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No, we are not entering Blockchains, a Limited Liability County

David Colborne
David Colborne
Opinion
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I have a degree in computer science. I work in information technology. I’m a Libertarian. I even unironically enjoyed Ayn Rand’s Atlas Shrugged, including John Galt’s book-length philosophical preachings. I’m not going to pretend it’s a book for everyone or that it’s especially well written — like most libertarian-leaning writers, she would have benefited from a confident and assertive editor or two. Even so, I think Atlas Shrugged, like the rest of Ayn Rand’s fiction, is sorely misunderstood by fans and foes alike.

I didn’t watch the movies, though, for the same reason you can’t pay me enough to watch Left Behind — I don’t do religious propaganda films. But I digress. 

So why did my eyebrows immediately shoot up and my eyes narrow in reflexive skepticism before I even finished reading the headline, much less the story and draft legislation, about Blockchains, LLC’s proposal to build an “Innovation Zone” in the foothills of Storey County?

***

Arthur C. Clarke, author of 2001: A Space Odyssey, once claimed that “any sufficiently advanced technology is indistinguishable from magic.” What he might not have appreciated at the time, however, is exactly how situational the line between technology and magic really is. If you relied upon my understanding of agriculture, for example, you would likely perish of starvation before you finished reading this column. 

For many people, blockchain technology isn’t far off from magic — or, worse yet, their conception of what blockchain technology is and can do is completely inseparable from the notion of cryptocurrency (which is arguably the least technically interesting application of blockchain technology). Many of these people are quite rich. Many of them are politically connected. Worse yet, some of them are both.

Technologically, and simplifying a bit, blockchain technology is an answer to the following question: How do you safely host and access a database on a peer-to-peer network? 

That question, however, just raises further questions. What is a database? What is a peer-to-peer network? Luckily, after more than two decades of direct experience with both technologies, most of us have a considerably less magical understanding of each of them than perhaps we give ourselves credit for. 

Databases, for example, are just stores of information. The website you’re reading this column on, for example, stores each article in a database, which stores each article’s title, address, author, publication date, and the contents of each article. Similarly, your bank uses a database to keep track of every transaction against your checking account — when each transaction was completed, how much money was credited or debited, who the recipient was, perhaps even a scanned copy of the deposited check. Your phone, meanwhile, probably contains a database of contacts with various bits of information stored for each one, such as phone numbers, email addresses and birthdates.

As for a peer-to-peer network, it’s a way of describing a decentralized form of “cloud computing,” which is just marketing-speak for using other people’s computers for something. Unlike corporate providers of other people’s computers like Amazon Web Services or Microsoft Azure, however, a peer-to-peer network isn’t controlled by one specific entity that can, as Parler learned the hard way recently, shut you down for violating their terms of service. Instead, computers controlled by several individuals and organizations work together when and where they choose to. As the Tech Learning Collective pointed out recently, peer-to-peer networks are used to host websites, provide decentralized data storage, host social media networks, and more, with considerably lower risk of unilateral deplatforming than more traditional hosting methods.

Peer-to-peer networks, of course, aren’t new. If you’re of a certain age, you probably used some peer-to-peer networks, like Napster, Kazaa, or Limewire, to download movies, music and software electronically. This generational propensity to self-distribute entertainment on the internet without paying for physical media initially led to some unintentionally hilarious public service announcements back in the day (3D printing hasn’t quite reached the point where you can download a car, but you can absolutely download a gun). 

As peer-to-peer networks gained in popularity around the turn of the century, two major problems immediately manifested themselves. First, there was no guarantee someone hosting a file would keep their computer on long enough for you to finish downloading a file hosted on their system (this was a bigger problem when dial-up internet connections were more common and downloads took hours to complete). Second, there was no guarantee the file you were downloading was actually the file you wanted — more than a few children infected their parents’ computers with malware thinking they were downloading a pirated copy of the latest game, only to learn the hard way someone seeded their download with something considerably less entertaining.

So, given these problems and getting back to the original question, how do you convince someone that hosting your database on their computer and keeping it current with the latest information is worth their while? Then, once they’re convinced, how do you keep them from altering your database in undesirable ways, either maliciously or accidentally? Finally, how do you ensure everyone who wants to host your database has a chance to update their copy of your database between each and every update to the database? 

