Wednesday, May 30, 2012

Book Review: The Sovereign Individual

The International Society for Individual Liberty published James Elwood's book review of the amazing and prescient The Sovereign Individual: Mastering the Transition to the Information Age.

Here is a brief excerpt from the full review:

It is the computer revolution that provides the promise of a real-world Galt's Gulch. Still in its infancy, the cybereconomy will allow the successful practitioners of computer technology to escape the regular economy and the predations of governments. Widely available strong encryption tools like Pretty Good Privacy (PGP) are already allowing ordinary users to make it impossible for government to monitor their communications or decipher the contents of their hard drives or storage disks.

The Information Revolution will also bring us the death of politics as we know it. Participants in the cyber-economy will operate in the anarchic environment of the Internet, choosing who they will deal with, how and when. The authors think that the morality of the marketplace will dominate the Internet, and that private clubs with their own security procedures will arise to prevent theft by cybercriminals. Politicians will become increasingly irrelevant, as people bypass them and form new voluntary local institutions and virtual communities on the Internet.

The death blow to the nation-state will be digital cash, which has just become available. E-cash or even e-metal, using encrypted verifiable signals will allow individuals to make their transactions in secret on the Internet, and will destroy the ability of governments to exact wealth through the hidden tax of monetary inflation. Using financial institutions domiciled in tax havens, and using anonymous remailers, cybernauts will be able to largely avoid taxes and inflation, and thus amass wealth at a vastly accelerated rate.

Governments will starve. Their ability to exact large sums from the rich for transfer payments will disappear. If they are to survive, they will be forced to radically downsize, and treat their citizens like customers instead of livestock. And since their ability to police large territories will also decline due to weapons technology, there will be enormous pressures to break up nations into much smaller jurisdictions. The provision of protection will become a business service, and much more personalized, especially for the rich cyber-entrepreuners.

For further reading:
"The Sovereign Individual Book Review", Peter Macfarlane, October 31, 2008
"Will Computer Technology Liberate Individuals from the Nation-State?", Greg Kaza, The Freeman, February 1, 1998

Tuesday, May 29, 2012

Banishing Facebook's Eduardo Saverin Harms U.S. More

By Jon Matonis
Wednesday, May 23, 2012

U.S. Senators Chuck Schumer and Bob Casey
Yes, the Facebook IPO was noteworthy. But just as noteworthy was the decision by Eduardo Saverin to renounce his U.S. citizenship on the eve of the historic IPO and become a permanent resident of Singapore, where there is no capital gains tax. He is already a citizen of Brazil but they don't tax non-resident income like the United States.

With Pavlovian predictability, this action triggered the anti-monetary freedom Senator Chuck Schumer to proclaim that "Saverin has turned his back on the country that welcomed him and kept him safe, educated him, and helped him become a billionaire." Remember, it was Schumer last year that decried the ability of free people to transact in a medium of exchange of their choice such as bitcoin. Just as Schumer seeks to lock Americans into a depreciating U.S. Dollar, he now seeks to lock ex-Americans in his tax prison if they want the right to visit the U.S. in the future.

Schumer and Casey’s proposal is called the Ex-PATRIOT Act or the backronym "Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy" Act. Two additional senators are co-sponsors of the bill. According to the summary of the bill, the Ex-PATRIOT Act would require the IRS to make a determination regarding "tax avoidance intent" for certain persons renouncing U.S. citizenship.

Under the proposal, any expatriate with either a net worth of $2 million or an average income tax liability of at least $148,000 over the last five years will be presumed to have renounced their citizenship for tax avoidance purposes. Unless the individual can convince the IRS that they haven't done so for tax purposes, the IRS will prospectively impose a capital gains tax of 30% on the individual’s future investment gains, no matter where he or she resides.

