Category: Real-World Crypto

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China and programmable money – Part 1

Bloomberg reports that Hong Kong will trial China’s upcoming digital currency:

In trials in Shenzhen, Suzhou, Xiong’an and Chengdu, the digital yuan has relied on banks for distribution. The People’s Bank of China gives out the tokens to state-run lenders, which transfer it to customers’ mobile wallets when, say, a municipality pays workers. However, this money isn’t part of bank accounts. A digital yuan transaction from Hong Kong can go global, bypassing both the dollar and the heavy fees of correspondent banking channels, which are under American surveillance and control. Payment can be received in Europe or America as private stablecoins such as the ones Facebook Inc.-sponsored Libra Association is planning…

a recent Brookings Institution paper found that the People’s Bank can issue tokens that carry interest rates. This could be a new way for people.., to take out mortgages — directly from the Chinese monetary authority.

Very recently, the mobile app of one of China’s largest banks temporarily surfaced an interface to set up a digital currency account and send/receive digital ‘money’ to/from this account. The same site CoinDesk had reported the ridesharing app Didi’s public statement that it would trial the use of the digital currency as well. So the issuer (central bank), providers (banks) and use cases (merchants/businesses) are all part of the trial. Despite all the concerns about a parallel money system, this is going to be exciting to watch.

It’s also becoming clear that this isn’t a typical blockchain-based system, as early reports had had it – and with China, it was hardly going to be decentralised. But the reports of interest-bearing tokens does mean that there are elements of programmable money, which borrow from smart contracts.

(Part 2 – A simple, entertaining but ultimately useful example of what programmable money could look like)

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Real-World Crypto

Blockchain and incumbents obviate, seek blessing or ignore?

The security writer and author Bruce Schneier, in an article about blockchain that we will refer to in a future post:

I listed [in his book Liars and Outliers] four very general systems our species uses to incentivize trustworthy behavior.

The first two are morals and reputation. The problem is that they scale only to a certain population size. Primitive systems were good enough for small communities, but larger communities required delegation, and more formalism.

The third is institutions. Institutions have rules and laws that induce people to behave according to the group norm, imposing sanctions on those who do not. In a sense, laws formalize reputation.

Finally, the fourth is security systems. These are the wide varieties of security technologies we employ: door locks and tall fences, alarm systems and guards, forensics and audit systems, and so on.

Then he paraphrases another writer who described four trust architectures:

 The first is peer-to-peer trust. This basically corresponds to my morals and reputational systems: pairs of people who come to trust each other.

His second is leviathan trust, which corresponds to institutional trust. You can see this working in our system of contracts, which allows parties that don’t trust each other to enter into an agreement because they both trust that a government system will help resolve disputes.

His third is intermediary trust. A good example is the credit card system, which allows untrusting buyers and sellers to engage in commerce.

His fourth trust architecture is distributed trust. This is emergent trust in the particular security system that is blockchain.

This immediately brought me back to a recent post, where I said that blockchain-based solutions that tried to reinvent parts of the regulated financial system were doomed to face heavy opposition from regulators and incumbents. This makes it clear why. Regulators are institutions, representatives of leviathan trust above. Incumbent players in finance are intermediaries, pillars of the third trust system above.

A blockchain based system that looks to obviate the need for either of these systems is going to be blocked by both of them. A blockchain based system that seeks the blessings of either of these system renders the blockchain superfluous. It follows that blockchain use cases that will really succeed are those that are either unregulated, or existing regulation has utterly failed at.

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Decentralisation and Neutrality Making Money Online Privacy and Anonymity Real-World Crypto

The internet’s payments layer

This provocatively titled essay makes an important point about the economics of the online media today and its direct, immediate impact on society:

… the New York Times, the New Yorker, the Washington Post, the New Republic, New York, Harper’s, the New York Review of Books, the Financial Times, and the London Times all have paywalls. Breitbart, Fox News, the Daily Wire, the Federalist, the Washington Examiner, InfoWars: free!

