bitcoin_island

Creating a 'Bitcoin Island' just off the English coast

The Isle of Man is selling itself as a global hub for crypto-currency startups with low taxation, 'pragmatic' regulation and high-speed internet. But it could be its thriving gambling industry which helps to create 'Crypto Valley', says Matthew Sparkes

By Matthew Sparkes, Deputy Head of Technology , on the Isle of Man

7:31AM BST 20 Sep 2014

Nestled between Ireland and England is the Isle of Man, a self-governing country with a population of just over 80,000. Despite its small size it has its own parliament and sets its own laws; the Queen appears on the back of bank notes here, but tellingly does so without her crown.

This freedom has advantages. It attracted a thriving financial services industry in the 1970s with low taxation, then with a permissive attitude to gambling during the last decade it lured lucrative online betting companies. It's now attempting a hat-trick with crypto-currencies like Bitcoin.

It could be a huge boost to an economy which is already punching well above its weight. Analysts estimate that $113m was invested in Bitcoin companies in the first half of this year, up from $27m during the whole of 2013. It’s a rapidly expanding pie which the Isle of Man government wants a big slice of.

As we've written before, Bitcoin is just the start: there are a whole range of disruptive technologies that will piggy-back on its success.

Unlike jurisdictions which have made crypto-currencies illegal, such as Bangladesh and Bolivia, or regulated them so fiercely that they stifle innovation entirely, like New York, the Isle of Man is welcoming them with open arms. So much so that it helped to organise a conference last week called Crypto Valley looking to bring in new startups, and has lent a hand creating a crypto-tech incubator programme.

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The sales pitch for the island is compelling: with no capital gains tax, potentially no corporation tax and extremely low income tax, entrepreneurs could walk away with large rewards should their company gain traction. And the government’s positive stance on Bitcoin provides stability and certainty - it has begun to regulate crypto-currencies, but only enough to provide legal and financial stability, not to squash innovation.

The charming little island, with its established population of high-net-worth individuals, is not without its more tangible attractions: great restaurants, low crime, beautiful scenery. Entrepreneur Mark Shuttleworth, who became the second space tourist in 2002 when he paid $20m for a short stint on the International Space Station, is already a resident. Only the weather is a sticking point.

For many, the Isle of Man is synonymous with motorbike racing

Bitcoin already has a huge number of fans on the island, including in government. Chris Corlett, chief executive of the department of economic development, announced this week that residents could soon be able to pay “everything from your car tax to your income tax bill” in crypto-currencies like Bitcoin.

“There is an evolution here, given what we’ve learned about digital currencies in the last year, it was a relatively simple decision to take,” he told CoinDesk.

At last week’s Crypto Valley conference there was a host of companies ready and waiting to help Bitcoin startups move in, establish bank accounts, buy IT equipment, start accounts and even talk directly to government ministers about potential legislative issues.

One entrepreneur who has already moved to the island told me that there have been occasions when he needed to talk to a minister and got an appointment the same day. “That wouldn’t happen in the UK,” he told me. In a fast-moving, uncharted industry like crypto, that’s a huge bonus.

Kurt Roosen, chief executive of Micta, the member organisation for hi-tech firms on the island which steers government on these matters, says that the Isle of Man is “pragmatic” about Bitcoin business, but realises how important it is to do it right.

"We want to do business but we're not prepared to prostitute ourselves to do it,” he told the Telegraph. “We'd love to be part of it but it has to be done in a flexible, not gung-ho fashion. There's a lot of money being invested now. We can't really ignore it.”

The balance that has been struck is to register it, but with a light touch: "It's a bit of a petulant child that needs some adults - and that's the role that we can play."

In the next month or two changes to law will come in which require crypto businesses to register with the government and carry out some due diligence to avoid money laundering and other financial irregularities. But aside from that the doors to innovation are wide open.

It’s a strategy which has worked well for the island previously: internet gambling was worth almost nothing a decade ago, but today accounts for 14 per cent of the economy. The largest company, Poker Stars, employs around 300 people on the island and was sold earlier this year for $4.9 billion (£2.9 billion).

Because of this, the 2007 financial crash simply didn't happen on the Isle of Man. The economy has had three decades of uninterrupted economic growth. The country has the 13th highest GDP per capita in the world, just ahead of the US, Hong Kong and the Cayman Islands.

Castletown harbour, Isle of Man

Phil Adcock, who has a PhD in computer science, left academia to found a business called Domicilium on the island: "I came here for a beer in 1991, set up a business and never left. You can fly here and get things done.”

He now runs a large data centre in a former slipper factory which once supplied Marks and Spencer and counts several crypto-currency businesses around the world as clients.

In the anonymous building is a state-of-the-art facility full of hardware powering mobile phone, financial services, gambling and Bitcoin companies. With eye-scanners on the doors, night-vision CCTV and impenetrable server rooms originally designed as mobile command centres for deployment in war zones, as well as high-speed internet connections spider-webbing out into the Irish Sea in various directions, it has spare capacity ready and waiting for any startup which choose to make the Isle of Man home - or anywhere else in the world, for that matter.

The island's infrastructure is disproportionately strong. Mobile phone companies often use it as a self-contained testbed for new technology. It was the first European country to have 3G, for example.

Now the island’s technological, financial and legal expertise in online gambling is being pivoted to help launch crypto-currency businesses. There are parallels: a need for absolute security, infrastructure to handle huge amounts of online transactions and the best and brightest lawyers and accountants. But many are also pushing gambling as an industry which can itself drive mass-adoption of crypto-currencies.

Eric Benz, a board member of the UK Digital Currency Association, said that Bitcoin "allows the operators to reduce their costs, reduce a lot of friction in terms of payments." It could also allow them to enter markets like southern east Asia and South America, where governments impose restrictions on betting. Bitcoin does not have as much respect for borders as banks do.

