Thursday, April 20, 2017
More than a dozen state legislatures are considering a bill called the “Human Trafficking Prevention Act,” which has nothing to do with human trafficking and all to do with one man’s crusade against pornography at the expense of free speech.
At its heart, the model bill would require device manufacturers to pre-install “obscenity” filters on devices like cell phones, tablets, and computers. Consumers would be forced to pony up $20 per device in order to surf the Internet without state censorship. The legislation is not only technologically unworkable, it violates the First Amendment and significantly burdens consumers and businesses.
Perhaps more shocking is the bill’s provenance. The driving force behind the legislation is a man named Mark Sevier, who has been using the alias “Chris Severe” to contact legislators. According to the Daily Beast, Sevier is a disbarred attorney who has sued major tech companies, blaming them for his pornography addiction, and sued states for the right to marry his laptop. Reporters Ben Collins and Brandy Zadrozny uncovered a lengthy legal history for Sevier, including an open arrest warrant and stalking convictions, as well as evidence that Sevier misrepresented his own experience working with anti-trafficking non-profits.
The bill has been introduced in some form Alabama, Florida, Georgia, Indiana, Louisiana, New Jersey, North Dakota, Oklahoma, South Carolina, Texas, West Virginia, and Wyoming (list here). We recommend that any legislator who has to consider this bill read the Daily Beast’s investigation.
But that’s not why they should vote against the Human Trafficking Prevention Act. They should kill this legislation because it’s just plain, awful policy. Obviously, each version of the legislation varies, but here is the general gist.
Read EFF's opposition letter against H.3003, South Carolina's iteration of the Human Trafficking Prevention Act.
Pre-installed FiltersManufacturers of Internet-connected devices would have to pre-install filters to block pornography, including “revenge porn.” Companies would also have to ensure that all child pornography, “revenge pornography,” and “any hub that facilitates prostitution” are rendered inaccessible. Most iterations of the bill require this filtering technology to be turned on and locked in the on position, by default.
This is terrible for consumer choice because it forces people to purchase a software product they don’t necessarily want. It’s also terrible for free speech because it restrains what you can see. Because of the risk of legal liability, companies are more likely to over-censor, blocking content by default rather than giving websites the benefit of the doubt. The proscriptions are also technologically unworkable: for example, an algorithm can hardly determine whether an item of pornography is “revenge” or consensual or whether a site is a hub for prostitution.
To be clear, unlocking such filters would not just be about accessing pornography. A user could be seeking to improve the performance of their computer by deleting unnecessary software. A parent may want to install premium child safety software, which may not play well with the default software. And, of course, many users will simply want to freely surf the Internet without repeatedly being denied access to sites mistakenly swept up in the censorship net.
A Censorship TaxThe model bills would require consumers to pay a $20 fee to unlock each of their devices to exercise their First Amendment rights to look at legal content. Consumers could end up paying a small fortune to unlock their routers, smartphones, tablets, and desktop computers.
Data CollectionAnyone who wants to unlock the filters on their devices would have to put their request in writing. Then they’d be required to show ID, be subjected to a “written warning regarding the potential dangers” of removing the obscenity filter, and then would have to sign a form acknowledging they were shown that warning. That means stores would be maintaining private records on everyone who wanted their “Human Trafficking” filters removed.
The Censorship MachineThe bill would force the companies we rely upon to ensure open access to the Internet to create a massive censorship apparatus that is easily abused.
Under the bill, tech companies would be required to operate call centers or online reporting centers to monitor complaints that a particular site isn’t included in the filter or complaints that a site isn’t being properly filtered. Not only that, but the bill specifically says they must “ensure that all child pornography and revenge pornography is inaccessible on the product” putting immense pressure on companies to aggressively and preemptively block websites to avoid legal liability out of fear of just one illegal or forbidden image making it past their filters. Social media sites would only be immune if they also create a reporting center and “remain reasonably proactive in removing reported obscene content.”
It’s unfortunate that the Human Trafficking Prevention Act has gained traction in so many states, but we're pleased to see that some, such as Wyoming and North Dakota, have already rejected it. Legislators should do the right thing: uphold the Constitution, protect consumers, and not use the problem of human trafficking as an excuse to promote this individual’s agenda against pornography.
Taxes Are Worse than You ThoughtWe are quickly approaching the deadline for filing (and paying) our federal and state income taxes (extended to April 18 this year because of Emancipation Day), and that means it’s time for my annual post at tax time to help put things in perspective.
1. Some Historical Perspective. “In the beginning” when the US federal income tax was first introduced in 1913, it used to be a lot, lot simpler and a lot easier to file taxes; so easy in fact that it was basically like filling out your federal tax return on a postcard.
For example, page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including two pages of worksheets, the actual one-page 1040 form above, and only one page of instructions (view all four pages here). In contrast, just the current 1040 instructions for 2016, without any forms, runs 106 pages.
Individual federal income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 7% on incomes above $500,000 (more than $12 million in today’s dollars). The personal exemption in 1913 was $3,000 for individuals ($72,850 in today’s dollars) and $4,000 for married couples ($97,000 in today’s dollars), meaning that very few Americans had to pay federal income tax since the average income in 1913 was only about $750. The Tax Foundation has historical federal income tax rates for every year between 1913 and 2013 here for tax brackets expressed in both nominal dollars and inflation-adjusted dollars.
2. Tax Graphic of the Day (above). Some more historical perspective…
3. Opportunity Cost. In a 2012 report to Congress (most recent data available), the National Taxpayer Advocate estimated that American taxpayers and businesses spend 6.1 billion hours every year complying with the income tax code, based on IRS estimates of how much time taxpayers (both individual and businesses) spend collecting data for, and filling out their tax forms. In addition, Americans will spend an estimated $10 billion for the services of tax preparation firms and $2 billion on tax-preparation software programs like TurboTax that still require many hours of time.
The amount of time spent on income tax compliance – 6.1 billion hours – would be the equivalent of more than 3 million Americans working full-time, year-round (or 2.1% of total US payrolls of 145.9 million). By way of comparison, the federal government currently employs 2.8 million full-time workers, and Wal-Mart, the world’s largest private employer, currently employs 2.2 million workers worldwide and 1.3 million workers in the US (both full-time and part-time). At the current average hourly wage of $21.90 an hour, the dollar value of the opportunity cost associated with tax filing would be more than $131 billion, slightly more than the 2016 GDP of Washington, D.C. ($127 billion).
As T.R. Reid pointed out recently in a New York Times op-ed, it really doesn’t have to be that way. For example:
In Japan, you get a postcard in early spring from Kokuzeicho (Japan’s IRS) that says how much you earned last year, how much tax you owed, and how much was withheld. If you disagree, you go into the tax office to work it out. For nearly everybody, though, the numbers are correct, so you never have to file a return.
