I was on my way to the gym this morning when an idea struck me about the future of exercise with regard to technology. It occurred to me that the coming era will have technology integrated in such a way so as to easily and consistently provide relevant insights & data without breaking the flow of exercise. Alot of this information will be value-adds that people never even knew they wanted, but will be so attached to once they get them. To give you some context about what I’m getting at and what brought about this thought-process, let’s set the scene:

I have been living in Buffalo, NY for the greater portion of my life. Buffalo, NY is known for having a very cold winter season, complete with feet of snow and sheets of ice covering the ground for a 3–5 month period each year. While a recent discovery on my end has shown that there is quite an outdoor running community in the region, other recent personal accounts have dictated the dangers of running outdoors during the winter season (for obvious reasons). Both have sort of sculpted my purview of the role of this form of solo exercise within the region, and just generally speaking. Where this activity is a great avenue for maintaining health and extending your lifespan, it is also potentially hazardous under certain conditions, such as dark nights, frozen sidewalks, or sketchy neighborhoods. As well, where running in a group might be fun, running by yourself may be boring (that is my find anyway, at least for the “ramping up” stage of consistent running routines or the “stop-and-go” necessities on city streets).

In my car this morning, it occurred to me that there is a whole other level to the solo activity than what is currently in place. As someone who has recently gotten into racquetball and finding value in gamifying the solo experience by playing against myself with rallies against the wall, I had to wonder if this same concept could be extended to running with the help of technology. I’ve come to two conclusions for possibilities, and I’ll start with the slightly more exciting one (in my opinion) first. Well at least it’s the one more top of mind at the moment.

[1] Using augmented reality glasses to turn your running experience into a video game.

I don’t know how many of you have seen Keiichi Matsuda’s prophetic 2016 short film about the irritatingly fantastic implementation of augmented reality into our daily lives, but I highly recommend you check it out for a sense of the inspiration for what I’m getting at. Largely, it feels like what I imagine using Google Glass or Microsoft Hololens would be like, except for a lot more ads. Now substract all of those ads, and just look at the relevant information, such as what is probably provided with Google Glass or Microsoft Hololens.

Consider running down the road, when exercising, and being able to see your past performances at certain checkpoints, which you can manually or automatically configure. To give a better image of a visual, imagine running down the road with a pair of glasses like Google Glass and seeing the red Google Maps destination indicator at a point along your running route (a route that have you have done before). Next to the red Google Maps destination indicator, you see two timers in minute:second:millisecond format. One is your current time, and then below that you see a countdown timer to your personal best for hitting that checkpoint. As you begin approaching the checkpoint, the personal best timer might begin flashing red as it begins to hit the 30-second mark, indicating to yourself that you have less than 30 seconds available in order to hit that checkpoint in order to beat your personal best. Now as you finally do hit that checkpoint, all of the data about your run so far will have been recorded, including the time for when you hit that checkpoint this time around.

This concept surrounding adding this form of technology to running not only gives you added insights and data to work with, it also gamifies the experience, adding an extra layer of fun and competition to incentivize yourself to work above and beyond your personal bests. Other additions to the augmented reality concept include a Google Maps map combined with AI voice tech for planning your subsequent routes by street signs by calling out the name of the street sign once you read it, in order to indicate to the augmented reality tech or its phone app counterpart to record your current coordinates as a waypoint.

[2] Health analytics apps combined with genetic data mapping for getting granular with health data.

I have a strong suspicion that there are many health startups working on this at the moment to get granular with the amount of data that health apps and embedded devices can provide on your personal health metrics, so I won’t delve too deep into where the possibilities can exist, as I reckon that the tech might already be out there and I might just be a barbarian going on and on about “this new thing called the computer” (ie I might be out of touch). Still, I find it fascinating to discuss the possibilities albeit with some that might already be in existence.

For me, I find the idea exciting of mapping your genetics to an app that allows every micromovement to give you points or subtract points with the perfect score essentially reflecting the longest lifespan. Eat a donut? Based on your genetics, it shows that that will deduct a point or two from projected lifespan. Run for two hours? Based on your genetics, it shows that you have bought yourself a few hours of life.

In a sense, you’ve essentially made the grand prize lifespan longevity, and it’s become a game to see who can have the longest life.

For execution of this concept, there would need to be a way for collecting persistent, regular telemetric data from infiniteismally small devices that would exist at various points surrounding, upon, and within your body. What comes to mind are two items in particular for obtaining and relaying this data: (1) smart fabrics; and (2) some sort of IoT device small enough to integrate itself or otherwise attach to a blood cell. With smart fabrics, it would just be clothing that collects data from your sweat about the different levels of your bodily fluids within your body, and possibly data about your skin cells on the outside most layer of your body. With the blood-fusing IoT device, I reckon that it would provide analytics about the health of your blood, as well as the health of the various organs that your blood would pass through or otherwise attach to toward building cells.

I’d hope that there would be technology available to make it so that these miniscule IoT devices could be safely inserted, attached, detached, and replicated in order to relay the necessary data to outside data stores and conduits. As well, we’d need to ensure that even if THAT was possible, that the radio wavelength signals from inside the body to outside the body would be safe enough in order to consider this a solution that will permit a healthy level of radiation.

Not to mention resolving the social problems surrounding lawsuits by donut companies, and municipalities like that found in Flint, Michigan when the app tells users that drinking water from the tap has just cost them -10 points on their life. I have no doubt that this would cause a severe value change when it comes to health, and possibly a gridlock of society for some time, as nobody would be willing to do something that loses them life points if the data queried by doing things in society is a more-or-less accurate projection of the reality of their health situation.

Conclusion

I think these are some ideas that will add some granularity to making health decisions that will provide a major culture shift for the coming generations. As it stands now, many younger Americans seem to be turning away from the junk food mindset that has previously plagued (and built) the 20th century America foundation, in favor of a more health-conscious, practical approach to living. With a dystopian view of the healthcare industry within the US in certain respects, and a lack of disposable income whilst maintaining a wealth of student loan debt, many in mine and the surrounding generations are realizing that there isn’t opportunity for missteps when it comes to health, and that affording healthcare procedures may be out of the question in certain instances. The cancer plotline in Breaking Bad was a fine piece of commentary on the state of the medical industry in this respect, and there are many more examples in media as well.

With publicly accessible data at our fingertips and a trend toward emphasis on localization and globalization that transcends national jurisdictions, we find ourselves a pivotal time where people find that they can take their fate into their own hands without the need for government intervention. This boon to purchasing power is resulting in establishing new models for disrupting incumbent dinosaur corporations that don’t fully encapsulate the issues at hand.

With health data now available and validated on a global spectrum, people may start taking a greater interest in seeing how far they can go with optimizing the asset most dear to anyone individual: their personal well-being.

As the concept of money-transmitting continues to attract attention within the distributed ledger ecosystem when pertaining to digital currencies & assets, a global understanding becomes assumed about the necessity of know-your-customer controls. Know-your-customer, abbreviated and commonly known as KYC, is the process by which a business verifies the identity of its clients and assesses the potential risks of illegal intentions within the business relationship. While that serves as the “official” definition, the term has taken a new form since the formation of cryptocurrency discussions to also include the role of government in validating the identity of individuals for regulatory purposes.

In response to recent world events, some large incumbent players have galvanized the charge for digital identities on the distributed ledger. As this initiative gains momentum, we have to ask ourselves, “What are the advantages and hazards of universal digital identities?”

The Breakdown

While I imagine that there are many benefits to having a system of tokenized identities, where individuals can be assured of the authenticity of identities of one another, I have narrowed down some major use cases with regards to three categories: immigration processing, homelessness & statelessness reduction, and increased citizen consolidated data.

Immigration Processing Streamlined

Thesis: Currently, immigration has been a political topic all around the world, from the US to Europe to China to Japan and beyond. Many governments of countries face hardship in processing large amounts of immigrants coming from another country, let alone facilitating the integration of these individuals into native society. If each individual had a digital identity attached to them, it would be much simpler to process them through customs and set them up with government-subsidized housing & social programs.

Hazard: If we set up a system where individuals must get a digital identity set up, what’s stopping governments from putting laws in place that restrict ebbs and flows of individuals based on ethnicity, race, gender, age, social class, genetic makeup etc? What’s stopping governments from using this data to provide internal checks that give certain groups institutionalized advantages over other groups, and potentially even restrict exit or purge certain groups?

Diversity is a tense issue across the globe, as different countries have different histories and, therefore, different schools of thought behind population heterogeneity. At the root of it all is economics, because people are pragmatists when the light is shone on them. It’s no secret that even the most fervent ideologues act with economic incentives in mind, even at the expense of native conservative conception, if the payout is deemed greater than potential long-run detrimental consequences. For these reasons, people have pioneered the frontier and have entered into trade agreements with foreign countries unlike their own. Sometimes these ventures provided great wealth, sometimes these ventures provided great death. It’s a roll of the dice.

