Blockchain & the Truth

Computers and humans think in a fundamentally different way when it comes to the concept of "the truth". A computer's understanding of the truth is based on if statements: decisions that give a binary outcome based on a piece of supplied data. To work out if I can take money out of an ATM, somewhere in the depths of the ATM's code base will be something along the lines of:

If the amount in this person's account is greater than amount being withdrawn, allow the withdrawal

If I wasn’t telling the truth - attempting to withdraw more money than was in my account, the ATM can easily tell because it has access to a data set of truth (my account balance) that it can easily compare with the data I supply (my request for cash). The truth here is always true and impossible to manipulate (without directly hacking the bank): a computer cannot be fooled when given the correct data.

When it comes to humans, there is a much more nuanced and discretionary understanding of the truth. As the magician and psychologist Derren Brown has demonstrated, even a basic question like “can I buy this item” can be manipulated based on emotional and subconscious cues. This allowed him to walk into a jewellery shop in the US and buy a necklace with blank paper instead of bank notes.

He has given the right data (which would have failed the ATM’s IF test), but the way that he supplied the data (with a healthy dose of distraction and manipulation) caused the shopkeeper to make an incorrect judgement about what was true and what was false.

Even with one of the most supposedly objective systems: the law, there are many more nuances than we think. In fact, the entire judicial system is, in many ways, a result of the necessity for discretion. Killing is wrong, but under certain circumstances and with certain mitigations it becomes right. There is rarely a binary answer as there is in computing and so the translation of these nuances into absolutes becomes a challenge for a computer scientist.

This becomes problematic when one considers the implications of this “fuzzy thinking” for a technology that gives the impression of authority: blockchain. By having an “immutable” ledger many proponents of blockchain suggest that the issue of lying can be reduced through a combination of an incorruptible audit trail (you can see all transactions that have ever been entered into the blockchain) and the decentralised nature of the transaction authentication (you need 50% or more of global agreement to validate a transaction). For a financial transaction, the “truth” you’re trying to arrive at is relatively simple, and related to the ATM example earlier:

If this person has not spent this money in a previous transaction, this person still has the money

Essentially the bitcoin blockchain is a list of transactions that can be used to work out who owns what, based on a truthful account of what transactions have been made in the past. However, what happens when the transactions you’re writing to the blockchain aren’t so clear?

Provenance is a company that is attempting to increase trust in supply chains by writing data to an immutable blockchain to demonstrate that, for example, fish are caught sustainably. Where is the truth in this example? On one level you have a simple question: was this fish caught in a certain area of the ocean? That’s something a computer can answer - if the boat has a GPS you can link it to the transaction & automatically collect the data. But the question of “was this fish sustainably caught” is much more nuanced than that, meaning that we need more nuanced data. What about how much the fishermen are getting paid to catch the fish? Even if the person recording the data is paid well what if they’re employing workers on below minimum wage? What if - like Ryanair - on the surface it looks like they're being treated well but a complex system of companies means that they’re actually not getting the right employment rights?

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Provenance give phones to fishermen to help them record data to the blockchain. Read more.

When you ask a sustainability consultant to assess whether fish is sustainably caught the research conducted won’t be binary; the data collected will include a value judgement based on factors other than the raw data. The data entered onto the blockchain, on the other hand, must be binary truth data that a computer can understand: this fish was either caught sustainably or it wasn’t.

The challenge for blockchain’s application into areas beyond financial transactions is exactly this fuzzy area. How can you create a rule based system when the rules in the real world are more flexible than we might like to admit?

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Building an innovation function within a corporate environment

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A culture of innovation doesn’t naturally develop in corporate environments that are designed to optimise efficiencies in their core business lines. Innovation involves risk, and well established companies are designed to mitigate risk. In order to foster innovative thinking and output a deliberate strategy is needed to ensure that innovation can thrive within a risk averse and large scale organisation.

Some corporates seem to naturally have a strong innovation function; examples like Amazon and Google are often cited. Yet even these companies have deliberate and well planned strategies - whether it’s Amazon’s secretive floor where experimental R+D takes place and only a select few are allowed, or Google’s legendary 20% time, where employees are encouraged to spend time on their own projects and ideas.

There are several approaches that can be taken to develop an innovation function within a large corporate - with some proving more successful than others.

