interviews
Water and the American West
by Richard Frank
October 25, 2021
This interview with Richard Frank, professor of environmental practice at the UC Davis School of Law and Director of the California Environmental Law and Policy Center, was conducted and condensed by franknews.
frank | Can you tell me a little bit about the story of water and how it's tied to the West, and to California in particular?
Richard | A friend of mine who's a Court of Appeals Justice here in California wrote an opinion on a water law dispute and started it with the quote, "the history of California is written on its waters." And I think that the point is true of the entire American West.
Water policy and legal issues are inextricably tied to the development of the Western United States; water is the limiting factor in so many ways to settlement, to economic development, to prosperity, and to the environment and environmental preservation.
Can you talk about the difference between groundwater and surface water– and the policies that regulate each?
There are really two types of water when it comes to human consumption. There's surface water: that is the water that is transmitted by lakes, rivers, and streams. Then there is groundwater, and a substantial amount of water that Americans and the American West rely on is groundwater. That is water that is stored in groundwater aquifers, which are naturally occurring groundwater basins. Both groundwater and surface water are critical to the American West and its economy and its culture.
Traditionally a couple of things are important to note, first of all, water is finite. Second, water gets allocated in the Western United States generally at the state level. There's a limited federal role. Primarily, policy decisions about who gets how much water for what purpose are made state by state.
I think allocation is really interesting in that it's more state-level than federal. How was water and the allocation of water in California designed? Is it a public-private combination? What goes on in terms of the infrastructure of water?
Another very good question. The answer is it depends. Most of our water infrastructure is public in nature.
Again, in the American West, the regulation of water rights is generally done at the state level, but the federal government, historically, has a major water footprint in the American West because it has been federal dollars and federal design and management that really controlled much of the major water infrastructure in the American West — you know, Hoover Dam, and the complex system of dams and reservoirs on the Colorado River in California, with the Central Valley Project that was built and managed by the federal government with Shasta Dam on the upper Sacramento River as the centerpiece of that project. But we also have a California State Water Project, the key facility being the Oroville Dam and reservoir on the Southern River that is managed by state water managers. If we were starting over, that kind of parallel system would make no particular engineering or operational sense.
But, we are captive to our history.
And then you have these massive systems of aqueducts and canals that move water from one place to another throughout the American West. They are particularly responsible for moving water from surface water storage facilities to population centers. In the last 50 to 75 years, these population centers have really expanded dramatically, so you need massive infrastructure to deliver water from those storage facilities, the dams, and reservoirs, which generally are located in remote areas to the population centers. So it takes a lot of time and energy to transport the water, from where it is captured and stored to where it is needed for human use.
California has faced continuous drought – what measures is the state taking now to manage water?
Just to frame the issue a little bit — we have, as I mentioned, a growing population in the American Southwest at a time when the amount of available water is shrinking due to drought and due to the impacts of climate change. We have growing human demand for residential and commercial purposes and at the same time, we have a shrinking water supply. That is a huge looming crisis.
And it is beginning to play out in real-time. You see that playing out in real-time. For example, several different states and Mexico rely on Colorado River flows based on an allocation system that was created in the 1920s, which is overly optimistic about the amount of available water. From the 1920s until now, that water supply has decreased, and decreased, and decreased. Now you have interstate agreements, and in the case of Mexico, international agreements that allocate the finite Colorado river water supplies based on faulty, now obsolete, information. It is a real problem.
What measures do you take now, knowing this information?
If you look at the US Drought Monitor, it is obvious the problem is not limited to the Colorado River. We are in a mega-drought, so cutbacks are being imposed by federal and state water agencies to encourage agricultural, urban, and commercial water users to cut their water use and, and stretch finite supplies as much as possible through conservation efforts.