"Acquiring bitcoin now is just for speculation. It's markets like gaming that will really drive innovation,” he said. "The number one draw here is how flexible and innovative the government has been. Where we are now is exactly where e-gaming was 13 years ago.”

The island’s gambling regulator, just as central government, has signalled that crypto-currencies are welcome. Mark Rutherford, deputy chief executive of the Gambling Supervision Commission, told the conference: "We agonised over this. Our assessment of crypto [currency] is that it's not going to go away. It's here to stay and it's not going to go away.

"We'll be very comfortable for our operators to take them. It's a case of 'come and talk to us'. We might let you pay your licence application in Bitcoin soon."

At least one gaming operator has already contacted the regulator to look into the matter, he said.

All of the jigsaw pieces seem to be in place for the Isle of Man’s plan, except one, which is currently stifling innovation around the world. It's a Catch 22 situation that the very industry looking to disrupt the banking industry is also dependent on it for corporate accounts - it's impossible to launch a startup without one, and banks are overwhelmingly reluctant to provide them.

The first day of the conference was overshadowed by news that Capital Treasury Services, an Isle of Man-based business which connected crypto startups around the world with banking services, was shedding clients because of pressure from lenders. The news caused at least one startup to cancel its launch event at the conference.

Despite US firm Instabill announcing at the event that it would be able to step-in and fill that vacuum, access to banking is a recurring topic of conversation among crypto-currency entrepreneurs. Not only are new companies struggling to get accounts, but existing companies are fearful of accepting Bitcoin because of concerns about how their bank will react. One attendee even recounted how his personal bank account was closed because a payment for Bitcoin appeared on his statement.

Garth Kimber, chief executive of Xela Holdings, which has three gambling licences from the Isle of Man government, said that he was certain that a single crypto-currency would eventually spread around the world and replace fiat currencies, but also that he could not adopt any now for fear of “upsetting the banks”.

"The most important thing I have problems with is banking,” he said. “I don't agree with the opinion that they [the banks] don't get it [crypto-currencies] and they're learning: I think they exactly get it. I think banks run the world, not governments. And that's the problem: I need banking more than I need a specific payments platform.

"I don’t think governments want it because they can't QE it and I don't think banks want it. It’s a tough one to crack, but I'm right here with you when you do it," he told the audience.

Brock Pierce, who sits on the board of the Bitcoin Foundation and co-founded the startup GoCoin that has just relocated to the Isle of Man (and also, incidentally, appeared in several Hollywood films as a child star) said at the event that: "The Isle of Man is the new capital for bitcoin, at least for now."

That someone so closely linked with Bitcoin - he stepped in just before the collapse of Mt. Gox in an attempt to take it over and steer it from trouble, and is now helping to unpick what happened to the missing millions - has chosen to base his latest startup on the island, rather than his Los Angeles home, is telling.

Governments around the world are, by shutting out crypto-currency startups, providing the tiny island with an enormous opportunity.

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REYKJAVIK, Iceland -- Some 600 computers used to "mine" bitcoin and other virtual currencies have been stolen from data centers in Iceland in what police say is the biggest series of thefts ever in the North Atlantic island nation. Some 11 people were arrested, including a security guard, in what Icelandic media have dubbed the "Big Bitcoin Heist." A judge at the Reykjanes District Court on Friday ordered two people to remain in custody.

The powerful computers, which have not yet been found, are worth almost $2 million. But if the stolen equipment is used for its original purpose -- to create new bitcoins -- the thieves could turn a massive profit in an untraceable currency without ever selling the items.

"This is a grand theft on a scale unseen before," said Olafur Helgi Kjartansson, the police commissioner on the southwestern Reykjanes peninsula, where two of the burglaries took place. "Everything points to this being a highly organized crime."

Three of four burglaries took place in December and a fourth took place in January, but authorities did not make the news public earlier in hopes of tracking down the thieves.

Bitcoin is a kind of digital money that isn't tied to a bank or a government. It has been hugely volatile, posting some dizzying intra-day rises and falls over the past year or so. The price of a single bitcoin rocketed to nearly $20,000 late last year and then plunged early this year. On Friday, it was trading just below the $11,000 mark.

Bitcoin and other cryptocurrencies rely on the blockchain, the name given to the public, distributed ledgers which track the coins' ownership. The Bitcoin ledger is powered by "miners," so-called because they throw computational power into the system, occasionally receiving -- or "mining" -- new bitcoins in return. Drumming up that computational power usually means lots of computers -- and thus lots of electricity.

That desire for energy has created a gold rush for bitcoin in Iceland. Traders searching for cheap, renewable energy have been flooding into the island in recent months to take advantage of its geothermal and hydroelectric power plants.

Police tracking the stolen computers are monitoring electric consumption across the country in hopes the thieves will show their hand, according to an industry source who spoke on condition of anonymity because he is not allowed to speak to the media.

Unusually high energy usage might reveal the whereabouts of the illegal bitcoin mine.

Authorities this week called on local internet providers, electricians and storage space units to report any unusual requests for power.

In Edinburgh on Friday, Bank of England Governor Mark Carney launched a withering attack on cryptocurrencies such as bitcoin and urged regulators around the world to monitor them in the same way as other financial assets.

In a speech to the Scottish Economics conference, Carney said a "global speculative mania" has "encouraged a proliferation of new cryptocurrencies" and said they should be held to the "same standards" as the rest of the financial system.

"Being part of the financial system brings enormous privileges, but with them great responsibilities," Carney said.

Report: How The Isle Of Man Became ‘Bitcoin Island’

Bitcoin has become well established as a currency for daily transactions on the Isle of Man, a U.K. dependency in the Irish Sea that aspires to be a global cryptocurrency leader, according to The Independent, the U.K. newspaper. The Isle of Man, known to some as “Bitcoin Island,” boasts a progressive government, outstanding technological expertise, and an exceptional Internet infrastructure.

