Category: bitcoin

Web3 oder wie sich deutsche Tech-Intelligenz selbst im Weg steht

ein Replik auf Tantes Blockchain ist doof. Weil diese Art von Ignoranz jetzt mal wirklich kontraproduktiv ist.

Er kam, sah und schriebte: @tante widmete sich in einem langen Beitrag dem Third Web. Und, ganz ehrlich: ich war dann doch recht enttäuscht. Hier meine pieselige Detailkritik, samt Bausch-und-Bogen-Verdammung. 

Ach ja, und erstmal auf Deutsch. Der beantwortete Text kommt zwar auf Englisch. Aber der vertretene Ansatz scheint mir dann doch sehr landestypisch. Und kontraproduktiv.

tl;dr: Dissen aus aktivem Desinteresse bringt keinen weiter, zeugt nur von aktivem Gestaltungsunwillen – und richtet deshalb exakt da massiven Schaden an, wo ausnahmsweise mal Gestaltungspielräume entstehen.

Das Problem

Die deutsche Tech-Intelligenz der alten Schule hat vor geraumer Zeit beim Thema Crypto die mentale Türe zugeschlagen. Aus einer Handvoll teilweise durchaus sehr gut nachvollziehbarer Gründe. Wer ein paar Stunden seines Lebens sinnlos vernichten möchte, bekommt einige hier auf der Bitcoin 2021 Miami am Stück auf dem Silbertablett serviert. Die einleitenden Worte spricht Alt-Senator Ron Paul, ein bizarrer Alt-Libertär aus dem Kuckucksnest, Grifter-VCs der alten Schule treffen auf laseräugige Hedge Fundies im Glück und dazwischen hampeln noch zahllose Climate Change- und Corona-Leugner. 

Tür auf, Tür schnell wieder zu, danke das war’s? Kann man so machen. Muss man aber nicht. So abschreckend dieses Crypto-Gruselkabinett auch wirkt: die User-/Verkaufsveranstaltungen von Oracle zB sind auch eine recht spezielle Nummer. Deshalb funktioniert deren Software trotzdem doch halb leidlich, was man so hört, und eine Verdammnis relationaler Datenbanken wäre wohl auch ein wenig übers Ziel hinaus geschossen.

Wie alles begann

Ich geh mal Schritt für Schritt vor und werde mal die entsprechenden Stellen bei Tante verkommentieren. Aber erstmal zu den Anfängen.

Selbiger Thread geht so dann weiter:

Bei Tante liest sich das non-abstinence based non-scolding dann so:

I had hoped that I wouldn’t have to write this thing, that blockchains and NFTs and all that would just go away and become a chapter in a book about weird economic scams. But if 2021 taught us anything it’s that we can’t have nice things so here we are.  

Arrrgh. SPLASHHHH.

Der laute Platscher war das mit dem Bad ausgeschüttete Kind. Und wie Kinder schon vom Nikolaus lernen “nice things” gibt es schon, aber aber nur wenn man sich übers Jahr auch darum bemüht. 

Aber erstmal zu den Details

Ich werde hier mehr oder minder der Reihe nach vorgehen. Aber bitte nicht drauf festnageln. 

Consensus

Wenn Techniker sich eine Blockchain ansehen, dann finden sie eine verteilte Datenbank, die zwar recht schnell zu lesen, aber nur mit Klimmzügen zu beschreiben ist. “Schuld” daran ist Bitcoins ominöser Satoshi Nakamoto. Da es keine zentrale Schiedsstelle gibt (und geben sollte), die den Schreibzugriff kontrolliert und zudem sich alle Nodes weder kennen noch trauen können müssen, kam er auf sein durchaus ingeniöse Lotterieprinzip des Proof of Work.

  • Das Gute an PoW: es funktioniert. 
  • Der Haken: vorstellen kann man sich ein modernes Mining Rack in etwa wie einen elektrischen Durchlauferhitzer. Vorn kommt der Strom rein. Anstelle der Heizspirale sitzt ein aufgeregt werkelnder Prozessor. Hinten fällt bisweilen eine Cryptocoin raus. Und ansonsten hauptsächlich ständig viel Wärme.

Dass das nicht wirklich sauber skaliert, war schon vor Jahren klar. 2014 hab ich’s mal ausgerechnet. Schon damals benötigte man den Output eines halben Kernkraftwerks, um das Bitcoin-Netzwerk zu betreiben. Die Hardcore-Libertinäre hat das damals schon nicht interessiert. Und die, die sich für Climate Change erwärmen (haha), wiederum nicht für Crypto. Was dann leider zur Folge hat, dass Bitcoin heute in etwa soviel Strom braucht wie ein mittlerer Planet, besiedelt von wuseligen Steinkohleverstromern.

Aber nun ist es ja nicht so, das Crypto generell Strom fressen muss, als bräuchten wir kein Eis in der Arktis.

Dass es durchaus ökologisch sauberere Alternativen gibt war damals schon absehbar.

Dass beispielsweise Proof of Stake als Alternative funktioniert, zeigen beispielsweise Tezos, Cosmos und Avalanche, die per Design darauf ausgelegt sind.

Dass der Umbau bestehender Systeme nicht ganz trivial ist, muss man gerade Tante glaub ich wirklich nicht erzählen.

Dass PoS Probleme haben kann, ist für die Ethereum Foundation auch keine neue Erkenntnis.

Aber das hier benannte “Problem” … 

This one needs less energy but has other problems (for example the inherent power imbalance between those with few and those with many tokens: A person whose rich will always win in a conflict with a person with fewer tokens).

… sagt einfach nur, dass jemand sich mit dem Thema auch nicht mal marginal beschäftigen möchte.

Vorstehende Aussage trifft zwar auf unser aller Finanzamts-Kommunikation zu (CumEx schlägt Arbeitszimmer). Hat aber mit PoS bis auf das Wort Token recht wenig zu tun.

Kein Konsens

Kommen wir zum Konsens. PoX schafft den Konsens, der die zahllosen verteilten Datenbanken synchron hält. Das ist umständlich, aber dann schon auch notwendig. Weil ohne Konsens eben kein dezentrales System, wie angefordert.

Folgender Kommentar ist deshalb ein ein Zirkelschluss:

Traditional databases don’t face that challenge because clients log in and the database server can just – like a referee – decide who gets to have their data written first. 

Oder, anders gesagt: bloss weil es Quatsch ist, mit einem 40 Tonner die Altstadt von Rothenburg ob der Tauber zum Brötchenholen befahren zu wollen sind LKWs nicht generell als aufwändiger Unfug abzulehnen. 

Ohne Konsens-Klimmzug komme ich halt nicht allzu weit, wenn die zentrale Anforderung ist, dass es eben exakt KEINEN zentralen Schiedsrichter geben soll.