In California, we have the State Water Resources Control Board, the state water regulator in California, and they have issued curtailment orders. Meaning, they have told water rights holders, many of whom have had those water rights for over a hundred years, that, for the first time, the water that they feel they are entitled to, is not available. Local water districts are also issuing water conservation mandates; the San Francisco water department is doing that, in Los Angeles, the metropolitan water district, is urging urban users to curtail their efforts.
And then agriculture. Agricultural users — farmers and ranchers — have had to get water rights in many cases through the federal government, as the federal government is the operator of these water projects. They have contracts with water users, individual farmers, ranchers, or districts, and they are now issuing curtailment orders. They're saying, we know you contracted for X amount of water for this calendar year, but we are telling you because of the drought shortages we don't have that water to supply. Our reservoirs are low at Lake Shasta or at the Oroville Dam.
When you drive from San Francisco to LA on the five, you see a lot of signage from the agricultural farming community about water. There's apparently some frustration about this. What are the other options for them?
About 80% of all human consumed water goes to agriculture. That is by far the biggest component of water use, as opposed to 20% used for urban and commercial, and industrial purposes.
Over the years, ranchers and farmers, and agricultural water districts assumed that the water would always be there — as we all do.
And the farmers and ranchers have, in hindsight, exacerbated the problem by bringing more and more land into production. You see on those drives between San Francisco and Los Angeles, particularly in the San Joaquin Valley, all these orchards are being planted. Orchards are more lucrative crops than row crops — cotton, alfalfa, and rice. But, if you are growing a row crop, you can leave the land fallow in times of drought.
We don't have to plant. If the water stopped there, or if it's too expensive to get, it may make economic sense, but if you have an orchard or a vineyard it's a high value, those are high value crops, you don't have that operational flexibility and they need to be irrigated in wet years and in dry years. Now, you see these orchards, which were only planted a few years ago, are now being uprooted because the farmers realized that they don't have the water necessary to keep those vineyards and orchards alive. For ranchers, the same thing is true with their herds. They don’t have enough water for their livestock.
The water shortage has never been drier than it is right now. Farmers and ranchers are being deprived of water that they traditionally believed was theirs and they're very understandably, very unhappy about it. They see it as a threat to their livelihood and to the livelihood of the folks who work for them. Their anger and frustration are to be expected, but it's nobody's fault.
To say, as some farmers do, that it is mismanagement by state and federal government officials, I think is overly simplistic and misplaced in the face of a mega-drought. Everybody's going to have to sacrifice. Everybody's going to have to be more efficient in how they use water. All sectors are going to need to be more efficient with the water that does exist.
Looking at this percentage breakdown of water use – is it actually important for individual users to change their water habits?
Well, every little bit helps. When you're talking about homeowners, about 70% of urban water use is for outdoor irrigation. So we're talking parks and cemeteries and golf courses and folks' yards. You know, that used to be considered part of that American dream and the California dream — you would have a big lawn in front of your house and behind your house. Truth be told, that has never made much sense in an arid environment. That's where the water savings in urban areas is critical in the way it really involves aesthetics rather than critical human needs, like water for drinking and bathing and sanitation purposes. There is a growing movement away from big lawns, and away from the type of landscaping that you see in the Eastern US — there is no drought in the Eastern United States. As Hurricane Ida and other recent storms have shown, the problem is too much water, or rather than too little in most of the Eastern United States. So it really is a tale of two countries.
We just need to recognize that the American West is an arid region. It has always been an arid region, we can't make the desert bloom with water that doesn't exist. We need to be more efficient in how we allocate those water supplies. And it seems to me in an urban area, the best way to conserve and most effective way is to reduce urban landscaping, which is the major component of urban water use.
You also write about water markets and making them better – for those who don’t know, what is the water market?
Water markets, that is, the voluntary transfer of water between water users, is more robust in some other Western states. Again Arizona and New Mexico come to mind. California somewhat surprisingly is behind the curve. We are in the dark ages compared to other states. Water markets are kind of anecdotal. There is not much of a statewide system. It is done at the local level, through individual transactions without much oversight and without much transparency. And I have concerns about all of those things.
