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Commission investigating rise in premiums summons motor insurance firms to give evidence

Update 6.05pm: Insurance Ireland says it has received a witness summons from the Commission relating to its investigation.

It says it will comply with the witness summons and will co-operate fully with the investigation.

The firm says it is fully satisfied that it has no issue in relation to competitive practice and is confident that this will be confirmed through this process.

FBD Insurance has welcomed the investigation, saying they believe there are many factors that influence motor insurance costs in Ireland.

They said: “One of the main factors is the relatively high cost of bodily injury awards. These awards and associated legal costs are significantly higher than in other EU jurisdictions.

“We believe Irish awards should be benchmarked against other countries.

“In addition, we continue to call for increased powers for the Personal Injuries Assessment Board as a key stakeholder in creating an efficient and cost effective claims process for injured parties.”

Earlier: The competition commission has launched an investigation into pricing in the insurance market.

A number of companies and brokers have been issued with requests for information and witness summonses.

The Competition and Consumer Protection Commission (CCPC) issued witness summonses and information requests to major motor insurance providers and industry groups representing insurers and brokers today.

It comes as figures show the cost of motor insurance has risen by more than a third in just 12 months.

The average cost of car insurance has now reportedly reached €900 a year.

The CCPC said their investigation relates to insurers “openly signalling up-coming increases” in motor insurance premiums.

Isolde Goggin, CCPC Chairperson, said: “Markets work best where businesses vigorously and independently compete against each other for customers.

“Statements signalling future pricing predictions or intentions may result in a degree of unspoken coordination, which may breach competition law.

“Statements by senior industry players have raised serious suspicion as to whether there is a link between these messages and subsequent price increases.”

She said the evidence collected will help them to establish whether there has been a breach of competition law.

She said: “We know from our contacts with consumers that the sharp rise in motor insurance premiums has had a significant impact on them. We continue to closely monitor developments and will, if necessary, take action to stop specific anti-competitive practices in the motor insurance sector.”

If anyone believes they have evidence of a breach of competition law in the motor insurance sector, they can contact the CCPC.


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Cauvery dispute: IT, e-comm firms shut offices after violence

The violence over the issue of sharing Cauvery water with Tamil Nadu forced IT firms such as TCS, Infosys and Wipro to shut their Bengaluru offices on Tuesday.

Offices of e-commerce firms Flipkart and Amazon were also closed as a precautionary measure. The big three IT firms have over 70,000 people working at their campuses in the country’s IT capital.

A Reuters report said global outsourcing firm Accenture closed offices in the city and told staff to stay home. 

Many employees were asked to work from home as the companies invoked business continuity plans to ensure there is no disruption to mission critical projects.

In an e-mailed statement, Wipro said: Wipro has declared a holiday for employees in Karnataka on Tuesday, September 13. In lieu of this holiday, Saturday, September 17, will be a working day for offices of Wipro in the state.

It added that business continuity plans had been invoked to avoid disruption to mission critical projects.

An Amazon India spokesperson said delivery of products has been temporarily impacted owing to the current situation. We will resume all deliveries at the earliest. We have advised our employees to work from home today and continue to monitor developments, she added.

Flipkart Head (Supply Chain Operations) Neeraj Aggarwal said the company has stalled operations to ensure safety of its delivery staff.

“We are trying to mitigate all customer impact by keeping them informed about expected delays,” he added.

Meanwhile, Indian Chamber of Commerce and Industry in Coimbatore has urged Prime Minister Narendra Modi to intervene and hold talks with both Karnataka and Tamil Nadu for an amicable settlement.

The violence including burning and damaging of more than 50 buses and many other vehicles bearing Tamil Nadu registration and also torching of properties belonging to Tamilians is deplorable, chamber president Vanitha Mohan said in a statement.

Prime Minister Narendra Modi should intervene and hold talks with both Karnataka and Tamil Nadu for an amicable settlement on the issue, she said.