Close to 25 startups on the island are using cryptocurrencies. In Douglas, the capital city with 27,000 residents, businesses accepting bitcoin include a coffee shop, a chauffeur service and a pub.

For customers to pay with bitcoin, a business must provide a receipt producing a conversion from pounds and a square QR code. The customer uses a mobile phone app to read the code and send the required bitcoin payment from their virtual cryptocurrency wallet. The transaction takes three or four seconds longer to complete than a conventional payment.

The company that installed the payment system at Java Express, a coffee shop, told The Independent it has processed thousands of pounds worth of coffees.

A Global Digital Currency Leader

In some jurisdictions, including the U.K., people remain more cautious about digital currencies. The Isle of Man, however, has set out to be the global digital currency leader.

Legislation took effect last month requiring cryptocurrency businesses to register with the government and agree to an inspection by its financial regulator. The law marks the completion of a two-year process for what Isle of Man lawmakers claim to be the first regulatory framework to enable digital currencies to be a game changer.

The Isle of Man flag

The Isle of Man has an advantage in being able to enact legislation and provide the necessary oversight faster than other jurisdictions, according to Brian Donegan, the head of the government’s department of economic development.

The country has moved fast on cryptocurrency because it recognizes its potential, Donegan said. “This technology is transformational and we want to be in the lead.”

A Transforming Economy

A few decades ago, the economy for the island relied on agriculture, fishing and tourism, the polar opposite of the hub of technological globalization that it now embraces.

Low tax rates and a willingness to modernize has brought a growth rate that is three times that of the U.K. over the past three decades. In the 1990s, the Isle of Man cornered the market for satellite operators. In recent years, it has hosted online gambling companies. Electronic gaming currently represents 16.7% of the £4.1bn GDP.

Several global Internet cables run between Ireland and Britain that the Isle of Man sits within. This robust infrastructure, a pragmatic government and financial and technological expertise combine to support the island’s “cryptocurrency goldrush.”

Welcome to Bitcoin Island

Forget currencies and commodities … perhaps the most helpful analogy for Bitcoin is 'land', argues Richard Gendal Brown.

Oleg Andreev posted an insightful tweet the other day:

Bitcoin is not a protocol of transfer, but a protocol of ownership. Coins never travel, but simply switch owners.

— Oleg Andreev (@oleganza) March 20, 2014

You could argue this is a trivial observation – "how else could it work?!" – but thinking in terms of ownership and protocols for transfer of ownership is a surprisingly helpful way to think about how the system works. That's because the 'protocol of ownership' insight means there is a whole other world of history, tradition and precedent to learn from: land.

Here are some observations to motivate the thought:

• In the end-state the quantity of bitcoin will be fixed, just like land
• Bitcoin is not perfectly fungible and neither is land
• Bitcoin is not 'consumed' through use – just transformed and transferred. This is similar to land and dissimilar to many commodities, which are consumed (or at least degraded) through use

OK – not a perfect parallel but let's go with it for now. What happens if we think about bitcoin through the lens of land?

Well, first, it allows us to think about coins that haven't been mined yet … We can think of them as parcels of land on "Bitcoin Island" that haven't been released:

The "Land Interpretation" of bitcoin. Think "Bitcoin Island".

Second, it helps us put some intuition behind the concept of the 'unspent transaction output'. These are bitcoins that have been sent somewhere but not yet themselves been spent. So the set of all unspent transaction outputs (UTXOs) can be thought of as the latest state of every bitcoin that has ever been mined.

The UTXO is absolutely crucial to everything in bitcoin and yet very few people think in these terms, talking instead about misleading terms like "address balances" and so forth.

But the interesting thing is: if we take a 'land interpretation' of bitcoin, then UTXOs have a really simple explanation: they are plots of land! And bitcoin transactions are simply actions that merge or split these plots of land.

Imagine I own 20 bitcoins. My bitcoin wallet software will show a 'balance' of 20. But it's likely that this balance actually consists of multiple unspent-transaction outputs.

Even if I had bought all 20 bitcoins in one go, it's likely that the seller merged several smaller UTXOs that added up in total to twenty bitcoins. So perhaps I received three plots of 'land': 7 bitcoins in one, 7 in another and 6 in the third. My total 'holdings' are 20 – but it is formed from three 'UTXOs'.

Perhaps my holdings on Bitcoin Island look like this:

We can think of Unspent Transaction Outputs as plots of land on 'Bitcoin Island'. Plots A, B, C represent three unspent transaction outputs controlling 20 bitcoins.

And now it's possible to teach people about bitcoin transactions without completely confusing them!

Imagine I wanted to buy a second-hand car for 11 of my bitcoins. Let's also imagine that I pay a transaction fee of 1 BTC to keep things simple (a HUGE over-estimate, of course).

I need to do a few things:

• Step One: I need to prove ownership of the coins I'm trying to spend
• Step Two: I need to say how the coins are going to be allocated – how many am I sending and to where? 11 to the seller, 8 back to me and 1 for the miner in this case
• Step Three: I need to specify what the new "owners" will need to do to prove they do indeed own the coins. In other words, I need to specify what they will need to do in their Step one when they try to spend their coins in the future

I do this in bitcoin by issuing a transaction that accomplishes all three steps in one. Here's what it might say:

"I own three unspent transaction outputs: A, B and C. In total they represent twenty bitcoins. Here is my proof I am entitled to spend A. Here is my proof I am entitled to spend B. Here is my proof I am entitled to spend C. I hereby reshape my plot into two new plots: one plot 8 units in size, which I call X and a second plot 11 units in size, which I call Y. Whoever mines this transaction can claim the remaining 1 BTC. If you can satisfy the following conditions then you will be considered to own X: … . If you can satisfy the following conditions then you will be considered to own Y: …"

I will set the conditions so that only the seller of the car could satisfy the Y condition and so that only I could satisfy the X condition (that's my change and I don't want anybody else spending it!).

