Lars Schlichting, “The White Paper”
Lars Schlichting, “The White Paper”

Lars Schlichting, “The White Paper”

By Lars Schlichting - 15 Sep 2018

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As an exclusive for Cryptonomist, Lars Schlichting, CEO of Poseidon/Eidoo, shared with us his short story inspired by the crypto world.

Orson was wondering why he wasn’t nervous. He had been appointed the role of spokesman by his team, he would be the one presenting in front of the Commission their project to save the world.

He should at least be tense, agitated or restless. Instead, he felt relaxed and calm, as if he had already achieved his goal.

In fact, their work would probably end that day, and so they were living that experience not as an exam, but rather as the last act of a game, the game to save humanity.

Oh my God, but not them, they were destined to die.

The economic conflicts followed by the ABC wars (a term used to define the use of atomic, biological and chemical weapons), pollution, denial of climate change, crime, the absence of a public force and the riots were all elements that had now condemned humanity.

Despite all the knowledge and technology at their disposal, the few survivors from the floods caused by the melting of the glaciers could no longer cultivate the polluted land, the radiation had reduced the birth rate without the possibility of treatment and the contamination of drinking water had proved too excessive to be able to purify it.

All the scientists agreed we had done our time, humanity would go extinct, the earth would take millions of years to absorb all the damage caused. From there a new intelligent species would be born perhaps, but it would not be the human one.

The world they wanted to try and save was the past one, the one where the sea was still habitable, the forests green and lush and the populated cities full of life, but which already showed the first symptoms of the disease that would lead to the catastrophe, a disease that could still be cured.

The Commission had understood the importance of giving the survivors hope, the hope that humanity would not destroy the world, but would be able to redeem their sins by saving Earth.

The door opened, sign that his group was called in to present the project.

There were six of them, all of whom were renowned academic professors before the war. Marco Ferrara was the mathematician of the group, Will Steiner specialized in game theory, Françoise Erikson expert in modern history, Alvaro do Nascimento the physicist, Hinata Hiroshibe expert in social communication and finally himself, Orson Sellew, the economist.

A heterogeneous group which, thanks to the privileges given to them because of their respective professions, had found themselves in one of those few reserves where life, or rather survival, was still possible. There they were reached by the news that a group of scientists had found a way to travel through time.

The pipe dream was no longer a fantasy. But it was not like in the movies, where people physically returned to the past to fix their mistakes and change the future. The only thing that could be sent back in time was data, or rather bits. The future was thus able to influence the past by transferring data over the Internet. This discovery had given rise to the desire to try and save the world from future catastrophe. The only problem was how. The energy needed to transmit the data to the past was enormous.

In order to save the planet from disaster, a Commission had been set up to evaluate proposals on how to change the past. Nations no longer existed and the only supranational body in existence was the Commission. The first ideas were to use social media to influence elections and votes in order to prevent political leaders who unleashed the war from coming to power. It was quickly understood that the result would not be taken for granted – who could have ensured that the newly elected would not, in turn, unleash the war or that it would only be postponed?

The few people still in power understood that the root of what had happened was much deeper. A more radical solution had to be found. The Commission had thus launched a competition open to all with the aim of proposing a use of the time machine to change the past and save humanity from extinction.

A few days after the announcement, Orson had met with Françoise, an old flame of his, who together with Hinata and Will had developed their own theory and wanted to present it to the Commission. After countless sleepless nights, and the addition of Marco and Alvaro to the group, the six had submitted their project, and had now been summoned to present it.

The Commission was made up of those who were now the highest-ranking members of society. They were not democratically elected, or at least not directly. Only a few areas had the necessary organization to hold elections, and at the moment no one wanted to elect a guide on the basis of mere words.

Those who held power earned it by deeds. It was what they had done that put them in a position to tell ordinary people what to do, and if ordinary people followed their advice they were de facto considered to be like rulers. The Commission was chaired by Johanna Meier, the head of the electricity companies that were able to provide the energy necessary for the needs of the community and, most importantly, that would allow the time machine to work. She was a woman in her fifties, prosperous and a bit chubby.

Orson instinctively thought of his mother when he saw her. Then there was Gianluca Riccardi, one of the most respected scientists who tried to find solutions to improve the quality of life, or rather to prolong it. He was pale, thin and bald. He gave the impression that he wouldn’t occupy that position for a long time.

Young Sun Lee had created a private army that had become the global reference for all the reserves of survivors trying to maintain order by keeping hordes of refugees out of them. No one contested his methods because the results could be seen.