The lab approach

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Pepsi's ideation zone. This innovation lab is still missing a 3D printer.

As the pace of technological change quickened towards the late 2000s many companies responded by creating “labs”. Often housed on floors in corporate headquarters - or separate beautiful & sleek office blocks in some cases - the archetypal lab would be kitted out with the latest tech like 3D printers and VR headsets and would be staffed by a bunch of young, cool tech people. The business case often used to create a lab is: we’ll destroy and then reinvent our current business model in 2-3 years, therefore making the investment worthwhile.

There are a few key problems with the concept of a lab. The first is that employees in the rest of the organisation often have no idea of the existence of the lab. If they do know about it, they’re often not thrilled about it. After all, the lab's remit is to completely shake up the way that the company works - for good or for bad as far as the staff are concerned.

Secondly, labs often over promise and then fail to deliver. Inventing a completely new way of doing business in a couple of years is a monumental challenge, and considering start up failure rates it’s unlikely that the lab will be able to produce the required results. Consequently, labs often get closed down and swept under the rug leading to the all too common scenario:

Person 1: Did you hear, we had a lab open in the US designed to help us innovate?
Person 2: Didn’t you hear, the lab closed down a month ago as they weren’t delivering any innovation.

Pros of the lab approach: Good PR value to show you’re investing in innovation.

Cons of the lab approach: Difficult to communicate and share with the internal team.

The investment approach

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Wayra, Telefónica's accelerator is one of the most well known corporate investment strategies

Many corporates are quick to admit that they will never be the fastest or most nimble. Instead of trying to create an internal function, why not outsource the need to innovate to an external partner? This partner is often an expert in running hack days or accelerators; events which are designed to bring in external startups to either invest in or offer partnerships to. Though this might seem beneficial from a financial point of view: your bet is hedged as you only invest in companies you think have a good idea, it often doesn’t work out exactly as planned.

Whilst the hope is that the start up way of working will ‘rub off’ on the staff within the large company, all too often the accelerator or hack day is run is isolation of the core business. External partners are used to manage the external companies, and whilst a small number of liaison staff may get to see and speak with the startups, in an organisation with many thousands of employees it’s unlikely that the impact will be particularly great.

Pros of the accelerator approach: A de-risked approach that might result in a return if you follow through on partnerships and investments.

Cons of the accelerator approach: The innovation is restricted to external companies and there’s little transformation internally.

The all hands approach

It could be argued that in the same way everyone in a business is responsible for driving growth, everyone is also responsible for driving innovation. Two of the most common barriers to people innovating internally is, first, a lack of digital skills and knowledge, and second, a stigma around innovating within the business. This stigma often leads to conversations like this:

Person 1: What are you up to?
Person 2: Oh, I’m just doing a bit of innovation.
Person 1: Can you please get back to work.

In addition to this, fear of failure within high pressure environments often leads to people being afraid to get involved in projects or ideas when there is a perceived high probability of failure. It’s often these projects which are the truly innovative and transformative ones.

Embracing the all hands approach is a big commitment. To solve the digital skills problem there will be a huge investment in training required. Overcoming the innovation stigma problem may require a change in company structure, and a change in employee reviews will almost certainly be needed (GE did exactly this) - making it a mandatory requirement to document something you’ve failed at or innovated in each year, forcing people to spend some of their time thinking about high risk, high reward projects.

The benefit of the all hands approach is that when done right it can be truly transformational, and the sort of innovation you get isn’t just “moonshot” type ideas. By empowering everyone to execute innovative ideas and supporting them to do so (not just saying it, actually putting metrics against it), there will be a huge amount of incremental innovation as a result.

Pros of the all hands approach: A business transformational approach to innovation that can result in innovation accross every business unit.

Cons of the all hands approach: Huge investment required, as well as a potential restructuring of the organisation. Also, does everyone want to or need to innovate?

The Innovation Champion approach

Innovation isn’t everyone’s bag. Would you want you pilot to be innovative? Or your taxi driver? Sometimes it’s important to stick to the letter of the law and do things as you’ve always done them. In the same way, there will be areas of any large organisation where innovation isn’t desirable. Of course a knowledge of whats needed to be an innovative company is important for people in areas like compliance and accounting, but this is a different mindset to those working in new product development or client relations.

