Rick Falkvinge's Blog, page 20

Public Google Hangout Q&A At 1300 UTC / 1500 Brussels Today

Events: Today Friday at 1300 UTC / 1500 Brussels, RT is hosting a Google Hangout with me. The format is a public Q&A and topics are privacy, copyright and patent monopolies, spying, and other geopolitical issues – and possibly my new book, Swarmwise. Join the hangout here!

What Is An Original? What Is A Certified Copy?

Reflections – Josef Ohlsson Collentine: In this guest piece, Josef Ohlsson Collentine elaborates on his experiences with originals, innovations, and imitations in the furniture industry. He argues that a well-made copy is functionally indistinguishable from an original, and therefore, questions the role of a so-called original.

An “original” is not as straightforward as it seems to be at first thought. In the past around the times of Shakespeare, it was normal to appreciate similarities of admired pieces rather than completely original content. This caused Shakespeare to avoid unnecessary invention in his work: “while we applaud difference, Shakespeare’s first audiences favoured likeness: a work was good not because it was original, but because it resembled an admired classical exemplar, which in the case of comedy meant a play by Terence or Plautus”.

An original is often perceived as unique, the first piece that was produced looking a certain way. Originals are often stored in museums when it comes to more famous works. The originality of ideas are often culturally bound, and became an ideal to strive for in western culture at the beginning of the 18th century.

An original is something that can serve as a model for copies or imitations. A copy tries to imitate the original in as many aspects as possible (technique, look, feel, material etc). Preferably to an extent where it is impossible to tell which is the original and which is the copy of the work. There is a large range of copies going from the ‘almost not recognizable’ to the ‘indistinguishable from the original’.

When there is only one original of a work, you either need to buy that unique piece at an auction for a large amount of money, or you can buy a copy of the work you like. When it comes to the furniture industry, there are suddenly a large amount of “originals” being sold from the retailers. These “originals” are nothing more than normal copies imitating the form and function of the original piece to become indistinguishable from it. These “originals” are promised to keep such high standards of imitation that you will not be able to make out the difference between them and the original furniture. A better term for them would be ‘certified copies’.

If a furniture “original” is just a copy with certification of very high quality, then there is no difference to a well made replica of the piece by someone else. The certified manufacturers have their reputation to risk if one of their certified copies is not a perfect imitation. The same goes for someone creating a copy of the piece and who is well-known for their high quality of their copies. Finding a high-quality replica is the same as buying an “original” if their assurance of quality holds true.

Swedish Police Discovered Having Illegal Database Of Romani, Including Children

Civil Liberties: This morning, it was discovered that Swedish police have been maintaining an extensive database of Romani people in Sweden, regardless of criminal history or suspicion. The highly illegal database includes kinship and one-quarter of the registered Romani people are children; over 50 are two-year-olds. This is a very loud warning bell of where things are heading.

This database, constructed by the Swedish police in the Scania district, was based on no other basis but the people being Romani. This was reported by the Swedish daily Dagens Nyheter today.

There are (still) strict laws in Sweden governing when the police may construct databases over people. Kinship and minority background are most distinctly not two of them. Trust in the process of law is sharply eroded when the police ignores the law to this extent, and worse, knowing that nobody will be held to account for breaking the law.

The leader of the Swedish Pirate Party, Anna Troberg, is furious, using unusually strong language: “I wake up to the news of the Police cataloging Romani. This makes me enraged to all fucking hell.”

Vaknar till nyheten om att polisen registrerar romer. Jag blir så in i helvete förbannad. #piratpartiet #svpol

— Anna Troberg (@annatroberg) September 23, 2013

The database of Romani has been national, attempting to catalog Romani people all over the country, and the database has been available by various means to all or most Swedish police employees. According to the Dagens Nyheter, not only Romani people have been noted in the database, but also people who have had relations to Romani.

“The database catalogs Romani children in most average Swedish cities. A two-year-old boy in Linköping and his four-year-old big sister. Two three-year-old girls in Västerås. A nine-year-old girl in Växjö. In Jönköping, there are four children in the Police database: a two-year-old boy, two eight-year-old girls, a ten-year-old girl.” — Dagens Nyheter

This cataloging gives a chilling touch of pre-WW2 history repeating itself. Anna Troberg demands answers in a press release:

“Transgressions must never pass unmarked. We must demand accountability from the individual policemen and all the way to the top. Also, we must not shy away from the unpleasant questions: what other secret databases exists in Sweden and what other minorities are being catalogued?” — Anna Troberg

Several other people are noting that Ministers of Justice have resigned for considerably less in the past.

The people in Sweden who have been discarding the NSA/GCHQ/FRA mass surveillance with a shrug and a “nothing to hide, nothing to fear” appear to be waking up to criticize this database relentlessly. I would argue that they have no moral grounds to do so whatsoever; if “nothing to hide, nothing to fear” applies to the NSA/GCHQ/FRA databases, it applies to this one too. Perhaps this is the clearest example yet why that cliché does not apply, does never apply. “Nothing to hide, nothing to fear” is dangerous, deceptive, and wrong, and if those people are sincere in their criticism, they are welcome to start criticizing the mass surveillance overall.

This catalog is merely one aspect of the mass surveillance culture.

At the end of the day, though, I can’t help thinking that we’re lucky that this particular kind of databases is still illegal. That may not be the case for much longer, seeing how NSA’s mass surveillance – assisted by the British GCHQ, the Swedish FRA, and others – appears to be legal, at least superficially legal enough for bureaucrats to defend the surveillance as legal and discard complaints.

People who have been defending the mass surveillance with the deceptive “nothing to hide, nothing to fear” are more than welcome to start discovering where that dangerous attitude is leading us. This is not going to be the last example.

PayPal Takes On Kopimism

Activism – Travis McCrea: For over a year now I have operated a fork of the Kopimist Church (Kopimists of Idaho – a fully recognized church), to process donations we have accepted bitcoin donations and PayPal donations. Today after our final round of phone “arbitration”, both sides agreed that we will not be able to settle our differences and our account will stay banned and we will get our $400 of stored funds in 180 days.

