blockchain – Live an Untethered Life

In Blockchain we trust

April 19, 2019 by live an untethered life, posted in Legal, Uncategorized

The first thing we do, let’s disintermediate all the lawyers.

Imagine a virtuous world where someone says they would do something and then actually did it. Blockchain promises to revolutionize the economy since the need for virtue simply disappears. Advocates claim that Blockchain immensely raises the level of trust in the system. Alternatively, one could argue that it removes the need for trust.

Presently, we are more of a trust but verify type of society. If you want to buy a car, you search for comparable vehicles, haggle for the best price and sign pages of legal documents. Banks have you sign reams of paperwork and generally place a security interest on the car. The Bank also confirms the car is free of any liens. You then generally pay on time for the next four years. If you miss a couple of payments, then the bank may have to launch some proceedings for collection.

Undoubtedly you have heard of Bitcoin somehow in conjunction with Blockchain. Let’s ignore the Bitcoin frenzy for now and focus on what drives it.

Blockchain comprises a continuously growing list of records called blocks. These blocks link together using cryptography that are resistant to data modification. So instead of a single ledger of transactions held by one organization, it creates an open distributed ledger that can record transactions between parties in a verifiable way. One earlier block cannot be altered without the consensus of later blocks.

Blockchains can be public or private. MasterCard’s Blockchain can’t be viewed and may not have any purpose outside of marketing since all of its transactions run through the existing infrastructure. This harkens back to the time when companies advertised they were Y2K compliant.

You clamber down the rabbit hole and you encounter smart contracts. The name again seems a bit of a misnomer since the contracts operate a simple logic of if this happens then that happens next.

Smart contracts use computer protocols intended to enforce the performance of a contract. They can be fully or partially self-executing. Once various conditions are fulfilled, assets are transferred and funds are released. This transaction appears visible to all users but all parties remain anonymous.

We can look to Ethereum as having one of the better systems for establishing these smart contracts. Ethereum uses its own cryptocurrency called Ether. In our car example the history of the car and the dealer’s transactions reside on the Blockchain which is public. You contact your bank which has instant access to your credit history. The bank can transfer funds immediately and the dealer can arrange for the vehicle transfer by the time you get back from your test drive.

So long as you continue to authorize payments to the bank, all remains well. If you decide to stop payments, then the car’s systems could be disabled the next time you try to start it. Welcome to the internet of things.

The Blockchain concept does have the potential to extend to all types of commercial transactions. House purchases could be reduced down to days from the existing weeks it presently takes. This would require a public ledger of real estate titles, planning permissions and certificates of title. Sweden’s land-ownership authority conducts Blockchain property transactions in various staged pilot projects. A three to six month transaction could take hours instead. All that extra efficiency must come out of some intermediary’s pocket.

The removal of intermediaries impacts large swathes of job categories. Any sort of job category that involves creating trust in a transaction may no longer be required. The Association of Certified Fraud Examiners strongly claims that Blockchain is no mere hype train. This strong endorsement may have the effect of reducing the need for Certified Fraud Examiners by using Blockchain instead.

Ultimately, Blockchain can be seen as a foundational change. Immense barriers remain for its adoption for businesses, government and individuals. The incorporation of Blockchain may take years.

However, a major function of lawyers includes the trust but verify aspect. As real estate transactions become more blockchainish, then the role of the lawyer would be substantially reduced. This may finally drive the concept of hourly billing into a strict transactional fee type of relationship with clients.

Harvard Business Review goes so far as to say intermediaries such as lawyers, brokers and bankers may no longer be necessary. Not so much a ‘the first thing we do, let’s kill all the lawyers’ as ‘let’s disintermediate all the lawyers.’ This may not have the same emotive content, but the result would be same, lawyer wise.

From Lawyers Daily

Bit by Bitcoin Mining

April 15, 2018July 26, 2021 by live an untethered life, posted in Untethered Mind

You load sixteen tera-tons, what do you get?
Another day older and deeper in debt
Saint Peter, don’t you call me ’cause I can’t go
I owe my soul to the electrical store

As you already know, Bitcoin is all the rage. The specter of government regulation has knocked this enthusiasm down somewhat.

Notwithstanding the price volatility, the benefits of mining Bitcoin remains attractive for those that know where to look. And by look, I mean looking for cheap electricity.

Back in the heyday, you could use a simple laptop to attempt to mine Bitcoin. Now for any chance of success, you have to run a server farm. Perhaps we can change the metaphor from mining, which suggests gold, to farming, which suggests easily washable boots.

Countless computers across the globe attempt to mine Bitcoin by solving an algorithm. This proves and validates the correctness of a new transaction. Every 10 mins or so, some lucky miner solves the algorithm and receives a reward of 12.5 Bitcoins. All the other computers verify this and then stop what they are doing and start at the beginning again.

If the entire process sounds wasteful, then you would be correct. The Bitcoin mining process now takes up more electricity than the majority of countries. Current estimated consumption is 61 TWh. Mining requires the equivalent of the yearly electrical requirement of Switzerland, and just a bit more than Columbia. This power could sustain over 5 million households. Just a short while ago, some pundits were claiming that mining Bitcoin would the major user of power by 2020. And like anything, projecting exponential growth from the past into the future never really pans out.

Mining produces revenues of $6.3 billion and costs of $3 billion, providing a substantial margin of 48% plus other costs. Needless to say the carbon footprint of this type of mining is quite extensive since a number of countries rely on coal. China plans to limit the amount of electricity to miners which are estimated to be using up to 4 gigawatts of electricity, or about three nuclear reactors worth of energy. Plattsburg in the United States placed an 18 month moratorium on crypto mining owing to the extensive electrical use.

