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Tag: regulation

Municipal Governance On The Blockchain

treesviewAs a member of the City of Edmonds Planning Board, I hear a lot about what the public wants and what they do not want from their local government.  As a seaside town, property values can be greatly impacted by water and mountain views.  As such, there is an incentive to remove trees blocking views.  In other parts of town, the urban forest is extremely beautiful and there is great incentive to preserve trees from high density developers. So what happens when a town wants to regulate trees?  In our case, it was NOT an Edmonds kind of day. Perhaps it’s time to try municipal governance on the blockchain. 

Problem:

Many municipalities are adopting laws which may restrict the cutting of trees on private property in response to factors such as canopy loss, erosion control, wildlife protection, urban forest management, development, view amenities, climate change, etc.; or to enhance tree cutting to make way for new development and associated tax dollars. However, most models for tree regulation are unpopular with their imposing fines, permit fees, high density development, and government regulation on private property. Yet, these fines and permit fees are required to fund a bloated top-heavy tree code in the first place!!

Proposal:

Incorporate cryptographic and/or block chain technology to create a web-based public ledger and tree inventory that everyone can see and anyone can audit. By adding simple gamification features, the tree code may become self-regulating as players interact with the game. This may minimize government involvement, except in the most exceptional circumstances.

Discussion:

Think of it like a huge public accounting ledger that everyone can see, but can only edit their own data.  Instead of accounting for money, the ledger accounts for trees.  The game starts when a property owner registers his or her own trees on the ledger.  The city will issue cryptocurrency based on the number of tree units the property owner claims. These tokens would go into an electronic wallet on a blockchain associated with the property parcel number.  Each year, the resident will be issued more tokens by the city as their trees grow – the value of the tokens is derived from climate data or LIDAR surveys.  Some years may increase token values, some years may decrease token value based on estimated growth rates.

When a person wants to cut down a tree, they need to spend tokens to do so. Ideally, A property owner would not cut down more than they can grow. If they don’t have enough tokens, then they need to buy them from adjoining neighbors who are also trying to grow more than they must lose. If trading is restricted to adjoining properties (not commoditized like carbon credits), then community actions must be agreed upon by neighbors to settle any difficult situations.

The city would rarely get involved except to peg the value of the tokens on climate data. Algorithms programmed into the public ledger would manage the token values and electronic wallet exchanges automatically.

Shifts incentives

This sounds innocent enough.  But in reality, it changes all of the incentives that we are now attempting to manage with convoluted linear rules and imposing government regulations on private property.

For example,

  • It rewards tree preservation.
  • It rewards early and active registration,
  • It is self-enforcing because neighbors have a vested interest, and the ledger is public.
  • It is self-governing because neighbors need to agree on price.
  • It is self-limiting – an area cannot get rapidly stripped without progressive costs.
  • If a developer tries to take out a lot of trees, the neighbors can make it very expensive to do so – or negotiate concessions, etc.
  • If an arborist is needed, then the business case exists to hire one.
  • The municipality is able to referee disputes and establish coin allocations based on canopy quota or weather conditions, etc.
  • It provides tree liability (or asset) disclosure at property sale.

Business case

Today, proposed tree code regulations expose the citizens to cutting fees as high as $1000 dollars per tree. Violations for unauthorized cutting can approach $3000 dollars per tree. This money is required to fund a tree department that may consist of up to 3 arborists (for a small seaside town in Washington state; pop. 50,000), a permit reviewer, an enforcement arm, and possible court challenges. It could cost a million dollars per year to have an effective tree code for a city under 100,000 people, or 10 dollars per person per year just to regulate.

A price point of 1 dollar per citizen per year would therefore not be an extraordinary amount of money for a city to resolve a difficult social problem with modern technology.   Several thousand small cities dot the American coastline making this a strong candidate for private entrepreneurial partnership simply to maintain and audit the public ledger.

Conclusion:

A new generation of web applications and cryptographic technologies would allow this activity to happen autonomously. No new labor is required. No regulators are needed, no special penalties or enforcement mechanisms are required.  The city can stay out of the private property tree business completely.

Technically, this is called a multi-agent algorithmic game on a decentralized autonomous platform.  The difference is that today, these things can be made to look and feel like a game that is fun to play – people may play it. How many other Municipal Governance functions can be self-governed on a blockchain such as motor vehicles, animal control, gun control, schools, parking, water rights, energy, executive power, or any intrinsically valuable shared community asset.

 

Intellectual Property in the Innovation Economy

Today there is a big scare that bad people will run off with your intellectual property and make a ton of money with it. Another problem is that the Patent system is so slow and so expensive that the vast majority of innovators simply do not have access to patent protection – many people just keep their ideas secret. This happens in corporations where your ideas are used to advance the careers other people. Often the dominant strategy is to not innovate or keep your ideas secret.

The trend toward open sourcing and crowd sourcing is a real option in the Innovation Economy where Social Network are self regulating. In fact, these articles reference Wikipedia – a community source of definitions.

In practice, If I do dirty deals of Craig’s List, for example; people know where I live….or I get flagged. EBay, for example, produces relatively little to earn their 30B market cap except protect their social accountability system – the EBay feedback mechanism rewards high integrity and punished low integrity. The hallmark of the Web 2.0 is the user generated content as well as the user generated vetting of the content.

This is significant. The efficiency of any market is directly related to the efficiency of the vetting mechanism by rewarding high integrity and punishing low integrity; the FAA vets the airline industry, checks and balances vets democratic government, and the FICO score vets the consumer credit markets. Likewise, things go horribly wrong when the vetting mechanism fails; the accounting profession after Enron, and the sub prime mortgage crisis after loose lending practices, etc. The battlefields of business are littered with similar examples.

In an Innovation Economy, the secret sauce for the production of innovation is far more valuable than any single innovation itself.  The secret sauce provides a monopoly on dynamic repeatability rather than some static device. As such, patents can be open-sourced and innovation crowd sourced across a much wider domain of user applications.  Such conditions will change the type of innovations that are favored to reflect the broad and sweeping social priorities rather than innovations that are easy to patent, protect, and monopolize – and fear for one’s IP being stolen.    Bad people cannot steal your intellectual capital, your social capital, or your creative capital – it is yours, you own it and you have the social network to prove it.

Ownership is the key ingredient of entrepreneurship – everyone owns the innovation economy.

In fact, the objective of innovation economics is for people to take your ideas and make money with them – then give you some of it. Your income arises from collecting royalty payments on your ideas and participation of many ventures. If someone does not play fair, their access to intellectual property and the Percentile Search Engine can be curtailed just like access to credit can be curtailed in modern finance. Therefore, it is in everyone’s best interest to play fair; you may cheat, but only once.

Social Networks are largely self-regulating; no government, Industry, or management is needed. This is efficiency, scaleability, and multiplicity all in one!

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