Chasm Waxing: A Startup, Cyber-Thriller Page 6
“Oh, thanks for asking. But I’ve got my board meeting tonight. Maybe Friday?”
“I forget. Yeah, that sounds excellent. Good luck tonight, you’ll do great.”
Becca was Samantha’s favorite employee. She spotted Becca’s talent when they worked together at a government systems integrator. Becca was hardworking and bright. She reminded Samantha of a younger version of herself.
The CEO looked over the financial statements one last time.
Another term of the deal gave Defense Innovations the right to elect one board member. When the financing closed, General Shields was appointed to serve as that member. Boards were designed to provide strategic leadership and governance to their companies. CEOs usually worked at the behest of the board. This meant that the board could fire CEOs. Three to five members was the most typical configuration of the board for a startup of 100 employees or less.
The two person, Gamification Systems’ board was a bit non-standard. However, there had only been a Series A round of investment. The board would grow in subsequent funding rounds, as investors typically requested a board seat.
Samantha had pitched Gamification to numerous other VCs. There was a high level of interest, but investors had yet to offer a term sheet. Samantha was not comfortable relying entirely on the Accelerator for the Series B round.
Defense Innovations was not committed to providing any further funding to Gamification. Locating investment capital would be much easier if Gamification just had one referenceable client. Samantha hoped that a successful demo to Gecko Insurance would lead to this outcome. But that was a long shot. Samantha perceived that Gecko was just kicking the tires. She didn’t feel there was any urgency on their part. They weren’t in a hurry to close a deal. She needed money quickly.
Samantha ran her fingers through her hair and smoothed her skirt.
Chapter 10 – The Board Meeting
6:30 p.m. (EDT), Monday, July 27, 2020 - Columbia, MD
Suite 601, General Shields’ Office, Defense Innovations Accelerator
Samantha Powers and General Shields sat close to each other at a cozy side table. In the middle of the table was a new, Universal Secure Phone. A bottle of Macallan 1928 single malt scotch rested next to the phone.
Samantha raised her glass to toast the General and declared: “I officially commence this board meeting.” The two snickered.
“Oh, this is good,” said Samantha, elatedly.
The General cackled. “It should be. That’s a $50,000 bottle of scotch. I get all sorts of gifts in this job.” A devious smile swept across his face.
“Josh Adler emailed me today and said that you told us to meet?” asked Samantha, nonchalantly. “I forwarded the email on to Becca. I knew you wanted us to talk. I just didn’t realize it was so urgent.”
“After his demo, it jumped up in priority. I know you’re still a little apprehensive. Don’t be. You want Gamification to be about gamifying and monetizing standard enterprise functions—cybersecurity is just one of them, right? I remember from your earliest presentations the idea that you wanted to expand to other business opportunities; like, human resources, call centers, and physical security?”
“Yes, General.”
“CyberAI is better than you at recognizing sophisticated attacks. I think if you replace your current AI with CyberAI, you can quit devoting resources to developing software to identify cyber-threats. So if the conversation goes well with Becca, I’d like you to consider licensing his technology.”
Samantha took a sip of her scotch to mask her frown. “I see. We’re going to review the financials later, but you know that with nine people on the payroll, we’re burning through our cash quickly. Unless I lay people off, there won’t be any money for licensing.”
“I know. I’m going to help you land Gecko Insurance as your first source of revenue. I think that deal can provide close to $1.2M. From that money, you can take about $250,000 to pay CyberAI for licensing.”
Samantha’s frown transformed quickly. “Landing our first paying customer would be so exciting! We’re scheduled to conduct a demo and presentation to Gecko in two weeks. I just don’t think they’re ready to buy that fast.”
“I believe I can get them to move quickly, if everything goes well on your end. Especially, if you can recognize spear phishing. Tim and I go way back. And, I have some inside information. Recently, hackers viciously attacked Gecko. The cyber-thieves sent spear phishing emails, with bogus .pdf insurance attachments, to Gecko customer service agents.
“When the Gecko agents clicked on the .pdf files, malware was downloaded to their system and spread everywhere. Then, the thieves snuck into Gecko databases and stole personal financial information, including credit card data and lists of insured assets. This hasn’t been announced to the public yet. The FBI called us. It appears the hackers have some ties to the Caliphate. The whole situation gives me some leverage with Tim.”
Samantha could barely contain herself. Landing the first paying client for an enterprise software firm was like scaling Mount Everest. Samantha batted her eyes at the General. “You’re my hero,” she said, using her cheesiest voice.
The General smiled broadly. “Of course I am. Now, let’s make sure your hero isn’t called to testify before Congress.”
“Alright, the law firm is expecting our call on their secure line.” Loreal & Hammer was a boutique law firm located 10 minutes away, in Annapolis Junction, Maryland. The General recommended the firm to all members of the Accelerator because Jim Loreal was a former NSA attorney.