Denying service to a person or group arbitrarily based on faith is against Californian law (the state where PayPal operates), it is in the Unruh Civil Rights Act – California’s expansion on Federal Civil Liberties laws. PayPal has admitted over the phone that their ban against the church was issued because my personal website TUEBL links back on the donate page. Any person who knows the basics of limited liability knows that the Kopimist Church can’t be held liable for the actions of its supporters, especially since it has limited liability incorporation which is required of us to be a church in the state of Idaho.

While many of you may never heard of our church, we tend to host various projects for people and will soon be buying a plane so we can provide rapid response to places in the US and Canada who might have communication problems due to censorship or natural disaster. We have been laying low, slowly building up donations from supporters, and were planning on entering big with our new era K2… we truly believe in Kopimism as a religion and we want the world to know about it.

Right now our only course of action is legal action. We wish it didn’t come to this, because as much as we know PayPal is a horrible company we knew that legal action was going to be expensive and the fight was going to be an uphill battle with their fancy lawyers. We can’t sit back and do nothing though, too frequently PayPal uses it’s banhammer with the carelessness of a bull in a china shop… and it’s our obligation as a church which protects the Internet to remind PayPal that we wont just sit back and let them be bullies.

We need your help though! This battle is going to be expensive… We are looking for donations to help get good lawyers who will help us establish a precedent not only for our church but all Kopimist sects and furthermore remind PayPal they can’t just bully people.

Please donate to 1EVeAuB82MZYtavLb4deQ5MCVhPwnThASB (the wallet which is earmarked for this legal issue and nothing else), even the smallest microdonation helps and shows your support for Kopimism as a true religion.

“How Shall The Artists Get Paid?” Isn’t A Question, It’s An Insult

Copyright Monopoly: Throughout the debate on sharing culture and knowledge in violation of the copyright monopoly, one question keeps popping up. But it’s not a question as much as an insult to all artistry.

We’ve all heard the objection to sharing culture and knowledge many times – “How will the artists get paid, if you manufacture copies of their creations without paying them?”. This question is delusional on so many levels I’ve lost count.

First, artist that are copied do get paid, only not by a per-copy sale (which you couldn’t sell at all today if the economy worked) but in other ways. I encourage copying of my leadership handbook Swarmwise, for example, because I know the book promotes other avenues of income. The average income for musicians has risen 114% since people started sharing culture online on a large scale, according to a Norwegian study. Other studies agree with this observation.

Second, even if they didn’t get paid, people who share still don’t carry any kind of responsibility for the business models of other entrepreneurs. Because that’s what artists are once they go plinking their guitar in a kitchen to wanting sales: entrepreneurs. Same rules apply to those entrepreneurs as to every other entrepreneur on the planet: nobody owes an entrepreneur a sale, you have to offer something which somebody else wants to buy. Wants. To. Buy. No excuses, nothing deserved, just business.

Third, we don’t live in a planned economy. Nobody is held accountable to the question of where somebody’s next paycheck is going to come from except that very person. In Soviet Russia, you could tell Vladimir Sklyarov that his guitar plinking was highly artistic and that his next paycheck would therefore come from the Bureau of Incomprehensible Arts. But we don’t live in a planned economy, we live in a market economy. Everybody is responsible for their own paycheck – of finding a way to make money by providing value that somebody else wants to pay for. Wants. To. Pay. For. No excuses, nothing deserved.

Fourth, even if this set of entrepreneurs magically deserved money despite not making any sales, control of what people share between them can still not be achieved without dismantling the secrecy of correspondence, monitoring every word communicated – and fundamental liberties always go before anybody’s profits. We never determined what civil liberties we have based on who can profit and who can’t.

But let’s go to the root of the question. It’s not a question, it’s an insult. One that has stuck around for as long as artistry itself, for it implies that artists need or even deserve to get paid. No artists think in these terms. The ones that think in these terms are the parasitic businesspeople middlemen that you find defending the copyright monopoly and then robbing artists and their fans dry, laughing all the way to the bank while exploiting a legal monopoly system ruthlessly: the copyright monopoly.

Meanwhile, among artists, there is one insult that has remained consistent throughout artistry in history, an insult between artists that rips somebody’s artistry apart, that tells somebody they’re not even worthy of calling themselves an artist. That insult is “You’re in it for the money”.

“How shall the artists get paid?”, implying artists won’t play or create otherwise, that they’re doing it for the money (only for the money), is a very serious insult.

There’s a reason “sellout” is a sharply negative word in artistry. Artistry in the very large majority aren’t happy at all when you’re asking them if they’re playing to make money; it’s a grave insult. The frequently-heard notion that you don’t create culture if you’re not paid for it comes from those who exploit artists, and never from artists themselves.

After all, we create not because we can make money off it as individuals, but because of who we are – how we are wired. We have created since we learned to put red paint on the inside of cave walls. We are cultural animals. Culture has always been part of our civilization, rewarded or not.

However, if an artist wants to sell their goods or services and become an entrepreneur, I wish them all the luck and success in the world. But business is business, and there is nothing that entitles an entrepreneur to sales.

This article was previously published at TorrentFreak.

Bitcoin’s Vast Overvaluation Appears Partially Caused By (Usually) Illegal Price-Fixing

Swarm Economy: Bitcoin is soaring again. On examining the market size and market share for bitcoin, the valuation is unwarranted by several orders of magnitude comparing to its mere utility value. On closer inspection, illegal price-fixing is going on – illegal in most parts of the world, anyway.

As of this writing, one bitcoin is trading for 142 US Dollars. Readers of this blog will remember that I estimated the endgame value of one bitcoin, if the currency succeeds, to be between 100,000 and 1,000,000 US Dollars. That estimation still holds.

However, today’s valuation is equally off the charts. Most people, when discussing bitcoin’s value, still seems to just look at its trading price when determining its value. As I estimated today, that’s not where bitcoin’s value comes from. It is a transactional currency. As such, its value is – or can be estimated to – its market share of transactional currencies, multiplied by the size of that market (about 75 trillion US dollars).

UPDATE 4: FOCUS ON PART TWO

As I was able to document what’s normally illegal trading practices, I tried to quantify their impact on the exchange rate by dividing the price into utility value, speculation value, and price-fixing value. That turned out to be a mistake, horribly imprecise, unnecessary, and irrelevant. Ignore the napkin ballpark calculations below and focus on the documented price-fixing further below instead; that’s the news brought to the table here.

