Pushing the Envelopes: New US Postal Service Report Assesses Possible Blockchain Applications

"Vibrant US Air Mail Stamp", Image by Nicolas Raymond

“Vibrant US Air Mail Stamp”, Image by Nicolas Raymond

Way before the advent of email, when people exclusively wrote letters on paper and mailed them to each other (yes, this really did happen once upon a time), there was a long-running scam known as the “chain letter“. Recipients who received such a letter were asked, often through manipulative language, to copy it and send it on to as many other people as possible. In effect, these were structured as fraudulent pyramid schemes that ultimately would collapse in on themselves.

Sometimes chain letters involved illegal financial dealings and other hoaxes, also producing unwanted emotional effects on who mistakenly fell for them. Variations of the chain letter still survive today online and operate using email, texting and social media.

However, an emerging new form of virtual chain, in conjunction with the mail service, might soon appear – – namely using the blockchain – – within the U.S. Postal Service (USPS). However, this combination could potentially produce four very positive improvements in services. These exciting prospects were the subject of a most interesting new post on Quartz.com on May 24, 2016 entitled Even the US Postal Service Wants to Start Using Blockchain Tech, by Ian Kar. I recommend reading this article in its entirety. I will summarize and annotate it, and pose some questions of my own (but without any additional postage due).

While blockchain technology has been getting a great deal of press coverage recently involving innovative new development initiatives in, among other fields, finance, law, government and the arts, this story illustrates how it also might affect something as routine and mundane as mail service with possibly dramatic results. Such changes could produce significant economic and logistical advances that would affect just about anyone who checks their real world mailbox every day.

(These six Subway Fold posts cover just a small sampling of blochchain projects.)

Better Letters

Image from Pixabay

Image from Pixabay

Traditionally, the USPS has never really distinguished itself as a leader in innovation. Rather, it has a long reputation for its inefficient operations. This could possibly be significantly changed by this series of a series of blockchain proposals. Because this technology is decentralized, widely accessible, and secured by encryption, it is highly resistant to tampering.

On May 23, 2016, the USPS Office of the Inspector General and a consulting firm called Swiss Economics, published a new report entitled Blockchain Technology: Possibilities for the U.S. Postal Service. It analyzed the following four possible future implementations:

1.  Financial Services:  US post offices currently offers a limited number of financial services such as international money transfers. The IOG report speculated that the USPS “could benefit from developing its own bitcoin-like digital currency”.  Perhaps it could be called “Postcoin”. This would permit the expansion into other financial services such as a “global payment service” for people without traditional bank accounts.

2.  Identity:  An individual’s identity could be verified for the USPS using a blockchain. Essentially, they already do this when they deliver your mail to you each day. By using a blockchain for this, the USPS could provide you with assistance to help you manage both your online and offline identities “by storing it on an immutable ledger”.

3.  Logistics Support:  Applying the blochchain to support the Internet of Things (IoT) could enhance the USPS logistics management operations. The IGO report imagine a system where “vehicles and sorting equipment could manage their own tracking, monitoring, and maintenance”. This could include items such as autonomously, efficiently and economically monitoring brake pad performance including:

  • Assessing when one will need to be replaced
  • Determining whether its warranty is still in effect
  • Creating a smart contract with a vendor to replace it
  • Paying for the part and its installation

4.  Mail Tracking:  On a daily basis, the USPS delivers 509 million pieces of mail. As stated in the OIG report, the blockchain can be deployed to uniquely identify each piece of it. This could be done with “a small sensor” on each piece in order to use the blockchain to “manage the chain of custody between different USPS partners, like UPS and Fedex”. As well, the blockchain could be put to the additional uses of:

  • Expediting customs clearance
  • Integrating payments
  • Shipping upon one unified platform

[All of these components form the very convenient anagram FILM, thus making it easier to, well, picture.]

For now, the USPS intends to keep studying blockchain technology. The OIG report states that the agency “could benefit from experimenting” with it on new financial products and then eventually progress on toward “more complex uses”.

"Stamped Mail to be Posted", Image by Steven Depolo

“Stamped Mail to be Posted”, Image by Steven Depolo

My Questions

  • Would these blochchain apps have a negative impact on USPS revenues as this massive government agency has been running at a budget deficit for many years? If so, would this have unintended negative consequences for consumers and/or the USPS?
  • Conversely, can the USPS use blockchain innovations to create new sources of revenue and employment? What new sorts of job descriptions and titles might emerge?
  • Would the blockchain do away with the traditional services of certified, registered, priority and insured mail? If so, what forms of proof of delivery or non-delivery could be provided to consumers?
  • Would any of these proposed new apps possibly create new privacy issues for consumers and policy concerns for the US government?
  • What type of opportunities might arise for entrepreneurs to create new mail apps built on the blockchain?

The Mediachain Project: Developing a Global Creative Rights Database Using Blockchain Technology

Image from Pixabay

Image from Pixabay

When people are dating it is often said that they are looking for “Mr. Right” or “Ms. Right”. That is, finding someone who is just the right romantic match for them.

In the case of today’s rapid development, experimentation and implementation of blockchain technology, if a startup’s new technology takes hold, it might soon find a highly productive (but maybe not so romantic) match in finding Mr. or Ms. [literal] Right by deploying the blockchain as a form of global registry of creative works ownership.