With this in mind: for creating a new system involving national tokenized, digital identities — strung together by a global network of interconnectivity functioning under a single system — there would need to be certain assurances (ie MAD agreements) between countries to ensure the safety of transpatriating and transitory nationals. While I don’t believe that launch of such a system as this should try to coerce countries into establishing “open borders”, I do believe that all of the national laws of each nation surrounding inherent discrimination should be made front and center (in a global database) to allow immigrants to know first-hand what they would be getting themselves into before entering a country. While some might be against the idea of inherent discrimination within a nation’s borders, I am of the greater belief that there is a reason that the society has set itself up in such a fashion — and so long as human decency is respected and there remains opportunity for providing more human rights safety nets — then people can coexist peacefully under a certain regime. As well, there would need to be checks in place to ensure that law changes pushing for discriminatory abuses of human rights cannot enter into effect (and especially not instantaneously).

Another big concern would be surrounding a countries’ ability to keep people in, as well as deporting unwanted visitors. Regarding keeping people locked into countries, I’m hoping that this becomes less of an issue as time goes on. In today’s geopolitics, North Korea comes to mind as a country that has gone down this road. While I imagine diplomacy will come into play to prevent this, I would hope that tokenized identities would allow for more of the free movement of people, and the rise of a trend in multi-citizenship. I imagine that war would be more difficult to begin if a bunch of people had multi-citizenship of both the native and rival nationalities but, on the flip side, if war did break out, then those individuals would be in greater danger than they would be under our current system. Looking at it from the deportations angle, while the ability for governments to act accordingly on deporting non-nationals to their native country would be made easier, political tensions and the moral hazard to deport on a discriminatory basis would increase given greater access to citizen profile data.

Moving into what we can see as potential solutions, I present the central theme: what if the government only has access to certain data, at certain times, and only through regulatory or third-party agencies. Suppose that each individual was the only one who had direct access to his/her own data (surrounding race, age, genetic makeup) via their own private wallet storing their token containing all of this data. This individual could then give up certain data voluntarily (ie setting up a bank account) or when mandated (ie signing up for public school). Given the sensitivity of certain data, there may be the opportunity to utilize zero-knowledge proofs, which verify the data but do not expose the data. Additionally, third-party auditors or watchdog agencies may be employed to verify data without giving the government direct access to it.

Statelessness and Homelessness Resolution

Thesis: With the prevalence of statelessness and homelessness across the world, the construction of digital identities would allow individuals under these circumstances to be best routed to proper government-subsidized resources that will get them back on track to continue to thrive within society.

Hazard: Given the potential negative perception of homelessness and statelessness within certain societies, individuals in these situations may be at risk of life (and with a large target on their back) due to politically- or economically-charged sentiment of a brutal regime.

I was watching a Vox documentary recently which discussed a Haiti-DR dispute that resulted in leaving a large number of Haitians homeless and stateless. These two issues are more common than we might imagine, even to the degree that both exist within domestic borders. Given that many face difficulty in “getting their bearings” in both statelessness and homelessness situations, often both sets of circumstances result in a downward spiral feedback loop that fuels the underground black market economies of illegal substances and activities. While some governments may want to fix this with increased funding to help struggling individuals in such situations, other governments may want to exterminate the problem in a more Draconian fashion.

The solutions to these problems through a digital identity, in large part, follow the same script as previously mentioned with immigrant processing & integration. Individuals afflicted with homelessness or statelessness need certain protections and certain accesses to government resources. I believe that government-subisidized rehabilitation programs (complete with educational & vocational aid), with supervised part-time employment, are a good step toward reducing this institutionalized blight of society. In many ways, this system could resemble the Sweden prison rehabilitation reform, although it would certainly require some serious funding. Given that there isn’t an infinite supply of free dollars, continued recidivism by bad actors within both unfortunate circumstances would require that they be put in jails/prisons. With digital identities, it will be easier for law enforcement to track offenders and escort them to the necessary facilities. In danger of becoming too Black Mirror-esque, we could start tying individuals’ societal performance to credit scores (in a much friendlier way than China has done), so that repeat criminal offenders have limitations on certain societal privileges. While I’m supportive of the idea of having “social welfare” programs to allow individuals to repent for misdeeds by volunteering their time and resources for public good, I don’t know to what extent we would want to go with this.

In a nutshell, there could be major advantages to providing these social outcasts government resources through not-for-profit charities and watchdog agencies that maintain certain custodial privileges over the tokenized identity digital rights of individuals as they assimilate into society. The agencies can validate or have visibility into the data of the individual, and can provide the audit link to governments who fund them without actually revealing the data of the individuals that they are helping.

Consolidated Data Repositories

Thesis: Many citizens, of even first-world countries, have difficulty record-keeping of their own personal data relating to government and financial resources due to data silos that exist between different government departments and the private sector. If individuals had a central portal where they could access all of this information from one location, citizen convenience and productivity would increase.

Hazard: If there is one location where individuals can access their entire profile about their state of being relating to the government and private sector, such a system could potentially be abused by governments and hackers seeking to infiltrate this data store.

As a citizen of the United States, I find it onerous to have to contact and submit data to different departments of governmental organizations and private entities in order to maintain certain benefits as a citizen. For instance, I need to prepare my tax form for the IRS, I need to go to the DMV to handle anything relating to my motor vehicle, I need to contact my financial institution if I need to make changes to my checking account, and I need to go to a Passport Office to renew my passport. These are just a few of the more regular operations, but even as it is, it’s a very disjointed way of handling affairs, given that I then need to track of all of this information manually.

What might prove to be a more consolidated solution is if there was a digital portal, that only I could get into, where I could renew my passport, file my taxes, work with my financial institution, and update my driver’s license all from one location. This would usher in the similar conversation as previous, about the personal-identity-linked token that provides secure storage of your data to which outside entities have limited default permissions. With many governmental agencies beginning with no permissions, until you allow them access, there would be a system of privacy that ensures that your rights are maintained. For government-mandated data retrievals, through the use of zero-knowledge-proofs, third party auditors, and watchdog agencies, particularly sensitive information could be filtered out to provide governments only the direct access to certain PII data.

Going a step further with this, your digital identity token can serve as your entire repository for your life (if you so choose). You can house digital assets in your portal (or just the replicated “ghosts” of your digital access, essentially showing others that you own an item (if you want to give them permission to view it) without actually housing that item in your centralized digital token repository. As well, an individual could grant relatives or successors certain custodial accesses to your own digital token profile and assets while placing conditional and non-conditional restrictions on certain permissions.

Through the use of mirrored “ghost” tokens that represent digital assets and the use of off-chain cold storage repositories for certain data and assets, government visibility and hacker influence will be limited to what you have in your on-chain central repository.

Conclusion

While time will tell whether the ID2020 initiative will be successful, the idea of universal identities is a concept that requires more attention from the distributed ledger community at large. There are considerable ethical discussions that need to be had, and I’m not sure the ecosystem overall is ready to have those conversations yet.

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While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://asaahndvfmnpti.treadie.com/

Stablecoins have emerged as one of the larger distributed ledger conversation topics since late 2017 and into 2018. Over the course of the year, the conversation has put to question whether stablecoins are a viable model and, if so, which type of stablecoin model?

It was pure ignorance, derived from the distaste of the Tether fiasco, that up until a few minutes ago, I was about to write something resembling a hit piece on the viability of stablecoins. But before I decided to go further with the piece, I wanted to look into the article I had glanced at recently, that detailed the different stablecoins that Huobi had recently brought onto their exchange. It was at this point that I realized that “the” conversation is changing (evolving) to focus on cryptoassets rather than currencies. Nobody wants to transact on a volatile currency, although I believe there are models for speculative currency & assets (as I’ve addressed in the speculative token section of a previous piece).

I see parallels within the real world today to the forecasted long-run world within an article that I drew up a few days ago, where the cryptoassets are becoming some of the first foundational tokens and stablecoins are becoming the transactional tokens.

What I had originally imagined was that transactional tokens would emerge in a hard-power fashion, with regulators facilitating the implementation of rules behind digital currencies from top-down, but now I’m starting to see things differently. The origination of historic currencies in the beginnings of days was very much a grass-roots effort, so there’s a very real possibility that the US government — understanding that they may want to maintain a policy of non-intervention so as to not stymie innovation — may be willing to overlook the quasi-multicurrency violation of US law, in favor of creating ubiquity in trading digital assets. In this way, digital currencies will rise in a “soft power” fashion rather than the hard power way that I had initially imagined (ie top-down legislation & enforcement).

Based on this article, there are three models behind stablecoins:

(1) Fiat-collateralized (centralized)

Backed by fiat currencies, these centralized stablecoins rely on a single actor to issue IOUs redeemable at a 1:1 ratio for the underlying asset, with reliable convertibility of the IOU helping to maintain the 1:1 peg.