The end result is that I have simply rearranged the land holdings:

Transaction outputs A, B, C are now spent, replaced by two new unspent transaction outputs: X and Y. X is my change, Y now belongs to the car dealer and F goes to the miner.

But we can go further … we can now have an informed discussion about what "ownership" means in bitcoin. When I "send" bitcoins to somebody, I'm not assigning ownership to an individual. What I'm actually doing is laying down a condition – and anybody who can satisfy that condition will be considered the owner.

Now, normally, the condition is very simple. It says something like:

"To spend this output you must prove you know the public key that hashes to the following address: … And you must prove you own the corresponding private key by issuing a digital signature".

That's what the "OP_DUP OP_HASH160 …" stuff you sometimes see is usually saying.

But the conditions can be far more complex than that … It's all down to how you write your transaction.

Where is this going?

OK – so thinking of bitcoin in terms of land helps us build some intuition around UTXOs, which we can think of as 'parcels of land on Bitcoin Island' and we see that bitcoin transactions are really just a way to merge or split these parcels of land and impose conditions that allow people to assert ownership.

And now things get really interesting. Because there are all sorts of interesting phenomena that happen with land transactions that we can use to think about bitcoin problems.

Fungibility

The land analogy works because bitcoins are not perfectly fungible. Sure – there are projects trying to overcome this but this feels like an arms race between developers and law-enforcement agencies. To the extent that fungibility remains imperfect, what drivers could force different 'land parcels' to have different values?

For me, the biggest topic on the horizon for fungibility is 'coin tainting', 'whitelisting' and the other schemes intended to 'tag' bitcoin addresses or UTXOs.

I see these schemes as directly analogous to concepts like land 'blight' on the one hand and maybe 'planning gain' on the other. For example, if you own a 'plot of Bitcoin land' that has been 'whitelisted' by an exchange or finance firm such that you can access their services, presumably your 'plot' would be worth more than one that didn't have that property?

It is perhaps no surprise that the fungibility issue is so hot right now.

Mineral Rights and Colored Coins

Two pieces of seemingly identical land can be worth vastly different sums: if one is sitting on oil and the owner has mineral rights, a purchaser will be willing to pay them more for their land than if it didn't!

Perhaps this is a useful analogy for colored coins: two identical bitcoins can trade for different prices if one of them has been 'colored' by a trusted issuer. What are the taxation implications? What happens when projects trying to add coin coloration to bitcoin conflict with projects trying to create fungibility?

Altcoins

Perhaps Altcoins are just different islands! If there is a Bitcoin Island, then presumably Litecoin has Litecoin Island and Dogecoin has Dogecoin Island?

This interpretation now helps us think more clearly about the role and value of altcoins. Perhaps the innate characteristic of a currency (faster confirmation time? Use of scrypt?) makes the island a more attractive place to live. But if all the infrastructure and population is on Bitcoin Island then these features may not be enough – who knows.

Charges and Liens

It is possible to impose conditions on land parcels in many jurisdictions. A mortgage company can prevent sale of land unless the debt is settled and some landowners in the UK have been dismayed to discover that their land ownership came with an expensive obligation to pay for the upkeep of a local church.

In some cases, the obligation is short-lived (eg the mortgage charge) but in others, it persists across transactions (eg chancel repair liability). A question I don't know the answer to is: can you write a bitcoin transaction that imposes conditions on a UTXO that propagate? That is: can you write a transaction such that whoever spends the UTXO must impose the same condition on their transaction output?

Conclusion

Of course, the land analogy is imperfect but I do think there is something to it. If nothing else, the mental image of 'Bitcoin Island' with UTXOs being the plots of land feels like a really useful one. It has certainly helped my understanding.

Richard Gendal Brown writes on bitcoin and other trends in finance here, his views do not necessarily represent those of IBM. This article has been republished here with permission.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

No Blockchain Is an Island

Primavera De Filippi is a permanent researcher at the CERSA/CNRS/Université Paris II, a faculty associate at the Berkman-Klein Center for Internet & Society at Harvard Law School, the "alchemist" for DAOstack and a co-author of " Blockchain and the Law ."

Much discussion is currently taking place concerning the nature and specificities of blockchain governance, but when we say "blockchain governance" we're really talking about multiple things .

While people often use the term to describe the mechanism by which the underlying protocol of a blockchain-based network can be modified or updated – in terms of both on-chain and off-chain governance – we focus here on a much broader question:

What are the various elements or forces that influence the governance of blockchain-based networks or applications?

Harvard professor Lawrence Lessig identifies four different forces that influence behavior: law, social norms, markets, and architecture (i.e., technical infrastructure or code). In doing so, he underlines the fact that we cannot focus solely on the rules specifically designed to govern or regulate one particular individual.

Rather, we need to take a larger ecosystemic approach, looking at various forces that influence that individual. Accordingly, when it comes to promoting or precluding certain behaviors, we might choose to directly regulate individuals via the legal system or indirectly regulate them through one of the other three forces (markets, social norms, and architecture).

Lawrence Lessig's four constraints of regulation

We propose such an ecosystemic approach to identify the different levers that could influence the operations of a blockchain-based system and the extent to which these levers contribute to the broader notion of "blockchain governance."

Blockchain-based applications do not exist in a vacuum. They subsist within a larger ecosystem of internet applications, each operating according to its own protocols and rules.

The internet layer

In particular, the operations of a blockchain-based system – whether it is a blockchain-based network, platform, or application – are defined by the rules that govern these systems but also respond to the different layers of the internet infrastructure, which to a different extent contribute to shaping the systems' overall governance.

Specifically, blockchain-based networks like bitcoin and ethereum operate on top of the internet and ultimately depend on protocols like the TCP/IP, which is responsible for routing and transferring packets of information between different nodes on the network. These blockchain-based networks thus cannot operate without internet connectivity.

