Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems
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Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems
Social Impact Bonds (SIBs) are a private financing mechanism used to fund social programs. Also termed 'Pay For Success,' and 'Outcomes Based' or 'Performance Based' financing, these partnerships involve private entities funding projects aimed at improving social outcomes. If by the end of the project period, 'success' metrics are met (according to third-party evaluators), investors then profit by being paid interest on top of the reimbursed government funds for the cost of the project. This page includes a collection of updates and critical perspectives on these profit structures and on Blockchain Identity systems, de-centralized online ledger programs, poised to be the data backbone that would provide 'proof' of 'program impact' for investors. For files related to Blockchain, see: http://bit.ly/Blockchain_Files.  [Note: Views presented on this page are re-shared from external websites and may not necessarily represent the views nor official position of the curator nor employer of the curator.]
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The Promise and Realities of Pay for Success/Social Impact Bonds // Kenneth J. Saltman, Education Policy Analysis Archives


Abstract

"This article considers proponents’ arguments for Pay for Success also known as Social Impact Bonds. Pay for Success allows banks to finance public services with potential profits tied to metrics. Pay for Success has received federal support through the Every Student Succeeds Act of 2016 and is predicted by 2020 to expand in the US to a trillion dollars. As school districts, cities, and states face debt and budget crises, Pay for Success has been advocated by philanthropists, corporate consulting firms, politicians, and investment banks on the grounds of improving accountability, cost savings, risk transfer, and market discipline. With its trailblazing history in neoliberal education, Chicago did an early experiment in Pay for Success. This article provides a conceptual analysis of the key underlying assumptions and ideologies of Pay for Success. It examines the claims of proponents and critics and sheds light on the financial and ideological motivations animating Pay for Success. The article contends that Pay for Success primarily financially benefits banks without providing the benefits that proponents promise. It concludes by considering Pay for Success in relation to broader structural economic considerations and the recent uses of public schooling to produce short-term profit for capitalists." 

Keywords
Pay for Success; Social Impact Bonds; Chicago School Reform; Neoliberal Education; Corporate School Reform; Venture Philanthropy

For full text, click title above or here: PDF

Related Articles:

Saltman, K. (2007) Capitalizing on Disaster: Taking and Breaking Public Schools. New York: Routledge.

 

Saltman, K. (2012) The Failure of Corporate School Reform. New York: Routledge 2012.

 

Saltman, K. (2010) The Gift of Education: Public Education and Venture Philanthropy. New York: Palgrave Macmillan.

 

http://epaa.asu.edu/ojs/article/view/2640/1918 
DOI: http://dx.doi.org/10.14507/epaa.25.2640


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Can you truly own anything in the metaverse? A law professor explains how blockchains and NFTs don't protect virtual property // João Marinotti, Indiana University // The Conversation 

Can you truly own anything in the metaverse? A law professor explains how blockchains and NFTs don't protect virtual property // João Marinotti, Indiana University // The Conversation  | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

"In 2021, an investment firm bought 2,000 acres of real estate for about US$4 million. Normally this would not make headlines, but in this case the land was virtual. It existed only in a metaverse platform called The Sandbox. By buying 792 non-fungible tokens on the Ethereum blockchain, the firm then owned the equivalent of 1,200 city blocks.

But did it? It turns out that legal ownership in the metaverse is not that simple.

The prevailing but legally problematic narrative among crypto enthusiasts is that NFTs allow true ownership of digital items in the metaverse for two reasons: decentralization and interoperability. These two technological features have led some to claim that tokens provide indisputable proof of ownership, which can be used across various metaverse apps, environments and games. Because of this decentralization, some also claim that buying and selling virtual items can be done on the blockchain itself for whatever price you want, without any person or any company’s permission.

Despite these claims, the legal status of virtual “owners” is significantly more complicated. In fact, the current ownership of metaverse assets is not governed by property law at all, but rather by contract law. As a legal scholar who studies property law, tech policy and legal ownership, I believe that what many companies are calling “ownership” in the metaverse is not the same as ownership in the physical world, and consumers are at risk of being swindled."... 

 

For full post, please visit: 

https://theconversation.com/amp/can-you-truly-own-anything-in-the-metaverse-a-law-professor-explains-how-blockchains-and-nfts-dont-protect-virtual-property-179067  

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The Hottest NFT Marketplace is Mostly Users Selling to Themselves // Bloomberg

The Hottest NFT Marketplace is Mostly Users Selling to Themselves // Bloomberg | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By Olga Kharif

"A closer look at the LooksRare platform that has quickly become the leading NFT marketplace by trading volume shows that most of the activity is actually users selling tokens to themselves to help earn rewards in the form of more coins. 

The platform was launched in January by two anonymous co-founders -- who go by Zodd and Guts -- as an alternative to market leader OpenSea during the height of the NFT boom."....

 

For full post, please visit:

https://www.bloomberg.com/news/articles/2022-04-05/hottest-nft-marketplace-is-mostly-users-selling-to-themselves 

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The Politics of Bitcoin: Software as Right-Wing Extremism // David Golumbia

The Politics of Bitcoin: Software as Right-Wing Extremism // David Golumbia | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

https://www.upress.umn.edu/book-division/books/the-politics-of-bitcoin 

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Social Impact Bonds: The Anti-Philanthropy

Social Impact Bonds: The Anti-Philanthropy | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By David McDonald Interest in Canadian “Social impact Bonds” has spiked following HRSDC Minster Finley announcement that the federal government is investigating them for use in Canada. I’ve already commented on the story in The Toronto Star and on The Current (min 16) but I wanted to write my thoughts up in a fuller blog post for readers.

So what is a “Social Impact Bond”? The idea is that a banker or foundation decides to fund a particular service or program. When (you’ll see why I say “when” and not “if” below) the program hits its goals, the government pays the funder back all they invested and includes a profit margin of somewhere in the neighbourhood of 7%-15% on top of the initial investment.

For example, in New York City there is a youth recidivism program. In NYC, half of all youth released from prison will re-offend within a year. This is obviously bad for society and the kids, but it’s also expensive for the government to pay for these kids to be in prison. So a social service agency and the government convinced Goldman Sachs to spend $5 million on a youth recidivism program. The program will take in a portion of the kids released and give them an intensive program. If the program manages to reduce the re-offence rate by 10% compared to the average, then the government pays Goldman back their original $5 million and an additional 13% profit of $650,000, in total paying them $5,650,000.

This stands in stark contrast to actual philanthropy of say a company donating $20,000 to the local food bank at Christmas. They get a tax break for the donation to be sure, but they don’t expect to get their $20,000 back from the government with interest after homeless folks get their Christmas meal.  But that is what happens with social impact bonds—they get the entire donation/investment back with interest once the program is delivered. If anything, social impact bonds are anti-philanthropy.

It’s no surprise why some social service agencies are open to social impact bonds. The backdrop, in Canada and elsewhere, has been a decade of tax cuts and reduced expenditures on social services, leaving social service agencies stuck between a rock and a hard place. On the one hand, they see a growing need for their services and, on the other, governments are cutting back resources to deal with the need. If the government is offering them the opportunity to raise new money for social services, its pretty hard to look a gift horse in the mouth.

But this new way of funding social services is a significant departure from how Canadian governments have done it in the past.  en years ago, if a social service agency had a good idea that had been tested elsewhere or tested on a small scale and worked, they’d pitch it to a government granting committee and get it funded. Governments used to just fund new ideas: social service agencies could help kids who’d run afoul with the law, governments would save on prison expenditures and importantly, no one would make a profit.

Social Impact Bonds are a very different approach as they insert a middle man into social service delivery, someone like Goldman Sachs. The bankers are there because they smell an opportunity to make large, government-guaranteed profits. We have to remember that the same industry that took down the world economy not four years ago is the one interested in becoming social services middle men. Whenever there is a middle man, there is always a middle man mark-up.

Often times, these Social Impact Bonds are pitched as if they transfer risk to the private sector. That is, if the project doesn’t hit its 10% reduction in recidivism for example, then the government pays them nothing. In the real world it is quite a different story.

First of all, the projects that would make it to the funding stage are not experimental. They need to have been proven on a smaller scale and in other places. There is no way that Goldman and others are going to put up $5 million with a 50/50 chance of losing it all. Instead they are much more likely to back projects that have a proven track record. Experimentation is almost always going to be on a smaller scale and funded by government money because of the high risk of failure.

But if by some fluke, the project still doesn’t work as expected, say they only get an 8% instead of a 10% reduction in recidivism; it’s highly unlikely that the government will not pay Goldman Sachs the $5 million. If Goldman Sachs loses $5 million, they aren’t going to come back next year and neither are any of the other bankers and foundations. The investor demands to be paid…with interest. If the government allows project backers to lose their investment, the money to back these projects is going to dry up very quickly.

In either the traditional model or the social impact bond model, it is always the government that pays. However, for social impact bond, the government now has to pay a middle man mark-up. Not only that, but they also have to make sure that Goldman Sachs’ shareholders are happy. If the shareholders aren’t happy with their returns, they aren’t going to pony up the cash next time around.

It is this change of who government serves that really concerns me. People pay their taxes (and expect corporations to as well) in part because they want the government to deliver good services to the people that need them. However, social impact bonds direct tax dollars to bank profits instead of to a homeless person trying to get off the street. This dramatically changes who is being served by the government: from those who need a helping hand to the shareholders of a bank.

There is an alternative. Since the government is going to pay either way, let’s say “thanks but no thanks” to a middle man mark-up. Instead, the government could create its own fund to push forward ideas that have been proven elsewhere. Again, since the government is going to pay either way, why not borrow at historically low rates of 1% instead the of 7%-15% offered by a middle man? When these projects succeed, we can provide them to more people instead of lining the pockets of a bank."..

 

For full post, please visit:

http://behindthenumbers.ca/2012/11/21/social-impact-bonds-the-anti-philanthropy/

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“The power to surveil, control, and punish”: The dystopian danger of a mandatory biometric database in Mexico // RestOfTheWorld.org

“The power to surveil, control, and punish”: The dystopian danger of a mandatory biometric database in Mexico // RestOfTheWorld.org | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

"Digital rights activist Luis Fernando García on the weaponization of personal data and why international agencies are pushing countries in the Global South to collect their citizens’ information."

By Leo Schwartz

"Last December, Mexican lawmakers approved a law that would create a digital identification database — compiling the biometric data of every person living in Mexico — and sent it to the Senate. For Luis Fernando García, the director of the Mexican digital rights organization R3D, the proposal of the Unique Digital Identity Card, also known as CUID, was the latest development in a country that is hurtling down the path of an expansive surveillance state. 

His group was among the more than 25 organizations that called on the Senate to halt the program’s implementation. They argued that, if passed, the law would open the door to authoritarian oversight and security risks for Mexico’s residents. 

 

The Mexican government has already instituted measures that infringe on digital personal liberties, from a massive centralized urban surveillance system in Mexico City to proposed legislation that would require citizens to turn over biometric information to have access to a mobile phone. For García and advocates like him, the CUID program represents the culmination of a dangerous trend toward authoritarianism by the Mexican state.   

 

He spoke with Rest of World about the haphazard development of the ID system and why international development agencies like the World Bank are so supportive of its adoption. 

The following interview has been edited and condensed for clarity. 

How did this digital identity card program get started? 

Around the world, there is a push by corporations and international institutions such as the World Bank to create these kinds of databases to identify people and conflate two things: the right of every person to be recognized legally by a government and an identification system that intermediates people’s transactions with public and even private services. 

In Mexico, there have been several attempts to create a national identity system. There are other identification systems in Mexico, but many of them cost money, so they exclude people. Some of them are just for people over 18 years old. 

So why are you opposed to this system?

Now, the CUID program is being held as the only solution, which is not true. It’s more problematic than all of the other identity systems that have been developed in Mexico. When the government creates this one identity system, every time someone goes to a public or private service, they give the same centralized ID. Before, officials would need to go to different places to collect all the information they need. With the CUID, they would have a way to connect all of the databases. This gives the government and corporations the power to surveil, control, manipulate, and punish people. 

