Daily Bits – fail rates, trade (again) and bitcoin value – June 27th, 2017

I read with interest Erin Griffith’s essay in the Fortune Data Sheet newsletter this week, which contained this paragraph:

“I recently found myself carelessly repeating a statistic that I’d heard dozens of times in private conversations and on public stages: “Nine out of 10 startups fail.” The problem? It’s not true. Cambridge Associates, a global investment firm based in Boston, tracked the performance of venture investments in 27,259 startups between 1990 and 2010. Its research reveals that the real percentage of venture-backed startups that fail—as defined by companies that provide a 1X return or less to investors—has not risen above 60% since 2001. Even amid the dotcom bust of 2000, the failure rate topped out at 79%.”

A ha! On the one hand, better. But on the other, we’ve been misled. Although, as Erin points out, the actual numbers aren’t that important. The message – that it’s much, much harder than it seems – is.

— x —

A few months ago I wrote about this platform for CoinDesk, and so was understandably excited to see it progressing.

The Digital Trade Chain Consortium, comprised of seven European banks working on blockchain supply chain applications for small and medium businesses (SMEs), has partnered with IBM for the roll-out of the platform, still scheduled for the end of 2017.

While not exactly shattering news, it does show that progress is being made, that the project is still on schedule, and that we might soon see a live version of a blockchain platform helping foster trade across borders. That is exciting.

— x —

Forbes published a thought-provoking article on bitcoin, which the author argues has no clear intrinsic value.

He clarifies that its utility as a medium of exchange can’t be considered intrinsic value, either, unlike gold, and posits that its “political value” can’t be substituted.

What he neglects to include in the analysis is that bitcoin has another utility, one coming increasingly to the fore – the ability to transfer information without going through third parties. That information may be about a transaction (Alice pays Bob 0.5 bitcoins), or it may be a hashed document registered on the bitcoin blockchain. That function – bypassing centralized enablers in a reliable and tamper-proof fashion – has value.

So, even if you believed that bitcoin had no use whatsoever as a currency, it’s hard to argue that it has no intrinsic value.

I also disagree that the “political value” is worthless. In this increasingly politicized world in which we live, with tectonic shifts in economics, demographics and philosophy, it really isn’t.

And the claim that all libertarians want to return to the gold standard is a stretch.

As is his claim that a large part of bitcoin’s value stems from the ability to mine it. Apart from the fact that not everyone can do that (it’s bloody expensive), mining has nothing to do with utility or, for that matter, intrinsic worth. Just because we can create something, doesn’t mean it has value. It only has value if people want it.

Why would people want it? Because they believe it will be useful. Maybe not today, but some day.

How is that different from the value we ascribe to the dollar? It has value because we believe that the US government will honour its debt and repay it. In other words, the dollar will be useful. Not today, but some day.

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As a devout city-enthusiast, seeing a travel photo competition (for National Geographic, no less) full of stunning images of buildings makes me so happy… (via MyModernMet)

by Nikhil Rasiwasia, via MyModernMet
by Nikhil Rasiwasia, via MyModernMet

 

Shipping blues and blockchain solutions

by Frank McKenna via StockSnap
by Frank McKenna via StockSnap

I was startled to see yesterday that China’s freight activity has been in contraction for the past six months. Given the country’s push to increase its global footprint, and its dependence on manufacturing and exports, this doesn’t look good.

So I did a bit more digging and saw that the Baltic Dry index, which assesses the price of shipping raw materials by sea, shows that freight activity overall has been falling sharply since April (which did not happen in the previous two years), and is well below 2014 levels.

Global shipping is slowing down?

All the more reason, then, to reduce costs and streamline processes, as fast as possible.

With several enterprise firms around the world examining the potential impact of blockchain technology on supply chain logistics, progress is being made.

