Hard-forks and governance on the Bitcoin blockchain

By Jeffery Atik

The recent experience of forks and potential forks in response to the various Segregated Witness and blocksize increase proposals highlights the nature of governance on the Bitcoin blockchain. The result of the SegWit / blocksize controversies has been a so-called hard fork on the Bitcoin blockchain, producing two varieties of Bitcoin with a common history but now distinct technical characteristics: Bitcoin and Bitcoin Cash.

The Bitcoin blockchain marks a novel form of social organization. There is no central node in the network, no center of authority directing or coordinating internal or external action. Rather, the constituent autonomous nodes operate the Bitcoin blockchain following a downloaded open-source protocol that Bitcoin’s mysterious founders initially developed and which is quite resistant to change. When change does come to the Bitcoin blockchain, it emerges from loose and informal constellations of various stakeholders. Bitcoin users and the sponsors of the Bitcoin network nodes (known as ‘miners’) are formal stakeholders. Indirect stakeholders include Bitcoin developers and businesses that service the Bitcoin ecosystem (systems operators and equipment manufacturers, as well as Bitcoin exchanges). Still we can draw a black box around the Bitcoin blockchain and examine it as a finite social space, an organization set apart from surrounding players and institutions.

The Bitcoin blockchain resorts to “Nakamoto consensus” as its ultimate form of governance. Nakamoto consensus is an emergent and diffuse consensus arising among the active Bitcoin miners, each pursuing its own advantage while collectively engaged in maintaining, verifying and expanding the blockchain. Nakamoto consensus is the ultimate source, and hence authority, as to the canonical state of the Bitcoin blockchain; this consensus is the Truth as far as the Bitcoin blockchain is concerned, and once reached, it cannot readily be disturbed. More considered consensus engages on those occasions when the Bitcoin blockchain community makes a constitutional decision as to changes to its basic rules.

Innovation and keeping old ways on the blockchain: ChromaWay's Swedish Land Registry project - Part 2

By Jeffery Atik

In the development of blockchain applications, we now find ourselves in an exhilarating rush of proofs of concept, of mock-ups and test-beds. Real implementation of major applications on the blockchain (beyond the bitcoin) remain some distance away. And so it is with the Swedish Land Registry project, which is spearheaded by Stockholm's blockchain house ChromaWay.

The Swedish Land Registry project takes the basic 'small house' purchase transaction and proposes placing it on the blockchain. The various parties - the buyer, the seller, the real estate agent, the respective banks and the Land Registry - continue to play the same roles they held in the conventional transactional pattern. No new party is introduced, nor are any parties eliminated. The obvious candidate for elimination in an eventual blockchain-based land conveyancing system would have been the Land Registry itself - which is the chief sponsor of this project. For an agency to contemplate its own demise reflects admirable public spirit. But worry not: the Land Registry will continue to authenticate Swedish land titles. The blockchain merely records (albeit in a permanent and tamper-proof way) the title determinations of the Land Registry. The Land Registry project is a thoughtful inquiry into the blockchain’s potential; it is also a case study of incrementalist innovation, where the general outlines of the familiar are retained.

Trust on the Blockchain: ChromaWay's Swedish Land Registry project - Part 1

ChromaWay is a major innovator in blockchain technology, headquartered in Stockholm. ChromaWay is developing - together with other collaborators - a blockchain-based solution for the Swedish Land Registry. ChromaWay recently completed the second phase of this project (which it calls a "testbed") and has now published a report. Last week I spoke with ChromaWay’s Henrik Hjelte and Ludvig Öberg about the Land Registry project.

