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Infrastructure Finance With Blockchain Technology

by Dan Robles on July 19, 2016

Jericho Beach Walk

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 from the value of infrastructure that supports human productivity. For the avoidance of doubt, simply compare US infrastructure with, say, Haitian Infrastructure.

Infrastructure Finance with blockchain technology should be the financial system that society adopts. The entire planet is now an epic case study in deferred maintenance. The greatest threat to bitcoin, Ethereum, Steemit, and all future great innovations will not come from some oppressive government, it will come from a failure of basic infrastructure.

In 2015, the National Society of Professional Engineers established a task force on blockchain technology for engineering. The working paper has been published here. It calls for a consortium of engineers and the insurance industry – NOT BANKING…yet.

One of the problems in the cryptocurrency space is that speculation is needed to increase adoption. However, speculation requires volatility, otherwise there would be no spread or arbitrage opportunities and therefore little incentive to to make a bet. Conversely, a productive and sustainable economy requires stability – i.e., low volatility or no volatility. Stability and volatility are mutually exclusive and therefore the incentives associated with each of these crypto-methods are likewise mutually exclusive. At best, we have a zero sum game devolving to a race to the bottom, or at worst, we’ll wind up with the worst of each one, i.e., irrational stagnation.

The NSPE FinTech woking paper suggests a completely different path. The goal is to build a consortium with the Insurance Industry because finance DEPENDS on insurance (not the other way around) and insurance has long term objectives, not short term profit taking. Further, insurability decreases the cost of capital which allows for an organic portfolio of development to emerge. The highest priority applications will be those that decrease volatility. Invariably, these will include basic infrastructure, clean energy, universal education and health care, etc.

Please read the the NSPE FinTech Task Force working paper and provide us with input that we may use in finalizing the final whitepaper. Please vote up this article on steemit to prove to others that a speculative currency is not the only way forward for cryptos. Thank you

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Hacking The Financial System

by Dan Robles on July 15, 2016

Hacker

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, many economic shocks have been an attack on only one of these components.

The trick to hacking the financial system will be to alter it without disrupting the fundamental purpose of each component. In order to accomplish this, we need to replicate and integrate the functions of all 5 of these components. In that way, we may be able to induce what I call “The Big Flip” toward a more sustainable set of outputs.

These 5 components are as follows:

Entrepreneurs (supply — sources)
Markets (demand — sinks)
Accounting System (inventory)
Currency (storage and exchange of value)
Institutions (to keep the game fair)

Entrepreneurs: There is no shortage of entrepreneurs. To harness and release the vast stores of intelligent, productive, and creative people in the world should be fairly easy — all we need to do is give people a game that they can win playing by a consensus set of rules.

Market: There is no shortage of work to do, the entire planet is an epic case study in deferred maintenance. New energy sources, educational programs, safe food and water, transportation, civil liberties, community building and collaborative enterprise are all desperately in demand.

Accounting system: This is where we fall woefully short. Factors of production in the current economic model are scarce land, labor and capital — these are called “tangible assets”. Meanwhile, social capital, creative capital, and intellectual capital possessed by all people are called “intangible assets” and do not appear on a balance sheet — yet are responsible for the value tangible assets!!

Guess what, this is how we are controlled. This is how we are held captive, this is how we are made invisible and how our identity is taken away. As long as we continue to buy into land, labor, and capital economics, we will remain imprisoned by an accounting system that clears our accounts of what is valuable leaving behind what is not.  For example; motherhood is responsible for all taxpayers, yet does not appear on the GDP. This may sound weird, but we are accustomed to it. We need to develop an accounting system where factors of production are abundant Social Capital, Creative Capital, and Intellectual Capital, then allocate that to a sustainable market.

Currency: The dollar will soon expire under the weight of compound interest on an impossible debt load. Cryptocurrencies offer the brightest hope for a new way to articulate value. We are all very excited about this, but cryptos cannot also be called upon as the vetting institution that keeps the game fair. The recent events with the DAO demonstrate this. There still needs to be human intervention of some kind.

Institutions: Today we have laws and courts and enforcement that articulate power to ostensibly keep the game fair. This system is falling apart. Smart contracts embedded in the blockchain do not work. The recommended strategy is human adjudicated smart contract articulated on the blockchain. The best way to keep the game fair is to decentralize the human adjudicators. This is the great advantage of the proof-of-stake algorithm — people can be arranged in many real byzantine fault tolerant systems to secure a network.