Microsoft’s Project Manifest platform plans to track everything from auto parts to medical devices, and as of May 2017 had 13 members, including Auburn University and supply chain tech firm Mojix. One pillar of the project is the connection of RFID scanners to the ethereum blockchain. Previously, Auburn University’s lab succeeded in combining RFID technology with the electronic data interchange transaction standard that improves supply chain traceability using centralized databases. It will be interesting to see what impact decentralized ones will have.

Earlier this year, the Danish shipping giant Maersk revealed the completion of its first live blockchain trial, aimed at reducing the amount of expensive and time-consuming (not to mention error-prone) paperwork that a global supply chain requires. A 2014 study commissioned by the company showed that an average of 200 separate transactions, passing through the hands of 30 counterparties, are involved in the shipment of a product using a shipping container. A blockchain platform can streamline the verification and transfer of the relevant documents, giving the counterparties access to the real-time information they need to process their part.

After a difficult year which saw profits decline, plus the rocky outlook for global shipping signalled above, the cost reduction a live platform could offer would be welcome.

Late last year, the port of Rotterdam formed a blockchain consortium focused on logistics, along with ABM Amro, Royal FloraHolland (which ships flowers) and several research institutions. The group plans to focus on testing the sharing of contractual and logistical information.

And there are many others.

However, given the obvious inefficiencies, and the shaky position of world freight – not to mention its importance in the global economy – it is surprising that there aren’t more.

You know the adage about complex systems not changing until they absolutely have to? That time may have come.

 

Daily Bits – chickens, ether and bitcoin bills – June 26th, 2017

My article on CoinDesk this week –  Counting Chickens: Can Blockchain Restore Trust in China’s Food Supply?

These essays are taken from the weekly CoinDesk email, which I produce. If you don’t subscribe, you should, they’re kinda fun (even if I say so myself).

— x —

As the price of ether retreats, this is a refreshing take on its outlook.

If you’re tired of the hype surrounding ethereum, you’ll like this article. Bitcoin miner and investor P4man takes a look at the fundamentals and makes some observations about the ether token’s outlook.

For instance:

  • Virtually no traction as a transactional currency (no merchant infrastructure, little evidence it’s used for remittances or similar)
  • Due to its complexity, it’s not a good store of value
  • It does not offer trust or predictability (vis hard fork)

And then there’s this:

“Despite hearing many claims to the contrary, ethereum with its vastly more complex blockchain, has a much bigger scaling problem than bitcoin, that is yet to be solved, even in theory. Concepts exist to address this problem (“sharding” etc), but those do not exist yet and may not even work.”

Plus, if we accept that a large part of the run-up in the price of ether was due to the demand for tokens with which to participate in ICOs, then for the ICO promoters to use the raised funds, they will have to sell those ether. Which could lead to downward pressure on prices.

Which may be what we’re seeing now. At time of writing, ether is ___% down from its recent high.

However, it looks like the ICO craze is not over yet, so ether could well rebound. I just don’t know when, or by how much (ie. this is not investment advice! – I do not hold ether.)

— x —

A good thread on decentralization:

— x —

Artist Matthias Dörfelt wrote a program which, for each bitcoin block input, outputs a design for a bitcoin bill. As in, a paper currency version of bitcoin.

by Matthias Dörfelt, via Co.Design
by Matthias Dörfelt, via Co.Design

To top it off, Matthias hand-signs each bill “Satoshi”. Because. And, notice the shadowy figure in the centre of each design.

by Matthias Dörfelt, via Co.Design
by Matthias Dörfelt, via Co.Design

I spent years teaching my daughter not to ask “why?” when it comes to art. I’m beginning to wonder if maybe she was onto something after all.

(Via Co.Design.)

 

Daily Bits – central bank currencies, blockchain ad servers and cookie dough – June 23rd

JP Koning brings up central bank digital currencies (CBDCs), and explains the difference between account-based money and bearer-based money. Most economic accounts of CBDCs, he says, only talk about the former. However, society needs the latter for “robustness”.