By identifying core areas of the business where innovation might be beneficial, as well as - importantly - identifying people who would be keen to drive this change, large organisations can create multidisciplinary teams to work autonomously as mini start ups within the organisation. Importantly, these groups are embedded amongst the traditional business so their ways of working, thinking and training really will rub off on their colleagues.

In order for this approach to work the innovation champions have to be given additional training, but also be encouraged to share that training amongst the organisation as a whole. As well as this, they need to operate on much longer term metrics and be accountable for the results (Eric Ries talks about this extensively in his “innovation accounting” writing).

If executed correctly the innovation champions can spark a culture change in a large organisation, precipitating the drive towards a more innovative culture as a whole.

Pros of the innovation champion approach: A way to tactically accelerate innovation within identified areas of the business. Very targeted and precise.

Cons of the innovation champion approach: Relatively large investment required, needs to be accompanied by a culture shift.

Of course there isn’t a single right approach, but the methods outlined above hopefully give a flavour of the sort of strategies that large companies have employed in the past to try and drive innovation forward.

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Uber & Regulatory Lurch

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Today Transport for London (TfL), the body responsible for regulating transportation in London announced something surprising: they will not be renewing Uber’s licence to operate in London, and Uber will have to stop providing its service in the coming months. Of course, there was an understandable uproar from the 40,000 Uber drivers currently making a living from driving in the capital, as well as the millions of passengers that use the service every day. Uber will appeal the decision, but TfL may decide to uphold the ban.

The Regulatory Decision

The reasons TfL have given to suspend Uber centre upon one major judgement. In the report, TfL states that:

Uber's approach and conduct demonstrate a lack of corporate responsibility in relation to a number of issues which have potential public safety and security implications

Read the full report

It is certainly true that Uber hasn’t been a perfect corporate citizen in recent years. Its corporate culture has been shown to be hideously sexist, it has bullied its staff and systematically underpaid its drivers. The judgement made by TfL doesn’t directly reference this behaviour, though, and despite Uber’s activity being undeniably abhorrent it doesn’t directly relate to the public safety and security implications raised by TfL.

Surely if public safety issues were brought to TfL’s attention - as they have been in the past - it would have been appropriate for them to revoke Uber’s licence before it came up for renewal after five years. When it comes to public safety, how is it possible that the issues TfL has cited have only become apparent at the exact moment that the licence needs to be reviewed? In this way the decision seems like a general moral judgement rather than one related specifically to safety.

Regulatory Lurch

The pace of change in today’s world has resulted in regulators being left behind. I’ve identified this in many areas - from crypto currencies to data and education. Sadly, the regulatory approach to technology is often doing nothing for many months or years, and then rather than engaging with the inevitable social and political issues that this technology raises, banning the technology completely.

On the same day that TfL made its regulatory ruling, Jamie Dimon the Chief Executive of JPMorgan made a comment about crypto currencies:

Right now these crypto things are kind of a novelty. People think they're kind of neat. But the bigger they get, the more governments are going to close them down
See full video

This is exactly the same approach that TfL has taken with Uber - permissive at the beginning so that the technology is able to proliferate, resulting in ambiguous employment relationships and unfair competition, and then - unable to control it - aggressively punitive at the end, shutting the entire service down.

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This regulatory lurch - moving from absolutely zero regulation to a ban - is hugely damaging to innovative efforts and acts to characterise entire technologies and activities as illegal without trying to identify the benefits and actively engaging in the debate. Simply banning Uber will not solve the issue of insecure employment for workers, or the fact that many people who are able to act as taxi drivers were prevented from doing so because of extensive regulation in the past. Firms like Deliveroo and Amazon operate with these principles too; will the government shut down these operations as well? Where is the line drawn?

Engagement is the answer

These decisions are damaging. Not just for Uber, but for the 40,000 who drive for the company and the 3.5 million people who use the service. By engaging early with disruptive technologies regulators can actually help to shape services, forcing them to be socially responsible as well as profitable. By ignoring the issues until the last moment no one wins: consumers get a worse service, drivers lose their jobs and the important social and political issues raised by peer to peer technology are - conveniently - swept under the rug.