Scaling

Jetzt kann man natürlich drüber streiten, wie relevant Dezentralität tatsächlich ist und wann der Ansatz Mehrwert bringt. Aber dass es sich dabei um technisches Spielzeug handelt, welches generell nicht skaliert ist nicht wirklich Stand der Technik: 

Bitcoin currently can do about 4.5 transactions a second. FOR ALL OF BITCOIN. Ethereum is a little better and can do about 30 transactions a second. That is ridiculously low. The VISA network to process credit cards can do up to 24000 transactions a second (they currently do about 1740 a second). Try that number on for size. 

Lassen wir den immobilen Bitcoin-Block mal aussen vor. Auch Ethereum ist noch vergleichsweise langsam und wir lassen ebenso alle geplanten Updates beiseite weil Papier und nicht real implementiert. Aber wie sieht es denn zB mit den kompatiblen Ethereum Virtual Machine (EVM)-Chains aus?

Current testnet benchmarks report over 4,500 transactions per second, with the full, production-ready version of Avalanche having the potential to achieve over 20,000 transactions per second. This is before any type of sharding or layer-2 optimizations, which can easily boost the network’s performance.

Anscheinend ist die Technik nicht ganz stehen geblieben.

Web3 is a security disaster

Das ist freilich richtig. Self Custody für technisch unbedarfter Nutzer ist ein Rezept für ein Desaster. Das gilt freilich auch für Ansätze wie guck dir drei Videos auf YouTube an und setzt dir dann deinen eigenen Linux-Server auf, um damit deinen Installationsbetrieb mit 10 Mitarbeitern zu verwalten. Kann man schon machen. Sollte man aber besser nicht. Heisst jetzt aber nicht, das Linux generell ein Sicherheitsdesaster ist.

NFTs don’t do what they claim to do

Beweisstück A: right-clicking Kunstdiebstahl

Sagen wir mal so: NFTs machen nicht das, was der Text behauptet dass sie behaupten zu tun. Was sie allerdings tun: schaffenden Künstlern eine zusätzliche Einnahmequelle zu verschaffen.

Full Disclosure: mehr oder minder zur selben Zeit als Anil Dash mit Monegraph und damit sozusagen proto-NFTs experimentierte, hab ich vergleichbares in Berlin mit einem Partner probiert: denn für Kreative kann künstliche Verknappung der digitalen Endlosigkeit durchaus hilfreich sein, wenn sich der Vermieter nicht mit Gitarrengeklampfe bezahlen lässt und der lokale Supermarkt deine hand gemalten Aquarelle nicht akzeptieren mag.

Närrischerweise basteln wir damals auf Basis relationaler db und Hybris. Aber stießen darüber auf den Nebennutzen von Bitcoin, Metadaten in einer Blockchain festzuschreiben. Ausser ein paar freundlichen Worten bei Businessplan-Wettbewerben und einer lustigen Präsentation im RAI in Amsterdam vor Gavin Andresen als Oberjuror kam freilich nicht viel dabei raus. Waren wohl etwas früh dran.

But people can still right-click the image and download it and use it. 

Uff. Houston, wir haben ein Kommunikationsproblem. 

So what does “ownership” even mean in that context? 

Zeige mir ein digitales Werk dass du jetzt schon “besitzt” und ich zeige dir die Plattform-ToS, die dir buchstabieren, dass du nichts erhalten hast ausser einer limitierten Nutzungslizenz an einer Handvoll Daten. 

There are only a few exchanges to buy and sell tokens, there are only very few NFT markets. Web3 hardly exists but it’s already centralized.

Muss ich Yachtclub-Affen als Kunstwerke ernst nehmen? Jeder wie er’s mag. Aber sagen wir’s mal so: im Gegensatz zu einem Zauberschwert, das mir mein Gameprovider verkauft, sind standardkonforme NFTs zumindest mal plattformübergreifend verfüg- und handelbar, egal ob Opensea, Rarible oder Zora oder … 

Was aus Fortnite kommt, bleibt dagegen in Fortnite. Ist nicht wirklich schlimm. Ist aber so.

NFT ≠ Apes & Pepes

Und sind ja nicht nur Affen als NFTs unterwegs. Rafaël Rozendaal sei hier mal als Beispiel genannt für einen digital-Künstler der ersten Stunde (ich erinnere mich gern an seine ersten Gehversuche mit Screen Savern), der inzwischen auch im klassischen musealen Raum angekommen ist. Und, wie soll ich’s sagen, “natürlich” inzwischen auch mit NFTs arbeitet.

NFTs sind eine spezielle Form digitaler IDs. Digitale Kunst ist ein spezieller Use Case davon. Der Spekulationswahn drumherum: geschenkt. Wer beim Web1.0 nur die New Economy-Blase gesehen hat, hat dann auch den ICE verpasst, weil ihm der Trambahnschaffner zu teure Krawatten getragen hat.

Web3 is just an attempt to find a use case for blockchain

Den folgenden Absatz zerstückel und kommentiere ich jetzt mal Block für Block. Weil der mich wirklich gewundert hat.

When an engineer looks into a problem, they will at first gather the requirements. What does the system they need to build need to do and how and for whom etc. Afterwards they will look at existing technologies and see which technology and platform fits best to the requirements. 

So sollte es sein. Wobei der Prozess generell etwas schwieriger ist, da der Anforder gerne auch Schwierigkeiten hat, seine Anforderungen überhaupt nachvollziehbar zu formulieren. Besonders wenn er keine Vorstellung davon hat, was machbar oder sinnvoll ist. 

With Web3 it’s the other way around. 

Oha!

People had blockchain which was really only useful to run unregulated security trading without paying taxes (“Bitcoin”) but really wanted to use it somewhere. 

Moment!

  • Blockchain hat sich also ganz ohne Softwareingenieure entwickelt, landete als Deus ex Machina in den Händen von steuerhinterziehenden Spekulanten, die jetzt verzweifelt nach neuen Use Cases suchen, weil nur unregulierten Wertpapierhandel zu betreiben auf die Dauer zu unbefriedigend ist? 
  • Oder handelt es sich etwa um steuerhinterziehende Softwareingenieure, die nun weitere Requirements erfinden, um ihre magische Gelddruckmaschine weiter zu füttern, ohne die nun real existierende Technologie zu evaluieren?

Wer beim zweiten Punkt jetzt “ja, genau” ruft, hat in einigen Fällen durchaus Recht. Überall, wo Geld zu machen ist, tauchen dieselben garstigen Gestalten auf. Als Generalisierung wäre es allerdings ein infame Unterstellung und zeugt von einem etwas dusterem Menschenbild im allgemeinen und speziellen (bezogen auf Softwareingenieure).