Over the past weeks, I have estimated this number again – but rather than estimating the endgame market share, I have tried to dig up the actual numbers today, to see what the actual size of Bitcoin’s transactional currency market is. This value leads us to a tangible value of the bitcoin money supply, and we can use this value to see if there is a discrepancy against bitcoin’s exchange rate. (There is, by more than two orders of magnitude.)

Drugs, gambling, and… not much more

In calculating the value of a transactional money supply, the concept of money velocity is crucial to understand. It’s how often a money unit changes hands. The more often it does, the smaller the total money supply needs to be.

For example, most readers here probably – like me – spend all their paycheck in the month they get it, or close enough to “all” for all intents and purposes. This means, that if we each make 3,000 euros in a monthly paycheck, every one of those euros changes hands 12 times per year; they are on a one-month lockdown cycle. Let’s assume we’re 20 people in the economy. That means that the money supply can be 20×3,000, or 60,000 euros in total. Yet, the total yearly production and revenue in the economy is 12x20x3,000, or 720,000 euros. With this, I wanted to demonstrate how the size of the money supply is related to revenue/production by the factor of velocity.

Let’s look at gambling. If you buy a scratch-off lottery ticket one month and win 10 euros, you probably spend those 10 euros that month without thinking more about it. Likewise, if you lose 10 euros on such a ticket and they go to somebody else, you don’t care. Money in gambling – at least instant gambling – is not in a lockdown cycle and does not contribute to the minimum size of the money supply.

This becomes important as we look at the different economies making up bitcoin today. There are about 11.7 million bitcoin in circulation today. Out of these, a staggering 2 million bitcoin are gambled every year on the SatoshiDice site alone, and another, PrimeDice, 1.5 million.

To put these numbers in perspective, if translated to the global economy, it would mean that people bet the entire production of the USA at one single betting site, and the entire production of Europe on another.

But as we have seen, these numbers do not contribute to the money supply pool in any meaningful way in a functioning economy. They are not funds in lockdown, or at least not for more than a few minutes. For all intents and purposes, the velocity of internet-based gambling money is infinite, or at least so much larger than other funds that it can be discarded.

That leaves us with drugs, read Silk Road, and for lack of a better word, normal products and services. A recent estimate says that Silk Road has two million USD in monthly turnover. This is real money that contributes to the money supply. A fair estimate could assume a two-month lockdown on such funds.

What about normal products and services? To get a ballpark understanding, I contacted Automattic (the parent company of WordPress) and asked politely if they could share how much revenue they have received in bitcoin, being one of the highest-visibility brands ever to accept bitcoin. The answer came quickly – “a couple of hundred dollars worth, so far”. If the highest-visibility brand accepting bitcoin has had less than two bitcoin in revenue in total, then for all intents and purposes, there is currently no measurable bitcoin economy outside of drugs and gambling.

This gives us enough data to calculate the value of the money pool, and derive the value of one bitcoin from there. If Silk Road has 22 million USD in annual sales, let’s be very generous to err on the safe side, and divide that by the United States’ money velocity, which is 1.67 on average instead of the 6 estimated above.

This generous estimation gives us a total bitcoin money supply value of 13 million USD.

Oops.

The observant will note that this estimation of bitcoin’s total money supply value, while obviously a ballpark number, is less than two magnitudes smaller than the bitcoin money supply’s current valuation of 142 USD x 11.7M bitcoin = 1.66 billion USD.

Dividing this value with the bitcoin supply to get the current value of one bitcoin, this means that the current value of one bitcoin, as backed by exchange of products and services in its role as a transactional currency, is roughly one US dollar and twelve US cents. And that’s still a generous estimate.

Oops, again.

It’s not hard to see why I use the words “vast overvaluation”, seeing how one bitcoin is currently trading at 142 USD. So how did we get here? Part speculation on future value, obviously, but there is something else going on too here. More interestingly, when looking very closely at the market for the past two months, there is ample and obvious evidence of price fixing.

[UPDATE: As pointed out, these back-of-napkin calculations did not take into account bitcoin-mining equipment sold for bitcoin, which can be debated if it's really an external economy, but regardless, the overall observation of a major discrepancy still stands.]

[UPDATE 2: As pointed out by Jon Matonis and others, Automattic's WordPress bitcoin revenue turned out to be not representative. The BitPay clearinghouse has an annual bitcoin-economy turnover of about 60 million USD equivalent. That changes the ballpark utility valuation of one bitcoin to (60M+22M) / 1.67 / 11.7M = about four US dollars. The revised data still supports the conclusion strongly.]

[UPDATE 3: A lot of people have claimed that this calculation only takes into account bitcoin's value as a transactional currency, and not its use as a store of value. It does factor in the store-of-value value, but perhaps that wasn't clear from the article. You'll notice that the money supply value is calculated as total production divided by average USD velocity, assuming that USD velocity is a ballpark benchmark for all a currency's uses, including as a store of value.]

Enter the tape-painting “Shark Squad”

In securities trading, the expression painting the tape is used for any trading activity that is intended to manipulate the trading statistics (price, volume, other metrics) rather than to execute a trade. It is highly illegal, jail-time illegal, in all civilized parts of the world. The expression comes from the ancient price ticker tape, and how it could be “painted” with false data.

I’m going to illustrate how this Shark Squad has operated recently to fix the price in luring other traders of their money and hiking the price. (While luring other traders of their money is part of the game, there are legal and illegal ways to do so. Insider trading, for example, is one of the better-known illegal ones – our legal framework generally fights hard to create a level playing field for all traders.) The squad is a small team of collaborating traders.

In Step 1 of the cycle, the shark squad makes a large buyup, causing prices to skyrocket. Illustrated here, the buyup at 10:00 European time on Thursday September 12, 2013, from USD 135 to 145.9, an instant 8-percent increase. This causes a lot of downward-betting traders to flush out.

