Dr. Alex Norta: Current Situation with Government Regulation Must Be Intolerable

As the interest in blockchain tech is on the rise, it is important to identify what topics have been already studied and addressed in this area and what are currently the biggest challenges and limitations that need to be further addressed.

With the objective to understand current state of the industry, Tamar Menteshashvili of lawless.tech approached Dr. Alex Norta, a scientist who has one foot in the scientific community and the other in the business reality. Dr. Norta is an Assistant Professor at Tallinn University of Technology and a serial entrepreneur. His remarkable research provided the perfect complement to his work as a Chief Scientific Advisor to number of successful Blockchain projects.

lawless.tech: As an advisor to number of ICOs on a global scale, what are the aspects that you look into while choosing the projects to be advisor for?

Dr. Alex Norta: For me it is very important who the individuals are who lead an ICO startup. After I started a new company Norta Partners OÜ in Tallinn, we practice a due diligence check before we choose an ICO partner. Such a due diligence check explores if the business model is sound, we check the competency of the team, try to prototype a whitepaper and check how well the ICO team can involve itself, and so on. We also have a business-law professor as a member of Norta Partners OÜ to make sure that our collaboration with an ICO partner is fully based on very sound legal footings. As such Norta&Partners supports the full lifecycle of an ICO beyond a sound initial due-diligence check, producing strong whitepapers, running ICO out of Estonia with a very attractive legal framework and partial- or complete blockchain system development after the successful completion of an ICO. Since our third partner in Norta Partners OÜ is an international IT serial entrepreneur, we also provide for blockchain-tech system-development capacity. Since I am a scientist, my personal motivation for all of this is really to also attract research funding. For example, Qtum.org for whom I wrote their whitepaper, is now funding my three newest PhD students at TTU.ee and in addition I can access many interesting case studies that serve as input for ongoing research work.

lawless.tech: How would you see the further development of ICOs as an alternative method of fundraising?

Dr. Alex Norta: Unfortunately, right now there are many scams around and it is very easy to end up as a scam victim. Right now, I have a master student at TTU working on the topic of ICOs, how to make them legally compliant and have streamlined, transparent, accountable and optimized processes. While I think old-school regulation is not the way forward, I would rather try to have ICOs run on platforms that use specific governance smart contracts. For example, it is bad that participants have way too often no transparent means to check where their investment disappears to after an ICO. Thus, one example would be to have instead smart contracts in place that take in investments and allow ICO participants to fully track what happens. Another governance smart contract could for example offer voting mechanisms of ICO participants for every milestone of the roadmap. If an ICO startup fails to deliver for a specific milestone then the ICO participants can vote whether they want to keep their investment in a respective project, or prefer to withdraw their funds and invest somewhere else instead. Just some food for thought.

lawless.tech: What is the Estonian government’s position as to the legality of ICOs?

Dr. Alex Norta: The Estonian government is trying to understand how the ICO market works. There are certain individuals in Estonia who try to educate the government for turning the country into the best location for ICOs. Still, Estonia is already a super attractive location for free-market efforts. No country has more startups per capita than Estonia, there is a flat-tax regime in place yielding the most attractive tax situation of all OECD countries and the astonishing degree of e-governance automation by actually using a subset of blockchain features (X-Road), are all strong factors for running ICOs out of Estonia regardless how clueless the government is about this new industry.

lawless.tech: Do you think regulating ICOs is essential for the ecosystem to develop in the right direction?

Dr. Alex Norta: Being a bit of an anarcho-capitalist, I think the ICO market should regulate itself and government should stay away from the industry. Why does it take government to have ICOs develop into the right direction? In my opinion that does not make any sense as politicians have usually no clue about blockchain technology and do not understand how this new industry works. Consequently, government regulations can only do more harm than any good and they will merely slow down the pace of innovation.

lawless.tech: What is your academic involvement in blockchain technology and smart contracts?

Dr. Alex Norta: My main focus was on the development of a smart-contract language for cross-organizational collaboration automation and the design of the underlying architecture for setting up, enacting, rolling back and orderly terminating smart contracts. Thus, I also developed an entire lifecycle with Colored Petri-Net formalism (cpntools.org) to study such a system implementation mathematically that may run inside of the earlier mentioned architecture.

lawless.tech: How do you see the importance of academia in bringing innovation in tech-industries such as blockchain?

Dr. Alex Norta: This is an interesting question and I see there a problem. Classic academia and universities are typically financed by government money. As we know, blockchain technology is all about total decentralization, distribution and disintermediation, which governments and states utterly dislike. Thus, I perceive there is really a very slow and often actually reluctant pickup of blockchain technology by academics and universities who see their controlling establishment position under attack and threatened. Luckily, at TTU.ee I have a lot of freedom to work on blockchain-related topics. At the same time, I currently organize a symposium and workshops that is co-located with the prestigious CAISE’18 conference in Tallinn and it is really hard to gain attention and paper submissions. Probably, I will have to cancel the symposium and workshop, which is unfortunate. At the same time, when I look at my parallel more entrepreneurial involvement, blockchain-tech is totally exploding and the demand is endless. My conclusion is that blockchain innovators have decided to ignore the traditional government-funded academic track and operate fully in a free-market capitalistic modus. What is the point in submitting a workshop paper that is peer-reviewed and ends up in some Springer LNCS proceedings when one can immediately use a whitepaper to sack in some $30 million with an ICO and build the blockchain system one describes in a whitepaper? I see that government-funded academia is in a state of crisis and must justify its reason of existence all together.

lawless.tech: What are the topics that you and your students are working on? What is the current stage of the research?