I believe conceptually watermarks are a way to stretch scarce, finite water resources to make water use more efficient. I can, for example, allow farmers or ranchers to sell water to urban uses or commercial usage or factories in times of drought.
Farmers sometimes can make more money by farming water, than they can by farming crops.
There are efficiencies to be gained here.
The problem in my view is really one of transparency. The water markets are not publicly regulated, and some of the people who are engaging in water transactions like it that way, frankly, they want to operate under the radar.
In my opinion, water markets need to be overseen by a public entity rather than private or nonprofit entities. We need oversight and transparency, so that folks like you and myself can follow the markets to see who's selling water to whom, for what purpose, and make sure that those water transfers serve the public interests and not just the private interests.
There have been a number of stories in the New York Times and the Wall Street Journal and the Salt Lake City Tribune about efforts in some parts to privatize water transfer. Hedge fund managers are buying and selling water, as a means of profiting. And it strikes me that when you're talking about an essential public resource — and in California, it is embedded in the law that public water is an inherently public resource, that water is owned by the public and it can be used for private purposes, but it is an inherently public resource — the idea of commoditizing water through the private, opaque markets is very troublesome to me. I think it represents a very dangerous trend and one that needs to be corrected and avoided.
Why is California so behind?
There's no good reason for it. It's largely inexplicable that since the state was created on September 9th, 1860, we've been fighting over water. In the 19th century, it was miners versus farmers ranchers. In the 20th century, with the growth of urban communities, the evolution of California into one of the most populous states with 40 million Californians, it has been a struggle between urban and agricultural uses of water.
In the second half of the 20th century, there was a recognition that some component of water had to be left in streams to protect ecosystems, landscape, and wildlife, including the threatened and endangered wildlife. That suggestion has made agricultural users in California angry. You will see those signs that allude to the idea that food and farming are more important than environmental values. I don't happen to believe that's true. I believe both are critically important to our society. But the advocates for the environment have a proverbial seat at the water table. So that's another demand for water allocation that exists.
Do you maintain optimism?
Yes. I think it's human nature to look on the bright side. I try to do that through research scholarships and teaching. There are models for how we can do this better in the United States. Israel and Saudi Arabia and Singapore are far more efficient with their water policies and efforts. Australia went through a severe megadrought. They came out of it a few years ago, but they used that opportunity to dramatically reform their water allocation systems. That's an additional model. I think most people would agree in hindsight that their previous system was antiquated, and not able to meet the challenges of climate change and the growing water shortage in some parts of the world.
Here in the United States, we can learn from those efforts. There are also some ways to expand the water supply. Desalination for one. Again, Singapore and Saudi Arabia have led the world in terms of removing the salt content from ocean water and increasing water supply that way. In Carlsbad, California, north of San Diego, we have the biggest desalination plant in the United States right now, and that is currently satisfying a significant component of the San Diego metropolitan areas’ water needs. It's more expensive than other water supplies, but the technology is getting more refined, so the cost of desalinated water is coming down at a time when other water supplies, due to shortages and the workings of the free market are going up.
At some point, they're going to meet or get closer. Unlike some of my environmental colleagues, I think desalination is an important part of the equation.
In a proposal that came up in the recall election, one of the candidates was talking about how we just need to build a canal from the Mississippi River to California to take care of all our problems. That ignores political problems associated with that effort, as well as the massive infrastructure costs that would be required to build and maintain a major aqueduct for 2000 miles from the Mississippi to California. That's just not going to happen. Some of those pie in the sky thoughts of how we expand the water supply, I think, are unrealistic.
interviews
In Conversation with Gemini and Brian Kim Johnson
by Brian Kim Johnson
January 31, 2020
This interview with Brian Kim Johnson, a software engineer at Gemini, was conducted and condensed by frank news. The basis of the interview comes from the article, Cold Storage, Keys & Crypto: How Gemini Keeps Assets Safe
frank | There’s a quote in the article that reads, “there are many ways to self secure cryptocurrencies.” What are those ways?
