The World is grasping for an “Easy Pill” to solve global systemic problems. It doesn’t get any easier than The Innovation Bank.
Our core belief is that Engineers and Scientists can resolve the sustainability challenges that face civilization on Earth. But STEMs must be able to organize, prioritize, and execute the necessary solutions outside of the silos that currently contain them. They must also be compensated for their work. If Bitcoin can print money from nothing, then STEMS can print money from something.
Money must represent human productivity – this is the domain of STEM Professions
It is estimated that 80% of economic growth can be attributed to technological change. This is largely the domain of the STEM professions. However, STEM professionals are separated from each other by every manner of institution that has little to do with the Natural Laws. Rather, STEMs are classified as “intangibles” on the global balance sheet. The Ingenesist Project converts these intangible assets into tangibles assets suitable for the storage, trade, and exchange of value. Instead of extracting this value from the person or the planet, we leave it where it is.
The purpose of a network is to find each other.
The Ingenesist Project celebrates over a decade of online presence representing more than 2 decades of research and the collaboration by more than 120 researchers, engineers, and scientists from some of the most important corporations and institutions in the world. Our goal is to unify global engineering and scientific communities.
The Simple Flaw:
The invention of the wheel, wedge, and lever came long before the invention of international trade agreements.
Technological change must always precede economic growth. We are going about the business of civilization as if economic growth somehow precedes technological change – we’ve gotten it backwards.
Fortunately, this may be a simple thing to correct. The Ingenesist Project has introduces a simple “Correction Factor” that can reverse the flaw. There is no need to dismantle or replace much of what already works well.
The simple flaw must be corrected. A great deal of global systemic risk is emerging at the root of the World’s most pressing needs. The Innovation Bank uses blockchain technology, game theory, and actuarial math to measure the true economic contribution of engineers and scientists to the economy. The result is an asset class that is better suited to addressing global technological challenges.
“A lie gets halfway around the world before the truth has a chance to get its pants on” (uncredited). Similarly, such criminal leverage appears in other forms. For example, one guy with a shoe bomb is responsible for 100 million people removing their shoes every time they get on an airplane – 20 years later. Law enforcement in burdened with being right millions of times whereas the attacker need only be right once. We know from experience that the vast majority of people are truthful and honest. Despite the cost, breadth, loss of immeasurable civil liberties we are still unable to untangle the fraud from the fiction. We need to solve this problem as if our lives depend on it. Behind Every Fraud Is A Mountain of Truth that needs to be curated.
What if the leverage could be reversed so that the attacker must be right a thousand times while the target only needs to be right once?
One of the features of The Innovation BankTM is the application of game mechanics. The Value GameTM begins when a person makes a claim about the physical state of the world. It could be anything from claims of education and experience on their CV to reporting a toxic spill. Those claims are entered on a blockchain, timestamped, and rendered immutable. The player must then find another player to validate their claim. In effect stating “I validate that this claim is true”. The claimant and the validator are then permanently linked on the blockchain as a “node and two branches”. This claim is then combined with all of the other claims and validations in the community. Each participant is issued a digital token that can be converted to cash. That’s all there is to it, problem fixed!
Here’s how this simple game plays out.
Super Villain Max Mallory decides that he wants to gain access to a nuclear reactor in order to perform nefarious deeds. His problem is that he has no previous experience or education in nuclear engineering. Using The Innovation Bank, Mallory makes a claim that he is a nuclear engineer. He quickly encounters difficulty finding another engineer to validate his claim. Mallory pays his sidekick Carl to validate the claim. For completing the pairing, both receive a token that they can sell for a bit of hard cash. So far so good!!!
Mallory then tries to get inside the reactor gate and discovers that he is denied. Mallory’s transaction record does not follow the typical chronological sequence compared to any other nuclear engineer. Mallory goes to Wikipedia and looks up “Nuclear Engineer” to fill in the gaps. This does not work either — a blockchain cannot go backwards in time. Max needs to graduate high school before going to college. Mallory would not be able to assert the proper sequence events – even if he had a checklist. The Innovation Bank is left to register an unvalidated claim (a fancy term for a Lie) against Mallory. Likewise, a “dead head claim” (a fancy term for incompetence) remains for Carl.
If either wants to interface with the Innovation Bank at any time in the future to get a real job, apply for a loan, or comment on social media, they would experience increasing difficulty in finding validators. Their only other option would be to start over with a new profile starting at t=0.
No Incentive to Commit Fraud
In the long run, the successful attacker would need to be an accomplished professional nuclear engineer with a long transaction record validated by many colleagues, mentors, publications, and institutions in a specific sequence and over a long period of recorded time. The reward from the attack would need to far exceed the attacker’s transactional loss since they will most certainly be identified, caught, and prosecuted. But most likely, they will be thwarted at an earlier juncture with a unvalidated claim related to a less critical offense.
In general, there is no incentive to cheat. There is no incentive for aiding and abetting a cheat. There are retributions far into the future for claimants and validators who are haphazard with their facts and associations. The cost of cheating far exceeds the benefit of most illicit activity. As such, no punitive costs are incurred for routine operations of the power plant.
The Truth Has Value:
As the Value Game plays out over millions of claims and validations across the entire value network of Engineering and Science professionals, (and beyond) the probability of encountering fraud or incompetence would become exceedingly small — approaching zero — especially at the higher order claims.
Meanwhile, the aggregate database of STEM professionals interacting truthfully and dynamically is training the algorithm to identify to recognize outlier behaviors. As more truth is is stored in the aggregate database becomes, the more valuable it becomes for separating fact from fiction thereby increasing the value of the digital tokens. The higher the tokens are valued, the more secure the network becomes.
Now, the truth can travel halfway around the world before the lie has a chance to put its pants on.
It’s all about efficiency
The Innovation Bank is far more efficient than trying to unravel anonymous and spectacular rumors tossed out on the Internet. It is more efficient that having to validate the equal and opposite. Everything is pre-validated. Prohibitive punitive costs and controls are minimized. This “judicial system” is auto-funding and self-correcting. The process of curating claims and validations creates the social fabric upon which each and every one of us ultimately relies. Every participant is incentivized to collaborate as a means of gaining “stake” (i.e., equity) in the system. Meanwhile, there is no incentive to exploit or corrupt the system. The forensics are performed prior to the failure.
We are engineers — the type that makes airplanes that plane, bridges that bridge, and elevators that elevate. The type of engineers that supply electricity to people and their Bitcoin – which was likewise created by engineers on an interface platform that was (you guessed it!) created by engineers. No offense to bankers, lawyers, and politicians, but they can’t do what engineers can do for an economy. So let’s leave them out of this discussion for now, and work with what’s obvious to engineers.
Yes absolutely, a Central Bank Digital Currency (CBDG) is a great idea
But like anything in engineering, the devil is in the details. First, the dollar is already digital so any improvement would need to be less centralized and that means blockchain. We also know that the proof-of-work consensus algorithm is too energy intensive so it must be proof-of-stake, or equivalent.
No intrinsic value equals no value, period. The CBDG must represent something real and useful, otherwise nobody will produce stuff in exchange for it. The Federal Reserve needs to figure out what tangible metric will bring the digital currency into existence. For example, the dollar represents aggregate US human productivity.
Aggregate Technological Change (ATC)
The new CBDC should not be issued as a function of Gross Domestic Product (GDP). The dollar already does this. Rather, the new CBDC should be issued against a new metric called Aggregate Technological Change (ATC). Technological change is a fancy word for “innovation” resulting in an increase of human productivity. This is the domain of Engineers and Scientists.
With this arrangement, the dollar and the CBDC would be fully convertible because they both represent the same asset class i.e., human productivity. The two currencies would be supplemental and complementary to each other. They would check and balance the other. At some point they will become the intrinsic basis for the other. A condition can then emerge where it becomes more profitable for Digital Capitalists to preserve the underlying asset rather than consume it. Ultimately, that underlying asset is the continued productivity and preservation of Planet Earth and her inhabitants.
The missing piece:
We need to come up with a reliable system to identify and measure the fact of innovation before it happens. The Ingenesist Project is developing a novel business method and platform combining game theory, actuarial math and blockchain technology to convert intangible assets into tangible assets. The issuance of each unit of CBDC can then represent the intrinsic value of this new asset class.
We are not bankers and we are not saying that this is final answer. However, we are certainly early pioneers in the topic of a supplemental US digital currency long before the Federal Bank Announcement. Our work in this area has been published (juried) by the NSPE, ASCE, ASME, NAIC/CIPR, NSF, and many others.
A few key points:
If built correctly, a CBDC is a great idea
If not, the CBDC may be no better or worse than a digital dollar.
No intrinsic value means no value. Period.
Money must represent human productivity. Otherwise, no one will produce stuff in exchange for it.
The underlying asset is Earth and her inhabitants – and must be preserved, not consumed.
So there you have it — an engineer’s interpretation of the new Central Bank Digital Currency.
The next time you’re sitting on an aircraft separated from instant death by .040 inches of aluminum skin, please feel free to disagree with your engineers and scientists. Now that I think of it, what is a perfect analogy for the state of the world!
It is not as easy as it may seem to find a working definition of innovation. There are as many definitions as there are experts claiming to hold the secrets of innovation. The simplest definition of innovation that I could summarize based on top sources is as follows:
Definition of Innovation 1: A new idea resulting in an economic outcome.
The problem with this definition is that you cannot solve solve one equation with two or more unknowns. What is new? What is an idea?, and What constitutes an economic outcome? Finally, How can we identify innovation before it happens? These are significant barriers. I spoke with one VC about this problem and his response was:
Definition of Innovation 2: “I know it when I see it”
A definition is supposed to be distinct and precise. One should be able to predict, identify, or anticipate the object based on its definition. It appears that innovation can only be defined after the fact and not before, by most accounts. As a result, we treat innovation as if it were random or accidental or so unique that only a gifted few possess the ability to achieve it. This is important because innovation is the single most important determinant of achieving a sustainable economic environment.
Economics is the science of incentives. Calculus is the science of change.
When I was about 6 years old I got my first bicycle. It was a single data point sitting under the Christmas Tree. It came with a little pamphlet with lots of information on how to use it. My first attempt started just like the pamphlet described, until I crashed. The promise of stylish and speedy mobility was a strong incentive. Each time I crashed, my knowledge of bike riding increased at a very rapid pace as I developed new ideas about balance, coordination, and impact. I frantically innovated solutions to my problems until I was successful. As I progressed to bigger bikes and various motorcycles, I developed the ability to anticipate reactions to future obstacles based on a so called wealth of past experiences. I had developed Wisdom.
Toddlers can be readily observed innovating ways to carefully descend the stairs backwards on their tummy. This thought sequence repeats itself continuously throughout their formative years and into adulthood. A wise person is generally witnessed a great many outcomes and always seems to know what to do, when to do it, and why it should be done.