Who is supporting this program? 

Sophisticated intelligence agencies in rich countries are delighted that poor countries are creating these databases of people that they can exploit for their benefit. They have offensive capabilities that allow them to attack, obtain, and collect information that less-developed countries create through these databases. 

International relations are not democratic. They are hostile and colonial and extractive and oppressive. Many Global South governments do not realize — or they do realize and just don’t care — that they are building systems that will benefit their oppressors rather than their citizens. 

Why do you think there is such an international push to get world governments to collect data on their citizens?

Data is very lucrative. It is particularly useful to train and develop the systems that will define who will rule the future. Where you can make money is where the markets have not reached — where many people are not included financially. Because once they are, companies indebt them; companies can sell them goods on Amazon, and then they can train their AI to take their jobs. There are all these profits that capital is salivating for in the Global South that is helped by these identity systems.

Like many other Global South national identity projects — whether in Kenya, Uganda, or Mexico — the World Bank is behind it. The World Bank is giving Mexico a loan of $225 million to implement the system. It is not promoting this approach in Germany or Canada or the U.S.: countries that do not have a national identity system. But they are promoting it in the Global South, which is very telling.

“Many Global South governments do not realize — or they do realize and just don’t care — that they are building systems that will benefit their oppressors rather than their citizens.”

The World Bank has explained its loan for the program by saying it will strengthen Mexico’s ID system, to facilitate the allocation of services and benefits. What do you think it has to gain by pushing a program like this?

I think the World Bank is more of an instrument for rich countries to impose certain policies that benefit them, rather than an agency that has their own goals. And those rich countries’ governments usually work on behalf of powerful industries, such as the financial sector, rather than the public interest. 

Then why is the Mexican government pushing for this? 

Many people, particularly those with a security lens, genuinely believe universal surveillance will solve corruption and crime. This is a very naïve way of looking at Mexican institutions, which are very weak. Its databases are often breached and accessible freely on the internet. 

It’s also important to take into account that the line that divides government and organized crime is often nonexistent. This needs to inform the discussion about whether it’s wise to create a centralized database of all people in Mexico with biometrics, where that information can be weaponized against its citizens. Because, obviously, the Mexican institutions are infiltrated by organized crime. The problem with crime in Mexico is not that we don’t have enough data from people. 

For decades now, the Mexican government has increased their legal powers and technological capabilities to do interception of communications, to access communications metadata, to do location tracking in real time, and to access financial information. It’s not the lack of technology or legal powers or available data, which the government either has or can obtain legally. That’s not the issue. It’s the fact that there is widespread corruption and collusion with organized crime by the authorities that are supposed to investigate and prosecute them.

You’ve talked about how programs like this aren’t inclusive of the society Mexico represents. Can you explain how this ID system would exclude people in Mexico?

The government is vaguely defining what the problem is and choosing the most invasive, problematic solution as the only solution available, because the World Bank and other financial institutions and corporations are telling Mexico to.

Not only is it unclear whether these systems solve any problems but whether these systems also create problems of exclusion. These systems often do not recognize faces and fingerprints correctly. 

What’s the proper balancing act to make people’s lives easier through technology, while protecting their data?

The government should collect the least amount of information possible. Right now, the inertia is the reverse. We are being held captive by this notion that technological progress should be as fast as possible. And then by the time that we see the effects of those technologies, it is very difficult to scale back those systems or their effects are impossible to mitigate.

“The line that divides government and organized crime is often nonexistent.”

Can people advocate for their own data autonomy? 

A lot of people think that as long as they make their own personal choices, like not using Facebook, their data is safe. That is not the case anymore.

This is a political problem. You are not only incentivized but increasingly required to participate to be monitored. If you do not, you cannot not be enrolled in the system. You cannot access services without disclosing details about your identity. 

So how do people take control of their information?

It’s very difficult to resist once implemented. That’s why the moment to resist is now. We can still prevent it from happening, or at least warn the government.

Can you discuss what campaigns or initiatives your organization is taking to inform Mexicans about the ramifications of this program?

We’ve been analyzing this information and publishing on our website. We are preparing different strategies that include people from other countries that have experienced similar programs, such as India, Uganda, and Kenya. We’ve engaged with Congress directly to advise them on the risks of these types of systems. And we are preparing more public-facing materials, explainers, videos, and infographics to try to make people understand what the stakes are and how it can harm the rights of Mexicans. 

What is the base-case scenario at this point for your movement?

As long as this is not approved in the Senate, there’s still hope. There are other options, if it’s approved. Eventually the judiciary would need to take it on. If it’s approved, as the House did, there is some rule-making that needs to be done, and there, we could at least get a few more safeguards to try to mitigate the adverse effects of this type of system. And if this gets approved, we would need to monitor and to collect evidence about the ways in which the system will materially harm people; but our best-case scenario is that it doesn’t get approved in the Senate, and we don’t follow the path that many others have followed with disastrous consequences. 

 How hopeful are you that you will succeed?

This is something that can only be won if our movement demands it. I don’t think we’re going to be able to prevent this from happening, but we’re able to at least come back from the abyss."

 

For full post, please visit:

https://restofworld.org/2021/the-dystopian-danger-of-a-mandatory-biometric-database-in-mexico/ 

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The Internet of Bodies and Human Capital Futures Bets In Brazil // WrenchInTheGears.com

The Internet of Bodies and Human Capital Futures Bets In Brazil // WrenchInTheGears.com | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

[Selected quotes from full post]

 

..."Stakeholder capitalism or social entrepreneurship has been cultivated in Brazil by the Aspen InstituteThe Inter-American Development BankThe International Finance Corporation, the Catholic Church through the First fund, and Oikocredit (World Council of Churches) going back at least to 2003. Brazil is one of thirty-three member nations of Sir Ronald Cohen’s Global Steering Group for Impact Investment, which was launched in 2017.

 

Aspen Institute, with assistance from the University of St. Gallen in São Paulo, documented impact investing opportunities in Brazil in 2014, targeting BOP (base of pyramid) favela residents. The report identifies investment potential in the areas of education and healthcare access and banking since Brazil is one of the fifteen countries with the greatest income inequality. Favelas would be seen by venture philanthropists and social entrepreneurs as significant and potentially profitable sources of data if they can be “properly developed” with “evidence-based solutions.” This game of speculation can only proceed once rules are created, consensus is established, players are recruited, and the gameboard is set up.

 

The human capital finance game runs on metrics.

In the coming years, global financiers, will attempt to meld dynamic pricing and mobile payments with biometric digital identity, Internet of Body sensors, and blockchain smart contracts and then weave it all into an expansive spatial web meant to control our social and economic relations in both the material world and, through digital assets, rights and privileges, in the Metaverse, as well."

 

***

 

..."Raul Diego of Silicon Icarus notes in his investigation of education Development Impact Bonds in India that Geneva-based Dalberg prepared the first corporate citizenship rating system in 2007 as the United Nations laid out the groundwork to pull in labor, civil society, business, and governments into a global systems engineering endeavor advanced on behalf of technology, defense, and finance industries under the guise of saving the planet and solving poverty.

 

Convergence’s members come from the corporate, government, and philanthropic sectors. None of these deals would be possible without public private partnerships and healthy dose of venture philanthropy. The Jack Dorseys of the world, with their crypto-stocked donor advised funds, are poised to deploy their immense wealth to cultivate an ever-expanding of network of “social impact” poverty-management channels through which their capital can be directed only to loop its way back to the digital gold reservoirs at the top. Two years after the UN’s Global Compact Leaders’ Summit was held in Geneva, the Rockefeller Foundation in partnership with JP Morgan and USAID launched GIIN, the Global Impact Investors Network and IRIS, Impact Reporting and Investment Standards. Omidyar Network was among the founding members.

Jack Dorsey Venture Philanthropist

In 2020 Dorsey ramped up his venture philanthropy game with a public commitment to give away $1 billion through Start Small LLC for Covid relief, girls’ health and education, and universal basic income (UBI). Owen Thomas of the San Francisco Chronicle offers valuable insights in a 2018 investigation titled “Where is Jack Dorsey’s Charitable Foundation?” Dorsey talks a big game about giving, but the particulars are murky. The 2015 SEC filing for Square’s IPO mentions plans to move 1,350,000 shares into a Donor Advised Fund (DAFs) with the troubled Silicon Valley Community Foundation. DAFs provide an immediate tax write off for donors and are not subject to the same public disclosure requirements as private foundations are. Dorsey did in fact create a Start Small Foundation that same year with $1 in revenue. 990 documents between 2015 and 2018 indicate no additional funds were placed in the foundation and no distributions were ever made to charity. The foundation is no longer included on the IRS list of tax-exempt organizations.

 

June 2020 profile of Dorsey in Vox notes that the grants made through his DAF have largely been handed out through his personal network of friends and business partners rather than a formal review process. At the start of the pandemic, Dorsey sent $1 million to California Governor Gavin Newsom’s public-private partnership distance learning initiative that distributed devices and hot-spots to low-income families to “close the digital divide,” or extend the reach of Silicon Valley’s electronic prison depending on how you look at it. California has seen the some of the harshest lockdowns and testing protocols in the nation. Other donors to the “Closing The Digital Divide Task Force” were: Amazon, Apple, Verizon, Chan Zuckerberg, T-Mobile, AT&T, HP, Zoom, Box, Microsoft, VIPKid, PayPal, John DoerrCraig NewmarkGordon Moore, and Scott Cook. The tech / telecom sectors have enacted a mass digital enclosure using health-status geofencing. Online education is a tool to extract value from children being held captive to screens, forced acculturation into the Metaverse."...

 

..."Dorsey’s fund started with $3.1 billion in assets, and after disbursements it is now valued at $2.7 billion. You can view a Google sheet of the projects Dorsey is funding here. Associacao Projecto Crescer is the third most recent entry with $224,000 allocated on December 7, 2021.

 

***

 

..."Dorsey also maintains a Donor Advised Fund in the troubled Silicon Valley Community Foundation, the second largest community foundation in the country where an enormous hoard of crypto assets awaits global deployment. Austerity is the precondition that allows private interests to step in to fund “evidence-based” “solutions” that run on data – lots and lots of data. Data, of course, is Dorsey’s business. Over the years, Dorsey, who studied at NYU for a few years, has maintained an ongoing collaboration with Michael Bloomberg, the data analytics “what works” mayor who brought social impact bonds over from the UK."... 

 

https://wrenchinthegears.com/2022/01/20/the-internet-of-bodies-and-human-capital-futures-bets-in-brazil/ 

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Ableism And Disability Discrimination In New Surveillance Technologies: How new surveillance technologies in education, policing, health care, and the workplace disproportionately harm disabled peo...

Ableism And Disability Discrimination In New Surveillance Technologies: How new surveillance technologies in education, policing, health care, and the workplace disproportionately harm disabled peo... | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

Full report – PDF 

Plain language version – PDF

By Lydia X. Z. Brown, Ridhi Shetty, Matt Scherer, and Andrew Crawford

"Algorithmic technologies are everywhere. At this very moment, you can be sure students around the world are complaining about homework, sharing gossip, and talking about politics — all while computer programs observe every web search they make and every social media post they create, sending information about their activities to school officials who might punish them for what they look at. Other things happening right now likely include:

  • Delivery workers are trawling up and down streets near you while computer programs monitor their location and speed to optimize schedules, routes, and evaluate their performance;
  • People working from home are looking at their computers while their computers are staring back at them, timing their bathroom breaks, recording their computer screens, and potentially listening to them through their microphones;
  • Your neighbors – in your community or the next one over – are being tracked and designated by algorithms targeting police attention and resources to some neighborhoods but not others;
  • Your own phone may be tracking data about your heart rate, blood oxygen level, steps walked, menstrual cycle, and diet, and that information might be going to for-profit companies or your employer. Your social media content might even be mined and used to diagnose a mental health disability.