In step 2, the shark squad reverses this trend by causing a slow pullback, causing those who bought in greed to sell off in panic as the market has reversed and causing more stop losses to trigger and people to sell to the squad‘s bids. Note that I write causes a pullback – this is not a normal market pullback. Let’s look at the big picture first as displayed by the site bitcoinwisdom, which displays much more detail than most sites. You can see the pullback over Thursday lunch-to-afternoon (blue box, right half), and there is also a display of the current order book (yellow box) and the recent transactions (red box) which we will look at shortly. Note how the recent transactions in the indicated red box are all red, red, red, indicating a massive selloff – there’s nobody buying at all on cursory inspection, only selling, and a lot of selling.

However, let’s take a closer look at the minute details of the recent transactions in the bottom right corner, displaying time, price, and amount of the last bitcoin transactions:

Do you see a pattern here? All the transactions are for exactly one bitcoin, and the transactions are spaced exactly five seconds apart. This pattern can continue for hours, a claim verifiable by checking the MtGox transaction history. This is not market trading; this is one (1) automated process intended to give the illusion of many different players panic-selling. Furthermore, let’s take a closer look at the order book:

Do you see the numbers below and to the left of the current big red price? That’s the bid order book. That’s the current buy orders. Note how the currently executing buy orders are at 7-8 bitcoin each, placed just 0.0001 (!) bitcoin apart in price, evading detection on most sites. This is coordinated with the selling person. Those buy orders keep replenishing as the sales orders keep ticking one bitcoin per five seconds; they are coordinated. This is one person in the Shark Squad selling to another person in the Shark Squad, to give the illusion of market downward pressure and sell volume.

Both of these activities – splitting an order to give the illusion of many trades, and trading within a group to give the appearance of increased volume and a certain market direction – are considered painting the tape and highly illegal. (I’m going to stop writing “usually illegal” now, as it’s illegal in practically all countries where you can read this.)

So, how can I state with certainty that the seller and buyer are conspiring? Based on only this screenshot, the evidence could be improved, but having watched the market at this level for some two months and seen how these kind of buy and sell orders follow each other very closely, it’s obvious there is talking and coordinating within a team dedicated to fabricating a market impression. Normally, you would need to see how they moved in lockstep to identify this cooperation, but it’s particularly visible in this snapshot. (Besides, the visible order-splitting is enough to constitute tape-painting entirely on its own.)

Here’s the kicker, then: we have observed that the buy orders being executed – the ones with 7, 7, 7, 7, 7, 8, 8, etc. bitcoin at the moment at a price of 137.64xyz – belong to this shark squad. What happens when a trader sees the (false) image of a massive selloff going on, and sells in panic? Well, he’s selling his bitcoin into those buy orders to the shark squad, at the price they have set. Here, the price is 137.64. So the obvious question is, what happens next? Well, a fabricated price hike, of course, tricking other traders to buy those same bitcoin at higher prices from the coordinated shark squad. We’ll be returning to when and how that happens in step 4.

In Step 3, the shark squad puts up an enormous bidwall – so large it’s effectively a lid on the market – and lure other traders to sell into it, intending to sell the bought bitcoin at a higher price after the next fabricated hike. There is plenty of fake trading going on into these bidwalls as visible in step 2. We can also see that this lure is effective – look at the transaction history of bitcoin around these walls, and you can easily find trades of hundreds of coins amid the fake trading. Or perhaps it’s the shark squad selling to itself again with the transactions in the hundreds. Hard to know – most likely a mix of in-group trading and others being lured to sell. In any case, unsuspecting traders are selling into the shark squad‘s bidwalls. These lurewalls are easily identifiable in the close-up market history, as well as when they were removed:

In Step 4, finally, the price is hiked to new highs and the shark squad begins offloading its booty at higher prices, and the cycle repeats with them trading in-between themselves to give the appearance of market activity. That price hike happened at 15:25 Thursday, European time, up to 145 USD for this cycle, as also visible in the image above.

This cycle has repeated very visibly at least five times in the past weeks, and likely since much earlier in a variant version:

This – this illegal activity – is very troubling for the bitcoin ecosystem.

A final note on legality

I have written “illegal trading activity” all over this article. For many bitcoin enthusiasts, the bitcoin market’s unenforceability of governmental rules is a feature, not a bug. This is a truly free market, with all the good and bad that comes with it. Also, it is hard to really know if this shark squad is located in a civilized country or some warlord place like Somalia without any functioning legal system at all. Maybe they’re on international waters. Maybe in Low Earth Orbit. There’s no way to know what jurisdiction, if any, they operate under. Therefore, the word “illegal” is kind of meaningless as applied to sanctions.

But for the most part, activities such as these are illegal for a reason – that we as a society have considered them to be cheating of some kind, a breaking of the social contract. This is what concerns me. Bitcoin is a fantastic technology with an enormous potential for disruption of old incumbents I dream of dropkicking out of existence.

Bitcoin must survive.

That’s why I’m concerned over the irony of the net generation, which has spawned a number of anti-Wall-Street movements and sentiments, to see people in this generation intuitively picking up trading practices that carry on every bit of foul legacy that offline traders have practiced before the net generation. It seems the more things change, the more they stay the same.

Bitcoin’s Vast Overvaluation Appears Caused By (Usually) Illegal Price-Fixing

Swarm Economy: Bitcoin is soaring again. On examining the market size and market share for bitcoin, the valuation is unwarranted by several orders of magnitude. On closer inspection, illegal price-fixing is going on – illegal in most parts of the world, anyway.

As of this writing, one bitcoin is trading for 142 US Dollars. Readers of this blog will remember that I estimated the endgame value of one bitcoin, if the currency succeeds, to be between 100,000 and 1,000,000 US Dollars. That estimation still holds.

However, today’s valuation is equally off the charts. Most people, when discussing bitcoin’s value, still seems to just look at its trading price when determining its value. As I estimated today, that’s not where bitcoin’s value comes from. It is a transactional currency. As such, its value is – or can be estimated to – its market share of transactional currencies, multiplied by the size of that market (about 75 trillion US dollars).

Over the past weeks, I have estimated this number again – but rather than estimating the endgame market share, I have tried to dig up the actual numbers today, to see what the actual size of Bitcoin’s transactional currency market is. This value leads us to a tangible value of the bitcoin money supply, and we can use this value to see if there is a discrepancy against bitcoin’s exchange rate. (There is, by more than two orders of magnitude.)

