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Apprenticeship

Patent Education Buys Time and A Foundation for Financial Rewards

By Guest Post March 8, 2019

by Clare Donovan

Meaningful innovation education exposes kids to this vital element.

I love watching the rise of makerspaces in schools. More and more students have access to 3D printers, kid-friendly coding programs, and other great technical tools. This investment in STEM project-based learning means that students with all kinds of learning styles are directly engaged in issues critical to their future.

But there’s a key ingredient missing. When you give students access to awesome tools and the freedom to design, what happens when they hit on something great? Most often, that’s where the project stalls. In the business world, that’s when a patent comes in.

Teaching patenting concepts at a young age is not only feasible, but I believe it’s a way to help women and other underrepresented groups play a bigger role in tech.

Tinker While You Learn

At the Future of Education Technology Conference in Orlando, Fla., I saw some amazing curricula and technology demos [Ed. note: Clare spoke there]. Schools have a huge selection of tools to teach engineering to young students.

Engineering, however, is only one component of the innovation process. Creativity, business and the law also play a critical role. Patents motivate people to invest in the arduous process of inventing by giving them economic ownership for continued development. For a startup, a patent buys you time to do the hard work of bringing your idea to life. Patent education is an important ingredient in helping kids become real-world problem solvers.

Patent education also lays a foundation for financial rewards in the workplace. The U.S. Patent and Trademark Office finds that wages in patent-based industries are 74% higher than other verticals, and this premium is growing. This is according to the USPTO’s latest update to “Intellectual Property and the U.S. Economy.”

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Business

Why Bastiat Deserves to Be in the Pantheon of Great Economic Theorists

By Guest Post March 8, 2019

By Donald J. Boudreaux

Frédéric Bastiat (1801-50) is known today among economists—if he is known at all—as at best a brilliant polemicist. An economic theorist he most certainly was not—such is the common opinion.

I believe this common opinion to be mistaken. To explain why first requires a discussion of the nature of a theory.

A Theory Is a Story

As I tell students in my Principles of Microeconomics courses, a theory is a story that assists us in making better sense of reality. And a theorist is a storyteller who offers this assistance.

A story that explains the price only of bread is not a proper theory of prices, even if it is highly believable.

Stories, of course, differ in their believability. A story that explains, say, the Industrial Revolution as being the result of new knowledge imparted to us by aliens from another galaxy is completely unbelievable. Some other, more believable story is called for—one, say, that features a change in people’s attitudes toward commerce and innovation.

But for a story to deserve to be called a theory requires that it also be generalizable.

In economics, supply-and-demand analysis is a general account of how prices are formed and change. It’s not a story about the formation of the price of only one item, such as bread. It’s an outline for telling believable stories about the formation of all prices—from the prices of toy planes to those of jumbo jetliners, from the wages earned by motel maids to those earned by Tom Hanks. A story that explains the price only of bread is not a proper theory of prices, even if it is highly believable.

To be generalizable, a story whose creator wishes it to be regarded as a serious theory must make that story abstract. Being abstract, however, makes the story—standing alone—barren. As such, it engenders no understanding of the physical or social world. But it proves itself to be a good theory if, when relevant details of reality are added to it, those of us who encounter this story go, “Aha! Now I understand reality better than I did before!”

The core purpose of all theories is the creation of improved understanding. A theory that does not cause those who hear or read it to go, “Aha!” is worthless.

Bastiat the Theorist

And so we return to Bastiat. He’s one of history’s most brilliant tellers of economic stories. This fact, I’m convinced, justifies calling Bastiat a great economic theorist.

Who can read Bastiat’s satirical portrayal of sunlight as an unfairly low-priced import and not go, “Aha!”

Consider Bastiat’s famous 1843 “Petition of the Manufacturers of Candles.” In this short essay, Bastiat radiantly conveyed economists’ understanding that artificially contrived scarcities make the general population worse off even if they increase the wealth of a small handful of individuals. Who other than the most benighted protectionist can read Bastiat’s satirical portrayal of sunlight as an unfairly low-priced import and not go, “Aha! Of course, inexpensive imports that ‘flood’ into a country no more impoverish that country than does the light sent to us free by the sun!”

Another example is Bastiat’s even-shorter essay “A Negative Railway.” Here Bastiat revealed the flaw in the argument of a gentleman who insisted that if a railroad connecting Paris to Bayonne were forced to have a stop at Bordeaux, the wealth of the French people would be enhanced. The hapless target of Bastiat’s brilliance based his conclusion on the correct observation that forcing trains to stop at Bordeaux would increase the incomes of porters, restaurateurs, and some other people in Bordeaux.

Yet Bastiat didn’t settle for drily noting that, after paying these higher incomes, railways and their passengers would have less money to spend on goods and services offered by suppliers in locations other than Bordeaux. Instead, Bastiat followed the proposal’s logic in a way uniquely revealing: If forcing trains to stop at Bordeaux will increase the total wealth of the people of France, so too will the total wealth of the people of France be increased if trains are obliged to stop also at Angoulême. And if also at Angoulême, then the French will be enriched even further if a third stop is required at Poitiers. And if at Poitiers, then at each and every location between Paris and Bayonne.

Bastiat revealed the proposal to be flawed by showing that, if its logic were sound, the railway that would do the most good for the French people is one that is nothing but a series of stops—a negative railway!

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Business

There’s No Good Reason to Trust Blockchain Technology

By Guest Post February 13, 2019

By Bruce Schneier for Wired.com

In his 2008 white paper that first proposed bitcoin, the anonymous Satoshi Nakamoto concluded with: “We have proposed a system for electronic transactions without relying on trust.” He was referring to blockchain, the system behind bitcoin cryptocurrency. The circumvention of trust is a great promise, but it’s just not true. Yes, bitcoin eliminates certain trusted intermediaries that are inherent in other payment systems like credit cards. But you still have to trust bitcoin—and everything about it.