Ich mache gerne mit ein paar Protagonisten bekannt, die äusserst integer sind, sehr genau wissen, was sie tun (und nicht unbedingt nur die wenigen weissen Schafe in einer ansonsten dunkelschwarzen Herde sind).

Since in the 10 years blockchains have existed no real use case has emerged they just basically reshaped a problem (the web is centralized and controlled by a few companies) forced blockchain into it and claimed to have a solution. They do not and this marks another year where blockchain has not found a use case aside from tax fraud.

OK: wenn man nicht hinschauen möchte, weil man sowieso alles für gehypten Quatsch hält, dann sieht man natürlich auch nix.

Dass Privat- und Zentralbanker sich intensiv mit Themen wie der Digitalisierung von nicht-virtuellen Währungen beschäftigen, geschenkt. Der Use Case “programmierbares Geld” geht schliesslich ans Kerngeschäft (während teilweise durchaus fragwürdige Stablecoin-Schattenkonstrukte schon munter im Einsatz sind). Fragen wie “was darf ein Zentralbank-Euro können” oder “wie sieht der Retail Use Case für einen Commerzbank-Euro aus” beschäftigt unsere Banker nicht erst seit gestern vormittag um 11:00.
Kann man natürlich alles ignorieren. Geht ja nur um unser Geld. Geht uns ja nichts weiter an.

Warum sich Supply Chainer für das Thema interessieren muss natürlich auch keinen interessieren ausser Supply Chainer. Und selbst die können sich bei ihrem Thema of nur mühselig wach halten. Geht ja nur um ESG-Compliance und Produkttracking (und mir ja egal, ob in privatem SaaS oder open sourced in DLT).
Infrastruktur ist in diesem Fall wirklich Kärrnerarbeit.  

Über technische Protokolle, deren Entwicklung und Support über token gesteuerte Nutzung finanziert wird, muss jetzt auch keiner nachdenken. Weil egal ob API3 oder Gitcoin oder Radicle, alles nur Ausweichmanöver steuerhinterziehender Ponzi-Schemer und aus Log4j haben wir ja gelernt, dass man kritische Infrastruktur durchaus als spendenbasierte Freizeitprojekte betreiben kann.

Um auf Anil Dash zurück zu kommen. Was er expressis verbis sagt: muss man nicht mögen, aber der Zug ist längst aus dem Bahnhof ausgelaufen und lässt sich durch Ignoranz nicht aufhalten.

DAO ≠ D.O.A.

Before we start talking about the great $79 million DAO robbery, let’s make a quick introduction.

The DAO is a Decentralized Autonomous Organization (“DAO”) – more specifically, it is a new breed of human organization never before attempted. The DAO is borne from immutable, unstoppable, and irrefutable computer code, operated entirely by its members, and fueled using ETH which Creates DAO tokens.

Thus spoke The DAO.
Which is just one possible way to implement Decentralized Autonomous Organizations.

A translation attempt into plain English may sound like this:

In traditional western economies, capital ownership, production and consumption are separated entities:

  1. Uber investors pour billions of USD into a company they own.
  2. The drivers invest into production (CAPEX like cars, OPEX like gas and insurances, their time) and pay their USD tribute to Uber’s shareholders.
  3. Passengers pay USD for the ride.

A decentralized autonomous organization isn’t a shareholder  construct, but a stakeholder model based upon securely transferable crypto tokens.

  • Every token holder is a stakeholder in the DAO’s ecosystem
  • Tokens can be held …
  • … or circulated to pay for services rendered or products received …
  • … or exchanged into another crypto token (e.g. Bitcoin) or any legacy currency

synergistic

It’s a radically different type of participatory economy and may offer the chance to fix a dangerous flaw of our current monetary system:
– the “real” economy is dwarfed by an unbridled financial system
– the financial sector is pretty much decoupled from the “real”, productive economy
– but both spheres share the same tokens to exchange value: our traditional currencies like the EUR, the GBP or the USD
– those currencies are basically minted and controlled by the aforementioned financial sector.

A DAO token works like a programmable complementary currency. Traditional alternative systems looked like the Wörgl Schilling: a piece of paper used to locally exchange value to keep external problems at bay. Being just locally accepted is the key constraint – and the defining feature. Because the intent behind is purely local.

freigeld1

DAO tokens resemble complimentary currencies in this. They are constrained currencies. Traditional currencies are pretty much universal: highly fungible currencies like the USD or the EUR can be used to pay for any kind of product or service or asset pretty much all over the globe.

The Wörgl Schilling was only valid in Wörgl, the Bavarian  Chiemgauer is only accepted in this beautifully set local economy:

chiemsee_vonkampenwand … but not in Wörgl, located just a one hour car drive further down south in Austria.

Like with traditional complimentary currencies, the DAO token’s constraint is it’s limitation to a specific economy. It may be tied to a locality (like with the Chiemgauer) or a specific private entity (like airline miles, which are a certain form of private currency) – but is much more versatile.

In the DAO, the token is not only used to exchange value.

  1. Every token owner is a stakeholder of the specified economy.
  2. The token itself is programmable. Ideally, it becomes an intrinsic part of the whole process, not just the value exchange.

Token holders are a bit like owners of printed bearer shares: he who owns the physical share is the rightful owner of the asset represented in the paper. The company’s central ledger only lists the shares, but knows nothing about their ownership.

Crypto tokens, be it DAO or Bitcoin, pretty much automate all authentication, validation and transaction processes needed with an amazingly safe technology. Traditionally, all those transactions are safeguarded by a central authority. To buy shares of a company, you need to trust the company as the issuer, the stock exchange as the trade facilitator, the clearing house as the middleman, the settlement process for the exchange of assets (money/shares), and the custodian for administering your held securities.

Crypto transactions are pretty much trustless, meaning: as long as the crypto process is untainted, the whole chain of the transaction, from trade facilitation, clearing, settlement to custody services is inherently secure.

So how come somebody can instigate a rather dubious $79 million transaction?

Let’s go back to the trustless thing. If you read really carefully, you might have noticed I left an important piece out of the trustless specification: the issuer of the share.

victor_lustig

And here’s the reason. Meet Victor Lustig. The man who sold the Eiffel Tower – twice. His con was actually pretty hilarious. He convinced a couple of Parisian scrap metal moguls that he represents the French government and they should bribe him for the right to melt down the rusting iron world wonder.

Some misplaced trust in charming Lustig later, the tower was still standing, the government still the owner of the cast iron hulk and Lustig’s target, one of the scrap metal dealers, a bit richer in experience and bit poorer in funds.

A trustless crypto transaction wouldn’t have affected Lustig’s con at all. Like every gifted con man, Lustig leveraged the conditio humana.

