Bitcoin and Agorism

We are working with the government to make sure indeed the long arm of the government can reach Bitcoin
Jeff Garzik, Bitcoin Developer

Two days ago, on the show, What’s Trending, Bitcoin developer Jeff Garzik remarked that despite the opinions of the libertarian user base of Bitcoin, the success of Bitcoin required cooperation with government regulation. This echoes the opinions of Bitcoin technical lead, Gavin Andresen. Here, “regulatory cooperation” specifically refers to “regulatory compliance” of Bitcoin exchanges. A Bitcoin exchange is where government fiat money is exchanged for the Bitcoin “free market” fiat money and vice versa. Regulatory compliance means reporting the details of each of these transactions, including the user identities linked to a Bitcoin address for each exchange transaction, to the Government.

It’s not like the Bitcoin development team has nefarious motives. Even though the original whitepaper by “Satoshi Nakamoto” was perhaps ideologically motivated by crypto-libertarianism, the development has since been turned over to a team more concerned with practical adoption than ideological ends. A fiat currency requires a “network effect” to ultimately succeed. Since Bitcoin “mining,” that is the creation of new bitcoins, is (1) an incentive reward for a clearinghouse node completing a proof-of-work requirement for verifying the current block of unverified transactions and given (2) that the increase of CPU power of the Bitcoin network(i.e., the addition of new nodes) dictates that clearinghouse nodes specialize(following a “division of labor” hierarchy) as “number-crunchers,” so most nodes now will no longer participate in block transaction verifications(they will “turn off” the Bitcoin mining option), it follows that (3) most new entrants(new “nodes”) who want to acquire bitcoins will do so by buying them from a currency exchange.

Hence, the Bitcoin development team’s position that the network effect(wide-spread adoption) depends on “white-market” currency exchanges as entry points. Without regulatory compliance, these exchanges won’t exist and/or continue to exist. The Bitcoin development team consider themselves acting in the capacity of entrepreneurial agents, not ideological agents. In other words, they have an entrepreneurial interest in wide-spread adoption(the “network effect”). But the means here conflict with the original ideological intent. This is an example of why I am not a Rothbardian Agorist.

In Rothbardian agorism, you would have:

(1) no white-market currency exchanges. You would acquire bitcoins by exchanging a product of your labor. In other words, if you wanted a product/service being offered in bitcoins, you would have to discover and offer a product/service that others would be willing to pay for with bitcoins. In the limited Bitcoin ecosphere, this would likely entail huge opportunity costs. These opportunity costs are exactly why the libertarian economist Walter Block dismissed agorism as being “economic suicide.”

(2) you could have grey-market exchanges. Agorist theory would require “protective agencies” to evolve, in an entrepreneurial capacity, to defend these transactions. However, we are seeing that the entrepreneurial actions of the Bitcoin development team working against this outcome. From a practical sense, you can see why. “Conspiracy” in US Law is totalitarian. A grey-market exchange + “a bitcoin market trading in illegal services/goods” = criminal conspiracy that could land anyone associated with the project in jail.

Bitcoin, Laissez-Faire and Bureaucratic Compliance

Bitcoin fantastically illuminates the distinction between “regulation” and “compliance.” Statists rely on conflating the two concepts. In the “Laissez-faire” tradition, the entrepreneur is a “regulatory mechanism” and the bureaucrat a “compliance mechanism.” Statists will call Bitcoin an “unregulated monetary ponzi scheme.” But what they really mean is that it is simply “non-compliant” with the lawlessness of the US Political economy. What Statists call “unfair advantage of early adopters” is simply the entrepreneurial reward for resolving a coordination problem. There is no need for “regulation” because it works quite regularly as expected, according to the rules adopted.

