SEC Advisory Committee to Discuss Blockchain’s Investor Impact

SEC Advisory Committee to Discuss Blockchain’s Investor Impact

The US Securities and Exchange Commission (SEC)’s investor advisory committee is set to discuss blockchain at an event next month.

According to a newly published notice, the meeting – set for October 12 – will feature “a discussion regarding blockchain and other distributed ledger technology and implications for securities markets”. No other details, including the speakers that may attend or the specific issues that may be raised, are known at this time.

The gathering represents the latest public hearing hosted by a part of the US government that is dedicated, at least in part, to blockchain. The US Treasury Department hosted an event in January, focused on the ramifications of blockchain for the insurance market. Other agencies, including the CFTC, have held their own hearings on the topic as well.

What remains to be seen is whether any of the recent SEC actions will be raised during the meeting. For example, at the end of July, the agency released the findings of its investigation into The DAO, the ethereum-based funding vehicle that collapsed last year, as well as its broader determination that some tokens sold via initial coin offering (ICO) constitute securities.

As with past public hearings, the SEC will be live-streaming the event on its website for those unable to attend.

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Federal Reserve Bank Of Philadelphia To Hold Conference On Blockchain’s Impact On Regulatory Policy

Federal Reserve Bank Of Philadelphia To Hold Conference On Blockchain’s Impact On Regulatory Policy

The Federal Reserve Bank of Philadelphia calls blockchain technology a disruptor ahead of its FinTech conference.

The Federal Reserve Bank of Philadelphia announced that it will hold a FinTech seminar in conjunction with the Journal of Economics and Business on September 28-29, 2017, focused on consumers, banking, and regulatory policy.

Aptly named FinTech: The Impact on Consumers, Banking, and Regulatory Policy, the conference will feature keynote speeches and research from industry experts on consumer protection; roles of alternative information; FinTech lending; blockchain-based currencies; machine learning and artificial intelligence; the new FinTech landscape; and marketplace lending and crowdfunding. The conference will also focus on the disruptive factors of blockchain technology and to what measure they continue to shape regulatory policies.

In its announcement, the Philadelphia Fed acknowledged that “blockchain technology… has the potential to create a major disruption in the financial landscape.”

On the rise of new technology, the Philadelphia Fed said, “Fintech has changed the financial landscape and has been quite disruptive.”

Jeremy Nation is a writer living in Los Angeles with interests in technology, human rights, and cuisine. He is a full time staff writer for ETHNews and holds value in Ether.

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Philly Fed Event to Explore Blockchain’s Impact on Financial Stability

Philly Fed Event to Explore Blockchain’s Impact on Financial Stability

The Federal Reserve Bank of Philadelphia is hosting an event later this month that will explore, in part, the impact blockchain is having on financial stability.

The US central bank branch is co-organizing the event, which will be held on September 28-29, with the Journal of Economics and Business. The segment on blockchain and cryptocurrencies is scheduled for the latter part of the first day, beginning with a session on “Bitcoin, Blockchain, and Cryptocurrencies” that will feature Jim Cunha, senior vice president of the Federal Reserve Bank of Boston and William Nelson, executive managing director of The Clearing House.

The subject of the tech’s impact on financial stability is one that has been raised by other central banks in the past, including by representatives to the Financial Stability Board (FSB), which counts a number of central bank leaders among its membership. In the introduction to the event’s agenda, that question of what that impact might entail is acknowledged as an open one.

The Philly Fed wrote:

“…blockchain technology, which was initially used for bitcoin transactions, also has the potential to create a major disruption in the financial landscape. Moreover, many countries (including Sweden, Korea, and China) have explored their own digital currencies. It remains unclear whether this sector will continue to grow (since it has not yet gone through the entire economic cycle) and what impact it will have on monetary policy and financial stability overall.”

The event is set to include presentations on four research papers, covering topics such as “The Law of One Bitcoin Price?” and “Blockchain Disruption and Smart Contracts”, among others.

Image Credit: Roman Babakin /

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The US Government Needs an IT Reboot – And It Wants the Blockchain’s Help

The US Government Needs an IT Reboot – And It Wants the Blockchain’s Help

Uncle Sam wants to make government more transparent and accountable, and blockchain will be part of the solution.

