An Application of Bitcoin Smart-Contracts to the Problems of Public Budget Shortfalls and Independent Filmmaking
An Application of Bitcoin Smart-Contracts to the Problems of Public Budget Shortfalls and Independent Filmmaking by Brett C Banfe
Matt Taibbi has long been one of my favorite journalists. I first became aware of him as a contributor to The Nation which is an independent journalism outlet covering a range of topics with political and social import since 1865.
The Nation was famously the initial publication that commissioned Hunter S. Thompson’s exposé on the Hell’s Angels which eventually became a book and would lead to his long and illustrious career in journalism.
Matt immediately became one of my favorite voices among the many decorated perspectives that The Nation wove together into a tapestry of independent journalism, if a cloth which leans towards perspectives that key on issues of social, economic and environmental justice.
As a massive fan of Matt’s work, I was thrilled to see him follow in Hunter S. Thompson’s footsteps and reach a much wider audience by becoming a feature contributor for Rolling Stone. Like Hunter, his work was so widely celebrated that his articles would often get exposure in large print directly on the cover of the publication.
Of his pantheon of brilliant stories on an impressive range of topics, one story in particular has always stuck out to me, and that was his exposé on the public budget shortfalls which led the city of Chicago, IL to orchestrate a sale of future revenues to the city’s parking meters to a newly-formed investor group managed by Morgan Stanley for a period of seventy-five years.
In particular, the timing of this story coincided with the economic collapse of the housing market which was detailed in the excellent movie, The Big Short: as Ryan Gosling’s character exclaims, “I’m standing outside of a burning building, and I’m offering to sell you fire insurance!” That will always be an all-time favorite line of mine symbolic of both the tragedy and opportunity of complex financial instruments.
As it is often the case, our relationship with the business tactics of Wall St. can be a disturbing but ultimately concilatory subject which ordinary Americans gloss over.
We understand intuitively that there is some instability there, but it often isn’t until the kitchen catches on fire and the sprinkler heads turn on that we find the courage necessary to walk behind the Employees Only doors to examine the safety practices of the restaurant’s back-of-house.
And that’s fairly reasonable to expect because in the end, we’re the end-user on which most of these financial instruments depend, and we’re not as connected to how the sausage that we’ve ordered is made, as long as we can leave the restaurant feeling fairly well.
What I will detail then is an application of the de-materialization process of real-assets into digital assets, similar to the de-materialization that paper equity certificates underwent into their electronic bookkeeping counterparts which occured in the 1980s.
Within the capabilities of the bitcoin protocol, this de-materialization process is known as “tokenization,” and it is made possible by the leveraging of smart-contract capabilities enabled by the bitcoin protocol and other blockchain technologies like Ethereum.
For all intents and purposes, tokenization is a digital assignment of the rights and value of a particular asset through the creation of and distribution of their digital token representations.
An example of this could be through a school lunch program. At the beginning of the year, families in need of assistance could be issued digital lunch tokens and these could be exchanged via the use of an EBT card similar to how food-assistance programs works.
These tokens could be representative of the family’s specific needs around lunch assistance, but the tokens can really represent anything. They can represent equity in a firm, representational ownership and obligation within a private contract suchas via a board of directorship, the tokenization of one’s personal assets or the ownership of intellectual property or creative rights, or they can represent agreements to terms such as when signing an acknowledgement of terms and conditions before using a popular app or social network.
An example of a scenario in relation to the assignment of creative rights could be in the dispersement of funds based on the revenue in the production of an independent film.
Because the film is being release independently, it requires an initial funding round to launch. This process is traditionally provided by movie houses, but in this scenario, this could be achieved via a release of tokens which represent rights to future earnings via the revenue which the film would potentially generate.
The value of these tokens would be dependent on the types of creative contributors the project could manage to successfully partner within its development process.
Without a connection to future stars, the tokens could have one value, but after managing to on-board an actor like Meryl Streep, they could have a much larger value. This is because of the assignment of value in relation to one’s understanding of proof-of-work.
If a film has found an actor of Ms. Streep’s reputation to consent to develop the project, then the proof-of-work which Ms. Streep represents based on her body of work suggests that the project could be considered as being in a much more serious phase of development than it was perhaps considered to be in during the initial round of seed-funding.
But for the sake of the ease of the argument, let’s assume that on the release of the tokens, the only aspect of the movie which was public was simply the script and its author, perhaps Charlie Kaufman. Perhaps Charlie raised funds via a release of 200,000 tokens which represent a stake in 20% of the film’s future revenues.
These tokens could be sold at $10 each through an initial seed round of investing available to fans of the author’s work or who’ve read the script and think that the script would make a great movie and are willing to fund the further development, suchas the hiring of a director and a film crew, paying actors, etc.
The tokens could be distributed into a smart wallet and managed much in the same way that native tokens of the bitcoin protocol are managed. That is to say, their digital assignment of rights are transferrable, traceable, auditable, associated with real-world identity and can be exchanged privately through the use of paymails such as those provided by Moneybutton.
So in our scenario, we can imagine that the raising of these funds is successful and the assignment of ownership rights which are consistent with 20% of all future revenues in perpetuity are assigned and distributed to the token holders who participated in the initial seed-round.
For the sake of the ease of this explanation, we can imagine that this money was raised via 20 different people all purchasing 10,000 tokens at a price of $10 per token so a total of $2,000,000 being raised.
With these funds, the author of the script, Mr. Kaufman, can now begin to pitch the movie to creative houses.
Perhaps an established director can be contracted for 10% of future revenues. Perhaps a production house can be engaged for 20% of future revenues. Perhaps the four lead actors can be persuaded for 10% each, and these assignments are all registered via the bitcoin protocol via the distribution of non-fungible tokens relating to the assignment of the ownership of the creative rights and thus the revenue rights to the film.