Most critically, because internet service providers (ISPs) ultimately control the transportation layer of the internet, they could discriminate against packets coming from or directed toward a blockchain-based network, effectively tampering with its operations.

Internet governance can therefore have a significant impact on the operations of a blockchain-based network. Particularly relevant in this context is the "net neutrality" debate. The practice of packet discrimination makes it possible for ISPs to favor certain blockchain-based networks, at the expense of others.

More radically, if a government were to ban a particular blockchain-based network, it could require all ISPs operating within its national boundaries to block or filter traffic coming from or directed to that network – e.g., through mechanisms such as deep packet inspection (DPI) or other traffic detection techniques.

Accordingly, while internet governance is external to the blockchain ecosystem (in that its scope is much broader), regulating the internet infrastructure could indirectly affect the operations of a blockchain-based system.

The blockchain layer

Similar problems emerge within a singular blockchain-based network.

While ISPs are responsible for routing packets through the internet, according to specific protocols (e.g., TCP/IP and BGP), miners on a blockchain-based network are responsible for validating and recording transactions into the underlying blockchain, according to a particular protocol (e.g., the bitcoin protocol), consensus algorithm and fork-choice (e.g, bitcoin's proof-of-work protocol stipulates that miners should always add to the "longest chain" as defined by the amount of hashing power required to compute the chain).

Today, this task of processing transactions is driven mostly by an economic incentive system, whereby the higher the transaction fees paid to the network, the greater the chance for these transactions to be included into the next block.

But transaction fees and mining rewards – albeit a fundamental incentive for miners – are not the only factors that might influence the behavior of miners. Other levers might come into play, stemming from the outside of the blockchain infrastructure.

• Markets : What would prevent a large mining pool from entering into an (off-chain) agreement with third parties, in order to speed up the inclusion of certain transactions at the expense of others?
• Social norms : Could miners collectively agree that specific transactions coming from or directed towards a criminal dapp [decentralized application] will not be processed into a block?
• Laws : Could regulators stipulate that all miners located in particular jurisdictions are prohibited from validating transactions pertaining to a specific dapp or account?
• Architecture: Might the Great Firewall of China be constructed to limit the ability of miners in China to handle larger blocks?

These external forces, existing beyond the control of any given blockchain-based application, could force radical consequences over the operations of that particular dapp.

The application layer

It becomes clear that the governance of a particular blockchain-based network could directly or indirectly affect the operations of a particular blockchain-based application running on top of that network.

Even if dapps can be designed to be completely autonomous—in the sense that no single party has the power to control or influence their operations— they remain affected by the operations of the underlying blockchain network and the specific set of protocols that establish its modus operandi .

The governance of a blockchain-based network could be leveraged toward censoring some of the transactions directed to these dapps, or even altering their operations by modifying their code through a hard fork.

This is precisely what happened after The DAO hack, when 3.6 million ether were drained from The DAO's account due to a code vulnerability. The ethereum community responded by intervening with a coordinated action to modify the ethereum blockchain protocol. By transferring funds from The DAO to another smart contract, a mechanism was provided for returning the siphoned funds back to the original owners.

This extreme remedy has been heavily criticized. Some saw it as a betrayal of the "immutability" and "incorruptibility" of the ethereum blockchain (i.e., the "code is law" paradigm).

The multi-layered governance stack of blockchain-based applications

Going deeper into the stack, there are the various blockchain-based platforms on top of which people can deploy their own dapps.

Some dapps sit directly on top of a blockchain-based network. For example, Gnosis is implemented as smart contracts on the ethereum blockchain. Others are deployed on top of a dapps framework such as DAOstack , which implements its own protocol s for creating and maintaining dapps.

W hile most decentralized blockchain-based applications c ome with their own sets of rules, they also depend and therefore must follow the rules of the platform on which they operate. This may give rise to two distinct types of problems.

One is that if there is a flaw in one of these smart contract platforms, the flaw will affect all blockchain-based applications that rely on the platform. Recall the bug in Parity's multisignature smart contracts, which led to the theft of over $30 million worth of ether, followed by a subsequent attack on Parity's revised multisignature smart contract code, which had been brought to " selfdestruct, " thereby freezing the funds in all multisig wallets that depended on this shared code.

Another problem emerges by construction , when platforms implement "proxy" contracts that delegate calls to other smart contracts, which can be updated by the platform developers. While such practices are still uncommon, some platforms (e.g. Zeppelin Solutions ) are starting to experiment with proxy libraries so that, whenever one of the underlying functions is changed, all dapps relying on these libraries will automatically inherit those changes.

While this provides many benefits in terms of flexibility and upgradability, such a design can be problematic to the extent that it relies on a trusted authority (i.e., the smart contract platform operator) that could arbitrarily influence the operations of these so-called decentralized applications.

(Note that the DAOstack framework does not actually provide such a feature. The set of smart contracts provided by the framework, once deployed, cannot be arbitrarily changed by the platform operators. While DAOstack might, over time, offer a series of upgrades to some of the platform's smart contracts, these upgrades cannot be automatically implemented without the consent of the platform's users.)

With this in mind, we might reframe our understanding of "blockchain governance" to include not only the rules specifically meant to regulate the operations of a particular blockchain-based network or application, but also the rules that contribute to regulating the underlying infrastructure on which these blockchain-based systems operate – which themselves operate on top of another infrastructure, and so on.

As the saying goes, it is turtles all the way down.

Crypto Floating Island Project Closer to Realization

Blue Frontiers has signed a much-publicized memorandum of understanding with French Polynesia. The Floating Island Project is exactly as it reads, only it’s to be an independent government complete with its own cryptocurrency. An idea long thought to be a crazy dream of libertarians is now incredibly close to realization.