This ubiquity of algorithmic technologies has pervaded every aspect of modern life, and the algorithms are improving. But while algorithmic technologies may become better at predicting which restaurants someone might like or which music a person might enjoy listening to, not all of their possible applications are benign, helpful, or just.

Scholars and advocates have demonstrated myriad harms that can arise from the types of encoded prejudices and self-perpetuating cycles of discrimination, bias, and oppression that may result from automated decision-makers. These potentially harmful technologies are routinely deployed by government entities, private enterprises, and individuals to make assessments and recommendations about everything from rental applications to hiring, allocation of medical resources, and whom to target with specific ads. They have been deployed in a variety of settings including education and the workplace, often with the goal of surveilling activities, habits, and efficiency.

Disabled people comprise one such community that experiences discrimination, bias, and oppression resulting from automated decision-making technology. Disabled people continually experience marginalization in society, especially those who belong to other marginalized communities such as disabled women of color. Yet, not enough scholars or researchers have addressed the specific harms and disproportionate negative impacts that surveillance and algorithmic tools can have on disabled people. This is in part because algorithmic technologies that are trained on data that already embeds ableist (or relatedly racist or sexist) outcomes will entrench and replicate the same ableist (and racial or gendered) bias in the computer system. For example, a tenant screening tool that considers rental applicants’ credit scores, past evictions, and criminal history may prevent poor people, survivors of domestic violence, and people of color from getting an apartment because they are disproportionately likely to have lower credit scores, past evictions, and criminal records due to biases in the credit and housing systems and in policing disparities.

This report examines four areas where algorithmic and/or surveillance technologies are used to surveil, control, discipline, and punish people, with particularly harmful impacts on disabled people. They include: (1) education; (2) the criminal legal system; (3) health care; and (4) the workplace. In each section, we describe several examples of technologies that can violate people’s privacy, contribute to or accelerate existing harm and discrimination, and undermine broader public policy objectives (such as public safety or academic integrity).

Full report – PDF 

Plain language version – PDF


https://cdt.org/insights/ableism-and-disability-discrimination-in-new-surveillance-technologies-how-new-surveillance-technologies-in-education-policing-health-care-and-the-workplace-disproportionately-harm-disabled-people/ 

 

 

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Bonded Life: Technologies of Racial Finance From Slave Insurance to Philanthrocapital // Kish, Z., & Leroy, J., 2015 [Cultural Studies]

"Abstract: 

Amid public critiques of Wall Street’s amorality and protests against sharpening inequality since the financial crisis of 2008, the emergent discourse of philanthrocapitalism—philanthropic capitalism—has sought to recuperate a moral center for finance capitalism. Philanthrocapitalism seeks to marry finance capital with a moral commitment to do good. 

These strategies require new financial instruments to make poverty reduction and other forms of social welfare profitable business ventures. Social impact bonds (SIBs)—which offer private investors competitive returns on public sector investments—and related instruments have galvanized the financialization of both public services and the life possibilities of poor communities in the United States and the Global South. 

This article maps new intrusions of credit and debt into previously unmarketable spheres of life, such as prison recidivism outcomes, and argues that contemporary social finance practices such as SIBs are inextricable from histories of race—that financialization has been and continues to be a deeply racialized process. Intervening in debates about the social life of financial practices and the coercive creation of new debtor publics, we chart technologies meant to transform subjects considered valueless into appropriate, even laudable, objects of financial investment. 

Because their proponents frame SIBs as philanthropic endeavors, the violence required to financialize human life becomes obfuscated. We aim to historicize the violence of financialization by drawing out links between financial capitalism as it developed during the height of the Atlantic slave trade, and the more subtle violence of philanthropic financial capitalism. Though the notion that slaves could be a good investment—both in the profitable and moral sense of the word—seems far removed from our contemporary sensibilities, the shadow of slavery haunts SIBs; despite their many differences, both required black bodies to be made available for investment. Both also represent an expansion to the limits of financialization."

 

Kish, Z., & Leroy, J. (2015). Bonded Life: Technologies of Racial Finance From Slave Insurance to Philanthrocapital. Cultural Studies, 29, (5), 630–651 

http://dx.doi.org/10.1080/09502386.2015.1017137 

 

https://www.academia.edu/9075062/_Bonded_Life_Technologies_of_Racial_Finance_from_Slavery_to_Philanthrocapitalism

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"National Strategy for Business and Impact Investing - Enimpacto" // [Brazil]  

To download original, click on title, arrow above, or here: 

https://www.gov.br/produtividade-e-comercio-exterior/pt-br/images/Nationala_Strategya_fora_Businessa_anda_Impacta_Investinga_-a_finala_versiona_posta_publica_consultationa_28.02.pdf 

 

 

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Microsoft is shutting down its Azure Blockchain Service // ZDNet

Microsoft is shutting down its Azure Blockchain Service // ZDNet | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By Mary Jo Foley, May 12, 2021

"Microsoft is shutting down its Azure Blockchain Service on September 10, 2021. Existing deployments will be supported until that date, but as of May 10 this year, no new deployments or member creation is being supported.

Microsoft's initial foray into Azure Blockchain as a Service (BaaS) began in 2015 with an offering on the Etherum Platform with ConsenSys.  In late January 2016, Microsoft made available a preview of a lab environment in Azure's DevTest Labs so that Blockchain-related services and partners can decouple the Blockchain technology from virtual machines. Microsoft's short-term goal for the Azure BaaS was to make available a certified blockchain marketplace. In the interim, the focus was to add blockchain partners of all kinds, rather than trying to pick a limited number of potential winners, officials said.

Blockchain is the technology that underpins the cryptocurrency Bitcoin. But many tech vendors and users felt it had far more uses beyond that. A blockchain is a shared ledger that can store the complete transaction history of not just cryptocurrency but other kinds of records. As such, it attracted initial interest among some enterprises, especially those in banking and finance.  

Microsoft ended up fielding a preview of Azure BaaS, but lately had not done much to update the service. However, Microsoft's product page for Azure BaaS lists GE, J.P. Morgan, Singapore Airlines, Starbucks and Xbox as customers.

Microsoft's documentation suggests users start migrating to an alternative now. The recommended migration destination is ConsenSys Quorum Blockchain Service. Users also could opt to self-manage their blockhains using VMs.

I asked Microsoft for official word as to why the company decided to shut down Azure Blockchain. No response so far.

 

Update (May 21 -- better late than never): "We are asking customers to transition to the ConsenSys Quorum Blockchain Solution. Microsoft has a rich history of working with partners with the shared goals of innovating and delivering solutions to our customers. As industry dynamics have changed, we made the decision to shift our focus from a product-oriented offering to a partner-oriented solution."

 

Thanks to Tom Kerkhove on Twitter for the information on the Azure Blockchain shutdown. To keep up with deprecated Azure services, check out @AzureEndofLife."

For full post, please visit: 

https://www.zdnet.com/article/microsoft-is-shutting-down-its-azure-blockchain-service/ 

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The Handwavy Technobabble Nothingburger // Stephen Diehl

By Stephen Diehl
"At this point pretty much every economist worth their weight in salt has given the public fair warning about the financial absurdity of crypto assets using the well-known basic economic arguments against the faux currencies. However economic crypto scepticism has to go hand in hand with a deeper understanding of why the technology doesn’t work as its advocates claim, in addition to the legal and regulatory arguments against its existence.

There’s a simple inescapable truth at the heart of technical crypto scepticism that almost all software engineers intuit at some level:

 

"Any application that could be done on a blockchain could be better done on a centralized database. Except crime."

 

The essence of the financial arguments against crypto assets are quite easily summarized. As I previously described, crypto assets have no claim to be currencies because their deflationary properties and volatility don’t fulfill the theoretical or even practical function of money. They aren’t commodities because they have no non-circular economic use case. There is a somewhat coherent proposition that crypto assets are effectively unregistered securities contracts, basically like stock in an empty company that doesn’t do anything except promote the sale of its own stock. Historically these investments would have been called “Blue Sky Contracts” in the era before the Uniform Securities Act of 1956 outlawed such things. And then there’s the claim that crypto assets are a piece of performance art about libertarian politics, but this is an unfalsifiable proposition.

 

Despite their financial incoherence there are effectively three technology buckets you can put most of these crypto asset schemes into:

  1. Memecoins - Investment schemes that exist to perpetuate some narrative based on an internet or political meme and whose purpose is “number go up”. Examples: Doge, Shibu Inu, Bitcoin, Litecoin, Hex, etc

  2. Progcoins - Investment schemes which host other investment schemes and typically allow the execution of so-called smart contracts. Examples: Ethereum, Solana, etc.

  3. Stablecoins - Investment schemes which maintain value against real world assets and used as a medium of exchange for extra-legal transactions. Examples: USDC, USDT, etc.

Memecoins are pure greater fool investments, they’re basically a hot potato that people trade hoping to offload it on someone dumber than them who will pay more for it. And the implicit assumption behind the terminal value of these assets is that there’s an infinite chain of fools who will keep doing this forever. Nassim Taleb deconstructed this concept from a quantitative finance perspective in his whitepaper but nevertheless these assets persist because people behave economically irrationally and like lighting money on fire and dumping it into memes regardless of financial sanity. Meme coins like dogecoin exist simply for people to gamble on a fantasy about talking dogs, and bitcoin is a meme token for gambling on a fantasy about living in a cyberpunk dystopia. At the end of the day, memecoins are not that economically distinguishable from Ponzi schemes.

 

Progcoins are manifestations of what some of us programmers call decentralized woo woo, these projects claim to build all manner of programmatic applications. Yet when you dig into the details of such claims they’re very hand-wavy appeals to things that either don’t exist yet or are thinly veiled gambling schemes and outright scams. After twelve years of these technologies existing (roughly the same age as the iPhone) there is basically only one type of successful crypto business: exchanges which exist to trade more crypto. But the heart of this issue, and why there’s no other success stories, is because smart contracts tenuously look like a good idea until you actually try to build anything real that has to interact with the non-blockchain outside world. At which point they become too brittle, insecure, or strictly inferior to a centralized alternative.

 

In database terminology smart contracts are stored procedures that run one of the various incarnations of distributed databases these technologies are built on. In theory they act somewhat like self-automated vending machines but for more complex user interactions. In practice they act more like self-automated bug bounties which typically explode violently when certain exploits are issued against the coded logic, and at which point they spill all of the coins locked up in the contract. These disasters happen about two or three times a week now because coding at that level of correctness required in a Javascript-like language with loose and ill-defined semantics is near impossible. When a contract does finally meet its end, the only recourse is begging or threats to return the stolen tokens. However it’s unclear that “stolen” is the right word because the contract was simply behaving exactly as instructed and therein lies the core reason why “code is law” is an absolutely rubbish idea.

 

The second absurdity at the heart of smart contracts is their dependence on external data sources to function, the so-called “Oracle problem” is an intractable issue whereby these blockchain stored procedures must depend on data external to a blockchain in order to allegedly perform some business function. If a contract is modeling some sort of derivative contract then it depends on the price of the underlying asset, which it will have to pull from a price feed from Bloomberg. To check if the counterparty to the derivative has posted collateral it will have to pull out to query the balance of an account at a high street bank for one of the counterparties. To check if the counterparties are allowed to trade with each other they have to check whether either of them is on a sanctions list. So then by the time you’ve folded Bloomberg, Barclays and Uncle Sam into the trust boundary of your smart contract there’s very little point to saying this process is decentralized anymore, and begs the question why even construct this Rube Goldberg machine when it could be better done as a simple program running on a centralized server. It would be far more sensible and efficient to just build a web app that uses Stripe for payments. That is unless your business model fundamentally depends on selling unregistered securities or breaking the law.

 

And then that leads us into the third class of tokens: stablecoins. Stablecoins at face value might have some claim to have moneyness property. They are in essence a derivative of a national currency, usually a US dollar derivative that is issued on a blockchain and maintains a fixed stable value rather than being a speculative investment. Stablecoins are allegedly backed up one-to-one by reserves which should equal the total amount issued. You buy a stablecoin dollar effectively in the same way one buys chips at a casino, except stablecoins are used to gamble at offshore crypto exchanges who can’t get stable banking access because no regulated entity will touch these jurisdiction-hopping externational scofflaw casino boats. Stablecoins thus fulfill the customer “need” to arbitrage money transmitter regulation and move money to entities that exist outside the normal regulatory perimeter.

