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Future Of Money – Not What You Think, Pt 1

by admin on November 23, 2014

Power of PeopleNever underestimate the ability of the human species to adapt to changes in its environment.

All humans are engineers. If there is too much friction in a system, they will fix it, or they will replace it. When banks add overdraft penalties, incur service fees, constrain capital, restrict mobility or compromise the public trust in any way, all those engineers will make a “correction.” Money, after all, is a social agreement.

Today, young people are encountering a financial game that they cannot win playing by the rules that are presented to them. The result should surprise no one – they will either not play the game, or they will change the rules. In fact, innovation in banking is happening at an astonishing rate; unfortunately, bankers are not necessarily doing it.

Because banking touches every part of our lives, so, too, will any innovation that occurs in the domain of banking.

Look at Bitcoin. It is more than just a cute new social app like Facebook or Twitter – it is a new idea called decentralization. If it is possible to decentralize banking, it would also be possible to decentralize everything; insurance, engineering, education, production (i.e., corporations), education, legislation and even governance. Nothing is immune from the next wave of Internet innovation that is bearing down — and right now, not tomorrow.

Because this is an insurance audience, allow me to mention that, the easiest (technically) and likely the first big innovation that will arise from the decentralization movement will be decentralization of insurance. With the advent of smart contract platforms such as Ethereum and Ripple Labs, people can form their own risk-sharing pools to cover a whole suite of perils now in the domain of insurance. (For the lawyers and politicians out there, it is also nearly trivial to set up voting, escrow, contract enforcement, etc., via the sort of block chain protocol that is the basis for Bitcoin.)

Last year, I published an article called “What if everyone was a BitCoin”? The core idea was that there are several problems with Bitcoin:

  • Concentration of wealth is worse than the dollar.
  • The proof of work that creates coin is trivial except for the fact that it is difficult.
  • The valuation was speculative.

Today, there are hundreds of companies forming, and being funded in the millions of dollars, that are investing in innovations that would create thousands, if not millions, of alt-coins with characteristics of Bitcoin, except iterated without the impracticalities of Bitcoin.

For example, MaidSafe was able to introduce a currency called Safecoin that provides a way to take unused computational capacity that members are willing to contribute and build a decentralized server network. This network encrypts data flowing through it, creating a secure and anonymous Internet. What happens to big data when people stop sharing the streams of information available on today’s Internet?

Further, innovations such as Curiosumé (by this author) could have wide-ranging implications on everything from education to corporate HR and factors of production – Curiosumé is an open-source development project designed to replace the resume as a means for describing one’s interests, skills and abilities; the tag line is, “Because the resume must die.”

Swarm.co allows individuals to invest time and money in decentralized innovations without banks, insurance, corporations, etc. A new generation of venture capitalists such as DApps Fund is already funding new startups in crypto-currencies and demonstrating high convertibility and liquidity.

Every month, thousands of people are coming together at Meet-up  (itself an earlier social innovation) to learn, teach and collaborate on open-source platforms such as Ethereum, Bitcoin, Ripple and many others. Every day, with each article warning of the dangers of Bitcoin, there is another article of an ex-CEO banker coming out strongly in favor of the financial innovation in the crypto space. What is certain is that every impression placed on the public regarding these new technologies is bad for the status quo for banking and insurance.

Resistance predictably comes from the public voice of banks and governments, which have the most invested in the way things are. This is not to say that they are bad and wrong, just that they have the greatest infrastructure in place to support the existing system. Changing their minds is like pushing electric cars against the tide of Big Oil; lines have been drawn in concrete.

What we are seeing is not a “revolution” with a central army in a field of battle; there is simply a natural progression happening fueled by rational efficiency and nothing else. But change is inevitable.

As with previous financial innovations, my guess is that some trader may discover that the true risk associated with a particular crypto-asset is less than what the risk-adjusted market valuation indicates it is. Then, a financial instrument will be developed to exploit the risk-arbitrage. Some readers may recall the saga of Michael Milken, who correctly observed that companies with low credit scores were in some cases less likely to fail than their risk valuations indicated. This led to the creation of junk bonds and, ultimately, the idea that risk valuations can be skirted. To Milken’s credit, the assumption held until greed set in (which is not the fault of the asset).

I believe something similar may or must happen in finance to spawn internal innovation. For example: the insurance industry does not necessarily care about risk per se; the industry cares mostly that the risk is priced correctly. Soon, the insurance industry may realize that the risk of assets backed in crypto-currencies is lessened because of increased liquidity, fewer restrictions and regulations and rapid convertibility and because they are underwritten by better fundamental assets than the dollar. The industry will develop financial instruments that exploit this risk arbitrage and profit considerably.

But if the insurance company does not innovate in this future form of value, then people will build their own instruments. These new ideas and the technologies will enables millions of entrepreneurs and billions of engineers to print their own money one social agreement at a time. My advice to the insurance industry is to get in, help out and adapt before your customers leave you behind.

