Bits and stuff: April 15, 2018

Hi everyone! Earlier this week I had a brief escape to a city in the clouds…

canary wharf

(Canary Wharf in London, if you’re wondering)

…and came home to find half the trees being cut down on the street my apartment looks out over. Why? Apparently they’re “not safe” and the powers-that-be are worried that, in a rough storm, they might fall over. I’m not sure what’s more disconcerting: that they’re preparing for “rough storms”, or that beloved trees that have been struggling to grow for 40 years are not even being given a chance to show their sturdiness. Safety is important. But so are trees. And Madrid is poorer for their loss.

trees

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This article by Rachel Rose O’Leary highlights a fundamental tenet of capitalism: it is naturally monopolistic.

Apparently crypto communities are up in arms over the arrival of ASIC (Application-Specific Integrated Circuit) chips, which give their owners an advantage in mining certain cryptocurrencies. Developers and users of ethereum, zcash and monero fear that the advantage that the new chips can give miners of these cryptocurrencies will upset the delicate balance in their decentralized ecosystems.

And they’re right, it’s likely that the result will be increased centralisation, as those with money (to spend on the chips) end up producing a greater number of tokens and thus making more money, which means they can buy more chips, and so on.

This freedom – to spend money on making more money – is capitalism’s centralizing force. And while factories and transportation networks have certain physical barriers that could slow the centralisation down, the digital world moves faster. Network effects are realised in a shorter time frame.

Yet this is antithetical to the crypto spirit of decentralized finance. Hence the existential conflict. To stop it from happening, strict rules will be needed. But rules decided by whom? Invariably, those that make the rules end up controlling the system. Not exactly decentralised.

It’s not often we get to watch capitalism at work in a petri dish. And the accelerant of networks and social media will make this expected plot twist particularly edifying to watch.

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The reveal that several projects are contemplating launching an ICO on codebases incubated within the Hyperledger consortium is further evidence of the spread of non-ethereum ICOs…

The Sovrin Foundation, creator of the Hyperledger Indy codebase for digital identity management, is planning a crypto token launch this summer.

And PokitDok, a healthcare API platform exploring blockchains, is looking into launching an ERC20-based token on top of Sawtooth, another Hyperledger codebase. ERC20 is a template designed to simplify the issuance of digital tokens on ethereum – this is the first I’ve heard of it potentially being used on other blockchains.

While that in itself is fascinating, taking this forward, I’m intrigued as to what it could do for interconnectivity…

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christian nagel

by Christian Nagel, via Google Arts

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JP Koning sets out an excellent description of what a digital central bank currency could look like…

“Like banknotes, these digital tokens are anonymous and untraceable. To make use of them, people don’t have to register for an account. Rather, the tokens are held independently on one’s device, sort of like how paper money is held in one’s wallet without requiring any sort of registration with the issuing central bank.”

… why it wouldn’t destabilize the system…

“…imagine a world with digital currency. In the event of a panic, customer redemption requests will be instantaneously granted by the bank facing the run. But that same speed also works in favor of the bank, since a request to the central bank for a top-up of digital currency could be filled in just a few seconds.”

… and why it probably wouldn’t work.

“…what if there just aren’t that many people who care about online privacy? Countries like Sweden, where banknote usage is plummeting, give credence to this concern while surveys of cash users in the eurozone show that anonymity is not terribly important to them.”

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I’m far from a cryptocurrency maximalist, and am more interested in what blockchain’s can’t do than what they can, so it would be fair to think that I’m enjoying the growing chorus debunking the hype of both.

To some extent, yes, but I am now getting increasingly irritated by a new kind of hype: articles that decry blockchain’s futility and crypto’s lack of fundamentals, without understanding either. There are many smart realists out there (you’ll see me retweeting their stuff in approval). But as the hype cycle moves into the trough of disillusionment, others are jumping on the negative bandwagon without having the credentials or depth of knowledge to present arguments that hold up to either fact-checking or logical scrutiny. I’m not naming names because they don’t deserve the publicity – and that, more than reasoned debate, seems to be more what they’re interested in.

