Best Crypto and Blockchain Marketing agencies

Continuing the topic started in the last article.

First I want to draw your attention to the fact that Horizon 2020 does not only turn around the blockchain. This is not true! The main motto “Science closer to society’’! This means a wide range of interests of the European Commission in the field of science and innovations. The program supports a wide range of activities: from research to demonstration projects and innovations that are ready to enter the market.

Horizon 2020 combines funding for research and innovation, implemented at the EU level, offers a single set of simplified rules and radically minimizes bureaucratic procedures. Horizon 2020 is based on three main priorities taken from the main guidelines of the EU’s economic development strategy “Europe 2020’’ (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/framework/europe-2020-strategy_en ) each of which includes a number of programs:

№1) Excellent Science — 24,6 bln €

· The European Research Council (ERC) (Support talented and creative scientists and research teams to conduct advanced high-level research through the ERC)

· Future and Emerging Technologies (FET) (Scientific cooperation in order to find new and promising areas of research through support for future and emerging technologies);

· Marie Skłodowska-Curie actions (Providing researchers with opportunities for learning and career development within the framework of the Mari Sklodowska Curie Action Program);

· Research Infrastructures (Providing access for all European researchers to high-quality research infrastructures (including e-infrastructures)

№2) Societal challenges — 31,7 bln €

· Health, demographic change and wellbeing (improve health and wellness throughout life);

· Food security, sustainable agriculture and forestry, marine and maritime and inland water research, and the Bioeconomy (ensuring an adequate supply of safe and high-quality food products, and other products derived from biological raw materials, thanks to the development of raw materials production systems with rational use of resources, stimulation of ecosystem services associated with this development, along with the provision of competitive and low-carbon production processes);

· Secure, clean and efficient energy (transition to reliable, sustainable and competitive energy systems, despite increasing resource shortages, energy needs and climate change);

· Smart, green and integrated transport (the creation of a European transport system that will ensure the rational use of resources will be environmentally safe, smooth and safe in favor of citizens, the economy and society);

· Climate action, environment, resource efficiency and raw materials (creating an economy that rationally uses resources and adapts to climate change and ensuring a stable supply of materials to meet the needs of the population of a growing world population, in the environmentally sound limits of the planet’s natural resources);

· Secure societies — protecting freedom and security of Europe and its citizens (stimulating innovative and safe European societies that provide equal opportunities to all in the context of unprecedented transformations and growing global interdependence)

№3) Leadership in enabling and industrial technologies — 17,9 bln €

· Leadership in Enabling and Industrial Technologies:

- Information and communication technologies (New generation of components and systems, New generation of computerized systems, development of the Internet, Information management technologies, New interfaces and works, Micro- and nanoelectronics and photonics);

- Nanotechnologies (Development of a new generation of nanomaterials, nanodevices and nanosystems, ensuring the safe development and use of nanotechnologies, the development of public measurement of nanotechnologies, effective synthesis and manufacture of nanomaterials, the development of technology, measurement methods and equipment that increase productivity, focusing on the main technologies that promote development and market entry of complex nanomaterials and nanosystems);

- Advanced materials (Interindustry technologies based on advanced materials, Development and conversion of materials, Materials for environmentally rational and low-carbon industry, Materials for new industries, Metrology, performance testing, standardization and quality control, optimization of material use);

- Biotechnology (advanced biotechnology, Industrial processes based on biotechnology);

- Advanced manufacturing and processing;

- Space (The specific task of research and innovation in the space industry is to develop a competitive and innovative space industry, and the scientific community, which will develop and use the space infrastructure to support future EU policies and public needs);

· Access to risk finance;

· Innovation in SMEs (small & medium enterprises)

After carefully reading the above priorities, I do not recommend you to be skeptical about what is considered primary in the EU before capitalist commercialization.

Working with the EU, you should get used to the fact that the European Commission took all the best that was in the socio-economic policy of the socialist bloc. Social aspects of EU residents, human capital development and life improvement are primary for the EU, and when reading the conditions of grants and signing agreements with the European Commission, you should always remember that income and profit are important, but the person and his needs are always in the EU priority.

Moreover, when working on your blockchain projects, you should always emphasize how your idea of even a fantastic and super capitalist blockchain will improve the habitat and living conditions of EU citizens. Include your fantasy in part of the project justification. It is clear that such a hierarchy of goals and objectives in terms of the implementation of the Horizon 2020 program is impossible without clear requirements and compliance with certain points of the European bureaucracy and requirements for participation and to program participants.

All the details that will be discussed below also apply to grants for the blockchain projects that we described in the last article (https://cryptodigestnews.com/blockchain-in-horizon-d88b662f572d ).

Now the general rules are in order, but also remember that each grant or actions has its own details, which you should carefully study:

Financing schemes

In the program Horizon 2020 there are mainly 3 types of projects:

· research projects

· Projects close to the innovation market

· Support and coordination activities

In Horizon 2020 there are two types of activities, as research and innovation. With the exception of some actions under the Marie Skłodowska-Curie action, such activities include a consortium of several organizations from EU countries, associated countries or third countries. The consortium selects one of the members as the coordinator and signs the grant agreement.

Grants can be financed at 100% of the total eligible costs (except for innovative grants, where profitable organizations receive a maximum of 70%). Indirect costs are financed at a rate of 25% of direct eligible costs. Most of the grants will be funded under the direct cost recovery scheme, but some of the grants (for example, as part of Marie Sklodowska-Curie’s actions) will be funded by a one-time payment method (Lamp Sum).

Projects will be evaluated according to three main criteria:

· Perfection

· Contribution

· Quality and effectiveness of implementation

The terms of participation

Minimum conditions:

a. At least three legal entities must participate in projects (sometimes with the exception of SME actions)

b. Each of these three legal entities must be based in the EU member country, in the candidate country or in the associated country (a list of candidate and associated countries can be found on the euro commission website);

c. No two of the three legal entities may be based in the same EU Member State or in an associated country;

d. All three legal entities must be independent of each other

Participants:

a. any legal entity established in a Member State of the EU or in a candidate country or an associated country, or established under EU law;

b. any international organization with the participation of the EU;

c. any legal entity based in a third country (a list of recommended third countries can also be found on the Euro Commission website)

If an international organization or a legal entity based in a third country that does not meet the specified funding criteria participates in the program, EU funding may be provided, under certain conditions; one of the following conditions:

a. The participation of such an organization or legal entity is deemed necessary to carry out an activity (consortium);

b. Such funding is provided by a bilateral science and technology agreement or any other agreement between the EU and an international organization or, in the case of legal entities based in third countries, between the EU and the country in which the legal entity was founded.

Those who are usually classified as participants in joint projects (categories RIA, IA, CSA and others) are legal entities: universities, research and development centers, industrial partners, small and medium-sized businesses, public organizations.

According to the rules, several such participants form a consortium with their project management center. The main requirements for the consortium — the competencies of the partners comply with the objectives of the competition and the project, complementarity, the ability to show product development according to the TRL scale (at least in research projects from the state of the idea to a working prototype).

Joint calls (actions) for proposals with third countries or international organizations

1. General calls for proposals with third countries, research organizations and bodies of such countries, or with international organizations can be carried out for co-financing activities. Proposals should be evaluated and selected using agreed joint assessment and selection procedures between the parties.

2. Legal entities that receive funding from the EU must enter into a financing agreement with the EU or the relevant funding body. The financing agreement must contain a description of the work that participants and legal entities from third countries participating in the program must perform.

3. Legal entities that receive funding from the EU must enter into a coordination agreement with legal entities participating in the program; receive funding from the relevant third countries or international organizations.

Type of actions (grants)

For a clear understanding of the system of grants and methods of financing your projects, the information will be presented in table format.

Table 1 Horizon 2020 Grant Specification

Registration on the Participant Portal

The system of filing documents and application forms is automated on the platform. Apply only online. Registration on the participant Portal Horizon 2020 gives you huge bonuses. Registered users have the opportunity to submit project proposals for actions, sign grants, as well as manage their projects. All this can be done by following the instructions on https://ec.europa.eu/info/funding-tenders/opportunities/portal/screen/home , you need to find the REGISTER button, which is in the upper right corner, where the European Identification Service page opens (ECAS).

Search for partners

It is clear that the projects have a partnership character and a consortia format. The EU relies on the collective work of various institutions from different countries — a kind of internationalization and globalization of science and innovation. In such projects, the main thing is not only your super idea, but also your ability to work in a team and skillfully solve various team issues. If you already have specific partners, this makes it easier for you to work, but you should not forget to add them to the participant portal of the Horizon 2020. However, if there are no partners, the European Commission provides several tools for finding them:

· https://ec.europa.eu/info/funding-tenders/opportunities/portal/screen/how-to-participate/partner-search (on the portal you are looking for partners)

· https://cordis.europa.eu (use another portal — the largest EU database)

· http://www.ideal-ist.eu (IT & communication database or even more)

· https://www.nmp-partnersearch.eu (database of nanotechnology and new materials, and even more)

· https://www.fitforhealth.eu (database of medical research and projects)

· https://cloud.imi.europa.eu/web/eimi-pst. (database of innovative medicine)

· https://een.ec.europa.eu (European Enterprise Network Database)

· https://www.transport-ncps.net (database for transport and logistics projects)

· https://www.linkedin.com/groups/4783146/ (LinkedIn partner search)

SME instrument

In my opinion, the most promising for blockchain are grants under the category of SME

Funding & tenders

The Funding and Tenders Portal is the single entry point (the Single Electronic Data Interchange Area) for applicants…

ec.europa.eu

(besides those actions that were described by me in the previous article). SME — small and medium enterprise. It is worth to remember what SME is under the EU regulation. SMEs are defined in the EU recommendation 2003/361

EUR-Lex – 32003H0361 – EN – EUR-Lex

5. Enterprises may make a declaration of status as an autonomous enterprise, partner enterprise or linked enterprise…

eur-lex.europa.eu

The main factors determining whether an enterprise is an SME are staff headcount either turnover or balance sheet total.

Table 2 SME under EU recommendation 2003/361

However, enterprises are not considered SME if more than 25% of their capital belongs to organizations with state participation, not counting institutional and venture capital investment companies, universities and research centers, and small municipal bodies.

The total budget specifically for actions in the framework of SME — about 2.5 billion euros from 2014 to 2020. At the same time, remember that the blockchain projects are allocated from 2018 to 2020 — up to 340 million euros, in addition to the SME instrument. In order to participate and be qualified, a number of legal requirements must be met. Your small and medium-sized enterprise meets the SME criteria in the EU, is officially registered (in the EU or associated country/candidate country), registration data, financial and tax reports for reporting periods are available on the participant Portal Horizon 2020.

According to your charter, you are also engaged in innovative activities, you already have your own unique innovative product at a level not lower than TRL6 (Technical Reediness Level) — you have a working prototype that is ready for refinement to become mass production.

SME instrument has few types of action (phase 1 & phase 2), that been considered in the table 1. Now in details:

Phase 1 — helps you get a grip on the R&D, technical feasibility and commercial potential of a ground-breaking, innovative idea and develop it into a credible business plan for scaling it up. Activities can include, for example, risk assessment, market research, user involvement, analysis of regulatory constraints or standards regimes, intellectual property management, partner search, or feasibility assessment.

Your goal in Phase 1 is to formulate a solid, high-potential innovation project with a European or global growth-oriented strategy. Your proposal must be based on an initial business plan and outline the specifications of a more elaborate one, which will be the outcome of the project. Phase 1 funding is a lump sum of €50 000. Projects should last around 6 months.

Phase 2 — helps you develop your business concept further into a market-ready product, service or process aligned with your company’s growth strategy. Activities could, for example, include trials, prototyping, validation, demonstration and testing in real-world conditions, and market replication. If the activity concerns a primarily technological innovation, a Technology Readiness Level (TRL) of 6 or above is envisaged.

You can apply to Phase 1 as a means of preparing for Phase 2, or you can apply directly to Phase 2 — Your proposal must be based on a strategic business plan that was either developed in Phase 1 or by another means. Your proposal must specify the expected outcome of the project and criteria for success, as well as the expected impacts on your company in both qualitative and quantitative terms (e.g. on turnover, employment, market size, IP management, sales, return on investment, or profitability). You must pay particular attention to IP protection and ownership, and present convincing evidence or measures to ensure the possibility of commercial exploitation (often known as ‘freedom to operate’). You should also address regulatory and standardization issues. Grant funding is provided (funding rate 70%) of between €0.5 million and €2.5 million. Your project should normally take 12 to 24 months to complete.

Phase 3 — helps you take advantage of additional EU support extended via a range of business support services offered on the EIC Community Platform, open to SMEs benefiting from the different EIC calls for proposals. This support can take the form of training, links to investors, partnering and networking with other EIC SME clients and larger firms and services to help you access international markets, e.g. via participation in overseas trade fairs. Phase 3 is not necessarily subsequent to Phase 1 or Phase 2; it provides specific support to EIC SME clients, mainly to help them access new markets or customers and link with investors. It does not provide direct funding.

Small, innovative, companies create the majority of new jobs in the European economy. Technological advances are making it easier and cheaper to start enterprises with limited own resources — but SMEs often struggle to scale up and create new jobs, including recruiting talent.

There is a wide range of public sector support through grants, subsidized loans, equity, and innovation support services. Yet SMEs are often dissatisfied with these, while at the same time the public expects a higher return from the support provided. The following call for proposals is one element of a broader action to address these challenges and develop the ecosystem of innovation support to SMEs in Europe.

Generally, the actions are designed to provide opportunities to Member States and regions to enhance their services through collaboration, and peer-learning. The emphasis is on further testing new approaches for better innovation support, such as blockchain technologies, workplace innovation, a network for Open Innovation, training on advanced manufacturing, experimentation in innovation agencies and a tool for investors in financing SMEs.

SME Instrument is very selective. Only the most convincing and excellent proposals can be funded after a thorough evaluation by multinational panels of technology, business and finance experts. Selected companies receive funding and are offered business coaching to scale up their innovation idea, and can also receive mentoring. They are helped in networking with other SME Instrument clients, with other companies of all sizes, and with potential co-investors and follow-up investors across Europe.

As an SME Instrument client, you will gain visibility and boost your chances of success in European and international markets. There are no set topics. Negative impacts on climate and the environment should be avoided.

Therefore, along with the blockchain and its innovative implementation in various areas of production and services, the following areas of innovation financing are relevant: in ICT, nanotechnology, biotechnology, space, biotechnology in medicine, agriculture and forestry, agro-industry, “Blue growth” (marine biotechnology, ocean energy, fisheries), energy, transport, climate, resource efficiency and natural resources, socio-cultural area, security. No deadlines.

Obviously, within the framework of Horizon 2020 for fraudsters and scammers there are no chances to be funded for fictitious projects and ideas, since the European Commission uses a strict system of checking applicants, their past achievements and service record. It requires projects be in the main consortia format, which means the participation of many EU-verified stakeholders in the project, and conducts a rigid system of monitoring intermediate results and auditing the budget of funded projects. However, for those who are confident in their ideas and who have no malicious intent — the door is open to participation in grant actions within the framework of Horizon 2020.

