Daily Bits May 14th, 2017

On Thursday I had the honour of attending a session in the European Parliament on blockchain regulation. I won’t go into more detail here, but CoinDesk published my (very brief) summary of the event.


I will say that it was inspiring to see such an influential governing body take an innovation-first approach.

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China’s infrastructure plan: will it provide the base for strong economic growth (possibly displacing the chaotic US as global economic superpower)? Or will it tip China’s debt over the edge?

A huge gamble, but one that it seems it has to take.

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Interesting insight into why low-income people prefer check-cashing companies to banks. Cost, transparency and service. Hmmm, I wonder how else they could get those advantages, without actually having to go to the outlet? Would they want to even if they could? Maybe the human contact is part of the appeal.

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This is intriguing: Palestine is contemplating a blockchain-based currency. It sounds quite official, but it could just be another central bank jumping on the bandwagon – “contemplating” is a long way from implementing. And while the use case is there and the advantages are apparent, the level of coordination needed to execute will be tough in an economy with fractured infrastructure.

What makes this situation unusual is that Palestine is an implicitly recognized state. In other words, it’s sort of sovereign, but not really. Only 70% of the members of the United Nations have recognized it as a state. That is a majority, but it’s… complicated.

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Recommended reading: A Man Called Ove. (The book – I haven’t seen the movie.)

a man called ove

Funny, emotional, uplifting, sad and happy. And beautifully written. We all know someone like Ove. This is a book that changes the way you see people.

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According to an article in Wired, the internet dumps us in silos of like-minded people much less than we think.

I’m not convinced, but it is an interesting take that points to a more inclusive future. While I hope it’s right, I think it is focusing on a small, relatively enlightened (the word “relatively” is important here) subset.

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Captivating (via Colossal):

by Greg Klassen, via Colossal
by Greg Klassen, via Colossal

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I will probably be quiet over the next few days – I’m fighting an awful cold and have to get better before heading off to New York next week for Consensus. Have to.

I’m pulling out the big guns, taking garlic pills, vitamin C, Echinacea and over-the-counter cold remedies. I’m inhaling eucalyptus vapour. And I’m sipping the most vile infusion of garlic, thyme and rosemary – it tastes so awful it has to be good for me.

So, I shall crawl into bed and continue watching the extraordinary Korean series Man x Man on Netflix. I’m thoroughly confused as to the plot, but it is engrossing – I keep hoping all will become clear in the next episode.

Daily Bits May 10th, 2017

I’ve been looking into blockchain regulation, and came across this excellent analysis of some of the main issues, by Javier Sebastián of BBVA.

Here’s a good summary.

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So, ethereum’s price is up 900% so far this year. That’s staggering. As Alyssa Hertig at CoinDesk points out, it’s also not necessarily good for the network, as it could push up the price of using it.

“Gas”, what you need to power transactions, is supposedly not linked to the ether price, but it seems that’s not working…

Many other ICOs could end up in the same position. Anyone know of other situations where similar economics play out?

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Did you know that the lawnmower kicked off the modern sports industry? According to an FT review, the authors of a new book called “When Machines Do Everything” use that anecdote to illustrate that we just don’t know what the effects of robotization will be. We worry about the loss of jobs, assuming that no new industries will emerge to mop up the surplus.

“The second [point] is that in many industries the real winners of the digital revolution are likely to be the incumbents, who adapt fast enough, rather than the insurgents, who are trying to reinvent the world. Those companies that can figure out how to leverage their deep industry knowledge with the power of machines will bring about “the revenge of the 100-year firm”.”

I take issue with the title of the book. I haven’t read it yet, but “everything”???? C’mon now.

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This is excellent, in a beautifully pedantic way:

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I’m in Brussels tomorrow for a blockchain event at the European Parliament, so the next post will probably be on Saturday… Until then!

Bitcoin, volatility and safe havens

So much for the “safe haven” theory…

Previous bitcoin bull runs have been accredited to turmoil and fear in financial markets. Much has been written about the cryptocurrency replacing gold as a “safe haven” (which I don’t agree with – it’s more of an “appealing alternative”), as pundits point to the jumps after the Brexit vote and the Trump election.