These 5 Subway Fold posts have followed just a few of the voluminous developments in bitcoin and blockchain technologies. Among them, the August 21, 2015 post entitled Two Startups’ Note-Worthy Efforts to Adapt Blockchain Technology for the Music Industry has drawn the most number of clicks. A new report on Coindesk.com on February 23, 2016 entitled Mediachain is Using Blockchain to Create a Global Rights Database by Pete Rizzo provides a most interesting and worthwhile follow on related to this topic. I recommend reading it in its entirety. I will summarize and annotate it to provide some additional context, and then pose several of my own questions.

Producing a New Protocol for Ownership, Protection and Monetization

Applications of blockchain technology for the potential management of economic and distribution benefits of “creative professions”, including writers, musicians and others, that have been significantly affected by prolific online file copying still remains relatively unexplored. As a result, they do not yet have the means to “prove and protect ownership” of their work. Moreover, they do have an adequate system to monetize their digital works. But the blockchain, by virtue of its structural and operational nature, can supply these creators with “provenance, identity and micropayments“. (See also the October 27, 2015 Subway Fold post entitled Summary of the Bitcoin Seminar Held at Kaye Scholer in New York on October 15, 2015 for some background on these three elements.)

Now on to the efforts of a startup called Mine ( @mine_labs ), co-founded by Jesse Walden and Denis Nazarov¹. They are preparing to launch a new metadata protocol called Mediachain that enables creators working in digital media to write data describing their work along with a timestamp directly onto the blockchain. (Yet another opportunity to go out on a sort of, well, date.)  This system is based upon the InterPlanetary File System (IPFS). Mine believes that IPSF is a “more readable format” than others presently available.

Walden thinks that Mediachain’s “decentralized nature”, rather than a more centralized model, is critical to its objectives. Previously, a very “high-profile” somewhat similar initiative to establish a similarly global “database of musical rights and works” called the Global Repertoire Database (GDR) had failed.

(Mine maintains this page of a dozen recent posts on Medium.com about their technology that provides some interesting perspectives and details about the Mediachain project.)

Mediachain’s Objectives

Walden and Nazarov have tried to innovate by means of changing how media businesses interact with the Internet, as opposed to trying to get them to work within its established standards. Thus, the Mediachain project has emerged with its focal point being the inclusion of descriptive data and attribution for image files by combining blockchain technology and machine learning². As well, it can accommodate reverse queries to identify the creators of images.

Nazarov views Mediachain “as a global rights database for images”. When used in conjunction with, among others, Instagram, he and Walden foresee a time when users of this technology can retrieve “historic information” about a file. By doing so, they intend to assist in “preserving identity”, given the present challenges of enforcing creator rights and “monetizing content”. In the future, they hope that Mediachain inspires the development of new platforms for music and movies that would permit ready access to “identifying information for creative works”. According to Walden, their objective is to “unbundle identity and distribution” and provide the means to build new and more modern platforms to distribute creative works.

Potential Applications for Public Institutions

Mine’s co-founders believe that there is further meaningful potential for Mediachain to be used by public organizations who provide “open data sets for images used in galleries, libraries and archives”. For example:

  • The Metropolitan Museum of Art (“The Met” as it is referred to on their website and by all of my fellow New York City residents), has a mandate to license the metadata about the contents of their collections. The museum might have a “metadata platform” of its own to host many such projects.
  • The New York Public Library has used their own historical images, that are available to the public to, among other things, create maps.³ Nazarov and Walden believe they could “bootstrap the effort” by promoting Mediachain’s expanded apps in “consumer-facing projects”.

Maintaining the Platform Security, Integrity and Extensibility

Prior to Mediachain’s pending launch, Walden and Nazarov are highly interested in protecting the platform’s legitimate users from “bad actors” who might wrongfully claim ownership of others’ rightfully owned works. As a result, to ensure the “trust of its users”, their strategy is to engage public institutions as a model upon which to base this. Specifically, Mine’s developers are adding key functionality to Mediachain that enables the annotation of images.

The new platform will also include a “reputation system” so that subsequent users will start to “trust the information on its platform”. In effect, their methodology empowers users “to vouch for a metadata’s correctness”. The co-founders also believe that the “Mediachain community” will increase or decrease trust in the long-term depending on how it operates as an “open access resource”. Nazarov pointed to the success of Wikipedia to characterize this.

Following the launch of Mediachain, the startup’s team believes this technology could be integrated into other existing social media sites such as the blogging platform Tumblr. Here they think it would enable users to search images including those that may have been subsequently altered for various purposes. As a result, Tumblr would then be able to improve its monetization efforts through the application of better web usage analytics.

The same level of potential, by virtue of using Mediachain, may likewise be found waiting on still other established social media platforms. Nazarov and Walden mentioned seeing Apple and Facebook as prospects for exploration. Nazarov said that, for instance, Coindesk.com could set its own terms for its usage and consumption on Facebook Instant Articles (a platform used by publishers to distribute their multimedia content on FB). Thereafter, Mediachain could possibly facilitate the emergence of entirely new innovative media services.

Nazarov and Walden temper their optimism because the underlying IPFS basis is so new and acceptance and adoption of it may take time. As well, they anticipate “subsequent issues” concerning the platform’s durability and the creation of “standards for metadata”. Overall though, they remain sanguine about Mediachain’s prospects and are presently seeking developers to embrace these challenges.