4. Tax Progressivity. And just how progressive is the US federal income tax system? Very, very progressive, see the chart above showing average effective tax rates by various income groups in 2014 (most recent year available). That pattern of income tax progressivity explains why almost all federal income taxes are paid by the top income groups (see next few items).
5. Tax Progressivity and Tax Burden. According to the most recent IRS data, the federal income tax shares by six different income groups are displayed in the chart above. Almost all federal income taxes (97.3%) are paid by the top 50%, more than 2/3 of income taxes are paid for by the top 10% and nearly 40% of taxes are paid by the top 1% of taxpayers. For all of the criticism and negative publicity the “Top 1%” get, I’d like to personally thank that group this year at tax time for shouldering such a disproportionate share of our collective tax burden. It’s a form of “disparate impact” on the 1% that we all benefit from! So, I say “Thank You Top 1%” from all of us in the bottom 99% for your valuable and significant contribution to our nation’s tax burden.
6. Tax Burden of the Top 1% vs. the Bottom 95%. The chart above gives us another perspective on the tax burden of the top 1% over time, and compares the tax share of that group to the tax burden of the bottom 95% in every year between 1980 and 2014 (most recent year available). In 2014, the top 1% earned 20.6% of the total income reported to the IRS and paid 39.4% of all federal income taxes collected ($543 billion). The bottom 95% of US taxpayers earned 64% of total income (almost three times as much as the top 1%) and paid only 40.5% of the total income taxes collected ($550 billion). So once again, to the 1.395 million taxpayers in the top 1%, I say “Thank You” for paying almost as much in federal income taxes in 2013 as the 132.6 million taxpayers in the bottom 95% by income.
7. Bowling vs. Taxes. Speaking of the progressivity of income taxes, here’s a thought about the way we tax income vs. the way we score bowling. Under the scoring rules of bowling, you get rewarded, not penalized, for being successful. If you get a spare, the scoring system rewards you by adding the pins from the next ball into the current frame, and if you get a strike you get rewarded by adding your next 2 balls into the current frame.
Under our progressive income tax system with seven tax rates in 2015 increasing from 10% to 39.6%, you get penalized, not rewarded, for being successful, productive and entrepreneurial, because the more you earn, the higher the tax rate you pay. The top marginal income tax rate has been as high as 91% in the 1950s and 1960s, and 70% in the 1970s. If we scored bowling the way we tax income, we would subtract, not add pins for a spare or strike, i.e., penalize successful bowling. If we taxed income the way we score bowling, we would have lower, not higher, tax rates on our most successful income-earners.
8. Coincidence? Why are Tax Day (April 15) and Voting Day (first Tuesday in November) so far apart? Couldn’t we move Tax Day to the first Monday in November, or Voting Day to the first Tuesday following April 15?
9. What’s in a Name? Why do we call the IRS a “service?” Couldn’t it have been named a department like Labor, a bureau like the BLS or the FBI, a commission like the FTC, an administration like FDA, an agency like EPA, etc.?
10. 20 Inspirational Quotes about Taxes from Forbes, here are a few good ones:
“The taxpayer: that’s someone who works for the federal government, but doesn’t have to take a civil service examination.” – Ronald ReaganHappy Tax Day!
“We have what it takes to take what you have.” – Suggested IRS Motto
“It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates.” – John F. Kennedy
I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money.” – Arthur Godfrey
“A liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money.” – G. Gordon Liddy
Republished from AEI.
This article was originally published on FEE.org. Read the original article.
The Bill of Rights at the Border: Fifth Amendment Protections for Account Passwords and Device Passcodes
This is the third and final installment in our series on the Constitution at the border. Today, we’ll focus on the Fifth Amendment and passwords. Click here for Part 1 on the First Amendment or Part 2 on the Fourth Amendment.
Lately, a big question on everyone's mind has been: Do I have to give my password to customs agents?
As anyone who’s ever watched any cop show knows, the Fifth Amendment gives you the right to remain silent and to refuse to provide evidence against yourself – even at the border. If a CBP agent asks you a question, you can tell them you choose to remain silent and want to speak to an attorney, even if you don’t have one retained yet. That choice may not stop CBP agents from pressuring you to “voluntarily” talk to them, but they are supposed to stop questioning you once you ask for a lawyer. Also, beware that government agents are permitted to lie to you in order to convince you to waive your right to remain silent, but you can be criminally prosecuted if you lie to them.
CBP agents are unlikely to advise you that you have this choice because the government generally argues that such warnings are only required if you are taken into “custody” and subjected to a criminal prosecution. And at least one federal court of appeals has determined that secondary inspection – the separate interview area you get referred to if the CBP officer can’t readily verify your information at the initial port of entry – doesn’t qualify as “custody.”
But you don’t have to be in custody or subject to a criminal prosecution before you choose to invoke your Fifth Amendment rights to remain silent or to object to being deprived of your property without due process of law. For example, the Second Circuit Court of Appeals has held that a person’s request for an attorney is enough to invoke the privilege against self-incrimination, even at the border.
And that privilege includes refusing to provide the password to your device. For example, in 2015, a Pennsylvania court held that you may properly invoke the Fifth Amendment privilege to avoid giving up your cell phone passcode – even to an employer’s phone – because your passcode is personal in nature and producing it requires you to speak or testify against yourself.
Some courts have been less protective, overriding Fifth Amendment protections where the information sought is a so-called “foregone conclusion.” In 2012, a Colorado court ordered a defendant to provide the password to her laptop, only after the government had obtained a search warrant based on the defendant’s admission that there was specific content on her laptop and that the laptop belonged to her. On appeal, the Eleventh Circuit clarified that the government "must [first] show with some reasonable particularity that it seeks a certain file and is aware, based on other information, that . . . the file exists in some specified location" and that the individual has access to the desired file or is capable of decrypting it.
So, Fifth Amendment protections do apply at the border, and they protect your right to refuse to reveal your password in most circumstances. That said, individuals passing through the border sometimes choose to surrender their account information and passwords anyway, in order to avoid consequences like missing their flight, being made subject to more constrictive or prolonged detention, or being denied entry to the US.
As we have noted in our Digital Border Search Whitepaper, the consequences for refusing to provide your password(s) are different for different classes of individuals. If you are a U.S. citizen, CBP cannot detain you indefinitely as you have a right to re-enter the country. However, agents may escalate the encounter (for example, by detaining you for more time), or flag you for heightened screening during future border crossings. If you are a lawful permanent resident, agents may also raise complicated questions about your continued status as a resident. If you are a foreign visitor, agents might deny you entry to the country entirely.