Jim answered the secure phone. A secure phone ensured that voice communications over the regular public telephone network were encrypted, and not subject to eavesdropping. Voice and email were not the only forms of communication that could be encrypted. All types of communications—voice, satellite, radio, web, text, chat, and the like—could be encrypted. When ‘https:’ was visible in a browser, it signified that encrypted IP messages were being sent from the browser to the web server, and vice versa. Encryption made online shopping and banking safe.
Numerous algorithms existed to perform encryption. Over the years, NSA cryptographers developed many of these algorithms. In fact, with their chief mission to steal foreign SIGINT, and protect US military SIGINT; the NSA’s staff consisted of the best collection of mathematicians and cryptographers in the world. The NSA was the lead DoD agency on encryption. It told the DoD what encryption algorithms were suitable for various levels of information exchange, including SECRET and TOP SECRET.
Due to leaks of classified information from Bradley Manning and Edward Snowden, SIGNIT gathered from all over the world was increasingly encrypted. To read this information, the NSA had to break the codes, bypass the encryption, or persuade enterprises to volunteer their encryption keys. Or, they could steal the encryption keys.
Samantha greeted Loreal and told him that General Shields was present. She pushed the Hands-Free button. Shields and Loreal exchanged pleasantries.
Loreal asked, “If it’s ok with you guys, I’d like to have our resident Bitcoin-Blockchain expert join our call? I’ve gone over our earlier conversations. He’s got some recommendations.”
The General and Samantha concurred. Loreal introduced Larry Watkins. Watkins possessed broad experience with Bitcoin and Blockchain startups. “As I understand it, you want to make sure that your Gamers can’t claim they’re Gamification employees?”
“Affirmative, Larry,” said the General. “We want to maintain a clear line of separation between the Gamers and Gamification Systems. We don’t want there to be any ties whatsoever. Gamers need to play games and earn rewards, without knowing anything about the gamified environment, or knowing that Gamification Systems’ software is handling the game.”
Samantha added, “Currently, we’re paying the Gamers in Bitcoin. Our concern is that Gamers could be considered employees by the IRS and state employment agencies. Of course, that would mean we’d need to withhold and match payroll taxes.”
“Right,” said Watkins. “First, I’ll give you some background on your employment issue; then, I want to review Bitcoin and the Blockchain. After that, I’ll detail what I think is your best option. Ok?”
“Yes, that sounds good,” replied Samantha.
“In our connected age, the boundaries between employer and employee gets fuzzier every day.” Watkins spoke with a distinctive New York accent. “This issue has really come to the forefront, with the dawn of the sharing economy—the Ubers, the Lyfts, the Airbnbs of the world.
“Every state has different laws regarding drivers that receive payment for ride-sharing—and it’s a big headache. Of course, that’s why Uber and Lyft are aggressively moving towards self-driving cars, as are others. I think Nucleus Corporation’s, A-Car, comes out late this year.
“You can make the argument that Gamers are independent contractors and are therefore responsible for their payroll taxes. And at first, that’s what the ride-hailing companies did. But many lawsuits were filed to challenge this argument. Given the high profile nature of the NSA’s investment in Gamification; I don’t recommend this route.”
“Good, we agree with you so far,” said the General, with a chuckle.
Watkins laughed. “Anytime I talk about Bitcoin and Blockchain; I do a level-set. I know you have experience with Bitcoin as a digital currency, but are you familiar with the underlying concept of the Blockchain?”
The General replied, “I think we are, but go ahead and give us your spiel.”
“Act like you’re talking to your grandma,” Samantha said. She smiled at the General like a school girl.
“Ok…so, the core idea that makes Bitcoin disruptive is that it doesn’t require its users to trust one another,” Watkins said, emphasizing the word, ‘trust.’
“Let’s say I run a dry cleaner. You come to pick up your clothes, and I charge you $75. You pull out your credit card, or the pay-app on your phone. This connects you to your payment processor, like Visa or Apple Pay. Now, what’s important about this transaction is that I, as the dry cleaner, don’t trust you to pay me.
“I trust your payment processor—the Visa, or MasterCard, or PayPal, or Apple Pay—whatever payment processor you use. Once they allow the transaction, I don’t worry if you’re going to pay your bill. And you don’t have to trust me with your financial details. You trust the payment processor and authorize the transaction.
“Bitcoin gives you the ability to ditch the payment processor. You can cut out—completely disintermediate—the middle man. This is possible because the Blockchain allows for decentralized trust.
“The Blockchain is a shared ledger—think of a spreadsheet—that everyone in the world can simultaneously view. The Blockchain contains all the records, of all the transactions, ever conducted with Bitcoin. It’s completely transparent.
“Everyone can see the record of the transactions—two Bitcoins went to this address, 1000 Bitcoins went to that address. It’s important to understand that the addresses are not personally identifiable. Once the transactions are agreed upon, and entered onto the Blockchain, they can’t be changed. Everyone owns the Blockchain; no one controls it.