A large number of youths from Tamil Nadu are employed in several IT companies in Bengaluru, she said and sought the intervention of the Karnataka Chief Minister in ensuring their safety and protection from untoward incidents. She also urged the Karnataka government to initiate stringent action to maintain law and order in the state as mob attacks, violence and damage to properties will not in any way resolve the issue.

One person was killed and another injured in police firing in Karnataka on Monday as the Cauvery water sharing row with Tamil Nadu turned violent, escalating tension between the two states.

Bengaluru city police, bolstered by central forces, is keeping a tight vigil, particularly in areas inhabited by Tamils and other sensitive localities. Violence targeting Tamil Nadu buses and lorries and other vehicles put the city on edge yesterday and curfew was imposed in 16 police station limits last night. The entire city is under prohibitory orders till September 14.

(With PTI inputs)

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Opinion: SpaceX explosion shows why we must slow down private space exploration until we rewrite law

The crew of Space Shuttle mission Challenger flight 51-l tragically died after an accident. Credit: NASA

The recent explosion of a SpaceX Falcon 9 rocket during a test on a launchpad at Cape Canaveral may have opened a Pandora’s box of legal problems previously only discussed with hushed voices in space law circles.


While there is an international space law that sets out a general framework for the conduct of all space activities – including those by private firms – most of it was developed decades ago, before the rise of commercial space exploration. It is in fact not entirely clear how much regulation of space activities by private companies currently exists – particularly in relation to the liability for accidents.

The ultimate blame for the Falcon 9 crash will only emerge after full investigations are complete. But if the fault does lie with SpaceX, there are reputational consequences and insurance costs for future launches for the company will likely shoot up.

Government space programmes like NASA and the European Space Agency are certainly not immune from catastrophic accidents. If NASA was a car driver, its licence likely would have been revoked on account of the number of tragic explosions. In five of the worst NASA accidents since 1967, 17 brave astronauts have lost their lives and several experimental rockets, space vehicles, satellites and space shuttles have been lost. But the sharp increase in private space exploration makes it important to reconsider how the legal landscape has changed.

When space accidents do happen, the rules that govern them are contained in a confusing patchwork of agreements and treaties. If an accident occurs on Earth, the liability will depend on national rules, such as the general principle of international law that holds corporate companies responsible for damages. But the Outer Space Treaty (1962) says that a state launching a probe or satellite shall be absolutely liable to pay compensation for damage – even when an accident happens on the surface of the Earth.

It can, however, be unclear whether the accident happened in airspace, meaning national aviation laws can apply, or in fact in outer space. Thus, it is becoming increasingly important to determine the exact boundary between airspace and outer space territory. This is important to work out as lawyers will always try to exploit unclear frontiers.

Even in cases where it is clear that space law applies to an accident involving a private company, liability is still a tricky issue. According to space law, the state where the launch takes place and which registered the space object is ultimately responsible. But a private company can be registered in a different state to the launch country, creating a lot of confusion. A solution could be to say that the state registering a certain space probe should be liable. This state would then be free to compel the company to pay damages.

A rise in serious accidents?

It is only a matter of time time before we see more than just launch explosions. The risk of serious space accidents will increase as the number of space objects in orbit extends into thousands. The advent of private activities will also exacerbate the problem of space debris, perhaps as private commercial use of the seas has polluted international maritime spaces. The collision of the satellites Iridium 33 and Kosmos 2251 over Siberia in 2009 is a clear example of what may become a common occurrence.

Then there are the 100 to 150 tonnes of man-made space objects that re-enter Earth’s atmosphere annually. Lots of these simply burn up, but some do manage to cause damage to private property. Again, it’s only a matter of time before the first human life or limb is lost to this kind of incident.

Launches of rockets and payloads are fraught with danger and quite frequently go wrong. But launch accidents appear to affect different countries in different ways. The costs involved in engaging in space station activities are mind boggling and crippling to struggling economies. Increasingly, developing states rely on commercial launchers. But if a private company launches an object that subsequently causes damage in space, the poor state will be liable.

And even in those cases where the launch fails due to misfortune or the mistakes of the private launcher, such companies could still escape paying for the launch accident, as such firms often have water-tight exclusion clauses that protect them from liabilities. The bill again goes to the poor state.