 

The casino chip analogy is accurate however unlike a casino, stablecoin issuers are not required to redeem tokens for real money and have no legal requirements to maintain reserves or even report on their contents. It’s a pretty good racket printing your own counterfeit dollar derivatives, and in practice many investigative financial journalists allege that some of these issuers are simply absconding with customer money and lying about their reserves. Stablecoin issuers are some of shadiest operators in an already rather shady ecosystem and many are widely believed to be outright scams that may meet the same fate as offshore Caribbean wildcat banks like Liberty Reserve.

 

Some people in technology think that stablecoins could be used to innovate in the banking sector and expedite retail payments. This almost makes sense, until you think about it for more than 10 seconds. Even if you had a completely legal and above-board stablecoin (which doesn’t exist today) you effectively have an institution which is for all intents and purposes basically acting as a bank, they take and custody customer funds and have enough liquid reserves to prevent a run on the coin and honor withdrawals whenever the customer needs. The Biden administration looked at this problem and came to the same conclusion, they should be regulated exactly like banks and be required to have FDIC protection on customer money, post collateral and be plugged into the Federal Reserve like any other bank would. At that point, yes, most of the consumer protection problems are mitigated for this kind of business but it begs the fundamental question: Why even bother?

 

A stablecoin bank would be subject to exactly the same FinCEN and OFAC money movement restrictions and compliance checks as banks; so know your customer gating, counter-terrorism financing, sanctions enforcement, and anti-money laundering enforcement. And these compliance requirements are the almost always the bottleneck consumers may encounter when doing cross-border transactions, and it’s not a technology issue. Nothing about stablecoins is either necessary nor desirable, and any alleged improvement these systems may offer at the moment are purely illusory and derived only from the unstable situation that they temporarily inhabit a yet-unregulated shadow banking system that is either non-compliant or entirely scofflawing. A regulated stablecoin bank is just a bank, but with a core ledger built on a terribly inefficient and bizarre piece of software not built for that purpose. All this while guzzling entire nation states worth of energy for no reason. Using inefficient blockchain as core banking software makes old legacy core banking solutions like Jack Henry look like a Ferrari by comparison. Our European allies all built extremely reliable real time payments like SEPA that work marvelously and they didn’t need any stablecoins.

 

Yet all of these technical arguments circle around a deeper truth: a technology which is purpose built to circumvent and arbitrage the regulatory perimeter cannot be brought within the perimeter without destroying its core claim to value or irreparably crippling it. Until proven otherwise it seems like the goal of the crypto ecosystem is to build an enormous unregulated casino with a crazy party scene. Along with a large lobbying arm to keep the musical chairs party going long enough with the hope of a government bailout through empty appeals to “American innovation” when the pyramid inevitably collapses.

 

I’m not alone in believing in the fundamental technical uselessness of blockchains. There are tens of thousands of other people in the largest tech companies in the world that thanklessly push their organizations away from crypto adoption every day. The crypto asset bubble is perhaps the most divisive topic in tech of our era and possibly ever to exist in our field. It’s a scary but essential truth to realise that normal software engineers like us are an integral part of society’s immune system against the enormous moral hazard of technology-hyped asset bubbles metastasizing into systemic risk."

 

For original post, please visit: 
https://www.stephendiehl.com/blog/nothing-burger.html 

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Philanthrocapitalism and Equity Doublespeak: When "Innovation" is Exploitation and Silicon Solutions Fuel Next Level Systemic Racism // [Slidedeck]

Philanthrocapitalism and Equity Doublespeak: When "Innovation" is Exploitation and Silicon Solutions Fuel Next Level Systemic Racism // [Slidedeck] | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

Philanthrocapitalism and Equity Doublespeak: When “Innovation” is Exploitation and Silicon Solutions Fuel Next Level Systemic Racism.

These slides have been updated and adapted from a talk given on May 6th, 2021 for the Lurie College of Education Research Symposium at San José State university. 

 

For link to slides, see: http://bit.ly/Philanthrocapitalism_Slides

See also: http://bit.lyDataJusticeLinks and 

http://bit.ly/Blockchain_Files 

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Crypto Platform Hack Rocks Blockchain Community  // Bloomberg 

Crypto Platform Hack Rocks Blockchain Community  // Bloomberg  | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

"An 18-year-old graduate student exploited a weakness in Indexed Finance’s code and opened a legal conundrum that’s still rocking the blockchain community. Then he disappeared."

 

By Christopher Beam

"On Oct. 14, in a house near Leeds, England, Laurence Day was sitting down to a dinner of fish and chips on his couch when his phone buzzed. The text was from a colleague who worked with him on Indexed Finance, a cryptocurrency platform that creates tokens representing baskets of other tokens—like an index fund, but on the blockchain. The colleague had sent over a screenshot showing a recent trade, followed by a question mark. “If you didn’t know what you were looking at, you might say, ‘Nice-looking trade,’ ” Day says. But he knew enough to be alarmed: A user had bought up certain tokens at drastically deflated values, which shouldn’t have been possible. Something was very wrong.

Day jumped up, spilling his food on the floor, and ran into his bedroom to call Dillon Kellar, a co-founder of Indexed. Kellar was sitting in his mom’s living room six time zones away near Austin, disassembling a DVD player so he could salvage one of its lasers. He picked up the phone to hear a breathless Day explaining that the platform had been attacked. “All I said was, ‘What?’ ” Kellar recalls.

They pulled out their laptops and dug into the platform’s code, with the help of a handful of acquaintances and Day’s cat, Finney (named after Bitcoin pioneer Hal Finney), who perched on his shoulder in support. Indexed was built on the Ethereum blockchain, a public ledger where transaction details are stored, which meant there was a record of the attack. It would take weeks to figure out precisely what had happened, but it appeared that the platform had been fooled into severely undervaluing tokens that belonged to its users and selling them to the attacker at an extreme discount. Altogether, the person or people responsible had made off with $16 million worth of assets.

 

Kellar and Day stanched the bleeding and repaired the code enough to prevent further attacks, then turned to face the public-relations nightmare. On the platform’s Discord and Telegram channels, token-holders traded theories and recriminations, in some cases blaming the team and demanding compensation. Kellar apologized on Twitter to Indexed’s hundreds of users and took responsibility for the vulnerability he’d failed to detect. “I f---ed up,” he wrote.

The question now was who’d launched the attack and whether they’d return the funds. Most crypto exploits are assumed to be inside jobs until proven otherwise. “The default is going to be, ‘Who did this, and why is it the devs?’ ” Day says.

As he tried to sleep the morning after the attack, Day realized he hadn’t heard from one particular collaborator. Weeks earlier, a coder going by the username “UmbralUpsilon”—anonymity is standard in crypto communities—had reached out to Day and Kellar on Discord, offering to create a bot that would make their platform more efficient. They agreed and sent over an initial fee. “We were hoping he might be a regular contributor,” Kellar says.

Given the extent of their chats, Day would have expected UmbralUpsilon to offer help or sympathy in the wake of the attack. Instead, nothing. Day pulled up their chat log and found that only his half of the conversation remained; UmbralUpsilon had deleted his messages and changed his username. “That got me out of bed like a shot,” Day says.

He shared his suspicions with the team, who over the next few days combed the attacker’s digital trail. They discovered that the Ethereum wallet used to transfer tokens during the attack was connected to another wallet used to collect winnings in a recent hacking contest by a participant who sometimes identified himself as UmbralUpsilon. Pulling up the participant’s registration, they saw that it linked to a profile on the collaborative coding platform GitHub.

 

The GitHub profile had been created by someone whose email address began with “amedjedo” and was associated with a domain owned by a public school board in Ontario. Day and his colleagues also found a Wikipedia contributor with a username similar to the one on GitHub. The Wikipedia editor had once altered the page for a popular Canadian quiz competition for high school students, adding a name under “Alumni”: “Andean Medjedovic, notable mathematician.” Google filled in the rest. Medjedovic had until recently been a master’s student at the University of Waterloo in Ontario, specializing in mathematics. His résumé said he had an interest in cryptocurrency.

The team breathed a sigh of relief. Once cyberattackers have been identified, they often return funds in exchange for a face-saving bounty and credit for being a “white hat” hacker. Day had already contacted UmbralUpsilon to offer a 10% reward for the tokens’ safe return, striking a note of grudging praise—“well played,” he wrote—but hadn’t heard back. So Kellar tried a different tactic, messaging Medjedovic and addressing him as “Andean.” This time Medjedovic reacted, taunting Indexed users publicly on Twitter: “You were out-traded. There is nothing you can do about that. … Such is crypto.” When a team member emailed him independently, saying that if he returned the tokens they’d pay him $50,000, Medjedovic responded with a link to an Ethereum address. “Send the money over,” he wrote. They didn’t take the bait from their tormentor—who they’d learned, to their astonishment, was only 18 years old.

Finally Kellar texted Medjedovic to make one last plea before, he said, they would be forced to bring in lawyers and police. “I implore you to give up now and make this easy on yourself,” he wrote. The teenager responded with “Xdxdxd,” an emoticon that evokes dying of laughter, and added, “Best of luck.”


When Kellar and his co-founders created Indexed, they imagined it as a step forward for DeFi, or decentralized finance, a blockchain-based movement that purports to offer a more automated, less intermediated version of borrowing and lending, asset trading, and portfolio management. Some proponents take a utilitarian view of DeFi, considering it an improved version of traditional finance, with its fee-taking middlemen and sluggish human decision-making. Others are more libertarian, seeing DeFi as an escape from the existing system, a way of circumventing the rules and restrictions imposed by governments or corporations. Then there are the skeptics, who think it’s all a grift.

 

Kellar, who describes himself as “very progressive,” fits squarely into the utilitarian camp. At age 23, after dropping out of the University of Texas at Dallas when computer science classes weren’t teaching him anything new, he started Indexed to solve a problem: What if you wanted to trade crypto but didn’t want the daily hassle of managing a portfolio?

In traditional finance, investors who want a wide, balanced array of stocks can purchase shares of index funds, outsourcing the day-to-day job of buying and selling the stocks to a portfolio manager. Kellar went about creating a similar arrangement on the blockchain, but with an algorithm driving the trading. Whereas an index fund manager would maintain a portfolio containing the underlying assets of an index share, the Indexed algorithm maintained a “pool” of underlying tokens for each index token. Users could swap one or all of the underlying assets into the pool in exchange for an index token—a process called “minting.” They could likewise “burn” an index token by trading it back into the pool in exchange for one or all of the underlying assets. Or, as with an exchange-traded fund, users could simply buy or sell index tokens on decentralized exchanges such as Uniswap.

 

Index funds take various forms, each with a different investment strategy. Some, such as the S&P500, are market-capitalization-weighted: If the value of one of its stocks goes up, the proportional value of that stock within the portfolio rises accordingly. Others seek to maintain a fixed balance of stocks. For example, if you wanted Microsoft shares to consistently make up 20% of your portfolio, and the value of the stock went up, the portfolio manager would sell shares of Microsoft to maintain its 20% weight.

Kellar and his team modeled Indexed on that type of fund, using a mechanism called an “automated market-maker” to maintain the balance of underlying assets, as many DeFi platforms do. Unlike a traditional market-maker, the AMM wouldn’t buy and sell assets itself; instead it would help the pool reach its desired asset balance by adjusting the “pool price” of component tokens to give traders an incentive to buy them from the pool or sell them into it. When the pool needed more of a particular token, its price within it would rise; when the pool needed less, the price would decline. This model assumed users would interact rationally with the protocol, buying low and selling high.

