The World’s First Intrinsic Cryptocurrency

by Dan Robles on September 29, 2016

5734783736_66d18531f1_oThe value of engineering is perhaps the greatest arbitrage opportunity in history. After 100 years of regulated professional engineering practice, engineering is still valued on a linear time and materials basis. In the Internet age, where everything and everyone is connected by engineering, I argue that the value of engineering may be accounted by the exponential Network Effect.

For example, many social networks such as Facebook or Google enjoy corporate valuation in accordance with Metcalfe’s law which states that the value of a network is proportional to the square of the number of nodes in the network.  Facebook, Linkedin, Google, etc., are simply a platform upon which participants reflect value through their interaction with each other.  The real physical value of those interactions is projected upon the virtual value of the platform.  This is significant.

This condition may be mirrored with engineering infrastructure, such as a bridge or a building.  The physical value of the bridge is accounted for in a linear time and materials, but the network value of the bridge is proportional to the exponential number of connections that people make in using the bridge.  The difference between the two quantities represents an arbitrage opportunity whose value would be easily measured into existence by a clever cryptocurrency.

This analysis can be extended to nearly all works of engineering from renewable energy facilities, clean water installation, transportation systems, and all buildings, etc.  The Network Effect also applies to the security, fault tolerance, transparency, and reliability of a network as well – each reflect additional layers of engineering proof of work.

Today, the value associated with the network effect of infrastructure engineering is unaccounted for – it does not exist on any balance sheet yet it is widely distributed in society.  For example, doctors have hospitals, manufacturers have machinery, bankers have assets to finance, insurers have accidents to underwrite – none could exist without the network effect of engineering.

The World’s First Intrinsic Cryptocurrency

The purpose of Quant is to measure the network value of engineering into existence with a digital currency. Such a currency would represent the intrinsic value of all people who interact with works of engineering.  A currency that accounts for intrinsic value will quickly achieve a generalized reciprocity among a community of beneficiaries who will then readily trade in that currency.

Much like Amazon.com started as a bookseller, Quant will start with infrastructure engineering. This initial transition step is essential to achieve initial reciprocity of the digital currency. The interface will be at the adjudication of smart construction contracts upon which banking and insurance depend to capitalize and underwrite the works.  Once this point of entry is established, additional layers of infrastructure can be added eventually capturing the true value of every human being that contributes their productivity to the network.

The consortia being promoted by The Ingenesist Project between engineering and insurance will be a critical component in establishing this base layer of intrinsics.  We have compiled a group of founders and visionaries that can bring this idea into a practical blockchain protocol.  Would you consider joining us?


Blockchain and NAFTA May Have a Lot in Common

by Dan Robles on September 23, 2016

nafta-crossingAnyone who was around in the early 1990’s may remember the mantra of modern globalization was that centralized markets were bad and decentralized markets were good. Fast forward to 2016 and blockchain technology: centralized ledgers are bad decentralized ledgers are good.  Does this sound familiar?  Blockchain and NAFTA may have a lot in common. The good news is that perhaps this new world is not quite as uncharted as it now appears.

Coinciding with the end of the Cold War, we can now look back at NAFTA as the Big Bang of modern globalization.  The supporting calculus is credited largely to the ‘theory’ of Comparative Advantage;  an economic thesis referring to the ability of any given economic actor to produce goods and services at a lower opportunity cost than other economic actors. The idea first appeared in 1817 in a book by English economist David Ricardo, “Principles of Political Economy and Taxation”  David Recardo’s ideas still serve as the logical basis of international trade. The efficiency of this economic model were at the time, and still are, indisputable.

Further back, the 15th Century concept of Laissez-Faire is an economic system in which transactions between private parties are free from government interference.  Meanwhile, the “invisible hand” was a term first used by Adam Smith to describe the unintended social benefits of individual actions.  These ideas formed the cornerstones of modern Capitalism – the decentralization movement of a prior era.  Indeed, Capitalism solved a great many human problems while arguably ushering into existence new, and possibly more perilous problems such mass political instability, financial crises, and even climate change.  Now, the advent of bitcoin claims to solve many of these problems.  This begs the question, what new problems will be created after 25 years of blockchain technology?

More importantly, perhaps this connection to a large body of precedence (if we are clever) can guide us to a different set of outcomes than prior decentralization technologies.  This is an important and timely question given the blockchain technology, due to the Network Effect, is exponentially more powerful than the relatively linear Law of Comparative Advantage.