Drugs, gambling, and… not much more

In calculating the value of a transactional money supply, the concept of money velocity is crucial to understand. It’s how often a money unit changes hands. The more often it does, the smaller the total money supply needs to be.

For example, most readers here probably – like me – spend all their paycheck in the month they get it, or close enough to “all” for all intents and purposes. This means, that if we each make 3,000 euros in a monthly paycheck, every one of those euros changes hands 12 times per year; they are on a one-month lockdown cycle. Let’s assume we’re 20 people in the economy. That means that the money supply can be 20×3,000, or 60,000 euros in total. Yet, the total yearly production and revenue in the economy is 12x20x3,000, or 720,000 euros. With this, I wanted to demonstrate how the size of the money supply is related to revenue/production by the factor of velocity.

Let’s look at gambling. If you buy a scratch-off lottery ticket one month and win 10 euros, you probably spend those 10 euros that month without thinking more about it. Likewise, if you lose 10 euros on such a ticket and they go to somebody else, you don’t care. Money in gambling – at least instant gambling – is not in a lockdown cycle and does not contribute to the minimum size of the money supply.

This becomes important as we look at the different economies making up bitcoin today. There are about 11.7 million bitcoin in circulation today. Out of these, a staggering 2 million bitcoin are gambled every year on the SatoshiDice site alone, and another, PrimeDice, 1.5 million.

To put these numbers in perspective, if translated to the global economy, it would mean that people bet the entire production of the USA at one single betting site, and the entire production of Europe on another.

But as we have seen, these numbers do not contribute to the money supply pool in any meaningful way in a functioning economy. They are not funds in lockdown, or at least not for more than a few minutes. For all intents and purposes, the velocity of internet-based gambling money is infinite, or at least so much larger than other funds that it can be discarded.

That leaves us with drugs, read Silk Road, and for lack of a better word, normal products and services. A recent estimate says that Silk Road has two million USD in monthly turnover. This is real money that contributes to the money supply. A fair estimate could assume a two-month lockdown on such funds.

What about normal products and services? To get a ballpark understanding, I contacted Automattic (the parent company of WordPress) and asked politely if they could share how much revenue they have received in bitcoin, being one of the highest-visibility brands ever to accept bitcoin. The answer came quickly – “a couple of hundred dollars worth, so far”. If the highest-visibility brand accepting bitcoin has had less than two bitcoin in revenue in total, then for all intents and purposes, there is currently no measurable bitcoin economy outside of drugs and gambling.

This gives us enough data to calculate the value of the money pool, and derive the value of one bitcoin from there. If Silk Road has 22 million USD in annual sales, let’s be very generous to err on the safe side, and divide that by the United States’ money velocity, which is 1.67 on average instead of the 6 estimated above.

This generous estimation gives us a total bitcoin money supply value of 13 million USD.

Oops.

The observant will note that this estimation of bitcoin’s total money supply value, while obviously a ballpark number, is less than two magnitudes smaller than the bitcoin money supply’s current valuation of 142 USD x 11.7M bitcoin = 1.66 billion USD.

Dividing this value with the bitcoin supply to get the current value of one bitcoin, this means that the current value of one bitcoin, as backed by exchange of products and services in its role as a transactional currency, is roughly one US dollar and twelve US cents. And that’s still a generous estimate.

Oops, again.

It’s not hard to see why I use the words “vast overvaluation”, seeing how one bitcoin is currently trading at 142 USD. So how did we get here? Part speculation on future value, obviously, but there is something else going on too here. More interestingly, when looking very closely at the market for the past two months, there is ample and obvious evidence of price fixing.

[UPDATE: As pointed out, these back-of-napkin calculations did not take into account bitcoin-mining equipment sold for bitcoin, which can be debated if it's really an external economy, but regardless, the overall observation of a major discrepancy still stands.]

[UPDATE 2: As pointed out by Jon Matonis and others, Automattic's WordPress bitcoin revenue turned out to be not representative. The BitPay clearinghouse has an annual bitcoin-economy turnover of about 60 million USD equivalent. That changes the ballpark utility valuation of one bitcoin to (60M+22M) / 1.67 / 11.7M = about four US dollars. The revised data still supports the conclusion strongly.]

[UPDATE 3: A lot of people have claimed that this calculation only takes into account bitcoin's value as a transactional currency, and not its use as a store of value. It does factor in the store-of-value value, but perhaps that wasn't clear from the article. You'll notice that the money supply value is calculated as total production divided by average USD velocity, assuming that USD velocity is a ballpark benchmark for all a currency's uses, including as a store of value.]

Enter the tape-painting “Shark Squad”

In securities trading, the expression painting the tape is used for any trading activity that is intended to manipulate the trading statistics (price, volume, other metrics) rather than to execute a trade. It is highly illegal, jail-time illegal, in all civilized parts of the world. The expression comes from the ancient price ticker tape, and how it could be “painted” with false data.

I’m going to illustrate how this Shark Squad has operated recently to fix the price in luring other traders of their money and hiking the price. (While luring other traders of their money is part of the game, there are legal and illegal ways to do so. Insider trading, for example, is one of the better-known illegal ones – our legal framework generally fights hard to create a level playing field for all traders.) The squad is a small team of collaborating traders.

In Step 1 of the cycle, the shark squad makes a large buyup, causing prices to skyrocket. Illustrated here, the buyup at 10:00 European time on Thursday September 12, 2013, from USD 135 to 145.9, an instant 8-percent increase. This causes a lot of downward-betting traders to flush out.

In step 2, the shark squad reverses this trend by causing a slow pullback, causing those who bought in greed to sell off in panic as the market has reversed and causing more stop losses to trigger and people to sell to the squad‘s bids. Note that I write causes a pullback – this is not a normal market pullback. Let’s look at the big picture first as displayed by the site bitcoinwisdom, which displays much more detail than most sites. You can see the pullback over Thursday lunch-to-afternoon (blue box, right half), and there is also a display of the current order book (yellow box) and the recent transactions (red box) which we will look at shortly. Note how the recent transactions in the indicated red box are all red, red, red, indicating a massive selloff – there’s nobody buying at all on cursory inspection, only selling, and a lot of selling.

