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Çagla Salmensuu’s visit to COALA LEX workshop.

It was the first time my flight was ever cancelled. Florence had been under heavy fog the day I was flying and the second stretch of my journey from Frankfurt was cancelled sometime around midnight after we’ve boarded the plane. The majority of passengers were Italians and they protested without inhibition. I was worried that I would miss the beginning of the workshops the next morning at the European University Institute. This was the first European blockchain workshop of COALA LEX , jointly organized with the Robert Schuman Centre for Advanced Studies and the Law Department, at the European University Institute in Florence. The guy next to me was sound asleep on the plane in Frankfurt. He seemed like a nice professional. So I woke him up with a gentle nudge and told him that our plane was cancelled and we needed to get back to the airport.

Florence welcomed me with its springy weather and beautiful hilly landscape. Having slept only 5 hours and excited to take part in such project, I found the energy to run to the first cab outside of the airport on my high-heeled shoes and rode straight to the University. Much to my surprise, the nice gentleman who had dozed off next to me was also in the workshop room. We greeted each other. It turns out he is from the European Commission. Our intense two day workshop thus kicked off.

There were five working groups: (1) blockchain & government, (2) blockchain & governance, (3) identity & privacy, (4) legal enforceability of smart contracts, (5) ICOs and token generation. The participants were placed in one of those five groups. I was utterly relieved to find out that I was already assigned to the identity & privacy group. I mean, how could I make such a choice? I am practically involved in all those five aspects of the blockchain. ValueCraft perfectly fits in the working group #1 and #2, and I am writing my thesis at University of Helsinki Law faculty on #3 vis-a-vis the General Data Protection Regulation. Meanwhile, I have had clients specifically consulting me on #4 and #5. So I have the experience on all five subjects. I love it when people make such decisions for me and save me from second-guessing myself forever.

Just as I was relaxing myself into becoming part of a working group and happily getting to know my interesting colleagues, she came with her Californian accent and interrupted our joyful, collegial discussion on the privacy implications of blockchain to tell us that she wants us to “look at the excel sheet created by the last term’s working group and comment”. So much for introductions and getting to know about each other’s work! Upon asking, I found out that she is our “leader” and one of the organisers of this event.

Needless to say that the flight cancellation and all the misery of spending an uncomfortable night at Frankfurt airport was not the only plight that crushed my soul. In the next a couple of hours of Day 1, my lady-boss interrupted me continuously. In retrospect, I feel that I have internalised the Finnish culture so deeply that interruptions and unstructured, off-topic conversations do really bug me on a fundamental level. They violate me! Oh boy. We were two legal brains in the team and we both wanted to cover the regulation and policy questions as applied to the technology. However, each time I tried to ask questions and implicate the E.U. laws and regulations in the context of the utility of blockchains, the lady-boss was irritated by me and forcefully dismissed the significance of the EU regulations as if the EU were a far-flung planet in the Milky Way and how could it possibly have any effect on the mighty blockchains. I also got scolded for being too academic for that purpose. Oh, the audacity. Eventually, I had to change groups and as far as I was able to see, they didn’t produce any regulation and policy-related work in the privacy group. (note to self: do not make Californian lady-bosses feel challenged or they will fire you)