Every transaction is a chain of trust. The perceived transaction started with a land register certifying the French government as the rightful owner of the tower and ended with a cash transfer, a trusted means of value exchange.

But in the Eiffel Tower case, the starting point of the trust chain was Lustig and his made-up credentials. Or, to use crypto speak: the Genesis transaction was not building and owning the tower, but Lustig coming up with a fake identity and a masterfully implemented storyline.

Let’s go back to the DAO. In a rather spectacular crowd funding, a quite substantial amount of (crypto) money was raised. The basic premise:

Historically, corporations have only been able to act through people (or through corporate entities that were themselves ultimately controlled by people). This presents two simple and fundamental problems. Whatever a private contract or public law require: (1) people do not always follow the rules and (2) people do not always agree what the rules actually require.

From the DAO Whitepaper.

The offered solution:

The DAO is self-governing and not influenced by outside forces: its software operates autonomously and its by-laws are immutably chiseled into the Ethereum blockchain.

https://daohub.org/about.html

Or, in a nutshell:

  • the problem: people are not always following rules or not always really agreeing what those rules really do mean.
  • the solution: immutable contracts.

Which are a really great solution for many real world problems. But not for the problems they try to solve. Because they missed (3) people cannot foresee all consequences a contract or by-law may have

This is not a new thing, born out of crypto contracts. Matt Levine brings a great example in his Bloomberg piece Blockchain Company’s Smart Contracts Were Dumb.

One more story, one of my all-time favorites. The California electric grid operator built a set of rules for generating, distributing and paying for electricity. Those rules were dumb and bad. If you read them carefully and greedily, you could get paid silly amounts of money for generating electricity, not because the electricity was worth that much but because you found a way to exploit the rules. JPMorgan read the rules carefully and greedily, and exploited the rules. It did this openly and honestly, in ways that were ridiculous but explicitly allowed by the rules. The Federal Energy Regulatory Commission fined it $410 million for doing this, and JPMorgan meekly paid up. What JPMorgan did was explicitly allowed by the rules, but that doesn’t mean that it was allowed. Just because rules are dumb and you are smart, that doesn’t always mean that you get to take advantage of them.

Contracts have always been a complicated affair. Because they have to formalize a stable framework around fuzzy intentions by using language – which as a tool is inherently fuzzy as well.

The proposed solution for this inherent fuzziness created by the mismatches of intent and description and the thereby caused mismatching realities is probably a bit too ambitious: bug free software.

 

 

And what do you know: somebody smart quickly outsmarted the contract.

I have carefully examined the code of The DAO and decided to participate after finding the feature where splitting is rewarded with additional ether. I have made use of this feature and have rightfully claimed 3,641,694 ether, and would like to thank the DAO for this reward.

It’s unclear if the text has been written by the hacking trickster, who just wants to add a bit of insult to the injury. But the consequences of his contract are actually rather unclear as well. He may just be entitled to keep the load.

Because The DAO as a non-organisation constructed itself around the premise of its own infallibility. Read this part of self descriptive hubris:

The DAO will be deployed as an exact implementation of the Standard DAO Framework. The Whitepaper therefore describes perfectly how the DAO functions and is a great place to start learning more.

… exact implementation … describes perfectly …
Well. Obviously not that perfectly exact.

In the DAO’s belief system, acts of people are the problem, so let’s move them out of the equation. This created an entity ready to be preyed upon by other people of rather questionable intent. With the attack vector being people not being able to create 100% perfect contracts.

Hard core smart contractors don’t see a problem with this. Win some, loose some: it’s part of the package of immutability. Changing the rules after the fact may be technically possible, but violates the core principle of a Decentralized Autonomous Organization. Rolling back those transactions by an deus ex machina-act would inherently destroy the trust in the perfect engine: mind you, it worked actually without a fault.

Which is probably right. Because in their hubris, The Dao tried to construct themselves as an infallibility engine without any meaningful mechanisms for mediation or arbitration or recourse. And saving The DAO by ex-post changes might really hurt the underlying case for Decentralized Autonomous Organizations.

On the other hand: creating a machine, which enables smart contract-con men to systematically defraud unsuspecting token investors, who wouldn’t have any path of recourse at all … this sounds like a solid way to implement fringe system of very limited reach and effect.

As VC Albert Wenger writes: The Path to  Learning requires Failing: The DAO

Blockchains and smart contracts are amazing new tools in our overall technological toolset. We have to learn how to deploy them to the best uses (many of which have yet to be invented). That will take failures. The DAO is not the first one (e.g., Mt. Gox) and won’t be the last one.

Unfortunately, the first DAO failure might have been somewhat expensive.

 

 

 

 

 

 

Excess Capacity

What’s the economic driver behind the so called sharing economy? Robin Chase points into one direction. Thanks to technology, we can build platforms which enable us to harvest the excess capacities all around us. As a co-founder of Zipcar, the car-sharing trailblazer, she knows what she’s talking about. Owned cars are sitting around most of the time. Rentals you get for 24 hours (which, hopefully, is a bit longer than you’re actually going to drive it). A Zipcar you get by the hour. Daimler’s Cars2Go are even rented by the minute. That’s harvesting the excess capacity of a massive chunk of hardware which usually hangs around at the curb like idling teenage mall rats after school.

Excess Capacity
Robin Chase on Excess Capacity: too much of something can become a good thing.

Her talk was partly a compressed version of her new book Peers, Inc. The gist: linear solutions for exponential problems just don’t scale. Peers, Inc. is about harnessing massive problems with scaling. How was AirBnB able to quickly offer more as much bed-inventory as the largest hotel chains? Because their technical platform leverages the power of the people to pool their excess capacity.

Of course we do know by now, that some of the drivers of the sharing economy are not that benign. Granny letting out her spare bed room once a year sounds nice. But Mr. Greedy creating new inventory by taking 3 bedrooms condos off the rental market to rent them out by the day is a rather excessive approach to excess capacity.

Harvesting excess capacity is the underlying scalable model. Mr. Greedy may be driven more by taking advantage of regulatory arbitrage. But this is a problem which fairly easily can be remedied.
The complicated part starts when sharing economy entrepreneurs understand, that one excess capacity in later stage capitalist societies is man power. Look at Über: the drivers take on the capital expense of buying the car, take on the operating expense of maintaining it, take on all the risks.

And that’s how we come back to Robin’s talk. The occasion was our biweekly Bitcoin Startups Meetup. How does this relate? Currently, most sharing economy platforms are driven by shareholder value. The Bitcoin (or crypto) model works differently. It’s a stakeholder model.

Some small steps are already happening. A couple of Denver cabbies are asking: What If Uber Were a Unionized, Worker-Owned Co-Op? Joel Dietz‘ Swarm is pushing forward in many different ways.
Crypto-based decentralized applications don’t need statements like “Don’t be evil”. Their DNA is sequenced and public from the start. This includes the potential switch of the underlying economic model, from rent-seeking shareholders to a revenue-sharing stakeholders.