By eliminating human managers, Indexed could forgo management fees like the 0.95% its bigger rival, Index Coop, charged for simply holding its most popular index token. (Indexed would charge a fee for burning tokens and swapping assets within a pool, but those only applied to a small fraction of users.) It also saved on costs by limiting the number of interactions between the platform and outside entities. For example, when Indexed needed to calculate the total value held within a pool, instead of checking token prices on an exchange such as Uniswap, it sometimes extrapolated from the value and weight of the largest token within the pool, called the “benchmark” token. This way, it reduced the fees it paid for transactions on the Ethereum blockchain. Kellar saw full passivity as a “natural extension of the way index funds already operate.”

But passivity also created risk. If there was a problem with the code, someone could exploit it directly, without needing to bypass any human safeguards. And limiting blockchain interactions to cut costs entailed a trade-off: When a smart contract—a script that executes automatically when certain criteria are met—has fewer steps, it can leave more room for security vulnerabilities. The list of exploited crypto platforms is long and grows by the week: Poly NetworkWormholeCream FinanceRari Capital, and many more. “There’s a common saying in DeFi that there are two types of protocols,” Day says. “Those that have been hacked and those that are going to be hacked.”...

For full post, please visit: 

https://www.bloomberg.com/news/features/2022-05-19/crypto-platform-hack-rocks-blockchain-community 

 

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'Social Impact Bonds/Pay for Success' [Chapter published in “The Swindle of Innovative Educational Finance"] by Dr. Kenneth Saltman, Professor of Educational Leadership, University of Massachusetts 

'Social Impact Bonds/Pay for Success' [Chapter published in “The Swindle of Innovative Educational Finance"] by Dr. Kenneth Saltman, Professor of Educational Leadership, University of Massachusetts  | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By Kenneth Saltman
"Investment banks such as Goldman Sachs, Bank of America, and J. P. Morgan; philanthropies such as the Rockefeller Foundation; politicians such as Chicago Mayor Rahm Emanuel and Massachusetts former governor and now Bain Capital managing director Deval Patrick; and elite universities such as Harvard have been aggressively promoting Pay for Success (also known as social impact bonds) as a solution to intractable financial and political problems facing public education and other public services. In these schemes, investment banks pay for public services to be contracted out to private providers and stand to earn much more money than the cost of the service. For example, Goldman Sachs put up $16.6 million to fund an early childhood education program in Chicago, yet it is getting more than $30 million[1] from the city. While Pay for Success is only at its early stages in the United States, the Rockefeller Foundation and Merrill Lynch estimate that by 2020, the market size for impact investing will reach between $400 billion and $1 trillion.[2] The Every Student Succeeds Act of 2016, the latest iteration of the Elementary and Secondary Education Act of 1965, directs federal dollars to incentivize these for-profit educational endeavors significantly, legitimizing and institutionalizing them.

 Success is promoted by proponents as an innovative financing technique that brings together social service providers with private funders and nonprofit organizations committed to expanding social service provision. In theory, Pay for Success expands accountability because programs are independently evaluated for their success and the government only pays the funder (the bank) if the program meets the metrics. If the program exceeds the metrics, then the investor can receive bonus money, making the program much more expensive for the public and highly lucrative for the banks.

 

Banks love Pay for Success because they can profit massively from it and invest money with high returns at a time of a glut of capital and historically low interest rates. Politicians (especially rightist democrats) love Pay for Success because they can claim to be expanding public services without raising taxes or issuing bonds and will only have the public pay for “what works.” Elite universities and corporate philanthropies love Pay for Success because they support “innovation” and share an ethos that only the prime beneficiaries of the current economy, the rich, can save the poor.

 

Pay for Success began as social impact bonds and were imported into the United States from the United Kingdom around 2010. They were promoted by the leading consultancy advocate of neoliberal education, McKinsey Consulting; the neoliberal think tank Center for American Progress, which was founded by former Clinton chief of staff and Democratic Party leader John Podesta (who also led Obama’s transition); and the Rockefeller Foundation. Pay for Success expansion is now the central agenda of the Rockefeller Foundation. Shortly before championing Pay for Success for Chicago, Rahm Emanuel served as Obama’s chief of staff, having had a long career as a hard-driving Democratic congressman and political money raiser and also an investment banker. Certain other key figures lobbied to expand the use of Pay for Success. Most notably, Jeffrey Liebman went from Obama’s Office of Management and Budget to a large center at Harvard, the Government Performance Lab in the Kennedy School of Government, dedicated to expanding Pay for Success. Liebman is a leader of the Center for American Progress and was a key economic advisor to Obama in his 2008 campaign. Other key influencers of Pay for Success include the Rockefeller Foundation and Third Sector Capital.

 

Advocates explain that the value of a Pay for Success program is allegedly that it creates a “market incentive” for a bank or investor to fund a social program when there is not the political will to support the expansion of public services, and second, by injecting “market discipline” into the bureaucratically encumbered public sector, Pay for Success will make the public sector “accountable” through investment in “what works,” and it will avoid funding public programs for which the public has “little to show,” as Liebman and Third Sector Capital Partners are fond of suggesting (Wallace, 2014).[3] The value of any public spending in this view must be measurable through quantitative metrics to be of social value. Third, it consequently saves money by not funding programs that cannot be shown to be effective, and fourth, it shifts risk away from the public and onto the private sector while retaining only the potential social benefit for the public. Last, it mobilizes beneficent corporations, banks, powerful nonprofit companies, and philanthropic foundations to save the poor, the powerless, and the public from themselves. Here Goldman Sachs frames its profit-seeking activities as corporate social responsibility, charity, and good works that define its image in the public mind. In fact, all five of these positions that advocates claim explicitly or implicitly to support the expansion of Pay for Success are baseless.

The Myths of Pay for Success

Myth 1: Market Discipline

Repeating a long-standing neoliberal mantra of private-sector efficiency and public-sector bloat, advocates of Pay for Success claim that the programs are necessary because they inject a healthy dose of market discipline into the bureaucratically encumbered and unaccountable public sphere. According to the leading proponent of Pay for Success, Jeffrey Liebman, private-sector finance produces this market discipline because governments do not monitor and measure the services contractors provide. Says Liebman, “[Government] programs that don’t produce results continue to be financed year after year, something that would not happen in the business world.”[4] This is an odd claim from one of Obama’s leading economic advisors at the time that Obama was sworn in as president and who proceeded to have the public sector bail out the private sector. The 2008 financial bailout of the banks by the U.S. federal government represents a repudiation of the neoliberal logic of the natural discipline of markets and of deregulation. The private sector, including banks, insurance companies, and the automotive industry, needed the public sector to step in and save unprofitable businesses and businesses that had invested in the deregulated mortgage-backed securities market. More broadly, some of the largest sectors of the economy, such as defense, agriculture, and entertainment, rely on massive public-sector subsidies to function. Specifically, the financial crisis and consequent recession were a result first of neoliberal bank deregulation and a faith in markets to regulate themselves, but also they demonstrated the illegal activity, fraud, and lies of the same banks that now seek profit through Pay for Success, including Goldman Sachs, Bank of America, Merrill Lynch, and J. P. Morgan.

 

Pay for Success proponents claim that the financing scheme is necessary because there would otherwise not be the political will to do projects like early childhood education in Chicago for a couple of thousand children or recidivism reduction programs in Massachusetts. Third Sector Capital Partners, a nonprofit that relies on Pay for Success expansion as a cornerstone of its business, claims that Americans do not support state spending and hence Pay for Success is necessary.[5] However, Gallup shows that 75 percent of Americans favor expanded public spending on infrastructure, and 58 percent support replacing the Affordable Care Act with a universal federal health care system.[6] Indeed, as long-standing studies and, more recently, the Bernie Sanders presidential campaign of 2016 indicate, a large percentage of Americans support a range of increased spending on progressive social programs.

 

A mantra found in the literature that advocates Pay for Success is that it “allow[s] the government to avoid paying for programs that don’t make a difference.”[7] For working-class and poor citizens, many of whom are working two or three low-paying jobs, the cost of private early childcare and education is a major financial burden. The fact that early childcare and education have become corporatized by national companies who pay superexploitative wages to workers only worsens the situation. The fact that early childcare and education are vital economic needs raises a question about whose political will is in question when Pay for Success proponents claim that the only way to provide early child educational services is with the involvement of banks, and that without banks, it should not be provided. The parents and community members are not the ones who lack the political will. Political and financial elites do not want to pay for other people’s children—without a cut."...

 

For full chapter, please see: 
https://manifold.umn.edu/read/6bfc4e20-77f8-49df-b2cc-02aa02f854a4/section/dbb43e6a-754a-412e-9242-0b860d9dcc73#ch02 

 

For entire book available online (Creative Commons license allows re-sharing with attribution), see:
https://manifold.umn.edu/read/untitled-85740014-9b15-46f2-be8c-5d261d587877/section/41eb7da5-10e1-4768-83d8-586e038591d6  

 

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Is Crypto Re-Creating the 2008 Financial Crisis? “This is an old trick from the financial industry: Make things more complex.” // By Charlie Warzel, The Atlantic

Is Crypto Re-Creating the 2008 Financial Crisis? “This is an old trick from the financial industry: Make things more complex.” // By Charlie Warzel, The Atlantic | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By Charlie Warzel, The Atlantic

 

"What I find most concerning about crypto/Web3 is that a great deal of the projects I’ve seen add unnecessarily complex financial elements to areas of our lives that didn’t have them before. Crypto critic Dan Olson recently described this ethos as the construction of an internet where “everything that can be conceptualized as valuable can be numeralized.” “Play to win” games like Axie Infinity, for example, are a dystopian vision of leisure that replicate exploitation we’re used to seeing in real life. I find myself more alarmed about the crypto’s hyper-financialized vision of the world each day but I also lack some of the historical knowledge necessary to offer a strong financial critique of the space. Which is why I was deeply fascinated when I came across an essay by American University law professor Hilary J. Allen titled “DeFi: Shadow Banking 2.0?

 

Allen studies financial crises—specifically, threats to financial stability and the ways in which financial fallout affects regular people, not just institutions—and she has testified before the House Financial Services Committee. Her recent essay focuses on the financial innovations (money market mutual funds, credit default swaps, mortgage-backed securities) that ultimately led to the 2008 crisis and draws parallels between those and some of the tools and dynamics in the world of crypto and decentralized finance (DeFi). DeFi, she argues, is repeating many of the mistakes of the past.

 

What follows is one of the most fascinating and eye-opening conversations I’ve had about crypto. We cover America’s casino mindset, the echoes of the financial crisis she’s sensing right now, how to regulate crypto, and how to innovate without exploiting others. Allen offers a lacerating but level-headed criticism of the space that is well worth your time.

 

Charlie Warzel: Your essay is about DeFi, or decentralized finance. Like a lot of terminology in the crypto space, DeFi is pretty broad and vague but also very much accepted in the lexicon. How do you define it?

 

Hilary J. Allen: Like any evolving space, the terminology is hard to pin down. People inside the crypto world have different definitions for DeFi and would probably argue with mine. But the way I think of DeFi is as a way to describe any analogue of traditional financial-service transactions—loans, deposits, etc.—that are provided using technological tools like the blockchain or facilitated through smart contracts or stablecoins. The technology is what is different, but the financial transactions are very much similar to traditional finance.

 

Warzel: And the idea—at least in theory—is that DeFi tools eliminate the need for the centralized authority, which is usually regulated banks and other intermediaries that do all kinds of things: from holding and transferring money to charging transaction fees, etc.?

 

Allen: Right.

 

Warzel: Of course, your essay argues that DeFi doesn’t really deliver on this promise. You write that, “DeFi doesn’t so much disintermediate finance as replace trust in regulated banks with trust in new intermediaries who are often unidentified and unregulated.” This is a growing critique of much of the Web3 movement—the idea that a lot of blockchain-based apps and tools are not actually decentralized. And that, for Web3 applications to scale, they’ll have to rely on the same types of platform structures that exist now. An example of this outside of the DeFi space is that, for NFTs to work, you need a centralized marketplace like OpenSea.

