Ideas come and ideas go. And some ideas, you just can’t shake. For about a year, I’ve been working on sketching out a framework for how to use contracts based on Bitcoin (capital B is the protocol). I call them bitcerts. Unfortunately, I have only rudimentary coding ability, and the bitcert remains a theoretical construct. I came across this article on twitter (HT Jon Waller) about Ethereum. This appears to have the attributes needed to create contracts. The uses they have (stocks and derivatives and such) are only really the tip of the iceberg. The big Kahuna is actually the ability to make contracts… It is the non financial contracts that are perhaps the most important, and this will be the bulk of the discussion here.

A week ago I was on vacation with my family and was rather depressed about the extent of the NSA spying, as revealed by Der Spiegel and discussed by Jacob Applebaum (@ioerror) in his To Protect and Infect, Part 2 presentation at the 30c3 conference. If you have not seen it watch it! Stop reading this post and watch it. You will not feel sufficiently violated until you do and my perspective will seem like that of a clueless crank. While I may be both, on this issue I am and as you will be sufficiently justified in our anger.

Inadequate Constraints

After watching what Jacob Applebaum explained, I have never been so angry and so sad in my entire life. It was at this point I realized that my country is dead. It had completely abandoned the principles that defined it and are represented within the Declaration of Independence and the Constitution. I had hope that it can be saved, but that hope is now mostly gone. I served 10-years in the Navy.

My commissioning oath had a statement, “I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same;” I repeated that oath 4-times in my service, and heard it countless times during promotions and reenlistment ceremonies. It was my favorite part of the ceremony. It reminded me why I willingly killed other human beings (my time of service spanned 9-11 and Iraq). It was not for God, and it was not for country. I did it for the ideas contained within the Constitution–our Creator endowed us with certain inalienable rights.

What hurts the most is the NSA is a military organization. Every single service member that works there (even some good friends of mine) took the exact same oath, and that they so blatantly and willingly conduct their operations against the Constitution. They justify their actions using very strong (narrow) definitions that are nothing but superb doublespeak. The oaths they took are now effectively meaningless and their action effectively unconstrained.

Juvenal asked “sed quis custodiet ipsos custodes?” (But who will guard the guardians?) The guardians can only be effectively guarded when it is in their interest to actually guard their ward. This is the only method that works in the short and long term. The guards must have constraints that align their interests to their mission. This is the only way for success. The Constitution’s constraints are inadequate. If they were adequate, then we would not have wholesale violation of our fundamental rights. Our rights precede government and any other relationship that we have. They are ours and ours alone. Government is supposed to defend those rights, not to enable taking our property and privacy. The Constitution defines our government and allows the fine structure to emerge. This is why I say that the Constitution is inadequate.

I learned (from the Navy), if I ever find a problem, that if I didn’t propose a solution, anything I said would be just bitching and I should keep my mouth shut. If you want to just hear my bitching you can stop reading. The solution part is going to get a little long, and break my goal of <500 words per blog.

Custodire Custodes (CC)

We guard the guardians. Great idea, but how? How do we provide structure to society? If there is no/drastically less government who provides order? Who provides the services of government if there is no government? Who takes care of the indigent? Who administers the law? Who creates laws? Who enforces the laws? I will get to these and more, but need to begin.

The Power of the Contract

Contracts are perhaps the most important things in our lives. They govern our business, and notionally we have a contract with society, but this is a very loose and ill conceived thing. We can enter into as many contracts as we desire. For this reason we carefully consider each and every contract that we agree upon. In a sense our Constitution and various state constitutions, constitutions of organizations to which we belong all represent a sort of a contract. They define many of the constraints that we face in our lives. Why not formalize the idea of the social contract?

If we did this, there could be many social contracts. These contracts compete for members, and may or may not be independent of location. Let’s add a twist and envision that we have a wallet where we have all of the social contracts to which we agree. These wallets may even have a maintenance fee (dues) that we have to pay at some periodicity to cover any services that the contract may have. These contracts could be as simple as legal protocols, agreements to arbitration, and that ex ante we agree to certain consequences.

Over time these contracts will change and the various combinations to which we hold will also change. These contracts represent our demonstrated values. When we seek employment, our employer may or may not have a contract for us. Employment contracts are just an agreement between the employer and the employee. They are voluntary on both sides. They may require that the employer/employee agree to a certain set of social contracts. This provides definition to the consequences of all involved parties actions.

The more effective contracts are the ones that have greater usage. There are consequences for entering and leaving contracts. Some contracts will become very complex over time. Some may even become traded commodities. Some may require encoding an individual’s partial biometric data and/or payment to restrict membership (prevent DDOS attacks). Thus each contract has a cost and must provide something greater in exchange to the person who agrees to the contract.

