by B. Michaels
Samantha could barely contain herself. Landing the first paying client for an enterprise software firm was like scaling Mount Everest. Samantha batted her eyes at the General. “You’re my hero,” she said, using her cheesiest voice.
The General smiled broadly. “Of course I am. Now, let’s make sure your hero isn’t called to testify before Congress.”
“Alright, the law firm is expecting our call on their secure line.” Loreal & Hammer was a boutique law firm located 10 minutes away, in Annapolis Junction, Maryland. The General recommended the firm to all members of the Accelerator because Jim Loreal was a former NSA attorney.
Jim answered the secure phone. A secure phone ensured that voice communications over the regular public telephone network were encrypted, and not subject to eavesdropping. Voice and email were not the only forms of communication that could be encrypted. All types of communications—voice, satellite, radio, web, text, chat, and the like—could be encrypted. When ‘https:’ was visible in a browser, it signified that encrypted IP messages were being sent from the browser to the web server, and vice versa. Encryption made online shopping and banking safe.
Numerous algorithms existed to perform encryption. Over the years, NSA cryptographers developed many of these algorithms. In fact, with their chief mission to steal foreign SIGINT, and protect US military SIGINT; the NSA’s staff consisted of the best collection of mathematicians and cryptographers in the world. The NSA was the lead DoD agency on encryption. It told the DoD what encryption algorithms were suitable for various levels of information exchange, including SECRET and TOP SECRET.
Due to leaks of classified information from Bradley Manning and Edward Snowden, SIGNIT gathered from all over the world was increasingly encrypted. To read this information, the NSA had to break the codes, bypass the encryption, or persuade enterprises to volunteer their encryption keys. ''''''''' '''''''''' '''''''''''''' '''''''''' '''''''' ''''''''''''''''''''''' ''''''''''''
Samantha greeted Loreal and told him that General Shields was present. She pushed the Hands-Free button. Shields and Loreal exchanged pleasantries.
Loreal asked, “If it’s ok with you guys, I’d like to have our resident Bitcoin-Blockchain expert join our call? I’ve gone over our earlier conversations. He’s got some recommendations.”
The General and Samantha concurred. Loreal introduced Larry Watkins. Watkins possessed broad experience with Bitcoin and Blockchain startups. “As I understand it, you want to make sure that your Gamers can’t claim they’re Gamification employees?”
“Affirmative, Larry,” said the General. “We want to maintain a clear line of separation between the Gamers and Gamification Systems. We don’t want there to be any ties whatsoever. Gamers need to play games and earn rewards, without knowing anything about the gamified environment, or knowing that Gamification Systems’ software is handling the game.”
Samantha added, “Currently, we’re paying the Gamers in Bitcoin. Our concern is that Gamers could be considered employees by the IRS and state employment agencies. Of course, that would mean we’d need to withhold and match payroll taxes.”
“Right,” said Watkins. “First, I’ll give you some background on your employment issue; then, I want to review Bitcoin and the Blockchain. After that, I’ll detail what I think is your best option. Ok?”
“Yes, that sounds good,” replied Samantha.
“In our connected age, the boundaries between employer and employee gets fuzzier every day.” Watkins spoke with a distinctive New York accent. “This issue has really come to the forefront, with the dawn of the sharing economy—the Ubers, the Lyfts, the Airbnbs of the world.
“Every state has different laws regarding drivers that receive payment for ride-sharing—and it’s a big headache. Of course, that’s why Uber and Lyft are aggressively moving towards self-driving cars, as are others. I think Nucleus Corporation’s, A-Car, comes out late this year.
“You can make the argument that Gamers are independent contractors and are therefore responsible for their payroll taxes. And at first, that’s what the ride-hailing companies did. But many lawsuits were filed to challenge this argument. Given the high profile nature of the NSA’s investment in Gamification; I don’t recommend this route.”
“Good, we agree with you so far,” said the General, with a chuckle.
Watkins laughed. “Anytime I talk about Bitcoin and Blockchain; I do a level-set. I know you have experience with Bitcoin as a digital currency, but are you familiar with the underlying concept of the Blockchain?”