What, then, explains the bull run when Wall Street’s “fear index” is at its lowest point in over 20 years? Bitcoin is up 75% so far this year, and 26% so far this month. Among the reasons given are the increase in demand in Japan, in response to the recent legislation legalizing bitcoin as a “payment method” (but not yet a currency). The renewed possibility of a bitcoin ETF approval is also cited (although it is unlikely), although a stronger influence could well be FOMO (fear of missing out).

This is quite spectacular:


Maybe the “fear index” is wrong? Does anyone really believe that uncertainty and risk are at minimums?

The VIX index, as it is called, measures volatility. The assumption up until now has been that volatility = fear, and when things are going belly up, volatility peaks. What if volatility no longer measures fear? What if market liquidity, speed, derivatives and algorithms have ruptured the historical relationship?

I’m not a market expert, but I can’t see how volatility wouldn’t go up in times of trouble. So I find this completely perplexing.

One thing to bear in mind – just because bitcoin is not at this stage relying on its “appealing alternative” status, does not mean that it loses it. The fundamentals and characteristics that make it interesting have not gone away. It’s just that it has other good stuff going on.

Daily Bits May 8th, 2017

The Guardian carries a mind-blowing examination of human motivations, by Yuval Noah Harari (author of Sapiens, definitely worth reading). As usual, his writing is packed with tangential observations that change the way you see things.

For instance, virtual reality has been a part of our lives for a very long time:

“The idea of finding meaning in life by playing virtual reality games is of course common not just to religions, but also to secular ideologies and lifestyles. Consumerism too is a virtual reality game. You gain points by acquiring new cars, buying expensive brands, and taking vacations abroad, and if you have more points than everybody else, you tell yourself you won the game.”

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Wired published another eye-opening article in which Kevin Kelly shows us that we do not really know what “intelligence” means. And that, almost certainly, there is not just one type. So, predictions of the impact of “artificial intelligence” are most likely based on false assumptions.

“When we invented artificial flying we were inspired by biological modes of flying, primarily flapping wings. But the flying we invented — propellers bolted to a wide fixed wing — was a new mode of flying unknown in our biological world. It is alien flying. Similarly, we will invent whole new modes of thinking that do not exist in nature. In many cases they will be new, narrow, “small,” specific modes for specific jobs — perhaps a type of reasoning only useful in statistics and probability.”

Yet in the article, Kevin also makes some assumptions. For instance:

“You cannot optimize every dimension. You can only have tradeoffs.”

How can he be so sure? (He does acknowledge that he might be wrong – a sure sign of intelligence.)

Any thinking about intelligence, artificial or not, has to be accepted as conjecture – because we just don’t know. We don’t understand why we think, let alone how. As science progresses we will know more, but I doubt we’ll ever fully understand it, or even be able to measure it.

I find that strangely comforting.

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My article on CoinDesk this week, on the possible implementation of blockchain technology in Kenya’s M-Akiba bond platform (which I wrote about here). For the first time, the government issued an infrastructure bond aimed at retail investors – it could only be bought via the mobile phone M-Pesa app (which over half the population has downloaded).

Could Kenya’s bond program be the catalyst for getting blockchain into the hands of the man on the street?

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This is mind-boggling: the Guggenheim Museum is now sharing over 200 art books, for free, through the Internet Archive. To browse through. At any time. I know what I’m doing this weekend… (Via Colossal.)

via Colossal
via Colossal


Daily Bits May 7th, 2017

Some great articles I came across today:

Vinay Gupta offers us a long, thoughtful presentation on the current state of databases, the innovation of bitcoin, and the potential of ethereum as a smart contracts platform.

“Although in theory information could just flow from one database to another with your permission, in practice the technical costs of connecting databases are huge, and your computer doesn’t store your data so it can do all this work for you. Instead it’s just something you fill in forms on. Why are we under-utilizing all this potential so badly?”

He highlights the flaws in the two main schema in use today: the diverse peers model in which data is repackaged each time it needs to move (error-prone), and the hub and spoke method with a central, trusted authority (which produces a natural monopoly). He eloquently points out that the magnificence of the blockchain concept is that it breaks 40 years of struggling to reconcile databases, of often manually forcing cross-silo communication (by reformatting or even re-inputting).

