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Decentralized Society and Bitcoin Contracts

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Pavol Luptak

on 30 May 2015

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Transcript of Decentralized Society and Bitcoin Contracts

Decentralized Society
and Bitcoin Contracts

Who we are
Contents
Centralized vs. decentralized law
Decentralized Internet
Bitcoin contracts
Decentralized currency
Professional lawyer and IT security guy
Voluntaryists and freedom lovers
Bitcoin enthusiasts
Government's legal systems
FunkFeuer - wifi-based mesh decentralized network
The Serval Mesh - mobile mesh decentralized network
Anonymization networks (like I2P)
IPv6 based decentralized network (cjdns)
Decentralized DNS system (namecoin, ODDNS)
Providing a deposit
Escrow and dispute mediation
Assurance contracts
Using external state
Trading accross chains
Micropayments
Decentralized Legal system
Decentralized Internet
Decentralized Currency
Decentralized Contracts
Decentralized Registers
Trade in decentralized world
Decentralized future?!
No risk of reputation loss
No risk of bankruptcy
Funding is involuntary and enforced by coercion
No terrestrial competition
Laws are enforced by majority against minority
Decentralized courts
Being fair makes economic sense
People vs. Legal agencies
Legal protection in the decentralized society
Decentralized freemarket legal systems
Current legal systems problems
David Friedman: "Producing laws is not an easier problem than producing cars or food, so if the government's incompetent to produce cars or food, why do you expect it to do a good job producing the legal system within which you are then going to produce the cars and the food?"
Legal agencies are motivated to solve most conflicts without courts if it is possible, otherwise they have to pay court costs
Legal agencies prefer courts with good reputation and history (because their direct customers also require fair decisions)
They can decide on arbitrary number of courts, but this can be a very expensive and time-consuming process (and can lead to loss of reputation)
People vs Legal agencies vs. Courts
Completely based on mutual contracts and legal-agency / court reputation
People prefer legal agencies with good reputation and history that protects their rights

Any case of corruption / bribe can cause a significant loss of their reputation and possible bankruptcy
Legal agencies dispute process
The most critical business value of courts is its fairness, otherwise they can lose their reputation and all customers -> legal agencies that require fair decisions
For legal agencies:
have to protect rights of their customers otherwise they would lose them
but also have to be able to cooperate with other legal agencies and accept decisions of chosen courts, otherwise they lose their reputation (and consequently customers)
For courts:
they have to do fair decisions, otherwise they lose their customers (=legal agencies)
Wait! But in this system anybody can easily corrupt private legal agency or private decentralized court!

This is much more likely in the current legal system where is no risk of reputation loss and bankruptcy and no competition at all!
(example "Harabin's legal system in Slovakia: Why pay expensive lawyers, when you can buy cheap courts?")
And what about laws?

Every legal agency will have their own subset of rules derived from legal industry "best practice" standards
Legal decision will be a mutually agreed compromise of both affected parties / their legal agencies

Welcome to the era of the central control - government crisis
Our current society is too complex to control / manage centrally
Law as a normative system
Governments are trying to regulate complexity through generally binding rules (laws)
Over-regulation limits economic freedom and therefore innovations and kills competition
The solution is to respect mutually agreed decentralized relations and embrace all technologies that make it possible!
Friedrich Hayek (The Road to Serfdom): "The economy is too complicated for politicians to avert recessions and unemployment without unintended consequences that may well be worse."
Bitcoin is the first example of massively used decentralized currency
But there are a lot of other alternatives Namecoin, Litecoin, Tonal Bitcoin, lxCoin, Devcoin, PPCoin, Freicoin, l0coin, Terracoin, Liquidcoin...
We are just at the beginning of a completely new decentralized bank system!
Be prepared for more secure and better implementations!
Micropayments using bitcoin micropayment channel
Bitcoin transactions are cheap, but not free
Bitcoin transactions are relatively slow
Using micropayments it can be possible to pay e.g. for wifi access
Escrow and dispute mediation
Bitcoin blockchain supports escrow, so it is not necessary to use 3rd-party web application (like Silk Road market)
Escrow is voluntarily chosen by both parties
No dispute: buyer and seller signs
Dispute: buyer/mediator signs and the seller loses
Dispute: seller/mediator signs and the seller wins
Mediator can't steal or move money by themselves
External agents
"Oracles" to lock money - a special program to run external agents (programs) and then sign or not sign
Suitable for bets, heritage agreements, some insurance against loss of business due to your website getting hacked -> special conditions have to be met to release money
Assurance contracts
Kickstarter style funding model where supporters pledge money that is only taken if enough pledges are gathered
Can be combined with dispute mediation
Suitable for provision of ANY public goods (e.g. building bridges, localization of web/tools, etc)
We already have technologies to achieve fully
decentralized society.
Decentralization can ...
cope with complex relations in our society much better
be immune against misuse of the central control (SPOF)
be economically effective
means a bright future!
Problem is WHO should create law and WHAT should be regulated?

WHO: Law is basically created by a small group of people
WHAT: Regulation in order to help society reduces number of free choices, often it means more regulation = over-regulation

If something does not work/or it is against our economic interests, more regulation is created.
Consumer over-protection limits innovations and always increases price
Employee protection limits employees inability to find another better job
Marriage regulation prevents long term relationships
If the state does not have money, it simply creates new taxes and new regulations
Law is misused as a monopoly tool to achieve specific economic interests
Law regulates situations where other normative systems would work more effectively
This may result in corporativism
Law is not evil ! =
it saves us from chaos
The state as a monopoly for economic regulations and laws
Bitcoin as a framework for multiple, independent currencies
"Coloured satoshi" - multiple currency issuers with their reputations, history and reserves (e.g. backed up currency)
Bitcoin is used a transaction medium, suitable for regional / local currencies
Implementation of the free banking system (people can freely and voluntarily choose what currency is the best one for them)
References & credits
Decentralized law - David Friedman, Hans Hermann Hoppe, Stephen Kinsella

Bitcoin/contracts - Mike Hearn, Nick Szabó, Alexander Tabarrok

Bitcoin friends & inspiration - Juraj Bednár, Marek Palatinus, Pavol Rusnák, Alex Howard, Frank Braun, Amir Taaki, Peter Šurda, Mike Gogulski and many others
Bitcoin as a fully decentralized register
Bitcoin blockchain can be used as a decentralized register of any property (cars, houses, phones, ..)
It can include references / pointers to another distributed decentralized databases with a lot of data (e.g. cadaster)
Sale is done using two connected transactions - the first one moves money from the buyer to seller, the second one moves the ownership from the seller to the buyer
Car trade in the decentralized world
1. Car is produced with a newly created ownership key with deposit of T coins (e.g. 0.00001 BTC) - car computer / special immobilizer requires authentication using this ownership key
2. The buyer generates and sends a random number to the seller to obtain the valid car data
3. The car returns a digitally signed structure (by car's private key) that contains this random number, the cars public cert, all technical data, the public key of the current owner / ownership, so the buyer can verify properly what he wants to buy and if the seller really owns this car
4. The buyer creates a transaction with two inputs and two outputs. The first input signs for P coins (car price), the second input is connected to the output holding T coins for the ownership address. The first output sends P coins (car price) to the seller address and the second output sends T coins (ownership) to the buyer. This partially valid transaction is passed to the seller who signs the second input with the car's current ownership key and broadcasts this transaction
5. They wait for some confirmations, after that the car recognizes the new owner/ownership
Stay in touch with us....
Full transcript