The Ingenesist Project

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.

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 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.

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. 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

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 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.

2. 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.

3. 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.

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 other in the form of global debt obligations.

The flaw

What people may not fully understand is that human productivity is not stored in banks, corporate boardrooms, and governments – these institutions only maintain and control the ledger of future productivity, they are not the actual source of the productivity.

Rather, human productivity is stored and sourced in the combined education, experiences, talents, skills, health, community, passions, professions, careers, as well as works of engineering, artistic expression, and scientific achievements of humans. These are the actual stores and sources of human productivity.

Unfortunately for most people, it is very hard to see this distinction without a proper reference. Introducing Quant provides that reference unit of account.

Fixing the Flaw

Curiosumé represents a person’s talents, interests, and skills (i.e., future productivity) in a form of cryptography. In essence, fabricating smart keys that can open and close social contracts on blockchain. As a result, knowledge assets may become visible to an accounting system under the explicit control of the owner. Once built, Curiosumé will mine Quant from the “proofs-of-work” performed by real people solving real puzzles that maintain a real network. The Network will be able to allocate Quant using algorithms measuring fault tolerant network dynamics, thereby decentralizing production.

Building Curiosumé

The Ingenesist Project (TIP) has created the Quant Token on the Bitshares Blockchain.  TIP has issued to itself Q10,000,000 to be allocated to the development of Curiosumé.   All participants in the initial phase will be given a donation of Q100 per hour for helping build and disseminate Curiosumé to the public domain. Future levels, if founded, will re-value the earlier round on a ratio of 10:1

Introducing Quant as the internal token of the Curiosumé network will allow people to articulate knowledge assets in true decentralized corporations.

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Disclaimer: Quant is not a currency nor is it meant to represent value or security in any entity.  Quant is akin to a game token where the challenge is to solve a puzzle to a public domain ledger. There will be leaderboards, level-ups, and player interaction similar to any role-play game. Quant may be sourced and sunk only within the intended open-source game that it portrays.  The whole “Global Debt” thing is part of the backstory, not some sort of political aspiration or commentary.  C’mon, this is supposed to be fun.  

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 the task force by the president of the NSPE and approved by the board of directors.

Today, Licensed Engineers serve an essential role in the economy as adjudicators to banking and insurance industry underwriting of our nation’s infrastructure, in effect, supporting the value of our currency.  The integrity of infrastructure is what supports the majority of assets on a corporate or municipal balance sheet. It is a natural progression that Professional Engineers would articulate their judgement in design, safety, process, and longevity of these critical assets on smart contracts in blockchain protocol.

For example; The design and construction process is comprised of a master contract and a long series of minor contracts.  Validations, inspections, compliance and defect assurance etc, can all be articulated as smart contracts on a project blockchain where the licensed professional engineer serves as an adjudicator to flip the switches that release payments, trigger insurance coverage, time stamp completion, or open the next contract in a series of work orders.

Further, Curiosumé is an application developed by The Ingenesist Project that converts a résumé into cryptography.  This may be used to fabricate smart keys to open and close smart contracts on a blockchain.  By decentralizing the adjudication process, moral hazard and negative incentives can be effectively eliminated from acquisition, commissioning, servicing, and maintenance of high value public and private assets.

There’s an old saying that “A fish does not have a word for water”. This is because water is so elemental in the life of a fish that they can’t even see it. The same can be said for public infrastructure.  We often take for granted the availability of clean water, warm buildings, and safe transportation that we do not often see it as a storage place for value.  In fact, infrastructure is the perfect store of value because without it, society is far less productive where, say, we had to ride a mule, grow our own food, or chop wood for heat, etc.  It is well observed that the value of a nation’s currency is directly proportional to the value of their infrastructure.

The Liquidity Crisis

Many people in the cryptocurrency space are coming to terms with the speculative nature of the current collection of crypto-coins.  They realize that a virtual asset cannot be represented as a physical asset without some intrinsic intermediary to store real value. Cryptocurrencies appear to solve part of the problem of transferring an asset, but suffer many new problems such as articulating quantity and quality of the asset. In essence, money must represent human productivity otherwise people would not be willing to work in exchange for it – this is the source of low mainstream adoption and poor liquidity of cryptocurrencies.  The social agreement required to form a true currency is, and will remain, elusive without intrinsic value.

