In Blockchain we trust

bitcoin-blockchain-business-730569.jpgThe 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.

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. Nice to have, eventually meaningless.

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.

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.

 

 

Photos by David McBee

Mogul Moral Hazard

cold-cool-man-47356 (1)Moral Hazard describes a situation in which one party becomes more inclined to enter into risky behaviors knowing that they are protected against the risk and the other party will incur the cost.

This came to mind when I finally went downhill skiing after a twenty year hiatus. Back in my high school and university days, my life revolved around skiing and planning to ski. Not that I have ever been seriously injured while skiing, but the possibility came top of mind recently.

Skiing has changed. I went to the rental shop and they pulled out these new innovations. The skis now have this parabolic shape. I remember reading about them years ago, but I was not aware of what they looked like up close. Bodacious comes to mind. The boots weren’t much different, thankfully.

There was an entire rack of helmets, so I picked up one these things also. Amazingly, back on the ski hill everything worked out. No one got hurt. This new equipment did make it far easier to ski and I was likely way more aggressive wearing the helmet.

I was quite ready to admit at the beginning of the day that I was a less than average skier considering all of the time that had passed, but after a couple of runs all of that confidence came back. Perhaps false confidence, but confidence all the same.

But this is where behavioral economics comes in. When it comes to activities such as driving for example, about 90% of people feel that they are better than the average driver. Almost no one wants to place themselves in the bottom half of drivers by suggesting that “yep, I’m far worse than the average driver.’ This suggests that people are far more confident in their abilities than statistics and the Darwin Awards actually show.

This raises the question of whether insurance induces people to engage in risker behavior than they would if they didn’t have insurance. For myself, I have perhaps an excessive amount life insurance at eight time’s annual salary in the case of accidental death along with some great long and short term disability. I don’t think having this insurance modified my behavior. I certainly wasn’t skiing eight times faster knowing that I would leave a very nice estate.

Moral hazard arises from asymmetric knowledge. One party knows more than the other party. In this instance, the insurer may not completely understand that I intend to engage in risk taking behaviours since mentally I still feel 20 years old. Emotionally, perhaps a bit younger. Physically, perhaps 3 times that. How can the insurer foresee that I might undertake some ‘dumbass’ skiing behaviours while my mental, emotional and physical ages are several decades apart? Perhaps that is already worked into their mathematical models.

This represents a type of ex ante moral hazard, or before the event. I am not a major fan of using an opaque terms of describing a vague concept. But this generally means that I change my behaviours based on the fact that I am now insured. Perhaps ex dumbass ante moral hazard captures the concept.

This compares nicely to the ex post moral hazard. After the insured event has occurred, you are more prone to claim insurance benefits exactly because they are available. Admittedly I use our health care spending account for this purpose. I spend a bit more to get the compressed lens for my glasses to avoid the coke bottle effect I would otherwise need to see what I am doing. I feel enabled.

Insurance companies do take steps to address this increase in use of insurance benefits by adding deductibles and co-insurance. Again behavioral economics tells us that people are twice as adverse to losses as they are to gains. Here we can see that insurance companies do recognize that the rationale person that traditional economic models rely upon does not exist except perhaps only the in the earlier fairy tale type of economic texts. But insureds would still be prone to take care to avoid incurring a loss since there is the frustration factor.

This frustration factor becomes apparent when claiming travel health insurance. My wife and I made plans for a bike trip in Asia. Being the prudent people we are, we purchased the complete trip cancellation insurance. This may be similar to purchasing the extended warranty which turns out to be a costly insurance premium for a low probable event. But buying trip cancellation is the easiest thing in the world. You put in the length of your trip, your age, price of the trip, your credit card number and off you go. You get a nice little brochure almost instanteously.

Unfortunately, my wife got ill just before the trip and had to cancel. Now, there is no way to fill in a claim form on-line. You have to download the policy and figure out how to fill in a claim. This necessitated printing out the form, photocopying receipts and physically mailing the entire package. The number of doctors visits increased since now we also had to provide written reports on why she couldn’t travel and how this was not a pre-existing illness.