A white supremacist on YouTube will tell you all about race and IQ but if you want to read a careful scholarly refutation, obtaining a legal PDF from the journal publisher would cost you $14.95, a price nobody in their right mind would pay for one article if they can’t get institutional access…

On the other hand, pseudo-scholarhip is easy to find. Right-wing think tanks like the Cato Institute, the Foundation for Economic Education, the Hoover Institution, the Mackinac Center, the American Enterprise Institute, and the Heritage Foundation pump out slickly-produced policy documents on every subject under the sun.

– The Truth Is Paywalled But The Lies Are Free

In our series on 21st Century Media, we imagined an operation that was reader-funded: “I am confident that people across income and interest segments will pay for something truly useful”. While 21st Century Media would be paywalled, we also sketched the outline of a micropayments system through which readers would frictionlessly pay for every article they read.

However, when it comes to the issue that this essay writer raises, which is widespread access to truth, the micropayments based system gets in the way – unless it’s widely used. Signing up to the micropayments system cannot be too much friction for the visitor who just wants access to that one article important to them at that moment.

This is a challenge, but also an opportunity – a massive one – to create a frictionless, universal, cheap, privacy-first micropayments system.

It’s tough to check all these off at once:

If it needs to be universal, Apple and Google, who have a browser and mobile OS duopoly, are in the best position to create such a system, and would get the most publishers to sign up. But there’d be serious concerns about privacy, particularly with Google.

A privacy-first browser such as Brave has a better shot at addressing privacy concerns, and has attempted to create one such cryptocurrency-based system built in, but the browser itself simply hasn’t gotten enough traction (and there are concerns about privacy among those that do use it.)

For the system to be cheap, it couldn’t use credit cards on file, which Apple and Google have hundreds of millions of, because the transaction costs are too high. Cryptocurrency-based wallets such as the one Brave implements could work, but adoption is an even bigger problem, although one worth solving.

India’s UPI system is widely used within the country, is natively digital, has near-zero transaction costs, but its use reintroduces privacy as a concern.

It’s a problem in the vein of “fast, good and cheap: pick any two”. But the payoff, a payments layer for the internet, is incomprehensibly large.

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Data Custody Discovery and Curation Privacy and Anonymity Real-World Crypto

Use cases for real world crypto

This bit an interview with the founder of the ecommerce checkout system Fast:

Most of what people have predicted with cryptocurrency hasn’t happened. They’ve identified the right problems – payments need to be easier, identification needs to be better, we need to remove friction – but cryptocurrency isn’t the right technology for that. Part of the reason is the solution needs to be formed within the sphere of existing regulations and government identification.

It’s a strikingly different take and it’s articulated clearly what I have felt for so long. Blockchain-based alternatives to existing regulated use cases will have to fight a series of uphill battles to get traction. With regulators and governments, as the founder Allison points out. With entrenched interests and incumbents, and their vendors/suppliers. And with customers, who’re used to known processes and norms.

This is why tokenized real estate offered as investment has not taken off. Ditto with tokenized financial instruments such as ETFs. Or KYC on-the-blockchain. Or why Facebook’s Libra is highly unlikely to make it in its original avataar. All are great ideas, but there are too many entities that militate against them.

However. There are other problems that have no good solution today. Online trust is a problem that, as Facebook’s story has shown, is far too valuable to place in the hands of a single entity. Just yesterday we saw how in the news media, new institutions may emerge that become custodians of online reputation. Of brokering trustless relationships between source and publisher, between producer and writer.

DLT is also uniquely suited to solve issues with non-repudiation. Some weeks ago a consultant had reached out asking about a potential blockhain-based solution to problems of data access within a client company. It turned out that the problem was one of non-repudiation, and I suggested a fairly simple framework around an existing workflow that could have used either private or public blockchain (explaining the pros and cons of each). It was simple precisely because non-repudiation is inherent to DLT.

I also see provenance, or similar problems in supply chains, as an opportunity where the value of DLT hasn’t yet been captured by an company. This is not for lack of trying; it’s just very hard for all participants in a supply chain to sign up for it, both technically and because it disrupts special interests. It’s likely it’ll take off in a relatively self-contained subsection of a supply chain, and expand from there outwards. Perhaps it’ll even be this trial that the port of Rotterdam recently kicked off.