The engineering profession is precisely the means by which that intrinsic conversion can be implemented. People need electricity, they need food, shelter, energy, schools, bridges, highways, and airplanes and are willing to convert their own productivity in producing these things in reciprocal exchange with others producing these things.  Blockchain transactions must be developed to represent stored value in infrastructure thereby holding intrinsic value from which supply, demand, and factors of production (markets) can behave as needed in a functional economy.

NSPE Launches FinTech Task Force

The NSPE task force is an extremely important step in bridging financial industries with the needs of people and society. This may be one of the most important developments coming out of the cryptocurrency domain since the Satoshi Genesis block one.

Beginning with the failure of the NAFTA Mutual Recognition of Professional Engineers followed by an introduction to modern cryptocurrencies, this seminal presentation specifies a future where engineering knowledge represented by a virtual asset may store true intrinsic value.

This presentation was filmed at the 2015 National Society of Professional Engineers Annual Conference, Advanced Leadership Track, July 16, 2015 in Seattle Washington. Daniel Robles, PE, MIB is the founder of Coengineers, PLLC and The Ingenesist Project

Abstract

The Bitcoin Protocol And The Future Currency Impact On The Engineering Profession

In a Wall Street Journal essay, two authors wrote, “The digital currency known as bitcoin is only six years old, and many of its critics are already declaring it dead. But such dire predictions miss a far more important point: Whether bitcoin survives or not, the technology underlying it is here to stay.” This session will cover what digital currency means for the engineering profession.

“Decentralization” is a term being applied to platforms that use the Blockchain Protocol pioneered by Satoshi Nakamoto, the inventor of Bitcoin.  As a cryptographic currency, Bitcoin remains problematic.  However, as an algorithmic protocol, blockchain technology will enable society to cheaply perform common business processes that are now controlled by institutions such as banks, insurance companies, corporations, government, etc.  Today, rapidly emerging platforms are under development to bring “smart contracts” (algorithms based on blockchain technology) into the mainstream.  

An important and essential variant of smart contracts is called an “Adjudicated Smart Contract” that requires an independent 3rd party adjudicator that would “flip the switch” on algorithmic agreements in finance, insurance, and decisions of governance.  There is a staggering opportunity ahead for the engineering profession to position itself for the role of the adjudicator in a wide variety of important and high value transactions.  The caveat is that we too must change the way that we organize ourselves.   

This presentation, Decentralizing the Engineering Profession, begins with the failure of the NAFTA MRD followed by an introduction to blockchain technologies, and ending with specifications on how our profession can jump to the top of the value chain in the era of Social Capitalism – if, and only if, [the engineering profession] can choose to change. 

The Ingenesist Project is excited to announce the launch of a new class of cryptocurrencies with the defining characteristic of storing and exchanging value intrinsically, i.e., within itself.  

Intrinsecus is a Blockchain 3.0 platform that combines Curiosumé with the Bitshares blockchain ecosystem to form a class of cryptocurrencies representing the intrinsic value of human productivity – the intrinsic merit of an action.   Simply put, Curiosumé converts a résumé to cryptography to create “smart keys” that can interact with “smart contracts” on a Bitshares “smart blockchain”. 

Recent experiments with Blockchain technology have demonstrated the difficulty in representing physical assets with virtual assets, leading to an enduring liquidity crisis in cryptocurrencies.  Intrinsecus solves this problem with a currency that directly represents and immediately decentralizes human productivity prior to the centralization effect of banks and corporations.  

From decentralizing “human resources” to putting a toll booth on “big data” to hedging human debt instruments, the implications of an intrinsic cryptocurrency are sweeping and vast.

The Intrinsecus team is comprised of multi-disciplinary visionaries from Engineering, Insurance, Banking, Philanthropy, and Blockchain Development industries.