“Each enterprise builds their computer system in their own image, and these images disagree about what is vital and what is incidental, and truth does not flow between them easily.”

It’s a long article, but worth poring over slowly, for the density of the observations.

“I am excited precisely because we do not know what we have created, and more importantly, what you and your friends will create with it. My belief is that terms like “Bitcoin 2.0” and “Web 3.0” will be inadequate — it will be a new thing, with new ideas and new culture embedded in a new software platform. Each new medium changes the message: blogging brought long form writing back, and then twitter created an environment where brevity was not only the soul of wit, but by necessity its body also. Now we can represent simple agreements as free speech, as publication of an idea, and who knows where this leads.”

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Gideon Greenspan goes deep on the immutability issue, and points out that no blockchain – not even bitcoin – is completely immutable.

“Nonetheless, the mere possibility of this form of interference puts the cryptocurrency immutability doctrine in its place. The bitcoin blockchain and its ilk are not immutable in any perfect or absolute sense. Rather, they are immutable so long as nobody big enough and rich enough decides to destroy them.”

He defends Accenture’s idea of a mutable blockchain as making sense in certain instances. He claims that those alleging that a blockchain has to be immutable are not taking into account the nuances inherent in some use cases and blockchain structures. While he is not arguing that it should be easy to rewrite information stored on a blockchain, nor should we rule out that on occasion, being able to do so could save a lot of hassle. And no, it would not lose its “blockchainness”.

“…why bother with [chameleon hashes (Accenture’s trick to remove/replace data)]? The answer is: performance optimization, because chameleon hashes allow old blocks to be substituted in a chain far more efficiently than before. Imagine that we need to remove a transaction from the start of a blockchain that has been running for 5 years. Perhaps this is due to the European Union’s right to be forgotten legislation, which allows individuals to have their personal data removed from companies’ records.”

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I thoroughly recommend this mindblowing presentation by Andreessen Horowitz’s Connie Chan on the digital culture (including payments) in China.

She explains that China is leapfrogging credit cards, moving directly from cash to digital payments. With over 656 million smartphone users, it’s not hard to see why. Many establishments offer discounts for digital payments through Alipay or WeChat – if you pay online, you get drawn into the community. The business can send you coupons or content, it can even geo-target you. Even small food trucks can accept electronic payments without needing to invest in expensive PoS gadgets or special accounts.

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Institutional Investor explains why a Universal Basic Income (UBI) would be good for investment managers. Apart from the systemic boost to sovereign wealth funds (needed to generate the income to distribute), UBI would foist onto individuals the “requirement” to plan for their pensions and healthcare. Throw into the mix an enhanced appetite for risk (given the broader spread of a safety net – I don’t really buy this one), and you have a greater demand for investment funds.

One thing we can be sure of: with acclaimed economists across the spectrum disagreeing on the consequences and eventual outcome, no-one really knows what the effects will be. It is telling that the only national referendum on the subject so far, in Switzerland last year, produced a sound rejection of the UBI concept.

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Glass sculptures have always fascinated me – perhaps for their transparency-that-isn’t-quite, and the smoothness of the shapes. This has to be one of the quirkiest and most mesmerising ones I’ve seen in ages:

Dave Chihuly - via MyModernMet
Dave Chihuly – via MyModernMet

Paying with gold, blockchain-style


Hopping on the “digital gold” trend (with possibly two blockchain-based gold exchanges coming on line this year) and the “initial coin offering” (ICO) trend, last week Dubai-based OneGram announced that it was planning to offer a digital coin backed by physical gold.

The aim is to raise $500m in capital through a digital token offering. If achieved, it would be the largest amount raised to date via an initial coin sale.

It has a good chance, and not just for the prevailing winds – ICO sales have been enjoying a surge in investor demand, and the unusual structure and potentially attractive fundamentals of this one could pique interest.

What makes this ICO especially interesting is that it is the first digital token to comply with the rules of Islamic finance. Last November, a clarification of Sharia law qualified digital gold assets as approved investment vehicles as long as they were backed by physical gold.

