CryptoEconomics - CryptoCurrency

JP Morgan’s Jamie Dimon and Saudi Prince Al-Waleed bin Talal harp on cryptocurrencies like bitcoin while their respective company and country are fast at work building blockchain-based systems. JP Morgan has its own permissioned version of Ethereum, called Quorum, to work with the company’s interbank information network. Likewise, Al-Waleed recently claimed that he doesn’t “believe this bitcoin thing,” that bitcoin “doesn’t make sense, it is not regulated,” and that “it is not under the supervision ... of a central bank.” The prince also used the word “fraud” to describe bitcoin. As with Dimon, these comments come at a time when the prince’s own nation is allowing the Islamic Development Bank to integrate blockchain technology. The establishment bureaucracies that have arranged the world around centralized power structures, like central banks, are right to feel threatened by the decentralized systems that are encroaching on their spheres of influence. Perhaps the real fear isn’t fraud at all, but disruption.

HOW A CASHLESS SOCIETY COULD EMBOLDEN BIG BROTHER

A cashless society promises a world of limitation, control, and surveillance, which the poorest Americans already have in abundance.
When money becomes information, it can inform on you. At various choke points in the chain, all transactions squeeze through bottlenecks created by big players like Visa, Mastercard, and Paypal. The choke points are private corporations that are not only subject to government regulation on the books, but have shown a disturbing willingness to bend to extralegal requests — whether it is enforcing financial blockades against the controversial whistleblowing organization WikiLeaks or the website Backpage, which hosts classified ads by sex workers, and allegedly ads from sex traffickers as well, pushing us closer to a world where the cashless society offers the government entirely new forms of coercion, surveillance, and censorship. Financial censorship could become pervasive, unbarred by any meaningful legal rights or guarantees.
Paypal-owned smartphone app Venmo makes every transaction public by default turning your record and friends record into the open. In a cashless society, the cash has been converted into numbers, into signals, into electronic currents. In short: Information replaces cash. The case of digital money is no exception. Where money becomes a series of signals, it can be censored; where money becomes information, it will inform on you. Cryptocurrency isn’t really a federal priority, and as long as that’s the case, it can be a viable backchannel when payment processors institute blockades. Payment processors stopped serving WikiLeaks in the wake of Cablegate; eventually the organization was funded mostly through bitcoin. As paper money evaporates from our pockets and the whole country—even world—becomes enveloped by the cashless society, financial censorship could become pervasive, unbarred by any meaningful legal rights or guarantees.

2016 Cross-border money transfers are called remittances.

Western Union, MoneyGram, and Ria — have dominated this market for years, operating a combined 1.1 million retail locations across 200 countries to facilitate cash pickups. Mobile and online platforms to compete with the legacy firms on scale and fees. Money-transfer operators (MTOs) that primarily focus on these cross-border transfers. Banks actually dominate the remittance market, while MTOs, including Western Union and MoneyGram, have about half as much market share as financial institutions. Digital-first MTOs use mobile and online channels to send money, bypassing costly agent-send networks.

10/10/15 Bank of America’s and Coinbase’s Bitcoin Patents Revealed

‘Bitcoin’ patents On September 17, 2015 the USPTO published Bank of America Corporation’s (BoA) 20150262173, “System and Method for Wire Transfers Using Cryptocurrency” as well as the following nine applications from Coinbase Inc.: 20150262176, “Hot Wallet For Holding Bitcoin”; 20150262172, “User Private Key Control”; 20150262171, “Bitcoin Private Key Splitting For Cold Storage”; 20150262168, “Instant Exchange”; 20150262141, “Personal Vault”; 20150262140, “Send Bitcoin To Email Address”; 20150262139, “Bitcoin Exchange”; 20150262138, “Tip Button”; and 20150262137, “Off-Block Chain Transactions In Combination With On-Block Chain Transactions.”

