Bits and stuff – March 4, 2018

Leda Glyptis wrote a piece in BankingTech that called out all those that talk about a national cryptocurrency. Her quarrel isn’t with the concept of national currencies based on distributed ledgers. It’s with those who insist that they are cryptocurrencies, when “crypto” is all about decentralization, community and independence.

Pedantic, perhaps, but she’s right in that semantics matters. If we label everything “crypto”, then we fail to see the true nature of the potential, and we misunderstand the implications of national versions.

A similar peeve of mine is when businesses call their application “blockchain” when it’s really a distributed ledger. Not the same thing. But, hey, “blockchain” is sexier.

Enough of the mashing of vocabulary just to get a good soundbite.

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image by Kilian Schönberger, via Colossal
image by Kilian Schönberger, via Colossal

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It’s not because I work for them, but seriously, CoinDesk had the most measured and least sensationalist headline on the SEC probe, and that makes me proud: “SEC ICO Probe Underway, But Stories Conflict on Size of Sweep”

Compare that to:

“Subpoenas Signal S.E.C. Crackdown on Initial Coin Offerings” – New York Times

“SEC eyes crackdown on cryptocurrencies” – Computerworld

“The SEC Is Sending Subpoenas in Expanded ICO Crackdown” – Fortune

“SEC cracks down on cryptocurrency shenanigans, report says” – CNET (I love that the word “shenanigans” is used in a headline! Extra points for that.)

And the list goes on and on… Here’s what most irritates me: there’s no evidence that this is part of a “crackdown”. The SEC has issued subpoenas to gather information. Sure, some slaps on the wrist and probably even fines will follow, but by no means for all. And the initiative is in line with their declaration months ago that they would be “keeping an eye” on the nascent sector. Issuing subpoenas and gathering information is an important step in understanding what’s going on – why are we not celebrating that the SEC is taking a “tell me more” approach?

Some other reputable sources also showed restraint in their headlines:

TechCrunch – “The SEC is reportedly investigating a number of ICOs” – TechCrunch

“Cryptocurrency Firms Targeted in SEC Probe” – WSJ

… but let’s face it, boring in comparison.

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According to a report in TechCrunch, Uber’s co-founder Garrett Kamp is creating a new cryptocurrency that can be used around the world for daily transactions. In other words, “better than bitcoin”. Hunh.

Let’s see how it’s better than bitcoin:

  • It’s not open to everyone – nodes need to be “verified” (another way of saying “selected”). No chance of manipulation there. Who does the verifying?
  • 50% of the initial 1 trillion ECO coins will be given away to anyone who signs up. Akin to “helicopter money”, in which an authority hands out funds to kick-start spending in a region (assuming that it generates economic activity and growth, which will in turn create more money), this could effectively bootstrap acceptance – but would merchants go through the hassle of installing the necessary systems
  • It won’t use the proof of work consensus protocol that bitcoin relies on. Instead it is opting for an as-yet-unnamed alternative that consumes less energy.

On the plus side, it’s thinking about the user experience from the outset, supposedly launching with a simple web and app.

And it does have a good chance of getting a strong ecosystem going, given the founder’s credentials (he’s currently founder of accelerator/venture fund Expa) and the involvement of universities (who apparently will be running the nodes).

Will it be better than, say, litecoin or ethereum? Does the market need another pretender to the cryptocurrency throne? Who will end up actually using this?

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An article by Multicoin Capital’s Kyle Samani produces a bunch of “a-ha!” moments. Such as:

“Running a computation on Ethereum is on the order of 100,000,000x more expensive than running the same computation on Amazon Web Services (AWS).”

Kyle goes on two explain why blockchains can’t have it all:

“The scalability trilemma posits that blockchains in which every node processes every computation and in which every node comes to consensus about the order of those computations can have two of three properties: safety, scalability, and decentralization of block production.”

So, either safety and decentralization (bitcoin), safety and scalability (Cardano, EOS), or scalabiity and decentralisation.

As the Meatloaf song said, two out of three ain’t bad.

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The last time bitcoin transaction volume was this low, the price was around $500…

Also, a year ago, bitcoin’s market capitalization was about 85 percent of the total sector. It’s now around 40 percent.

A lot else has changed since then, too, so…

Anyway, interesting observations from Bloomberg.

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Some CoinDesk stories really worth reading:

8 Ways Telegram Thinks Its Own ICO Could Go Wrong – although it doesn’t mean to be, it’s a statement on all ICOs…

JD.com to Track Beef Imports Using Blockchain Platform – another large retailer looks at supply chains (move over, Walmart)

Banking Giants Send $30 Million in Securities Over DLT – still just testing, but it’s progress on a fascinating use case

US Regional Banks Begin to Cite Crypto as Business Risk – large and small banks look at the risk more than the opportunity – but then again, they have to spell out all sorts of risks, it’s part of their job – it does not mean that they’re particularly worried.

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Stupid headlines of the week:

The Washington Post: “Bitcoin, move over. There’s a new cryptocurrency in town: The petro.”

The article does go on to explain how the petro is not at all like bitcoin – so, a gimmicky headline that will either mislead or annoy? I do not see the point.