At least that’s the message the Emerging Citizen Technology (ECT) program, an inter-agency working group within the U.S. government, is now seeking to deliver to blockchain entrepreneurs and businesses.

Today, representatives from government agencies and the private sector will convene to draft the Fourth U.S. National Plan of Action for Open Government – a set of goals and deliverables on how blockchain, artificial intelligence and smart automation can be leveraged to improve bureaucracies and bring antiquated IT systems up to speed.

According to those involved, it’s this willingness that makes the effort stand apart, since many claim work within the government is done in uneasily tapped bureaucratic silos.

Justin Herman, head of the ECT program at the U.S. General Services Administration (GSA), told CoinDesk:

“This isn’t what we’d call a ‘participatory theater’ where we say we’re taking in the voices of people but we’re not really reading the comments. This truly is ‘We want to hear from people; we want ideas on the table.'”

Participants in today’s workshop include blockchain and non-blockchain companies, as well as groups and associations with an interest in the technology, such as the Chamber of Digital Commerce, New America and R Street Institute.

“One of the challenges we face in the public sector blockchain community is that often people have a hard time differentiating between the federal government and regulators. People hear ‘the government is getting interested in blockchain’ and they think regulators instead of thinking partners, collaborators or contributors,” Herman said. 

Knowledge gap

Herman sees this ideation process as important for countering the many commonly held misconceptions about the government and its approach to technology.

By leaning heavily on the wisdom of the collective blockchain crowd, he hopes to help shift the narrative so that private sector innovators think of the government as co-creators.

And this is particularly important, he believes, as the chasm grows between the U.S. government’s interest in blockchain and the institutional knowledge and understanding of the technology within the various agencies.

“The investment is happening right now. The decisions are being made right now, and we don’t have enough partners in the private sector who can give time to just meet with federal agencies and walk them through the process,” Herman said.

This could be problematic since taxpayers will ultimately be on the hook for clumsy or misguided federal IT solutions that don’t deliver.

“There’s a steep learning curve. The worst thing that could possibly happen is agencies get a half idea of what blockchain is and move forward in the wrong way,” he said, adding:

“We’ve even seen some companies trying to sell blockchain services that aren’t even blockchain to agencies.”

Action plan

As such, once the National Action Plan (NAP) draft document is complete, it will be opened up to the broader blockchain community for comments, suggestions and new ideas before a final version is codified.

The NAP is drafted every two years pursuant to the U.S.’s membership in the Open Government Partnership – a group of 75 countries that have committed to using innovative solutions to improve government responsiveness to citizens.

It seeks to put forth a series of “bold and ambitious, yet achievable and measurable” goals for how the public sector can use technology to be more transparent and accountable to its citizens, explained Herman.

Herman, who authored the most recent such report, stressed that blockchain is a hot topic in government circles. Point in case, the GSA, where Herman works, has separately begun moving forward in developing a blockchain-based prototype for IT procurement.

He concluded:

“This will be the first time that we are elevating blockchain to the level of proposing national goals, specifically for transparency and accountable government.”

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Bitcore Nodes Will Soon Officially Support all Bitcoin Blockchains

With multiple Bitcoin blockchains in existence, software developers have some tough choices to make. Many implementations still only support the BTC chain, which is to be expected. A few other solutions have integrated support for Bitcoin Cash as well. If another fork were to occur, this situation needs to be revisited again. This is why the Bitcoin developers have come up with a new solution. In fact, any Bitcore node can now support all Bitcoin blockchains, including current and future forks.

It is good to see Bitcore get a much-needed upgrade. More specifically, the software solution is quite popular among Bitcoin service providers. Most exchanges, payment processors, and wallet services run one or more Bitcore nodes. However, this software is limited in compatibility with other Bitcoin blockchains. Although no one assumed it would ever be necessary, the developers have made some changes. More specifically the new Bitcore client will solve this problem. Users can run any implementation of the Bitcoin protocol, including forked versions. As long as the client can connect to the network, it can be used in conjunction with this node solution.