Crypto Floating Island Project Nearer to a Reality

“A core structural feature of current models of government is centralization,” begins the pitch for an initial coin offering (ICO) pre-sale of Varyon from Blue Frontiers. “Too much centralized authority leads to inefficient bureaucracies and representatives disconnected from the people they are meant to serve. Given a suitable technological solution, governments are ripe for decentralization. That technological solution is seasteading.”

The book Seasteading: How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick, and Liberate Humanity from Politicians (Free Press, 2017) caused an immediate media sensation. Written by Joe Quirk and Patri Friedman, it’s the nonfiction account of what seems at the outset to be a sci-fi idea. Dutifully, legacy outlets treated it that way, at times dismissing seasteading as impractical, the stuff of fantasy.

“Varyon (VAR),” via the Ethereum chain (1 ETH = 14,750 VAR), ERC-20 token, “is a general purpose payment token for the exchange of goods and services in the Blue Frontiers ecosystem, other ecosystems, and between token holders. Blue Frontiers is planning to use the proceeds of the sale to expand its ecosystem and create Seazones and seasteads, and will only accept Varyon (VAR) for its products and services,” Blue Frontiers claims.

A completely unrelated business proposition put seasteading into perspective. Anglo-Dutch oil and gas concern Shell launched its quarter-century at sea project, Prelude. Assembled in Samsung’s Heavy Industries Geoje shipyard, South Korea, Prelude is Shell’s gamble at taking a refinery to natural gas deposits previously imagined out of reach. Longer than the Empire State Building is tall, Prelude’s hull is among the largest ever built. The enormous project is an inspiring construct, stretching four continents and thousands of people.

No Longer Just a Dream

Prelude is a floating city, and not in the literary license sense. It doesn’t take long to sympathize with Mr. Quirk’s and Mr. Friedman’s vision, even if it’s covered in petroleum-seeking profits at the moment. A floating island, then, isn’t the wacky concept one might be forgiven for at first highly doubting. Combine that real-world use case with modern cruise ships, perhaps linking them together, and it also isn’t terribly hard to consider a country at sea.

“Blue Frontiers plans to prototype the first seastead with funds raised from the Varyon (VAR) Crowdsale, and to fund additional seasteads through sales,” the project continues . “The Varyon (VAR) Blue Frontiers holds for seastead and Seazone Construction, Development, and Administration will be used only as needed, in order to create seasteads and Seazones and to strengthen the ecosystem of products and services available to Varyon (VAR) holders.”

The distribution of VAR follows pretty standard ICO procedures: “The amount of Varyon (VAR) allotted to seastead/Seazone Construction, Development, Administration is inversely correlated with the amount purchased in the public sale. That is, the more Varyon (VAR) sold in the public sale, the less Varyon (VAR) held for seastead/Seazone Construction, Development, Administration,” Blue Frontiers details . Thus, up to 28% is available during public sale; up to 8% presale; up to 6% for seed funders; up to 15% for the team; and the remainder goes to the project itself, up to 72%.”

Did you think projects like seasteading will eventually get off the ground? Let us know what you think of this subject in the comments below.

Images via Pixabay, Seasteading Institute, Blue Frontiers

Huh? Tea maker to become blockchain company. Stock soars

Bitcoin mania has reached a new level of insanity.

A publicly traded company named Long Island Iced Tea Corp. ( LTEA ) -- which as the moniker implies is based on Long Island and makes iced tea -- is changing its name to Long Blockchain Corp. and wants to buy some firms in the cryptocurrency business.

The stock surged nearly 200% on the news.

This is madness, pure and simple.

While it's clear that blockchain technology is important and that bitcoin and other cryptocurrencies like ethereum, litecoin and ripple are not going away, there is now too much hype surrounding bitcoin and blockchain.

It's eerily similar to the internet stock craze in the late 1990s when several companies that weren't destined to become the next Amazon simply added a dotcom suffix or "E" prefix to their name and watched their stocks soar.

Long Island Iced Tea is just the latest small company to change its business model in an attempt to latch on to the bitcoin and cryptocurrency wave.

A company now called Riot Blockchain ( RIOT ) has soared since it changed its name from Bioptix and changed its business model from biotech to bitcoin.

LongFin ( LFIN ) , a financial tech firm that recently went public, has skyrocketed after announcing that it bought a blockchain microlender.

And two tiny penny stocks, tobacco company Rich Cigars and e-cigarette firm Vapetek, shot up after saying they were now blockchain companies too.

Long Island Iced Tea Co. said in a press release Thursday that it still plans to keep making its non-alcoholic line of iced teas but that it has also reserved the web domain www.longblockchain.com and will eventually ask the Nasdaq to change its ticker symbol. It didn't say what the new symbol would be.

"We view advances in blockchain technology as a once-in-a-generation opportunity, and have made the decision to pivot our business strategy in order to pursue opportunities in this evolving industry," said Long Island Iced Tea Corp. CEO Philip Thomas in a statement.

Here's the thing though. Long Island Iced Tea Corp. currently has no actual businesses tied to blockchain.

The company said it is in "preliminary" discussions to buy a blockchain software developer working on infrastructure for the financial services industry, as well as a London-based provider of foreign exchange services that is building blockchain and cryptocurrency technology solutions.

Long Island Iced Tea added that it "does not have an agreement with any of these entities for a transaction and there is no assurance that a definitive agreement with these, or any other entity, will be entered into or ultimately consummated."

In other words, Long Island Iced Tea Corp. hopes to one day become a crypto powerhouse.

But for now, it remains a tiny beverage company based in Farmingdale that reported total sales of just $1.6 million in its latest quarter and whose stock was down more than 40% this year before it decided to become a blockchain player.

Crypto Floating Island Project Closer to Realization

Blue Frontiers has signed a much-publicized memorandum of understanding with French Polynesia. The Floating Island Project is exactly as it reads, only it’s to be an independent government complete with its own cryptocurrency. An idea long thought to be a crazy dream of libertarians is now incredibly close to realization.