If the individual continues to avoid these taxes, they would be inadmissible to the United States forever, thereby closing the loophole that currently exists for renounced U.S. citizens to visit the United States for 60 days per year without any tax responsibility. As Senator Schumer pontificated during a press conference, "they would be barred from returning to the United States. Period. They could not set foot in this country again."

Banishing individuals because they are successful and because they freely seek countries with reduced taxation appetites sends the wrong message to the remaining U.S. citizens still stuck on the 'reservation.' It says that you are only as good as the tax revenue that you produce. It's also horribly vindictive because other people who were never U.S. citizens can still visit the country as tourists. A record number of 1,780 people gave up their U.S. passports in 2011 — a dramatic rise from the 235 persons who did so in 2008. I expect many more. However, what is more harmful is the chill that it sends to both U.S. entrepreneurs and non-U.S. entrepreneurs considering the United States for residency.

Do you seriously think that Saverin would ever reinvest in the U.S. if he is barred from even visiting as a tourist? Wisely, he will take his investable capital and launch projects in other parts of the world creating quality jobs along the way as other wealthy individuals have done. Vast opportunities await in the non-U.S. rest-of-world category and those investment opportunities tend to provide greater returns with fewer regulatory hurdles. Add to that the fact that U.S. citizens have become pariah on the international banking system because of the overbearing worldwide tax compliance demanded by the IRS from financial institutions that accept U.S. customers and, ironically, Saverin will be more free.

Not only will he be free to execute a multi-jurisdictional strategy on the world stage, he won't have to complete those annual Report of Foreign Bank and Financial Accounts (FBARs) to the IRS. Saverin is savvy and unfortunately the senators are nothing short of myopic in their world vision.

For further reading:
"Facebook Cofounder Eduardo Saverin Begins the Atlas Shrugged Exodus", Robert Ringer, May 23, 2012
"Eduardo Saverin’s citizenship renunciation is not about taxes, it’s about American imperial overreach", David Kuenzi, May 18, 2012

Thursday, May 24, 2012

The Evolution of E-Money

I introduced digital bearer certificates and bitcoin at the 7th annual ITWeb Security Summit in Johannesburg, South Africa (May 15-16th, 2012).
The Evolution of E-Money

For further reading:
"E-money raises privacy concerns", Nicola Mawson, ITWeb, May 17, 2012
"Bitcoin: a mobile money alternative", Gareth van Zyl, ITWeb, March 26, 2012

Thursday, May 17, 2012

The Somali American Remittance Dilemma

By Jon Matonis
Saturday, May 12, 2012‎

By threatening to close their Wells Fargo and U.S. Bancorp accounts this week, a group representing Somali Americans has pushed the ongoing hawala remittance issue to a head. For months now, Somalis in Minnesota have been barred from making the small regular transfers to their family members in Somalia that they have been making for years.

According to American Banker, "Bank officials say they sympathize with the plight of the expatriates but that there is no clear way to process the payments comfortably within federal rules. The problem lies in Somalia's money-services businesses. Remittance there is done through a loose network of MSBs known as hawalas. U.S.-based hawalas work with banks to wire the money to hawalas in Somalia." Since hawalas in Somalia are unregulated, the U.S. government worries that such intermediaries could assist in funding terrorism.

Unfortunately, it's not an isolated incident. This scenario is likely to happen more and more as onerous Bank Secrecy and USA Patriot Acts make it increasingly difficult for financial institutions to be in full compliance with anti-money laundering regulations. Instead of trying to comply, they are electing to opt out so as not to encounter heavy federal fines. It sure would be nice if the world had a decentralized peer-to-peer digital currency that could be transferred to mobile devices in a secure fashion.

Wait a minute! Doesn't bitcoin allow for rapid and trustworthy international value transfer? Isn't bitcoin fairly easy to obtain in the developed economies of North America and Europe? Doesn't Somalia have good telecommunications infrastructure supporting mobile phones?

