Bacon's Rebellion

Democracy Thrives in Sunlight

Block.one Chooses Arlington for U.S. Headquarters

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by

James A. Bacon
in ,

Blockchain CTO Dan Larimer

This may be the most fascinating Virginia business story of the year. Block.one, a leader in blockchain technology that originated in Blacksburg but is headquartered in Hong Kong, has announced that it will establish its U.S. headquarters in Arlington County. Virginia is providing a $600,000 grant from the Commonwealth Opportunity Fund to snag the $10 million investment.

Block.one employs more than 80 people in Blacksburg, and the town will “remain a significant innovation hub,” reports the Roanoke Times. The company is hiring people for 44 jobs in Blacksburg, and 21 in Arlington. Blockchain is known mainly as the technology that underpins digital currencies, although it has fast-growing applications in payments processing, logistics, and other fields.

The governor’s press release said that Block.one publishes the EOSIO blockchain software, “the fastest public blockchain protocol in the market. The free, open-source protocol is designed to be adapted and used by the developer community and companies to create a more secure and transparent digital infrastructure.”

Blockchain spending will grow at a five-year compound annual growth rate of 76%, forecast IDC in a 2019 report. Total spending globally is expected to reach $12.4 billion by 2022, led by the financial sector followed by the manufacturing and resources sector.

Block.one has invested $150 million to develop its “Voice” social media platform built upon that blockchain technology. “We think social networking is due for a major rework. From the bot mobs, to the data tracking, to the shady algorithms behind our feeds, social media has not been a good friend to us,” says the website.

“Voice will cultivate creation, sharing, discovery and promotion of content on social media platforms by real users, not bots and fake accounts. Through a truly self-sustaining economy of ideas, users will directly benefit from their ideas and engagement on the platform,” a press release elaborates.

About those subsidies… Let us posit that Block.one is a technology company with huge growth potential. What’s the justification for the state shelling out $600,000 to steer the location of its U.S. headquarters to Arlington? The reasoning remains opaque.

Some background: Most of the executive team is located in Hong Kong. How that came to be is a story in itself. (Virginia Business magazine, are you paying attention? This story is custom-made for you.) I surmise that the big venture money for Block.one also came from Honk Kong, but that is only a guess. Co-founder and Chief Technology Officer Dan Larimer remains in Blacksburg, along with Eddie Schwartz, chief information security officer.

Why locate a U.S. headquarters in the Washington area? One clue comes from Secretary of Commerce and Trade Brian Ball. “To sustain its incredible growth, Block.one’s new home base in Arlington County offers access to top-tier IT talent and proximity to policy and decision makers in Washington, D.C.,” he is quoted as saying in the governor’s press release.

Block.one confirms that reasoning in its press release: “According to Cyberstates 2019 report, Virginia is ranked second in the nation with the highest concentration of tech workers, accounting for 10.7% of the Commonwealth’s overall employment base, while generating $62.7 billion in direct contribution into Virginia’s economy.”

But it’s not all about the workforce. Block.one Chief Operating Officer Andrew Bliss adds this: “Arlington’s proximity to Washington, D.C. also allows us to continue building constructive business and government relationships as we provide insights for the application of blockchain based technologies.”

(Might one of the “constructive business relationships” might be with Amazon, which is building its massive HQ2 project in Arlington? Neither the governor’s press release nor Block.one’s mentions such a tie-in.)

Back to the original question: If the Washington region is such an advantageous location, why the need for a $600,000 subsidy (which does not include a “Major Business Facility Job Tax Credit for new, full-time jobs created” for which the company is eligible)?

The governor’s press release says only, “Virginia successfully competed with Washington, D.C. for the project.”

Clearly, this economic-development project is good news. But I’d like to see more of an explanation of why the $600,000 grant was necessary.

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11 responses to “Block.one Chooses Arlington for U.S. Headquarters”

  1. LarrytheG Avatar
    LarrytheG

    The trouble with technology these days is the issue of open-source with respect to security flaws and who fixes them and how soon and how are patches distributed? If a system is proprietary, the code is not available to the public and so the flaws in it are not as easily found and exploited.

    If the govt has super sensitive data – they have trouble managing it with open-source software – though they do it and they then suffer hacker breaches just like banks, corporations and municipal govt suffer.

    Block- chain has promise to protect the data itself no matter what software accesses the data and no matter what flaws exist in that software – the data is encrypted and only those with the key can unlock and see it.

    So those who know about blockchain technology have to convince the govt that it “works” and that’s the whole deal of having the company in NoVa AND worth every penny of the grant to convince them NOT to locate somewhere else.

    this goes back to how places like NoVa would operate if they were run by Conservatives and Libertarians instead of progressives!

    Conservatives and Libertarians would, without a doubt, fiddle and _art around until the company got frustrated and went elsewhere!