Addendum: here’s some more material from a talk I gave last year on the topic: “The new decentralized sharing economy and crypto coins”

To Infinity and Beyond: Monetary Sci Fi

At ZapChain, the crypto Q&A central, Daniel Cawrey had a pretty funny question: Do you think bitcoin could become the currency of space?
Here’s my slightly enhanced answer.

As sci fi has a tendency to shape future technical realities (think Arthur C. Clarke and the geostationary satellite, think all things Neil Stephenson from his cyberpunk period), and as the pressing need for a non-terran currency may still lay a bit in the future, we should have a look at what sci fi has to tell us on all things currencies:

Credit
Galactic Credit Chips come in handy.

According to Wookiepedia, The Galactic Credit Standard, simply called a credit or abbreviated to cred, colloquially referred to as Republic Dataries, and later known as the Imperial Credit, was the main currency in use in the galaxy since the time of the Galactic Republic.

Around this official currency, alternative currencies seem widespread:

In some other space and time, and in a slightly more post-monetary future, the Federation credit is the monetary unit of the United Federation of Planets. To put things into perspective:

  • a Tribble sets you back 10 credits (that’s obviously before they unveil their rather inflationary reproductional pattern)
  • to use the Barzan Wormhole, the Federation pays a lumps sum of 1.5 million credits and an annual fee of 100.000 credits.

Mars (Total Recall) and the non-radioactive Earth leftovers and its space dominions (Judge Dredd) go for credits as well.

This means:

  • all major centralized utopias rely on a credit based system
  • in their lesser controlled fringes, alternative currencies are highly likely to be accepted

Which shouldn’t be too surprising. A rallying cry like To Infinity and Beyond implies one quite demanding requirement: space is infinite and to conquer infinity you need infinite resources. And to pay for those infinite resources, you need an infinite money supply.

Which is actually not that different from the economic realities of today. Space may be a rather finite commodity for us inhabitants of earth in the early years of the 21st century. But time is endless.
As long as our economic model is based on growth, we will need a money supply which can grow with time – and therefore has to be infinite.

So sorry, BTC or XBT:

  • If Bitcoin or one of its crypto-successors aspires to become THE currency of space, it will need to incorporate the credit principle into its money supply first. A finite resource like Bitcoin or gold will always be on the fringes, be it of future space dominations or the economies of today.

Hyperinflationary reproductional patterns: a Tribble based-currency is not advisable.

.
A dissenting sci fi opinion could be based upon Ian M. Banks wonderful construct of The Culture.
In his interstellar anarchic post-material-scarcity society, us puny humans exist in a symbiotic relationship with tremendously capable (and eternally quirky) artificial intelligences (the minds), humanoids, and other alien species, who all share equal status.
And one side effect of post-material-scarcity for everybody is: units of account, mediums of exchange and values stores are things from a rather barbaric past.

In The Culture, you will just have to forget about credits and crypto-credits and interstellar blockchains. And if you insist on living with the perils and perks of a monetary value system, you can always move to one of the Culture’s lesser enlightened neighbors, which still deal, steal and trade with credits or commodity based currencies.

 

 

Who will win the Bitcoin blocksize war?

My take on this question on Quora: Who will win the Bitcoin blocksize war?

Here we go:

To quote Niel Bohr:

“It’s hard to make predictions, especially about the future.”

But of course we can always make fairly educated guesses.

QuoraThing is: Bitcoin is currently on a crossroads. At stake is the mother of all crypto currencies, the mighty Bitcoin. Due to its size and value, the Bitcoin network had to become a fairly slow mover. Changes take ages. But it’s becoming obvious that the status quo is not really sustainable.

The blocksize war (rather big name for a rather ludicrous challenge) can be seen as a forerunner of bigger things to come. It’s kind of obvious that the Proof of Work mechanism is working really nice, thank you. Unfortunately it tends to be a rather power-hungry (and therefore expensive) way to deliver seigniorage and validating transactions. Newer crypto contenders look into different models, like Proof of Stake, which of course have their very own challenges, but need way less power and are therefore much cheaper in operations.

To put things into perspective: about a year ago, I did a ballpark calculation onPower Hungry Crypto Coins. Back then, the equivalent of about 0.13 nuclear power plants was needed to run the mining infrastructure. Not much, one might say, to power a global currency.

But here we have the next problem: Bitcoin as a currency for everyday transactions just hasn’t taken off. As a currency, it seems a bit of a very clever solution in search for a problem. On the other hand, there are a couple of problems lying around, which would happily latch on to a blockchain based solution – well, if some technicalities would be in place. Hence all the initiatives around Bitcoin 2.0 and VC and other monies pouring into the space, efforts like sidechains, the increase of the blocksize or straight forward competitors like Ethereum.

So let’s come back to the question. The blocksize war is a mere skirmish – which could end up in a civil war. Bitcoin’s technical strength, the power of its network, is at the same time its most prominent weakness. Fiddling with technical specifications means a handful of software engineers tweaking a distributed infrastructure worth several billion Dollars. Some large changes, like the blocksize decision, need a hard fork of the blockchain.

From a miner’s perspective, forks that lower the ROI are always scary. Your margins are as volatile as the exchange value. But your operating cost, due to the energy consumption, are always to be paid in Dollars, EUR or Yuan.

And if the ultimate fork would happen, the switch from PoW to PoS, this would leave you with some server racks filled up with expensive scrap metal. Of curse, on the other hand: if competing currencies or models make Bitcoin obsolete, there’s nothing left to mine for you as well.

As a small Bitcoin holder you can just watch carefully. And if you want to treat your coins as an investment, then do as with any investment: don’t put all your eggs in one basket.

Power Hungry Crypto Coins

Lately, at one of our Bitcoin Startup Berlin meetups, I did a short talk about Proof of WTF: Proof of Work, Proof of Stake, Proof of Burn, Proof of Resource are a core ingredient of crypto currency technologies. And as I’m not a software architect or programmer or anything close, I will not bore you with disseminating too much semi-knowledge. Let’s just leave it like this: if you want to validate a transaction (and for the purpose of seigniorage), Bitcoin-alike crypto currencies need a network of computers agreeing upon a Proof of Something. If you want to know more, try the Proof of-links above (or ask me for the presentation, which is unfortunately riddled with too many copyrighted images to share freely anywhere).

Power hungry miners: don’t use your CPU to mine a Bitcoin.