The Ingenesist Project will be available for limited media inquiries pending further details of a crowd funding program.  Please use the contact form on this site for quickest response.

References:   

17:00 Curiosumé, Fintech Seattle:  https://youtu.be/m_-JkUI5ATE

29:00 Bitshares User Issued Assets https://youtu.be/yzruOULgmng 

From classical economics, we are familiar with land, labor, and capital (money) as those things that the benevolent merchant class allocates as a means of producing all things useful to society.

Today, we observe that the new factor of production in an economy is data. Data is the dominant factor being allocated, or constrained, by the merchant class as a means of producing some useful and some not-so-useful things that society may or may not need.

Yet, the collection, processing, normalization, distribution, interpretation, transmission, integration, differentiation, and segmentation of data are the domain of the engineering profession.

Data are the fundamental building blocks of information, knowledge, innovation, and wisdom.  These are the new factors of production upon which new Capitalism is based.

It would seem then that there is an opportunity for the engineers and technologists to claim this important factor of production as our own and thus allocate data to those things that safeguard the health and welfare of people and property while constraining data from those things that do not.

Blockchain technology allows society a quantum leap to leave abandon legacy data systems, not unlike cellular telephony allows society to abandon land wires. Engineers are at a critical phase right now. Either we ignore block chain technology, or we do not.

Bitcoin uses Proof-Of-Work (POW) to create a new block in a blockchain.   This is analogous to the kidnappers taking a photo of the victim holding the daily newspaper to establish that they are still alive.  Consequently, no proof can last more than a few seconds until the next newspaper is printed.  In other words, the solution to the last puzzle becomes part of the solution to the next puzzle.  In the case of Bitcoin, if we assume that the newspaper has no other reason for existing except to prove that the victim is still alive, it is easy to see how POW can becomes energy and labor intensive.

Proof-of-Stake (POS) is a bit more like Poker. Only after a player shows their cards can a determination be agreed upon by the community of players permitting a payout and allowing the next round begin.

The information required for proof of stake is as follows: 1. the result of the last round of the game, 2. the identity of the card holder, 3. the timestamp that the poker hand was revealed.  4. The account balance of chips on the table, and 5. the result of the playing-card algorithm.

If an account has all of these components, then a new block may be formed. If one draws a rough analogy between POW and POS and compares that to the Professional-Of-Engineering Stamp (POE) Model – and by extension, all scientific validation marks – an interesting similarity emerges:

In an environment of construction, product development, or even research and development, the following is observed:   1. It is relatively easy to use the results of a test, inspection, or observation to establish that a condition exists.  2. The condition the prior event defines the state of play for the next event. 3. the identity of the adjudicator is established in their qualifications (or licensure or Curiosumé) 4. The value of the project is established contractually, by pro forma, or prior block 5. The design of the project represents the algorithm of the game.

Once this information can be established, a signatory can create the new block. The difference between POE (Proof-OF-Engineering) and PWO/POS is that POE has an intrinsic value which is stored in the asset being created (road, bridge, software, security, energy, education, medicine, etc).  Where multiple players engage with a shared asset, they are all intrinsically motivated to preserve the asset rather than consume or destroy the asset.  They will interact with each other accordingly.

Perhaps the bigger question is: Should society emulate cryptocurrencies or should cryptocurrencies emulate society upon our shared asset Earth?

 

 

The opportunities for the future of Professional engineering are just staggering.   Banks and insurance companies are investing heavily in blockchain technology in order to both head off a threat of decentralized cryptocurrencies and to release fantastic efficiencies for their own centralized processes. However, no matter how big or how powerful these institutions are, they must contend with the issue of representing a physical asset with the virtual asset.  This is the source of widespread liquidity issues across the cryptocurrency movement and a problem that remains largely unsolved.

Financial institutions will need, more than anything else in the world, some provision to identify, the quantity, quality, and variance in  all physical assets represented by virtual currencies. There is simply no way around this.  Sure, crypto-pundits will try to explain this little fact away by claiming that intrinsic value of a currency is no longer a requisite for money.  They are wrong.