Join the chat — https://t.me/joinchat/AAAAAE84vCXg5PK-VpHADg

Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solutions, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support for business

Prologue. On the nature of revenge

Revenge was inherent in people from everlasting times. This is the most popular plot in literature, myths and legends: from Greek tragedies to Shakespeare’s Hamlet. In addition, many people in their everyday life often thought of plans for revenge and even tried to carry them out. Since the opportunity to punish our abusers brings a man an incredible pleasure. What makes a person to revenge? From the mass media, you can find out that some researchers believe that this feeling guarantees us some unexpected advantages. However, at the same time, revenge is often difficult to separate from violent acts, and this essentially makes it difficult to study. The line is virtually blurred between revenge and violence. It can be argued that between the moment when a person was insulted and his aggressive reaction, something strange is happening. Our resentment or social neglect causes emotional pain. Researchers say that this pain is emotionally comparable to pleasure. So, if an unfair attitude to a person first causes pain, the possibility of revenge very quickly replaces him with a pleasant sensation. In this process, even the pleasure center in the brain is activated. In other words, people react aggressively to an insult, because such a reaction gives them pleasure. The link between aggression and pleasure has long been known. But the fact that such a connection is not normal from the standpoint of humanism, but at the same time is logical from the standpoint of Darwinism, makes one think about this phenomenon. Even Sigmund Freud understood that when a man throws out his anger, he feels relieved. But the idea that revenge causes a special kind of pleasure, became apparent only recently, when the mass media, or, more precisely, products of pop culture and the media, began to impose the idea that the desire for revenge was very positive! The motivation for such promotion — revenge performs the function of a deterrent that helps to survive and assert itself. But just like hunger, revenge is an instinctive desire that requires momentary satisfaction. Only by quenching that thirst, the avenger can calm down. We are fully capable of resisting the desire for revenge. Indeed, it was not without reason that in the course of evolution we developed this complex part of the brain, which is able to control impulsive behavior and direct it to a more socially acceptable channel. So, the next time a sweet plan for revenge begins to be born in your head, know that a pleasant wait will not last long.

Revenge is a powerful emotional mechanism calling a person to action. Thirst for revenge is the most ancient instinct that makes a human being close to the animal world and often creates many problems for us at the end. Thirst for revenge or retribution is an instinct that was developed in the process of natural selection, because it helped the ancient man to solve many problems. What are the tasks? The most important is a tool of deterrence (revenge reduces the likelihood that someone who has hurt you or your loved ones will do it again). But how important is this instinct in society today, and will not it lead to social chaos? Drama eats such plots. I repeat, once again, from Shakespeare’s Hamlet to Greek myths — the righteous in search of revenge are one of the most persistent and bright archetypes in literature and mythology. On the contrary, real life confronts us with bastards who are ready to plunge a knife into the back and assert themselves at our expense. According to psychologists, up to 20% of all murders in the world are committed because of revenge. This is a common story when offenders and their victims assess what happened differently. When we cause harm to others, we are tending to underestimate its scale in our own assessments, to justify ourselves and push the blame out of our memory. But when in the same way somebody is harming us, we feel ourselves victims of an injustice of universal scale. Unsatisfied thirst for revenge — the cause of mental disorders and bursts of aggressive behavior. For weak-willed people, this becomes an idea fix, and chaos reigns in their psyche. If one does not take action, it can become the meaning of human life, distorting one’s entire consciousness. Revenge only attracts by sweetness, cheating at the finish. We, people, in general, are often mistaken in predicting our future emotions. But revenge even against this background is a cheater of a unique level. Revenge has a more complex goal than simply balancing suffering. The highest task of the eye for an eye principle: not to punish for past sins, but to change the behavior of the criminal in the future. Yes, this is our most important wish: that the criminal demonstrates complete understanding and repentance for what he has done to us — is a utopia, which gives rise to an endless response. Once one has avenged oneself, one enters into the taste, blurring the line between punishment and violence, between justice and murdering.

Overton window and Hollywood

This prelude was before thinking about the possibility of introducing such a tool as ‘’the right of judgment night’’, or the right to revenge, the right to avenge our offenders, and deservedly or unjustly completely irrelevant. In our information age, when technological progress became the essence and core of human civilization, and moral standards and high notions of eternal values, morality faded, at least, into the background, Overton’s windows began to be used more and more as a tool to prepare society to certain institutions that are controversial with the evaluation of morality, humanity and humanism. One of the propaganda instruments using the Overton Window technique is cinema, pop culture and information products. In this regard, for example, the plot of ’The Purge’(2013) is an alarming bell, showing that certain political circles of a radical liberal nature are beginning to gradually prepare society for the right to lynching. The latest trend in politics on a global scale in general is the merging of right and left radicalism. If the ‘’right’’, something is saying in the name of elimination, then the insolent ‘’left’’ is saying the same thing, in the name of improvement. Moreover, what evil of them is the most dangerous and hidden from the unprepared mind of the citizen remains behind the scenes. What are the goals of such a propaganda, we consider lately. It is difficult to call the plot of this film dystopian, because the screen shown is not very different from the realities of today’s USA. It is more correct to use the term “warning film” here. So, what is the film “The Purge” about?

In the near future, the United States found a way to solve its economic and social problems — “Judgment Night” (The Purge), when once a year, any crimes become legal under the slogan “Killing, we clean up”, and the dead are considered as “victims in the name of deliverance from crime”. In fact, the idea is implanted in the mind of the audience that in the future, the success of the state and the community will depend on the quality of suppression of the weak and control of the animal instinct of revenge, giving the citizen the right to kill out of revenge, and in the end kill anyone — out of hate, envy or their sadistic inclinations. It is terrible that such a scenario of public relations in the state is shown in the plot with such details, and allegedly shows such delight of fellow citizens who kill each other in accessible ways that the details of this are perceived only as propaganda of such a mechanism in the future. If you think that this is impossible in real life, you are already deeply mistaken. Perhaps, it is already used, and partially promoted by politicians, that there is a dangerous precedent. One such example is the activities, statements and actions of the President of the Philippines Rodrigo Duterte, who called for the extermination of drug addicts and drug traffickers without trial, and within a month the police and activists completely legally killed from 400 to 700 people. There is a little good in the venture: since it became just enough to throw a drug for the legal killing of a person, your rival, opponent, and neighbor. Facts on the outcome, just talked about such frequent cases. Now imagine all this on a planetary scale. The question remains — why is it all promoted in Hollywood?

For me, the answer is simple — the state, and most likely those who hold and control the state power, not only in the US, but around the globe, are tired of fulfilling their social and humanistic obligations of the second half of the 20th century. The state no longer wants to spend resources on social security, on job creation, on health care, on affordable education, on the rule of law, on the maintenance of the judicial system, and so on. In fact, gradually working through the issue of legalizing lynching violence and killing, such people in the face of the state machine are trying to solve many resource-consuming problems with just one action — to remove the extra mouths and demands of citizens from their eyes. In addition, at the same time — the weapon market will be stimulated and legalized everywhere. Do you think these are sick fantasies? You should not think so, as you always have to remember that the Hollywood in general, have recently turned into some factory of the projection of a possible future. Just remember the movies that you watched 20 or 30 years ago, what was all about? And what do we have now today, on the threshold of 2019? Social networks, modified gadgets, robotics, nanotechnology, gender issues, and so on. Therefore, there is every reason to look at this issue seriously.

Church opinion

Mob law — certainly a sin. All the sinful passions, which can only be at the excited crowd to the limit, are present here: condemnation, anger, hatred. In addition, all these passions are literally going wild. We must remember that any sin can be difficult to cure, because it parasitizes something good. At the very basis of such a phenomenon as lynching, lies condemnation, reaching the point of anger, some kind of emotional state. In fact, this is an ugly imitation of a desire for truth rooted in a person, a desire for justice. The desire for justice in itself is a good human trait. But when it is corrupted, horrible things are obtained, those that are known to us as the sin of condemnation, the sin of intolerance, of hatred. It is all just observed during mob trial, when the desire to achieve justice in any way overpowers understanding and remembrance of love, mercy, forgiveness. When a person starts a volcanic eruption of passion, the spiritual world is completely lost — the most important thing that underlies any relationship between men. A person loses the understanding that the judge is not he, but the Lord. So, of course, there can be nothing good in lynching. We are all connected with each other, and any phenomena of our life are connected with each other. It is not only the people who make up this crowd that are guilty of lynching of people. Someone else is to blame. In addition, not just a faceless system, but specific people who once did not heed any requests or did not respond to any petitions. Zosima says in the novel “The Brothers Karamazov”: “Truly everyone is to blame for everybody and for everything”. We must realize that everything is connected with everyone, and in the common misfortune, in the same mob law, it may be worth seeing our own guilt … This does not mean that it is necessary to reach the point of absurdity. But with those who commit lynching, should be responsible those who brought people to this terrible thing. All this is a consequence of one terrible reason. The point is the moral state of our entire society in the world. In this respect, mob law becomes violence. Lynching is where one does not believe that the criminal will be punished. Where the state is denied one of its main functions: it has a monopoly on violence, which is delegated to it by citizens, otherwise it will be a war of all against everybody. The emerging vacuum is filled with such a “popular initiative.” However, giving such a right to be realized — the state gets rid of its direct obligations to uphold justice and the right to punishment. Such power, as it were, is given to their fellow citizens for a certain time, while preserving the ancient Roman motto ‘’Panem et circenses’’. Any religion is categorically against the assertion that violence is not something prohibited and seems to be a fairly legal way to solve problems. If you watch TV, hear the news, that there and here are always some situations with the use of violence … The population begins to perceive violence as a legitimate way to solve some problems, which is not acceptable for any religion. We usually talk about Western “double standards” when Western democracies declare certain principles — and then they themselves object to the application of these principles. Moreover, within the state itself there are citizens who live by different standards than those established by law. Those who are “allowed” more than others. On the other hand, remembering Orwell, everyone is equal, but some are “more equal” than others. The non-violent side of biblical and later Christian inspiration is manifested in the long-term historical development of our civilization. In some important respects, since the late Middle Ages, our historical world has moved towards reducing violence. But in the modern world, concern for the victims gradually leads to ridiculous distortions. The history is rewritten from the point of view of victims, which provokes a sharp increase in violence and threats of violence, but the most unpleasant is that it increases interest in it.

The decline of global democracy?

Is global democracy in decline? What exactly is said about the decline of democracy and what could be behind such a decline? Evidence of a global decline of democracy is divided into several types:

· The first type is international indicators, such as Freedom House, indicating that the number of free states is not growing, but, on the contrary, is decreasing.

· The second type is the election results, showing growing support from leaders who do not want to reckon with democratic norms.

· The third type is research data, such as the World Values ​​Survey. Least of all changes — in international terms.

Although Freedom House has pointed out some countries in which democracy is threatened, we can hardly speak of a real “reversal”. Moreover, this decline is more likely due to the overestimation of the present level of democracy in many countries, than the actual curtailment of democracy. What makes these leaders or these parties anti-democratic? Their willingness to violate minority civil liberties? Or willingness to destroy democratic institutions? The first threatens liberal values, and the second — rather, procedural democracy. The importance of diagnosing the nature of these anti-democratic appeals becomes simply necessary when we are facing with evidence of democratic decline stemming from responses to questionnaires in the World Values ​​Survey (WVS). Previous studies have shown that democracy is under threat, based on data from the WVS, indicating an increase in dissatisfaction with democracy and support for autocratic alternatives. Although the number of respondents who support authoritarian alternatives is still a minority, this number is growing, especially among young respondents around the world.

This seems to indicate a growing rejection of democratic norms and support for autocratic alternatives that openly challenge both liberal norms and democratic institutions. First, based on the concept of “disgruntled citizens”, it should be assumed that dissatisfaction with democracy does not necessarily mean less support for it. Secondly, it is possible that questions using democracy measure not at all the degree of support for precisely those democratic values ​​that scholars have in mind. But how much can democracy transforms itself into an anti-democracy by manipulating the concept of “dissatisfied citizens”, gradually introducing radical tools to control society and solve social problems, such as the same right of lynching (mob law) or total use of social ratings? I repeat, the general impression is that the edges are erased between falsehood and truth, between right and left, between good and evil. The public bottom is getting deeper and deeper down.

Condemnation

Position #1 — There is no higher excuse for lynching. Justice is everyone’s own. As a rule, justice is something that a citizen personally considers beneficial for himself. There is no fair “smart” mob. If lynching (the purge) will be introduced into everyday practice, it will immediately turn into a banal settling of accounts. According to statistics, about 70% of intentional homicides are household murders. That is how in practice it will look like mob law. The law is the law, and it must be implemented. And certainly not the one who seeks justification for the murder of his fellow citizens has the right to judge the morality of laws.

Position #2 — the elites do not care about lynching. High fences and well-armed guards securely fence them off around the world from the people. Ordinary citizens will suffer. When the official police step aside, and the laws of the state are not followed, it is not the highest people’s justice. Instead, there are well-organized and armed gangs, who exercise their own lynching over the rest. As it happens, for example, in Brazilian favelas or in drug-controlled areas of Mexico. Or as the plot of the movie ‘’The Purge’’.

Position #3 Mob law — this is wildness and a sign of deep degradation of society. In a society where there are working courts and law enforcement agencies, in a society that is the heir to the spiritual wealth of its ancestors, mob law is a huge step backward, the path to the archaic.

Position #4 — Justification of mob law and calls for lynching is the justification of crimes, the justification of murder, it is calls for wildness. How can you approve lynching in the modern world, where even without that the level of aggression just rolls over? It is hard to imagine what is going on in the minds of such citizens and such politicians who speak about this in all seriousness. This is a sign of decomposition and disintegration of a certain system of established values ​​and norms that support the traditional social order. However, unfortunately, a part of modern society has already advanced quite far along this curved road. As a result, many citizens removed the cultural taboo on murder, appeared tolerant of murder and murderers. Someone easily kills, others applaud them happily. Moreover, social inequality simply exacerbates this situation. Of course, a reduction in the level of professionalism of justice, as well as the passivity of people in terms of cooperation with the police, for example, and propaganda of pop culture, which we mentioned earlier, also contributes.

Conclusion

Probably, some of you, being in the role of offended, tried to pull yourself together, repeating: “I will not take revenge on him, because it is not worthy of a person. His life will punish him so badly for the evil he caused me!” Other people think quite differently in such a situation: “He’s so mean to me, I’m so violent for him that I will punish him enough!” Revenge is a very strong feeling that is not make people happy. The motivation for revenge is the struggle for justice, to pay the offender according to merit. On the one hand, it seems that this is the right feeling and there is nothing wrong with it, but on the other hand, when a person starts to implement the plan of revenge, the next transformation starts. It all starts with a strong attack of indignation, which is similar to an internal explosion caused by unexpected and unfair events. Revenge can be considered as a painful condition that fever the whole body from brain to fingertips. It can capture a man like love and force him to do strange things, which he later bitterly regrets. For revenge sometimes, the most insignificant reason is enough. It all depends on the nature of the person whose dignity is hurt. Each of us faced in the life with insults, jealousy, betrayal. These are already more weighty reasons to start revenge. It should be noted that if a person lives in harmony with himself and with the surrounding reality, all the little things that happen to everyone would not offend him. Revenge often goes hand in hand with envy. As you know, people sometimes commit very low acts out of envy. They may have a desire to take revenge, because a colleague is doing much better than they are, for example. This is the behavior of insecure people under the influence of others. If someone offended you and it caused a desire to take revenge, then you should not be ashamed of this feeling. You just turned on the natural mechanism of self-defense. But if such a desire arises for no apparent reason — you need to sound the alarm! In this case, it is necessary to endure the struggle with oneself in order not to break the peace. In order not to become an evil and vengeful person, you need to learn to forgive and calculate the consequences of retaliatory revenge. Revenge is a source of great emotional experiences for both parties; it does not make anyone happy. Often in the event of a conflict, revenge may seem the only solution to the problem. However, it is worth thinking about what can be changed with the help of vengeance, what will be the benefit for you, except that you will get some satisfaction? It may turn out that after your vengeful attack the situation will get even worse. Maybe it is easier to solve the conflict peacefully. Or just ignore your abuser? However, again, punching the bottom every time with a new film, new rhetoric of politicians and new rules of the public game in the form of laws, without even noticing it, we follow the populist system and follow the path to self-destruction. Remember one thing: only strong people can be indulgent and forgive their opponents, or ignore them as a person. They never allow themselves to fall to the level of their offenders and do not use dubious methods of revenge, eventually turning into punitive actions. Man is distinguished from the animal world by the presence of deep mental activity, do not forget about it. In addition, of course, humanism is a system for building human society, where the highest value is human life. All that will take lives with impunity will move us away from humanism to the age of dinosaurs. Be vigilant and make sure that social experiments do not drive us back into the era of the Jurassic period.