The solution the inventor(s) — nobody’s really sure who “Satoshi Nakamoto” is, or if “Satoshi” is just one person or not — of blockchain technology came up with in 2008 was simple but effective. To encourage people to host and update the peer-to-peer database, each host would get paid (sometimes in something akin to digital store credit, sometimes in something closer to actual money) based on their ability to update the database while simultaneously keeping a record of every preceding transaction. To ensure the integrity of the database, meanwhile, the database would not only store the data within the database, but also a log of each transaction in the database. To further insure the database’s integrity, it would be mathematically impossible to alter or delete records from the database without such alterations being detected. Finally, to help synchronize updates to the database, each update to the database would require a high amount of computational effort before completing — this would give anyone else interested in hosting the database a chance to get paid for adding records to the database.

To demonstrate one potential use case for blockchain technology, Bitcoin was developed as a blockchain-hosted distributed ledger, which would track transactions of bitcoin, a digital currency invented for the purposes of demonstrating the utility of blockchain technology. Since then, several cryptocurrencies have been developed; if you’re feeling bored, you can follow Ars Technica’s instructions from 2014 on how to create your own. 

Acting as a digital ledger, however, is only one use case for blockchain technology — and, again, that specific use case was chosen as a simple, intuitive proof-of-concept for blockchain technology overall. Theoretically, blockchains can store anything any other database can store. For example, do you want to keep track of marriage licenses? Sure, you can use a blockchain for that — just ask the Washoe County Clerk’s Office, which started storing marriage records in Ethereum, a blockchain developed to store contract data, in 2018. Or, if you think of a different use case, you can either write your own blockchain, use an existing one like Ethereum to store your data, or deploy your own blockchain on a hosted service like Microsoft’s Azure Blockchain Service or Amazon Managed Blockchain.

The catch, however, is anything that can be stored in a blockchain can also be stored in any of a number of other competing database technologies. Since blockchain technology was first developed more than a decade ago, several individuals, organizations, companies and governments have tried to use blockchain technology to meet their database needs. It hasn’t always gone well, which is why the National Institute of Standards and Technology started investigating, collating, and documenting best practices for the successful adoption of blockchain technology. The resulting diagram, borrowed from the Department of Homeland Security and documented in NISTIR 8202, was the following:

This diagram was far less cynical and far kinder to blockchain technology than some of the charts shared by programmers on social media or in cartoons, whose diagrams nicely capture the frustration created from having to work with blockchain technology through the “peak of inflated expectations” portion of the hype cycle. However, as the diagram itself notes about halfway down, blockchains cannot be used to store sensitive data. Blockchain technology maximizes the last two legs of the CIA triad — integrity and availability — by completely eschewing the first leg — confidentiality. Each host of a blockchain possesses the entire database contained within the blockchain, even the records that don’t necessarily belong to them. Though individual blocks can contain encrypted data, encryption can always be broken given enough time.

Another consistent problem with working with blockchain technology has been separating the utility of the technology from the hype of cryptocurrencies as new stores of value. Imagine if paper was first invented to print dollars instead of books. How would that affect what people used paper for? How many people would just use paper to make different dollars? How many people would actually use paper to store useful information to share with others instead of scribbling notes and stuffing them in a mayonnaise jar buried in the backyard? Could you, in good conscience, write a letter on a dollar bill?

To be clear, just as dollar bills have value, cryptocurrencies have value, too. As Mark Cuban pointed out roughly a week ago, cryptocurrencies, by virtue of being stored on blockchains, enjoy many benefits over more traditional stores of value. Blockchain-hosted ledgers are transparent and can be reviewed by anyone at any time. You also don’t have to worry about the condition of a cryptocurrency the way you might worry about the condition of, say, a baseball card or a gold ingot. Additionally, cryptocurrencies can be traded by anyone, without those trades necessarily being mediated through third parties like stock brokers or banks. 

However, the value of blockchain technology specifically is no more dependent on the value of cryptocurrencies than the value of paper as a technology is dependent on the value of the dollar. When the only pieces of paper you see are dollar bills, however, it’s challenging for most people, especially the ones who like to make money, to see beyond that. 

Which brings me to Blockchains, LLC. 

***

When Blockchains, LLC first came to Nevada a few years ago, it arrived as an enigma wrapped in a riddle recorded in Ethereum with enough cash to buy roughly two-thirds of the Tahoe-Regional Industrial Center. Many Nevadans, doing their best impressions of Captain Kirk in Star Trek V, asked themselves: What does a blockchain company need with 67,000 acres of real estate? 