The General replied, “I think we are, but go ahead and give us your spiel.”
“Act like you’re talking to your grandma,” Samantha said. She smiled at the General like a school girl.
“Ok…so, the core idea that makes Bitcoin disruptive is that it doesn’t require its users to trust one another,” Watkins said, emphasizing the word, ‘trust.’
“Let’s say I run a dry cleaner. You come to pick up your clothes, and I charge you $75. You pull out your credit card, or the pay-app on your phone. This connects you to your payment processor, like Visa or Apple Pay. Now, what’s important about this transaction is that I, as the dry cleaner, don’t trust you to pay me.
“I trust your payment processor—the Visa, or MasterCard, or PayPal, or Apple Pay—whatever payment processor you use. Once they allow the transaction, I don’t worry if you’re going to pay your bill. And you don’t have to trust me with your financial details. You trust the payment processor and authorize the transaction.
“Bitcoin gives you the ability to ditch the payment processor. You can cut out—completely disintermediate—the middle man. This is possible because the Blockchain allows for decentralized trust.
“The Blockchain is a shared ledger—think of a spreadsheet—that everyone in the world can simultaneously view. The Blockchain contains all the records, of all the transactions, ever conducted with Bitcoin. It’s completely transparent.
“Everyone can see the record of the transactions—two Bitcoins went to this address, 1000 Bitcoins went to that address. It’s important to understand that the addresses are not personally identifiable. Once the transactions are agreed upon, and entered onto the Blockchain, they can’t be changed. Everyone owns the Blockchain; no one controls it.
“This is a big concept, so I want to make sure I highlight it. The right person can only add the right amounts. Once it’s recorded, the transaction can’t be modified. Cryptography and encryption make the transaction tamper-proof. This ensures that the Blockchain is trustworthy. No company has to guarantee that it’s trustworthy. I’m concentrating on the business aspects of Bitcoin and the Blockchain. I mean, the underlying technology is sophisticated—but I want you to get Blockchain from a business perspective.
“This is the critical point. When the dry cleaner accepts Bitcoin, they trust the Blockchain. They don’t have to trust a payment processor. More importantly—they don’t have to pay a transaction fee to a payment processor.
“As the dry cleaner, I trust that you own the Bitcoins that you are giving me, and that you haven’t spent them anywhere else. Then, your Bitcoins become mine. Now, only I can use them. Or anyone else that has access to my passcode—but that’s a separate issue. The Blockchain records all of this. And again, encryption and cryptography allow you to trust it.”
Watkins stopped to take a breath. “Are you following me?”
“Yes,” said Samantha, “enough at least. But we’re not so concerned with Bitcoin; we’re using it ourselves to pay the Gamers. We want to make sure that these Gamers can’t claim that Gamification Systems is their employer. We not only want to avoid tax issues, but we don’t want to be liable if the Gamers injure themselves, like if they trip and fall during a VR session. The Pokemon Go lawsuits raised a lot of eyebrows.”
“Right,” replied Watkins. “So hang on just a little longer. What I’ve just described
is what’s been going on for the last 10 years—let’s call it Blockchain 1.0—Blockchain only related to Bitcoin.
“Most of the companies’ recently going public—BitSa, BitMents, the Bitcoin wallet providers—those type of businesses are focused on Blockchain 1.0. BitSa processes payments for less than 1%. Credit card companies typically charge a 3-5% per transaction fee. So that’s pretty disruptive. The big banks are also heavily employing the Blockchain to clear transactions.
“Arguably, you can call Bitcoin the first killer app that uses the Blockchain. I mean, Bitcoin has had its ups and downs over the years. It had a massive run up in value, and then it crashed. Now that the price of Bitcoin has stabilized, it’s on a nice growth curve.
“But, let’s talk about Blockchain 2.0. This is the Blockchain applied to other ideas than Bitcoin. And now, I’ll directly address your employment issue. Have you guys heard of BlockHR?”
“A little,” replied Samantha. “I read a blurb about them in Fortune. They’re something like a national employment agency?”