Lessons Learned

I was involved with developing standards for the mutual recognition of engineering professionals between US, Canada, and Mexico back in 1993-1996.  What made NAFTA different, and hence “modern”, was an inclusion of free trade in services sector.  These included financial services like banking and insurance as well as professional service providers from engineers to librarians.  Essentially NAFTA attempted to treat intangible value directly as a tangible object for international trade.  Still a problem yet to be solved.

At the time however, the mutual recognition of professional engineers was controversial and divisive. The US engineers were fearful that they would lose their high paying jobs to cheap Mexican engineers, whose salaries were about 1/10 the US engineering salary.   A “giant sucking sound” was the popular phrase coined by a billionaire presidential candidate at the time.  The fear was made very real for many people, not unlike the immigration debate that continues to rage today.

I saw something different.

In Mexico, I saw an entire nation – an entire continent – that needed everything that US engineers create. Mexico, Central America, and South America needed roads, bridges, structures, water, energy, and every manner of infrastructure upon which free markets utterly depend.  Since NAFTA also liberalized trade in financial services, that meant that economic development could be financed at low cost of capital.  In my youthful idealism, I felt that the opportunities for engineers from all countries was beyond extraordinary – to me, it was specifically the rising tide of basic infrastructure that would float all boats.  Unfortunately, this opportunity was woefully squandered.   Let me explain.

In the US, and many developed countries, the professional engineering licensure laws assure transparency, consensus, and economic incentives that rewards high integrity rather than low integrity among engineers and contractors who carry such licensure.  When the PE stamp is indelibly attached to the project plans, the asset that is described by those plans is held in suspension on the balance sheet during the design and construction phase. This span of time is when the highest monetary risks and technical risks occurs.  Insurance companies depend heavily on engineers to verify the design, materials, processes, components, chronological order and performance of all components of the systems that they insure.  Where risk can be transferred to insurance, the cost of capital can be minimized.

The problem with the NAFTA Mutual Recognition Standards for engineers was that the three negotiating bodies for the US, Canada, and Mexico failed to reach an agreement over reciprocity of the other member’s licensure model and instead defaulted to the highest common denominator which fell far short of practicality while also failing to meet the conditions of insurability, especially for Mexico.  As such, infrastructure projects could not be financed for lack of licensed engineers in the relevant NAFTA jurisdictions. This was not for lack of money because NAFTA also liberated access to financial services – but for lack of insurance. Without a tip-to-toe insurance presence, Latin American economies continue to experience difficulties in bridging the capitalization gap.  Innocent people suffer.

Many trade agreement that followed NAFTA would go on to include free trade in services, and also inherit this flaw capitalization of infrastructure for lack of Global Engineers.  Unfortunately, mutual recognition of engineers would be stopped cold at the borders for lack of insurance.   Many of the problems associated with globalization today, in my opinion, can be attributed to the failure of the NAFTA Mutual Recognition Document for Professional Engineers.  We have an opportunity to correct this flaw and it is imperative that we do so.

To centralize, decentralize, or re-centralize. 

While the economic theories of decentralization are sound, the intended outcome has been elusive.  Instead of converting from centralized serfdom to the invisible hand of freedom, we keep inventing new forms of re-centralization where one centralized system is traded for another under the auspice of decentralization!  The danger is that blockchain technology will not reach its potential of economic freedom for all, rather, it will simply become another form of mechanization that replaces people with machines.  A decentralized solution will require the integration of machines with people.  That means we need to augment human capacity not “surplus” it.

Blockchain technology replaces some – but not all – of the decisions that a human administrator makes.  It will be important to look at bureaucratic processes and accurately discern what can go to a blockchain and what must remain in human judgement.  The current markers of re-centralization include so-called permissioned ledgers to replace back office workers.  Permissioned by whom? A centralized authority? The running joke in the cryptocurrency space is that any effort to control a decentralized system quickly cancels out the advantages of having one in the first place.  Re-centralization is dangerous.

Instead, the integration of humans and blockchains should take a hybrid approach where humans serve as adjudicators to the blockchain machinery pointing smart contracts toward the intended outcome at specific points of risk transfer.  Eventually, a means to decentralize the human adjudicators will be required so that they cannot be corrupted.  One such solution is proposed by The Ingenesist Project.  It is called Curiosumé and it converts a CV to cryptography so that holders can lock contracts to a blockchain quasi-anonymously.

