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Thursday, August 23, 2018

What the Hell is Blockchain, Anyway? Notes from #Blockland

Posted By on Thu, Aug 23, 2018 at 7:34 AM

click to enlarge Blockland swag, courtesy of Hotcards. - SAM ALLARD / SCENE
  • Sam Allard / Scene
  • Blockland swag, courtesy of Hotcards.
One emergent problem for the vast array of Cleveland leaders now promoting blockchain evangelism as part of the so-called Blockland initiative — a sweeping plan to make Cleveland the national epicenter for all things blockchain — is the apparent impossibility of explaining what blockchain is in laymen's terms and, more importantly, of defining its value for locals. 

Tuesday morning, nearly 200 people gathered for a Blockland meeting at the Cleveland Metropolitan Bar Association at One Cleveland Center on E. 9th. Chairs and co-chairs from the 10 Blockland "nodes" provided updates on their efforts, most of which, other than percolating plans for the rapidly approaching Solutions Conference and lofty goals for the development of a blockchain campus, consisted of committee meeting reports and subcommittee chairmanship announcements and the like.

There are close to 800 people involved in the effort, this estimate courtesy of car-salesman-slash-Blockland-progenitor Bernie Moreno, and despite a fair bit of mumbo jumbo, it was clear that elbow grease had been applied by several of them for the planning of the inaugural Solutions Conference. That'll arrive at the Huntington Convention Center on Dec. 1, and if people show up, it should be an interesting and productive few days. Among the more innovative ideas proposed were "BlockStudy" sessions, at which panels of experts and attendees will discuss how to solve specific problems with blockchain technology.

But during a brief Q&A session, a local barber named Waverly Willis stood up from the front row of the auditorium to ask how "average ordinary blue-collar" guys like him could support the movement and build blockchain capacity in the region. This was a good and pointed question, instantly recognized as such, I thought, by the line-up of powerful co-chairs who'd gathered on stage. To me, it cut directly to one of the most important considerations of the Blockland initiative, and of other economic development strategies now being discussed: Who are they for? And who will benefit from them?

Willis' question was gentle — how can ordinary people support Blockland — but it was impossible, (for me, anyway), not to consider its corollary: Why should they?

Steven Santamaria, co-chair of the Blockland Thought Leadership node alongside Destination Cleveland's David Gilbert and Citymark Capital's Dan Walsh, said that Willis and other small-business owners could help by preaching blockchain's gospel.

"We ask that you look at this technology and understand it and learn what you can and embrace it, and then spread the word," Santamaria said. "If you think back 30 years ago, before the first iPhone came out, we were telling you that, hey, there's a thing coming out that you're gonna make all your phone calls on and play games with and hold in your hand, you would've laughed. But now everybody has one. Blockchain is a similar type of revolution. It's going to impact you across broad swaths of your life. As you talk to your network, explain: This is the future... In ten years, everything's going to be blockchain."

But what on earth does that mean? As we talk to our networks, what do we say when they ask what a world where "everything is blockchain" looks like? For that matter, what the hell is blockchain, anyway? What are the tangible products associated with it? This sure doesn't sound like computers or cell phones, or even like autonomous vehicles or Elon's Hyperloop, which are not cutting-edge technologies themselves, but cutting-edge applications of them.  

As a technological genre or platform, all this blockchain stuff can get pretty abstract in a hurry. You may have heard, as I have, that blockchain is a "decentralized ledger," not that that helps. On the official Blockland website, blockchain is described as a "distributed ledger technology secured by cryptography, used to maintain a continuously growing list of records, called blocks."

But there is no universal definition. 

"The idea of blockchain," wrote Adrianne Jeffries for the Verge, "is now being used to describe everything from a system for inter-bank transactions to a new supply chain database for Walmart. The term has become so widespread that it’s quickly losing meaning."

The first blockchain was the one that undergirded the cryptocurrency Bitcoin. From Jeffries, it "consists of a digital ledger that records all transactions from the beginning of time to the present. Copies of the ledger are not stored in a central place; instead, they are kept by superusers called “nodes.” Some of these nodes, called “miners,” batch transactions and add them to the ledger in “blocks,” cryptographically linking each block to all the previous blocks."

Other blockchains now undergird "other distributed ecosystems." (?) They are presumed to involve hordes of coders and superusers and will, if you ask local leaders, revolutionize the internet by helping citizens trust contracts. (Citizens refers first and foremost to "corporate citizens," the ominous oxymoron uttered twice at Tuesday's meeting.) Moreover — moreover! — the possibilities for the civic and social justice applications of blockchain(s) are endless. It's a revolutionary technology after all.

That it may be. But good luck taking "distributed ecosystems" on a regional barber shop road show and expecting Clevelanders with limited internet access to start singing Blockland's praises.

