 Aloha and good afternoon, ladies and gentlemen. I'm Pauline Shakmakcha and your host for Outside In. Think Tech Hawaii, like other communication outlets with a focus on technology, have been placing an emphasis on blockchain recently. This sometimes gives the impression that blockchain technology is something entirely new. While the electronic version of a ledger, commonly referred to as blockchain, was made more widely known through the introduction of Bitcoin, the actual act of maintaining a record of transactions is nothing new and has been occurring throughout history over a variety of different cultures. So joining us via Skype to discuss this with me further is my guest, Professor Michael Minnelli, Executive Chairman of the Zien Group. Aloha and good evening to you, Michael. Where are you? Hello, how are you? I'm good evening to you, Pauline. It's really nice to be here. Okay, so thank you for doing the show, first of all, because I am aware it is midnight in London, so that's much appreciated. And I'm sorry to torture you with this lovely backdrop, but I'm not actually at the beach if it makes you feel any better while you're freezing in London. So okay, so we've got a two-parter with you. You're one of my rare two-part guests. So we're going to be talking about blockchain for today's show on Outside In as well as tomorrow's show on We Like the 1%. Today we're going to focus on the history of ledgers, and tomorrow we're going to focus on the work you do with the commercial think tank you run called Zien. So let's start off with Michael, first of all. Tell everybody a little bit about yourself, because you're quite a bit of a polymath, aren't you? Well, perhaps. I mean, just a little bit. My background was very much originally science. I did about 10 years of science and technology, aerospace, working on the guidance systems, for example, with something that later became Patriot, the old Pershing missiles. Then I moved into cartography and my specialty, probably my technical claim to fame were the first digital maps of the world in the early 80s, Mundo Cart and Geodat, which are, I guess, Google Earth 1983, although I'm still green with envy at Google Earth. And then I moved into finance in the mid-80s. 1984 over here in London was a big change. A big bang was coming, the revolution really in opening up the financial markets. And I was deeply involved in them and then moved into really accounting. And so for the last 30 years, really, it's just been finance and technology. That's kind of my background. Okay, brilliant. And you are also an alderman of the city of London. Is that correct? That's right. Now, in Hawaii, we don't have the City of London Corporation. We don't have aldermen. So could you explain to people here what that is? Is it a secret society in London? No, we in the Freemasons control the world. Website just gave it away. No, the city of London is the world's oldest continuous democracy. Actually, it dates back to about 890. To some degree, it's a slightly independent city state with a contract with the Crown. It's a little bit like the Vatican. It's a little bit like... The city itself is carved into effectively 25 wards, which date back over a thousand years. And in fact, I can name the predecessors in my ward of Broad Street. Well, I can name them if you put a sheet of paper in front of me with their names on it. Back to about 1272. So it's a very venerable thing. And the city of London Corporation is, on the one hand, it's effectively a city government. And on the other hand, it's really a gigantic charity. And we control a few billion pounds worth of resources in that. On the other hand, we're also responsible for everything within the old traditional city walls of the city of London. Something a lot of people have been to London may not have recognized that there was this independent bit they were walking through. We also are responsible for outreach. The Lord Mayor, who's one of the older men, travels around the world representing the professional, business, technical, and financial services of the United Kingdom, traveling men and cabinet rank. So it's a very interesting and ancient organization. And you are also, in addition to being one of the 25 older men, which is quite rare indeed, you're also the master of the worshipful company of world traders because for anybody who's been to London, there are the city livery companies and some of them have a bit more of a history than others. There are newer ones, for example, for the newer professions such as in IT. So this is a relatively newer city guild. Is it not? You want to tell us a little bit about the world traders? Well, yes. Again, the guilds themselves go back to the same time that the corporation was founded even a little bit earlier than that. They date back actually to the Saxon era. So roughly about 600, 700 AD. And these guilds, as you rightly point out, about a third of them were very traditional guilds of the old type, leather sellers, weavers, cooks, chefs, whatever. And then you moved into a sort of a trades of things like playing card makers, spectacle makers, the newer industries. And then finally, really since the 1930s, there's been another third, have been the newer professions, arbitrators, solicitors, lawyers, accountants, actuaries, company secretaries. World traders encompasses a group of people involved in both direct physical trades such as shipping, but in addition, things on the capital markets. One of our founders was deeply involved in the shipping industry and yet another was involved in the formation of the London International Financial Futures Exchange. And as world traders, funnily enough, despite being London-based, our motto is taken from Thomas Jefferson's inaugural address of 1802 or 3, which is honest commerce and friendship with all. And so we have a belief, a firm belief that if people trade openly and freely with each other, the world would be a better place. That's a wonderful thing to follow. And you're also an author, so you've written three books, is that correct? And your most recent one, you want to tell us a little bit