The potential market is huge: on top of the usual pool of investors, for the first time a digital token will be accessible to Muslims. A recent survey by the Pew Research Institute estimates that there are 1.6 billion Muslims in the world, and total Islamic finance assets reach around $2 trillion.

The plan is to issue 12.44 million tokens, called OneGramCoins. Each will be backed by one gram of gold, and the token price will mirror the gold price. At current market levels, that should bring in over $550 million.

According to founder Ibrahim Mohammed, 50% of the offering has been already been committed. The public sale will start on May 21 and run until September 22 (unless, of course, it sells out sooner, as several other recent token sales have done).

An interesting twist is the objective of creating a payments solution around the token. The company is creating a merchant service program which will make it easy for retailers to accept OneGramCoins (as well as bitcoin and perhaps a couple of other top cryptocurrencies).

Ironically, this seems like a fusion of the old and the new: a modern technology allows customers to return to the ancient tradition of paying for things with gold.

Could Brexit encourage blockchain development?

by Rob Bye via Stocksnap
by Rob Bye via Stocksnap

The FT reported yesterday on the intensifying staring match between the EU and the UK over financial services.

London has for some time been in danger of losing its position as the world’s clearing center for euro-denominated derivatives. The city’s clearing houses handle up to three-quarters of the global euro-denominated derivatives market.

The European Central Bank (ECB) has long argued that oversight of euro clearing services would be easier if they were relocated to within the Eurozone, and in 2011 issued a policy reflecting this. The UK took the case to the European Court, which eventually sided with the UK. The reason given was not because geographical restrictions would discriminate against some member states (the UK’s main argument), but because the ECB’s role is to supervise payment systems, not securities settlement. The ECB still alleges that settlement oversight is essential for payment system stability.

Now that Britain will soon no longer be an EU member, the battle lines are shifting. The European Commission (EC) is preparing legislation for June that will impose geographical restrictions on euro-based clearing. An interesting twist is that the EC is not waiting until Brexit becomes a reality.

The policy, due for publication tomorrow, moves to extend the ECB’s role to include supervision of clearing houses if they provide “critical capital market functions” (such as derivatives swaps). If this goes ahead, it will mean that either the activity needs to relocate, or the UK has to allow ECB supervision on British territory (which it’s unlikely to be happy with).

If the activity has to relocate, the fallout will be considerable, and the impact could be felt around the world. Euro-denominated derivatives clearing accounts for about one third of the global interest rate swaps market.

It’s probable that some clearing houses will prefer to wind down than move (CME Group recently decided to pull out of London due to lack of profitability). The larger ones may find that they lose clients. Either would be enough to contract medium-term liquidity in the market.

Short-term, the potential problem is more serious. Clearing houses reduce liquidity risk in financial markets by standing between two traders in a transaction. They also increase transparency by being in a position to publish the price at which a trade executed.

Disrupt those functions, or even temporarily interrupt them, and you increase systemic risk. You also increase the cost of clearing, as economies of scale are reduced.

Some clearing houses are looking into blockchain applications as a way to reduce costs and enhance liquidity. In 2015 a group including settlement giants CME Group, Euroclear and LCH.Clearnet formed a working body to discuss how the technology might be used to settle transactions. The Depository Trust & Clearing Corporation (DTCC) in the US is specifically looking at credit derivatives settlement.

And notable blockchain startups such as Setl, Digital Asset, Clearmatics, Symbiont and others are also working on protocols to either help or replace traditional clearing houses.

So, there is movement to seek greater efficiencies in settlement, reduce dependence on clearing houses and reinforce transparency. But it’s happening slowly.

Understandably so. Blockchain technology is still new and relatively untested in financial applications. And systemic market infrastructure is not something you play around with.

However, the clock is ticking. And heavy investment in new systems that perpetuate current inefficiencies and are not future-proof will end up adding even more pressure to financial services firms’ already squeezed margins.

I’ve written before how financial shifts due to pending regulation end up spurring research on new uses.

Now we can add political pressure to the list motivating factors.

