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Tag: Fraud

Behind Every Fraud Is A Mountain of Truth

fear uncertainty and doubt
Image by Gerd Altmann from Pixabay

“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?

TIP

The Value Game

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.

TIP

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.

They Should Pass A Social Currency Option

cubscout-mainMy new favorite rebuttal to any argument from economic ailment to political controversy is: “I’d like to see a social currency thrown into the mix”.

It is really convenient to have the same position on all issues; Health Care, Terrorism, abortion, financial meltdown, education reform, and political scandal – my response is the same. “I’d like to see a social currency thrown into the mix”.

What the heck am I talking about?

Several recent blogs articles (and here, and here, and here) have converged around the idea that social currency is something that people earn from being active in a community, network, or social organization. Social Currency in lauded upon the recipient in many forms such as Google juice, respect, engagement, trust, re-tweets, reputation, merit badges, check-ins, tokens, Whuffie, wiggly worms, etc…

Regardless of what you call it, all social currencies have a very unique characteristic that differentiates them from a financial currency. Social currencies reward high integrity and punish low integrity.

Social Currency can be earned or converted:

Organizing a community around a common goal is serving a need that government and corporations do not have to fulfill in their “Social Charter”. So it has value.

  • Helping a neighbor find a job supplants the work of the government funded unemployment office.
  • Helping an elderly neighbor with their shopping supplements the Department of Health and Human Services.
  • Adopting a child alleviates expenditures in the foster care system, abortion, and possibly the courts and prisons.
  • Helping local vendors stay afloat by organizing a community of group buying or groupons reduces the demands on bankruptcy courts and social services.

Social Currency can also be eliminated:

  • Public servants and politicians who squander the trust of their constituents through acts of corruption and impropriety
  • Corporations who decimate local priorities in favor of Wall Street priorities.
  • Breaking the law, endangering others, neglect, fraud, breech of social contract .
  • Consumption far in excess of social contribution.

Take any issue and apply social currency

The health care debate is an excellent example. First, let’s apply a social currency to all of the people voting on the bill. Next, let’s apply a social currency to everyone arguing against the bill. Next, let’s apply a social currency to everyone arguing in favor of the bill. Let that count establish the burden of proof of the argument.

Next, let’s pay for Health Care Reform in social currency, not financial currency. That means people with a surplus of social currency receive health care at a certain rate. People with a deficit of social currency receive health care at a different rate.

Finally, compensation to health care providers would also be biased by a social currency. Providers with a surplus of social currency are paid at a different rate than providers with a deficit of social currency.

What about cheaters?, who pays these subsidies? how do you count it?, It’s a job killer, corporations will go bankrupt, losers still lose, Holy cow, this messes everything up!!!!

Actually, it’s not much different than how we allocate money on a credit scoring basis. It’s not any more difficult to count than the blood-money coursing through the veins of an unvetted financial / insurance system. Most importantly, constraining a Financial Currency with a Social Currency sets up a whole new landscape of benchmarks and incentives that accelerate innovation, in effect, printing new currency.

That’s what I mean when I say; “I’d Like to see some Social Currency in the Mix”


Social Media Strikes Back

Money represents human productivity.

Recent headlines declare that 78 billion dollars worth of fuel and productivity are wasted each year by congestion on highways. 1.2 Trillion dollars per year in productivity is lost due to past failures in education. The US spends 7% more of our GDP on health care than the average of other developed nations leaving nearly 1 trillion dollars of unknown ‘productivity value’ in vapor per year. 200 Billion dollars per year is spent on war, whether necessary or not, that has not increased American productivity in an economic sense.

2.5 Trillion Units of Human Productivity

Without even trying hard, 2.5 Trillion Dollars per year in stuff not produced is wasted on activity that does not increase human productivity (stuff produced). Obviously debt is a promise to produce stuff in the future. But we’re wasting stuff now? At some point the logic falls apart but no matter how you look at it, money represents productivity and the only way out of this mess is to innovate at an astonishing rate.

Conversational Capital

In an earlier article, we conjured up a rough tabulation of productivity gains due to social media:

One billion messages are sent on Facebook every day. Suppose that each Facebook conversation has a net value of $1.00 per person. That comes out to 730 Billion dollars per year of human productivity saved.