A fair, non-compliant(!=unregulated) exchange between government fiat money and free market fiat money resolves the opportunity cost problem outlined above, and absent that constraint, it’s likely that the free market fiat money would experience it’s network effects. However, compliant(!=regulated) exchange between government fiat money and free market fiat money is not likely to result in any network effects. It should be realized that if the State, particularly one that has “oligarchicalized money and credit,” particularly one whose currency serves as the global reserve, lost it’s monopoly on money, it would likely collapse. So, it’s a bit naive to think that the State would comply with such an outcome.

A valid criticism of the Bitcoin development team would be stop using the term “regulate,” and instead use the more accurate term, “compliance.” Compliant Bitcoin Exchanges would have to be considered “Snitch nodes” on the Bitcoin network. Snitch nodes obviously compromise your anonymity in terms of participating in the Bitcoin network, but whether this is sufficient, along with other techniques, to compromise your anonymity for any given transaction, is another matter.

What’s clear, in observing the rapid appreciation of Bitcoin on the exchanges the past 30 days, is that this matter is soon coming to the fore…

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Odds and Ends…

My little blog, which I started after Freedom Democrats went defunct, has now reached it’s one year anniversary. One thing I have definitely learned the past year is that if you want to implement a “traffic-killing” strategy, post intermittently on the rational choice foundations of libertarian theory. Guaranteed to kill your traffic, unless,I suppose, you happen to be a well-known professor/scholar in the field.

A traffic-generating strategy, on the other hand, has proven to be to post on topics related to your specific areas of expertise and post often. So my “techie” stuff usually does decent traffic and occasionally does explosive traffic. For example, my post on the immixGroup-VeriSign-ICE triage behind the domain seizures, an inner working that I was able figure out, got significant linkage from a number of major tech publications. My Wikileaks Watch posts, for the brief time I was maintaining them, got good hits. In short my niche would be “Applied Cyberpunk,” although this would involve none of the literary or cultural aspects of that genre. Perhaps a more accurate but less chic term would be “Internet Political Economy.”

Still, my “theory” posts, although not widely read, have helped me flesh out my own rational basis for libertarianism, one that has steadily moved toward moral contractarianism, the only framework that I now think can be consistent with Laissez-Faire. This moving to the later Benjamin Tucker position, but instead of “Rational Egoism,” we are substituting Game Theory Rationality.

Lately, many of my “theory” posts have been attacking the premise of “Bleeding Heart Libertarians.” This is not because I don’t share the same moral judgments as BHL, because, in actuality I do. It’s because there really isn’t any rational or social choice basis for distributive justice. So, advocating libertarianism as a basis for distributive justice principle is a dead-end road. Indeed, the libertarian principle has already been demonstrated to lead to cooperative equilibrium.

David Gauthier demonstrated that one shot non-cooperative games where agents play a tit for tat strategy, where cooperation is constrained by (i) minimizing the concession and (ii) the libertarian principle results in the equivalent Kalai-Smorodinsky bargaining solution. The Gauthier ideal non-cooperative game relies on conditions of (a) modest scarcity and (b) relatively equal agents. It ties the libertarian principle to a boundary constraint on non-cooperative games between reciprocal cooperators. In some respects, it’s an ideal analogous to Neoclassical perfect competition.

Moral Contractarianism does two things (1) counters the typical claptrap that equates libertarianism with a morality that underlies a social theory of selfish defectors (2) the libertarian principle as boundary constraint obviates attempts to use it as a foundation for an initial-value principle.

Defining Libertarianism

i) Political Theory: Denies any rational or social choice normative basis for political authority

ii) Social Theory: Libertarian Justice not a moral theory, rather it is a theory of rational moral constraints. Significant but subtle difference.

Addendum: Natural Law + contractarianism incompatible and dangerous. Natural Law=preferred or natural ranking of moral preferences. Contractarianism to enforce a natural or preferred ranking of moral preferences violates the libertarian principle boundary constraint.