This is especially likely when it is a Western company working for a developing country. China on the other hand agreed to pay for a lost satellite it had launched for Nigeria. It is therefore essential that any developing state protects itself to the fullest against unsuccessful operations caused by negligent and/or accidental failures.

There are also serious issues around the safety of astronauts, who have the legal right to a safe existence when in outer space. But it is unclear whether this law does – or should – extend to private astronauts. Also, a launching state currently must be notified regarding incidents involving astronauts on international missions – and it is required to assist and contribute substantially to search and rescue operations. Can a private company really supply the enormous sums or other resources that may be needed? Will the home state of the private company be willing to pay? Again, the law isn’t clear.

With the increase in private participation in space experimentation and perhaps even mineral mining, the provisions governing civil liability over mishaps arising from the operations of a space station are likely to become one of the most contested areas of space law. What if a module or component part fails to function on a space station? In the absence of multilateral rules on this point, a patchwork of legal rules is gradually maintained through MOUs (Memorandum of Understanding) and other national laws such as the US Commercial Space Launchings Act (CSLA) of 1978. How will private companies fit into these as they possibly become partners?

Liberalism and the private entrepreneurial spirit do have their place in outer space. But there must be carefully designed limits. The treaties and legal regime of space law has not been adequately amended to account for the rise of private space exploration. For humanity’s sake, private space exploration may have to proceed more slowly until these important issues are sorted.

Explore further:
First commercial cargo run to space station April 30

Source::
The Conversation

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German law to allow start-ups to claim tax breaks on losses

Germany’s government plans to
allow start-ups to claim tax breaks on losses even after a
change in ownership in a bid to boost investment into fledgling
firms, a copy of a draft law seen by Reuters on Tuesday showed.

The draft law is expected to be approved by the German
cabinet on Wednesday and would cost the finance ministry around
600 million euros ($674 million) per year in lost tax revenue,
according to the document.

Currently, losses suffered under a previous owner cannot be
used by new investors to reduce a start-up’s tax liability.
Under the new rules, investors will be able to claim the tax
breaks provided the business continues to operate.

This is to prevent companies being bought and gutted solely
to take advantage of the tax breaks on losses carried forward.

German start-ups already struggle to raise funds when
compared with their U.S. peers due to a shortage of venture
capital, especially for later stages of growth.

While the number of financing rounds increased in Germany in
the first half of 2016, the total value of investments tumbled
by more than 50 percent to 957 million euros, according to a
study by consultants EY.

Mittelstand companies, the small-to-medium-sized firms that
form the backbone of the German economy, will also benefit from
the legislative changes.

The Foundation for Family Businesses welcomed the new rules,
saying it would make restructuring easier and increase
flexibility needed for firms to compete internationally.

The new law is expected to apply retroactively from Jan. 1,
2016.
($1 = 0.8902 euros)

(Reporting by Matthias Sobolewski; Writing by Caroline Copley)


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NowNS: Law firms working toward diversity goals

Like all brain-based and knowledge-powered professional services businesses, law firms rise or fall on their ability to attract and retain the best and brightest.

That’s no easy win, however, in a global hiring market where the hunt for top talent gets only harder — or in a province that’s fast running out of workers.

No surprise then that all three of Nova Scotia’s largest law firms are using diversity and inclusion strategies to help them hire, engage and subsequently keep employees from as wide a labour pool as possible.

Corporate lawyer Candace Thomas joined Stewart McKelvey from another firm in 1999 and was admitted to the firm’s partnership in 2005. She sits on the firm’s diversity and inclusion committee, launched in April after the August 2015 appointment of Lydia Bugden as CEO and managing partner. Bugden is the first female to take on the firm’s most senior management role.

Thomas, the firm’s second African Nova Scotian partner following now-retired Senator Donald Oliver, told the Chronicle Herald the firm’s diversity and inclusion committee had very recently completed a draft strategy and that it was currently up for consideration by the firm’s partnership board, it’s most senior team in terms of governance.