(2) Crypto-collateralized (decentralized)

Backed by crypto assets, these decentralized stablecoins rely on trustless issuance, also referred to as on-chain issuance, and maintain their 1:1 peg against assets via overcollateralization, incentives, and other methods

(3) Non-collateralized (algorithmic)

Algorithmic stablecoins, also referred to as Seigniorage Shares and Future Growth-Backed stablecoins, are algorithmically-backed with expansion and reduction of coin supply mathematically determined. There is NO collateral backing issuance. Ironically, central banks typically maintain the stability and supply of their fiat currencies through similar mechanics.

Based on the author’s line of reasoning and some thought of my own, the only model that seems to work would be the first one (ie fiat-collateralized tokens). The difference between the fiat collateralized model and the other two models is that the risk can be mitigated for the fiat-collateralized model while the other two have no checks in place. Let’s run through the worst case scenarios for each.

For fiat-collateralized, the risk is counterparty risk (ie that the central institution won’t pay). Suppose I spend $100 at an exchange and get 100 X coins that trade at $1/pc. In an unregulated arrangement without laws, there’s nothing stopping the exchange from hyperinflating the currency by mass-producing the supply, and then when I go to exchange one of my tokens for $1, I am told that my currency is only worth $0.13. In this situation, the exchange is effectively a liar, and made off with the $0.87 from each dollar that I deposited.

For crypto-collateralized, the risk is underlying volatility of the value of the collateral. Suppose Y coins are tied to a number of digital assets across industries: real estate-backed tokens, vehicles, machinery etc. These assets can then be staked for coins. However, if misreporting on the assets occur or one of the markets backing the coin plummets, then the debt holder may decide not to pay back the loan.

For non-collateralized, the risk is lack of growth. This currency functions by creating a new stablecoin whenever there is increased demand, and by issuing shares when there is a decreased demand (which you can only get through 1:1 exchange of your stablecoin for a share). Assuming that the currency has a poor outlook, speculators likely would have no interest in buying shares (where they are promised a small amount of interest when the coin market price increases supply). As a result, the price of the coin maintains a low price and people will soon rush to offload their coins into assets to retain value.

In the first type of stablecoin arrangement (ie fiat-collateralized), if there is a money supply which is validated and secured by regulatory checks, watchdog agencies, and 3rd party auditors (as well as visibility available to the world at large), then the risk is mitigated. The Fed will release reports every quarter about interest rates and quantity supplies, while a circle of auditors corroborate that information. The second type of stablecoin arrangement (ie crypto-collateralized) doesn’t make sense. Essentially, the currency is based on debt, and nobody in their right mind would be willing to give up an equivalent amount of currency for a staked house, if there is no information about the house or that that future outlooks for the housing market look grim. As well, we’re brought back to the barter system in the event of default (eg someone wanted to buy groceries, couldn’t pay me back, and now I have a piece of furniture). I feel that the third type of stablecoin arrangement (ie non-collateralized) needs to be explored further, but my gut reaction tells me that this doesn’t sound good in practice. I have to wonder if the algorithmic arrangement propels economic downturns and is susceptible to foreign manipulation tactics.

In effect, while there may be value in taking another stab at the third model at some point in the future, I say why don’t we take things slow for the moment and keep economics in a way that everyone can understand: transparency, accountability, and government regulation. For this reason, the first model (ie fiat-collateralized) seems to make the most sense.

The Contenders

Huobi’s recent addition of four stablecoins to its market is significant in that — should one or multiple of the stablecoins acquire a trusted reputation over time — companies may decide to build tokenized assets off of these stablecoins. Let’s go through these coins, but first refer to this article that covers them well.

Gemini Dollar (GUSD)

• Created by Winklevoss brothers
• Regulated by New York State Department of Financial Services
• The equivalent amount of circulating GUSD tokens will be deposited into the official Gemini Dollar bank account at the State Street Bank and Trust Company
• A monthly audit by BPM, LLP will take place to guarantee its 1:1 peg
• ERC-20 token that can be transferred on the Ethereum network
• Gemini dollars are created at the time of withdrawal, and burned at the time of deposit
• Ensuring their technical design encompasses the ability to “Pause, block, or reverse token transfers in response to a security incident or if legally obligated or compelled to do so by a court of law or other governmental body.”

Paxos Standard Token (PAX)

• Created by the team at PAXOS
• Approved and regulated by the New York State Department of Financial Services
• The entire supply of PAX is collateralized by USD in dedicated omnibus cash accounts at FDIC-insured banks
• Monthly audits performed by Withum accounting firm
• Always able to redeem PAX for USD within one business day
• Support team included for larger accounts
• Company established as a trust company rather than a bank (ie fiduciary that custodies customer deposits and therefore will always keep customer funds completely segregated)
• Smart contract code audited by Nomic Labs

TrueUSD

• Created by the team at Trust Token
• First stablecoin regulated by the US Government
• Audits performed by Cohen & Co
• ERC20 stablecoin that is fully collateralized, legally protected, and transparently verified by third-party attestations
• The token uses multiple escrow accounts to reduce counterparty risk, and to provide token-holders with legal protections against misappropriation
• The team has a code of ethics
• The token dovetails with Trust Token, which is the parent platform that allows for the creation of asset-backed tokens

USD Coins

• Created by the team at Circle, Coinbase
• Coins are issued by regulated and licensed financial institutions
• Audited by Grant Thorton, LLP
• Contracts manage the minting and the redemption/burning of stablecoins
• ERC-20 token creating possibilities in payments, lending, investment, trading, and trade finance
• Circle team was the first team to receive a BitLicense, and is a registered money services business (MSB) in US and has an E-Money Issuer license from the Financial Conduct Authority in the UK

Forging the Path Ahead

There are some considerations that need to be had before we get too far ahead in the stablecoin realm.

The first is about the legal fiduciary duties of the companies hosting the token ecosystem. What are the legal responsibilities that these stablecoin providers have to guarantee your funds? Do you have the law on your side for when you want to withdraw your money at a 1:1 ratio, or can these stablecoin providers theoretically change-up the ratio at which you get your money back? In the event of a company shutdown, are you protected under law to withdraw your money?

The second consideration is around individual privacy rights. What are the legal responsibilities for these stablecoin providers to provide coin metadata to the government? What knowledge about chain-of-custody is kept private? How do the laws behind forced transfers & account-freezing come into play with stablecoins?

The third consideration is around the longevity of the Ethereum platform. What will happen if the Ethereum platform can no longer function organically? If newer, better decentralized networks emerge, is there a transition plan to take the token over to another network? If such a move were in order, do investors in the stablecoin have the ability to remove their funds prior?

The final consideration is around digital asset viability. What is necessary in order for digital assets to be linked to the stablecoin? Is it at the discretion of the stablecoin providers to accept or deny applications for digital asset tokens to be tethered to the stablecoins? Will the stablecoin providers vet the companies of the digital assets? Will the stablecoin providers produce and release regular reports on the quality grade of the different assets tied to the stablecoin?

While this is new, exciting territory for all of us, I have reservations over how the coin being married to the Ethereum network will weigh in on regulatory oversight and economic behavior. I look forward to seeing how this area of the ecosystem develops in the coming months.

…

While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://ssp.treadie.com/

With the ICO chaos beginning to get itself resolved, the ecosystem is finding new direction with the rise of the security token. Startups are moving in that direction. Standards are underway, with some of them having direct focus on the regulatory component. Market factors are knocking out those who can’t adapt. When the smoke clears, there will be a much more tight-knit competitive landscape that bodes greater promise for regulators, investors, and users.

The juxtaposition of the space’s technoeconomic complexity and its “gold rush” zealotry has provided some interesting results with no clear-cut answer as to whether the first-mover or wait-and-see approach harbors a better go-to market model. Currently, a few major issues being worked out include the viability of the proof-of-work consensus mechanism (whether centralized or decentralized), the balanced incentivization of market participants, and the ability for tokenized debt arrangements. I believe that there may be solutions.

The Incentivized “Break-Even”

I feel that much of the cryptocommunity’s popular sentiment, to this day, has reflected on Bitcoin’s incentive program the wrong way. Whereas on face value both users and miners want the same thing — platform stability — there is fundamental asymmetry in the degree to which both groups of market actors want this.

Users — wanting to transact cheaply on a fast, reliable network — are incentivized to keep the network as stable as possible without exerting an inconvenient amount of work. Users are limited by what they can do on platform, but understand that working with a helpful system in the short-term benefits them in the long-run as well.

Miners, on the other hand, have different priorities in mind. Because the network has been set up in a competitive, capitalist fashion where the sky is the limit on monetary incentives, miners can often decide to act in ways that benefit themselves but do not benefit the rest of the network (eg only choosing certain blocks that maximize profits; artificially making “data-light” blocks that they can then validate). In contrast, the users using the platform are not driven in this fashion because they are just trying to use the platform for its efficiency, to mitigate risk, and to secure their funds.

And there we have it: mitigate risk. What if instead of trying to reward miners with Montezuma’s gold, we instead establish a system where the miners mine so that they can manage their own risk….or even debts.