My Questions

  • How would new platforms and apps using Mediachain and IPSF be affected by the copyright and patent laws and procedures of the US and other nations?
  • How would applications built upon Mediachain affect or integrate with digital creative works distributed by means of a Creative Commons license?
  • What new entrepreneurial opportunities for startup services might arise if this technology eventually gains web-wide adoption and trust among creative communities?  For example, would lawyers and accountants, among many others, with clients in the arts need to develop and offer new forms of guidance and services to navigate a Mediachain-enabled marketplace?
  • How and by whom should standards for using Mediachain and other potential development path splits (also known as “forks“), be established and managed with a high level of transparency for all interested parties?
  • Does analogizing what Bitcoin is to the blockchain also hold equally true for what Mediachain is to the blockchain, or should alternative analogies and perspectives be developed to assist in the explanation, acceptance and usage of this new platform?

June 1, 2016 Update:  For an informative new report on Mediachain’s activities since this post was uploaded in March, I recommend clicking through and reading Mediachain Enivisions a Blockchain-based Tool for Identifying Artists’ Work Across the Internet, by Jonathan Shieber, posted today on TechCrunch.com.


1.   This link from Mine’s website is to an article entitled Introducing Mediachain by Denis Nazarov, originally published on Medium.com on January 2, 2016. He mentions in his text an earlier startup called Diaspora that ultimately failed in its attempt at creating something akin to the Mediachain project. This December 4, 2014 Subway Fold post entitled Book Review of “More Awesome Than Money” concerned a book that expertly explored the fascinating and ultimately tragic inside story of Diaspora.

2.   Many of the more than two dozen Subway Fold posts in the category of Smart Systems cover some of the recent news, trends and applications in machine learning.

3.  For details, see the January 5, 2016 posting on the NY Public Library’s website entitled Free for All: NYPL Enhances Public Domain Collections for Sharing and Reuse, by Shana Kimball and Steven A. Schwarzman.

New Job De-/script/-ions for Attorneys with Coding and Tech Business Skills

"CODE_n SPACES Pattern", Image by CODE_n

“CODE_n SPACES Pattern”, Image by CODE_n

The conventional wisdom among lawyers and legal educators has long been that having a second related degree or skill from another field can be helpful in finding an appropriate career path. That is, a law degree plus, among others, an MBA, engineering or nursing degree can be quite helpful in finding an area of specialization that leverages both fields. There are synergies and advantages to be shared by both the lawyers and their clients in these circumstances.

Recently, this something extra has expanded to include very timely applied tech and tech business skills. Two recently reported developments highlight this important emerging trend. One involves a new generation of attorneys who have a depth of coding skills and the other is an advanced law degree to prepare them for positions in the tech and entrepreneurial marketplaces. Let’s have a look at them individually and then what they might means together for legal professionals in a rapidly changing world. I will summarize and annotate both of them, and compile a few plain text questions of my own.

(These 26 other Subway Fold posts in the category of Law Practice and Legal Education have tracked many related developments.)

Legal Codes and Lawyers Who Code

1.  Associates

The first article features four young lawyers who have found productive ways to apply their coding skills at their law offices. This story appeared in the November 13, 2015 edition of The Recorder (subscription required) entitled Lawyers Who Code Hack New Career Path by Patience Haggin. I highly recommend reading it in its entirely.

During an interview at Apple for a secondment (a form of temporary arrangement where a lawyer from a firm will join the in-house legal department of a client)¹, a first-year lawyer named Canek Acosta was asked where he knew how to use Excel. He “laughed – and got the job” at Apple. In addition to his law degree, he had majored in computer science and math as an undergraduate.

Next, as a law student at Michigan State University College of Law, he participated in the LegalRnD – The Center for Legal Services Innovation, a program that teaches students to identify and solve “legal industry process bottlenecks”.  The Legal RnD website lists and describes all eight courses in their curriculum. It has also sent out teams to legal hackathons. (See the March 24, 2015 Subway Fold post entitled “Hackcess to Justice” Legal Hackathons in 2014 and 2015 for details on these events.)

Using his combination of skills, Acosta wrote scripts that automated certain tasks, including budget spreadsheets, for Apple’s legal department. As a result, some new efficiencies were achieved. Acosta believes that his experience at Apple was helpful in subsequently getting hired at the law firm of O’Melvany & Myers as an associate.

While his experience is currently uncommon, law firms are expected to increasingly recruit law students to become associates who have such contemporary skills in addition to their legal education. Furthermore, some of these students are sidestepping traditional roles in law practice and finding opportunities in law practice management and other non-legal staff roles that require a conflation of “legal analysis and hacking skills”.

Acosta further believes that a “hybrid lawyer-programmer” can locate the issues in law office operational workflows and then resolve them. Now at O’Melvany, in addition to his regular responsibilities as a litigation associate, he is also being asked to use his programming ability to “automate tasks for the firm or a client matter”.

At the San Francisco office of Winston & Strawn, first-year associate Joseph Mornin has also made good use of his programming skills. While attending UC-Berkeley School of Law, he wrote a program to assist legal scholars in generating “permanent links when citing online sources”. He also authored a browser extension called Bestlaw that “adds features to Westlaw“, a major provider of online legal research services.