In account-based money, payments go through a central authority (say, the issuing central bank) that verifies we have enough in the account and that we are who we say we are. Then it authorises and executes the transaction. Bearer-based money is more like cash. Onus on the execution lies with the user, and the ledgers are adjusted off the central issuer’s books (if I give you €20, it’s understood that it’s now yours and not mine).

A CBDC that only works with account-based money will be vulnerable. Technological glitches happen. Servers go down, settlement platforms can break and mobile telecommunications can have outages. Cash, on the other hand, keeps on working throughout.

So, says Koning, to avoid a step backwards in a future move to CBDCs, in which society is left worse off than it is today, we need to develop a digital form of bearer-based money.

I know, at this stage you’re probably screaming “Bitcoin! Bitcoin!”. But we’re talking central banks here, so…

Koning posits that a solution could be “digital tokens”. A central bank could issue digital tokens onto a distributed ledger, and verification could be outsourced to nodes spread all around the world. This sounds bitcoin-ish, but the central bank retains control of the issuance. An intriguing compromise.

— x —

Favourite tweet of the day:

— x —

I might start a collection of blockchain “applications” that don’t really need blockchain. The fun part will be removing them from the list as I find out that, wait a minute, maybe the blockchain can help…

Anyway, here’s one that I don’t yet “get”: serving online ads. I understand that there’s a lot of fraud, and that the blockchain’s transparency can help with the trust. I also understand that a decentralized “marketplace” for ads could lower costs and spread the income.

But, given the sensitivity of certain messages and images, a totally decentralized ad serving platform will be a hard sell. Someone has to vet, and someone has to take responsibility if sensibilities are offended. If I were to host ads on this site (not going to do that), I would prefer the centralized, more expensive version to a decentralized one that might display pornography.

And, as this article in Digiday points out, there’s the transaction confirmation speed to worry about.

— x —

Cookie dough!!! By the scoop!!!!! OMG!!! (Via The New York Times.)

via The New York TImes
via The New York TImes

IMAGE

Putting blockchain hype in its place

by Joshua Earle via Unsplash
by Joshua Earle via Unsplash

I get so annoyed when blockchain hypesters bang on about how “blockchain will change the world”, and it’s the “most revolutionary technology to emerge since the internet”. (And I say this as an enthusiast who is excited about what it can do.)

Why does it bother me so much? Because they are empty claims. Sure, the world will change. But that will happen even without blockchain technology. Stuff changes.

And, blockchain won’t change everything. Bagels will probably still be the same (I hope, anyway). African safaris will probably continue to run as always, and childbirth (unfortunately) is unlikely to see many blockchain efficiencies.

So, enough with the empty claims that only serve to turn thinking people away, once they’re tired of rolling their eyes.

And anyway, to put blockchain fans (like myself) in their place, check out this chart from Axios:

Axios chart
chart by Axios

Investment in AI is dwarfing that in blockchain, even including ICOs. (Blockchain investment is not included in the chart – see? blockchain isn’t even in the top three of “next-generation technologies”.)

According to CoinDesk’s State of Blockchain 2017 report, blockchain investment in 2016 reached $500m. Axios’ chart shows that investment in artificial intelligence in the same period reached $3.6bn… Over seven times as much!!!

Even when you add in the digital token frenzy of 2017, investment in AI businesses so far this year continues to outpace that in blockchain businesses by a factor of more than three.

If blockchain were the “most revolutionary technology” as some in my sector like to claim, wouldn’t smart money be overwhelmingly flowing there?

Don’t get me wrong, I strongly believe that blockchain technology will have a big impact on processes, structures and even philosophical issues. And I am excited to work in this space, I wouldn’t want to be anywhere else. But, it’s not the only show in town. And keeping a big-picture perspective will help us to see beyond the knee-jerk application and the “me-too” ICOs, and truly understand what a profound role it will play in the evolution of societies and systems.

It will also help us to understand that the impact will be uneven. And that the technology is just part of other profound changes that actually began some time before bitcoin appeared.

