2

ABOUT THE AUTHORS

Dr.Kartik H is a Civil Servant serving in the Ministry of Railways. He is a prolific

writer. He has written on a wide range of subjects including Quiz, Governance, Economics,
Infrastructure, IAS preparation, Science, Technology etc. He has written books, blogs,
articles, and poems. He has authored 5 books so far. Recently, as part of a National
Brainstorming exercise- 'Rail Vikas Shivir', he presented some of his ideas and plans to the
Prime Minister of India. He is active on twitter and has a huge fan following. Presently, he
works in Bangalore. He is the Hon.advisor to MONEY WISE [www.money-wise.in],
monthly magazine, and a regular contributor.
Dr.Yatish S G is the Head of the Commercial Department at Mysore Division, Ministry
of Railways. His areas of interest include Genetics, History, Evolution and Technology. He
was part of the team that planned and operationalised India's First Time Tabled Cargo
Express. He is presently working in Mysore.

INTRODUCTION TO THE COMPENDIUM

We are career civil servants, and share a passion for people-centric subjects like polity,
economy, science, and more. The Bitcoin phenomenon triggered in us an intense research
into the Blockchain technology.
A milestone was reached when Dr.Kartik published CoinAsia in his famous blog
(FUTURE TRACK: hegadekatti.blogspot.com) and in the financial magazineMONEYWISE.
Dr.Kartik received lots of encouraging reviews. We then developed a Protocol to
regulate Bitcoin like cryptocurrencies (The K-Y Protocol). It was submitted to renowned
journals. It was, published, well accepted and discussed.
We studied the theoretical aspects of Blockchain, and experienced it first-hand. We
experimented with wallets, transactions, and markets. We examined the impacts of
Blockchain on various facets of human living.
We published 5 more internationally acclaimed research papers. We believe that
knowledge should not be restricted. Therefore, all the papers are open-accessed and belong
to the whole of Humanity. Till date, our 6 research papers on Blockchain were published in
more than 40 Journals.
It was a great journey so far. More papers (and a book) are on the way. We intend to
work with Academia, Industry and the Government (we are a part of it) regarding the
manifold applications of Blockchain in various fields that will help the people.
We provide here a collection of our research papers published so far along with the
stalwarts who endorsed our research. We hope this compendium will open newer vistas with
other Policy makers and Technology enthusiasts.
We are happy to add some sample chapters from our forth coming book Perfect
MONEY, that deals with cryptocurrencies and Blockchain technology in depth, explained
in a very simple way.
Dr. Kartik H. & Dr. Yatish S. G.
hegadekatti@gmail.com]
BANGALURU
10 Nov 2016

CONTENTS
1. THE K-Y PROTOCOL: THE FIRST PROTOCOL FOR THE REGULATION OF
CRYPTO CURRENCIES (E.g.-Bitcoin................................................................................10
2. ROADMAP FOR A CONTROLLED BLOCK CHAIN ARCHITECTURE.............21
3. PROOF-OF-SOVEREIGNTY (PoSv) AS A METHOD TO ACHIEVE
DISTRIBUTED CONSENSUS.............................................................................................31
4. EXAMINING TAXATION OF FIAT MONEY AND BITCOINS VIS-A-VIS
REGULATED CRYPTOCURRENCIES..............................................................................37
5. BANKING SYSTEMS IN AN ECONOMY DOMINATED BY
CRYPTOCURRENCIES.......................................................................................................43
6. THE SKY MODEL OF LIMITED BLOCKCHAIN IN AN APP ECOSYSTEM......49
7. EXTRA-TERRESTRIAL APPLICATIONS OF BLOCKCHAINS AND
CRYPTOCURRENCIES.......................................................................................................56
SOME CHAPTERS FROM Perfect MONEY
Ch.21. REAL WORLD APPLICATIONS OF CONTROLLED BLOCKCHAIN.........64
Ch.22. INTERNET-OF-THINGS [IoT].........................................................................73
Ch.23. BUSINESS CONFLICT MEDIATION.............................................................75
Ch.27. CONTRACTING...............................................................................................80
Ch.31. REINING IN THE DARK WEB.......................................................................82
Ch.35. SPACE, STARS & CRYPTOCURRENCY.......................................................85
Copyright of all the protocols, logos, illustrations, as well as suggested
institutions with their design and mode of working, systems and monetary
instruments mentioned in this book belong to
Dr.Kartik Hegadekatti
Muralidhar Math Road,
Karwar -581301
India.
hegadekatti@gmail.com

10

1. THE K-Y PROTOCOL: THE FIRST PROTOCOL FOR THE

REGULATION OF CRYPTO CURRENCIES (E.g.-Bitcoin)
Dr.Kartik H & Dr.Yatish S.G

ABSTRACT
Crypto currencies like Bitcoin are gaining prominence as a medium of exchange. They
have several benefits like very low transaction cost, fungibility etc. But Crypto
currencies are also identified with their use in crimes, illegal activities and speculation.
Part of the reason for their prominence as well as notoriety is the fact that they have no
Sovereign Backing whatsoever and also because they are decentralized. To make
Crypto currencies acceptable by the people and also curb their misuse, the authors
have proposed a protocol containing a set of standards and procedures. By using this
procedure, any nation can create its own Sovereign Backed crypto currency called
NationCoin. A commission will be established which will hold a certain quantum of
money loaned by the Government. This loaned money will provide the Sovereign
backing to the Crypto Currency. A Controlled Block Chain Protocol is used. The Genesis
Block of several NationCoins is then provided to the banks in the country to use them
for interbank settlements. These Interbank transactions will lead to the mining
(generation) of additional NationCoins by the commission which will hold it without
releasing it to the public. Once there are sufficient numbers of NationCoins so as to be
equal to the loaned amount unit-for-unit, it shall be released to the public for use.

INTRODUCTION
A Crypto currency is storage of some value and a medium of exchange. It uses
cryptographic techniques to protect transactions and also manage the generation of money.
Crypto currencies are decentralized, meaning that it is outside the control of central
banks. Crypto currencies also have a decentralized ledger system which makes it possible to
verify and confirm transactions over the entire network. It also makes possible for each unit
of crypto currency to be tracked right from creation to the most recent transaction. They are
outside the control of central Banks, and are explicitly NOT RECOGNISED. As such, they
are outside the ambit of regulation.
The absence of regulation no doubt makes the system free from the supervision of
Governments and appears to give more freedom and rights to the people using Crypto
currencies. The privacy, anonymity and personal space appear to be "enhanced" in the
absence of regulation. But since they are unregulated, Crypto currencies have been misused
for money laundering and criminal activities by various anti-social elements. The personal
freedom and rights that were enhanced due to the absence of regulation will be usurped by
powerful antisocial elements that do not respect any law or have any ethical considerations.

11

To protect peoples rights and also optimize economic activity, it is necessary to

regulate Crypto currencies. But we need to do it in a way that it eliminates all (or a majority)
of the shortcomings of Crypto currencies. At the same time we need to enhance its benefits.
People tend to think of decentralization as an inherent, inseparable character of Crypto
currencies. They are led to believe that the Crypto currency concept will fail if regulation and
sovereign backing is introduced. But debates around Crypto currencies tend to discount the
fact that it is possible and feasible to regulate Crypto currencies.
Bitcoin is the first and most famous Crypto currency. It has recently gained widespread
usage. But it is not regulated or backed by any sovereign authority and is thus susceptible to
misuse.
Advantages of a Regulated and Sovereign Backed (RSB) Crypto currency1) Minimal or no transaction cost to the public- The people can use the RSB Crypto
currency without any trepidation as it will be guaranteed by the Government. Nil transaction
cost is the basic feature of a crypto currency. Lack of transaction cost will allow seamless
and unhindered exchange of money leading to increased economic activity. It will also leave
more money in the hands of the public.
2) Money Accountability- It will be possible for Governments to account for all the
money in the system. This way, the counterfeit and parallel economy can be curbed, Money
laundering can be detected and flow of money to possible illegal activities can be monitored.
3) No need for Bank Accounts- Banks need to be paid to maintain bank accounts. Bank
accounts also need to have a minimum balance so as to be viable. But Crypto currencies do
not need accounts. Having only a digital wallet is enough. RSB crypto currencies can be
maintained in digital wallets at no cost to the owners.
4) Easy transfer of funds-Governments can transfer funds or social security benefits to
citizens wallets in an instant, free of cost. Citizens digital wallets can be linked to their
social security number or other Government mandated IDs.
5) Easy Taxation- A persons money holding can be inferred by the Government when
necessary. The Government can automatically deduct taxes without the need for people to
file tax returns. It can wind up its tax collecting infrastructure and invest those resources
somewhere else.
6) Certification- Assets can be certified, recorded and maintained using the same
protocols that a RSB crypto currency will use. The protocol for RSB crypto currency will be
called as Controlled Block Chain.
(A Controlled Block chain is different from a Block Chain per se A Block Chain is a
permissionless Distributed Database, whereas a Controlled Block Chain will be Permission
Based. The Permission here being provided by the Sovereign Authority.)

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7) Price stability-Presently, crypto currencies like Bitcoin are highly volatile. This is
because a lack of backing has led to rampant speculation. Consequently, Bitcoin has
undergone many Boom-and-bust cycles. RSB crypto currencies will provide stability in
value so as to be a reliable medium of exchange.
8) Manageable Deflationary and Inflationary indices- Because RSB crypto currency
will be backed by Government; it will have a manageable inflation and deflation index.
9) Environmental advantage- Printing currency notes and maintaining them in
circulation is costly both for the economy as well as the environment. In the long run, RSB
crypto currencies will replace paper currency. It will thus save a lot of trees from being cut
and used for paper.
10) Easy convertibility- People from one country will be able to invest more freely in
other countries. This will lead to the emergence of a loan market which is highly
competitive. This will make cheap and safe credit available to the neediest. This is presently
not possible due to existing monetary, fiscal and distance barriers.
THE K-Y PROTOCOL
The K-Y Protocol aims to make Regulated and Sovereign Backed (RSB) Crypto
currencies a practical reality. The authors have designed this protocol carrying their initials in
abbreviated form as the name of the protocol. The Protocol consists of a set of rules and
procedures.
(*)NationCoin- abbreviated as NC, it is a generalized designation for any RSB Crypto
currency (RSBC). For example USA's RSB Crypto currency can be called USCoin, Indias
as IndiaCoin, Chinas as ChinaCoin etc. Each nation can have only one NationCoin i.e. RSB
Crypto currency.
Since various countries have currencies of their own with differing Exchange rates, we
have defined a NationCoin Unit asOne NationCoin Unit=One NationCoin X Exchange rate of the currency with the US
Dollar.
For example, in case of Rupee IndiaCoin unit
One IndiaCoin Unit= 1IndiaCoin X 68 =68 IndiaCoins. One ChinaCoin Unit=6.5
ChinaCoins
One EuroCoin Unit=0.88 EuroCoins
One JapanCoin Unit=112 JapanCoins
One BritishCoin Unit=0.69 BritishCoins
(1 USD=0.88 Euros=0.69 Pounds=112 Yen=6.5 Chinese Yuan=68 Indian Rupees; as
on 12/02/2016)
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Note that NationCoin Unit is different from NationCoin. A NationCoin Unit is

generic in nature. One NationCoin Unit is always equal to one US Dollar. Whereas One
NationCoin is equal to one unit of native currency in that particular nation.
The KY Protocol is as follows:
1. The Government of the country wanting to introduce the NationCoin will first setup
the DIGITAL ASSETS RESERVE (DAR) by passing a law or amending existing laws as
need be. It will also setup the DIGITAL ASSETS REGULATION & EXCHANGE
COMMISSION (DAREC) which initially will have no role to play. Later on, when
NationCoin becomes established as a primary mode of transaction, DAREC will play the
role of an impartial regulator. The NATIONAL LEDGER DATABASE (NLD) is also
created. It will be closely linked with the DAR. It will keep track of the transactions in its
Block Chain Ledger whose copies will be distributed throughout the Network Nodes.
2. By a separate funding from the Government, DAR will setup Grid Computing
Clusters with several nodes throughout the country. These networks will not be open to the
public. These are the nodes that will mine the NationCoins. This will be done by DATA
DIGITAL ASSETS TRACKING & ADMINISTRATION which will be the technical wing
and technical assistance arm of the DAR.
3. The Government will provide the DAR $10 million worth of loans. This will form
The Corpus- to be used to back NationCoins.
4. DATA will also help the banks in the country to setup NationCoin compatible
softwares. DATA will create block chain protocols for NationCoin.
5. The RESERVE will be the entity which will Sovereign stamp the Crypto Currencies
and give it the RSB (Regulated and Sovereign Backed) certification. It will be an integral
part of the DAR.
6. The networks so formed will be tested in trial runs involving NationCoin
transactions, interest payments and exchange procedures. This is the System Configuration
Stage.
7. The Government will provide a soft loan of $10 million worth of assets in any form
(either in $ or National currency) to the DAR. This $10 million will be called THE
CORPUS.
8. When the corpus is in place it will be securely locked up physically in vaults and the
GENESIS BLOCK [2] (the First Block in the Block chain) of 50,000 NationCoin Units
(NCUs) will be generated.
9. The 50,000 NationCoin Units will be provided to the banks for their daily interbank
clearances. These 50,000 NationCoin Units will be pegged to $10 million in the Corpus
giving each NationCoin a value of $200. This Backing will be certified by the Governor of
DAR.
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10. Banks will be mandated to use these NationCoin Units in their Intra-day and Interday settlements and clearances. For this purpose, Banks will be provided their own
NationCoin wallets maintained by DATA.
11. Each Bank is mandated to use at least 25 cents worth of NationCoin Units per $100
in settlements and interbank transactions.
12. These transactions will be verified by DATAs Network nodes. Once verified, these
will be categorized into blocks of between 45 kb to 85 kb and Mined. The Mining will be
done by DATA's systems only and will not be open to public. Once mined, 190 NationCoin
Units will be generated every 10 minutes. Therefore the Block time for each block will be 10
minutes. Reward per block will be 190 NationCoin units.
13. The NationCoin Units so mined will go into HOLDING. HOLDING is a Digital
vault of DAR which is not connected to the public Network and will not to be released to the
banks either. The NationCoin Units in HOLDING are not yet sovereign backed.
14. The DAR will hold the NationCoin Units in HOLDING until it accumulates 9.95
Million NationCoin Units. Along with the 50,000 NationCoin Units used by banks, there are
now a total of 10 million NationCoin Units altogether.
15. When there are 10 Million NationCoin Units in Toto, it reaches the next crucial
stage called the Equation.
16. Equation: When there are 9.95 Million NationCoin Units, DAR will start pegging
its Corpus to the 9.95 Million NationCoin Units that it holds. Once sovereign stamped and
certified, these 10 Million NationCoin Units will be exactly equal to $10 Million in the
Corpus. When one NationCoin Unit= One Dollar in the Corpus, then Equation is said to have
been achieved.
[*As mentioned earlier, since various countries have currencies of their own with
differing Exchange rates, we have defined a NationCoin Unit.
One NationCoin Unit=One NationCoin X Exchange rate of the currency with the US
Dollar.
15

For example, in case of Rupee IndiaCoin unit

One IndiaCoin Unit = 1 X 68 IndiaCoins=68 IndiaCoins.
10.Million Dollars=10 Million IndiaCoin Units=680 Million IndiaCoins=680 Million
Rupees Therefore, when there are 680 Million IndiaCoins, each IndiaCoin will be equal to
One Indian Rupee and Equation is said to have reached. In case of Yen, Equation will be
attained at 1,120 Million JapanCoins, for Euro it will be 8.8 Million EuroCoins, For Chinese
Yuan it will be65 Million ChinaCoins and so on.]
17. Once Equation is reached, two things will happen in parallel.
1. First Parallel: - DAR will release this 10 Million NationCoin Units to the Banking
System in 4 phases over a period of 4 weeks. 2.5 Million NationCoin Units will be released
every week. This is necessary so as to release NationCoins Units in a controlled manner
without overloading or harming the Computing Systems.
2. Second Parallel: This is the most important step. A process called Scaling is initiated.
The number of NationCoin Units mined per Block is increased to more than 15 times the
mining rate per block before Equation. The block size will also dramatically increase due to
the large number of inter-bank transactions that will be taking place (as more and more
NCUs are pumped into the system).The block size will increase to around 5 MB. The Block
time will reduce from 10 minutes to 1 minute and number of NationCoin Units mined per
block will be 2,850 NCUs.
Thus the total rate of NationCoin Units generation will increase by 150 times the rate it
was before Equation.
18. All the NCUs mined will flow into the HOLDING and is not backed in any manner.
It will not be released to the public. But Banks can buy them by paying requisite currency
which will go into the Corpus and an equivalent number of NCUs are released.
Equation is important for several reasons.
1. For the sake of public convenience, One Dollar has to be equal to One NationCoin
Unit. The public may get confused with any other value and this may cause chaos and panic
leading to adverse economic outcomes. By Equation, we ensure that people still identify One
Dollar with One NationCoin Unit.
[In case of Euro, 1 Euro=1 EuroCoin
16

Yen, 1 Yen=1 JapanCoin

Rupee, 1 Rupee=1 IndiaCoin
Pound, 1 Pound =1 BritishCoin and so on]
2. Say, for instance 1 NationCoin Unit is equal to 2 Dollars, then speculators may see 1
NationCoin Unit as more valuable and may begin to hoard it, this will cause many problems
for the society both in long and short term.
3. In case, One Dollar is equal to 2 NationCoin Units, people may see NationCoins as
less valuable and may not prefer to use it for transaction. Then the whole idea of RSB Crypto
currency will become impractical.

Freshly Mined NationCoin Units will not be backed by anything and as such will have
no value. They are put into Holding. HOLDING will always contain non-backed NationCoin
Units. These non-backed NationCoin Units will have a unique identity that sets them apart
from RSB NCUs.
The non-backed NCUs, when backed, will be certified as Backed NCUs by the DAR.
These Backed NCUs, after Sovereign Stamping and Certification will be known as RSB
NCUs. As soon as they are backed, they will undergo a change in their identity which will
make them recognisable by the DAR and other Network nodes as RSB NCUs, fit for use in
transactions.
This change in identity and certification will happen electronically in the Reserve.

19. Equation will happen one year after the Genesis Block. Scaling will start
immediately after Equation.
17

20. From the end of first year to the end of second year around 1.5 Billion NCUs
(NationCoin Units) will be generated which will be put in HOLDING.
21. From the beginning of the third year the Government can start paying a small part
(around 1%) of the Government salaries through RSB NCUs. Say, the Government decides
to pay 1 Million NCUs as salary. It will provide $1 million to the DAR. DAR will then
provide 1 Million RSB NCUs to the Government to pay salaries.

