Thomas More’s Utopia designed in 1516
The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
Decrypted: A number of newly wealthy cryptocurrency entrepreneurs and investors are moving to Puerto Rico and are planning to rebuild a country that has recently been devastated by Hurricane Maria.
Announced for the first time in the New York Times article in February, a group of crypto enthusiasts lead by Brock Pierce (EOS, Block.One, Blockchain Capital) is planning to construct “Puertopia”, a city where the only money is crypto and it will run entirely on the cryptocurrencies and smart-contracts.
In the process, they conveniently avoid paying US-Taxes since Puerto Rico doesn’t have any federal personal income taxes, capital gains tax or too burdensome business taxes. The icing on the cake is for many that they can even avoid renouncing their American citizenship.
Our take: According to Wikipedia, utopia is an imagined community or society that possesses highly desirable or nearly perfect qualities for its citizens. Utopian ideals often place emphasis on egalitarian principles of equality in economics, government and justice.
There is a deep link between libertarianism and the cryptocurrency movement. The primary ideology of the crypto movement is a mix of anarchism and capitalism, is anarcho-capitalism. Crypto zealots, believe that cryptocurrencies and blockchain permit the creation of decentralized and radically free markets run by open source software algorithms. As these markets spread, they will cause the withering away of the State and centralized organizations and bring us to a utopian society without borders.
And cryptocurrency utopias are popping up on both land and sea.
The Nevada Independent, reported that Bitcointopia purchased several parcels of land in rural Nevada over the past four months. The company’s plan is to design an experimental city outside of Elko that will run on cryptocurrency.
Seasteading Institute, founded in 2008 by venture capitalist Peter Thiel and Google software engineer Patri Freidman made significant progress this year with its first project, a 300 home artificial island off the coast of French Polynesia. With an estimated cost of $60 million, the company has been gathering funds through its Varyon ICO, the official cryptocurrency for this utopia. It is expected that Varyon will be required to purchase seastead ownership and residency. The ambitious project has an anticipated completion date of 2022.
Then there’s Puertopia or Sol. A group of crypto entrepreneurs, led by Brock Pierce of the Bitcoin Foundation, headed to Puerto Rico with the idea is to build the infrastructure, both physical and digital, to create their own blockchain paradise and at the same time to escape taxation in the United States. (Note: they are thinking about changing the name to “Sol”, because “Puertopia” in Latin translates to “Eternal Playground for Boys”, and some people thought that was kind of weird).
Still, not everyone is sold on the idea of building a crypto utopia on the island, which has caused a lot of controversy. The controversy stems from a concept known as crypto-colonialism. The term crypto-colonialism isn’t new and originally, the term had nothing to do with cryptocurrency. It was coined 18 years ago by Michael Herzfeld, before Bitcoin came into existence in 2009, and it denoted a country gaining political independence by taking on economic dependence.
Currently, the IRS does not require U.S. taxpayers to include income earned within Puerto Rico, if they have lived in Puerto Rico for more than one year. The Puerto Rican government has introduced its own tax incentives to attract the businesses, through the Acts 20 & 22. Individuals approved for an Act 22 contract, pay zero capital gains tax on assets purchased after a person becomes a resident.
With everything from Bitcoin purchases to airdrops becoming subject to capital gains tax, and with the IRS trying to collect on everything, places like Puerto Rico can be heaven for many Americans.
Many governments in emerging economies are advocating crypto utopias, trying to build societies where the money is virtual and the contracts are all public. Israel, widely known for its strict financial regulations, is now focusing on creating an international financial center based on Initial Coin Offering (ICO). Venezuelan president Nicolas Maduro, on the other hand, has announced his plans to launch a new cryptocurrency named Petro to circumvent US-led sanctions.
In this transitional period, when cryptocurrencies and applications of blockchain still haven’t realized their full potential, crypto-utopias like Sol and others, need to be taken with a grain of salt.
If Bitcoin can ride out the price free fall its been on since the beginning of the year, then it’s likely that crypto-utopias will slowly spread around the globe. If crypto libertarians follow the Sol model, they’ll probably focus on parts of the world that have been ravaged by earthquakes, tsunamis, hurricanes and economic crises.
Decrypted: Coinbase recently announced that it acquired Distributed Systems, a company that has been working on decentralized identity solutions. In the announcement the company said the Distributed Systems team will work with Coinbase to find new and innovative ways to validate and verify identities as cryptocurrency goes more mainstream.
Distributed Systems raised a $1.7 million seed round last year led by Floodgate and was considering raising a $4 million to $8 million round this summer. The five-person Distributed Systems team will work with Coinbase’s Toshi decentralized mobile browser team and on the Login with Coinbase product.
Currently, Coinbase has 20 million customers and with “Login with Coinbase” its building an identity verification system that can be connected to any dApp.
Our take: Coinbase is developing something like Facebook Connect, which would allow decentralized app developers to make it easier for their users to sign up and connect their cryptocurrency wallets.