How Society Will Be Transformed By CryptoEconomics

“If we care more about tasks than about people, then tech will replace people. If we care more about people than about tasks, then tech will leverage people.” There are many ways in which technological innovation can disrupt unemployment and machines can work for society rather than society for machines — but we have to want that. A new legal and technological entity called a Distributed Collaborative Organization represents a new way of organizing multi-stakeholder cooperatives at scale. Could the difference between dystopia and protopia pivot on the structure of ownership?

As an estimated 40–50% of the US workforce will be freelance by 2020, new models of ownership must emerge to fit new ways of working. The shift of individual relationships with single organizations to an ecosystem of collaborators interacting with many organizations requires a shift in ownership and decision making. Dynamic governance systems still have not fully related to the emerging crypto economic layer. However, distributed peer to peer networks, adaptive organizations, and currency protocols are co-evolving.

Legal Issues in the World of Digital Cash

by Chris Sandberg

The attraction of doing business at a broad commercial level on the Internet has spawned an exploding interest in "digital cash", or forms of electronic commercial exchange. Given the tremendous growth both in the use of the Internet (25 million Americans had Internet access in early 1995) and in public awareness of the possibilities of electronic commerce, it is not surprising that numerous entrepreneurs are already testing systems for using digital cash. A recent search on the Internet found almost three dozen different providers of net-based digital cash services or software.

Digital cash can take numerous forms, from "smart cards" (plastic credit card-like but with an embedded computer chip), to cash-like electronic certificates issued by banks or other entities, to proprietary systems like Cybercash that are completely net-based.

Several legal issues come up regardless of the specific form the digital cash takes, and a number of those issues remain unanswered. These include privacy, security, and consumer protection.

Privacy

One drawback to many current forms of electronic payment (such as bank credit cards) is that they leave a clear and persistent trail of records. That record trail can be used by many parties other than those involved in the actual transactions, ranging from law enforcement personnel to marketers to litigants in civil suits.
An advantage claimed for digital cash is that it can be much more private than traditional paper or credit-based exchanges. The providers of "ecash", for example, claim that "The underlying ecash protocol protects the privacy of the customer, so that banks cannot create a list of descriptions of amounts of purchases made by payers."

If this level of confidentiality can be preserved, digital cash presents both great opportunities and significant challenges. It would allow consumers to shop without leaving information about themselves that can be sold to (or stolen by) third parties for their own purposes (such as compiling mailing lists and sending junk mail to people who repeatedly buy a certain product or service). At the same time, the lack of a record trail can make it easier for money to be "laundered" through the Internet, and for individuals engaged in illegal activities to evade the research efforts of law enforcement.

Given the experience with law enforcement's reaction to digital voice communications (the 1994 Federal law that requires all new telephone equipment to provide easy, analog entry for law enforcement wiretaps), it seems unlikely that the criminal justice system will not take an interest in the potential for abuses of a digital cash system, and look for ways to ensure records of digital case transactions.

Security

While various forms of cryptography have gotten most of the attention as means of providing security for digital cash, another view of the security issue is raised by WebTech, Inc., in their "Internet Banking and Security" white paper. They suggest as an analogy, using an armored van to transport cash from one branch bank location to another, but then leaving the cash in the middle of the back lobby. Cryptography provides the armored car for the data transmission portion of the electronic transaction, but additional software and operational security are needed to be sure the digital cash is safe at the conclusion of the transaction.
Legal issues that arise in this area include the portability of cryptographic software (since current Federal laws restrict the export of sophisticated encryption software, using good security in connection with international transactions is problematic), the access to private cryptographic keys (such as in the Administration's Clipper Chip proposal), and the ability to use existing computer fraud and computer crime statutes to prosecute violations of security systems that protect not the computer but digital cash passing through the computer.