Taking Debt Models in a Different Direction

Looking at the security token side of things, one of the biggest challenges for creating a debt token model is in the lack of assurance that a debt holder will pay back the debt issuer. While some of this challenge is rooted in the perception surrounding the ability for smart contracts to hold up in a court of law as legally-binding, more legal precedence is being determined by the day to establish the litigative legitimacy of smart contracts. I’d argue that the lack of ability in decentralized networks and the earliness of mature solutions in centralized networks, haven’t really presented a need for the conversation to include debt tokens. Now that systems and norms are evolving, the ecosystem may be ready to consider debt-based tokens as alternatives.

I think the general consensus is that certain components will be commonly found in implementations utilizing debt token models. These include collateral staked by the debt holder, KYC/AML assurance, and regulatory oversight. One of the pitfalls for debt tokens in these early days of mainstream adoption is that there are limited options in digital assets that can serve as collateral. The go-to forms of collateral are either cryptocurrency (which face volatile price fluctuations, and therefore aren’t ideal) or tokenized representations of high valued assets, like real estate for instance. While these can work in loan origination through institutions, it is not ideal in a decentralized system. Also presenting limitations, for those that don’t have the collateral to stake, there doesn’t seem to be a tenable debt arrangement.

Now suppose there was an alternative method where individuals (and companies semi-autonomously acting on their behalf) could issue and receive loans with a sort of “insurance policy” allotted for the loan originator party that doesn’t involve collateral from the counterparty?

Workflow

Suppose we take a second to change focus from how we can prevent bad actors from taking advantage of the system to providing a way for debt issuers to make back the money they lent out to the loan that currently stands in default. What if there were a lending schema in place that would allow the loan issuer to use their computational resources & time as a means of guaranteeing the money that they lent out for the loan. In this scenario, if the debt holder is unable or unwilling to pay their debt, the debt issuer has the option to temporarily sacrifice their time and computer’s internal memory, processors, and storage to perform proof-of-work algorithms for payment equivalent to the amount of debt issued. In effect, the loan issuer would break even by performing work. This would serve as the cost for the risk that they incur for giving out the loan.

The workflow would follow this fashion:

DebtIssuerA issues debt to DebtHolderB, via a smart contract, with a high interest rate because DebIssuerA didn’t necessarily trust DebtHolderB and because DebtHolderB had a poor credit score.

Because DebtIssuerA didn’t trust DebtHolderB, in addition to having a high interest rate for loan repayment, DebtIssuerA inserted a provision into the initial smart contract agreement that, in the event of default by DebtHolderB, would allow DebtIssuerA the opportunity to issue his computer’s resources for computing advanced proof-of-work algorithms to a 3rd party (ServiceProviderC). This provision was already solidified between DebtIssuerA and ServiceProviderC prior to the agreement being seen by DebtHolderB, as ServiceProviderC already signed off on it.

While ServiceProviderC, a SaaS service provider of large secure networks, represents a number of clients that require high amounts of computational resources (and distributed across many different computers), in this instance ServiceProviderC represents InstitutionD.

InstitutionD is a research facility doing rigorous, technical analysis of nuclear anatomy and require as much computing power as possible. Because InstitutionD is doing very mission-critical work which they are trying to keep clear from interference, they are mindful of having a lot of computational resources to reinforce the network, as well as have as many different nodes as possible to keep the network power distributed. Fortunately, ServiceProviderC provides this service by matching numerous contractors with clients to maintain and power the network.

Going back to DebtIssuerA and DebtHolderB, time elapses and sure enough DebtHolderB doesn’t repay the loan or interest. Because DebtIssuerA had the provision in the contract that involved ServiceProviderC, DebtIssuerA is able to be a contractor of ServiceProviderC on behalf of InstitutionD in order to repay the amount on the bad debt (but nothing more). DebtIssuerA then provides his desktop computer for the 8 hour time period required to recoup DebtHolderB’s bad debt loss to which he had lended.

As another example: suppose instead of DebtIssuerA being a free agent for the most part, imagine he is using a platform that autogenerates smart contracts with boilerplate text including the provision that DebtIssuerA included in the previous example. The only thing that DebtIssuerA has to decide for (ie negotiate with DebtHolderB) in this instance are the parameters. However, suppose that this platform that DebtIssuerA is using is run by a company (let’s call it Company1) which limits the range on the parameters but lets negotiating parties (like DebtIssuerA and DebtHolderB) decide their own terms within the parameter ranges and regardless of credit scores. However, what Company1 has provided for in the boilerplate text in the contract is that same contingency provision as seen in the previous example. However, in this example, it was a firm (Company1) speaking for the users of the platform (DebtIssuerA, DebtHolderB), that if DebtHolderB didn’t pay, then DebtIssuerA would have the option to provide computational resources to ServiceProviderC if DebtIssuerA wanted as much as to recoup his bad debt loss in the event that DebtHolderB didn’t pay.

TL;DR

An individual would have the ability to enter into a contract in which he could offer another money with the best case scenario being getting repaid in full (including interest) and the worst case scenario being that he is guaranteed but has to contract out his computing resources to receive the guarantee.

The same as above, but instead of an individual dictating all of the terms and individually tracking down the service provider, the company behind the platform acts on the users’ behalf whilst still allowing the users autonomy in negotiation and repayment stages.

Conclusion

As token debt increasingly becomes a hot topic within regtech circles of the distributed ledger community, we need outside of the box thinking to compensate for the “trustlessness” that blockchain purports. While I am very much of the belief that, as the ecosystem evolves, regulators will stick to conventional methods within the distributed ledger industry for the majority of tokenized debt use cases surrounding highly-valued assets, in situations involving smaller sums of money to be repaid this model may serve as a nimble alternative. It goes without saying that the viability of this idea would need to be explored at a finer grain, as one of my biggest considerations would be whether the price someone would pay for “secured computational power” would correspond with what someone would be willing to allocate their resources for in order to recoup a loss.

Supposing the financials and technological/regulatory capacity work out, we would need to see the rise of two entities in order for success of this model. The first would be institutions seeking large amounts of persistent, computational power. These institutions may need to solve rather computationally-intensive problems, run an incredible amount of processes concurrently, or want an extra backbone of security to their network. The second entity needed would be proof-of-work service providers. The role of these institutions would be to collect individuals willing to enlist their computational-resources-for-hire in the event of default on the loan held by the counterparty.

This idea is an incomplete one, and may be discussed further in future articles.

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While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://powaaststtd.treadie.com/

As they are a recurrence for the majority of the article, I will provide a few fallacies that the author seems to imply by his writing. They are as follows:

• Blockchain = Bitcoin
• Blockchain = Public Ledger Blockchain
• Blockchain = Cryptocurrency

Now, I’ll go through the article and discuss each point that he has made. Here is the article to which I’ll be responding to.

• These are erroneous, far fetched claims that the author believes that “everyone” is making.
• Just because something hasn’t gotten here yet, doesn’t mean it won’t become popularized. I’m sure the early makers of the vehicle faced the same criticisms.
• The have been plenty of firms have come up with uses for distributed ledger technology that don’t involve currency speculation or illegal transactions, so your assertion is false.

• You are right in implying that we haven’t progressed to the point that where these solutions are perfect. With that said, more than a few enterprise giants have begun selling blockchain enterprise SaaS solutions. Refer to the introduction of my previous article for clarity on who some of these are.
• I want a distributed ledger. I am not nobody. If there is a solution that could provide me pharmaceuticals at a fraction of the price and can provide me the intelligence that the product has been properly vetted all across the supply chain (from procurement to point-of-sale), then I’d want that solution.

Payments and Banking

• The author addresses much of the early crypto fervor that opines for pure decentralization. The author makes the claim that that dream is dead. For all intents and purposes, I’m in agreement with the author as such a model isn’t something that I can see working in the foreseeable future or over the course of the long-term. However, there are certain arguments for decentralization which I agree with, and some within the cryptocommunity are still very whipped up about the topic. I am also inclined to agree that the fervor over the push for decentralization is productive and leads to incredible innovation.
• The author discusses how paying with Bitcoins is expensive and ineffective. In other news, the grass is green. The author seems dead-set on driving home the deficiencies of Bitcoin in payments, and this keeps his article focused on just the failings within the early history of the distributed ledger community when so much more has been produced since then. In effect, it’s the equivalent of saying a five-year old child is stupid.
• The author hits upon some good points regarding the disconnect between conventional payment processing models vs payment processing models within systems using distributed ledger technology. A few features within payment processing which don’t seem to appear in any mainstream distributed ledger systems yet include loyalty reward points, value-added services, transaction reversal, and other highly demanded features. These are challenges that exist and likely exist in platforms produced by small startups that haven’t gained viewing in the public light. Be patient and give innovation the time it needs.
• The author claims that the adoption isn’t there. I think it would be prudent for the author to realize that investors didn’t want to touch distributed ledger technology until last year. It’s certainly challenging for startups to push technology to evolve “over the course of ten years” when they are just barely making ends meet, and where standards haven’t been prioritized until recently.