And from Investopedia, who seem to be attempting to pivot towards becoming a cryptocurrency news site: “Montana Will Build $251 Million Cryptocurrency Mining Farm”

No, Montana is not building a cryptocurrency mining far. A private company called Power Block Coin LLC is thinking about building such a farm in Montana. Very different. Implying that a state is behind this is misleading and irresponsible. Apparently this will be the second large mining farm in Montana. That part is interesting – it speaks to the increasing decentralization of mining power as China is starting to remove mining perks.

The Daily Express: “Bitcoin WARNING: EU Commission says crypto is NOT currency ahead of imminent crackdown”

No imminent crackdown threatened – the EU is discussing regulation, but they’re a long way from any actual action, and there’s no indication that it will be a “crackdown”, or that any move will be bad for the market (legitimacy, people!). And, what’s with the shrieking capitals in headlines?

From Metro: “Bitcoin on the up as ‘SegWit takeoff’ causes cryptocurrency price rebound”

It’s not clear that SegWit had anything to do with the price move. SegWit adoption is good news, but Coinbase and Core’s rollout was expected and most likely priced in. A few days later the SEC ICO probe was blamed for a slump in the bitcoin price – again, that makes little sense. And anyway, a Bloomberg article commented on how strong the price was in spite of the SEC news. In other words, nobody really knows why prices go up and down (other than the relative weight of buyers vs. sellers).

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This is sooooo cool. Amazing, almost addictive animation. Click away.

Spook, by Nexus Interactive Arts
Solace, by Nexus Interactive Arts

Hope, reality and compromise

photo by Paul Csogi on Unsplash
photo by Paul Csogi on Unsplash

“Governments derive their just powers from the consent of the governed. You have neither solicited nor received ours. We did not invite you. You do not know us, nor do you know our world. Cyberspace does not lie within your borders.”

John Perry Barlow’s strong words echoed through the caverns of young minds high on the possibility of borderless connection. They spoke to the eternal desire for a better world, and dangled the tasty promise of empowerment.

The honeymoon was brief. We ended up finding out that, yes, the internet can be regulated. Yes, it can be centralised. And yes, the hierarchy that we hoped it would overthrow is still in control, just with different faces.

We heard similar anthems when bitcoin emerged. “Bitcoin will change everything”. “The end of the tyranny of bankers”. “Bitcoin is the currency of resistance”. And so on.

Will the same thing happen?

It already is. Bitcoin’s disruptive potential is getting channelled into a structure remarkably similar to the pre-existing one. Exchanges are becoming more and more like banks, storing our bitcoins, lending them out and collecting information. A handful are accumulating increasing amounts of clout, becoming the new “financial giants”. The promised independence and anonymity is being subsumed by, yes, the regulators, who insist on user identification. On- and off-ramps – recognizing that, on the whole, they need official permission to exist – are complying.

While this is disappointing to those of us to fell in love with the concept because it showed us a glimpse of a new structure for society (which of course would solve all of our current problems), it is not a bad thing.

To see why, let’s go back to Barlow:

“Your legal concepts of property, expression, identity, movement, and context do not apply to us. They are all based on matter, and there is no matter here.”

With affection and respect, this is one of many instances in the declaration which is factually incorrect. The internet runs on wires and nodes and packet switchers – “matter”. There is plenty of matter here. Just as your mind needs your body to carry it around, internet – and free exchange of information – relies on the physical world to make it work. Ideas may be slippery, but their flow can be influenced.

And anyway, regulation has never been based exclusively on “matter”.

We have seen that rules can divert the original intention of free communication (in both the “free beer” and “no limits” sense). Some areas can restrict what is accessed. Others enact policies that give bandwidth preference to more powerful websites. And a growing cohort of regulators is insisting on strict controls over the data that websites can collect. The next step is to influence business models.

Wait, how is this a good thing?

I’m not saying that restrictions are good. They can stifle innovation and communication, holding back the progress of ideas. They can also lead to direct oppression.

But, rules also protect us. And in so doing, they relieve us of the need to spend most of our energy worrying about defence, giving us freedom to pursue life, liberty and happiness.

How much regulation is ideal? That is the eternal political debate – and I doubt there is a “right” answer to that question. Most societies, communities and organisations struggle with the balance between not enough and too much centralised control. Most individuals, too (myself included) – poke away at someone’s personal map of their “natural rights”, and you uncover a nest of confusion and contradiction.

What is a good thing is the awakening – at “mainstream level” – of constructive questions around governance and freedom. This could lead to a broader acceptance that the answers are not clear cut.

How far should regulatory reach extend? How much power do we have to resist? What price are we willing to pay? What do we want, and where will we compromise? What works?

While bitcoin was created to circumvent the influence of the centralised financial system, it is slowly being absorbed… perhaps not by the establishment, but by one that looks like it. And with banks increasingly sniffing around and tentatively dipping their corporate toes in disruptive waters, the new bitcoin finance world and the pre-existing one may end up merging.

The end of the libertarian dream? Probably.

And that may end up being bitcoin’s biggest victory. When even blue-chip representatives of the “old order” give it a veneer of respectability, it moves closer to mainstream recognition. When growth and increased scrutiny of new participants bring a welcome degree of professionalism to the services that are necessary for its use, it comes closer to realising its initial ambition of being a “world currency”.

Just not as a borderless substitute for fiat currencies. Again, that’s not a bad thing. Compromise is not conceding to the enemy. It’s a step forward, from which the battle against oppression and inequality can continue to be fought.