Dr. Alex Norta: 3 PhD students of mine at TTU work on different smart-contract related topics. One works on the development of a legally relevant smart-contract language that can be verified ahead of enactment and that comprises a high degree of sociotechnical utility. My second PHD student investigates how mobile smart contracts can democratize incentivized proof-of stage transaction validations so that staking ologopolies do not emerge. My third PhD student focuses on so-called self-aware smart contracts where an additional multi-agent systems layer on top of the smart-contract code addresses the so-called oracle problem in cross-organizational collaboration. Additionally, I work with students at TTU and with researchers from Germany on the topic of identity authentication. My observation is that a lack of government-independent identity authentication is a bottleneck for blockchain-supported distributed sociotechnical apps. There are solutions around such a civic where I can simply sign myself up as Mickey Mouse and assume a prepaid mobile phone number to then engage in all sorts of Internet services. However, that is rather pointless when I am Dr. Norta and not Mickey Mouse. The Estonian ID-card solves such issues on the highest security level and the same technology is also used for the very famous e-Residency program that Estonia offers. The downside is that the government owns and controls my identity and also the means of authenticating my identity. Suppose I say something the government does not like and switches off my ID card. In a country like Estonia I am automatically knocked out and can’t shop any more, can’t have a bank account, can’t educate myself at a university, can’t get medical treatments processed, and so on. Thus, identity authentication is another one of the many research tracks I pursue.

lawless.tech: What do you think is essential in order to get more young people and scholars interested in new fields of research such as blockchain and smart contracts?

Dr. Alex Norta: Maybe it would be best to catch them in a philosophical way. The current situation of omnipresent governments telling everybody what to do and what not to do all day long while taxing the hell out of everybody and over-regulating everything, must be hard to tolerate for young people. Thus, with working on blockchain-tech and smart-contracts based innovations we can put an end to all that statist insanity we must suffer from as a society.

lawless.tech: Any specific research topics that you think are essential in order for the blockchain technology and smart contracts to be mass-adopted?

Dr. Alex Norta: We have right now the situation that smart contracts are neither contracts nor are they smart. Simply having some quasi Turing-complete scripting code available on a protocol layer operating on top of a blockchain is not enough. We must resolve the issue of legal relevance for smart contracts and explore what the properties are that need to be present in a smart contract so that it holds up in court cases. With respect to smartness, I think the right way forward is to investigate how a multi-agent system layer on top of the smart-contract code achieves smartness by managing the flow of collaboration-critical information from external sources. Thus, I would like to take the term “smart contract” literally and the status quo is really not satisfactory in that sense. A very important topic is also the issue of governance that must support the entire lifecycle of smart-contract setup, rollout, enactment, orderly rollback when collaboration policies are violated, and orderly termination that does not leave trash behind in this governance lifecycle. I have published papers in that direction and continue such research work with my new three PhD students at TTU.

lawless.tech: Any recent developments/research papers in academia that you think are important for blockchain industry and everyone should be aware of?

Dr. Alex Norta: A big issue is that smart contracts are not verified before enactment and therefore easy to hack. A smart-contract language such as Solidity lacks properly worked out semantics and can not be verified before enactment. An alternative smart-contract system named Cardano emerges out of sound research work and the functional smart-contract language can be verified with tool support before enactment. If Tezos can finally get over legal squabbles then the governance model should also be a very powerful means of soft-forking smart contracts along with occurring contextual changes. Tezos is also rooted in a lot of sound research work, and it is unfortunate that a smart-contract system that prides itself to use a well explored governance model actually suffers from bad governance and is stuck in never ending litigation squabbles in court. Another very important development is to cater for mobile smart contracts as in the case of Qtum that on top of all also uses already proof of stake. Thinking logically and given such impressive innovations such as Cardano, Tezos, Qtum, Ethereum is actually a rather problematic system. Very interesting is also research work related to directed acyclic graphs such as IOTA that are very good options for orchestrating cyber-physical systems that employ smart IoT devices.

lawless.tech: How do you see the role of different participants (such as successful blockchain projects, different governments that are pro-actively supporting blockchain technology, public figures, media and academic institutions itself) in the process of engaging more young people and scholars in the industry?

Dr. Alex Norta: It should be important to find charismatic individuals in the industry to promote blockchain technology. When I go to blockchain events, I see mostly young tech nerds and females are most too often only around helping out with catering, announcing speakers, doing secretary work, etc. That is strange given the interdisciplinary nature of blockchain technology affecting governance, finance, the legal profession, healthcare, and much more. Thus, it is very clear that we must do better and explain to young people how blockchain technology and smart contracts are ever more affecting ever more aspects of society with a liberating effect of total distribution, decentralization and disintermediation. That message must be spread more actively and we must also explain the very strongly interdisciplinary nature of blockchain technology.

Conclusion

Whilst there is a lot of hype and excitement around Blockchain technology, currently the industry desperately lacks academics that could play an important role in providing empirical research and balanced perspectives. The active engagement between academia, private and public sectors would provide a great value to the sustainable development of this rapidly growing ecosystem. The opportunities and possibilities Blockchain opens up are undoubtedly limitless, yet it needs academics, practitioners, policymakers and regulators to start driving on the same side of the road.

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