Trading social contracts?! Why not? If a contract has value, if the value of parting with the contract to another willing person provides you with greater value, why prevent such voluntary exchange. Such “prices” are not directly included in current arrangements of living in certain areas, but are more indirectly included through things like home values and land value in general. However, because jurisdictions are by geography, other factors such as established infrastructure mask potential negative social costs through poor governance. This tends to be only in the short term. We pay for poor governance through many different mechanisms, why not make these costs explicit and participation purely voluntary.

Voluntary participation in contracts is critical. Contracts can only be entered by uncoerced choice. Any act of force makes a contract not voluntary. Government reserves the right of force to enforce its goals. Here we have unforced choice.

For those who say that a contract is too expensive because it is too popular, what prevents another individual from creating an exact duplicate of the original contract and providing that service to everyone. Nothing, other than creating a new infrastructure and the time involved in creation precludes such an outcome. Here, innovation will find different ways of reducing infrastructure costs to provide the same social contract. This introduces us to a point about social contracts. These are a codified set of law. The codification of law is known as legislation. Legislation is written by legislators. Here the legislators have an incentive to make the legislation more effective at a lower cost, or have a decline in the relative value of their legislation.

The problem that we have is that there is not enough competition between various social contracts. In the past and today social contracts were predominantly restricted by geography and membership conveyed by birth. The evolution of these contracts occurred over very long periods of time, e.g. the evolution of British common law/government from monarchy to constitutional monarchy, to the bifurcation of the American colonies establishing a constitutional republic. This process spanned the eleventh through eighteenth centuries.

Now For Something Not Very Different

The current form of government with elected or self-appointed officials is not adaptive, sufficiently complex/nuanced, or with incentives that align the actions of the government to be of service to their constituency. For these reasons we may wish to consider a different approach. Previously, I discussed the concept of a social contract “buffet” where individuals voluntarily participate under a certain set of contracts of their choosing. As we all need each other to specialize our actions to the maximum extent possible, there will be social contracts written and unwritten that emerge. These will extend from existing social/business norms and from established common law. If a practice is too different from established norms, it likely will not succeed unless it provides a drastic improvement to what already exists.

To be successful CC social contracts should be able to coexist within existing social contracts and governance. As contract law is clearly defined in most parts of the world entering into a voluntary contract has very clear precedence. This can be beneficial to online retailers or for people conducting business internationally. It can be a contract of a predefined arbitration process, or of auditing and reporting requirements. In general, it is an agreement. This process can even be used for a charter like in a charter city. For larger scale agreements like this host nations are likely to have some law addressing/restricting such organization.

While it is entirely possible to successfully build from scratch a new political order, the process of revolution is fraught with many pitfalls and hazards. Revolutions tend to destroy more than they create and create opportunities for individuals with specific agendas to seize upon the opportunity and either take control or take property from others. Revolution is not necessarily desirable. It takes time to build effective and appropriate contractual constraints. I do not know of anyone that has the answers for what is the best contract. Many of us could write “good” ones, but they are not in part or in whole the “best”. The best amongst a number of different options depends on many things, Hayek notes in “The Use of Knowledge in Society” that this knowledge is obtained through a discovery process and is knowable only to a specific individual and depends upon time and location all of which are unknowable. Some things are very general and widely applicable and others are not. It takes time to discover what works “best” and even that is only relative.

One possible outcome is that people who are online and conducting business where reputation/trust is important over many different international jurisdictions, would use these ideas to begin creating protocols (contracts) for conducting their business. These protocols would provide an a priori method of arbitration should conflict arise, allowing settlement outside of existing legal framework. As these protocols become more widespread and commonly used, online exchanges will emerge where contracts can be bought or sold. Creators of new or improved contracts can list their developments. Once a contract is sold it can be resold. Contracts can also be transferred directly from individual from individual without need of an exchange. Contracts are also maintained, the better maintained the contract is the more valuable it becomes to society.

As the body of contracts builds and their adoption spreads, government will become less relevant in codifying the rules governing society, and governments relationship with society will change. The more developed the CC society becomes, the more pressure it will exert on existing government and the more existing governments will push back. The government pressure on individuals will cause individuals to relocate to jurisdictions where they are less pressured. However, because their business does not necessarily exist in the physical world, the individuals that decide to relocate face less overall costs to do so.

What Does Government Do?