Hang on as this is going to get a little bit wonky:
Most engineers and scientists would recognize the following as a differential equation. The relationship between data, information, knowledge innovation, and wisdom are classic derivatives:
The value of information is derived from the value of the data
The value of knowledge is derived from the value of the information
The value of innovation is derived from the value of the knowledge
The value of wisdom is derived from the value of the innovation
This is the basis of the WIKiD Tools algorithm (Wisdom, Innovation, Knowledge, information, Data) developed by The Innovation Bank
Definition of Innovation 3: Innovation is proportional to the rate of change of knowledge with respect to time.
I certainly don’t expect a call from Merriam-Webster or widespread agreement from the innovation consultants any time soon. What is important is that this definition does not contradict any of the other definitions. And, it can be easily expressed as an algorithm suitable for machine learning, with data points that can be identified, measured, and validated.
We can now go about he business of creating conditions where knowledge is allowed to increases at a very high rate. Innovation cannot happen in a vacuum.
The Holy Grail of Finance
Predicting the fact of Innovation before it happens is the holy grail of finance. While many corporations and venture capitalists are somewhat successful at identifying a single product that will produce an economic outcome, they do it at the expense of foregoing the ecosystem from which that product arose. As such, predicting the Return on Investment (ROI) may be easily skewed by ignoring the broader social consequences of the product. Deficiencies in data, information, knowledge, and wisdom are the leading factors in start-up failures, not innovation.
Using a sports analogy, competition is a good way at arriving at the best solution to a specific objective. But in order to arrive at a single winner, you must first manufacture 10 times more losers. While conflict and competition is indeed entertaining, this is a very expensive and inefficient way to go about meeting the needs of consumers, let alone a crowded planet.
Innovation is ubiquitous, interconnected, and interdependent on a sequence of factors shared across diverse people and places. Innovation is the intrinsic characteristic of our species and wholly responsible for the advancement of civilization itself. Everyone groans about how money is losing its intrinsic value because of inflation, corruption, or runaway national debt. As a result, cryptocurrencies conveniently drop the idea of intrinsic value altogether. People look to government, charismatic leaders, academia, and industry to solve staggering systemic risk and environmental collapse – to no avail.
Yet, all along, there may just be an extremely simple and inexpensive way to represent the intrinsic nature of innovation as the basis of value that we can quite literally pay for our own preservation. The following chapters describe this method. Please join us at The Ingenesist Project
What single problem must all engineers solve? Hint, the answer so simple, you can’t even see it.
The Paradox of Invisibility:
A firefighter may be worth a million dollars per hour when there is a fire and they courageously save lives and salvage property. The value of the firefighter is derived from the severity of the fire. On the other hand, a fire protection engineer can design a thousand buildings that cannot burn. But the true economic value of the engineer cannot be measured in the absence of a fire. The same can be said of aircraft that do not crash, bridges that do not collapse, and pandemics that do not spread, etc.
What single problem must all engineers solve?
Answer: engineers remove risk from complex systems. This is true for every single engineer and may even serve as an adequate definition for engineering at large. Engineers increase human productivity by reducing the risk to human life and property when confronted with the natural constraints such as gravity, temperature, impact, etc. The value of engineering is literally immeasurable.
But wait, risk can be measured. Insurance companies and financial institutions do it all the time. The method is a little bit counterintuitive, but actually quite simple and well suited for computational analysis. A simple example is presented below to lay out the data process which may be scaled by machine learning and instrumentation. All data must be true and validated in order for the math to work out. Here goes:
A Simple Example:
Consider 10 identical cabins in the forest. Each has a replacement cost of $10,000 dollars. It is well documented that one will burn down every year but nobody knows which one is next. So each owner needs to hold $10,000 dollars in the bank in case their cabin burns down. Because all of the cabins have the same replacement value and all have the same likelihood of burning, the cabin owners determine that they can each throw $1000 into a pooled savings account every year and whosever cabin burns can use the money to rebuild. So instead of tying up $10K each, cabin owners must only hold $1K each. The remaining $90K total can be released for investments and economic growth. This is called a “mutual”and it is the foundation of the insurance industry.
Engineers solve risk in 3 ways:
Engineers follow a similar thought pattern when addressing problems – this is so natural that they often don’t realize they are doing it.
They first invent ways to identify the existence of a peril.
Then they invent ways to reduce the probability that the peril will happen.
Finally, they invent ways to reduce the severity of consequences if the peril does happen.
Each of these actions are identifiable, verifiable, and measurable.
The Innovation Bank:
The Innovation Bank would serve as a data logger to curate the validated claims of all fire protection engineers which can be analyzed to estimate how much risk has been removed from the “fire economy”. This value can be represented as a cryptographic token (on a dedicated blockchain) that may be purchased by banks, insurance companies, municipalities, corporations and property owners to access the database to better understand their specific risk exposures across a wider spectrum of ignition sources.
The value of the tokens compensates the engineers to perform more comprehensive fire safety surveys and mitigation strategies. This positive feedback loop eventually reducing total risk the near zero.
This same token can be applied to all engineers and scientist for all applicable physical and environmental risk reduction.
The World is on fire
The example above describes only one example of one peril related to one engineering discipline. The reality that confronts civilization today include multiple complex global systemic risks impacting nearly every facet of life on Earth. These include, but are not limited to, climate change, pandemics, political instability, grinding debt, wealth inequality, and more.
The only way to untangle every contributing risk exposure and replace it with comprehensive solutions that do not break the bank is to introduce a parallel financial system that hedges the one currently being stretched to the limits. A digital token that represents Engineering and Scientific risk mitigation would be mutually convertible with national currencies and therefore taxable and transparent to regulatory standards. The two currencies would hedge each other. This is what a balanced budget could look like.
What is an Innovation Bank? At first blush, an Innovation Bank sounds like a place where innovators can make money for developing their ideas. Sort of like venture capital. But if we drill down a little further and look at how a traditional bank actually functions, we find a far more interesting opportunity.
People go to a bank and borrow money to, say, buy a house. Most people think that the bank is sitting on a bunch of cash in some savings account waiting to buy your house for you until you can pay them back. This is not entirely true.
Money is measured into existence.
When you sign the loan papers, you are committing your future productivity as collateral for the loan. From the simple act of signing a document, you create an asset called “my future productivity”. Through the miracle of fractional reserves banking, the bank can then conjure into existence the net present value of your future productivity to settle the note on your house. Money is literally measured into existence where your promise to pay is the underlying asset. The house is the game incentive that motivates you to go to work. Your productivity combined with everyone else’s forms the basis of your national currency.
Most people are shocked when they see how simple this process is. Money must represents human productivity – otherwise nobody would work in exchange for it. Debt is just a fancy name for future productivity, which is productivity nonetheless. The bank is the place where this accounting ledger is secured, not so much the money.
The image in the mirror.
Innovation and debt have a lot in common – for better or worse, they both represent future productivity. If debt can be used to measure money into existence, then innovation can be used to measure money into existence as well. The difference is that the consumption of objects that you make is easier to measure than the innovations required to create them. In a way, venture capital is an aberration – the thing that should not need to exist if we could measure innovation in any other way. The Innovation Bank was developed to solve the innovation paradox.
The Innovation Paradox
The invention of the wheel, wedge, and pulley came long before the invention of international trade agreements. Technological change must always precede economic growth, yet innovators still need money (economic growth) before they can afford to create technological change. This is the innovation paradox. We are living in the mirror image of the economy that was supposed to happen — and we think this is reality. The financial system has gotten it backwards. Corporations and VC can select and prioritize what gets engineered and what does not, but there is little regard for the wholistic nature of innovation – to preserve scarce resources rather than consume them. As a result, the true potential for value creation by the innovators of the world goes fallow.
The Innovation Bank resolves the innovation paradox by issuing a digital token on a native blockchain that represents the intrinsic future productivity of engineers and scientists. Not unlike a traditional bank, the Innovation Bank also employs a ledger, a value game, and actuarial math. Also like a traditional bank, a claim and the validation process represent the act of committing an asset that represents future productivity. The interconnections of these assets provides important data driven business intelligence to a market. The market responds by placing a value on the token to incentivizes production of more innovation.
Taken together, The Innovation Bank prints money in the exact same way using the same systems, methods, and institutions as traditional banking. The difference is that The Innovation Bank increases human productivity whereas a traditional bank consumes it.
The Innovation Bank is an autonomous network platform applicable to all branches of technical services enterprise. The platform is governed by game theory, actuarial math, and blockchain technology. The purpose is to capitalizing the STEM professions.
The Innovation Bank Project Overview
The objective is to reward individual practitioners to establish physical facts in collaboration with other practitioners. Knowledge, innovation, and wisdom may be discerned from these interactions. Where such metrics exist, intangible “in-situ” knowledge assets may then be capitalized in a manner analogous to how tangible assets are capitalized in the existing economic system.
Past research has demonstrated individual components of the Innovation Bank within various for-profit enterprise settings. This current effort is unique in its attempt to integrate these components in an autonomous public network.
Several factors need to be taken into consideration:
Engineering is an essential industry – it is essential that the Innovation Bank is complementary rather than disruptive to existing institutions and operations.
All STEM professionals and practitioners are unified and enabled for cross-discipline interaction.
Practitioners are economically compensated within the platform for their contributions to the Innovation Bank. Compensation is proportional to the value of the contribution.
Practitioners own, control and hold title to their identification, and thus, their specific transaction records.
The initial funding for The Innovation Bank will result in the production of a minimum viable product comprised of an operational native blockchain with decentralized governance, algorithmic token allocation, and database auditing system (block explorer). These outcomes will be suitable for research, analysis, development and future growth within the professional and academic STEM communities. This test bed will allow us to develop means, methods, and metrics for advancing the above considerations.
The purpose of the Innovation bank is to unify the STEM professionals in society at large. Typically, STEM professionals are segmented by institutions with mismatched ontologies, competitive restraints, or regulatory limitations. While such hierarchical arrangements were well-serving in earlier times, new tools exist allowing network platforms to efficiently deliver value at speed, and at scale.
The core activity of the Innovation Bank is to develop worthy claims such that a qualified validator would be willing to be permanently and immutably associated with the claimant. This union forms a node with two branches for which each would be compensated in proportion to their total stake in the system. A network graph is thus formed from the interconnectivity of aggregate nodes and branches.
The dominant game strategy for each individual would be to allocate knowledge resources to where they are needed most rather than where profits are most assured. Financial value is derived from the dynamic metadata embedded in the aggregate network yielding business intelligence which would command a premium over static non-validated data.
Economic growth is contingent on technological change – this is the exclusive domain of STEM professionals and practitioners. There is currently no reliable way to directly measure the impact of technological change on economic growth. Pricing and allocation are often irrational. Engineers, scientists, technologists, and mathematicians, serve to remove risk from complex systems ranging from consumer products to public infrastructure and the natural environment.