But whatever your status, whether you choose to provide your passwords or not, border agents may decide to seize your digital devices. While CBP guidelines set a five-day deadline for agents to return detained devices unless a CBP supervisor approves a lengthier detention, in practice, device detentions commonly last many months.
Wednesday, April 19, 2017
Tuesday, April 18, 2017
Monday, April 17, 2017
This State Really Doesn't Want Its Residents to Know the LawA “legitimate” government cannot exist without first deriving its power from the consent of the governed.
This pillar of classical liberalism is so integral to the Lockean vision of a free society, it has historically been recognized as one of the central issues that caused the American colonists to rise to action, and mutually pledge their lives, fortunes, and sacred honors to declaring independence from the world’s most powerful government.
But there is more to the maxim of “government by consent” than just the idea of a representative legislature. In order for individuals to be punished for breaking a law they’ve tacitly “consented” to, they must first understand that there is a law in which to be broken.
Unfortunately, one Georgia resident has learned the hard way that governments have a history of keeping citizens in the dark and then punishing them for breaking crimes they were unaware existed.
It is difficult to imagine what it might be like to live under a dictatorship, where laws are created and passed in secret, and citizens are left in the dark, hoping they are not guilty of violating whatever new statute was just enacted behind closed doors.
However, while the above scenario may be an extreme case, to some extent this is exactly what is currently happening across the country.
Just weeks ago in Florida, a father spending spring break on the beach with his family was fined $25 dollars for using metal sand tools on Panama City Beach, a law he had no idea he was breaking.
When this long-time resident of Panama City Beach asked law enforcement if he could see the actual text of the statute he was breaking, the officer on the scene immediately called for backup and threatened the father with jail time.
This is, unfortunately, not an isolated instance of the state penalizing individuals for breaking laws they did not know they were committing, and then denying these citizens the right to actually see these legal codes firsthand.
By allowing the state to punish individuals for an act committed without foreknowledge of wrongdoing or any proof of criminal intent, the entire justice system loses one of its primary components of the right to due process. After all, how can one commit a crime they had no knowledge they were committing? How is this a manifestation of rule by consent?
In Georgia, the potential to become an accidental criminal is rather high, since residents aren’t even allowed to see copies of legal code without first applying for a license and paying a hefty fine to the state. And even then, what residents are provided with doesn’t exactly explain the law in full.
An Unconventional Hero
Carl Malamud, founder of public.research.org, has been giving Georgia lawmakers a run for their money for years. As a long-time open records advocate, Malamud has dedicated his time to ensuring that the people of Georgia have access to every single law in the state, including the annotated copies, something that has recently gotten him into hot water with the state.
For students of the law or anyone doing legal research, annotated copies of legal texts are extremely helpful as they provide further insight into each law. Annotations may include a backstory or judicial opinion regarding the law and will often cite which laws preceded and followed the law in question. All this information is extremely valuable to those defending themselves against the state.
Unfortunately in Georgia, in order to gain access to the complete and official compilation of the state’s laws, residents, like Malamud, are required to pay the state $1,207.02 for access to a hardcopy version. The state has promised to unveil a more “affordable” version that can be printed from LexusNexus for only $400 (what a bargain).
As an activist who believes that every person should have access to the laws they allegedly consented to follow, Malamud has spent countless hours scanning copies of the annotated version Georgia’s law. He then copied those annotated files to USB drives, which were then sent out to local lawmakers as well as other prominent members of the community.
Each USB drive was sent in an envelope with an enclosed letter which stated:
"Access to the law is a fundamental aspect of our system of democracy, an essential element of due process, equal protection, and access to justice.”Of course, recipients of Malamud’s envelopes were given fair warning of its contents just by glancing at the colorful packages, as each contained the words: “UNIMPEACHABLE,” on the front and featured pictures Georgia peaches and American flags and the phrase, “code is law.”
However, some of the government recipients of Malamud’s letter were less than impressed.
In a written response sent to Malamud, chairman of Georgia's Code Revision Commission, Josh McKoon stated:
"Your unlawful copying... Infringes on the exclusive copyright of the state of Georgia, Accordingly, you are hereby notified to CEASE AND DESIST ALL COPYRIGHT INFRINGEMENT."When Life Gives you Peaches...
While this seems almost too far-fetched to believe, the government of Georgia was so infuriated that Malamud would dare disseminate annotated copies of the law for others to read, they pursued legal action against his organization, public.research.org.
Malamud was ordered to destroy all physical files and remove all information regarding the annotated law from his organization’s website within ten days, or face legal consequences.
While the state of Georgia had already “won” in the legal sense, it continued to pursue legal action against Malamud, suing him in federal court.
The state of Georgia claims that there is no substance to Malamud’s complaints since technically the law is already available to the public for free online.
Among these terms is a stipulation that states that any of the information found is prohibited from being copied and cannot be cited in any newspaper or “articles.”In other instances, those wishing to view the law must even apply for a license.
Unfortunately for Malamud, the judge ruled in favor of the state of Georgia.
When it comes to intellectual property laws, the federal government is prohibited from copyrighting texts, such as laws, for example. However, states are allowed to copyright text, especially if a private company is involved—like LexusNexus.
Since LexusNexus, a private company, provided the annotations for the state online, the judge viewed these additional notes as “value added material” and not necessary to the understanding of the law and thus, found Malamud in violation of the Copyright Act.
But the judge didn’t stop his criticism of Malamud there. Adding insult to injury he accused Malamud’s website of engaging in commercial copying of materials—various laws— which is illegal for a non-profit organization like Public.Resource.Org.
The state has also continued to go after Malamud and his organization for any other offense they can manage to find. Recently Malamud was served with an injunction as a result of what one source calls, “publishing technical and scientific standards that have been incorporated into laws.”
Consent Is a Two-Way Street
The term consent itself implies that something has been agreed upon by two or more persons acting of their own free will.
In criminal law, this means that a law cannot actually be broken if the accused had no foreknowledge that the act in question was in fact, illegal. However, if citizens are prohibited from accessing the law, how are they to know when they may be breaking a law?
The legal principle known as mens rea, Latin for “guilty mind,” explains that for guilt to be determined, criminal intent must first be demonstrated.
In other words, unless the individual in question had foreknowledge of the law they are accused of breaking, they cannot be held responsible for its violation.
To punish an individual for breaking a law of which they had no prior knowledge would be contrary to a political system built on the precept of consent by the governed.
And yet, in spite of our nation’s tradition of rule by consent, the state of Georgia has gone to extreme lengths to keep its own state laws hidden from the people, and has even gone after those who have attempted to give this information to the people.