• The author goes onto discuss Bitcoin’s failings regarding transaction throughput. Everyone is in agreement on this, and has been for years. There are more efficient models of distributed ledger technology that can provide hundreds of thousands of transactions per second, and at fractional micropayments.

Freedom to Transact Without Government Supervision

• Once again, the author makes the implication that the ideals of the distributed ledger community is for “freedom to transact without government supervision”. While I agree that certain factions within the distributed ledger community agree with this sentiment, it does not represent the majority. It is my understanding that individuals understand the need for government oversight, but often display themselves as “pro-decentralization” as a way for lobbying for increased user and citizen rights.
• Over the course of its recent hyperinflationary period, Venezuela has had more than a few of its citizens use cryptocurrency as a means for transferring value because access to US dollars were limited and Venezuelan dollars were devaluing to quickly. I just want to drive further that virtually nobody believes Bitcoin to be a mainstream payment method. However, in the state of a failing economy it served as a form of adequate, temporary contingency planning.
• It is fair to say that virtually nobody has made the claim that cryptocurrency ledgers currently provide preferable banking solutions over convention institutions. Yet, the author continues with this assumption. Regulatory guarantees and reversals are challenges which will need to be (and may already have started to be) materialized within the distributed ledger community.
• The Mt Gox crisis is well-known within the distributed ledger community, and is the centerpiece behind the drive for digital currency exchange reform.

• Recovery keys and 2/3FA authentication solutions are necessary components for the rise & stability of public-ready distributed ledger solutions. It’s understood by many, although not all, that UI/UX is critical for adoption and sustainability.
• Regarding his discussion of government oversight: while I am in agreement that we need to keep the government in check in order to protect citizen rights, we can not overlook that the government oversees a considerable amount of functions required for societal upkeep (eg issuance of Drivers’ Licenses). While it will be imperative that we keep in check government visibility authorizations as we increase technological development, it’s not as simple as getting an answer from a hypothetical survey of the public.

Micropayments and Bank-to-Bank Transfers

• In terms of micropayments, people enthuse that bitcoin transactions are free and instant.” This is a fallacy that individuals within the cryptocommunity purport this, unless these individuals are airheads. I can assure you that the vast majority of individuals within the distributed ledger ecosystem are not, and have not made this claim.

• The author discusses the challenges with using blockchain in interbank transfers. I’ve already addressed that the community at large doesn’t purport “better banking through blockchain” at this stage of the game.

Smart Contracts

• The author discusses the DAO smart contract fiasco and mentions that it was an illustrative experiment. I agree.
• The author presents a well-known challenge for smart contracts: the disconnect between the business logic creation and regulatory oversight. This is accepted and understood to be an obstacle that needs to be overcome. Nobody wants to buy something where its utility gets them sued. Everyone gets that. We are in the genesis stages here. As roundtable discussions between developers and regulators become more of the norm, we will begin approaching the viability of a smart contract model that is reflexive to changing legislation.

Distributed Storage, Computing, and Messaging

• The author does make a point that there is sentiment to shoehorn blockchain into a solution when it is not needed. He mentions basic data structures as alternatives which will work in many cases. However, when it comes to mission-critical sequential ordering, these solutions do no suffice. In circumstances where it is critical to know that ‘A’ happened before ‘B’, having an immutably timestamped event set between newer and older immutably timestamped events can be critical for applications in finance, e-sports, and the energy industry (among others).

• The author discusses that he believes that the single-point encryption methodology found in blockchain is inferior to a more comprehensive system involving two-factor authorization, intrusion detection, volume limits, firewalls, remote IP tracking, and the ability to disconnect the system in an emergency. Given that we are really just dealing with a number of data structures married to a software application, I see no reason why the overarching application can’t incorporate a lot of these data structures. Many sites — like cryptocurrency exchanges Coinbase, Bittrex, and Bitfinex — use 2FA, for example. If individuals are looking for functionality using a certain data structure, there’s nothing stopping them from using one of the data structures that he listed.
• The author discusses the energy consumption costs of Bitcoin as a problem. This isn’t a problem for many other public ledger distributed ledger platforms that don’t use proof-of-work, as well as private ledger distributed ledger platforms, so I see no reason to address it. Bitcoin is only scratching the surface for what the ecosystem offers.
• The author criticizes that public ledger blockchains don’t allow functionality for choosing where to replicate data. While I can’t speak to confirming any public ledger blockchains that offer those permissions, I’d be inclined to believe that they are out there. This isn’t an area that I have researched heavily, but is certainly one that has caught my interest now. With this in mind, there are private ledger implementations, like Hyperledger Fabric, that do offer those controls to be configured.
• I don’t understand the author’s last criticism of the section. It is my understanding that large incumbent players — like Hyperledger, Amazon, and Consensys — will provide many of these features so that users don’t have to think about them.

Stock Issuance

• I don’t follow his first criticism. I have no idea why NASDAQ launched their internal blockchain-driven exchange for privately-held stock. If they haven’t announced it, then it is a speculative. I can’t claim to know the challenges they experience and why they felt that blockchain was their solution.

• What I imagine the point the author is driving at is that unregulated markets (like the cryptocurrency markets) aren’t to be trusted. I am in agreement.

• The unscrupulous ICO activities are already well-documented. Everyone understands that the affair was a nightmare and that leaving economics unregulated to the people ends in a disaster of rent-seeking actors.

Authenticity Verification

• The author’s criticism of using blockchain for voting is silly. The idea isn’t for people to be anonymous. The idea is for it to be evident to verifiers that a central authority didn’t tamper with the vote-count. Using paper is outdated. Let’s use zero-knowledge proofs instead.

• Nobody is making the assumption that you can verify your identity with a password. It’s understood that there are multiple pieces of identification in order to confirm your identity.
• The ledger being distributed does provide value. It provides everyone involved a shared visibility into the immutable data. The idea may be not to do away with with notaries and certification agencies, but to lessen the activity processes and power that they hold.

• The idea is so that individuals don’t have to proactively take this action for every action of their career. Let the systems release you of some of this burden.

• He mentions that there needs to be controls in place for regulatory oversight, including forced transfers and transaction reversals. I am in agreement.

Conclusion

While this article was made in December 2017, I can not give the author the benefit of the doubt in many of these instances, as I am fully aware of the information availability that existed at the time. The article overall was a flagrant “I don’t want to adopt the technology” piece where the author sought to impose misinformation onto his readers. Some information he got right, and some have given me some considerations to think about (ie choosing where to replicate data). Overall, however, I feel that it was a misguided criticism using outdated notions and strawman arguments, that omitted the progress that is occurring within the distributed ledger ecosystem as well as the sophisticated sentiment that is driving the effort for a regulatory-friendly approach.

…

While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://cupmcadlt.treadie.com/

As we move toward the end of 2018, we have a lot to reflect on for the year within the world of cryptocurrency.

In the beginning of the year, the SEC began issuing subpoenas to many of the non-compliant ICOs that sprang up before and during the ICO Mania of 2017. Throughout the year, the SEC has been going after a lot of the low hanging fruit to establish litigative precedence for the future. They also seem to have taken a deliberative approach to assessing where cryptocurrency futures lie.

The CFTC, meanwhile, has warmed up to a lot of potential that the cryptocurrency ecosystem offers, though they still have some figuring out to do as well. ICO launches seem to have been at a low this year, as law obscurity and proactive litigation by regulators, have disincentivized the “rush to market” mindset. For similar reasons, recent startup companies with token offerings centered around cryptocurrency-based offerings have been meticulous about prioritizing compliance over innovation during this “Year of the Security Token” in an effort to avoid massive fines or jail time.

On the corporate front, blockchain incumbents like IBM Blockchain and Consensys continue to make strides, while enterprise giant after enterprise giant after enterprise giant make their way into the fold. The ecosystem overall has consolidated further with consortiums joining forces and market factors culling the weak. Sufficed to say, this year has seen a few big players get involved, and the next few years will see who can really stand the test of time.

With this in mind, I think it would be prudent to really give a thoughtful evaluation of where we are now and where we are headed. The way I see it, right now we still have a divided ecosystem that has certain misconceptions about the way the world works. Although that’s a bit of an arrogant thing to say and something where I can theoretically be disproven, when the day comes where everyone signs on to use Bitcoin or Ethereum as a currency, I’ll concede.

It is my belief now that the sands of time will render public ledger, decentralized cryptocurrency to be valued in (virtually) only four fashions:

(1) as a novelty token with sentimental value to those who were members of the ecosystem in its heyday;

(2) as a gambling and illegal-purchase-based currency, circling back to its roots in Silk Road;

(3) as a form of currency for B-grade markets that legally can be used, but is discouraged to be used due to a lack of controls;

and (4) as an alternative currency for the people of authoritarian, abusive regimes.