22. The National Coin Wallets (NCW) of employees will be created and maintained by
DATA free of cost. This NCW will be linked to the social security number or any ID system
depending on the country (In case of the US it will be linked to the Social Security Number.
In case of India it will be linked to PAN number).
23. Joe is a Government employee drawing $10,000 per month as salary. The
Government decides to pay 1% of salaries in NCUs i.e. $ 9,900 will be in Dollar form and
$100 worth in NCUs. Now Joe decides that he does not want NCUs. All that he has to do is
access his bank account via internet and give back NCUs to the DAR (There will be a
facility provided for this purpose). The DAR will credit $100 into Joes account in lieu of
100NCUs.
24. Say Joe wants to transfer $1000 to Alice; he can do it in Dollars by paying around
25 cents as transaction cost. But if he transfers 1000 NCUs to Alice, he can do it freely
without any transaction cost. International transaction costs of money transfers in native
currencies will be even higher. But for RSB NCUs it will be minimal or zero.
25. The Bitcoin Protocol follows the practice of halving, every 4 years the number of
bitcoins mined per block will halve. This will go on till there are 21 Million Bitcoins in the
system. But for RSB NCUs, this is not the case. The RSB NCUs' primary objective is to
make it widely utilized among the public. As such we need a large supply of RSB NCUs so
as to replace a proportion of paper currency in circulation. For this reason, the RSB NCUs
will undergo a process called Doubling.
26. Doubling: One year after Scaling has taken place, the process of Doubling will
occur. Block time will remain 1 minute only. Number of NCUs mined per block will now be
5,700 NCUs (it was 2,850 NCUs after Scaling). The block size may (or may not be
depending on number of transaction) double to 10 MB.
27. All the NCUs mined will follow the process of flowing into the Holding, to be
backed and certified in the Reserve when funds flow into the CORPUS or as and when
mandated by the Government(on being provided equivalent backing in currency).
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28. All this time, the NLD (National Ledger Database) whose copy is present in all the
nodes of the DAR network is promptly updated from time-to-time duly following the
Controlled Block Chain protocol. The NLD keeps track of all RSB NCUs through its NCU
ledger.
29. The DAR shall aim for replacement portion of around 50% of all total currency in
circulation over a period of 10 years.
30. For the US Dollar, at present rates it will take about 8-10 years to replace half the
currency in circulation by USCoin.
31. Linkage: Linkage here means that the NationCoin is allowed to be freely traded in
the International Market. When around 50% of circulating currency is RSB NCUs, then
Linkage with international markets can be allowed. 50% replacement is necessary so as to
have a robust amount of NCUs which will not be affected by minor speculation. For the
purpose of Linkage, NLD copies will be uploaded into satellites, so that they will act as a
network node. For example take JapanCoin, if Joe sends a JapanCoin from Argentina to
Alice who is in South Africa, the transaction is recorded and beamed to a Network Node in
space (Japanese satellite). This will in turn update all other nodes in Japan, thus upgrading
the Ledger.

32. Later on, every National Capital can host at least one network node of every other
nation as part of a diplomatic treaty.
33. Once Linkage occurs, the Government (through the DAR of the country) can decide
if it will allows Free Float of its NCU or a Managed Float.
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34. In case of Free Float, market forces will determine the value of NCUs whereas in
case of Managed float, DAR will allow the rates to float up to a particular range. Beyond that
range it will manage NCU rates as it presently manages its native paper currency.
35. After a certain level is reached, say 50% of total circulating currency, Doubling can
be stopped and NationCoins generated at a steady rate every year, accounting for inflation if
necessary. Eventually RSB NCUs will replace paper currencies to a large extent.
36. RSB Crypto Currencies can also be introduced at the International Level. A
WorldCoin can be created based on the K-Y Protocol. Only, the WorldCoin will be backed
by SDRs (Special Drawing Rights) of the IMF. Exchange rates of various NationCoins vis-vis the WorldCoin will decide the inter-relations between the several RSB Crypto
Currencies.
CONCLUSION
We have proposed a system for the creation of Regulated and Sovereign Backed (RSB)
Crypto currencies. They will eventually replace, to a large extent, paper currencies of their
respective nations. We began with the setting up of the Digital Assets Reserve which will be
a sovereign authority. The first cache of NationCoins generated in the Genesis Block [2] will
be given to banks for their internal settlements. This will ensure that the system continues to
generate NationCoins subsequent to transaction verification as per the Controlled Block
Chain Protocol. It will also test the robustness of the system before the NationCoins are
released to the public.
Equation defines the unit-for-unit equivalency of NationCoin Units with the native
currency. Scaling after Equation is used to cater to the huge demand that the Crypto currency
will face. Doubling is aimed at replacement of a particular nation's currency with
NationCoins. Linkage will enable the NationCoin to be used across borders.
The unique feature of The K-Y Protocol is that it can be used by any Sovereign
Authority to create a credible RSB Crypto Currency. The people stand to benefit from all the
advantages accruing from such a currency. Nations with a larger and more diverse economy
will take longer to shift to NationCoins from paper currencies as the common medium of
exchange. Smaller Economies can shift faster.
To make the NationCoin secure, several security features at various stages have been
incorporated. Holding, Corpus Backing, Sovereign Stamping, Certification and National
Ledger Database are some of the built-in security features. Hence it has a Multi-tiered
security structure. The introduction of RSB NationCoins will usher in an era of Cashless
Liquidity. The National Ledger Database can also be used for Non-Financial Block Chain
uses where object ownership is decoupled from functional Utility.
ABBREVIATIONS
DAR-Digital Assets Reserve
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DAREC-Digital Assets Regulation and Exchange Commission

DATA- Digital Assets Tracking and Administration
NCU- NationCoin Units
NCW-National Coin Wallet
NLD-National Ledger Database
RSB-Regulated and Sovereign Backed
REFERENCES
[1][2]-Bitcoin: A Peer-to-Peer Electronic Cash System-Satoshi Nakamoto
***********

21

2. ROADMAP FOR A CONTROLLED BLOCK CHAIN

ARCHITECTURE
Dr.Kartik H & Dr.Yatish S.G

ABSTRACTThe K-Y Protocol envisages the introduction of RSBCs (Regulated and Sovereign
Backed Cryptocurrencies). In this paper we discuss in detail the establishment of a
Controlled Block Chain based on the K-Y Protocol. It is primarily accomplished using the
NationCoin system. There are two aspects to the NationCoin system. The software and
the hardware aspect. The software necessary to write and run the Block Chain on the
hardware is envisaged. The hardware needed to run and sustain the blockchain is then
deliberated. A host of institutions have also been envisioned to create, support and run
the NationCoin system. The DAR will be the main institution responsible for creating the
Controlled Block Chain architecture. The costing, timeline and the interplay of
institutions are also outlined.

INTRODUCTION
The earliest Central Banks were created to manage assets and provide loans to a
nations government. In the digital age, we will need institutions similar to Central Banks
with a mandate to manage a nation's digital assets. For this express purpose, we have
envisaged the creation and development of a Digital Asset Reserve-A DAR. The DAR is part
of a larger Protocol- The K-Y Protocol [1]. A short explanation of terminologies is given.
RSBC- Regulated and Sovereign Backed Cryptocurrency- government backed
cryptocurrency akin to paper currency, but in digital form.
The K-Y Protocol is a set of rules and instructions to implement the Regulated and
Sovereign Backed Cryptocurrency (RSBC) system. It envisages a highly secure Controlled
Block Chain in which Sovereign Backed Cryptocurrencies will be transacted without any
hassles. It will be a Controlled Block Chain [1].
(A Controlled Block chain is different from a Block Chain per se. A Block Chain is a
permissionless Distributed Database, whereas a Controlled Block Chain will be Permission
Based. The Permission for access and operation, being provided by the Sovereign Authority.)
A Controlled Block Chain (hereby referred to as CBC) resulting from the K-Y
Protocol has several money and non-money uses. In its complete form, it will have a wide
spectrum of applications ranging from banking, taxation, and contracting to space research,
automation and public services.
Block Chain- A blockchain is a public ledger of all cryptocurrency transactions that
have ever been executed. It continually grows as 'verified' blocks are added to it with a new
22

dataset for every block. The blocks are added to the blockchain in a linear, chronological
order.
DAR-Digital Asset Reserve- Organisation which will frame policies and manage the
CBC based on the K-Y Protocol.
DATA: it is the technical arm of the DAR. Its functions consist of setting up of the
hardware and software infrastructure required to run and sustain the RSBC. It will set up the
nodes, hard-code the K-Y Protocol into software, and setup the computing network. It will
Manage and maintain the various IT infrastructure needed for RSBCs.
DAREC: It is the Digital Asset Regulatory and Exchange Commission. A subsidiary of
DAR which will manage overseas transactions involv ing many NationCoins-for e.g. converting JapanCoins to IndiaCoin etc. DAREC will act as a regulator between RSBCs and
other international RSBCs of other nations. DAREC will carry out the policies and decisions
of DAR with respect to RSBCs and other digital assets. On the directions of the DAR,
DAREC will also regulate non-RSBC digital assets and their exchanges wherever necessary.
NLD-National Ledger Database- The custodian of the Controlled Block Chain. It is the
ledger which will record all transactions that involve the respective NationCoins and other
digital assets.
To make the coinage system more accurate and organized, Mints were created. Simply
put, Mints are facilities which manufacture coins in a standardised procedure. After coming
out of a mint, coins can be used as currencies.
Emperors commissioned Mints and put a person in charge of it. The person in-charge
was usually a very trusted and loyal servant to the emperor. To Mint more coins and also
propagate their usage to the far reaches of the kingdoms, branches were opened in several far
flung cities, away from the capital.
Now if a coin is overweight or underweight, how do you tell which Mint it came from?
Moreover, how do you fix responsibility if a corrupt official puts less precious metal in
the coin than necessary?
To pinpoint such problems and solve them, Mint marks were introduced.
Mint marks were security and indicative features which made Mints accountable.
Usually the Mint mark was an inscription which indicated where the coin (or currency note)
was produced. The existence of Mint marks provided accountability and made counterfeiting
difficult as also easily detectable.
Apart from the weight issue, inscriptions on coins tried to eliminate the Counterfeiting
problems.
Counterfeiting of money leads to inflation, erosion of value and loss of trust in the
government. In spite of inscriptions, people continued to fake coins. When this happened,
Mints would abandon a particular design and create a new design for inscription.
23

In the 1860s USA was emerging from the throes of a devastating civil war. It was
estimated that close to half USAs currency was counterfeit.
It is clear that the responsibility of the Mint is to provide security features for the
currency that makes it difficult to counterfeit. Added to this, Mints also ensure accountability
and fix responsibility.
It is because of the Mint that a government knows exactly how many coins and notes
are circulating in the economy.
As we enter the age of digital economy we need something akin to the Mint that
produces secure, reliable and authentic RSB crypto currencies. We need an institution like
the Mint, which standardizes digital coinage. For this purpose, DATA has been envisaged.
DATA is short for Digital Assets, Tracking and Administration.
DATA will be the Mint of the new digital economy. It will setup hardware and software
systems, gain expertise, train personnel, provide cyber security and make detailed technical
specifications to make the digital economy possible.
DATA will play a vital role under DAR to bring the K-Y protocol into practice. The
DATA is the technical organization that will keep the RSBC up and running. It will
technically initiate, maintain and sustain the RSBC and thus the entire digital economy that
will be based on RSBCs.
The NationCoin System and the RSBC Code
Man uses language to speak to man. Whereas computers use the Binary system.
Basically, a computer converts all expressions into binaries i.e. sets of 1s and 0s. For
example Hi is represented as 0100100001101001 (as per ASCII specifications) [2].
A computer has a huge working memory (what we call RAM-Random Access
Memory). This huge memory base and computational power is what makes a computer
superfast. It can process large amounts of information in a very short time.
Programmers write a program in a language that the computer can understand. Based
on that program the computer executes a function that it is asked to execute. To make Bitcoin
possible programmers wrote the Bitcoin protocol. The Bitcoin protocol is nothing but a set of
instructions and rules in the computers own language telling it what functions to execute. It
is written in a manner that the computer understands. Using the program, the computer talks
to other computers on the network and implements the orders that are given to them. It will
function in such a way that the rules of the protocol are followed.
Ethereum,- the entity that uses ethers as cryptocurrency units runs on Solidity, a
computer program used to run smart contracts on ethereum. The Bitcoin Protocol and
Solidity were written using a combination of computer languages like C++, Java, and Python
etc. These languages are used to write the cryptocurrency codes i.e. Bitcoin Protocol or
Solidity.
24

We have envisaged a set of rules and instructions that will form the RSBC code. RSBC
code is a generic term that we use to refer to any code that is related to any Regulated and
Sovereign Backed Cryptocurrency. A NationCoin System is another term that we use to refer
to both the hardware and software aspect of the RSBC.As such, RSBC code is a part of the
NationCoin System.
One such RSBC code is MANU- Main frames And Networks Unifier- which will be the
main and central software that will make RSBCs a reality. MANU basically denotes the
cache of regulations that computer networks should follow so as to make RSBC practical. It
will do the work of integrating the network and the hardware into a single entity so as to run
the K-Y Protocol. DATA will be in-charge of establishing the whole setup.
We can use Mainframe computers and closed user interface networks connecting the
Mainframes. These Mainframes will be integrated and will work in sync over the closed
network. They will have a secure user - interface. The Mainframes will have MANU as the
RSBC code which will allow them to execute the K-Y Protocol. MANU will be written by
certified programmers who will also hard code the K-Y protocol into MANU.
RSBC HardwareTo set up MANU and execute the K-Y protocol we will need a set of
hardware. This hardware will be a semi-closed system which will have MANU hard-coded
into it by certified programmers. We can choose from a range of hardware options. But we
must go for only those which will give us an optimum yield.
There are several kinds of computing systems. We shall now discuss them in detail.
Supercomputers can work out problems whose main restraint is calculation speed. For
example, predicting weather. Weather is influenced by a large number of factors like
humidity, air pressure, temperature, cloud cover etc.
A supercomputer will take inputs from its memory banks about weather and give an
output which can be a fairly accurate prediction of the weather over the next 24 hours.
Climate modelling is also done in a similar manner.
Super computers are ideal for performing complex calculation on a large amount of
data stored in memory caches that run into several terabytes.
On the other hand Mainframe Computers are used to execute functions that are
repetitive or of the same nature.
For example, handling 10,000 business transactions a second. Mainframes, rather than
taking inputs from memory banks, take inputs from external sources like credit card
company website. Mainframes basically deal with problems which are restrained by
input/output quantities.
A Mainframe computer processes this data and in a fraction of a second, verifies the
transaction and clears the bill. Moreover, Mainframes have reliability. They double check

25

and verify data. This is very important in situations where data integrity is paramount. For
example, in commercial or large business transactions.
In short, supercomputers have a range of areas where they can be used. In case of
supercomputers, data precision is difficult to verify as the events have not yet occurred. For
instance, climate modelling done by supercomputers is difficult to verify as the changes will
not yet have occurred. Scientists use supercomputers to predict and model financial markets,
military scenarios and climates which are still in the future.
On the other hand, Mainframes are used where high precision and data verification is
needed. For example, let us examine a payment system. The payment systems Mainframe
computer verifies that it is indeed you and that your account has the money that you desire to
spend.
It will do this process many times over, so that every time it gets the same answer i.e.
(1) It is you only who has accessed the account and
(2) Your account has to have the money that you desire to spend.
This greatly increases reliability of the authentication process. All this happens in a
fraction of a second for several thousand transactions in that single second.
Mainframes are thus used for reliable task completion.
One may think that cloud storage and computation may be a possible alternative to
either mainframes or supercomputers. The cloud is a remarkable technology. It is the practice
of working a network of remote servers hosted on the Internet. It is used to process, manage,
and store data, compared to a local server or computer. Ability to work on the data is limited
only by one's ability to access the internet. Let us now analyse Mainframes vis-a-vis the
Cloud systems.
Mainframe vis-a-vis the Cloud
One advantage that big businesses enjoy with respect to Mainframe computers is full
control over their own data. With Mainframes, one need not worry about anyone fiddling
with their data. Mainframes can be easily customized more than cloud services possibly can.
This is because the hardware is in control of the user himself. Mainframe computers do not
take up much of the internet bandwidth. This is a great value addition as it lessens bandwidth
usage and permits operation even when the internet is down.
When using cloud services, you are assuming that a 3rd party won't tinker with your
data.
One main problem with cloud computing is its dependence on a strong and fast internet
connection. It is preferable that the connection will hopefully not go down. In such situations
a Mainframe becomes necessary.

26

If we analyse the needs of the job at hand, it is evident that Mainframe computers are
the systems that we should go for.
The job (to be done by DAR) involves assets, transactions, authentication etc. which a
Mainframe computer is in fact built to work with. But for the magnitude of the work
involved, we need not one, but several Mainframe computers.
The Network formed by the NationCoin system will function as followsa) New transactions occurring on the network are broadcast to every other node on the
network.
b) Every node will collect the new transactions into one block.
c) Every node will work on a particular proof-of-work [3] for the said block.
d) When a node finds the solution to a proof-of-work, it broadcasts the block to all the
nodes.
e) The other Nodes will agree on the block validity provided all the transactions in it are
authentic and are not already spent.
f) The Nodes will communicate their agreement of the block and its contents by
working on generating the next block in the chain, using the hash of the accepted block as
the previous hash.
Bitcoin runs on 5226 nodes distributed throughout the globe
[4] Ethereum runs on 7489 full nodes
[5] Since the K-Y protocol has the sovereign authority as the Trusted Third Party, lesser
number of nodes will be needed. Moreover the multi-tiered security structure and the closed
nature of MANU eliminate the need for a large number of nodes.
Nevertheless, the K-Y protocol is designed to deal not just with currencies but with
digital assets as a whole. As such, we need to keep in mind the large (virtual) infrastructure
that we may need when the DAR expands its activities in various spheres where digital
assets are involved.
About 10,000 high capacity nodes for a $2 trillion economy can be comfortably
managed by a group of custom-built powerful Mainframe computers (which will run on
MANU).
These 10,000 nodes can be distributed over a considerable geographic area depending
on the size of that countrys economy.