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Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solutions, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support of business

#1 Financial services

There were a lot of talking about where and how blockchain is suitable. Attempting to stick the blockchain everywhere and to everything is a parody. This just hype for this word, and not for technology, unfortunately already played a cruel joke. However, there are still sectors of economy where it is appropriate. And we will consider it step by step. Experts from Gartner believe that the blockchain is currently on the verge of the “getting rid of illusions” phase. At this stage, the disadvantages of the technology are revealed, the publications in media are full of criticism. However, are there any working products based on the blockchain and, if so, in what areas? One of these areas, one can consider financial services, where traditionally there are many intermediaries, lack of transparency and high commissions. Already, many big banks are working on decentralized solutions and are testing them. So what is on the market now? For example, development of netting. It is a service based on Hyperledger Fabric. Netting entails offsetting the value of multiple positions or payments due to be exchanged between two or more parties. It can be used to determine which party is owed remuneration in a multiparty agreement. Netting is a general concept that has a number of more specific uses, specifically in the financial markets (in securities transactions).

What else? There is much talking about bonds on the blockchain, mortgages and bank guarantees. Almost all leading banks, including Islamic banks, are experimenting with this. Again, Hyperledger Fabric is popular for this and Corda blockchain in some other cases. Are there any prospects? Undoubtedly, there is in those cases and situations where we need tracking operations and consent for this from all parts. Banks as Bank of America, Goldman Sachs, Citibank, Morgan Stanley, JPMorgan Chase and Bank of China, Commonwealth Bank of Australia in 2019 promising results.

Also in the banking sector one talks a lot about cross-border financial transactions, there are even intentions to get rid of SWIFT.

#2 Copyright protection

One believes that it can be well recommended in copyright protection and in the fight against data falsification. For example, Sputnik DLT, a startup, developed the Depositor service on the Waves platform to prove copyrighting. A similar solution exists already based on Emercoin, where the SHA-512 algorithm is used. According to the developers, the Emernotar service can be used by business and lawyers to sign contracts, online services can be used to collect demonstrable user consents, and representatives of creative industry can confirm copyright. Based on the Emercoin technology, there is a platform for democracynotary.org. It is designed to protect the integrity of important information related to electoral processes as well. Although, in terms of the electoral process, the blockchain cannot yet ensure the anonymity of the vote, but it can ensure the authenticity of the vote. This decision was tested during a recent referendum in Macedonia on the issue of approval of a treaty with Greece, providing the change of the country’s name. Its task was to notarize public reports on the process of holding a referendum as part of countering the spread of disinformation.

#3 Real estate

The promising scope of the blockchain use case is registration of real estate transactions. Last year there were certain attempts to conduct such purchase/sales transactions in many jurisdictions using the smart contract on the Ethereum blockchain. Not everywhere did the legislation understand what lawyers are trying to do, but attempts have been and will be in the future. For example, the most striking example is that through a decentralized Propy marketplace in California, a deal was made to sell ten acres of land, fully executed in bitcoins and registered using the blockchain. Later on, the first in the EU sale of real estate on the blockchain took place. In December 2018, the Swiss FINMA approved the business model of blockchain company ‘’Blockimmo real estate company’’. Now, the Blockimmo platform is in test mode and is available for residents of Switzerland and Liechtenstein. Later, the company plans to enter other whole European market.

#4 Wholesale and logistics

Some experts sing the hallelujah of using blockchain in wholesale and logistic sectors. At the same time, another part of the expert world is proving the futility & useless of this technology there. However, at the same time, we should not deny as consumers the success of some implemented projects, both in wholesale & in logistics. In the late fall of 2018, oil giants BP and Shell, large banks and other companies launched the Vakt blockchain platform to optimize processes for trading commodities. In particular, the solution involves the transfer of paper documentation to smart contracts. The blockchain is also used in the United Arab Emirates — the first blockchain-based logistics solution in Abu Dhabi were launched by Maqta Gateway LLC. The company has developed a blockchain-based Silsal technology to improve the efficiency of logistics and freight. Through DLT technology, Maqta Gateway hopes to reduce paper work, facilitate real-time status updates, and speed up information sharing. Also in the autumn of last year, the launch of the IBM Food Trust blockchain platform took place. It is based on the Hyperledger Fabric technology, and is intended as a platform for controlling supply chains in the food industry. Such famous companies as Carrefour, Nestle, Dole Food, Tyson Foods, Kroger, Unilever and Walmart became members of the network. The monthly cost of blockchain services from IBM ranges from $ 100 up to $ 10,000. Therefore, if such industry giants invest in this, then it makes sense!

#5 Transport

In the fall of 2017, a decentralized Shelf.Network auction was launched. The platform allows dealers to enter into transactions for the sale, rental and leasing of cars. A year later, the auction received investment from the Japanese IT giant Broadleaf. At the same time, Broadleaf received a license to distribute Shelf.Network technology with the aim of creating a trading network for car and component sales in Southeast Asia, including Japan, Myanmar, Thailand, Indonesia, Vietnam, Laos, Australia, India, and Singapore. At the end of 2018, 60 thousand cars from the USA were represented in the service network. Shelf.Network also interacts with the Carfax web service, which provides vehicle history reports to individuals and businesses. Startup Auto1 Group GmbH used the blockchain to record loans and insurance products when buying vehicles in Germany. Blockchain in this case allows dealers to carry out transactions quickly. DLT is an alternative to traditional paperwork, which takes about two weeks in these cases. According to a survey conducted by the IBM Institute for Business Value among large companies, by 2021 the blockchain will play a key role in the automotive industry. Blockchain is using in the airline industry as well. For example, S7 Airlines and Alfa-Bank (Russia) have applied smart contracts on the Hyperledger blockchain platform to pay for fuel at the time of aircraft refueling instantly. The parties believe that technology of the DLT can simplify and speed up mutual settlements, eliminate various financial risks, and also automate the processes. The meaning of the application is the same as in wholesale and logistics.

#6 Public sector

Blockchain is already close to public sector. Blockchain is widely used for the certification of documents. There is, for example, the Proofstack service, which archives the document file together with the personal signature of the owner, the date & time stamp. Then the archive hash is written to blockchain. The user can additionally select a country, which will affect the type of timestamp, and the desired storage location of the generated archive (computer, cloud). The created archive serves as confirmation that the file is archived by a person at a certain time. Blockchain is becoming commonplace in the judicial system. For example, ServeManager and Integra have integrated blockchain into a service to track the delivery of subpoenas. The state-supported blockchain solutions in China are rapidly developing. Thus, within three months after launch, the Chinese judicial blockchain-system Tianping Chain gathered about a million elements of online evidence. All materials presented on the platform were verified using DLT & belonged to 190 000 documents. The system for placing electronic evidence was developed by Beijing Internet Court, China Emergency Response Team in Industrial Control Systems (CICS-CERT), Research Center under the Ministry of Industry and Information Technology, Baidu Internet Conglomerate, and TrustDo blockchain-startup. The platform is based on Super Chain infrastructure from Internet giant Baidu. Tianping Chain optimizes the process of collecting and storing evidence, and ensures the authenticity through the blockchain. The platform saves time and resources by reducing the cost of litigation related to the Internet.

#7 Insurance and fintech

Maersk, the world leader in container shipping, began to use Insurwave blockchain solution last spring. The maritime insurance platform was developed by consulting firm EY and Guardtime, and is based on Microsoft Azure cloud technology. In the first year of working with Insurwave, Maersk is expected to insure one thousand seagoing vessels, and the total number of digital transactions will exceed 500 thousand. The platform is already used by Willis Towers Watson, XL Catlin and MS Amlin. The developers are expanding Insurwave’s functionality to add insurance to aviation and energy. A British fintech company Calastone, specializing in the management of investment flows, announced the full transfer of calculations to the blockchain. The company expects technology to help cut billions of dollars in the costs of the global settlement sector. Calastone provides risk assessment / management services, IT infrastructure, and payment solutions to more than 1,700 companies, including JP Morgan Asset Management, Schroders and Invesco. However, all these are excellent opportunities if the goal is to strive for transparency of transactions and the information entered in the DLT registries. If the goal is to remain anonymous or ‘’tracing’’ financial transactions, then there is no prospect for blockchain at all there.

#8 Energy sector & telecommunications

Singapore Power Group has launched blockchain marketplace for trading renewable energy (REC) certificates. According to representatives of the company, the platform is “developed in-house” and is designed to make transactions with such certificates safe, reliable and traceable. RECs are evidence of the release of a certain amount of electricity by solar panels. Platform interested by City Developments Limited and DBS Bank, who intend to buy certificates. RECs are being sold by Cleantech Solar Asia and LYS Energy Solutions. Katoen Natie Singapore has also joined the platform, which plans to launch renewable electricity production capacities soon. KT Corporation, the largest telecommunications company in South Korea, launched its own blockchain network. The distributed registry technology is involved in user authentication and to improve international roaming services. The marketplace will also allow for the safe transfer of customer data to KT Corporation partners. Network bandwidth should eventually reach 100,000 transactions per second. Time will show if these initiatives will be popular in the mass market. Again, the blockchain here is for an account/record/stocktalking of power, data, user identification. Nothing new.

#9 Education

It is becoming a reality diploma on the blockchain. Therefore, at the end of 2017, more than a hundred graduates of the Massachusetts Institute of Technology (MIT) received digital education certificates. For issuing verifiable and counterfeit-based digital versions of diplomas, the Blockcerts Wallet application was used, which works with the bitcoin blockchain. The pilot project was also supported by the software company Learning Machine, which previously, together with the Media Lab, was involved in developing the open standard Blockcerts. The goal here was most likely to give students the right to become the real owners of their documents. According to Chris Jagers, CEO of Learning Machine, people will be able to use important official data that will be stored even if the institute stops to exist. The same case were used by Tbilisi University of Business and Technology. In cooperation with Emercoin, the University has used the blockchain platform Trusted Diploma, designed for similar purposes. Again, the aim of using the blockchain here is to fix registration data (knowledge obtained, quality of training, and points received). One can also call as an advantage the fact that the blockchain is one step closer making it possible to promote the digital learning methods

While more examples of the use of the blockchain have not been found, however, we do not know what tomorrow has prepared for us today!

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Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solutions, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support of business

Much has been written about the mechanisms of social control that have appeared in China since 2010. And especially many publications are devoted to the emerging system of social credit, which will allow monitoring and regulate the behavior of citizens, which later transforms into a system of social rating. Despite its name, it is not yet a single system, as many publications claim. Moreover, not every resident of the 1.4 billion country was rated on a three-digit scale. In fact, a complex structure contains many subsystems. However, since 2020, the state has set itself a goal — to begin a full assessment and rating of all its citizens. This is written in the justification of the state program ‘’Planning Outline for the Construction of a Social Credit System (2014–2020)” of the State Council of China.

The global objective of the tool is “cybernetic” behavior control, by using artificial intelligence algorithms, which allows you to track the actions of individuals and make them immediately responsible for them. In fact, this is a big data processing system that, among other things, collects information about purchases, fines, likes on social networks, and even moving around the city and country, including hundreds of other programmable analysis parameters, dividing citizens into castes based on the results of information processing. Anyone who sits in a cafe for several hours will be considered a slacker, and anyone who buys baby food, since he is a parent, will be considered a more responsible person. Also, all citizens will presumably be divided into 5 categories: AAA — more than 1000 points (this is the elite, they are willing to hire, get cheap loans, discounts, and in the hospital — everyone will care about them by priority, etc.), AA — less than 1000 points, B — not less than 900 points, C — not less than 850 points, D (the exact opposite of the AAA category) — less than 600 points, this is in fact outcasts.

Thus, the authorities strengthen the supervision system in the country. So far, today, the basis of the system of social credit is black and red lists, and not the “social rating” so much discussed. Blacklists punish undesirable behavior, and redlists encourage desirable. According to the main plan, announced by the State Council in mid-2014, the national goal of the system is to encourage individuals to conduct decent behavior from the point of view of the law and prevent them from violating their obligations in order to develop a “culture of sincerity”. In addition, even if a complex network of social credit systems in China is already being formed, but not so and not as fast as it often appears. The implementation of a full-scale national system is hindered by many factors, including the imperfection of technology, and the growing awareness of the importance of private life among educated people in Chinese cities. However, this is the China and the State Council will not deviate from the plan. The idea is extremely simple. By comparing information from various registries and government agencies, Chinese officials will be able to get an idea of ​​how people behave and find ways to control their behavior at all.

Social rating is a possible example of how modern technology can serve to build and strengthen a totalitarian society. In China, this is already being implemented through projects of social credit and smart cities. The practice of China can be used in other countries as well. The ‘’Smart Cities’’ in China is a government program and supported by the government with billions in investments. However, it also makes life easier for the residents of cities — in fact; it has all chances to break their life substantially. This state program in China has already affected more than 500 cities, covering all regional centers. China has already built a closed, controlled society in IT, communications and the mass media. In this case, I mean the Golden Shield Project or the unofficial name is the Great Chinese Firewall. This is an Internet content filtering system in the PRC. The development of the project was begun in 1998, and in 2003, it was commissioned throughout the country. This system includes such subsystems as a security management system, an offense reporting system, an exit and entry control system, a monitoring information system, and a traffic control system. Golden Shield is one of 12 key projects in the field of e-government, referred to as “gold” in China. Functions:

· Access to a number of foreign sites from the territory of the PRC is limited within the framework of the Golden Shield project;

· Websites based in China may not link and publish news taken from foreign news sites or media without special approval;

· Web pages are filtered by keywords related to state security, as well as by the black list of website addresses.

Application examples:

· A number of Western companies comply with the requirements of the Chinese authorities to restrict access to information

· According to Reporters Without Borders, the Chinese version of Yahoo! in the search results does not show certain information

· The Wikipedia site has also been repeatedly blocked in the PRC. The reason for the blockage is due, in particular, to the description of the events in China in May-June 1989.