Admittedly, this acts as a type of disincentive. Even as a lawyer, I found the amount of paperwork, and I mean actual paper, excessive. The 10 month time and effort to claim under the insurance exceeded the 10 minute time and effort to arrange the insurance. One would hope that the arrangement time and the claim time would be comparable. Fortunately, my wife are completely hung up on this completion thing and made this a personal project to complete.

Research seems to show that insurance does not increase the ex dumbass ante behavior. Insurance does seem to negate some preventative behavior that’s difficult to maintain. It seems to be easier to take drugs to alleviate diabetes than it is to avoid those sugary laced slushy drinks. Insurance does increase use of health benefits, but this may reduce even more costly medical intervention later.

Mark Twain in his speech on accident insurance had this to say.

“I have seen an entire family lifted out of poverty and into affluence by the simple boon of a broken leg. I have had people come to me on crutches, with tears in their eyes, to bless this beneficent institution. In all my experiences of life, I have seen nothing so seraphic as the look that comes into a freshly mutilated man’s face when he feels in his vest pocket with his remaining hand and finds his accident ticket all right.”

So insurance companies, and lawyers, face a discerning public. I am sure I should apologize to one group for placing those two groups together. But like anything, once you really need insurance, or a lawyer, you’re glad it’s there.

Pixabay

+Source: pixabay.com

Time Management along the Space/Time continuum

pexels-photo-290470 (1)

In physics, spacetime is any model that includes the three dimensions of space and the one dimension of time into a continuum. Time cannot be separated from the three dimensions of space as the observed rate at which time passes depends on an object’s velocity relative to the observer.

This becomes relevant when we examine how a lot of professions bill by the hour. Although progress in some cases makes it appear as if time moves backwards, time advances in .1 increments or even smaller. Some people live in the moment while others steal or borrow time from some other part of the space-time continuum. Time is the most important quality that we all try to possess.

 

No-where is time more important than when something appears to be going wrong. After being away on business for a few days I thought it would be nice to take my adult daughter and my father-in-law out to dinner. I decided to use my app to reserve a table, and use my daughter’s RAV since it was out. Technically it belongs to my wife, but we find it useful to have our daughter use it full-time for her schooling.  We headed off to one of those trendy but innocuous places. I mainly wanted someplace that had good parking.

 

Anyway we head off, and I am startled to hear a subtle but nasty grinding sound coming from under near the hood. I listen to it for a while, cast a doubtful glance towards her, grind my teeth for a moment and head off to the restaurant. We have a delightful dinner. I don’t bring up the car issue.

 

Back home, I keep the engine running and have a quick look. The engine components are jammed in there pretty tight, but I can see one component spinning down merrily grinding away in a chipper sort of way. The next morning I phone the dealership to bring it in right away. I did some technical research, this involved YouTube videos once again. So it seemed likely that we were looking at the serpentine belt having slipped off or perhaps loosened.

 

So the next night I gently ask how long the grinding has been going on. Awhile? She does innocently ask how long is awhile? And here I realize how relative time is when you ask about the length of it. Awhile could be asking how many seconds has the car been on fire? Awhile could be how many months has that crystalline piece of meat been in the freezer? But in this motor grinding instance, awhile would refer to a week. So she said that it has been a couple of awhiles.

 

The dealership eventually told us that the grinding sounded horrific since the bearing in the water pump had gone. After dropping the engine out, they had no problem in replacing the pump.

 

Getting back to professionalizing time management, billing by result has always been problematic, so lawyers for example bill by the hour.  In order to maximize time available for billing, most associations come up with time management suggestions. Some are actually downright scary. For some people.

 

Go Paperless!