Crypto Floating Island Project Nearer to a Reality

“A core structural feature of current models of government is centralization,” begins the pitch for an initial coin offering (ICO) pre-sale of Varyon from Blue Frontiers. “Too much centralized authority leads to inefficient bureaucracies and representatives disconnected from the people they are meant to serve. Given a suitable technological solution, governments are ripe for decentralization. That technological solution is seasteading.”

The book Seasteading: How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick, and Liberate Humanity from Politicians (Free Press, 2017) caused an immediate media sensation. Written by Joe Quirk and Patri Friedman, it’s the nonfiction account of what seems at the outset to be a sci-fi idea. Dutifully, legacy outlets treated it that way, at times dismissing seasteading as impractical, the stuff of fantasy.

“Varyon (VAR),” via the Ethereum chain (1 ETH = 14,750 VAR), ERC-20 token, “is a general purpose payment token for the exchange of goods and services in the Blue Frontiers ecosystem, other ecosystems, and between token holders. Blue Frontiers is planning to use the proceeds of the sale to expand its ecosystem and create Seazones and seasteads, and will only accept Varyon (VAR) for its products and services,” Blue Frontiers claims.

A completely unrelated business proposition put seasteading into perspective. Anglo-Dutch oil and gas concern Shell launched its quarter-century at sea project, Prelude. Assembled in Samsung’s Heavy Industries Geoje shipyard, South Korea, Prelude is Shell’s gamble at taking a refinery to natural gas deposits previously imagined out of reach. Longer than the Empire State Building is tall, Prelude’s hull is among the largest ever built. The enormous project is an inspiring construct, stretching four continents and thousands of people.

No Longer Just a Dream

Prelude is a floating city, and not in the literary license sense. It doesn’t take long to sympathize with Mr. Quirk’s and Mr. Friedman’s vision, even if it’s covered in petroleum-seeking profits at the moment. A floating island, then, isn’t the wacky concept one might be forgiven for at first highly doubting. Combine that real-world use case with modern cruise ships, perhaps linking them together, and it also isn’t terribly hard to consider a country at sea.

“Blue Frontiers plans to prototype the first seastead with funds raised from the Varyon (VAR) Crowdsale, and to fund additional seasteads through sales,” the project continues . “The Varyon (VAR) Blue Frontiers holds for seastead and Seazone Construction, Development, and Administration will be used only as needed, in order to create seasteads and Seazones and to strengthen the ecosystem of products and services available to Varyon (VAR) holders.”

The distribution of VAR follows pretty standard ICO procedures: “The amount of Varyon (VAR) allotted to seastead/Seazone Construction, Development, Administration is inversely correlated with the amount purchased in the public sale. That is, the more Varyon (VAR) sold in the public sale, the less Varyon (VAR) held for seastead/Seazone Construction, Development, Administration,” Blue Frontiers details . Thus, up to 28% is available during public sale; up to 8% presale; up to 6% for seed funders; up to 15% for the team; and the remainder goes to the project itself, up to 72%.”

Did you think projects like seasteading will eventually get off the ground? Let us know what you think of this subject in the comments below.

Images via Pixabay, Seasteading Institute, Blue Frontiers

Crypto Floating Island Project Closer to Realization

Blue Frontiers has signed a much-publicized memorandum of understanding with French Polynesia. The Floating Island Project is exactly as it reads, only it’s to be an independent government complete with its own cryptocurrency. An idea long thought to be a crazy dream of libertarians is now incredibly close to realization.

Crypto Floating Island Project Nearer to a Reality

“A core structural feature of current models of government is centralization,” begins the pitch for an initial coin offering (ICO) pre-sale of Varyon from Blue Frontiers. “Too much centralized authority leads to inefficient bureaucracies and representatives disconnected from the people they are meant to serve. Given a suitable technological solution, governments are ripe for decentralization. That technological solution is seasteading.”

The book Seasteading: How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick, and Liberate Humanity from Politicians (Free Press, 2017) caused an immediate media sensation. Written by Joe Quirk and Patri Friedman, it’s the nonfiction account of what seems at the outset to be a sci-fi idea. Dutifully, legacy outlets treated it that way, at times dismissing seasteading as impractical, the stuff of fantasy.

“Varyon (VAR),” via the Ethereum chain (1 ETH = 14,750 VAR), ERC-20 token, “is a general purpose payment token for the exchange of goods and services in the Blue Frontiers ecosystem, other ecosystems, and between token holders. Blue Frontiers is planning to use the proceeds of the sale to expand its ecosystem and create Seazones and seasteads, and will only accept Varyon (VAR) for its products and services,” Blue Frontiers claims.

A completely unrelated business proposition put seasteading into perspective. Anglo-Dutch oil and gas concern Shell launched its quarter-century at sea project, Prelude. Assembled in Samsung’s Heavy Industries Geoje shipyard, South Korea, Prelude is Shell’s gamble at taking a refinery to natural gas deposits previously imagined out of reach. Longer than the Empire State Building is tall, Prelude’s hull is among the largest ever built. The enormous project is an inspiring construct, stretching four continents and thousands of people.

No Longer Just a Dream

Prelude is a floating city, and not in the literary license sense. It doesn’t take long to sympathize with Mr. Quirk’s and Mr. Friedman’s vision, even if it’s covered in petroleum-seeking profits at the moment. A floating island, then, isn’t the wacky concept one might be forgiven for at first highly doubting. Combine that real-world use case with modern cruise ships, perhaps linking them together, and it also isn’t terribly hard to consider a country at sea.

“Blue Frontiers plans to prototype the first seastead with funds raised from the Varyon (VAR) Crowdsale, and to fund additional seasteads through sales,” the project continues . “The Varyon (VAR) Blue Frontiers holds for seastead and Seazone Construction, Development, and Administration will be used only as needed, in order to create seasteads and Seazones and to strengthen the ecosystem of products and services available to Varyon (VAR) holders.”