 

But what I found interesting is that your critique goes a step further. You argue that part of the decentralized finance ecosystem looks to you like it “mirrors and magnifies the fragilities of shadow banking innovations that resulted in the crisis of 2008.” Can you walk me through your argument here a bit? [For readers interested in a synopsis of Allen’s essay, Cory Doctorow has a truncated recap here.]

 

Allen: Sure. As somebody who studied the 2008 crisis in great detail, I’m always looking for parallels. So when I’m looking at the building blocks of the 2008 crisis, I’m thinking of things like mortgage-backed securities and credit default swaps. These financialized tools created additional complexity and rigidity and leverage into the financial system that ultimately led to collapse. And I see similarities with what’s being built in DeFi spaces—what unites them is their opacity and complexity and the way that it is potentially destabilizing.

 

Warzel: Right. The idea is that these financial innovations were essentially workarounds that allowed banks and stakeholders to skirt limits or some regulatory aspects. Or that they were such an abstraction that they were difficult for even bankers to follow — that the complexity of these instruments obscured exactly what people were buying and if it was garbage or not. In the essay, the three financial innovations you see parallels to are money market mutual funds, credit default swaps, and mortgage-backed securities. Can you go through them at a high level?

 

Allen: Money market mutual funds were created to be a functional equivalent of deposit accounts but in fact are an abstraction: a special accounting treatment that allows a share in a fund to be consistently valued at one dollar. But a share in an MMF is actually a share in a pool of assets with fluctuating prices, and so its value changes constantly. If the value of an MMF share deviates too far from one dollar, shareholders will find their shares revalued below one dollar. When this happened in 2008 and investors pulled out of MMFs, it was analogous to the traditional bank runs. Basically, the financial crisis was made worse by runs on money market mutual funds.

 

There are—and I’m far from the only person to note this—striking similarities between MMFs and stablecoins, like Tether, which is pegged to the dollar and supposedly backed by the dollar.  But there are a lot of allegations that Tether is not backed as it claims and is fraudulent. Other stablecoins offer their own complexities. I’m maybe less convinced in those parallels than some. But if something were to shake confidence in stablecoins and holders rushed to exchange them back to fiat currency, there could be a similar kind of run dynamic. And, if stablecoin issuers become interwoven in the real economy, it could introduce risk into the broader system.

 

Now, with credit default swaps, the parallel is leverage. CDSs created a new, initially unlimited way to create leverage, which is another way of saying they used debt to acquire financial assets. In DeFi, you see similar dynamics, especially that tokens can be created out of thin air. Those tokens could then be used as collateral for loans that can then be used to acquire yet more assets. It’s somewhat striking, the parallel.

 

Warzel: How about the mortgage-backed-security parallel?

 

Allen: Here, I focus on the rigidity. The idea is that when you have these financial products, they’re designed to be very hard to alter. That’s great most of the time, but things begin to fall apart if something unexpected happens. This was a real problem in the financial crisis. The obvious parallel here is with DeFi’s smart contracts. The whole selling point is that with smart contracts, you set the parameters up at the outset. Things happen quickly and are automated. There’s no opportunity for human intervention, though I’d argue that is overstated to some degree. I’m concerned about that.

 

Warzel: I understand in theory—but could you give me a real-world example of this happening?

 

Allen: See, so this is a great question. And, if I’m being very honest, I don’t have a great example of this happening. A lot of times in traditional finance and DeFi, these things work okay. Now, there’s all kinds of potential problems with smart contracts, like vulnerabilities and hacks. But—assuming we don’t have those problems, and assuming the contracts execute as intended—this system only becomes undesirable in the “1 percent of the time” case.

 

This is sometimes a challenge to illustrate. So in my book I explain what would happen if the credit default swaps that AIG issued to Goldman Sachs had taken the form of smart contracts. AIG overextended—it issued too many CDSs, thinking it’d never have to pay out. And because it was so deluded into thinking it wouldn’t have to pay out, it didn’t look at the margin requirements, which are the contracts AIG and Goldman signed. The contracts they used basically gave Goldman carte blanche to dictate what the margin requirements would be, should the underlying bonds be downgraded. Now, what actually happened when the time came is that Goldman came to AIG and said, “We want X terms.” AIG said, “We’re not paying that much; we can’t.” See, AIG negotiated it down. That was in 2007. And, when 2008 came and there were all these margin calls for AIG, it had time to wait on the contracts—because they weren’t smart contracts that automatically executed. They were facilitated by human beings. This gave time for the government to intervene and to avoid a complete financial meltdown.

 

Now, what if all those contracts had been totally automated? If the margin calls were automated via a smart contract, it would have spun them into insolvency well before any possibility of government bailout.

 

Warzel: That makes a lot of sense to me, and that rigidity and taking humanity out of the system sounds like a huge potential risk. But, playing devil’s advocate, I’m sure the crypto contingent would say that your story is proof that a smart contract system is superior because it doesn’t give time for intervention and, specifically, bailouts to overleveraged, irresponsible banks. What would you say to people who hear that story and say that smart contracts “sound like a feature, not a bug”?

 

Allen: I’ve definitely heard that a selling point of DeFi is that it gets rid of the need for bailouts. And yes: I’ve had people accuse me on this point of shilling for big banks, and it’s just not true. If you’re asking me to choose, I’d absolutely rather see a bailout that prevents broader, sustained economic chaos than not. And the reason for that isn’t because I care about protecting executives at banks. In all my work, I’m speaking for the people downwind of all of this. The already vulnerable people who end up being hurt the most by financial collapse. In the case of DeFi being interwoven with our greater economy, these would be the people who are not investing in crypto but could still be hurt by a collapse. That’s the viewpoint I represent. And for those people, bailouts are the best outcome, even if they’re unpopular.

 

Warzel: One thing that Web3 and crypto proponents like to tout is that it democratizes finance—that a broader scope of people (usually framed as either unbanked or those without outsized means) who’ve been shut out of more traditional financialized elements of the economy can just plug in, get a wallet, and play like others do. What you’re arguing though is that, if you’re looking to protect the most financially vulnerable, then these regulatory frameworks are more important than access. Is that how you’d describe it?

 

Allen: The rhetoric around crypto and access reminds me of something similar to the rhetoric around mortgages in the lead-up to 2008. Again, there are striking similarities. With subprime mortgages, the line was that it increased the opportunity for more people to own homes. But that rhetoric is sometimes used to hide predatory practices.

 

Let’s go back to credit default swaps and this idea of multiplying the amount of risk in the system by allowing essentially unlimited bets on the performance of a single bond. I worry in DeFi what’s being constructed is essentially the unlimited ability to create financial products and borrow against them. We are increasing the amount of risk—because the assets are essentially anything that somebody with programming knowledge who can mint a new coin can make up. You don’t necessarily have to tie these assets to something physical: like, say, a house somewhere in the world.

 

Warzel: I want to go back to the bit about complexity. I find almost all the decentralized applications I encounter just largely inaccessible, especially to the layperson. Specifically when it comes to decentralized finance, I find that it’s often extremely hard to figure out what a given project does. Before our talk I was searching around for interesting projects in the space, and here’s the definition I got from a website about one particular project:

"Simply put, Colony is an entourage of smart contracts that provide the framework for an organization’s essential functions. Apart from funding, this project caters to online organizations’ ownership, structure, and authority."

 

That is extremely, comically vague. I’m wondering if you could talk some more about the use of complexity as a shield.

 

Allen: Complexity is weaponized in some of these instances to deflect scrutiny. This is an old trick from the financial industry: Make things more complex. In DeFi, you have financial complexity overlaid with technical complexity, too—so there is, really, just the thinnest subset of people who can do both. And those people will be paid a LOT of money to participate and build these tools. And when the slice of people is so small and they’re so handsomely rewarded, there’s not going to be many savvy watchdogs—there’s less incentive to be a policeman on the beat. It’s much easier to just go work on a project.

And even if the complexity is not purposely weaponized, I think there’s a reason for pause. The literature on complexity science and the interactions in complex systems is something we should all be paying more attention to. There’s this idea of “normal accidents”—that once you have a complex system, things are bound to go wrong in ways we can’t anticipate. Partly for those reasons, and partly for the fact that regular consumers and regulators aren’t going to understand this, I vote for simplicity.

Warzel: There’s this frustrating interplay here for critics, I think. You can say, “I don’t think this thing makes a whole lot of sense” or “It seems to me like this doesn’t really do…anything new?” And it is met by proponents with a sneering “You just don’t get it.” When in reality, I think maybe the bigger problem is that there’s not a lot to “get.”

Allen: This is what I find so frustrating about the financial-inclusion narrative. Let’s start with a problem and solve it. If the problem is that people need money quicker and need payments more cheaply and more return on savings, who would move from that problem and build stablecoin-backed sets of volatile, highly leveraged assets that are themselves complex systems, managed by a decentralized autonomous organization [DAO]? You wouldn’t do that. You’d say: Okay, let’s look at Brazil’s real-time payments system, or Australia’s. That’s part of my frustration with the crypto complexity—it is complexity that ends up making a system more fragile. Complexity may be worth it sometimes. But if it doesn’t solve the problems we actually need to solve, then I don’t know why we go with all of this.

Because the complexity of the crypto world is only justified by the idea of decentralization. That was the intellectual power of the Satoshi Nakamoto white paper. [Nakamoto is the apparent pseudonym of Bitcoin’s creator.] It was this idea for how to transfer value without a trusted intermediary. That was the appeal. But everything that’s been built on the back of the blockchain since seems to be trying to deal with the idea that this decentralization is purposefully wasteful, slow, and complicated. Now, in order to get rid of intermediaries, they’re using intermediaries. They’re losing the decentralization, but they’re keeping the complexity.

Warzel: I think that’s a powerful way to frame it. In a way, it’s almost like using the initial founding vision as marketing material for new products that undermine the initial vision.

Now, I consider myself a crypto skeptic, but I do want to continue playing devil’s advocate. One argument you hear from crypto proponents occasionally is that yes, the system that they’re building might have its own flaws, but that the new rules are being dictated by different players. I’ve also heard a lot of true believers argue that, with different DeFi projects, people are able to invest but also get a say in the governance, which is better than an old model of a bank or company setting all the rules. How do you respond to that governance argument?

 

Allen: A lot of the power of DeFi and crypto comes from a lot of real and powerful critiques of our system. Banks performed abysmally in 2008 and haven’t changed that much as a result. I understand the distrust, I understand the need and want for solutions. I just don’t think DeFi will get us there. If you own one share in JP Morgan, you don’t own them. You can’t actually control how they operate. Similarly, if you have one governance token in a DAO, you won’t control or meaningfully influence how the DAO operates. Because this is a system where, already, you see founders are keeping tokens. The concentration of wealth in crypto is already totally lopsided. So the idea of the little people having a say is really marketing at best and deceptive at worst. It’s just…not how it’s going to work.

 

One of the points I’m trying to make in that essay is that, where there’s money to be made from intermediaries establishing themselves, intermediaries will appear. If there’s money to be made by controlling a DAO and the DeFi protocols it administers, then somebody will be in there making a majority of that money. And those will be the people who’ve been in the ecosystem from the beginning. That means those in the venture-capital firms. They’ll make a ton off this. To suggest that what I’m describing is democratizing the ability to control how our financial system works is totally disingenuous. Because we haven’t changed the underlying incentives of the financial system. We haven’t changed any of the structural or political issues…

 

Warzel: We’ve just put them on the blockchain!

 

Allen: …and it could be worse in this new iteration if we don’t have the regulatory mechanisms.

 

Warzel: Yes, I wanted to get to this. You argue it’s time now to bake in regulatory processes rather than wait until crypto gets more interwoven into the financial system. I know the Biden administration issued an executive order on crypto, but it was very vague—a sort of “We have our best people on this” type of thing. But, say you are king of the world for a day. What would you do, regulations-wise?

