Daily Bits March 30th, 2017

This week has been a bumper week for funding deals in the blockchain space.

IoT startup Filament raised $15m from Verizon, Bullpen Capital and others. Digital currency exchange Shapeshift scored a $10.4m round from Lakestar, Blockchain Capital, Pantera Capital and other high-level VCs. And bitcoin hardware wallet manufacturer Ledger raised $7m from a group of investors led by French insurance giant MAIF.

Coincidence, or the end of the quiet patch? I suspect the former, I hope the latter.

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Mind blown:

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The internet accounts for nearly 6% of the total US economy, and employs more than 3 million Americans. These are the figures in the Internet Association’s latest economic report.

I’m confused, what exactly is an internet job? If you work at Amazon, do you have an internet job or a retail job? If you work at Experia, are you in the internet or travel sector?

Why do we separate the internet economy from the rest of the economy???

Maybe you work in an internet provider. How is that different from a technology company, or a communications company?

As long as we keep on separating the “internet” from the “real world”, we keep it in a silo and block integration and acceptance that a new business reality is here.

 

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Benedict Evans takes a look at the not-so-obvious effects of a move to electric self-driving cars. Thought you understood the potential impact of fewer car-related injuries and more space on the street?

How about the loss of car-repair business (from fewer accidents)? Cars having a longer life and needing less frequent replacement? Why would we need gas stations? What would happen to the sale of potato crisps and soda? The lost revenue on gasoline tax?

What about car design, when you don’t need all those safety features? Cycling would become safer – just think what that could do for public health.

And what about simple human behavior? Road rage, that’s-my-parking-space, get-in-your-car-and-drive…

Notice that the subject of motorcycles has largely been overlooked.

Even so, I imagine that kids in the future will wonder what on earth those old songs were referring to…

Surprising diversification

steel cut

Yesterday one of China’s largest P2P lenders announced a surprising move into blockchain technology.

I say surprising, because on the surface it does not seem to have much to do with marketplace loans.

The report, sourced from a Chinese newspaper, claims that the project’s goal is use its ability to store and secure data on a blockchain platform to develop a supply chain tool for enterprise businesses.

Apparently it will start by integrating the service with a steel trading platform.

You can see why I’m scratching my head, right?

Creditease does have a long history of diversified investments, that does not show any sign of letting up. In this year alone, it launched a second venture fund focused on Israeli technology, and invested in the funding rounds of three US fintech companies.

Diversification makes sense in a sector being hit by additional regulatory pressure, market scandals and looming international competition.

But a blockchain platform for supply chain management for enterprises?

I wrote recently on the impact that blockchain innovation could have on the massive marketplace lending sector in China. It is, I believe, poised to take off with the introduction of new technologies and relationships, which in turn can open up new markets.

But steel trading??

If anyone can see where this strategy is going, please let me know.

Daily Bits March 27th, 2017

The new (I mean, re-branded) fintech newsletter Tearsheet, from the Digiday stable, has an article that does a pretty good job of bringing the hype back down to earth.

“Many are still touting blockchain technology as being revolutionary, when they mean transformational.”

Transformational they may be, but blockchains are not going to change the financial sector overnight. If at all.

“When using the R word it’s important to remember that it is incredibly difficult to “disrupt” industries as highly scrutinized as financial services. New technology needs to integrate with old systems and interfaces – those don’t get replaced overnight. It’s also the kind of technology that’s most effective when there’s a network effect and currently, most organizations are still exploring why they actually “need” blockchains and which iteration of the technology is going to work best for them.”

The real value lies in the data. If financial firms end up standardizing their data formats in order to use interconnecting databases (such as blockchains), that opens up a whole new field of possibility for artificial intelligence.

Whether or not you’re comfortable with AI going through your financial data, the potential applications are intriguing.

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My post on CoinDesk this week: “IBM vs Microsoft: Two Tech Giants, Two Blockchain Visions”

(I wish I could claim credit for the title, but that goes to my editor who is bloody brilliant at headlines.)