(Editors note: You are invited to join the author at The Future of Money and Technology Summit in San Francisco, Dec. 2, 2014, for his panel: Everything that Can Be Decentralized Will Be Decentralized.

The description is:

Much of our society today is based on centralized organizations that allocate our land, labor and money to create the things that we need. Today, we have an opportunity to specify and design any number of decentralized applications that also can produce all the things that society needs — except with stunning efficiency. This is a conversation about what is not only possible but is becoming increasingly probable. This group of speakers represent innovations that decentralize: data, venture capital, productivity, currency, contracts and knowledge — and that’s just the beginning.

The speakers are:

Paige Peterson – Maidsafe

Sam Onat Yilmaz – DApps Fund

Joel Dietz – Swarm.co

Christian Peel – Ethereum

Moderator: Dan Robles, The Ingenesist Project)

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Proof of Work vs. Proof of Performance

by admin on October 25, 2014

POW_POPProof-of-work (PoW) is a cryptographic technique introduced to a transaction which solves problems of fairness or abuse.  For example, a PoW would require a computer program to solve a simple puzzle before it can pass an email from sender to a receiver.  Someone who sends spam emails would be burdened with an computational costs greater than the possible benefit of sending spam.  A legitimate email from a single sender to a small packet of recipients would pass easily.

Proof-of-performance (PoP) refers to a condition where two parties enter into an agreement and a third party judges whether the conditions of the agreement are met.  Like an escrow account, the buyer puts the money into an account and the seller puts the title into an account.  If the conditions of the contract are met, a judge (adjudicator) flips the switch that completes the transfer.  If conditions are not met, the switch returns the money to the buyer and the title to the seller.

PoW and PoP are substantially different in many important ways.  For example, for POW the adjudicator is a computer program.  For PoP, the adjudicator is a person.  Ideally, the PoW is perfectly unbiased and cannot be corrupted for personal gain.  The PoP however, resembles the business model of most Brokers who can be biased, if not corruptible for individual gain.  Herein lies the promise of crypto currencies and so-called smart contracts that can be executed by computational algorithm rather than untrusted human agents.

On the other hand, PoW and PoP are conceptually similar is some ways as well.  In the Bitcoin protocol, for example, completing a PoW results in the issuance of a new coin.  Similarly PoP adjudicator is payed a fee or commission for validating the conditions of a contract.  The mother of all PoPs happens in the Banking System which literally issues new dollars into existence in the form of debt as a consequence of an adjudicated contract between a buyer and seller.

While the puzzles and context may differ, the consequence is the same – money is conjured into existence as a result of a humanly intensional transaction.  There really is nothing, except perhaps the deep training of an oppressed population, that says that a decentralized POP adjudicated by qualified and unbiased persona (disaggregated from the transaction) could not also result in the creation of new money.  This is exactly what Curiosumé proposes can be accomplished.

In the prior post; The Conjuring of Intangible Values,  The tangible value of a bridge connecting two cities and the intangible value of that same bridge are vastly different quantities.  Likewise, the tangible value of Bitcoin and the intangible value of Bitcoin are also vastly different different values for the same reason as the bridge between two cities.  If PoW = PoP could be assimilated in a single currency, we could build an economy whose currency is underwritten by the intangible value of infrastructure.

Ultimately, our planet would be the apex of infrastructure preservation, i.e., Humanity’s New Central Bank.

The Conjuring of Intangible Values

October 22, 2014

Tweet My prior post “The Tail of Two Cities” demonstrates that the intangible social value conjured into existence by the bridge that connects two fair cities far exceeds the ‘tangible’ value of that bridge.  Yet, only the tangible value of the bridge is accounted for on a balance sheet such as GDP. This may seem […]

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A Tail of Two Cities

October 15, 2014

Tweet Suppose two cities are separated by a river. Every day 100 people pile into a boat for the 1 hour journey to the other side two times per day. Crossing the river costs 200 person-hours per day. Then civil society decides to spend 1 million dollars to build a bridge to carry 10,000 people […]

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Introduction To Curiosumé

September 13, 2014

Tweet (Editors note:  We are publishing the documentation and tutorial for the Curiosumé application for review and comment) Curiosumé is an open source specification for the analog-to-digital conversion of knowledge asset objects.  Designed as a system to replace the résumé as a means for describing the interests, skills, and abilities of people, things, and ideas […]

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Time to Kill Social Media

September 9, 2014

Tweet Social Media is dying and it needs to be put out of its misery ASAP.  I have been in the social media space for many years and while much has happened, much has been lost. There was a dream we all had in the earlier days that ‘user-generated content’ would evolve to ‘user-generated productivity’ […]

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The New Definition Of Social Capitalism

July 22, 2014

Tweet About 3 months ago, I received a cryptic email from what sounded like a war-weary Wikipedia Editor pinned down in the trenches by enemy cross-fire.  His message was stark;  Wikipedia will delete “Social Capitalism”, you are in the best position to save it”. Since the dawn of Social Media, many people in the Social […]

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Reorganizing In The Era Of Social Capitalism

July 8, 2014

Tweet Society needs to reorganize itself to trade “abundant intangibles instead of scarce tangibles”.  Then, all the decentralized innovations currently coming online can truly integrate.….and, everything will change.