DLT – real world crypto – is a paradigm shift in the truest sense of that overused term. For instance solutions to the problem of online identity have so far tried to create improved versions of physical-world implementations, but because DLT makes possible trustless transactions, if obviates the need for verifiable identity itself for many use cases.

The killer app for Blockchain isn’t going to be an app that has killed before.

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Audience as Capital Data Custody Discovery and Curation Real-World Crypto

From trust in institutions to trust in individuals – Part 2

(Part 1)

Like we saw in the series on Linear Commerce and communities, we are in the early stages of emergence of thousands of people, each a trusted source in their niche area of interest. When this comes to news, we’re going to see the golden era of independent journalism, where the person, not the institution, is the brand, is where trust resides.

The problem with this is one of longevity. Simply: institutions outlive individuals.

The person who you end up trusting for information and insight into an area that matters to you could take a break, come down with illness, retire or pass away. They are the brand. The trust you repose in that brand isn’t transferable, even to the staff they work with.

A small example of this is Tim Carmody’s Amazon Chronicles newsletter. It was ambitious, and it delivered. His introduction:

There’s no shortage of good Amazon stories, and good Amazon coverage… I think stories like this are just as important and just as interesting (more so, actually) as the latest on Jeff Bezos’s sex life or speculation about Amazon’s earnings and stock price. I like stories that help me see how a company like Amazon, with its tangled web of services and products, entwines itself into our lives, both consumer and commercial… But who is going to gather stories like these and help put them into context? Who, really, is able to take the time to get the big picture when it comes to what’s intermittently the biggest and most influential company in the world?

Also—it’s been a while, so I’ll forgive you if you don’t remember—I was a damned good Amazon reporter. At Wired and The Verge, I wrote stories about Amazon, its reach, and its ambition before it was clear to everyone that Amazon was going to be AMAZON. I’m proud of those stories. It was my favorite beat. I missed it, and wanted to find a way to cover it again.

– Statement of Purpose

The less than two dozen posts between Jan and August 2019 were each some of the best writing I have read on the matter.

But sometime last year, Tim underwent a shoulder replacement surgery and put the newsletter “on hiatus”. He brought it back for a couple more months later in the year, but the last post on was 1st August. He also seems to be off social media so the status of the newsletter is unclear.

This would be different if it were set up and run as a media operation. There’d be other cons, for sure, and perhaps Tim himself wouldn’t have liked to run it as one. But it would be about more than one person, with some provisions for continuity.

Institutions vs individuals also reminds me of the book Sapiens, which in one chapter discusses how humans’ ability to think in the abstract as a group meant they could create virtual entities vastly more powerful than themselves. As this review states:

Yuval uses the example of Peugeot, a limited liability corporation intersubjective. You could kill every employee and stakeholder in Peugeot, but the corporate entity would still exist. The building isn’t Peugeot — it can move offices. Peugeot could make planes rather than cars, so it isn’t what they do that defines them. The only thing that makes Peugeot Peugeot is everyone’s agreement that Peugeot exists, duly noted in the papers of some lawyer.

Yuval also goes on to state how a judge could decree Peugeot disbanded and the company would cease to exist, despite the factory, employees, supply chain exactly as they were before the judgement. The point is that institutions aren’t subject to human limitations: they can’t fall physically sick, there are no physical constraints on their growth, no natural caps on their lifespans.

I think that the shift of trust from institutions to individuals, while real, welcome and exciting, is a pendulum that’ll soon swing back towards institutions, although of a different kind. It may be that some of these new institutions are custodians of reputations of individual publishers, of social norms that define reputation. That trust may reside on a distributed ledger; those social norms codified in a contract. Other institutions that solve the problem of discovery of online publishers may emerge. Their mechanisms of discovery too may be published on blockchains. Still others will broker trustless cooperation between these tens of thousands (more?) of independent publishers – again using DLT.