While we’d still be (many) years out, I believe that centralized, regulated cryptocurrency models will come in to replace the decentralized models for the majority of economic activity and value storage. To be clear, I do believe that tokenization will transform the vast majority of societal infrastructure in the long-term. However, the road to get there will be a long one, and will probably exist outside of our lifetimes. There will be very contentious conversations over time about placement of the line between individual privacy vs government oversight accesses. I think there are some “Option C” choices which I’ll get to in later sections.

It is my belief that there will be three types of tokenization pervading daily operations of the future. They are as follows:

Transactional

Transactional tokens are what people will use for commercial activity in the future. Each token will be constructed as a fungible token, and will serve as a unit of currency. This sort of token will be used to buy and sell goods and services between individuals, companies, and institutions. It will need to be nationalized in order for this transformation to take place, with each nation having their own nationalized token, and having its token currency supply & controls overseen by regulators of that nation. Depending on the future of the single-currency policy, the transactional token will displace or complement the nationalized one-fiat currency model that we have in place today. The monetary and fiscal policy will mirror that which we have in place today. Price will be held artificially stable by inflationary/deflationary measures every quarter, just in the same way we have currently. Anybody from any country that has Internet freedom will be able to query the currency supply of each nation, ensuring no currency manipulation.

In addition to having the backing of the nation’s monetary authority, different agencies within the nation’s government will have direct or indirect access to certain metadata regarding each token. Depending on the legislation surrounding privacy rights, watchdog agencies and 3rd party auditors may serve to validate citizen data rather allow governments direct access to it. This data will largely include the identities of parties transacting on both sides of the token, the date/time of the transactions, and the quantity transacted. With controls embedded directly into the metadata of the token, the government will have access to freeze token supplies and do forced transfers of tokens. This will be done only with proper authorization through the court system, and only for the purposes of stopping criminal or terrorist activity.

Speculative

Speculative tokens are what people will use for speculating on commodities or securities. Speculative tokens will be non-fungible tokens, but function largely as fungible tokens. Speculative tokens, unlike transactional tokens, will be volatile, unpredictable, and have multiple different kinds within a national jurisdiction. Each exchange will likely have its own speculative tokens, and the only way to get speculative tokens is by exchanging transactional tokens.

Within commodity exchanges, there will be sub-speculative (ie commodity) tokens representing a unit of the commodity. These commodities can have different quality grade seals-of-approval highly correlated with the quality grade seal-of-approval of the exchange. These quality grade seals-of-approval will be determined by the exchanges’ legitimacy, liquidity size, reputation, and openness to government regulation/oversight. For these reasons, there will be a hierarchy of different exchange grades, with exchanges like the CME gaining A status, while cryptocurrency markets gain B or C status. Regarding the sub-speculative tokens representing each commodity: they can be transferred off-exchange, but will carry its quality seal with it. The exchange token and the commodity token valuations are left to the free market, but have certain checks in place by the regulatory agencies. It is in the exchanges’ best interest to maintain a high token value, and they can do so by vetting their broker-dealers, providing transparency to customers, and by playing ball with the commodity-trading regulatory agencies.

Within securities exchanges, there will be securities tokens. Following the similar template of commodity tokens, individuals buying security tokens must first buy the individual security exchange token. Companies looking to list their securities tokens on an exchange can do so by making an agreement with the exchange, and the listing fee will largely be based on the current valuation of the exchange token. Like commodity exchange tokens, each security exchange token will be determined by similar factors.

For all exchanges, regulatory agencies will monitor all activities, and exchanges that self-regulate the most effectively will be better positioned to have a higher exchange token value. Watchdog agencies and 3rd party auditors may be needed at times to provide objective investigation and arbitration. Down the line, future models may see international investment rules, and even international exchanges, but that is only a possibility and would require evolution of this multiple-within-a-nation model first.

Foundational

Foundational tokens are the tokenized identities of people, property, and institutions. Foundational tokens are non-fungible tokens, and will have varying levels of government oversight when it comes to distribution, data changes, and visibility. These tokens largely function to identify certain things and people, and to contain certain data about them. Certain foundational tokens will have the ability to issue sub-foundational tokens (also NFTs), while others will be constricted by regulation and so will remain as a singular token.

People

Tokens will serve to represent an individual’s identity. Individuals will be given identities at birth, the same way they are now, except now there will be a token that reveals the history of the individual. The personal identity token will show all of the transactions that the person has ever made using transactional tokens, and will show all of the speculative or foundational token assets that the individual owns. It goes without saying that there will need to be checks in place so that governmental regulatory agencies don’t go full ‘Minority Report’. A few options to maintaining privacy would be to have most government access restricted, and only allowable through the opt-in of the individual. Additionally, there may need to be 3rd party auditors and watchdog agencies that oversee the investigations of individuals when it comes to judicial arbitration, rather than providing direct government surveillance carte blanche. As well, zero-knowledge proofs, zk-STARKs and other data structures provide interesting possibilities for confirming user data, without being able to view or otherwise discover what that data actually is. For these user identity tokens, externally-obtained or internally-split regular tokens and sub-tokens would be shown as data of the user identity token that the individual could then view within the portal. This data could be all of the licenses that person has gotten, all of the purchases made, all of the insurance coverage that person currently has, tax status etc. The ability for an individual to issue his own subtokens on this profile token is still yet to be determined in my mind, but I do see that different tokens generated from institutions can enter into the individual’s token profile (eg NYS Driver’s License).

Property

Tokens will serve to represent the identity of some sort of commercial asset. In the beginning, high valuation assets like real estate, vehicles, and technology will be tokenized. As regulation becomes more ubiquitous and technology advances allow for it, regular consumer goods will become tokenized as well. The process of effectively managing tokenized assets at all touchpoints along the supply chain will require regulatory oversight. Tokens and subtokens will need to be able to be interchanged by a higher authority in the event of a material change of the asset (eg a tornado destroying a house). Certain tokenized assets can be given authorization by the servicer and regulating bodies to further subdivide into more granular tokenized assets.

An example of a highly-regulated asset with an identity, represented by an NFT that could break down into further NFTs, would be a piece of real estate property. This piece of real estate could be broken down into subassets including the house, the land, and the environmental factors on the land. These subtokens would then hold all of the data surrounding the individual subassets (eg the blueprints for the house, the geomap for the land, and the fuel and electricity line placements for the environmental factors). Supposing there was a tax on all three components, the municipal housing authority could easily collect the tax on each component by setting up smart contracts with each subtoken. Additionally, if there are changes to any of the three components (eg renovations, changing landscape, new environmental considerations), there could be mandates in place for the individual to go directly to the municipal housing authority to have them swap out the subtoken (perhaps after an audit of the house, land etc).

Probing deeper into the possibilities, with proper oversight in place individuals could theoretically go as far as to utilize their digital rights management with the subcomponent tokens. With the house subcomponent, for instance, if a housing developer is passing by and decides he likes the look of your house and wants to take advantage of it, you could duplicate your ‘house’ token (with only certain rights and accesses available) so that the housing developer could take advantage of the blueprints to your house. This could all be done with a smart contract, where in turn for selling or leasing your blueprints, and potentially other rights (eg like being able to sublicense the blueprints to other housing developers), you will receive some amount of money in return.

An example of a consumer-facing asset with an identity, represented by an NFT that could break down into further NFTs, would be a computer. Imagine that your specific personal computer has a digital identity represented by an NFT where you can go online to a portal and see all of the subcomponents of the computer. The different components surrounding the computer token would be represented by drop-down categorization. Maybe, for example, if you aren’t a computer technician or software engineer the hardware and software components wouldn’t interest you and so you wouldn’t look at the ‘hardware’ or ‘software’ categories of that product’s token listing; but if you are a consumer, the ‘warranty’ category might interest you, where you can view the warranty information directly from your product’s token profile. From here, you could see the content of the warranty, the time remaining on the warranty, and even go as far as to set up to extend the warranty directly with the manufacturer through a smart contract.

For some firms, commodities purchases will no longer remain commodities and will become instead raw materials for a manufactured item (eg palladium in a catalytic converter). Taking into account both classes of tokens, there would need to be a regulatory body in place to oversee the transition of commodities (and commodity tokens) to property (and foundational tokens).

Institutions

Tokens will serve to represent the identity of governmental, non-governmental, and business entities. Much in the same vein as personal identities, corporate and governmental institution identities will give the ability for the entirety of the organization’s profile to be viewable within the token (to the extent than internal and regulatory controls will allow). Through use of this token as a representation, bureaucratic, municipal, and business interests become more easily met through enhanced traceability, commercial viability, and internal management. It would draw similar parallels to the personal identities in that there would need to be 3rd party auditors and watchdog agencies to ensure data rights can be maintained whilst enabling certain data to be released as needed by the regulators. Depending on the classification of the institution, the ability to create NFT to represent various departments and organizational components will be overseen by the pertinent regulatory body.