As we have seen with gunpowder, radio waves and the internet, a powerful technology rarely ends up being used for its initial intention. Bitcoin is already heading the same way.

And by leaving its original idealised constraints and taking on a form different from the original purpose, bitcoin underlines the freedom of ideas. Even core constituents have been unable to control the evolution of its acceptance and use. Is the establishment smothering it, or giving it life? A bit of both? And was that not inevitable?

In that, John Perry Barlow was right:

“We cannot separate the air that chokes from the air upon which wings beat.”

Bits and stuff – February 25, 2018

This article in the Guardian scratched the surface of the complicated and confusing politics of cryptocurrencies, by pointing out that they can be harnessed by both extreme right-wing and left-wing tendencies.

I think its even more complicated than that. While the “alternative to the established system” can mean many things to many people, in the end it comes down to the architecture. And blockchain architecture is in the hands of its builders.

Part of the confusion stems from the inherent and seemingly conflicting characteristics of bitcoin. An open, decentralized version sounds fair and full of opportunity – until you realise that it also means operating outside of the government’s sphere of influence. And governments are (generally) there to ensure a (relatively) fair distribution.

The right generally wants less government interference, while the left tends to argue for more. So, which characteristic carries a greater political weight: being outside governments’ reach, or being open and distributive?

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Venezuela’s launch of the petro, its oil-backed cryptocurrency (based on ethereum or NEM, depending on the report you read), unleashed a wave of inaccurate and vague reporting that does neither the petro nor cryptocurrencies justice.

Without doubt the launch was botched and the coin itself looks fundamentally flawed (in that the fundamentals are absent). Even more distressing, however, is the number of reports that showed a lack of understanding of either the petro or cryptocurrencies in general.

For example, it’s not a cryptocurrency – it’s a digital token distributed on a blockchain. Not the same thing. Nor is it Venezuela’s “answer to bitcoin” – nothing open or decentralized about this one.

There are some exceptions, though. CoinDesk’s reporting was impartial and thorough (no favouritism of course, but 9 different takes on the story!). As well as a synopsis of the launch itself, it reported on the public’s reaction, on the pressure on Venezuelan corporations to accept the petro as payment, and on possible international repercussions.

Bloomberg did well, as usual, with an in-depth “Venezuela Is Jumping Into the Crypto Craze” (BusinessWeek), and an excellent rant from Matt Levine titled “The Blockchain Won’t Save Venezuela”:

“It is simply a joke, a product for nobody. But if you add “on the blockchain!” then that somehow obscures all of the actual economics of the product.”

Here’s an attention-grabbing, tell-it-like-it-is headline, for an article with interesting and credible detail, from Motherboard: “Venezuela’s ‘Petro’ Launch Was Amateur Hour”.

The FT predictably went from the sensible (“Venezuela launches presale of state-backed ‘petro’ cryptocurrency”) to the sublime (“Venezuela/petros: cryptobabble”) without batting an eyelash. The latter focused on the lack of available information – so much for radical transparency and enhanced trust.

In spite of the political underpinnings, The Hill offered a good headline: “Maduro’s crypto end run around US sanctions is a fool’s errand”. I enjoyed the reference to the amount of money poured into “even more harebrained initiatives than the petro”.

They then went and spoiled the good impression with what seemed, on the surface, to be a good headline: “Venezuela’s cryptocurrency is a farce”… although when it turns out that by “farce” they are referring to cryptocurrencies in general (“there is no ‘there’ there”), any sentient reader would feel duped. That’s even before having to endure the choppy structure of the article.

And on Maduro’s bold statement that next week he’s launching a cryptocurrency based on gold, the FT and Reuters had some things to say.

“In a standout year for news-item absurdity, this one may set a new standard for grim humour.” (Alexandra Scaggs in the FT)

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Best thread of the week:

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And hats off to Amber, I love this:

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There is a ton of noise around regulation recently. Just from the past week, the UK Treasury is launching an official “enquiry” into cryptocurrencies – a sensible first step in figuring out how to regulate them is understanding what they are. EU regulators meet next week to continue discussions on crypto regulation.

Austria is looking more closely at cryptocurrency regulation. France has decided that it’s not crazy about the lack of oversight of cryptotrading. And Japan’s cryptocurrency industry is hoping to fend off stricter scrutiny by setting up a self-regulatory body.

And in the US, California, Wyoming, Georgia and Arizona all either passed or took steps towards passing blockchain-related laws or amendments. All that within the past week.

This trend – more regulators announcing “plans” if not actual rules – will continue for the rest of the year. It will be a slow process but with important results. The construction of the infrastructure that supports the innovation depends on which way the regulation goes.

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Here’s an example of what a shift in perspective can do on reporting:

  • CoinDesk: “Japan’s Exchanges Report 669 Cases of Suspected Crypto Money Laundering”
  • CoinTelegraph: “Japan: Only 0.16% Of 2017 Money Laundering Reports Came From Crypto Exchanges”

The difference in neutrality that a little word can make. I’ll leave it at that.

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I always loved the musical “West Side Story”, sad as it is… This 360º rendition of one of the numbers from the show at Carnegie Hall is captivating, if a bit choppy (and warning, too much spinning around with the mouse can make you dizzy, I speak from experience).