“Samantha, when do you find time to read?” teased the General.
Samantha replied coyly, “I find time to do a lot of things.”
Even over the phone, Watkins was uncomfortable. He returned to the Blockchain as quickly as possible. “So, BlockHR is a like an employment agency and payroll processing company. But, they’re completely based on Blockchain 2.0 technology. They use the Blockchain to record smart contracts. Unless both parties agree, the digital contracts are unalterable. The smart contracts function just like an executed legal agreement. In fact, I think you’ll see a lot fewer lawyers in the future.”
General Shields howled. “Insert lawyer joke here.”
Watkins laughed, but only because Shields was paying for his time. “BlockHR’s smart contracts are agreements among the company, their employees, and their clients. The software-based, smart contracts enforce those agreements—all with minimal human intervention. Legally, BlockHR is a Distributed Autonomous Company—almost like a robot company. They do have a small management team, IT staff, and a sales force.
“Samantha, as you know, BlockHR is one of the fastest growing startups in the world. Their initial growth was due to revenue from all the sharing companies. Now, many other companies are using them. I think they just closed another round of VC funding, for something crazy like over $1B.
“Back to Blockchain 2.0. Anything that necessitates a middleman can either be made more efficient, or eradicated by Blockchain 2.0. In my opinion, Blockchain will be on par with the Internet as a force of disruption. It’s going to change everything.
“For example, I just bought a new BMW. I didn’t talk to a single person. The dealership bound the car title to me on the Blockchain. They did that with a cryptographic hashing algorithm. When a hashing algorithm runs against a block of data, like the car title, it returns a result. This result is a series of characters called the hash. The hash is like a digital fingerprint that uniquely identifies the document.
“If the hash ever changes, you know that something on the title has changed, even if it was just a punctuation mark. So no one can steal the title of my car. No modifications to the title can proceed without my approval.” Watkins was so excited about Blockchain that he forgot who was on the other end of the phone. He was explaining cryptography to the boss of the best cryptographers in the world.
“Oh, I’m sorry General. I didn’t mean to talk down to you.” Certifying hashing algorithms for the DoD also fell under the purview of the NSA.
“Not a problem, Mr. Watkins,” said Shields. “I’m sure they use a hashing algorithm from the SHA-2 or SHA-3 family. By the way, did you know that hashing is the best way to store passwords? When you create your password, the hash should be stored, not the password. Later, when you log-on and enter your password, the hashes are compared. Storing actual passwords is a terrible security practice. Hackers can easily steal them. If you ever call a company because you can’t remember your password, and they give it to you, they didn’t hash the passwords. They’re storing your password in plaintext.”
General Shields winked at Samantha.
“That’s fascinating General. Thank you,” said Watkins, sounding embarrassed. “So continuing, I can use the Blockchain to prove my ownership of the BMW to anyone in the world. The BMW’s title history will be on the Blockchain for everyone to see—forever. Because it reduces the cost of so many types of transactions, Blockchain usage is growing rapidly. It’s cheap because it’s transparent, efficient, and there’s no middleman to pay. Or, at the very least, the middleman’s fees can be reduced.
“Back to BlockHR. Let’s say; you use an employment agency to pay your Gamers. Typical employment agencies charge a hefty markup on the employees, sometimes as much as 40-100%—or more. Because software-based smart contracts and the Blockchain automate everything, BlockHR takes a much smaller cut. BlockHR pays the employees via Bitcoin, which is visible on the Blockchain. The IRS is going to start processing tax returns and payroll taxes via the Blockchain soon.
“I see BlockHR as the solution to your problem. There’s one more alternative. It’s a step beyond BlockHR. It’s 100% automated. No humans are involved. It’s a true robot company. Legally, it’s known as a Distributed Autonomous Trust. But it’s newer and unproven. I’m concerned with who you’d sue in a dispute. And, unlike BlockHR, they’re not indemnifying their clients yet. So, I’d stick with BlockHR.”