My next group was perfect. We worked with legal and technical colleagues from Germany and Italy together on legal enforceability of smart contracts. Starting from a discussion on what smart contracts actually do, we delved into getting to know each other’s language and jargon. It felt great to achieve a common language as between the two camps of highly technical professionals and legal professionals who come from different jurisdictions. Richard Susskind has been talking about this over two decades now: it is inevitable that the traditional lawyers are soon going to be redundant for the most part and need to  redesign their contribution and recreate themselves as legal technologists and legal hybrids. We saw that together we could grow to fulfil this exciting and inspiring new role. First we talked about some of the concepts that are common to both disciplines such as enforceability, execution, identifiability, repudiation v non-repudiation (immutability). Then we explored what can be achieved using a smart contract and how that would fit in the legal world. Smart contracts could be used in order to transfer currency (think of Bitcoin contracts, gambling games and other financial contracts) and/or information (think of contingent payments), generate and/or transfer tokens (think of ICOs and supply chains) and organise cooperation (think of DAOs). The foremost legal challenge rests with the fact that the world is yet to find a way to link the actual resources to the tokens although there are some experiments on that. The next in the line of legal complications is to deal with different scales of fungibility of assets underlying the smart contracts. The third one is the identity problem: the more anonymous the parties are, the less enforceable those contracts will be at traditional legal systems. Where the e-signatures are employed in order to cure this problem, they must comply with the EU directive eIDAS in order to be recognised by the public bodies. In that case the catch is that the anonymity is forgone. We also discussed the possible remedies for an unintended transaction using smart contracts. Although the point of using a smart contract is to never have the option of stopping its execution, there are technical possibilities to redress this situation such as by way of blocking the faulty contract or creating new transactions in the opposite direction. Moreover, given that there is a possibility of unintended transactions, new questions related to legal risk, compensation and even insurance arise. We were all exhausted by the end of two days. But it was worth it. Indeed, we seemed to be the only group that was able to produce any written work at the end of the two-day workshop. My German colleague and I presented it together, with the great help of our Italian computer scientist team. Our works will be organised in papers and presented in the future. Stay tuned in that regard!

On the first night, the hosting University invited the participants to a lovely dinner with practically unlimited Italian wine. The dinner was delicious! On the second night, we chose a place our own. During the dinner, the nice gentleman on the plane and I got to know each other better and decided to keep in touch about the work. I am still grateful to him for not embarrassing me on my imperfect French pronunciation! Oh the wine helps. We decided to keep connected for mutual consultation on blockchain and the needs of the European businesses.

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As a new Finn, I was very happy to introduce ValueCraft to others and see how our bureaucrats are interested in this project in the event. I was the only participant from northern Europe and so proud to  be part of a country that takes the lead in another progressive project.

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Çagla Salmensuu holds a J.D. and is a legal advisor on privacy specialising in data protection, risks and compliance. She is also an affiliated researcher assistant at Aalto in Blockchain.

Last week we visited Finnish tax administration headquarters, for the first time. We had been planning such a meeting for a couple of months, but nothing concrete had happened until one day I noticed that one of their analysts, Ville, had peeked at me in LinkedIn, leading to us inviting ourselves there.  I was overwhelmed.  In addition to the handful people physically present, Ville had managed to lure half a dozen people to attend virtually.  Perhaps I was naïve in my expectation, but it really appears that the government officials in Finland are very keen to better understand cryptocurrencies and community currencies, the tax office being no exception. Or, perhaps working at the tax office can be compared to Azkaban.  In any case, a senior officer there described himself (twice) as a dementor, apparently as he must every now and then remind people that in Finland the taxes are collected according to the pertaining law.

During our two hour meeting, we presented the ValueCraft idea, using the slides we had prepared at the Sitra Democracy hackathon.  We paused for over an hour on the slide where we had outlined our taxation proposal, i.e. that there would be an “experiment” during which the participating people would pay income (and maybe
also VAT) in the complementary currency for transactions they make in that.  That is, for example, if I consult Trustlines for eight hours and they pay for me 8 units in Trustline tokens (which of course do not exist yet), and I have to pay 25% of income tax on it, then I would need to pay two units of Trustline tokens to the tax office.  In practise, the experiment would be limited to something more local, such as the Helsinki Timebank tokens, which are called tovi.

Perhaps the most interesting aspect of the meeting was that the forthcoming new tax administration strategy includes “practical experiments” as one item.  A suitable community currency could well form a basis for such an experiment.  Additionally, and somewhat surprisingly at least to me, people at the tax administration felt that our thinking is already sufficiently far that it would be useful to arrange a high profile seminar after the summer holidays, inviting there people from the Ministry of Financing, Prime Minister’s office, and tax administration, as well as from elsewhere within the national and Helsinki municipality governments.

Summa summarum, everything seems to make progress much faster that I was ever able to imagine.