His face was the expression of his task: serious, tense and concentrated. His dry and firm body had a strong contrast to Riccardi’s appearance. Nikita Smith represented the cooperation of farmers who barely guaranteed the needs of the reserves and in practice could decide who received what quantities of wheat and potatoes, the only two crops still possible. He was a big man with reddish hair and a thick beard of the same colour that matched the face and nose, which betrayed the immoderate use of alcoholic beverages.

Finally, Mdabe Hussein represented the clergy. In such a difficult period, with death always lurking, people had regained a strong faith by giving a few preachers a power that could not be ignored. He was the tallest and largest of all, his body exhaled strength just by looking at him. It was well understood how the African had been able to bewitch the crowds.

Johanna Meier was the first to speak.

“Madam, Gentlemen,” she said to the group, “We welcome you. You are among the five projects chosen to present their proposal for the use of the time machine. We will soon allow you to start. Please avoid the presentations and come straight to the point, we know who you are and I hope you will use the little time available to defend your idea, not to talk about yourselves.

Before I start, however, I want to inform you that your project is the most complex and least comprehensible we have encountered. The only reason it was not discarded is that we respect you as one of the leading scientists in our community and we see your idea as a different approach from all the others. I invite you to explain what you want to achieve and why in detail, but in a simple and understandable way.

Not an encouraging introduction, Orson thought while he took a step forward and began to speak:

“Dear Members of the Commission

Johanna raised her eyes to the sky, obviously, she did not even appreciate the pleasantries.

“Our group believes that in order to save our society from catastrophe it is first necessary to identify the cause of it. It is well known that the current situation was caused by a lethal combination of ABC wars and climate change. The absence of a valid response to these challenges was due to the poverty in which society found itself in the early twenties with the new great depression and the absence of policies capable of overcoming such a difficult period. We all know that central banks have had to stimulate the economy after a decade of expansionary monetary policies, thus fuelling inflation that has made the global population even poorer. In this context, politicians have tried to save their mandate by blaming their foreign competitors for the crisis, tightening the tariffs they had already increased a few years earlier, thus creating a protectionist market that has, for its part, further crippled the economy.

The implosion of the European Union produced a chain reaction that had strong repercussions on all the other world economies, causing the wars in the Middle East, southern Asia, Central America, which then spread to the attacks that we all know and that involved the major military powers of the time. In that situation, no one had the strength or the means to combat the effects of climate change, already known at the time, which led to the flooding of all coastal areas inhabited by about 45% of the world’s population.

As you can see, esteemed members of the Commission, the causes of our disaster are due to poverty, and poverty has manifested itself through an error in monetary policies that have not made it possible to safeguard the wealth created by individual citizens.

We believe that if society had been well-off, it would not have started wars and would have found the funds to combat the consequences of climate change. Only a wealthy person can help another person. Look at what we are doing ourselves, locked in our reserves and forced to reject the refugees who see us as the last refuge in order to avoid breaking the delicate balance that governs our community.

So what we are proposing is to create a new wealth, which can replace the old one and give a reason to people of the past to defend their well-being, rather than aspire to that of others.

“Fine words Mr Sellew, but we still don’t understand how your project is supposed to work.”

“In reality, Madam, it is very simple. After careful analysis of the economic and social situation, we are of the opinion that the first domino, the one that caused all the others to fall, was the lack of confidence in the currency. Remember what happened 20 years ago? You have experienced it too.

The economic crisis has caused a hyperinflation of the currency which first involved unstable and economically fragile nations like Zimbabwe, Venezuela, Turkey and Argentina, just to name a few and then spread to more countries, to the United States, Japan and the Eurozone.

People have seen all their savings lose value in a few years, their jobs disappear, creditors have not been able to recover their claims and we discovered that our wealth was based on a castle of debts, whose foundations have collapsed. This is the situation that led to the war and we propose to solve the problem by creating a new currency, or rather, a means to safeguard the value one’s assets.

“Mr Orson” this time it was Nikita Smith who spoke to him. “I admit that I am one of the few on this committee to have supported your project, and I’m intrigued by your idea of creating an alternative value to the currency used at the time which, as we all know, will lose its function. You do not have to explain that gold, which has been doing this function for centuries, proved unsuitable during the new great depression. The difficulty of transfer does not allow the use of gold in trade.

I cannot sell goods at a distance in exchange for a physical shipment of gold. The use of gold as a means of preserving one’s assets has played a crucial role in the collapse of international trade.

So how do you think you can create this sort of digital gold in the past, which can replace the functions of physical gold, but at the same time be transmissible without the need for physical contact between parties?