A Major Bitcore Client Update

This is a big step forward for the software solution and everyone using it. With Bitcoin Cash successfully surviving, support for this alternative chain needs to be integrated. Bitcore allows service providers to do exactly that if they feel the need to do so. Moreover, it seems this update will also support future forked clients if they ever come to market. SegWit2x can very well become another Bitcoin blockchain in the future. It all depends on how things go down come November. All it takes is enough hashpower to survive and hopefully, let the ecosystem grow. There’s a lot of – justifiable – opposition against this proposal, though.

All users need to do is point Bitcore to a full node supporting the Bitcoin P2P protocol. It doesn’t matter if it runs the main or a forked blockchain. Moreover, there’s no further need to fork the Bitcore code base. Users can switch “allegiance’ on demand as they see fit. Additionally, they can run multiple clients connected to different blockchains. A convenient solution many service providers will thoroughly appreciate. It will be interesting to see if service providers will make use of it, though.

All things considered, the Bitcoin Cash “split” hasn’t caused too many problems. Bitcoin looks stronger than ever before. BCH, on the other hand, is still struggling to find its place. With Bitcore support, things can move ahead swiftly for both ecosystems. It also means existing users don’t need to go through several hoops to support Bitcoin Cash. An interesting turn of events that can have major consequences, in a positive way.

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European Payments Forum to Explore on Blockchain’s Impact on Future Payments

European Payments Forum to Explore on Blockchain’s Impact on Future Payments

Organized by GLC Europe, a pioneer in the Production and Management of Interactive and Impactful Global Corporate Conferences the event will be held in Vienna on 14th & 15th September 2017. The participants at the forum gain the opportunity to discuss the trending topics of the financial industry and the geopolitical landscape that impact the payment industry. One of the key topics at the forum will be ‘How Blockchain Technology is Impacting Future of Payments’.

In the present era, millennial and all the other generations are slowly and steadily starting to invest in this new Digital Asset Classes, adopting the Blockchain Technology to make their day to day payments. The World has evolved from Bitcoins to BitLoans and talks are underway to form Bitcoin Exchange Traded Funds. Two decades ago, Central bankers were discussing countries around the globe switching themselves to regional currencies like Euro, Rupee, etc…and probable use of a ‘One Global Currency’ in future.

But now they are in the opinion that every country may have their own Digital Currency in future.  As a result, financial industry giants in payments processing industry are converting and adapting themselves to new emerging delivery approaches for instant payment processing such as Blockchain Technology that incorporates real-time fraud prevention methods.

Faster unit cost rise of Bitcoin from US $ 600 levels to the US $ 3,000 in June 2016 to June 2017 period and subsequent increase of Ethereum, LiteCoin and other crypto-currencies are what paved the way for worldwide interest in Blockchain.

In future, the Internet of Things will need Blockchains to manage ultimately trillions of daily transactions. Blockchain technologies will beat traditional financial services companies that cannot manage micro payments and settle payments. The event ‘InnoPay 2017’ will bring in industry experts to create value through Platforms, People and Technology. More details on the event could be obtained by logging into


The post European Payments Forum to Explore on Blockchain’s Impact on Future Payments appeared first on CoinSpeaker.

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Blockchain’s 4 Biggest Assumptions – CoinDesk

Blockchain’s 4 Biggest Assumptions – CoinDesk

Wendy Xiao Schadeck is a venture investor at Northzone, based in New York City. She has been following the blockchain space closely, focusing on the behavioral perspective.

In this opinion piece, Schadeck outlines her thesis on how the blockchain market is evolving, and where she believes assumptions should be challenged so as to further the tech’s development.

In light of the fascination with decentralized blockchains (now termed “crypto”) in recent months, I’ve been spending a lot of time trying to counterbalance the hype with critical perspectives on the technology’s future.

I am not building a bear case per se, but rather looking for opposing viewpoints in order to practice quantum thinking on the topic, which in my opinion, is absolutely critical to being a successful investor in this space.

So far, there are several types of blockchain skeptics I’ve observed.