Problem:
Moral contractarianism perhaps may work work great for sentient automata. It may break down for humans under an expanded treatment of evolutionary norms for reciprocal cooperators. A punishment problem potentially arises. A biological problem(implying perhaps the need for Transhumanism?)…

Bitcoin and Moral Judgments

Bitcoin, I think, plays into the moral contractarian framework I’ve outlined above. Libertarianism, as a social theory, is not a theory of moral judgements; rather it is theory of rational moral constraints. That is, we are not concerned with the moral preference ranking of Agent A and Agent B; rather, we are concerned with the moral constraints on A and B as reciprocal cooperators. We do not want a contractarian order that favors/enforces the moral preference rankings of either A or B; otherwise, it violates the libertarian principle boundary constraint.

In reading the Bitcoin forums after the Silk Road and Schumer publicity, there is an obvious divide in moral judgments between the Bitcoin development team and the Bitcoin user base. The former is in favor of integrating Bitcoin into the legal and regulatory environment of the State. This means, for example, that exchange organizations, that convert Bitcoin to State currency would fully comply with reporting the conversion transactions to the authorities. The Bitcoin technical lead,
Gavin Andresen, has expressed opinion that the Bitcoin community should work with law enforcement to aid in the arrest of those who use Bitcoin for illegal drug transactions. This is in sharp contrast to the forum user base, many of whom are of the crypto-anarchist variety.

So Bitcoin provides us with a model of a clash in moral judgments. This is a test of the political economy of Bitcoin. It reinforces the point why moral judgements cannot underlie a libertarian social order. It also demonstrates that Bitcoin is not actually an “agorist construct,” precisely because of the differences in moral judgements. That Bitcoin will still potentially work despite the clashes in moral judgements is an overall point I’ve tried to emphasize. It also goes to show that to be good “Applied Cyberpunk,” one probably has to avail oneself of the rational choice foundations, tedium notwithstanding…

Chuck Schumer’s New War on Bitcoin

New York Senator Chuck Schumer probably occupies a top place in the libertarian axis of evil. A bigot, a religious fanatic, a nanny-state totalitarian and a crook, Schumer epitomizes the libertarian critique against political authority. This is a man who is accustomed to barking orders at a servile populace, a man who counts intimidation and threats to be among his preferred methods of executing governance. So this video and story of Schumer’s outrage over Silk Road and Bitcoin, likely facilitated by a recent Gawker article, is vintage Chuck. Conjure moral outrage, summon the TV cameras, bark orders…

But, unfortunately for Chuck, this ain’t Four Loco. Ordering the Feds to shutdown the website and “seize the domain” was comedic display of Mussolini buffoonery. I suppose it’s sad that no one in the press corp had the technical wherewithal to challenge Schumer’s stupidity, but it’s amusing that Schumer’s aide, the one that set up the TOR client to access the site, didn’t have the cojones to prevent Chuck from looking like a moron. But then again, I suppose it’s probably career suicide to stand between Schumer’s moral outrage and a TV camera.

Silk Road is running as a TOR hidden service on the TOR P2P tunneling network. This means it’s being run from someone’s anonymous box that generally can’t be identified. It can be anywhere in the world. Anyone who downloads the TOR software can setup a hidden service. There’s no “domain name” to seize here and the only way to stop this sort of thing (at least until the “Internet Kill Switch Bill” is enacted) is to ban the TOR protocol outright, which would counter the government’s interests because: (i) it would cast the US in a bad authoritarian light (ii) more importantly, it’s used by US intelligence organs as a secure communications tunneling network with international assets. After all, it was the US government that originally developed it, and it was released into the wild because it’s useless, like any other P2P network, without a robust number of nodes. In particular, here, a TOR network of nodes consisting of just the spies, informants and US bureaucrats would be “stick out like a sore thumb” tunnel; these tunnels need lots of “noise,” that is, lots and lots of other tunnels to be effective. Also, of course, if the software was “classified,” there would be an obvious distribution problem of getting the software into the hands of the intelligence assets, a vulnerability(which could be exploited, because the acquisition method of the software could be compromised and tracked) that, combined with the “stick out like a sore thumb” intelligence-only tunnels, would make TOR useless. And this is why the US government released TOR into the wild.