Much has been written about blockchains and how they displace, reshape, or eliminate trust. But when you analyze both blockchain and trust, you quickly realize that there is much more hype than value. Blockchain solutions are often much worse than what they replace.

First, a caveat. By blockchain, I mean something very specific: the data structures and protocols that make up a public blockchain. These have three essential elements. The first is a distributed (as in multiple copies) but centralized (as in there’s only one) ledger, which is a way of recording what happened and in what order. This ledger is public, meaning that anyone can read it, and immutable, meaning that no one can change what happened in the past.

The second element is the consensus algorithm, which is a way to ensure all the copies of the ledger are the same. This is generally called mining; a critical part of the system is that anyone can participate. It is also distributed, meaning that you don’t have to trust any particular node in the consensus network. It can also be extremely expensive, both in data storage and in the energy required to maintain it. Bitcoin has the most expensive consensus algorithm the world has ever seen, by far.

Finally, the third element is the currency. This is some sort of digital token that has value and is publicly traded. Currency is a necessary element of a blockchain to align the incentives of everyone involved. Transactions involving these tokens are stored on the ledger.

Private blockchains are completely uninteresting. (By this, I mean systems that use the blockchain data structure but don’t have the above three elements.) In general, they have some external limitation on who can interact with the blockchain and its features. These are not anything new; they’re distributed append-only data structures with a list of individuals authorized to add to it. Consensus protocols have been studied in distributed systems for more than 60 years. Append-only data structures have been similarly well covered. They’re blockchains in name only, and—as far as I can tell—the only reason to operate one is to ride on the blockchain hype.

All three elements of a public blockchain fit together as a single network that offers new security properties. The question is: Is it actually good for anything? It’s all a matter of trust.

Trust is essential to society. As a species, humans are wired to trust one another. Society can’t function without trust, and the fact that we mostly don’t even think about it is a measure of how well trust works.

The word “trust” is loaded with many meanings. There’s personal and intimate trust. When we say we trust a friend, we mean that we trust their intentions and know that those intentions will inform their actions. There’s also the less intimate, less personal trust—we might not know someone personally, or know their motivations, but we can trust their future actions. Blockchain enables this sort of trust: We don’t know any bitcoin miners, for example, but we trust that they will follow the mining protocol and make the whole system work.

Most blockchain enthusiasts have a unnaturally narrow definition of trust. They’re fond of catchphrases like “in code we trust,” “in math we trust,” and “in crypto we trust.” This is trust as verification. But verification isn’t the same as trust.

In 2012, I wrote a book about trust and security, Liars and Outliers. In it, I listed four very general systems our species uses to incentivize trustworthy behavior. The first two are morals and reputation. The problem is that they scale only to a certain population size. Primitive systems were good enough for small communities, but larger communities required delegation, and more formalism.

The third is institutions. Institutions have rules and laws that induce people to behave according to the group norm, imposing sanctions on those who do not. In a sense, laws formalize reputation. Finally, the fourth is security systems. These are the wide varieties of security technologies we employ: door locks and tall fences, alarm systems and guards, forensics and audit systems, and so on.

These four elements work together to enable trust. Take banking, for example. Financial institutions, merchants, and individuals are all concerned with their reputations, which prevents theft and fraud. The laws and regulations surrounding every aspect of banking keep everyone in line, including backstops that limit risks in the case of fraud. And there are lots of security systems in place, from anti-counterfeiting technologies to internet-security technologies.

In his 2018 book, Blockchain and the New Architecture of Trust, Kevin Werbach outlines four different “trust architectures.” The first is peer-to-peer trust. This basically corresponds to my morals and reputational systems: pairs of people who come to trust each other. His second is leviathan trust, which corresponds to institutional trust. You can see this working in our system of contracts, which allows parties that don’t trust each other to enter into an agreement because they both trust that a government system will help resolve disputes. His third is intermediary trust. A good example is the credit card system, which allows untrusting buyers and sellers to engage in commerce. His fourth trust architecture is distributed trust. This is emergent trust in the particular security system that is blockchain.

What blockchain does is shift some of the trust in people and institutions to trust in technology. You need to trust the cryptography, the protocols, the software, the computers and the network. And you need to trust them absolutely, because they’re often single points of failure.

When that trust turns out to be misplaced, there is no recourse. If your bitcoin exchange gets hacked, you lose all of your money. If your bitcoin wallet gets hacked, you lose all of your money. If you forget your login credentials, you lose all of your money. If there’s a bug in the code of your smart contract, you lose all of your money. If someone successfully hacks the blockchain security, you lose all of your money. In many ways, trusting technology is harder than trusting people. Would you rather trust a human legal system or the details of some computer code you don’t have the expertise to audit?

Blockchain enthusiasts point to more traditional forms of trust—bank processing fees, for example—as expensive. But blockchain trust is also costly; the cost is just hidden. For bitcoin, that’s the cost of the additional bitcoin mined, the transaction fees, and the enormous environmental waste.

Blockchain doesn’t eliminate the need to trust human institutions. There will always be a big gap that can’t be addressed by technology alone. People still need to be in charge, and there is always a need for governance outside the system. This is obvious in the ongoing debate about changing the bitcoin block size, or in fixing the DAO attack against Ethereum. There’s always a need to override the rules, and there’s always a need for the ability to make permanent rules changes. As long as hard forks are a possibility—that’s when the people in charge of a blockchain step outside the system to change it—people will need to be in charge.

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