Just like Facebook Connect, Login with Coinbase, will give developers of decentralized applications an easier way to sign up users and connect to their platforms. Coinbase’s identity platform would allow users to login to a different exchange, without the hassle of having to setup a new account and deal with complicated keys and procedures required to connect their wallet. Developers will be able to integrate the SDK into their applications and use Coinbase to verify identities instead of requiring their users to register.
The Coinbase login platform intends to mimic the way Facebook presents its customers with its login buttons that not only spreads brand awareness, but markets the company to potential new users as well. This could take Coinbase beyond its crypto exchange business and into identity verification, essentially growing its brand in the same way Facebook did.
Its obvious that Coinbase is setting it sights on a much larger presence in the online space. Coinbase is diversifying its business model and becoming more than just a digital asset exchange. The goal here is probably a next-level online payments platform, as well as a system that could be integrated with existing banking infrastructure. Reliable KYC data is a big part of getting through the regulatory barriers that have separated the crypto space from the established banking system.
This latest purchase follows the acquisition of Keystone Capital Corp, a broker-dealer Coinbase incorporated as part of its goal to market SEC-regulated cryptocurrency securities in the United States.
With the acquisition, Coinbase has made a head start, but it might not be for long. Facebook has been working on its own blockchain solutions in the past few months, and many industry experts expect that a decentralized identity platform for dApps will be among the products it will offer.
A week ago, the head of the blockchain research arm of Facebook, David Marcus, resigned from Coinbase’s board, leading many to speculate that the social media giant’s blockchain efforts are progressing well and that Facebook could be on the verge of launching its first blockchain-based product.
Furthermore, Facebook has just recently lifted its ban on cryptocurrency and ICO advertisements. It looks like its taking a new step in engaging the crypto community. Also rumors about Facebook acquiring Coinbase have been floating around. Events like this would have a positive impact on the entire crypto industry. A potential acquisition would have dramatic effects on the general adoption and awareness of cryptocurrencies and even take Bitcoin beyond its price in December. Facebook would immediately become the leading player in the cryptocurrency market.
With 2 billion users, any cryptocurrency introduced by Facebook would potentially have huge popularity and reach, and in time might it would probably rival the reach of the US dollar.
Decrypted: Michael Terpin, a well-known US cryptocurrency investor and entrepreneur filed a $224 million lawsuit on August 15, against AT&T, accusing it of fraud and theft of digital currency tokens from his personal account. Terpin is seeking $200 million in punitive damages and $24 million as a compensation from AT&T.
Terpin has been the victim of two such hacks within the span of 7 months. The entrepreneur and cryptocurrency investor claims that it was due to AT&T’s ignorance that the hacker was able to repeatedly get his phone number and personal information. This information used to gain access to his cryptocurrency accounts, resulting in a loss of roughly $24 million in cryptocurrency.
Our take: Hackers have discovered that one of the most central elements of online security, the mobile phone number, is also one of the easiest to steal.
In a growing number of online attacks, hackers have been calling up Verizon, T-Mobile, Sprint and AT&T and asking them to transfer control of a victim’s phone number to a device under the control of the hackers.
A hacker calls a telecom company like AT&T, pretends to have forgotten their pin number and asks the company to reset it, getting access to the cellular account. Because most online accounts, including cryptocurrency exchanges, are linked via cell-phone numbers, once a hacker gets control of the phone number, they can reset the passwords on every account that uses that phone number as a security backup.
The complaint states that Terpin fell victim to a SIM swap fraud, also known as SIM hijacking or a “port out scam.” SIM swapping is a process of leading a telecoms provider like, transferring the target’s phone number to a SIM card held by the attacker. Once they receive the phone number, hackers can use it to reset the victims’ passwords and break into their online accounts.
Terpin’s crypto account was easily hacked because he was using two-factor authentication (2-FA). Two-factor authentication usually takes the form of SMS text messages, where the user receives a message containing a code they need to enter to verify their identity on the service.
Luckily, most 2-FA authentication is moving away from SMS messages and moving towards app authenticators such as Google Authenticator and Authy which are significantly more secure because the authentication codes can be generated offline even in Airplane mode. Unfortunately these authenticators aren’t unhackable, but they are more frustrating for hackers and would take more time to accomplish.
Quite often we hear the same story about some newsworthy guy who lost a considerable amount of money because he lost the private keys to his wallet, got hacked, or the third-party service provider that had custody over his private keys got hacked.
But the truth is that cryptocurrencies aren’t user-friendly. Securing crypto assets isn’t as easy as we’d like it to be. It takes some skill, dedication and a bit of patience to secure your Bitcoins an other crypto properly.
And up to now most of the crypto-related lawsuits have been filed against cryptocurrency exchanges and their alleged mishandling of security breaches.
On one hand, this story to me seems a bit strange because how could someone with nearly $24 million of crypto not be paranoid or extremely cautious about their security. On the other hand, it is incompetent for telecom companies to allow such attacks to occur. The Terpin case could set a legal precedent for SIM swapping scams.
Responsibility is the price of freedom. Such incidents serve as a reminder to everyone, that it’s essential to take responsibility and store crypto-assets securely. I’d say the overall take away is, keep your Bitcoin and crypto in cold storage.
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