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Dramatic interior shots by Spanish artist Lino Lago – via Colossal

Stock exchanges, cryptocurrency trading and trying harder

Until a few years ago, Avis – the second-largest car rental firm in the US for much of the last half century – ran an iconic advertising slogan: “We’re No. 2. We Try Harder.” Given my soft spot for underdogs, I thought it was brilliant. Embrace reality, turn a negative into a positive and move the goal posts.

avis

I was reminded of that this week when Germany’s no. 2 stock exchange revealed a planned launch this autumn of a cryptocurrency trading app. Börse Stuttgart’s subsidiary Sowa Labs has developed a mobile platform that enables clients to trade bitcoin, ethereum, litecoin and ripple. Onboarding will supposedly take minutes, and although initially only available in German, apparently an English language version is in the works (the company also runs the second-largest stock exchange in Sweden). Perhaps even more interesting, the app will use “artificial intelligence” to sift through crypto Twitter and select those tweets that best indicate price trends (can’t wait to see that).

While a distant second to Deutsche Börse in terms of turnover, Börse Stuttgart is – according to its website – the market leader for exchange trading in corporate bonds (as opposed to over-the-counter trades, which dominate volume). What’s more, and this is especially interesting given its cryptocurrency strategy, Börse Stuttgart is Germany’s leading exchange for retail investors. Its website claims:

“Ground-breaking ideas for the benefit of retail investors are a tradition at Boerse Stuttgart.”

Although founded as far back as 1861, it seems to have been eager to embrace new technologies, offering “best size” and “best price” practices for the retail market, long before most of its peers. And now, cryptocurrency trading.

As well as the empowering idea of the second largest having to try harder, another underlying force is at work here, one that we’ve seen replicated across the finance sector: the incumbents are the best positioned to take new technologies mainstream.

The economist Joseph Schumpeter posited, almost 100 years ago, that large firms are more enablers than barriers when it comes to technological development. Their reach and economic power gives them a huge advantage when it comes to “appropriating” technology, further consolidating their position and further centralizing the sectors in which they operate.

True, the landscape has changed. The growth of computing and open source technologies has distributed access to new ideas among a much broader range of actors. Startups are gaining significant clout, and are likely to become the new incumbents as market structures shift.

Yet, the current incumbents seem to be aware that embracing new technologies is not only good for the bottom line, it could also become a matter of survival. And, in the process, the technologies reach a wider audience.

We’re seeing this in the cryptocurrency sector. Most commercial banks, central banks and stock exchanges are running blockchain trials and designing proofs-of-concept. And in cryptocurrencies, while many institutions are still keeping a cautious distance, a few brave innovators are incorporating new services to improve access to a market that is obviously not going away.

Is this just another case of a financial institution using “cryptocurrency” as window dressing to enhance its profile, or is there significant demand amongst Börse Stuttgart’s retail client pool for cryptocurrency trading? According to an internal survey, there is – and the company’s record on innovation and retail focus points to a genuine interest in improving the customer experience when it comes to a new asset.

Beyond the easier access to cryptocurrencies, a more subtle change could result: the increased perception that bitcoin, litecoin and peers are neither a threat to the established system, nor a clandestine investment opportunity. The backing of a large and reputable financial institution brings what was once a niche activity into the hubbub of mainstream markets – and, it perhaps further entrenches these assets’ role as trading vehicles rather than decentralized enablers or financial disruptors.

Bits and stuff: April 8th, 2018

An excellent article from Jemima Kelly of the FT Alphaville team on Vitalik’s “testing” of the ethereum waters with his April Fool’s “joke” about a hard cap on supply. She also talks about how hard caps are pointless when open-source chains can be forked and ICOs can be spun out on whim.

Of course, the ethereum community is split on whether a hard cap would be a good idea or not.