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Dronesweaters.com: What every well-dressed drone is wearing these days.

via dronesweaters.com
via dronesweaters.com

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Matt Levine wrote a darkly amusing account of the blockchain revival of tontines. What are tontines? They are pools of money that end up going to the last surviving contributor. Of course, the participants then race to bump each other off.

It sounds like a financial adaptation of The Hunger Games.

Anyway, the blockchain is useful here because it can know, through oracles and smart contracts, when participants die, and automatically pay out to the last surviving member.

At least that’s how it would play out in an old-fashioned thriller.

These days, tontines are being looked at as viable retirement income vehicles. A group of people invest equal amounts, and then withdraw an annuity each year they are alive. The payments are inversely proportional to the number of recipients, and increase as the others die. The last one standing gets whatever’s left.

Apparently tontines can pay a higher yield than an annuity because of their simple structure. And they are making more sense to investors as “longevity risk” – the possibility that we could outlast our money – increases in line with healthier lifestyles and better old age care.

“The last year or so has been really hard on the notion that history is a linear progression from darkness to enlightenment, but it’s been really good for theories of history as an endlessly recurring series of cycles. You see a bit of that in finance too: So much of “financial technology” — bitcoin and blockchain and peer-to-peer lending — is really about abandoning the modern technology of finance and returning to a simpler and more primitive time. (But with computers.)”

 

 

Daily Bits March 26th, 2017

Welcome to Sunday’s Daily Bits, the “Alternative Media” episode 😉:

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By "Paperboyo", via Colossal
 By “Paperboyo”, via Colossal

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I came across an interesting article in Poynter today about how and why reporters use Twitter. The advantages are fairly obvious: access to sources, a broader audience, always-on monitoring of beats. The disadvantages less so:

“One of the troubling trends in Twitter use is using the 140-character message to interview sources. Reporters argue that it’s easier for people to reply via tweets, even while at meetings, versus answering a phone call. I get that. But what do we sacrifice when we don’t look a person in the eye when they answer our questions?”

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A good followup to that is this delightful story from Nieman Lab about the New York Times’ Twitter account.

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The New York Times published an article on podcasts, with a refreshing focus on the ads. I’ve long said that the underlying business model is one of the most fascinating parts of this relatively new medium.

The article’s emphasis on the personal touch in the reading aloud of ads shows the possibility for creativity in media income streams. Plus, it talked about some podcasts I didn’t know (can’t believe they still exist) but are now on my “to listen to” list.

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From The Atlantic, a thoughtful article about a video game so weird it sounds like an LSD trip (or, to be more accurate, what I imagine an LSD trip would feel like):

“People play games—and read books, and listen to lectures—not to mistake their ideas for the world, but in order to find new ways to approach that world. This fact is so obvious that it seems stupid to observe it. And yet, video games—that medium of prurient adolescent fantasy at worst, and numbing, compulsive distraction at best—rarely try, or succeed, in doing so. Especially at the level of ideas so abstract as ontology, the study of being.”

 

Daily Bits March 25th, 2017

You’ve probably read many articles about the disembodiment we as a society are experiencing due to the infiltration of new technologies in our daily lives. Not like this, you haven’t. (FT, paywall.)

“Zuckerberg says that Facebook is committed “to continue improving our tools to give you the power to share your experience”. Yet what people might really need are the tools to connect to their own experiences. In the name of “sharing experiences”, people are encouraged to understand what happens to them in terms of how others see it. If something exciting happens, the gut instinct of Facebook true-believers is to draw their smartphones, take a picture, post it online, and wait for the “likes”. In the process they hardly pay attention to what they actually feel. Indeed, what they feel is increasingly determined by the online reactions rather than by the actual experience.”

Yuval Noah Harari (author of Sapiens, which if you haven’t read, you really should) writes a response to Mark Zuckerberg’s manifesto in the FT this morning about the impact of Facebook and friends on our experience of life.

“It is a good sign that the social media leviathan is leading the call for a global community. It is more difficult to see how far Facebook is willing to change its own business model to match its ideology. You cannot unite humanity by selling advertisements.”