27

We have to realize that the way the Mainframes are connected to each other is also
important. In this, there are two types.
One type of arrangement is known as Grid Computing the other type is known as
Cluster Computing.
Grid computing is, simply put, a collection of computer power from many systems to
complete a common task. The computers involved, at the same time will also be working on
other problems.
On the other hand, Cluster computing consists of a set of computers that perform the
same task and that task alone. In many respects, computers working in a cluster can be
considered to be a single system.
We assess that each country can have a node set up in its provincial capital. Say, a
country has 30 provinces. It can set up 30 main nodes. One main node in each province.
But how do we accommodate 10,000 nodes? Let us analyse.
Each main node will have a number of machines which will act in the form of a cluster.
I.e. the entire RSBC network will be a Grid of Clustered Mainframes.
Each (of the 30) main node will have 4 powerful Mainframe computers. Each
Mainframe computer will have 100 virtual machines inside the Mainframe.
(Virtual machines are nothing but a Mainframe running several different instances of
operating systems at the same time. This allows the system to be managed as if they were
physically distinct computers).
30 main cluster nodes, with 4 Mainframes in each main cluster node and each
Mainframe running 100 virtual machines running on MANU in Grid Clustered format allows
us to operate a total of 30x4x100=12,000 high capacity nodes; more than sufficient for any
future expansion and development of the digital economy.
Each of the 30 main nodes will be a cluster of 4 Mainframes each or 400 virtual
machines.
A Mainframe has many advantages over distributed computing. Using distributed
computing with individual computers for RSBCs like Bitcoin is one more option. But it too
has many drawbacks.
28

Mainframes need less manpower than individual distributed computers. Moreover,

economies of scale reduce the cost of Mainframes over a medium time period. It is easier to
manage, takes lesser space, power and also cost comparatively less.
Mainframes can be customized and are also easy to maintain. To execute the K-Y
Protocol, a $2 trillion economy will need around 120 Mainframes. This may cost close to
$100 million. Staffing may cost another $10 million.
We should be Adding to it $100 million in cabling costs and $250 million to write
MANU (on which the network will run) and other costs. This comes to around $500 million
investment for a $2 Trillion economy.
That is about 0.025% of the entire economy. It means that for every $100 in any
economy, only 2.5 cents need to be invested in setting up the NationCoin network. This
appears to be a very reasonable cost.
Annual maintenance cost may be around $200 million. This implies that once a capital
investment is done, there is substantially lesser investment per year on maintenance.
DATA will maintain 2 ledgers. One will be a public transaction ledger with the NLD.
The other will be a more secure Reserve ledger which will have a constantly updated register
of mining, holding, backing, and sovereign stamping etc. i.e. everything related to the DAR
ledger.
20% of the nodes will be maintaining the Reserve Ledger. Unlike the public transaction
ledger, the reserve ledger will be directly controlled by the DAR (and not the NLD). These
20% nodes will be as widely dispersed as possible. Every 3 months, the nominated nodes
running the reserve ledger will change by a process called Randomized Periodicity. By a
system of randomizations, nodes are nominated every three months which will run a copy of
the reserve ledger. No node can run the reserve ledger for a period of more than 2 quarters.
DATA will have several functions that will make it a very important technological
institution.
1. Writing MANU
DATA will ensure that MANU is fully written, trial tested and ready to work before the
NationCoin System goes online.
As already discussed, MANU-Mainframes and Networks Unifier is the Software on
which the entire NationCoin system will run. MANU will be written using a combination of
languages like C++, Java, and Python. MANU will have several redundancy features built-in
which will make it fail-safe and as reliable a system as possible.
2. Setting up the Mainframes network
DATA will select the places where nodes will be established. It will choose from the
Mainframes that will be best suited to run the NationCoin system on MANU. DATA will
29

ensure that there is network compatibility and also the grid clustered Mainframes are
optimally connected.
3. DATA will write the code for the Reserve Ledger.
This is of utmost importance as it is the basis of creation of the NationCoin itself.
DATA will ensure that maximum cyber security is provided to the entire system, especially
the reserve in particular. This is necessary to maintain integrity of the NationCoin system.
4. DATA will develop and maintain Digital Forex Vaults (DFV) on behalf of the
DAR.
DFVs are very important for handling international NationCoins that enter the country.
For example, Indian DATA will manage DFV in which USCoin, Eurocoin, JapanCoin etc
will be handled. This is necessary to maintain a credible and a stable exchange rate.
5. DATA will help the banks to make their systems compatible with MANU so as to run
the NationCoin system.
6. DATA will create and maintain clients Nationcoin wallet. -A client can be a single
citizen, company, trust, organization etc.
7. DATA will audit companies and organizations on invitation.
Computer network and systems and give accreditation and certification. Those who
receive DATA accreditation will be able to interact and conduct transactions seamlessly over
the Nationcoin network. This is important for security purposes and also developing DATA
as an international brand.
8. DATA will develop skill and expertise in block chain technology.
It will conduct research and development activities on both hardware and software
aspects of block chain. Due to the volatile and confusing nature of stock market dealings, the
state came up with laws to regulate stock markets and protect public from securities or stock
market fraud. Basically stock exchanges are places where stock traders, holders and brokers
can sell and/or buy shares, bonds and various securities (a tradable financial asset)
Over a period of time governments set up institutions and organizations which could
control, monitor and supervise securities trade. For example, USA has the US-SEC. India has
SEBI, Europe has ESMA, Japan has SESC, China has CSRC and so on.
DARECThe Digital Assets Regulations and Exchange Commission will be a type of a
financial regulatory authority dealing exclusively with international digital assets.
DAREC will be the organization that will deal with the inter-relationships and
dynamics of various digital assets in the digital economy.
DARECs mandate will start to kick in once linkage [1] starts to occur. (Linkage in this
case means that the NationCoin is allowed to be freely traded in the international market.)

30

As such, DAREC will be fully under the DAR. It will handle only those aspects where
one NationCoin needs to be converted to another. It will also play an important role when a
digital asset is being traded across borders, from one country to another. It will be the
interface that will securely link NationCoin system of one country to another.
The DAREC will keep track of (but not control) the digital forex vaults.
Its primary mandate will be to assist DAR in its overseas operations and protect
NationCoin by maintaining credible exchange rate.
It will be the overseas or international interface arm of the DAR.
The DAREC will also, through the block chain regulate digital assets markets where a
nations digital assets are traded overseas.
For example, Joe in the USA wants to obtain loan by mortgaging his home. The dealing
will be handled no doubt by the US-NLD. But if Joe is availing a loan from Kate, who is in
London, then the US-DAREC comes into the picture.
It will ascertain that BritishCoins to USCoins conversion takes place smoothly. This
way, only USCoins will keep circulating in the US economy. In the absence of exchange
integrity, any economy will become a hodgepodge of several currencies. The above action
will also ensure that ownership of US Digital assets and BritishCoins is not abused by
unscrupulous elements for anti-social activities.
The main objective of DAREC is to protect citizens money, maintain a free and fair
environment in the NationCoin market. DAREC will also efficiently control NationCoin
exchange market so as to ensure that there are no irregularities of any kind. DAREC will also
provide NationCoin trade related information to the traders and citizens.
The DAREC will assist the DAR in the formation of capital. It will do this by
supervising cross border trade in NationCoins and digital assets.
CONCLUSION
We have proposed the establishment of a Controlled Block Chain based on the K-Y
Protocol. It is primarily accomplished using the NationCoin system. There are two aspects to
the NationCoin system. The software aspect and the hardware aspect. The software part
consists of writing the RSBC code. RSBC code is a generic term that we use to refer to any
code related to any Regulated and Sovereign Backed Cryptocurrency (RSBC). One such
RSBC code is MANU- Main frames And Networks Unifier. MANU will be the programmed
cache of instructions that computer networks will follow to make RSBC practical. It shall
integrate the network and the hardware into a single entity to run the K-Y Protocol. The
hardware aspect consists of setting up a cluster of mainframes which will run virtual
machines as nodes. These nodes will do the work of verifying and confirming transactions.
They will be connected to each other and run MANU on their systems, broadcasting,
31

verifying, and confirming transactions with a particular difficulty level. A host of institutions
have also been envisaged to create, support and run the NationCoin system.
REFERENCES
[1] THE K-Y PROTOCOL: THE FIRST PROTOCOL FOR THE REGULATION OF
CRYPTO CURRENCIES (E.g-Bitcoin)
[2] http://www.unit-conversion.info/texttools/convert-text-to-binary/
[3] Bitcoin: A Peer-to-Peer Electronic Cash System-Satoshi Nakamoto
***********

32

3. PROOF-OF-SOVEREIGNTY (PoSv) AS A METHOD TO

ACHIEVE DISTRIBUTED CONSENSUS.
Dr.Kartik H & Dr.Yatish S.G

ABSTRACT
In this paper, a method to implement K-Y protocol using Distributed Consensus is
discussed. Firstly, the various available methods are discussed. Then, Proof - Of Sovereignty (PoSv) is proposed. Its mechanism is deliberated and its advantages are
described vis-a-vis other methods of distributed consensus. Finally a summary of all the
procedures involved in 'NationCoin Mining' is explained.

INTRODUCTION
Crypto currencies use cryptography to secure transactions and create additional units in
a decentralized network. This process needs consensus among various computers which are
part of the network. Consensus is necessary because certain processes within the network
may be faulty or less reliable. If the computers can communicate among themselves then the
faultiness can be detected, arrested and rectified. Moreover, when the computers agree on the
value of output, network reliability greatly increases. This forms the premise of many
autonomous and self-regulated network systems.
Block Chain- A blockchain is a public ledger of all cryptocurrency transactions that
have ever been executed. It is distributed in nature. It continually grows as 'verified' blocks
are added to it with a new dataset for every block. The blocks are added to the blockchain in
a linear, chronological order.
Verification-It is done by Miners taking into account only those blocks those follow the
rules of transactions. There are several processes like checking the validity of inputs, that the
output isn't greater than the input, ensuring that coins aren't double-spent, etc. Verification is
done by a series of complex cryptographic programs run by the computer.
There are several ways to achieve distributed consensus. Crypto currency networks use
many such methods. Few of them are:(1) Proof-of-Work - One of the most used and familiar methods. The best example is
Bitcoin and Ethereum mining. In this process, partial hash inversions are used to prove that
work was done. It requires some work to be done to prove that the worker is a bona-fide and
interested USER. Only then will the worker be made party to mining on the network.
(2) Proof-of-Stake - Here the network demands that the user prove ownership of a
certain quantum of money, which is the user's stake in the system. Once they prove their
stake, they get to verify transactions and "mine" the crypto currency.
33

Mining - Network members need to be rewarded to help authenticate transactions.

Without such a reward, there is no motive for anyone to spend precious computation
capacity just to help authenticate someone else's transactions. If network members do not use
that power, then the entire system becomes useless.
Hence there is provision for incentives to members who help in authenticating
transactions. Specifically, we can reward anyone who successfully confirms a block of
transactions by giving them some units of cryptocurrency. In the K-Y Protocol, this
authentication process or validation is called mining.
Mining Nodes give their processing power to the network in exchange for the
opportunity to be rewarded by Cryptocurrency units.
Miners validate new transactions and record them on a distributed ledger-the
BlockChain.
A Mining node will do the following:
a) Collect transactions to prepare for the next block.
b) Check all transactions in the memory pool and remove any that were included in the
earlier block.
c) Prepare remaining transactions in the memory pool which are unconfirmed for future
blocks.
d) Searching for a solution to the Proof-of-Work.
Independent combination of the transactions into new blocks by mining nodes, coupled
with working on a proof of work algorithm is done by every mining node.
Later, after the Proof-of-Work is solved, independent verification of each transaction by
every full node takes place. This culminates in the adding of the block to the BlockChain.
For every block of transactions successfully authenticated, the victorious miner gets a
cryptocurrency reward.
This Proof-of-Work in needed to confirm that the said node is a bona-fide entity and a
serious candidate to 'mine' cryptocurrencies.

34

PoSv - POSV is a method to achieve distributed consensus in the NationCoin system as

described by the K-Y Protocol [1].
The K-Y Protocol is a set of rules and instructions to implement the Regulated and
Sovereign Backed Cryptocurrency (RSBC) system. It envisages a highly secure Controlled
Block Chain in which Sovereign backed Cryptocurrencies will be transacted without
minimal hassles. It is primarily accomplished using the NationCoin system. There are two
aspects to the NationCoin system; the software aspect and the hardware aspect. The software
aspect consists of mining using the PoSv.
DAR-Digital Asset Reserve- Organisation which will frame policies and manage the
system based on K-Y Protocol.
The NationCoin system is a totally sovereign network dedicated to run the K - Y
Protocol.
TXN-Transaction
*Blocking is a process in which Transactions are collected, verified and arranged in a
block by the nodes.
In PoSv, each sovereign node which participates in the 'mining' process has to show that
it is a sovereign node. The node that verifies transactions fastest (or in a pre-determined
order) and proves sovereignty will be 'mining' the NationCoins. Sovereignty is proved by a
multi- tiered encryption key which we call as the "Sovereign Key" (SK).
The DAR (The main institution envisaged by the K- Y Protocol) will provide the
Sovereign Key.
But this Sovereign Key will not be permanent. The DAR will randomly and
periodically keep changing the Sovereign Key. The changed Sovereign Key will be updated
in all the nodes by DAR on an individual DAR-to-node basis through Quantum Key
Distribution [2].

35

The nodes will mine NationCoins turn-by-turn. After submitting every block, each node
will prove its genuineness by providing the Sovereign Key. This will prove to the network
and DAR that the mining node is a Sovereign Node.

The Sovereign Key will be in the form of multi- tiered interconnected public addresses
each tier having a unique private key.
The Master node, i.e the DAR can ask any node for the Private Key of any tier
randomly to check for authentication. The DAR, apart from common network connectivityi.e. all nodes being connected and part of network- will also be individually connected to
every node. The updated Sovereign Key will not be propagated by one node to the other.
Only DAR will upgrade the nodes individually about the change in Sovereign Key.
The PoSv process will ensure many things.
(1) Network security - Any third party like a hacker will not be able to prove
sovereignty without the Sovereign Key.
(2) Network competitiveness - In proof of stake, the nodes get to 'mine' coins in a
predetermined sequence. But in POSV, every node will have the Sovereign Key. Therefore,
to become a winner node, each node will have to confirm and verify transactions faster. In
case of Quasi-Autonomous Nodes where mining of NationCoins is outsourced, PoSv will
increase Network competitiveness. This will provide incentive to each node to work to
upgrade its hardware and software configurations, yet be compatible with the NationCoin
Network.
This way, each node has a reason to work faster and better, thus improving
competitiveness (The only bottleneck will be the speed of transaction verification).
(3) Network reliability - If the Sovereign Key gets changed (by DAR) and if one or
many nodes cannot update the Sovereign Key, then it points to a problem (in that node or the
network or both) which can be detected and rectified.
(4) Full control by sovereign authority - The sovereign authority (i.e. the DAR) has full
control of all nodes at all times. If any node turns 'rogue' or is problematic, that node can be
excluded from the mining process by simply denying it the Sovereign Key.
(5) Decentralised working in a Centralised Framework(a) A Federal Network is one where a sovereign authority is concerned only with the
authentication of nodes and not the network details. It only verifies the credentials of the
nodes and is not bothered about the minutiae of work done, as long as it is valid
36

(b) A Unitary network is one where all aspects of the network is micromanaged by the
Sovereign Authority.
The NationCoin network will be a Federal Network and PoSv will make it possible.

Cryptocurrency Networks (Crypto Networks for short) are essentially decentralised.

This has several advantages. Sovereign Authority is usually considered a centralising figure.
As such the NationCoin network managed by a Sovereign Authority may thus appear
centralised in Nature. By Centralising Crypto Networks we may lose out on several essential
characteristics that would be advantageous. PoSv makes it possible to preserve and benefit
from the decentralised nature of a Sovereign Crypto Network.
In PoSv, The Sovereign Authority is only concerned about the sovereign nature of the
nodes. PoSv leads to the creation of a federal network. At the same time, the Sovereign
Authority can keep control of the NationCoin Network through the Sovereign Key.
This makes it uniquely decentralised in a Centralised Framework.
The Network formed by the NationCoin system will function as followsa) New transactions occurring on the network are broadcast to every other node on the
network.
b) Every node will collect the new transactions into one block.
c) Every node will provide PoSv for the said block.
d) One of the nodes is chosen to make the transactions into blocks. Or in case of Quasiautonomous nodes, the node which blocks fastest is a 'winner node' and allowed to 'mine'
NationCoins.
d) When a node successfully provides PoSv, it broadcasts the block to all the nodes.
37

e) The other Nodes will agree on the block validity provided all the transactions in it are
authentic and are not already spent.
f) The Nodes will communicate their agreement of the block and its contents by
working on generating the next block in the chain, using the hash of the accepted block as
the previous hash.
CONCLUSION
The Proof of Sovereignty (PoSv) ensures that the network is secure, reliable and
competitive for the NationCoin system. At the same time, it is assured that the sovereign
authority remains in control of the Network at all times. Even though the NationCoin system
appears to be a centralized network, The DAR, through PoSv can maintain a decentralization
NationCoin network. This, in essence makes it a Federal Network rather than a Unitary
Network
Moreover, large-scale capital investment necessary in Proof-of-Work and Proof-ofStake is also avoided. Thus PoSv guarantees the successful implementation of the
NationCoin System.
REFERENCES
[1]THE K-Y PROTOCOL: THE FIRST PROTOCOL FOR THE REGULATION OF
CRYPTO CURRENCIES (E.g-Bitcoin)
***********

38

4. EXAMINING TAXATION OF FIAT MONEY AND BITCOINS

VIS-A-VIS REGULATED CRYPTOCURRENCIES
Dr.Kartik H & Dr.Yatish S.G

ABSTRACT
In this paper, we examine the Taxation aspects of Fiat money and Bitcoins vis-a-vis
Regulated Cryptocurrencies. We start off by briefly explaining the concept of
cryptocurrencies (also referred to as cryptocoins in this paper). We then discuss the
concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs). Then we
envisage a scenario where cryptocoins are the main medium of exchange. The taxation
aspects of Paper money, Bitcoins and RSBCs are then deliberated with the pros and
cons of taxation for each currency format. The currency that can support an Automated
Tax Regime is also debated. Finally, the paper concludes by arranging in ascending
order, the currencies which are easily amenable to and compliant with taxation policies
and laws.