One example could be a manufacturing firm that makes widgets. Provided supportive legislation, the manufacturing firm could have the autonomy to subdivide its profile token into various departments, and then further subdivide those departments into process cohorts. From those process cohorts, individual tokens could be subdivided further by client, process etc. These tokens would then host and secure the data obtained from other departments and outside entities, and would require execution of a smart contract in order to reveal such information. With certain regulatory agencies having certain visibility and data withdraw access, some processes can be streamlined, such as delivering taxes to the IRS directly at point-of-sale.

Conclusion

I imagine that some may disagree with certain assumptions made in this estimation of the future of tokenization, and so I implore feedback on this. I recognize this to be incomplete in thought, and some of that boils down to not hashing out each specificity for the sake of time, space, and granularity (there will be follow-up articles). The core function of this piece was just to outline my perspective of where the world is headed down when it comes to tokenization.

In a nutshell, a lot of the assumptions made above are rooted in the belief that regulatory oversight and regulatory backing are what will maintain economic stability and identity issuance. While not a perfect metric, human history has shown that the government has always had a role in establishing order and maintaining economic prosperity (ie show me a prosperous nation without a government). I don’t believe this will change. I believe that the government will always serve as a sort of safety net when economic swings set the economy back, and that the government is the only force for ensuring that internal and external bad actors are punished and realigned. While I believe that national, state, and local governments always need to be kept in check to avoid rent-seeking and corruption, I believe they are a force of societal functionality.

Looking at it from the other side, I don’t see a model where decentralization will provide stability (at least any time within the foreseeable future). With a common psychological understanding of economic strategies surrounding supply and demand, the idea of an economy left in the hands of the people will see it gamed from the beginning, and society failing as a result of short-sightedness. What we trust in our dollars currently is that the government believes and legislates in fairness, and I believe this to continue onwards as new technology opens the door to more efficient and consolidated commercial activity.

…

While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://tttotitlr.treadie.com/

Recently, two bipartisan bills have been drawn up by United States Congress Representatives Darren Soto (D-FL) and Ted Budd (R-NC) that serve to incite Congressional involvement in cleaning up virtual currency markets. The Medium article by Tim Cotten provided a solid summary on the broad strokes behind what these bills would cover.

Looking into the content of the bills, it becomes clear that Congress is not yet ready to provide definitive rulings on market manipulation, as the bills point toward gaining research. Both bills are fairly simple, neglecting specificities (maybe this is generally how it is with bringing in new topics for congressional bills, I’m not sure), and serve to provide exploratory reports into cryptocurrency market implications. The report within the Virtual Consumer Protection Act of 2018 bill will serve to describe the impact that cryptocurrency markets may have on the domestic economy, and provide opportunities to remedy current market manipulation. The report within the US Virtual Currency Market and Regulatory Competitiveness Act of 2018 bill will serve to describe the different ways that foreign countries have managed to deal with cryptocurrency market manipulation.

Cryptocurrency as a Focus in Investment Speculation

Interestingly, the majority of discussion relating to distributed ledger technology within the political realm continues to focus on the speculative trading dynamic. I imagine that there are a few reasons for this being the key driver.

(1) This is where the money is situated, as well as domestic sentiment of fear-of-missing-out (FOMO). Big, domestic multinational corporations have been arduously crafting solutions for incorporating cryptocurrency products into financial trading. This effort, with what one might speculate, is driven in large part by the opportunity of lofty margins and the rise of international competitive influence.

(2) Cryptocurrencies are what everyone knows best (even politicians). They have served as the “gateway drug” for many individuals to get involved with the overarching distributed ledger ecosystem, and so most individuals’ knowledge on cryptocurrencies far outweighs their knowledge on other components of community findings/innovations.

(3) Declawing the black market economy. While regulators have been doing this in the crypto space for nearly a decade now, the rise in sophistication of market players and platforms have added complexity into the crackdown on criminal activity within the cryptosphere.

(4) Starting point for precedents later passed onto for B2B, B2C commerce. With high-frequency trading requiring the highest standards of fluidity, security, and regulatory oversight, many of the rulings achieved here can carry over into other sectors of society.

Looking Onward

While I’m happy that Congress could be taking progressive action should the bills be passed, we’re still years away from establishing solutions that toe the line between public advances, development innovation & implementation, and regulatory security & accountability. My thoughts reflect that a standardized & proactive approach to oversight will be needed to ensure that accountability is assured, but done so in a way that doesn’t compromise privacy or security. As the Federal and State governments continue the iterative push for practical implementation of distributed ledger technology, we know that we are headed in the right direction.

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While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://uclatcmm.treadie.com/

I recently had the chance to read the Medium Post by Nic Carter titled The Dark Underbelly of Cryptocurrency Markets, where Nic provided a tell-all about the crony conflict-of-interest that exists between coin creators, coin rating sites, and coin exchanges. If you haven’t checked out the article yet, I recommend you do so now, as I’ll be touching up on only a few of the points delivered in the article (although the entire thing is well-done).

In the article, Nic discusses that retail investors get the short end of the stick when it comes to making informed decisions about coin legitimacy in a similar fashion to betting against the house at a casino. Understanding that the community has already written off exchanges and coin creators as potentially dubious actors that must be properly investigated, he discussed that coin ranking sites still have yet to be attract attention from regulatory bodies and financially investigative enthusiasts despite the same lack of legitimacy as the other two. Between listing fees, adsense, referral links, and wash trading, economic incentives point these three market actors toward quantity-based rather than quality-based decisions regarding onboarding coins (at the expense of retail investor ability to properly assess the market).

Regulatory Oversight Lacking

The article opened my mind to new considerations regarding regulatory involvement required for cryptocurrency trading be deemed relatively “safe” from bad actors.

With regard to the creation of new altcoins, the incentivization of this for all market actors (coin creators, coin rating sites, and coin exchanges) certainly raises red flags. While the controversy around ICO creation has been the hot topic of the past two years, one equally compelling dynamic that doesn’t receive the same press is that of coin hard forks. With the recent slew of Bitcoin and Ethereum hard forks, who’s to say that there wasn’t blatant bribery going on with exchanges convincing prospective new strains of coins to fork so that there would be listing fees paid and higher coin volume on the exchange, not to mention potential exchange exclusivity and insider trading (see: Coinbase-BCH hard fork controversy).

One point Nic had brought up was the ability for these coin ranking sites to sell blended price APIs to more sophisticated investors providing them faster access to price fluctuation changes. While I’m no expert on market trading, this doesn’t feel to me that it would be legal in a conventional market, given that at any point in time some investors would be viewing the incorrect price while other investors would be viewing the correct price. He had also mentioned that there was big money to be made by putting scam coin banner ads on the coin ranking sites (and just the same this needs to be done away with).

Exchanges outside of the national jurisdiction, helmed by anonymous individuals, is just a recipe for disaster. The amount of potential opportunity for legal infringement and lack of transparency to retail investors overall is perhaps one of the greatest inhibitors for mainstream adoption of cryptocurrencies, even moreso than coin exploits. Who’s to say which of these supposed exchange hacks weren’t staged? It’s certainly not a new theory (see: MtGox). That’s just one of the many ways that exchanges have the power to defraud investors (not to mention the tax authorities).

CryptoMarkets 2.0

Ok so what do we need to make the system reliable?

To start, know-your-customer protocol on every front: retailer investor, coin governance, developers, miners, coin ranking sites, exchanges, 3rd party broker-dealers, everyone interested in being a part of the ecosystem. This policy would stand in stark contrast to what we have now (as well as GDPR, privacy laws etc…), which would bode serious problems for those who want to contain their information. Perhaps then we could get into discussion over the merits of zero-knowledge proofs, ZK-STARKs and other data structures that serve to validate data but not release it. But I believe KYC to be the most critical component needed for this ecosystem nonetheless (time to hold people accountable!).

Next we have coin issuance. ICO regulation still has a way to go and I’m not going to get into thoughts on that at the moment, but I know for forks there needs to be some serious overhaul in the way that these are done for public ledger PoW coins. There’s too much reliance on the forkers’ capability of assessing the merits of creating a new brand of coin with the detriment of unforeseen market impact. By the way, whose job is it to keep track of a cryptocurrency’s supply anyways? I’ve always wondered how to determine the quantity of coin (especially for pre-mine coins), and that there could be serious technocrati conflict-of-interest for the developers to hyperinflate the coin unbeknownst to the current and prospective investors. Sufficed to say that all of this needs to be under lock-and-key by the regulators. Figuring out how to distribute regulatory control to countries across the globe is another day’s assignment.

Onto coin ranking sites. If the owners are KYC’ed, and there are (multiple) coin ranking sites per national jurisdiction, I don’t see too much of a hang-up. Laws can vary on the coin ranking sites by country, but I’d recommend something to the effect of decoupling allegiances between exchanges & coin issuers, establishing a system of fines for punitive action, delisting/deadvertising scam projects, and providing equal mission-critical data to all retail investors simultaneously.