But back to work, literally. Bitcoin, being somewhat the genetic father of practically all p2p crypto currencies on the planet, is made possible by the proof of work: a bunch of computers solving a software riddle of increasing complexity. Nakamoto’s solution was brilliant, as a proof of concept. Unfortunately, it does have some side effects. In its current state, Bitcoin has to rely on a huge network of professional miners to validate transactions, which spin out new coins as well.

At the Berlin Inside Bitcoin conference, somebody from the audience asked two of those miners on the stage, how a Bitcoin born in 2014 would look like. Would it still use a Proof of Work mechanism? Or would another solution like Proof of Stake be preferable? Now guess the answer of the guys making a living from running a network of PoW-machines. Wrong. Their statement was pretty clear: Proof of Work works, but it comes at a price. Proof of Stake or other concepts would be more future-proof.
How comes?

 

Bad Bitcoin burns the fuel.
Proof of Work: bad Bitcoin burns too much fuel for its own good.

In physics, power is the rate of doing work. So you might rightly infer that Bitcoin’s Proof of Work based system, with its increasing complexities, might need more and more power. You’re right. 

If you follow the developments of Bitcoin mining, you will have noticed some strange developments.

  • In the beginning, you could mine some coins with your desktop hardware, on your CPU (while browsing the web and fiddling around with a spreadsheet). Those days are long gone.
  • Next step: try running the mining program on your GPU, the graphical subsystem of your PC. This worked nicely for quite a while. But even high powered multi boards GPU monsters couldn’t keep up with the demanding network.
  • So, since quite some time, we’re into ASIC mining: single purpose computing units, which are just able to handle a single task: Bitcoin mining. And, maybe, heat your apartment. Literally.

As there are too many myths and not enough facts around, I tried some very simple calculations. To be honest, the results are something between totally scary and kind of reassuring.

What I did was the following:
Blockchain.info is publishing some stats on a regular base: http://blockchain.info/stats. They are all nice and interesting, but the only thing we really need here is the last number on the page, the hash rate.
Currently, as of 2014-04-09, the Bitcoin network is running at 46,848,838.03 GH/s

Now, let’s have a look at mining hardware. Here we go, the mining hardware comparison table. https://en.bitcoin.it/wiki/Mining_hardware_comparison
A brave spreadsheet soldier would normalize all those number. I’m not, so I just did a sloppy calculation, coming to the following:

  • CPU mining is running on average at approximately 6.67 KW/GH
  • GPU mining needs round about 0.5 KW/GH
  • totally new ASICs hum smoothly at 1 W/GH

Now, according to the EIA, a typical US nuclear power plant generates 11,800,000,000 MW/h per year.

This translates into the following:

  • running the current Bitcoin network on CPU mining hardware would need 83 fully loaded nuclear power plants
  • with GPU mining, we still would need six extra plants
  • 2014 ASICs would reduce the load to 0.01

So, basically, we’re currently running at 0.13 nuclear power plants to power up the Bitcoin network.
https://docs.google.com/spreadsheets/d/1_b-H1iA3LSbetHdiDEt46WKEhr-rnW1Jrq1SgZeW4Ao/edit?usp=sharing

Proof of Stake: lower energy consumption helps in many ways.
Proof of Stake: lower energy consumption helps in many ways.

Could be better, could be worse. But what are the implications? One line of thinking goes like this: the Bitcoin network is like totally useful. Spending some energy on something totally useful should not be a big deal. Eat that, tree hugger! (OK, skip the last part.)

But my besides hurting my bleeding eco-friendly heart, the power hunger of Proof of Work has some other side effects as well. The armament race for faster, less power-hungry mining hardware definitely leads to a centralization of a core part of the network. Which, in the long run, makes the network less secure: it becomes more centralized, 51% attacks become more likely.

At the same time, the price for running the network is currently mostly paid by seigniorage, the mining of new coins. But there will be a certain point in the future, where the networks has to rely more upon transaction fees. The more power-hungry the network, the higher the cost of transactions. Because, even if you think climate change is made up by black helicopter flying aliens from a socialist parallel universe, you still have to somehow pay your utility bills.

So, I guess: sooner or later Bitcoin will have to switch the base technology. Because Proof of Work works well. But Proof of Stake seems like a more sustainable solution.

It’s the What’sUpApp-Economy, Stupid!

I don’t have  a problem with anybody receiving some outrageous monies for his work. 19 billion USD might seem a bit over the top for a mom and pop pseudo-SMS operator. But it’s Mark Elliot Zuckerberg billions, so I don’t care if he spends them on platinum popsicles or a piece of heavily used software.

Unfortunately, the deal points to a pattern. That’s what Robert Reich is pointing out, first on his Tumblr (sold for 1.1 bn USD), then at Salon. It might be an occupational hazard that the former secretary of labor under President Bill Clinton is keeping an eye on he job market. But his diagnosis is pretty spot on:

The winners here are truly big winners. WhatsApp’s fifty-five employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.

And the rest of us? We’re winners in the sense that we have an even more efficient way to connect with each other.

But we’re not getting more jobs.

Cars don't buy cars.
Where’s the money? Messages don’t buy cars.

It’s the core problem of our networked digital economy (just ask Jaron Lanier). And it’s a reiteration of the pitfalls of productivity, which lead Henry Ford to his famous statement “cars don’t buy cars”.
Back then, the problem was a bit more in the open. Pay your workers well, and the humming economy will pay you back with interest.

But, as Reich states: our new economies have a different problem. It’s not that the WhatsApp-workers are impoverished human beings, wrought out in the treadmills of late stage capitalism.
The problem is: they’re hardly needed anymore. Look at a traditional telco like Sprint Nextel. Their market cap is just 50% higher. Now look at the employment numbers:
– WhatsApp: 55
– Sprint Nextel: 79,000

That’s right. Merge the app team into the telco, and it disappears as a mere rounding error.

 

Can productivity be the problem? Hm. In the first electrified trains, a mandatory stoker had to be on the train. This approach may have solved one family’s bread and butter problem, but reeks of institutionalized madness.

So maybe it’s more about the distribution of the productivity gains? Let’s have a look at the wealth creators of the last years: Facebook, Twitter, AirBnB, Uber, Soundcloud, and now, WhatsApp. Great services all of them, highly successful as well. I prefer (almost) any AirBnB accommodation over  a run of the mill business hotel. Me likes Twitter. Facebook. You name it.

All those services share one thing: they are highly centralized. In terms of the service, and in terms of the wealth they created. I tweet and become a participating member of the attention economy. But the intrinsic value of the tweet is absorbed somewhere else. I rent out my place. But the listing service receives a huge percentage.

In terms of the value distribution, the chain looks like that

  1. founders and early investors
  2. later stage investors
  3. early employees
  4. service providers to the company
  5. employees on the payroll
  6. eventually: outsourced service providers (Uber drivers, AirBnB hosts, …)

You may rent out to peers. But the value distribution is definitely not peer to peer.
Producing value as in content usually is valued as zilch. Look at Medium as a new publishing model. All words are meant to be free. Not as in speech. But as in freebie.