BKJ | There've been a lot of different ways to store historically, but I'll give you a couple of ways that people would do it today. The easiest way someone could self custody Bitcoin today is with a phone wallet. There are many reputable phone wallets available for iOS and Android. You would download one of those, you would open it up, it would prompt you to back it up, to do what's called a feed backup. And that's just to make sure that you don't lose control of your funds. And after that you would be given addresses, Bitcoin addresses, which is what's required.
It’s the equivalent of bank account information, but it is public. If you share your bank account, someone can take your money, but that's not the case with Bitcoin. So that is probably the most approachable way to store money on your own for self custody.
I am assuming there are some security implications with this.
To offset that, more advanced users will use what's called a hardware wallet, some phone wallets even support having a hardware wallet. In a phone wallet you have to put the so called private key; the private key is the number that is used to sign the money over to someone else that has to reside on your phone. Naturally, if it resides on your phone, that means there could be ways for malicious apps or malicious users to get at that private key and take your money.
The hardware wallet is a separate device, single purpose device. It's not too dissimilar from the secure element that's behind your fingerprint reader or your face ID in iOS. Unlike a phone, which is general purpose, and could do basically anything that someone could program it to do, a hardware wallet does one thing, and that is store digital assets.
A phone wallet is a good introductory self custody and then once anyone gets comfortable with using a phone wallet if they wanted to move on to more advanced forms of self custody then hardware wallet tends to be where they go.
Within the realm of self custody, there was a note about individuals considering their beneficiaries and how other people might recover those funds within this very secure setup. How does that work?
I think it's useful to go back to what self custody means.
We say that Bitcoin is a cryptocurrency or i.e. based on cryptography. The way that it's based on cryptography is that the receiving of money goes to an address, but that address, the sending out of the money from that address, is purely based off of knowledge of a number. We say private key but a private key is just a really, really, really large number and if you have that number you can send the funds and we say that those are your funds. In Bitcoin there's really only two kinds of money. There's money you can't spend, you can't send to other people because you don't know the key and there's money that you can send to other people because you know the key. And this is why it's sometimes referred to as a bearer instrument.
Now the problem is, you know when people devise these self custody solutions like the phone wallet or even in the case of the hardware wallet. Letting other people know how to recover the money is the same as giving them the money. There isn't actually a lot of difference. Now you can do much more fancy tricks by using more complex Bitcoin scripts. But I would say for most people that is not really an option today and this is actually an area where there's a lot of innovation happening around wallet software.
Regardless, if knowledge of this number is the only way that you demonstrate having the money, then it becomes a real challenge and this is distinct from money in your Gemini account as an example.
Because money in your Gemini account is under the control of Gemini?
Yes. Because your claim to this money is based off of a legal relationship. I guess that brings you to a place where self custody is ultimately about “how do I ensure that someone gets this information but only under those certain circumstances?” This leads self custody users to take keys and put them in bank vaults, coming up with elaborate schemes, but it's certainly an area that requires a lot of work for, I would say, non technical persons to really engage in today.
I want to move into partial custody now – what do third parties do with your information? At least what is normal now?
Can you walk me through talking about partial custody here because the question seems to be about data privacy...
If I'm using a wallet or some sort of service, what is happening with my information? What do the privacy regulations in this space look like?
Oh, I see. In the partial custody model we're talking about an organization where you hold a key and the other organization holds a key. Most partial custody providers, it's a little unclear how they would be regulated.
If you're required to KYC [Know Your Customer] into that product, then they obviously know that, they will know every transaction that you ever do by virtue of the fact that they have to sign it themselves. And naturally they will know everything that you do on their website or you do in their partner wallet.