The Implications of the Innovation Bank includes the reduction of systemic risks and improved allocation of natural and intellectual resources. In essence, The Innovation Bank will gradually replace Consumption Capitalism with “Preservation Capitalism”. The introduction of a new risk-backed asset class would amplify the missions of existing institutions such as universities, corporations, finance, insurance, and government.
Given a game that everyone can potentially win, universal engagement in STEM education and STEM applications would become a dominant social policy strategy. More information can be found at The Ingenesist Project. Please contact us for more information regarding The Innovation Bank Project Overview or please read the the following paper:
Many blockchains exist for many reasons, but none are built for the purpose of discerning physical fact from digital fiction. Where other industries use blockchain to correct their flaws, a blockchain of engineers and scientists can amplify their superpowers. Our ability to leverage truth may be the most powerful tool available to shift political priorities toward resolving our most pressing Global challenges.
For almost a decade, we have been writing about how four important aspects of blockchain technology could create thousands of times more value if applied to the engineering and scientific professions rather than the financial industry. We have also been amazed by the early ambivalence, reluctance, and often visceral resistance among some professional engineering societies, educational institutions, and engineering enterprise leaders, toward this technology.
Engineers and scientists need to reorganize ourselves fast if we are to have any expectation of pulling out of our flaming planetary tailspin of social, monetary, and ecological unrest.
The Thing That Happened.
Blockchain blew onto the scene with the Bitcoin white paper published in 2008. This technology was coincident with the 2008 financial crisis which had exposed near-fatal structural vulnerabilities in our financial system — going so far as to suggest a new form of currency could be developed. Blockchain introduced the idea of immutability to the financial system where laws had failed, thus code as law became the mantra.
An essential part of this arrangement is that there must be no overarching organization that can act against the consensus of the entire community and alter any transaction after the fact. This is broadly called “decentralization”. This puts many financial transactions at odds with governments who enforce laws (i.e., law is law). That struggle continues.
1. Immutability is our superpower.
Unlike the financial industries, engineers and scientist are abundantly familiar with immutability. You can’t return the lumber to the forest. An airplane can’t be un-crashed. You can’t un-pour concrete. In fact, all scientific processes are irreversible – that is what entropy is all about. In effect, blockchain would be far better suited to represent the immutability of the underlying asset rather than the flimsy paper that represents said asset. This makes more sense.
2. Engineers and Scientists are Already Decentralized.
Earlier, I complained about about resistance by the engineering institutions. What if this flaw is actually a feature? The experience taught us that there is no singular engineering or scientific authority that can sufficiently control or enforce its will on any of the others. Rather, we found engineers and scientists to be sequestered behind a multitude of organizational silos such as corporations, professional societies, ontologies, jurisdiction, national boundaries, academic titles, etc. Even if they wanted to change, they could not find each other to do so. It is no wonder that intellectual capital is called “Intangible” on a corporate balance sheet. In effect, the engineering and scientific professions are already decentralized. All we need to do is measure ourselves into a “tangible” existence.
3. Widespread Consensus Already Exists.
There is likely no greater consensus in human civilization than the laws of Nature. Every Noun on Earth is subject to these laws without exception. The scientific method, considered the greatest innovation in human history, provides us with a means to update, modify, correct, and replace old consensus with renewed consensus. Everything else can be expressed as the probability that a consensus exists. The scientific method is able to defend against failures in a manner not unlike the Byzantine General’s problem upon which much cryptography is based.
4. A Stable and Convertible Token
Money represents productivity as measured by Gross Domestic Product. Dollars represent American productivity, Yen represent Japanese productivity, etc. Yet nearly 80% of all increases in GDP can be attributed to technological change. This is the domain of engineers and scientists. Therefore, a token representing engineering and scientific productivity also directly represents GDP. In other words, we can print money.
Here’s the Good News
Blockchain technology was invented by engineers as a direct analogy of the engineering process – not finance. This is actually very good news because nobody controls a monopoly on intellectual capital which must be fought, beaten, and dismantled in order for engineers and scientists to reorganize. Engineers and scientists can build their own blockchain that represents their work-product and govern the presentation of physical fact over digital fiction. Engineers can exist with out Blockchain but blockchain can’t exist without engineers. This is a game we can easily win.
A Blockchain Of Engineers and Scientists
Financial products are fictitious representations of real things and therefore easily manipulated into many forms while the asset that they represent remains physically unchanged (suitably called “hypothecation”). There exists a powerful technology that is abundant and cheap and that can directly express physical fact as a monetary unit rather than financial fiction.
If we work together, global engineers and scientists can simply walk onto the economic landscape unchallenged to begin altering the development priorities for the World. No kidding. Again, there is nothing standing in our way, except our own unwillingness to change. This may be the most important opportunities that has ever been presented to the Sciences.
The Innovation Bank may be the most important advancement of the Post-Covid Era. The global pandemic is only a symptom of larger systemic risks that are challenging our world. Climate change, wealth disparity, access to work, education and health care are all global problems manifesting as racism, fear, distrust, and division in local communities. The pandemic further demonstrates how centralized control structures are tragically out-performed by a networked attacker. Rather, legacy control structure fomented social unrest even further. The term “Going Viral” takes on a new and dangerous meaning.
What if we can take what we have learned from new technologies, new ideas, and new organizational systems that are currently deployed in networked platforms, and apply them toward mitigation global systemic risk? If Uber is a data service cloud with cars at the end of it, and AirBnB is a data service cloud with beds at the end of it, then imagine The Innovation Bank as a data service cloud with engineers and scientists at both ends of it. This article provides a framework for decentralizing global engineers and scientists. The Innovation Bank is an auto-funding platform devised to address global systemic risks.
Measuring Invisible Value Into Existence
The Innovation Bank use blockchain technology, game theory, and actuarial math to measure and calculate the direct economic contribution of engineers and scientists. STEM professionals create knowledge assets by making claims and validating claims related to physical fact. The platform produces a cryptographic token which serves to permanently record these assets set in time. Business intelligence is created by mapping interactions among engineers and scientists. This imparts value upon the tokens and incentivizes increased rate of production of knowledge assets. The tokens are then used as payment to fund engineering and scientific works that address the world’s most pressing problems.
Supply and Demand For Knowledge Assets
Our current monetary system creates money in a similar way. The value of money is supported by the supply and demand for the things that people produce as measured by Gross Domestic Product (GDP). It is usually easy to measure the quantity and quality of things on the GDP. It is difficult to measure intangible assets such as intellectual capital, creativity, and innovation. The Innovation Bank converts intangibles assets into tangible assets in the form of predictive data which can be easily measured.
The economic value of Engineers and Scientists is measured by applying blockchain technology, game theory, and actuarial math (risk analysis) to a networked platform of global STEM professionals. The nature of risk is volatility – unpredictable outcomes. If we can measure knowledge assets directly, we can trade predictable outcomes efficiently, and therefore manufacture predictable outcomes as we would products and services. This is how we can “balance the books” between our tangible and intangible assets.
Again, this is an important paper. Please let me know if you have any questions, ideas or contributions for this project. Thank you.
We are all familiar with the sentiment “if only there were more money, all our problems would be solved”. That is only about 20% true. The Innovation Bank is a system being built to solve the other 80% of our problems.
Money as we know it is a generalized accounting of all the things that humans produce. For example, Gross Domestic Product measures tangible value, it does not measure intangible value. Yet 80% of technological change can be attributed to intangible value creation (Solow, R). These include social capital, creative capital, and intellectual capital.
We need to form a new type of money that measures the other 80% of the economy — the invisible stuff. This is where the big solutions are. Solving Global Problems requires global solutions that must all use the same units of account. VC and the USPTO try to do this, but only a tiny percentage of intangible value ever gets converted to tangible assets in this way. We need something better, comprehensive, and scalable.
Data as Currency
Data is emerging as a new form of currency which can be used to visualize, predict, and assess the value of intangible assets. The problem is that bad news is thousands of times more “tangible” than good news. A single attacker on Social Media can sink a business because nobody counts the 1000 perfectly satisfactory prior transactions. As David Mustaine elegantly croons “Peace sells but who’s buying?” Another version of Stanley McChrystal’s “The good guys need to be right 100% of the time, the bad guys only need to be right once.” This can put a horrible skew on things and AI can’t fix it.
The “good intangible” data needs to be proactively curated as part of one’s everyday professional activity record. There needs to be a simple interface where a person can produce a claim, and that claim can be verified by a recipient or observer. Then we can creating a data node with two at least two branches that can be aggregated with everyone else’s transactions. The resulting dataset, while enormous, would yield a tangible measure of social, creative, and intellectual capital.
Most importantly, this dataset needs to be populated and in direct control by the persons whose transaction record is being curated. It is important that this system is decentralized since the data will be extremely valuable. Someone else will gladly do it for us with every manner of IoT sensor, AI bot, or some old-school regulatory hurdle.
The Innovation Bank
The Innovation Bank uses game theory and blockchain technology for the purpose of curating valuable, truthful, productive, and validated “good data” created by people and their productive interactions with each other. There is no entry for bad news. The Innovation Bank rewards the users with a cryptographic token that memorializing their transactions. The tokens may then be exchanged for access to the metadata curated by others on the platform. This technique for delivering the right asset to the right place at the right time thereby releasing the other 80% of economic value produced by society.
In short, The Innovation Bank is auto-funded by creating a form of money that measures the remaining 80% of economic output. The Innovation Bank incentivizes high impact solutions precisely when and where they are needed most. There is a market for that, all we need to do is measure it into existence.
“Technological Change Must
precede economic growth. We are going about the process of Globalization as if
economic growth can precede technological change – this is not sustainable” – D.
The Ingenesist Project is deploying our blockchain based ancillary innovation solution to important projects and institutions in the US. By representing intangible assets as tangible, and using a novel tokenization strategy, ancillary innovation can be equitably deployed thereby restoring the balance between technological change and economic growth.
The successful commercialization techniques of novel ideas or research has evolved over the ages into an elaborate techno-legal-fiscal monstrosity of regulations and gatekeepers. It did not start this way and it may not need to continue this way.
All innovation stands on the shoulder of some prior
innovation – e.g., the wheel, wedge, and lever are still ubiquitous in modern
life. Innovation has always existed, but
was greatly accelerated by the creation of the Scientific Method, considered as
one of the most important advancements in human thinking. The
Scientific Methods required inventors to determine causation and enforce the
discipline of disproving the null hypothesis as a condition of validity.
The Patent system was created in the 1790 and is largely responsible for the industrial revolution by giving inventors a temporary monopoly so that they can develop their works. The cotton gin, the steam locomotive, Portland Cement, the electric generator and propeller were patented during these times. Eli Whitney, Faraday, Edison, The Wright Brothers, Henry Ford all benefited from the patent systems as did society as a whole.
As secondary inventions were built over primary inventions,
the velocity of innovation increased dramatically. This cause a financial disconnect where the
new inventions could not be funded directly from the revenue generated from prior
inventions. Things became more complex in the age of computers and internet
where all prior patents could be “re-invented” on a computer of over the
Internet ushering an era of very rapid innovation across every industry.
