What, Exactly, does Decentralization Change?

Decentralization in many parts of the world is increasing (see, for example, this recent study published in the Journal of Public Deliberation on the development and politics of subnational decentralization).
Some studies have examined decentralized versus centralized markets, and have shown, for example, that in certain conditions, a decentralized market is more efficient than a centralized marketplace.  Decentralized markets generally produce superior outcomes in the context of surplus when friction is reduced, or exists at a minimal level, and is small.  This raises the question of how "frictions" should be evaluated in the information economy, and suggests that "official attempts to manage economics" should be reduced wherever possible.  Organizations - including governments - that fail to either implement or adapt to decentralization will be absorbed by individuals, associations, and firms that demonstrate capacity to navigate an increasingly decentralized society.

Here I am not speaking of administrative decentralization, but rather a larger view, which includes political, fiscal, economic, and even personal and familial identity decentralization.   In this larger view, individuals and associations are empowered by their new-found realization that they can, merely through collective participation in the decentralization of financial systems (including individuals' and collective choices as to what we will fund in a giving economy), do away with most of what has traditionally been accomplished by government - and either continue it through funding of certain activities, or discontinue it by not funding others.  This also affects how people will in the near future develop the internet itself.  Broken trust in the common Certificate Authority (CA) system means more people will be turning to decentralized and open source solutions (such as TACK) to alter or replace the standard CA system, which until now has been assumed to be "just how things are done on the internet."

Wherever a potentially beneficial result occurs from government policy, such as reducing the potential for economic collapse via implementation of the Volcker rule, there should be maximum flexibility granted to innovators and participants in the new economy.  It should be understood that as part of this process, not only will some governments disappear and be replaced by  new organizations (or be done away with entirely in the transition to a new civil society), but as well, traditional financial institutions will eventually fade.  A good area to examine these developments is in the decline and death of banks as we understand them today.  The transition to a decentralized economy is accelerated by development of privacy enhancements (to the extent that those enhancements also spread in a free, open source, and decentralized fashion, which reduces the previously mentioned frictions).  These enhancements are now beginning to be implemented in not just one, but various decentralized currency protocols, which marks a historic point in what could be described as a revolution of purchasing power imparted to the individual.


"Bitcoin is really that revolution... I call it the seed of the resistance."  - Max Keiser

And that's all for this week, folks.  See you next Tuesday (that's a promise.)

Recommended Reading:

How to use bitcoin anonymously
Thoughts on alt-coins and diversification
FreeBSD moves away from Intel, Via
Cryptabyte - free cryptographic messaging service
KryptoKit -  one method for using bitcoins anywhere, even with places that don't yet accept them
Darkwallet - open source, decentralized wallet supporting bitcoin transaction anonymity, now 200% funded (over 100% of target level of USD donations, over 100% funded from bitcoin donations)
Sparecoins - open source, decentralized bitcoin wallet - in your browser.
The Largest Investment in a Bitcoin Product in known history:
Coinbase to use equivalent of $25 million USD to protect customers' bitcoins offline.
BitPhone - turns decentralized virtual protocol (namecoin) into a phone.  Yep, a phone.
"By using an autonomous, distributed communications network based on BitCoin principles, BitPhones require nothing but a shared network to send & receive messages, make voice and video calls, share photos, transfer files or run applications of all sorts."
BitPremier
BitGive Foundation (Give a Bit This Holiday Season)

Recommended Video Interview (added Thursday, Dec. 12, 2013):



"One of the problems that decentralization solves... is the difficulty of information moving around within centralized systems... Instead of... giving money to a central group of individuals... the best thing is to actually go to the source itself.... Instead of going to a centralized point.... you go to specific points and you've done away with a big part of the knowledge problem...."
"Sometimes peer-to-peer systems are the right approach.... or sometimes you really want both, because both lend themselves to some aspects of the problem."
-- Max Marty,
Co-founder and Chairman of the Board; former CEO, Blueseed.co
Co-founder and CEO of Spotsell (as of Nov. 2013)

Day 2, Senate hearings: Bitcoin climbs in use, Congress Fails To Comprehend Bitcoin (Again)

"Bitcoin is an open standard, an open protocol, and an open source payment network.  Nobody owns the network, and nobody controls the network.  All of the users collectively own the network, its rules, and its ledger."- from Statement of BitPay CEO Anthony Gallippi, before the Subcommittee on National Security and International Trade and Finance and the Subcommittee on Economic Policy of The United States Senate Committee on Banking, Housing, and Urban Affairs, during the hearing on 'The Present and Future Impact of Virtual Currency,' November 19, 2013 

"Now we are engaged in a great Civil War, testing whether that nation, or any nation so conceived and so dedicated, can long endure. (...) It is rather for us to be here dedicated to the great task remaining before us (...) that government of the people, by the people, for the people, shall not perish from the earth." - Abraham Lincoln, Gettysburg Address, Nov. 19, 1863 

As today's Senate hearing on virtual currencies began, bitcoin rose to $704 USD, and continued to climb.