The Professional Engineering Community is in a very unique opportunity to serve this extremely important function, in part because of the legal structure that they are associated with as well as the simple fact that the PE stamp already performs a similar function in legacy finance.  As a third party adjudicator of traditional contracts, the engineer flips the switches of money transfer to infrastructure projects (and much more), upon compliance with a legal contract.  This same structure can be readily adapted to the virtual currency domain via engineering as adjudicator of smart contracts.

Engineers need to think about their role in society more like a financial instrument than a commercial service or job function. Only then can they have a direct and profound influence on what is built when, and how.  It is in this capacity that engineers can increase effectiveness in their historical doctrine to safeguard the health and welfare of people and property (planet).

Today, a great many decisions that impact the safety, health, and welfare of people and property (planet) are being made by non-engineers, blind shareholders, financial institutions, and short-term politics.  Yet the majority of the future challenges for civilization will be technical in nature.  The integration of a technical policy in finance is precisely the balance that the global economy needs to transition into the next millennium.

NSPE and A Platform

In order to take advantage of these opportunities, the engineering profession needs to reorganize itself.  The NSPE constrains itself to a mandate that serves only State Licensed engineers.  Taken alone, this makes the PE less of a physical science and more of a political science.  The NSPE, precisely by their State Registration, is also in a unique position to act as the decentralized platform for all engineers.  All engineers must be elevated to the position of financial instruments and interact directly with the Banking and Insurance companies.

– Nick Szabo

The advantages of cryptocurrencies have the potential to be immense.  The first thing that people notice is that there are no transaction fees.  If one wants to email someone 20 dollars, all they need to do is convert 20 dollars to bitcoin, send the bitcoin, and exchange back to dollars – no brokers, no bankers, no fees, no taxes.

People also realized that by keeping their money in Bitcoin, they could buy and sell goods and services without credit card fees, bank fees, or sales tax.  They could even send micro-payments directly to an artist for a copy of a song – no record label, no iTunes, no banks, no taxes, etc.

This functionally resembles the ease with which a corporation can transfer resources internally.  It didn’t take long for people to realize that any kind of contract can be entered into a block chain and irrevocably time stamped. This includes patents, and trademarks, notary, and business agreements, etc.

– Nick Szabo

Now people are looking at the possibility to transmitting even more complicated contracts across block chains; such as an escrow service and insurance.  For example, a buyer could convert cash to crypto coin, and lock it to an escrow contract. If the product checks out, the program passes the payment to the seller. If it does not, the algorithms sends it back to the buyer.

Next, an insurance product is not much more than an escrow account between multiple persons.  Theoretically, people can form their own insurance pools – good drivers can team up and self-insure, no longer needing to subsidize poor drivers.

The blockchain can scale magnificently with near zero marginal cost per transaction.  It is easy to see how this innovation would have profound implications for Banking and Insurance.  This brings us back to the engineering profession and the 3-legged stool.

Banks and insurance companies fought bitcoin at first.  But now, they are rapidly trying to incorporate blockchain technology into their business system. This allows them to make a quantum technological leap out of legacy data systems while also enabling them to eliminate their own legions of brokers.  The potential profits for the banking and insurance industry are staggering.

Bitcoin 2.0 Smart Contracts About What ?

– Nick Szabo

Unfortunately, they will eventually run into a problem which would be extremely difficult for them to solve. Crypto-currencies are virtual – they don’t actually exist. They can only represent something that actually exists.

It is precisely this “representation” that is the domain of the engineering profession.  The engineer, in their capacity to design and build things is the proxy that can bridge this extremely important gap.  A some point, a crypto contract needs to interact with something that does actually exists.

The Professional Engineering licensure is holding on by a thread – albeit a very strong thread – called State Government regulations supported by the Banks and Insurance companies.  However, that may change soon –  not because of something that the government or the engineers are doing, rather, there is a huge technological changes occurring in Financial Services sector.  This article describes how changes in the financial system may impact Professional Engineers.