I think the scariest suggestion involved going the paperless office route. My organization had not issued any particular directive, I just thought this might be a good idea. This may have been around the early 2000s. Like any traditional lawyer, I would get a letter and request staff to open up a new manila file and put the letter into it. I would then eventually get around to drafting a letter back the original author. Internal communications in the company had been electronic since the 80s.

 

One clear minded day, I received a nondescript letter and decided to walk over to the scanner and zipped it through. Sending the letter to myself posed no particular problem. Right beside the scanner stood the commercial shredder box. We contracted a company to come in and professionally shred documents for us. I looked at little the slit in the top. The box was locked, so there was no way to open it till the company got there. I hesitated for a moment, and thought, not what the hell, rather I thought this may turn out to be a terrible idea. But I committed myself and slipped the letter into the slot. I didn’t feel that I joined any new demographic, but I did feel regret. Perhaps checking to see if the letter went to my computer would have been a good process to follow before shredding.

I pep stepped back to my office and I could feel my face starting to heat up somewhat. I flipped on my computer and checked my email basket. The email system sent things around almost instantaneously and since the distance was just down the hall, I mistakenly believed that this would make it quicker than ever. And of course my expectations were misplaced. The scanned email did not appear. I began to think who wrote the letter and what did it ask? I confidently believed that this simple process would work that I didn’t really read the letter contents. Perhaps in two or three weeks whoever wrote it might write back. A bit miffed perhaps, but you never know.

 

Fortunately the scan came in a minute later. The scanner can take a letter in and spit it out quickly enough, but to compile it takes a bit more time. At least it did back then. So for over a decade and half I have been merrily scanning and shredding letters. I found this very handy since I can then take the letter and give it any sort of title that I want. If I find that the writer is particularly jerk like, well then I could let my creatively unleash a bit so I reflect that a bit in the ‘save as’ line.  Using some particular salient key words also would have allowed me to search for this category of person for the past couple of decades.

 

We are finally looking at a document management system and process for the entire company. As a major vocal advocate of this, I have been volentold to lead the process. Apparently no good deed goes unpunished. I am sure I will have to write about this process next

 

Holding your email.

Another useful time saver uses the OC email delay system. OC stands for my ‘Oh Crap’ I forgot to include the attachment situation. I find it amazing how you can take all this time to craft a letter, review it, redraft it and press send to only realize your mistake instantly afterwards. There is something about pressing the send button that somehow galvanizes my mind to suddenly realize that I forgot to include what it was I talking about. Some people politely email back and remind you that you forgot. Usually they use some funny time-worn reply but the implication always remains ‘send attachment. Dolt.’

 

Time management also suggests just attaching the damn attachment first, then doing your email. But like most lawyers, we don’t like being told what to do so for some reason. I have always resisted this simple recommendation. I attach the attachment when I damn well ready to. On my follow-up apology email.

 

So I have taken the slightly more complicated route to ensure that any email sits in my outbox for one minute before the system sends it  I still reach in there any number of times during the week to pull something out. Only once so far have I gone in and deleted a somewhat negative reply when that sweet little voice in the back of mind told that me that this was a bad fracking idea.

 

To do Lists

One thing I have never gotten around to doing would be creating a prioritized to-do list. Admittedly, I do create an AMR to do list. This occurs whenever I get an email for something particular inane and I drag and drop the email into the ‘aw man, really?’ tasks list.  I go in there on a regular basis to deal with the bag of hammers issues. I do a little mental dance for joy if I hear that some issue has already resolved itself and I can tick it off. Rarely do I add some matter so that I can then just tick it off. That only seem to work on paper when you can add a matter just so that you can cross it off right away. You only get that contorted type of joy if you write it down on paper since electronically it just seems to disappear. No sense in adding it in the first place.

 

Only Check your email three times a day.

