Open Capital Review (Part 2): BITCOINS, BLOCKCHAIN, CRYPTOCURRENCY & DARK MARKET

The more recent and by far the most revolutionary addition to ‘Open Capital’ is Bitcoin and Blockchain (the code that its built with) as well as Smart Contracts and the ‘Dark Markets’ that have been made possible because of them. These fresh initiatives redefine how we exchange money and fundamentally challenge the role that central authorities, such as a Government’s, have to play in transactions from regulation to taxation and policing.

BITCOINS

First off let’s start with Bitcoin, because it is the buzzword most people have heard being thrown about. I won’t go into the exact ins and outs of what it is because others have done a far better job of explaining it in layman’s terms than I could. The best one is here.

Most Governments have given up trying to ban Bitcoin, aside from Russia and China, with Germany declaring it simply as ‘not legal tender’. Whilst the rest of the world have taken a more sensible approach and have begun to look at regulation instead. But why is this?

Well, effectively, Bitcoin is a substitute for official government currency, it’s a kind of ‘digital currency’, comprised instead of code transacted through a distributed network rather than a centralized entity. People who use Bitcoin are in effect trading in their government-issued money to obtain them and are therefore undermining the global banking system, which very deliberately relies on currency controls and manipulation. It’s also analogeous to a digital form of cash which means Governments find it especially difficult to control. So like cash, it has obvious benefits for use on the black-market and therefore it’s no surprise that the analogy doesn’t stop there, with ‘bitwashing’, to clean bitcoins, making it harder for the currency to be traced to source, with in principle, every transaction being recorded on a public ledger.

Whilst Bitcoin is the flag-bearer for crypto-currency, most people confuse it as crypto-currency itself, which is like confusing Gmail with Email. Instead, Bitcoin is built on Blockchain. Blockchain is, ‘a distributed cryptographic ledger shared amongst all nodes participating in the network, over which every successfully performed transaction is recorded’. but more on that later.

The big question to finding your moral position on Bitcoin is, ‘do you believe in the role of cash and by extension a global digital cash without borders?’ Posing some serious consequences as it does, do you think that this will have a positive or negative impact on the World? Sadly the question isn’t so black and white.

Equally, Bitcoin is now just one of a plethora of emerging crypto-currencies such as Dogecoin & Name Coin, a list of which can be seen here. The problem for Bitcoin in becoming defacto, is it’s very susceptibility to manipulation. This is because of how the wealth is concentrated in the hands of a small, few, early-adopters. Forbes reported just 47 people own 29% of all outstanding Bitcoins and just 930 own 50%.

FREE / OPEN ‘DARK MARKETS’

Bitcoin by more controversial application as a means of exchange is without a doubt the prominent currency of ‘Dark Markets’. Starting with Silk Road, a digital black-marketplace found on a part of the Internet hidden from most users and not subject to the usual monitoring by officials. Through a combination of anonymity, technology (called TOR), which uses a sophisticated user-feedback system, and Bitcoins, Silk Road makes buying and selling anything possible without fear of taxation or more importantly arrest. Its admin cites Agorism as its underlying philosophy and the fundamental belief that “The state is the primary source of violence, oppression, theft and all forms of coercion. To stop funding the state you should direct your productive energies into the black market.”

Unsurprisingly, it quickly became the home of illicit drug dealing but it did however set limits; to not facilitate the sale of “anything whose purpose is to harm or defraud, such as stolen credit cards, assassinations, and weapons of mass destruction.”  Equally unsurprising, the FBI quickly seized control of some of the sites severs as part of a criminal investigation and took off with $28 million in Bitcoin along with them. Its vulnerability was that it had its own servers and therefore a ‘central authority’ for the Feds to shut down.

It was obvious that it wouldn’t take long to be reincarnated in the form of DarkMarket, whose distributed p2p architecture means that law enforcement is forced to go after every contraband buyer and seller one-by-one in the network, signalling an impossible cat-and-mouse game similar to Bit.Torrent and illegal media downloads.

You might think anything that is about anonymising or hiding activity is the very opposite of ‘Open’, but the idea of a marketplace designed for totally free exchange is radically open as it removes trade barriers or other such limitations. The reason it is ‘dark’ is to protect the extent of its openness. Whilst these black marketplaces, like cash, are currently and primarily used by criminal networks, its coders are ideologically fighting for an area of Free / Open Exchange. Dark Market’s developers are unremittent that “Code is a form of expression. You can’t imprison someone for expressing an idea; what people then decide to go and do with it is presumably their business.

The team behind Dark Market, a collective of politically radical coders that calls itself unSystem, plan to release a Dark Wallet. A Dark Wallet is a bitcoin application designed to further protect its users’ identities to counter greater threat now that risk is more distributed. It will seek to hide an individuals’ identity tied to bitcoin ownership by encrypting and mixing together its users’ payments.

BLOCK CHAIN’S & OTHER APPLICATIONS

So what does all this mean to the average Joe? Well the honest answer is that no one really knows, but it certainly goes well beyond Bitcoin itself or selling pot to teenagers. What is being created is a radical new platform; a means of exchange facilitated by Blockchain (Bitcoins underlying open source code).

This is not just for goods, illicit or otherwise, but also it could be for IP, or any other value that needs to be protected and exchanged through a distributed network rather than a central authority or platform (for whatever reason that might be). The idea for using this code is to preform Smart Contracts functions, functions carried out by robots within Blockchain for a particular purpose.

A simple example is a betting system. Two people place bets on the World Cup, entrusting a certain amount of digital currency to that system. The system would then check the final score of the game via the web and distribute the funds appropriately. No bookie needed.

There are several projects trying to add smart contracts and other new tools to bitcoin, projects like Colored Coins & Mastercoin, whilst others, like QixCoin & Bitcloud, are building their own networks. Namecoin is one example for distributed domain name management; Bitmessage & Twister another, for fully decentralized P2P microblogging platforms; like Twitter, without Twitter Ltd. If you want to look at the edge of this space check out The Ethereum Project.

What they all have in common is that their applications are autonomous and independent from any central server or authority charged with regulating or managing the network and this is why Bitcoin is called the ‘Internet of Money’. But what other internets of money will be born out of Blockchain or similair systems?

CONSIDERATIONS:

– The obvious consideration is what does this mean to conventional currencies? Will Bitcoins, or an evolution thereof, replace them and if not what will its relationship to them become?

– Currently Bitcoin is unstable like any new currency, let alone a wholly new concept of exchange, as the market tries to access its true value. How long will Bitcoin take to stabilize, what factors will it be pegged to and what will influence or be influenced by it in its rise and fall in value?

– The major problem with any Bitcoin derivative is its security. If you lose your key, you lose control of your Bitcoins, so how will they be made more secure to fraud and hackers?

– A more forward gazing question is how will Blockchain like systems of exchange, extend beyond crypto-currencies and impact the general public or the corporate world?

– What central authorities will become increasingly disinter-mediated by these systems from governments to legal systems? In fact why do we even need crowdfunding platforms?

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