The spectrum ranges from those suffering from incumbent biases to those sitting in the trough of disillusionment to others who have spent real time understanding the recent developments but came out negative because of their experiences or beliefs. There are also fervent disagreements between the different blockchain communities that raise key questions.

The issues I’ve been looking for in the midst of all of this are not technical in nature because, in my opinion, those challenges will be solved over time, especially given the massive amount of talent this space has been able to attract and will continue to attract. I have also not focused on external factors such as regulatory risk, though they are huge concerns. I believe that signals shown so far suggest regulators are very savvy and are careful to enact new regulation.

If you’ve been following the space for some time, you’ve probably observed that opinions about decentralized blockchain are pretty binary. The reason for this is that the biggest risks faced by projects in this space are existential. There isn’t a full continuum of outcomes that are easily understood or widely acknowledged.

Either you’re a believer or you aren’t, and a lot of it hinges on your views on the issues below. I have also searched for answers to these questions, but so far I have found no clear answers except for further experimentation and a natural evolution of the ecosystem.

Therefore, it makes sense to think of these as basic assumptions that the entire space has been built upon:

1. Mass user adoption

The first line of defense for many critics is the argument that blockchain technologies can only replicate use cases that centralized systems already achieve, and that because of this, there is no reason for the average user to switch.

While I believe that during this first phase of adoption we will see these skeuomorphic use cases, I also think we haven’t begun to understand yet what blockchain technologies can enable. The most powerful use cases for the internet didn’t evolve until many years after initial adoption. However, we still have to prove adoption in the skeuomorphic period, and I think my hypothesis around adoption by investment addresses that.

The gist of it is that instead of fishing for a future application solving a future consumer pain point, we should observe how bitcoin, ethereum and the hundreds of other tokens on the market today have been achieved adoption through a similar pattern:

Initial investment due to speculation or alignment of beliefs-> Emotional commitment to the growth of the network -> Adoption -> Advocacy (and further investment on technologies built on top).

The value prop to adopters of new technology used to be limited to only having their user pain points addressed in a better way (and whatever coolness factor comes with telling their friends about it first), which is why, as VCs, we are so used to only looking for user value proposition in the traditional sense, driven by slick onboarding funnels, library completeness, etc.

The bar is much higher compared to existing solutions, thus it is true that most blockchain use cases don’t deliver a differentiated value prop on those dimensions.

However, in the decentralized world, adopters of new blockchain technologies can actually make money while the network is growing by earning or investing in tokens. This psychology is unexplored territory and taps into highly motivating human forces such as greed.

However, if this hypothesis makes any sense, then we have to also assume that early adopters will not turn off later adopters (network gets too expensive/volatile to use from speculation), and that investors will ultimately become users, which brings us to our next big blockchain assumption:

2. Tokens should be entangled

Tokens have two roles  – serving as both a  ticket to a network’s services and a vehicle for investing in a network. This means token prices are much more volatile, and that lowers its utility as a transfer of value because the price of the exchanged good or service can fluctuate quickly in a short time-span.

This effect is described well in this article authored by Marcin Rudolf:

“Consider the following: Do you invest in a car factory by buying a lot of cars for a price much above market value? If this idea sounds weird to you check again what are you buying when you invest in app tokens. You get a right to use a network  –  it’s like [getting] vouchers for cars instead of shares in a car production business. Do you really need those years of access to global super computer? Do you really need to make millions of transactions over the ethereum network? Probably not so you will realize your investment by dumping your tokens on secondary market. In that case, however, you should ask yourself what happens to your car factory if you first massively drive up product price by hoarding cars it produces and then dump them on secondary market?”

This creates conflicts of interest between token investors, who want the prices to go up, and spenders who want the prices to remain stable.

Assuming investors are spenders as to my earlier point, token entanglement then disincentives participants to use their tokens in exchange for the goods and services provided by the network, which makes the network useless and also the token.

In the earlier days of bitcoin, people spent bitcoin because no one believed bitcoin was real. Now, stories of the “$5 million pizza” make token investors incredibly weary of spending their tokens.

If we model out when investors become spenders, it is when value of services that can be bought with a token becomes more than the expected future value of the token you’re holding. This will happen when token price stabilizes, and supply equals demand.