Chuck hasn’t gotten the memo on TOR yet, but I imagine he will get the intelligence organ “sit down” on that. It’s not TOR that’s the threat, it’s Bitcoin. Schumer called Bitcoin a “money laundering mechanism;” certainly he is ready to take the lead in Senate hearings to foster drafting new legislation that would outlaw any unauthorized crypto-currency. However, the government, particularly the intelligence organs, is a bit ahead of Schumer in that the CIA is sponsoring a presentation by the Bitcoin lead developer.

Hitherto, the problem of crypto-currencies, in terms of being any threat to the State, was the need of a central authority to regulate against fraud. Anyone can define an electronic coin as a ledger/chain of digital signatures. One obvious problem is how to prevent Agent A, who is wishing to transfer ownership of the coin for a good/service, to simultaneously use the same coin to buy something from Agent B and Agent C, that is, more or less simultaneously digitally sign over the coin to Agent B and Agent C. This problem would seem to require a central authority to referee between A’s transaction with B and A’s transaction with C.

The Bitcoin algorithm, from I gather reading the technical whitepaper, solves the problem of transaction verification by incentivizing every node in the Bitcoin network to race for verification of outstanding transactions. In other words, every node is in competition to serve as the clearinghouse for the current existing block of unverified transactions. The verification is done by timestamp. All transactions are broadcast to all nodes, but in a P2P network, Node X’s timestamp for the current unverified transactions may be differ than Node Y’s timestamp for the same. The timestamp verification that wins out, that is the node that wins the clearinghouse game, depends on that node solving a “proof of work concept” that is able to solve a difficult mathematical problem of converting a hash representation of it’s own block into a required leading zero-bit format. The winning node then broadcasts it’s time stamp block to all nodes that readjust accordingly. The winning node is awarded a certain amount of bitcoins which serves as the first transaction in the next block of unverified transactions that will need to be verified.

Bitcoin is able to use competition to resolve the clearinghouse problem(clearinghouse nodes are incentivized by new coin creation). It ingeniously self-corrects for the introduction of cpu power by making the mathematical work of proof problem geometrically more difficult. This allows scalability without monopoly capture, but it does create a division of labor scenario where clearinghouse nodes invest in GPU cycles over CPU cycles(the investment in GPU cycles allows the system to handle the clearinghouse needs of an expanding system). However, the system constraints cap the total coin creation which means that clearinghouse nodes will eventually only compete over transaction fees.

The question concerning Bitcoin is two-fold: (i) can it survive a coordinated hacker attack (ii) can it survive government censorship/banning. We are probably about to find out about (ii). The thing about the US is that it is not a hard censorship regime; it’s a soft censorship regime. An actual honest-to-god crypto currency, however, is it’s worst nightmare. The US government will release something like TOR into the wild, but it would never release something like Bitcoin into the wild.

The Moral Bargain…”The Wind Cries Mary”

Welcome to another installment wherein I attempt to tear assunder libertarianism and social justice. Two things the likes of LoOG, Let the wind between howl, lonely and wild, and BHL,The Moral Status Quo, are intent on marrying.

Let me begin by noting that BHL’s allusion to a “frozen conceptual sea” as a critical starting point nonetheless fails to extricate the discussion from the glaciers. BHL’s definition of “classical liberal” and “libertarian” are standard fare. The introduction of the term “High Liberal” offers little clarity and fails to crack the ice.

I take a different approach, one that is rooted in contractarianism and not economics per se. I define Liberalism thusly:


Liberalism: a rational normative social contractarian theory that views morality and justice to be a product of convention and agreement.

I would contend that this is universal definition, one that holds even today among the various factions. Divergences occur, however, around the different conceptions of what it means to act rationally. This is the basis of the fault lines within liberalism. And these fault lines have been there from the start. Examples:

(a) For Hobbes, the rational agent will cede it’s liberty to obey a sovereign.
(b) For Locke, the rational agent will only cede the right of retribution to the sovereign as an enforcer.
(c) For Kant, the rational agent will cede authority to a universal moral principle as means to ensure personal autonomy.

