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

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 deploy new business platforms that incorporate blockchain technology.

The blockchain protocol

However, the implications of combining blockchain technology and the engineering profession may be among the most profound.  In short, a blockchain is a computational “machine” with vaults, gears, and locks that acts as a trusted 3rd party to secure a database that is mutually shared by banks, insurance companies, corporations, and private parties. They use cryptographic “keys” instead of physical keys to open and close doors. Blockchains also include a feature where computers (owned by “miners”) compete to solve a trivial puzzle (proof-of-work) in order to open new blocks in a chain and reveal the next puzzle.  This assures that the block cannot move backwards in time therefore forming an indelible seal, or “notarization”.   This process also generates an electronic token (coin) that provides people with incentives to work hard to maintain the network. With these components, the “machinery” can automatically verify facts and execute transactions between parties where nobody can cheat.

The Professional Engineering Protocol

By contrast, for nearly 100 years, the Professional Engineer too has acted as the trusted 3rd party to banks, insurance, corporations, and the public.  The PE stamp has served to secure the public ledger of accounts related to physical infrastructure upon which modern civilization depends.  In the United States (and other countries) the PE stamp is the node of assurance that validates time and fact. Each PE is a node in a system and is individually secured by education, experience, examinations and model law. Engineers solve real puzzles in order to reveal the next real puzzle in a chain – the engineering product can never move backwards and is therefore indelible. The combination of these components provides banks and insurance companies with assurance to execute financial transactions and payments whose value is, in fact, stored in public infrastructure and productivity.  Nearly all actuarial data used by banks and insurance companies is tied somewhere to the professional engineering stamp of assurance.

The problems with Blockchain

Part of the problem plaguing cryptocurrencies is that they are virtual assets and can never meet the intrinsic standard of representing a real physical asset. This problem may be solved if professional engineers were to adopt blockchain as their own new iteration of the PE stamp.

There is no shortage of crypto-pundits who wax poetic over the ideals of a decentralized universe thanks to the miracle of the blockchain.  Meanwhile, speculators fawn over Bitcoin’s potential as an alternate currency, possibly a black market currency, without really understanding the nature of currency itself.  The truth is that money must represent human productivity otherwise people would not be willing to work in exchange for it.  Human productivity is the domain of engineering, period. 

The Opportunities for Blockchain in Engineering

Needless to say, the opportunities to deploy blockchain technology in the engineering profession cannot be overstated.  The professional engineer represents a “smart key” that can open and close smart contracts on a blockchain.  All contracts ultimately must lead to a physical entity and more often than not, that physical entity is tied to an engineering stamp somewhere in it’s value chain. This is a fact.

What you will not find is a collection of experts who understand the direct analogy of blockchain technology to the institution of professional engineering as deeply at the researchers at Coengineers. It is almost as if the Bitcoin designers came to the conclusion that professional engineers had it right all along.  Coengineers, PLLC is now at the forefront of this industry, at the global level.

Give us a call and we will help you develop blockchain applications specific to your engineering business methods.  We understand the technology, the platforms, and the developers. Industry, government, banking, and insurance are all beneficiaries of blockchain applications adjudicated by professional engineers.  We are Coengineers, we build together.

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Coengineers, PLLC is currently leading the Financial Technologies Task Force for the National Society of Professional Engineers.  The objective of the task force is to research the implications and discover the opportunities to deploy Blockchain Technology to the Professional Engineering Disciplines. [Reference: The Bitcoin Protocol and Future Currency Impacts on the Engineering Profession ]

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Please forward this article “Blockchain Technology And The Engineering Profession” to others.

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BidPool Adjudicated Smart Contract Game

by Dan Robles on March 30, 2016

coengineers.comProblem:  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. Further, each contractor may only win 1 out of 5 bids submitted. These losses are ultimately passed on to the market in increased cost, lack of industry collaboration, and influence peddling. As such, the cost of bidding is represented by the following relationship:

Cost of bidding = COGS multiplied by Number of Bidders

Adjudicated smart contract: Consider a process where a project owner and all 5 contractors (or more) each put a $10K promissory note into a blockchain  escrow account. An engineering firm such as Coengineers, PLLC will then perform a 3rd-party project definition report and Statement of Work that collects all relevant information that the contractors would need to bid on a job. All contractors are then invited to an electronic RFP.

Game Mechanics: Whoever wins the RFP pays (by escrow release) $10K to Coengineers, PLLC for the SOW report. The losers pay nothing. If the owner does not select a contractor, the owner then pays for the report and can use it to hold another contest in the future. These savings are ultimately wrapped into the discount of the projects according to the following relationship:

Cost of bidding = COGS divided by number of bidders

Aligned Incentives: Where there is no penalty for either winning or losing, the incentive to cheat is reduced. The Value Game realigns major incentives and the projects benefit from.