2.  Consultants and Project Managers

In Chicago, the law firm Seyfarth Shaw has a legal industry consulting subsidiary called SeyfarthLean. One of their associate legal solutions architects is Amani Smathers.  She believes that lawyers will have to be “T-shaped” whereby they will need to combine their “legal expertise” with other skills including “programming, or marketing, or project management“.² Although she is also a graduate of Michigan State University College of Law, instead of practicing law, she is on a team that provides consulting for clients on, among other things, data analytics. She believes that “legal hacking jobs” may provide alternatives to other attorneys not fully interested in more traditional forms of law practices.

Yet another Michigan State law graduate, Patrick Ellis, is working as a legal project manager at the Michigan law firm Honigman Miller Schwartz and Cohn. In this capacity, he uses his background in statistics to “develop estimates and pricing arrangements”. (Mr. Ellis was previously mentioned in a Subway Fold post on March 15, 2015, entitled Does Being on Law Review or Effective Blogging and Networking Provide Law Students with Better Employment Prospects?.)

A New and Unique LLM to be Offered Jointly by Cornell Law School and Cornell Tech

The second article concerned the announcement of a new 1-year, full-time Master of Laws program (which confers an “LLM” degree), to be offered jointly by Cornell Law School and Cornell Tech (a technology-focused graduate and research campus of Cornell in New York City). This LLM is intended to provide practicing attorneys and other graduates with specialized skills needed to support and to lead tech companies. In effect, the program combines elements of law, technology and entrepreneurship. This news was carried in a post on October 29, 2015 on The Cornell Daily Sun entitled Cornell Tech, Law School Launch New Degree Program by Annie Bui.

According to Cornell’s October 27, 2015 press release , students in this new program will be engaged in “developing products and other solutions to challenges posed by companies”. They will encounter real-world circumstances facings businesses and startups in today’s digital marketplace. This will further include studying the accompanying societal and policy implications.

The program is expected to launch in 2016. It will be relocated from a temporary site and then moved to the Cornell Tech campus on Roosevelt Island in NYC in 2017.

My Questions

  • What other types of changes, degrees and initiatives are needed for law schools to better prepare their graduates for practicing in the digital economy? For example, should basic coding principles be introduced in some classes such as first-year contracts to enable students to better handle matters involving Bitcoin and the blockchain when they graduate? (See these four Subway Fold posts on this rapidly expanding technology.)
  • Should Cornell Law School, as well as other law schools interested in instituting similar courses and degrees, consider offering them online? If not for full degree statuses, should these courses alternatively be accredited for Continuing Legal Education requirements?
  • Will or should the Cornell Law/Cornell Tech LLM syllabus offer the types of tech and tech business skills taught by the Michigan State’s LegalRnD program? What do each of these law schools’ programs discussed here possibly have to offer to each other? What unique advantage(s) might an attorney with an LLM also have if he or she can do some coding?
  • Are there any law offices out there that are starting to add an attorney’s tech skills and coding capabilities to their evaluation of potential job candidates? Are legal recruiters adding these criteria to job descriptions for searching they are conducting?
  • Are there law offices out there that are beginning to take an attorney’s tech skills and/or coding contributions into account during annual performance reviews? If not, should they now considering adding them and how should they be evaluated?

 


1.  Here is an informative opinion about the ethical issues involved secondment arrangements issued by the Association of the Bar of the City of New York Committee on Professional and Judicial Ethics.

2.  I had an opportunity to hear Ms. Smathers give a very informative presentation about “T-shaped skills” at the Reinvent Law presentation held in New York in February 2014.

Summary of the Bitcoin Seminar Held at Kaye Scholer in New York on October 15, 2015

"Bitcoin", Image by Tiger Pixel

“Bitcoin”, Image by Tiger Pixel

The market quote for Bitcoin on October 15, 2015 at 5:00 pm EST was $255.64 US according to CoinDesk.com on the site’s Price & Data page. At that same moment, I was very fortunate to have been attending a presentation entitled the Bitcoin Seminar that was just starting at the law firm of Kaye Scholer in midtown Manhattan. Coincidentally, the firm’s address is numerically just 5.64, well, whatevers¹ away at 250 West 55th Street.

Many thanks to Kaye Scholer and the members of the expert panel for putting together this outstanding presentation. My appreciation and admiration as well for the informative content and smart formatting in the accompanying booklet they provided to the audience.

Based upon the depth and dimensions of all that was learned from the speakers, everyone attending gained a great deal of knowledge and insight on the Bitcoin phenomenon. The speakers clearly and concisely surveyed its essential technologies, operations, markets, regulations and trends.

This was the first of a two-part program the firm is hosting. The second half, covering the blockchain, is scheduled on Thursday, November 5, 2015.