She said the four-fold strategy aims to reduce bias and increase diversity in recruitment; to help Stewart McKelvey become better at retaining and advancing lawyers and non-legal employees particularly those self-identifying as belonging to diverse or under-represented groups; to improve education and training relating to diversity and inclusion; and to ensure the firm’s leadership support and champion it in its culture and related initiatives.

Thomas said that while the firm currently has lawyers and staff from diverse groups, the strategy aimed to make the firm “more representative” of the communities and clients it served.

It would also help everyone working at Stewart McKelvey to feel great about coming to work and motivated to do their best work, she said.

Thomas says she and the other members of the firm’s diversity and inclusion committee — along with the firm’s management and HR teams had very recently completed training to reduce “unconscious bias when it comes to how our partners and employees work with colleagues and external stakeholders.”

The training aimed also to improve partners’ and employees’ “cultural competence,” she said.

While community outreach is a key part of the firm’s draft strategy, the strategy follows rather than pre-dates the firm’s efforts to connect with marginalized and disadvantaged communities.

For example, in May Thomas was one of five lawyers who hosted a firm-sponsored information session on the legal system in East Preston, where she grew up.

Approximately 35 African Nova Scotians turned up, said Thomas, who carves time between closing deals to volunteer at such events because she believes they both broaden young peoples’ awareness of career opportunities and help Stewart McKelvey conduct vital employer brand building, often via mentoring.

During July’s Pride Week the firm celebrated its lesbian, gay, bisexual, trans or ‘questioning’ (LGBTQ) partners and employees and took time to “pulse check the evolving legislative landscape of LGBTQ rights and educate our lawyers and staff about recent developments in LGBTQ rights and how much work is still left to do,” a spokesman said. The firm was one of several that joined the Nova Scotia Barristers’ Society (NSBS) in this year’s Pride Week march, alongside representatives of the Canadian Bar Association.

Stewart McKelvey has a female regional managing partner (Rebecca Saturley), while approximately 80 percent of its directors were female, the spokesperson said.

Nova Scotia’s two other large law firms, meanwhile, are also making gains in tapping fresh talent streams.

McInnes Cooper, which has 200 lawyers on its firm, lists “respect and inclusion” as one of six values and launched its own strategy in 2013, said Lynn Iding, that firm’s managing director of legal professional resources.

“We have many colleagues and clients from different backgrounds and perspectives. Creating a culture of diversity allows our members to deliver innovative and strategic solutions to our clients,” Iding said.

The firm’s progress to date includes creating a diversity council comprised of senior firm leadership as well as a diversity advisory committee to oversee implementation, she said.

Besides getting partners and employees out for Pride Week, Iding said the firm has hardwired diversity and inclusion into the firm’s HR operations include hiring; bias and cultural competence training; reviewing firm policies through a diversity lens; and creating an online repository of diversity and inclusion information.

Bar society insiders say McInnes Cooper is also a strong supporter of Ku’TawTinu:, a ground-breaking shared Aboriginal articling program set up by the society to help Aboriginal law students secure career-critical four-month-long opportunities to article, the profession’s standard.

Meanwhile, Iding said McInnes Cooper was also a founding member of the Justicia Project, a national initiative design to improve the retention and advancement of women lawyers in private practice.

“In addition, we regularly support cultural events that showcase the traditions of minority populations. We’ve hired employees through work placement programs such as the Prescott Group Community Employment program and the New Brunswick Association of Community Living. And we support organizations such as reachAbility and Special Olympics,” she says.

In 2013, Cox & Palmer, which also has 200 lawyers _ along with Stewart McKelvey _ was one of the original Atlantic Canadian signatories to the Law Firm Diversity and Inclusion Network, a group of more than 20 Canadian law firms that collaborate to promote diversity and inclusion among their people and the broader profession.

Cox & Palmer was also the first Atlantic Canadian business member of Pride at Work, a non-profit organization which supports the inclusion of LGBTQ employees in the workplace.

And this year, litigation partner Loretta Manning — chair of the firm’s Regional Diversity Committee — won a Zenith Award for her work to promote diversity and inclusion in and out of the province’s profession.