about that one, The Price of Fish? Yes, I've written two books. I think for the general public, I've written actually quite a few other ones of a technical nature, French book on policy performance, bonds, and a leather book on information technology for the not-for-profit sector. But two books I've written. One was actually a humorous send-up of management theory, which won a Sunday Times Book Award and things like that. But my most recent one was a serious economics book. It won the 2012 Finance, Investment, and Economics book of the year in America, no less. And it was called The Price of Fish because I was exploring how, after 10 millennia, we still were unable to put a price on fish that led to sustainable fishing. I'd had a hand in the formation of the Marine Stewardship Council, which is a certification organization for sustainable fishery. And I wanted to explore that, and that was really behind that. In some ways, that leads into tonight's topic. It's the difficulties we've had over millennia with creating trusted and sustainable commercial structures. That I think leads us nicely into ledgers. Yes. So before we get into starting with the Sumerians, the history of ledgers and bookkeeping, which is kind of interesting, a little bit quirky because a lot of the other shows have to do with the actually electronic technology or the electronic version of it. We just want to put a little bit of history because I find it interesting. We want to be clear about terminology. So ledger, the term ledger, is simply a record of transactions. And in other words, a database. So Gibraltar was the first jurisdiction actually to have a legal framework, a proposal for a legal framework around blockchain technology. And in their legal documents, they refer to it as DLT for short, in other words, distributed ledger technology. But ZN, your group, refers to it as MDLs, or Mutually Distributed Ledgers. So do you want to explain why you use the different terminology and why there are two different terminologies for blockchain? Yeah, sure. Well, I think the first thing, let me just let me back up just a teensy bit, Pauline. I mean, firstly, many jurisdictions have been struggling with it. Gibraltar is certainly the latest, but the government of Estonia, for example, has had legislation in practice for about 10 years in this area. And everybody has been struggling with the terminology. And I think the difficulty is, on the one hand, we all know what a ledger is. A ledger is just a record of transactions. And I think if you look at society, you begin to see the ledgers everywhere. So people don't consider it this way. There's often a financial connotation that, you know, if I go into the Hawaii driver's license office, they've got a ledger of all the driver's licenses. So if I want to validate my driver's license, they look it up in a book, or they look it up in a database. One happy, but they look it up in some central register. And this has been the foundation of society in all sorts of ways. So we've got land registries. We have registries of degrees. You know, if you want to validate that I have my doctorate, then you would go to the London School of Economics and they would say, yes, we've got him listed here, or no, we don't. And so this is really what has held society together in so many ways as this concept of ledgers. However, the minute you move out into electronic ledgers, it gets a little bit vaguer. So a distributed ledger in a computer sense is merely a ledger that's got copies of itself around what you might consider to be the Internet or the cloud or whatever. So there's just multiple copies out there. Blockchain is one type of distributed ledger and we'll come on to some of the characteristics of it. The word blockchain actually originates around 2012. It's tightly associated with Bitcoin. The original Bitcoin paper of 2008 refers to a chain of blocks. And the word blockchain comes out a little bit later, but there are many, many similar versions to the blockchain, many of which preceded some of them up to 30 years older. So we'll come on to that too as we talk about it. So people say, I say, well, okay, this is distributed ledger. Our firm, for a while, has termed these mutual distributed ledgers because we think that one of the key characteristics about a widely distributed ledger is that ownership is diffuse. I think one could argue that it's a ledger held in common. And like anything in the commons, it's sort of owned by everybody. On the other hand, it's also unowned by anyone. So if you think about the commons and the traditional economic view of run or sheep or grazing, it tends to get abused sometimes because nobody owns it. On the other hand, because nobody owns it, it's difficult for people to take control of it and force other farmers to pay for the use of the grazing rights. So this is an area where I think we're going to see a lot of movement. This gets even more confusing when one thinks that these ledgers are active. So a traditional view of a ledger would be that I write it down in the book and that's the end of it. And I turn the page and I keep making some entries. These new types of computer-based ledgers are capable of executing programs in the future. So they can be actually quite active. And a term that seems to be emerging in which we're supporting is the concept of just saying these are smart ledgers and getting away from all the stuff to do with the blockchain. Just like smart contracts. It's a lot easier just to say smart contracts instead of going into some legal nonsense. So why don't we go back to... Because we want to stick away from the contract. Yeah, it's a separate but similar concept. So let's go back to simpler times and see how the Sumerians used to keep records. How did the Sumerians do it? Well, you know, I'm an accountant by background as well as other things are qualified as an accountant. Therefore, I think the Sumerians are the finest people on the planet. All the other great civilizations spent a lot of time writing down creationists and talking about the gods and, you know, who was sleeping with whom. The