Here's how the bitcoin money remittance process would work. A hard-working honest Somali American wishes to send the equivalent of $150 to his mother in Somalia so he purchases bitcoin at one of the many exchanges that accept cash deposits at banks for bitcoin. Alternatively, our would-be remitter could use the Bitcoin OTC (over-the-counter) exchange and arrange a person-to-person sale based on reputation history. Once the bitcoin is stored safely in the remitter's client wallet, he would ask the overseas recipient to generate a bitcoin receiving address using one of the many bitcoin wallet apps for Android. [Sorry but Apple's App Store is currently restricting bitcoin wallet apps with send or receive capability.]

After his mother in Somalia has received and confirmed the bitcoin transaction (approximately 10 minutes), she would be able to maintain the bitcoin balance or change it out into her local currency, the Somali shilling. Bitcoin exchangers are already springing up in many countries around the world including Brazil, Latvia, and Philippines. If it hasn't happened already, a savvy merchant in Somalia will start accepting bitcoin for Somali shillings. Or a traditional currency exchange dealer could get in on the action too -- the spreads are certainly there.

In September 2010, the mobile penetration rate in Somalia was estimated at 25.84% over a population estimate of 9.9 million. Since the financial flow would be principally in U.S. dollars to bitcoin to Somali shillings, several aggregators could make a market in bitcoin and then sell their bitcoin in the market to other intermediaries. All it takes is a few Somalia-based bitcoin outlets to open up their economy to the rest of the world economy.

As a distributed network, bitcoin possesses the capability to route around interference and disruption. In fact, this was a key design consideration as resiliency has grown to become an imperative for privacy-enhancing electronic cash. Its detractors remind me of the holy papacy being fearful of the printing press because it allowed for individual interpretation and diminished mankind's reliance on the anointed biblical teachers.

Saturday, May 12, 2012

Bitcoin Funded Debit Cards

By Jon Matonis
Monday, May 7, 2012

Yes, it's entirely possible to fund your existing debit card, or credit card, with your accumulated bitcoin. And I don't mean that you are shipped a generic, low-limit prepaid VISA or Mastercard from some anonymous reseller. I mean that you convert bitcoin online to dollars or euros and the funds are available to spend with a card that you are most likely already holding in your wallet.

Why is this so significant? It's important because it leverages a little-known type of transaction that is available on the VisaNet system called 'Original Credit Transaction'. The other major card payment networks have a similar feature too. These transactions act like a refund or credit transaction when you return an item to a store except that they don't have to be associated with an original purchase. Essentially, they enable your card to be a two-way payment device. Surprisingly, not many financial institutions have taken advantage of this feature yet but I expect that to change.

Visa Personal Payments, already offered by financial institutions outside the U.S., became available in the U.S. market last year marking the first time that a major payment network has introduced a global requirement for account issuers to accept incoming funds. It's the technology behind now-merged P2P service providers ZashPay and Popmoney.

Previously, it was cumbersome for bitcoin account holders to transact in national currencies because they had to go through one or more exchanges and then wait further for funds to arrive in a bank account or other intermediary like the formerly bitcoin-friendly Paxum. Now these personal payments are being offered by e-currency exchanges as a way to provide easy worldwide access to e-currency account balances most notably by AurumXchange. The digital currency exchange operated by Dominica-based Aurum Capital Holdings, Inc. supports bitcoin as well as Liberty Reserve, Pecunix, Perfect Money, and c-gold and they offer two choices for cashing out into a card-based product.

The first option is the Withdraw2Card service that does not require any sender identity verification. Requiring only the destination card number and expiration date (name and CVV code are not required), funds can be transferred to any credit or debit card in any country in the world. If the destination account currency is not dollars or euros then it will be converted to the native currency automatically. Service fee is $9 plus 1.99% (for MtGox USD) with a $1,000 maximum transfer amount and you should not send more than the credit card's limit. The bitcoin portion of the transaction is accomplished through the use of redeemable coupon codes from the popular bitcoin exchanges that act as digital bearer certificates. According to AurumXchange, they plan to offer direct two-way convertibility for bitcoin in the near future so you won't need the redeemable code.