Hmm, conflict in a crypto community over the best way forward? This leaves us wondering when talk of an ethereum fork will materialize – capped ether vs non-capped ether – even though the possibility of a fork makes the cap pointless… But, it’ll be an interesting experiment to watch.

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This longform article in The Guardian – “The demise of the nation state” by Rana Dasgupta – should be included in every history syllabus from high school up.

“When we discuss “politics”, we refer to what goes on inside sovereign states; everything else is “foreign affairs” or “international relations” – even in this era of global financial and technological integration. We may buy the same products in every country of the world, we may all use Google and Facebook, but political life, curiously, is made of separate stuff and keeps the antique faith of borders.”

It’s an epic, zoom-out look at the rise of populism, pointing out that it’s not just the west, and it’s not just a national problem.

“The most momentous development of our era, precisely, is the waning of the nation state: its inability to withstand countervailing 21st-century forces, and its calamitous loss of influence over human circumstance. National political authority is in decline, and, since we do not know any other sort, it feels like the end of the world.”

The author talks about “post-national solidarities”, and the impact on human life (and death):

“Since 1989, barely 5% of the world’s wars have taken place between states: national breakdown, not foreign invasion, has caused the vast majority of the 9 million war deaths in that time.”

And, of course (this is The Guardian, after all), financial deregulation is part of the problem:

“Today’s failure of national political authority, after all, derives in large part from the loss of control over money flows… These fleeing trillions undermine national communities in real and symbolic ways.”

Does this mean that finance is becoming more centralized (concentrated in the hands of the wealthy), or decentralized (ignoring borders)? Will cryptocurrencies change this by putting more of this borderless wealth in the hands of anyone, or will it entrench the have/have not divide?

The whole article is worth reading for its take on citizenship, the EU, international law and global financial regulation.

“There is no reason to heed those interested parties who tell us global financial regulation is impossible: it is technologically trivial compared to the astonishing systems those same parties have already built.”

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This… is brilliant. Simple yet effective, and possibly enough to get people to think differently without them noticing.

pejac

By Pejac, via Colossal.

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At first I though this piece (by Maryland governor hopeful Alec Ross) was political fluff, perhaps, but nevertheless awesome… Now I’m perturbed. “Blockchain as a political tool” not only buys into the fluff but also perpetuates it, elevates it to slogan status and entrenches misconceptions and misaligned expectations.

A pro-innovation stance is good – but if misdirected will end up wasting money and setting progress back by years.

As an example, just take a look at the news that a bill that would allow residents of the US state of Georgia to pay their tax in cryptocurrency has stalled, due to “a lack of understanding”. It will have to be resubmitted in January 2019.

Meanwhile, in Arizona, a similar bill is again moving forward after stalling earlier in the year. Interestingly enough, the revision is removing “bitcoin” as the specified cryptocurrency. I seriously doubt that this will help it get passed.

There’s so much more to unpack here, from why the lack of understanding persists, why anyone would want to pay taxes in cryptocurrency and how, if passed, this could affect the nature of asset and the growth of the sector.

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It’s hard to draw a big-picture conclusion from the Wall Street Journal’s provocative article on the diminishing weight of auditing in the Big Four’s revenue. While the easy thing to do is to jump up and down chanting “blockchain will replace auditors!”, that’s actually far from clear. Sure, the technology affords increased transparency and immutability of data. But, “garbage in garbage out”, so verification of the data will still be a valuable service.

In line with both this and the shift towards consulting fees, most of the big auditing firms have their own blockchain departments. These could benefit from the trend of increased outsourcing of technology builds.

However, the impact of the spreading custom (sometimes mandated by law) of changing auditing firms every few years is unclear. Will it boost technology spend, as proprietary platforms are more frequently replaced? Will it make spending more selective, since the maintenance (and replacement) costs will be significant? Or will it increasingly push development towards open-source solutions that don’t depend on the chosen provider?