This is unfair in that it overlooks the value of instant communication with anyone, anywhere, which is a key component of hope for the future. How can we unite if we can’t share ideas?

But Zuckerberg takes it further, and suggests that we need a new ideology for the new world we live in.

“If Facebook intends to make a real ideological commitment, those who fear its power should not push it back into the neoliberal cocoon with cries of “Big Brother!”. Instead, we should urge other corporations, institutions and governments to contest its vision by making their own ideological commitments.”

We have new threats, most of them global rather than regional. Conflicts of interest abound, and loyalties are called into question.

“You can be loyal to your family and your nation at the same time — so why can’t you be loyal to humankind, too? Handling multiple loyalties is not easy, because sometimes they make contradictory demands on us. But life is difficult. Handle it.”

What if commercial interests become secondary to greater goals? Is that even possible in this mercantile age? Would we trust it if it were presented to us on a platter?

Few organizations have the clout to pull it off. Facebook is one of them.

“The original gurus of Silicon Valley saw the internet as a tool for social revolution rather than for making money. In recent years, their vision seemed to be hijacked and distorted. Will Zuckerberg make the internet great again?”

But its clout is also a good reason to fear its influence. Given how much time people spend on the platform, and how insidious the data analysis and retargeting have become, we should tremble at the thought of Facebook and friends competing to impact our decisions even more than they already do.

“Take future election races, for example: in the 2020 race, Facebook could theoretically determine not only who are the 32,578 swing voters in Pennsylvania, but also what you need to tell each of them in order to swing them in your favour. But there is also much to fear from abdicating all responsibility to market forces. The market has proven itself woefully inadequate in confronting climate change and global inequality, and is even less likely to self-regulate the explosive powers of bioengineering and artificial intelligence.”

But could it not be argued that influence is inevitable? So, should we not encourage competing influences, so that we can veer towards the one that most reflects what we believe?

Am I being naïve in thinking that, if subtle control is going to happen anyway, that we can mitigate the effects through more balanced competition?

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Tell me this isn’t a little bit creepy:

A new type of cloud has been admitted to the lexicon of weather-watchers: undulatus asperitas. I love clouds (I even have a book called “The Cloud Collector’s Handbook”, talk about nerdy), but I seriously hope I never see one of these.

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The Harvard Business Review has published an introduction to ICOs and their impact on startup financing. Nothing really new, but this paragraph sums up the arguments for and against:

“Detractors of these new funding schemes scream for structure and protection, point out the scams, demand more control, and say that without equity, investors don’t have enough skin in the game. Meanwhile, proponents retort that there’s a real need for freedom to invest outside the accredited system, which sees the wealthy getting wealthier. They argue that the door needs to close on the domination of Sand Hill Road in Silicon Valley and other VCs and investors in the tech industry who have been making massive returns on the backs of entrepreneurs for far too long.”

What’s frustrating is that almost all articles talk about the pros and cons without taking into account the looming power of the regulators. This is an alternative form of investment, right? Investments are regulated. Whether you think there is too much regulation or not, we can pretty much all agree that some sort of protection is a good thing, even if it’s just in the form of strong disclosures. Something, to prevent the bad options from tarnishing the good ones.

I wrote about this a while ago. Regulation will happen. And that will change the appeal of this financing method. Who knows, maybe for the better.

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I thoroughly enjoyed this reflection from Tyler Cowen, about why hitchhikers should be invited to conferences. Read it, it’s lovely.

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Right, off to watch some more episodes of Daredevil…

Are blockchains and distributed ledgers the same thing? Sort of.

I had the privilege to give a seminar yesterday on bitcoin and the blockchain, to an engaged group of professionals with lively debate and challenging questions. One member of the audience asked a particularly intelligent question: what is the difference between a distributed ledger and a blockchain?

My immediate response was “there isn’t one, not really – it’s mainly semantics”. But I’ve been brooding all morning – is that correct?

Not really.

Antony Lewis of Bitsonblocks answers the question with clarity and simplicity (hard to come by in this field).

It turns out that all blockchains are distributed ledgers, but not all distributed ledgers are blockchains. Blockchains distribute data to all participants. Distributed ledgers don’t.