Curiosumé is an analog to digital converter for knowledge assets. Curiosumé serves two important functions; the new accounting system and the decentralization of smart contract adjudicators.

1] First it establishes an accounting system for knowledge assets. This allows people to reorganize around social, creative, and intellectual capital in existing communities. Productivity is associated with innovation instead of some increasingly irrelevant association with land, labor, and capital.

2] Curiosumé decentralizes the role of the adjudicator by converting a person’s résumé to cryptography that can open and close contracts on a blockchain. The algorithm can select the adjudicator anonymously until the point of transaction upon which their ID is sealed to the blockchain. You cannot corrupt what you cannot see.

By deploying Curiosumé to a blockchain with the distinct purpose of hacking the financial system via the five components of an economy simultaneously, we may stand a chance of inducing The Big Flip to an economy based on new factors of production. Maybe a lot sooner than anyone is expecting.

earthshot2The 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 for an entire struggling planet. If that is true, then Blockchain technology should be integrated broadly and uniformly across society and within as many existing institutions as possible. If that is true, then Blockchain development should not be the exclusive domain of a single sector, such as banking. Nor should Blockchain development reflect priorities of highest ROI from VC start-ups. Likewise, purely Decentralized Autonomous Organizations (DAOs) may carry the risk of operating in an extralegal sector without legal recourse, thereby increasing net volatility, not decreasing it.

A different track is required.

The primary objective of Blockchain technology must be to reduce the cost of capital by decentralizing risk, not necessarily money. The highest and best use for blockchain technology is therefore insurance, not necessarily banking. In doing so, blockchain innovation can then be applied broadly, evenly, and intentionally across the economy. This makes sense because when building anything complex or important, one logical piece needs to go in front of the next logical piece regardless of it’s individual ROI, because the collective ROI is the true basis of valuation. If people tried to build an airplane in the same manner we are now trying to build decentralized economics, a few may benefit, but an air transportation system, as a whole, would be tragically constrained.

We have seen this before.

Many of the issues currently propping up the narrative to the Blockchain phenomenon were also present during the time of this author’s participation in the NAFTA negotiations. Anyone who was around in the early 1990’s may remember the mantra of modern globalization was that decentralized markets were good and centralized markets were bad. The mathematics supporting the efficiency of free trade models such as the Theory of Comparative Advantage were, and still are, bullet proof. So what happened?

Unfortunately, decentralized markets were administered unevenly, disproportionately, and only partially insurable, at best. The act of trying to control a decentralized market eliminated many of the benefits of having one. Today, we face a similar peril, except we are playing with a far more powerful technology promising exponential efficiency, or exponential deficiency. Don’t let the pundits fool you. It can go either way.

The difference today is that we also have the knowledge, foresight, a technological tool kit, and profound responsibility to get it right this time.

Let’s begin.

The place to start developing blockchain technology is through a consortium of Insurance and Professional Engineering institutions for the creation of relevant infrastructure and the physical derivatives upon which everyone utterly depends. This includes renewable energy, clean air, safe water, transportation systems, health and welfare, housing, building systems, computer networks, etc. After all, bitcoins aren’t worth a whole lot when the power goes down.

Infrastructure projects, and all their beneficiary derivatives, require financial institutions that can bridge the capitalization gap between the inception of a project and revenue from the project. This period of time is rife with peril because the “money and title” precedes the delivery of the physical asset. The cost of capital is directly proportional to the risk associated with project delivery. Wherever the insurance industry is capable of pooling project risks, the cost of capital will fall precipitously. The insurance industry is therefore an imperative component to this objective. Banking is relatively simple, accounts can be cleared with a placeholder currency; a token, if you will.

Herein lie both the challenge and the opportunity facing Insurance and Engineering institutions related to Blockchain Technology:

First, as with all new technology, we need to recognize that society will reorganize itself around Blockchain Technology. We need to provide hundreds of millions of entrepreneurs and citizens the support systems with which to do so.

Second, if each component part of the blockchain system is insurable, so too should the entire system. We need to insure and reinsure each individual components of a blockchain business system(s) in order to lower its cost of capital.

Finally, once insurable, each component part of the new economy will have the same cost of capital as any other part. The relative value of an investment will therefore be ordered in time — the most important and valuable piece is the one that goes next in the critical path. This is how things get built.