I manage to do this. Unfortunately the three times means morning, afternoon and evening. Perhaps those stronger than myself can resist looking at the email constantly. At work I have it up all the time, and when it dings I get a bit of dopamine joy in knowing that someone needs my assistance in something. I particularly like the short snappers that I can answer in a couple of minutes. The little red exclamation marks seem to work with them. And me. It then takes me another minute to gear up and try to remember what I was doing before.

 

I find the vacation notification replies really work so that the people know that I really am on vacation. People are prepared to wait so long as they have an idea as to how long that might be. I particularly like the vacation replies that people use to confirm that they may not have continual access to email. Cell coverage is almost ubiquitous and a lot of these people do not strike me as the backpacking in the wilderness type. This manages expectations quite well.

 

The day that I get back from my wilderness vacation I appreciate the people that resend the same email on the day that I get back to the office. This ensures that I would see their email at the top of my inbox. I always get back to them first with the additional compliment of ‘well played’.

 

Pixabay

+Source: pixabay.com

The facts, they are a changin

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It was a dark and stormy night. Or rather, the night darkness concealed the source of the intense storms. That seems much better. My wife and I waited for the storm to pass that evening before setting off to walk the dogs. The reflection of the street lights glistened off the wet streets.

All down the street, I could see small ridges. Upon closer examination, I could see that there were literally hundreds of night crawlers stretched out perpendicular to the road. The road friction made them stretch out to a tortured length of about a foot and a half. Normally plump, this condition thinned them out considerably. Night crawlers are earth worms on steroids.

Feeling some form of compassion for this Lumbricus terrestris, I started to scoop them up and toss them back on to the grass. Some worms can survive being cut in half but being half squashed flat by a truck did not seem very survivable to me.

Now, under normal conditions worms produce a fair bit of mucus. Adding torrential rains to that seems to add to mucus production as the worm exodus continued. I started to regret my misplaced compassion and tried to distance myself from my emotions. My wife just simply distanced herself.

I assumed the common knowledge that during intense rain storms worms attempt to escape drowning in their burrows. However, they breathe through their skin which needs moisture. So there may be a number of other reasons why they engage in such risky behavior of stretching themselves out on a busy road.

One good reason would be migration. Lots of rain would allow them to move great distances. However, half of them moved from the south to the north, while the other half moved from north to south. But, hey, they’re worms. The grass always seem more organic filled on the other side of the street it is said.

An interesting phenomena occurs when you experience a situation and learn some new facts about it later. I learned that another good reason worms travel is that they want sex. My recollection of the event now includes an added ‘ewww’ quality to it. And what better time to find a mate than when everyone else is stretched out in the same area. We have a beach here that seems to serve the same purpose for humans.

Although worms are hermaphrodite, male and females together, they cannot reproduce solely by themselves. They need a mate. I must have cast aside, and severely disappointed, several dozen night crawlers. Destined now to remain virgins they’re probably bitter. Unless that was going to be their choice anyway, and so that is perfectly ok.

This sex migration behavior can bring down planes. After a rain, worms like to stretch out wherever they can, including airport runways. Worms do not get sucked into turbines, but the birds coming to eat the worms can be. Particularly the flocking birds like gulls which tend to ignore whatever happens around them when they fight over food. So airport authorities tend to use fungicides to reduce worm populations.

Night crawlers contribute to the US current account deficit! Some politician should complain about this. If nothing more than the neat optics it provides. “Congress needs night crawler NAFTA negotiations!” Apparently $20 million of night crawlers are exported to the US each year with little or no USA content. A few years ago, the price leapt from $35 per thousand worms to $80 per thousand. Economics 101. Supply was tight, and owing to inelasticity of demand, prices skyrocketed. Worm futures may not have the panache of Tesla stock, but you would have made a fortune otherwise.

Fact

 

[1] Environmental note. You are likely better off not using chemicals and fertilizers on your lawn which can be worm unfriendly. The worms, if left to their own devices, can aerate and fertilize the lawn for you.

Photo by Simon Robben from Pexels https://www.pexels.com/photo/architecture-blur-buildings-cars-204366/