Don’t get me wrong. Founders and early investors should get a big chunk. They’re taking an oversized risk (I know what I’m talking about). But it might be the right time to look at different models of value creation and distribution.

As I’ve been annoying everybody in the last couple of months with my harping on crypto currencies, you might know what’s coming. Yes. Let’s talk about crypto currencies.

Crypto currencies may look a bit weird. But they have some serious implications.
Just try this thought game:
– A crypto coin like Bitcoin is a token of ownership.
– Ownership always comes with increased interest (as nicely described in the endowment effect).
– Ownership of a crypto coin makes you a stakeholder in a crypto economy.

Now look at this: crypto coins like Bitcoin are basically programmable money. You can build economic entities which practically run themselves (like WhatsApp). But those new entities can share the created financial values between all stakeholders. 

How can this look alike? David Johnston’s paper on Decentralized Applications is taking a very good lead here. One of his examples would be a Meshcoin: a crypto system to run a decentralized network of meshed WiFi hubs, which is not based on donations or the “hey, we could sell some ads”-model, but offers economic incentives to run and mesh up your hub with many others. Which could look like a FON on steroids.
Because, don’t forget: routers don’t buy routers and jobless Tweeters do not need any ads.

 

 

Bitcoin = Platform 9 3/4

You want to learn what this Bitcoin thing is really all about? Try this well written introduction: Bitcoin: It’s the platform, not the currency, stupid!

Bitcoin: the Nakamoto Express into the digital future is leaving now.
Bitcoin: the digital Hogwarts Express is leaving now.

A tl;dr might go like this: the crypto currency express is leaving now. Please take your seat and learn your magic – or stay a muggle.

No, really. As Arthur C. Clarke wrote in his third law of prediction: Any sufficiently advanced technology is indistinguishable from magic. And if you follow the arguments of two authors of the study, you will probably want to board the train to a virtual Hogwarts ASAP.

The authors know pretty well what they are talking about: Sander Duivestein is a software engineer and works at VINT, the trendwatching think tank of Sogeti (which is a subsidiary of french IT giant Cap Gemini S.A.). His co-author Patrick Savalle is the founder and technical director of Mobbr, a brand new payment platform for network economics, based in the Netherlands.

They start with a nice intro why the current trend of economist debunking Bitcoin is not Hogwarts, but hogwash. Like Alan Greenspan asking for its intrinsic value, just seeing a bubble. As his contributions to the Great Recession are quite undisputed, the verdict of the co-creator of the largest financial bubble of the history of finance could have some weight.

But Duivestein and Savalle treat the aging economists quite nicely (There is a lot of confusion about bitcoin.) They could have quoted Clarke’s first law.  When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong.

But they do explain to everybody, what the real, technological impact is.

Thanks to the Bitcoin protocol (crucially distinct from bitcoin, the currency it underlies), for the first time in history it is possible to transfer property rights (such as shares, certificates, digital money, etc.) in a fast and transparent way, which cannot be forged.

Moreover, these transactions can take place without the involvement of a trusted intermediary  such as a government, notary, or bank. Anyone who fully appreciates these attributes will immediately acknowledge the tremendous value of Bitcoin.

It’s the platform, stupid! And this platform can have some serious implications for anybody’s way of doing business. Just have a look at the all the oversized successes of the Internet economy. What do Twitter, Facebook, Google, Yahoo have in common? They are media businesses. Their business model is advertising, meaning: they have found no intrinsic way to make users want to pay for the services they render. More than one eight of the world population uses Facebook quite extensively. But they need to extract their value exclusively from third parties.

Or look at the posterboys of the sharing economy, like AirBnB, Uber, Lyft. They are all highly centralized businesses, which outsource the grunt work to some local drone (who might even get sued for making a couple of Dollars or Euros on the side). I love AirBnB. But as a company, they’re the 1% of the digital Uberclass.
Bitcoin pioneers a different model: everyone becomes a stake- and shareholder in this new networked economy.

Bitcoin is key to the success of the Collaborative Economy. Bitcoin enables a frictionless and transparent way of sharing ideas, media, products, services and technology between people without the interference of corporations and governments.

It’s ideas like the DAC (Digital Autonomous Corporation, or Community), the Decentralized Application (DA), which are driving the process. Sometimes a bit wild-eyed. But hey, Bitcoin shows a valid path: it’s a completely bootstrapped economy, still in beta and its infancy, with a market cap of 10 bn USD (not counting the capitalizations of the startups and businesses – just the money rolling around in the system).

In a system like this, ownership rights can flow through the Internet like ‘normal’ content (from e-mail to video streaming) already does. And no one can dispute or counterfeit who has ownership. It is safe, transparent, and mathematically secure.

What we see is an emerging commercial operating system, on top of the global communications layer the Internet already offers.

What we enter, is a totally unchartered area. At the Inside Bitcoins-conference in Berlin, even the crypto-savvy lawyers talking about “Emerging Issues in Regulatory Compliance and Law Enforcement Efforts” were a bit out-of-bounds, when asked about the legal ramifications of DACs and DAs. Think about an autonomous soda machine and …

… who exactly is legally and economically responsible (say, if someone were to get sick from a can of soda from one of these machines, for example).

So why touch crazy stuff like this anyway? Duivestein and Savalle have a historic answer:

In 1937 Ronald Coase published a groundbreaking article, The Nature of the Firm. In it he posed a very simple question: “Why do firms exist?”.

In his research he came up with the concept of transaction costs to explain the nature and limits of firms. Companies exist primarily because the underlying coordination mechanisms of the market aren’t perfect.

According to Mitt Romney, corporations are people (which sounds nicer than saying corporations are oversized homunculi). But the basic idea is already nicely embodied (sic!) in the English term “incorporating”: you give a transactional structure a legal body (sic!). Coase gave the answer to the nowadays mostly unasked question why we are doing that. Yes, deflecting liabilities can play a role here. But at its core it’s all about transaction costs.

Young Harry entering Hogwarts.
Young Harry entering Hogwarts.

Of course, the crypto currency based democratization of money and finance can be a scary thing as well.

Like any powerful technology, Bitcoin can either be seen as a Pandora’s box, or as a step towards Utopia. Bitcoin just obeys the First Law of Technology:“Technology is neither good nor bad; nor is it neutral”.
Asking yourself whether Bitcoin will fail is like questioning yourself whether technology can be “un-invented”.

If you accept that there’s magic, you may ignore it at your own peril. Even if you hide all evidence in a tiny cabinet under your stair case, you might still end up as a pigtailed Muggle.