He provides a great diagram:

via bitsonblocks.net
via bitsonblocks.net

He also offers some advice:

  • If you want to include all the initiatives going on, use the term “distributed ledgers”.

  • If you mean blockchains, where unrelated transactions are bundled into blocks, which are chained together using hashes and (in most cases) broadcast to all participating entities for batch processing, use “blockchains”.

  • If you like acronyms, use “DLT”: Distributed Ledger Technology

So, my new answer to that question is the same, but with a qualification: “you can use the terms interchangeably, but technically, not all distributed ledgers are blockchains”. Sound good?

Daily Bits March 23rd, 2017

No short post today, no time, and tomorrow I’m going to have to skip the Daily Bits – I’ll be getting the weekly newsletter for CoinDesk out, talking to people for our upcoming Consensus conference, and giving a blockchain seminar in the evening.

Lots to think about, though…

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This is interesting: CoinDesk spoke to several legal experts on the potential ramifications of a fork in the bitcoin protocol. The consensus (no pun intended) was “big mess”. As editor Pete Rizzo points out:

“On one side, miners have put forth the idea they could sue developers for changes to bitcoin’s consensus algorithm, should it result in their inability to operate profitably. On the other hand, developers have implied miners could face repercussions should they act aggressively, or maliciously, to disrupt one of the two resulting blockchains.”

But, as the lawyers consulted point out, just who would the miners sue? There’s no contract. And, just who would sue the miners? If the blockchain belongs to nobody, who’s to say it’s been hurt? Jurisdictions are confusing, Identities are unclear. And the legal mess would take years to unravel.

By then, a replacement will have appeared, hopefully with a better governance model. Not sure what that would look like, though.

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I confess that I do not understand why the bitcoin price is proving so robust, with such a potential “big mess” just around the corner.

via CoinDesk
via CoinDesk

Charles Bovaird of CoinDesk shed some light. He spoke to market analysts who point fingers at traders looking for speculative profit. Short sellers covering their position were also mentioned.

Disconcerting.

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Staying on the topic,

It’s interesting that we’re still holding bitcoin to the standard we think Satoshi wanted, when

1) we don’t know what he wanted, and

2) he’s not involved anymore (as far as we know).

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Yup:

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Ever since I heard about this writing app, I’ve pretended that I have it installed. I say pretended, because the real thing would probably give me a heart attack.

Let me explain: the tool is designed to help people overcome writer’s block, by threatening to kill their creation. If you stop typing to, you know, think, it starts erasing what you have written.

I know that you’re not supposed to edit while writing, but I feel ill when I write something I know is terrible (not knowing it’s terrible is not so bad, although my editor might disagree). So, I spend an inordinate amount of time staring at the screen, brow furrowed.

If I pretend that my work is about to be deleted, the pressure does help me to come up with something that I can later change. And we all know that editing is easier than writing (although again, my editor might disagree).

Thanks to Ina Fried of the Axios Login newsletter for reminding me where to find it!

Daily bits March 22nd, 2017

My kids are older now, but they have grown up in a society vulnerable to terror attacks. My son was six when his dad was entering the twin towers in New York on 9/11 (mercifully unscathed), and at the time, with blanket coverage on the TV, I didn’t think to give him a big hug and console him. I assumed he was in his childhood bubble, happily thinking about dinosaurs. It was only hours later that he came up to me and quietly asked if his dad was ok that I realized the seriousness of that oversight.

This article from Quartz presents a thoughtful way to explain this new reality to younger children, especially important in light of the sad, sad news from London.

london 800

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Yesterday I linked to Elaine Ou’s article on bitcoin’s fees, in which she argues that they’re reasonable and inevitable. Entrepreneur and trader Jacob Eliosoff responded to Elaine on Twitter, and the thread got interesting (if you don’t see the whole thing here, open it up in Twitter):

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Another thing that blew my mind today was the recent a16z podcast on data storage. It may sound incredibly boring, but it’s shocking how little most of us think about it, given its importance. Where are we going to put all the data that we are accumulating? And what about when sensors are everywhere? What’s the difference between storage and memory? What even is data? It’s a different concept now…

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Time for some perspective… Stunning aerial photographs of South Africa, by Zack Seckler – via Colossal.

by Zack Seckler, via Colossal
by Zack Seckler, via Colossal

Investing in a central bank?