The panelists included:

The following are my notes from this 90-minute session:

1.  What is a “Virtual Currency” and the Infrastructure Supporting It?

  • Bitcoin is neither legal tender nor tied to a particular nation.
  • Bitcoin is the first means available to move value online without third-party trusted intermediaries.
  • Bitcoin involves a series of decentralized protocols, consisting entirely of software, for the transfer of value between parties.
  • Only 21 million Bitcoins will ever be created but they are highly divisible into much smaller units unit called “satoshis” (named after the mysterious and still anonymous creator of Bitcoin who goes by the pseudonym Satoshi Nakamoto).
  • The network structure for these transfers is peer-to-peer, as well as transparent and secure.
  • Bitcoin is a genuine form of “cryptocurrency”, also termed “digital currency”²
  • The networks use strong encryption to secure the value and information being transferred.
  • The parties engaged in a Bitcoin transaction often intend for their virtual currency to be converted into actual fiat currency.

2.  Benefits of Bitcoin

  • Payments can be sent anywhere including internationally.
  • Transactions are borderless and can operate on a 24/7 basis.
  • Just like email, the network operates all the time.

3.  Bitcoin Mining and Bitcoin Miners

  • This is the process by which, and the people by whom, bitcoins are extracted and placed into circulation online.
  • “Miners” are those who use vast amounts of computing power to solve complex mathematical equations that, once resolved, produce new Bitcoins.
  • The miners’ motivations include:
    • the introduction of new Bitcoins
    • their roles as transaction validators and maintainers of the blockchain
  • All newly mined bitcoins need to be validated.
  • Minors are rewarded for their efforts with the bitcoins they extract and any additional fees that were volunteered along with pending transactions.
  • Miners must obey the network’s protocols during the course of their work.

4.  Security

  • Security is the central concern of all participants in Bitcoin operations.
  • Notwithstanding recent bad publicity concerning incidents and indictments for fraud (such as Mt. Gox), the vast majority of bitcoin transactions do not involve illegal activity.
  • The Bitcoin protocols prevent Bitcoins from being spent twice.
  • Measures are in place to avoid cryptography keys from being stolen or misused.
  • There is a common misconception that Bitcoin activity is anonymous. This is indeed not the case, as all transactions are recorded on the blockchain thus enabling anyone to look up the data.
  • Bitcoin operations and markets are becoming more mature and, in turn, relatively more resistant to potential threats.

5.  Using Bitcoins

  • Bitcoin is secured by individual crypto-keys which are required for “signing” in a transaction or exchange.
  • This system is distributed and individual keys are kept in different locations.
  • Once a transaction is “signed” it then goes online into the blockchain ledger³.
  • The crypto keys are highly secure to avoid tampering or interception by unintended parties.
  • Bitcoin can be structured so that either:
    • multiple keys are required to be turned at the same time on both sides of the transaction, or
    • only a single key is required to execute a transaction.
  • By definition, there are no traditional intermediaries (such as banks).

6.  Asset Custody and Valuation

  • Financial regulators see Bitcoin as being a money transmission.
  • Currently, the law says nothing about multi-keys (above).
  • Work is being done on drafting new model legislation in an attempt to define “custody” of Bitcoin as an asset.
  • Bitcoin services in the future will be programmatic and will not require the trusted third parties. For example, in a real estate transaction, if the parties agree to terms then the keys are signed. If not, an arbitrator can be used to turn the keys for the parties and complete the transaction. Thus, this method can be a means to perform settlements in the real world.
  • Auditing this process involves public keys with custodial ownership. In determining valuation, the question is whether “fair value” has been reached and agreed upon.
  • From an asset allocation perspective, it is instructive to compare Bitcoin to gold insofar as there is no fixed amount of gold in the world, but Bitcoin will always be limited to 21 million Bitcoins (see 1. above).

7.  US Regulatory Environment

  • Because of the Bitcoin market’s rapid growth in the past few years, US federal and state regulators have become interested and involved.
  • Bitcoin itself is not regulated. Rather, the key lies at the “chokepoints” in the system where Bitcoin is turned into fiat currency.
  • US states regulate the money transfer business. Thus, compliance is also regulated by state laws. For example, New York State’s Department of Financial Services issues a license for certain service companies in the Bitcoin market operating within the state called a BitLicense. California is currently considering similar legislation.
  • Federal money laundering laws must always be obeyed in Bitcoin transactions.
  • The panelists agreed that it is important for Bitcoin legislation is to protect innovation in this marketplace.
  • The Internal Revenue Service has determined Bitcoin to be a tangible personal asset. As a result, Bitcoin is an investment subject to capital gains. As well, it will be taxed if used to pay for goods and services

8.  Future Prospects and Predictions

  • Current compelling use cases for Bitcoin include high volume of cross-border transactions and areas of the world without stable governments.
  • Bitcoin’s success is not now a matter of if, but rather, when. It could eventually take the emergence of some form of Bitcoin 2.0 to ultimately succeed.
  • Currency is now online and is leading to innovations such as:
    • Programmable money and other new formats of digital currency.
    • Rights management for music services where royalties are sent directly to the artists. (See Footnote 3 below.)

9.  Ten Key Takeaway Points:

  • Bitcoin is a virtual currency but it is not anonymous.
  • The key legal consideration is that it involves a stateless but trusted exchange of value.
  • Bitcoin “miners” are creating the value and increasing in their computing sophistication to locate and solve equations to extract Bitcoins.
  • Security is the foremost concern of everyone involved with Bitcoin.
  • Because Bitcoin exchanges of value occur and settle quickly and transparently (on the blockchain ledger), there are major implications for online commerce and the securities markets.
  • Government regulators are now significantly involved and there are important distinctions between what the states and federal government can regulate.
  • The IRS has made a determination about the nature of Bitcoin as an asset, and its taxable status in paying for goods and services.
  • The crypto-keys and “multi-signing” process are essential to making Bitcoin work securely, with neither borders nor third-party intermediaries.
  • Real estate transactions seem to be well-suited for the blochchain (for example, recording mortgages).
  • Comparing Bitcoin to gold (as a commodity), can be instructive in understanding the nature of Bitcoin.