Daily Bits May 2nd, 2017

My article on CoinDesk this week on a surge in central bank interest in the blockchain (the second and third paragraphs are not mine, and I don’t like them much, but, whatever…)

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It’s been a good week for humanitarian applications of blockchain technology. CoinDesk reported last week on a pilot developed by the World Food Programme to distribute aid to refugees in Jordan using ethereum and biometric identification. Yesterday CoinDesk informed us that the launch was successful.

Whether the pilot ends up scaling or not, it’s a big step forward.

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A few weeks ago, I wrote about a bond issuance in Kenya… via mobile phones. The World Bank has taken an interest, and wants to provide follow-up research.

The idea, I imagine, is to investigate how this can be replicated in other regions. Not only would it broaden the base for public financing, it also could increase the range of investment opportunities for a growing middle class (those not normally privy to bond issuances), and even for those who aren’t included in the traditional financial system (such as, those without a bank account).

The ramifications for the nature of public financing, and for retail investors, could be profound.

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This article by Annie Lowrey of The Atlantic on “Late Capitalism” is excellent:

““Late capitalism,” in its current usage, is a catchall phrase for the indignities and absurdities of our contemporary economy, with its yawning inequality and super-powered corporations and shrinking middle class.”

Reading this is enough to fill you with despair over the hedonism…

“Over time, the semantics of the phrase shifted a bit. “Late capitalism” became a catchall for incidents that capture the tragicomic inanity and inequity of contemporary capitalism. Nordstrom selling jeans with fake mud on them for $425. Prisoners’ phone calls costing $14 a minute. Starbucks forcing baristas to write “Come Together” on cups due to the fiscal-cliff showdown.”

… and hope for the philosophical progression…

“Finally, “late capitalism” gestures to the potential for revolution, whether because the robots end up taking all the jobs or because the proletariat finally rejects all this nonsense. A “late” period always comes at the end of something, after all.”

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This video left me awe-struck at the beauty of our planet, the immensity of the galaxy and the majesty of air travel…

Shot by pilot and photographer Sales Wick as he flew from Zurich to Sao Paulo, it shows his love for what he does. And it (almost) makes me want to get on a plane, right now…

Via Colossal.

PSD2 and the blockchain

by Diego Hernandez via Stocksnap
by Diego Hernandez via Stocksnap

Europe has some surprisingly progressive ideas about retail banking.

In 2018, the new payments directive (PSD2) comes into force. This will change not only how we see banking, but also how we treat data.

A bit of background: the Payments Services Directive was adopted in 2007 to create the Single Euro Payments Area (SEPA), aimed at simplifying and modernizing the rules and guidelines for money transfers within the European Union.

An update (PSD2) was passed by the European Parliament in 2015, with the goal of further promoting innovation while enhancing consumer protection.

That may sound good for the consumer and the fintech sector, but it makes banks’ current situation even more tenuous. The sector is already pummeled by low interest rates, increasing KYC/AML costs and flourishing competition. Now, it has to invest in further compliance, and watch while its main competitive advantage is eaten away.

What main competitive advantage? Access to your information.

After 2018, when PSD2 comes into effect, banks have to share your data with third parties.

For end users, this streamlines payments and lowers costs. For innovative businesses, it gives them instant access to a significant resource: specific and detailed information about potential clients.

Retailers will be able to ask you for permission to access your bank account – the payment will be directly between your bank and the retailer. No intermediaries. Investment services will have access to your financial history and be able to offer more tailored advice. Payment portals will be able to compete for the lowest fees and creatively combine financial and social functions. Aggregators will be able to display all your financial information in one place, regardless of how many banks you work with.

Just think how attractive all that data is for service providers.

(There’s some other stuff in there as well, such as tighter control on credit card charges, greater protection for non-EU payments, unconditional refunds on direct debits… all good news for the consumer, not so much for the banks.)

What does that mean for blockchain development?

Basically, PSD2 is about the sharing of sensitive data with a network. Right now, the law envisions the transfers being handled through Application Programming Interface (APIs), code that gives third parties access.

On a blockchain, the distribution could be handled in an open, seamless and secure manner. Banks, clients, retailers and fintech services could all use the same system to share information. Access would be limited to network participants (who would have to jump through some hoops to join), transparency would ensure good behavior, and decentralized storage would enhance security.