However, by that point, will there be enough development done on the network for the token to have significant utility value? If yes, then prices for using the network services will be compared to prices for doing things the centralized way.

If not, we will probably have a trough of disillusionment period during which many people sell their tokens and the true “hodlers” form the bottom. Which projects survive this period depend on both the speed of development and how many true “hodlers” exist in the network.

While most projects are not at a stage where the network can even deliver any meaningful utility value, several recent consumer-facing projects (Brave, Kik, etc.) will encounter this problem before others.

If they’re able to build incentives into the product and make people spend (maybe in order to earn?), then that will be an important proof point. Also, if the end user is a machine rather than a human (in the case of pure infrastructure tokens), then the problem is less evident.

There are also a number of projects working on “stablecoins,” which from my limited understanding are kind of like collateralized FX swaps, but the usefulness of these will be limited in times of extreme volatility because they require huge amounts of capital to work.

3. ICOs incentivize good projects

I’ve been very pessimistic about ICOs as a funding mechanism (at least in its current form) because incentives for the founding team are so misaligned with the project’s investors and community, and even the most prudent founding teams will have trouble allocating hundreds of millions of dollars efficiently at a pre-product stage.

History has not shown that large amounts of funding at very early stages of a project leads to successful outcomes. A more ideal distribution mechanism might be more of a helicopter drop and liquidity via decentralized exchanges or a phased, proof-point based model of token sale.

Albert Wenger wrote a good blog post on this recently where he urges projects to set up internal mechanisms for post-ICO governance. Ethereum creator Vitalik Buterin also wrote a blog post earlier this summer illustrating issues with single round ICOs.

Right now, it certainly feels like a race to build the largest arsenal via ICOs before clear regulatory guidance, and it is the most rational thing to do given the short term incentives, but arguably, similar to dot-com days, it might not bode positively for these projects’ ability to build value for its community long run without stronger governance mechanisms.

This is also a symptom of current market conditions and should naturally self-correct when the hype dies down and investors become more critical. I am optimistic that when capital becomes scarce again, it just takes one responsible project to establish the norm, and the rest will have to follow suit because the market should negatively select against any project that doesn’t.

4. Governance paradox

This is often the most commonly cited core issue for decentralized blockchain networks. How do blockchain networks define the rules? If they can trust a central party to define the rules, then there is no need for a blockchain in the first place.

Oxford professor Vili Lehdonvirta authored a piece on this in 2016 which explains the concept really well:

“Blockchain technologies cannot escape the problem of governance. Whether they recognize it or not, they face the same governance issues as conventional third-party enforcers. You can use technologies to potentially enhance the processes of governance (eg. transparency, online deliberation, e-voting), but you can’t engineer away governance as such. All this leads me to wonder how revolutionary blockchain technologies really are. If you still rely on a Board of Directors or similar body to make it work, how much has economic organization really changed? And this leads me to my final point, a provocation: once you address the problem of governance, you no longer need blockchain; you can just as well use conventional technology that assumes a trusted central party to enforce the rules, because you’re already trusting somebody (or some organization/process) to make the rules.”

The bitcoins scaling debate is the most well-known manifestation of this issue, and some have looked to forks as a way to define governance by means of natural selection of blockchain networks.

However, Vili argues that competition via forking does not solve the problem because strong network effects prevent competition. Building accountability into the nodes might be another solution (for example, like R3), which might limit the use case to centralized protocols or a decentralized protocol managed by a central party. These types of blockchain networks are less economically transformative.

Ultimately, more sophisticated governance mechanisms should evolve, built by others way smarter on this topic than I am. There are giant pools of knowledge in sociology, behavioral economics, etc. that are still largely untapped by those building cryptoeconomic designs, and this is where I am spending my time these days — making these connections. I am a believer that this will not be done through technology alone; our governance processes will have to evolve significantly in order for the technology to work. I would even go as far to say that blockchain technologies allow societies to rapidly prototype human coordination processes that have historically taken centuries to develop.