Sumerians were much better than that. They kept accounting records. If you go to the British Museum, I think it's something like 98% of the records we have left from the Sumerians are detailing what somebody owed somebody. So Hethos, Seppo, Portial of Wheat, you know, Seppo's Bar, Barrel of Beer. If you go to the British side of the British Museum, you can see these enormous records that they have on the Canaria form. There's one great one that you can read with a basket maker. You're beginning to realize that it can be quite a bore on accounting. When I go to the British Museum, my family tends to go in the other direction. I don't understand it. We were, in fact, even in Germany once, and I went and toured the Mesa Museum on measurement. For some strange reason, my family went outside and had ice cream. But the point is the Sumerians are brilliant. They did blow it for those who are listeners who really blew it up. They really blew it in what they created something called the Epic Gilgamesh. But with this one exception, they stuck to accounting. And I think it's important just to realize that mankind has always had this difficulty in trust. So when we try and trust people, we have transactions that need some type of time component. I'm going to give you a cow and you're going to give me 10 chickens. But you've only got eight chickens there. So who's holding this? And we would frequently go to a third party. And the third party would say, all right, I'm going to take the cow from Michael, the chickens from Pauline, and I'll handle this transaction. And you can trust me. And it's this third party who is typically maintaining the ledger. And this, as you move forward, is also technologically based. And the Sumerians are there inscribing clay. Later on, we get papyri. A little bit later, we get something really quite interesting, which are tally sticks. Okay, and Michael, just to interrupt you, we're going to get to the tally sticks in just a second. And we have to take this very quick break first and we'll get to those English tally sticks when we come right back. Thanks. This is Stink Tech Hawaii, raising public awareness. For every game day, a sign had designated driver. Sorry about that, Michael. Hello, welcome back, everybody. Yes, we're back. We're talking about English tally sticks now, Michael. Sorry to interrupt you, but please go ahead. We want to know about these tally sticks now. Yeah, well, tally sticks are, I think, intriguing because people are, again, struggling with, without computers, without long-distance communication, how do they maintain complex records of who owes what to whom? And the Romans created these. And what they would do is to take long pieces of wood, typically boxwood or hazel, what are those? Well, these are woods that are easy to split. And so what happened is they'd mark on the piece of wood, on a long piece of wood, they would mark what was owed to whom. And then they would split it down the middle, and hand one half to one and one half to the other. Now, what's interesting about that is this stick might say, for going back to the similar example, that I owe you a cow. And then you would take the stick, and then you owed somebody else a cow, and you'd hand them the cow, and the stick would wander around, and the person would come back to me and say, ah, you owe me a cow. And I would go, who the heck are you? And they'd say, well, I've got this half of the stick that matches yours. Oh, gosh, you do have the cow. And we would then break the stick. A very interesting distributed system. This system lasted in England, really on up until the late 1700s. And the tally sticks were used by the government, and in fact, in 1834, the houses of parliament burned down, because what was going on was they said, well, it's time to clear out these old tally sticks. And they started shoving them into the fire, and the fire got out of control. And now they're starting to destroy the houses of parliament in 1834, which I guess is a good thing. See, it's not boring, is it, Michael? It's not a boring subject at all. So accounting is more powerful than you think. That's right. And okay, so we've got the English tally sticks, which is fascinating. And let's jump forward a little bit, closer to the 1400s, where we have an Italian gentleman, Amatino Manucci, who comes up with this double entry bookkeeping system that you can discuss a little bit now. Yeah, well, Amatino Manucci, we have records of his for about 1299. In fact, he probably didn't invent it. Around 1100 to 1200, the Italians in Northern Italy find themselves with an interesting problem. They're trying to build trading networks up to the north, into the low countries, Bruges and Antwerp. So they're into Flanders. And these are horrible areas. The people don't use olive oil. They use butter. They don't drink decent wine. They use beer. They drink a lot of milk. They're really quite smelly and ugly. And thankfully, you know, speaking as an Italian, they're not family, you know. So they have to control these people. They don't know what to do. And they're in business with them, which is even more disgusting, because this is like a family arrangement. And they create, effectively, double entry bookkeeping, which is a way of ensuring that when you make an entry into one entry, you have to make an entry into another, and these all have to tally up. So that word again. And this double-edger entry system emerges now. The early circuits we found around Matino Monucci, but it's very clear that this was a system in widespread use. A little later on, and many of the accounts will be saying, oh, but I learned that Fra Pacioli created this. Luca Pacioli has actually laid much later. He's in the 1400s, and he writes a book, I think from memory it was called, Sumo Geometrica. And in this book, he lays out how you do it. But he's only describing a system that's already been in existence for about 300 years. So this is another thing where, again, we're seeing this enormous structure, really just trying to keep people honest. So tally sticks, cuneiform tablets, all of this. And then we move through