Today, the velocity at which total innovation occurs vastly
out-paces the velocity of the mainstream financial means for funding – as was
the original intent of the Patent System.
The result was an inversion whereas technological change once preceded
economic growth providing a means to fund continued innovation. Now “economic growth (capitalization)” must
precede technological change in order to fund innovation. This is an unnatural condition that gives
rise to various debt related instruments and institutions such as “venture
capital” who select winners and losers based on factors that may not be driven
by the unity and advancement of society as intended by the patent system.
Most new ideas are abundant, unable to be restrained, dynamic
and interdependent. Most ideas include elements of human nature or intangible
value that simply cannot be expressed in the legal terms of a patents. There
is now a very large gap between the patentable invention and the commercialized
invention. Nearly all of the activity in
this gap is innovative and intangible in nature, that is; commercializing a
novel invention is likewise novel.
Innovation is defined as a new or deliberate application or modification of an
existing ideas, methods, or device. Ancillary Innovation refers to the provision
of necessary support to the primary activities or operation of an organization,
institution, industry, or system. Ironically,
ancillary innovation may be the greatest untapped opportunity for primary innovation
since the invention of the Patent system.
Commercializing Ancillary Innovation differs in many ways than primary or secondary innovation.
For example, even if a marketing study demonstrates that a
primary innovation will fail in a certain demographic, the ancillary innovators
were successful regardless of the impact on the primary invention. Killing a bad idea early is the hallmark of
Capitalism. In fact, the value of the Ancillary
innovation staff becomes increasingly honed with each experience being applied to
the next market study until the support professional is regarded as having
The nature of statistics is that an experimenter can observe
a small sample of normally distributed events, and calculate the probability
that the next observation will fall within a prescribed size, condition, performance,
etc. Managers are generally characterized
by their experience and thus their wisdom I being able to, say, assign the correct
allocation of resources or priorities, etc.
Many accelerators, incubators, and venture capital firms
serve in the capacity of ancillary innovation.
They are run by people whose past experience is sufficiently (statistically)
populated with failures and successes such that the probability of success in
the ancillary innovation process is increased when given a new set of
It is also worth mentioning that the value of the commercializing ancillary innovation far exceeds the value of the commercializing primary innovation, yet it is possibly the least understood. Furthermore, an enormous amount of innovation never reaches fruition for lack of ancillary innovation resources. It seems somewhat odd that so much technological innovation would be allocated to making a mundane passenger vehicle .5 seconds faster on its 0-60 time when the same technology could elevate entire communities from poverty. The difference is the prioritization of ancillary innovation.
Primary originators often receive a very small percentage for their contribution to the ancillary enterprise. The value of the commercializing ancillary innovation may be characterized by the quantity and quality of risk removed from commercialization; as compared to a risk-free hypothetical value of the primary investment alone.
Each of these failure modes exist due to an absence of
ancillary innovation of some kind. Each requires
a deep and highly specialized set of knowledge assets to mitigate. No single experience set can mitigate all of
them, and most inventors are lacking most or all of the skills required to cover
the ancillary innovation roles.
1. Lack of market need (42%): Metaphorically Is
your product a vitamin or a Painkiller.
2. Lack of cash
(29%): Many startups run into money problems /short runway.
3. Wrong team
(23%): Having a cohesive group of highly motivated, persistent, and diversely
skilled people is crucial for startup success
4. Too much
competition (19%): A second-mover advantage allows new competitors to
quickly capture market share that you helped validate.
5. Pricing issues
(18%): Figuring out how to price the product.
6. Poor product
(17%): founders sometimes release products that don’t fully appeal to customers.
7. Business model
(17%): Lacking a monetization strategy. Failing to find ways to scale.
marketing (14%): not understanding how to get one’s product into the
hands of the target market.
customer-centric (14%): Many startups fail to obtain customer feedback
and act on it.
10. Poor timing
(13%): Airbnb’s success can be attributed to its impeccable timing, as it “came
out right during the height of the recession when people really needed extra
The ancillary innovation process satisfies the demand of the
scientific method by forcing the inventor to understand causation and disprove
the null hypothesis of failure. These
ideals describe the role of the ancillary innovator.
The ability to assemble a specific combination of diverse knowledge
assets deployed at the right time and the right place would not only mitigate
risk, but if properly measured, would be able to quantify the value of risk
mitigation in a tangible form that can be directly monetized.
It is essential that the time required to deploy ancillary innovation is vastly decreased from current methods, systems, and institutions. This is necessary in order to restore the natural and equitable intentions of the Patent system so that primary innovation can directly capitalize its own iterations.
The Ingenesist Project is deploying our Blockchain Based Ancillary Innovation solution to important projects and institutions in the US. By making intangible assets tangible, ancillary innovation can be readily monetized therefore restoring the sustainable balance between technological change and economic growth.
The Game of Zero was developed in order to populate the knowledge inventory. The purpose of GOZ is to introduce a constraint to Curiosumé which produces an equal amount of supply and demand for knowledge assets. The reason for this is to incentivise the formation of a market between and among knowledge asset holders.
(The Game of Zero (GOZ) is a subset of The Value Game (TVG) which may be found by searching this site.)
In order for a player to advance in a Value Game, the claims
that they make in forming their Curiosumé must be verified by another game
player and registered as a combined transaction record on the Knowledge
In order to create a dynamic market of data, information, knowledge,
innovation and Wisdom, each player must register as both surplus and deficit knowledge
assets (teacher and students). A score
of surplus (what one knows) must be balanced by a score of deficit, (what one
wants to learn) in order for the player to create tokens.
Introduction: As the name suggests, game mechanics are employed to move the production forward. Incentives consist of a combination of intrinsic motivations as well as financial compensation. A knowledge inventory is expressed from an ontology that brings context to interactions. The two-way flow of information is expressed as a simple bell-curve distribution for states of knowledge ranging from teacher (+1,+2,+3 Sigmas) to student (-1,-2,-3 Sigmas).
The Game of Zero gets
its name from the only constraint that is applied: each participant MUST have a total score of ZERO.
Ontology is a difficult topic to address universally because
every company, institution, and every affinity group has their own specific
means and methods for defining themselves in terms of ontology.
Example: the following is the Wikipedia Ontology:
Generalized Knowledge Inventory:
Top Level Wikipedia Categories
Culture and The Arts
Geography and Places
Health and Fitness
History and Events
Mathematics and Logic
Natural and Physical Sciences
People and Self
Philosophy and Thinking
Religion and Belief Systems
Society and Social Sciences
Technology and Applied Sciences
TOTAL = 0
Absolute Value = 22
Earn Power by claiming your IP blocks.
Increase your power by having each block
validated by another participant.
Surplus refers to knowledge that you offer to
Deficit refers to knowledge that you need from
Rank yourself as you fit among the community of
Positive and negative must balance at zero
can be made at any time
Important: Each of the above categories likewise have
sub categories for which the same constraint holds. Below those categories may exist many more for
which the constraint likewise holds.
Absolute Values in
each category may be analyzed as well for business intelligence. The combined knowledge inventory will
accumulate substantial value.
Implications for Merchandizing
The Game of Zero provides a way for the participants to
increase their “stake” in the system. By
accumulation of Absolute Value, the participant increases their likelihood of gaining
a more valuable position / winning a more valuable prize.
The network of participants can safely contact each other
based on mutual interests of validating knowledge and information. One buyer may want to alert other buyers of a
good product or service based on their unique identifiers.
There is no incentive to cheat – If I lie about my knowledge
inventory, this is the equivalent of spamming myself.
There is no incentive to troll because any claims that are
not validated by one or more participant of relevant profile can be ignored by
Playing the Game of Zero
Most applications require a user to become familiar with a
detailed set of rules that are necessary overhead for security (passwords),
means and methods, etc. Each requires a
mental investment on the player as well as a resource overhead on the
Video games are taught with a simple objective and just
allowing the user to play at level 1.
Level 1 teaches the player the skills that they will need to be
successful at level 2, which likewise prepares the player for level 3 and so
The Knowledge Inventory: The Game of Zero requires
that a player complete a detailed profile in order to accumulate “stake” in the
community. The profile is anonymous which allows the player to use an avatar or
any name that they choose. They can change their name at any time. They can delete a profile and start again. They
can even maintain more than one profile. Each of these freedoms has
consequences at higher states of play, but at the beginning the player is
encouraged to experiment to find their place in the community. The system will allow them to do anything
that they want except violate the rule of zero.
The player will quickly realize that the game interacts with
them based on the inputs to their profile.
If they create a frivolous profile, they will get frivolous
results. If they provide meaningful
inputs, they will get meaningful results.
Once they realize how it works, they may abandon a profile at this early
stage and create a new one. Penalty for
this is that they will need to re-start the clock (like starting on square
one). This is not a big penalty at the
early stages, but at the later stages this will become a significant
The more stake that a player holds, the greater the payout
will be from the system. Payout may
exist in many forms from prizes to targeted economic opportunities such as gigs,
validations, contests, and paid product endorsements. The value of the economic opportunity
increases at higher states of play.
Higher States of Play
The Game of Zero forces that player to maintain a net state
of ZERO across the entire spectrum of ontology. At higher States of play the
players may also need to validate their claims in order to increase their
stake. If they claim to be a +2 Sigma
Computer programmer, they will need to find another +2 programmer to validate
their claim. If they balance their
expertise with a -3 sigma desire to learn the game of tennis, they will need to
validate their claim with a tennis partner.
Other scenarios are possible depending on market forces.
The process of claims and validations builds social
cohesion, community engagement, and value of the system. Failure to complete transactions or validate
claims limits the benefit of game play and may eventually upset the balance of
Each claim and validation becomes a permanent record cast in
time and cannot be altered without a corresponding counterclaim, or deletion of
The next level of growth will include a transformation from
a strict e-commerce site to a networked platform. The following features will
Encourage communities to interact with each
Precision matching of “teachers” to “students”
drives value creation
Formation of affinity groups and buying pools
Managed by algorithm
If the system is trained to behave like a network, then a
simple valuation component will be reflected by the square of the number of
nodes multiplied by the quality of each interaction set equal to the current
Management will then use this relationship to drive policy
that concentrates on two things: Increases the number of participants and
increasing the depth and breadth of engagement among the members.
How a Value Network
In business and commerce, value networks are an example of an economic ecosystem. Each member relies on one another to foster growth and increase value. Value network members can consist of external members (e.g., customers) or internal members, such as research and development teams.
Value networks enhance innovation, social welfare, the environment, as well as many other areas. Weakness in one node can affect the entire network. For example, if a development team is weak, the production team has a harder time creating the product, which can leave a buyer waiting for their shipment.