    TRUTH!

  2. djrippert Avatar
    djrippert

    Presumably D.C. was willing to invest even if Virginia was not. Contrary to the perception of some in Virginia’s plantation class most millennial – type developers could care less which side of the Potomac River they work on. It’s all the DC Metropolitan Area to them, and to me, and to everybody else who lives around here. In fact, they would have probably been happier working in Chinatown.

    So, we gave them $600,000. Unlike rural broadband, let me ask the magical question – will it pay back?

    I use a very simple state income tax test – how long will it take the company to generate more in state income taxes (of its employees) than it got as investment?

    Starting at 21 people in 2020 and assuming $125,000 per year and a 30% annual personnel growth rate in Arlington it will take about 3 1/2 years to pay back.

    Yes, that’s a very simplified way of looking at things, ignoring the time value of money for example. But, with interest rates what they are … what is the right discount rate?

    The bigger question, of course, is whether Block.one will succeed. This particular company has all the ingredients for a good financial mystery novel. First, the technology. While many in the technology space hold high hopes for blockchain many other consider it a technological answer looking for a question (outside of cryptocurrencies). Then there was Block.one’s Initial Coin Offering – raising a reported $4B! A number of top technology executives left the company and the company’s crypto portfolio has been rumored to be cut in half during the bitcoin bear market. Meanwhile, the company has undertaken some significant private share repurchases raising questions among some observers.

    Having Peter Thiel invested in a Northern Virginia technology company is a good thing. The key to turning Arlington into Silicon Valley East rather than Amazon, Junior revolves more around investments than technology. This could help.

    Hopefully, Mr Moret knows what the hell he’s doing here.

    And again – the sheer incompetence of downgrading Virginia’s Secretary of Technology by Ralph Northam is on display. When we elect the fops and dandies of Virginia’s plantation society to high office we get blackface scandals and incompetent policy decisions.

    https://www.richmond.com/opinion/their-opinion/guest-columnists/jim-gilmore-northam-takes-a-step-backward-on-technology/article_868ef7ea-c1d6-5f2d-aea2-075e12d78fea.html

    1. James A. Bacon Avatar
      James A. Bacon

      I suspect you’re right that the Block.one grant will pencil out positively from a tax-generation perspective. Indeed, I would be surprised if it didn’t. I just would like more transparency. I’d like to know the logic and the numbers behind the governor’s decision.

  3. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Please note the tie in here between Blacksburg and Arlington County. This is the big story here.

    As has been stated here on Bacon’s Rebellion many times, this linkage will power a great new major wave in Virginia’s future. This connectivity will link Northern Virginia from one end of the Shenandoah Valley to the other. It will also power Virginia’s altogether new era that links Virginia across and through a new triangle of power and growth – one that stretches from Hampton Roads on Chesapeake Bay to Blacksburg, and from there at Blacksburg north to Winchester in the Shenandoah Valley and then across the Piedmont to Northern Virginia. The synergy will grow Virginia exponentially.

  4. TooManyTaxes Avatar
    TooManyTaxes

    Arlington is a great place in which to locate a business. It’s got a great mass transit infrastructure, made even better when the R-B corridor got more trains and Fairfax County fewer. But what the hell, the Fairfax County supervisors made the Tysons landowners richer. Their taxes are lower than Fairfax County’s. And it’s got a number of other tech businesses to the extent synergy is valuable.

  5. LarrytheG Avatar
    LarrytheG

    blockchain is not going to work for currencies because the volume of transactions will overwhelm the networks trying to handle them. In technical terms there is a scalability issue.

    Consider that a blockchain is supposed to be one ledger (one database) and every time a transaction occurs the ledger is updated AND it needs to be transmitted to all the sites that need it for their transactions to add to it.

    see: Bitcoin scalability problem https://en.wikipedia.org/wiki/Bitcoin_scalability_problem

    But much smaller scale ledgers (even very large ones) can work fine … )

    the problem with these companies in the 21st century is you cannot predict their position in the larger technology chain. They may be a critical link or they may just go away. So you cannot sit down and do a return on investment calculation – well you can – and you can get wound around the axle which is the problem with those that want to “analyze” whether it’s “worth” the grant or not.

    An R&D lab may have a 100 scientists but only 1 or 2 will produce a major patent but the question is which one or two?

    So, no, you would not incentivize a big box store or a janitorial service or even some tech companies but some companies that are involved in 21st century technologies – only the folks who actually are working in those fields really have a good feel for their worth and even then it’s still a bit of a crap shoot.

    If you had a govt in-house or even a consultant try to judge the company – you’d be playing with the big boys on Wall Street !

    That’s why I say conservative types are not well suited for this task and basically why most cities are governed by progressives… who don’t even try to figure out the things that Conservatives would dwell forever on.