· The system also blocks websites of a number of religious and philosophical trends, in particular, transhumanist category

The result of such projects is that today, Chinese society is essentially a kind of experimental country. It cannot be said that communism has triumphed here — as it were, non-communism, and it cannot be argued that capitalism prevails here, no, as if not capitalism. China is an economy fully controlled by the state, with five-year strategic plans, but at the same time this planning does not cause any negative qualities to the conditions of the Chinese economy, the welfare of the people and its social and economic situation, while the level of innovation in the economy, in social aspects of life in China is simply phenomenal and this phenomenon is programmed by the state government, where aspects of private capital are also controlled and programmed by the state, which until now has not really been possible in liberal economies around the globe. The last example of such experiments of the state with the capitalist free market is, to say, the concern Ali Baba, that is a private giant, combining its efforts only with the state, in order to achieve the goals set in the five-year planning programs. It is with this concern that the Chinese Government is building the Smart Cities system and has already begun to implement the Social Rating program. As an example, the city of Yinchuan is the administrative center of the Ningxia Hui Autonomous Region. Visitors to the city hall or city council there are met with holograms, and in public transport, facial recognition technology is used to pay for travel, and to identify a citizen’s location. Moreover, the garbage bins on the street are equipped with solar panels and artificial intelligence, which gives signals to public utilities service for the need to clean these garbage bins. This is not enough, now they are planning to introduce air mobile urban transport as an experiment in this city (passenger self-manned quadrocopters).

Another example of digital city management is the city of Hangzhou in eastern China. In this city, all traffic is controlled by artificial Intelligence, and stores are already starting to accept payment even without a smartphone, but only through face recognition technology. This type of service is so promising and seems fantastic in the West countries due to certain regulatory issues that, in principle, is not yet possible, although many recognize the convenience of such payments through face recognition. While they are dreaming in the West, in China this is already in the framework of the project of Smart Cities. Summing up, it is worth knowing that the project of Smart Cities is a joint result of the consensus of private business and the state. In terms of private equity, leading players are Ali Baba, JD.com and Tencent. There is not much information about the last one, although it is also an investment holding trust, investing only in high-tech businesses. Tencent’s subsidiaries, both in China and in other countries of the world, specialize in various areas of high-tech business, including various Internet services, developments in the field of artificial intelligence and electronic entertainment. Tencent’s numerous services include social networks, music and web portals, e-commerce tools, and payment systems, mobile and online games. For example, Tencent owns the most popular instant messaging service in China, Tencent QQ, and a mobile application for sending text and voice messages to WeChat. Tencent has the largest Qzone social network in China that is the third largest by registered users in the world after Facebook and YouTube. In fact, for the residents of such smart cities ideal conditions are created for life, where not only the smart home, but also the smart city system provides everything necessary for life. In fact, paradise! Nevertheless, there is always one thing — But. Promotion and implementation of these programs gives the state total control over people.

Right now up to 7 million people live in Hangzhou, and as I said, a traffic control system based on Artificial Intelligence algorithms and processing of big data arrays works there (controlling thousands of traffic lights, detects traffic jams, crashes, notifies the police about them, even predicts the density traffic with high accuracy and based on the forecast to change the mode of operation of traffic lights). And all of this really works: the time spent in traffic jams is reduced by 10%, passenger traffic is increased by 20%, the incomes of urban transport increase, the time of residents is saved. The local police can react to accidents faster, the time of arrival of the ambulance on the way to the destination is shortened — and all this only from the control of the adjustment of the working hours of traffic lights calculated by artificial intelligence. In addition, in part of the payments, Ali Baba already has the Ali Pay system — it allows one to pay using face recognition. It is clear, on the one hand, when private companies use all this, the goal is obvious — an increase in profits and revenues, through the improvement of services and time of consumers spent on these services, all this attracts attention and increases the demand for services, since the consumer can really feel benefits of innovation. This is all great. But China, right now — in many respects of freedom — is a totalitarian country. Just as an example from history.

In China, millions of sparrows were killed at once, simply by order from Mao Zedong. The goal — the sparrows allegedly harmed crops and agriculture, but their disappearance solved one problem, and gave rise to another — there appeared a huge number of caterpillars, which ultimately ate the whole crop anyway, and then China had to import a lot of agricultural products. This is just one of the memes — planning decisions that are always characteristic of China (from imperial to communist). In fact, at any point in time, a planned solution — as in this case with the introduction of digital elements of smart city and country management — may in the future bring negative or other unexpected results, which are now unrealistic to predict or based on the available parameters, artificial intelligence still gives promising prospects. With such a management method, China successfully works with counterparties, both local and foreign. However, at the same time there is always an increased risk of surveillance, control, and espionage of counterparties. Virtually all foreign companies in China recognize that, despite the profits and benefits from being in the country, they recognize China as a gigantic hell machine to spy on and control everything and everyone around. Moreover, here comes the social rating (social credit) project.

In China today, according to official statistics, about 176 million surveillance video cameras. This is several times more than in the USA. By 2022, according to the state program, the number of surveillance cameras should exceed 500 million units. Today in China, you are always under the eye control. What will happen by 2022 — you will be controlled even in your house. It will not matter — where you go, where you sit or what you do — you will always be able to easily detected, identified and predicted your future route. This is just awful in essence. The purpose of this state program, and no one hides it, it is officially published — total permanent monitoring of citizens, but for security purposes. Total tracking is provided by the state access to private sector cameras as well. I think that under the security here is most likely the state itself and the state machine from its citizens and the suppression of any possible factors of indignation, and even if we go deeper according to the concept of the program — the prediction of possible future disturbances or violations. You know, in this context, I remember the plot of the film with Tom Cruise ‘’Minority report’’ and I feel myself uncomfortable. Now, private structures and businesses may voluntarily join this program, such as Ali Baba, but by 2020, private participation will be mandatory. Evasion will be punished and sanctions will be applied to you.

In China, there are fewer restrictions regarding privacy (personal data) than in the United States. For a long time in China, there was a negative attitude towards personal data. The law, which forbade direct abuse of personal data in China, was adopted only in 2009. This has simplified the situation for the authorities. Private business uses this situation — to introduce new products and services, while the state uses it — to introduce total control, to monitor people and use repressive methods. As an example, even if today, in China you try to cross the road on a red light, then quickly your face will be identified and a fine will come to you the same evening. On the other hand, digital tracking technologies are used for other purposes. For example, to detect visitors to Christian cults in China who are not explicitly prohibited, but not preferred. And of course, the state machine uses such opportunities with pleasure to monitor the opposition. If you understand what a social rating is in the digital dictatorship, you should also remember the Black Mirror TV series and a series dedicated specifically to this topic. Now this is not the plot of the series, but the present in modern China.

New models of private behavior digital assessment began to emerge throughout China. Now they are clearly used in more than 30 cities, although in 2014, no quantitative ratings were discussed. This suggests that details of the implementation of the system are left to the discretion of local governments, which leads to the establishment of them without any single scheme. For example, just as the start of a new implementation policy, in Rongcheng City, Shandong Province, each of the 740,000 adult residents first received 1000 points, as reported in the Foreign Policy report. Depending on the score, residents receive a rating from AAA to D: high-ranking players can use bicycle-sharing services without a pledge and receive subsidies for winter heating and much more. Shanghai also experiments with social credit ratings. With the Honest Shanghai application, city residents can find out their rating by entering ID number and face recognition. The ratings are based on data from 100 public sources. In Xiamen, the Fujian Province also launched a similar system. City residents over the age of 18 can use the official Credit Xiamen account at WeChat to find out their rating. High-ranking owners can use city ferries without a queue and do not have to pay a pledge to use bicycles or a library.

In 2017, the Jiangsu court imposed additional measures on insolvent debtors. If you call the debtor in China, then instead of the horn signals, your mobile operator will inform you that the subscriber to whom you are calling shifts from payment of a debt (fine, mortgage, loan, alimony, etc.) and you are advised to influence him by warning him also about his irresponsibility. In addition, debtors’ lists are published in the press and accessible to everybody. Therefore, God forbid, you should not give up debt in China — you will be subjected to the most severe ostracism and hatred on all fronts. Already today in China, millions of people are limited in movement; they are denied many elementary social services, without which it is impossible to survive. Being a debtor — you will not be able to buy a ticket for a high-speed train, on a plane, do not count the discounts, will limit access to current bank accounts and will close access to new loans, will not give the opportunity to go abroad and so on. However, in addition to financial debts, debit lists in China can be accessed for another reason. If we suppose you had the courage to publicly say somewhere, criticizing the authorities or the journalist published his investigation or article criticizing the authorities in China, then, having fallen into the algorithm of the system, for you and such a journalist, the authorities will set a fine and automatically you will be on this list. Even if you pay an administrative fine, the authorities may find it necessary not to turn you off the list, because they believe you have not fully redeemed your guilt or you are unreliable. The existing system in China can be called digital authoritarianism. However, the purpose of such a digital system is to encourage people to follow and correct each other, improving harmony in the state. The authorities themselves, commenting on this approach to the foreign press, explain this by the fact that such a digital monitoring function will help them to effectively monitor and preserve civil security for a billion people. If, at Mao Zedong, people came to snitch each other because of the fear that if they did not denunciate, they would themselves be punished by the system because of their inactivity, or someone else would report them first. Today, in the era of emerging digital authoritarianism, revenues and bonuses are provided for denunciations. There is already a mobile application in China with which you can report, complain about neighbors, friends, relatives, employees and anyone else. The large-scale manifestation of digital dictatorship and totalitarianism can be seen today in the Xinjiang Uyghur Autonomous Region of China. The state system, where every step and even every thought of any person are under the constant control of the intelligence services, is well described in George Orwell’s ‘’1984’’ book. This work is considered a classic of the genre, but previously fell under the definition of “science fiction”. It was very difficult to technically realize that universe, and installing surveillance cameras seemed to be impossible everywhere.

In Xinjiang Uyghur Autonomous Region of China, firstly secretly and now openly, the system of total control over the local population works. Ethnically, these people are not Chinese, they are Uighurs. This very numerous Turkic people have long lived in the region of East Turkestan. Outwardly, they are not similar to the Chinese, their language is different, and their religion is different. They are Muslims. Because of all these differences, there are from time to time movements that stand up for the independence of the region. It was on the recalcitrant Uyghurs that China decided to test its digital control system. The goal is simple — to exterminate them as a nation, turn them into ordinary Chinese, no different from all others. Various kinds of sensors, cameras, face recognition systems and similar things are installed there literally everywhere. The government monitors what Uyghurs buy, what they eat, drink, whom they meet with, what they say they are looking for on the Internet, what kind of movies they watch and what diseases they have. Each person has his own separate electronic folder in which all data about him is entered. Every movement, every action or inaction has consequences. If a person does something useful from the point of view of Beijing, he is awarded social points. Well, for example, he actively studies Chinese, buys books in Chinese, watches programs about the Chinese Communist Party, praises her in personal conversations. He is rewarded a plus. Thanks to this, he can get free service in the clinic, a promotion or a place in a kindergarten for a child. If the Uyghur speaks his native language, does not praise the Communist Party, meets with suspicious people, and most importantly, goes to the mosque — he is given negative points. Because of these assessments, a person first loses his freedom of movement, he cannot buy tickets for airplanes and trains, then he is denied access to good hospitals, then he begins to interfere with his children’s life. In the final, the Uyghurs fall into concentration camps. This is a separate big topic. Earlier, China did not recognize their existence at all, but now it is no longer a secret. They are not just there; hundreds of thousands, if not millions of people suspected of disloyalty are sitting there. In these concentration camps (formally, these are labor re-education camps), people are forced to work, they are brainwashed with propaganda, tortured and so on. The artificial intelligence system, trained to find the enemies of the state, regularly supplies the authorities with human material for these camps and these experiments. In fact, artificial intelligence is used to hunt people.

But this is the Uyghurs. The state itself also will not spare the Chinese. Already government has a list of signs of extremism. There are many signs, including some: long hair, a beard, drinking, storing large stocks of food at home and the biggest sin is refusing to greet the communist party secretaries. Bonuses are also systematized, according to the level of compliance with the characteristics of extremism from this list. If you report that someone, for example, in some county region wears a beard, then you get money on a card, or inform that some official is corrupt, then you get a premium of up to 75 thousand US dollars (500 thousand yuan) and so on to perfection denunciation. To collect information about citizens in China, a special application was released, where bonuses and points obtained through denunciations, complaints, notifications of offenses, notifications about evidence of any suspicious events, users receive real coupons for discounts, for calling a taxi, for free promotional services and goods (from supermarkets to cafes). It turns out, like a slogan — Denunciate on a friend, get a coupon. The official purpose of the application is to collect data on offenses, but the hidden task is much deeper — to report on the disturbers of public social order, social conflicts, even supporters of Christianity and the religious movement Falun Gong banned in China.

What is the sense of the social rating?

Simply, if you are an exemplary responsible citizen, returning loans and debts, and even passing over to the green light, then you have a high social rating. In addition, you are on the honorary red list. If you do not pay back loans, violate public social order, and still have the courage to criticize the government, then you will be under the sanctions. You are immediately blacklisted. If you have a low social rating (which is already in some regions of China today), then you will not be able to get a job, you will not be able to move freely around the country (forbidden to sell tickets for you), or you cannot be credited. But the most terrible and strange thing is that if you communicate with a person who has a lower social rating than you do, then in turn your social rating will also start to drop down. Well, if you with a low social rating get to communicate with people with a higher social rating, then your rating will increase. What will happen in China in the close future? In fact, all the oppositions will receive a low social rating, and will be a subject to obstruction by the society; they will fall into the informational and social vacuum. Society already today is trying not to communicate with them in the experimental regions, they are obstructed. In fact, a social rating will build a rogue caste in China that cannot enjoy social and public goods and services. This instrument has already led to the fact that ordinary Chinese themselves have already ceased to post anything, write, or publish in social networks what might be called as opposition views. The next step will be the complete killing of free journalism, sociology and political science. As a result, the most incredible will happen in China — a mutual responsibility will be formed out of silence in order to simply maintain their high social ratings. Authorities in China by the bloodless method with the help of the latest technologies achieves any dream of the dictatorship — total obedience, consent and consensus to power. Through social ostracism, it is possible to completely break the power of life to undesirable citizens. In fact — the digital dictatorship, which juggles with social bonuses, stimulates public obedience. Perhaps even I, not being a citizen of China, having published such material, can fall into the lists of objectionable foreigners and I will not be allowed to visit China. Who knows?

Such social ratings are being introduced not only regarding the individuals, but also to legal entities and businesses. The most developed part of the social rating system is related to business and is trying to guarantee compliance with the norms in the market. Is your company convicted or under investigation for involvement in fraud? It can be blacklisted. Together with you and other representatives. Do you pay taxes on time? Then the company will be put on the “red” list, which will simplify the passage of many bureaucratic procedures. Government agencies share lists by industry and other public information among themselves. This allows individual enterprises in various departments to be punished or promoted very quickly and effectively today. If a state department accepts sanctions against a company, it can also be applied by other state agencies. An important feature of the system is that it binds individuals to business activities. It oversees the commercial activities of companies, but makes it necessary in the event of violations to bear the responsibility of managers and official representatives.