Via GoogleArts.

It’s more than SegWit…

Coinbase has announced that it is incorporating SegWit. (If you don’t know what that is, I just wrote an explainer for CoinDesk.)

That is jumping-up-and-down good news. SegWit is a bitcoin protocol upgrade that will significantly increase transaction capacity without touching the block size limit, by changing the way the data is stored. Although it activated on the bitcoin network in August last year, adoption has been slow – at time of writing, only around 14% of bitcoin transactions use the new format. Since Coinbase is the largest wallet provider out there, its contribution should push that needle up.

Source: Giphy
Source: Giphy

Why is that a good thing?

Mainly because fees need to come down. The high demand for bitcoin during the December price spike pushed fees up to almost $60 per transaction. That makes bitcoin almost unusable for anything other than speculation and investment. And that is an unsustainable main use since buying something just because you think the price will go up without an improvement in the underlying fundamentals is a pyramid scheme. And they always crumble, eventually.

If, however, you expect bitcoin’s price to go up because it serves a solid function, because it is useful to society, then its increase in value will be more sustainable.

But for bitcoin to be used for transfers or payments, fees need to come down.

They have been coming down. While exact reasons are unclear, it appears to be mainly due to lower demand from speculators and investors. However, less congested blocks – whether from lower trading-related demand or SegWit or a combination – are good for the network’s users.

Freeing up space in blocks will have the effect of shortening confirmation times. Some transactions have recently had to wait hours to be confirmed, as those that pay higher fees get preferential treatment. With more space available, there’ll be less price-based selection of transactions and faster confirmations – which will offer a better service, which will attract more users.

And as SegWit rolls out across the network, more users won’t necessarily result in higher fees this time around. Hopefully.

And now for the juicy stuff…

Tucked away at the bottom of the article was the titbit that Coinbase has a full-time engineer working on Lightning adaptations (if you don’t know what Lightning is, here’s an explainer I wrote for CoinDesk). That is perhaps the most intriguing part of the entire post.

Lightning promises to multiply the capacity of the bitcoin network, allowing transactions in off-chain channels. Since these do not have to follow the bitcoin protocol, except for when they anchor to the network for net settlement, fees are set by the relaying nodes (not the miners) and confirmation times are almost immediate. Smaller transactions such as buying a cup of coffee, and even microtransactions, would go from being thoroughly impractical to possibly useful.

While the technology is still very much in beta, development is galloping along. If it continues to proceed apace, we could see it become available this year. That Coinbase is actively working on Lightning integration indicates that the spread could be fast, and the level of service offered to users of the bitcoin network could be kicked up to a new level.

Notice I stressed users. Lightning won’t affect investors or traders much. And that is what most excites me. A step forward in enhanced functionality for users.

This announcement about SegWit – while on the surface expected and no big deal – is a big step towards taking bitcoin back to what it started out to be. A step forward to go back? Yes. And about time.

Oh, please… tax breaks for blockchain companies?

The news item from last week about the Spanish government contemplating tax breaks for companies using blockchain technology is frustrating. It buys into the hype, assuming the blockchain = the future, blockchain = good, blockchain = progress. What it will end up doing is encouraging businesses to throw a lot of money at blockchains they don’t need. Technology investment is increasingly the backbone of any company’s expenditure, and if a business gets that wrong… if, for instance, it implements a blockchain that then can’t scale or can’t protect the information or – gasp – ends up breaking any one of the multiple privacy, custodian and financial laws… It would make sense to also exempt companies using blockchain technology from the country’s bankruptcy laws.

Only, no, it wouldn’t. That would just provide a further incentive for businesses to add “blockchain” onto their IT specs. Even more vapid hype.

source: Giphy
source: Giphy

A more useful solution would be a “sandbox”, in which businesses that work in regulated sectors (finance, health, education, etc.) can experiment with the technology’s advantages without needing to comply with a long list of restrictions that were drawn up 25 years ago. A sandbox would encourage cautious investigation while not endangering systemic processes – and while there is always the risk that sandbox privileges will be withdrawn, it’s more likely that rules will be adapted once consequences have been examined. And, most important, the consumer would broadly be protected.

Not under the proposed Spanish system. Never mind the consumer, let’s get businesses using this technology that is still new and relatively untested, because hey, tax breaks.

What’s more, given how “easy” it is these days to issue digital tokens through initial coin sales, we could see traditional companies choosing this option – even if the token makes no economic sense – because it could help them pass as a “blockchain company”. This will add fragility to the system as hopeful investors put money in these tokens.

And, how can you offer tax breaks for potentially unregulated use cases? Sure, the government could decide which use cases get the tax breaks. But that is akin to deciding how to regulate the use of the technology – something that no government has wanted to touch with a bargepole. Not yet, anyway.

It should be a boon for blockchain consultants, though. They’ll be raking it in.

How about offering tax rebates to businesses investing in any type of technology? Why is the government favouring some types over others? And why does it think it has the sufficient expertise to be able to determine which technology is better for business? This push for blockchain shows that the ruling party 1) doesn’t understand blockchain technology, 2) is desperate to appear savvy and 3) is not thinking ahead to not-too-far-away time when blockchain technology has evolved to the point of blending with others, both current and yet-to-be-invented.