As of now, all the legal text in question has been removed from Malamud’s site and has instead been replaced with the following:
“Your access to this document, which is a law of the United States of America, has been temporarily disabled while we fight for your right to read and speak the laws by which we choose to govern ourselves as a democratic society. To apply for a license to read this law, please consult the Code of Federal Regulations or applicable state laws and regulations for the name and address of a vendor... Thank you for your interest in reading the law."
This article was originally published on FEE.org. Read the original article.
Wednesday, April 12, 2017
Everything You Need to Know about Dollar-Denominated CryptocurrenciesA well-known obstacle to the greater popularity of Bitcoin as a medium of payment is the high volatility of its exchange value. This volatility results from its built-in quantity commitment: because the number of Bitcoins in existence stays on a programmed path, variations in the real demand to hold Bitcoin must be accommodated entirely by variations in its unit value. When demand goes up, there is no quantity increase to dampen the rise in price; and vice-versa for a fall in demand.
Not surprisingly, several cryptocurrency developers have thought of creating a cryptocurrency with a price commitment–namely a pegged exchange rate with the US dollar–rather than a quantity commitment, in hopes of greater popularity. The aim is to create a system in which dollar-denominated payments can be made with the ease, security, and low cost of Bitcoin payments, but without the exchange-rate risk.
New Digital Assets
The development of “Blockchain 2.0” platforms has enabled the launching of a variety of new digital assets, including such dollar-pegged (and euro-pegged and gold-pegged) currencies. As we will see, the histories of early (2014-2016) dollar-pegged cryptocurrencies show a series of flops. But one project, Tether, has become a late-blooming success.
Tether had $55 million in circulation as of March 29, 2017, making it the #13 largest cryptocurrency. To keep this size in perspective, a brick-and-mortar US institution with $55 million in deposits is a tiny bank or a mid-size credit union, and Tether is currently only 1/300th the size of Bitcoin.
The Tether white paper explains in more detail the motivation for developing a dollar-pegged cryptocurrency by listing advantages to individuals using it for dollar-denominated transactions rather than using dollars held in “legacy bank” accounts:
- Transact in USD/fiat value, pseudonymously, without any middlemen/intermediaries
- Cold store USD/fiat value by securing one’s own private keys
- Avoid the risk of storing fiat on [cryptocurrency] exchanges–move cryptofiat in and out of exchanges easily
- Avoid having to open a fiat bank account to store fiat value
But what is the claimed advantage over using Bitcoin? It is the expectation of wider acceptance in payments, because of the advantages to merchants of accepting a dollar-pegged cryptocurrency over accepting Bitcoin in a US-dollar-dominated economy:
- Price goods in USD/fiat value rather than Bitcoin (no moving conversion rates/purchase windows)
- Avoid conversion from Bitcoin to USD/fiat and associated fees and processes
First we consider the projects that have flopped. Three projects were launched in September 2014: CoinoUSD, NuBits, and BitUSD. Their pegging mechanisms were different, and are difficult to describe briefly (partly because they were not all entirely transparent), but two common features are important to note.
- The rate-pegging mechanisms were not programmed into a source code, like Bitcoin’s quantity commitment, but relied on non-programmed policy actions by a trusted central authority.
- None used the traditional currency pegging method of having the issuer hold reserves in physical dollars or dollar-denominated debt securities. (On the NuBits mechanism see this critique by a BitUSD promoter. On the BitUSD mechanism see this critique by the CoinoUSD developer.)
CoinoUSD, which began trading in December 2014, was developed by a for-profit payments firm called Coinomat and built on the blockchain of the NXT cryptocurrency. (In November 2014 NXT was the #6 cryptocurrency with a market cap of $19 million; currently it ranks #38 with a market cap around $13 million.)
CoinoUSD reached a market cap plateau of $2.7 million in early 2016, but shut down in early 2016, due to a “payout glitch” that flooded customers with free CoinoUSD units, making it impossible to maintain the exchange value at $1. Coinomat announced a reboot in which the erroneous payout would be reversed and said, “NXTUSD will replace CoinoUSD completely, and enhance it,” but this appears not to have happened. Since then it has had a market cap of zero, and its webpage at the Coinomat site declares it “disabled until further notice.”
The history of NuBits, also a for-profit enterprise, shows that it gained only a similarly small market foothold. Its market cap plateaued early on below $2.5 million, and since April 2015 has remained below $1 million. In June 2016 NuBits had a devaluation crisis, with the price falling to 20 cents. Its rate-pegging intervention mechanism, despite claiming many layers of reinforcement, was not robust and failed.
Although the price later returned to par, today NuBits shows very little market activity. Since January 2017 the market cap has hovered around only $135,000, with daily trading volume in the neighborhood of $2,000.
BitUSD is built on the blockchain platform of the cryptocurrency BitSharesX. Its highest market cap plateau was around $1 million soon after introduction, but it fell to below $200,000 in April 2015 and is currently less than $110,000.
BitUSD uses a novel pegging system that so far has proven robust. A piece promoting BitUSD emphasizes that “the bitUSD is an asset that is not backed by real dollars in someone’s bank account.” (It claims this a virtue: “We cannot trust anyone to hold and secure a physical asset so that people can redeem it eventually. History has repeatedly shown: It doesn’t work!” In fact, history shows the major banks in unhampered banking systems routinely justifying the public’s trust by redeeming their liabilities on demand for decades. Paypal works on the same supposedly non-working model, backed by Paypal’s dollar deposits at Wells Fargo Bank.)
By contrast, BitUSD are created through collateralized forward currency contracts. The network provides an escrow service that credibly ensures repurchase (or “redemption”) of the BitUSD at or near par. Someone who wants to acquire BitUSD, say in order to buy from a seller who prefers a dollar-denominated medium of exchange, offers a contract: so many BitShares (hereafter BTS) for a certain amount of new BitUSD.
Under the BitShare network rules, the acquirer must not only pay at the outset in BTS but also agree to post collateral in BTS equal to the value of the bid. If the bid is accepted by another network participant, explains the BitUSD white paper, “the collateral and purchase price are held by the network until the BitUSD is redeemed” by some third party repurchasing it. The acquirer of BitUSD thus puts 200% collateral into a contract “that only allows access to these BTS when the BitUSD are paid back.” In effect the acquirer is shorting the dollar price of BTS.
Note that the new BitUSD units are initially 200% collateralized not in dollar-denominated assets, but in BTS. If BTS fall 25% or more against the dollar, such that the value of the BTS collateral declines to 150% or less of the value to be repaid, under the network rules redemption can be compelled by any BitShares miner who “enforces a margin call.” (It should be noted that to enforce the collateral rules, the BitShares network relies on trusted human agents to inform it about the current $ price of BTS.)