History: The Game of Zero was first identified by the author in response to requirements for managing the Summer Intern program at The Boeing Company between the years 1998-2002. Later around 2005-2008 the system was studies for closing the knowledge gap at Boeing as well. The research showed great promise and some parts of the work have been applied by the company. Additional research and development was conducted through various companies and start-ups from 2008 until present. The Game of Zero was generalized from the Boeing Experiments in private follow-on research and development as described in Curiosumé and The Innovation Bank. Details of this history are outlined in the whitepaper.
Over the years we have identified several features of Curiosumé that every VC and “investor” wants to change – but these features are so fundamental to the operation of Curiosumé that to change them would render the application useless. More clinical, the Math falls apart.
On the other hand, this phenomenon serves as a very powerful test of human nature. Violating one or more of the six tenets represents the temptation of control and power over others – people who seek to exploit other people cannot resist this temptation and will shortcut or manipulate one of the following 6 tenets, thus guaranteeing failure. Those whose hearts are truly focused on empowering people can easily resist, and even thrive, in an environment of collaboration and inclusion, thus guaranteeing success.
The Six Tenets of Curiosumé
You are forewarned, each of these six tenets pass directly against the grain of traditional venture capital and investment systems making the work difficult to fund by traditional means:
1. The topmost ontology must belong to the Commons. We specify Wikipedia, or other public databases for Curiosumé. There will always be a strong tendency from investors to want to own the private database or to define the ontology because this is the most tangible form of control. In Curiosumé all data must reconcile upward to the single ontology owned by the commons. Investors will have a strong desire to own the ontology and privatize the database – we must resist this.
2. Non-competitive ranking system. Our culture is steeped in tradition of competition; war, sports, even evolution (survival of the fittest), etc – all purport the necessity of competition as a means of arriving at the best solution. It was very difficult to find a suitable rating systems that does not invoke some form of competitive hierarchy. But in reality, Nature exhibits many more examples of collaboration than competition, yet collaboration is not intuitive to the Capitalist psychology. We are not saying that competition is bad, it is just inefficient on a crowded planet. Instead, there should be a perfectly valid market for everyone. There will be a strong tendency for investors to rank people on a hierarchy – we must resist this.
3. Self-selecting: People must self-identify their participation in a community. That way, they cannot cheat because they would only be cheating themselves. There is a strong tendency to tell people what to do, how to behave, and how to appear to a “market”. We must avoid this. If we can eliminate the incentive to cheat, then we can avoid the crippling friction of a punitive vetting mechanism in our processes. There will be a strong desire by investors to have a means of punishing people who game the game. We must resist this. Instead, we need to develop a system that allows people to game the game to improve the game. This is where creativity and innovation will come from.
4. “Learn-collaborate-teach” scale. It is extremely important that people are ranked ONLY on units of learning, units of collaboration, and units of teaching. The reason is that students and teachers do not compete with each other. Besides, people who is unwilling to teach others in an organization are just as useless as people who are unwilling to learn new things. Nobody knows everything and everyone knows something that can be taught to someone else. Learners represent demand for knowledge, teachers represent supply of knowledge, and collaborators represent factors of production in our new proto-economy. There will always be a temptation to create winners by producing and abandoning “losers”, we must avoid this.
5. Anonymity until the point of transaction (AUPOT): There is no reason anyone needs to know your identity until there is a tangible transaction, then and only then you must show your cards. Lack of privacy is what makes Big Data both invasive and unreliable. People acting anonymously behave differently (for better or worse) than those whose identities are known. The intrinsic unbiased activity data has completely different meaning than biased, impulsed, or controlled behaviors. The utility of such data would inherently be more beneficial to markets and society. There will always be a strong desire from investors to own the one-way communication channel (advertising, propaganda, control, etc) where they may impose controls – we must resist this.
6. Formation of the Asset: An asset can only be described in terms of a Quantity and a Quality of something. 100 gallons of drinking water is a completely different asset than 100 gallons of irrigation water. “100 gallons of water” without specifying the qualities of the water is not an asset. Curiosumé a claim as a “quantity” and a validation as a “quality” as a means of formatting a knowledge asset. This is called a unit asset and represents a node in the network. Investors will often want the asset to be described in terms of money where the components are explicitly risk vs return. We must arrive there a different way.
We are open to any new ideas on how we would build the Curiosumé application. However, the 6 tenets discussed here are non-negotiable features of Curiosumé that must remain intact otherwise the whole project will fail. Each one of the tenets rubs against the grain of current VC models, corporate investment models, even academic commercialization models. Obviously, these 6 tenets have made funding for our programs difficult.
On the other hand, the reasons why nobody has copied us is because they would have the same problems in funding. Breaking this legacy funding mold will be absolutely essential to emergence of a new economic paradigm.
The WIKiD Tool algorithm provides a mathematical framework for analyzing dynamic data related to social interactions in a network and memorialized on a Blockchain. This example uses an analogy to the position / velocity / acceleration equations that some people may remember from their school days.
These types of relationships are important for measuring things like innovation. Ask any VC for a definition of Innovation and they’ll probably say “I’ll know it when I see it” or “it’s a good idea with an economic outcome”. Neither of these things are measurable until long after the innovation occurs which is not practical. However, if we could measure something that is closely related (correlates) with innovation, perhaps we could use that to measure the thing we can’t see.
A similar thing happens on Wall street – how do you measure consumer confidence? Financial analysts noticed that the price of some commodities track closely with consumer confidence so they use that as a proxy for the thing they cannot measure directly. This is called a derivative – something whose value is derived from the value of something else. Suppose we use the same idea to measure things like Wisdom, Innovation, Knowledge, Information, and Data (WIKiD)?
As engineers interact with each other to form transaction records, the blockchain records the chronological order of every event, so we can now correlate all events with respect to time. The connections that are made may be analyzed for both quantity and quality (magnitude and direction). We can now use common mathematical tools from finance and physics.
We have established that the blockchain records the time function for
all events to an immutable ledger. In order to represent vector
magnitude we’ll follow a well known analogy to the
displacement-velocity-acceleration formulas from physics and associated
WIKiD stands for:
(W) = Wisdom (I) = Innovation (K) = Knowledge (i) = information (D) = Data
Data: In general, we can define data as points
placed on such a coordinate system. Each point defines a position in
space and the time where an event is recorded. The distance between data
points can be called “displacement”, because of the relative distance
between the points. In the simplest sense, we can see that Data (D1) and Displacement (D2) share an analogy.
Information: When you draw a line connecting two points, or you draw a line approximating a cluster of points, the slope of that line on a graph provided information about the phenomenon under observation. Is it getting larger slowly? Is it getting smaller rapidly? In essence, the slope of the line represents the rate of change in displacement with respect to time and gives the observation its “velocity”.
This may be represented by the relationship simply stated as:
i = dD/dt
Information is proportional to the rate of change in the data with respect to time
It should be clear that we are defining ‘information’ as a derivative
of ‘data’. a derivative in physics is the same as a derivative in
finance, that is “something whose value is derived from the value of
something else” That said, we now proceed down the latter of
Knowledge: The analogy between velocity and
knowledge is intuitive. Knowledge is a phenomenon that may be modeled as
the derivative of ‘information’. Strictly speaking, the value of
knowledge is derived from the value of the information from which
knowledge was created. It is intuitive that one accumulates knowledge
over a long period of absorbing information and integral data. Education
is the process of absorbing information from a printed page or screen,
and combining that with other previously accumulated information to form
Hence, the following relationship holds and is simply stated as follows:
K = di/dt =d2D1/dt2
Knowledge is proportional to the rate of change of information with respect to time
Innovation: The analogy between acceleration and innovation is also intuitive but a little more difficult to put to words (that is why we use equations). Consider an child who is knowledgeable in riding a bicycle on pavement. Suppose that the child, for the first time, encounters sand on the pavement while also executing a sharp turn. During the ensuing deceleration, the child experiences a very high increase in knowledge about their environment within an extremely short period of time. In any case, the child is forced to innovate a solution. Likewise, the motocross racer is constantly innovating to adapt to the conditions of the track. You can read a book about riding bicycles, but none can adequately describe the moment when the child must create the experience anew.
For the fact of innovation, we provide the following relationship simply stated as follows:
I = dk/dt = d2i/dt2 =d3D/dt3
Innovation is proportional to the rate of change of knowledge with respect to time
Innovation Example: One of the gross errors that we make in business is due to the inability to differentiate an economic event from it’s constituent physical parts. The classic example is innovation; Venture Capitalists often describe innovation as a new idea that has an economic outcome. This is problematic because innovation is defined with one equation having two unknowns. This is mathematically impossible to solve, except by laborious and expensive iterations.
The rational (mathematical) approach would be to test and observe
high rates of change of knowledge in a community and use that as a proxy
to identify the presence of innovation (as defined above). After that,
the community may be tested for economic outcomes. Unfortunately,
I=dk/dt is not normally possible to observe in a hierarchical business
structure. However, when formatted and validated correctly, and applied
to a network organizational structure, then I=dk/dt can be represented
graphically and accurately identified even by a child.
Wisdom: When we think of wisdom, our minds conjure
the image of an elderly person with a lifetime of experiences behind
them. Somehow, our elders seem to be able to predict the outcome of a
series of actions before those actions take place. This is why we seek
wisdom to lead our organizations and institutions.
Consider the manager of a factory floor who has 30 years experience.
During those 30 years, they have seen many things succeed and many
things fail. In fact, their experience represent a statistically
significant sample of representative events that they have experienced
in the past. The wise manager is able to process new information with
old information to predict the probability that the new idea will yield
the desired results. The propensity for wisdom may be modeled as a time
function in a similar manner.
W = dI/dt = dK2/dt2 = d3i/dt3 = d4D/dt4
Wisdom is proportional to the rate of change of innovation with respect to time
In general we could say that Wisdom is the second derivative of
Knowledge and the fourth derivative of Data. Similarly, Innovation is
the first derivative of Knowledge and the second derivative of
information, and so on. In order to identify innovation, we would
measure high rates of change of knowledge. Wisdom would be proportional
to high rates of innovation, etc. The utility of these functions
should be apparent.
The WIKiD tools algorithm provides a set of relationships for what are now considered intangible assets that are integrated by a time function. The Blockchain provides the master schedule for the time function to be recorded, leaving us with a somewhat routine task of identifying rates of change in observable events.
Modern platforms such as Google, Facebook, AirBnB, and others enjoy astronomical market valuations despite having comparatively less hard assets as legacy firms like Marriot, Boeing, T-Mobile, or Walmart. The difference may have something to do with their organizational structure.
Hierarchy: Since the dawn of the industrial revolution, centralized organizations comprised of multiple levels of management have been the proven means for allocating resources and minimizing risk. The value of such a construct is expressed in terms of market demand and sensitivity to risk as expressed by the Capital Asset Pricing Model (CAPM).