The consortium between engineering and insurance is a critical development in the current evolution in blockchain technology and is required to break the cycle of recentralization by expanding the insurance capacity of our financial system to a fundamental storage of value – public infrastructure.  We need to learn how to convert existing engineering and construction contracts into blockchain adjudicated smart contracts. We need to figure out how to decentralize the adjudicators in a fault tolerant system that cannot be easily corrupted, thus providing for optimal allocation of public and natural resources.  Then we need to expand the adjudication system to all other service professionals who also serve the needs of our human markets.  The resulting cryptocurrency will have intrinsic properties that people will be willing to trade. In this manner, the cost of capital will be lowest for the most proper allocation of resources required by an increasingly crowded planet.

(Adapted from; Insurance: The Highest and Best Use of Blockchain Technology, D.Robles, July 2016 National Center for Insurance Policy and Research / National Association of Insurance Commissioners Newsletter: http://www.naic.org/cipr_newsletter_archive/vol19_blockchain.pdf)



What Problem Does Blockchain Solve?

by Dan Robles on September 14, 2016


A great deal is being said about Blockchain Technology.  But what exactly is the problem does blockchain solve?

The main problem that blockchain solves results from the fact that computer databases simply cannot talk to each other without a layer of expensive fault-prone human administration or bureaucratic central authority controlling every node. Blockchain technology, on the other hand, is a single, decentralized database managed by software and shared by multiple users, without any third party authority. This makes processing transactions less costly and less error-prone. This software enables process efficiency because new links can form as needed, and improves organizational efficiency because no management gatekeepers are needed.

The applicability of blockchains may include everywhere that many people may want to interact with a computer database. It is easy to imagine a tremendous breadth and depth of potential applications and markets.


The traditional way to enable databases to communicate with each other is to consolidate and combine them into a single database, hoping that enough commonality would exist to patch them together. This approach is typical of mergers and acquisitions of corporations where two somewhat similar entities combine their data under a central authority. Efficiencies are gained in scale and elimination of redundancy. Unfortunately, centralization can also lead to inefficiencies such as top-heavy hierarchy, monopoly, obfuscation, stagnation and vulnerability to external shocks. Failures would often trigger blanket legislation and government regulations. Meanwhile, the original problem remains; how do these new mega databases communicate with other mega databases?

See also: How Blockchain Will Reorganize Society  


The other way to eliminate intermediaries and enable data to be shared between organizations is for everyone to share the same database. Multiple writers can retrieve and populate data simultaneously with no controls, consensus or centralized authority. Natural organic links would form, and operations would become faster, cheaper and easier to perform and maintain. The network effect can take hold where the value of the network would grow exponentially. Unfortunately, there would be no way to stop a person from cheating another person, or going back to change the conditions of a contract, or giving himself a raise, or double spending a unit of account, etc. For decentralized databases, these are precisely the problems that blockchain solves.

Before Bitcoin, if a person sent a contract over email, each party would hold an identical copy that could be easily manipulated. After Bitcoin, a person can send a contract electronically, and the receiving party would hold the only valid copy. While this may sound trivial at first, it is extraordinarily difficult for a computer to do. But it would allow computers to perform some of the functions that administrators routinely perform today at nearly every interaction with a computer.

Not unlike what happened with mechanization in the last century, once achieved, the software-managed architecture will be faster, more reliable and cheaper while the marginal cost of adding additional capacity approaches zero. Centralized databases scale at the speed of bureaucracy. Blockchain may scale up to handle large and complex transactions or scale down to accommodate billions of micro-transaction with little difference in operations cost. Also like what happened with mechanization, society will certainly reorganize around these new forms of value creation and exchange. This is already evident with the extraordinary amount of venture and investment capital and creative new decentralized autonomous organizations (DAOs) pouring into blockchain space.

Blockchain technology makes business cases that may never have been viable become brilliantly viable today. To use an engineering example, the invention of the hydrostatic wheel bearing eliminated enough mechanical friction from a steam locomotive that it could become a viable engine of economic growth. Likewise, blockchain technology holds the potential to eliminate a tremendous amount of friction from everyday transactions and agreements. For anyone reading this article while standing in line at the DMV, that is a problem that deserves to be solved.

The innovation has just begun.