Like Captain Kirk arguing with “God”, we’re still waiting for an answer. 

What we know, for a depressingly low level of epistemic certainty, is Blockchains, LLC made quite a bit of money off of Ethereum, presumably by selling a bunch of it. Thanks to Blokt, a cryptocurrency news website, we also know Blockchains, LLC owns, or at least owned in 2018, ETHNews, which reported on news affecting the Ethereum ecosystem. The Ethnews.com website, however, was shut down in 2019, with a post headlined “A Sunset for ETHNews” dated August 30th cached in the Internet Archive. Ethnews.today, which was the first search result for “ETHNews” on DuckDuckGo, is missing all of the articles from Ethnews.com linked to by other blockchain news aggregators like Bitnewsbot and is almost certainly an unrelated publication.

Past that, there doesn’t seem to be much to know, other than that Blockchains, LLC owns roughly 67,000 acres of Nevada desert which it would like to do… something with, one of these days. Watching Blockchains, LLC CEO Jeffrey Berns’ keynote speech at a blockchain conference in Prague in 2018, it was hard to escape the sense that the land was a solution looking for a problem. Maybe they’ll make a smart city. Maybe they’ll make slick advertisements featuring a hologram of a 12-year-old girl. The sky’s the limit, really. 

Okay, that’s not entirely fair.

Conjecturally, as blockchain technology is explicitly designed to operate on a peer-to-peer network, and peer-to-peer networks are inherently untrustworthy, you can’t trust the people trying to write to the database and you can’t trust the people hosting the database, either. What you can trust, however, is math and consensus. If you ask a bunch of computers the same question and they all come up with the same answer, you can probably trust the answer is correct. 

Blockchain technology takes advantage of this by requiring each update of the blockchain — each write to the database — to be verified using the same mathematical functions by each and every computer hosting the blockchain. If you don’t trust the data on a blockchain, you can simply download the entire database, perform the same mathematical calculations as everyone else, and thus confirm not only the integrity of the database, but also each and every transaction against the database — which, if you might remember, is also included in the database. 

Continuing this conjecture, what happens if a malicious actor in a government office alters property records or, as Wells Fargo did recently, creates fake accounts for its customers? You might never find out until it’s far too late, and, once you do, expensive lawyers get involved. With blockchain technology, however, you don’t need lawyers and you don’t need an expensive discovery process into opaque organizations. Instead, any alterations to the database will be detected as soon as the next transaction is processed. An altered database will generate a different mathematical result than would be generated when the same formulas are applied to the legitimate database. Consequently, the altered database will be rejected automatically with maximum transparency. 

Conjecturally, it makes logical sense. It’s mathematically provable. 

Reality, unfortunately, has been far less kind. Though blockchains themselves are mathematically sound, the people and organizations who rely upon them are most certainly not. One such organization, The DAO, unwittingly demonstrated the wisdom of English novelist Catherine Aird, who once quipped, “if you can’t be a good example, then you’ll just have to be a horrible warning,” by demonstrating two common pitfalls with cryptocurrencies and blockchains more generally. 

First off, it’s not unheard of for hackers to steal large amounts of cryptocurrency merely by doing the digital equivalent of lifting dollar bills out of someone’s wallet. This happened to The DAO to the tune of roughly $50 million in Ethereum, the cryptocurrency Blockchains, LLC made their fortune on. Since blockchains don’t allow deletions or alterations by design, however, that meant performing a chargeback (the procedure your bank or credit card company uses when you tell them your card’s been stolen) was impossible. Instead, Ethereum was forked into two competing blockchains — Ethereum, which was a copy of the blockchain minus the hacked transaction, and Ethereum Classic, which kept the hacked transaction as legitimate. 

Secondly, the laws, rules and regulations we live under don’t magically disappear as soon as a blockchain is involved. Once again, The DAO played the role of a horrible warning when the Securities and Exchange Commission investigated its operations after the hack. Though The DAO was ultimately not brought up on charges, the SEC’s report on The DAO served as something of a warning shot to starry-eyed idealists cosplaying as investors that, no, putting things on a blockchain does not automagically make you immune to federal securities laws. 

This brings me back to the vision outlined by Jeffrey Berns in his keynote speech for the land Blockchains, LLC purchased in 2018:

“Imagine a world where anybody anywhere can collaborate, establish the rules of that collaboration, enforce those rules, exchange value, and do it all on the blockchain. No government, no bank, no corporation, just trusting in math.“

Conjecturally, the 67,000 acres of Nevada desert are where he and his company may try to bring that vision to life. In reality, the government, banks, and corporations don’t go away just because his company has a fee-simple title to several square miles of desert. 