Want more NOW! Nova Scotia? Follow us online: 

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Bernstein Shur Attorney Co-Authors Maine Chapter in National Commercial Lending Law Guide

PORTLAND, Maine – Bernstein Shur, one of northern New England’s largest law firms, announced that shareholder Christopher J. Devlin has co-authored the chapter on Maine law in Commercial Lending Law: A Jurisdiction-by-Jurisdiction Guide to U.S. and Canadian Law, published by the American Bar Association. Devlin is a member of the Business, Commercial and Governmental Finance Practice Groups in Bernstein Shur’s Portland, Maine office.

The two-volume work covers all 50 states and relevant commercial lending laws that apply to each. The comprehensive resource expands on the previous edition and provides not only the basic structure and procedural law of each state’s court system, but also offers additional guidance on various types of borrowers, real estate lending, and revised Article 9 and security interests. Those interested in more information or in purchasing the book may visit www.shop.americanbar.org.

With more than 25 years of experience working in commercial finance, Devlin is a fellow of the American College of Real Estate Lawyers and the American College of Mortgage Attorneys. Devlin earned his J.D. from Boston College Law School and his B.A. from Vassar College. He resides in Portland, Maine with his family.

About Bernstein Shur

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Founded in 1915, Bernstein Shur is a New England-based law firm with clients across the U.S. and around the world. The firm has more than 100 award-winning attorneys and professionals who provide practical and innovative counsel in more than 20 key areas, catering to a broad range of clients and industries. Bernstein Shur is known for simplifying complex issues and winning through steadfast persistence. The firm is Maine’s exclusive member of Lex Mundi, the world’s leading association of independent law firms. More information is available at www.bernsteinshur.com.

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US demand leads Scots law firm to record revenue

CONTINUALLY growing demand from the United States has led Glasgow patent and trademark law firm Murgitroyd to post record revenue in a market sector its chief executive Keith Young called “recession proof”.

The company also said its geographic spread would protect it from the possible impact of Brexit.

Alternative investment market-listed Murgitroyd, which carries out 45 per cent of its work in the US, saw revenue grow to £42.2 million from £39.8m for the year-ending May 31. Its US business grew 20 per cent over this period.

Pre-tax profit of £4.3m led the company to increase its dividend by 8.5 per cent to 16p, which Mr Young said illustrated how successful the company was at delivering on its progressive dividend strategy.

“We’ve been able to deliver not only the results people were expecting but increase the dividend,” he said. “That’s attractive for obviously the return it gives shareholders but also, two years ago we made a specific point of returning to [shareholders] more of the cash we generated.”

While the company acknowledged a weaker demand for its services in the UK and Europe, Mr Young said its geographic spread made individual market strength less relevant.

“When we talk about demand, we’re talking about US demand for UK and European services, so to some extent it doesn’t matter where the demand for the European services is coming from. Whether Glasgow or San Francisco, it doesn’t matter because of our footprint.”

Geography was again the reason cited for its “strong comparative market position” ahead of Brexit.

“Because our footprint sees us in most EU countries, [Brexit] doesn’t affect our ability to service our clients,” said Mr Young. “To that extent we think we’ve got a competitive advantage over UK firms.”

Mr Young also said IP law had proven to be “robust” no matter the predominant economic conditions.

“If you look back over time, whether national of international recessions the marketplaces for IP are pretty much recession proof and that’s been the case again this year with patents and trademarks in Europe both are at a record high.”

In 2015 there was an 11 per cent increase in Community Trade Mark (CTM) applications – now known as EU Trade Mark – filed to a record 130,000.

Meanwhile, The European Patent Office reported a 1.6 per cent year on year increase in patent filings, with the number rising to an all-time high of 278,000; a quarter of these originated in the US.

Murgitroyd has dual-coast coverage in the US and its positive cash-flow enabled its June acquisition for $2.4m of part of Dallas-based MDB Capital Group to be completed without raising debt.

The company had net funds of £2.75m with group debt of £546,000 as of May 31.

“We’ve seen two uses of that cash – increased dividends and also the ability of making acquisitions without taking on more debt,” noted Mr Young.