With that understanding, we can hopefully waste less time, and get down to some real work.

Daily Bits – distributed storage, tweetstorms and cities – June 22nd, 2017

I’ve been pondering for a few days now the question of why decentralized file storage is better than centralized file storage with a trusted third party that can be held accountable if things go wrong.

And then this morning I come across this article published on Coin Center’s blog, written by Juan Benet, Jesse Clayburgh and Matt Zumwalt of the Protocol Labs team (a startup that focuses on data storage problems – so they know a thing or two).

These are the arguments against centralized cloud storage:

“This architecture makes the web brittle, undermines privacy, allows the price of storage to remain artificially high, and creates bottlenecks that prevent innovative new uses of data.”

Okay, I get that.

I’m also intrigued by the idea of locating files by what they are, not where they are. If a webpage calls a file now, it references it by where it’s stored. That, as the authors say, does make the web “brittle”. Move the file, and the call no longer works.

The authors helpfully compare this to pulling library books by their location, not their title.

Add to that the economies of scale of harnessing all that unused computing capacity (just on my laptop I probably have a fair chunk).

So, I’m liking the idea. But I still don’t see how this system will get enough of a network effect going to be practical. Website code will need to be re-written, and given the vast size of the ecosystem, the incentives will be tricky. If indeed possible.

But, just because something is “too big to change”, doesn’t mean we shouldn’t try, right? Look at the valiant cryptoeconomists working on imagining a new central banking system.

A daunting task, though. But one that I am now more interested in.

— x —

An epic 37-tweet thread from Naval Ravikant that, although it’s long, showcases the discipline of having to work within 140-character limits:

It includes gems such as this:

— x —

Diverging from blockchains for a second, I came across an illuminating article on the three different types of cities: suburban (built for cars), hypertrophic (built for transit) and traditional (built for walking).

This reminded me of something I read recently by urbanist and philosopher Jane Jacobs, who asked: “Are we  building cities for people or for cars?” I know which type I prefer (hint: I don’t even have a car.)

I do, however, recognize the impracticality of having a totally walkable city. Pity.

city traditional
Traditional city

 

Hypertrophic city
Hypertrophic city

 

Suburban city
Suburban city

— x —

Finally, an article on digital identity that recognizes that the incumbents may have a say in how this turns out. But, they may be amenable to a business model mutation: “Hey, so you lose all this income from the identities you control, but just think about all the extra users you’re gonna get!”

Okay, it needs some work, but it’s a start.

Moral: the incumbents aren’t going to let go of their stronghold on our identities without a good reason.

 

 

Kik’s mixed signals on their ICO

Am I the only one that found this article alarming?

I wrote a while ago that the Kik initial coin offering (ICO) was interesting because it obviously wasn’t purely for financing purposes. I mean, they already have a lot of VC funding, and given their user base, would most likely be able to get more.

It seems I was wrong. From the TechCrunch article:

“When asked if the unicorn-valued startup had trouble raising additional funding, [CEO Ted Livingston] demurred but claimed that the ICO is an alternative form of exit.”

Uh oh.

mark wahlberg confused

I would like to point out that neither VC funding nor and ICO should be seen as an exit! Acquisition, sure. IPO, maybe. But minority investors don’t buy into a company so that current shareholders and/or the CEO can exit. The fact that they would even want to should send interested parties scuttling.

Especially in an ICO, whose tokens supposedly will only have value if the holders want to use them. Which they would want to do if the platform was to continue growing, right?

The uh-ohs keep coming.

“[Livingston] believes that the ICO will provide an adequate return for the existing investors, which would take pressure off a possible acquisition or an IPO.”

The CEO has pretty much declared that it’s a security.

And then there’s this quote:

“The way I think about ICOs is it’s very similar to the dot-com era. There was a bunch of excitement, people made a bunch of money, people lost a bunch of money but Amazon and Google came out of it.”