The blockchain has been called the "trust machine." In the blockchain’s original application, supporting bitcoin transactions and accounts, there is (it is asserted) no need for counterparties to trust each other. Indeed, counterparties know nothing of each other’s identities beyond their encrypted keys. Nor need they trust the accuracy of the records located on the blockchain; the distributed nature of the blockchain as well as the incentives provided the various nodes assure that tamper-proof records are identically preserved at each node. The blockchain itself is the ultimate reality of bitcoin; bitcoins exist no place else, and one securely owns the quantity of bitcoins the blockchain records. Where there is no need for trust, parties can deal directly and need not rely on intermediaries. The role of trust in more complex applications is more nuanced. While the character of required trust may be altered on the blockchain, the need to trust may not be entirely eliminated.

New directions in Technology Transfer

by Jeffery Atik

There continues to be a flow of academic writing and field studies concerning technology transfer, but there are no great breakthroughs to report. That said, there is an observable tiring with neoliberal approaches (which have failed to unlock the puzzle of incentivizing technology transfer). Moving the discussion to more public (if not statist) approaches to technology transfer might restore promise to what has been a disappointing field.

Collaborations do appear to be a promising institutional response; they have been reportedly successfully deployed in achieving advances in approaches to neglected diseases (such as Ebola) and climate change technologies. Collaborations are inherently public-private and can be structured to include (as full research partners) LDC institutions. These collaborations may feature government entities from the developed world, specialized development agencies, NGOs (who often coordinate), and university and state laboratories. They include private firms that carry out much of the focused technological development. As such, the success of a collaboration (as measured by innovation outcomes) depends on an effective design of incentives. Market-based financial rewards (licensing, sale of firms, IPOs) are replaced by funded contract research (similar to what occurs in defense fields) and/or prizes. Disengaging from the market permits research targeting - the ability to focus the collaboration on LDC needs and circumstances. For technology transfer to result, there must be meaningful inclusion of LDC institutions and personnel in the collaboration. LDC collaborators should not be mere observers; they make important contributions, particularly with regard to molding innovation to match the LDC environment where the technology will be deployed.

Apple loses appeal in e-book antitrust case - Part 3

This is the third and final comment in a series on the Second Circuit’s June 30 decision in the Apple e-books antitrust case.

The Second Circuit's decision in the Apple e-book case contains a rather acrimonious exchange between Judge Debra Livingston (author of the majority opinion) and Judge Dennis Jacobs (the dissenting judge) - which is a bit unfortunate, as there is much to harvest from their debate. The judges directly address each other - and are unsparing in their disdain for the other's theory of the case. Livingston may have the better of the argument (and she in part writes for the majority), but there is much to value in Jacobs's dissent as well. This is the final comment in a series examining the Apple e-book case (Part I and Part 2 of the series examine the background and the majority theory of liability, respectively). This comment examines Judge Jacobs's dissent and the ideas behind it.

Let's first look at the rather broad zone of agreement between Jacobs and the majority of the panel. Jacobs has no illusions about Apple's bruising conduct - he accepts Apple's forceful role in moving e-book distribution towards commissioned agency pricing. But he doesn't view Apple's conduct (when considered together with the e-book publishers) as constituting per se price fixing. Rather, he believes that any agreement among Apple and the e-book publishers should be evaluated according to the Rule of Reason - and he would further find that application of the Rule, given the Amazon-imposed market structure for e-books prior to Apple's iPad introduction, compels discharging Apple of antitrust liability (recall the e-book publishers had settled with the government prior to the litigation, accepting that they at least engaged in questionable pricing behavior).

Apple loses appeal in e-books antitrust case - Part 2

This is the second in a series of comments on the Second Circuit’s June 30 decision in the Apple e-books antitrust case.

The Second Circuit has upheld a federal trial court finding that Apple, together with five of the so-called "Big Six" publishing companies, fixed prices for e-book editions of new issues and New York Times best sellers. The e-book reader market had been (and continues to be) dominated by Amazon's Kindle platform, first introduced in 2007; Kindle is an e-bookstore, an e-book format (including a digital rights management system), a cloud-based storage system, and a suite of e-readers. When Apple introduced its more general purpose iPad in 2010, it commenced competing with Amazon's Kindle across all these dimensions. Importantly, Apple sought to distribute e-books and so required access to the major publishers' catalog.

