R3 Should Have Used a Smart Contract

Ripple (XRP) one-year price chart

Don’t you hate it when you become a billion-dollar company through no effort of your own, only to have some asshole take it away from you?

Such is the plight of R3.

A year ago, Ripple gave R3 an out-of-the-money call option to buy 5 billion XRPs at $0.0085 apiece. Now that the price of XRP has gone up by 4000%, the option is worth a billion dollars and represents R3’s single most valuable asset. Ripple wants to renege, and R3 is understandably annoyed.

You guys!! This is exactly the type of thing that should have been done with a smart contract.

R3 is a busy consortium, so maybe they forgot what line of work they were in. A quick reminder: R3 created their own distributed ledger platform to execute smart contracts in a trust-minimized manner. It’s called Corda, and it already has a contract template to represent blockchain token assets.

People will be quick to point out that the Ripple agreement can’t simply be a smart contract, because there are weird edge cases and unforeseen circumstances that can’t be accommodated with code. For example, Ripple claims that they were misled in the agreement, because they thought they would benefit from R3’s banking partnerships. “R3 turns out to be useless” is not a state that can be codified by a smart contract.

That’s fine: Nobel Prize laureate Oliver Hart has a whole body of work about how to deal with incomplete contracts. The solution is to pre-allocate decision rights. In a Corda smart contract, it might look something like this:

A feature of Corda contracts is that they have transferable exit keys, which are used to remove an obligation from the ledger. The holder of the exit key determines when to exit, and where the assets end up. In other words, the party that controls the exit keys has decision rights for what to do next.

Legal courts can still overrule, but the burden of lawsuit has shifted to the counterparty. R3 could secure a much better outcome if it already had its billion-dollar XRPs cashed in, and Ripple was the one who had to sue to get it back. Possession is nine-tenths of the law.

It’s interesting to see that R3 filed a complaint in the Delaware Court of Chancery, while Ripple decided to countersue in California. Legal interpretations vary by state, so contending parties often file in the jurisdiction most favorable to themselves. Delaware happens to be particularly generous in awarding contract expectation damages.

Dispute over choice of venue: Another problem that can be avoided with a blockchain!

R3 has wasted a lot of time writing whitepapers about whether smart contracts can be legally binding. The answer is always no, of course not! It would be a shame if R3’s legal contracts weren’t binding either.

The default issuer name for R3’s smart contract template is “Snake Oil Issuer”. Seriously, look at the source code.

Update (September 20, 2017)
Now we have a copy of the actual court documents: R3 Should Just Buy Ripple

See Also:
Contracts and Trust

Where are the Customers’ Lamborghinis?

h/t: @prestonbyrne

An initial coin offering is a system that transfers wealth from uninformed investors into the pockets of shills and hucksters.

Originally, token buyers were early ether enthusiasts reinvesting their gains. Now I’m hearing more and more stories of kids pouring their life savings into these get-rich-quick schemes, and… man, I hate this industry.

I hate the PR agencies that pump coin offerings in exchange for a percentage profit share. If any PR firms are reading this, please keep me on your mailing list. I enjoy receiving your messages and making fun of your clients behind their backs.

I hate the ad networks that enable this pumping. Is there no editorial oversight over ad campaigns?

And I hate all the peripheral profiteers, the hangers-on, the tangential industries that have sprung up overnight to get in on the game.


Still, I’m glad the three-letter agencies haven’t stepped in. It’s not clear that they can: Many of the perpetrators are overseas, and the participants are pseudonymous at best.

There’s a theory (from @interfluidity) that an opaque financial system encourages investment and growth and progress. Humans aren’t designed to comprehend a global market. We evolved in small communities that provided accountability and social safety nets to empower productive risk-taking.

Obfuscation allows us to indirectly underwrite the risky mortgages of complete strangers. If bank customers were fully informed about the riskiness of their deposits, everyone would freak out and stash gold and never invest in anything again. Society would devolve into a nation of gun-toting goatherds.

ICOs mask the riskiness of venture financing to make it accessible to the world. A lot of token founders are people who couldn’t get traditional VC funding because they’re in the wrong industry, wrong place, wrong business model, or maybe their ideas are just too dumb.

There are downsides to democratization, but are token sales any worse than the student loan industry? Mortgage-backed securities? Nigerian advance-fee fraud?

If you zoom in on individual losses, yes there are people who get screwed. But each of these scams simultaneously enables opportunities that otherwise would not have been available. Countless Americans now have college degrees thanks to the democratization of federal loans. And, you know, countless Nigerians have been lifted out of poverty thanks to Nigerian scams.

Tokens will run the hype cycle, bad ideas will die and society will evolve. People might get hurt, but that’s part of the Darwinian process. We lived through the savings & loan crisis, the dot-com bubble, the housing bubble, the beanie baby bubble. Just don’t bail out the failures, because then people will never learn.

How to Monopolize Solar Energy and Take Over the World

“Since the beginning of time, man has yearned to destroy the sun. I will do the next best thing: Block it out!” –Mr. Burns

Gentlemen, we can do this. In 1995, nuclear power plant tycoon Monty Burns deployed a giant dish over Springfield to deprive citizens of free sunlight and energy. Springfield citizens eventually dismantled the dish, but last week’s eclipse showed us how to do this in a tamper-proof way: BUILD A SECOND MOON.