INTRODUCTION
A cryptocurrency is a medium of exchange using cryptographic techniques to safeguard
transactions and also manage the formation of additional units of the currency.
A BlockChain is a widely disseminated archive of data that maintains a continuallyexpanding register of records fully and reliably protected from any alteration or
modification. Each block has a timestamp and link to the preceding block.
A Crypto wallet is an encrypted electronic device that allows an individual to make
electronic cryptocurrency transactions. Each wallet will have a public key visible to anyone.
But it can be operated by only a person who has a private key.
When people send cryptocoins to each other, someone has to keep account of who spent
how much at what time. In case of fiat money (or paper money) it is done by banks (known
as Trusted Third Parties, for which they charge a commission).But in case of Cryptocoins it
is registered on a ledger called BlockChain (with nil or minimal fees).
The cryptocoin network makes this possible by detailing all the transactions made
during a certain timeframe into a list. This list is known as a block. A certain set of people
called 'miners' verify these transactions mathematically and register them on the BlockChain.
Those bona-fide miners who have successfully verified the transactions are paid freshly
created Cryptocoins. This is how miners are rewarded, and new cryptocoins are generated.
This is also the reason why no transaction costs are levied, as the network (in the form of
miners) verifies the transactions.
39

Bitcoin is a peer-to-peer based cryptocurrency which is not backed by any commodity

and (unlike fiat money) carries no sovereign guarantee whatsoever.
Regulated and Sovereign Backed Cryptocurrencies (RSBC), on the other hand are
government backed cryptocurrency akin to paper currency, but in digital form. In this
system, the cryptocoins (known as NationCoins) are backed by Sovereign Guarantee.
They are run on a highly secure Controlled BlockChain(CBC) in which Sovereign
backed Cryptocurrencies will be transacted without any hassles. NationCoins are completely
managed by the Sovereign Authority i.e the Government.
This system is based on the K-Y Protocol [1]. The K-Y Protocol is a set of rules and
instructions to implement the Regulated and Sovereign Backed Cryptocurrency (RSBC)
system. It envisages a set of institutions to achieve its objectives. Some of them are as
followsDAR-Digital Asset Reserve- Organisation which will frame policies and manage the
CBC based on the K-Y Protocol.
DATA: it is the technical arm of the DAR. Its functions consist of setting up of the
hardware and software infrastructure required to run and sustain the RSBC. It will set up the
nodes, hard-code the K-Y Protocol into software, and setup the computing network. It will
Manage and maintain the varied infrastructure needed for RSBCs.
NLD-National Ledger Database- It is the custodian of the Controlled BlockChain. It is
the ledger which will record all transactions that involve the respective NationCoins and
other digital assets.
TAXATION OF FIAT MONEY
A tax is a levy imposed on an individual or by the state to underwrite a number of
public expenses. A failure to comply is punishable by law.
Taxation, on one hand helps to fill the coffers of the state. On the other hand, it has
significant effects on the economy and the people's way of life.
In the earlier days, state officials used to visit every household and collect taxes. This
resulted in spending large amount resources by the state to collect taxes. As economies
developed over a period of centuries, citizens were encouraged to come forward and pay the
taxes themselves. In this manner the State could save resources and manpower and go only
after those who actively evaded taxes.
Fiat/paper money transactions are known as cash/liquid transactions. Without the
generation of receipts, cash transactions are hard to trace. Cash transactions are thus the
preferred mode of exchange in illegal/black markets. This makes cash transactions ideal to
evade taxes and hide such activities from governments or regulatory authorities.
This unaccounted money fuels what is known as the underground economy. One
measure of the underground economy is the "tax gap". It is the difference between the
40

amount of tax revenues due to the government and the tax money actually collected. In the
U.S, This is estimated to be about $450$500 billion [2].Thus, it is easiest to evade taxes
when money is in the form of Fiat or cash form.
TAXATION OF BITCOIN-LIKE CRYPTOCURRENCIES
One can have multiple Bitcoin addresses, which are apparently 'anonymous'. We say
'apparently' because there are techniques to De-anonymize accounts. But at any given
time, one can safely conclude that for the time being, he/she is anonymous when they use
their Bitcoin wallets.
Joe is a tax evader, and Kate is a tax collector. Robert is a third person who is Joes
friend.
Joe has $10,000 of unaccounted money. He is afraid that Kate can swoop down
anytime and arrest him. Joe goes to Robert and pays him his $10,000. Robert transfers
an equivalent amount of Bitcoins from his (anonymous) Bitcoin wallet to Joes
(anonymous) Bitcoin wallet. Joe can then transfer it to a series of other addresses within
or outside his wallet.
He can even transfer the Bitcoins out of his country where he converts Bitcoins into
the native currency and stores it in a bank, which does not insist on customer identity
verification.
Kate has no way of knowing that Robert received money from Joe (because of No
receipt). She has no way of knowing (in the short term), which particular Bitcoin wallet
belongs to Joe or Robert.Joe happily secretes away his money, from the eyes of the
taxwoman Kate.

It is apparent from the above illustration that Bitcoin (i.e. unregulated, decentralized
cryptocurrencies) has tipped the balance in favour of the tax evader.
In reality, it is possible to discern the identities of Bitcoin wallet holders by a process
called as de-anonymization.
Computer scientists associate activities with Bitcoin wallet usage. Even geographically
pinpointing the user is possible. But it may take time and will most probably be
retrospective. Thus the entire exercise of siphoning money off to a tax haven is already over
by the time the tax evader is identified and apprehended.
Another advantage of an unregulated Cryptocurrency (like Bitcoin) is that it can be
moved seamlessly across borders with no impediments whatsoever. And it can be done in a
matter of seconds. This provides tax evaders with the added incentive to use Bitcoin as a
vehicle to transfer their assets in liquid form outside the borders of the taxing country.
No government or sovereign agency whatsoever is needed in any manner to move
Bitcoins. As such, real time transactions are not monitored by government agencies (or so,
the people think).

41

But the transactions are all available on the Blockchain, which can be later verified or
examined by law enforcement agencies. That needs cooperation among various nations, and
a lot of cumbersome procedures.
One more advantage of Bitcoin wallets (for tax evaders) is that money in Bitcoin
wallets cannot be automatically deducted by government agencies. If you owe tax to the
government and do not pay, the government can deduct the owed tax money from your bank
account. It cannot do that with your Bitcoin wallet though. At least not so easily. To do so, it
has to seize your wallet and your private key. For that, it has to apprehend you. And then you
have to disclose your private key. This is a lot of work for the government.
Overall, in the short term, Bitcoin is the ideal way for the tax evader to escape being
taxed.
The possibility of something being misused does not make that thing inherently 'bad', as
perceived by public opinion. As a matter of fact, Bitcoin is in actuality, better than paper
currency/cash when it comes to monitoring transactions. Bitcoin's open Blockchain system
allows anyone to view transactions. The Silk Road mastermind -Ulbricht- could be
apprehended only because of the open nature of the Bitcoin Blockchain.
RSBC TAXATION
RSBCs are literally sovereign backed currency notes, but in the digital world.
NationCoins are controlled by the sovereign authority. The NationCoin wallets maintained
by DAR will be verified for identity through the KYC norms. Therefore, every person, be he
a citizen, resident or non-resident, will have a verified wallet. This will allow safe and secure
transaction for honest users.
Now imagine a scenario where all Paper money is being replaced by NationCoins.
As the digital economy becomes more and more pronounced, it will become difficult
for people (with the intent to evade taxes) to hide their real sources of income or their
identities.
The NationCoin wallet will ensure that a persons identity is known and maintained as
such. The Controlled BlockChain will allow the sovereign authority to view and supervise
transactions. And since the identities of the people are known to the sovereign authority, the
Controlled BlockChain will be a powerful tool to maintain a rationalised tax regime.
Tax returns need no longer be filed by tax payers when NationCoins are introduced.
The Sovereign authority can automatically deduct taxes of the people directly from their
wallets.
DATA systems can automatically compute and churn out tax liabilities of individuals
(as even property ownerships will be digitized and records maintained by the NLD). So a
persons income tax, wealth tax, electricity, telephone, water, and internet bills can be
deducted without the person ever undergoing the hassles of waiting in long queues for
42

paying bills or filing tax returns. An individuals credit worthiness can be gauged by
analysing the Controlled BlockChain.
Of course all of this will information can be accessed only by the Sovereign authority,
lest it be misused by unscrupulous elements. A person will hardly default on his loan because
Controlled BlockChain analysis will predict his default. Pre-emptive measures can then be
taken to prevent him from defaulting on the loan that he has taken.
It is obvious that wide spread NationCoin usage will lead to widening of the tax net.
This will also ensure that tax burden on individuals will significantly reduce.
A persons money holding can be inferred by the Government when necessary. The
Government can automatically deduct taxes with no people to file tax returns. It can wind up
its tax collecting infrastructure and invest those resources somewhere else.
Eventually, the tax evaders will shift to paper currencies. It will so happen that over a
period, a large amount of paper currencies will be held by tax evaders, racketeers, etc. Here
the black money (i.e. unaccounted for, untaxed money) economy will be separated from the
legitimate, actual white economy.
Finally, the government can swoop in and bring about an amnesty scheme where it can
collect more than 50% of the untaxed money as penalty. As the digital economy becomes
more and more pronounced, it will become more difficult for people (intending to evade
taxes) hide their real sources of income or their identities.
It is obvious that wide-spread NationCoin usage will lead to the widening of the tax net.
This will also ensure that the tax burden on individuals will significantly reduce.
Suppose in a group of 1,000 people, only 100 people pay taxes. The government needs
to collect $10,000 as taxes. Since only 100 people are in the tax net, it has to charge $100 for
every person as a tax. Now in NationCoin usage, say 800 people have NationCoin wallets.
500 people are now in the tax net as their identities are known (The remaining 300
people cannot be taxed due to low income.)
Now, instead of collecting $100 from each person, the government collects $20 from
500 people. Its $10,000 tax target is reached. The advantage to the public is obvious. Earlier,
a person paying $100 as taxes now pays only $20. That is an 80% fall in tax burden. He now
has $80 more to spend. This will boost economic activity in the system, leading to more
growth and prosperity.
We can thus usher in an Automated Tax Regime with the introduction of RSBCs.
CONCLUSION
Due to the advent of Cryptocoins, it is obvious that the status quo seen in paper
currencies can no more be maintained. Bitcoin and its family of cryptocurrencies make it
easy to evade taxation in the short term. But in the longer term, the evaders can be traced.
The evaded money can also be accounted for, as all transactions are on the BlockChain for
43

everyone to see. It is also evident that NationCoins have all the advantages of Bitcoin albeit
without its demerits (as far as taxation is concerned) as they are Regulated and Sovereign
Backed Cryptocurrencies (RSBCs).
Bitcoin is in favour of the tax evader (for the short term) whereas
NationCoin has tilted the balance in favour of the tax collector. The ease of taxation is
thus as follows:Cash/Paper Money < Bitcoin- like Cryptocurrencies < NationCoins.
We can see that Cash is least amenable to taxation; bitcoin is easier to be taxed provided
one can trace the owner of the wallets. NationCoins provide easiest means of taxation.
Thus NationCoin system appears to be the ideal currency format for taxation purposes
where we can also usher in an Automated Tax Regime.
REFERENCES
[1] The K-Y Protocol: The First Protocol for the Regulation of CryptoCurrencies (E.g.Bitcoin)
[2] Feige, Edgar L. & Cebula, Richard (January 2011). "America's Underground
Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the
U.S."
***********

44

5. BANKING SYSTEMS IN AN ECONOMY DOMINATED BY

CRYPTOCURRENCIES
Dr.Kartik H & Dr.Yatish S.G

ABSTRACT
In this paper, we analyse the workings of commercial banks in a scenario where
crypto-currencies are the mainstream bills of exchange. We start by explaining the
concept of cryptocurrencies (also referred to as cryptocoins in this paper). Then we
discuss the concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs).
Later on, we envisage a scenario where cryptocoins are the main media of exchange.
The banking aspects of Paper money, Bitcoins and RSBCs are then deliberated. We
analyse the interplays between Banking and various currency formats. Finally, the
paper concludes as to which currency is best suited to be the mainstream bill of
exchange.

INTRODUCTION
When people send cryptocoins to each other, someone has to keep account of who spent
how much at what time. In case of fiat money (or paper money) it is done by banks (known
as Trusted Third Parties, for which they charge a commission).But in case of Cryptocoins, it
is registered on a ledger called BlockChain (with nil or minimal fees).
The cryptocoin network makes this possible by detailing all the transactions made
during a certain timeframe into a list. This list is known as a block. A certain set of people
called 'miners' verify these
Transactions mathematically and register them on the BlockChain. Those bona-fide
miners who have successfully verified the transactions are paid freshly created Cryptocoins.
This is how miners are rewarded, and new cryptocoins are generated. This is also the reason
why no transaction costs are levied, as the network (in the form of miners) verifies the
transactions.
Bitcoin is a peer-to-peer based cryptocoin which is not backed by any commodity and
(unlike fiat money) carries no sovereign guarantee whatsoever.
Regulated and Sovereign Backed Cryptocurrencies (RSBC), on the other hand are
government backed cryptocurrency akin to paper currency, but in digital form. In this
system, the cryptocoins (known as NationCoins) are backed by Sovereign Guarantee.
They are run on a highly secure Controlled BlockChain(CBC) in which Sovereign
backed Cryptocurrencies will be transacted without any hassles. NationCoins are completely
managed by the Sovereign Authority i.e the Government.
45

This system is based on the K-Y Protocol [1]. The K-Y Protocol is a set of rules and
instructions to implement the Regulated and Sovereign Backed Cryptocurrency (RSBC)
system.
BANKING
A bank is a financial institution that accepts deposits from the public and creates credit
[2].
One of the important ways by which banks help create money is through the Fractional
Reserve Banking system.
It plays out in the following manner.
Joe deposits $1,000 in the TOWN BANK. Now this $1,000 is a liability for the bank.
Why? Because it has to return this $1,000 to Joe any time he demands. Moreover, the
bank has to bear the cost of holding $1,000. From this $1,000, the bank takes $200 and
sets it aside as a reserve (to use if needed immediately). The rest $800, it lends out to
Bob, who needs a loan to start a business.
Now the TOWN BANK charges interest on the loan it gives to Bob. If Joe checks his
account, he will find $1,000 written in his account book. If Bob checks his account, he
will find $800 in it. Now, there appears to be a total of $1000+$800=$1800 in the
system, but in reality, there is only $1000.
It is because of a book-keeping technique that banks use. The bank has created a
debt instrument called IOU (short for- I Owe yoU). What Joe will find in his account is
only $200 in cash plus an $800 worth of promissory note that when given to the
CENTRAL BANK (of that country) will provide that money to the TOWN BANK.
Bob spends the $800 to buy some stuff from Alice. Alice deposits $800 in the CITY
BANK. CITY BANK sets aside 20%, i.e. $160 as reserve and then loans out $640 to
Robert who needs the money (on interest). Here whatever money is lent is actually
created. This process goes on until the total amount of reserve in the system is equal to
$1,000 (original amount deposited by Joe). At 20% reserve rate, $1,000 can create
$4,000 of additional money.
This creation of money where a bank takes deposits, provides loans, but holds
reserves that are a fraction of its liabilities is known as Fractional Reserve Banking.

The process is not as simple as it seems. The Central Banks tightly control this creation
of money by several direct and indirect regulations. This Fractional Reserve Banking was
borne out of a unique observation made by medieval bankers.
As discussed, medieval age bankers used to accept gold deposits and issue promissory
notes to be redeemed later. The people started using these promissory notes as currency
notes. The bankers observed that if they had 100 Kg of gold and issued 100 promissory
notes, not all 100 notes would be redeemed at the same time. It meant that there was a
certain amount of gold that lay unused. The bankers then loaned this unused gold to those
who would pay interest. Thus, the bankers got interest on depositors' unused gold.
46

Banks lend money not only to private borrowers but also to governments. Governments
borrow money from the banks; to be repaid later with interest. To record the borrowing, the
government issues Treasury Bonds. These Treasury Bonds can be redeemed later by the
banks for a stipulated amount.
Banks, apart from holding depositors' money and lending loans to borrowers fulfil
several other functions.
One of the most crucial functions of a bank is that of a verifier. A transaction done
through a bank is also supervised and recorded by the bank.
John has an account containing $10,000 in the TOWN BANK. Joseph has an account
containing $100 in CITY BANK. John has to pay $2,000 to Joseph. He writes a check to
Joseph transferring $2,000. Joseph takes the check and gives it to his CITY BANK. CITY
BANK gives the check to TOWN BANK.

TOWN BANK verifies that

(a) John indeed holds an account with them.
(b) The account has adequate money to be transferred. (c) The check is genuine, and the
signature belongs to John only.
After all this is verified, they pay CITY BANK $2,000. Similarly, CITY BANK verifies
Joseph's credentials and deposits the money in his account.
This payment service with verified authentication and confirmation is done by banks.
So banks act as a Trusted Third Party (TTP) between the transactor and the transacted. Here
both John and Joseph trust a third party, i.e. the bank to complete their transaction. And this
role of a TTP does not come for free. There is an inbuilt transaction cost, deducted by the
banks for their service as a TTP and verifier.
Basically, the TTP certifies that the transaction is authentic.
The present day financial system has evolved so much so that hitherto important
functions like holding deposits and issuing checks have been relegated to the background.
The most vital role of a bank now-a-days is to act as a Trusted Third Party (TTP). Banks act
as TTPs in settlements, loan lending, project financing, issuing of banknotes (printed by
Central Banks), credit mediation and creating money (through the Fractional Reserve
Banking).
Trading and business interaction in our society is based on transactions. And to safely
and authentically conduct a transaction, there needs to be a supervisor, trusted by both the
transacting parties. Banks have thus evolved to fulfil the role of a Trusted Third Party.
The introduction of the Bitcoin concept brings about a paradigm shift in the way money
supply system works. Imagine a scenario where Bitcoin is a world-wide accepted currency. It
is a decentralized and peer-to- peer based currency. Bitcoin usage needs no intermediaries.
As such, banks will be completely bypassed. Loans and mortgages will become personal and
47

customized. Anyone willing to loan will become a money lender. There will be no Double
Accounting, which is the basis for Fractional Reserve Banking. People will no longer keep
money in banks (or prefer to keep) as they will have a competitive market for interest rates
throughout the world.
Joe can lend his money to Kate at 10% interest rate, wherein his banks provide only
5% on savings. Kate, on the other hand will get money at 10% (from Joe) interest rate
instead of 14-18% interest rate loans offered by banks.