This is going to be fascinating to watch.

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Audience as Capital Data Custody Making Money Online Privacy and Anonymity Real-World Crypto

On the independence of editorial and business during business model transitions

This Financial Times article on the effect of the pandemic on the already precarious state of newspapers’ finances is a good read overall. And at least during the pandemic, it is not behind the FT’s strict paywall.

This little bit in particular stood out for me:

While the audience for online news jumped to new highs during the pandemic, most sites convert fewer than 1 per cent of website visitors into paying readers. Although there are no sector-wide figures, some publishers admit most of those that do pay in America and Europe are older, more wealthy and white.

If it is the dominant class in any market that is the one that pays, there is a risk in the newspaper biasing its coverage towards the interests of that class. Today’s advertiser-driven model carries the same risk – does the move to paid subscriptions simply swap one set of patrons for another?

All media has had tension between business and editorial, and good media has always had a wall between the two sides. But that tension is heightened at times of major business model transitions like this. In the new model, you have a direct relationship with your audience, which pays you. When you lose them, you lose both your readership and your revenue. Independence of editorial gets harder.

This is going to be the big test for both news organizations and independent publishers with the inevitable move to pay-to-read.

End note:

One model is to rely entirely on donations, and force them to be anonymous, like via cryptocurrency. We explored this briefly in part 4 of our series on 21st Century Media. Now neither side of the news organization has any way of knowing who the audience is. It is unclear if there is a natural upper bound on how large of a news organization can run on donations alone. That altruism seems to be the natural governance model for the internet doesn’t mean it is a viable business model.

Another variation of this model could be for news organizations to move to subscriptions, but for a third party neutral organization to act as the trustee of the identities of subscribers. Now this organization could be supported by donations, but now we’re talking about one or a handful that need to be supported, not every news org.

(ends)

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Real-World Crypto

The UNICEF cryptofund

Two Indian startups were recently funded by UNICEF’s cryptofund. I had never heard of the cryptofund before, so I looked it up.

In October 2019 UNICEF, the UN agency for “humanitarian and developmental aid to children worldwide”, launched a fund that would both receive and hold contributions in cryptocurrency – ethereum and bitcoin – and use it to fund “open source technology benefiting children and young people around the world”. It’s not clear how large the initial fund is, but its parent – the “Innovation Fund” is USD 25million.

I’m somewhat confused why the fund lends money in cryptocurrency, given that its mandate isn’t limited to companies in the distributed ledger space, and even if it was, the investee companies will probably need fiat for practical everyday use. The two Indian startups that have received cryptocurrency are probably going to find it hard to convert it into fiat given that Indian banks are extremely averse to dealing with cryptocurrency because of the government’s will-they-won’t-they stand on the subject. It’s unclear how the fund is addressing this.

Then there’s the fact that cryptocurrencies are volatile, making the fund itself also so. This article which makes the case against this use of cryptocurrency in the development sector, describes the volatility of bitcoin in 2019 when the fund was announced:

On March 31, a single Bitcoin was worth $4,000.
On June 10, Bitcoin was at approximately $8,000 per coin
By July 8, it had jumped to almost $12,500 per coin
By October 11 it was back to about $8,500 per coin.

It’s not clear if the fund converts the bitcoin and ethereum it receives into stablecoins. If it does, it really should be something it makes clear.

Finally, there is the issue of receiving donations. This quote from the head of the parent UNICEF Innovation Fund is puzzling:

“The sheer volume of the funding that we move means that any gains in efficiency, any increases in transparency, could have quite a significant impact on how we operate as an organization,”

I fail to see how cryptocurrency donations contribute to an increase in transparency. Or, as we have seen above, in efficiency.

Overall it seems to be an attempt by a fund/department whose mandate is innovation to be seen as involved with innovations in technology and finance. As the UNICEF head said announcing the fund,

“If digital economies and currencies have the potential to shape the lives of coming generations, it is important that we explore the opportunities they offer.”

If there’s something pretty major I’m missing, please do let me know. I want to be proven wrong on this one.