There is a lot of debate as to the actual electrical usage, but no one really knows what is happening in the black box. Suffice to say that a lot of energy is being wasted on chasing an algorithm that someone else will likely solve.

There are only a limited number of Bitcoins and more people are chasing them with increasing levels of computing power. The electrical requirements today are quite substantial since everyone has to obtain this ‘proof of work’ standard to qualify their Bitcoins. Think along the lines of will the sun rise tomorrow probability? A lower standard such a ‘proof of stake’ may qualify but the security standard would be lacking. Think along the lines of will I rise tomorrow probability? Usually pretty good, but I might be wrong someday.

A single Bitcoin transaction takes the energy equivalent of thousands of credit card transactions. So actually the cost of a bitcoin transaction is more akin to ‘priceless’.

The security of Bitcoins do come into question since there has been substantial hacking in some countries. Bitcoin can be like the canary in the crypto-currency mining process. But instead of the canary dying, we are talking about the crypto canary disappearing completely. And instantly.

The disappearance of all remaining Bitcoin to be mined would be the signal that someone successfully created a quantum computer. The first use of such a computer would likely not be to solve the mysteries of the universe, but rather to solve the algorithm to grab the balance of the Bitcoins to be mined.

This may take ten years, or perhaps less. As Yogi Berra opines, it’s tough to make predictions, especially about the future.

Photo by Make someones day from Pexels

In Blockchain we trust

April 8, 2018June 27, 2021 by live an untethered life, posted in Untethered Mind

The first thing we do, let’s disintermediate all the lawyers.

Imagine a world filled with absolute virtue where someone says they would do something and then actually did it. This level of trust reaches the pinnacle. If you wanted to buy a car, you would pay the listed price since that included the cost of manufacturing and a level of profit that everyone agreed would be appropriate for manufacturers. The bank would simply give you the money since you did say you would pay it all back in four years with interest.

But we are more of a trust but verify type of society. You have to search for comparable vehicles, generally haggle for the best price and sign pages of legal documents. Banks have you sign reams of paperwork and generally place a security interest on the car. The Bank also has to confirm the car is free of any liens. You then generally pay on time for the next four years. If you miss a couple of payments, then the bank may have to launch some proceedings for collection.

Blockchain promises to revolutionize the economy since a lot of this process outlined above simply disappears. Advocates claim that Blockchain immensely raises the level of trust in the system. Alternatively, one could argue that it removes the need for trust.

Undoubtedly you have heard of Bitcoin somehow in conjunction with Blockchain. Let’s ignore the bitcoin frenzy for now and focus on what drives it.

Blockchain comprises a continuously growing list of records called blocks. These blocks are linked together using cryptography that are resistant to data modification. So instead of a single ledger of transactions held by one organization, it is an open distributed ledger that can record transactions between parties in a verifiable way. One earlier block cannot be altered without the consensus of later blocks. There is no definite definition of Blockchain, but adherents are quite passionate about their own favorite.

You clamber down the rabbit hole a bit more and you come across things such as smart contracts. The name again is a bit of a misnomer since the contracts are more of simple if this happens then that happens. Similar to if you have this much to drink, then you are going to feel that crappy in the morning type of logic.

Smart contracts are simply computer protocols intended to enforce the performance of a contract. They can be fully or partially self-executing. Once various conditions are fulfilled, assets are transferred and funds are released. This transaction is visible to all users but all parties remain anonymous.

We can look to Ethereum as having one of the better systems for establishing these smart contracts. Ethereum has its own cryptocurrency called Ether. In our car example the history of the car and the dealer’s transactions are on the Blockchain which is public and allow it to be checked by everyone. You contact your bank which has instant access to your credit history. The bank can transfer funds immediately and the dealer can arrange for the vehicle transfer by the time you get back from your test drive.

So long as you continue to authorize payments to the bank, all is well. If you decide to stop payments, then the car’s systems could be disabled the next time you try to start it. Welcome to the internet of things.

The Blockchain concept does have the potential to extend to all types of commercial transactions. House purchases could be reduced down to days from the existing weeks it presently takes. This would require a public ledger of real estate titles, planning permissions and certificates of title. Sweden’s land-ownership authority will be conducting its first Blockchain property transaction shortly. Presently, a three to six month transaction could potentially take hours instead. All that extra efficiency will have to come out of some intermediary’s pocket.

But you can see how the removal of intermediaries will eventually impact large swathes of job categories. Any sort of job category that involves creating trust in a transaction may no longer be required. The Association of Certified Fraud Examiners strongly claim that Blockchain is no mere hype train. This is a strong endorsement which would likely have the effect of reducing the need for Certified Fraud Examiners.

One paper suggested that insurance payouts could applied to Blockchain. They suggested that an automated system could indicate if an insured fell within an area that was recently flooded. Insurance payments would then be automatically issued. I found this a bit of a stretch. For example, there would have to be complete pre-existing documentation of assets to show that my wife’s mid-century modern furniture was actually solid teak and not veneer. A point of full disclosure, I only found out this past year that mid-century modern was actually a thing.

Ultimately, Blockchain can be seen as a foundational change. There are immense barriers to adoption for businesses, government and individuals. The incorporation of Blockchain may take years.

From my own perspective, a major function of lawyers includes the trust but verify aspect. As real estate transactions become more blockchainish, then the role of the lawyer would be substantially reduced. This may finally drive away the concept of hourly billing into a strict transactional fee type of relationship with clients.

Photos by David McBee