You have to create a special protocol, which you have to manage and keep running. You have been given the specifications of the time machine, the number of data that can be sent is limited. We can send texts, even simple programs, but here I fear that the technical limits are insurmountable.

“We will not send any protocol back in time, we will use existing technology and apply it in a new way.

“What do you mean by existing technology? There is no such thing at the moment.

“Because no one has ever needed it. Our group specifically looked for ways to create what you called digital gold using technology from the early 2000s, and, by combining pieces of different existing programs, we managed to create a new protocol that in our opinion is able to reproduce this concept of digital gold.

We have called this protocol blockchain. Each block will contain transactions carried out directly between counterparties, without the need for any intermediary. In order to avoid the possibility that a counterparty could corrupt the system and spend a transaction twice, these are secured by third parties, who will generate new blocks through complex mathematical calculations and will be remunerated for their work. The transactions on the blockchain are regulated by the protocol, which does not require any physical presence. Two parties are thus able to transfer value without having to see or meet and without the need of a third party.

“Mr Sellew, allow me to tell you,” said Mdabe Hussein, “that your description of this digital gold is anything but simple. How can we take a position on your project if we don’t understand how it works?

“Allow me to explain it all in other words, Mr Hussein,” Orson continued undaunted. “The blockchain is nothing more than an accounting register showing how much digital gold you have in your possession and how much your counterpart has. In this, the blockchain behaves exactly like a central bank that indicates how much money its counterparts hold. The difference of the blockchain is that the register is decentralized. It is not a single entity, like the central bank, to manage it, but a number of people who secure the register through mathematical formulas related to the theory of games that my colleague Ferrara will be happy to explain…”.

“I don’t think any of us are able to understand the technical functioning of your chain Mr Sellew, we are interested to know why you think that the society of fifteen years ago, of which you were part, would be willing to use a digital gold issued by… who emits your gold?”

“Nobody, this is one of the most important points. We cannot make the mistakes of the past. We have to correct them. Society will lose confidence in money when it loses trust in the central bank that issued it. This confidence will be lost because central banks, instead of focusing on the task of defending financial stability in the long run, have been protecting the economy from small crises, such as that of 2008, keeping alive a system that was destined to fail.

And the longer a failed system is maintained, the greater the crash will be. To this, we add the use of the central bank by some politicians to safeguard the economy in the short term, in order to attract more votes. If a person were to issue it, they would always look to gain in the short-term, which would then lead to long-term damage.

Keynesian theories worked to understand the great crisis of 1929 and to regulate the economy in the following years, but these theories were not applicable to the economy during the digital age. Hayek declared it as early as 1970 and it now proves to be a valid theory: why leave the state a monopoly on monetary issuance?

Let the free market manage this last bulwark. People will have confidence in the new digital gold not because they will believe in a single entity, but because they will believe in themselves, in the community, and they will know that the community will always choose wisely for itself, even if this involves difficult decisions that the individual politician does not have the courage and the strength to take.

“I understand, and here comes into play the deflationary effect that you talked about in your project”.

“Exactly. We know that in fifteen years’ time the whole world will fall victim to the inflationary scourge that will bring poverty to all nations. All people will then turn to gold, with the consequences that Mr Smith has well described. Now we want to create what you have called, not by chance, digital gold.

According to scientific estimates, there are 21 cubic metres of gold in the world. Well, we are going to emit 21 million pieces of digital gold, this will help understand the analogy of the digital gold with the physical one. The scarcity of this digital gold will guarantee the value of the gold and will generate confidence in the users.

The issuance will be managed over time by the people who secure the blockchain, which we have proposed to call miners. Their activity, in fact, serves to extract digital gold.

“But are 21 million pieces enough?” exclaimed Sun. “The world population before the wars was 8 billion people! This way, only a few chosen ones will be able to have your gold.

“You didn’t read our proposal well,” commented Orson, who actually imagined that Young Sun hadn’t even opened the document. “Our digital gold will be divisible indefinitely. The greater its value, the greater the subdivision that will be used.

A person will then be able to own even one-millionth of a single piece of our gold. In the beginning, few people will believe in the project, and consequently, its value will be limited, but the more people will start to use it, the greater its value will be. In reality, this detail is of little relevance. The important part is that when society needs alternatives to national currencies and physical gold, there will be one on the market.

“So you want to go back fifteen years to launch your project?”

“No, it would be too late. People wouldn’t have time to find confidence in such a new store of value. We need this digital gold to be already known and active on the market for several years when the new great depression will break out. We think that the ideal time to issue the new store of value is during the 2008 crisis.

