asked about her reactions to Scott’s paper.

“The left-versus-right-wing libertarian debate is rather pointless, in my opinion, because on a free market for governance, you can choose whichever economic model you prefer,” said Tarkowski Tempelhof. “For instance, you can choose to live in a communist commune like a Kibbutz will full economic redistribution, or a capitalist city like Hong Kong or Singapore centered around trade, commerce and private companies. Or you could choose a combination of the two. Having a free market doesn’t imply any specific economic model.”

Here Tarkowski Tempelhof, a globetrotter who moves around the planet a lot and can feel at home everywhere, is proposing to do away with geographically localized nation states and replace them with distributed opt-in governance systems. Her vision is very appealing to techno-libertarians and fans of John Perry Barlow’s manifesto “A Declaration of the Independence of Cyberspace,” which was cited at the launch event in Rio de Janeiro. Of course, the devil is in the details: how to peacefully handle a dispute between persons who subscribe to different, independent distributed governance systems?

“The reputation system acts as an incentive mechanism to solve disputes,” answers Tarkowski Tempelhof. “Hence, if we have different legal codes, we are incentivized to agree upon one legal code and arbitrator for the specific dispute. If one of the parties refuse to cooperate to solve the dispute, it will be reflected in their reputation. And if people create an unnecessary amount of disputes, being a time and energy drain on other people, that will also be reflected in the reputation.”

One of the strongest objections to technocracy made by Scott in the U.N. paper is that smart contracts defined by algorithms alone without human mediation can be too inflexible. 

“Contracts are representations of frequently ambiguous, unpredictable and messy relationships between imperfect humans with imperfect knowledge,” says Scott. “Such relationships cannot easily be pre-programmed, and much of the work of lawyers involves resolving and interpreting contracts in light of changing realities. Building systems that seek to move away from such politicized negotiation can sound utopian, but might equally lead to situations of inflexible technocracy.”

“To say that technology is inflexible, and not always adapted to human nature, is an important point to take into account,” concedes Tarkowski Tempelhof. “We shouldn’t attempt to pre-program more than what’s needed.

“Rather, all laws should compete on a free market, and be subject to the same reputation as people are, or nations or holons are,” is the solution that Tarkowski Tempelhof proposes. “That way, people can choose the law that fits them best, in each individual situation. In addition to temporary, reputation-based laws, Bitnation is also developing a platform with a significant human focus – core to our service proposition is using human arbitrators, and flexible, soft coded contracts done intuitively by all participants in the agreement.”

eBits.Co asked Tarkowski Tempelhof to summarize her long-term, 50-plus-year vision for Bitnation.

“I believe the nation state oligopoly is being phased out naturally, due to the forces of globalization, and we’re obviously trying to help fast-forward that process,” says Tarkowski Tempelhof. “But the question is what comes after it? Everything indicates it will be replaced by an even worse one-fit-all governance model, like the U.N., which will lead to perpetual war between people who simply wish to live life as they want, with their own legal code, their own lifestyle. Bitnation counters that dystopian future through creating an open-source nation model, that everyone can fork, to create their own nation. We believe we’ll make both nation states governments, as well as organizations like the U.N. irrelevant, simply through providing cheaper, more secure and better Do-It-Yourself governance services.”

Anticipating that many techno-libertarian readers will find Bitnation’s vision energizing and wonder how to join, we asked Tarkowski Tempelhof how to become a citizen of Bitnation, and what is expected from Bitnation citizens.

“You have to sign on the constitution, and you have to own some cryptoequity (though owning cryptoequity doesn’t automatically make you a citizen),” explains Tarkowski Tempelhof. “You can get cryptoequity either through buying it, or earning it through contributing with work. The equity pays you profit dividend. Later on we’ll enable a system where people can contribute with computing power as well, as the computing power of its citizens is basically the closest thing a virtual nation has to a natural resource, in the same way a nation state has gas or oil. It’s important to note, however, that you don’t need to be a citizen of Bitnation to use our services. Being a citizen only means contributing to Bitnation’s development, and getting dividend in return.”

The Bitnation Constitution is online on Github.


