Pull Your Own Strings

Slockit Enables Scamming

Wednesday July 27, 2016

A scam is a scam by any other name, and unfortunately the Ethereum Central Bank fully endorses and runs on scams to keep ether huffers addicted. The company behind The DAO fiasco, Slockit, is one of core hype units for the Ethereum bubble. Their promise of their so-called “Slock” has investors drooling for no reason other than use of the word “blockchain” in the description. The DAO fiasco proves Slockit is ignorant of scammers to the point of enablement.

Usually when one doesn’t acknowledge the existence of scammers in relation to a business model, the business itself usually unfolds into a scam. The government’s solution to scammers is retroactive coercive force – putting one in prison for fraud after the fact. Bitcoin facilitates a mindset where one honors contracts because it’s the right thing to do, while acknowledging the existence of, and identifying scammers without the use of coercive force. As with children and their parents, trust must be earned. When one knows what a Web of Trust is and how it works, scammers are caught in a self-imposed filter, while building relationships with trustworthy peers over extended periods of time – business as usual.

The vocal and revolting consumers who believe in generalized mass adoption, have been sheltered from scammers all their lives. As such, when these consumers operate in a hostile scam-friendly climate, instead of acknowledging the problem of scammers and implementing a solution, they usually fall victim to the conmen. The unfortunate fact is companies like Slockit don’t truly care about the consumer, or making the world a better place. Since the consumer doesn’t want to think about the unpleasantries of scammers, Slockit reassures them they’ll never have to think at all.

Slockit has built its alleged value proposition around the Ethereum Computer, a device that serves to connect embedded devices to the so-called “internet of things”. They claim by automating and decentralizing the “sharing economy”, they will bring value to Ethereum’s blockchain:

The sharing economy has created 17 different billion-dollar companies with 60,000 employees. The sector has received close to $15 billion in funding so far and its global yearly revenue is projected to reach $335 billion by 2025 (source: PWC).

We believe that very soon, Airbnbs will be fully automated, and small business owners will prefer to rent private work spaces on demand rather than commit to complex leases. Owners in a sharing economy become both consumers and producers, leveraging the Ethereum Computer to earn an income without losing revenue to a third party.

What they fail to employ here is a web of trust, of any kind. AirBnB has been able to avoid major scandals by leveraging KYC information for all venue providers and renters, a traditional method of legally holding renters accountable for any damages. The notorious Stephan Tual of Slockit mentions privacy several times in his blog, but Slockit’s solution to vandalism results in loss of privacy.

We’re working with our partner SafeShare, to provide ad-hoc insurance where a deposit wouldn’t be appropriate.

Basically Slockit will always require bailouts on behalf of its users in case something goes wrong. Given their response to the DAO fiasco was a hard fork that resulted in two currencies just as was predicted over a year ago, it’s highly probably any product of Slockit will have disastrous consequences.

As the son of an insurance veteran, I’m always skeptical of new insurance products without much actuarial data. This is exactly what SafeShare is marketing to users. Most traditional insurance doesn’t cover incidents resulting from the sharing economy, such as renting out your car illegally, or illegally renting out your house for a wild party. Those operating a bed and breakfast, would likely procure a fitting umbrella insurance policy, or specific insurance products available for the age-old bed and breakfast industry.

In order for insurance to be profitable, paid premiums (and invested premiums) need to exceed total number of claims. If reserves filled by premiums are exhausted, the insurer goes bankrupt, leaving some policy holders awaiting claim settlements naked in the wind. This scenario is more probable when the insurer has a weak actuarial department. The lack of actuarial science presented by SafeShare is unsettling for a diligent policy holder due to the high risk nature of the sharing economy.

For the astute readers wondering about insurance fraud, this is the very reason the sharing economy is difficult to insure. When a major insurance claim is made on a policy, usually an in-house, private investigator is dispatched by the insurance company to verify the evidence for the claim. This acts as a fraud prevention mechanism, and is generally limited to major insurance companies due to cost. In these situations, if an insurance company has grounds to void a claim due to fraud, the money saved on the claim vs that spent on an investigation is a no-brainer.

Slockit wants to venture into the anarchistic world Bitcoin has founded, without the fundamentals necessary to survive. Their business model depends on the traditional banking system of bailouts in case of undesirable results. This reactive approach to scammers usually results in unbearable and stifling regulation that forfeits freedom for nominal comfort. Slockit doesn’t care about the problem of scammers; they essentially endorse them by not even acknowledging the problem.

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