How FinTech Impacts Engineers

The change is being driven by something called Bitcoin – well, not actually a coin, but the cryptographic process – called Blockchain protocol (BCP).  The Blockchain Protocol is being called by some one of the greatest achievements of the human intellect since Calculus.  Don’t take this lightly – anything that impacts finance, impact engineering, and vice versa.

While the mechanics of the blockchain protocol are extremely complex, an easy way to understand the impact begins with a short history on databases.

Early on, data was stored on tape machines and the computer told the machine to retrieve a bit of data, say, 11 meters down the tape and another bit of data 18 meters in the other direction so that some computation can be performed.

Today modern databases contain all sorts of data about every aspect of their business such as accounting, financial, HR, vendor, client, product, sales data, etc.  Modern data systems are incredibly efficient except when one database needs to talk to another database, then things start to get resource intensive.

But over time we have adapted to this problem with a burgeoning service sector that helps databases communicate.  These include mortgage brokers, insurance brokers, real estate brokers, multiple layers of management who bring the data to market.  Then we developed APIs that help convert the data so that Google, Amazon, or Facebook, can of sell certain parts of their database to partners.  Finally, platforms such as Uber and AirBnB are pure brokers of data.

In fact, Uber is the world’s largest Taxi but owns no cars, AirBnB is the worlds biggest hotel but owns no property, Facebook is the worlds biggest media company but writes no content.  These are the mega brokers because they can withhold information from a market and are worth Billions upon Billions of dollars.  Meanwhile it is impossible for me to email you 26 dollars because the fees to do so are 25 dollars.  Money can be withheld at will.  So if you can withhold information, you and create scarcity which drives price.

So what if you could eliminate the brokers?  Not because they are bad or wrong, just because they are inefficient and introduce a great deal of friction to a free market.  well, there are basically 2 ways to do this.

You can combine data bases of two or more organizations.  This happens with many mergers and acquisitions and nearly always result in surplus labor (i.e., brokers).

The other way is for many organizations to share a common database. This is the general idea of decentralization – it all happens outside the construct of what we now know of as a Corporation.

The Digital Engineering Stamp

The new problem that emerges with decentralization is how do you secure the data? Who is going to take responsibility for maintaining the database? What is to keep someone from giving themselves a raise, or double spending an account entry, or accessing private information, etc.?

This is precisely the problem that the Blockchain protocol solves. In fact, the blockchain protocol, is the digital analog to the professional engineer’s stamp, signature, assurance, or design.  So this is clearly not trivial.

The professional  Engineering licensure system has developed a qualification system that serves to define the engineer as an asset much in the same form as any financial instrument would format an asset.

Engineers need to understand how this design empowers them as a financial instrument otherwise, they can easily be sequestered in the domain of the “intangible”.   In the mind-eye of Wall Street, the engineer acts as a proxy for the physical asset that is being capitalized.

The Engineering Asset:

In general, engineering licensure is a function of three components where each is represented in the parameters of the licensure process.

1. An accredited education represents the quantity of the asset being described, be it mechanical, electrical, civil engineer, etc.

2. Documented experience represents the quality of the asset as verified by a comparable existing asset.

3. Finally, the examination minimizes the variance in the quality and quantity of the engineering asset.

Since there is some flexibility in the parameters.  For example, it is fairly easy to substitute a bit less experience for a bit more education. Similarly, it is possible to increase education and experience in lieu of an exam.

However, in each and every case, the asset is preserved as a function of quantity, quality, and variance. Otherwise, it ceases to be a stand-alone asset and requires a corporation to house it.

A great deal of engineering falls under the under the corporate exemption. This is neither right or wrong – it is simply another delivery mechanism for engineering services.  There are many different delivery systems that perform essentially the same function such as venture capitalists, university affiliation, grant writing, oppression, and quite predictably, bank loans and insurance contracts.

As such, there is no limit of possible delivery systems as long as they fulfill the governing equation for Quality, quantity, and variance.