Say what you want about Jeffrey Berns, but he’s not dumb. He knows all of that. Question is, what does he want to do about it?

***

A cynical person — someone like myself, in other words — might assume Blockchains, LLC purchased all of that land merely to diversify their holdings. Why keep millions of dollars of value in a volatile, hacker-prone cryptocurrency when you can convert it instead into Northern Nevada real estate? It’s not like a hacker can download a parcel. 

If we assume the cynical person is right, we can further assume Blockchains, LLC would like to sell the land some day. To do that, they could accept a normal rate of return on the land by simply holding on to it and selling it bit by bit as market conditions warrant. That, however, would be boring and would fly in the face of the utopian spirit that fed billions of dollars into blockchain investments. So, instead, what if they somehow convinced some very rich venture capitalists that this land isn’t just boring empty desert zoned I2 - Heavy Industrial with residential uses prohibited like the rest of TRIC? What if they somehow convinced these venture capitalists that this empty land in the desert was the beginnings of a blockchain-powered smart city, exempt from most governmental regulations? 

Once again, though, the laws, rules and regulations we live under don’t magically disappear as soon as a blockchain is involved. Consequently, for this vision to be marketable, the laws, rules and regulations on their land need to be amended. 

Alternatively, what if Jeffrey Berns and everyone else behind Blockchains, LLC is earnest about their utopian vision? What if they sincerely believe blockchains can replace most forms of government (the record-keeping ones, at the barest minimum, with automatically executing smart contracts perhaps filling in some additional blanks)? Once again, the laws, rules and regulations we live under don’t magically disappear as soon as a blockchain is involved. Consequently, for this vision to proceed, the laws, rules and regulations on their land need to be amended. 

Either way, the laws, rules and… well, you get the idea. So let’s discuss the changes they reportedly want to make — or, rather, the changes someone in the state government would like to see made, because the proposed bill has a lot more to do with what the executive branch wants to do than it does with anything Jeffrey Berns is selling.

Since, functionally, the legislation seeks to allow companies to create charter cities, and since this is the Charter Cities Institute’s beat, I figured their analysis of the proposed bill would be informative. 

It was. 

The goal of the proposed legislation is not to give Blockchains, LLC (or any other business with 67,000 acres to burn) a blank check to build a digital Fordlandia or Celebration in the desert. It’s to route around and break apart rural county governments.

***

What the legislation actually would do once passed is — if you are a company working in a short list of “innovative technologies” and you have both $250 million and 50,000 acres outside of a city, town, or redevelopment zone casually lying around — empower you to convert your plot into an “Innovation Zone.” Once you declare your intent to do so, local government entities (at 50,000+ acre scale, we’re talking about county governments) would be legally required to leave your property alone — that means no new zoning laws, no seizures of land via eminent domain, no new easements. In return, 60 days of public hearings would begin, followed by thirty days of consideration by the executive director of the Governor’s Office of Economic Development — notably, a state agency. If the executive director approves the application, the “Innovation Zone” becomes a county in everything but name only. 

Once your “Innovation Zone”-shaped county is created, the governor would be responsible for appointing your governing board, which would function as the de facto county commission for your “Innovation Zone,” within 270 days. Additionally, if a board member misbehaves, the governor may remove a board member with 45 days notice. To answer Daniel Rothberg’s question, since members of the board are public officers, and since chapter 241 is explicitly listed as binding in Section 17 of the proposed bill, yes, Nevada’s Open Meeting Laws would apply to “Innovation Zone” boards. 

Once your board has been populated, it’s time for your board to do county commission things — that means setting salaries for county… er, “Innovation Zone” employees, including justices of the peace and members of the “Innovation Zone” school board. Until the board is willing to assume all of the duties of a county, however, the board will have to extract revenue primarily from license, usage, and development fees. 

Next, it’s time to populate your “Innovation Zone.” Once more than 100 people move to your “Innovation Zone,” it’s time to schedule an election for members of your board, as well as any county offices created by the board, such as an “Innovation Zone” clerk, recorder, sheriff, treasurer, assessor, auditor, district attorney, or public administrator. 

Eventually, once your board is convinced it’s ready, it may assume all of the duties, responsibilities, and taxing powers of a full-fledged county. 