The distribution of VAR follows pretty standard ICO procedures: “The amount of Varyon (VAR) allotted to seastead/Seazone Construction, Development, Administration is inversely correlated with the amount purchased in the public sale. That is, the more Varyon (VAR) sold in the public sale, the less Varyon (VAR) held for seastead/Seazone Construction, Development, Administration,” Blue Frontiers details . Thus, up to 28% is available during public sale; up to 8% presale; up to 6% for seed funders; up to 15% for the team; and the remainder goes to the project itself, up to 72%.”

Did you think projects like seasteading will eventually get off the ground? Let us know what you think of this subject in the comments below.

Images via Pixabay, Seasteading Institute, Blue Frontiers

Bitcoin Island: cleaning up the crypto currency

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What do Thomas the Tank Engine, lifeboats, pilates, and the Bee Gees have in common?

They are all success stories from the Isle of Man.

The small independent island in the middle of the Irish Sea is now hoping to give a wholesome boost to the bad boy of digital currencies, Bitcoin.

Bitcoin tends to hit the headlines for all the wrong reasons - the spectre of infamous Japanese exchange MtGox, which went bankrupt in 2013 after a spate of hacking resulted in the theft of around 650,000 of the virtual coins (today worth around £150/$223 each), still looms large.

It has also gained notoriety as the currency for choice for illegal activity because Bitcoin transactions can be carried out anonymously.

But the Isle of Man government believes a combination of regulation and encouragement can not only reverse Bitcoin's reputation, but also push it towards the mainstream.

Prodigal son

Its attractively low taxes and relaxed legislation have already made the island a popular choice of headquarters for the e-gaming industry.

Over the last 12 months the government has been working on incorporating Bitcoin into its anti-money-laundering laws.

"We also passed through parliament the Designated Businesses Bill, which treats digital currency exchanges the same as any other company holding value for a client in escrow [a form of safe keeping]," said Peter Greenhill, head of e-gaming in the department of economic development.

"Be that a bank, estate agent or accountant - those come under registration with the Financial Supervision Commission."

The government is stopping short of offering customer protection on Bitcoin investments like the UK's Financial Services Authority (FSA), which guarantees individual savings to the value of £80,000 in the event of a bank collapse.

"But if we look at the most innovative Bitcoin exchanges they are already putting coins into cold storage, and introducing multiple signatories on coin movement," Mr Greenhill added.

"What we've done here on the Isle of Man is to recognize there's an area here that's important to the rest of the world that we can move quickly on in regulation.

"As long as we do that in a concerted way, to protect individuals and keep crime out, we can respond to the needs of an industry that looks like it's going somewhere."

Coining it

Entrepreneur Charlie Woolnough set up CoinCorner, the island's only Bitcoin exchange 12 months ago.

He claims that the exchange already has 10,000 global customers, and 500 merchants are using it to accept digital payments.

Mr Woolnough told the BBC the banks are still very wary of the digital currency industry.

"One big problem we have had as a Bitcoin business is getting access to mainstream banking. If you're being conspiratorial you could say banks view Bitcoin as a threat," he said.

"Maybe a more rational approach is that they view Bitcoin and fintech as high risk right now."

CoinCorner operates on a Know Your Customer (KYC) basis, meaning that in order to open an account you need to upload official ID, proof of address and have your credit or debit cards verified by the firm before you can buy or sell any Bitcoin.

Although the exchange has always operated that way, Mr Woolnough is candid about the baggage of legislation, and it certainly slows things down - it took three days for me to open an official account and even then I remained unable to use my cards to buy any currency.

"I don't think anyone wants to be regulated," he admitted.

"With regulation comes cost and there's a burden that comes with it.

"But we are acting in a fiduciary capacity - anyone who expects this industry to remain unregulated really is living in cloud cuckoo land. the Isle of Man has just been the first mover in this.

"Bitcoin is the currency of the internet and a leading part of fintech."

User experience testing

But outside that rather exclusive world of the financial technology industry, what do the more everyday businesses make of the drive to go digital?

The Thirsty Pigeon Pub on the Isle of Man town Douglas proudly accepts Bitcoin.

On the bar in front of the till sits a tablet computer for customers wishing to settle their tab with their digital wallet.

"Not many people really understand it I think," said landlord Robert McAleer, who admitted that not many Bitcoin payments had been made since a digital currency conference, held on the island last October, attracted Bitcoin enthusiasts in their droves.

"People need more information. and more people need to adopt it, more shops more bars."

Taxi driver Nula Perryn, who founded all-female cab company The Lady Chauffeurs, agreed.

"We do about 2 or 3 [Bitcoin payments] a week," she told the BBC.

"I think it's a bit of a gimmick. as a new firm it's something to get us noticed - however I do feel there's a very strong movement from e-gaming.

"The government is behind it. there's a lot of will behind it."

Island entrepreneur Adrian Forbes believes one solution may lie in making Bitcoin a lot less ephemeral.

His new start-up TGBex is selling physical coins (his lawyer is very keen to call them tokens, he insists, as they are not legal tender). Each coin comes with a QR code so that the owner can transfer the value into their digital wallet.

"Bitcoin for technophobes is what I like to call it," he said.

"I have three young kids and I wanted to buy them a bitcoin each - but [some of] the exchanges have failed or been hacked. for me I think offline storage is the safest at the the moment."

It is a high risk investment, he conceded - but he's not keen on the government getting too involved.

"I'm not a big fan [of legislation].

"I see Bitcoin as something very niche. I don't think it requires same licences as banks and stockbrokers and hedge funds that have a thousand times as much money at stake.

"Bitcoin will work best in the third world first. In the west, it's a novelty, niche technology, a bit of fun.

"It might be advantageous in terms of speed but there's no real need for it."