The system then “uses the backing BitShares to repurchase the BitUSD…thereby redeeming it.” Conversion back into dollars is thus not always at the initiative of the holder, as it is for a holder of ordinary demandable bank liabilities. Instead, a BitUSD holder faces a risk of “forced settlement.” If the value of BTS falls so quickly “that the margin is insufficient, then the market price of the BitUSD may fall slightly below parity for a short time if there is insufficient demand for BitUSD relative to the supply of sellers.”
The white paper concludes: “The critical thing to understand is that BitUSD is an asset used to hedge a position in BitShares against changes in the price of USD and is not supposed to have an exact 1:1 exchange rate with USD.” A close look at the chart indeed shows that the price of 1BitUSD has not been exactly $1. It has vibrated around $1 but has not experienced any lasting devaluation. Nonetheless, its clientele has declined and is currently small. No doubt this reflects in part the declining popularity of BTS, its market cap having fallen from more than $60 million in September 2014 to around $15 million today.
The Success: Tether
Now to the success story. Tether was launched in February 2015. In contrast to the previous contenders, as the chart shows, it started slowly and has grown in market cap. The series of discrete steps in its market cap path indicates that there have been a series of large purchases.
The most recent step, on Wednesday, March 29, 2017, raised the value in circulation to $55 million from $45 million. Logically these are not speculative position-takings because there are no capital gains to be had so long as the price per tether remains solidly pegged (or “tethered”) to $1. And Tether has in fact successfully maintained a steady peg throughout its history with only one small and brief blip. The steps are presumably big acquisitions for transaction use. Transactions volume in recent weeks has been running mostly in the neighborhood of at $20-40 million per day.
Tether transfers are executed using the Bitcoin blockchain. Tether’s pegging mechanism is also not programmed into a source code, but it is the traditional one: the issuer holds dollar-denominated reserve assets and pledges to redeem Tethers on demand. (Euro-Tethers have recently been introduced, but I focus here on dollar-Tethers.)
According to the official FAQ, “Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account. Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.”
The parent Tether firm, in other words, operates like a currency board: It holds 100%+ dollar-asset backing, and passively swaps Tethers for dollars and back again. Like a currency board, it can earn interest income by holding some of its dollar-denominated assets in interest-bearing form.
The Tether white paper reveals that Tether’s dollar reserves are currently held in accounts at two major Taiwanese commercial banks: Cathay United Bank and Hwatai Bank. (Why these particular banks? “They also provide banking services to some of the largest Bitcoin exchanges globally,” they are okay with Tether’s business model, and they are experienced at compliance with Know-Your-Customer and Anti-Money-Laundering regulations.)
It adds that “additional banking partners are being established in other jurisdictions” to reduce political risk of the accounts being frozen. Tether is thus not a “100% reserve” institution in the sense of a money warehouse holding 100% literal cash reserves (which would mean Federal Reserve notes in a vault).
How does a potential purchaser of Tether verify the 100% backing claim? The website declares: “Our reserve holdings are published daily and subject to frequent professional audits. All tethers in circulation always match our reserves.”
A web page does give dollar values for assets and liabilities but does not identify the auditors or provide copies of the audit reports, so the claim of being “fully transparent” is somewhat exaggerated. The transparency is as great as that of historical note-issuing banks, however. And perhaps the important test of trustworthiness is that Tethers have in practice been redeemed every day at par for about two years.
Competition as a Market Referendum
Dollar-pegged cryptocurrencies, by contrast to Bitcoin, separate blockchain-secured payments from the speculative holding of an irredeemable private currency. Thus they provide a potential window for learning how much of the demand for cryptocurrencies is transactional, and how much is speculative.
The competition among dollar-pegged cryptocurrencies provides something of a market referendum on the relative credibility of alternative pegging arrangements. The much larger size achieved by Tether suggests (though not definitively, because other factors are also in play) a popular verdict that its pegging mechanism is more credible than those of CoinoUSD, Nubits, or BitUSD. It will be interesting to watch Tether’s progress from this point on and to observe whether its model is copied by other entrants.
Reprinted from the Cato Institute.
This article was originally published on FEE.org. Read the original article.
Tuesday, April 11, 2017
Monday, April 10, 2017
It seems you may have to listen to the skies on this occasion, as David Duchovny and Gillian Anderson will lend their voices as Mulder and Scully for a new audio spin-off on Audible.
The X-Files: Cold Cases will be set before the events of the recent revival series, providing more backstory on the events we saw.
Woodrow Wilson Made the World Unsafe for DemocracyThis week is the 100th anniversary of President Woodrow Wilson’s speech to Congress seeking a declaration of war against Germany. Many people celebrate this centenary of America’s emergence as a world power. But, when the Trump administration is bombing or rattling sabers at half a dozen nations while many Democrats clamor to fight Russia, it is worth reviewing World War One’s high hopes and dire results.
Lies, Censorship, and Poison
Wilson was narrowly re-elected in 1916 based on a campaign slogan, "He kept us out of war." But Wilson had massively violated neutrality by providing armaments and money to the Allied powers that had been fighting Germany since 1914. In his war speech to Congress, Wilson hailed the U.S. government as "one of the champions of the rights of mankind" and proclaimed that "the world must be made safe for democracy."
American soldiers fought bravely and helped turn the tide on the Western Front in late 1918. But the cost was far higher than Americans anticipated. More than a hundred thousand American soldiers died in the third bloodiest war in U.S. history. Another half million Americans perished from the Spanish flu epidemic spurred and spread by the war.
In his speech to Congress, Wilson declared, "We have no quarrel with the German people" and feel "sympathy and friendship" towards them. But his administration speedily commenced demonizing the "Huns." One Army recruiting poster portrayed German troops as an ape ravaging a half-naked damsel beneath an appeal to "Destroy this mad brute."
Wilson acted as if the congressional declaration of war against Germany was also a declaration of war against the Constitution. Harvard professor Irving Babbitt commented in 1924: "Wilson, in the pursuit of his scheme for world service, was led to make light of the constitutional checks on his authority and to reach out almost automatically for unlimited power." Wilson even urged Congress to set up detention camps to quarantine "alien enemies."
Wilson unleashed ruthless censorship of any criticism. Anyone who spoke publicly against military conscription was likely to get slammed with federal espionage or sedition charges. Possessing a pamphlet entitled Long Live the Constitution of the United States earned six months in jail for a Pennsylvania malcontent. Censorship was buttressed by fanatic propaganda campaigns led by the Committee on Public Information, a federal agency whose shameless motto was "faith in democracy... faith in fact."
The war enabled the American equivalent of the Taliban to triumph on the home front. Prohibition advocates "indignantly insisted that... any kind of opposition to prohibition was sinister and subversively pro-German," noted William Ross, author of World War 1 and the American Constitution. Even before the 18th Amendment (which banned alcohol consumption) was ratified, Wilson banned beer sales as a wartime measure. Prohibition was a public health disaster; the rate of alcoholism tripled during the 1920s.