paper, obviously, which is a tally stick that's been processed and made flat into bulk paper. And then suddenly, in the very late 60s, we begin to see the rise of computer systems to hold the same ledgers. So letters are just a history of technology in a way. So do we start to see the electronic ledgers from really the 1970s after they've been developed? Yes. To be fair, there were actually some earlier attempts over here in the United Kingdom. One of the great pioneers in this area was actually Lyon's tea. And they created a system called Lyon. I think from memory, that was very, very early 60s. So this tea maker had realized that accounting was going to be computerized. In America, up in Chicago, I must say that the old firm of Arthur Anderson, there was one great thing about these sort of Midwestern accountants is that they actually sat down in the late 1950s and taught themselves a similar programming because they knew that this was going to be a big, big thing. And when they had their training center in St. Charles, just outside Chicago, they used to keep all of the old computers that the partners had used from the late 50s. So some people were very early into this. But it's really about 1969, a man named Codd invents relational databases while working at IBM. And he shares this and we see this proliferation of easy-to-use databases really from 1970 on to roughly about 1990 when that sort of stabilizes. So you have this 20-year period of really the flowering. I'm sure many of your listeners are going to have the flowering and accounting. Wow, that's great. But the flowering of all of these databases and people putting ledgers onto them. And it's not for another 20 years until the city of London starts to study ledger technology, this electronic ledgers, right? They start studying blockchain in 2010 approximately. Yeah, well, the thing that then happens is with all of these ledgers there, with another technology coming together in the 70s was cryptography. In fact, it invented largely in America two academics, Diffie and Hellman, published a paper in 1976. And this is picked up very rapidly, this idea of public key cryptography, which allows two people to talk to each other secretly and yet not have to share their keys, which is a phenomenal advance. This all then proliferates, and we begin to see in around 1985 to 1990 a lot of prototype systems, which you would argue were Bitcoin, but they just for some reason never really took off over here in the United Kingdom in the very early 90s. One of the larger banks, Nat West, actually put together a system called MONDEX, and they tried to roll that out across the city here, it's called Swindon, really just to see if they could make this work. It did work technically, just about as good as Bitcoin. The one problem was that Nat West wanted to have, I think it was two or two and a half percent on every transaction, and the good people of Swindon said, just to buy everything with that kind of an overhead. But the technology has been around for a while. Of course, Bitcoin then begins to take off. Bitcoin, the paper was written in 2008, and the actual Genesis date for Bitcoin is the third of January 2009. But there have been some other coins out there. There's a system called Ripple. It doesn't work the same way that Bitcoin does. It actually dates back to the early 2000s, really launches around 2004. Ripple is more of a platform, is it not? It's not actually a coin. We could have some arguments about what is and isn't a coin. I would argue it's pretty close in that there's an identifiable number that's unique. But you're right that it is based on a fundamentally different system. It's sort of a ripple of trust. So I won't accept a transaction from you unless you've got a lot of other people protecting you if I don't know you. Michael, we have just a few minutes left. Can we just jump a little bit to Hyperledger? Hyperledger is invented in December of 2015. This is a special type of blockchain that's for the corporate world, is it not? Hyperledger is an open source project. It's got a couple of primary sponsors, one of which many of you will know is IBM. But it's meant to be an open source project. It's fundamentally the same technology in terms of the distributed ledger. It's a lot more flexible about whether a coin or what type of coin is placed on top of it. And one of the things you'll find as we talk about this is that the distinction and many people make myself included is we split the ledger, which is a kind of a boring multi-organizational database from how you add new transactions to the ledger. In the case of Bitcoin, the mining process is, in the case of Ripple, as we discussed, people agree that somebody is trustworthy enough to put on it. In the case of Hyperledger, it's quite flexible about what it puts on top of itself. So there are different ways of adding new records, but the ledgers are kind of the dull, boring bit that makes it all possible. Michael, basically nothing is new in terms of record keeping with the exception possibly of the mining process, which is kind of unique to Bitcoin. So on tomorrow's show, on We Like the 1%, the timing will be a little bit more sensible for you over there in England. So we're going to get into a little bit about your commercial think tank called ZN. But just as a taster, could you explain how you came up with the name for that? Why did you pick ZN? We picked ZN out of frustration. We'd been unable to name anything. And finally, at one point, I put my foot down and said, we're going to call it something. And one of my teams said, well, you know, you like Buddhist philosophy, so it's ZN. And we had started a book called Clean Business Cuisine about ZN things you wanted to know about business. And then we added Yen, which was a desire to improve. But one might argue it's ZN and Yen, a desire to make money. Okay, that sounds intriguing. So we're going to learn more about ZN tomorrow. And thank you so much for joining me tonight from where you are. We'll see you tomorrow. We'd like to 1% to continue with Professor Michael Minnelli. Thank you. Aloha. Aloha.