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The Ethics & Governance of Decentralisation

Decentralised systems have the power to transform the way that we live and do business. Up until a few years ago if you wanted to start a company you needed to do it in a particular jurisdiction, usually a country. Today, using the Ethereum network you are able to start and manage a company, mint your own coin & create secure ways to vote on key topics without having any one country's backing. Disputes are reconciled by impartial smart contracts - bits of code that make decisions in a computational way, arbitrated by thousands of nodes based around the world. If one of the nodes goes down it doesn't matter - others will pick up the slack.

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The distribution of Ethereum nodes, from Ethernodes

Decentralisation & Anarchy

The debate around decentralisation from a political standpoint isn’t new. The political philosopher Alexis de Tocqueville wrote in 1840 that:

Our contemporaries are constantly excited by two conflicting passions; they want to be led, and they wish to remain free: as they cannot destroy either one or the other of these contrary propensities, they strive to satisfy them both at once. They devise a sole, tutelary, and all-powerful form of government, but elected by the people. They combine the principle of centralization and that of popular sovereignty; this gives them a respite: they console themselves for being in tutelage by the reflection that they have chosen their own guardians.

Modern governments work because they combine elements of centralisation and control - they hold the monopoly of the legitimate use of violence, for example - with decentralised rule: you are able to decide who is in power with a democratic vote. What de Tocqueville highlights, though, is the need for both elements of governance. A purely centralised government leads to tyranny and an exclusively decentralised government leads to anarchy.

Unrestricted decentralisation is a threat for government - and decentralised currencies and tokens are no different. In the past few days China has legislated for a “comprehensive ban” on crypto currency exchanges. This ban is seen by many as an inevitable outcome of an innovative technology moving quickly; it’s easier to ban that to regulate, but eventually the technology will prevail. However, the problems with decentralisation run much deeper than this - something that de Tocqueville predicted in the mid 1800s.

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Alexis de Tocqueville - The first crypto philosopher?

Decentralisation creates a moral vacuum

The reason political systems have evolved to have elements of both centralised & decentralised systems is because decentralisation on its own creates a world that is just as tyrannical, cold and morally ambiguous as the most despotic dictator. In Ethereum’s short life we’ve already seen examples of this. For example, The DAO - a digital decentralised autonomous organisation - was created in May 2016. It raised more than $150 million, with the aim of distributing funds to ventures that people could vote on.

In June 2016 a hacker stole around $50 million of the DAO’s funds. Though there is still dispute as to who was behind the attack - a note supposedly from the hacker read:

I am disappointed by those who are characterizing the use of this intentional feature as "theft". I am making use of this explicitly coded feature as per the smart contract terms and my law firm has advised me that my action is fully compliant with United States criminal and tort law. For reference please review the terms of the DAO
Read Full Text

In one sense they were right - in a decentralised network the only truth is what is in the smart contract. One of the critical elements of a judicial system - discretion - is removed, and every decision is subject to the cold and calculated world of computer as judge and jury.

Whilst the attacker of the DAO undoubtedly abided by the rule of the law (i.e they didn’t attempt to change the DAO to remove the funds, they simply exploited a well known vulnerability) they did not abide by the spirit of the law which can be characterised as: don’t take things that aren’t yours. The Ethereum community agreed that a “hard fork” should take place - reversing the transaction that allowed the attacker to steal the cash and reversing the currency. This fork created two currencies: “Ethereum classic,” the original currency with the theft in place and “Ethereum” which returned the tokens to their rightful owners. Vitalik Buterin, the creator of Ethereum wrote in July 2016 that:

We would like to congratulate the Ethereum community on a successfully completed hard fork. Block 1920000 contained the execution of an irregular state change which transferred ~12 million ETH from the “Dark DAO” and “Whitehat DAO” contracts into the WithdrawDAO recovery contract.
Read Full Text

As Alexis de Tocqueville noted, the best systems of governance has elements of both centralised & decentralised systems, perfectly executed in the DAO example. Though many would argue systems like Ethereum are completely decentralised, in order to avoid morally dangerous outcomes there needs to be regulation and decision making that comes from trusted gatekeepers. A world of complete decentralisation leads to anarchy.

The future of decentralisation

Decentralised technologies are here to stay, but in their current form simply aren’t compatible with the ethical requirements of a civilised society. Regulation isn’t bad - bad regulation is bad - and turning a blind eye to systems trying to revolutionise the way that we do the most fundamental things in our lives isn’t the answer. There must be an interplay between governments and decentralised systems - to ignore either isn’t utopian: it’s dangerous.

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