This service is ideal for regions of the world where a large majority of the population may not have bank accounts or where international wires are cost-prohibitive. AurumXchange's General Manager Roberto Gutierrez explains, "The service so far has been tremendously popular. Just counting countries alone where people don't have access to bank accounts or foreign wires are highly taxed or scrutinized, such as Africa, Brazil and China to name a few, we have processed over 3,000 orders since we started a few weeks ago. North American and European customers have been using the service quite a lot as well especially for small transactions that would otherwise be too expensive to conduct through means such as international wire transfers."

The second option is the AurumXchange Premium Mastercard issued through North Carolina-based Four Oaks Bank which comes with instant funds availability. After a $24.99 two-year membership fee, the card will be shipped for free anywhere in the world via first class mail.

OKPAY is another interesting provider in the bitcoin debit card space. They offer the OKPAY Debit Card which is issued by Limited, a financial institution licensed by the Central Bank of Cyprus to issue cards. Founded in 2007, OKPAY, Inc. is a subject of British Virgin Islands (BVI) regulations.

Now that they have completed their bitcoin integration into the OKPAY system, it is possible to fund your OKPAY account directly with bitcoin, withdraw via bitcoin, and use bitcoin as a payment option for purchases of goods and services. Although, they do not offer the Original Credit Transaction feature to any card, they will provide timely and direct conversion of bitcoin to their proprietary Mastercard product.

By removing friction from the process, bitcoin becomes easier to spend overall because not every merchant will accept bitcoin directly for payment yet and not all transactions demand irreversibility and privacy. Logically as a consumer, you may still want your VISA chargeback rights for certain purchases. The Original Credit Transaction is an excellent way to leverage the legacy card payment network to facilitate the growth of the bitcoin network and these two exchangers are in the vanguard.

Saturday, May 5, 2012

Robert Wenzel to Federal Reserve: “Leave the Building to the Four-Legged Rats”

By Jon Matonis
Monday, April 30, 2012

Somebody finally turned on the lights at the Fed. As a regular subscriber to Wenzel's Economic Policy Journal, I enjoyed reading the full text of  Bob's landmark speech to the Federal Reserve Bank of New York last Wednesday. Kudos to Bob on garnering the invitation in the first place. Scott Horton joked on his radio program that it must have been like showing a card trick to a dog (in the words of Bill Hicks).

It's well known that the Fed has discreetly dominated economic journals to quash real criticism. Rather than hurl insults at Fed economists and central planners during a lunchtime gathering in the bank's Liberty Room, Robert tactfully exposed economic fact after economic fact that probably had some in the monetary priesthood questioning the morality of their own careers.

Even though it's a speech more entertaining than effective, this is the chance of a lifetime for an Austrian School economist and I am sure Bob didn't just go for the food. Here are some of the economic gems:
"I scratch my head that somehow most of you on some academic level believe in the theory of supply and demand and how market setting prices result, but yet you deny them in your macro thinking about the economy.

I scratch my head that somehow your conclusions about unemployment are so different than mine and that you call for the printing of money to boost “demand”. A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%.