Tuesday, the nodal chairs were throwing out ideas that clouded, rather than specified, the technology's potential impact. If blockchain is everything, then it is nothing. Ronn Richard, the President of the Cleveland Foundation and co-chair of the Philanthropy node, said that blockchain would be huge in the art world. Art collectors tend to be scrupulous about the provenance of the pieces they purchase, he said, and blockchain could help trace and validate a given piece of art's ownership history. Later, during the Q&A, Richard cited, at Bernie Moreno's urging, violence in Cleveland. He said that young men are often reluctant to call in tips because of their distrust in the police. But a blockchain-supported anonymous tip line — that might be the answer.

It's true that blockchain startups with wildly divergent products and aims are sprouting up all over the world. I have landed, for example, on the mailing list of Dentacoin, a blockchain company based in the Netherlands that appears to be harnessing blockchain's power to validate online dental reviews. It's also true that positioning Cleveland as a blockchain hub to attract companies of this sort may be a viable business development strategy.

Charlie Lougheed, of Explorys and the Unify Project, said that digital authentication is the area with the most market potential. That could mean authenticating contracts for law firms, hospitals or financial institutions; or even, as MetroHealth's Akram Boutros suggested, authenticating vital documents. Meetings have been underway, he said, to make Cuyahoga County the first county in the nation to support (or host? or secure? or store?) birth certificates and death certificates with blockchain. There may be an announcement on that front coming soon.

But again, this particular version of blockchain — the private kind favored by financial institutions — may "just be a confusing name for 'shared database.'"

Confusion about blockchain, at any rate, certainly seems as tall a hurdle as criticism, which Bernie Moreno cited as Blockland's biggest roadblock last week.

But anything short of ironclad support should not be construed as "naysaying." And Blockland's leaders would do well to bear in mind that their initiative may fail to animate the hearts and minds of "average ordinary blue-collar" Clevelanders for legitimate reasons. Here are two, off the top of my head: 

One: This tech stuff is just way over most of our heads. Two: Even if we do manage to get a handle on it, blockchain doesn't seem (for now) to have the practical applications everyone keeps saying it will, at least not in ways that we'll be able to personally experience. It all seems kind of back-endy. Even Bitcoin, blockchain's marquee thing, doesn't typically figure into the lives of people without home internet access, or people without the disposable income to speculate in new and volatile financial markets.

Here's a bonus reason: Blockchain, like the tech world generally, is overwhelmingly a sandbox for white dudes. Take a look at the keynote speakers for the Solutions Conference. All seven are men. Six are clearly white. Of the Blockland nodal chairs, six out of 20 of whom are women, only one is African-American: the Calfee, Halter & Griswold attorney Teresa Metcalf Beasley. During the Q&A, Ronn Richard responded to a comment about diversity and inclusion by saying there was "better diversity" at the Blockland meetings than in any other setting he'd experienced in his 15 years of Cleveland philanthropy.


I think if leaders are serious about everyday Clevelanders learning and embracing blockchain technology in order to evangelize on its behalf, they (the leaders) must seriously study and reckon with the technology's potential effects on poor and working people, which should specifically include black and brown people.

It's possible, for example, that Blockland may be harmful for "average, ordinary, blue-collar" Clevelanders. The most realistic applications of the tech seem to be business-facing, and have been promoted on the basis of their efficiency, (this despite the fact that the most serious and enduring complaint about blockchain relates to its inefficiency. In fact, inefficiency is sort of baked into it; it's the one attribute sacrificed for things like security and decentralization.)

In the business community, though, efficiency is ruthlessly pursued, and is achieved at the expense of workers.

Take a look at this conversation in Crain's from March, before the first local Blockland meeting and before Jon Pinney's June City Club speech that kicked a lot of these conversations into a sustained high gear. It's a sponsored article — that is, a paid advertisement — from Benesch, the region's third-largest law firm, which incidentally employs only five minority partners of its total 82. 

Benesch attorneys Sean T. Peppard and Michael D. Stovsky were speaking about blockchain to promote their firm's engagement with related issues.
Their take was that blockchain's applications in the business world had a lot to do with contracts.

"Imagine a manufacturing company that wants to use 3D printing vendors all over the world to manufacture thousands of highly engineered parts for it," said Stovsky. "Rather than the inefficiency of having face-to-face negotiations with hundreds or thousands of vendors, the parties can agree in an electronic environment on the specific contract terms."

That electronic environment sounds a lot like a much more efficient, and more popular, existing technological application, namely email, but anyway. Here's Peppard, elaborating on what he sees as the impacts on Northeast Ohio:

"Imagine a situation in which a large manufacturer can reduce its own capital expenditures by farming out manufacturing to 3D and 4D printers all over the world," he said. "These are companies that can manufacture precision parts to spec better, faster and cheaper — all while maintaining the integrity of the contracting process and the intellectual property rights of the company in the specifications and other materials provided to the vendors."

This is a hypothetical paragraph, but it sounds like some Cleveland employees may be out of work in the scenario it envisions. And if one of blockchain's applications will be to make outsourcing local labor even easier and cheaper than it already is, that's a step in the wrong direction for the region's economy. (This is only one case, of course, but it's the one that leading local lawyers saw fit to mention in an advertisement on the topic.)