Thus, Kate would rather take loan from Joe than from banks. And Joe would give loans
to Kate, rather than keep it in the bank. [But amidst of all this, comes the issue of trust. All is
well, as long as there is a guarantee that Kate will return the money back to Joe. But that
seldom happens. The network thus will verify the transaction and guarantee its integrity].
But who will enforce a contract in the absence of an authority like a Bank? If a bank
does not get back its loans, it will classify them as NonPerforming Assets (NPAs) and may
be getting some relief from the government, the market or from the insurers. But if Kate does
not return Joes money, that may spell doom for Joe financially.
In the age of Bitcoin, creditworthiness will become an important issue. In a scenario
where Bitcoin becomes a major currency of exchange, each individual will need to have a
creditrating. And for that to happen, credit rating agencies will start to take centre stage.
The banking system will be all but extinguished. Probably banks will take on new roles as
creditrating agencies.
But unlike the banking sector, the Credit Rating Market cannot have too many players.
You cannot have 100 judges in the same court, it will be chaotic. The market itself is like
that. Because, just like money, trust is limited. And one cannot trust everyone with it. Over a
period of time, only a few CreditRating agencies will have to emerge. So, a few banks may
successfully transform into Credit-Rating Agencies whereas others may have to bite the dust.
It is therefore important to realize that Bitcoinlike currencies (decentralized, unregulated
ones) are heavily disruptive.
Lending money without supervision or control becomes very easy. But so will cheating.
People may lose their lifetime savings to unscrupulous elements with doubtful credentials. In
such a situation, Credit Rating Agency data may themselves be manipulated. Cartelization
and insider trading may go on unabated. This system will quickly deteriorate to a point
where nobody can trust anybody.
Contrast this with a scenario where RSBCs will be the norm. In case of RSBCs, Along
with sovereign backing, there will be a regulated market. Banks can then act as a Trusted
Fourth Party (TFP) instead of a TTP (which is the network itself, in case of Cryptocoins).
TFPs will regulate crypto currency instruments. This is different from the government
directly supervising markets. TFPs will function as a quasiautonomous free market
regulator of the crypto currency sector. They can underwrite or guarantee creditworthiness
48

of investors, money lenders and loan takers. They will be regulators and insurers merged into
one. They in turn will be audited by government agencies so as to maintain integrity of the
financial system.
SMART CONTRACTS AND RSBCS
What if we can program the money so that after a certain time, it automatically reverts
from Kate to Joe (with certain conditions)? That is what smart contract is all about. In smart
contracts, the contract itself is the guarantee that it will execute itself. In case of unregulated
cryptocoins where smart contracts are enabled (e.g-Ethereum) there will still be the trust
issue as Ethers (or Bitcoins) are not backed by any Sovereign Authority. But in case of
RSBCs, Contracts will be automatically executed, with full faith that the Sovereign
Authority backs it. Thus, prices of NationCoins (the medium of exchange in the RSBC
system) as well as its functioning will be fully guaranteed by the Sovereign Authority.
WHAT ABOUT FRACTIONAL RESERVE BANKING (FRB) IN CASE OF RSBCS?
FRB's role in the money supply will be greatly diminished in case of RSBCs.
In case of Unregulated Cryptocoins like Bitcoin, FRB is totally eliminated.
Governments will no longer have control over money supply. In fact, money supply will be
decided by market forces. This provides a fertile ground for manipulation by cartels and
interest groups.
A constricted money supply regime (as seen in Bitcoin-21 Million Units only) will only
lead to a deflationary spiral. This is detrimental to the world economy as a whole.
In case of RSBCs, governments will have control over the money supply. The role of
FRB will indeed be greatly reduced. Banks can still use FRB to increase money supply. But
money supply can be more closely controlled by Central Banks than it is now. A builtin
inflation rate will ensure that a constant inflationary situation is maintained. Economic
expansion is thus ensured.
Governments can directly borrow from the people at competitive rates. Banks will still
exist as TFPs, albeit with a more sophisticated role. In fact, banks can transform themselves
into VOFR (Verifier of First Resort) in contrast to government which will be VOLAR
(Verifier of Last Resort). Banks can charge a small fee for their role as TFP. One can thus see
that Bitcoinlike currencies are heavily disruptive. They have the potential to destroy FRB,
eliminate banks resulting in a deflationary economic outlook.
The final result will be that the total amount of trust in the system will go down. And an
untrustworthy economic system is not good for business or individual growth. The role of
government as the sole issuer of currency will also be side-lined. This is akin to a
government surrendering its sovereign authority to the network. The problem is that, if the
network goes down, the economy goes down with it.

49

On the other hand is RSBC. It is also equally disruptive. But its disruptive power can be
controlled. Role of FRB in money supply will be greatly reduced. But banks will still have
an important role in the economy as a Trusted Fourth Party (TFP). The economy, as usual
will continue on an expansionary trajectory.
The trust in the system will increase as credential verification will become faster and
cheaper. And a trustworthy economic system is good for business. The role of the
government as the sole issuer of currency will continue. Even if the network goes down, the
government has to restore it or provide an alternate economic system (i.e. paper currency
system). So, the economy will not go down with the network.
There is also another upside for Central Banks and Governments. Nations today pay a
high price run a paper currency based economy due to substantial cost of effort, resources,
time, maintaining and operating paper money infrastructure, high fees for cash withdrawals,
moving and managing cost of paper money etc. Imagine all the money saved by shifting to a
cashless economy. It is estimated that India alone - a $2 Trillion economy now- could save
close to $70 Billion by 2025 if it shifts to a cashless economy [3].The savings world-wide by
introduction of RSBCs will be enormous, probably running into hundreds of billions of
dollars by 2025. All those savings can be utilised for poverty alleviation or managing the illeffects of climate change.
CONCLUSION
We see that Banks, through Fractional Reserve Banking (FRB) help to expand the
money supply in the economy. FRB is in fact an indirect way of exerting control over money
supply by the Central Banks. At the same time, FRBs may pose a risk to the economy if it
goes out of control. If Bitcoins and similar cryptocurrencies become mainstream media of
exchange, there will be heavy disruption of the present economic order. Banks will lose their
primacy in the economy; there will be large flight of capital from the Banking system. FRB
will be in eliminated. The Money supply will purely be determined by market forces. This
may give scope for manipulation and cartelization by unscrupulous elements. Money itself
may be monopolized. RSBCs on the other hand reduce the role of FRB to a minimum. Banks
will still have a role in the economy, albeit a different one. Banks will be transformed into
Trusted Fourth Parties (TFPs) which will have the responsibility of certifying creditworthiness of individuals and other legal entities in a Crypto-currency dominated economy.
One can observe that RSBCs allow for introduction of crypto-currencies into the mainstream
economy in a controlled manner. Moreover the savings of shifting from a cash-based to
digital economy is also substantial. This is akin to harnessing the destructive power of the
atom albeit for peaceful purposes. Thus RSBCs are better suited than Bitcoin-like
cryptocoins to become mainstream digital bills of exchange.
REFERENCES

50

[1] The K-Y Protocol: The First Protocol for the Regulation of Crypto Currencies (E.g.Bitcoin) [2] Bank of England. "Rulebook Glossary".

51

6. THE SKY MODEL OF LIMITED BLOCKCHAIN IN AN APP

ECOSYSTEM
Dr.Kartik H; Dr.Yatish S.G; Satish T J

ABSTRACT
Mobile App based market is rapidly becoming popular. As such, it is an opportunity to
bring hassle- free transactions to peoples mobile phones. But the multi-billion dollar
App market pays a great amount of money in transaction costs and banking services.
This paper provides a solution by integrating BlockChain technology with Mobile-App
based economy. We first describe the various concepts involved in BlockChain and App
technology. Then we deliberate on how the two can be brought together without a
glitch in either of the systems. This model is named as the SKY Model, each letter in the
word SKY respectively standing for the initials of the authors. We also discuss the
various merits of a BlockChain amalgamated with Mobile App based economy. We then
go on to show how a decentralised economic system can be brought about on Mobile
Apps through The SKY Model of Limited BlockChain.

INTRODUCTION
A mobile App is a software application designed to run on mobile devices like tablets
and smartphones
Apps are available through distribution platforms called App stores. A software
Development kit (SDK) is a set of software development tools that allows the creation of
applications for a certain mobile app. It can be downloaded by App developers and attach the
SDK to their apps to do various functions
A BlockChain is a distributed database that maintains a continuously-growing list of
records secured from tampering and revision.
Each block contains a timestamp and a link to a previous block.
A cryptocurrency (or crypto currency) is a medium of exchange using cryptography to
secure the transactions and to control the creation of additional units of the currency.
A Crypto wallet refers to an encrypted electronic device (software or hardware) that
permits an individual to make electronic cryptocurrency transactions. Each wallet will have a
public key visible to anyone. But it can be operated by only a person who has a private key.
Mobile Apps generate significant revenue by advertisements and selling products and
services. Mobile App based advertising facilities are sold to advertisers on either cost-perimpression or either on cost-per-click basis.

52

[Cost per impression (CPI or CPM), is a term used in traditional advertising media
selection, as well as online advertising and marketing related to web traffic. CPM is
abbreviation for cost per mille, with mille being Latin for thousand.
It refers to the cost of traditional advertising or internet marketing or email advertising
campaigns, where advertisers pay each time an ad is displayed. CPI is the cost or expense
incurred for each potential customer who views the advertisement(s), while CPM refers to
the cost or expense incurred for every thousand potential customers who view the
advertisement(s).
If a website publisher charges $1.00 CPM, that means an advertiser must pay $1.00 for
every 1,000 impressions of its ad. The "M" in CPM represents the Roman numeral for 1,000.
In cost per click (CPC), the advertiser pays each time a website visitor actually clicks
on the ad.]
For the purpose of introducing mobile based BlockChain, we have introduced the
concept of AppCoin (Short for Applications Coin).
AppCoins are basically cryptocurrencies that use the Limited BlockChain architecture
to facilitate cryptocurrency transactions to and from Apps.
The Server Cluster is the main unit which manages the Limited BlockChain. It is a
cluster of 5-10 networked computers across various places (or in the same place) which runs
the LBC.
The Limited BlockChain is a BlockChain whose access is limited by the owners or
managers of the server clusters. Each system on the cluster acts as a node. Each Node
verifies all AppCoin transactions and through PoSv[1], mines AppCoins. These AppCoins
are distributed to various Apps (which use the AppCoin SDK) in proportion to the number of
clicks they get.
There are several advantages of BlockChain based transactions- Advantages of a
BlockChain based transactions -

1) Minimal or no transaction cost to the public- The people can use BlockChain based
transactions without any trepidation as it fast and free. Nil transaction cost is the basic
feature of a crypto currency. Lack of transaction cost will allow seamless and unhindered
53

exchange of money leading to increased economic activity. It will also leave more money in
the hands of the consumer.
2) Money Accountability- It will be possible for authorities to account for all the money
in the system. This way, the counterfeit and parallel economy can be curbed, Money
laundering can be detected and flow of money to possible illegal activities can be monitored.
3) No need for Bank Accounts- Banks need to be paid to maintain bank accounts. Bank
accounts also need to have a minimum balance so as to be viable. But Crypto currencies do
not need accounts. Having only a digital wallet is enoughBlockChain based transactions can
be conducted through digital wallets at no cost to the owners.
4) Easy transfer of funds-Governments can transfer funds or social security benefits to
citizens wallets in an instant, free of cost. Citizens digital wallets can be linked to their
social security number or other Government mandated IDs.
5) Easy Taxation- A persons money holding can be inferred by the Government when
necessary. The Government can automatically deduct taxes without the need for people to
file tax returns. It can wind up its tax collecting infrastructure and invest those resources
somewhere else.
6) Certification- Assets can be certified, recorded and maintained using the same
protocols that BlockChain based transactions use.
7) Environmental advantage- Printing currency notes and maintaining them in
circulation is costly both for the economy as well as the environment. In the long run,
BlockChain based transactions will replace paper currency. It will thus save a lot of trees
from being cut and used for paper.
8) Easy convertibility- People from one country will be able to invest more freely in
other countries as money transfers will be seamless. This will lead to the emergence of a loan
market which is highly competitive. This will make cheap and safe credit available to the
neediest. This is presently not possible due to existing monetary, fiscal and distance barriers.
At present it is very difficult to run mining clients on Mobile Phones and maintain a
BlockChain through Apps. The SKY Model of Limited BlockChain is unique in that it
marries Mobile Apps technology to BlockChains through SDKs.
A special SDK is coded. This SDK can be downloaded by any App Developer. This will
lead to the integration of BlockChains with App Technology.
FUNCTIONS OF THE SDK
1. There will be a global timer running on the blockchain which will send a notification
everyt seconds
2. On receipt of push notification (A push notification is a message that pops up on a
mobile device. App publishers can send them at any time; users don't have to be using the
54

App or their devices to receive them) , the sdk sends the data block formed from t-1
seconds to t seconds.ie Data that it has stored from the last tick.
3. The data consists of (Number of clicks + Number of Swipes). Basically all user
interactions with the App forms the data block. This number is normalized and a weightage
is calculated. Basically an App which has more user interactions (higher weightage) will get
more value compared to an App that has less user interactions.
4. The server cluster will generate App coins based on all the data blocks it receives and
distributes it proportionally.
STRATEGY 1
App coins will sit in the App. Let's say an App developer has developed App X'. This
App is downloaded by people P1,P2. Based on interactions of P1, P2 with App,
AppCoins will be created and owned by P1, P2 etc. Thus it acts as a incentive for users of
App to interact with App, whereby they will earn App coins.
STRATEGY 2
This App coins which is generated by users of App will get transferred to App
developer. This is necessary to maintain price parity and avoid rapid devaluation of
AppCoins due to large number circulating among the consumers.
A blue print of the SKY Model SDK is as follows (Skelton Code):
1. SDK will operate on similar model of push Notifcations.
2. First we create a interface called interaction as follows3. public interface Interaction
4.
5.

public int getNumberOfClicks();

6.

public int getNumberOfSwipes();

7. ;
2. A model which implements this interface will look like to this
public class InteractionModel implements Interaction
private int number_of_clicks;
private int number_of_swipes;
public void resetAll()
number_of_clicks = 0;
number_of_swipes=0;
public void addClick()
number_of_clicks = number_of_clicks + 1;
55

public void addSwipe()

number_of_swipes = number_of_swipes + 1;
@Override
public void getNumberOfClicks()
// TODO Auto-generated method stub
@Override
public void getNumberOfSwipes()
// TODO Auto-generated method stub
A Manager class is defined which will deal with the interaction model on the following
lines
public class SdkManager
private static SdkManager instance = null;
InteractionModel interactionModel
public static SdkManager getInstance()
if (instance == null)
instance = new SdkManager(AppInit.getContext());
return instance;
public on Reciept Of Tick(Timer time)
Send Interaction Model To Data Servers(interaction Model);
//create a new model which starts tracking the interactions.
Interaction Model = new Interaction Model();
public void on Click()
Interaction Model.add Click();
public void onSwipe()
interactionModel.addSwipe();
The SDK will carry out three important functions amongst others1) It will allow advertising on the App.The advertising layout and conditions can be
decided by managers of the Server Cluster and SDK writers. (Like Appbrain SDK)
2) It will gather data about the number of clicks that a particular App receives. It then
communicates this data to the Server Cluster on a real time basis.
3) The SDK will have an in-built AppCoin wallet. It will facilitate AppCoin
transactions. The SDKwill also gather info on the number of AppCoin transactions and
transaction details, bundle them and send them to the Server Cluster on a real time basis.
56

The following events take place in the SKY Model of Limited BlockChainA) The server Cluster releases 9 Million AppCoins. 6 Million Of AppCoins will be in
reserve. This is necessary for future price management of AppCoins.3 Million AppCoins
remain.
B) Each App Developer who downloads the SDK will get 1,000 AppCoins. This facility
will be available to the first 1,000 App developers who will download the SDK. This 1,000
AppCoin reward to early downloaders will accomplish many things.
1) It Incentivises Downloads of AppCoin
2) It is useful as a payment tool for advertisements.
C) Once Downloaded, the App developer of App X can pay 10 or 100 AppCoins (price
fixed by Server Cluster) to the server cluster to advertise his/her App on other apps (Say on
App Y or Z).The same applies to Apps Y and Z.
This will continue till 1 Million AppCoins are given away. Later App developers can
download the
SDKs but will not get 1,000 AppCoins. Now 2 Million AppCoins remain.
D) Consumers can use AppCoins by downloading AppCoin wallet. They can buy
AppCoins from the Server cluster. The wallets will contain a ticker that will send real time
information on AppCoin transactions conducted by customer. The Server Cluster will verify
the transactions cryptographically, confirm them and add it to the Limited Blockchain. This
is necessary to provide free AppCoin transactions to the customers.

E) The Server Cluster will negotiate with service providers who run apps to subsidise
services with AppCoin. For example, a service provider runs an App Q which can hire cabs.
A customer P has bought services worth $100 (assume that 1 AppCoin=$1) from App Q. App
Q will, instead of charging $100, charges 90 AppCoins (i.e. $90) from P. P thus has an
57

incentive to transact in AppCoins rather than fiat money. The Balance 10 AppCoins will be
given to Q by the Server Cluster along with an additional 10 AppCoins as bonus to
incentivise AppCoin usage.
As already discussed, The Limited BlockChain is a BlockChain whose access is limited
by the owners or managers of the Server Clusters. Each system on the cluster acts as a node.
Each Node verifies all AppCoin transactions and through PoSv, mines AppCoins.
These AppCoins are distributed to various Apps (which use the AppCoin SDK) in
proportion to the number of clicks/swipes they get. For example, there are 3 Apps-L, M and
N. L gets 100 clicks, M gets 150 clicks and N gets 250 clicks. Of the total 500 clicks
(100+150+250), L gets 100/500 i.e 20% of the
AppCoins mined on that day. Similarly, M gets 30% and N gets 50% of AppCoins
mined per day.
Thus, AppCoin transaction data from customers will be used for verifying those very
same transactions and adding it to the Limited Blockchain. Whereas, the data on
clicks/swipes from Apps will be used to distribute freshly mined AppCoins to the App
Developers. This will act as an incentive to use AppCoins and also generate more AppCoins
in the economy.
F) Consumers and App Developers can monetise their AppCoins in cryptocurrency
exchanges where AppCoins are listed. In this manner, price of AppCoin will be market
determined.
G) AppCoins in Reserve will be used to manage prices within a certain range. The
reserve will be used only in cases where AppCoin becomes too costly.
H) If need be, certain nodes in the cluster can be outsourced i.e people can bid to
become part of the server cluster. Those selected will be given Sovereign Key as Server
Clusters run on PoSv.
CONCLUSION
We can see that the SKY Model of Limited BlockChain seamlessly integrates App
technology with BlockChain architecture to provide immense benefits to customers. There
will be literally no banking costs or payment delays. Investment needed to run Service
Cluster is far less than that needed to run centralised banking system. Moreover, the price of
the AppCoin is market determined. The surplus AppCoins with the Service Cluster
(including the Reserve) can be further used to subsidise cost of services and products, thus
bringing the market within the reach of the poor millions. Thus a decentralised, cost-free
economic system can be brought about on Mobile Apps.
REFERENCES

58

[1] Hegadekatti, Kartik and S G, Yatish, Proof-of-Sovereignty (PoSv) As a Method to

Achieve Distributed Consensus in Crypto-Currency Networks (September 1, 2016).
Available at SSRN: https://ssrn.com/abstract=2833194

7. EXTRA-TERRESTRIAL APPLICATIONS OF BLOCKCHAINS

AND CRYPTOCURRENCIES
Dr.Kartik H

ABSTRACT
It will be logistically and economically inappropriate to carry paper money or coins
during space travel. The cost associated with such an undertaking is prohibitive and
also illogical. We evaluate as to how value based transactions can be conducted in
outer space. In this paper, the extra- terrestrial applications of BlockChains and
cryptocurrencies are analysed.
First, the concept of cryptocurrencies (also referred to as cryptocoins in this paper) is
explained. Then the concept of Regulated and Sovereign Backed Cryptocurrencies
(RSBCs) is discussed. We envisage a scenario where extra-terrestrial settlements use
money to exchange value. The feasibility of paper money systems on future
settlements outside earth is deliberated.
The various advantages of BlockChains in facilitating economic activity in extraterrestrial settlements are deliberated. Finally, the paper concludes as to why
cryptocurrencies will be best suited to be the mainstream bills of exchange in extraterrestrial settlements.