Since the film is being developed collaboratively between the creative talent and the fanbase’s initial seed-funding, it makes sense that the collaborative units which joined forces to ensure that the film’s development would be successful can participate in the rewards of that film.
Because the initial seed-funding round was valued at $2 Million for 20% of revenues, the initial fans who signed on to the film’s production would be profitable if the film eventually achieved $10 Million USD in revenue. After reaching $10M in revenue, future revenue would represent a profit for the fan’s having taken the risk to invest in the film’s production in the first place, when it was still possible that the film may not ever be made at all.
And these tokens of representational rights to the ownership of the film could also be traded peer-to-peer as a portion of a private contract.
For example, if an initial investor who purchased the representational token equivalent of 2% of the creative and revenue rights to the film would want to enter into a private contract with a secondary investor who was looking to have exposure to the film’s revenue stream because of a rumor of a marketing partnership with a major retail outlet such as Target or Wal-Mart which if executed would increase exposure of the film and lead to increased revenue, those persons could create a private agreement which involved the exchange of the ownership of those tokens.
Perhaps the initial investor is not interested in cash, but is looking for a suitable home in the Hampton’s.
These individuals can create a private contract whereby through a service similar to an escrow account, the ownership of each asset could be held in a trusted, third-party custody provider until all conditions needed to facilitate the exchange have been met and agreed by both parties to have been met, in which case, the ownership and title to those assets would exchange control.
Similar to the scenario such as the one described above, the same process can be used for the development of funds needed in relation to creatively balancing the needs for cash within the public goods and services sphere which often arise at times of severe public budget shortfalls, suchas in the case detailed by Taibbi in his article.
Instead of creating a monolithic contract, like the one Matt Taibbi outlines, potentially the public boards of directors and city council members could issue tokens against future revenues from public products and institutions such as gate receipts from events on public lands or revenues from parking meters.
Because these tokens would be issued onto an open market, the price for their acquisition could be competitively decided by the public investors willingness to enter into the contract.
It’s very possible that should the Alderman described in Matt’s article who eventually green-lighted the wholesale off-loading of all future revenues for the next seventy-five years to Chicago’s parking meters to the private investor group managed by Morgan Stanley had instead offered those same contracts onto an open market of ordinary investors, including those in the Chicago community, the city could have not only negotiated more money for their public program needs, but negotiated a shorter rate of return on when the soverignty of ownership to those revenue streams would return in full to the city itself.
That is to say, they could have found a better deal on the open market which would have enabled them to negotiate a shorter term-length while finding more funding in the process.
This option could have also allowed Chicagoans to organize community coalitions, suchas into organizations like Big Brother, Big Sister, or Chicagoans For Clean Air, or neighborhood communities which could pool their funds and use their organizational treasuries to purchase these instruments which could potentially also allow them to have a higher visibility when bringing important community-initiatives to board members and to City Council members while at the same time ensuring that the proceeds which the parking meter contracts would produce would also remain in the eco-system of the Chicago community-interest groups.
It’s important to have some clarity around what smart-contracts are. Much like bitcoin enables new revenue streams for enterprise businesses by the reduction in overhead costs typically associated with the movement of funds, such as the ability to transfer fractions of a penny which is a feature not currently possible through traditional means due to the overhead costs associated with the transfer of those funds by traditional means, smart-contracts offer similar capabilities to remove the clogged management of the dispersement of locked funds and allow for the distribution of those funds to be based on pre-approved criteria and then dispersed automatically upon the conditions for their ditribution having been met in full.
The common example I use for what a smart-contract is capable of is a friendly wager on an event like the Super Bowl winner. Imagine the mayors of each city participating in this year’s Super Bowl, Kansas City and Tampa Bay, place a friendly $10 wager on the outcome of the game.
Traditionally, this would be set aside to a trusted-third party and then that third-party would manage the dispersement of those funds based on the condition of which city was the winner.
But via a smart-contract, the funds do not need to be held by a Trusted Third-Party, but can be locked into a “smart-contract.”
When the conditions have been met for the dispersement of the funds, in this case, which city wins the Super Bowl, then the funds are simply distributed automatically. This reduction in friction enables a much broader scope in terms of who can and cannot participate in the overall economy.
This process of automation based on pre-approved conditions can be used to disperse revenues to the appropriate owners of the tokens, such as in the case of the independent film’s production partners, or in the case of the Chicago parking meters, but the smart-contract can be used in lots of other ways that can be tailored based on the needs of the participants.
Much in the way that traditional computer languages eventually became the life-blood of the industrial-age, enabling the reach of that age to expand ever more broadly, so too can the smart-contract development act as the creative life-blood for the current and future iterations of our technological and information-driven age.
I’m currently writing a book on the fourth dimension. To read a rough copy of these musings, you can visit my journal at https://medium.com/me/stats/post/420310cf458a
In a previous Medium article, I detailed some ways bitcoin smart-contracts could be used by major sports franchises to encourage user-engagement with their products and services. This article can be found here: https://screwluse.medium.com/could-conor-mcgregor-ko-the-nft-economy-d6aca817808f
For more information on the bitcoin protocol and its smart-contract capabilities, tune in to this year’s Coingeek Conference in April of 2021 which is being held in Zurich, Switzerland. This conference offers a tremendous wealth of knowledge pertaining to the enterprise applications of the bitcoin protocol. Register at https://coingeekconference.com/
For more information on Moneybutton, a wallet provider with some built-in capabilities to integrate with the smart-contract capability of bitcoin, visit http://www.fabriik.com/
Thanks very much for reading!