Law & Justice

Bitcoiner Faces Charges After Selling BTC to an Undercover Cop

On February 9, 2018, officials from U.S. Immigration and Customs Enforcement (ICE), the investigative arm of the Department of Homeland Security, arrested Morgan Rockcoons (aka “Morgan Rockwell” or “Metaballo”), CEO at Bitcoin, Inc. and an entrepreneur behind several other bitcoin startups, at his home in Las Vegas, Nevada.

Rockcoons was charged with money laundering and operating an unlicensed money transmitting business, according to court records.

According to those same records, in Southern California, between December 30, 2016 and January 8, 2017, Rockcoons allegedly exchanged around 10 bitcoin (worth around $9,200, at the time) for $14,500 in cash with an undercover law officer. That officer allegedly told Rockcoons in advance that the cash came from the manufacture and distribution of “hash oil,” which contains tetrahydrocannabinol, a controlled substance at the federal level.

Money laundering happens when a person takes ill-gotten money and turns it into “clean” money that cannot easily be tracked back to its source. Thus, if Rockcoons knew the cash was dirty, but traded it for bitcoin anyway, that would constitute money laundering.

Rockcoons was also allegedly operating an unlicensed money-transmitting business in Southern  California “from a date unknown” through August 30, 2017. Money transmitters are required to register with the Financial Crimes Enforcement Network (FinCEN).

The warrant for the arrest was issued by the Chief Magistrate for the Southern District of California on November 8, 2017, which indicates it may have taken authorities three months to track down Rockcoons, possibly because he moved out of the original jurisdiction.  

A Different Story

In private messages with eBits.Co and a series of public tweets, Rockcoons, who is actively seeking donations to pay for his legal fees, which he expects to be between $150,000 – $300,000, tells a different story than what is reflected in court records.

Where the court document says that the the cash given to him was already dirty, he claims that bitcoin he sold to the buyer became dirty after it left his hands.

“Someone bought a machine that makes cannabis oil with the BTC they purchased from me,” he said to eBits.Co. “I guess I’m not allowed to sell Bitcoin as a U.S. citizen for cash especially if [responsibility for] what people do with that money lies on me.”

In communication with eBits.Co, Rockcoons said that the buyer told him via text message that the bitcoins would be used to buy a “medical hash machine.”

He added, “Buying equipment in California is not illegal especially medical equipment in a medical State that’s been a medical state for 25 years. [A] controlled substance does not have anything to do with the equipment because CBD oil can be extracted from Cannabis and that doesn’t have anything to do with Tetra Hydro cannabinol.”

Both Rockcoons’ tweets and his subsequent communication with eBits.Co seemed to imply, initially, that he had no idea he was selling bitcoin to a law enforcement officer.

According to Rockcoons, the exchange took place in November 2016 (not the first week of January, as listed in court records) while he was living in Northern California (not Southern California, as the records state).

Rockcoons said the buyer found him through LocalBitcoins, an online platform that facilitates direct selling of bitcoin. A user can register as a seller on the platform and be contacted by interested parties. Transactions are done in person or via online banking.

Rockcoons claimed on Twitter that he received $9,200 for the bitcoin, though court records allege the law officer gave him $14,500. Rockoons later told eBits.Co that he specified to the buyer he wanted less than $10,000, but the buyer insisted on sending him $14,500.

“They tried to entrap me,” Rockcoons told eBits.Co. “I asked for only less than $10,000, they sent me $14500 [or] refused to send anything and then I sent under $10,000 [worth of bitcoin] to follow the law.”

After agreeing to the terms of the sale online, Rockcoons claims he received a cash payment. He described this payment, in his communication with eBits.Co, as being received in an envelope sent through the mail. He has not replied to requests for clarification as to whether or not he met with the buyer in person, though he did say that he and the buyer communicated via text messages.

At the time of the exchange, he was camping in the Mendocino National Forest, where he was living in a tent and working on a new project, a voice-operated Bitcoin wallet. Rockcoons said he had been living in the Northern California wilderness since 2015; however, fire and floods were making it increasingly difficult to survive in the area. After another fire ravaged the land, he said he needed cash for evacuation emergencies.