Taken together, Insurance and Engineering are sufficiently disintermediated from short-term objectives and are ideally suited for the long game. Together, they can bridge the capitalization gap upon which everyone can then cross. They provide outcomes in the physical world that are essential to everyone. Together, they can deliver the projects that are most important — the ones that come next as we navigate our critical path into the future.

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 the insurance industry and begin laying out a strategy for mitigating these perils.

725_aHR0cDovL2NvaW50ZWxlZ3JhcGguY29tL3N0b3JhZ2UvdXBsb2Fkcy92aWV3L2QzNjA1NGQ3MDZmZDM2ZDQ0NDIxYWJhZWY3ZDk1NGEzLnBuZw==On a sour note, the Bitcoin protocol now provides a way for Insurance Company Executives to eliminate countless brokers and administrators from the balance sheet as computer algorithms are now capable of performing many of the same tasks.  On the other hand, these same executives are being asked to provide insurance to clients who intend to do exactly that; replaced countless brokers and administrators with a computer algorithms.   Can these companies identify the risk exposure to their selves and their client?   Can an actuarial scientist calculate the probability that any number of perils will manifest?  If so, does anyone truly understand the consequences of a crypto-block-coin meltdown?  I didn’t think so.

Meanwhile, regulators are faced with with a set of circumstances without precedent.  The purpose of regulations of any kind is to encourage or discourage certain types of human behaviors.  So if the human is removed, are these regulations still needed?  How will they be interpreted? What new regulations must be created?  What current regulations stand in the way of insurance innovation using the blockchain?

How different would it be to insure a decentralized organization than it would be to insure a centralized organization?  Where do the liabilities attach and where is dominion asserted by the owners where decisions and outcomes are determined by a computer algorithm?   Is bitcoin money? Can it be taxed like money? Does taxation make it money? Is bitcoin property?  Can I hold title to bitcoin?  Is bitcoin risky? Is there any actuarial data that provides valid historical trends to extrapolate from?   Are blockchains defensible in a court of law? Are their  currencies legal, illegal, or extralegal?

These are huge questions.  Fortunately, the world will not likely change as rapidly as the pundits will have us believe.  There will needs to be a methodical transition plan between current centralized structures and future decentralized structures.  The best way to start is be collecting an inventory of existing social institutions that are codified and acting successfully as an effective bureaucracy today.  Then we need to slowly add a blockchain to their clock and study the opportunities in that environment.  We need to understand the difference between where human decisions can be replaced by algorithm but to also be vigilant to preserve those human judgements that are not replaceable by an algorithm.

The outcome will be a new type of bureaucracy where humans act at a much higher level as adjudicators to smart contracts on a blockchain

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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BidPool Adjudicated Smart Contract Game

March 30, 2016

Problem:  Many contractors say that their COGS (cost of goods sold) consumes 10-30% of their expenses. Obviously, this cost is passed on the customer.  Bidding can be made far more efficient with BidPool Adjudicated Smart Contract Gaming platform. For example: 5 contractors may spend $10K bidding on a 1 million dollar project that only one will win. […]

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Uber Airlines

January 5, 2016

As the Uber/Lyft business model continues to hone its end-run around the heavily regulated taxi industry, many are now looking at the air transportation industry for vulnerability to Uberesque disruption. Enter Uber Airlines. Long before social media, entrepreneurs have been trying to sell empty legs on private airplanes – almost 40% of all private jets […]

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Identity Verification On Blockchain

January 5, 2016

This Panel was formed at the Future of Money and Technology Summit in San Francisco on December 5, 2015 to unpack the issue of Identity verification on Blockchain.  One of the most powerful components of blockchain technology is the equal ability to disintermediate a person’s identity from their data, as to associate identity with a […]

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Introducing Quant

December 16, 2015

What is Quant? Quant is a digital token that represent human productivity. The total number of Quant that can be mined is 223.3 Trillion corresponding to the approximate dollar value of outstanding human productivity existing on December 15, 2015. This is the amount of future productivity that everyone in the world has committed to each […]

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Zertify Zillow Zestimates On Blockchain

December 9, 2015

Big Problem with Zillow Zestimates: Perhaps the best example of metadata being imposed upon an unwary public is the “Zillow Zestimate”.  Zillow.com is a real estate website that aggregates public information and boldly publishes the value of your personal property while quietly disclaiming that invalidity of their own valuation.  In all fairness, RedFin.com and Trulia.com […]

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