E(Ri) = Rf + Bi (E(Rm)-Rf)
E(Ri) = Expected rate of return on capital amount Rf = Risk free rate of return Bi = Sensitivity to market volatility (E(Rm) = Expected market return
The CAPM valuation model for an organization is dominated by market
risk multiplied by a firms sensitivity to market risk. CAPM valuations
are limited by market expectations and performance. CAPM is largely a
linear function except in the exclusive state where volatility is very
low and market returns are very high, such as monopoly or some duopoly
Networks: A network is characterized by a collection of nodes (which may represent a switch, a computer, a sensor, or a person) and branches (wires, signals, instructions, or communications) connecting the nodes. The value of networks is a function of the total number of nodes and the total number of possible connections that can be completed between them multiplied by some coefficient of value for the quality of those connections.
Metcalfe’s law for Networks suggests that the theoretical value of a network will be proportional to the square of the number of nodes according to the following relationship.
Theoretical value is proportional to: n(n-1)/2
The Actual value would be related to the quality of the nodes, the
actual number of existing branches, and the net quality for the
transactions that transpire over the network. For example, the Value of
Facebook is estimated at:
VFacebook = (5.70 x 10-9) x n2
Where (n2) is the total number of users and (5.70 x 10-9), is an incredibly small number represents the average quantity and quality of nodes and branches between them. The Facebook platform objective is to maximize total number of connects AND maximize quantity AND quality of the interactions. For reference; MySpace still has 500M registered users giving it a valuable network, however, a low coefficient of interaction has eroded value of the platform substantially.
Self-regulation, fault-tolerance, and Management Autonomy
The network can make independent decisions: An engineer that is mis-allocated can quickly move closer to their area of interest and competence. Overlap between civil, mechanical, and electrical engineers can be managed appropriately. A corrupt engineer would have a very difficult time gaining access to a target without enduring a long and difficult road to establishing a transaction record that would permit sufficient isolation to the target to actually profit from the crime. It would be difficult to corrupt an engineer without knowing if they will be assigned to a target. It would be difficult to which engineer will be assigned to a potential target in advance of the attack. If an attack was attempted, it would be easy to identify who committed the crime. High impact targets may be covered with redundancy or a Byzantine proof. Obviously, Bots would be quickly and easily dispatched to the null condition.
Interactions between nodes will tend to optimize claims such that the value of the compensation received is proportional to the effort required to establish and verify a claim. This is a common practice in professional societies and certification bodies today. Further, strong professional communities with sufficient diversity, create conditions for rapidly and iterative teaching, learning, and collaboration leading to a high rates of innovation. Finally, professionals may reflect artistic or literary expertise or cite membership in multiple networks on their own valuation and the valuation of their team. Reflecting diverse interests from professional, recreational, and social opportunities will increase the individuals stake in the network and everyone’s stake in a team.
The Value of the Quantchain Network:
Economist Robert Solow received a nobel prize for his work in
estimating that 80% of economic growth can be attributed to
technological change. Said another way, for every 2 dollars spent on
engineering, society can expect 8 dollars returned to the economy. This
conveniently provided an average nodal value for engineers.
It is easy to count the number of engineers on the Quantchain,
therefore the only variable left is the ability to assess the value and
diversity of the interactions. Quantchain accomplishes this precise
objective in several ways:
The decentralization of engineers diversifies interactions
Dominant game strategy = cultivate a diverse community of claimants and validators approaching Dunbar Number.
The Percentile Search Engine assigns optimum probability vs. cost to all transactions.
Individual transactions and collective transactions are readily analyzed.
Engineering networks can be assembled and subdivided in any number of
ways and theoretical values may be assigned to them making the
valuation of teams, mergers of teams, divestiture of teams, or scenario
testing of any imaginable combination of teams, a quick and accurate
projection of network value.
The Value Game (TVG) is a new class of business methods where value is extracted from an asset, not by consuming the asset, rather, by preserving the asset. The process of preservation and maintenance is the substrate for the creation of social, creative, and intellectual capital in a community. TVG is a difficult thing to sustain in a legacy economic model, but may be quite efficient and profitable in the modern networked organizational structures enabled by decentralized adjudication, a decentralized ledger. and simple game mechanics.
To illustrate, we cite examples from on-line games collectively referred to a Fantasy Sports. Fantasy baseball for example is a game played by adapting real life game statistics to create hypothetical game scenarios using some randomization system such as a set of dice. Over time these games have become more sophisticated, computerized, and have spread to other sports, and now they are on-line. Today, fantasy sports are estimated to be a 2 billion dollar industry involving over 56 million people.
What if a “fantasy play” could be replicated given a set of validated statistics, in real life? How would the real world game actually turn out? This is not an uncommon thought. Many HR directors, corporate recruiters, and entrepreneurs dwell on this topic extensively: “How could we identify social capital, creative capital, and intellectual capital of people, given a set of market measures, and allocate them into a self-optimizing game to yield production and profit?”.
Building A Value Game
The Value Game starts by identifying any asset that a group of people may share.
The next step is to find 3 or more diverse communities that have a vested interest in preserving the asset rather than consuming the asset.
Each player acting in their own best interest will seek to play their expertise among the others as best as possible.
Any threats to the shared asset will be neutralized by the majority of players in a network.
The transactions between the diverse communities of people will “mine” social capital, creative capital, and intellectual capital into existence generating tokens in the process.
Individual transaction records will be memorialized on a blockchain under the control of the individual.
Validated transaction records may be transferable to other Value Games, blockchains, or tokens.
Example: A condominium is an arrangement of several individual owners (of living units) who all have individual talents. It is in the best interest of each that the building is well maintained, but none are necessarily qualified to manage and maintain a complex structure. Another community of nearby vendors such as restaurants, accountants, engineers, physicians, and employers have in their best interest that the condominium is maintained because the value of the units impacts the value of commerce – and the productivity of the residents is the primary source of revenue for vendors. It is also in the best interest of neighboring buildings, the school district, and the city tax pool, civil servants, etc., that the shared asset is maintained to optimize it’s value. Each player is aware of the impacts in the network based on the analysis of similar networks.
While malicious actors may be a symptom of illness, by actual attack vector is apathy and neglect. Gravity, weather, and deferred maintenance are constantly trying to reduce that condominium structure to lower state of value. Maintaining an asset creates value equal to the entropy of the system plus asset appreciation due to the creation of social, creative, and intellectual capital.
The Value Game would form a cryptographic token that may be exchanged among the parties in whose best interest it is to preserve an asset rather than to consume the asset. This is done in many forms today – a restaurant may offer a coupon to residents for a lunch special. A physician may locate close and rely on referral instead of advertising. An trades person saving time and travel expenses may pass that on to local community. When a drug dealer comes to town, they are quickly identified and excised from the community by the community.
Almost any shared asset may be used to form a value game.
A residential or commercial building
A car, airplane, or other transportation asset
Land for farming, mining, or urban forest
Water, food, and energy
Engineers, Doctors, Civil Servants
Educators, mentors, apprentices
Laborers, Maintainers, cleaners
New Value Entrepreneur
The objective of the New Value Entrepreneur will be to organize three or more communities to interact around a shared asset where the interactions among these communities act to preserve the asset rather than consume the asset. As people interact with each other, they teach, learn, and iterate with each other. This activity manufactures social capital, creative capital, and intellectual capital memorialized by transaction records represented by the community token.
In general, once a value game is started, it will improve itself. All players will eventually find and play roles in Value Games that correspond most closely to their natural interest and passions and therefore maximize their personal value.
After about 4 years of not posting to this site, I have decided to return to the original ideas that resulted in so much innovation in this space. For a quick review, the term “Ingenesist” is derived from the Latin word for Engineer – A Maker of Useful Things.
The TIP archives found here include almost 600 blog posts (site map) approaching 1/2 million words. You’ll find the original thesis for the international mobility of engineers under NAFTA between US, Canada, and Mexico. That project involved 6 universities, the California Board of Professional Engineers, The National Council of Examiners for Engineers and Surveyors, and the National Society of Professional Engineers – and with the cooperation and support of CETYS University, the Baja California State Government, and over 250 Engineers from Mexico who presented the US Engineering Board exams.
That work was further developed at the Boeing Commercial Aircraft Company and published at the Boeing Technical Excellence series of conferences by their Technical Fellowship. From this effort, TIP developed The Innovation Bank that would match most worthy knowledge surplus to most worthy knowledge deficit to form an internal market (network) for knowledge transfer. That work is memorialized in an old 2007 Patent Application
Later, TIP co-founded Social Flights – a ride sharing service for private jets. The innovation was our ability to predict most likely passengers and match them with most likely seats available on private aircraft. Supply and demand were both dynamic. Keep in mind that this was before Uber and we were acting within a highly regulated industry. Ultimately Social Flights was acquired.
TIP developed three key innovations:
The Value Game: An economic game where multiple self-interested agents must share a common asset. Their motivation and incentive would be to preserve the asset rather than consume the asset. This was supposed to simulate a sustainable economy such as what is desperately needed for our planet. The Value Game originated at Boeing and was tested with Social Flights and successfully deployed in several remodeling projects for condominium associations (shares asset communities)
The WIKiD Tools Algorithm. WIKiD Tools creates a mathematical relationship between (viewed backwards) Data, information, Knowledge, Innovation, and Wisdom. WIKiD tools is useful when you can’t measure something like innovation directly, you could measure a derivative such as the “rate of change in knowledge” as a proxy. In this way,the richness of Wisdom, Information, Knowledge, information, and Data can be more predictable.
Curiosumé is a combination of the words Curate and Resumé. The idea behind curiosumé is to convert the CV or Resumé to a form of code that can be overlaid on other information databases such as Wikipedia, Amazon ontology, even the Library of Congress. This allows us to measure intangible assets as they act in a community.
Then Came Blockchain:
We stopped publishing to The Ingenesist Project in 2016 in order to apply TIP innovations to emerging technologies such as Social Media, Blockchain, AI, etc. It appeared that the decentralization of the engineering profession would be an important step in achieving the original goals of sustainable global enterprise. During this time, I also started a small engineering consulting firm called CoEngineers, PLLC that served a traditional local market bringing engineering services to a retail clientele. CoEngineers, PLLC helped pay the bills while also serving as a sandbox for testing and developing TIP Innovations. Our first entry into blockchain was the creation of a token called Quant on the BitShares Blockchain.
SIBOS, NSPE Task Force, and National Association of Insurance Commisioners: Collectively each of these organizations represent the Banking Industry, The Insurance Industry, and the Engineering Profession. TIP published 3 whitepapers that became the basis for the next iteration. It was noted that each of these industries trade an invisible currency called Risk. It was found that TIP methodologies were better described by actuarial math (probabilities) rather than interest laden monetary metrics. This 3-way association became the genesis of the Insurance / Engineering Blockchain Consortium. This was later changed to the Integrated Engineering Blockchain Consortium or IEBC.