Relating ICOs to the dot-com crash and claiming that Amazon and Google would not have happened without it is… to put it kindly, very strange.

However, an article on CoinDesk yesterday quotes Livingston as saying (referring to the test run of non-blockchain based Kik Points):

“There were two things it was meant to test,” said Livingston. “One is, could digital currency be used to incentivize opt-in advertising? Two is, could we use a digital currency to build an economy? We were trying to test those two things at the same time. What we found it’s yes to both.”

Now, that sounds more like it.

On the surface, the idea makes sense (so far, anyway). Using a blockchain token means that the native currency can be bought and sold on digital currency exchanges, which was not the case with Kik points.

Kik has said on previous occasions that it aspires to being North America’s WeChat, referring to the Chinese messaging app on which users spend an average of four hours a day. But, WeChat doesn’t have a blockchain-based cryptocurrency, and manages to do just fine.

The CoinDesk article reminds us that other attempts to commoditize social media attention (including Facebook’s now-shuttered Credits) have not worked. However, Kin (as Kik’s currency will be called) will emerge in a very different paradigm, with digital tokens all the rage, and cryptocurrency technology advancing in giant leaps.

Yet this does not guarantee success, and the mixed messages aren’t going to help.

Is the ICO an ecosystem builder or is it a money grabber?

A bigger question is: is it possible to be both?

Daily Bits – identity again, ICOs and thread – June 20th, 2017

My colleague Michael was at a presentation at the UN yesterday that focused on identity. Neil McCann of the UNDP (who was excellent on our “Global Issues” panel at Consensus, which you can see here) stressed cross-industry collaboration, urging the private sector to join the UN initiative to develop a platform for digital identities.

An especially intriguing part is this: the UNHCR representative speaking at the event insisted that the eventual identities need to be owned by the individuals.

While this may seem obvious on the surface, it isn’t when you think about how identities are granted today. Our identities are not owned by us – if our government decides to revoke our passport, it’s very hard for us to prove who we are.

Spinning out a sovereign identity platform for refugees (although they are not the only target “market” for this service) would have a huge impact – not only on how aid is delivered, but also on immigration, education, possibly even finance. The effect could be much wider than we dare to imagine.

To coin a phrase: “bring it”.

— x —

Favourite tweet of the day:

— x —

If you’re contemplating doing an ICO (really????), read Emin Gün Sirer’s take on Bancor first. It’ll provide strong guidelines on what not to do.

Bottom line, you should:

  • Address a real problem
  • …without mumbo-jumbo terminology

He doesn’t attack the code (well, a little bit) as much as the business model. Which, in this manic eurphoria, disconnected from fundamentals, is refreshing. And sensible. Hype cannot stay disconnected from reality for ever…

What’s more, whether you agree with Gün or not, the prose is sharp:

“‘Double coincidence of wants’ is a real problem in economics today in the sense that the ‘itsy bitsy spider’ problem is a real problem in zoology — that is, it’s something one might learn in grade school, and it’s completely irrelevant in the real world.”

— x —

In no way am I into embroidery (I once tried a colouring book for adults… and realized that I’m just not that stressed.) But this is captivating:

3d embroidery

3d embroidery by Justyna Wołodkiewicz, an abstract mix of thread and clay. (Via Colossal.)

3d embroidery 2

Daily Bits – currency, tulips and tables – June 19th, 2017

A fascinating article from JP Koning on his blog Moneyness, on currency:

According to the monetary theorist Henry Dunning Macleod, currency used to be used an adjective, not a noun. Certain types of goods or instruments were considered to be “current” in the eyes of the law and common business practice. They were said to have “currency,” but were not themselves currency.

An item had “currency” if it could not be reclaimed if stolen. Coins, for example, belonged to the holder. (They still do.) But jewellery – at the time McLeod was writing, the 1800s – belonged to the original owner, and so was not “current”. The holder had to be able to prove that he/she had legally obtained the item.