 

The definition of Asset is broadly overlooked in discussions about finance and cash flow.  The definition of Asset must be upheld on the accounting sheet or else the “asset” ceases to exist, is classified as an “intangibles” or becomes a liability.

In the prior post, I make the claim that engineers are money. On certain types of projects, such as construction or product development, there is a period of time between expenses and revenue.  During that period of time, the asset does not actually exist.  Instead it is being supported by the engineering that is actualizing the future asset.

All assets are described by two components; quality and quantity. For example; it is insufficient to say that “water” is an asset without also specifying the quantity and the quality of the water – is it 6 oz of drinking water or is it 6 liters of cooling water in your car.  A value cannot be ascribed to an asset without these two pieces of information – and each has a hugely different value proposition.  Likewise, if either of these two bits of information are missing from the definition of the Asset, it ceases to exist on the accounting statement. During construction, maintenance, renovation, or replacement, either of these two information points may be temporarily compromised.  The term for this is Accountability.

In this case we say that the value of the asset is a function of Quantity and Quality:

In order for that to occur, the asset value needs to be projected upon the engineer as a proxy for the asset.  As such, the engineering assurance must also be described in terms of quality and quantity.

Our next lesson comes from insurance 101: in order to manage risk, you first need to know pieces of information:

1. Can you identify the risk exposure

2. If so, what is the probability that risk exposure will manifest

3. If so, what are the consequences of that manifestation

These are the governing equation for the Accountability of engineering assets; definition, transmission, accounting, and resolution of an asset.

Likewise, the best way to an intangible asset or even a liability, is to impact Quality, quantity, and variance.  This is the domain of engineering

Engineers are the critical component in Global finance.  They are needed to keep the electricity on, the Internet running, to fight wars,  to provide food, shelter, warmth, and transportation to all mankind.

However, economies are segmented by political boundaries, not necessarily engineering boundaries.  The political laws vary, but the physical laws do not.  It is precisely the ability to sequester engineering behind political, corporate boundaries, and ontological boundaries that gives unfettered prioritization and control of our Planet’s resources to non-engineers and non-scientists. To control engineering is to control the world.

As we saw earlier, V=F(Q,q) relation did not hold for NAFTA engineers but it flew right through for financial services.  Pretty much every trade agreement after NAFTA copied NAFTA and passed along this flaw.  Today, there is no such thing as a Global Engineering system anywhere near comparable to the Global Financial System.

Money Must Represent human productivity otherwise nobody would work in exchange for it. Productivity can include factory production, but also social production like kindness, empathy, parenthood – the things that people normally are by definition part of an economy.

Unfortunately, Money has been largely divorced human productivity through the intricacies of financial exotica and the great speed at which money can travel which productivity cannot. There is a precarious situation where money no longer represent the underlying human productivity asset that underwrites it.  This is dangerous because people will refuse to work in exchange for it, unless forced. Forced liquidity has been known by many names over the course of history.

Money is a social agreement, As soon as a viable alternative currency arises which truly represents the essence of their productivity, they will switch over to use it.

Until then, we must endure non-engineers/scientists making decisions on what is best for our planet.  Non-engineers decide if and when electric cars will replace fossil fuels.  Non-engineers decide what neighborhood gets the best schools or how much desert property is worth 100 yards across the US border.  Non-engineers set technical priorities and allocate engineering – in doing so, they are in fact performing engineering for which they are unqualified.  This is simply another form of forced liquidity.

The laws of physics tell us that the greatest electrical “potential” is defined as the difference between two nodes.  The greater the distance, the greater the potential and the brighter the spark that can jump the node.  By analogy, less developed countries would therefore have the greatest economic “Potential” precisely because the gap is so wide. Poverty ridden cities would have a greater economic potential than exclusive gated neighborhoods. Impoverished peoples would have the greatest potential due to the distance between the rich and the poor.  All of this potential is lost due to a tiny flaw that can be easily corrected.

Technological change must precede economic growth.  We are going about the process of Globalization as if economic growth can precede technological change.

In short – we got it backwards.  The tragedy is that we got is backwards.  The opportunity is that it can be so easily corrected.