To punish lawbreakers, the federal government added poisons to industrial alcohol that was often converted into drinkable hooch; ten thousand people were killed as a result. Professor Deborah Blum, the author of The Poisoner's Handbook, noted that "an official sense of higher purpose kept the poisoning program in place."
Hell's Dirtiest Work
The war provided the pretext for unprecedented federal domination of the economy. Washington promised that "food will win the war" and farmers vastly increased their plantings. Price supports and government credits for foreign buyers sent crop prices and land prices skyrocketing. However, when the credits ended in 1920, prices and land values plunged, spurring massive bankruptcies across rural America. This spurred perennial political discontent that helped lead to a federal takeover of agriculture by the Roosevelt administration in the 1930s.
World War One was ended by the Treaty of Versailles, which redrew European borders willy-nilly and imposed ruinous reparations on Germany. One of Wilson’s top aides at the peace talks, Henry White, lamented: "We had such high hopes of this adventure; we believed God called us and now we are doing hell’s dirtiest work."
Wilson had proclaimed 14 points to guide peace talks; instead, there were 14 separate small wars in Europe towards the end of his term–after peace had been proclaimed. Millions of Irish Americans were outraged that, despite Wilson’s bleatings about democracy, Britain brutally repressed Ireland during and after the war. The League of Nations, which Wilson championed in vain, was so smarmily worded that it could have obliged the U.S. to send troops to help Britain crush the burgeoning Irish independence movement.
The chaos and economic depression sowed by the war and the Treaty of Versailles helped open the door to some of the worst dictators in modern times, including Germany’s Adolf Hitler, Italy’s Benito Mussolini, and Vladimir Lenin–whom Wilson intensely disliked because "he felt the Bolshevik leader had stolen his ideas for world peace," as historian Thomas Fleming noted in his 2003 masterpiece, The Illusion of Victory: America in World War 1.
Despite winning the war, Wilson’s Democratic Party was crushed at the polls in both 1918 and 1920. H.L. Mencken wrote on the eve of the 1920 election that Americans were sickened of Wilsonian "idealism that is oblique, confusing, dishonest, and ferocious."
Have today’s policymakers learned anything from the debacle a century ago? Wilson continues to be invoked by politicians who believe America can achieve great things by warring abroad. The bellicosity of both Republican and Democratic leaders is a reminder that Wilson also failed to make democracy safe for the world.
Reprinted from USA Today.
James Bovard is the author of ten books, including Public Policy Hooligan, Attention Deficit Democracy, and Lost Rights: The Destruction of American Liberty. Find him on Twitter @JimBovard.
This article was originally published on FEE.org. Read the original article.
Friday, April 7, 2017
Firearms Technology and the Original Meaning of the Second AmendmentGun-control advocates often argue that gun-control laws must be more restrictive than the original meaning of the Second Amendment would allow, because modern firearms are so different from the firearms of the late 18th century. This argument is based on ignorance of the history of firearms. It is true that in 1791 the most common firearms were handguns or long guns that had to be reloaded after every shot. But it is not true that repeating arms, which can fire multiple times without reloading, were unimagined in 1791. To the contrary, repeating arms long predate the 1606 founding of the first English colony in America. As of 1791, repeating arms were available but expensive.
This article explains why the price of repeating arms declined so steeply. Then it describes some of the repeating arms that were already in use when the Second Amendment was ratified, including the 22-shot rifle that was later carried on the Lewis and Clark expedition.
James Madison and Firearm Innovation
One of the men to credit for why repeating arms became much less expensive during the 19th century is James Madison, author of the Second Amendment. During Madison’s presidency (1809-17), Secretary of War James Monroe (who would succeed Madison as president), successfully promoted legislation to foster the development of firearms technology. In particular, the federal armories at Springfield, Mass., and Harpers Ferry, Va., were ordered to invent the means of producing firearms with interchangeable parts.
To function reliably, repeating firearms must have internal components that fit together very precisely — much more precisely than is necessary for single-shot firearms. Before President Madison and Secretary Monroe started the manufacturing revolution, firearms were built one at a time by craftsmen. Making a repeating arm required much more time and expertise than making a single-shot firearm. How to make repeating arms was well-known, but making them at a labor cost the average person could afford was impossible.
Thanks to the technology innovation labs created at Springfield and Harpers Ferry, inventors found ways to manufacture firearms components at a higher rate, and with more consistency for each part. Instead of every part being made by hand, parts were manufactured with machine tools (tools that make other tools). For example, the wooden stocks for rifles could be repetitively manufactured with such precision that any stock from a factory would fit any rifle from the factory, with no need for craftsmen to shave or adjust the stock.
In New England, the Springfield Armory worked with emerging machinists for other consumer products; the exchange of information in this technology network led directly to the Connecticut River Valley becoming a center of American consumer firearms manufacture, and to rapid improvements in the manufacture of many other consumer durables. The story is told in: Ross Thomson, Structures of Change in the Mechanical Age: Technological Innovation in the United States 1790-1865 (2009); Alexander Rose, American Rifle: A Biography (2008); David R. Meyer, Networked Machinists: High-Technology Industries in Antebellum America (2006); David A. Hounshell, From the American System to Mass Production, 1800-1932 (1985); Merritt Roe Smith, Harpers Ferry Armory and the New Technology: The Challenge of Change (1977); Felicia Johnson Deyrup, Arms Makers of the Connecticut Valley: A Regional Study of the Economic Development of the Small Arms Industry, 1798-1870 (1948). By the 1830s, manufacturing uniformity was sufficiently advanced that repeating arms were becoming widely affordable, and no longer just for the wealthy.
Centuries of Repeating Arms
What kind of repeating arms were available before 1815, when the Madison-Monroe mass production innovation program began? The state of the art was the Girandoni air rifle, invented around 1779 for Austrian army sharpshooters. Lewis and Clark would carry a Girandoni on their famous expedition, during the Jefferson administration. The Girandoni could shoot 21 or 22 bullets in .46 or .49 caliber without reloading. Ballistically equal to a firearm, a single shot from the Girandoni could penetrate a one-inch wood plank, or take an elk. (For more on the Girandoni, see my article “The History of Firearms Magazines and Magazine Prohibitions,” 88 Albany L. Rev. 849, 852-53 (2015).)
The first repeaters had been invented about three centuries before. The earliest-known model is a German breech-loading matchlock arquebus from around 1490-1530 with a 10-shot revolving cylinder. M.L. Brown, Firearms in Colonial America: The Impact on History and Technology, 1492-1792, 50 (1980). Henry VIII had a long gun that used a revolving cylinder (a “revolver”) for multiple shots. W.W. Greener, The Gun and Its Development, 81-82 (9th ed. 1910). A 16-round wheel lock dates from about 1580. Kopel, at 852.