“I was living like a mountain man, so I didn’t really need money but eventually I needed to buy food so I decided to sell some coin; when someone asked me to buy some I usually just always turn it down but I needed cash to eat,” he told eBits.Co.

He claims the fires were what eventually forced him to move back to Nevada.

Time in Jail

After his arrest in Las Vegas on Friday, February 9, 2018, Rockcoons was locked up over the weekend in Henderson Detention Center in Clark County, Nevada, for three days. He pled not guilty at a Federal Court hearing on February 12, 2018, and was then sent to Clark County Detention Center for two more days for an unrelated charge of failure to appear on a traffic ticket.

“I was in jail for five days with some of the scariest humans on Earth,” he said. “But I [taught] most of them how Bitcoin works, so it was worth it.”   

In his series of ongoing tweets since his release from jail on February 14, 2018, Rockcoons has been portraying the charges against him as an attack on Bitcoin.

It’s not my mess, it’s everyone on Earths [sic] battle now or you can kiss your access to BTC goodbye,” he wrote in one tweet.

This is a attempt to redefine the regulation and the law,” he told eBits.Co.

“Bitcoin is my religion,” he wrote in another tweet. “God says I can use bitcoin everyday.”

Rockcoons is also claiming he was targeted due to his relationship with the state and the federal government and his Bitcoin-related startups.

He is looking to others to join the “battle” with him, and he is even asking the the Bitcoin Foundation, a non-profit organization that supports Bitcoin adoption and education, to cover 15 bitcoin (worth around $150,000) of his legal costs.

“It seems to me the Bitcoin Foundation has been absent from the Bitcoin Community during troubling times, this would be a good opportunity to show face and show the community that you’re here for all of us,” he tweeted.

Rockcoons’ arraignment is on February 22, 2018 at the San Diego Superior Court in California. He has hired Las Vegas criminal attorneys David Chesnoff and Richard Schonfeld to represent him. He says he plans to pay them in bitcoin.

(Note: Shortly before publishing this article, Rockcoons blocked the writer from viewing his Twitter account.)

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Law & Justice

Germany Sets Standard for Bitcoin Regulation

All over the news in Germany last weekend was a reply by the German Ministry of Finance to an inquiry in parliament. The Ministry announces that Bitcoins are officially recognized. Some weeks ago already the German Federal Financial Supervisory Authority (BaFin) amended a guidance to the definition of “financial instruments“ in the German Banking Code and stated that Bitcoins are financial instruments. Through this official recognition and definition of Bitcoins Germany has become the first country in the world that sets clear-cut rules for Bitcoins.

However, there are some drawbacks: Bitcoin companies must meet strict standards as they are now in principle regarded as financial service companies which must be licensed and will be supervised by BaFin. Inter alia the following conditions must be met:

  • Initial capital of 730.000 Euros
  • Management must be professionally qualified
  • A detailed business plan must be submitted
  • Capital adequacy standards must be met
  • AML mechanisms must be implemented
  • Reports must be submitted to BaFin regularly

With regard to the first criterion and including all other necessary expenses start-up costs should be somewhere near 1 million Euros. Yearly operating costs would also be fairly high.

On the other hand, however, Germany‘s clear-cut rules should facilitate access of Bitcoin companies to venture capital as VC companies now deal with a manageable regulatory environment. Especially Berlin is full of innovative start-ups and also has huge pools of venture capital.

In addition, cooperation with banks should be more easily conceivable as banks can now place Bitcoin companies in the regulatory framework and know what standards they must fulfill.

Other digital currencies (e.g. Ripples, Litecoins etc.) are also classified as financial instruments.

Operating without the necessary license is punishable as a criminal offense. Having a license permits doing business in other countries of the European Economic Area (the EU plus Norway, Iceland and Liechtenstein) through the European financial passport scheme although it is not quite clear how this will work as long as other European countries have not classified Bitcoins.