Amazon had been selling most new release and New York Times bestseller e-books below cost, attracting legions of readers to the Kindle ecosystem with its $9.99 pricing. Apple cleverly upset Amazon's $9.99 pricing policy by positioning itself as a sales agent (and not a retailer) of e-books, taking a 30% commission on sales. Apple thus generally restored retail pricing authority to the publishers. Apple's agency contracts, however. required e-book retail prices on iPad to match those offered on Amazon. This 'most favored nation' obligation drove the publishers to renegotiate their distribution deals with Amazon. Collectively (and with Apple playing an active coordinating role), the book publishers placed Amazon on an agency basis as well. The publishers then immediately raised e-book retail prices across both platforms - a surprising result in a market that appeared to be growing more competitive through the introduction of the iPad.

Apple loses appeal in e-books antitrust case

This is the first of a series of comments on the Second Circuit’s June 30, 2015 decision in the Apple e-books antitrust case.

Through a series of spectacular commercial moves, Apple succeeded in disrupting the e-book space upon its 2009 release of the iPad, sweeping away Amazon Kindle’s popular $9.99 pricing for new releases and for New York Times best-sellers. The iPad brought meaningful competition to Amazon’s wildly successful Kindle as an e-book platform; the emergence of this new distribution channel raised e-book prices, whether purchased on iPads or Kindles, seemingly defying an economic law of gravity. It was a coup that only a Steve Jobs could pull off. The e-book price shift attracted the attention of federal and state antitrust authorities. In 2012, the government brought a civil antitrust action against Apple and five major publishers. The book publishers settled, and the government proceeded in a price fixing claim against Apple. On June 30, a panel of the Second Circuit Court of Appeals upheld a federal trial court’s finding that Apple violated Section 1 of the Sherman Act.

The Electronic Silk Road: How the Web Binds the World Together in Commerce by Anupam Chander

I saw a caravan once, in Afghanistan. It was a little caravan: three camels and a small family. But it was enough of a caravan to invoke in my imagination the Old Silk Road. I wondered (until a French officer ordered me to leave the area) where the travelers came from and where they were headed. All I could take away was their direction of travel: East.

In the Electronic Silk Road, Anupam Chander describes digital trade routes. The new trade proceeds along electronic pathways; it is fiber and cable and not camels that transmits value across great distances. But the Electronic Silk Road Chander studies has a marked geography; place still matters. We find Silicon Valley and Bangalore and (as before) China, marking the major stops and starts along the way (Chander likes the word entrepôt).

And the poles of the Electronic Silk Road, like the Old Silk Road, have valency. Chinese goods seduced the West for centuries: spices and trade goods and the silk that gave name to the trading route. The problem for the West was China’s notorious indifference to Western goods -- the West did not produce much the Chinese wished to have. Money was only a partial solution. It could of course pay for Chinese goods, but money, even in the days of gold and silver, was effectively a future claim on the West held by China. The Old Silk Road did not fit the mercantilist design of offsetting streams of goods.

Extraterritorial Government Use of U.S. Process Patents after Zoltek

The federal government -- and its contractors and subcontractors -- have long enjoyed an effective ‘compulsory license’ for the use or manufacture of inventions covered by a U.S. patent. 28 U.S.C. §1498 relaxes the government’s sovereign immunity and supplies a special remedy to the patent holder. The patent holder may recover reasonable compensation from the federal government for the use or manufacture. Thus, a government contractor can carry out a contract without concern for an infringement action; the government will answer any patent holder’s claims.

The operation of Section 1498 applies to both product and process patents. Section 1498 contains an express limitation to any claims ‘arising in a foreign country.’ This limitation, as well as the territorial limitation found in the basic patent infringement statute [35 U.S.C. §271(a)], and their interpretation with respect to process patents, were the basis of the dispute between Zoltek Corporation and the federal government.