Adapted from:

Insurance: The Highest and Best Use of Blockchain technology, July 2016 National Center for Insurance Policy and Research / National Association of Insurance Commissioners Newsletter: http://www.naic.org/cipr_newsletter_archive/vol19_blockchain.pdf

Blockchains, databases, reification: are bottom up standards possible? Vinay Gupta 2015 https://youtu.be/AbacROAa4xY


The Mechanics of Blockchains

by Dan Robles on September 13, 2016

rubrik-fridge The Mechaics of Blockchains

Blockchain technology is like a three-trick pony. It essentially combines three slightly clumsy computer tricks to mimic decisions that a human administrator routinely makes. The difference is that, if done correctly, the computer can perform some of these decisions with great speed, accuracy and scalability. The peril is that, if done incorrectly, the computer can propagate an incorrect outcome with the same stunning efficiency.

1: The Byzantine General’s Dilemma

A scenario first described in 1982 at SRI International models the first trick. This problem simulation refers to a hypothetical group of military generals, each commanding a portion of the Byzantine Army, who have encircled a city that they intend to conquer. They have determined that: 1. They all must attack together, or 2. They all must retreat together. Any other combination would result in annihilation.

The problem is complicated by two conditions: 1. There may be one or more traitors among the leadership, 2. The messengers carrying the votes about whether to attack or retreat are subject to being intercepted. So, for instance, a traitorous general could send a tie-breaking vote in favor of attack to those who support the attack, and a no vote to those who support a retreat, intentionally causing disunity and a rout.

See also: Can Blockchains Be Insured?  

A Byzantine Fault Tolerant system may be achieved with a simple test for unanimity. After the vote is called, each general then “votes on the vote,” verifying that their own vote was registered correctly. The second vote must be unanimous. Any other outcome would trigger a default order to retreat.

Modern examples of Byzantine Fault Tolerant Systems:

The analogy for networks is that computers are the generals and the instruction “packet” is the messenger. To secure the general is to secure the system. Similar strategies are commonplace in engineering applications from aircraft to robotics to any autonomous vehicle where computers vote, and then “vote on the vote.” The Boeing 777 and 787 use byzantine proof algorithms that convert environmental data to movements of, say, a flight control surface. Each is clearly insurable in a highly regulated industry of commercial aviation. So this is good news for blockchains.

2: Multi-Key Cryptography

While the Byzantine Fault Tolerant strategy is useful for securing the nodes in a network (the generals), multi-key cryptography is for securing the packets of information that they exchange. On a decentralized ledger, it is important that the people who are authorized to access information and the people who are authorized to send the information are secured. It is also important that the information cannot be tampered with in transit. Society now expends a great deal of energy in bureaucratic systems that perform these essential functions to prevent theft, fraud, spoofing and malicious attacks. Trick #2 allows this to be done with software.

Assume for a moment that a cryptographic key is like any typical key for opening locks. The computer can fabricate sets of keys that recognize each other. Each party to the transaction has a public key and a private key. The public key may be widely distributed because it is indiscernible by anyone without the related private key.

Suppose that Alice has a secret to share with Bob. She can put the secret in a little digital vault and seal it using her private key + Bob’s public key. She then sends the package to Bob over email. Bob can open the packet with his private key + Alice’s public key. This ensures that the sender and receiver are both authorized and that the package is secured during transit.

3: The Time Keeper

Einstein once said, the only reason for time is so that everything doesn’t happen at once. There are several ways to establish order in a set of data. The first is for everyone to synchronize their clocks relative to Greenwich, England, and embed each and every package with dates of creation, access records, revisions, dates of exchange, etc. Then we must try to manage these individual positions, revisions and copies moving through digital space and time.

The other way is to create a moving background (like in the old TV cartoons) and indelibly attach the contracts as the background passes by. To corrupt one package, you would need to hijack the whole train. The theory is that it would be prohibitively expensive, far in excess of the value of the single package, to do so.

Computer software of the blockchain performs the following routine to accomplish the effective equivalent process: Consider for a moment a long line of bank vaults. Inside each vault is the key or combination to the vault immediately to the right. There are only two rules: 1. Each key can only be used once, and 2. No two vaults can be open at the same time. Acting this out physically is a bit of a chore, but security is assured, and there is no way to go backwards to corrupt the earlier frames. The only question now is: Who is going to perform this chore for the benefit of everyone else, and why?