There are upsides, though: this move could encourage the hundreds of self-proclaimed blockchain experts in the country to actually start learning about real applications, rather than just spouting utopian platitudes that have little grounding in either history or economics (judging from media quotes and published work – I’m sure there are smart ones that do “get it”).

And, it could attract more blockchain businesses to Spain, which could kickstart an ecosystem that in turn could encourage broader, more sustainable development.

But it’s not enough to make a difference. To attract technology development, Spain needs to re-examine its entrepreneurship laws, remove the “exit tax”, further relax labour laws, reduce bureaucracy, and work hard at moving up from position #86 (!!!) in the World Bank’s Starting a Business Index.

Encouraging technology exploration is a good thing, especially for something as potentially transformative as blockchain applications. But making empty declarations with the sole purpose of window-dressing will end up accelerating and perhaps deepening the disappointment when unrealistic expectations are not met – and that won’t be good for anyone.

Bits and stuff – February 18, 2017

An awesome article from my colleague Marc Hochstein, with one of the best quotes I’ve read in ages, from Primavera De Filippi:

“You cannot assume that just because a technology dis-intermediates and is trans-national that it cannot potentially be used to reinforce existing social, political and economic structures.”

RIP, John Perry Barlow.

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In The New York Times, Peter J. Henning raises the issue of cryptocurrency regulation. Who should regulate cryptocurrencies in the US? Both the SEC and the CFTC appear to be in a game of “not me” – and they both have a point. The SEC regulates securities – cryptocurrencies such as bitcoin have not been defined as such (and to do so would defy logic). The CFTC regulates derivatives on commodities – and while it has labelled bitcoin a “commodity” (not totally unreasonable), its remit does not cover the cash market, just commodity-based derivatives.

“The C.F.T.C. “does not have regulatory jurisdiction over markets or platforms conducting cash or ‘spot’ transactions in virtual currencies, or over participants on those platforms.” To reach actual trading in cryptocurrencies, Congress would have to extend its authority to cover a cash commodity market, something lawmakers have not done.”

At the moment, cryptocurrency exchanges are loosely covered by a patchwork of state money transmission laws – but, cryptocurrencies have not officially been designated “money” – and having to get licensed in every single state is not practical. The result is a clunky, fragmented or off-the-radar network of exchanges that do not offer much protection to the user.

The article posits the creation of a new organization – a Cryptocurrency Council, for instance. This would not only be able to develop a national approach to cryptocurrency transmission and exchanges – but it could also further investigation into use cases, offer a focal point for fraud investigations and develop a comprehensive base of information on usage. Most importantly, it could offer an umbrella of respectability to the nascent field, while recognizing that a new concept deserves a new mindset.

In the end, trying to fit cryptocurrencies into one of the existing asset definitions for regulation purposes isn’t working out well for anyone. Time to re-think the paradigm.

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The FT’s Henry Mance gave us a brilliant tongue-in-cheek take on us vs. Big Tech:

“This week, 1m people signed an online petition protesting against a redesign of Snapchat, the adult-proof messaging app. They wish to express — I quote — a “general level of annoyance”. They have probably already slammed their bedroom doors. They might not come down for supper.”

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Here’s a blockchain use case: In Ghana, over 80% of landowners lack title to their land – and 2/3 of Kenya’s land is “owned” without title…

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Bloomberg reports that the UN’s World Food Programme expects to be able to cut millions of dollars from the costs of administering its food programme, just by moving the cross-border money transfers onto a blockchain system. While that is actually a tiny portion of the overall budget ($6 billion, according to the article), it does buy a lot of food… And it does mean less profit for the banks (although, again, a drop in the ocean…).

However, no details are provided on the type of blockchain to be used (a WFP programme in Jordan launched last year was built on ethereum), nor on timing – it sounds like more wishful thinking than actual plans.

And this quote by one of the directors – “Blockchain helps promote collaboration by providing enormous amounts of data.” – makes no sense whatsoever. Blockchain promotes collaboration by design, not by providing data. And it only provides data if it is programmed to do so. A strange thing to say.

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I’ve mentioned before that I’m a sucker for miniature dioramas… and I get an illicit thrill from dystopian fiction (if there’s a “survivor” theme)… so this made me gasp with delight:

Nix Gerber 1

Nix Gerber 2

Nix Gerber 3

– by Lori Nix and Kathleen Gerber

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Tyler Cowen bucks the trend with a bad review of Black Panther. I haven’t seen it yet, but have heard nothing but rave comments… which always makes me suspicious.

“So many spears and wild animals? How about holding a referendum every now and then?“

I grew up in Africa, and the way western culture attempts to portray what it thinks African culture looks like in a misguided attempt to appear inclusive has always irritated me. That said, I really like the bits of the soundtrack that I’ve heard, so…

“I would say the more you know about actual African cinema, the less you will appreciate this one.”

Then again, no way was this attempt at bridging divides not going to stir up some uncomfortable opinions.

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And speaking of Tyler, he interviewed Matt Levine – the best newsletter creator out there (original, pithy and witty comments on money and economics, for Bloomberg) – on his podcast. They had an interesting chat about cryptocurrencies (no, CryptoKitties are not derivatives), and about Buffy the Vampire Slayer. Definitely worth listening to.