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I’m far from a cryptocurrency maximalist, and am more interested in what blockchain’s can’t do than what they can, so it would be fair to think that I’m enjoying the growing chorus debunking the hype of both.

To some extent, yes, but I am now getting increasingly irritated by a new kind of hype: articles that decry blockchain’s futility and crypto’s lack of fundamentals, without understanding either. There are many smart realists out there (you’ll see me retweeting their stuff in approval). But as the hype cycle moves into the trough of disillusionment, others are jumping on the negative bandwagon without having the credentials or depth of knowledge to present arguments that hold up to either fact-checking or logical scrutiny. I’m not naming names because they don’t deserve the publicity – and that, more than reasoned debate, seems to be more what they’re interested in.

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Northern lights or not, this looks like a gorgeous place to spend a night (I’m assuming it has heating…)

panorama-glass-lodge-iceland-5

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Iceland’s Panorama Glass Lodge, via MyModernMet.

Bits and stuff: April 1, 2018

Happy, happy April Fool’s Day!

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I’ve been doing some digging into the top-down approach of blockchain research – in other words, what various governments are doing to support development. It’s disconcerting, because – just judging from the headlines (I know, I know, facts and figures to follow) – the US and Europe are not dedicating nearly as many resources as others (cough, China and Russia).

This article from Politico looks at Europe’s attitude towards another transformational technology: artificial intelligence. And the conclusion is alarming.

“With advanced image recognition, data analytics, prediction systems, military brain science and unmanned systems, devastating wars might be waged and won in a matter of minutes.”

That much we knew. It’s when we compare China’s approach:

“In a three-year action plan to develop AI, published by China’s Ministry of Industry and Information Technology in December 2017, Beijing laid out a goal of being able to mass-produce neural-network processing chips by 2020. The country’s cloud computing companies are racing to deploy increasingly sophisticated services featuring machine learning and AI.”

… to Europe’s:

“The EU’s strategy is organized around three concerns: the need to boost Europe’s AI capacity, ethical issues and social challenges. Unfortunately, even the first dimension quickly turns out to be about “European values” and the need to place “the human” at the center of AI… In a 14-page document, only two pages are devoted to ways of boosting Europe’s AI capacity.”

… that things start to get… alarming.

“In a passage perhaps aimed at responding to the Chinese gambit for AI supremacy, the Commission intends to argue — or so it is written in the current draft — that the EU “can position itself as a leader in the international reflection on AI.” Let others lead on AI. The EU will be able to reflect on it better than anyone else.”

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Following on from the above and from what I mentioned in the previous post – the increasing use of technology as a tool for power – this article from the Financial Times is potentially alarming.

“Data collated by Thomson Reuters from the World Intellectual Property Organisation (Wipo) database showed that in 2017, more than half of the 406 blockchain related patent applications were from China… China filed 225 of the blockchain patents last year and 59 in 2016, followed by the US (91 in 2017 and 21 in 2016) and Australia (13 last year and 19 in 2016). “

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It’s starting to feel like Spring…

by Amanda McCavour, via Colossal
by Amanda McCavour, via Colossal

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This piece in Reuters – “Wall Street rethinks blockchain projects as euphoria meets reality” –  is not only good journalism (getting stories that are both interesting and ignored), but also a refreshing reminder that we should be reporting about the cancellations and disappointments – they are, after all, more newsworthy these days than yet another pilot doing the same things as before but better. But for some strange reason, the protagonists are much more eager to talk about their importance, creativity and success than they are about their failures.

Media, on the whole, tends to focus on what innovators want us to know. We take the easy option of relying on press releases and conference leads, and forget to follow-up on projects that didn’t happen and deadlines that weren’t met – it’s understandable, even, since few outlets have the resources to keep up with everything. It’s a pity, though, and I’m sure we could do better.

And I am beginning to believe (later than many) that, yes, blockchain is in the typical hype-cycle slump. Good. Finally. Now is when it gets interesting.