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Discovery and Curation Making Money Online Real-World Crypto

On the coverage of cryptocurrency in India

The Economic Times reported that “A note has been moved (by the finance ministry) for inter-ministerial consultations” regarding a legal framework for cryptocurrency. 

Other news sites (Bloomberg, MoneyControl, MoneyLife, ) have published their own articles, all citing the Economic Times. Naturally, the crypto press has picked up on the same story overseas. To the casual news reader, the ban is now inevitable.

The only piece of actual news in the ET article, though, is that a note has been drafted by the finance ministry for inter-ministerial discussions on a legal framework for cryptocurrency in India. That’s it. Nothing more, nothing less. Everything beyond this is speculation.

This has led to these articles being shared on social media over and over with similar speculative discussion. It’s another example of today’s media’s SOP to use sensation to drive page views, as we have seen in the series on 21st Century Media.

This could have been a chance to own a discussion, become the destination that people trust, about India’s approach to cryptocurrency. Any one of the media sites could have distinguished clearly between the news – the note – and the context: the RBI’s banning of cryptocurrency in 2018, the IAMAI petition in the Supreme Court to reverse it, the SC’s judgement earlier reversing the ban, the difference between a legal framework and the RBI mandate, what a good legal framework could look like. Coverage like this combined with the trust and brand recognition of any of these news companies could have heviuly influenced the awareness about, and therefore the debate on, cryptocurrency in India.

This is a lost opportunity.

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Discovery and Curation Real-World Crypto

Fake news, verified videos and the blockchain

This tweet shows why information and identity verification is going be a huge deal with 21st Century Media:

https://twitter.com/awilkinson/status/1268040635946135552?s=21

Identities needn’t even be stolen. As the tweet demonstrates, in the deluge of information that is everybody’s life, appearing plausible is all that’s needed.

Similarly, videos can and will be doctored, voices can be added in. It is easy enough to imagine someone quoting a credible tweet but inserting a modified video in place of the original. Twitter, Facebook, Reddit and other social media will need to put in place processes to mark media as verified. This is much harder to do than for accounts, but just as important.

But perhaps we should not leave it to such platforms to establish provenance. Such a use case – trust-less verification – is a great use case for decentralised ledgers like blockchains. 

There already exist proofs-of-concept and trials for establishing provenance in supply chains. Everledger provides companies private blockchains on which they can trace the ownership of assets. OriginTrail does the same thing on its own blockchain. Ascribe was a project that focused on this for intellectual property (but admitted it was a few years too early). 

More specific to the use case we are discussing, Prover makes possible “Authenticity verificaiton of user generated video files”. Truepic does this for both photos and videos in the following manner:

When a user clicks the shutter button inside the app (or inside any app that has embedded Truepic’s SDK software), Truepic sends the metadata, including time stamp and geocode, to a secure server and assigns each photo or video a six-digit code and URL for retrieving it. Truepic then initiates the chain of custody on the image itself, allowing Truepic to prove its authenticity. Last, Truepic logs all of the unique information about the image or video to a blockchain.

This still leaves open questions about the actual use of these verified images. The biggest is whether social media platforms will make it easy to identify these verified images. I can think of ways that the verification platforms could make it possible on their own, perhaps via an embed code. But it’s native support that’ll make it easy for the average user scrolling through hundreds of tweets and posts to identify verified images/videos amid a sea of unverified and possibly altered ones – I don’t see that happening any time soon.

Aside: in December, Twitter’s Jack Dorsey had announced a funding programme named Bluesky for research into an “open and decentralised standard for social media”, of which Twitter would ultimately be a ‘client’ of this standard. One of its target problems (perhaps the main one) was that

… centralized enforcement of global policy to address abuse and misleading information is unlikely to scale over the long-term without placing far too much burden on people.

– @jack

This is possibly the only public indication from any major social media platform about a decentralised solution to the problem of fake/doctored media. Even here, decentralised does not necessarily mean neutral, or not owned by the company – people responded to that twitter thread with examples of such protocols and implementations that already existed.