Consumer Protection Issues

The Electronic Funds Transfer Act ("EFTA") provides most of the consumer protections presently in place for electronic fund use. "Regulation E" of the board of governors of the Federal Reserve System implements the EFTA, and controls electronic signature issues for consumer debit transactions. Regulation E covers banks and their customers for electronic transfers in and out of consumer accounts; these include ATM cards and point of sale transactions.
Under Regulation E, consumers have significant protection from unauthorized electronic funds transfers. The bank which issued the card to the consumer has the burden of proving that a transaction which a consumer says was unauthorized was in fact authorized by the consumer. Generally, a consumer's failure to carefully protect the authorization process does not make the bank's case. For example, just because a consumer wrote his access code on the back of his ATM card does not prove that any transactions made with that card were authorized.

Regulation E doesn't just apply to banks; any "financial institution" that issues an access device and agrees with the consumer to provide an electronic funds transfer service can be covered. While the common cards in use today are the ATM-style magnetic-coded cards, the Federal Reserve has recognized the emergence of new technologies such as smart cards. A proposal by the Federal Reserve for covering smart cards is expected to be issued this Fall.

Still unanswered is how these regulations can and should be adapted to wholly net-based digital cash models. One vehicle would be to expand the definition of "access device" to cover software tools and automatically-generated security protocols. This coverage will be particularly important as non-bank entities develop on the Internet. The First Bank of Internet ("FBOI") is advertising on-line as providing "transaction processing services for Internet electronic commerce" through a Visa ATM card-based digital cash system. At the very end of the two-page announcement of its services, FBOI notes that it is not a lending institution nor a chartered bank.

Similar issues arise outside the consumer-shopping context as well. Requests for bank-to-bank wholesale transfers of funds, for example, can be electronically signed under the Uniform Commercial Code. As some forms of digital cash become commercially negotiable, they may fall under the UCC's Article 4A provisions for digital signatures, which are quite different from the provisions of Regulation E.

Government Actions

Federal government consideration of the issues surrounding digital cash is scattered among a few agencies, including the Office of Technology Assessment and the Treasury Department.
States are beginning to realize they also need to address the emerging digital cash issues. The Minnesota Department of Commerce issued a Public Notice on August 25 that it is seeking information to help draw up rules relating to electronic funds transfer terminals.

The State of Utah has passed the first state-level digital signature law. Utah's law sets up a new category of intermediaries between buyers and sellers, known as Certificate Authorities. These cybernotaries will check the identity of a digital signature user and will be liable for making a bad identification, thus moving some of the risk of digital cash away from sellers and financial institutions. In turn, users will have to be more careful with their private encryption key, and can be held liable for forgeries.

Privately-Issued Digital Cash

Some thinkers in the digital cash arena advocate creating private digital cash - that is, funds which are not tied to the value set by any political institution. Under this approach, the units of value would not be in dollars, yen, marks, or any other government-backed currency. Instead, new financial backers such as merchants on the Internet, Internet service providers, content providers, and service companies, would create their own units of value and back them with their own assets. Consumer would probably use the private cash initially to make purchases within a controlled environment (such as in an on-line shopping mall), but the private digital cash could spread generally if users accept it.

No federal law prevents individuals from creating their own currency, but privately issued digital cash would not technically be legal tender for debts. Brand name recognition and trust are liable to be key elements of any such system, since acceptance of private digital cash would be voluntary on the part of the seller or creditor.

Final Thoughts

Given the scope of the potential market and the size of some of the players (such as Microsoft), it seems inescapable that some forms of digital cash will come to be the predominant methods of commerce on the Internet. The difficulty will be in the law keeping up with the rapid pace of technological change.
Christopher Sandberg is an attorney with the Minneapolis law firm of Schatz Paquin Lockridge Grindal & Holstein P.L.L.P. He practices extensively in telecommunications and computer law, and advises companies in many parts of the communications industry. This article is intended to be a general discussion of the topic, and should not be construed as legal advice. Persons with specific questions about the issues covered in this article should seek competent legal advice on those questions. Mr. Sandberg can be reached by voice at 612/339-6900, or by e-mail at cksandberg@tcm.mn.org.

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Contents

How Society Will Be Transformed By CryptoEconomics

Legal Issues in the World of Digital Cash

Freelance Hackers For Hire