  • Improve matching of qualifications to the project
  • Improve quality and seriousness of owners (no “tire kickers”)
  • Eliminates bidding redundancy
  • Everyone bids “apples to apples”
  • Rewards collaboration and intangible assets
  • Reduces project variance (i.e., change orders)
  • Reduces marginal cost of additional bidders
  • Opens market to more bidders (prediction markets)
  • Increases transparency
  • Reduces project costs
  • Insulates conflict of interest
  • Resistant to corruption

Additional benefits:

A comprehensive project definition can be used for many purposes downstream:

  • Contractor RFI/RFP
  • Master Schedule
  • Bank Financing
  • Project Insurance
  • Statement of work
  • Contract language
  • Inspection compliance
  • Construction and Accounting Forensics

Scalability:

Future advancements in financial technologies such as the Blockchain protocol and Knowledge asset networks such as the Curiosumé protocol will allow BidPool to scale infinitely to many project types, markets, and jurisdictions.

Summary:

BidPool is a Value Game that reduces the cost of procurement, increasing project assurance, and realigning market incentives to reward high integrity and not reward low integrity. By introducing simple game mechanics and deploying modern financial and knowledge Asset technologies, BidPool may generalize procurement across markets and industries with direct lineage to the banking, insurance, and engineering sectors.

For more information contact Coengineers.com

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Uber Airlines

by Dan Robles on January 5, 2016

Uber AirlinesAs 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 fly empty as they return their pilots to base after dropping off their charge – and again for pick-up. Every few months I’d hear about some new start-up claiming to provide private jet service for the price of a commercial flight.  A few limited operations exist, but not many – and they can’t scale.

I spent about a decade in commercial aviation and later co-founded Social Flights, a jet-sharing service out of Nashville – we unsuccessfully tried to solve the same problem and learned a great deal in the process. I can say with great confidence that it is not possible to close the business case on Uber Airlines, YET.  A few more technologies need to be invented and maybe, just maybe, we’ll see an Uber Airlines achieve a scalable business model.

The aviation industry is heavily regulated by the Federal Aviation Administration. There are mountainous regulations pertaining every detail of the air transportation process; the aircraft, the crew, the passengers, weather, DHS, customs, scheduling, baggage, the airport, etc.  Aviation is many times more regulation dense than automobiles and the costs associated with air transportation are many times again higher than automobiles.   In order to make the economics work, an operator needs to be a commercial airline with scheduled service flying big jets between hub and spoke airports or they need to be a private on-demand charter operator. You can’t just stand on a street corner and hail Uber Airlines to anywhere.

There are three technologies that need to happen first:

  1. Next Generation Air Traffic Control. NextGen ATC refers to aircraft management technology that uses space-based GPS instead of ground-based radar to manage air traffic around airports. NG-ATC could literally light up 500 municipal airports and eventually up to 5000 small airports with all-weather service. Currently, only 30-40 major hubs can handle such operations.
  1. Curiosumé is a concept that we first developed at Social Flights, LLC for determining the probability that a certain number of people within a certain geographic area would all want to go to another geographic location within a certain window of time – and again in reverse, on the same day. The reason that we wanted to take this approach was an attempt to manage 5 sets of FAA regulations statistically instead trying to do so preemptively.
  1. Blockchain Technology would then provide the database technology which could handle all of the pilot qualifications, flight logs, aircraft maintenance logs, passenger manifest, inter-party payments, ground transportation, hotel reservations, etc. A set of rules and adjudicated contracts could be developed to manage the rest of the regulations.

With these technologies, we estimated that an Uber Airlines service would need a minimum of 2.5 million registered users located within 10 miles of 500 small NG-ATC airports (5000 per airport) in order to fill 6-8 seats on a private aircraft traveling in both directions to and from any one of the other 500 airports within an 8 hour period at least once per day. If this puzzle can be solved for small airplanes, it is only a matter of time before you could disintermediate large carriers as well.  That is how to solve this problem.

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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NSPE Launches FinTech Task Force

November 5, 2015

The National Society of Professional Engineers has formed a task force to research and review blockchain applications aimed at the banking and insurance sectors for applicability and impacts to the engineering profession.  The task force is made up of 8 visionary engineers from within the membership.  Daniel Robles, PE (this author) was appointed to lead […]

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Municipal Governance On The Blockchain

October 13, 2015

As a member of the City of Edmonds Planning Board, I hear a lot about what the public wants and what they do not want from their local government.  As a seaside town, property values can be greatly impacted by water and mountain views.  As such, there is an incentive to remove trees blocking views. […]

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Gun Control On The Blockchain

October 6, 2015

The following discussion related to Gun Control On The Blockchain is a thought-exercise only inspired by new and emerging technologies for decentralized self-governance and does not necessarily represent the opinion of the author. It is not intended to favor any single political position. it is not presented as a comprehensive solution to all scenarios. This article is intended to […]

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