Samantha was pleased. “Wow! You could have just said call BlockHR. But, thanks for the background information and your counsel. I agree with you. Blockchain is going to be huge. My mind is struggling to grasp all the ramifications.” Samantha politely ended the call.
“General,” said Samantha, flirtatiously, “we’re way ahead of schedule. I expected some serious work to solve this problem. All I have to do is phone BlockHR; so...we have some time to kill.”
Shields devilish smile returned. “Before we kill that time, let’s go over your financials.” The General glanced quickly at the cash flow statement.
Samantha let him digest the report. “You can see why I’m so excited about Gecko. I’ve got 75 days of cash. All of my staff is critical. I don’t want to lay off anyone. So, I’m a little stressed out right now.”
“I know. I feel good about Gecko. If they’re a no-go, or you can’t get the money from them in time, then we’ll work on closing a new round of financing. I’ll urge the investment team to value Gamification at a higher valuation, so that you don’t have to give up as much equity as last time.”
Pressure released from points all over Samantha’s body. She took her first satisfying breath in months.
The General continued, “One last item before we start killing that time. Becca said the Gamification Systems’ API can work with other games; games you didn’t design. Right?”
“Yes, that’s the idea. Just like I don’t want us to be an AI company, I also don’t to be in the business of developing video games. Becca did a great job with Castle Gecko, but I’d rather have the company focus on improving the core gamification software—G-Bridge. It’s just a matter of meeting with the game manufacturer and determining what gaming engine they’ve used.”
“Outstanding,” replied General Shields. “I’m going to introduce you to Velocity Game Studios, the makers of Fog of War. It’s a blockbuster first-person shooter, video game. Velocity has a contract with the US Special Operations Command—SOCOM—to port Fog of War.”
“Port it for what?”
“Velocity created a version of the game that incorporates classified information. Special forces operators use if it for close-quarters combat training. The Velocity team has programmers with TS/SCI clearances. Your work with Velocity is a TOP SECRET project code named, FOGGY. I need you to pick one of your most trusted employees with a TS/SCI clearance. This employee needs to make Fog of War work in
GAMESPACE. I suspect that’s Saul?”
“Yes, it’s definitely going to be Saul. G-Bridge was my idea, but Saul was the brains behind the architecture.”
“Fine. Then, I’m going to read you, Saul, and some Velocity employees into project FOGGY, as well as Lin. The only SCIF accredited for FOGGY will be on your floor. Also, I want you to expedite the integration with Prosthetic Thought.”
“Ok,” said Samantha. “We’re close to being integrated. Their stuff is a little buggy. Thought-based control of VR is cool, but it doesn’t work all the time.”
The General agreed. “They’re improving their algorithms that understand brain waves. I’ve been told that all the kinks will be gone soon. Of course, you can’t discuss anything related to FOGGY with anyone at Gamification, but Saul. Also, there’s a project that I can’t discuss yet. But, I’m going to need your top REALSPACE talent.”
“General, you’re so mysterious. That’s going to be Ali Asir and Saul—”
“Do you absolutely need Saul? I’d rather compartmentalize FOGGY from the other project.”
“I’m sorry General. You know how I hate to disappoint you,” said Samantha, seductively. “But first off, you’re not telling me anything about the project. Secondly, Saul is also the key to doing anything in REALSPACE. He knows G-Bridge backwards and forwards. Ali is very sharp, but he takes his lead from Saul.”
“Ok,” said the General, with a tone of resignation in his voice. “But, I need you to keep everything very compartmentalized. There can be no leaks of this classified information. Only those read into FOGGY, can know about FOGGY.
“Even details about information that’s not classified; like the integration you’re doing with Prosthetic Thought, you need to keep on a need-to-know basis. And, I want you to keep Becca Roberts in the dark about these classified projects. She can’t work any of them.”
Samantha was irritated by the directive to cut Becca out of the loop. “Let me get this straight. You want GAMESPACE to incorporate a first-person shooter that gamifies something secret in REALSPACE, using brain waves for virtual reality control? And, you’re limiting the resources I can employ? You don’t want my second best software engineer to work on it? Is that all you want?”