As you know, the crisis will be resolved with a massive influx of liquidity, which will then be the basis of the new great depression. The 2008 crisis provides us with an excellent opportunity to justify our actions and explain the need for a deflated asset that maintains its value. For this reason, we do not want to call it currency, also because the system we have designed is not scalable and does not allow the execution of thousands of transactions per second, which would be necessary to replace a real currency, but…

“Excuse me, what do you mean that is not scalable and can not replace a currency?

“Before the war, the VISA system for example, was able to process tens of thousands of transactions per second. It was used worldwide, but it was a centralized system controlled by an institution. Our protocol must be decentralized for the reasons we mentioned earlier, but this involves a huge effort to secure the transactions and this severely limits the number of TPS possible…”.

“How many?” Johanna Meier asked bluntly.

“Seven” Orson replied

“Seven? You want to change the world by creating a new currency that only allows seven transactions per second.

“Actually, we don’t want to create a currency, we want to create a “store of value”, an asset that allows safeguarding its value during the period of deflation.

“But no one will be able to use it to make payments!”

“This is the essential point you need to understand in order to fully understand our project. It is true, for now the system has defects, I can also mention the energy consumption necessary to maintain it, which alongside climate change is certainly not optimal. But being decentralized, the community that will manage it will find solutions that will allow the system to evolve and solve all the challenges that will inevitably appear. I would say that with our project we want to create a Darwinian currency that is able to evolve over time and adapt to the needs of the market.

To do this, it is necessary that it is not just one person or a small group of people who can decide how to adapt the protocol, but a community. We also expect that within the community there will be splits and that over time new blockchains, different from each other, will be created, but only the most resistant will remain on the market. This is what was missing to solve the new great depression already in 2008, this is what we want to provide our society with, so as to have an alternative available when the new great depression will explode.

Silence fell in the room. Orson did not know how to interpret it. Was the Commission thinking about other questions or did they get tired of listening? He wanted to continue his explanation but understood that he had to allow time for the members to process what he had said.

All of them had experienced the consequences of inflation and knew that everyone had understood that the basis of their reasoning was correct. But their solution was extremely complex and with a high probability of failure.

“How do you intend to implement this digital gold in the past?” Meier asked.

The question was crucial, it was no longer ‘why’ do you think your solution is the right one, but ‘how’ do you want to implement it.

“We want to publish a white paper on the internet.

“A what?”

“A white paper, a document that explains the technical functioning of the blockchain and the birth of an asset that can be transferred between counterparties without intermediaries.

“And what do you want to achieve?

“We want to create a community, a group of people who, after seeing the project, will put their time and effort at its service to begin the implementation of the blockchain, as well as its further development.

“And do you think you can find the right people in the past who are willing to do this?

“Yes, we have identified people who already at that time were thinking about the possibility of transferring value without intermediaries. The community is very small, but we will follow their work and tell them how to behave in order to grow.

“And how do you want to communicate with these people?

“By email”.

“Yes, with the time machine it would be feasible.

“Basically, we’ll create an avatar that will communicate with this community and give them instructions, launch the first block and keep the chain alive for a limited period of time, until other people take our place.

“And when will that happen?

“When we are successful.”

“And how are we going to figure that out?”

Orson did not reply immediately. Could it be that the Commission had not taken this into account when it decided to change the past?

“If we succeed, our time will no longer be the future of the past with which we are in contact. This means that we will no longer be able to communicate with them. When this happens, then we will have saved the world from ourselves.

“And what will happen to us?

“Honestly… I don’t think anyone knows. Maybe we’ll continue our lives normally until the end. Maybe by changing the past, we will destroy our future and simply stop existing. I don’t know.”

The silence descended into the room.

It was Young Su who broke it.

“I don’t think digital gold is a correct name to give to your future currency.

“I agree,” replied Hinata Hiroshibe. “That’s why I thought of a different name.

“And what would that be?

“Bitcoin” was the answer.

Lars Schlichting
Lars Schlichting

My key areas of experience are technology, data protection, regulatory and tax laws. I advise corporate clients in the application of new technologies like blockchain, as well as in the compliance in financial laws. In particular I am a specialist in anti-money laundering legislation applied to new technology, I was active in the establishing of different crypto exchangers in Switzerland and other crypto financial products. I am following a Data Protection CAS because Data Protection is the most important assets of any digital company and acting also as DPO. Further, I have extensive knowledge and experience in the tax field, especially automatic exchange of information and FATCA. I have issued numerous publications, among other concerning the consolidate supervision of financial groups, and the comments of the financial services laws and the automatic exchange of information act, as well as a science fiction romance.

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