    1. djrippert Avatar
      djrippert

      I’m not sure you are right about the scalability problem. The issue is a classic distributed systems problem. The same issue exists with regard to distributed databases like Cassandra. The distributed nodes can be spawned until hell freezes over. But what coordinates the nodes? A network. Typically running the Gossip protocol. Somewhere around 1,000 nodes people begin to question whether Gossip can keep up. So, you partition the network. Rather than a single flat network serving all the nodes you have multiple networks serving a sub-set of the nodes. Of course, you then need a higher level network to coordinate the sub-set networks. As you layer the networks latency is introduced. This brings on the symptoms of the CAP Theorem. The CAP Theorem says that any distributed database can have two of the following: consistency, availability or partition tolerance. In other words, the data is distributed across the nodes. An update changes the value of data on one node before the network can transport that update to the other nodes holding that data. A read that accesses the first node (that was updated) will return a different value than a read to a node that has not yet been updated. This is the consistency issue from the CAP Theorem.

      How much latency can a blockchain network sustain without causing harm to the business process it supports? Nobody really knows because nobody knows how the multi-level networks will be partitioned. Nor do they know what increases in network speeds will be brought to market by the network gear and software makers.

      Sorry for all the detail but this is the kind of thinking that people like Mr. Moret need to consider before betting taxpayer money. But, of course, Gov Northam sees no reason to keep the Virginia Secretary of Technology as a cabinet position. Another half-wit from Hooterville.

      1. Dick Hall-Sizemore Avatar
        Dick Hall-Sizemore

        Don, the Secretary of Technology position was an unneeded position. Most Cabinet Secretaries oversee numerous agencies. The Secretary of Technology oversaw one: VITA. In that arrangement, the VITA director was the primary point person on technology issues; the Secretary was superfluous. In one administration, it was common knowledge that the Secretary of Technology spent most of their time going to conferences. Under the reorganization initiated by Northam, VITA is now under the Secretary of Administration. Because that Secretariat has several complex agencies, there is a Chief Data Officer, who reports to the Secretary of Administration that serves the same function as the former Secretary of Technology. The result is considerable savings: the elimination of a Cabinet position, a deputy secretary, and other support positions.

        Now if we could only get rid of the Secretary of Agriculture and Forestry who oversees only two agencies. That position was created as a result of a political promise by a gubernatorial candidate.

        1. djrippert Avatar
          djrippert

          That’s pretty narrow thinking. At the federal level the EPA is not a cabinet level agency but the EPA Director has cabinet level status because of the importance of the mission. The president’s Chief of Staff also has cabinet status. Ditto the US Trade Representative. There are more.

          In 1819 or maybe even 1919 it might have made sense to restrict the governor’s cabinet to only executives who ran major agencies. But it’s 2019 now. Nothing will affect Virginia more over the next 20 years than technology. Not federal spending, not national politics, not the economy. All of those are transient. Technological change is structural and accelerating at an accelerating rate.

          And let’s be honest – as long as we keep electing plantation society members like Ralph Northam to high office we need to be sure that there are some people with their heads bolted on surrounding him. Remember that Northam was 25 years old when he put a picture of himself in blackface with a date wearing klan robes in his medical school yearbook. This wasn’t the mistake of a fifteen year old adolescent. Bozos like Northam need all the monitoring, handholding and advice they can get.

          Virginia is slathering taxpayer money on technology companies. We are building major annexes of a major university next to the technology companies. Who is thinking this through from a strategic and operational viewpoint? Northam? Dick Saslaw? Tommy Norment?Don’t be silly.

          1. Dick Hall-Sizemore Avatar
            Dick Hall-Sizemore

            The Virginia cabinet system is not really comparable to the federal system. The Virginia Secretaries are not responsible for running agencies. Their function is to coordinate activities among agencies in their portfolios and ensure that the Governor’s priorities and policies are met. Also, any major policy issues should be vetted through an agency’s Secretary. For example, the responsibility for the day-to-day operations of the Department of Corrections, as well as initiation of new policies, lies with the the Director of Corrections, not the Secretary of Public Safety and Homeland Security.

            VITA is still the point for IT policy and is prominent enough that there is direct access between it and the Governor. And Northam is not as backward on IT issues as you seem to think. During the prior administration, VITA was a major roadblock to agencies using cloud technology. The Dept. of Corrections spent more than a year trying to get VITA to approve the use of the cloud for the implementation of electronic health records. Finally, the contracted vendor, a major national EHR provider, gave up and backed out of the deal because of the delays caused by VITA. Ironically, after a few months in office, Northam issued an executive order directing agencies to use cloud technology when feasible.

  6. V N Avatar
    V N

    Agreed.

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