 


1.   Is there a conversion formula, equivalency or terminology for the transposition of address numerals into Bitcoin? If one soon emerges, it will add a whole new meaning to the notion of “street value”.

2See also this May 8, 2015 Subway Fold post entitled Book Review of “The Age of Cryptocurrency”.

3.  For two examples of other non-Bitcoin adaptations of blockchain technology (among numerous other currently taking place), see the August 21, 2015 Subway Fold post entitled Two Startups’ Note-Worthy Efforts to Adapt Blockchain Technology for the Music Industry and the September 10, 2015 Subway Fold post entitled Vermont’s Legislature is Considering Support for Blockchain Technology and Smart Contracts.

Vermont’s Legislature is Considering Support for Blockchain Technology and Smart Contracts

"Ledger Detailing External Work Commissioned at Holmes McDougall", Image by Edinburgh City of Print

“Ledger Detailing External Work Commissioned at Holmes McDougall”, Image by Edinburgh City of Print

Merriam-Webster.com lists two definitions for the word legerdemain:”1. Sleight of hand. 2. A display of skill or adroitness”.

If a newly passed bill and a currently pending amendment to it in the state of  Vermont’s legislature produce their intended results and, taking the second of the above definitions into consideration, I think that such a combination might give rise to a, well, [bit]coining of a new homophone: ledgerdomain. That is, a conflation of:

  • the blockchain technology upon which the online ledger for Bitcoin and a growing array of other systems is built, and
  • the concept of the domain name, a critical Internet protocol.

The details of this very interesting story involving this unique meeting of the virtual and legislative worlds were reported in an article posted on cointelegraph.com on August 5, 2015 entitled Vermont Considering Blockchain Tech for State Records, Smart Contracts by Brian Cohen. I highly recommend clicking-through and reading it in its entirety. I will summarize just those parts of the article about the blockchain legislation and smart contracts, provide some annotations, and then add some of my own questions to the ledger.

Vermont’s Blockchain Legislation

This new legislation is intended to move the state towards using blockchain technology for “records, smart contracts and other applications”. One of the key distinctions here is that Vermont is not in any manner approving or adopting Bitcoin, but rather, the state is diversifying and adapting the underlying blockchain technology that supports it. Just recently, we examined a comparable effort in the music industry in the August 21, 2015 Subway Fold post entitled Two Startups’ Note-Worthy Efforts to Adapt Blockchain Technology for the Music Industry. (Please see also the May 8, 2015 SF post entitled Book Review of “The Age of Cryptocurrency”.)

In June 2015, a bill entitled No. 51. An Act relating to promoting economic development was signed into law by Vermont’s Governor, Peter Shumlin. On Page 7 is “Sec. A.3 Study and Report: Blockchain Technology”, requiring a report to be completed by January 16, 2016 on the “potential opportunities and risks” of using blockchain technology “for electronic facts and records”.

An as yet to be signed amendment to this legislation by Vermont General Assembly Senator Becca Balint is a “roadmap if there are favorable findings” in this report.  In April 2015, the amendment mentioned above appearing on Pages 2 and 3 of the PDF file for Sec. 47. 9 V.S.A. Chapter 2: Electronic Verification Of Facts And Records: § 11. Blockchain Enabling was introduced. The relevant text of §11(a) appears as:

Blockchain technology shall be a recognized practice for the verification of a fact or record, and those facts or records established through a valid blockchain technology process shall have a presumption of validity for matters to be determined subject to, or in accordance with, the laws of the State of Vermont

Because of some recent negative publicity about a number of cases of alleged illegality involving Bitcoin, the virtual currency is never mention in any of the official text. Instead, the focus of the bill and the amendment are squarely upon exploring the potential of the blockchain. It is the promising technological capabilities of the online ledger system that have drawn this serious attention from Vermont’s legislators.

Smart Contracts Resources

Oliver R. Goodenough, the Director of the Center for Legal Innovation at the Vermont School of Law, drafted the amendment. In his previous state legislative testimony along with his supporting memorandum on April 1, 2015 by Professor Goodenough, among other topics, he addressed the need for recognition of smart contracts. He mentioned the advances being made on these systems that “permit the statement of contractual obligations in software” covered in his own academic writing and the work of the software companies Ethereum (another link here covers this startup on Wikipedia), and Exari. He further recommended making “Vermont a leader in the field”.

Among the citations to the professor’s memo is one from an Office of Financial Research of the U.S. Department of Treasury Working Paper entitled Contract as Automaton: The Computational Representation of Financial Agreements. (This was dated March 26, 2015, just four days prior to his legislative testimony.) In turn, this paper contains a link to a one-hour YouTube video entitled Ethereum Contracts as Legal Contracts. This is an in-depth presentation by patent attorney Tom Johnson where he discusses the legality of smart contracts and documents using Ethereum. (I believe this video is quite informative and enlightening for anyone who is interested in the legal aspects and implications of Bitcoin and blockchain technology.)