Many thanks to those who helped contribute ideas to this article either directly or via conversations (in person and on Twitter): @jessewldn, @iiterature, @petkanics, @bradusv, @jmonegro, @pjparson, @julianmoncadaNY, @arbedout, @pete_rizzo_, @pt, @aweissman, @kevinsullivan36, @arthurB, and many others…

Wendy posts regularly about blockchain on her Twitter and on Medium.

Danger image via Shutterstock

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Ethereum: 5 Ways Businesses Are Already Using Blockchains

Ethereum: 5 Ways Businesses Are Already Using Blockchains

Amid the hype surrounding Bitcoin and Ethereum, it’s easy to overlook how blockchains—the technology behind those currencies—are already transforming major industries. For businesses, the opportunities to secure supply chains, eliminate middlemen, and cut costs are increasingly compelling. Here are five examples of blockchains in action.


Maersk, the world’s largest shipping company, completed an inaugural test this spring of using a blockchain to track its cargo. The test involved not just Maersk but a series of third parties—the shipper, Dutch customs, and the U.S. Department of Homeland Security—with all of them tracking containers remotely. The tech’s reliance on cryptographic signatures makes it harder for anyone to mislay goods or tamper with labels while cargo is on the move, and can reduce the time goods spend in transit.


Despite its sophistication, the banking industry is still bedeviled by sluggish systems that can take hours or days to confirm basic transactions such as stock sales or money transfers. But the ongoing adoption of blockchains by the likes of Barclays, which conducted a groundbreaking transaction (it involved butter exports) using the technology in 2016, means this is changing. In the near future, look for rapid increases in the speed of banking services as well as the disruption of intermediaries like brokers and clearinghouses. Big banks are even planning to use blockchains to remake the SWIFT system, which is used for global interbank transfers.

For more, read “Why Big Business Is Racing to Build Blockchains.”


You might not peg Walmart (wmt) as a blockchain pioneer. But the retail giant began using the technology in 2016 to track how pigs from China moved through the supply chain to the American table. Smaller outfits are following suit. In August, an Arkansas farmers’ collective used QR codes on chicken crates to trace transactions involving their poultry. All of this promises to help companies reduce food spoilage and prevent disease outbreaks.


All sorts of agreements—from home sales to business purchases to employee contracts—require lawyers and courts to enforce. Now, more firms are experimenting with “smart contracts” that execute themselves: A blockchain system can, for instance, release money from escrow once one party to a contract transfers a deed. Lawyers nervous about their jobs can rest easy for now, as smart contracts are still a novelty. But this could change soon, especially as states like Arizona pass laws that confirm smart contracts are valid.


The diamond business is a tight-knit industry whose members and customers share common concerns over stones’ origins and authenticity. This helps explain the success of Everledger, a company that can record over 40 identifying features of a diamond, including color and clarity, and register them to a blockchain. Everledger has digitized more than a million diamonds and has plans to branch out to other industries—specifically fine wine—in need of better anti­counterfeiting records.

A version of this post appears as a sidebar in the “Blockchain Mania” article in the Sept. 1, 2017 issue of Fortune with the headline “Bitcoin in Real Life.”

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Ethereum: Why Delaware Is Backing Blockchains

Ethereum: Why Delaware Is Backing Blockchains

As of Aug. 1, a new law permits companies in Delaware—where more than two-thirds of Fortune 500 companies are incorporated—to keep their list of shareholders on a blockchain.

The boosters of the blockchain law hope it will encourage companies to replace Excel spreadsheets and SQL databases as a way to keep track of shareholders. But the law is also just the start of what could be a revolution in corporate record keeping. That’s because Delaware is also in the process of creating a system intended to let companies do everything from file incorporation documents to register shares via a blockchain.

According to CEO Mark Smith of Symbiont, a New York–based company supplying blockchain technology to the state, a network of law firms and registered agents is already building tools to help companies store their records on Delaware’s blockchain. If successful, the tools will provide an efficient new way for companies to undertake anything from proxy votes to share splits. Firms will also be able to use the cryptographic features built into the blockchain to provide regulators or investors with secure temporary access to confidential documents on a case-by-case basis.