INTRODUCTION
A cryptocurrency is a medium of exchange using cryptographic techniques to safeguard
transactions and also manage the formation of additional units of the currency.
A BlockChain is a widely disseminated archive of data that maintains a continuallyexpanding register of records fully and reliably protected from any alteration or
modification. Each block has a timestamp and link to the preceding block.
A Crypto wallet is an encrypted electronic device that allows an individual to make
electronic cryptocurrency transactions. Each wallet will have a public key visible to anyone.
But it can be operated by only a person who has a private key. Transactions on the
cryptocoin network are usually anonymous.
When people send cryptocoins to each other, someone has to keep account of who spent
how much at what time. In case of fiat money (or paper money) it is done by banks (known
as Trusted Third Parties, for which they charge a commission).But in case of Cryptocoins, it
is registered on a ledger called BlockChain (with nil or minimal fees).

59

The cryptocoin network makes this possible by detailing all the transactions made
during a certain timeframe into a list. This list is known as a block. A certain set of people
called 'miners' verify these transactions mathematically and register them on the BlockChain.
Those bona-fide miners who have successfully verified the transactions are paid freshly
created Cryptocoins. This is how miners are rewarded, and new cryptocoins are generated.
This is also the reason why no transaction costs are levied, as the network (in the form of
miners) verifies the transactions.
Bitcoin is a peer-to-peer based cryptocoin which is not backed by any commodity and
(unlike fiat money) carries no sovereign guarantee whatsoever.
Regulated and Sovereign Backed Cryptocurrencies (RSBC), on the other hand are
government backed cryptocurrencies akin to paper currency, but in digital form. In this
system, the cryptocoins (known as NationCoins) are backed by Sovereign Guarantee.
They are run on a highly secure Controlled BlockChain(CBC) in which Sovereign
backed Cryptocurrencies will be transacted without any hassles. NationCoins are completely
managed by the Sovereign Authority i.e. the Government.
This system is based on the K-Y Protocol [1]. The K-Y Protocol is a set of rules and
instructions to implement the Regulated and Sovereign Backed Cryptocurrency (RSBC)
system.
When the first human colony starts to function on Mars, what might be the best possible
medium of exchange that can be used?
It can be cryptocurrency systems. Using paper money or plastic money on Mars or
anywhere outside Earth is ruled out. That is because; carrying physical money into space is a
costly process. If you carry a $100 note into space at $1,000/Kg it will cost $1 (as a $100 bill
weighs approximately 1g). It means that the value of $100 bill will then be $101. If it is
carried to the Moon it will cost even more. If you carry it to Mars, it will cost even more than
that. So a $100 bill may actually have a value of $150 on Mars.
For a future Martian colony, it may be greatly confusing to use paper money. Moreover,
it will cost more money to carry lower denomination bills outside space i.e. A $1 bill will
also cost $1 to be launched to space. So, its actual value will be $2. Even more paradoxical
will be to carry coins in space. It will cost almost $2 to carry a ten cent American coin to
space. (A One dime coin weighs approximately 2.27g)
Therefore, it will be illogical to use paper or plastic money in space due to the physical
issues and costs involved. It has to be cryptocurrency. Even plastic money will need card
readers or other instruments which will be cumbersome to carry space-wise.
The first Lunar and Martian colonies can use cryptocurrency for trade and as a medium
of exchange.

60

We must take into account several factors that will make the future space economy a
possibility. The first is distance. The Moon is only 384,000 Km (approx.) distance from
Earth. Light takes hardly 2.6 seconds to travel from the Earth to Moon and back. If there is a
colony on the Moon, it will in fact be possible for people on Earth to transact with the lunar
colony in real time. The Moon will become just another province of Earth. A BlockChain
transaction can easily occur without much trouble. RSBCs can be used as they will provide
stability of value unlike decentralized cryptocurrencies. Moreover, governments will have a
major role in colonizing space. As such they will be bound to use RSBCs.
Mars is a different case. It takes light at least 20 minutes to travel from the earth to
mars. In case of Mars, it will be very difficult to carry out a real-time transaction. Unlike the
Moon-Earth system, we cannot maintain a single Controlled BlockChain for Mars and Earth.
What can be done is that a separate Martian BlockChain with its own cryptocurrency can be
created which can be traded in an international cryptocurrency exchange.
Powerful microprocessors embedded in objects flown to (or created on) Mars can do
Smart Mining [2] and provide the basis for a money exchange system. Machines
containing embedded chips will 'Smart Mine' Cryptocurrencies which can be used for ExtraTerrestrial transactions. Thus, machines launched into outer space will automatically add
value to the World Economy.
The same holds true for the later expansion of human footprint across the solar system
and beyond.
By the time man has setup a full-fledged colony on Mars and moved beyond the Kuiper
(asteroid) belt, the extra-terrestrial economies can be linked by an intricate network of
Controlled BlockChains. There can be a MarsCoin, on a Martian BlockChain, LunarCoin,
JupiterCoin, SaturnCoin, TitanCoin, and so on, on their respective Controlled BlockChains.
BlockChains can also be used for Extra-Terrestrial contracting, voting, taxation,
banking, etc. Any Extra- Terrestrial value based transaction can be conducted through
BlockChains. BlockChains, in actuality will make it possible for rules, regulations and laws
to be enforced in space without the need for human supervision or intervention.
CONCLUSION
We have seen how it will be very expensive to use paper money in outer space.
Moreover, it will also be difficult to use paper money systems as a means to assess valueaddition to the economy. By using BlockChains and crypto- currency we can achieve multifaceted economic results.
Various aspects of Extra-Terrestrial life like banking, taxation, voting, contracting, law
enforcement etc. can be realized successfully through BlockChains and cryptocurrencies.

61

Thus, paper money is a hindrance to space exploration and settlement, whereas

cryptocurrencies facilitate space travel and extra-terrestrial settlements. BlockChain systems
therefore can form the basis of future Extra-Terrestrial societies.
REFERENCES
[1] Hegadekatti, Kartik and S G, Yatish, The K-Y Protocol: The First Protocol for the
Regulation of Crypto Currencies (E.G. - Bitcoin) (February 13, 2016). Available at SSRN:
https://ssrn.com/abstract=2735267 or http://dx.doi.org/10.2139/ssrn.2735267

62

63

Contents
The making of Perfect MONEY a step towards hunger free and secure world.-7
MONEY, MONEY, WHAT IS YOUR STORY?
Ch.1. The Story of Money-22
The Birth of Money-22
Money in Many Forms-24
What makes money, money?-25
Money Characteristics and Gold-27
Barter and the concept of money-29
The Value of money-31
Ch.2. Mansa Musa, His Gold Dust and Money Cycles.-33
Inflation and Deflations-34
Money Cycles-35
Ch.3. The Gold Standard-43
Ch.4. The Physical nature of money.-44
Ch.5. The Day Dollar Lost Its Zing-54
Bretton Woods and the Oil Crisis-56
The Age of Fiat Money-61
Ch.6. The Concept of Banking-65
ENTER THE CRYPTOCURRENCY [e.g. BITCOIN]
Ch.7. Cryptography-The science of Coding & Heart of Cryptocurrency-71
Ch.8. Transactions-77
Enter Cryptocurrency [e.g. Bitcoin].-79
Bitcoin [BTC] Transactions [TXN] & Digital Ids [Identification records]-82
More about Transactions--87
Transaction Structure, Transaction Age, Priority and Fees.-88
How double spending of Bitcoins is taken care of.-89
Transaction speed-90
Creation of Blockchains.-91
Hash-92
More about the Blocks-97
Blockchain- The Soul of a Cryptocurrency-99
Forking-102
Double Spending on the Blockchain-106
64

Proof-Of-Work-109
Proof-of-Stake-111
Ch.9. Mining-how Bitcoins are formed-113
Mining Pools-115
Why 21 million?-118
Who is in control of Bitcoin?-122
Ch.10. Sidechains and Smart Contracts-123
Ethereum-126
The Tale of DAO-133
Structure of a Transaction-135
More about Ethereum-137
Breaking it all down-137
A Trimmed Up Dataset.-139
Private Blockchains-140
Ch.11. Digital Currencies- The Present Standing-141
Are Digital Currencies Legal Money?-143
What are the effects of DC market on the economy?-144
Taxation of DCs?-144
Ch.12. Making Money by Trading in cryptocurrencies [e.g. Bitcoin] and Mining.-147
Advantages-148
Getting Started-149
Find an Exchange-151
The Basics of Crypto-Trading and other ways to earn bitcoins and other cryptomoney.-154
Bitcoin Trading Tools & Resources-162
Coin Spending, Accepting, and dealing in Bitcoin-165
Earning through Mining-166
Ch.13. The Age of Smart Economy-169
Business applications-170
Microfinance and Remittances-171
Manufacturing Industry-172
Financial Technology:-174
Legal/Escrow Services and Insurance-174
Medical Research-176
Decentralized Data Storage-177
Decentralized Bandwidth-177
65

Decentralized Data Computation-178

Decentralized Identity-178
ALL THE KINGS COINS
A Sovereign Backed Crypto-Currency Governments Bitcoin?-180
Ch.14. National Banks and DAR-181
The DAR-182
Ch.15. The K-Y Protocol: The Worlds First Protocol for the Regulation of
Cryptocurrencies (E.g.-Bitcoin)-183
Introduction-184
Advantages of a Regulated and Sovereign Backed (RSB) Cryptocurrency--185
THE K-Y PROTOCOL-186
Ch.16. Cryptocurrency Regulating Mechanisms-197
DATA:-203
NLD:-203
DAREC:-204
Sovereign Stamping & Certification-204
Backing-205
Ch.17. The K-Y Paradox & the Proof-of-Sovereignty (PoSv) as A Method to Achieve
Distributed Consensus.-209
PoSv-210
PERFECT MONEY
Implementing the K-Y Protocol-215
Ch.18. MANU (Mainframes and Networks Unifier) the RSBC Code of the NationCoin
System-216
DATA-218
RSBC Hardware -218
Mainframes & Supercomputers-220
Ch.19. Future World and the Age of Cryptocurrencies-229
Ch.20. The National Ledger Database (NLD)-232
Ch.21. Real World Applications of Controlled Blockchain-235
Property Transfer-235
BIU [Blockchain Interaction Units]-238
LOANS-242
Birth and Death Registry-245
Ch.22. Internet-of-Things [IoT]-246
Ch.23. Business Conflict Mediation-249
66

Preventing market manipulation--254

Ch.24. Taxation-255
Taxes and Nation states-258
Cold War-259
Move in RSBC (NationCoins).-266
Ch.25. Stocks and Shares-269
Ch.26. Banking-273
Ch.27. Contracting-280
Contracts Enforcement-281
Ch.28. Automation-283
Ch.29. Smart Mining-291
Ch.30. Cryptocurrencies and Geopolitics-294
Computing Power-300
Ch.31. Reining in the Dark Web.-304
Ch.32. Blockchain & Mobile Applications, the SKY Model-308
Advantages of a BlockChain based mobile transactions-309
The following events take place in the SKY Model of Limited BlockChain-311
Ch.33. Democracy through Blockchain-314
A comprehensive Government app [GovApp]-317
Ch.34. WorldMoney -The International Cryptocurrency-318
Ch.35. Space, Stars & Cryptocurrency-324
Ch.36. towards a World Government-329
Ch.37. A Secure World without Hunger.-335

67

Ch.21. REAL WORLD APPLICATIONS OF CONTROLLED

BLOCKCHAIN
Thoroughly read all your contracts. I really mean thoroughly.

-Bret Michaels
PROPERTY TRANSFER
The NLD will play an important role in maintaining credible and authentic land
records. For this purpose, governments first need to digitize their land records.
Say for instance, there is a particular 1000 sq. ft. plot in a town.
The existing Land Recording Agency (LRA) will digitize all the details of that particular
plot. It will also identify its coordinates, street address and other unique Position
Identifiers (parameters that provide uniqueness to the site). It enters all these into a
land records registry (another computer program) and generates a number.
This number is logged in the land records category of the NLD. It hashes this number
and creates a unique Land Identity Tag (LIT) for which, an ownership key is generated.
This ownership key is given to the person/organization owning that land. The
ownership key contains two parts-a public part and a private part. A small amount of
NationCoin is deposited on that key (say 0.01 NationCoin) as it is given to the owner,
Joe.
Now Joe wants to sell this land to Kate. [The LIT has 3 parts-ownership key, a digital
certificate from the government and an identification key with its public part in the
certificate. This has all the details of the land embedded in it.]
Kate is the buyer. She picks a random number (called a nonce) and gives it to Joe. Joe
will enter this nonce into the LIT (Land Identity Tag). The LIT is the personification of the
land within Joe's computer. The LIT gives back a data cache, signed with its
identification key. The cache contains the random number, the land details, the public
key of Joe, the current owner and the transaction root detailing the last transaction.
[*Kate sends a random number to Joe. Why? Because Joe will reply quoting the
random number. This will ensure that Kate is getting the reply to Joe only and not any
imposter or spam or fraudster].
Joe asks a price - Joe gives a public key to Kate (to receive payment). Joe asks a price
of say, 10,000 NationCoins. Kate creates a public key P2, which will be the new
ownership key.
Kate now generates a Multi-Signature exchange event (basically, a transaction with 2
inputs and 2 outputs. The first output sends 20,000 NationCoins to P1. The second
output sends a token amount of NationCoins (say 1 NC) to P2 (to self). The first input
vouches for 10,000 coins. The second input is connected to the output.
Kate will then send this partial transaction to Joe. (Remember that this transaction is
not yet valid as only the first input can be signed. The second input has to be signed by
Joe with the land ownership key to complete the transaction).

68

Joe then signs the second input with the LIT's present ownership key (that of Joe). He
then broadcasts the transaction.
This transaction where ownership key is used is signed into the public key P2 is
verified by the NLD. If everything is in order, the NLD will add the verified transaction to
the Blockchain thereby authenticating it with the sovereign guarantee.
Kate then presents the LIT with the NationCoin transaction, a Merkle root linking the
transaction to the block header. The LIT recognizes that the new transaction has
changed the ownership key, and incorporates the new ownership key (replacing it in
place of the old one). Since it is part of an RSB Blockchain, its authenticity is
unquestionable.

The LIT just needs to keep only the information regarding block headers that can link
its previous owners to its current and its (subsequent) future owners as time goes by.

In the LIT protocol just outlined above, the land registry bureaucracy is virtually
bypassed. Joe and Kate can complete their dealings without visiting the land registry office
even once. Moreover, the transaction is immediate, visible to the Sovereign Authority and
amenable to the laws and rules where applicable. The buyer and seller can also have peace of
mind as the Sovereign Authority itself (in the form of NLD) has overseen and authenticated
the land transfer.
If need be, Kate can inform the land registry office regarding the transfer. The land
registry office will then update the owner details in whatever records it has.
Abeo Bankole is a poor Nigerian laborer. Five years ago, the government promised
poor people like Bankole free land for farming. This was to be a part of the land reforms
that the government had planned. Bankole's father was supposed to get the land.
Unfortunately, two years ago, Abeo's father Kalu Bankole passed away. Since then
Abeo has been going to the land records office to get the Promised Land released.
Before his father died, his father Kalu used to go to the land record office every day.
Now, Abeo fulfills that role. Recently, Abeo took a loan from moneylenders at high
interest in his village to bribe the clerk in the land registry office. After a lot of haggling
and bribing, Abeo finally got the land released.
But now a new problem has arisen. The land has been released in Abeo's dead father
Kalu's name. Abeo now needs to get it transferred to his name as it is his father's land.
The clerk has now asked for Kalu's death certificate. Now Abeo has been paying weekly

69

visits to the birth and death registry office. The touts there are asking for bribes. And
poor Abeo has no money. He is already under the debt of moneylenders.
Abeo knows that his problems will not end here. Even if he gets the death certificate
of his father, he will have to bribe the clerks at the land registry office to transfer the
land in his name.
In the heat of the afternoon Nigerian sun, hungry and emaciated Abeo now waits on a
shade-less rock, outside the birth and death registry office. The clerk is having his lunch
and did not like to be disturbed. So he has chased Abeo outside. No more tears are left
for Abeo to cry. Abeo pays a detached look at other people waiting along with him. They
have problems of their own. He stares on as the guy next to him takes out a mobile
phone and talks to someone.
Abeo thinks- "Even with so much of progress, why am I begging for a piece of land,
which is rightfully mine? Why the things don't change? "

Abeo is not alone in feeling this way. Abeo is only one of the millions of sufferers in the
present economic system that runs our world. Out there are a lot of people who suffer
because of intermediaries between them and their rightful social benefits.
Is there a solution to Abeo's problem and others like him? Can't these middlemen, who
make poor people like Abeo's life hell, be eliminated from the system itself? Can they be
bypassed, so that Abeo can directly interact with the Government, which is the actual service
provider?
The LIT protocol can solve the problems of our poor Nigerian friend, Abeo
Bankole who has been waiting outside the government office in the hot
afternoon sun.
In Abeo Bankole and his father Kalu Bankole's case, the government would be
the seller, and Kalu Bankole (when he was alive) would be the buyer, a token
buyer that is.