As an interim result, it can be stated that the combination of the capabilities of the state program of Smart Cities and the social rating system is a constant authoritarian monitoring of you, your behavior or your thoughts. Even shaking a hand today to someone who has a lower social rating than you, the next day it’s quite realistic to find out that you are not settled at the hotel, you are not sold tickets or you are not given discounts in the supermarket. This is a terrible policy that has signs of despotism by 2020 — will be mandatory for all, including private companies. This phenomenon, management method, philosophy — is discussed all over the world. Some elements of the Smart Cities program are repeated and implemented, for example, in Toronto (Canada). The potential and possibilities of digital control of society are enormous and insidious. If one imagines that somewhere a person comes to power, striving for dictatorship and absolutism of personal power, then digital control can turn the life of people into hell in entire cities and regions.

But what do the Chinese themselves think about this — for the most part they are loyal and welcome this mechanism. They consider it normal:

· if the personal rating is related to the friends rating — in this case you are on the right path

· People will behave better because the rest of the people will follow each other and their behavior

· It will help people trust each other.

· It will give more opportunities to people with higher ratings

· It is a good idea to help control lawbreakers and public order

Confucius also taught to be honest Chinese. There is such a parable in his biographies: when he was an official, someone offered him a bribe and assured that no one would know. The sage replied: “I know, you know, Heaven knows. Who does not know?” The Chinese Communist leadership, which replaced the Confucian Sky, has never been able to accept the fact that it does not know anything about its citizens. Therefore, even under Mao Zedong, they established a system of “dan-an” — the personal affairs of citizens. Each “dan-an” folder contains physical data, photos, track record, testimonials from superiors and comrades, reports on academic performance and offenses, membership in clubs and public organizations, etc. All this is stored in paper form in the state archives — regional and central. This tool is not only cumbersome, but also difficult to access. Now this folder will be digitized with instant access to it.

The relevance of the chosen topic is due to the need to understand social connections and interactions in the information space. The development of information technologies have an impact on the system of ethical values and the nature of communication. This is particularly acute when discussing the consequences of the implementation of such tools as social rating or other digital methods of public control. Ethical reflection in the field of public morality allows us to identify a number of problems: globalist, anonymity, lack of control. At the beginning of the development of Internet communications technology, such ethical aspects were uncontrolled, which was used for good and negative intentions. There was an illusion of freedom of choice, which often resented the state machine (both democratic and totalitarian) in its helplessness in controlling the sources of digital information. However, the belt is being tightened; today, China is showing the rest of the state systems (both democratic and totalitarian) that this problem is solved and controlled. And a tool is created that the target group themselves will use for the sake of reward in evaluating, or rather, in obstruction of others. All these processes require the development of control mechanisms: legal, economic, technical and ethical. Social rating — ideally, it is a system of assessing individual citizens, based on different parameters for building an honest and fair society. The main value of society is honesty, which should be manifested in everything from behavior in the information sphere to honoring parents. It can be concluded that in an ideal Utopian information environment, social rating contributes to determining the level of trustworthiness, the social status of both an individual and a corporation, which makes it possible to assess the degree of trust, to understand how responsibly they relate to their obligations. The information obtained is used not only in the virtual space, but in the real world too. Based on the social rating, an online database is formed where you can determine the social status of your opponent, his level of trustworthiness and, accordingly, understand how responsibly this entity belongs to the obligations assumed. However, using the disadvantages of the systems based on which a social rating is formed, hackers can learn personal information and use it for their own purposes. However, who exactly will everything and always know? In this context, there is public administration or just Power, because it consists of people — operators of social ratings. Anonymity will be violated and there is a high risk that the malicious intent of an individual state machine operator with access to the social rating database or the state’s totalitarian machine itself will always have the opportunity to intervene in the estimation algorithm, intervene to change information and distort it, and intervene for manipulation for mercenary or authoritarian purposes. Here, again, some motifs from the plot of the Matrix or even the film Network (with Sandra Bullock) come to mind.

The formation of social status by assigning points based on an informational assessment of an individual can lead to the development of social inequality. The introduction of a social rating system sets the contemporary ethics with the task of reflecting on the ongoing social transformations, actualizes the subject field of social and information ethics. What is happening in China is perhaps the most ambitious social engineering project in the history of humanity. If it is implemented, we will face the world’s first digital dictatorship. Moreover, most likely, over the next decade, this system will quickly spread throughout the world, especially among countries with a lame democracy and the sick imagination of kleptocracy in power. However, in reality, despite the guarantees of security and loyalty, which the system of social rating supposedly gives, limiting destructive elements in rights, but at the same time rewarding and stimulating trustworthy ones, there are pitfalls of unlimited control. After all, the development of personality from the philosophical and cultural aspects is always a way of making mistakes and their conscious correction during the whole life, up to the last breath. Human nature is always a search for a new, an expansion of a limited framework and an experiment that is not possible without errors, disturbances, and a constant search. However, the imposed system forces not to make mistakes, and follow the “correct”, indicated way. Over 20 years, only the most obedient will remain free, but also the least creative personalities. The logical result will be degradation, and maybe this is the goal? So far, the social rating system that operates in China is fragmentary. In each province, it is individual, each fragment are tested and then, if all is well, merge into a completely accepted program. Nevertheless, 2020 is already knocking the door.

I cannot give an unequivocal assessment of the social rating, as a phenomenon of mass control. On the one hand, I really want to see a disciplined and calm society, to feel safe and confident. But on the other hand, discipline and tranquility undoubtedly dull the development and do not give impetus to the exponential growth of the individual, civilization and science. However, what if something goes wrong with your data, not even through your fault, but according to the intention of your enemies or because of a banal system failure? It becomes terrible and scary that the tools of rehabilitation and justification are not provided at all! There is no question about this yet. In this case, we are one-step closer to digital dystopia, not realizing it at all.

P.S. What is common between the #10 year challenge flash mob and the Smart City program? Do you think anything? I do not think so. In this flash mob, users share their photos of a decade ago and relevant pictures. Don’t you think that such an algorithm is ideal for learning neural networks — and this is another reason to think about privacy for all and about the technology of tracking and analyzing big data? An old and new photo with a difference of about 10 years is ideal for teaching the algorithm of artificial intelligence to the principles of age-related changes. Artificial Intelligence can better predict what a person will look like as they age, then you will no longer hide from the all-seeing eye of the state — never, either in the space or in time. Posts published within the #10 year challenge — a unique and diverse database. People themselves have designated the period of images and it is difficult to find a reliable source. As part of a flash mob, people often added useful information about themselves to photos. For example, indicated the location of the shooting, the author of the photo, told about past events. In other words, thanks to this memo, a very large and carefully composed set of photographs appeared, showing people about 10 years ago and today. However, the general conclusion is that we need a reasonable approach to the use of technology. It should be remembered what data we are creating and how it can be used on a large scale. When and how can it help us, and understand how it can harm us! Regardless of the meme or social platform, the point is that people are the richest source of information for most technologies that arise today. We should know this and accept with due responsibility, and not blindly and stupidly succumb to the hype of mass hysteria of copying actions on social nets, exposing ourselves to public spanking and analysis of insidious Artificial Intelligence. Although, it is your choice, as yet.

Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solution, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support of business

More than 10 years, the blockchain and bitcoin itself are the core of the technohype. What is the state of the things and what are the prospects for this technology? All this we will gradually consider in a series of small posts. Let’s start with SegWit.

Segregated Witness

The SegWit protocol appeared in August 2017 and is considered the largest upgrade in the Bitcoin network today. In addition to solving the problem of adaptability of transactions and the removal of the limit on the block size of 1 MB, SegWit also became the basis for easier implementation of other second-level protocols. At the beginning of 2018, the share of SegWit transactions was only 10% of the total, but quite quickly this figure rose to about 30% — this was possible due to the fact that SegWit implemented such large platforms and service providers, as LocalBitcoins, Coinbase and Bitfinex. At the same time, another big players, like Blockchain.com, Binance, BitMEX, Gemini and Bittrex, have not still done it. The implementation of the protocol in Bitcoin Core became an important step on the path of a wider adoption of SegWit. It was happened in February 2018 with the release of version 0.16.0. By the end of the same month, almost a third of all transactions in Bitcoin were performed by using SegWit, and major exchanges such as Bitfinex and Kraken confirmed that adopting the protocol in combination with batching allowed them to significantly reduce commissions. Another important achievement was the practical use case of the addresses of bech32 — the native format of SegWit. Today, it used by such providers as Electrum, Samourai Wallet and Trust Wallet, and among exchanges — Kraken. Despite marketing, the adoption of SegWit still remains at about 40% of all transactions. According to experts, the most likely reason for this can be the fact that many companies do not see an urgent need for the implementation of SegWit, which is also complemented by a general tendency to optimize costs in a bear market. In addition, since 2018, the mempool is empty, and the size of transaction fees rarely exceeds $ 0.20. Experts believe that a small reduction in transaction fees simply does not justify the monetary or time costs for upgrading all wallets. Replacing all legacy addresses and migrating them to SegWit is quite a laborious and expensive process. Moreover, some exchanges that already support SegWit charge customers a higher commission than, for example, Binance, which does not have this support. Therefore, until a special stimulus appears, for example, pressure from the community, or if the mempool does not begin to fill up again, it is unlikely that the situation will change anytime soon. The greatest role in reducing transaction commissions (up to 80%) was not even due to SegWit, but the above-mentioned batching. Statistics show that most of the leading stock exchanges use exactly the batching technique.

Lightning Network

The Lightning Network microtransaction protocol appeared in March 2018. In April, the Eclair wallet from the French startup ACINQ was released, and another two months later, the beta release of c-lightning, the implementation of the Lightning Network from Blockstream, took place. Another important event was the release of Casa Node — the physical Lightning node from the American startup Casa, which reduces the technology access threshold, making use of the protocol extremely simple for users who do not have extensive technical skills. Although the Lightning Network is a young technology, it is increasingly used to pay for real goods and services. Startup Bitrefill also in March 2018 announced the possibility of using the protocol to pay telephone bills and purchase gift vouchers and certificates. In addition, at the beginning of 2019, Bitrefill introduced Thor, a service for opening an empty channel in the Lightning Network from its own startup node. This solution can be truly breakthrough, as it allows anyone to receive Bitcoins through Lightning channels, having only a link and a wallet application. The problem with Lightning Network is that if a user does not have Bitcoins, he needs to convince someone to open a channel for him. This means that the other party must reserve the funds there, and this can be expensive. This is exactly what Thor does — for a certain commission, the tool allows you to reserve part of our funds in the channel. Who and how will pay this commission, the problem to be solved. This is only the first step in a completely new category of services.

Other industry representatives who adopted Lightning Network technology last year were Blockstream, which launched its own online store with protocol support in January 2018, the Living Bill of Satoshi billing service, BTCPay and CoinGate payment processing services, the manufacturer of Bitcoin ATMs Lamassu and many other players. Also in this list is Vaultoro, which became the first cryptocurrency exchange that began using Lightning payments for accepting deposits. There are many efforts of the community of developers, who not only present new Lightning-applications (Lapps) to the public, such as Submarine Swaps or Satoshis.place web graffiti, but also organize various hackathons and events where participants share with each other skills and help in creating new products. Among them is the third program of the New York company Chaincode Labs called Bitcoin Residency, which in 2018 was focused on the Lightning Network, as well as Hackdays from the Berlin startup Fulmo. According to the established tradition, all this activity was processed into analytical data, including visual ones. Despite the fact that some aspects of the network are still difficult or impossible to assess and not all available statistics can be considered completely reliable for public analysis, various resources indicate that several thousand Lightning nodes with almost 20 thousand payment channels are currently running daily with almost 600 BTC. Therefore, this trend has all the chances for future development.

Sidechain

Sidechains are alternative blockchains which tokens are tied to bitcoin. This allows users to move Bitcoins between platforms with different protocols, thereby providing faster confirmation of transactions or a higher level of privacy. Thus, sidechains offer all the technical advantages of Altcoins, while maintaining Bitcoin emissions of 21 million coins. The first company, that in 2015 announced the beginning of work on the concept of sidechains, was the Canadian Blockstream. Its opensource-project Elements, designed to give developers the opportunity to experiment with sidechain functionality, at the initial level, allowing them to create and transfer digital values. In parallel, Blockstream led the development of Liquid, the first commercial project in the field of sidechains, based on the “federations” model. The technology is intended for servicing Bitcoin exchanges, processing services and traders, reducing the time required to carry out large volumes of transactions between different accounts. There are more than 20 exchanges among Liquid partners, including Bitfinex, BitMEX, Xapo, and Korbit, however, judging by publicly available statistics, the use of technology remains at a fairly modest level — about 35 BTC are reserved, and the total number of processed transactions was slightly less than 3,500. One of the functions implemented in Liquid is Confidential Transactions. This is a cryptographic method of masking the amount of funds sent and received, in which all Liquid users can verify that the amounts received do not exceed the amounts sent. In other words, not knowing exactly what amounts were sent, they can verify that the coins were not created from the air. In the context of Liquid, this means, among other things, that funds can be moved between exchanges and no one will know exactly what amounts are involved. Competitors will not be able to know what amounts are stored on the stock exchanges, and traders will not be able to use such information when bidding, which they often do today: the public nature of the blockchain allows those who have information about the upcoming major operation to conclude a deal for profit from future possible price changes.

Another well-known project of federated sidechains with a turing-complete virtual machine that is compatible with the Ethereum decentralized application interface is implemented by the RSK Labs startup (Argentina). The RSK federation includes well-known industry representatives such as Bitstamp, Bitfinex, Bitpay, Xapo and BitGo, and mining pools that support the combined R-BTC token mining included BTC.com, AntPool, Slush Pool and F2pool at the end of 2018 — the cumulative share of these pools is more than 50% of the total bitcoin network hashrate. At the moment, about 50 projects are already working on the sidechain of RSK, some of which are led by the Argentine startup as well as RIF Labs. Among the most significant of these projects are the Lumino payment network, OakNode hosting service, supply chain management services (Temco and Dexfreight), and BitGive, a philanthropic initiative that has a certain similarity with the Lightning Network. In addition, RSK Labs recently launched a RIF OS project, which combined several opensource protocols and libraries for developing Dapps, a payment network, p2p data storage and RSK Name Service. The main motivation in developing the RSK smart contract network was the creation of the “Internet of Values”, a network of several networks that goes one step further in the vision and values ​​of Bitcoin. This is an open network where users can move values ​​from point A to point B without mediation, which is the main cause of inequality in the business world.

Schnorr signatures/ Taproot

Schnorr signatures (inventor is Klaus-Peter Schnorr) are considered to be one of the best cryptographic solutions available today. Their practical advantage for Bitcoin is the ability to combine multiple signatures as the one, that is, a transaction requires only one signature, regardless of how many sending addresses are included in it. Schnorr signatures help to reduce the total size of blockchain data by at least 25%, that is, can be considered a direct solution for network scaling in perspective. It is not surprising that the possibility of their implementation in the Bitcoin protocol has been discussed for a long time. The activation of SegWit made the integration of Schnorr signatures a simpler task, and although it was not fully implemented, progress was made in this direction during 2018. Therefore, back in January 2018, the developers of Bitcoin Core published a white paper describing the process of transition from the current implementation of ECDSA digital signatures to Schnorr signatures.