The eventual resolution of the Zoltek litigation by the Federal Circuit [672 F.3d 1309] settles various questions of interpretation concerning the extraterritorial dimensions of the government use ‘license’ with respect to process patents -- but it also leaves a rather worrisome ‘gap’ in the coverage of the basic provisions concerning process patent infringement. Consider these two propositions:

1. In the absence of authorization, where every step of a process patent is practiced in the United States, liability under 35 U.S.C. §271(a) results. However, if any step of a process patent is practiced outside the United States, there is no direct infringement. 
2. Where every step of a process patent is practiced outside the United States and the resulting product is imported into or used within the United States, liability under 35 U.S.C. §271(g) results. 

So here’s the gap (and the facts of Zoltek seem to fall into this gap): if a process patent is practiced partly in the United States and partly outside the United States, there may be no liability. This odd result seems to follow from the text of 35 U.S.C. §271(g), which is triggered by the importation or use of a product.

Talent Wants to be Free: Why We Should Learn to Love Leaks, Raids, and Free-Riding by Orly Lobel

Orly Lobel is not writing about love in Talent Wants to be Free, but she’s not terribly far off topic, for she writes about the suffocating attachments firms can form with their employees. The heart-sickened are told to let go -- and perhaps their beloveds will come back to them. This may be the better course, but it isn’t easy and it certainly isn’t what most of us do (with our insecurities and covetousness). Firms are jealously possessive of their key employees; this is a social fact. Lobel challenges these firms (and the responding legislatures) to consider whether they are indeed pursuing their own best interests by clinging.

Lobel usefully gathers a variety of legal doctrines and instruments into a basket she calls “human capital controls” -- and for this alone her book should be read. Human capital controls include IP and quasi-IP (trade secrets and know-how) rights, as well as a host of contractual features: non-competes, non-disclosure agreements, compensation arrangements (option grants and forfeitures) and post-termination obligations. Together, these elements bind the talented employee to her employer. The orthodox justification for these controls is that they promote firm investment in innovation, including investment in human capital -- that is, in forming the movable productivity of the employee herself. It is the workplace, and not the university, where most valuable human capital is created.

Lobel directly investigates the logic of control -- which is easily conflated with ownership. By controlling human capital, firms capture some of its produce. Creative workers create. In addition, firms withhold these assets from their competitors. According to the received view, employees are rivalrous goods. Lobel challenges this notion (though perhaps not explicitly) -- while we are not public goods, our creations often are.

The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone

Brad Stone’s treatment, The Everything Store: Jeff Bezos and the Age of Amazon, is the talk of the business press this week. Jeff Bezos’ wife, MacKenzie Bezos, posted a ‘one-star review’ of the book on the Amazon site. In it, she expresses concerns about the book’s ‘factual inaccuracies’ and ‘narrative tricks.’ While she certainly had a better view of the recounted events than did Stone, her objections seem quibbling. This is a thoughtful and well researched book, with a surprisingly balanced tone: Stone neither praises Jeff Bezos nor does he bury Bezos.

Stone’s book is both a CEO biography and a corporate history. Bezos is the exception that proves the rule; he is the visionary founder who wasn’t pushed aside for a professional ('adult') manager. And given Bezos’ continuity at the helm of Amazon, one can fairly charge much of Amazon’s success -- and its bullying behavior -- to Bezos.

Stone’s book is a prosecutor’s dream -- it is a catalog of unfair business offenses (were such behavior disciplined today). There is a zone of indeterminacy involved in most bargaining: between the terms a party would accept and the better terms a party might exact (before driving the other party away). Bezos is shown to consistently drive for the very best outcome in Amazon’s dealings -- where the greater part of the joint benefit falls to Amazon and a bare minimum is left for the ‘cooperating’ counterpart. Perhaps this is to be admired; we’d all like to be ‘tough bargainers.’ But Bezos (as depicted by Stone) doesn’t pull punches. He is capable of ‘refusing to deal.’ He applies price pressure against smaller firms. He levers Amazon’s immense power against competitors and partners.