In 2008, the financial order almost crashed. If the governments had not saved the financial giants such as Merrill Lynch, AIG, and the Royal Bank of Scotland, the consequences would have been unimaginable. Pension funds and many individuals would have lost a majority of their savings. Companies would have lost access to their capital. A large fraction of the world trade would have stopped.

Economic crises are occurring fairly regularly, all around the world. They are not something that happen elsewhere.  Sometimes they drive societies to full chaos. An ongoing example is Venezuela, with the world’s highest inflation, bloody street protests, and lack of basic necessities.

What have we learnt from these crises? Not much. For example, Donald Trump is trying to do his best to wreck the economy by cancelling the regulation that was explicitly put in place to address the stability problems and to make the financial system more robust. Simultaneously, the world is facing the highest ever level of debt, all of public, private and corporate debt.

Economic assumptions

Our current economic systems have several in-built assumptions. We implicitly assume eternal exponential growth. We assume that there is a direct link between productivity and demand increase.

Consider just a 3% annual growth, or doubling the value of production every 23 years.  At the same time, automatisation is driving the prices down and we are facing a huge pressure to decrease the consumption. Furthermore, production growth is almost always associated with growing energy consumption.  Based on basic physics, continuous 3% annual growth in energy consumption would boil the earth in just 400 years, as our energy consumption would increase to some 130 000 times the current level.

Without growth, debt accumulates, as has been happening continuously since 2008. When we collectively borrow with interest, the economy as a whole has to grow, so that we can pay the interests. Otherwise we have to pay the old debt with new, larger debt, leading to increasing levels of inequality.

Hence, sooner or later our assumptions about growth and debt must be radically reviewed. Assuming that growth, or increase in the production of goods and services, could continue forever while respecting planetary boundaries is insane. Simultaneously, assuming that increase in productivity, e.g. due to automation, would automatically mean widespread growth is unrealistic, at least in the developed countries where the basic needs and more are already fulfilled.

A new way to think about the concept of value

ValueCraft is an emerging platform to create ecosystems for multiple measures of value. ValueCraft is backed by us all, not by a central bank or any other central authority. It is based on “trustlines networks,” a new way of representing how much we are willing to respect our friends’ obligations. 

The main principle of a trustlines network is that it allows secure exchange between strangers, by sending payments along chain of trusting friends. The basic idea is a network of people who have a mutual trust on each other. Anyone can create a trustline with a friend, allowing them to borrow or pay any amount up to a specified credit limit, expressed in anything considered valuable. For example, one can create a trustline for $100, for 10 hours of work, or for 4 beers.

At this basic level there is nothing new.  People have always trusted their friends, lending things and providing services. The new thing is in scaling this up.

With trustlines networks, two strangers can exchange different measures of value by taking advantage of the trustlines they have both created with a mutual friend. Let’s say that Alice and Bob do not know each other, but both of them know Nick. Nick has in turn created a trustline for 4 beers with both Alice and Bob. Now Alice can buy Bob a beer so that Bob owes one to Nick and Nick one to Alice, with the expectation of getting the beer eventually back.  

As the network and different measures of value grow, Bob does not actually need to buy a beer for Nick. For example, it is possible that Bob changes his tyres instead, cancelling the original debt (and perhaps creating a new one.)  Since all the people in the world is connected by just 4 degrees, trustlines scales up quickly in communities and cities.

It is no longer necessary to exchange everything with just money. Computers and digitalisation are particularly good at accounting, having made it technically viable to keep track and exchange values of multiple sorts. Measuring multiple kinds of value make it possible for us to appreciate and endorse actions which are not directly producing monetary value.

The power of networks

The real value of ValueCraft comes through the network effect. As ValueCraft scales through the networks of people and different measures of value, these all become interoperable. An festival coin can be exchanged for a beer with a trusted friend of friend; the surplus production of a grocery store can be bought with time spent for helping a neighbour in cleaning.

Eventually, having multiple measures of value is a critical feature if we humans are willing to get rid of our growth addiction. Having an interface to appreciate multiple measures of value provides us with a tool to bootstrap from the value created in local ecosystems, incentivising different kinds of valuable behaviour.