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 Calculus.

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 derivatives.

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 knowledge.

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.

Conclusion

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)

Where:

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 conditions.

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.

Network Learning

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.


A New Class of Business Methods

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 Corporation
  • 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
  • Planet Earth

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.


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

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

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

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

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

The World’s First Intrinsic Cryptocurrency

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

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

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


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

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

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

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

Lessons Learned

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

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

I saw something different.

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

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

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

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

To centralize, decentralize, or re-centralize. 

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

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

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

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

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

 


pic-what-problem

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.

Centralization

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

See also: How Blockchain Will Reorganize Society  

Decentralization

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

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

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

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

The innovation has just begun.

Adapted from:

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

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


rubrik-fridge The Mechaics of Blockchains

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

1: The Byzantine General’s Dilemma

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

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

See also: Can Blockchains Be Insured?  

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

Modern examples of Byzantine Fault Tolerant Systems:

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

2: Multi-Key Cryptography

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

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

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

3: The Time Keeper

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

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

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

Finally, here is why the coin is valuable

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

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

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

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

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

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

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

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

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

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

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

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

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


home-fireAre 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

Article available here

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.

Ucritcal pathOn 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.

Article available here

 

 

 


Jericho Beach Walk

Face it, if the water was not clean, and if we did not have a warm place to sleep, or safe roads, or fresh food, reliable energy, Internet technology, bug-free software etc., something like bitcoin, let alone antibiotics, could never have come into existence. This is a fact, the value of all money is derived from the value of infrastructure that supports human productivity. For the avoidance of doubt, simply compare US infrastructure with, say, Haitian Infrastructure.

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

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.