“It’s a perfect example of dealing very intelligently with serious themes in a way that, on its surface, and particularly in its title, is silly and is not presented as serious, which I think is, obviously, something that I often aspire to do.”

(Apropos of absolutely nothing at all, Matt Levine has a much deeper voice than I expected.)

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I’ve just finished “The Defectors”, by Joseph Kanon. It reminded me so much of John Le Carré, only more American. Although it’s actually very Russian – about the lives of US spies who escaped to the Soviet Union. Written with a certain rhythm and poetry, with complicated villains that you can’t hate and heroes that are far from heroic, it zips along with a melancholic yet determined patriotism.

defectors

Bits and stuff – February 11, 2018

On to the media crypto highlights of the week…

Taking a step back, CoinDesk published an original overview of ICO trends, which include continued regulatory pressure, the awakening of traditional tech companies to the potential of tokens, and the increasing sophistication of consumers.

What I didn’t expect was the apparently widespread belief that token funding will continue to grow, while getting more complex. I was also surprised by the revelation that many ICO entrepreneurs have back-up plans in case ethereum’s scaling issues don’t get resolved.

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From VC firm Andreesen Horowitz, a list of cryptocurrency-related readings, well worth bookmarking.

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Pascal Bouvier has the audacity to draw parallels between the evolution of established religion, and that of cryptocurrencies… and pulls it off, with flair. A stirring read:

“Money creation is backstopped by taxes on the people and the state monopoly on violence ensures a more or less orderly collection of taxes. Remove the monopoly over money creation and the nation state starts to vacillate on its pedestal… Many pundits will rightly point out that all cryptocurrencies suffer from congenital malformations… If there is one thing we can count on, it is human ingenuity, and the crypto field will find solutions and solve these defects over time. What we all hear is the sound of inevitability in the form of fitter cryptocurrencies to come.”

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I get a huge kick out of seeing how different media sources report on the same event – it often leaves me wondering how many parallel universes there can be.

On this week’s Senate hearings on cryptocurrency, for instance. At the thoughtful end of the spectrum, you have:

ETHNews: What Was Missing From The Senate Banking Committee’s Hearing On Cryptocurrency?

The report urges greater consideration of volatility and systemic risk, to what extent newer cryptocurrencies are commodities, the self-certification of cryptocurrency derivatives and whether or not all tokens are securities (as Chairman Clayton hinted).

CoinDesk: Crypto Industry Reacts to US Senate Hearing Remarks

“Optimism aside, some market observers said they believe the hearing revealed the need for more clarity on the regulatory front – something that both agency chairs indicated may be necessary in statements that broached possible action from the U.S. Congress.”

TechCrunch: Senate cryptocurrency hearing strikes a cautiously optimistic tone

“In a week of plunging prices and bad news, the hearing struck a tone that coin watchers could reasonably interpret as surprisingly optimistic.”

Reuters: U.S. regulators to back more oversight of virtual currencies

“Both regulators have cracked down aggressively on bad digital currency actors… But the question of who is best placed to oversee the underlying cryptocurrency cash market remains unclear.”

At the other end of the spectrum, you have:

Forbes: Regulators May Need More Power To Control Bitcoin, Senate Banking Chair Says

A confusing, patchwork article that I gave up trying to make sense of. (“Control bitcoin”? C’mon, that is not at all what they said.)

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As cringe-inducing as the above article is, the week’s award for Most Egregious Reporting must go to that fount of financial wisdom, the Daily Express, whose headlines “Cryptocurrency bull run imminent with bitcoin to hit $50,000 in 2018“ and “Cryptocurrency CRACKDOWN: World leaders to plan REGULATION of Bitcoin at G20 meeting” are just plain irresponsible. I’m not going to put links to those articles because they don’t deserve the encouragement.

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If this doesn’t make your mouth water…

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By Lauren Ko… check out more of her pastry creations at Colossal

 

Lessons learned: Taurus and the ASX blockchain integration

image by Tamarcus Brown via StockSnap
image by Tamarcus Brown via StockSnap

London, 1993. A big decision was about to be made, that would send ripple effects across Europe and forward through time, acting as a warning against ambition and consensus.

For the past 10 years, the London Stock Exchange had been working on a significant upgrade of its securities settlement system. With paper-based systems groaning under the 1980s boom in share ownership, pressure was building not only from nimbler competitors but also from the regulators across the Channel. If London wanted to maintain its role as the continent’s money centre, it needed to upgrade.

The new system was called Taurus, and its goal was to remove as much physical documentation from the system as possible. It also planned a move to rolling settlement, reducing the payment period for equities from three weeks to three days.

Yet things were not going well. The first sign was the rhythm of missed deadlines.

From the outset, the project was complicated. It aimed to include as many sector stakeholders as possible, in spite of conflicting interests. Institutional investors wanted a fast, reliable service, while private investors wanted lower costs. Also, the existing registrars (dominated by large banks) were given a say in the development of a centralized registry, even though it would undermine their business model. Well into the development cycle, they torpedoed the idea.

What went wrong?

In the haste to get development off the ground, the project allegedly started without a clear roadmap. And delays gave more time for the various stakeholders to add requirements.

Even with clear and stable stewardship, that scale of development would have been tough. Yet the project management structure was not clearly defined, and the lack of centralized control meant that interlocking pieces were being developed out of sync, with sections of the process at different testing stages, while other functions had not yet been designed.