 

 

 

 

The North American Free Trade Act was unique in that it provided for the free trade of professional services such as financial services and engineering services.  Unfortunately, international trade in financial services was accomplished without also achieving international trade in engineering.  This created a vacuum on productivity (The actual giant sucking sound). Most trade agreements that followed NAFTA were modeled after NAFTA.  As such, this flaw was inherited by modern globalization worldwide.  To correct the flaw could reverse much of the misalignment between money and the fact of productivity.

Here is how NAFTA Failed. This diagram comes from an obscure paper that I published in 1996.

 

From prior posts on this topic, The US PE is a function of education which defines Quantity of the asset, Experience which defines quality of the asset, and Examination which reduces variance of the asset.  Education is defined and standardized by ABET, the examination is defined by NCEES, and the experience is defined by an adjustable peer review standard. There is some flexibility such that little more or a little less of one factor can be absorbed by a little more or less of the other factors. This is rational.

Each of the NAFTA countries has their own rendition of this. In the case of Canada – the education is equivalent to the US due to an accord between accreditation agencies.  The Canadian exam is different, however, the experience component is mutually recognized across jurisdictions.  Since 2 out of 3 factors are reciprocated, then the difference can be made up with minor adjustments.

However when you get to Mexico, both the exam and the education were substantially different with no accords with either of the other countries.  Since only 1 of the 3 factors (experience) were reciprocated, an extreme adjustment to the experience standard needed to carry all the weight.  In fact 15-19 years of experience was the only way that an engineer from Mexico could participate in NAFTA

So when you try to get a combined standard, we see that there is no way to assess the Quantity and Quality of the NAFTA Engineer. This is where the negotiations where breaking down when someone said, hey there are hundreds of Mexican Engineers passing the EIT. This is how I got dragged into NAFTA.

Our proposal was that all three countries accept each other’s experience requirement – they were already willing to do this.  Then we suggested that everyone take the same examination – assuming it could be published in Spanish.  Then, the feedback of the exam can be fed back into the education system so that they can be reconciled over time.

The purpose of this solution was not to toss a political hot-potato.  It was to preserve the formulation of the asset. In doing so, insurance companies would be willing to insure the asset and banks would be willing capitalize the asset.  As such, the flow of financial instruments could be applied to infrastructure and the process of economic development could begin for all participants.

 

Unfortunately, this proposal was rejected for reasons far too trivial and irrational to dwell upon here.  The bottom line is that on a planet where the laws of physics are nearly identical at single every point, there is no Global engineering profession.

This is, and continues to be, an utterly tragic outcome.

To describe how Cryptocurrencies would be applied by Professional Engineers, we need to start with a brief discussion on cryptocurrencies and blockchains.

Cryptocurrencies 101

It all starts with something called a hash. Basically, a computer program generates a large random number.  Then a key generation program fashions the random number into keys that are mathematically related to each other – so the keys recognize each other.

One key becomes the public key, and the other becomes the private key.  As the names suggest, the Public Key is made available to everyone via a publicly accessible repository or directory while the private key remains in the possession of the owner.

For example, if Bob wants to send sensitive data to Alice, and wants to be sure that only Alice may be able to read it, he will encrypt the data with Alice’s Public Key. Only Alice has access to her corresponding Private Key and therefore is the only person who can decrypt the encrypted data back into its original form. Even if someone else gains access to the encrypted data, it will remain confidential as they should not have access to Alice’s Private Key.

There are many ways to arrange cryptographic keys in a relationship, or even among additional operations with Boolean logic such that: If A and Not B, then C.  Such logic statement are the basis of a new form of production delivery called “Smart Contracts”.

Blockchain 101

However, cryptographic key sets are only part of the solution.  In order for a contract to be valid it needs to be recorded or institutionalized to some type of ledger or accounting statement which is equally secure, protected, maintained, and most importantly, it must be consensus from the users that the ledger is valid.