And so in this way, every bit of information that you would trust to your third party custodian, you are either explicitly or implicitly giving away in your partial custody custodian. So in self custody, I guess the only users that can watch you are the ones on the chain and whoever wrote your wallet software. But in partial custody you actually have to submit every transaction that you are doing to another individual. At least that's the state of the art today. But partial custody is primarily for businesses. There are some partial custody for, retail users or normal people on the streets like myself.
Got it.
So it's a little bit different. I mean, if you happen to use a third party custodian that uses a partial custody arrangement, then you aren't just sharing the information with your own custodian, you're sharing it with some second business in addition. I think that's always a consideration for users who are signing up for a fully hosted wallets.
Moving into fully third party custodians – who regulates these companies? To me it seems a lot of the driving narrative and the premise of crypto and what is so exciting is that it's decentralized and there's nobody in charge. So who holds anybody or any company accountable?
That's a great question. We think about this a lot at Gemini. I think you're right that what's most exciting about Bitcoin is the possibility that it scales down to the individual. This is the part of the technology that we haven't seen before. This is why the space is compelling, but it also makes it pretty complicated. Third party custodians are an important part of the development of the industry today. So who regulates third party custodians?
It really depends jurisdiction by jurisdiction and in some cases, in the US it depends state by state. If someone is a full custody provider like Gemini, then we certainly take the position that in the United States you will be regulated as a money transmitter. In New York you'll be regulated under having both a bit license. But we, Gemini have gone further in getting our trust license. And there are a lot of different services that are trying to push at the margins of these offerings to see whether or not they can be less regulated.
It certainly seems by recent SEC actions, and other regulatory actions, that these organizations, while not being banks, will end up being subject to much of the regulation that banks are subject to.
A lot of this is about company driven choices. Gemini decides to do this or decides to do that, are there laws in place that say yes this is okay, or no this is not okay?
It depends on which jurisdiction you're operating in. FINRA gave guidance around wallet software in may or June of last year.
They went into detail and actually maybe for the first time went into detail around exactly how money transmission license would date. At least in their mind transmit to responsibility for third parties. And it's actually pretty instructive I think for organization now, every single organization, depending on where they're domiciled, depending on where they operate, would have to make these choices. But certainly Gemini has always maintained this posture from the beginning that this is money transmission, that this is the same. That full custody should require the same level of security, the same level of due diligence and financial regulation.
It remains to be seen how the space will progress. But certainly in the US it's getting a lot more clear year over year.
Carolyn Vadino [Head of Communications, Gemini] | To add on that, in the state of New York, you're required to have either a Trust or a BitLicense. I would suspect its the reason that many companies don't headquarter out of New York, you going through a more rigorous process to establish the company. But in addition to the Trust License, we also are subject to things like KYC procedures. Because that's again how financial institutions verify their customer identities.
Gemini is subject to those rules and regulations as well. Since we're a Trust company, we're subject to that and we must adhere to strict goverence and procedures regarding how we store and use personal information. That's also why we have an audit trail and we have our SOC 2 type 1. So there's a bit of a rabbit hole we can go down to talk about how we demonstrate those levels of security compliance. But that's what comes with getting a Trust License. And part of those stringent specifications on how we store and protect data as well, in addition to how we actually onboard people onto our platform. Which inlcude AYC, AML requirements as well.
That's clarifying and helpful. It's interesting how local it all is considering the whole thing is on the internet and has no physical manifestation.
If you're approaching this through the lens of, I fully believe in decentralization and I want to self custody, then I think that thinking 100 percent applies. But if you're an individual who chooses to go to a third party to hold your keys, IE. your Bitcoins, then you get into that gray area of money transmission and banking laws. Gemini has always taken the position that if you're going to choose to use an institution to, either buy, sell or store your cryptocurrencies that institutions should have regulatory oversight. Which is why Gemini has taken the approach that we've taken. I think there's a world in which both of those approaches exists and we're not advocating that if you're self custodying that, that should be regulated, but if you're certainly coming to a third party, there should be oversight of that third party.