Imagine a scenario where all (or most) of Nigeria's land records are digitized. The
NLD, after following the due process creates the LIT and ownership key and gives it to the
Government of Nigeria (as it is Government land). Now, The Government of Nigeria
transfers this to Kalu Bankole's public key.
Then, all that Abeo has to do (in case DAR is functioning in Nigeria) is to produce
Kalus death certificate. The NLD will check with NLD-CE (NLD-Claim Executor) if there
are any claims, pending. Once cleared, NLD will verify Abeos presentation of Kalus death
certificate. (The death certificate will be as a death certificate key) After verification, the
NLD will insert the land ownership key into Abeos public key transaction to self, which can
be validated by 2 signatures.

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*Since NLD is the Sovereign Authority and the Trusted Third Party, it will have
ownership key copies of all LITs of the citizens. Otherwise, it will not be possible to keep
track of ownership to inheritors or descendants if there is untimely death of the land owner.
But wait. Kalu and Abeo Bankole are poor laborers. Surely, one cannot expect them to
have a mobile phone, let alone a computer? In fact, (unfortunately) they may even be
illiterate. But it does not matter. DAR will be setting up something called as Blockchain
Interaction Units (BIUs) as public service initiatives.
BIU [BLOCKCHAIN INTERACTION UNITS]
BIUs are kiosks to be established in certain places (just like ATMs) where people,
without access to mobiles or computers can come and operate their NationCoin wallets. The
DAR, with funding from the nation's government can set up about 500 BIUs at various
remote locations at a cost of about 5 Million Dollars (for all 500 BIUs combined -at the cost
of ATM machines). These BIUs will facilitate the customer to operate his/her NationCoin
wallet.
Non-currency transactions can also be carried out (like property transfer, smart
contracts, etc.) All-important government agencies will have these BIUs installed on their
premises. This is necessary to give a strong push towards a vibrant digital economy.
Land transfer from government to Kalu Bankole will take place as follows.
Kalu Bankole will create (or will be guided to create) a public key. Let us call Kalu
Bankole's public key as B. The government will create a public key G. B will have two
outputs. One output will transfer a token amount of 0.01 Nigeria coin to G. Another output
will transfer 0.01 Nigeria Coin (again a token amount) to self-i.e. B. G will now sign the
ownership key of the LIT to the second output. This is then broadcast. NLD verifies and
authenticates the transaction. It adds it to the Blockchain thus validating the land transfer.
The LIT updates the ownership key, recognizing Kalu Bankole as the owner. The transfer is
now complete. A receipt of this transaction will be generated in the BIU, which will act as
the land rights document for Kalu Bankole.
What if Kalu Bankole wants to parcel out his land into say 3 pieces? The process is
very simple. Kalu approaches the land registry office. It trifurcates the land and sends its
details to the NLD. The NLD in turn creates 3 different LITs. These 3 LITs will contain the
block header linking the previous wholesome land to the trifurcated land. 3 ownership keys
are created with their details entered in the NLD registry.
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The 3 new ownership keys are handed over to Kalu Bankole. He can now sell or use the
3 land pieces independent of each other.
The opposite procedure is followed in case of a land merger.
The owner with two lands side by side wanting to merge his lands will approach the
land registry. They will create a merged land record and send both land details to the NLD.
The NLD will link block headers of the two pieces of land to the single merged land. It will
then provide a single ownership key to the actual owner of the land.
Mergers may be a rare event as far as individual land owners are concerned.
Nevertheless, they have important applications in government or industrial land bank
schemes, real estate development, etc.
The NLD provides hassle-free ownership transfer of land rights. Abeo has a daughter
named Orisa. Kalu Bankole wants to transfer a parcel of land (LIT 1) to his beloved
granddaughter as a gift for her 18th birthday. Kalu sends the ownership key to Orisa's
account along with 0.01 NigeriaCoin (Token Transaction). But he time locks the transaction
with the date of Orisa's 18th birthday. Kalu signs it but does not broadcast it. When Orisa
turns 18, she will broadcast the transaction and claim ownership key. Subsequently, an
updated LIT is created. Then ownership will be re-assigned to Orisa with a new ownership
key by NLD.

Even if Orisa broadcasts the transaction earlier, the NLD nodes will route it to the
memory pool as it has a time lock. The transaction will be verified and deemed valid only
when she turns 18. (The time lock date).
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In case of Kalu's death, the method will change. Kalu makes a will. In the will, he
wishes that Orisa should receive a parcel of land (LIT 1) when she attains 18 years, or when
Kalu dies, whichever is earlier.
These kinds of transactions will be dealt with by NLD-CE (NLD-Claim Executor)
The NLD-CE will have a key pair and will sign transactions on request whenever a
client-given declaration is found to be authentic.
Kalu creates a transaction, spends his output and sets it to the NLD-CE script. The
NLD-CE script is unique. It will be publicly available. The hash is set to be the hash of the
client-given declaration (i.e. Kalu's proof-of-death, i.e. death certificate). It is expressed in
the form that NLD-CE can evaluate and authenticate to be correct. The return value is an
output: - The land identity number, and an address owned by Orisa.
Kalu then creates this transaction and gives it directly to Orisa, but does not broadcast
it. He also provides the declaration that is hashed into the transaction and the address of the
NLD-CE that can unlock it.
The following steps occur.
(1) The NLD-CE accepts a request for unlocking from Orisa subject to verification. The
request will contain the Death certificate (client-given declaration), a copy of the output
script and a partly complete transaction given by Orisa. Everything in the transaction is
complete except for the script signature. It contains only Orisa's signature, which does not
suffice to unlock the output.
(2) The NLD-CE will then check the client-given declaration hash to the value in the
output script.
(3) The NLD-CE will then examine the declaration itself. It also checks the destination
address of the output. It has to match with Orisas address.
(4) If (2) or (3) fail, it will show an error, and the request will terminate. If it is found
authentic, the NLD-CE itself will sign the transaction and return the signature to Orisa.
Orisa will now insert the new signature, i.e. ownership key into the script signature and
broadcast the transaction.
Orisa can own the land only if the NLD-CE agrees with the fact that Kalu has died. And
this it does through the method outlined above.
The NLD-CE never needs to know the full output. That is because it knows its own
public key, the output script and the hash of the client-given declaration. That is enough to
check the output script and complete the transaction.
Here, the client-given declaration can be anything. It can be a phrase or sentence or
even a string of numbers agreed upon by Kalu and NLD-CE in advance.

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Its real-world analogy is simple. Kalu gives a password to NLD-CE. He also gives the
password to Orisa. After his death, Orisa will go to NLD-CE. NLD-CE will be put in-charge
of Kalus land. When Orisa produces Kalus death certificate, NLD-CE will verify it with the
digital copy of the death certificate maintained in the Birth and Death Registry Index of
NLD. Once that matches, it is confirmed that Kalu has died. Then Orisa presents the
password. If the password matches, Kalus will is executed and Orisa will inherit the land
meant for her.
LOANS
Slight was the thing I bought,
Small was the debt I thought,
Poor was the loan at best
God! But the interest!
-Paul Laurence Dunbar, the Debt (1903).

NLD has many uses in the money lending market too.

Instead of going to a bank and seeking a loan to start a business, Joe uses NLDs Loan
Ledger Services (LLS).
First, Joe goes to the Internet and seeks loans at competitive rates. People from
around the country (or even the world) will bid on Joes debt. Joe selects a bidder and
takes a loan. The bidder or creditor is Kate. Joe keeps his car as collateral and seeks
10,000 NationCoins as a loan.
Joe creates a public address J and Kate creates a public address K.
Joe first creates a single input connected to J and sends 0.01 NationCoins (token
transaction to self). This transaction is not complete as it needs to be signed by Kates
assurance key for it to be completed.
An Assurance Key is a digitally signed assurance from Kate stating that she will return
the ownership of the car to Joe once he repays his debt. It will also contain other details
like interest rate, terms of loan, etc.

Once Kate signs in with the assurance key, the transaction is broadcast and recorded
in the Blockchain.
Kate now creates a transaction where she transfers 0.01 NC to self. But this
transaction is not complete as it needs to be signed by Joes car ownership key.
This transaction can have a time lock. After that time, the ownership of the car is
transferred to Kate.

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It can also be a plain ownership transfer subject to the assurance key provided by
Kate. After Joe repays the loan with interest, the above transaction happens in reverse.
The ownership key is reverted back to Joe and assurance key reverts back to Kate.

The significance of this kind of loaning is enormous.

Joe can still use the car even when he had given it as collateral. Kate can transfer
ownership of the vehicle to others and obtain a loan for herself at competitive rates. This will
create a chain of loans or loan chain without room for any dispute. This will allow a greater
flow of precious credit. This also effectively decouples an objects ownership from its utility.
The cars ownership can pass through many creditors and debtors until it finally comes back
to Joe when he repays his loan.
Moneylending will no longer be the preserve of big or medium-sized financial
institutions. The free market can decide the interest rates and flow of credit for itself under
the supervision (and authentication) of the NLD.
The loan chain thus created will lead to a credible money lending trail. With a credible
loan giving practice, recessions, the likes of 2008 can be avoided. The 2008 recession
resulted from the large sub-prime loans that were doled out by unscrupulous bankers.
Reducing bank lending will have several positive impacts on economies. The Sovereign
Authority will have more supervision on loans in the system. People will be able to use their
money, the way they want with minimal bank interference.
Since the NLD does the heavy lifting of verification and authentication, it can charge a
small fee for large loan transactions. This can be provided as a service to big businesses
where authentication and verification need to be more intense and meticulous.
A major part of civil litigations is related to loan recoveries and collateral disputes.
Much of this will be eliminated or avoided as ready and quick sovereign verifications happen
by virtue of the transactions being part the Blockchain. House mortgages will be simple
procedures and obtaining loans will be easier than before. The problem of unscrupulous
middlemen, touts or loan sharks can be addressed in a better way with the NLD Blockchain.
The DAR can recoup its infrastructure investment by charging a fee for non-currency
digital asset transactions like Birth and Death certificates, land registry, smart contracts, etc.
It can charge a higher fee for money lending contracts, collaterals, large real estate dealings
so on and so forth. The DAREC can also charge a small fee for international exchange
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transactions. This will create a huge revenue stream, which can give back the capital invested
in DAR infrastructure.
BIRTH AND DEATH REGISTRY
In the coming era of digital economy, when a child is born, the parents will take the
childs details to the birth registry office. After verifying the details, the Birth registry office
sends it to the NLD. The NLD generates a Birth certificate key. It will provide this key and
an identification key, in which the childs details are included.

This Birth certificate key can be used by anyone to confirm the childs birth. The
identification key must be used only by the child or her parents until he grows up. It is a
private key, which can access social security benefits when the child grows up.
Similar is the case with the Death certificate. But only a Death certificate key will be
generated and not any identification key.
***********

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Ch.22. INTERNET-OF-THINGS [IoT]

I wouldn't be surprised if tomorrow was the Final Dawn, the last sunrise
before the Earth and Sun are reshaped into computing elements.

-Eliezer Yudkowsky
The NLD will play a significant part in the IoT. IoT is a network of smart objects. These
are day-to-day objects with sensors, memory chips and processors embedded in them. This
allows the objects to sense, collate, and exchange data across the network.
Now days, we are seeing microchips in almost every conceivable niche of our lives.
Refrigerators, microwave ovens, thermostats, cars, printers, etc. all have microchips, which
can convey data to our mobile phones and computers.
The thermostat adjusts itself to keep the room temperature constant. These intelligent
objects can network and pass information between each other and can work in sync.
Imagine that you are in a supermarket. When you are walking down the aisle trying to
remember what you wanted to buy, you get an alarm on your smartphone. The alarm shows
you a message from your refrigeratorYes, your fridge!
Your fridge has detected that the milk tray is empty and has sent the message to your
phone. Your phone has sensed that you are in a supermarket (your phone has talked to the
GPS). It then gives you an alarm reminding you to buy milk. This is the Internet-of-(smart)
Things.
The IoT can be enabled, by Blockchain technology. It can be optimized and made even
more secure and reliable if the NLD Blockchain is used.
Let us take an example of a bike. All vehicles (even motorbikes) have microchips
embedded in them.
Picture this. You have thought of buying a motorbike. After deciding which bike to buy,
you go ahead as follows.
Every bike begins its life in a factory. The bike has an identification certificate from its
producer, who has a public part. The bikes computer is given an ownership key, with a
public part. A token NationCoin amount is deposited on that key. (Say 0.01 NCs). The bike
carries an additional digital certificate, about the legality of the bike.
The bike comes out of the factory with these 3 things-identification key, digital
certificate and ownership key. The identification key has information about the bike- like
mileage, engine, chassis specifications, etc. This is provided to display to third parties (like
cops or authorities). The bike is now ready to be sold.
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1) You produce a random number and ask the bike company to send them the bike info.
2) The bike company gives the bikes microchip the random number. The bike spits out
a data stack signed by its identification key. The data stack has the random number, bike
specifications, the public key of the present owner (the bike company) and the Merkle
branch of the ownership tree. This makes you confident that the data is coming from an
authentic entity.
3) The bike company creates a Public Key B to receive the payment (say, 10,000 NCsthe cost of the bike). You also generate an Ownership Public Key Y. You then create an
exchange event with two outputs and one input. The first input appends a signature for
10,000 NCs. The second output is connected to the input. A self-transaction of token amount
(0.01 NC) takes place.
This second transaction is not valid as it has to be signed by the bikes present owner
key. Both transactions are broadcast to the nodes.
This exchange event where the owner key is used to sign into Y is verified by the NLD.
If everything is in order, the NLD will add the verified transaction to the Blockchain thereby
authenticating it.
This is proof that the transaction between you and the bike company happened, and it
involved the sale of a bike from the bike company to you. The bike is now sold to you. You
will present to the bike (actually to its microchip) the record of the NationCoin transaction, a
Merkle branch that links the transaction to a block header. The bike recognizes that this new
exchange event has changed the ownership key. It incorporates the new ownership key,
recognizing you as the owner. Since this is part of the Blockchain, its authenticity is
considered verified, and entered into its digital certificate.
***********

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Ch.23. BUSINESS CONFLICT MEDIATION

The object of government in peace and in war is not the glory of rulers or of
races, but the happiness of the common man.

William Beveridge
Joe and Kate want to trade with each other. Kate wants to buy goods from Joe. But if
something goes wrong, she would want a Trusted Third Party, a mediator to decide on
the possible dispute (that may arise).
Kate first asks NLD-M (NLD-Mediator) to mediate.
NLD-M provides its Public Key M. Joe provides his Public Key J and Kate has her Public
Key K.
Kate sends M to Joe. Joe sends a random number to M. M sends it back to Joe. Thus
the mediator and Joe identify each other. The following transaction takes place.
Kate transfers the amount (say 5,000 NCs) for buying a car from Joe. But Joe cant get
the money unless the mediator also signs into the transaction.

As we can see the NLD will fulfil multifarious roles in various niches of the economy.
It will maintain the National Ledger and thus helps hassle-free transactions.
The DAREC
DAREC The Digital Assets Regulations and Exchange Commission will be a
financial regulatory authority dealing only with international digital assets.
DAREC will be the organization that will deal with the inter-relationships and
dynamics of various digital assets in the digital economy.
The DARECs mandate will start once linkage occurs. (As Discussed earlier, Linkage
means that the NationCoin may be freely traded in the international market.)
DAREC will be under the DAR. It will handle only those aspects where one
NationCoin needs to be converted to another. It will also play an important role when a
digital asset is being traded across borders, from one country to another. It will be the
interface that will link the NationCoin system of one country to another.
The DAREC will keep track of (but not control) the Digital Forex Vaults (DFV).
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Its primary mandate will be to help DAR in its overseas operations and protect the
NationCoin by maintaining a credible exchange rate.
It will be like the overseas or an international interface arm of the DAR.
The DAREC will also, through the Blockchain 2.0 (Blockchain's future avatar) regulate
digital asset markets where a nation's digital assets are traded overseas.
For example, Joe in the USA wants to get a loan from within the US by mortgaging his
home. The deal will be handled no doubt by the US-NLD. But if Joe is availing a loan from
Kate, who is in London, then the US-DAREC comes into the picture.
US-DAREC will ascertain that BritishCoins to USCoins conversion takes place
smoothly. This way, only USCoins will keep circulating in the US economy and not any
other NationCoins. Without such exchange integrity, any economy will become a jumble of
several digital currencies. The above action will also ensure that ownership of US Digital
assets, and BritishCoins are not abused by unscrupulous elements for anti-social activities.
In Blockchain 2.0, DAREC will have an important role to play in cross-border moneylending or exchange activities.
Suppose, Joe is in Tokyo, Japan and Kate is in Paris, France. Kate wants to send Joe
some money. She sends money in EuroCoins (the digital avatar of the Euro). Joe gets
the money in JapanCoins(the digital avatar of the Japanese Yen). They may even want
to trade JapanCoins for EuroCoins and/or vice versa.

The following steps take place brokered by DAREC.

Kate creates a random number N. She then produces the transaction T1. It is the
payment having one output. This allows a coin to be released only when it is signed by
three keys (Kates, DARECs and Joes). It can also be signed by either N or Joes key.
This transaction is not broadcast. The releasing script (for technical purposes) consists
of only hashes.
Kate then creates transaction T2. T2 is a contract of sorts. It has an output with Kates
key K. It has a time lock with a future time and date. Kate sends T2 after signing it. Joe
signs with his key and returns it.
Kate then broadcasts T1 and T2 both. Joe can now verify that Kate has the EuroCoins,
but he cannot access them as Kate has not yet signed her side of T1.
Joe does the same set of actions in the same sequence but in reverse in Tokyo. The
lock time for Joes transaction will be longer than Kates. (As Joe will get money earlier,
as per the contract). Both sides of the deal are now pending.
Kate knows the random number N (known only to her). She can claim her money (or
asset) on demand by signing in with N. As soon as she does this, Joe will come to know
what N is. He will then use it to complete his side of the trade (by signing with N and his
own signature.)

DAREC comes into the picture as a mediator. Both sides of the deal can be completed
only after the third signature is signed by DAREC.
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This DAREC supervised cross border transaction allows one to trade automatically,
securely and quickly. This ensures high liquidity in the system. The reader must have by now
realized that DAREC will be a software running a smart contract program. No supervision or
intervention by humans is needed. This is automated mediation at its simplest.
THE DAR will set up a regulatory frame-work for DAREC, which will help it to
achieve its objectives.
Most financial market rules and laws stem from two core principles.
First, all stakeholders should have equal access to precise, full and well-timed
information about the investments they deal in.
Second, investors must be able to trust regulatory institutions, stock brokers/dealers,
Exchanges, investment companies, Business advisers, and other participants to conduct
stakeholders transactions and as per the educated choices made by stakeholders.
The DAREC will have authority to carry out the regulatory structure designed by DAR
for International Digital Asset management mandated by the DAR. Regulations are required
from time to time to confer Legislative mandates, curb abusive practices, address shifting
economic situations and tackle economic threats in advance. Rules are also needed to
incorporate novel practices in technology, innovative products and services, etc.
In a broader sense, regulations and laws are made for better disclosure and to smooth
the flow of vital information to the stakeholders and the public. DAREC will improve
governance, endorse the highest accounting and financial standards, better reporting,
enhance accountability of financial mediators and other members. It will strengthen the
structure of digital trading bourses. When suitably made, these laws will further DARECs
mission.