Production of repeaters continued in the seventeenth century. Brown, at 105-6 (four-barreled wheel-lock pistol could fire 15 shots in a few seconds); John Nigel George, English Guns and Rifles, 55-58 (1947) (English breech-loading lever-action repeater, and a revolver, made no later than the British Civil War, and perhaps earlier, by an English gun maker).
The first repeaters to be built in large quantities appear to be the 1646 Danish flintlocks that used a pair of tubular magazines, and could fire 30 shots without reloading. Like a modern lever-action rifle, the next shot was made ready by a simple two-step motion of the trigger guard. These guns were produced for the Danish and Dutch armies. Brown, at 106-7.
In Colonial America, repeating arms were available for people who could afford them, or who were skilled enough to make their own. For example, in September 1722, John Pim of Boston entertained some Indians by demonstrating a firearm he had made. Although “loaded but once,” it “was discharged eleven times following, with bullets in the space of two minutes each which went through a double door at fifty yards’ distance.” Samuel Niles, A Summary Historical Narrative of the Wars in New England, Massachusetts Historical Society Collections, 4th ser., vol. 5, 347 (1837). Pim’s gun may have been a type of the repeating flintlock that became “popular in England from the third quarter of the 17th century,” and was manufactured in Massachusetts starting in the early eighteenth. Harold L. Peterson, Arms and Armor in Colonial America 1526-1783, 215-17 (Dover reprint 2000) (Smithsonian Institution 1956). Another repeating flintlock, invented by Philadelphia’s Joseph Belton, could fire eight shots in three seconds. Idem, 217. Pim also owned a .52 caliber six-shot flintlock revolver, similar to the revolvers that had been made in England since the turn of the century. Brown, 255. A variety of multi-shot pistols from the late eighteenth century have been preserved, holding two to four rounds. Charles Winthrop Sawyer, Firearms in American History: 1600 to 1800, 194-98, 215-16 (1910).
Devastation at Short Range
The repeaters described above were not the most common arms. It would take two decades for the program begun by President Madison to result in repeating arms beginning to become affordable to the middle class. So in the seventeenth and eighteenth centuries, a person who could not afford an expensive repeater, but who wanted to be able to fire more than one bullet without reloading, would often buy a blunderbuss. The blunderbuss was the size of a very large handgun. Its muzzle flared outward slightly, like a bell. This made it easier to load while bouncing in a stagecoach, or on a swaying ship. The blunderbuss could fire either one large projectile, or several at once. Most often it was loaded with about 20 large pellets, and so it was devastating at short range. The name seems an adaptation of the Dutch “donder-buse” or “thunder gun.”
Excellent for self-defense at close quarters, the blunderbuss was of little use for anything else, having an effective range of about 20 yards. Militarily, it was used by sailors to repel boarders. Stagecoach guards and travelers carried blunderbusses, and it was also a common arm for home defense. For more on the blunderbuss, see Brown and George, above.
High-Capacity Printing Presses
No one would dispute that modern arms are much improved from 1791 in terms of reliability, accuracy, range and affordability. But the gap from the 22-shot Girandoni (powerful enough to take an elk) to a modern firearm is pretty small compared with the changes in technology of “the press.” Compared to the one-sheet-at-a-time printing presses of 1791, the steam and rotary presses invented in the 19th century made printing vastly faster — a speed improvement that dwarfs the speed improvement in firearms in the last 500 years. When the First Amendment was written, a skilled printer could produce 250 sheets in two hours. Today, a modern newspaper printing press can produce 70,000 copies of a newspaper (consisting of dozens of sheets) in an hour. Now, with digital publishing, a newspaper article can be read globally within minutes after it is written.
This means that irresponsible media can cause far more harm today than they could in 1791. For example, in 2005, Newsweek magazine published a false story claiming that American personnel at Guantanamo Bay had desecrated Korans belonging to prisoners there. Eventually, Newsweek retracted the story. But the phony story had already spread worldwide, setting off riots in six countries, in which over 30 people were killed. Had Newsweek been using 18th-century printing presses, the false story would have mostly been read by several thousand people in the New York City area, where Newsweek is based. It would been months — if ever — before the Newsweek issue with the false story was read by anyone in Pakistan or Afghanistan.
We do not limit any constitutional right to the technology that existed in 1791. In District of Columbia v. Heller, the court observed:
Some have made the argument, bordering on the frivolous, that only those arms in existence in the 18th century are protected by the Second Amendment. We do not interpret constitutional rights that way. Just as the First Amendment protects modern forms of communications, e.g., Reno v. American Civil Liberties Union, 521 U. S. 844, 849 (1997), and the Fourth Amendment applies to modern forms of search, e.g., Kyllo v. United States, 533 U. S. 27, 35-36 (2001), the Second Amendment extends, prima facie, to all instruments that constitute bearable arms, even those that were not in existence at the time of the founding.This is an accurate statement of constitutional law, but it understates how truly frivolous the argument against modern firearms is. The people who ratified the Bill of Rights certainly did not anticipate the invention centuries later of the Internet or of thermal imaging sensors. The American people of 1791 did not have to anticipate the invention of repeating arms, because such arms had been in existence for centuries.
Republished from the Washington Post.
This article was originally published on FEE.org. Read the original article.
Thursday, April 6, 2017
Wednesday, April 5, 2017
More than 325,000 people enter the United States via airports every day, with hundreds of thousands more crossing by land at the borders. Not only is that a lot of people, it’s also a lot of computers, smartphones, and tablets riding along in our pockets, bags, and trunks. Unfortunately, the Fourth Amendment protections we enjoy inside the U.S. for our devices aren’t always as strong when we’re crossing borders—and the Department of Homeland Security takes advantage of it. On the other hand, the border is not a Constitution-free zone. What are the limits to how and how much customs and immigrations officials can access our data?
To help answer those questions, we’re offering the second in our series of posts on the Constitution at the border, focusing this time on the Fourth Amendment. For Part 1 on the First Amendment, click here.
The Default Privacy Rule
The Fourth Amendment forbids “unreasonable” searches and seizures by the government. In most circumstances, the Fourth Amendment requires that government agents obtain a warrant from a judge by presenting preliminary evidence establishing “probable cause” to believe that the thing to be searched or seized likely contains evidence of illegal activity before the officer is authorized to search.
The Border Search ExceptionUnfortunately, the Supreme Court has sanctioned a “border search exception” to the probable cause warrant requirement on the theory that the government has an interest in protecting the “integrity of the border” by enforcing the immigration and customs laws. As a result, “routine” searches at the border do not require a warrant or any individualized suspicion that the thing to be searched contains evidence of illegal activity.