From a contractarian perspective, a primary distinction between “enlightenment liberalism” and modern liberalism is the shift from legitimacy of political authority to that of justice vis a vis the social contract. For the latter, we can certainly point to Rawls. For Rawls, the social contract is less about legitimizing political authority per se and more about justifying political and socio/economic arrangements.

There are three basic categories of justice that can be distinguished:

(i) Justice of Impartiality: equality of the moral agent
(ii) Justice of Reciprocity: proportionality, fair exchange
(iii) Justice of Mutual Advantage: outcome of a bargain

Game Theory, a framework for analyzing strategic decisions under uncertainty, provides a model for contractarianism that treats it as a problem in a type of cooperative game. Bargaining solutions to cooperative games can perhaps shed some light on agent rationality.

Rawls

Rawlsian Justice is primarily concerned with (i). Rawls can be recast as fairness as a foundation for a “rules universalism.” Rawls’ “Difference Principle” is not the result of a bargaining outcome between rational agents–that is, an outcome rational agents should choose. Rather it is a decision rule an unbiased(impartial) moral agent should follow. Ralwsian Justice is not a solution to a coordination problem in a cooperative game, but rather it is treated as an initial value problem of the unbiased moral agent. Rawls resolution to the initial value problem relies on the hypothetical construct of the “Veil of Ignorance.” Rawls’ version of VOI, which is usually described as the “thick version,” simply means that unbiased agents will reason the same when it comes to “fairness.” Under a “thick veil,” they will maximize the minimum position. So any problem of universal choice reduces to the preferences of an unbiased individual agent.

However, I think Rawlsian Justice fails the empirical test with it’s reliance on “fairness” as something that can be universalized across individual choice under the same initial condition. Experimental Games suggests that “fairness,” in terms of any universality, is rooted much more in bargaining to prevent/punish “gaming advantage of the rules,” cheating and free riding. “Fairness” is much more a product of a bargaining outcome and much less a hypothetical something grounded in an “originalist position.”

Politically, the “cultural war” presents damning evidence against Rawls. We can model the “cultural war” as conflict between cultural identity groups fighting over redistribution. The basis of the conflict are “redistribution rules” that are viewed as allowing cultural identity to be a source of unfair advantage. A Distributive justice rooted in Fairness/Unfairness that are products of political conflict results in something quite different than a “Difference Principle” and a basic set of primary liberties(primary goods). Instead, you end up with a basic set of “primary obligations” that must be met in order to avoid the “min-min” principle, which is minimizing the minimum.

Rawls suffers from a “Redistribution Problem.” This cannot be “normalized” away vis a vis hypothetical constructs that have no basis in reality. It cannot avoid the rigors of cooperative games. It doesn’t hold up.

Libertarianism and the Justice of Mutual Advantage

Historically proper, Libertarianism should be understood as a radical subset of liberalism that rejected any contractarian basis for political authority. This is the unifying principle within libertarianism. In terms of Economics, however, there has been nothing but bitter dispute within this tradition. This is one reason why it is nonsense to try to use libertarianism as some economic justice bridge between “classical liberalism” and “modern liberalism.” There is no bridge there.

Whereas Rawls avoids bargaining, libertarian contractarianism, due to cooperation creating “additional surplus” that can incentivize equalizing constraints(concessions) on “agent rational self interest,” holds up potentially quite well under cooperative game theory. The Kalai-Smorodinsky bargaining solution provides a rational basis for a Justice of Mutual Advantage. David Gauthier used this to argue for “Morals by Agreement.” However, Gauthier uses a “minimax relative concession” constraint in a one-shot non-cooperative game to arrive at the same outcome as the Kalai-Smorodinsky bargaining solution. Gauthier’s Moral Contractarianism does not rely on any assumptions or hypothetical constructs of impartiality or empathy; the only requirement is the rational agent distinguish between short-term interest and long-term interest and realize other rational agents will modify their behavior based on expectations of how others will behave–in other words, they understand the concept of games.