Interestingly, McLeod did not consider bank deposits “currency” since they could not be transferred to someone else (back then). Stock certificates, however, were.

This illustrates that an item didn’t have to be money to have currency (e.g. bonds were considered to be current), nor did it have to be government-issued to be current (banknotes and bills of exchange were privately issued).

— x —

This chart taken from a World Economic Forum post on the future of work is worrying, not for the overall message (because, like, we know), but for the detail offered.

via the World Economic Forum
via the World Economic Forum

I live in Spain (#3 in terms of most-to-lose), where unemployment is already the second highest in the European Union, at over 18% (not far behind Greece, in case you were wondering).

Add that to the almost 12% job loss that the chart shows, and you have an almost 28% unemployment rate. Yikes.

No doubt there will be many jobs created by automation. Someone has to take care of the machines and/or code, after all. But still, ouch.

And yet we hear nothing from the relevant ministries about plans to offset, compensate or handle this.

— x —

Elaine Ou had some pithy observations about the ICO frenzy in her blog Elaine’s Idle Mind (a misnomer if ever I saw one):

“…the money is about as real as unexercised tulip options. Tokens aren’t sold for dollars; they’re sold for ether.”

“Today’s impressive half-billion dollar value is an impractical conversion — You can’t liquidate 1.6 million ETH without crashing the market.”

“The total amount of ether funneled into tokens is but a fraction of the 11.8M ETH dumped into the DAO.”

Worth a read. Unless you have a strong affection for striped tulips, in which case you might find it traumatic.

— x —

A coffee table design based on Princess Leia’s buns??? Okay.

by Zaha Hadid Design, via Dezeen
by Zaha Hadid Design, via Dezeen

Sovereign identity and the Knights of Malta

Palazzo_di_Malta,_Roma 2

While looking into passports for sale the other day (not for me, you understand… not yet, anyway), I came across a name that I had heard before but knew very little about. So I did some digging and almost had my mind blown.

The Sovereign Military Order of Malta – also known as the Knights of Malta, or Knights Hospitaller – is a religious order with ties to the Holy See that dates back to the early 12th century. But, it is also an independent, sovereign subject of international law.

Its mission is still, almost 1000 years later, to care for the sick and infirm, especially those displaced by conflict. As well as its 13,500 members, it has 80,000 volunteers and employs approximately 25,000 medical personnel.

So, it is an NGO with sovereign status. It can negotiate with other governments as a sovereign entity. Other global NGOs such as Caritas, Greenpeace and Médecins sans Frontières need the backing of a sovereign power. The Knights of Malta don’t, because they are one.

It doesn’t have any territory, except for two buildings in Rome, both of which have extraterritorial status (which means that they are technically not part of Italy – much like embassies).

In 1998, however, it signed a treaty with Malta for the use of the upper portion of Fort St. Angelo in the city of Birgu (for the next 99 years). Technically, this will also be a sovereign territory, but the Order will not be able to grant asylum to anyone, and Maltese law applies. At the moment, it appears to be used for historical and cultural activities.

And get this: the Sovereign Military Order of Malta can issue stamps, currency and passports.

Three of them, to be precise. The Order issues passports to the Grand Master, the Deputy Grand Master, and the Chancellor of the Order.

It has diplomatic relations with over 100 states, including the European Union, which means embassies. It also has observer status at the United Nations (along with the Red Cross, the Council of Europe, the African Development Bank, the European Organization for Nuclear Research and a host of other not-for-profit academic and regional associations), which entitles it to participate in the work of the UN General Assembly.

What I find most intriguing about this is the concept of sovereignty being granted to an organization that has no territory and no citizens (sort of). True, it was granted almost a millennium ago, and no government has dared to attempt to alter that.

Personally, I hope that they never do. I find the mix of chivalry and honour, combined with the long reach of history, totally captivating.

And the notion that sovereignty does not always require the traditional parameters of borders and citizens opens up a new understanding of what could become possible as identity is redefined.