SARB 800

Take a look at this extraordinary news item reported by Reuters a couple of weeks ago: “South Africa’s central bank sells shares of investors deemed to have too many”.

The South African Reserve Bank (SARB) is putting up for sale 150,000 shares currently held by private individuals and institutions, in a move to prevent attempts to influence central bank policy. Apparently several shareholders have ignored the law that limits any individual holding or group of holdings to 10,000 shares.

Earlier this month, the bank invited South Africans to purchase the newly available shares, stressing that it wanted to diversify its shareholder base. The stock used to trade on the Johannesburg Stock Exchange, but left when it was unable to comply with changes to listing requirements. It now trades on an over-the-counter market coordinated within the Reserve Bank, and pays a dividend of a maximum of R0.10.

Which part do you find more astonishing? That we have a central bank marketing its own shares to the public? Or that it is even possible to own shares in a central bank?

If the latter, you’re not alone.

And nor is the SARB. The central banks of Switzerland, Japan, Belgium and Greece also list on local stock exchanges.

For an excellent summary, see JP Konings article from a while ago.

Back to South Africa. The marketing pitch seems to be based on patriotism, because the shares themselves aren’t that attractive. The yield is paltry (just over 3%), the dividend is capped, it is run as a not-for-profit, any profits go to the government and shareholders have no voting rights. And get this, you can only buy or sell these shares by sending your instructions “by means of postal, facsimile, hand delivery or e-mail communication only” (taken from the SARB website). So you do need to wonder, why would anyone buy them, unless it is in the hope of having some influence?

Why is this important? Because it underlines that most of us don’t really understand central banks. Just like bitcoin showed us that we don’t really understand money.

Just like being aware of alternatives to fiat money can help to bring about financial reform, being aware of different models of central banks will open mental doors to a re-imagining of the system.

 

Daily bits March 21st, 2017

Today I came across yet another excellent article from Elaine Ou, this time on bitcoin fees. Which are not, by the way, expensive or even increasing.

“Even if the transaction fees haven’t gone up much in terms of bitcoin, the dollar-denominated price of bitcoin has increased by a lot, so the transaction fees look a lot higher these days when considered in dollars. But it’s not Bitcoin’s fault that your stupid fiat currency can’t hold its value.”

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Janan Ganesh of the FT gives us a blissfully scathing take on the fiasco that is the Brexit negotiation. Poetry.

“Seeing these ministers talk their way out of old promises leaves you with a sense of sinuous political skill but also smallness — of a trio pulling themselves up to their full height to look at the monumental work of exit straight in the ankles.”

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Tyler Cowen dropped another video in his Complacent Class series, this one looking at stasis in American business. “What?,” you say. “With so much disruption going on?” See, it turns out that there actually isn’t. In spite of the technological advances and new business models, “disruption” is still the exception rather than the rule.

The US has an ageing business environment, slower rates of productivity growth, and a government that couldn’t react swiftly even if it knew what to do. As Tyler puts it, “this is troublesome”, and the Great Reset that he predicts is disconcerting, to say the least. (No, it hasn’t happened yet.)

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CoinDesk reports that a “wide range” of traders are expecting a hard fork of the bitcoin blockchain, and are pulling back funds and/or hedging. Yikes.

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CoinDesk also features an interview with Blythe Masters, CEO of blockchain company Digital Asset Holdings, who estimates that blockchain technology could squeeze out 30-60% of jobs through increased efficiency. Sure, it’s creating jobs, but these are difficult to fill.

It is refreshing to hear a blockchain executive shine a light on the impending social upheaval the technology is likely to bring about. If only more would follow suit. It wouldn’t be enough to stem the disruption, but it could be a start, and it’s definitely better than pretending it’s not going to happen.