Mr Young said the company continued to look at acquisitions, but was not on “an acquisition trail”.

“We’re always in the market for acquisitions but at the same time we’re not desperate… because our business is fundamentally about sustainable long-term earnings growth.”

Staff numbers grew to 262 with the MDB deal. More than 100 of these employees are based in Glasgow.

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New investment law is the ‘right move’



Jo Daniels, managing partner of Baker & McKenzie Myanmar, said at a media roundtable that the new law could be one of Myanmar’s most significant legal reforms once approved by the parliament. While praising the move, she believes much of the benefits still hinge on the enforcement efforts of the Myanmar Investment Commission (MIC).

The new law, a consolidation of existing Myanmar Citizen Investment Law and the Foreign Investment Law, introduces a new form of approval called MIC Endorsement, in addition to issuing MIC permits.

If a company’s business activities do not fall under one of the restricted categories, it will not require an MIC permit to do business in Myanmar. Instead, they can apply for an MIC endorsement, which will provide the same benefits as an MIC permit such as long-term lease and tax incentives.

“It is one of the significant changes proposed in the new law. We assume that the MIC endorsement process will be less rigorous than the MIC permit application, but that remains to be seen,” she said.

The draft law will revoke the automatic tax exemption and make all tax exemptions entirely at the discretion of the MIC. Tax exemption may be granted for up to seven years. Currently, tax exemption is granted for only three years.

It also offers longer land lease periods. Currently, companies holding an MIC permit are granted long-term leases of up to 50 years with an option to extend for an additional 20 years. According to the new law, companies that invest in less economically developed and remote regions can apply for longer lease periods than the aforementioned with special approval of the MIC.

National security

Daniels said that an unusual provision about national security was included in the draft law. It is not clear what sort of issue would be subject to national security, or how broadly this clause may be interpreted by the government, or how frequently it might be invoked, she added.

But announcements are expected soon, the lawyer said, as Myanmar has drafted the Myanmar Investment Law, the new Companies Act and the Intellectual Property Law.

She also expects the new corporations law and a public-private partnership law in the near future.

Daniels noted that reform efforts on Intellectual Property (IP) law, particularly on trademarks, were necessary to attract international players.

“We do have a system currently of some sort of registration which does not protect your IP but people do trademark cautions in the newspapers. But that is only to take advantage of a common law. There still are problems when someone pertains to be associated with your brand.”

However, key issues were hard to forecast due to the uncertain and transitional nature, she warned.

“I am not sure how it will play out in practice, which is that it makes perfect sense to say things on a policy like prioritising regions that need investments instead of Yangon … I do not think things will be that black and white,” she said.

Daniels said local and international lawyers should work together to support investments from local firms and multinationals. The law firm now has four partners and 11 other legal staff in its Yangon office, which was opened in February 2014.

Aside from adopting policies and strengthening the legal framework, Myanmar also needs to improve infrastructure, fight against corrupt practices and money laundering, and maintain political stability, in order to attract more foreign investors, she said.

There were talks about the United States sanctions at the event, as the remaining sanctions are still a concern for potential investors. Currently, there is speculation about possible easing of more sanctions during Myanmar State Counsellor Aung San Suu Kyi’s upcoming trip to the US.

“In partnership with sanctions specialists in our other offices, we can help clients navigate the sanctions restrictions and show them what possibilities are opening up in Myanmar. We also provide relevant publications on these topics,” Daniels said.

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Remember Satoshi: Blockchain Economics And Law

Mystery man with your mystery smile.

I’ve been chasing these channels of the information age

And I’m sick of this show.

So Mr. won’t you tell me what’s going on?

— John Butler Trio

Where’s Satoshi in blockchain space? Economics and law are a couple of important factors in the success of any venture. Thus the mystery. The single economic fact that resulted in the economic feasibility and ultimate significance of blockchain technology — the founder’s contribution — seems to be misunderstood. Nobody in the land of bank-oriented permissioned blockchain-land seems to get Satoshi Nakamura’s fundamental message.