However, let’s take a closer look at the minute details of the recent transactions in the bottom right corner, displaying time, price, and amount of the last bitcoin transactions:

Do you see a pattern here? All the transactions are for exactly one bitcoin, and the transactions are spaced exactly five seconds apart. This pattern can continue for hours, a claim verifiable by checking the MtGox transaction history. This is not market trading; this is one (1) automated process intended to give the illusion of many different players panic-selling. Furthermore, let’s take a closer look at the order book:

Do you see the numbers below and to the left of the current big red price? That’s the bid order book. That’s the current buy orders. Note how the currently executing buy orders are at 7-8 bitcoin each, placed just 0.0001 (!) bitcoin apart in price, evading detection on most sites. This is coordinated with the selling person. Those buy orders keep replenishing as the sales orders keep ticking one bitcoin per five seconds; they are coordinated. This is one person in the Shark Squad selling to another person in the Shark Squad, to give the illusion of market downward pressure and sell volume.

Both of these activities – splitting an order to give the illusion of many trades, and trading within a group to give the appearance of increased volume and a certain market direction – are considered painting the tape and highly illegal. (I’m going to stop writing “usually illegal” now, as it’s illegal in practically all countries where you can read this.)

So, how can I state with certainty that the seller and buyer are conspiring? Based on only this screenshot, the evidence could be improved, but having watched the market at this level for some two months and seen how these kind of buy and sell orders follow each other very closely, it’s obvious there is talking and coordinating within a team dedicated to fabricating a market impression. Normally, you would need to see how they moved in lockstep to identify this cooperation, but it’s particularly visible in this snapshot. (Besides, the visible order-splitting is enough to constitute tape-painting entirely on its own.)

Here’s the kicker, then: we have observed that the buy orders being executed – the ones with 7, 7, 7, 7, 7, 8, 8, etc. bitcoin at the moment at a price of 137.64xyz – belong to this shark squad. What happens when a trader sees the (false) image of a massive selloff going on, and sells in panic? Well, he’s selling his bitcoin into those buy orders to the shark squad, at the price they have set. Here, the price is 137.64. So the obvious question is, what happens next? Well, a fabricated price hike, of course, tricking other traders to buy those same bitcoin at higher prices from the coordinated shark squad. We’ll be returning to when and how that happens in step 4.

In Step 3, the shark squad puts up an enormous bidwall – so large it’s effectively a lid on the market – and lure other traders to sell into it, intending to sell the bought bitcoin at a higher price after the next fabricated hike. There is plenty of fake trading going on into these bidwalls as visible in step 2. We can also see that this lure is effective – look at the transaction history of bitcoin around these walls, and you can easily find trades of hundreds of coins amid the fake trading. Or perhaps it’s the shark squad selling to itself again with the transactions in the hundreds. Hard to know – most likely a mix of in-group trading and others being lured to sell. In any case, unsuspecting traders are selling into the shark squad‘s bidwalls. These lurewalls are easily identifiable in the close-up market history, as well as when they were removed:

In Step 4, finally, the price is hiked to new highs and the shark squad begins offloading its booty at higher prices, and the cycle repeats with them trading in-between themselves to give the appearance of market activity. That price hike happened at 15:25 Thursday, European time, up to 145 USD for this cycle, as also visible in the image above.

This cycle has repeated very visibly at least five times in the past weeks, and likely since much earlier in a variant version:

This – this illegal activity – is very troubling for the bitcoin ecosystem.

A final note on legality

I have written “illegal trading activity” all over this article. For many bitcoin enthusiasts, the bitcoin market’s unenforceability of governmental rules is a feature, not a bug. This is a truly free market, with all the good and bad that comes with it. Also, it is hard to really know if this shark squad is located in a civilized country or some warlord place like Somalia without any functioning legal system at all. Maybe they’re on international waters. Maybe in Low Earth Orbit. There’s no way to know what jurisdiction, if any, they operate under. Therefore, the word “illegal” is kind of meaningless as applied to sanctions.

But for the most part, activities such as these are illegal for a reason – that we as a society have considered them to be cheating of some kind, a breaking of the social contract. This is what concerns me. Bitcoin is a fantastic technology with an enormous potential for disruption of old incumbents I dream of dropkicking out of existence.

Bitcoin must survive.

That’s why I’m concerned over the irony of the net generation, which has spawned a number of anti-Wall-Street movements and sentiments, to see people in this generation intuitively picking up trading practices that carry on every bit of foul legacy that offline traders have practiced before the net generation. It seems the more things change, the more they stay the same.

The NSA And U.S. Congress Have Destroyed All Web Security. We Must Rebuild It From The Ground Up.

Infopolicy: The NSA has forged web security certificates. What’s worse, we knew that they could, and we still trusted certificate-based web security. Web security as we know it is dead and worthless – worse than worthless, even – and must be rebuilt from the ground up.

When you are going to a website that bills itself as secure, it uses a so-called “security certificate”. Such certificates on the web serve two purposes. One, they encrypt the session between your computer and the web server, so nobody else can listen in, and two, they identify the web server you are talking to and tell you whose web server it is. When you log onto your bank, you will see a little padlock next to the bank’s name in the address bar. The NSA and their ilk have effectively negated both of these security mechanisms.

This makes today’s Web security worse than worthless. It is not just worthless, as in not providing the claimed security whatsoever; it is worse than worthless, as it provides people at large with a thoroughly false sense of security. It’s like if all the front door locks in the world were dead easy to open for somebody who knew the magic word. Unless this lack of security is well understood – and being a technical issue, it won’t – people will keep thinking they’re secure. That’s horrible, frankly.

We should have seen this coming from far away – the mere possibility could have been anticipated for some time, although nobody probably thought the security services would want to break the entire world’s security model. Now we know they won’t hesitate to do so.

Many certificate suppliers are based in the USA. This, combined with the infamous National Security Letters (NSLs) that the U.S. Congress has created, is a death knell. There is nothing stopping the NSA from issuing such a letter compelling Verisign or any other U.S.-based certificate authority to issue a forged certificate to the NSA, and be forced by law to not tell anybody about it.