Day 1, Senate hearings: Bitcoin jumps from $650 to $750, USD (and Congress) is left in the dust

"What is called the dark web, also known as the deep web... (was) deliberately built to be untraceable, to protect the anonymity of the user." Sen. Tom Carper, Nov. 18, 2013 on CSPAN3, during the introduction to today's hearing on decentralized virtual currency.

As was to be expected, the panel's regulators in government focused on the worst possible imaginable crimes that they could dig up, attempting to connect them to bitcoin and other virtual currencies, in order to try to portray virtual currencies in an unfavorable light.  Interestingly, at no point during the hearing did any of the regulators who gave testimony make reference to decentralized virtual currency - in fact, their testimony completely failed to truly mention it or attempt to put it in a coherent sentence - nor did they acknowledge that such decentralized currencies are already beyond the control of governments.

Time and time again, courts in the United States have ruled to protect the right to anonymity.  One such case, in 1995, cited by Electronic Frontier Foundation in its defense of anonymity, included a decision by the US Supreme Court that "protections for anonymous speech are vital to democratic discourse," asserting that anonymous speech "exemplifies the purpose behind the Bill of Rights, and of the First Amendment in particular:  to protect unpopular individuals from retaliation... at the hand of an intolerant society."  In point of fact, today, Monday Nov. 18, 2013, the Electronic Frontier Foundation scored a significant victory that is now resulting in the release of hundreds of pages of documents from the government about the use of the unconstitutional Patriot Act, the use of which by government is currently being challenged in the courts.
Faced with this fact - and beyond any law on the books or interpretation of any law by the US Supreme Court, the fact that the strongest of decentralized currencies today is now immune to government attack -- the only thing that regulators in the hearing could do was to ignore and evade discussion of the most meaningful financial development to arrive on the scene in the United States since the production of the first US dollar.  Even a strong equilibrium attack run cheaply by governments against the bitcoin network would ultimately fail to do anything other than delay transactions for a day or two -- it would not be able to shut down the distributed, decentralized bitcoin network. And so, with grim faces, the regulators on today's panel did the only thing they could: ignore the decentralized virtual currency issue entirely.  The discussion was not a total loss, though: the second group of panelists (notably, none of whom were regulators) did not fail to take the opportunity to discuss decentralized virtual currency.

Here follow the most notable quotes from first the regulator panel, with the rest of the panelists' remarks shown in the order of the time they appeared:

Jennifer Shasky Calvery, Director of US Treasury's FinCEN:
"We work to achieve (our) mission by implementing the Bank Secrecy Act... Illicit actors might decide to use virtual currency... (it's) relatively anonymous.... does not typically have transaction limits.... may have been created to facilitate money laundering..."
"(This) is not nearly theoretical..." (References Liberty Reserve, Silk Road)
"It is also important to put virtual currency in perspective... Approximately 8 billion dollars in transactions (in virtual currency) over the past year."
"It is in the best interest of virtual currency users to comply with (our) regulations..."

Of course, anyone who is serious about their bottom line will not comply with additional burdensome regulations.  People are at this moment pursuing development of bitcoin anonymity solutions, including but not limited to, CoinJoin and DarkWallet (the latter of which has already exceeded its funding goal). In a day's time, the CoinJoin fund to support the development of strong cryptographic anonymity solutions has jumped from 16 BTC to over 31 BTC - a growth in value, at present prices, roughly equivalent to a collective donation by multiple individuals over a day's time of $10,000 USD (approximately doubling the amount the account already had). Exchanges that might face additional burdensome regulation will simply jump outside of USA borders, or locate on newly developing "offshore business platforms" which are maintained out at sea. If exchanges find that the regulatory environment makes it too tough for them to operate through websites, they can now fully distribute their bitcoin exchanges and related markets, so that no matter where they are in the world, they will never be able to be shut down due to the nature of decentralization.  Thus, it is not in the best interest of virtual currency users to, in the words of Jennifer Shasky Calvery, "comply."
It is in our interest to do what we please, either as individuals or associations, inside or outside the confines of today's 'nation-state of antiquity.'

Bitcoin and the future of "the public good:" Decentralization, anonymity, philanthropy

In the previous EdgedSolo post, a question was presented:  In light of developing "bitcoin anonymity" solutions, which will eventually (and fundamentally) alter the relationship between the indidual and the state, how will individuals and associations manage resources to maintain and enhance "the public good" at a time when government capabilities to do the same are diminishing?  This post will address that question, as well as some other relevant questions and issues.

First, some assumptions are going to be made for the purpose of addressing this question.  One assumption made here is that the progress of decentralized virtual currencies (particularly as solutions that enable anonymity evolve) will eventually liberate large numbers of individuals all over the globe to exercise greater ability to do what they want completely outside of the purview of governments.  Another assumption that will be made here is that many individuals will, upon realizing they are capable of doing so, will act primarily in a self-interested way, but that a growing number will become involved in micro-philanthropy - a practice of making small donations that collectively will comprise a significant part of the gifting economy.

In some ways, these assumptions are already borne out by data.  In many cases, as incomes rise, contributions to nonprofits decrease, and tax incentives - provided by governments that are currently able to do so - often enable higher levels of giving than would otherwise occur.  This, however, is a generalization, as current levels of giving to nonprofits vary widely from place to place in the United States.