Blockchain technology has been the focus of investment expenditures in the billions by large banks such as UBS (NYSE:UBS), Goldman Sachs (NYSE:GS), Bank of New York Mellon (NYSE:BK), JP Morgan Chase (NYSE:JPM) and many others. The fruits of this substantial interest have mostly been hype. As yet no important product.

There are a few simple important issues that few startup financial firms, including the blockchain mavens, often don’t address upon beginning their life, oddly. First, there is the nascent firm’s economic relative advantage in meeting a proven demand for financial services; second is the new firm’s place in the structure of law and regulation. These two, important, considerations are particularly absent in the blockchain space.

With blockchain startups, there’s the inevitable white paper — a pro forma, but lacking analysis linking the firm’s costs to customer-generated revenues and competition.

Startup blockchain firms grab the nearest shiny thing and run with it. “Smart contracts,” to cite a particularly dubious blockchain function, seem to focus upon the incredibly overused adjective “smart” as essentially desirable, regardless of any explicit consideration of costs and value, or compatibility with legal practice.

The shape of the blockchain space. There are two basic kinds of blockchain — each identifiable in part by the major success factor that they ignore most. Blockchains generally may be described as transactions verification systems that differ from the ones we know and love — due to the existence of more than one clearer. Multiple entities serve the function reserved for one transactions clearer in the familiar transactions spaces. Why more than one clearer? Good question.

Public blockchains focus on economics at the expense of law. Bitcoin, for example, is economically viable, but hobbled by its inability to govern itself, or to initiate a dialogue with governments or their agencies. This, at least in part because, by design, no one speaks for bitcoin. Whether you are a fan of Ayn Rand or not, it is simply apparent that such an approach to governance can only limit the significance of this venture in the greater world of transactions and record-keeping. Blockchain can thrive this way, but it will never become a fundamental part of the financial system this way.

Public blockchains are characterized by a blockchain-native cryptocurrency, that establishes its supply-side value through payment to the entities, called miners, that verify transactions — or otherwise put, perform the clearing function. The demand-side value, in the case of bitcoin, is apparently primarily based in China, where investors have a preference for risky assets. There is also the possibility that some Chinese use bitcoin to transfer assets out of the country, avoiding China’s currency controls.

The well-known public blockchains, bitcoin and ethereum, are characterized by open participation. Anyone can own or trade the cryptocurrency, or mine it.

The “permissioned” blockchains — at least initially — are mostly the spawn of financial institutions wondering how to seize the initiative in addressing a technology that threatens to gut their operations in coming years. Permissioned blockchains “get” the need for law and regulation. They must, to coexist with bankers. But the examples with which I am familiar fail to consider the economics. Of the two, ignoring the economics is the more egregious error. Ignoring the economics will doom the permissioned blockchains to a relatively short future of failed science projects.

The banks are hip-deep in issues of the profitability of their current existing operations. Adding a new bell or whistle that has not proved itself cost-effective is a non-starter in this environment. The banks must invest initially in blockchain technology, since it’s such an obvious threat to their survival. But if it proves no threat, or worse yet, shows no evidence of value in conducting the business of finance, they will toss out blockchain like a pair of old shoes. It would be a shame if that ignominious end came as a result of a failure to consider some important possibility that would have been a success.

Permissioned blockchains differ from public blockchains primarily in that entry into the club of nodes (that perform the function in permissioned blockchains that miners perform in public blockchains) is limited. Nodes must be trusted by the permissioned blockchain’s governance. This simple fact itself will become a future problem in one of two ways. The club might turn out to be costly, in which case nodes will chronically depart or malfunction, weakening the performance of their blockchain. Alternatively, the club will be attractive economically, in which case, preferably, standards of the blockchain’s governance, or alternatively standards of a government regulator, will limit membership. If government, regulators will be in a position not unlike its current one of limiting membership to the banking system. These nodes, if government determined, will ultimately be viewed by the public in the same warm affectionate way they see commercial banks today.