The mere possibility of this happening is enough to declare certificate-based web security stone dead as a technology – but we know now that the NSA has already used forged certificates to impersonate Google. That’s extra damning. Let’s take that again: the NSA forced web traffic intended for Google’s servers to take a route through the NSA’s servers, where the NSA presented themselves as Google and were able to wiretap traffic intended for Google’s servers, negating both functions of certificate-based security.

It’s extra damning as Google not only relies on the certificate itself to present the session as secure, but Google’s own browser also verifies that it’s not a Google certificate, but Google’s Google certificate. Apparently, NSA foiled this, too.

In an internet technical draft published earlier in response to the first NSA revelations, this practice is coined kleptography – to deliberately supply somebody with a weakened form of cryptography in order to wiretap them. The word is appropriate.

We can no longer rely on a model where one compromised node in the framework means the compromise of the framework as such, which is the case with certificate-based security. We need a much more resilient framework than that, where each client as well as the framework itself is able to detect and reject a compromised security provider, or group of security providers.

SSL is dead. Long live web security. We must rebuild it from the ground up.

One very simple solution could be to allow for self-created certificates and use the DNS framework to validate the certificate for a given website, which would at least give a degree of distributed resilience. While the DNS framework has its own centralization problems, it would be an easily implemented stopgap measure that would have the added bonus of erasing the entire certificate industry, which is artificial anyway. If the client checked a certificate’s signature with its own DNS server and with public DNS servers in five different jurisdictions – say, Canada, Switzerland, South Africa, Brazil, and Japan – getting a greenlight from all of them would be rather good confirmation of the self-created certificate being genuine.

The Swarm Economy Is Not Silicon Valley’s “Sharing Economy”

Swarm Economy – Zacqary Adam Green: When we talk about the end of workplaces and lifetime employment, please don’t get the wrong idea. This has nothing to do with what Silicon Valley and venture capitalists are now calling the “sharing economy.” It was once the darling of open source advocates and socially-conscious entrepreneurs, but I now consider the term “sharing economy” to be co-opted by predatory business models. Here’s how it happened.

Whenever technological or social change threatens a power structure, that power structure always tries to reassert itself. In the age of the Internet, we already see how monopolists are trying to keep the institution of copyright alive with DRM, and nonsense rhetoric about “buying,” “selling,” and “stealing” thin air. Now, as the industrial model gives way to a more distributed way of life, the people at the top of last century’s food chain aren’t just trying to stay there. They’re trying to make sure that the food chain itself doesn’t get devoured by the swarm.

Here’s an example. The same way we can talk about Bitcoin to not necessarily mean Bitcoin but rather decentralized money in general, I’m going to give the co-opted “sharing economy” a mascot. A big, fuzzy rabbit. Specifically, TaskRabbit.

TaskRabbit is a website where people can post jobs that they need done — running an errand, fixing a broken table, painting a wall, whatever — and other people can bid to do the job for a certain price. So far, so Craigslist. But TaskRabbit also does a background check on anyone they allow to accept a job. In return for this, they take a 15% cut out of all payments. Oh, and as you do enough tasks to “level up,” you get rewards like a T-shirt, or even business cards because you’re a “real professional.”

So, the sharing economy is a temp agency crossed with a Zynga game. Wonderful.

TaskRabbit often uses the rhetoric that they help people run their own business — they’re “micro-entrepreneurs” — and they claim “some” people make over $5000 a month. These are just two things the service has in common with countless multi-level marketing scams. When you dive into TaskRabbit’s race-to-the-bottom auction platform, where desperate workers climb over one another to accept as little pay as they can, it doesn’t matter whether you’re in the few who scrape by enough to live on, or the many who barely manage to afford a phone bill. TaskRabbit still gets their 15%, not just from you but from thousands of people.

Its investors are now talking about how TaskRabbit can be a “people-powered API” that major retailers can use to exploit people. Why use an expensive delivery company when you can outsource it to a bunch of poor shmucks who don’t benefit from minimum wage or labor protection laws? Oh, excuse me. Not poor shmucks. “Micro-entrepreneurs.”

Needless to say, this is not the kind of crap we’re talking about when advocating for the swarm economy. As pirates, we’re not exactly fans of rent-seeking snakes extracting more wealth than they deserve from the (lack of) work they’re doing. That’s what happens with patent and copyright monopolies, after all. So naturally, the rest of this exploitation needs to stop too.

“Sharing economy” startups do a lot of potentially nice things. The ability to pull out your phone and see if anyone needs something in your vicinity? Wonderful. Making your own hours and only taking the jobs you want? Fantastic. How about we have those nice things, but without the system that incentivizes hideously low pay, the profiteering platform holder skimming money off the top, and the obnoxious gamification? (I mean, honestly, that gamification. There’s a reason I picked TaskRabbit to beat up on instead of one of its competitors. Oh my god is that gamification ridiculous.)

See, here’s where the swarming part of the swarm economy comes in. The idea is that people swarm around various trades and services, and create an environment for them that doesn’t look like that.

It makes absolutely no sense that these job-finding platforms are not — at the very least — cooperatively-owned enterprises controlled by the workers. I mean, come on, last year was the International Year of Cooperatives for chrissakes; have we really still not heard of this type of business structure? A cooperative — or perhaps a network of local cooperatives — could maintain an online platform for fulfilling jobs, and distribute the proceeds from the 15% cut as dividends to each member. Its members might even ditch the competitive bidding model entirely, to avoid the race-to-the-bottom problem.

Or the whole thing could operate on a LETS instead of with money, so the community can base the economy on its needs. Instead of just the workers being a part of the swarm, this could be an entire local community swarming around all of the economic activity it needs done. Build an open-source platform that lets any community have a pretty, functional interface to manage all this, and voilà: a new economy that’s actually, in reality, based on some semblance of actual sharing.

A universal basic income might make the race-to-the-bottom less of an issue. These jobs would then genuinely be just “extra money,” because at the end of the day, everyone has a living no matter what. But a UBI alone isn’t enough to get rid of rent-seeking. If you’re making the minimum amount to afford an apartment, but you’re still paying your rent to a landlord who doesn’t even live there — well, that’s just silly.