Gauthier’s rational agent will behave very differently than Hobbes’ Rational Agent. The Gauthier Rational Agent Paradigm:

(i) Cooperate with cooperators
(ii) defect from defectors
(iii) cooperators will play a strategy to minimize: [u(m) – u(C)]/[u(m) – u(d)]
(iv) u(b) >= u(d)

u=given utility function for each agent
u(m)=max utility for the agent in a bargain that would lead to other agents to defect. The breaking point(or, the ‘Donald Trump Art of the Deal” max advantage for the given agent)
u(C)=utility of a concession C
u(d)=utility of the defection state, no deal…
u(b)=utility of the bargaining equilibrium

(iv) is usually referred to as the “Lockean Proviso,” which, in this context, means that a moral bargain should not result in any agent being worse off than the defection state. In other words, cooperation=Win/Win. It can also be interpreted as the libertarian principle.

JMA, in essence, is a less theory of justice and more a theory concerning the conditions under which moral constraints will be effective. Interestingly, Gauthier himself is not self-described libertarian. Jan Narveson is usually credited with advancing a radical libertarian interpretation of Gauthier’s work.

Problems with Justice of Mutual Advantage

A Conceptual Problem
The immediate criticism of Justice of Mutual Advantage is that it is too exclusive. We can denote this as the “Vulnerability Problem” which pertains to those who are unable to contribute or contract. This usually relates to “Children.” One possible resolution to this problem is note that experimental studies suggest that impartial moral judgements are emergent properties of JMA. This echoes Adam Smith’s Theory of Moral Sentiments(empathy as the product of the Invisible Hand). So JMA may not be able to directly resolve the Vulnerability problem but it potentially creates a derivative moral foundation(Justice of Impartiality) that can extend the benefits of justice to all its members.

The Empirical Problem
The obvious empirical problem is that the social order is not a population of equal, optimal, and tolerant cooperators. This, in one sense, can be explained by the fact that bargaining equilibriums in cooperative games are generally not unique. Constrained Maximization is not a unique equilibrium. And, in general, in the modeling of complex social eco-systems, rational choice should be supplemented with biology(evolutionary game theory). In a more expansive model, agents are not only rational strategic reciprocators, but are also sensitive to the perceived altruism preferences of other Agents. Reciprocity is key to stabilizing cooperation, but under evolutionary competition, altruistic cooperators may be more evolutionary fit than Gauthier’s constrained maximizers. Competition between altruistic cooperators can result in maximizing the number of altruistic preferences, which can lead to a type of race to the “moral high ground.” Reciprocal mechanisms implemented can result in exploitation of the lesser fit altruistic cooperators(those who are slow to the moral race) by the most fit altruistic cooperators.

In short, a “Punishment Problem” potentially emerges in evolutionary game theory for a model that relies on reciprocity as the basis of cooperation.

Conclusion

Libertarian justice, understood in terms of contractarianism, is a theory of rational moral constraints. In modern game theory, these constraints result in a equilibrium that is equivalent to the robust Kalai-Smorodinsky bargaining solution. This is one of the more important developments in libertarian theory the past 25 years, in that it ties the libertarian principle to a boundary constraint on non-cooperative games. In this framework, Justice Categories like Impartiality are treated as derivative emergent properties that do not violate the boundary constraints.

Libertarian Justice modeled as moral constraints is quite different than Rawls which treats justice as an initial value problem. Rawls offers no rational constraints on individual choice outside the initial state, which is why he intractably suffers from a “Redistribution Problem.” At this point, I hope I have adequately made the case that Libertarianism as moral boundary constraints on initial value Social Justice principles is akin to squaring the circle.

To me, one of the more relevant problems of Libertarianism would be the “Punishment Problem,” namely moral constraints on punishment in the context of reciprocity being a necessary component of stable cooperative equilibrium. This is a biological problem…