Eclipse totality lasted only two minutes, but that’s because our existing moon can’t keep still. We can create a stationary moon by launching it into a Lagrangian point.

Any two-body orbital system creates five Lagrangian points, where the combined gravitational forces of the large bodies cancel out the centrifugal force felt by a smaller object, suspending it in place. Anything deployed at these five spots remains parked indefinitely.

One such point happens to sit just between the earth and the sun: L1. We already have a Solar Observatory and Deep Space Climate Observatory (DSCOVR) parked there, but neither one is big enough to cover the sun. Something moon-sized should do the job nicely.

All we need now is a rocket and a giant balloon. Hey Elon Musk, got any spare SpaceX launchers lying around?

Project Echo was a balloon satellite we launched in 1960 to reflect communication signals. If it is unavailable, we can capture and redirect an asteroid, Bruce Willis-style.

The Mystery of the Vanishing Tech Workers

Some time ago, we compared technical interviews from the 1960s to those of today: They’ve gotten much, much harder. I suggested that the last few decades of lax immigration have invited overseas talent to raise the bar – it was unfounded speculation at the time, but some number crunching shows it might be true.

According to this Joint Venture Silicon Valley report, 74% of Silicon Valley tech workers are foreign-born immigrants. A decade ago, 36% of Silicon Valley tech workers were born abroad. In 2000, only 29% were.

Tech industry employment has increased from about 300,000 jobs in 2007 to 400,000 in 2016, so even though we created 100,000 engineering positions in the last decade, we’ve also displaced 88,000 domestic engineers. Assuming US engineers haven’t grown incompetent, the applicant pool must be more competitive than ever before.

American tech workers are getting pushed out, and they aren’t coming back:

The net migration chart reflects the evolution of the H-1B program. The Immigration Act of 1990 originally set an annual cap of 65,000 skilled immigrants. Bill Clinton’s 1998 Workforce Improvement Act increased the cap to 115,000. In response to dot-com mania, Clinton further increased the cap to 195,000 in 2000. George W. Bush returned the annual cap to 85,000 in 2004, where it remains today.

Take a quick look at the H-1B recipient countries and we have the answer to Silicon Valley’s diversity problem as well. 69% of H-1B visas are granted to India and 11% to China. Other countries receive less than 2% apiece. Assuming that Hispanics and African-Americans don’t come from Asia, it’s no wonder Google’s diversity initiatives keep failing.

(The government doesn’t release H-1B gender data, but reports from old FOIA requests suggest that tech immigrants are predominantly male.)

A Note on H1B Visas:
An H-1B employer is required to take good-faith measures to recruit US workers before petitioning for an H-1B visa. This is hard to enforce due to the subjectivity of the hiring process. Even if US workers are just as qualified as foreign workers, Americans are usually unwilling to work for the same low wages.

San Francisco Doesn’t Have to be Gross

San Francisco, why you gotta be so gross?

In advance of Saturday’s conservative Patriot Prayer rally, San Francisco dog owners expressed displeasure by leaving droppings all over Crissy Field. Hahaha, won’t it be funny when event attendees show up to find their venue covered in shit?

What is wrong with you people? This is literally your own backyard! A basic rule of civilization is that you don’t shit where you sleep. Even bears know this! It seems that San Francisco residents have grown so desensitized to public excrement that it’s now become a point of pride. Look at how good we are at turning our national parks into a latrine!

San Francisco wasn’t always this gross. In the 60s, hippies could run around barefoot without immediately contracting typhoid. Since then, the city’s homeless population has risen above 10,000 without a corresponding increase in public facilities. When nature calls, there’s no place to go but the sidewalks, subway trains, BART escalators, children’s sandboxes, stairwells… San Francisco is basically an urban litterbox.

There’s an app for that.

Tech workers are here to help, and their solutions are universally dumb. Pooper is an Uber-like app that summons underpaid chumps to pick up crap on the sidewalk. It’s supposed to be for dogs, but who would know the difference? Airpnp allows users to offer their bathrooms as public pay toilets. Hey, open up the bedroom for hourly rentals while you’re at it.

The non-stupid solution is to build more public facilities, but not everyone wants that. Public restrooms cost money, and wealthy taxpayers would rather allocate that money to virtuous green initiatives. Why should they subsidize public toilets they’ll never need to use?

Map of human waste reports, courtesy of Human Wasteland.

Sidewalk shit is ready for some tech industry disruption, and I have just the solution: Open up tech office bathrooms for public use.

Office restrooms are largely underutilized, especially after business hours when the homeless population needs them most. It’s also no coincidence that the crappiest part of the city is home to a large number of tech firms. San Francisco offers an incentive program that exempts Mid-Market companies from payroll tax, known as the “Twitter Tax Break”. It was designed to attract tech companies who might create jobs and gentrify the neighborhood. The area didn’t gentrify so much as displace existing residents onto the street.

Tech beneficiaries promised to give back to the community, but they’ve been awfully stingy about doing so. This is an opportunity for them to help out with almost no overhead cost! Maybe tech workers have become inured to treading through fecal matter on their way to work, but let’s help the city recalibrate. Sane humans don’t like to wallow in filth, especially not other people’s filth. So come on, Twitter, Uber, Square, and all you other Mid-Market tech companies. Let the homeless into your bathrooms. San Francisco doesn’t have to be disgusting.

Update: Looks like the Patriot Prayer has been canceled after receiving threats of violence. So San Francisco shat itself for nothing.