My own questions are as follows:

  • How can the operations and possible benefits of adopting blockchain technology be effectively introduced to other states’ legislators and their constituents?
  • Should the US federal government and federal agencies initiate such studies for their operations?
  • Should local, state and federal judicial systems also undertake pilot studies to weigh the risks and rewards of introducing the blockchain applications?
  • What, if any, potential benefits would the large numbers of commercial contractors who deal with government agencies derive from applications of the blockchain?
  • Where should potential entrepreneurs now be looking in this early market to provide guidance and services for the possible evaluation, planning, installation, implementation, rollout, maintenance and upgrades of blockchain-based government IT systems?

For another comprehensive and timely article on the early stage blockchain work now being done in the private sector within the financial industry, I highly recommend clicking-through and reading an article from the August 28, 2015 edition of The New York Times entitled Bitcoin Technology Piques Interest on Wall St., by Nathaniel Popper. It also references and links to the cointelegraph.com report discussed above and well as the August 5, 2015 billboard.com article which was the basis for the August 21, 2015 Subway Fold post linked to in the fourth paragraph above concerning the music industry.

Two Startups’ Note-Worthy Efforts to Adapt Blockchain Technology for the Music Industry

"Coachella Day 1 [2nd week] - Sahara Tent", Image by The Bull Pen, This work is licensed under a Creative Commons Attribution 4.0 International License.

“Coachella Day 1 [2nd week] – Sahara Tent”, Image by The Bull Pen

With the advent and then propulsive web-wide spread of MP3 file technology during the last twenty years*,  all of the music industry’s consumers, artists, recording companies, talent agents, business models,  distribution channels and intellectual property rights have been radically transformed. Today, the big money in the industry today is most often made by artists with established names who are able to draw audiences during their tours, sell merchandise, and continue to sell and stream music from their catalogs.

Of course, nowadays every well-known, moderately known and unknown act has an online presence to engage and inform their fan bases through an array of social media platforms and dedicated websites. Still, the music biz today is an even tougher business to earn a dollar than it ever was before. (See also the December 10, 2014 Subway Fold post entitled Is Big Data Calling and Calculating the Tune in Today’s Global Music Market?.)

In an effort to adapt dramatically new technology to energize, innovate and democratize the music industry, two recent startups, both still in their development stages, are using blockchain technology in previously unseen and imaginative ways. The blockchain is, in its simplest terms, a distributed, decentralized, transparent and encrypted database that acts as an online ledger to record transactions, documents and other information. It is most often used to memorialize transactions involving bitcoin. (See the May 8, 2015 Subway Fold post entitled Book Review of “The Age of Cryptocurrency” concerning a comprehensive new book on this subject.)

These early stage startups were the subject of a truly fascinating article posted on Billboard.com on August 5, 2015 entitled How ‘the Blockchain’ Could Actually Change the Music Industry by Gideon Gottfried. I will summarize, annotate and ask some unencrypted questions of my own.

I.  PeerTracks

The first startup is called PeerTracks. Their plan is to establish a music streaming and retail platform that includes “fan engagement and peer-to-peer talent discovery”, according to its president, Cedric Cobban.  They will use the blockchain for its transactions and paying artists directly for any revenue generated when their music is streamed “on a per-user-share basis”. Their launch is currently planned in about two months.

The core of their approach is to generate marketing revenue through the use of “artist tokens”. This is a system whereby each musical artist can create their own tokens with their name and image, and then set the permanently fixed amount of them to be made available. These tokens are intended to take on the characteristics of a “sub-cryptocurrency” (similar to some of Bitcoin’s characteristics), whereby the value that emerges for them is a direct indicator, based upon supply and demand, of the artist’s appeal. Site users can also speculate on the future value of the music and merchandise of currently unknown musicians.

The artists on PeerTracks will have the capabilities to affect the relative value of their own tokens. They will be enabled to buy back their tokens with any income they generate from “streams, sales, merch, tickets”. They can also permanently eliminate some tokens to decrease their supply and, in turn, increase their value.

Conversely, artists can affect demand by the types of items they offer to their token holders. Among other things, they can offer “discounts, free tickets, giveaways”. By providing incentives for fans to acquire their token, artists can raise the tokens’ relative values. As well, there are potential benefits to advertisers on PeerTracks interested in implementing paid sponsorships for more recognized music acts with product giveaways.

All songs uploaded on the site will be accompanied by a “smart contract“. According to the immediately preceding link to Wikipedia, smart contracts are “computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that obviate the need for a contractual clause”.  The smart contracts on PeerTracks divide up the funds generated accordingly among the parties involved in the song’s composition and performance. This is considered to be an important advance in using the blockchain and, it is hoped by developers currently working on this, will become a platform upon which new business models will emerge.

II.  Ujo

The second startup in this space is called Ujo. Their plan to use the blockchain to improve both the distribution of royalties to artists and music licensing. They intend to accomplish this by establishing a “rights and payment infrastructure”. It will be free to use and open for third parties to create their own apps for new services including, among others, curation, streaming and negotiation.  Similar to PeerTracks, they are working on an alternative means to distributing revenues to “artists and rights holders”. Furthermore, they are trying to build a blockchain-based means to determine ownership of creative works.