This has to be preferable to a system in which banks (reluctantly) cede the information to any approved entity. Or a system littered with targeted APIs with limited interoperability. Or one in which the information is stored in centralized (hackable) silos.

Furthermore, a blockchain-based system would have lower operating costs than a distributed database, since less verification will be needed each time the data crosses over to another platform.

Lower operating costs will be crucial, given the tightening squeeze on banks’ profit margins.

While banks are currently preparing for this seismic change on their current systems, the appeal of a blockchain alternative is likely to encourage even more research and pilots than are already going on. Incorporation of a decentralized, transparent solution may shift from being a nice-to-have, when-we’re-absolutely-sure option to an increasingly pressing imperative. While blockchain technology is still new and has many hurdles to overcome (not least, regulatory), and while the cost of implementation is likely to be substantial, the need to adapt to a new financial paradigm could well be the catalyst that the sector has been waiting for.

We could be on the verge of a shift in blockchain interest. Already high among banks, it could jump up a notch to imperative.


Daily Bits April 29, 2017

That Teen Vogue is producing such thought-provoking political reporting is… well, in teen language, totally awesome. Let’s get the next generation asking questions.

“Any person who has stayed informed since November 9 knows the country is in total disarray. Distrust in media and toxic partisanship have allowed feelings to outweigh facts in the marketplace of ideas. Trump isn’t solely responsible for creating this situation, though he’s excelled in exploiting it beyond repair. Through a brutal combination of gaslighting, whataboutism, and blatant lies, this administration has exacerbated the national divide, undermining journalism as a check on the power of government by treating politics as two teams battling it out in a zero-sum game.”

My fervent hope is that this effort (hats off to Lauren Duca) will affect other media aimed at the young as well. It’s not the political stance of the magazine that I applaud (although I do), it’s the idea of provoking a reasoned opinion.

“Zooming out allows the daily shocks to take shape. In these first 100 days, Trump has proven to be a moral vacuum undefined by ideological or ethical principles. There is new evidence of this with each news cycle, but the outrage machine has long been at capacity. Now, even the worst possible scandals are met with resigned exasperation. And when there are multiple emergencies every week, emergencies start to seem ordinary.”

Well-written pieces, no dumbing down or condescension, not particularly subtle calls-to-arms. Lauren finishes the article with a list of actions that interested teens can take. The fabulous takeaway from that is that teens learn that they can do something about the state of the world. That their voice matters, and that they need to think about the future they want. Teen media, at the forefront of political journalism? Brilliant.

“It’s crucial we gain clarity from this manufactured benchmark, and the way it has changed us. The New York Times declared Trump’s 100 days “the worst on record.” The New Yorker called him “democracy’s most reckless caretaker.” Perhaps the most condemning diagnosis of all is simply that perpetual chaos has become the standard. There are no alarms left to sound.”

The female teen in my house is both enthralled and incensed. Just how it should be.

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I’m not sure why I find this a bit disturbing…  The void, perhaps?

via My Modern Met
via My Modern Met

The blackest paint in the world reflects no light whatsoever – so, none of the relative shadows that make 3D things look 3D. Freaky.

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The Economist took a look at the recent ICO hype, pronouncing it a “bubble”, but a potentially productive one…

“Some liken the ICO craze to the South Sea bubble in the early 18th century in Britain, when promoters raised funds for companies promising the “transmutation of quicksilver into a malleable fine metal” or a “wheel for perpetual motion”. Prices soon fell, in particular after Parliament in 1720 passed the “Bubble Act” to rein in “undertakings of great advantage”. But the sorry episode was a step toward some rather useful innovations: the modern joint-stock company, for example.”

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So philosophers can actually make a decent living now? The return to “fundamentals” is interesting. And, about time…

“Philosophers arrive on the scene at the moment when bullshit can no longer be tolerated,” says Taggart. “We articulate that bullshit and stop it from happening. And there’s just a whole lot of bullshit in business today.” He cites the rise of growth hackers, programming “ninjas,” and thought leaders whose job identities are invented or incoherent.