“This is a big concept, so I want to make sure I highlight it. The right person can only add the right amounts. Once it’s recorded, the transaction can’t be modified. Cryptography and encryption make the transaction tamper-proof. This ensures that the Blockchain is trustworthy. No company has to guarantee that it’s trustworthy. I’m concentrating on the business aspects of Bitcoin and the Blockchain. I mean, the underlying technology is sophisticated—but I want you to get Blockchain from a business perspective.
“This is the critical point. When the dry cleaner accepts Bitcoin, they trust the Blockchain. They don’t have to trust a payment processor. More importantly—they don’t have to pay a transaction fee to a payment processor.
“As the dry cleaner, I trust that you own the Bitcoins that you are giving me, and that you haven’t spent them anywhere else. Then, your Bitcoins become mine. Now, only I can use them. Or anyone else that has access to my passcode—but that’s a separate issue. The Blockchain records all of this. And again, encryption and cryptography allow you to trust it.”
Watkins stopped to take a breath. “Are you following me?”
“Yes,” said Samantha, “enough at least. But we’re not so concerned with Bitcoin; we’re using it ourselves to pay the Gamers. We want to make sure that these Gamers can’t claim that Gamification Systems is their employer. We not only want to avoid tax issues, but we don’t want to be liable if the Gamers injure themselves, like if they trip and fall during a VR session. The Pokemon Go lawsuits raised a lot of eyebrows.”
“Right,” replied Watkins. “So hang on just a little longer. What I’ve just described is what’s been going on for the last 10 years—let’s call it Blockchain 1.0—Blockchain only related to Bitcoin.
“Most of the companies’ recently going public—BitSa, BitMents, the Bitcoin wallet providers—those type of businesses are focused on Blockchain 1.0. BitSa processes payments for less than 1%. Credit card companies typically charge a 3-5% per transaction fee. So that’s pretty disruptive. The big banks are also heavily employing the Blockchain to clear transactions.
“Arguably, you can call Bitcoin the first killer app that uses the Blockchain. I mean, Bitcoin has had its ups and downs over the years. It had a massive run up in value, and then it crashed. Now that the price of Bitcoin has stabilized, it’s on a nice growth curve.
“But, let’s talk about Blockchain 2.0. This is the Blockchain applied to other ideas than Bitcoin. And now, I’ll directly address your employment issue. Have you guys heard of BlockHR?”
“A little,” replied Samantha. “I read a blurb about them in Fortune. They’re something like a national employment agency?”
“Samantha, when do you find time to read?” teased the General.
Samantha replied coyly, “I find time to do a lot of things.”
Even over the phone, Watkins was uncomfortable. He returned to the Blockchain as quickly as possible. “So, BlockHR is a like an employment agency and payroll processing company. But, they’re completely based on Blockchain 2.0 technology. They use the Blockchain to record smart contracts. Unless both parties agree, the digital contracts are unalterable. The smart contracts function just like an executed legal agreement. In fact, I think you’ll see a lot fewer lawyers in the future.”
General Shields howled. “Insert lawyer joke here.”
Watkins laughed, but only because Shields was paying for his time. “BlockHR’s smart contracts are agreements among the company, their employees, and their clients. The software-based, smart contracts enforce those agreements—all with minimal human intervention. Legally, BlockHR is a Distributed Autonomous Company—almost like a robot company. They do have a small management team, IT staff, and a sales force.
“Samantha, as you know, BlockHR is one of the fastest growing startups in the world. Their initial growth was due to revenue from all the sharing companies. Now, many other companies are using them. I think they just closed another round of VC funding, for something crazy like over $1B.
“Back to Blockchain 2.0. Anything that necessitates a middleman can either be made more efficient, or eradicated by Blockchain 2.0. In my opinion, Blockchain will be on par with the Internet as a force of disruption. It’s going to change everything.
“For example, I just bought a new BMW. I didn’t talk to a single person. The dealership bound the car title to me on the Blockchain. They did that with a cryptographic hashing algorithm. When a hashing algorithm runs against a block of data, like the car title, it returns a result. This result is a series of characters called the hash. The hash is like a digital fingerprint that uniquely identifies the document.
“If the hash ever changes, you know that something on the title has changed, even if it was just a punctuation mark. So no one can steal the title of my car. No modifications to the title c
an proceed without my approval.” Watkins was so excited about Blockchain that he forgot who was on the other end of the phone. He was explaining cryptography to the boss of the best cryptographers in the world.
“Oh, I’m sorry General. I didn’t mean to talk down to you.” Certifying hashing algorithms for the DoD also fell under the purview of the NSA.
“Not a problem, Mr. Watkins,” said Shields. “I’m sure they use a hashing algorithm from the SHA-2 or SHA-3 family. By the way, did you know that hashing is the best way to store passwords? When you create your password, the hash should be stored, not the password. Later, when you log-on and enter your password, the hashes are compared. Storing actual passwords is a terrible security practice. Hackers can easily steal them. If you ever call a company because you can’t remember your password, and they give it to you, they didn’t hash the passwords. They’re storing your password in plaintext.”