It is noteworthy that the work on the implementation of the Schnorr signatures is being conducted simultaneously with another important technical upgrade, known as Taproot. This solution was first proposed in January 2018 by Bitcoin Core developer Gregory Maxwell and, using some cryptographic techniques based on Schnorr signatures, can help implement the concept of MAST (Merkelized Abstract Syntax Trees), which in turn is aimed at increasing functionality smart contracts in bitcoin. Moreover, thanks to Taproot, these smart contracts will be indistinguishable from ordinary transactions. In practice, this means that users can, for example, open or close payment channels in the Lightning Network or make payments that require the cooperation of several participants, without revealing the details of what is happening to third parties. However, the activation of such functions will probably take place at a later stage — initially it is expected that the Schnorr signatures will be implemented in their original form.

What about privacy?

This direction continues its development. Today, technologies such as TumbleBit, CoinJoin, Zerolink and Dandelion are trying to solve and secure the issue of anonymity and privacy of information in the blockchain. Some experts believe that the most significant achievement in this direction were made by Wasabi Wallet, which is based on the interchangeability of Bitcoin, that is, the same value of all the coins, regardless of their previous use and circulation. The mixing of coins performed with the help of CoinJoin makes them all the same and thus ensures the anonymity of transactions. About the activity of the developers says that for two and a half months from the release of the first full-featured version today, the Wasabi Wallet is not only available in version 1.1.0, but is also ready for its own hardforks. The upcoming major upgrade of the wallet will implement, in particular, the Schnorr signatures and therefore will provide greater anonymity and the possibility of faster mixing of larger amounts. Another noteworthy technology is called Mimblewimble. First introduced in 2016, the project was initially focused on scaling Bitcoin and increasing user privacy. After some time, the developers, however, came to the conclusion about the need for their own cryptocurrency. Grin was considered the most famous project all this time, but the first implementation of the protocol was successfully implemented by the Beam project, the official launch of which took place on January 3, 2019 by the way.

The technological development of Bitcoin, of course, is not limited to the projects described above in the examples; in fact, there are much more such examples. There is no doubt in one thing: technologically, Bitcoin is developing, and although it seems to many that this is not happening fast enough, it must be remembered that the key task of developers is to ensure network security. The decision-making process in this way may not be fast. Anyway, over the past year, the most popular Bitcoin Core client has evolved to version 0.17.0, and already in early 2019, the release of version 0.17.1 followed. There is no doubt that in 2019 there will be other releases, as well as the emergence of new ideas and concepts. On the way a lot of interesting technical solutions. This was facilitated not only by the Lightning Network, but also by other off-tech solutions, altcoins with more spacious blocks, better optimization of exchanges, everything that helped solve problems with payments. Now it is the turn of a truly challenging job of creating demand and a cyclical ecosystem, where people pay with Bitcoin and get paid in it, rather than looking in the direction of comparative quotations with the US dollar. The time has come for the consumer to think in categories of bitcoin and other cryptocurrencies.

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Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solution, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support of business

There are always a lot of inaccuracies and disputes around the nature of blockchain. Due to the superficial study of the topic, the blockchain is attributed to unusual characteristics, which causes errors in understanding. The most common mistake is that blockchain — the database. This error is often even allowed to be used by crypto leaders. Traditionally, the blockchain is used in two ways:

· Information peer system (like a Bitcoin network).

· The central element of this system is a chain of cryptographically connected blocks where network transactions are packed with information

When one talks about the blockchain in general, one means the system as a whole, that is, a functioning network, not its main element, but sometimes everything is confused. Because of this, there is a major misconception about the blockchain — that it is a database. In part, we can say that the database is a chain of blocks that is stored and continuously expanded on each full blockchain node, and the program code that forms blocks and reads records from it can be called a database. Nevertheless, blockchain as an information system does not solve only the problem of reliable data storage. After all, we can come up with a solution both easier and cheaper: take any data, sign it with an electronic signature, put it in several clouds (in fact, in a decentralized repository) and set “read-only” rights. As a result, the data will not be lost, will not be changed and there is confirmation of the authorship of the owner of the private key. And no blockchain is needed at all.

If you are philosophizing, is the Bitcoin blockchain a database, that is, a depository of coins tied to users’ wallets? Is not. The value of the Bitcoin network in its unique functionality — it provides not only the utmost security of data already recorded in the data blocks but also ensures the unambiguity of operations with this data regardless of the intentions of users, despite any attempts to influence this uniqueness. In essence, a bitcoin blockchain is a new type of information systems that, on the one hand, provide the functionality of a crypto-protected temporal data store, and on the other hand, support a mechanism for converting and generating data that is resistant to external interference while preserving its validity. The main thing in the blockchain is not a chain of blocks, but software controllers — “smart contracts” that automatically and unambiguously perform actions with data. This controller generates and stores the data of the Bitcoin network — creating new records (mined BTC) and exchanging them through network transactions. Ethereum, as a blockchain network of the next generation, not only supports the token exchange mechanism but also allows users to write smart contract controllers themselves that can refer to the data previously stored in the blockchain to generate new entries. The uniqueness of the blockchain characteristics can be demonstrated by a simple example. Suppose you need to create a cryptographically protected certificate management mechanism. The first thing that comes to mind at all: let’s take the hashes of the certificates, one can take the certificate files and drop it on the same bitcoin blockchain or broadcast with transactions. We will use the blockchain as an extremely reliable data storage. Although, as noted above, the same result can be achieved using cloud storages and electronic signatures, which is even more reasonable, related to the state’s legal status. As a result: One recorded — One read. One showed who should. That is all.

Let’s remember that the blockchain is not a database, but something more: a system that implements a protected mechanism for operating with data while preserving its validity. Well, the blockchain should not be used as a storage, but as an extremely reliable control system. In our case with certificates — our certificate must be placed on the blockchain in the form of a meaningful entry with a digital identifier, owner and expiration date. And in this form, it can already be used in smart contracts — digital agreements in which you want to check the availability of the certificate from a specific user. When executed, the smart contract saved in the blockchain will check if the certificate has expired. And if overdue, then no bureaucratic tricks, no bribes force the contract to go against the algorithm. But if authorized persons sign with their cryptographic keys an extension of the validity date of the certificate — and the contract will again be executed automatically. The blockchain is needed to launch contractual business processes in it with links to the facts of these processes stored in the blockchain. Otherwise, all this can be implemented in the local corporate information system. Thus, the blockchain is an information system that provides unfiltered data storage and is protected from unauthorized interference by the transformation of this data by third parties. In bitcoin, this process performs only one operation: the exchange of records while preserving their aggregate integrity. Blockchain platforms with contracts (like Ethereum) can implement almost any complex process. Blockchain is only the first representative of the described type of information systems. Already there have appeared networks implementing the same functionality based on acyclic graphs. Already today, experts are beginning to use the common name for them — “Trusted Digital Systems”.

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Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solution, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support of business

Virus symptoms

In the modern economy, we have such an extraordinary term as “Dutch disease”. The symbiosis of medicine and economic symptoms in the definition excites the imagination. However, the truth is banal. The “Dutch disease” refers to a decrease in the efficiency of the country’s economy due to an increase in the export of country’s raw materials without processing. However, according to the Oxford business dictionary “Dutch disease” — is the de-industrialization of the economy because of the discovery of a new source of natural resources. Therefore, this phenomenon is inherent only in industrialized countries. In world practice, an analogue of the “Dutch disease” for countries with virtually no industry — is also known as the “African syndrome”. Undoubtedly, the “Dutch disease” is a complex and even more interesting phenomenon. De-industrialization of the economy — the result to which leads the influence of many “symptoms” inherent in it.

The term first appeared in the publication of The Economist magazine in November 1977, which was dedicated to the discovered link between the increase in natural gas production in the Netherlands and the decline in industrial production in that country. The “Dutch disease” is a negative effect of the strengthening of the real exchange rate of the national currency as a result of the natural resources mining boom and the illusion of temporary deflation. The boom may be caused by the discovery of mineral deposits or a rise in prices for exports of the extractive industries. The sharp increase in export revenues in the 1970s led to the inflow of foreign currency into the country (the Netherlands), which caused a strengthening of the national currency — the gulden. In addition, the growth of household incomes created additional demand for goods and services, which led to higher prices (inflation) and an increase in imports. Foreign goods became more accessible to the population than local ones, and local industry began to experience difficulties with sales both domestically and when exporting goods (as opposed to raw materials). This, in turn, led to an increase in unemployment in the industrial sector. As a result, against the background of rapid growth in the extractive industry, there was a significant deterioration in the situation of the population and business, not related to the extraction of natural gas. In addition, a flourishing mining/extractive industry caused an overflow of investment and labor, which limited the resources of the manufacturing industry, in which stagnation arose.

The economic model of the “Dutch disease” itself was developed in 1982 by Australian economist Warner Max Corden and his Irish counterpart Peter Neary. According to this model, the economy is divided into three sectors:

· the non-tradable goods and services sector, that is, goods and services that cannot be moved between countries;

· rapidly growing sector of traded goods (usually various types of raw materials);

· non-growing sector of traded goods (manufactured goods available for export and import)

In the event of a sharp increase in the commodity sector, it begins to take labor and financial resources from the industrial sector that is so-called “direct deindustrialization”. In addition, high incomes of people working in the extractive commodity sector increase consumption, and hence the demand for non-tradable goods and services, which causes their prices to rise and the flow of labor from industry to services (which loops in a narrow circle of the solvent population) and into the extractive industry itself. In industry, however, the effect of “indirect de-industrialization” arises. In order to understand the mechanism of the development of the “Dutch disease”, one can additionally refer to the concept of the real exchange rate as the relative price of non-exchangeable goods. The increase in export revenues because of shock in the extractive sector of the economy leads to an additional inflow of foreign currency into the country. As a result, at the first stage, the nominal rate of the national currency rises, while that of the foreign one falls. Thus, the real exchange rate is growing, which means the strengthening of the national currency. In addition, a sharp increase in income creates additional demand for both exchanged and non-exchangeable goods. Since the exchangeable goods participate in international competition, their domestic price is assumed to be fixed at the world level (provided that the country is small comparing to the world economy, but there is no such condition in countries with a large extractive sector of the economy). Therefore, the additional demand does not affect the price of goods exchanged. However, the price of non-exchangeable goods is determined by the equilibrium in the domestic market (the classical equality of supply and demand). Therefore, a sharp increase in demand for them leads to higher prices. The result of these processes is to turn deflation into inflation and further strengthen the real exchange rate. Further, according to the classical scheme — The real appreciation of the national currency reduces the competitiveness of domestic products in general, which entails a number of negative consequences. In particular, the output and exports of the processing industries are reduced, which can lead to an increase in unemployment, imports increase, net exports decrease and, ultimately, gross domestic product. In the long term, the “Dutch disease” leads to the transfer of resources from the manufacturing sector to the extractive sector, which creates a smaller amount of added value, but until a certain time guarantees a high turnover of the funds invested there. In addition, the long-term dependence of the economy on the export of natural resources weakens incentives for the development of the manufacturing industries and the creation of new technologies, inhibits interest in innovations and eventually even hits the sector of various services.

The technical progress, and not the accumulation of production factors, is the source of long-term growth, is ignored a priori. The result of the “Dutch disease” is the rapid growth of only the extractive sector and the services sector (associated with this sector and consumers from there) against the background of stagnation or decline in production in the manufacturing sector and the services sector associated with it. The effect is exacerbated by the growth of the real exchange rate of the national currency and, as a result, the price increase that is uncontrolled. If the “Dutch disease” lasts long enough, the local manufacturing industry loses its competitiveness in the global market, and the country begins to lag significantly behind the global trend in industrial development. Finally, when raw materials end or their prices fall, the country finds itself in a difficult economic situation, since, apart from the extractive industry, there are no more drivers in such an economy that consistently create greater competitive added value for guaranteed economic growth.

Who is affected?

“Dutch disease” are subject to countries of different levels of development, with different types of natural resources, different social systems and worldviews. However, due to the peculiarities of the modern world economy, most often the phenomena attributed by economists to the symptoms of the “Dutch disease” occur after the start of active development of oil or gas fields. Among the developed countries affected by the “Dutch disease”, one can name the United Kingdom of Great Britain. After the discovery and start of large-scale oil field development in the North Sea, the country turned from an oil importer into an exporter, as a result of which it received an inflow of foreign currency. From the summer of 1977 to the end of 1980, the British pound rose from 1.7 to 2.4 dollars. The unemployment rate over the same period, however, increased from 5.5% to 8.5%. At the same time, the number of jobs in the processing industry has declined even more. Industrial exports of the Kingdom in 1983 were at the same level as in 1976, while industrial imports grew by an astronomical 63%. Among economists, there is a point of view according to which the phenomena in the British economy in the late 1970s — early 1980s are partially or fully explained by the global crisis and the policies of the Cabinet of Margaret Thatcher. However, in the work of K. Alec Chrystal “Dutch Disease or Monetarist Medicine? The British Economy under Mrs. Thatcher” is shown that the outpacing growth in oil production, which began in 1977, led to negative consequences for the British manufacturing/processing industry. In addition, this effect was swift and uncontrolled, with which the Cabinet Thatcher also fought. However, oil or gas is not always guilty for the “Dutch disease”. Agriculture and a certain boom in the cultivation and raw material exports of a certain sort of product can also provoke this negative effect on national economies. The classic examples of the “Dutch disease”, which was caused not by the discovery of oil and gas deposits, but by other reasons, include the coffee boom in Colombia in the second half of the 70s of the last century. By the mid-1970s, 45% of Colombia’s export earnings were coffee. In 1975–1976, because of crop failures in Brazil and earthquakes in Guatemala, coffee prices increased five times. Colombian manufacturers increased deliveries, as a result of which the country’s export revenues increased significantly. However, this led to the strengthening of the national currency by 20% for the years 1975–1980, which had a negative impact on the export of other products and positively on the import of goods. Also at this time, there was a rapid growth in the non-tradable sector (construction, services). The following countries were suffering from the “Dutch disease” or its individual manifestations: Australia — an increase in the extraction of mineral raw materials (iron ore, etc.) in the 2000s; Azerbaijan — oil boom in the 2000s; Indonesia — oil boom in the 1970s; New Zealand — an increase in milk production in the 2000s; Russia — oil and gas boom in the 2000s; Sri Lanka, Indonesia and Thailand — a boom in the construction industry and related sectors after the 2004 tsunami, which was caused by an influx of foreign humanitarian aid. The last case is not typical for the classics of the Dutch disease at all, but the results are similar, which shows the depth of the problems in general export and import balance within the national economic systems.

The study of resource-dependent economies can be scaled to any volume, depending on which resources to include in it, which historical period to consider, and which aspect to study. However, today, in the twilight of an almost 20-year period of abnormally high hydrocarbon prices, it would be logical to confine ourselves to countries that have experienced hydrocarbon dependence at the beginning of the 21st century and assess the degree of success of their experience in diversifying the economy. Therefore, we consider several examples below, both of the positive treatment of symptoms in the economy and of the negative outcomes. But it is important for all of us to understand one thing: Abnormal incomes from the export of mineral resources, as well as an excess of such a resource within the country, give rise to a deformation of the economy in all cases, regardless of the political system and economic policy. Achieving economic diversification in oil-exporting countries is challenging. The diversification strategies implemented in most of them were not successful. In fact, there are no examples of countries that have been able to successfully diversify the economy, freeing themselves from oil dependence, especially in cases where oil production, even against the background of falling prices, allowed the economy to remain structured without social upheavals. The success or failure of diversification depends more on implementation, appropriate economic system policy, than on other circumstances. Nevertheless, many oil-exporting countries show varying degrees of success in diversifying their economies. The better the state possesses the system management tool, the more painlessly it can be cured of the Dutch effect, but, where the temptation of easy and fast incomes prevails over the logic of economic prosperity, there is undoubtedly Dutch disease.