Also, given the long lead time (which ended up being more than double the initial estimate), the system – if launched – would already have been behind the competition from day one.

The final straw came when an investigation in 1993 revealed that completion would take another two to three years, at double the cost-to-date.

The decision was taken to scrap the whole project. The exchange’s investment of over £70 million (over £140 million in today’s money) was lost. The London Stock Exchange handed over responsibility for the development of a new stock trading system to the Bank of England, and its CEO resigned.

It wasn’t just the colossal waste of money and the damage to its reputation that made many fear for the exchange’s future. Hundreds of brokers had based their systems development on the assumption that Taurus would be the main platform, and thousands of employees had been trained. The total cost to London’s financial centre was estimated to be in the hundreds of millions of pounds.

Of course, it’s easy to see in hindsight where things went wrong. And it’s easy to believe that today, big systemic projects would be managed with different principles.

While that may be the case, the fate of Taurus serves to highlight the colossal complexity of introducing a new systemic platform. Throw in a technology that has yet to be tested “in the field”, and you have a potential powder keg of risk.

All change

I’m talking about the decision of Australia’s primary securities exchange, ASX, to upgrade its clearing and settlement platform to one based on distributed ledger technology.

Announced late last year, the news sent waves of excitement through the blockchain sector – it would be one of the first major public-facing applications of the technology, which many have touted as having the potential to decentralize finance.

Introduced with bitcoin, the blockchain offers a way of sharing data that removes the need for validation from a central authority. The elimination of redundancies and the speed with which information can be transmitted and acted on present significant cost reductions, especially intriguing in an era of diminishing margins and increasing competition in the financial sector.

It’s not yet clear whether the technology that ASX will use (developed with blockchain startup Digital Asset) will technically be a blockchain, in which information is stored in blocks that are irrevocably linked to previous blocks, ensuring data integrity. The official press release referred to “digital ledgers”, and while the two terms are often used interchangeably, some distributed ledgers don’t rely on linked blocks to share and verify inputs and outputs. However, since the boundaries of the new technology are being blurred as the concept evolves, the announcement was treated as a triumph by blockchain sector participants – official, public validation of the potential benefits.

Be careful

And yet, it is by no means the windfall that the headlines proclaimed.

First, it isn’t happening anytime soon. At the end of March, the ASX will reveal a potential live date for the new platform – it will most likely be years away. We won’t get a clear indication of the expected timing until the end of June.

And, as we saw with Taurus, in complex undertakings, deadlines are often extended. Hopefully the new system will be revealed within a much shorter timeframe than the failed British attempt’s estimated 13 years…

If it gets revealed at all. The ASX platform does need to be replaced – known as CHESS, it is 25 years old and is struggling to keep up with newer and nimbler competitors. But the decision to build on top of a relatively untested technology with uncertain scaling and bottlenecks is a brave one. And few development projects progress without setbacks.

It’s fair to assume that the planning will be meticulous and thorough. But will it manage to avoid the pitfalls of overwhelming systemic change?

Learning from the mistakes of Taurus will help. But the leap forward in technology with this development adds a new layer of complexity.

A large part of the problem will be managing expectations. While “blockchain” has been hailed as “the next industrial revolution”, we are not going to see a new decentralized stock exchange emerge before our eyes. As far as the public is concerned, things will continue pretty much the way they are.

For the financial and technology sectors, though, it is a big deal. If all goes well, back office costs will be reduced, new efficiencies will be explored and distributed ledger technologists will learn much from the real-world rollout.

The true change, however, will come years down the road, as other exchanges around the world take a look at their own clearing and settlement processes, as regulators encourage compatibility and connectivity, and as frictionless cross-border trading finally begins to look like a possibility.

But first, the ASX system needs to be successfully launched. And, as we’ve seen, it’s nowhere near as easy as it sounds. While the decision to migrate a country’s main securities settlement and clearing platform to a distributed ledger is good news for the blockchain sector, it is too soon to celebrate.

Bits and stuff – February 4, 2018

So, after a pretty dire January (my mother passed away), I emerge, blinking, into the crypto light again… Anything interesting happen in my absence? *checks bitcoin price* Oh…

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Have you noticed how bitcoin transaction fees are much lower now than a month ago? The rocketing cost of using bitcoin was the subject of several headlines recently, with fees holding at around $30 per transaction. That makes bitcoin economical only for large transactions (and perhaps not even then) – not exactly the original vision.

Now, however, they appear to have dropped to around $10. This is still too expensive for bitcoin to be useful, but since most of the transactions are from speculators, they don’t seem to mind. For real-world use, it’s a non-starter.

Bear in mind that these fees are on top of the substantial reward that the miners get for processing a block. Wasn’t the idea that fees would remain low as long as miners got paid through new bitcoins?

And, why the drop? Someone on Twitter suggested SegWit. Is that right? Anyone have a grasp on this?

 

bitcoin transaction fees
from bitinfocharts.com

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Good stuff:

Joi Ito’s article on the ICO mania for WIRED:

“Requiring companies to sell tokens only to accredited investors won’t solve the problem, because those investors will later sell them to speculators or, worse, to people who have seen the ads online promising to provide the secret of making a bundle on cryptocurrencies.