IEBC: Over the course of several years, IEBC was the umbrella organization for 150 engineers, scientists, and business persons who advanced the idea of a decentralized engineering network to mesh with the banking and insurance environments. IEBC published numerous seminal documents and spoke at dozens of industry conferences. The two main achievements were to publish a whitepaper with detailed specifications for a blockchain strategy that would accommodate all prior TIP innovations. The IEBC team built a prototype blockchain by cloning an existing successful chain and modifying it to suit MVP demonstration. IEBC ultimately ramped down for lack of funding. But everything we learned is now open for iteration.
Where to re-Start? TIP has always been a place where ideas are formed and implemented either by ourselves or by others. Many TIP Ideas survive to this day in the many hundreds of engineers and scientists who have participated in the conversations, the start-ups, the publications, lectures, and webinars over the last 15-20 years. We can see many past TIP contributors advancing in their careers, businesses, and leadership roles.
There is something that binds people to this network – it has to do with the underlying belief that Makers Of Useful Things are the cause, not the effect, of sound and sustainable economic activity. The flaw of market capitalism has the world operating in a mirror image of the economy that was supposed to happen. The solution is more about perception than it is about revolution.
The value of engineering is perhaps the greatest arbitrage opportunity in history. After 100 years of regulated professional engineering practice, engineering is still valued on a linear time and materials basis. In the Internet age, where everything and everyone is connected by engineering, I argue that the value of engineering may be accounted by the exponential Network Effect.
For example, many social networks such as Facebook or Google enjoy corporate valuation in accordance with Metcalfe’s law which states that the value of a network is proportional to the square of the number of nodes in the network. Facebook, Linkedin, Google, etc., are simply a platform upon which participants reflect value through their interaction with each other. The real physical value of those interactions is projected upon the virtual value of the platform. This is significant.
This condition may be mirrored with engineering infrastructure, such as a bridge or a building. The physical value of the bridge is accounted for in a linear time and materials, but the network value of the bridge is proportional to the exponential number of connections that people make in using the bridge. The difference between the two quantities represents an arbitrage opportunity whose value would be easily measured into existence by a clever cryptocurrency.
This analysis can be extended to nearly all works of engineering from renewable energy facilities, clean water installation, transportation systems, and all buildings, etc. The Network Effect also applies to the security, fault tolerance, transparency, and reliability of a network as well – each reflect additional layers of engineering proof of work.
Today, the value associated with the network effect of infrastructure engineering is unaccounted for – it does not exist on any balance sheet yet it is widely distributed in society. For example, doctors have hospitals, manufacturers have machinery, bankers have assets to finance, insurers have accidents to underwrite – none could exist without the network effect of engineering.
The World’s First Intrinsic Cryptocurrency
The purpose of Quant is to measure the network value of engineering into existence with a digital currency. Such a currency would represent the intrinsic value of all people who interact with works of engineering. A currency that accounts for intrinsic value will quickly achieve a generalized reciprocity among a community of beneficiaries who will then readily trade in that currency.
Much like Amazon.com started as a bookseller, Quant will start with infrastructure engineering. This initial transition step is essential to achieve initial reciprocity of the digital currency. The interface will be at the adjudication of smart construction contracts upon which banking and insurance depend to capitalize and underwrite the works. Once this point of entry is established, additional layers of infrastructure can be added eventually capturing the true value of every human being that contributes their productivity to the network.
The consortia being promoted by The Ingenesist Project between engineering and insurance will be a critical component in establishing this base layer of intrinsics. We have compiled a group of founders and visionaries that can bring this idea into a practical blockchain protocol. Would you consider joining us?
Anyone who was around in the early 1990’s may remember the mantra of modern globalization was that centralized markets were bad and decentralized markets were good. Fast forward to 2016 and blockchain technology: centralized ledgers are bad decentralized ledgers are good. Does this sound familiar? Blockchain and NAFTA may have a lot in common. The good news is that perhaps this new world is not quite as uncharted as it now appears.
Coinciding with the end of the Cold War, we can now look back at NAFTA as the Big Bang of modern globalization. The supporting calculus is credited largely to the ‘theory’ of Comparative Advantage; an economic thesis referring to the ability of any given economic actor to produce goods and services at a lower opportunity cost than other economic actors. The idea first appeared in 1817 in a book by English economist David Ricardo, “Principles of Political Economy and Taxation” David Recardo’s ideas still serve as the logical basis of international trade. The efficiency of this economic model were at the time, and still are, indisputable.
Further back, the 15th Century concept of Laissez-Faire is an economic system in which transactions between private parties are free from government interference. Meanwhile, the “invisible hand” was a term first used by Adam Smith to describe the unintended social benefits of individual actions. These ideas formed the cornerstones of modern Capitalism – the decentralization movement of a prior era. Indeed, Capitalism solved a great many human problems while arguably ushering into existence new, and possibly more perilous problems such mass political instability, financial crises, and even climate change. Now, the advent of bitcoin claims to solve many of these problems. This begs the question, what new problems will be created after 25 years of blockchain technology?
More importantly, perhaps this connection to a large body of precedence (if we are clever) can guide us to a different set of outcomes than prior decentralization technologies. This is an important and timely question given the blockchain technology, due to the Network Effect, is exponentially more powerful than the relatively linear Law of Comparative Advantage.
I was involved with developing standards for the mutual recognition of engineering professionals between US, Canada, and Mexico back in 1993-1996. What made NAFTA different, and hence “modern”, was an inclusion of free trade in services sector. These included financial services like banking and insurance as well as professional service providers from engineers to librarians. Essentially NAFTA attempted to treat intangible value directly as a tangible object for international trade. Still a problem yet to be solved.
At the time however, the mutual recognition of professional engineers was controversial and divisive. The US engineers were fearful that they would lose their high paying jobs to cheap Mexican engineers, whose salaries were about 1/10 the US engineering salary. A “giant sucking sound” was the popular phrase coined by a billionaire presidential candidate at the time. The fear was made very real for many people, not unlike the immigration debate that continues to rage today.
I saw something different.
In Mexico, I saw an entire nation – an entire continent – that needed everything that US engineers create. Mexico, Central America, and South America needed roads, bridges, structures, water, energy, and every manner of infrastructure upon which free markets utterly depend. Since NAFTA also liberalized trade in financial services, that meant that economic development could be financed at low cost of capital. In my youthful idealism, I felt that the opportunities for engineers from all countries was beyond extraordinary – to me, it was specifically the rising tide of basic infrastructure that would float all boats. Unfortunately, this opportunity was woefully squandered. Let me explain.
In the US, and many developed countries, the professional engineering licensure laws assure transparency, consensus, and economic incentives that rewards high integrity rather than low integrity among engineers and contractors who carry such licensure. When the PE stamp is indelibly attached to the project plans, the asset that is described by those plans is held in suspension on the balance sheet during the design and construction phase. This span of time is when the highest monetary risks and technical risks occurs. Insurance companies depend heavily on engineers to verify the design, materials, processes, components, chronological order and performance of all components of the systems that they insure. Where risk can be transferred to insurance, the cost of capital can be minimized.
The problem with the NAFTA Mutual Recognition Standards for engineers was that the three negotiating bodies for the US, Canada, and Mexico failed to reach an agreement over reciprocity of the other member’s licensure model and instead defaulted to the highest common denominator which fell far short of practicality while also failing to meet the conditions of insurability, especially for Mexico. As such, infrastructure projects could not be financed for lack of licensed engineers in the relevant NAFTA jurisdictions. This was not for lack of money because NAFTA also liberated access to financial services – but for lack of insurance. Without a tip-to-toe insurance presence, Latin American economies continue to experience difficulties in bridging the capitalization gap. Innocent people suffer.
Many trade agreement that followed NAFTA would go on to include free trade in services, and also inherit this flaw capitalization of infrastructure for lack of Global Engineers. Unfortunately, mutual recognition of engineers would be stopped cold at the borders for lack of insurance. Many of the problems associated with globalization today, in my opinion, can be attributed to the failure of the NAFTA Mutual Recognition Document for Professional Engineers. We have an opportunity to correct this flaw and it is imperative that we do so.
To centralize, decentralize, or re-centralize.
While the economic theories of decentralization are sound, the intended outcome has been elusive. Instead of converting from centralized serfdom to the invisible hand of freedom, we keep inventing new forms of re-centralization where one centralized system is traded for another under the auspice of decentralization! The danger is that blockchain technology will not reach its potential of economic freedom for all, rather, it will simply become another form of mechanization that replaces people with machines. A decentralized solution will require the integration of machines with people. That means we need to augment human capacity not “surplus” it.
Blockchain technology replaces some – but not all – of the decisions that a human administrator makes. It will be important to look at bureaucratic processes and accurately discern what can go to a blockchain and what must remain in human judgement. The current markers of re-centralization include so-called permissioned ledgers to replace back office workers. Permissioned by whom? A centralized authority? The running joke in the cryptocurrency space is that any effort to control a decentralized system quickly cancels out the advantages of having one in the first place. Re-centralization is dangerous.
Instead, the integration of humans and blockchains should take a hybrid approach where humans serve as adjudicators to the blockchain machinery pointing smart contracts toward the intended outcome at specific points of risk transfer. Eventually, a means to decentralize the human adjudicators will be required so that they cannot be corrupted. One such solution is proposed by The Ingenesist Project. It is called Curiosumé and it converts a CV to cryptography so that holders can lock contracts to a blockchain quasi-anonymously.
The consortium between engineering and insurance is a critical development in the current evolution in blockchain technology and is required to break the cycle of recentralization by expanding the insurance capacity of our financial system to a fundamental storage of value – public infrastructure. We need to learn how to convert existing engineering and construction contracts into blockchain adjudicated smart contracts. We need to figure out how to decentralize the adjudicators in a fault tolerant system that cannot be easily corrupted, thus providing for optimal allocation of public and natural resources. Then we need to expand the adjudication system to all other service professionals who also serve the needs of our human markets. The resulting cryptocurrency will have intrinsic properties that people will be willing to trade. In this manner, the cost of capital will be lowest for the most proper allocation of resources required by an increasingly crowded planet.
A great deal is being said about Blockchain Technology. But what exactly is the problem does blockchain solve?
The main problem that blockchain solves results from the fact that computer databases simply cannot talk to each other without a layer of expensive fault-prone human administration or bureaucratic central authority controlling every node. Blockchain technology, on the other hand, is a single, decentralized database managed by software and shared by multiple users, without any third party authority. This makes processing transactions less costly and less error-prone. This software enables process efficiency because new links can form as needed, and improves organizational efficiency because no management gatekeepers are needed.
The applicability of blockchains may include everywhere that many people may want to interact with a computer database. It is easy to imagine a tremendous breadth and depth of potential applications and markets.
The traditional way to enable databases to communicate with each other is to consolidate and combine them into a single database, hoping that enough commonality would exist to patch them together. This approach is typical of mergers and acquisitions of corporations where two somewhat similar entities combine their data under a central authority. Efficiencies are gained in scale and elimination of redundancy. Unfortunately, centralization can also lead to inefficiencies such as top-heavy hierarchy, monopoly, obfuscation, stagnation and vulnerability to external shocks. Failures would often trigger blanket legislation and government regulations. Meanwhile, the original problem remains; how do these new mega databases communicate with other mega databases?