We must consider this question to frame what services a denationalized government needs to provide. To answer the question, let’s turn to the Constitution. The government provides four main things:

1. Social contract
2. Money
3. Mail (communication)
4. Record of property rights

We talked at length about the social contract. An example of denationalized money is bitcoin. The third became widely accepted in the 1990’s, email. This leaves the fourth. Please note that I neglected the concept of a national defense as that is a part of the social contract. Also, I have to this point neglected discussion of the technical mechanism of the social contract. This was intentional as a contract is only good if you ‘own’ it.

Bitcoin (capital B) provides a mechanism for peer-to-peer transfer of bitcoin (shares of the total number of bitcoins ever discovered.) The blockchain is a public record to which every transaction is recorded. This is revolutionary technology. Each bitcoin is not uniquely distinguishable from one another. One can recreate a record of a particular bitcoin (satoshi) but this process is time consuming and as the blockchain becomes longer more and more computationally intensive and not practicable for daily use. What is needed to create a public record of ownership is that each record is uniquely identifiable. The blockchain simply records who owns the fraction of a specific record. Rather which public key (wallet) owns the record. Through the use of private keys each public wallet can be verified to a specific individual if so needed. Individuals can link certain publicly disclosed wallets to themselves, while keeping other wallets unconnected. Here groups of individuals acting together, companies, may also act as individuals.

Because of the quantity of things that can be owned or contracts that may be created, the rate of production of new bitcerts (bitcertificates) is uncapped. These certificates are not currency, although they may be traded like currency. The value that is contained within them is the information contained in the keys. The information and unique access to it are the value. The information of the keys is time stamped and recorded in the blockchain.

Because of the number of things that can be stored, each bitcert has five equal sized data blocks: mining fee pool address, certificate number, text description, space for a checksum, and the owner’s address. Each certificate can be broken into as many parts as dictated by the fork (e.g. somewhere between 1 to 10¹⁵ parts). Only a whole certificate may have the text description altered or description changed. Thus, once ownership changes of even the smallest fraction, the majority cannot change what is owned unless everyone agrees.

The mining pool address is important because that is what identifies a particular fork. Private blockchains are not likely to experience forking risk, but because of their localized nature are susceptible to corruption from intrusion. Public blockchains maintain their integrity in the exact same manner as crypto-currencies, by maintaining adequate incentives to the miners to ensure chain stability.

Each owner’s address is their public bitcert wallet. This address also serves as a bitcoin wallet address. This allows payments of dividends (for stock certificates), child support, alimony, welfare, social security, pension checks, or any other such recurring payment deemed necessary. It may also be the address that is paid during a sale or transfer.

Service Provider

Let’s presume there is a service provider that provides service through contracted agreements. The service provider has a server that maintains a fork of the blockchain. The blockchain, depending on the physical security of the network may just act like an account database, where the bitcoin blockchain contains the record of payment.

Voluntary Contract

In another example there are two parties that want to enter a contract, one purchases a certificate for their use from a public blockchain. Both parties agree upon the contract, the contract has a SHA256 hash generated, and an encrypted description where each party has the key. The bitcert text description is the encrypted description and the SHA256 sum of the contract is the checksum. The certificate owner then transfers a portion of the share to the other party paying the miner fee.

Car Title

Using vehicle manufacture as the next example, a car manufacturer purchases a number of certificates from a public blockchain. The VIN is listed in the description of each car produced. The VIN is an address that the manufacturer holds the private key. When the automaker sells the car to the initial purchaser, they retain one very small fraction of the bitcert for the car. This prevents changing the description of the certificate, and allows transferring of the “title” (remaining portion of the bitcert) to subsequent owners/co-owners. The car manufacturer identifies a flaw in a series of cars produced. They issue a recall campaign, notifying the owners of the recall by transferring to the car’s VIN address a portion of the recall bitcert. Once the recall is done, the majority holder transfers their portion of the recall bitcert back to the manufacturer or the dealer doing the recall. Thus the bitcert maintains a public record of outstanding manufacturer recalls on the automobile that are tracked for the life of the car. The manufacturer could use bitcerts to show whether a safety recall was or was not done and how long it was left outstanding on the vehicle and allowing anyone who purchased the vehicle to see its status. Please note the recall’s bitcert may be from a different fork than the fork that generated the title’s bitcert.

Social Contracts

A user creates a wallet that is to be their public identity. Attribution to an individual (possession of the private key) can be checked by transferring a small quantity of bitcoin to a specified address, and a subsequent transfer back. This process is analogous to a handshake. The problem here is that an individuals entire past history of contracts is available for the maintainer of the blockchain to see. This is no different than the record of employment or of credit history represented by a social security number. If the blockchain is public, then the data is available to everyone. We can find privacy through degeneracy (the mathematical kind) where a user bifurcates their identity allowing ownership without public disclosure of attribution. As long as the links between the private identity and the public one are not made the activity will appear to be of two separate individuals.