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A stunning display of post-crisis data from the Wall Street Journal that shows that neoliberalism is not only still alive but doing very well, thank you…

“Analysts say the financial crisis highlighted the risk of concentration. But 10 years later the trend of larger firms is still intact.”

More than intact, according to this graph:

WSJ 2

“The financial sector is again becoming a bigger piece of the economy. That could translate to future risks for borrowers and consumers in another crisis.”

And it’s not that GDP has fallen… (It would be interesting to see a breakdown of finance vs insurance, and how much of that is shadow banking.)

WSJ 3

“Regulations are tougher, but the regulators enforcing them often come from the industries they oversee.” Omg…

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The display of graphical information in finance is getting better and better…

Via The Economist - click on the graph to go to the article, and check out the scrolling effects...
Via The Economist – click on the graph to go to the article, and check out the scrolling effects…

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For refreshing clarity and a cathartic amount of swearing, this is a damn good read: “I Survived the Eternal Boy Playground, But Will Puerto Rico?”

 

GDPR, blockchain and the technological arms race

A “blockchain killer” in the house? The press, who never knowingly misses an opportunity for drama, is making much of the upcoming clash between blockchains and EU regulators over the new data rules (GDPR), due to activate just over a month from now.

On the one hand, the right of all EU citizens to insist that their data is removed does mean that blockchains can no longer be immutable (in other words, they can no longer be blockchains).

But on the other hand, most of the private blockchains that enterprises are building on are not actually blockchains – they’re distributed ledgers, and they can be mutable. Those that are building on cryptographic systems based on chains of blocks, yup, that might be more of an issue.

Which is a drawback, since there are compelling use cases for public ledgers, and the technological development going on behind the scenes will – if allowed to continue – fuel further use cases and functionalities.

Although the work would most likely go ahead anyway. On the public, decentralized blockchains – they’re not “owned” by anyone. So just who is the European Union going to fine?

Apps that are run by a centralized organization might be easier to target – but there’s not a lot of clarity over control of the data. In a cloud server, for instance, if the company that put the data in there doesn’t eliminate the information, Amazon or Microsoft could step in to do so. In a public, distributed database where no particular entity has control over what goes in, who would the authorities insist take it out?

What’s more, switching geographical base is getting easier, with other jurisdictions clamouring for the talent and investment. All a clampdown would achieve is an exodus from Europe, and a missed opportunity to participate in greater efficiencies and new collaborations.

This highlights the futility of the GDPR legislation, and how it hands technological supremacy to other geographical areas of influence. It not only further entrenches the power of existing silos at the expense of smaller businesses (due to the considerable compliance costs, which the larger companies should have no problem absorbing); it also inhibits innovation in new data structures that actually have the power to better distribute processes and utility (and I’m not just talking about blockchain).

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(gif via Tenor)

At the same time, it could spur research into new ways of handling online information, including the possibility of sovereign identity. Rather than just an interesting concept with potentially empowering consequences, new identity management could become an economic imperative.

The goal is becoming increasingly important, given that Europe is falling behind. A think tank (with the aspirational name JEDI, for Joint European Disruption Initiative) has called the region to task for being too slow and thinking too small in its technological development. Misguided initiatives that ineffectually value privacy over progress, and punitive tax measures that will have the net effect of reducing collections, further entrench the disadvantage.

As recent headlines (North Korean hackers, Chinese takeovers and belligerent National Security Advisors, to name just a few) highlight, technology is an increasingly powerful tool in the race to economic (and military) supremacy. Barriers to development – however well-intentioned – could end up deciding the winner. Even leaving aside military outcomes, economic growth for all becomes a matter of survival as deepening inequality shakes political establishments to their core.

So, it’s probable that GDPR will back down, and allow blockchain development – on both public and private ledgers – to continue. That would be good news, on many levels. We have no way of knowing where the impact of research and pilots will be most felt, but we can be certain that the progress will be felt in areas well beyond the bounds of the crypto sector.

Rather than European data privacy laws squelching blockchains, it may be that blockchains squelch GDPR.