Lean In: Women, Work, and the Will to Lead by Sheryl Sandberg

Sheryl Sandberg’s Lean In has been a major event; it’s been well received and thoroughly discussed. The book and the debates it stimulated appropriately returned attention to the ongoing gap between success promised and achieved by women in the corporate world.

Sandberg is herself an over-the-top success story. She has held top positions at both Google and Facebook. She, at least, is a take-all winner, one who managed to burst through the glass ceiling. But she remains aware of the many women around her who fail to speak up, who make unneeded compromises and veer off track. And she’s aware as well of those women damaged by unrealizable ‘have it all’ fantasies. Her prescription (which she makes clear is not intended for all) is to “lean in” -- to remain ambitious both for one’s personal career and for establishing a more equal world.

Lean In, Sandberg writes, is not a memoir, nor a self-help book, nor a career management primer. Maybe, she admits, it’s a manifesto. So perhaps it is not unfair to look at Lean In from a scientific perspective: what is Sandberg’s understanding of how one can effect social change? Sandberg herself is a prominent vertex in a social network that famously connects Google and Facebook (the ongoing migration of high tech talent from Google to Facebook, the smaller and more cool company, is partly inspired by Sandberg’s at-the-helm example). She can and does span these communities, as well as those built around Harvard, TEDTalks, and whatever Larry Summers happens to be doing (she describes Summers as a mentor). And no doubt her connections lead elsewhere, to centers of power unrevealed in Lean In. The trick then for Sandberg is how to maximize the influence that comes with such auspicious positioning.

The Org: The Underlying Logic of the Office by Ray Fisman and Tim Sullivan

It feels odd to be composing this review of Ray Fisman and Tim Sullivan’s The Org in the days following Ronald Coase’s passing. Coase was an unusually creative and influential thinker - one who identified some basic truths of organizational life that had not been generally recognized: the kind of simple things that, once pointed out, cannot fail to be seen.

Coase and the work that followed Coase form much of the subject matter of The Org, a book-length meditation by Ray Fisman and Tim Sullivan on the science of the organization. Indeed, Fisman and Sullivan launch the book with the story behind Coase’s posing of the grand question: “Why orgs?” Young Coase travels to Chicago, meets with managers, and reads the Chicago phone book. He is struck by the range of scale and activities pursued by the firms he finds. Why then, asks Coase (and ask Fisman and Sullivan), are some activities conducted within firms and others between firms (that is, via the market)? Coase’s answer (transaction costs) may or may not be correct (‘transaction costs’ always seemed to me to be a convenient label for a still elusive explanation, almost a tautology); what is important is the question.

Organizations are mysterious. We fit them on like suits of clothing - and instinctively know how to push and pull their levers. Fisman and Sullivan focus on what happens within the firm - how organizations compel human agents (because that’s what we are) to pursue organizational goals. The resort to organization is by and large a given. At this point, they collect the principal/agent mysteries that form much of the challenge to understanding how firms work. Fisman and Sullivan do not confine themselves to business organizations in The Org - indeed their best coverage involves organizations that are not business firms: the Baltimore police department, Methodist churches and the military.

Big Data: A Revolution That Will Transform How We Live, Work, and Think by Viktor Mayer-Schönberger and Kenneth Cukier

So here’s my favorite quote from Big Data - from an interview with Mike Flowers, New York City mayor Michael Bloomberg’s ‘director of analytics’:

You know, we have real problems to solve. I can’t dick around, frankly, thinking about other things like causality right now.