A lot of otherwise productive developers are devoting their expertise and attention to working on shallow, quick money ICOs rather than working to sort out the underlying infrastructure and protocols in academic and more open deliberative settings not fueled by warped financial interest.”

Kadhim Shubber’s take on the fundamentals of bitcoin in the FT:

“Someone comes along and tells you to imagine an electronic network, for moving money anywhere in the world, that no-one owns. It’s an intriguing idea. It’s an unprecedented idea. In the entirety of human history such a thing has literally never existed.

Would your response really be: ‘lol the true value of bitcoin is zero’?”

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Daft article of the week:

How to add to the already-high bullshit quotient in crypto Twitter, from WIRED… (I include this cringe-making article here, against my principles – it shouldn’t even exist, I mean, c’mon – to help you spot the fake experts).

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Smart…

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All conferences should have reporting like this:

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And, thanks Vitalik… sending you a hug for this…

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Colour and curves… Say no more…

via Colossal
via Colossal

Bits and stuff – January 7, 2018

After a whirlwind December and a good chunk of time offline, I’ve been trying to remember how to type. And catch up on blockchain news.

With so much to catch up on, I can’t stress enough the value of stepping back every now and then and taking a non-blockchain break. The trope that it helps with perspective turns out to be true. Catching up is tough but interesting, and surprisingly less overwhelming than I expected. And the feeling of loss in missing out on news and ideas is easier to bear when you realise that you’re going to feel that anyway, no matter how much time you put in – there is so much great blockchain-related content these days that it is impossible to read everything.

I’m back at CoinDesk now, working on new projects. More details to follow. There are some interesting things in the pipeline.

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Ripple was a big theme this week, with an excellent deep dive by Michael Castillo and Bailey Reutzel on the relationship between Ripple’s network and its token XRP. It seems that the company has not been as transparent as it could (should?) have been, although it doesn’t seem to have overtly misled anyone.

With Ripple and its token a touchy subject at the moment (exacerbated by its meteoric price increase of 1500% in the past month alone, as of Jan 4), Twitter has been ablaze with controversy and extremism. While some point out the dubious fundamentals behind the valuation, XRP holders scream FUD accusations. Meanwhile, the press tries to make sense of it. The Financial Times, the New York Times and the Wall Street Journal are just some of the big names covering this now. The CoinDesk article was the best I’ve seen. I also recommend Ryan Selkis’ lucid take on Medium.

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Stunning photographs of the neon stillness of Hamburg at night by Mark Broyer (via MyModernMet):

Mark Broyer, via MyModernMet
Mark Broyer, via MyModernMet

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This article highlighted the jurisdictional spaghetti that is US securities regulation: the securities regulator for Texas (not the federal SEC) stopped a token sale due to various infractions.

I confess that I didn’t realise the state authorities had the power to do that. Combine this oversight with that of the SEC, and the outlook becomes more reassuring for those of us concerned about the lack of regulation. Of course, it becomes tougher for would-be token issuers – but I don’t think that’s a bad thing.

And things could be just warming up. According to this article, 94% of state and provincial securities regulators (you mean there’s also provincial ones??) think that cryptocurrencies carry a “high risk of fraud”. Which implies that scrutiny will get tougher. Good.

Breaking rules in the name of innovation is one thing. Breaking laws is another.

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Here’s an intriguing shift: George Soros’ Quantum Fund invested $100 million (through the exercise of a warrant) in retail giant Overstock. According to Overstock’s CEO Patrick Byrne, much of this will be invested in blockchain development.

This is intriguing for two reasons: 1) it’s traditional finance – no digital token shenanigans; and 2) Overstock is an unusual blockchain play.
As well as a successful e-commerce business, Overstock owns Medici Ventures, which oversees the retail giant’s blockchain activities. Many of these are likely to benefit from the funding.

One of those is tZero, which is building a distributed ledger platform for capital markets and which is currently in the pre-sale phase of a token issue. Since my personal thesis is that capital markets will be one of the main areas of focus for blockchain efforts in 2018, this is worth keeping an eye on.

In a further twist, the firm’s CEO recently announced a desire to focus on his “personal mission” of developing blockchain-based property rights. $20 million of the funding will go to DeSoto Inc, a joint venture Byrne set up with Peruvian economist Hernando De Soto to further this end.

Since this is another compelling use case, with the potential to further financial inclusion and unlock value through reliable ownership titles, we could be looking at one of the most high-impact blockchain-related investments of the year. And it’s only the beginning of January…

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Daft story of the week:

You may remember that late last year the Long Island Iced Tea company changed its name to the Long Blockchain Corp., which probably makes sense to someone, somewhere (go figure). It turns out that it wasn’t just a naming exercise – they do actually plan to start mining bitcoin. I mean, it’s gotta be easier than making and selling iced tea, right? Of course, first they need to raise the money. And, no, they have not (yet) mentioned an ICO.

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More to come next week, although not as much as I’d like. All of my non-working time is taken up with physiotherapy – I’m SO looking forward to getting my shoulder back to normal.

I’ll leave you today with a taking-a-break recommendation: the second season of Dirk Gently. (If you haven’t seen the first season, that’s recommendable, too.) Totally weird and strangely enjoyable. One of those series where not understanding what is going on is part of the gleeful charm.

Dirk Gently