Russian Federation

The economy of this country is highly affected by the risk of Dutch disease, which at any time can get out of control of the Government, especially since in the historical past the USSR suffered from this economic virus. The “Dutch disease” is a reality for Russia, because a very significant structural bias between the extractive industry and other sectors of the economy is clearly visible. However, for political reasons, many trying to ignore this danger. The authorities claim that the economy of the Russian Federation is in a stable position, there is no dependence on oil, but the foreign press, and experts see the situation differently. The real starting point is the 70s of the 20th century, when the USSR government in its foreign economic policy began to focus on the export of oil and natural gas, in exchange for products manufactured in other countries. A distinctive feature of the USSR was that the government did not attempt to reduce its dependence on oil exports. This happened for various reasons. The Western press cites several historical factors confirming the constant influence of the “Dutch disease” on the Russian economy:

1. In the 70s of the 20th century, the USSR government adopted a focus on oil and gas exports in foreign economic policy. At that time, these actions proved to be justified: the average annual world price of Brent crude oil by 1980 increased almost 8 times. But by 1984 prices had fallen by 40%, and by 1986 by 71%, which was one of the reasons for the deep crisis, from which the USSR could not get out

2. The reforms related to trade liberalization carried out after 1991 led to the fact that a large number of Russian enterprises were uncompetitive, as they were moved from the non-tradable sector to the traded one. The output of engineering products decreased by 64% from 1991 to 1994, food by 47%, light/textile by 89%. The output of the oil industry fell by only 32%, and gas by 12%, which ensured an increase in the share of products of these sectors in GDP

3. In 1998, the country suffered a financial and economic crisis, one of the reasons for which was the fall in oil prices. From the same period begins a time of rapid growth of GDP. With the beginning of the active development of industry in Russia, given its previous years of decline, the export orientation of the country all the same only intensified, and with the rapid growth of GDP, the main role is played by another increase in oil prices (1998 — $ 12.28; 2000 — $ 27.6; 2002 — $ 24.36; 2005 — $ 50.64, 2012 — $ 140)

It can be concluded that, despite the growth of GDP indicators, the country’s economic development remains fake apparent, and the growth of GDP itself simply always depends on the rise in oil prices. To cure the “Dutch disease” in Russia with only a narrow range of measures, such as accumulating funds in gold reserves, creating a Stabilization Fund or protectionist policies, is impossible, because this requires a complete restructuring of the entire national economy. For the successful development of Russia, it is necessary to apply a complex method, which is currently impossible because of international sanctions against Russia. But at the same time, ironically, it is due to international sanctions that partially limit the effect of the Dutch disease, since it is this external cause that is not pushing the Government, but the economic sector and small and medium businesses to diversify and stimulate domestic production of goods and services imported, actually implementing import substitution. In Russia today in this aspect is nonsense. Favorable social environment, stimulating business activity of citizens and interest in diversification, is caused not by the system administration of the Government to minimize the impact of the Dutch disease, but by international sanctions that have blocked import access to the Russian market.

But this situation is temporary, sooner or later, anyway, dependence on the export of oil and gas, and not on the export of an intellectual and innovative product, the continuation of sanctions and political isolation can repeat the Dutch disease in the Russian economy. In systemic way, in Russia (as in all countries of the former USSR) is still in superficial and ineffective way are trying to solve the issue of human capital (science, education, creative industry, art, innovation), which plays a huge role in creating large value added products and services that may be required on foreign markets. Such products and services are still in low demand in the domestic market, which is a problem. In the economic sphere (not only Russia), one should always stimulate the development of the traded sector with the whole set of measures available to the government by investing in knowledge-intensive and high-tech industries. Even the work of the Stabilization Fund — which task of minimizing the Dutch disease in Russia is puzzling. The government invests a significant part of the Stabilization Fund in the securities of developed countries and Western banks. With this, it is most likely to be insured, considering that the Fund’s money should be kept, if not too profitable, but reliable. At the same time, no cent from the fund goes to infrastructure projects, and the development of local business projects. Due to the corruption component, the idea of ​​using the funds of the Stabilization Fund following the example of the European Structural Funds is ignored. Although there is an opposite opinion that the funds of the Stabilization Fund helped to contain the inflation of the crisis of 2008–2009. But at the same time, the problem is not solved globally and is ignored, which is a risk.

Norway

Norway is the largest Western European producer of oil and gas, and this circumstance, in addition to fabulous incomes, for 50 years since the discovery of oil fields has remained the same headache of the Norwegian authorities. Norway is regularly taken as an example to other states: the country has achieved tremendous economic growth thanks to oil exports, effectively managing its own natural resources and the profits earned. Norway at the time of the discovery of oil reserves in 1969 did not have the technology, knowledge and specialists for independent development of fields. Foreign players entered the commodity market of this country, which dealt with key issues in which Norway was not competent enough at that time. The state acted only as a beneficiary, receiving revenues from the development of extraction industry. However, the competent policy of Norway allowed integrating and adapting citizens who worked in other areas into oil production, create related industries and become an exporter of technologies developed by it. Norway has come a long way from another gas station to an exporter of technology and professional knowledge in this area, and the creation of its own reserve fund and competent money management, which were used to develop other sectors of the economy, helped the state to avoid the symptoms of the Dutch disease. The effect of the state spending of Norway was prevented by the creation of the world’s largest national welfare fund — the State Oil Fund, which is replenished with super-profits from the export of the resource. Over the 20 years of its existence, the fund’s assets have already exceeded a trillion dollars. The fund is almost inviolable — most of the funds it receives are invested in international assets and projects, and in local innovation and infrastructure projects, which has turned the fund into one of the largest shareholders with shares in more than nine thousand companies around the world. Only 3% of the fund’s money goes to government spending — only income from investments is allowed to be spent. Everything else is planned to leave future generations. One of the main reasons why the country avoided the “Dutch disease” was in time measures to level the effect of spending. By not allowing the services sector to grow excessively against the background of the oil boom, the state took advantage of the increased productivity of labor in the extraction of resources. This led to the emergence of related industries (mineral exploration, transportation, mining innovation) and, in general, increased labor productivity in all sectors of the economy, which allowed the country to diversify its own economy, becoming not only a supplier of hydrocarbons to the European market, but also an exporter of accumulated knowledge and technology. In addition, in order to avoid dizziness from success and the effect of spending, the Norwegian authorities are keeping the oil industry in tight gauntlets — the corporate tax in the country is 23%, for oil industry, the so-called special tax in the amount of 55% of income is added to it. Thus, the marginal rate in the oil sector can reach 78%. As a result, Norway has become a classical state of neo-socialism, which maximally reveals human potential, for example, health care costs in the country — one of the highest in the world — more than six thousand dollars per person per year. A similar situation is observed in the field of education and in other social segments of state interest. The main thing in this success is the state system control and responsibility to the danger.

Venezuela

Here we have a completely different example of negative influence and the inability of the system solution of the problem by the state due to internal insolvency and external pressure. The cause of the economic crisis in Venezuela is not war or cataclysms. Venezuela itself is guilty for its troubles. In the middle of the last century, Venezuela was the country with the highest standard of life in Latin America, second only to the USA, Switzerland and New Zealand in terms of GDP. The country was an example of democracy for all of Latin America. Now it has become an impoverished dictatorship. Nevertheless, we are not about politics, although it is not here without it. Venezuela is now passing through the stage when the veil of sweet socialism was gone with the wind, revealing the gigantic problems in which the country was embroiled by the regime of Hugo Chávez and Nicholas Maduro who replaced him. Oil-rich Venezuela — 16% of the world’s reserves — is unable to pay its debt obligations. Oil accounts for 90% of Venezuelan exports — the main source of budget revenues in the country since 1935. There is no industry in Venezuela — it imports almost everything: from toilet paper to bread and medicines. All the troubles of Venezuela, oddly enough, began because of the oil discovered in 1914. During this period, the government was content enough with royalties. However, already in the 50s, oil producing companies had to pay half of their income to the budget, in the 70s — 55%. At the same time, there was a sharp jump in oil prices and the subsequent nationalization of the extraction/mining industries. Based on local oil assets, the government creates the corporation Petróleos de Venezuela (PDVSA) and begins experiments with subsidizing the national economy with oil money. Together with the inflation of the state public sector and the growth of its wages, industry and agriculture have declined. The lack of qualified specialists in all branches of government been replaced by the foreign citizens. Nevertheless, in the period of the 70s-80s, Venezuela was considered the richest country in Latin America, since any product could be purchased for petrodollars. If the Venezuelan did not have money, they could receive them in exchange for political loyalty. This practice became widespread in 1999, after Hugo Chávez came to power with his program of “Bolivarian socialism.”

In 2000, when oil prices rose sharply, Venezuela literally bathed in petrodollars. However, in 2012, when prices began to fall, cash flow began to dry up. The government headed by Nicolas Maduro had to make a difficult step: to allow the national currency, the Bolivar, to weaken. Prices for imported goods would still rise due to a lack of dollars. But rising prices would lower the rating of the new government, and the president in particular. To maintain its popularity, the president has kept the exchange rate too overvalued and tightened control over imports and access to currency. After imports collapsed, prices began to rise. The government tried to control prices, and as a result, goods went to the black market. In addition, financial problems have been added to all this, as oil revenues have been halved, and the budget deficit has grown. Here again it was necessary to take an unpopular decision — to cut costs and increase taxes. For the newly elected president, this was akin to sentencing. Instead, Venezuela turned on the printing national currency press, and soon hyperinflation was added to economic problems. The standard of living and incomes of the population have grown; the president has achieved results, but only temporarily. The real culprit of all the problems of the current Venezuela is the so-called Chavism. This political movement is a mixture of socialism, left-wing radicalism and populism, the green movement, patriotism and internationalism at the same time. The political course of Hugo Chávez and Nicolas Maduro is called “Socialism of the XXI century”. If we discard political declarations, then its elements on the basis are corruption, incompetent management, a complete lack of understanding of the mechanisms of economic development. There is no doubt that the international sanctions policy initiated by the United States, Great Britain and the EU in retaliation for the harsh nationalization of the oil industry and the losses incurred by Trans National companies is the revenge of ‘’bad’’ capitalism, however, no one wanted to suffer grievances and losses. That is, the crisis in Venezuela is the result of the chronic deterioration of the economic struggle over the years against the Dutch disease, the mediocre social policy of the state that wasted on the super-profits from petrodollars, international sanctions caused to crush the anti-capitalist regime in the country with the largest global oil reserves. From 2000 to 2017, in Venezuela, government spending in relation to GDP rose from 28% to 60% — much more than in other Latin American countries. These expenses gradually depleted foreign exchange reserves. Chávez, in his barbaric economic management, squandered the oil wealth that financed Venezuelan socialism. His attacks on private business left the country without experienced specialists and capital for further development. In recent years, Venezuela has produced less oil than China, and only a quarter of the production of the UAE. Moreover, this country is again with the largest oil reserves in the world. The result was a default in 2017 and a vague outlook for 2019.

How to resist?

First of all, the “Dutch disease” occurs in countries with hypertrophied raw materials exports (and raw materials are not always natural resources, but also some kind of unique product even from the agricultural sector), when the extraction/mining industry stifles other industries, and income growth leads to higher local currency exchange rate. Accordingly, at the state level, the struggle against this phenomenon can develop in three directions:

· by limiting revenue growth in the extraction sector

· stimulating the development of the manufacturing industry

· elimination of super profits from consumption

Restricting/limiting the incomes of extraction industries is the most common way to deal with the “Dutch disease”. It consists in blocking super-profits of the extraction industry through extremely high taxation or their direct withdrawal by the state. The meaning of this method of “treatment” is that if the extractive sector of the economy is deprived of super-profits, it loses advantages over the manufacturing sector and does not create pressure on the labor market, consumer prices, or the national currency rate. In this case, a necessary condition for blocking “extra” revenues is their withdrawal by the state abroad in the form of creating special sovereign funds (“future generations funds”, stabilization funds, etc.), whose money are invested in foreign/national assets and projects. When the situation in the commodity markets deteriorates, the money of these funds can be used domestically to mitigate the negative social consequences of a reduction in the incomes of the commodity sector. In poor developing countries, the creation of such funds encounters resistance from the population: it is difficult for people to understand why withdrawing money from a country if it does not solve social problems or the majority of the population lives extremely poorly. At the same time, due to the low level of economic education of people and their natural desire to improve living conditions, the arguments about the negative long-term consequences of waste of natural raw materials do not meet with the population expectations.

Nevertheless, such funds exist in both developed and third world countries. Extra-profits of the extraction industry can also be seized not by force, but through stimulation of savings activity of the population and business. However, such measures are complex, not always successful and unpredictable in consequences. The third way to “treat” the “Dutch disease” is protectionist measures to support the industry, including subsidizing the production of export products and tariff policies. Such measures are potentially dangerous, since the industry eventually gets used to state support and, when the situation with the export of raw materials changes, is unable to act in open market conditions. Higher import tariffs lead to higher domestic prices and market distortions. Moreover, if a country is a member of international trade organizations and customs unions, the introduction of higher tariffs is difficult and can lead to retaliatory measures by other states. A less disruptive way to support industry is government investment in education and infrastructure. Such investments can increase the competitiveness of domestic production on a long-term basis, diversifying the labor and services market. However, the effect of such measures is not immediately apparent, and their effectiveness may be low due to corruption and an incorrect assessment of business needs by the state. Again, it all depends on government management and compliance policies. Therefore, to quickly cope with the Dutch disease and rent -oriented behavior will not work. Simple recipes are not here.

What can be said in conclusion? The discovery of a large oil/gas field or other raw materials reminds of winning the lottery — the country receives tremendous wealth. However, quoting Miguel de Cervantes: “The gratification of wealth is not found in mere possession or in lavish expenditure, but in its wise application” remains still actual!

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Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solution, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support of business

What it is?

In 2016, ICO became the main way of financing innovation and blockchain startups. The first project, released on ICO, was Mastercoin in 2013. After it, thousands of projects attracted funding through the emission of tokens. According to ICODATA in 2017, the volume of investments raised through ICO (Initial Coins Offerings) were more than $6.2 billion, in 2018 — about $8 billion. After analyzing the data from the TokenData, it can be concluded that in 2018, unfortunately majority of the projects turned out to be a scam. Most tokens have lost their price and are trading now below their initial value. The bearish trend of the end of 2018 and the fall in prices of Bitcoin and Ethereum made investments in ICO an extremely risky business. In general, the forecast of the Bitcoin price does not inspire optimism, neither in the short term nor in the midterm. The hype around ICO was caused by the ability to make quickly “big money” and lost the function of a civilized fundraising for the development of blockchain projects. The hype attracted the attention of regulatory authorities and scam artists. The reaction of the regulator to ICO process is perhaps the only positive point that the ICO achieved in 2018. Detailed analysis of projects, discussions of start-ups on forums and supervision by the Regulator (mainly SEC, FINMA) of the ICO process make financing of projects more civilized, and investments more protected from fraudsters. However, the market did not wait for the Regulator to come out and allow only what it cannot prohibit. Blockchain industry is initially self-regulated and does not fit well with public administration. Which is both an advantage and a serious disadvantage. As part of ICO, an investor sends funds (in Fiat, in cryptocurrencies) in exchange for tokens to accounts or to a smart contract of project developers. The ICO (Initial Coin Offering) model allowed to projects to receive funds for development without the need for traditional venture financing and taking a bow to business angels and venture funds.