This does not sound like a company town, nor a company county. The word “blockchain” is only used once, and only as one of several technologies a company can announce its “Innovation Zone” will specialize in. The companies founding the “Innovation Zones” don’t get to run their zones — not for very long, anyway. Once more than 100 people move in, it starts running itself, at least as much as any county in Nevada does. 

That’s not to say the companies would be powerless. They would have the power to decide what their $250 million or so in starting investments in their “Innovation Zone” would go to. They would also have the power to decide how the remaining $750 million (at least) in remaining investments over the subsequent decade would be invested. They would additionally have the power to plan the initial development of the “Innovation Zone.” That’s not nothing — just ask any developer of a planned community. Homeowners associations don’t magically get better because blockchains, artificial intelligence, robots, or biometric technologies are used. If anything, most of those technologies would make any HOA considerably more obnoxious. 

However, it’s also clear from reading the bill that there’s a reason the governor’s office felt “Innovation Zones” were worth promoting in Gov. Sisolak’s State of the State address, and it’s not because they think Nevada would be better run as a limited liability corporation. On the contrary, the “Innovation Zones” are fairly explicitly designed to revert back to traditional democratically elected county governance, with all of the powers and duties of a traditional county.

They’re also designed to do this whether anyone in their host county wants them to or not.

***

At the beginning of the year, I pointed out there are a lot of ways a Democrat-led Carson City can, shall we say, get even with the sources of some of the hysterics coming from certain rural county commissions. At the time, I assumed the Legislature might take more traditional paths of irritating rural areas — ramp up enforcement of environmental laws, prevent natural resource extraction, that sort of thing. 

The governor’s office, however… well, they have imagination. 

In return for providing the legal opportunity for Blockchains, LLC to credibly pitch their patch of desert as some sort of blockchain-fueled utopia (well, as credibly as a blockchain-fueled utopia can be pitched, anyway), Blockchains, LLC will undoubtedly move heaven and earth, and perhaps millions of dollars in strategically targeted lobbyists and campaign contributions, towards the passage of the bill. Once the bill is passed, Blockchains, LLC will then have the opportunity to pledge at least $250 million towards the singular goal of breaking Storey County apart like an egg and building a new county government from scratch, paving the way for other rural counties — a recurring source of irritation for the Sisolak administration — to be broken apart next. 

On the one hand, it is absolutely male bovine excrement that Storey County zoned a giant industrial center, employing tens of thousands of people, within its borders and intentionally prohibited any nearby housing construction. It’s also ridiculous how many county commissions are functionally live action role-playing organizations for small fish in smaller ponds who want to cosplay as important government functionaries. A major consequence of this is a series of county governments functionally using most of the same processes and procedures to operate themselves as they’ve used since the early 20th century, with occasional promises to upload public records to the internet when they can get around to it.

On the other hand, there must be an easier way to disempower such nonsense and drag rural Nevada into this century than granting corporations with large real estate holdings letters of marque and reprisal on the condition that they promise to shout “Technology jobs!” and provided that they eventually copy and paste the same governing forms that created our broken counties in the first place. If county governments really are getting in the way of Nevadans governing themselves using more modern methods and processes — and I have zero doubt many are — then we should address those problems directly. 

Rural county lines in Nevada haven’t meaningfully changed since Pershing County was created in 1919. It’s probably well past time to revisit some of them (Pahrump, for example, only remains in Nye County because it stubbornly refuses to govern itself and thinks basing its municipal government in Tonopah somehow leads to “less government”). However, it shouldn’t be up to one person, nor even one company, to decide when and where those lines will be redrawn. Central planning, whether done by government or by corporate fiat, never ages well — not in the long run. The people who move into each “Innovation Zone” will do so for their reasons and motives, not to satisfy the intellectual curiosity of chief executives looking to demonstrate their latest product upon a captive audience. 

If we’re going to bring Nevada’s counties into the 21st Century, we need to do so with an eye towards serving the individual, not from the top-down. “Innovation Zones”, at least as currently proposed, will not get us there.

David Colborne has been active in the Libertarian Party for two decades. During that time, he has blogged intermittently on his personal blog, as well as the Libertarian Party of Nevada blog, and ran for office twice as a Libertarian candidate. He serves on the Executive Committee for both his state and county Libertarian Party chapters. He is the father of two sons and an IT professional. You can follow him on Twitter @DavidColborne or email him at [email protected]

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