If these exploitative business models still exist, then a government-provided UBI essentially just becomes more corporate welfare in the same vein as bank bailouts and industrial subsidies. Faced with a gutted middle class and a population too poor to spend, corporations wouldn’t be able to make as much profit. So they’d welcome the government’s efforts to hand out money that would then, inevitably, end up in their hands.

If we really want a new economy, we’re going to need to hit some reset buttons and shake up some social institutions. That’s something not even the Internet, not even Bitcoin, not even 3D printing can make happen automatically. If the surveillance state has taught us anything, it’s that we need to stop blindly trusting technological progress to lead to better outcomes and make that better world happen. We need to fight for an equitable economic order. One that’s not just rhetorically based on sharing and mutual benefit, but actually.

With The NSA, The GCHQ, The FRA Planting Crypto Backdoors In Infrastructure, They Are Now The Enemy Of All Mankind

Repression: The security services of the US, UK, and Sweden have been actively working to plant backdoors into most commercial cryptography software. While intended to use for wiretapping business secrets, medical journals and bank transactions, those backdoors are also there for any other adversary. This is effectively a declaration of war from the security services against all of humanity.

The news broke this morning that the NSA (US), the GCHQ (UK), and the FRA (Sweden) have been actively working to subvert the cryptography that makes our society tick, by planting backdoors in most if not all commercial cryptography software. This means that these agencies have deliberately made all of us vulnerable as we conduct our banking business, as we go to the hospital, and as we talk privately online. Our society depends on our ability to keep secrets, and the deliberate planting of backdoors, the deliberate subversion of our infrastructure, is nothing short of a declaration of war. Even according to U.S. Generals.

“A cyber attack on the U.S. could be met with a conventional military response.”

– chairman of the Joint Chiefs of Staff, Army General Martin E. Dempsey

Disregarding the ridiculous use of the word cyber, which makes him sound as if he’s stuck in a 1970s steampunk novel, the statement from such an authority makes it crystal clear that an attack that tries to subvert communications infrastructure is considered a military attack. And this is the attack we’ve had, on a global scale, against all mankind, from the NSA, the GCHQ, and the FRA.

It is important to note that cryptography itself has not been breached, as erroneously reported by several oldmedia this morning. While the end effect can be the same, there is a crucial distinction between the NSA/GCHQ/FRA subverting implementations of cryptography, versus breaking the math itself. The security services have not broken cryptography, they have been subverting commercial cryptography products to be defective, using moles and other forms of pressure on technology companies to work with the NSA/GCHQ/FRA against their own customers and against mankind.

This difference is crucial as non-commercial cryptography products can be not defective. For example, look at this post from Theodore Ts’o this morning:

“I am so glad I resisted pressure from Intel engineers to let /dev/random rely only on the RDRAND instruction. [...] Relying solely on the hardware random number generator which is using an implementation sealed inside a chip which is impossible to audit is a BAD idea.” — Theodore Ts’o

This example is significant because all cryptography depends on good random number generators, and “/dev/random” is the random number generator for all GNU/Linux systems, probably including your Android phone – the technical term /dev/random can be read as “the random generator device”. It would appear that somebody sought to subvert all systems based on the Linux kernel to be vulnerable to the NSA/GCHQ/FRA. Fortunately, that failed due to the good judgment of one engineer here.

This subversion of our critical infrastructure doesn’t just let the NSA and its ilk listen in. It lets anybody listen in that has enough technical skill to discover the planted back doors – and there are plenty of people who have that skill. The security services, with the job of keeping us safe, have effectively trashed our security completely. Assume the worst criminals can eavesdrop with much more ease than the NSA were ever able to, thanks to this subversion and breach of trust.

We can safely assume that all American software is thoroughly Swiss-cheese compromised. If you’re running anything from Microsoft or Apple, you’re owned. They’re in your system, in your documents, and in your production. You were played for a fool and you need to switch to a free-software solution or stay owned.

However, cryptography itself has not been broken, as already stated. Oldmedia can’t tell this crucial difference, so I’ll leave it to the words of Edward Snowden, who can presumably be trusted on the matter:

“Encryption works. Properly implemented strong crypto systems are one of the few things that you can rely on. Unfortunately, endpoint security is so terrifically weak that NSA can frequently find ways around it.” – Edward Snowden

Note how Snowden also makes the crucial distinction between cryptography itself, properly implemented cryptography, and the subverted commercial systems, “endpoint security”.

Bruce Schneier, one of the world’s leading security experts (if not the leading security expert), makes a similar observation:

“Whatever the NSA has up its top-secret sleeves, the mathematics of cryptography will still be the most secure part of any encryption system. I worry a lot more about poorly designed cryptographic products, software bugs, bad passwords, companies that collaborate with the NSA to leak all or part of the keys, and insecure computers and networks. Those are where the real vulnerabilities are” – Bruce Schneier

In a column in The Guardian, Schneier also ominously elaborates on why these services are the enemy of all mankind, and why this is the last opportunity to learn from history:

“Has any country that engaged in mass surveillance of its own citizens voluntarily given up that capability? Has any mass surveillance country avoided becoming totalitarian?” – Bruce Schneier

The declaration of war has already been made, the glove thrown, the first strike executed. It is up to us to not repeat the mistake of the families in Berlin in the winter of 1932, who still went weekend skating in the parks in denial.

I’m writing the NSA, the GCHQ, and the FRA in this article. That is since yesterday’s revelation in the Europarl hearing that the Swedish FRA is a key player in the ongoing NSA surveillance, having the code name Sardine. When the EU gathered to discuss and protest against the NSA’s global spy network, you may recall that the UK and Sweden vetoed that discussion. Seeing how the UK and Sweden are part of the spy network, that comes as no surprise today, but is still incredibly shameful to the brink of treason. There is no further reason anybody in the EU could trust the ministers of those countries ever again on the matter.

Finally, the NSA, GCHQ, and the FRA are faceless legal constructs. But the people who have executed these attacks on humankind are just that, individual people. They are the people who work for these agencies. They are the ones who have declared war on humankind, individually, and they are the ones who must be made to answer for it.

They have a choice. They can come clean, as Snowden did, or they can remain an individual who declared war on humanity.

UPDATE — Techdirt makes the same observation: NSA, GCHQ admit that the public is the enemy.