For more, read “Why Big Business Is Racing to Build Blockchains.”

The venture capital arm of retailer has already pledged to move records to Delaware’s blockchain service, and other firms are expected to follow suit before long. For these companies, the advantages could be huge: These could include saving millions of dollars a year in record keeping and transaction costs, as well as much quicker auditing and due diligence procedures.

More broadly, the Delaware project aspires to create a one-stop shop for corporate records that is tamperproof—one of the hallmarks of blockchain technology—and always accessible. Meanwhile, access to the records will be available via a website (all the new blockchain stuff will be tucked into the back end) so there will be little in the way of a learning curve for ordinary people.

While Delaware’s ambitions are grand, the experience of other states offers a cautionary note. Vermont, for instance, announced to much fanfare in 2015 that it would put its property records on a blockchain—but bailed on the plan after a year upon finding it to be too costly.

Smith claims Delaware will be different since it is using his company, rather than its own bureaucracy, to create and implement its blockchain bet. Meanwhile, Andrea Tinianow, a state official whom some call “the blockchain czarina,” says the sweeping changes to Delaware records are not years away, but will be in place by 2018.

A version of this post appears as a sidebar in the “Blockchain Mania” article in the Sept. 1, 2017 issue of Fortune with the headline “Digital Doings in Delaware.”

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Public Blockchain’s Governance: Hayek’s Free Market

Public Blockchain’s Governance: Hayek’s Free Market

The two biggest digital currencies, bitcoin and ethereum, have both experienced a chain-split hardfork in the past two years.

In each case, it was much feared at the time, but with hindsight, we can say it was probably the best thing to have happened to either of them since their invention.

Ethereum rose to great new heights after their chain-split hardfork. Bitcoin did too, nearly doubling. While the combined value of Bitcoin Core and Bitcoin Cash has now risen to almost $5,000.

Yet, in both cases, such chain-split hardfork was resisted ferociously. During a one month period after the Slockit DAO hack, ethereum’s public spaces became a metaphorical war-zone of sorts with some strongly arguing the fork should not happen, while others arguing in favor.

They went through a process which should, in our view, decide the default option to be merged in the main client/s. Token holders vote, miners too, depending on the results, the code is or isn’t merged in the main node software.

But, after all that process and ferocious arguing, everyone can still get what they want by chain-split hardforking. In this way, a minority does not dictate the rules of the majority, and the majority does not coerce a minority.

This is a very different and, in some ways, a very new method of governance which we haven’t seen before and doesn’t quite exist in the physical world, but does exist in this space.

Yet, many have argued, and some continue to argue, against it with the most prominent example being Adam Back, Blockstream’s CEO, who told Chinese miners back in 2016 that bitcoin is, in effect, a dictatorship.

Adam Back tells miners hardforks cannot happen in early 2016.

That, of course, is factually incorrect. Bitcoin is neither a dictatorship nor a democracy, but a creature of the free market with its governance being the free market itself.

They may argue that even though bitcoin can fork it should not fork. But should is a very subjective term, a mere opinion, and you know what they say about those. Everyone has one.

So it needs some objective intellectual foundations which haven’t really been provided except in a hand-wavy manner. But bitcoin does have very strong intellectual foundations of which the coders that randomly happened to contribute towards the open source project in a first come first served basis might not be aware.

“The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process… only competition in a free market can take account of all the circumstances which ought to be taken account of.”

That’s the insight expressed by Hayek in the Denationalization of Money after studying for much of his life the nature of money. Earning a Nobel prize in recognition for his work as well as achievements.


Nations have tried to implement some of his insight by allowing the free-floating and exchanging of currencies in the foreign exchange markets. But, even if the Bank of England really honestly wanted to decentralize money, the temptation would probably be far too great, the interests too numerous, for them to be able to do so. So Hayek says.

So he argues it would need to be a new generation of “bankers” that would be laughed at by the old generation, but the people would see the benefits.

Nakamoto forced the implementation of this insight without requiring any permission due to advances in technology which now allow us to operate a complete monetary network through just some code.

Even with just bitcoin alone and no other digital currency, its success shows the power of objectivity and what we can call that which is self-evident.