Finally, here is why the coin is valuable

There are several ways to push this train along. Bitcoin uses something called a proof-of-work algorithm. Rather than hiding the combinations inside each vault, a bunch of computers in a worldwide network all compete to guess the combination to the lock by solving a puzzle that is difficult to crack but easy to verify. It’s like solving a Rubik Cube; the task is hard to do, but everyone can easily see a solution – that is sufficient proof that work has been done and therefore the solved block is unique and valid, thereby establishing consensus.

Whoever solves the puzzle is awarded electronic tokens called bitcoin (with a lower case b). This is sort of like those little blue ticket that kids get at the arcade and can be exchanged for fun prizes on the way out. These bitcoins simply act as an incentive for people to run computers that solve puzzles that keep the train rolling.

Bitcoins (all crypto currencies) MUST have value, because, if they did not, their respective blockchain would stop cold.

A stalled blockchain would be the crypto-currency equivalent of bankruptcy. This may account for some amount of hype-fueled speculation surrounding the value of such digital tokens. Not surprisingly, the higher the price, the better the blockchain operates.

While all of this seems a bit confusing, keep in mind that we are describing the thought patterns of a computer, not necessarily a human.

The important thing is that we can analyze the mathematics. From an insurability standpoint, most of the essential ingredients needed to offer blockchain-related insurance products exist as follows.

1. The insurer can identify the risk exposures associated with generals, traitors, locks, vaults, trains and puzzles.

2. The insurer can calculate probability of failure by observing:

  • The degree of Byzantine fault tolerance.
  • The strength of the cryptography
  • The relative value of the coins (digital tokens)

3. The consequences of failure are readily foreseeable by traditional accounting where the physical nature of the value can be assessed, such as a legal contract.

We can therefore conclude that each of the tricks performed by this fine little pony are individually insurable. Therefore, the whole rodeo is also insurable if, and only if, full transparency is provided to all stakeholders and the contract has physical implications.

Markets are most efficient when everyone has equal access to information – the same is essential for blockchains. So much so that any effort to control decentralized networks may, in fact, render the whole blockchain uninsurable. It is fundamentally important that the insurer is vigilant toward the mechanics of the blockchain enterprise that they seek to insure, especially where attempting to apply blockchain to its own internal processes.

Adapted from: Insurance: The Highest and Best Use of Blockchain Technology, July 2016 National Center for Insurance Policy and Research/National Association of Insurance Commissioners Newsletter: http://www.naic.org/cipr_newsletter_archive/vol19_blockchain.pdf

Are Blockchains Insurable?

August 3, 2016

Are blockchains insurable?  This question was posed to us as a topic for presentation by the Center of Insurance Policy and Research, a research arm of the National Association of Insurance Commissioners (CIPR / NAIC) The trigger appears to be that some insurance companies are being asked to insure the business operations of blockchain enterprises. […]

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Infrastructure Finance With Blockchain Technology

July 19, 2016

Face it, if the water was not clean, and if we did not have a warm place to sleep, or safe roads, or fresh food, reliable energy, Internet technology, bug-free software etc., something like bitcoin, let alone antibiotics, could never have come into existence. This is a fact, the value of all money is derived […]

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Hacking The Financial System

July 15, 2016

The financial System is made up of 5 components that act as a system. If any of these components falters or is corrupted, the whole system becomes unstable. Therefore, it may not be a good idea to attack any one of these 5 components individually without understanding the consequences to the whole system. In fact, […]

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The Highest and Best Use for Blockchain Technology

May 14, 2016

The hallmark of a great society is the ability to capitalize it’s needs, not it’s arbitrage opportunities.  The Highest and Best Use for Blockchain Technology must be to reduce the cost of capital by decentralizing risk, not necessarily money…yet Blockchain technology carries a promise of great opportunity, efficiency, and fairness in business operations and governance […]

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Questions Related to Bitcoin Protocol For The Insurance Industry

April 4, 2016

There is no shortage of crypto pundits who’ll wax poetic over the imminent disruption that blockchain technology will render over the insurance industry.  A more likely scenario will be a slow and intentional transition between new and old technology.   The objective of this article is to present some questions related to Bitcoin Protocol for […]

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Blockchain Technology and the Engineering Profession

March 31, 2016

Blockchain Technology and the Engineering Profession Blockchain protocol and technology is said by many to be among the greatest accomplishments of human intellect since the Internet.  Blockchain is the underlying technology to what is commonly known as Bitcoin, however, the technology is not exclusive to Bitcoin.  Swarms of innovators are working feverishly to design and […]

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