And when existing laws cannot address this aim, DAREC will advise the DAR about
remedial procedures. DAREC will find loopholes in regulation of International Digital
Assets to rectify them.
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The DAR will set up and keep a regulatory atmosphere that will promote first-rate
disclosure, fiscal reporting and governance, and prevent offensive practices by registrants,
financial intermediaries and other market participants.
The investments of any nations citizens and their families depend upon the upholding
of healthy capital markets. The greater availability and access to safe investment
opportunities help citizens build their investments for a better life.
Digital Investment prospects may include potential abusive market intermediaries, and
other players. Such misuse of the system erodes the publics trust and weakens investor
confidence in the market. To protect the citizen and promote confidence in the market, the
DAR will use its regulatory authority to discourage potential [hidden] offensive financial
behavior.
DAREC will collate and provide DAR with prompt, machine-readable, structured data
when suitable. Areas of focus will include disclosure about overseas participants financial
condition, risk management and international exchange operations.
DAREC will also pursue international data standards and procedures that allow foreign
participants to search more efficiently for information about digital assets regarding the
country in question. It will conduct detailed analysis of trends in international digital
financial instruments. This includes exchange traded products and innovations in the market:
DAREC will seek data from international market experts both within and outside the
country. This will help DAREC to look out for new risks and understand the effect of major
market events
It will promote best international digital accounting standards: The DAREC will
encourage outstanding International Digital Accounting Standards, working with
independent standard setters to meet the needs of the people. DAREC will work, on a single
set of Premium Global Digital Accounting Standards.
PREVENTING MARKET MANIPULATIONDAREC will explore ways to enhance transparency of international trading activities to
identify and deter manipulation. DAREC will also follow initiatives to upgrade and augment
anti-manipulation rules that will deal with the underwriters, issuers, sellers and holders of
international Digital Assets.
DAREC will review the influence of algorithmic and automated commerce on the
international Digital Markets. This includes roles in market volatility and, with DAR
mandate, developing a suitable policy response.
DAREC will adopt and administer rules based on strong analysis and sound economic
principles. This will allow stakeholders to know their responsibility about financial laws.
The victory of this aim needs the harmonious participation of various market forces and
stakeholders. DAREC will constantly evaluate its regulatory structure to protect the citizens,
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as new digital financial products and services enter the market. DAREC will support
international financial activities, including policymaking and rulemaking.
The aim of DAREC is to protect citizens money, and maintain a free and fair
environment for the NationCoin market. DAREC will control NationCoin exchange market
to ensure that there are no irregularities. DAREC will also provide NationCoin trade related
information to the traders and citizens.
The DAREC will help the DAR in the formation of capital. It will do this by
supervising cross-border trade in NationCoins and digital assets and collecting a tiny fee for
its mediation services.
***********

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Ch.27. CONTRACTING
There are very few ways to legally break a contract unilaterally.

-William Davis, Myths and Realities

All of you have heard of contracts. Many of you will have entered into contracts.
Basically, Contracts are enforceable agreements. That they are enforceable means, a third
party is somehow involved and that third party is usually the government, its representative
or an authorized intermediate. (E.g.:- Banks).
In case of Bitcoin, banks (and other financial intermediaries) have no role in verifying
transactions.
Ethereum provides such a kind of a platform. Smart contracts among other things will
usher in the Internetofthings (IoT)
Many intermediaries (attorneys, will executors, banks, insurance agents, etc.) will just
be bypassed by smart contracts. But a totally free smart contract system can be manipulated
or misused for personal gains. Regulation in some way becomes a necessity.
Bitcoin per se cannot execute smart contracts as it cannot operate sidechains. Ethereum
can, and so will RSBC.
RSBC will have the added advantages of
(1) Sovereign guaranteed Double Verification where the trustworthiness of parties in
a contract is verified by the government.
(2) Non-speculative nature of RSBC.
RSBCs will have value more stable than ether or other cryptocurrencies as RSBC value
will be managed by Sovereign Authority.
(3) Safer and secure transactions and contracts as they will all take place on RSBC
platform.
(4) Traceability of parties in case of dispute or fraud.
(5) No fear of illegal contracts being transacted or money laundering as it will be an
RSBC platform.
Thus, RSBC has every feature of Bitcoin sans the disadvantages. It provides the safety
and security that Ether or Bitcoin cannot provide and that feature is solely because of the
sovereign backing that RSBC will have. It is, therefore imperative that governments seize the
opportunity and create RSBC at the earliest.
CONTRACTS ENFORCEMENT
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A contract is a voluntary agreement between two or more entities. It is enforceable by

law as a binding legal agreement. Using Blockchain, it is now possible to enter into contracts
(we have examined it when discussing Bitcoins).
Joe has entered the construction business recently. Joe takes a contract to build a
house for Kate. But Joe does not have the previous credentials as he is new to the
construction business. Now, naturally, Kate cannot out rightly pay Joe the money for the
house as she is not sure of Joe's credentials. (But due to lower cost or other reasons,
she decides to give the contract to Joe).
Now Joe and Kate both send each other a freshly created public key. Kate creates a
transaction P1. (An advance; half the amount of the money to be paid for the house).
Both Kate and Joe sign it. But it is not broadcast. Kate sends the hash of P1 to Joe.
Joe now creates P2, a contract. P2 spends P1 and gives it back to Kate. Since P1
requires both Joe's and Kate's sign, the transaction is not complete. A time lock sets the
date when the house has reached a certain level of completion. Kate now has both the
NationCoins and the contract. (The half payment in advance is not paid to Joe as Kate
has not yet signed it). Kate checks the contract to her satisfaction.

What has happened is this. Joe knows that Kate has the money earmarked to pay him.
And once the house has reached a certain level of completion, he is assured that he will be
paid.
Kate, on her part, knows that if Joe does not fulfill the contract, the money will revert to
Kate's wallet, from which she had made P1.
After Kate has scrutinized the contract, she signs the contract and completes it. (Joe has
already signed the contract when sending P2).
After signing the contract, Kate broadcasts both P1 and P2. This is picked up by the
NLD, verified and made a part of the Blockchain. This adding of P1 and P2 to the
Blockchain is the de-facto proof of sovereign attestation.
If Joe doesn't complete the work or disappears, the contract runs void and the money
returns to Kate's wallet. Until then the NationCoins are in a state where no one can use them.
Since there is a verified record of the contract by the NLD, there is a sovereign
guarantee that the contract will be made enforceable, thus automating the Trusted Third Party
function.
***********

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Ch.31. REINING IN THE DARK WEB.

"Lack of Money is the root of all evils."

-Mark Twain
Sergio is a student, not different from your boy next door. He studies in a university,
which has more than 3,000 students on its campus. He is a good student. He attends
all the classes and does well in tests and exams.
But underneath this benign and soothing appearance lurks a dangerous monster.
Sergio is a student by day and a drug smuggler by night. He is the man responsible for
supplying narcotic drugs on the campus, collecting money for it, paying the drug lords
and getting more supply from the drug mafia.
Three years ago, Daniel, Sergios senior was caught by law enforcement agencies,
while doing a money transaction with the smugglers. Those were tough days for
Sergios ilk. They had to be extremely careful not to get caught.
In between, things were easy with the advent of the Bitcoins. Sergio, has not paid a
single Dollar in cash, so far in his drug-smuggling business. All the money he illegally
earned by supplying drugs was paid in Bitcoins.
Off late Bitcoins are under surveillance and can be de-anonymized. So Sergio now
uses a coin called Zyxcoin, from the dark net. Zyxcoin is a Cryptocurrency specially
designed for criminal activities. The Zyxcoins are programed to destroy their identities
after every transaction. Random numbers would take their place on the Zyxcoin
Blockchain. This effectively renders the transactions untraceable.
These Zyxcoins are transferred to an anonymous public address given by the drug
Mafiosi. A package containing the ordered drugs is quietly dropped in a predetermined
place. Sergio picks it up when no one is watching. Sergio also never collects cash for
drugs. He runs an anonymous website on the Dark web where people can order any
drug they want. Heroin, cocaine, ecstasy, cannabis, etc. can be ordered online on
Sergios website.
They have to pay in Zyxcoins and their packet will be delivered within 48 hours.
Business for Sergio is good. And anonymous. His next door colleague in his hostel does
not know that Sergio is the narcotic Kingpin on-campus.
Things on campus are bad. Since Sergio took charge, drug addiction on campus has
almost doubled. The university management and law enforcement agencies are at a
loss about how to deal with the problem. They know about the website, but find it
difficult to take it down as it is part of the Dark Web. More frustrating, they do not know
who is behind all this. All efforts to track down the culprit have come to a naught. The
Dean is thinking of taking the help of the FBI to de-anonymize the Zyxcoin transactions
and nab the culprit. But he is skeptical about the success of the plan.

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Will the cops be able to nab Sergio? Can the law enforcement agencies prevent such
things from recurring? Can Bitcoin and its family of crypto currencies be used for things
more constructive to society?
As we take you ahead, you will realize that there is only one answer. Yes.
The Dark Web has been mostly used by anti-social elements for illegal activities.
Recruitment to terrorist organizations, drug smuggling, gun running, the sale of blood
diamonds, illegal and banned substances, piracy, money laundering, human trafficking, etc.
are all facilitated by the Dark Web. Crypto currencies like Bitcoin and later Zyxcoins have
given a huge boost to the Dark Web. This is evident by the mushrooming of anonymous
websites like Silk Road.
But all that will change by introducing RSBCs. In fact, we can regulate the Dark Web if
governments implement the K-Y Protocol.
The Dark Web functions anonymously, because transactions are anonymous. Thus, it
will be difficult to trace the transacting parties. Now, Bitcoins can be converted to Dollars.
This is a crypto currency to hard cash conversion, which does not generate a receipt. You pay
a person Bitcoins and he gives you Dollars.
Deep web and the dark web.
The dark web is the encrypted network that survives secretly in hidden
servers, whereas the deep web is the web services that for some reasons cannot
be indexed by conventional search engines.
The dark web consists of whistle blowers, investigative reports, privacy
advocates as well as computer hackers, drug mafias, porns, arms dealers,
forgers, blackmailers, violent films, pictures and other illegal things. They use the
public Internet, but need specific and special software, protocols or permission to
access. The dark web is but a small part of the Deep Web.
The dark web can only be accessed through a secure and anonymous web
browser. The most well-known of these is called Tor.
When using secure web browsers you are anonymous and your location
cannot be picked up. Anything done in the dark web cannot be monitored.
Users of the dark web refer to the regular web as the Clearnet due to its
unencrypted nature

Now imagine a scenario where RSBCs are in vogue. Bitcoin is converted not to Dollars
but to UScoins (the Crypto avatar of the US Dollar). These USCoins go in a wallet that is
already registered in some bona fide name. Thus the persons giving and accepting illegally
earned Bitcoins can be easily traced. The system will know who is who. By tracing
transactions and analyzing patterns, the government will know who is funding terrorist
activities and who is financing drug smuggling.
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In case of currencies like Zyxcoins, transactions can be made traceable where there is
the interface between Zyxcoins and NationCoins. Imagine a scenario where 200 sovereign
states maintain their NationCoins. Hard cash transactions will be greatly reduced. People
have to transact using RSBCs. In fact, there will not be enough paper currency to fund illegal
activities. All payments will have to be done by RSBCs. There will be no unaccounted
money.
Unaccounted money fuels the Black Market and the Deep Web. Thus, by introducing
RSBCs, we can eliminate the illegal aspects of the Dark Web.
***********

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Ch.35. SPACE, STARS & CRYPTOCURRENCY

I have sat by night beside a cold lake
And touched things smoother than moonlight on still water,
But the moon on this cloud sea is not human,
And here is no shore, no intimacy,
Only the start of space, the road to suns.

-F. R. Scott
On December 22, 2015, a big crowd gathered at the Cape Canaveral Air Force Station
(AFS) in Florida. The crowds were cheering and ecstatic. A festive atmosphere prevailed
as people talked to each other and peered through the glass that separated them from
the workers operating a row of sophisticated computers. Across the walls of glass,
operators were anxious about the event that was about to occur. TV cameras dotted
and covered every square foot of the area. The uninitiated would have thought that a
fair or a festival was going on.

What was so important happening here that justified such media coverage and crowd
frenzy? One sentence: Reusable launch system.
Elon Musks company Spacex was the one, which had successfully created a reusable
rocket launching system. Earlier (and even now), space agencies use rockets to launch
satellites into space. It is like the satellite is the traveler, and the rocket is the vehicle. The
only difference is that the rocket is discarded once it puts the satellite into space. This is
because, after putting the satellites into space, rockets fall into the oceans or in remote areas.
The cost of hauling up the debris of the rocket (as it would be destroyed on falling back to
earth at such high speeds) is too high.
This is akin to you traveling to a certain city in your car. Then abandoning your car on
the city outskirts and continuing your journey ahead.
Wasteful isnt it? Well, Elon Musk turned it all over. He created and put into practice a
relatively inexpensive reusable launch system. In this system, the rocket takes off from the
launch pad, puts the satellite in orbit, then maneuvers automatically back to the launch pad.
It lands softly and safely back from where it was launched. All ready to be refueled, refitted
with another satellite (or space craft carrying humans) and launched again. This saves a lot of
money. You need not create a new rocket for every launch. You need not worry about the loss
of the rocket as it will come back all by itself, back home to the launching pad.
So revolutionary is the reusable launch system by Elon Musks Spacex that the cost of
launching into space has now come down from $20,000/ Kg to less than $4,500 /Kg.That

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means, earlier, to just launch a 1 ton satellite, you had to spend $20 million. Now it can be
done in $ 4.5 million. This is huge in terms of cost, manpower and time saved.
Even space shuttles were built and meant to be reusable. But because of several factors
like refurbishment, maintenance and repair of such complex systems, the space shuttle thing
did not work out. Since Spacexs reusable launch system-named Falcon-isnt as complex as
the space shuttle was, maintenance and repair costs will be less.
On December 22, 2015, Spacex used the same reusable launch system to launch 11
satellites at once. Whats more? The rocket came back down, maneuvering itself to land
gently on the launch pad, ready to be refueled and reused for the next mission. Since it was
an actual commercial launch, it demonstrated the immense possibilities of a reusable launch
system.
The reader might wonder what Spacex's Falcon launches have to do with what we have
been discussing in this book so far.
The answer is that it has got everything to do with it.
Elon Musks noble plan of drastically driving space launch costs has farreaching
consequences. He intends to make launch costs go down below the $1,000/Kg (from the
earlier $20,000/ Kg mark.)

This implies that launching satellites and people will cost 20 times less. This means,
that the number of space launches will dramatically rise as more and more people can afford
space launches. Eventually, space launches may be 100 times cheaper than what they are
today. It may so happen that you may own your own satellite or space station in space. In
fact, it is Elon Musks stated ambition to colonize Mars by 2020. Though the idea may seem
a little farfetched, we believe that it is truly possible. If not by the 2020s, then 2030s. If not
by the 2030s, then 2040s. But it will happen.
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When the first human colony functions on Mars, what will be the medium of exchange
used?
It will be the same Cryptocurrency system, we have been talking about in this
book. Using paper money or plastic money on Mars or anywhere outside Earth is
ruled out. In fact, it is plain ridiculous.

Why?
Because carrying physical money into space will cost more money. If you carry a $100
note into space at $1,000/Kg it will cost you $1 (as a $100 bill weighs approximately 1g). It
means that the value of the $100 bill will then be actually $101. If you carry it to the Moon,
it will cost even more, and if you carry it to Mars, it will cost even more than that. So a $100
bill may be valued at $150 on Mars. For a Martian colony, it will be greatly confusing to use
paper money. Moreover, it will cost more money to carry lower denomination bills outside
space. I.e. $1 bill will also cost $1 to be launched into space. So, its actual value will be $2.
Even more paradoxical will be to carry coins into space. It will cost almost $2 to carry a ten
cent American coin into space. (A One dime coin weighs approximately 2.27g)
So, it will be absurd to use paper or plastic money in space due to the physical issues
and costs involved. It has to be Cryptocurrency. Even plastic money will need card readers or
other instruments, which will be costly and cumbersome to carry, spacewise.
The first lunar and Martian colonies will be using Cryptocurrency for trade and as a
medium of exchange. But it must be seen if they will be using decentralized cryptocurrencies
or RSBCs.
We must take into account several factors that will make the future space economy a
possibility. The first is distance. The Moon is only 384,000 Km (approx.) distance from
Earth. Light takes hardly 2.6 seconds to travel from the Earth to Moon and back. If there is a
colony on the Moon, it will in fact, be possible for people on Earth to transact with the lunar
colony in real time. The Moon will become just another province of Earth. A Blockchain
transaction can easily occur without much trouble. RSBCs can provide stability of value,
unlike decentralized cryptocurrencies. Moreover, governments will have a major role in
colonizing space. They will be bound to use RSBCs.
Mars is a different case. It takes light at least 20 minutes to travel from the Earth to
Mars (at the maximum distance). In case of Mars, it will be very difficult to carry out real
time transactions. Unlike the MoonEarth system, we cannot maintain a single Blockchain
for Mars and Earth. What can be done is that a separate Martian Blockchain with its own
Cryptocurrency can be created, which can be traded in a Cryptocurrency exchange here on
Earth. Powerful and compact microprocessors embedded in objects flown to (or created on)
Mars will undertake Smart Mining and provide the basis for a money exchange system.
The same holds true to expand the human footprint across the solar system and beyond.
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We estimate that at least by 2100, when man has set up a full-fledged colony on Mars
and moves beyond the Kuiper (asteroid) belt, the extra-terrestrial (human) economies will be
linked by an intricate network of Blockchains. There may be a Marscoin, on a Martian
Blockchain, Lunar Coin, JupiterCoin, Saturncoin, Titancoin, and so on, on their own
respective Blockchains.
The future is bright for the space faring humans of the 21st century. Satoshi Nakamoto
and his ilk have (inadvertently) opened a whole new vista of possibilities.
Blockchains will make the IoT a reality. The IoT will enable smart machines, which
will assist man to conquer new frontiers in space and other areas, and use it for the
betterment of his species.

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