 

Allen: The first order of business is to create a Glass-Steagall system for crypto. Glass-Steagall is the legislation put in place after the Great Depression to separate banking and securities. What I’m suggesting is that banking and crypto be kept separate—so that if there’s an implosion of the crypto world (for me it’s a when, not if), the consequences stay largely in the crypto system, but wouldn’t have spillover effects to the broader economy. In the early 2000s, when the dot-com bubble burst, we didn’t have a broad-based, 2008-style recession. That is, in part, because banks didn’t have huge exposures to internet companies like they did to the mortgage sector. It contains the potential fallout.

In some ways, I think there could be a lot of political support for something like this. Because people who have support for crypto see it as an alternative to the banking system. If you truly believe that, then you should not integrate it with our current banks. You should keep them separate, so that if crypto succeeds, then it could maybe live up to its promise. And if it doesn’t, the banks won’t be taken down by it. And it makes the economy as a whole more robust.

 

Warzel: You argue in your essay that, essentially, we need to slow down DeFi, and that critics are going to see this as an attack on innovation. I find this is a huge tension right now, especially between, say, Silicon Valley and people who are critics of new technology. There’s an argument that building new things is a universal good and that critics are jeopardizing progress. The builders argue that, yes, there may be problems that arise, but the most important virtue is to keep pushing forward. I should be clear I think this is a pretty facile premise, but it puts critics in a difficult position. For example, I’m not anti-progress or anti-innovation. But I’ve also spent enough time in the “move fast and break things” world to understand what happens when we build without an eye toward what our tools might do if they succeed. As a very clear critic of crypto, how do you hold all this in your head?

 

Allen: For me, it’s about incentives and negative externalities. What are the incentives for innovation? What are the social problems? We won’t solve any of it if the only motive for building is profitability and shareholder value.

 

What the broader public is looking for are win-win situations. We don’t mind rewarding people for building great things. That’s how this works. But win-win outcomes require a bit of guidance, regulation, and oversight to make sure that the tech is providing social outcomes as well as profits.

 

In the absence of any constraint, innovation will be profit-mining and seek to maximize those profits. When I push back on crypto people, some say: “Don’t tell me how to invest my money. I will take on the risk if I want to.” And I’m tempted to say, “Okay; that’s fine. Or it would be if it was only you we are talking about.” But it’s never only just one person. It’s so much bigger. There are so many consequences for others. There are the environmental externalities, like the energy that comes from mining. There are national-security issues, like the potential for sanctions evasions. My expertise is in the area of financial crises, so that’s where I look. And here, I say that of course you can invest where you want—but if you invest in ways that add great fragility and instability into our systems and it ends up blowing up the economy, it will ultimately hurt people who never invested. Innovation is not an unqualified good.

 

Warzel: Before I let you go, you mentioned before we began this interview that you’ve been studying crypto’s evolution since 2015, and that each time you’ve written about it, it seems more of the things you were concerned about have come to pass. I am curious about the crypto-hype moment we’re in right now, and the ways that it seems more entrenched than it did during, say, the 2017-2018 run. It’s especially interesting to me because, like I said, beyond buying and selling a coin on an exchange like Coinbase, so much of Web3 is deeply inaccessible to most people. Why do you think so many people have gotten involved? Is it just part of a casino mindset—that it’s easier than ever, and there’s a lot of flashy apps that lead people here? Or is there something deeper?

 

Allen: The casino mindset is huge. But that is linked to broader structural problems. People think the system is rigged, and they’re not wrong. When people think the system is rigged, they say, “Well then, why not bet?”

 

I’m on Amtrak a lot these days, and I looked up recently and realized I was surrounded by sports-betting ads and crypto ads. When it feels like you can’t get ahead the normal way, people start gambling more. Just in general, society is gambling more. I think it’s part of that. But financial inclusion is a deep-seated structural problem, and it needs solutions that are structural. There’s a way for technology to assist here. But I don’t think what we’re seeing is the answer."

 

For original article, please visit:

 https://newsletters.theatlantic.com/galaxy-brain/624cb2ebdc551a00208c1524/crypto-bubble-web3-decentralized-finance/ 

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CA HI NAACP Resolution Opposing the Privatization of Public Services including "Social Impact Bond" Partnerships, "Results Based" and "Pay For Success" Financing Schemes

Resolution Opposing the Privatization of Public Services Including "Social Impact Bond" Partnerships, "Results Based," and "Pay for Success" Financing Schemes 

 

WHEREAS the wealth of the United States was built in large part on the seized labor of enslaved Africans and communities of color; and 

 

WHEREAS throughout the history of this nation, violence, discrimination, and mass incarceration have compromised the economic security of African Americans and communities of color; and

 

WHEREAS disinvestment in public services (housing, education, etc.) has led to the destabilization of communities and the introduction of predatory interventions into the lives of African Americans and communities of color; and

 

WHEREAS scarce public funds allocated for social services are currently being sought by private financiers angling to enter into "social impact bond" partnerships that are "pay for success" and/or "results based" contracting schemes, in effect rendering communities as investment and profit vehicles; and

 

WHEREAS evaluation of these new financial structures requires expensive, extensive, and intrusive collection of behavioral data on the lives of individuals receiving services; and 

 

WHEREAS the use of predictive analytics to gauge the so-called success of such contracts through de-humanized metrics rely on data that are often flawed and racially biased; and 

 

WHEREAS analytics at the root of impact investing involve racial profiling and heightened surveillance of historically oppressed communities, in effect exacerbating systemic racism and thwarting the economic and social liberation of such communities; and 

 

WHEREAS financial instruments that monetize social problems are structured to preference the profit interests of global financiers at the expense of vulnerable populations; 

 

THEREFORE, BE IT RESOLVED, that the NAACP opposes the privatization of public services under new fiscal structures including Social Impact Bond partnerships, Results Based, Pay for Success, and/or related financing schemes; and

 

BE IT FURTHER RESOLVED, that the economic, health, justice, and political action areas of the NAACP will collaborate to ensure that Social Impact Partnerships, Results-Based, Pay For Success, and/or related financial schemes will not be enacted in our communities; and 

 

BE IT FINALLY RESOLVED, that access to public services not be contingent upon extraction of private and behavioral data as a condition of receiving services through social impact bond partnerships, Results Based, Pay For Success, or related financing schemes. 

 

______________

Passed unanimously at CA-HI State Conference of the NAACP, October 2018  

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Facial Recognition Failures Are Locking People Out of Unemployment Systems // Vice.com

Facial Recognition Failures Are Locking People Out of Unemployment Systems // Vice.com | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By Todd Feathers

"People around the country are furious after being denied their unemployment benefits due to apparent problems with facial recognition technology that claims to prevent fraud.

Unemployment recipients have been complaining for months about the identity verification service ID.me, which uses a combination of biometric information and official documents to confirm that applicants are who they claim to be. The complaints reached another crescendo this week after Axios published a “deep dive” article about the threat of unemployment fraud based on statistics provided to the outlet by ID.me.

Some unemployment applicants have said that ID.me’s facial recognition models fail to properly identify them (generally speaking, facial recognition technology is notoriously less accurate for women and people of color). And after their applications were put on hold because their identity couldn’t be verified, many should-be beneficiaries have had to wait days or weeks to reach an ID.me “trusted referee” who could confirm what the technology couldn’t.

 

On Twitter, there are dozens of complaints about ID.me per day, and local news articles all over the country have detailed the problem over the course of months. In California, 1.4 million unemployment beneficiary accounts were abruptly suspended on New Year’s Eve and the beneficiaries were required to re-verify their identity using ID.me, a process which many found difficult and resulted in them waiting for weeks to reactivate their accounts while they struggled to make ends meet."...

 

https://www.vice.com/en/article/5dbywn/facial-recognition-failures-are-locking-people-out-of-unemployment-systems 

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Research: Corporations Fail to Deliver on Blockchain Hype, Scalability a Top Concern // Bitcoin.com

Research: Corporations Fail to Deliver on Blockchain Hype, Scalability a Top Concern // Bitcoin.com | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By Avi Mizrahi

"Greenwich Associates interviewed 213 global market participants said to be working on blockchain technology. Respondents included representatives from an array of corporations, like technology vendors, exchanges, and consultancy firms, but almost half (49%) work in the banking sector. And 93% of them are said to be either key decision-makers or actively involved in blockchain initiatives.

 

The researchers note it is fair to say that “the industry has lagged behind its own optimistic expectations from two years ago. Implementing enterprise technology designed to replace decades of legacy market infrastructure is no simple task, and 57% of blockchain executives told us it has been harder than expected.”...

 

For full story, please visit

https://news.bitcoin.com/research-corporations-fail-to-deliver-on-blockchain-hype-scalability-a-top-concern/ 

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What Could Web3 Mean for Education? // EdSurge News

What Could Web3 Mean for Education? // EdSurge News | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

https://www.edsurge.com/news/2022-01-24-what-could-web3-mean-for-education 

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The Big Business of Tracking and Profiling Students // The Markup 

The Big Business of Tracking and Profiling Students // The Markup  | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it
Hello, friends,
The United States is one of the few countries that does not have a federal baseline privacy law that lays out minimum standards for data use. Instead, it has tailored laws that are supposed to protect data in different sectors—including health, children’s and student data. 
 
But despite the existence of a law—the Federal Educational Rights and Privacy Act—that is specifically designed to protect the privacy of student educational records, there are loopholes in the law that still allow data to be exploited. The Markup reporter Todd Feathers has uncovered a booming business in monetizing student data gathered by classroom software. 

In two articles published this week as part of our Machine Learning series, Todd identified a private equity firm, Vista Equity Partners, that has been buying up educational software companies that have collectively amassed a trove of data about children all the way from their first school days through college.

Vista Equity Partners, which declined to comment for Todd’s story, has acquired controlling ownership stakes in EAB, which provides college counseling and recruitment products to thousands of schools, and PowerSchool, which provides software for K-12 schools and says it holds data on more than 45 million children. 

Some of this data is used to create risk-assessment scores that claim to predict students’ future success. Todd filed public records requests for schools across the nation, and using those documents, he was able to discover that PowerSchool’s algorithm, in at least one district, considered a student who was eligible for free or reduced lunch to be at a higher risk of dropping out. 

Experts told us that using a proxy for wealth as a predictor for success is unfair because students can’t change that status and could be steered into less challenging opportunities as a result.

“I think that having [free and reduced lunch status] as a predictor in the model is indefensible in 2021,” said Ryan Baker, the director of the University of Pennsylvania’s Center for Learning Analytics. PowerSchool defended the use of the factor as a way to help educators provide additional services to students who are at risk.

Todd also found public records showing how student data is used by colleges to target potential applicants through PowerSchool’s Naviance software using controversial criteria such as the race of the applicant. For example, Todd uncovered a 2015 contract between Naviance and the University of Kansas revealing that the school paid for a year-long advertising campaign targeting only White students in three states.

The University of Kansas did not respond to requests for comment. PowerSchool’s chief privacy officer Darron Flagg said Naviance has since stopped colleges from using targeting “criteria that excludes under-represented groups.” He also said that PowerSchool complies with the student privacy law and “does not sell student or school data.”

But, as we have written at The Markup many times, not selling data does not mean not profiting from that data. To understand the perils of the booming educational data market, I spoke this week with Roxana Marachi, a professor of education at San José State University, who researches school violence prevention, high-stakes testing, privatization, and the technologization of teaching and learning. Marachi served as education chair of the CA/HI State NAACP from 2019 to 2021 and has been active in local, state, and national efforts to strengthen and protect public education. Her views do not necessarily reflect the policy or position of her employer.

Her written responses to my questions are below, edited for brevity.
 
Angwin: You have written that ed tech companies are engaged in a “structural hijacking of education.” What do you mean by this?

Marachi: There has been a slow and steady capture of our educational systems by ed tech firms over the past two decades. The companies have attempted to replace many different practices that we have in education. So, initially, it might have been with curriculum, say a reading or math program, but has grown over the years into wider attempts to extract social, emotional, behavioral, health, and assessment data from students. 
What I find troubling is that there hasn’t been more scrutiny of many of the ed tech companies and their data practices. What we have right now can be called “pinky promise” privacy policies that are not going to protect us. We’re getting into dangerous areas where many of the tech firms are being afforded increased access to the merging of different kinds of data and are actively engaged in the use of “predictive analytics” to try to gauge children’s futures.   