It is much better to experiment and innovate with this new platform. 

And not just that. Becoming an active participant means you can shape this really new economy. Because, to stay in the metaphor: The “You-Know-Who” and “He-Who-Must-Not-Be-Named” will there be present  as well, not just young Harry and his merry band of friends.

So, let’s end with Clarke, again, quoting his 2nd law of prediction. Please don’t forget: he was a prediction pro. In 1945, as a Sci Fi writer, he proposed the rather farfetched idea of putting communication satellites into a geostationary orbit, now sometimes nicknamed the Clarke Orbit. Farfetched, because it took another 12 years until the Russians launched Sputnik (first satellite ever) and another seven years for NASA to launch Syncom, the first geostationary communications satellite.
So, what is Clarke’s final advice:

The only way of discovering the limits of the possible is to venture a little way past them into the impossible.

Bitcoin raised this bar already to quite some extent.

Coins are Brands (and have to work on that)

The known world is divided into three parts: if you say Fiat,

Fiat: public image

  • 30% (estimate) will describe something like this red thing here: four wheels, metal, internal combustion engine. Italian. Depending, of course, a bit in which part of the world you live. In Europe, you’ll get >99.9%, in South-Korea probably <1%.
  • 0.5% will talk about evil bankers issuing fiat currencies.
  • the rest will just say: huh? Whatever.

Brands are about relationship. When launching their cuddly 500, Fiat (the Italians), had to put a little bit more effort into that. In the US, just 8 percent had any brand recognition at all. Fiat did some nice things: they hired JayLo, had a nice viral video making inroads, and pushed themselves up to 30%. Still room to grow, but a nice base.

If you now think, that a brand is something you can create in a lab, or by hiring a branding agency, you are wrong. Brands are the collective public image of who or what you are, in the eyes of the consumer. You can try to nudge their perception into a certain direction (hiring Roseanne instead of JayLo might not have been that kind of perfect fit for the Italian accessoire-car for the generation Desperate Housewife). But that’s just about it. Your core values will still be represented in your product, you service quality, your tonalities.

A real doge: Leonardo Loredan.

Brands are about trust. And that’s were the importance for Bitcoin and all other crypto currencies begins. As crypto currencies are backed solely by trust, supply and demand, and a mutual understanding of the economic value this produces.

Growing the whole ecosystem from 0 to 10 bn USD was already an amazing feat. But where will the future growth will come from? A network needs a reason to join. Get rich quick A.K.A. speculation on growth works only, if the underlying message comes across to a growing user base (which finally might make the step from investment to every day use). 0 10 bn is fantastic. But 10 bn USD is just about doubling the M2 monetary supply of West Samoa. So there’s some need for growth, if one wants to become a global currency.

Now, how does Bitcoinese currently sound? I’m not talking about the misinformed media misconception of yeah sure, just good for buying drugs online, tulip bubble, yadda yadda. I’m talking about how the community talks itself. Brand-linguism (if such a crazy thing would exist) would probably dissect the language as having heavy influences of survivalist, fortified with some geekspeak, with a side serving of free market lingo.

The doges of Venice would have been proud to become a part of that. But as far as I know, crypto currencies are not about creating another financial playground for the 1%.

Now, please watch this video, about another doge:

Yes, it’s a stupid one trick pony taking over popular meme and exploiting. And, no, this is NOT Bitcoin 2.0 or the future of monetary transactions and whatever else is in the DNA of crypto currencies.
But reddit, as always representing the virtual finger on the geeky pulse of the times, shows something happening here.

There’s something about this fuzzy nonsense coin, which the crypto crowd has to take serious. Because: Shiba Inu, so much impact. And nobody wants to hug any Austrian economist.

The Voip of Wall Street

Reboot Wall Street? No incentive yet for the incumbents.
Reboot Wall Street? No incentive yet for the incumbents.

 

At Quora, I stumbled over this question: How could large corporates take advantage of the growth in virtual currencies such as Bitcoin, Litecoin etc?

My take on it goes like this:

Many large transnational corporations have turnovers bigger than many national economies. They have to deal with any currency they encounter (as long as the market it represents is big enough). So sooner or later some large entity might add Bitcoin to its already existing Forex headaches. 

For retailers, the incentive to accept Bitcoin should be fairly huge: reducing the acceptance fees for a sale from let’s say 1.5 to 0.5 percent would almost double the margin of many a A&P, Walmart, Carrefour or BestBuy. This won’t happen too soon on a large-scale, as the investments involved would be quite sizeable and the whole Bitcoin economy is still too small and fringy to make a real bottom line impact.

The really fascinating use cases might even be a bit more spectacular. Running and controlling a large corporation is a highly complex and costly affair. They have to operate under Lenin’s advice: trust is good, control is better. By solving the Byzantine General Problem (how to trust the inherently untrustworthy), Bitcoin (and other crypto currencies) were able to build currencies without needing a centralized trust authority like a central bank at its core. 

If you now apply a trustless system with its encrypted public ledgers to the operations of a large corporation (think: crypto SAP), the effect should be rather scary. Even if you just start by converting your internal financial system from multicurrency into GEcoins or DaimlerCoins or IBMcoins, wth each of them possibly representing a larger market cap then the “meager” 10 billion USD Bitcoin currently represents.

Seems like I almost missed the pink elephant in the room. The industry which could benefit the earliest the most from Bitcoin is of course the industry which currently has to feel threatened the most: finance. Antonis Polemitis brought it very much to the point in a nice well monied exchange between himself and Marc Andreesen.

closest analogy for me is voip. Derided, then adopted by telecoms. BTC/fin svc more complex tho 

Of course we’re still in phase 1: derision. So it might take a while. Just listen to JP Morgan CEO Jamie Dimon on the matter of Bitocoin:

And honestly, a lot of it — what I’ve read from you guys — a lot of it is being used for illicit purposes.

Dimon surely knows what he’s talking about. Just last November, JP Morgan settled with the US Justice Department to pay a record $13 billion fine for its, hmm, questionable mortgage practices. On top of that come another $2 billion for serving for more than 20 years as Bernie Madoff’s primary bank. But wait, there’s more … nevermind. Last October, JP Morgan set aside a pot of $23 billion to pay all recent fines. Which is more than twice the current total market cap of Bitcoin, lingering currently just a bit north of $10 billion.
But no need to feel sorry for Jamie and JP, the gargantuan fines leave neither the bank nor its CEO impoverished. Last year, the bank still pocketed more than $5 bn, and Dimon got a 74% raise for this impeccable too big to fail, to big to jail-performance.

Sounds like a great opportunity for a disruptive technology like Bitcoin.
And some of the people involved in this short exchange are already putting their money where there tweets are :

https://twitter.com/pmarca/status/426947485383151617