For exchanges, if we have consistently updated KYC in place for all of the exchange owners and traceable deposits/withdrawals, we should be able to have sufficient checks in place for exchanges to operate outside the exchange geopgraphical jurisdiction assuming the proper extradition laws are in place for that country. In addition, throw a bunch of regulators at each exchange to regularly manage it in case a “glitch” happens to leave some investors empty-handed.

Bunch of Different Directions Ahead

All in all, I think the coin uses are going to be decoupled over time, and models will need to be custom-fitted for each one. A universal cryptocurrency standard for cross-border transactions will for instance not want to have erratic price or quantity fluctuations and will need coin governance and development upkeep to be overseen by a global authority of representatives from every country. For speculative cryptocurrency standards, we need to snuff out the biggest chokepoints of potential corruption, and while KYC will aid considerably in that effort, regulatory systems will need overhaul to best foster global cooperation. As well tokenized assets, tokenized securities, and (alleged) utility tokens will need systems surrounding them.

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While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://ctutoicma.treadie.com/.

Over the course of the past four weeks, serious protests have been mounting in France that have lead to destruction of property, desecration of monuments, and even violence. These protests have had drastic consequences on the French economy, and have kept political action in France in a deadlocked state. What ultimately brought about this chaos was French President Macron’s proposal to raise the fuel tax, which proved to be the straw that broke the camel’s back, unveiling a slew of other issues within French society. Deemed the “Yellow Vest protests” (gilets jaunes), the demonstrators stand united on both sides of the political spectrum, united under a shared agenda for an oust of Macron. While the protests have grown immensely in size over the course of the past few weeks, attaining estimated numbers reflecting 280,000+ demonstrators, the core group that is representative of the movement come from lower class, rural backgrounds that are highly dependent on their vehicle for work.

While the aggregate of Europe is known to have higher turnout and greater organization in civil unrest than their US counterparts in recent history, this batch of protests by the French maintain unique kindling that puts to question whether this is just another instance of civil disobedience in an effort to maintain certain European liberties, or if there are deeper implications at play here.

For starters, many French citizens no longer feel that Macron reflects their interests. Sentiment has developed over the past few months among more than a few French that identify Macron as a rent-seeking elitist that seeks to profit at the expense of his own people. With French citizens recently polling Macron at a 23% approval rating, people feel distrust in his ability to lead the nation.

In addition to a lack of Macron’s ability to relate to his citizens, the fervor behind the demonstrations have given rise to a laundry list of additional demands that many protestors are looking to see met by the government. These include improved standards of living, rise in minimum wage, an end to unpopular austerity measures, and government accountability to the working and middle classes. Despite recent concessions on a few counts by Macron in an effort to pacify the protests, the demonstrations still roar on uninhibited.

With the movement having originated and gained/maintained traction on social media, there’s no telling when the resolution might be sought, given the decentralization of the movement. With these protests bleeding into neighboring countries and with certain groups looking at the possibility of a French exit from the European Union, there’s no telling what future developments have in store. What I do know is that if government administrators want to refrain from continually hemorrhaging money from economic standstill, they had better cover all of their bases and act according to the nation’s best interests.

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While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://itwhff.treadie.com/

Oh, How Things Have Evolved

As we begin toward closing out 2018, we find the cryptocurrency niche of the distributed ledger ecosystem in a very different place than the same time last year. Where December 2017 proved to be an all-time high for cryptocurrency since the dawn of its existence, 2018 has seen monthly successive degradation of currency value and investor hopes given the sustained devaluation from its former glory. Capitulation is the buzzword to describe the sentiment among many investors. Accompanying this monthly loss of value are the rise of enterprise entrants, celebrity profiles, and, of course, regulatory action. The overarching community of interested individuals and enthusiasts, previously gung-ho on the future expectations of public ledger cryptocurrency, have taken a step back from zealotry to re-evaluate where we stand now and what the future will hold.

Having myself been a part of this zealotry for some time, I can sympathize with many of the expectations. Decentralization sounds great on paper, and may exist in a future decades ahead in ways that will dramatically consolidate disparate daily functions and societal sectors. But the elephant in the room for the time being is that the only concrete usability happening in the space at the moment are the models which have public adoption stemming from (centralized) businesses taking responsibility for hosting a (centralized) platform on a centralized or federated blockchain network. While I’d like to discuss this in greater depth at some other point in time, the short of it is that we’re at the point in time now where individuals (with money) are willing to get on board with centralized blockchain solutions where market actors don’t determine one’s feasibility to transact seamlessly (see: CryptoKitties) and that the customers of blockchain solutions can still call up customer support and hold someone accountable for lack of meeting expectations (see: ICO scams, capital flight).

So this brings us to the crux of the article- what is the real value of a token?

Let’s make it easy and just stick to the things that will affect virtually all of the people here and now (we can play around with DRM, Intellectual Property, fungibility, divisibility, M2M micropayments another day).

• Credit card fees replaced by fractional micropayments
• Currency standardization and transaction ubiquity
• Metadata for legal restrictability, accountability, and transparency

Credit Card Fees Replaced by Fractional Micropayments

In the current state of world B2B & B2C commerce, we use credit cards to buy things. Upon each purchase using a credit card, a 3% fee is incurred by the retailer which surely gets passed onto consumers in the price of the product. With a digital currency that uses computing power to uphold the network, incurring only the costs of servers (which are pennies on the dollar), the original fee is replaced by something exponentially more economical. The 3% paid for by the retailer/customer that had previously gone toward the parties’ trust in the infrastructure and security of credit card company, could now be instead saved by both parties that now have the infrastructure and security they need at a fraction of the cost. Absent viable current legitimate players in the space that have been able to convince retailers and consumers to transition to digital currency, and the likelihood that credit card companies will rain fire on anyone who infringes on their hegemony, we may be a few years out. But in theory, massive savings can be made for both consumers and retailers.

Currency Standardization and Transaction Ubiquity

International commerce is an interesting concept, and while I’m not going to pretend to know all of the ins-and-outs, I can speculate at what currencies underpin the majority of bulk orders. I imagine that mainly US Dollars are used to conduct trades, with Australian Dollars, Canadian Dollars, British Pounds, European Euros, Chinese Yuan, Japanese Yen, Russian Rubles, and Indian Rupees in the mix (probably some others as well). I imagine that it can be a chore for individuals involved in international commerce to constantly have to manually evaluate different national inflationary policies and pay the broker-dealer fees for transacting on the Forex markets when needing to obtain different currencies. In fact, even just for consumers heading to another country, there is a manual process (enshrouded with a fee) for going to exchange some of your currency for the national currency of the country that you are visiting.

So yet again while we’ll be a few years out, what if there were a method where anyone could see the immutable data stating the indisputable quantity of current national “dollars” in existence, rather than speculating and being subject to potential monetary supply manipulation deviously kept under wraps (looking at you Venezuela, Zimbabwe, China)?

In proliferation of such a system, people could purchase dollar tokens directly from the Federal Reserve (or its 3rd party affiliates) of a designated country straight from their computer and in a fashion where fees are minimized. As well, inflationary policy would be VERY above board, with anyone able to query how many dollars are in existence in South Africa, and knowing it to be indisputably true, while also being able to find press releases discussing South Africa’s push to inflate/deflate tokens for the quarter at a set rate that they have embedded in an algorithm underpinned by openly-reviewable code.

Metadata for Legal Restrictability, Accountability, and Transparency

One of biggest differentiators for those in favor of tokens over dollars, is that there is the ability to embed infrastructure in tokens that capture metadata over the course of the token’s chain-of-custody history in a way that does not exist with tangible dollars.

With the ability to attach metadata to tokens as they change hands, consumers and the government have greater access to more information about how dollars are being used. For consumers, it could be helpful to know that the dollars they receive are not ‘blood money’ or counterfeit dollars. On the governmental front, administrators may want know that the dollars spent are not laundered by criminal organizations or foreign spies. In addition to just watching the flow of dollars, with proper KYC and code backdoors, the government will be able to better identify bad actors and burn tokens/do force transfers away from criminal accounts. On top of all this, different municipalities, states, provinces, and federal governments can install their own rules in their own token in a way that benefits regional interest, standards, and laws (eg hold periods). There are some ethical implications here to all of this, but I’m not in the place where I’d like to tackle these at the moment.

In Sum

Despite what your snobby friend, neighbor, or acquaintance says, there are some long-term implications for tokens in the modern and futuristic society. Costs can be saved, oversight can be had, and discrepancies can be minimized. While the end of the “Year of the Regulatory Token” draws near and Crypto Winter continues its year-long stride, 2019 will provide another opportunity for legislatures and developers to play around with the ethical and practical challenges that exist in pervasive token utility and adoption.

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While this article is posted here, it’s posted elsewhere as well. In an effort to create a cross-platform discussion, I invite you to expand on any thoughts you have here in the comments as well as over on treadie, which is very much a microcommunity twitter. The reason I use treadie is because (1) it’s free, signup only with Facebook or Twitter; (2) you don’t get the walled garden of only one platform comment section, instead combining everyone for discussion. Link: https://trvoat.treadie.com/