Changes in the social contract, agreements potentially are sent to all holders of the contract. If they do not agree then those contracts could be returned to the mining pool address. There is a potential for contractual spam, much like spam is in email. Filtering a wallet is then possible to block certain mining pools (forks) while allowing others. Here a more valuable pool will only generate changes that are more likely to be accepted creating more value and not spamming their customers.

Information Assymetry

We have a theoretical framework where we envision a method of providing society a fluid and resilient method to structure itself. We found the method through peer-to-peer protocols, and that by leveraging existing protocols we create a communication architecture. Fundamentally we can think of a particular government as a communication protocol that defines how its constituents can communicate internally and externally. While it is thankfully impossible for government to control our thoughts (the last piece of Orwell’s vision not yet realized), their purpose is to provide a structure to our interactions.

Our current governments, while they publish legislation, evolve hidden laws and structure not visible to the outside world (NSA, FISA courts, cronyism, etc) This opacity in the rule set inhibits the functioning of our society. When individuals are not aware of all of the rules that govern their lives they may act in a fashion that appears to them to be rationally self interested but is in effect serving another without their knowledge and therefore consent. Information asymmetry is what allows organizations to exploit one another. Intentional creation of asymmetrical knowledge of the rules allows exploitation. We saw the NSA leverage their position to insert and maintain vulnerabilities in our fundamental computing and communication architecture, mainly due to closed standards of software and hardware manufacture. There will be a push in the computing world toward open standards for hardware. The open source software movement is seeing renewed development as we collectively wake up to the reality that we individuals were under siege and that our positions are overrun. It is possible, albeit difficult to reorganize and begin to counter. The revolution is now for the time being in cyberspace.

I think that one of the main reasons that we got to where we are today is that the incentives that our government faces is to have more government. We need to realign those incentives to ones where there is real competition between various contracts for people. We cannot hope to realign those incentives if we continue to think of ourselves as constituents. We must think of ourselves as customers. Government does not have a right to our action. If we continue to allow the information asymmetry, its associated ills will continue to dominate our lives and strip us of our vitality. As long as the political process is opaque (the sheer size of the Federal Register, and how rules are inserted through cronyism) and participation is mandatory, we have no hope of meaningful change. By opening the rule making process and creating a voluntary process of organization, we make government a service we can opt or not opt for just like any other.

If somebody is a good rule maker, they should have a right to profit in their talent, just as anyone has a right to profit in their talent. By demanding “humble civil servants” who “sacrifice” their opportunities in the private sector to “serve others”, we expose ourselves to the incentive structure where those “humble servants” seek outside compensation or power for the sake of having power. By creating an open source government, we need to think about also privatizing the rule process. A politicians worst nightmare is being confronted by a better politician and constituents who can choose. It is only when confronted by this proposition that our humble poll is truly humble. Protecting our politicians through unionization (political parties) structured rules (campaign contributions legislation) and restricting periods of competition too narrowly (limited voting time) only provides a service to the polls and a disservice to ourselves.

Conclusion

Bitcoin (capital B) is an architecture for human interaction. It is much like the innovation of the Internet. Bitcoin (capital B) is directly analogous to the development of TCP and UDP protocols. What we do with the data packets is up to us. When Satoshi Nakamoto released Bitcoin, he developed the first protocol, bitcoin, as a means of exchanging action peer-to-peer.

What I propose here with bitcerts is the development of another protocol that allows forking and unique identification of each bitcert created, along with divisibility and the option for public or private ownership of those certificates. I also propose several uses, and show how contracts can be created and recorded publicly. I also show how ownership of assets can also be publically recorded and exchanged this is as applicable to cars as it is to shares of any type (voting, non voting, preferred, non preferred, common, etc) of stock in a corporation. I show how this process can be constructed to operate within existing social frameworks and allow exploration and development of new space for human action.

We must carefully consider the incentives that we establish within our social contract either our implicit and existing contracts or new ones that we create. I do not presume to know what ultimate contract is best. For this reason, I cannot truthfully answer the questions I originally proposed. I can only say, “It depends.” and even that is being presumptive. None of us know what is the best social structure, however that lack of knowledge does not impede our ability to find that which works best under our given ignorance and situation. We must free ourselves to begin exploring and discovering what is the best way to organize our society. Bitcerts are only a way to enable that discourse.