Cryptocurrency 101 – Working With the Law

I’ve been working on a blockchain protocol extension that would allow “undo’s” in some limited circumstances and could possibly exist in cooperation with regulations and laws and courts.

It’s strictly opt-in, but I figure the “crypto anarchist” contingent will hate it anyway – because it becoming possible means some people would start refusing to do business with them unless they “voluntarily” abandon some privacy.

The first piece of the puzzle is the “subordinate claim” on blockchain assets. An entity owning some asset can issue a subordinate claim on that asset to some other entity rather than transferring ownership of that asset to that other entity.

A subordinate claim in the asset can be used just like its superior claim could be used (bought, sold, transferred, etc), except that the holder of the superior claim has the ability to revoke either the subordinate or superior claim at any time. The superior claim is revoked if it is transferred to the current address holding the subordinate claim. The subordinate claim is revoked if the superior claim is transferred to any other address.

The second idea is that of a persistent identity, which really is just a species of PKI published to the blockchain. An entity could publish a key asserting its identity and/or identifying itself in transactions, so that subsequently people could use the blockchain to see how much and exactly what business that identity has done and how long it’s been around. Yes, it’s an abandonment of privacy. It is also strictly voluntary. Nothing compels anyone to link a particular transaction to their persistent identity, nor forbids them from having more than one, etc. The reason why some entities might choose do this is to firmly establish their identity and trustworthiness, or at least their collateral, both as issuers and recipients of subordinate claims that might be revoked.

The idea is that regulated assets could have sovereign claims (that is, the top-level claim that is not subordinate to anyone or anything else) held by the regulatory agency, and then ordinary trade in those assets would be trading the subordinate claims. Thus, someone with a publicly traded stock would hold his claim subordinate to the agency with authority on that stock, which would be someone like the SEC in the US, or equivalent national authority elsewhere. If it’s a privately held stock, the stockholder would hold a claim subordinate to the company’s claim, which would in turn be subordinate to the sovereign claim held by the SEC (or whatever regulatory authority has jurisdiction in that particular asset).

That gives the regulatory agency the option to ‘freeze trading’ in a particular asset, or even claim it pursuant to court action, etc, without the cooperation of the holder or even after the death of the holder if necessary. It gives the courts a way to recover assets that have been burgled or embezzled, or the assets of someone who died intestate or who has failed to pay fines, child support, or income taxes, etc — provided those assets were held subordinate to court control in the first place.

It is still strictly opt-in, in that nothing could compel you to do anything you don’t want to do with a _sovereign_ claim, and if you don’t *want* any subordinate claims, you don’t have to buy any, and if you don’t *want* to issue any subordinate claims under any circumstances, you don’t have to issue any, and if you don’t *want* to establish a persistent identity that would doubtless quickly be associated with your legal identity nothing would compel you to, and you’d always know exactly which persistent entities have the superior claims before you acquired a subordinate claim…. but I still figure the crypto anarchists will hate it.

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