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The Mother of All Hedge Funds

May 9, 2014

Tweet Money is supposed to represent human productivity; otherwise nobody would work for it (think about that for a second). Today, money is created from future productivity in the form of debt;  when you take a loan, money is created out of thin air and posted as an asset on the banks ledger.  Unfortunately, the […]

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Shutting OFF The Lights On Big Data

May 2, 2014

Tweet Big Data, Bigger Data, Not Neutrality, Mega-Mergers, Election Deform – BIG (fill in the blank)  spells BIG trouble for LITTLE (rest of us).  We don’t stand a chance against the tsunami of surveillance that is barreling our way.  Big Data is becoming it’s own feedback loop and, like shoving a microphone into a stack […]

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What EVERY Engineer Must Know About Bitcoin

April 24, 2014

Tweet A bitcoin (lowercase b), as a currency, has several flaws that will continue to limit its ability to replace money as we know it.  There are millions of words published on the subject, so I’ll leave it to the reader to assess arguments on both sides.  However, Bitcoin (upper case B) as a “protocol” […]

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Operation Cosmic Dawn

April 8, 2014

Tweet Constellations Of Knowledge Assets: The inspiration for this post comes from the April 2014 issue of National Geographic Magazine and the story of Cosmic Dawn; The Atacama Large Millimeter Array (ALMA).  ALMA is a constellation of dozens of separate telescopes working together to cancel cosmic noise so that a clear and focused vision of the […]

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Community Organization On The Block Chain

January 2, 2014

Tweet The potential for articulating smart contracts between local business entities using the Block Chain Protocol (BCP) is truly staggering. While the BCP may not be ready for general population and would be largely unnecessary within a corporation, certain contract types and certain business structures may offer an excellent environment for widespread development.  Cooperative businesses […]

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The NWO On The Block Chain

December 27, 2013

Tweet

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What if Everyone Was a Bitcoin?

December 19, 2013

Tweet There is no shortage of articles waxing aloof about how Bitcoin is just another example of a very few people controlling a very large percentage of an impossibly scarce object.  Others argue that the carbon footprint of Bitcoin mining is so excessive that the last coin will require all the energy of the Sun […]

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Occupy BitCoin

December 14, 2013

Tweet Occupy Wall Street had the effect of “measuring into existence” the 99% of people who subsidize the economic liberty of the top 1%. Now, with the BitCoin Protocol, the financial information gap between the 99% and the 1% is about to disappear. This is a fleeting moment in history and an opportunity that we […]

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Factors Of Production For The Crypto Economy

December 7, 2013

Tweet One of the more interesting definitions and implications of BitCoin comes from Stephan Molyneux in this video.  His key points include: 1. Definition of BitCoin: a protocol for the synchronization of information. 2. The BitCoin block chain ledger can contain ANY information such as contracts, user agreements, DNA sequence, Patents, time stamps, contingency claims, […]

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Curiosumé; Because The Résumé Must Die

October 14, 2013

Curiosumé is an open source analog to digital converter for knowledge asset objects. By moving away from a semantic resume and moving toward a personal digital API, the trade and exchange of knowledge assets may be machine enabled for matches, proximity, relevance, weight, and probabilities of achieving various outcomes. As such, economics of “intangibles” will become more efficient.

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The Scaffolding of the New Economy

October 14, 2013

…where the output of one platform becomes the input of the next platform, and so on. This is how the future will arrive. This is the next step that we must take together – integrate.

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A Practical Guide to The Big Flip

October 4, 2013

The specter of economic calamity is rearing it’s ugly head once again, but for many, the end game came in 2008. Innovators have spent the last 5 years developing new systems and methods to survive in a collaborative economy.

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Collaboration Nation

August 19, 2013

Tweet The Resumé Must Die What if there were an accounting system that was built on collaboration rather than competition?  What if “semantics” could be largely eliminated by public agreement, so that we all knew what everyone else knew?  How would this change what, when, where, how, and why we produce and consume things?   […]

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The Knowledge Inventory Rev 3

May 25, 2013

Tweet   Here is a link to the demo and instructions for use.  Seems to work best in Firefox. Please provide feedback directly to me or through comments. KnowledgeInventory-Instructions  Demo site

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Global Knowledge Asset Inventory

May 24, 2013

Before I write this blog post, what does this image mean to you?

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The Everlasting Endowment of Social Capital

April 28, 2013

Big social changes are always controversial; industrial revolution, voting rights, woman’s rights, civil rights, etc – each were truly radical ideas in their time. Social scientists suggest that such changes have three oppositional features;

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