The other way to eliminate intermediaries and enable data to be shared between organizations is for everyone to share the same database. Multiple writers can retrieve and populate data simultaneously with no controls, consensus or centralized authority. Natural organic links would form, and operations would become faster, cheaper and easier to perform and maintain. The network effect can take hold where the value of the network would grow exponentially. Unfortunately, there would be no way to stop a person from cheating another person, or going back to change the conditions of a contract, or giving himself a raise, or double spending a unit of account, etc. For decentralized databases, these are precisely the problems that blockchain solves.
Before Bitcoin, if a person sent a contract over email, each party would hold an identical copy that could be easily manipulated. After Bitcoin, a person can send a contract electronically, and the receiving party would hold the only valid copy. While this may sound trivial at first, it is extraordinarily difficult for a computer to do. But it would allow computers to perform some of the functions that administrators routinely perform today at nearly every interaction with a computer.
Not unlike what happened with mechanization in the last century, once achieved, the software-managed architecture will be faster, more reliable and cheaper while the marginal cost of adding additional capacity approaches zero. Centralized databases scale at the speed of bureaucracy. Blockchain may scale up to handle large and complex transactions or scale down to accommodate billions of micro-transaction with little difference in operations cost. Also like what happened with mechanization, society will certainly reorganize around these new forms of value creation and exchange. This is already evident with the extraordinary amount of venture and investment capital and creative new decentralized autonomous organizations (DAOs) pouring into blockchain space.
Blockchain technology makes business cases that may never have been viable become brilliantly viable today. To use an engineering example, the invention of the hydrostatic wheel bearing eliminated enough mechanical friction from a steam locomotive that it could become a viable engine of economic growth. Likewise, blockchain technology holds the potential to eliminate a tremendous amount of friction from everyday transactions and agreements. For anyone reading this article while standing in line at the DMV, that is a problem that deserves to be solved.
Blockchain technology is like a three-trick pony. It essentially combines three slightly clumsy computer tricks to mimic decisions that a human administrator routinely makes. The difference is that, if done correctly, the computer can perform some of these decisions with great speed, accuracy and scalability. The peril is that, if done incorrectly, the computer can propagate an incorrect outcome with the same stunning efficiency.
1: The Byzantine General’s Dilemma
A scenario first described in 1982 at SRI International models the first trick. This problem simulation refers to a hypothetical group of military generals, each commanding a portion of the Byzantine Army, who have encircled a city that they intend to conquer. They have determined that: 1. They all must attack together, or 2. They all must retreat together. Any other combination would result in annihilation.
The problem is complicated by two conditions: 1. There may be one or more traitors among the leadership, 2. The messengers carrying the votes about whether to attack or retreat are subject to being intercepted. So, for instance, a traitorous general could send a tie-breaking vote in favor of attack to those who support the attack, and a no vote to those who support a retreat, intentionally causing disunity and a rout.
A Byzantine Fault Tolerant system may be achieved with a simple test for unanimity. After the vote is called, each general then “votes on the vote,” verifying that their own vote was registered correctly. The second vote must be unanimous. Any other outcome would trigger a default order to retreat.
Modern examples of Byzantine Fault Tolerant Systems:
The analogy for networks is that computers are the generals and the instruction “packet” is the messenger. To secure the general is to secure the system. Similar strategies are commonplace in engineering applications from aircraft to robotics to any autonomous vehicle where computers vote, and then “vote on the vote.” The Boeing 777 and 787 use byzantine proof algorithms that convert environmental data to movements of, say, a flight control surface. Each is clearly insurable in a highly regulated industry of commercial aviation. So this is good news for blockchains.
2: Multi-Key Cryptography
While the Byzantine Fault Tolerant strategy is useful for securing the nodes in a network (the generals), multi-key cryptography is for securing the packets of information that they exchange. On a decentralized ledger, it is important that the people who are authorized to access information and the people who are authorized to send the information are secured. It is also important that the information cannot be tampered with in transit. Society now expends a great deal of energy in bureaucratic systems that perform these essential functions to prevent theft, fraud, spoofing and malicious attacks. Trick #2 allows this to be done with software.
Assume for a moment that a cryptographic key is like any typical key for opening locks. The computer can fabricate sets of keys that recognize each other. Each party to the transaction has a public key and a private key. The public key may be widely distributed because it is indiscernible by anyone without the related private key.
Suppose that Alice has a secret to share with Bob. She can put the secret in a little digital vault and seal it using her private key + Bob’s public key. She then sends the package to Bob over email. Bob can open the packet with his private key + Alice’s public key. This ensures that the sender and receiver are both authorized and that the package is secured during transit.
3: The Time Keeper
Einstein once said, the only reason for time is so that everything doesn’t happen at once. There are several ways to establish order in a set of data. The first is for everyone to synchronize their clocks relative to Greenwich, England, and embed each and every package with dates of creation, access records, revisions, dates of exchange, etc. Then we must try to manage these individual positions, revisions and copies moving through digital space and time.
The other way is to create a moving background (like in the old TV cartoons) and indelibly attach the contracts as the background passes by. To corrupt one package, you would need to hijack the whole train. The theory is that it would be prohibitively expensive, far in excess of the value of the single package, to do so.
Computer software of the blockchain performs the following routine to accomplish the effective equivalent process: Consider for a moment a long line of bank vaults. Inside each vault is the key or combination to the vault immediately to the right. There are only two rules: 1. Each key can only be used once, and 2. No two vaults can be open at the same time. Acting this out physically is a bit of a chore, but security is assured, and there is no way to go backwards to corrupt the earlier frames. The only question now is: Who is going to perform this chore for the benefit of everyone else, and why?
Finally, here is why the coin is valuable
There are several ways to push this train along. Bitcoin uses something called a proof-of-work algorithm. Rather than hiding the combinations inside each vault, a bunch of computers in a worldwide network all compete to guess the combination to the lock by solving a puzzle that is difficult to crack but easy to verify. It’s like solving a Rubik Cube; the task is hard to do, but everyone can easily see a solution – that is sufficient proof that work has been done and therefore the solved block is unique and valid, thereby establishing consensus.
Whoever solves the puzzle is awarded electronic tokens called bitcoin (with a lower case b). This is sort of like those little blue ticket that kids get at the arcade and can be exchanged for fun prizes on the way out. These bitcoins simply act as an incentive for people to run computers that solve puzzles that keep the train rolling.
Bitcoins (all crypto currencies) MUST have value, because, if they did not, their respective blockchain would stop cold.
A stalled blockchain would be the crypto-currency equivalent of bankruptcy. This may account for some amount of hype-fueled speculation surrounding the value of such digital tokens. Not surprisingly, the higher the price, the better the blockchain operates.
While all of this seems a bit confusing, keep in mind that we are describing the thought patterns of a computer, not necessarily a human.
The important thing is that we can analyze the mathematics. From an insurability standpoint, most of the essential ingredients needed to offer blockchain-related insurance products exist as follows.
1. The insurer can identify the risk exposures associated with generals, traitors, locks, vaults, trains and puzzles.
2. The insurer can calculate probability of failure by observing:
The degree of Byzantine fault tolerance.
The strength of the cryptography
The relative value of the coins (digital tokens)
3. The consequences of failure are readily foreseeable by traditional accounting where the physical nature of the value can be assessed, such as a legal contract.
We can therefore conclude that each of the tricks performed by this fine little pony are individually insurable. Therefore, the whole rodeo is also insurable if, and only if, full transparency is provided to all stakeholders and the contract has physical implications.
Markets are most efficient when everyone has equal access to information – the same is essential for blockchains. So much so that any effort to control decentralized networks may, in fact, render the whole blockchain uninsurable. It is fundamentally important that the insurer is vigilant toward the mechanics of the blockchain enterprise that they seek to insure, especially where attempting to apply blockchain to its own internal processes.
Are blockchains insurable? This question was posed to us as a topic for presentation by the Center of Insurance Policy and Research, a research arm of the National Association of Insurance Commissioners (CIPR / NAIC)
The trigger appears to be that some insurance companies are being asked to insure the business operations of blockchain enterprises. This same concern would apply to legacy business operations that may choose to deploy a blockchain – basically, a shared database managed by software. If one listens to the blockchain activists, this could basically apply to everyone in the near future.
The Ingenesist Project volunteered the following opinion to the question; Are Blockchains Insurable? The article was published in the July 2016 CIPR Journal
This article is comprehensive and staggering in its implications. It begins by shaping the given landscape of finance and entrepreneurship in terms of insurability. It follows with, in essence, a mathematical proof that arrives at a conclusion that blockchains are insurable, but business processes using blockchains may not be. Luckily, the technology offers sufficient mathematical underpinning to calculate and adequately pool risk exposures of its components. However, the trouble arises where digital assets can neither be treated as money nor property. This extralegal condition may exist which would be categorically non-insurable in mainstream finance.
“Extralegal” refers to a condition in which something is neither legal nor illegal. Economist Hernando De Soto writes about how the extralegal sector in many parts of the world grossly inhibits economic growth because people are unable to secure “title” to property and businesses that they create. They are unable to bridge the capitalization gap – that is, the ability to borrow “money” against tangible assets or future returns.
Blockchain technology appears to be languishing in the extralegal domain as courts and governments have little uniform ideas about how and where this tech fits in society. That is, until something goes wrong like a major hack where important people lose a lot of money. Then some patchwork of blanket legislation will likely emerge to favor those of one sector over another. The running joke in crypto-space is that any effort to control blockchain technology would negate any benefits of having it in the first place.
There is a third option.
This article raises the possibility that the pairing of blockchain tech with professional engineers (as the decentralized adjudicators of smart contracts) would achieve a state of insurability and thus bridge the capitalization gap required for mainstream financing of blockchain enterprise. This arrangement applies primarily to basic infrastructure and derivatives of basic infrastructure which may not actually be a bad thing at all.
On a critical path.
The Earth is an epic case study in deferred maintenance. There are very real and serious global problems that impact every living creature on Earth that we need to attend to immediately. Critical path methodology is a technique familiar to all builders as a set of instructions specifying where one action must precede the next in order for subsequent actions to occur. Millions of business plans that provide basic human needs and protect our natural resources, and that are currently unprofitable, will suddenly become hugely profitable.
These outcomes could be accomplished with the recommendations provided within. Please read this article and forward it to others who are interested in this technology. There is very real money to be made in the next economic paradigm that is currently at our fingertips.
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.
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.
There needs to be a completely different path. 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.
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.
The hallmark of a great society is the ability to capitalize it’s needs, not it’s arbitrage opportunities. The Highest and Best Use for Blockchain Technology must be to reduce the cost of capital by decentralizing risk, not necessarily money…yet
Blockchain technology carries a promise of great opportunity, efficiency, and fairness in business operations and governance 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.
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.