BaFin may grant exemptions from some of the above mentioned rules. It appears overly zealous to apply rules which are tailored to the “traditional“ finance industry with a daily turnover in the trillions to a budding industry with a total global market capitalization of about one billion. This would probably need to be addressed on a political level though. The Merkel government has recently indicated that it is willing to support start-up companies in areas of technological innovation.

In addition, “financial instruments“ is an extremely broad term which comprises shares as well as credit default swaps and therefore may justify further adaptations based on the specific features inherent to a particular financial instrument.

Through this move the global discussion has become more complicated. Germany straightforwardly says Bitcoins are financial instruments, in the United States FinCEN says they are a “virtual currency“, the Commodity Futures Trading Commission says they are a “commodity”, and a judge in Texas has no doubts they are simply “money“, and in Thailand the central bank says they don‘t know what it is and therefore it‘s illegal. Time for regulators to come together and reach consensus.

Despite these open questions Germany has taken a huge and bold step. It will be very exciting to see how other financial centres like London, Switzerland, Singapore and the US now position themselves.

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Law & Justice

Price, Value and The “True” Worth of Bitcoin

The recent upward trend in the rate of exchange between Bitcoin and other currencies has many traders and techies debating the difference between “price” and “value” and wondering where it will finally settle. On December 5th, Bank of America’s foreign exchange strategist David Woo declared a projected market capitalization for Bitcoin of $15 billion and a projected fair value of $1,300. This was a first among major banks and a major nod to Bitcoin’s credibility. However, Woo’s declaration met with some skepticism from Bitcoin advocates, many of whom believe Bitcoin to be a wholly new type of financial instrument and thus not readily comparable to anything else currently known. What is Bitcoin’s true value? Is the current price too high or too low? If the current price is not the “right” price, then how will we know what is?

Economically speaking, price is a term that refers to the amount of another resource or commodity demanded in order to obtain a good or service. Usually, but not always, you will find price expressed in terms of currency (barter transactions would be the exception). For example, the price of one gallon of gas may be $3.50 or the price of one Euro may be $1.85. Price is the most efficient signaling mechanism we know of to keep supply and demand near the point of equilibrium and the most useful means of quickly and objectively assessing “worth.””Value” is somewhat tougher to nail down than price. Value refers to the subjective (rather than the objective) perception of worth. A wrench is valuable to a mechanic because it allows him to tighten or remove nuts and bolts, but its price may be fairly modest.

A master work of art is aesthetically valuable to those who understand and enjoy it. Its constituent parts may cost less than the wrench, but the value may be far more. An item may have sentimental value, aesthetic value or value in use, but rarely will an item have intrinsic value.Intrinsic value is “value in and of itself.” Fiat currency, such as the Dollar, Euro, or Bitcoin (yes, Bitcoin is a fiat currency, too) cannot be intrinsically valuable. The value of Bitcoin derives from the variety, volume, type or quality of goods and services that can be received in exchange for it, as opposed to that of the paper and ink or metal (or computing power) used to produce it. If governments outlawed Bitcoin, taxed it into oblivion, or markets just lost interest in it, then its value would decline accordingly.

Further, if you could find no one to accept Bitcoin in exchange for anything you wanted to buy, it wouldn’t matter how many you had – their value would be zero and they would be worth nothing to you.The only economically appropriate value for Bitcoin is its market value. Market value is usually considered to be the price that you would receive in an orderly exchange under normal conditions between a willing buyer and a willing seller. When an active market exists for an item, its market value is relatively easy to determine because its price is readily apparent and, if not known to all, is at least known to those who need to know. If no merchants accepted Bitcoin and no exchanges existed to convert it into a functional currency, its value would be likely be close to zero, as was the case when Bitcoin was first conceived.

Consider the case of the pizza purchased in May 2010 for 10,000 Bitcoins, the price of which would now be equal to $10,000,000.Is Bitcoin something so new and revolutionary that it defies classification? Perhaps it is, though I don’t happen to think so. Does it really matter when it comes to Bitcoin’s value? I think probably not. I don’t claim to know what the price of one Bitcoin will be next year or even next week, but I do know that I’ll have to take the price that is offered if I want to spend it, whether I like that price or not. That, to me, is the only thing that really matters.

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