Angwin: Can you talk more about the harmful consequences this type of data exploitation could have?

Marachi: Yes, researchers at the Data Justice Lab at Cardiff University have documented numerous data harms with the emergence of big data systems and related analytics—some of these include targeting based on vulnerability (algorithmic profiling), misuse of personal information, discrimination, data breaches, political manipulation and social harms, and data and system errors.

As an example in education, several data platforms market their products as providing “early warning systems” to support students in need, yet these same systems can also set students up for hyper-surveillance and racial profiling

One of the catalysts of my inquiry into data harms happened a few years ago when I was using my university’s learning management system. When reviewing my roster, I hovered the cursor over the name of one of my doctoral students and saw that the platform had marked her with one out of three stars, in effect labeling her as in the “lowest third” of students in the course in engagement. This was both puzzling and disturbing as it was such a false depiction—she was consistently highly engaged and active both in class and in correspondence. But the platform’s metric of page views as engagement made her appear otherwise.

Many tech platforms don’t allow instructors or students to delete such labels or to untether at all from algorithms set to compare students with these rank-based metrics. We need to consider what consequences will result when digital labels follow students throughout their educational paths, what longitudinal data capture will mean for the next generation, and how best to systemically prevent emerging, invisible data harms.
One of the key principles of data privacy is the “right to be forgotten”—for data to be able to be deleted. Among the most troubling of emerging technologies I’ve seen in education are blockchain digital ID systems that do not allow for data on an individual’s digital ledger to ever be deleted.

Angwin: There is a law that is supposed to protect student privacy, the Family Educational Rights Protection Act (FERPA). Is it providing any protection?

Marachi: FERPA is intended to protect student data, but unfortunately it’s toothless. While schools that refuse to address FERPA violations may have federal funding withheld from the Department of Education, in practice, this has never happened

One of the ways that companies can bypass FERPA is to have educational institutions designate them as an educational employee or partner. That way they have full access to the data in the name of supporting student success.

The other problem is that with tech platforms as the current backbone of the education system, in order for students to participate in formal education, they are in effect required to relinquish many aspects of their privacy rights. The current situation appears designed to allow ed tech programs to be in “technical compliance” with FERPA by effectively bypassing its intended protections and allowing vast access to student data.

Angwin: What do you think should be done to mitigate existing risks?

Marachi: There needs to be greater awareness that these data vulnerabilities exist, and we should work collectively to prevent data harms. What might this look like? Algorithmic audits and stronger legislative protections. Beyond these strategies, we also need greater scrutiny of the programs that come knocking on education’s door. One of the challenges is that many of these companies have excellent marketing teams that pitch their products with promises to close achievement gaps, support students’ mental health, improve school climate, strengthen social and emotional learning, support workforce readiness, and more. They’ll use the language of equity, access, and student success, issues that as educational leaders, we care about. 

Many of these pitches in the end turn out to be what I call equity doublespeak, or the Theranos-ing of education, meaning there’s a lot of hype without the corresponding delivery on promises. The Hechinger Report has documented numerous examples of high-profile ed tech programs making dubious claims of the efficacy of their products in the K-12 system. We need to engage in ongoing and independent audits of efficacy, data privacy, and analytic practices of these programs to better serve students in our care.

Angwin: You’ve argued that, at the very least, companies implementing new technologies should follow IRB guidelines for working with human subjects. Could you expand on that?

Marachi: Yes, Institutional Review Boards (IRBs) review research to ensure ethical protections of human subjects. Academic researchers are required to provide participants with full informed consent about the risks and benefits of research they’d be involved in and to offer the opportunity to opt out at any time without negative consequences. Corporate researchers, it appears, are allowed free rein to conduct behavioral research without any formal disclosure to students or guardians of the potential risks or harms to their interventions, what data they may be collecting, or how they would be using students’ data. We know of numerous risks and harms documented with the use of online remote proctoring systems, virtual reality, facial recognition, and other emerging technologies, but rarely if ever do we see disclosure of these risks in the implementation of these systems.
If corporate researchers in ed tech firms were to be contractually required by partnering public institutions to adhere to basic ethical protections of the human participants involved in their research, it would be a step in the right direction toward data justice."...
 
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"A Primer on Smart Contracts" // LabCFTC

https://www.cftc.gov/sites/default/files/2018-11/LabCFTC_PrimerSmartContracts112718.pdf 

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The Assetization of Social Life // by Kean Birch // Bot Populi 

The Assetization of Social Life // by Kean Birch // Bot Populi  | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it
By Kean Birch
"Innovation and our technological futures are being driven by the wholesale assetization of everything we do freely today and many things we can’t even think of in the future. What might this mean in practice?
 
[Summary]
"With institutions like the World Economic Forum increasingly betting on the transformatory potential of cyber-physical systems in imagining and building better, brighter futures, it is imperative to ask the question: who do these technological promises benefit and are they even sustainably achievable? In this piece, Kean Birch analyzes the technological futures that institutions like the WEF envision. Taking the example of Internet of Things, among others, he warns of the potential social impacts of such technologies, including the ‘end of ownership’ as we know it. Innovation and our technological futures are being driven by the wholesale assetization of social life itself; of everything we do freely today and many things we can’t even think of in the future. Kean emphasizes that assetization happens when we allow organizations to turn our social lives into an asset that they can monetize, capitalize, and exploit. By understanding this process, we can identify where we can intervene in the process to disrupt or stop it, or ensure that it is done democratically and in support of some sort of social good, if it has to be done at all."...

 

For full/original post, please visit: 

https://botpopuli.net/the-assetization-of-social-life/ 

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Crypto poses systemic risks that need swift remedy // Reuters

Crypto poses systemic risks that need swift remedy // Reuters | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

By Gina Chon

"WASHINGTON, Sept 9 (Reuters Breakingviews) - Cryptocurrency businesses are getting big enough to have their problems spill over into the broader financial system. Yet U.S. regulators aren’t keeping up. U.S. Securities and Exchange Commission Chair Gary Gensler told the Financial Times on Wednesday that digital asset trading platforms are now a $2 trillion industry while some coins, like Tether, are backed by fiat currencies. Regulators need to get on the horn reining in assets.

 

So-called stablecoins, or cryptocurrencies that are backed by assets like the dollar or euro, may not be so secure in a crisis. Many issuers claim they have the funds on hand to pay digital currency holders if the market seized up and all users redeemed their stablecoins at the same time. But assets backing many of these currencies show that can be a shaky pledge. For example, Tether, the largest stablecoin with about $67.5 billion in circulation, makes up around 55% of the total market.

 

A good chunk of it is backed by less liquid instruments. As of the end of June, cash and bank deposits made up only 10% of Tether’s assets while Treasuries made up about 24%, according to its independent accountant’s report. Almost half was backed by commercial paper and certificates of deposit at about $31 billion. That equals about 20% of the total short-term corporate debt held by prime money market funds, according to data from the Investment Company Institute.

 

That’s a worry for the broader market. Investors took their cash out of prime money market funds in March 2020, causing a drop in commercial paper investments. Borrowing costs for short-term corporate debt reached their highest level since the 2008 financial crisis, according to a working group of U.S. financial agencies.

 

The sudden pricing mismatch forced the Federal Reserve to step in with a backstop facility to ease pressure. Fitch Ratings warned in July that a sudden mass redemption of Tether could affect “the stability of short-term credit markets.”

Establishing liquidity rules that require holding a certain amount of the safest assets like U.S. dollars, would help shore up the stability of stablecoins. It’s also an area where regulators, who are studying the asset, have more real-world experience, making it the ideal test case. If they don’t speed it up, they may find a broader crisis on their watch.

 

CONTEXT NEWS

- U.S. Securities and Exchange Commission Chair Gary Gensler said cryptocurrency trading platforms should be willing to be regulated by his agency to ensure their longevity, according to an interview published in the Financial Times on Sept. 1. He said the $2 trillion industry needs to operate within a public policy framework to have relevance in the future.

- Separately, cryptocurrency firm Circle said on Aug. 22 that reserves for its USD Coin would be in cash and Treasury bonds. The so-called stablecoin, which are meant to be pegged to a fiat currency like the U.S. dollar, had 60% of its reserves in cash, while debt securities and bonds backed the remaining portion. About $27 billion worth of USDC are in circulation, according to CoinMarketCap."


For original post, please visit: 
https://www.reuters.com/breakingviews/crypto-poses-systemic-risks-that-need-swift-remedy-2021-09-07/ 

 

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Token Chains: Building the Human Asset Class Through the IXO Protocol // siliconicarus.org

Token Chains: Building the Human Asset Class Through the IXO Protocol // siliconicarus.org | Social Impact Bonds, "Pay For Success," Results-Based Contracting, and Blockchain Digital Identity Systems | Scoop.it

"ZÜRICH, SWITZERLAND – Unfamiliar to many, the recently launched IXO protocol can be traced to a significant and interwoven history of global ‘aid’ organizations, colonial ideals, international finance and advanced technology, that provides important context to understanding what it actually is. What follows below is an explanation of the technical nature of a protocol  that embodies this history of social, financial and digital oppression,  otherwise covered in Silicon Icarus and the work of researchers such as Alison McDowell.

To fulfill hegemonic goals, the wielders of capital, or ‘risk investors’ reform services traditionally provided by government or philanthropy to support their agendas and maintain power. They pursue this by marrying technology platforms, as well as gamifying real life interactions, reducing actions of love to digitally chained ‘data verified outcomes’ which trigger impact bond payouts, globally investable and tradeable through automated digital platforms.

Before diving into IXO I just want to warn readers about the complexity of these burgeoning systems. Besides the likely unfamiliar technological components such as blockchain-based financial and data markets; digitized social impact finance requires significant real life coordination between multiple groups who are tied to blockchain and related technologies. By piecing together the details of scaled ‘social impact investing’ via digital technology, and  using those details to understand how it may play out, we gain clearer insight to the worrisome nature of these mental and technological frameworks. 

– Unfamiliar to many, the recently launched IXO protocol can be traced to a significant and interwoven history of global ‘aid’ organizations, colonial ideals, international finance and advanced technology, that provides important context to understanding what it actually is. What follows below is an explanation of the technical nature of a protocol  that embodies this history of social, financial and digital oppression,  otherwise covered in Silicon Icarus and the work of researchers such as Alison McDowell.

To fulfill hegemonic goals, the wielders of capital, or ‘risk investors’ reform services traditionally provided by government or philanthropy to support their agendas and maintain power. They pursue this by marrying technology platforms, as well as gamifying real life interactions, reducing actions of love to digitally chained ‘data verified outcomes’ which trigger impact bond payouts, globally investable and tradeable through automated digital platforms.

Before diving into IXO I just want to warn readers about the complexity of these burgeoning systems. Besides the likely unfamiliar technological components such as blockchain-based financial and data markets; digitized social impact finance requires significant real life coordination between multiple groups who are tied to blockchain and related technologies. By piecing together the details of scaled ‘social impact investing’ via digital technology, and  using those details to understand how it may play out, we gain clearer insight to the worrisome nature of these mental and technological frameworks." 

 

For full post, please visit:

https://siliconicarus.org/2021/11/04/token-chains-building-the-human-asset-class-through-the-ixo-protocol/ 

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"Education 3.0: The Internet of Education" [Slidedeck] 

The slides above were forwarded by a colleague on October 3rd, 2021 (posted by Greg Nadeau on LinkedIn). The pdf is the download of the slide deck from 10/3/21 (click on title or arrow above to download). The live link posted is at the following URL 

https://docs.google.com/presentation/d/1m-h8uezfVLWudTZGan8HyRjLR8MmMS_8wsydvlrKEds/mobilepresent?slide=id.g9fa25185cb_0_207

 

See also: 
http://bit.ly/Blockchain_Files 

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