John James kindly linked here to info about an online arbitration company called judge.me that handles “small claims cross-jurisdictional disputes” at the astoundingly low price of $150.
We’ve been disputing on these forums the relative merits of different digital currencies, especially the one that takes up most of the hot air in the room, Bitcoin.
The obvious problem with Bitcoin is that it is completely unbacked. This is also what makes it possible to use Bitcoin in an untraceable way.
There are plenty of digital gold currencies which purport to allow users to exchange “gold-backed” digital tokens. The concept is indeed very attractive. However, there are two problems. First of all, the government has demonstrated its will to shut down any meaningful competition to FRNs through the use of intimidation and extra-legal seizure of assets as it did with e-gold and Liberty Dollar, two of the biggest alternative currencies with market caps far larger than Bitcoin at the time they were each raided. Second, any attempt to solve this problem by “going underground” also has the self-defeating side-effect that it thwarts any claims that the DGC is actually backed.
I call this the “auditing versus anonymity problem”. On the one side, the cheapest way to be secure from government seizure is to simply hide and remain anonymous (cheaper than having an army to fight them off). On the other hand, the only way to have a trustworthy, backed currency is for its reserves to be regularly audited.
The missing piece of the puzzle is that legal disputes are costly and this is why reserves must be large and centralized. If you order gold from someone and they don’t ship it, you’re going to be faced with the prospect of spending at least $10K just filing suit and collecting from them. Gold is uniquely vulnerable to theft and reneging on shipment because it is highly liquid. So, shipments must be either heavily insured or large enough to justify this legal risk or both.
This opens up the possibility of something I’ve speculated on elsewhere (sorry, not going to dig up cites right now, too lazy) that I call “cash Tor” - basically, the government’s worst money-laundering nightmare ever. For those not familiar with the term, Tor is an anonymity network that re-routes internet packets in a random fashion and uses multiple encryption to make it extremely difficult for an adversary (e.g. NSA, FBI, Dept. Treas. etc.) to spy on the traffic patterns of any particular member of the Tor network. If you think about it, Tor is the data-equivalent of money-laundering.
So, Cash-Tor would basically be a network of “micro-reserves” or “micro-banks” which agree to transfer small amounts of cash/gold between each other in the settlement of other transactions to which they are not a final party. Imagine Alice wants to transfer $10 to Bob but she doesn’t want the IRS to be able to figure out that she transferred $10 to Bob. Well, she could transfer $10 to Charlie who, in turn, transfers $10 to Bob. But the authorities might still be able to figure that out. So, she could transfer through Charlie, David, Evan, Frank, Gary, Heather and Ivan who transfers the final amount to Bob.
Of course, at some point, the costs of these intermediate transfers will become prohibitive, so there can only be so many transfers. But the demand for anonymity is what will set that price. As the government continues to clamp down on the economy to the point where people are considering the use of unbacked digital tokens, the price they will be willing to pay for secured, anonymous transactions will grow.
How to make the transactions anonymous and secured? Enter judge.me. Basically, we ask Alice, Bob, Charlie, David, Evan, Frank and so on to sign an agreement to enter judge.me arbitration if there is a failure-to-deliver on a contracted transfer. Of course, anyone who doesn’t immediately satisfy a transaction that they were contracted to satisfy will be instantly and permanently booted from the network. That will maintain the network’s integrity. But someone will have been victimized and they need a way to get recompense at a reasonable price. $150 is a lot more reasonable than $10K (minimum) and it allows the size of the reserves to be scaled down to where (a) very large numbers of people can participate in the network (thus enhancing anonymity and making the network difficult or impossible to “shut down”) and (b) the amount of money “at risk” in any given transfer is made very small.
Binding transaction agreements would, of course, be non-anonymous. If Gary agrees to transfer $10 to Heather, both parties must have the real-world name, address, etc. of the other party in order to submit their case to arbitration should it come to that. But the network of binding transaction agreements would be de-centralized so that there is no “master list” that the FBI can seize to shut down the network. For example, Evan can sign up with Frank and Bob but none of the others. Frank, in turn, might be signed up with Evan, Bob and Heather. And so on. Each “node” in the network maintains its own list of potential binding partners.
But end-to-end transfers between network participants who are not in a binding transaction agreement (do not have the name, phone, address, etc. or a prior agreement to use judge.me in place) would not only be possible but the primary purpose of the network. Alice does not have a binding transaction agreement with Bob but she doesn’t need it because she does have a binding transaction agreement with Gary, who has one with Heather, who has one with Evan, who has one with Bob. And so, Alice can transfer $10 to Bob in a secured chain of transactions which will be very difficult (particularly if a Tor network is used to handle the logistics of the transactions) for the FBI to untangle yet - should something go wrong along the way - the point at which trust was breached will be able to be brought to arbitration and the transaction damages eventually resolved.
Because the consequences of betraying the network far outweigh any potential benefit (individual transactions are small, so you can only get ahead by a small amount of cash), the network itself should be extremely reliable. Most importantly, the network could not be shut down with the usual dragnet, intimidation and summary seizure tactics of the government. They might even target a few users but seizing a few thousand dollars between 5 “money launderers” somehow doesn’t have the same headline splash as seizing $20 million (IIRC) of customers’ silver bullion coins from Liberty Dollar.
Clayton -