The prospective adoption of this by the music industry of this entirely new system is expected to take time because of its tendencies to keep data private as well its outdated and often incompatible systems. Phil Barry, who is involved Ujo along with about 20 other developers, hopes their new system will unify and replace the legacy systems. He believes the platform will provide economic advantages to artists and recording companies receiving their royalties through it. As well, this will provide “new revenue and business models”, new ways for consumers to enjoy music, and simplification to the manner in which “music is managed and licensed”.

When an artist creates a new song in the future, using Ujo it will be permanently stored on the blockchain and assigned a unique ID. If another artists or performers changes anything about the song, their subsequent versions will receive a new ID and be “instantly recognizable”. Any resulting revenue from the song will then be distributed immediately and “proportionately to each rights holder”.

My own questions are as follows:

  • What other marketplaces, technologies and professions would benefit from using comparable types of blockchain adaptations?
  • Could traditional legal documents such as contracts, leases and wills, among many others, be written to the blockchain to make certain that all parties to them met their obligations?
  • Could artists’ tokens likewise be created for actors, writers, painters, graphics artists and other creative types?
  • What would be the results of a book or any other publication being written to the blockchain in terms of royalties, rights, subscriptions and recognition?

March 4. 2016 Update: For a related follow-up on this post please see the new Subway Fold post entitled The Mediachain Project: Developing a Global Creative Rights Database Using Blockchain Technology


*  For an outstandingly written and highly engaging account of the total transformation of the music industry, I very highly recommend a recently published book entitled How Music Got Free: The End of an Industry, the Turn of the Century, and the Patient Zero of Piracy, by Stephen Witt (Viking, 2015). I just finished reading this and to say the least, it rocked.

Book Review of “The Age of Cryptocurrency”

"bitcoinlogo", Image by Dennis Sylvester Hurd

“bitcoinlogo”, Image by Dennis Sylvester Hurd

Many college students have had the experience of needing to take a required course in finance or economics that they were reluctant to register for because of the complexity of the subject matter. Nonetheless, they were soon pleasantly surprised to find that a talented and motivated instructor could make the subject spring to life. Indeed, a skillful prof can light up just about any topic. Recently, I had this type of experience again.

I had developed my own, well, academic interest in bitcoin during the past few years, following various events and tech developments in the news. Not overly curious, but just keeping an eye on developments. I felt no particular need to go out and learn too much more about it.

This changed for me on the very cold evening of  February 9, 2015, when I attended a terrific presentation at the New York office of the law firm of Latham & Watkins entitled Bitcoin – No Boundaries: Innovation in Bitcoin. The event was very professionally and graciously organized by the financial firm Hedgeable. The agenda consisted of six brief demos by bitcoin startups followed by a panel discussion of experts. The link above contains full videos of the entire program, including links to the startups’ websites, all of which I highly recommend viewing.

My completely unscientific poll of the attendees whom I left with on the elevator on the way out was unanimous that they learned a great deal from all of the speakers and presenters and, in turn, were  motivated to go out and learn more about the bitcoin movement. Their enthusiasm reminded me of a favorite quote of mine attributed Nobel Prize winning physicist I.I. Rabi. I recalled it from years ago when I read Silicon Dreams: Information, Man and Machine  by Robert Lucky (St.Matin’s Press, 1989). To paraphrase it: When asked about the inspiration for his great scientific achievements, Rabi  recalled that each day when he returned home from school and his mother greeted him, rather than asking him whether he knew the answers to the teacher’s questions, instead she would ask him whether he asked any good questions.

New and intriguing questions, developments and events about bitcoin are now regularly covered by the media.

My own follow-up effort to further satisfy my heightened curiosity after the February 9th event was to soon thereafter acquire a copy of The Age of Cryptocurrency (St. Martin’s Press, 2015) by Paul Vigna and Michael J. Casey. Mr. Casey was one of the four panelists that night as he can be seen in the video. This book has done much to help me to better grok bitcoin, with its deep and wide explanations about virtual currencies’ fundamentals (including, among many others, “blockchain” “digital wallet”, and “hashrates”), markets and histories.

More specifically, although bitcoin has only been around for six years, grasping the entirety and significance of its remarkable origin and originator (Satoshi Nakatomo), operations, concepts, implications, leaders, investors, benefits, technical flaws, security, encryption protocols, entrepreneurs, communities, supporters, critics, regulations and politics seems to involve more angles than a geometry textbook. Nonetheless, despite the daunting challenge of carefully introducing and then logically mapping out all of this, the authors have constructed, in a very internally consistent manner, a finely detailed travel guide exploring this new world.

Furthermore, The Age of Cryptocurrency can  benefit the different levels of understanding about bitcoin being sought by a wide spectrum of readers. From those with just a passing who/what/where/why curiosity and then scaling up to people seriously involving themselves in this emerging realm, there is plenty in this text to ponder and consume.

One of bitcoin’s technological operations involves setting up powerful computers (dubbed “mining rigs”), dedicated to solve difficult mathematical equations that will, in turn, release specific quantities of bitcoin on a regular basis. This process is called “mining”. So, too, have authors Vigna and Casey comprehensively mined their subject matter to produce an accessible, informative and spirited book.