It’s clear that money, which values all things, itself must have some mechanism of being valued, but when there is only one money you can’t quite do so due to no choice.

If it was hard money, like gold, it would have some objective qualities, but gold can easily be devalued as it was until it was taken off the monetary aspect completely.

The only real objective mechanism is, therefore, the free market. A new generation might grow to consider money not as something that is, but as something they choose like their preferred loaf of bread they buy daily at the supermarket. Picking one “kind” among many sorts.

The ingredients of that preferred bread might change, so their choice might change too. Likewise, their preferred money might be mismanaged. Fees might become too high, for example, or transaction speed might become too slow, or it somehow becomes inconvenient, or prices become too dear because it suddenly inflates too much or deflates too much, etc.

This isn’t a world we can easily envision and even if we do we would be wrong on many counts since we cant possibly take into account the many aspects. But it’s not a world that will suddenly be here tomorrow either. Like most things, it will probably happen gradually, with aspects refined or addressed as they come, until it’s ready for everyone and they all wonder how it suddenly happened.

The bitcoin hardfork, in that regard, was a step in that direction. Primarily because it does not in any way affect bitcoin holders, with all of them being given an equal amount, thus making it a true choice between one or the other.

In this regard, some companies stand out for criticism. BitPay especially. Because they are placing themselves in the way of the free market for no good reason instead of allowing their merchants to freely choose.

The reason they don’t is the reason why old bankers would laugh at the new generation. They can’t conceive of things working so differently after having spent all their life doing things in one way. Customers would be confused, they might say. No one is going to sit there decide what money they like for breakfast, they might snicker.

And yet they do, especially among the new generation. There are plenty of them who used btc for buying things, but now prefer eth to do so. That’s just eight years after bitcoin’s invention. How will they behave in two decades?

Are we really to assume that their customers have sufficient intelligence to understand bitcoin and even accept it for payments, but would be driven away if the added option of bitcoin cash or eth was provided?

Is BitPay or any other company really saying that something like money is similar to the many donation options in some page? When donations is something you can easily persuade yourself out of, while money is something you can very easily persuade yourself into.

The past optimization studies can’t really be applied to something like money because we are very incentivized to increase our money or ensure it retains value. Therefore would certainly not be put off by the added choice, but would instead take time to consider it.

That’s what Hayek says and he is probably right. If their money is being inflated, people won’t leave it to fall in value due to laziness if they have the choice.

Likewise, if businesses are paying thousands in daily fees, their very last concern would be if they have five minutes to research their options. Here is what one BitPay merchant says:

“I am a long term bitpay merchant and think you guys are great, you made it easy for companies to accept bitcoin…

Maybe its time you guys added support for other coins (ETH,BCH,LTC?) on payment checkout pages, right now any clients of mine who want to pay are being sent to shapeshift who seem dodgy to be honest.

Bitpay your core business is not bitcoin (whatever that means nowadays with what 3 forks?) its making it easy for companies/people to get paid in Cryptocurrencies. Maybe its time to diversify…”

Where there is market demand there will be supply, whether that’s by BitPay or someone else. Because most people are not tied to any one coin, like they are tied to dollars or pounds. With just one click, they can have whichever they want.

Since certain things are objectively true and indisputable, it is probable the majority would use just one as long as it remains well managed. If it doesn’t, they can freely move.

While plenty would probably not use the majority coin, either because they are first to see a new one is better or because it serves some niche of theirs such as supporting local merchants.

All this might not be as simple as one centrally controlled money, but that simplicity has given us constant boom and crashes, from which only a tiny number benefits, as well as outright tragedies as we are currently seeing in Venezuela.

Any minor inconvenience by having such free choice would probably be dwarfed by the considerable added benefits of free market objective money.

Which is why there can not be one chain to rule them all or one bitcoin or one currency. Which is why chain-split hardforks can and do happen and when they do the market roars.

Which is why bitcoin does not need any committee standards or central layer governance, but the knowledge and realization that any mismanagement will be punished by the market while any good management will be greatly rewarded.


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Posted by Bitcoinist in News