We find ourselves in a new world, argue Viktor Mayer-Schönberger and Kenneth Cukier. No longer need we grapple with the world by spinning theories and using them to make predictions. We now have Big Data and Big Data will speak to us, gifting us with insights that were never before accessible.

By Big Data, Mayer-Schönberger and Cukier refer to the vastly greater amount of collected and stored data around us. Big Data also reflect a new economics - where the costs to acquire, store and manipulate data are increasingly negligible. Big Data is often collected mindlessly and incessantly: our continuous GPS coordinates, our Google searches.

Big Data presents new opportunities for prediction. Old prediction involved the collection of precise sample data, which would then be fitted into a theory. Theory was developed under causal lines - data confirmed theory and reflected a link between cause and result. If we collect data showing a large number of people diagnosed with the flu, we may infer the presence of an epidemic. 

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What it Used to Be by Moisés Naím

Moisés Naím sees the decline of power across many institutions. He is at times wistful, at times celebratory in his reaction to power’s decay. But he isn’t entirely clear why we should care about the passing of power. The powerful do care; Naím has many powerful friends who lament power’s loss of magic. Popes, pols and pundits just don’t get the respect their predecessors received; their authority is more circumscribed, more readily challenged (the same decline is noted by law professors). But for the greater number of us, who are in more settings objects of the power of others than detainers of power, the end of power is not a self-evident cause for concern.

A decline in social organization is a cause for concern – and to the degree the phenomena described in The End of Power signal a loss of capacity for coordination, Naím’s book is more than an indulgence of ambivalent nostalgia. Naím is careful with his definition of power: power is the ability of some few - the powerful - to direct the actions of others. And, he asserts, there are four means by which power is exerted: muscle (force), code (tradition), pitch (persuasion), and reward (incentive).

Naím is a superachiever who has spent his life at or close to the top. He was a prominent politician in Venezuela – and since has become a heralded writer in the United States. As such, his personal prescription, given toward the end of The End of Power, is quite surprising. Get off the elevator, Naím urges. And by this he calls for an abandonment of mindless ambition and more; elevator thinking is the focus on rank and hierarchy, which promotes power as an end in itself.

The Entrepreneurial State: Debunking Public vs. Private Myths by Mariana Mazzucato

From start to finish of this superb book, I want Mariana Mazzucato to be right. In The Entrepreneurial State, Mazzucato suggests that the state has had a much more powerful role in stimulating innovation that the dominant narrative admits. The state pushes the key breakthroughs; private firms enter the game quite late (though they often capture an inordinate amount of the social gains from innovation).

Mazzucato’s book is timely (indeed, it has had a considerable impact in Brussels), as countries shift away from austerity policies and look towards Keynesian-style spending to get their economies moving. Keynes famously suggested burying a treasure in an abandoned mine as a make-work project (his point, of course, was not to endorse pointless exercise; rather, he meant to show that pure make-work could act as a stimulus). Mazzucato argues countries can improve on Keynes by spending on state entrepreneurship. In a best-case outcome, state-sponsored innovation will shock the economy back to expansion and will lead to frontier-shifting welfare gains.

And maybe it would - if the political class could be convinced by Mazzucato’s account of the hidden state-centric nature of innovation. Her recent historic examples involve pharmaceuticals and information technologies. The private drug development narrative is deliberately cultivated by Big Pharma: bold firms undertake massive R&D in their laboratories, to be rewarded (in the event of success) by patent monopolies. Big Pharma asks to be ‘left alone’ by the State: no tort liability and quick market approvals are the best policies. In fact, Mazzucato observes, it is the state that undertakes the greatest risks in developing new approaches and active agents, through public funding (such as NIH grants in the United States) of medical research. Left to their own devices, Big Pharma would undertake little research; indeed, the current trend among large pharmaceutical firms is to reduce R&D expenditure and to look to smaller, research-oriented firms to do later-stage development work, then in-licensing or acquiring fairly proven projects. But without the substrate of state-funded science, even this system would grind to a half.