The Exception to the Exception: “Non-Routine” SearchesBut the border search exception is not without limits. As noted, this exception only applies to “routine” searches, such as those of luggage or bags presented at the border. “Non-routine” searches – such as searches that are “highly intrusive” and impact the “dignity and privacy interests” of individuals, or are carried out in a “particularly offensive manner” – must meet a higher standard: individualized “reasonable suspicion.” In a nutshell, that means border agents must have specific and articulable facts suggesting that a particular person may be involved in criminal activity.
For example, the Supreme Court held that disassembling a gas tank is “routine” and so a warrantless and suspicionless search is permitted. However, border agents cannot detain a traveler until they have defecated to see if they are smuggling drugs in their digestive tract unless the agents have a “reasonable suspicion” that the traveler is a drug mule.
Border Searches of Digital DevicesHow does this general framework apply to digital devices and data at the border? Border agents argue that the border search exception applies to digital searches. We think they are wrong. Given that digital devices like smartphones and laptops contain highly personal information and provide access to even more private information stored in the cloud, the border search exception should not apply.
As Chief Justice Roberts recognized in a 2014 case, Riley v. California:
Modern cell phones are not just another technological convenience. With all they contain and all they may reveal, they hold for many Americans the privacies of life.Snooping into such privacies is extraordinarily intrusive, not “routine.” Thus, when the government asserted the so-called “incident to arrest” exception to justify searching a cell phone without a warrant during or immediately after an arrest, the Supreme Court called foul.
Why is the Riley decision important at the border? For one thing, the “incident to arrest” exception that the government tried to invoke is directly comparable to the border search exception, because both are considered “categorical” exemptions. Given that the intrusion is identical in both instances, the same privacy protections should apply.
Moreover, with the ubiquity of cloud computing, a digital device serves as a portal to highly sensitive data, where the privacy interests are even more significant. Following Riley, we believe that any border search of a digital device or data in the cloud is unlawful unless border agents first obtain a warrant by showing, to a judge, in advance, that they have probable cause to believe the device (or cloud account) likely contains evidence of illegal activity.
However, lower courts haven’t quite caught up with Riley. For example, the Ninth Circuit held that border agents only need reasonable suspicion of illegal activity before they could conduct a non-routine forensic search of a traveler’s laptop, aided by sophisticated software. Even worse, the Ninth Circuit also held that a manual search of a digital device is “routine” and so a warrantless and suspicionless search is still “reasonable” under the Fourth Amendment. Some courts have been even less protective. Last year a court in the Eastern District of Michigan upheld a computer-aided border search of a traveler’s electronic devices that lasted several hours without reasonable suspicion.
EFF is working hard to persuade courts (and border agents) to adopt the limits set forth in the Riley decision for border searches of cellphones and other digital devices. In the meantime, what should you do to protect your digital privacy?
Much turns on your individual circumstances and personal risk assessment. The consequences for non-compliance with a command from a CBP agent to unlock a device will be different, for example, for a U.S. citizen versus a non-citizen. If you are a U.S. citizen, agents must let you enter the country eventually; they cannot detain you indefinitely. If you are a lawful permanent resident, agents might raise complicated questions about your continued status as a resident. If you are a foreign visitor, agents may deny you entry entirely.
We recommend that everyone conduct their own threat model to determine what course of action to take at the border. Our in depth Border Search Whitepaper offers you a spectrum of tools and practices that you may choose to use to protect your personal data from government intrusion. For a more general outline of potential practices, see our pocket guides to Knowing Your Rights and Protecting Your Data at the Border.
And join EFF in calling for stronger Constitutional protection for your digital information by contacting Congress on this issue today.
Tuesday, April 4, 2017
Verizon recently rolled out a new pilot project to pre-install on customers’ devices an app launcher/search tool that, we believe, is really just spyware. This software, called AppFlash, is preloaded on a new model of LG device—the LG K20 V—rather than in all of their Android line as we previously reported. The software allows Verizon and its partners to track the apps you have downloaded and then sell ads to you across the Internet based what those apps say about you, like which bank you use and whether you’ve downloaded a fertility app.
“collect information about your device and your use of the AppFlash services. This information includes your mobile number, device identifiers, device type and operating system, and information about the AppFlash features and services you use and your interactions with them. We also access information about the list of apps you have on your device.”Troubling as it may be to collect intimate details about what apps you have installed, the policy also illustrates Verizon’s intent to gather location and contact information:
“With your permission, AppFlash also collects information about your device’s precise location from your device operating system as well as contact information you store on your device.”And what will Verizon use all of this information for? Why, targeted advertising on third-party websites across the Internet, of course:
“AppFlash information may be shared within the Verizon family of companies, including companies like AOL who may use it to help provide more relevant advertising within the AppFlash experiences and in other places, including non-Verizon sites, services and devices.”With the announcement of AppFlash, Verizon has made clear that it intends to start monetizing our private data as soon as possible, if not sooner. In other words, our prediction that mobile Internet providers would start pre-installing spyware on their customers’ phones has come true, even before Congress changed the rule to let ISPs like Verizon, AT&T, and Comcast sell your personal data to advertisers. In our view, the FCC's privacy rules that Congress has voted to roll back would have prohibited Verizon from pre-installing the AppFlash spyware on its phones in this manner—and we can expect Congress' privacy rollback to embolden further privacy-invasive practices by ISPs.
Last week, Verizon sent us a statement about its roll out of AppFlash, asserting that “you have to opt-in to use the app.” While it’s true that the user is presented with a click-through license the first time they launch AppFlash, it’s entirely unclear from that screen what information is being collected or shared. Instead, those crucial details are buried within the fine print of a Terms of Service. That’s hardly a meaningful mechanism for obtaining informed opt-in consent.
What are the ramifications? For one thing, this is yet another entity that will be collecting sensitive information about your mobile activity on your Android phone. It’s bad enough that Google collects much of this information already and blocks privacy-enhancing tools from being distributed through the Play Store. Adding another company that automatically tracks its customers doesn’t help matters any.
But our bigger concern is the increased attack surface an app like AppFlash creates. It is likely that with Verizon rolling this app out on certain new phones, hackers will be probing it for vulnerabilities, to see if they can use it as a backdoor they can break into. We sincerely hope Verizon has invested significant resources in ensuring that AppFlash is secure, because if it’s not, the damage to users’ cybersecurity could be disastrous, especially if Verizon expands its “test” to additional devices.
Verizon should immediately abandon its plans to monitor its customers’ behaviors, and do what it’s paid to do: deliver quality Internet service without spying on users. And in no case should Verizon expand its test of this spyware to additional models of mobile devices.