So you then might tell me that stable prices are only a secondary goal of the Federal Reserve and that your real goal is to prevent serious declines in the economy but, since the start of the Fed, there have been 18 recessions including the Great Depression and the most recent Great Recession. These downturns have resulted in stock market crashes, tens of millions of unemployed and untold business bankruptcies."
Then, he turns his attention to gold:
"In this very building, deep in the underground vaults, sits billions of dollars of gold, held by the Federal Reserve  for foreign governments. The Federal Reserve gives regular tours of these vaults, even to school children. Yet, America’s gold is off limits to seemingly everyone and has never been properly audited. Doesn’t that seem odd to you? If nothing else, does anyone at the Fed know the quality and fineness of the gold at Fort Knox?
In conclusion, it is my belief  that from start to finish  the Fed is a failure. I believe faulty methodology is used, I believe that  the justification for the Fed, to bring price and economic stability, has never been a success. I repeat, prices since the start of the Fed have climbed by 2,241% and there have been over the same period 18 recessions. No one seems to care at the Fed about the gold supposedly backing up the gold certificates on the Fed balance sheet. The emperor has no clothes.
The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or,  if you stop printing, another massive economic crash will occur. There is no other way out."
And of course the memorable grand finale:
"Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats."

Tuesday, May 1, 2012

Be Your Own Bank: Bitcoin Wallet for Apple

By Jon Matonis
Thursday, April 26, 2012

Have you ever wanted to be your own bank? There's an app for that. With the new Blockchain bitcoin wallet for Apple’s iPhone, iPad, and iPod touch, anyone can emulate the functionality of a bank. Simply download the free app from the App Store and you have a fully-functioning send and receive online wallet that allows value transfer without the need for a bank or other financial intermediary. This is the proper path to a cashless society! is an offering from UK-based Qkos Services Ltd. that provides online wallet management services and real-time data analytics from the bitcoin block chain. Run by Ben Reeves, the small company has released several reliable services and products for the thriving bitcoin community including charts, statistical data, the web-based My Wallet, an Android wallet app, and most recently an impressive bitcoin wallet app for Apple’s iOS.

The reviews coming in so far are excellent. "Welcome to the future. This is going to change the game," writes one app user. Blockchain has combined powerful payment functionality with ease-of-use and an aesthetically pleasing interface. "The pace of innovation in the Bitcoin-related space is accelerating — something that could be revolutionary even, considering it all comes from participation by individuals as there is no corporation or industry group overseeing Bitcoin endeavors," observes the BitcoinMoney blog.

Apple has long had their eyes on the lucrative mobile payments space strategizing on an entry point. This non-dongle iPhone app is especially important now that the 'dongle wars' have heated up between Apple mobile payment competitors Square and PayPal. Ironically with mountains of existing iTunes customer accounts, Apple could find itself in the best position to capitalize on a robust cash-like ecosystem that completely bypasses the banks via apps. If they chose to do so, Apple could quickly become the premier bitcoin exchanger for retail.

Company founder Ben Reeves explains, "The beauty of bitcoin is that it's fully decentralized -- no government or corporation can block payments or revoke accounts. My hope is that this app allows bitcoin to reach a more mainstream audience." The company also plans to release an SDK (Software Development Kit) which will allow developers of iPhone apps to accept bitcoin payments in their own apps. Interviewed for this article, Reeves said that Apple wallet downloads have been averaging about 250 per day which should allow it to quickly surpass the number of downloads for the Android version.

So, what's new for Apple users worldwide? Firstly, financial privacy is paramount and it's protected by requiring only a password as identifying information and by shielding your Internet location from the network. International payments are now free without using credit cards and without the risk of chargebacks. Transactions are received in milliseconds and they become irreversible within a hour. There is capacity for up to 400 bitcoin addresses so you can open new bank accounts and instantly receive deposits at the touch of a button. Addresses are clickable to display a QR code and you can also scan QR codes to make payments. Keys are stored securely on your phone and encrypted on Blockchain's servers so if you lose your phone, no sweat -- you're protected.

Empowering your own monetary future has never been so accessible. I might even wait in line to purchase the new iPhone 5. Why approve the Blockchain app at this time when it was mysteriously rejected before? Maybe Apple no longer wanted it as an illicit app on the Cydia website. "Or perhaps Apple saw the Android version of the app and prefers to maintain its strong iPhone market share," posits BitcoinMoney. Whatever the reason, Blockchain now joins 16 other bitcoin-related apps currently available from the App Store.