A Blockchain is sort of like a metronome that marks time.  Once a block of time passes, a new block starts.  The motion is caused by what are called “miners”. Miners are computers tasked with solving a difficult puzzle.  When the puzzle is solved, a new block is formed and the solver gets a prize – often called a coin.  Once a block is closed, it can never be reopened – the contents can be viewed by the users (to maintain consensus), but they cannot be changed.  They are cryptographically Sealed for all eternity.

These coins are often mistaken for money because they have some of the characteristics of money such as like creating an incentive to perform work.  Unfortunately, they do not have all of the characteristics of money such as possessing an intrinsic “earthbound” value.  Neither is the value trivial – the etherial value of the coin is proportional to all the things you can do with cryptocurrency that you cannot do without cryptocurrency.

The Blockchain protocol moves along opening and closing blocks that form a long chain that records every transaction that ever occurred since the so-called “Genesis” block.  Users interface now being developed for various blockchains incorporate features such as personal wallets and exchanges.  The current problem with most cryptocurrencies, despite their utility, is the limited number of people who are willing to part with their dollars in preference for the coin.  This is called the “liquidity crisis” and remains a problem yet to be solved.

In short, the blockchain protocol solves the broker/handshake dilemma with cryptography and incentives.  Social behaviors are still adjusting.

 

 

Here is a picture of one class of over 100 Mexican educated engineers sitting for the California EIT exams. During the 2 years that we conducted this program, we sent over 250 Mexican educated engineers to these US Board Exams. I must say that the whole process of making this happen was the most profound experience of my career. believe it or not, Engineers create money.

(Note: while professional engineering licensure reflects on a specific regulatory process discussed here, the use of the term engineer may be generalized to include all sciences and technical workers)  

But listening to the talk and banter of NAFTA, they were throwing around these words like money, value, risk, in ways that were simply did not match what I was seeing:

How could so many brilliant engineers be found in such a technologically underdeveloped country? The simple answer lies in the fact that for the developed world, modern finance allows for the capitalization of infrastructure projects. Engineering is, in fact, an extremely important financial instrument.

The Miracle of Capitalism

There is a large time gap between the moment that money flows to a project and the time that the project generates revenue. During this time gap, the profession of engineering serves to maintain the asset on the balance sheet. Engineering provides something called “assurance”. A bank and the insurance industry hedge each other’s risk, but without assurance the project cannot be capitalized. Again, capitalization and securitization FAILS without engineering assurance.

The 3-legged stool

In the preceding article, I said that the failure of NAFTA was that the financial service were successful in becoming a service of free trade while the engineering profession largely failed.  It is precisely the failure of the engineering profession to negotiate a meaningful Mutual Recognition Document which led the NAFTA to under perform. In essence, we kicked out one leg of the 3-legged stool.

Without the assurance of a viable professional engineering community, foreign direct investment in Mexico was limited to very high ROI investments, Government guaranteed construction, or partnerships with the Mexican oligarchy – in order to supplant an absent independent engineering sector.

Very large contracts for the sale of otherwise worthless desert land were being written contingent on 500 engineers being available to work in the foreign factory that would be built and guaranteed by the government.  Tacit or implicit, there certainly would be an incentive on all sides to not give engineers “wings” so that they could fly away, let alone enjoy free will.

I ran into trouble when the Federal Government found out that my program was doing precisely that – Mexican Engineers who passed the US Board exams were being scooped up by US Companies outside the jurisdiction of Mexico.  There was deep fear of a brain drain if the World learned that Mexican Engineers were as strong as we were measuring.

At one point a representative of the Mexican Federal Government negotiating NAFTA asked me to leave the country.  When the State of Baja California (governed by the opposition political party) heard about this, I was asked to stay and I lived in a private home under armed guard until the program could be completed.

The Big Flip

There is a great deal more to this story than I can not reveal in a short blog post, but the idea is clear.  Engineering productivity is an extremely important resource for the flow of money. Engineering assets play an important part in contractual agreements for tangible assets such as land and factories (factors of production).  They are central to the design and execution of international trade agreements.  Everyone wants to control engineering because to do so controls productivity.  In essence engineers CREATE money – money does NOT create engineers.