Twitter is worth a cool 100 Million tweets per day. Let’s assign a net productivity gain of $1.00 per tweet delivered. That is $36 Billion per year in increased human productivity.

Suppose each blog article published increases human productivity by $0.50 each. With over 100M blogs, that is 10 billion dollars per day – or1.8 trillion dollars per year.

The grand total is 2.5 Trillion Dollars worth of conversational currency.

In Search of Waste Economics:

Now, return to the waste side of the balance sheet let’s reflect on the areas of impact that social media has on: transportation, energy, education, health care, and world Peace:

Social media reviews automobile quality and drives social priorities toward green industry. Social media allows people to find work close to home, social media vets energy systems such as wind, solar, nuclear. Social media is driving journalism to value added roles and away from corporate collusion. Social media provides richer and more current content than textbooks. Social media is driving social priorities over Wall Street priorities in health care, energy, politics, industry, and science. You Tube is seeing a 1700% increase in downloads as people set up video cameras all over the world searching and reporting injustice.  Little Brother is watching.

Social media strikes back

In order to predict where social media will strike next all we need to do is look for the waste economy; areas where world governments, institutions, and corporations are inefficient, wasteful, co opted, or corrupt.

The Trojan Horse; A Classic Social Fraud

Periods of change in any market open the doors for abuse as control systems often lag behind the waves.  This is especially true for social capitalism where the social contract is changing rapidly and the enforcement mechanisms are largely non-existent.

All markets must have effective vetting mechanisms in order for the market to be viable.  If the game is not fair – real investors and real entrepreneurs don’t walk, they run…away.  While much fraud is obvious and predictable, the most damaging is the type that nobody sees coming but can destroy the standard of trust for everyone, forever, like the Trojan horse.

Hypothetical Case Study:

A self-proclaimed innovation consultant runs a blog out of anywhere USA.  They have a catchy domain name and their ranking is unusually high for a 5 month old blog with splashy but infrequent articles.

In the spirit of the X-prize, the blogger promotes an Innovation Contest offering $60,000 dollars worth of his company’s “Marketing Consultation” services as a prize to the next innovation that will change the world! … as judged by a “panel of experts”.  The blogger encourages all entrants to send their social network to vote up their innovation as this will weigh heavily into the judging.  Many people submit their work and diligently mine their Facebook and Linkedin networks for the vote.

The contest ends and the winning idea earned zero external votes but it is in an industry that is very popular in mainstream media and slated for government stimulus.  However, it is clearly not up to par with many of the other entrants.  Upon inquiry, the blog author does not specify the criteria for judging, he does not itemize the prize, he does not publish his “panel of experts” and he does not post any dissenting opinions or inquiries submitted to the moderated comments.

A few days later, a press release appears on Google news; “$60,000 dollar innovation contest prize awarded for breakthrough in targeted industry”.  Leading tech media pick up the story and the “consultant” is hailed for defending the struggle of the unsung heroes of the innovation economy.  It appears to the contestants that the consultant is promoting himself at their expense.

So, what’s wrong with that?

First; for all of the innovators who submit themselves to judgment and expend their social capital on votes, the integrity of the contest must be bullet-proof.  The definition of the objective, the judges, and judging criteria must be specified absolutely. Otherwise, good ideas will not be shared.

Second; if potential sponsors of a legitimate X-prize-type contest are challenged in their sincerity to promote world-changing innovation, and instead are accused of self-promotion and media bias, a tremendously valuable resource of the innovation economy will be squandered.

Finally; if a person’s social networks are mobilized to vote in any type of contest – they must know that the time they invest will be respected and valued or they will no longer participate in other contests.

To this day, the clever ruse of the Trojans remains the fraud of choice for new market technologies. It has also marked the standard of trust that we hold forth in our relationships and invitation to our inner circle. Sharing of one’s friends is a deeply intimate act of faith and trust many times greater than sharing one’s ideas. The caregivers, those who hold forth the willingness to nurture that trust, must be qualified as stewards of the public endowment of social capital, creative capital, and intellectual capital.

Social Capitalism depends heavily on the function and performance of communities. A “paranoid bias” could be vastly damaging – possibly constraining the next great paradigm of economic development from achieving critical mass.   Social Capitalism is not a game, it’s serious business.

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