Getting Satoshi. There is one economic factor the permissioned blockchains ignore that stands above the rest. They don’t consider Satoshi. Satoshi Nakamura, the putative inventor of bitcoin, is a novel being — in many ways emblematic of bitcoin — in that he can’t be found on the planet. Nobody has met the man, or identified him on the public record. That is a fun fact, but it does not diminish his important contribution.

Satoshi, or whoever, turned the world of hackable spaces on its head. He internalized the cost of hacking, recognizing the effort of hackers as an economic resource that, in our current system of firewall-based transaction citadels, is never exploited, almost unexamined. Instead it is seen as a cost to be reduced by incurring other costs such as firewalls.

Satoshi designed the elegant bitcoin blockchain to harness the hackers. Hackers are incentivized to protect the integrity of the blockchain. Once converted, they are known by the evocative term, miners. This conversion of costly hackers into valuable assets minimizes an enormous cost borne by the firewall transactions citadels, such as SWIFT, turning this cost into a resource to be utilized.

Those already immersed in the world of finance are hopefully considering their blockchain endeavors from Satoshi’s point of view. Why take the expense of hacking as a given? Is there no way to permission the resources expended by hackers, a la Satoshi, converting them into a resource instead of a cost?

Don’t huff and puff to me about moral bankers and immoral hackers. Few readers were born yesterday. I understand that the world will never see the end of hackers — and likewise bankers with questionable character. The objective is to design a system that maximizes the incentives of hackers to protect transactions and information, and of bankers to behave ethically. The issue Satoshi raised when bitcoin was born was this: How are the nodes best designed to minimize verification cost and maximize value?

The flaw in naïve nodes that are assigned no cost and expected to operate without monetary gain is that this expectation is counter to reality. These nodes all bear a cost, the cost of transaction verification. Without being given economic incentives to minimize that cost and maximize their value to the blockchain network, the system is destined to fail.

It is simply silly to ignore Satoshi’s major coup: converting potential hackers of blockchains into protectors. I hasten to add, looking at the rules governing bitcoin’s miners — the specific set of miner incentives in bitcoin — there is no doubt these rules can be bettered. I believe a skilled financial analyst could design a permissioned blockchain where protectors of the system are identified, managed, and monitored, while giving them incentives sufficient to make protecting more valuable than hacking. I see no reason not to open the doors to potential new permissioned nodes and encourage competition among existing nodes in permissioned systems.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Business briefs: New law firm opens

Emily Kelley, Esq. and Harper Louden, M.A. have joined forces to open a new law firm in downtown Steamboat Springs. Ethos Legal Services offers a range of practice areas and operates primarily in Colorado.

“Harper and I are delighted to announce the opening of this new law firm which we think will fill a giant need in this community — combining law, psychology and good old fashioned grit, to best assist our clients’ needs,” Kelley said in a press release. “We always approach our cases with the client’s best interests at heart and our goal is to represent our clients with integrity while vigorously fighting for their rights. We are not afraid to take a creative approach, immerse ourselves in the matter, get our hands dirty.”

Kelley received her law degree from the University of Denver. She practices in the areas of criminal defense, marijuana, transactional law and civil litigation. After graduating from law school, she worked at serval Denver area law firms and has most recently worked in Steamboat Springs taking on cases within the 14th Judicial District and beyond. Kelley also previously worked as a research analyst for a large hedge fund in Manhattan.

Louden earned her master’s degree in forensic psychology and has worked in the legal field for more than 10 years. Her primary focus is providing assistance with trial preparation, investigations, jury selection and overall case management. Louden is also a Certified Child and Family Investigator in the state of Colorado. Louden earned her bachelor’s degree with an emphasis in communications and psychology from the University of Colorado. She has previous experience in media relations working in television and radio in Northwest Colorado.

Kelley and Louden have worked together since early 2014 managing and trying cases ranging from criminal sex assaults, to landlord/tenant issues, to corporate dissolutions, to marijuana dispensary related matters and more.

Ethos Legal Services, Kelley and Louden, can be reached at info@ethosls.com or by calling 970-233-8915 or log on to ethoslegalservices.com. Ethos Legal Services is located at 701 Yampa Street, suites 2A and 2B.

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