Average ordinary blue-collar Clevelanders aren't unique in the respect that tangible items are much easier for them to understand than abstract ideas. Leaders, too, are hampered by this inclination. That's one reason why they intend to build (or redesign) a ~$150 million, 300,000 square-foot tech hub to incubate blockchain companies, though they don't yet have any blockchain companies to incubate. Folks, this is outrageous. Many of them probably don't know blockchain from LeBron James, but boy can they ever get behind a building. The physical hub, or campus, is a key component to Blockland, and it's the one that strikes me as the most potentially harmful. (Likely superfluous to state, but its harm, as I see it, corresponds with its expense).

First of all, building a blockchain campus goes against very specific advice delivered to local leaders earlier this year. Consultant and "startup whisperer" Chris Heivley, in his TechStars talk in March, disparaged placemaking in a list of flawed strategies that cities pursue in their attempts to build an innovation economy.

"Let's build an innovation center!" Heivley mocked in his talk (~17:05). "Who's been to one of those? It's usually in some park outside of town that no one ever goes to. Place does not make—we call this the Field of Dreams strategy. If you build it they will come ... but they don't." (You're invited to take a close look at the Global Center for Health Innovation for slam-dunk local corroboration. It's honestly baffling that anyone can take a Blockchain Campus seriously while the Global Center squats downtown, after years of existential crisis and restructuring, with ample available space.)

click to enlarge SAM ALLARD / SCENE
  • Sam Allard / Scene

Nevertheless, a brand-new or significantly redesigned campus is what's evidently in the works. Jon Pinney provided the update at Tuesday's meeting. He co-chairs the Blockland "Place" node, alongside Teresa Metcalf Beasley. Pinney said that they had hired an architect (Vocon) and had narrowed down potential sites to three, which may or may not include Tower City. Pinney said that he'd be "going dark" for a few months to hammer out the negotiations and said he planned to make an announcement at the Solutions Conference. As was reported after the last meeting, the campus is envisioned as having startup desks, showers, apartments and event spaces, in the style of similar incubators in Paris and Chicago. Tuesday, it was revealed that a K-8 school, dubbed "Genesis," is now also in the works. Pinney said that some of the items — treadmill desks, presumably — are just on the "wish list."

When asked during the Q&A where the money for all this was coming from, Pinney reminded the audience that he and his co-chair, not to mention the Greater Cleveland Partnership and the other nodal chairs, were all familiar with the sort of subsidies available for major development projects in Cleveland. (No kidding!) He referenced tax credits (both new market and historic), Tax Increment Financing, "to the extent that it's available," the Opportunity Zone incentive, which will allow investors to forego capital gains taxes on investments in so-called 'high-poverty areas', and funding from investors.

"We've built a preliminary capital stack," Pinney said, "and we're in the early stages, but we feel really good about where we stand. In terms of feasibility, I would not be allocating this many resources unless I truly believed it was feasible. Stay tuned. I promise you we can make it pencil."  

Well, one of the ways they can "make it pencil" is by snatching every last available incentive they can get their hands on, and even dreaming up new incentives if the existing ones don't prove sufficiently enticing. Remember, these are experts. Most of them have been to this dog and pony show before, and they're familiar with the pliability of the elected officials whom they control.

Ever since nuCLEus broached the subject of a full TIF, that arrangement should be considered permanently on the table. Remember that up until nuCLEus, Cleveland Mayor Frank Jackson had been uncompromising in his stance that TIF exemptions, which allow developers to pay off construction debt with their taxes on a given site's increased value, only apply to non-school property taxes. He didn't want Cleveland schools to get short-changed. But nuCLEus got creative, and it's a good bet these leaders will try to their hand at something along those lines.

Akram Boutros, "Political Environment" nodal co-chair, also said that the Blockland team had met with John Kasich's full cabinet, and that the cabinet was supportive. For all we know, they're cooking up a specialized piece of legislation that will give investors automatic rebates or discounts on investments made in, for example, "transformational innovation facilities."  (A similar 10 percent automatic discount was cooked up by the nuCLEus financial advisor and promptly written into law.) Moreno has said that the Blockland campus will not entail a "big public ask" financially, but it's worth noting that these various tax incentives, taken together, amount to an enormous public subsidy. They will have to be closely monitored. Pinney said he'd like phase one (100,000 square feet) to be online by as soon as the first quarter 2019, i.e., in a few months.

This all sure does seem like a moonshot, but it's way less adventurous (and certainly way less courageous), when all these leaders and investors are insulated from risk thanks to public dollars. If there was any doubt that Blockland should be painted in the same grand and inspirational hues as as the moon landing itself, Bernie Moreno set us straight. He began his presentation Tuesday with a clip from JFK's famous speech.

"We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard," Kennedy's voice reverberated through the Bar Association auditorium. "Because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win."

*Correction: An earlier version of this article referred to "PNC's Dan Walsh." Walsh is not affiliated with PNC Bank. He is the CEO and Founder of Citymark Capital.

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