However, the ICO has several controversial points that have led to appearance of other tools to raise funds from crypto projects, such as Security Token Offering (STO), which combine the best of both methods. Most recently, STOs have created a way for projects to tokenize assets and provide investors with a share of capital in the company. However, the cryptosphere is developing rapidly, and a newer financing model, called the “IEO” (Initial Exchange Offering) has recently emerged. IEO appeared in 2018. IEO allows crypto projects to raise funds directly on digital crypto exchanges, so there has been a lot of talking around it. The sonic ICO receives a rebirth in the form of a yet incomprehensible IEO. In fact, I do not see any fundamental differences, except for the absence of certain risks. The main difference between ICO and IEO is that the exchange actively participates in the fundraising process, allowing only the most promising and viable projects to be listed (though, in the opinion of the exchange itself).

This approach allows you to get rid of several traditionally weak points of the ICO, such as:

· deferred listing of tokens at the end of the tokensale

· liquidity problems

When conducting IEO, tokens immediately appear on the crypto exchange, and, as a rule, they are having a large base of verified investors. Very important from the point of view of IEO security: the issuer of tokens is not a project team, but an exchange, which increases the level of control and quality (possible). The phenomenon of IEO seems to have gained momentum amid the shrinking ICO market. CoinSchedule reports that about 180 million dollars were raised by 23 IEO projects, most of which have been happening since the end of 2018.

Why did IEO appear? To answer this question, you need to look into the recent past, where the rapid growth of ICO popularity was accompanied by an equally intensive process of discrediting this tool for raising investment. Legal uncertainty, a huge number of scams, the lack of effective mechanisms to protect the interests of investors, undermined faith in the ICO. Liaison to the mechanism of attracting investments of large crypto exchanges is able to regain confidence in the tokensale. The main role of the exchanges here is to examine new projects, assess their investment prospects, risks and overall viability. Allowing the project to IEO, the exchange assumes the lion’s share of reputational risks, which increases investor confidence in the IEO. The key difference between IEO and ICO lies in the role of the exchange, which assumes the obligation to select promising projects.

IEO has several advantages:

· Investors are better protected from scams. One of the main drawbacks of ICO was that potential investors could not understand which project would be better to invest. ICOs were launched on separate platforms on which all necessary information was not always placed. Often, scammers who collected money from people and then disappeared launched the ICO. There was another way of fraud: for the money spent investors still received their tokens, but then the founders suddenly threw the project, which turned the acquired tokens into “digital candy wrappers”. In the case of IEO, doing so is much more difficult. The project is launched on the crypto exchange, passing before this a serious test of reliability and prospects. Crypto exchange analysts do not allow questionable start-ups to be realized, because in the event of failure the reputation of the exchange will suffer greatly, but the project and team risks still remain

· New tokens are much faster to be listed on the exchange. In 2018 there were quite a few cases when, at first glance, a promising project raised the necessary amount of investment, while simultaneously receiving a solid army of its followers, but popular stock exchanges did not list it for a long time, which negatively affected the popularity, liquidity and price of distributed tokens. Some tokens did not start trading on exchange platforms at all. This naturally led to the collapse of startups and losses among investors. Another situation is with IEO. If the project was in principle allowed to be implemented, then the exchange already trusts it, and therefore — will quickly list tokens itself.

· According to Autonomus Research, ICO issuers have to spend between $1 million and $3 million to add a token on the exchange. In addition, there are additional costs associated with hiring consultants and marketing campaigns. Although the exchanges still charge a huge fee for conducting IEO, the team behind the crypto project can shift the focus from marketing and fundraising to developing their project, that is plus

· Fundraising speed. The initial distribution of tokens with ICO always took several days. Sometimes the deadlines reached a week or even a month. The uncertainty of potential investors, a poor marketing campaign, a dubious news background around the project, and often-dubious organizers explained all this. When you start IEO, the set number of tokens finds its owners in just a few minutes (or even seconds). That is, startups do not stay in limbo for a long time, and the first investors do not wait for weeks, until the project they have chosen collects the stated amount. People know in advance that they will invest in a specific project and already trust it (there is a guarantee from the exchange)

· The investor almost immediately goes into a plus. This is something that classic ICO can’t give. If IEO is successful, then the tokens already has popularity. Thus, when a token is listed, it already costs more than the initial offer. Therefore, the holder of tokens is free to choose what to do: immediately sell it at a bargain price or wait until the value rises even more.

· No need to get a third-party wallet. Wallets for storing tokens automatically appear on the exchanges where a particular project is launched.

· IEO launches give additional hype to the development of the exchanges themselves. In such projects, a model of ideal cooperation is practically built. The founders of start-ups are promoting their projects on popular trading platforms, which ensures high confidence in them. The exchanges get a monopoly on token trading. If the tokens added to the listing are well shot, the platforms will receive an influx of new users, and this will lead to an increase in income. And the placement on the resources is also not free. In general, the pros remain all: the organizers, the owners of the exchanges, and investors.

· The investment process is as simple as possible — for example, you do not need to register on the project site, buy ethereums and send it to an unknown smart contract — just replenish the balance on the stock exchange, as usual, wait for the tokensale and place a purchase order

· Tokens are sold to everybody at one price — which reduces the likelihood of a fall in rates from early investors who were purchased first, as well as from the bounty and airdrop hunters

In turn, the projects receive a huge base of potential investors — an active and advanced audience of the exchange + the help of advisors and professional support for the tokensale, that is, they take off most of the work on organizing and promoting the campaign, which means save time and budget.

IEO Disadvantages:

- to participate in IEO on large exchanges is quite difficult — good projects collect millions of dollars in just 10–30 seconds, so most users simply do not have time to come to the tokensale and place an order

- IEO is quite rare- so far, such tokensales are not mainstream and certainly still not so popular as ICO or STO for accredited investors. At the same time, not every exchange is ready to undertake such amount of additional work, and far not every project will undergo such thorough screenings; risks remain

- IEO requires verification of identity — even if verification is not necessary on the exchange itself. This rule is associated with the peculiarities of the legislation of a number of countries, and also allows you to avoid a situation where all tokens are bought by 1–2 people with their army of bots.

- As for projects, for them the main disadvantage is the price IEO services — not every team, even if it is three times talented, can roll off a million dollars for placing on the crypto exchanges. Well, the exchanges still carry great reputational risks, because if the project presented by them gets stuck in scandals, a huge wave of negativity from users will spill over them, right up to lawsuits and attention of law enforcement agencies

- Startups go through a complicated project submission procedure. On each exchange project requirements may vary. The marketplace, at a minimum, shifts the costs of marketing to founders, and as a maximum, can request a percentage of all funds raised. IEO projects go through a complex verification process. For this exchanges need to keep in the staff of highly qualified specialists and analysts, which is associated with high salary costs.

- Modern IEOs are subject to regulatory obstacles as much as their predecessors, ICO. IEO has become an alternative token offer model, when a centralized crypto exchange acts as a guarantor of placement. The exchange usually organizes sales, having previously checked the projects, and evaluating the willingness of potential investors, although IEO is really effective due to the “prudent third-party approach”, the new model is no less burdensome in terms of regulatory requirements than ICO. Back in 2017, when ICO was popular, the sites of “centralized ICO” appeared. IEO idea was borrowed from there. Initial asset sale through exchanges is not a new concept. The only minor amendment is the use of cryptocurrency instead of fiat money. Now, experts are also trying to weigh the potential shortcomings of the new IEO trend, saying that placing on the exchange may further encourage regulators to consider such offerings as sales of securities. Others point to the paradox that intermediaries in the form of exchanges are involved in IEO, while in general crypto philosophy values ​​decentralization. There are those who say that exchanges simply stimulate sales and seek to use their own tokens (for example, like Binance token — BNB)

- When the ICO bubble was blown away, many tokensales, including STO, became available only to a closed circle of major players. At the same time, some projects resorted to the concept of SAFT, which did not guarantee complete safety for investors and full approval from regulators. IEOs were designed to democratize the distribution of tokens, making them accessible to a wide audience. However, soon the situation began to change rapidly and one by one the exchanges began to change the rules. Significant advantages on the side of investors with a large number of native tokens of the exchange. This approach allows you to cut off many small investors, reducing the hype around the crowdsales, reducing the pressure on the Launchpad. It also stimulates the demand for exchange tokens for which you can purchase tokens of IEO projects

- By participating in IEO, investors still risk their money. Even if we take into account the fact that experts from popular IEO platforms (Launchpad) crypto exchange are selecting projects for crowdsales, no one can guarantee investors a profit. In addition, since the advent of IEO, not so many crowdsales have passed so that you can objectively compare different platforms with each other.

- Another problem is the legal uncertainty inherent in this area. Regulators in different countries have not yet found an optimal way to control the work of exchanges that conduct IEO and other types of tokensales. Recently, IEO tokens of stock exchanges have risen by an average of four times. Nevertheless, the business model of tokens of centralized exchanges has disadvantages. For example, such tokens as assets are not tied to anything, so there is a risk of manipulation of the course by issuers. The methods used by the exchanges that motivate users not to sell tokens, but to keep them “for long term periods” are also doubtful. The growth of IEO tokens depends not so much on the exchange’s profitability, but on the market supply of these tokens.

- The IEO model is not without flaws. There is no guarantee that regulators will not engage in this area in the near future, as in the cases with ICO. Thus, the new hype can be completed as quickly as it began.

IEO Success Examples

BitTorrent (BTT) — is a tokenized asset that is positioned as a digitized version of the largest p2p-network protocol for exchanging BitTorrent data. Its main function is to pay users for the distribution of files so that they remain on the network as seeders. Also, tokens can be used to purchase the full version of the program without advertising, faster file downloads, streaming in HD quality, file conversion, virus protection, etc. The IEO project passed on January 28, 2019 and collected more than $7.2 million in 18 minutes. Tokens went public on January 31, and in just one week it went up by 1683% compared with the base rate.

Fetch.ai (FET) — is a personal assistant based on decentralized AI, machine learning and a scalable blockchain that adapts to your current tasks and is the basis for a smart city system and the digital world. The IEO project passed on February 25, 2019 and collected $6 million in 22 seconds. The base price of tokens was 0.008584 BNB, that is, approximately ~ $0.08. Tokens went public on February 28, 2019 and after four days it went up to $ 0.4307, that is, up to 438% compared to the initial quotes. Today, this method of raising capital is supported by many large trading crypto platforms within a separate pool:

Bittrex — Bittrex International IEO;

BitMax — BitMax Launchpad;

Huobi — Huobi Prime;

KuCoin — KuCpon Spotlight;

OKEx — OKEx IEO

Table ‘’IEO and ICO Specifications’’

The main advantages of such a mechanism for raising funds are:

1. Marketing savings of the project, as it is possible to interest directly existing customers of the exchange

2. Increasing the level of confidence on the part of potential investors, since the exchange assumes reputational risks and conducts due diligence of the project.

3. In case the exchange is not decentralized, a “Gas war” cannot occur between the participants. Currently, all transactions sooner or later are included in the block, but the amount of transaction fees affects the speed. Thus, in order to buy tokens first, investors compete by setting high gas limits, thus becoming the first in the transaction queue.

4. The distribution of tokens follows the same principle as in ICO. But both projects and exchanges may impose additional restrictions. For example, founders may require a fixed price to sell tokens during the entire IEO process or set limits on the amount of tokens for each investor. The exchanges, in turn, may be asked to correct hard or soft cap if they see the potential threats or success of the upcoming tokensale.

How to participate in IEO? The main stages of participation:

1. Determine which exchanges are running IEO. Often, several exchanges are running IEO of the same project.

2. Make an account on the exchange and pass verification (KYC). Complete the whitelisting procedure. It is initiated by developers so that they can select the most attractive investors for themselves.

3. Depositing a cryptocurrency approved by IEO into the account.

4. Waiting for IEO to start and buying tokens

Table ’’Essential characteristics of IEO and ICO for customers/users’’

Future challenges

Many market experts believe that IEO is only a temporary fundraising model, an alternative to ICO, since both formats have legal uncertainty. Many countries and governments have long ago banned the ICOs because they often turn out to be fraud and harmful both investors and trust in the crypto industry as a whole. Many governments are cautioned with the new IEO model. It is still too early to talk about the attitude of other regulators, since IEOs occupy a niche too small. Definitely, one can only say that in such a model, startups undergo a more serious test that plays for the benefit. The excitement around IEO is growing like an avalanche. More and more exchanges are making tokensales as a new format and, despite the technical difficulties, attract thousands of new cryptoinvestors worldwide. The investors, for the most part, seek to obtain speculative profits without conducting any fundamental analysis of projects and without thinking about the long-term prospects of tokens based on them, which in the future may become a negative factor for the development of the tool. However, at the same time, it should be noted that the market has significantly revived with the advent of the first IEO. This is due to the fact that to purchase the cherished tokens, native tokens of exchanges are needed, which also used to be bought. Thus, new money poured into the market. Nevertheless, in the long term, these native tokens can play a negative role in investor access and costs. Apparently, in parallel with IEO, there is a market for bots that allow you to buy token offerings in a second. After all, it is unlikely that every “live” market participant can acquire tokens in just a few moments. And it will also slow down the prospects for the development of the tool. However, despite all these risks, IEO still recommends itself well.

Conclusions on IEO:

IEO can hardly be called the next stage in the development of ICO, since it is based on completely different technical solutions adding centralization and openness to the process of fundraising, which contradicts the ideas of ICO, where there are no obstacles between investors and companies that go to ICO. If ICO has already managed to completely discredit itself because of what the form of collecting investments with the help of ICO is already prohibited at the level of legislation of some countries, then IEO still holds the level of legitimacy before the law due to the rigorous selection of applicants for leading crypto exchanges. When IEO arrives on the second or third tier exchanges, IEO can repeat the fate of ICO, when both abbreviations are associated with deception and will be banned at the legislative level. Today, IEO can be called the most progressive tool for ordinary investors in which restrictions are minimized, but there are elements of protecting the interests of investors, which can play a big role in further promoting crypto worldwide.

It is also possible that even with the first deep drawdowns in the prices of new tokens and signs of a decline in activity in the IEO sphere, the growth of the entire crypto market will also slow. This has already happened during the ICO boom in 2017 — early 2018. The excitement turned out to be fleeting, because in this area a lot of projects, dummies and ordinary scam.

Are there any perspectives around IEO? This is still difficult to answer. However, some problems are already emerging that call into question the potential for the development of IEO. The new model is likely to “take everything from the ICO and make it even worse”. Moreover, crypto exchanges allegedly use IEO as a pretext to stimulate sales and use their own tokens, either forcing IEO issuers to raise funds using their exchange tokens or requiring IEO issuers to have large balances of their own token to participate in sales. This practice can make the model even more problematic for regulators and increase the likelihood of their recognition as securities in the end.

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Sergiy Golubyev (Сергей Голубев)

Crynet Marketing Solution, EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support of business