The Next Economic Paradigm

Tag: Maidsafe

The Future Is Common Knowledge

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Few people recognize the true economic potential of Wikipedia. Obviously, Wikipedia is an important resource for individuals and profit making companies.  It would take Billions of dollars to recreate it from scratch. But the true value of Wikipedia does not end here.

Wikipedia is a really huge set of interconnecting nodes – a massive dynamic database in the commons. When two points are connected, the magnitude and direction of the resulting line provides information about the data and proximity to other data.  Wikipedia is a venerable roadmap of connections between significant people, places, things, and ideas. Not unlike the Facebook social graph, Wikipedia in aggregate is a knowledge graph of humanity.  It is therefore as perfect a representation of humanity because it was created by humanity.

Mass Encryption

One of the more effective ways to encrypt data is to hide it among other data. In fact, your personal knowledge graph, stripped of  personally identifiable information can be hidden – like a needle in a haystack – among the wikipedia knowledge graph.  Your knowledge graph can then extrapolated along the nodes, edges, and paths of Wikipedia to draw inferences, make decisions, or set priorities for yourself and your interaction with the community.  It’s like your own private Big Data engine that only you can see.

The idea behind Curiosumé is to develop that vehicle from which a person can interpret actionable information when they overlay a persona (or Proxy) of themselves on the Wikipedia commons.  When many people overlay their personas to the Public Wikipedia Haystack, they can specify criteria out of nodes and branches of the wikipedia knowledge graph to find each other, to work together, to learn and teach.

Enter Block Chain

Each owner holds a private key in a cryptographic vault to their proxy that they can share, rent, or retract from others. The Private key is the only way to associate the owner with their proxy and with the commons. Mutual private key exchange will define a market for intangible assets among owners of such assets.  This exchange device would be ideally suited for a cryptographic platform such as Maidsafe protocol or Bitcoin Protocol.

Connections, intersections, and resultant “vectors” will reveal patterns from which decisions can be made.  The future economy may include the exchange of private keys.

Level Playing Field

As long as proxies – or personas – are anonymized, it would be OK for everyone to have access to them in the commons.  In fact, the quantity and the quality of the personas in the commons for a community or location could underwrite the currency of that community.  Everyone would have the ability to test their persona in the public domain upon any market to reveal their greatest economic potential.  Such a community currency would have a relative value to other communities not unlike, say, Forex.

The community can even test their own combined personas against a host of scenario proxies such as job proxies, investment proxies, etc., all without committing personal information. However, when two or more parties engage in transaction and/or interface with a regulatory agency, they will need to reveal their private key in order for a transaction to pass a pre-established compliance proxy that is also comprised of nodes and branches in the commons.

The Art of War

It would be very difficulty for people to violate another person because they will need access to the other person’s private key as well as a change in the commons in order to formulate a deception. If they modify the commons, they will in fact reveal themselves as a transaction.   If a perpetrator can somehow change the other person’s proxy, then they will notify others connected to that proxy of that change. Further, the perpetrator may be unwittingly doing more harm to themselves than good in their own connection to other proxies when attacking a particular persona – any action, except the truthful action, could have implications that are unknowable.

As such, there is little incentive to cheat.

Cloud Wars  

As such, any disputes will be fought in the commons and not at each individual node where the world engages in wars, competition, and oppression today. Wars would be fought in the info commons rather than being shrouded in the fog of ground ops.

The Future of Common Knowledge

 The future of common knowledge is the “commons”.  If every person, corporation, or institution were to index to a commons based data source, we could all observe each other while maintaining our privacy.  Economic scenarios could be run without expending money.  Disputes could be handled in the cloud.  The maintenance of the commons could become a new form of governance.

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Means and Methods of the Curiosumé DApp

The Mechanics of the Curiosumé DApp are extremely simple. In fact, perhaps the greatest challenge of building the application will be to truncate the features of Curiosumé to the simplest functional form.

Means and Methods of the Curiosumé DApp

The only thing that Curiosumé is really supposed to accomplish is convert a résumé, CV, or project description from an analog form to a digital form so that the accounting, production, storage, and exchange of intangible assets can be machine enabled in a meaningful and valuable way. Centralized applications such as Facebook and Google perform this job quite effectively within their fortress for sale to 3rd parties, Curiosumé will do the same for decentralized applications between two parties only where value is retained by the creators and owners of the data.

An analog to digital converter for knowledge assets.

Curiosumé is a “writer” that is given away free to the Commons, open sourced, and decentralized. Ideally, an independent instance of the totality of Curiosumé could reside on every device. Applications that import Curiosumé data are called “readers”. Readers will be developed by entrepreneurs to accelerate any number of business models that are otherwise unviable in the current economic paradigm or simply under-performing due to the friction of the current economic model. Reader application may be for-profit giving the network an incentive to maintain Curiosumé. How an entrepreneur uses Curiosumé could be a trade secret rendering many patents obsolete.   These Reader Applications may include Decentralization schemes (DApps), P2P exchanges, and community cooperatives.

As such, the preferred interface between the reader and the writer will be likely be more suited to the MaidSafe protocol of secure P2P exchange of data. This would be similar to other intangible assets such as music, art, and literary works. It is easy to imagine a persona of one’s life story to be a real-time literary work – if not, then it should be.

Converting knowledge assets from analog to digital form:

Step one: User tags themselves with URL’s from Wikipedia articles that best represent intentions to interact with their community.

Step two: User self-selects their placement on a spectrum comprised of endpoints: student of that content, and teacher of that content (Note; midway across the spectrum corresponds to degrees of collaboration).

Step three: Curiosumé creates a digital persona in a specific form

Step four: Export persona to “reader” applications for analysis and processing.

This is the extent of the functional requirements of Curiosumé.

Operational Requirements:

The operational requirements of the application are somewhat more complex. The following six conditions must me secured by the Curiosumé application. If any of these 6 tenets are compromised, the mathematics behind the applications will fail and the intended outcomes will be suboptimal.

1. All public and private Wikis should reconcile upward to a top level Wikipedia entry

2, Rankings must span a non-competitive “student-collaborator-teacher” spectrum

3. Users must be allowed to self-select their placement on the spectrum.

4. The data format must be uniform as;

5. Persona must be indelible to anyone except the owner.

6. Interactions must be anonymous until the point of transaction

These 6 Tenets are unpacked a bit more below:

The Calculus of Curiosumé 

In this form, clean data may be easily normalized for statistical inference while remaining anonymous until an actual transaction of personal data may be negotiated on a P2P basis.  In essence, the criteria described here will produce extraordinarily useful data.

Rule 1: This rule secures a commons based knowledge inventory.  Much like air, water, and Earth, the knowledge assets in the commons are visible components from which useful things will be produced as regulated by supply and demand for the same components.

Rule 2: Students and teachers do not normally compete, rather, in the case of Curiosumé DApp, they represent “supply” and “demand” in a proto-economy. Collaborators represent factors of production in an economy where complementary knowledge can replicate a iterate – these are the engines that create value – this is the mining function.  These data will form a bell curve providing statistical inference to the commons where social value is mined in aggregate.

Rule 3:  The process of self-selection will be deeply personal to all participants and represents the individual mining of value for deposit in the new bank of intangible assets.  All this “mining” can be measured to form the basis of generalized reciprocity of social crypto-currencies.

Rule 4: The common format of of the Curiosumé output function will assure the ability to mix, match, exchange, discover, or test any scenario of social production imaginable.

Rule 5: Gives each person ownership of their data.

Rule 6: Not unlike Craigslist, anonymity until point of transaction is important for allowing people to view the public dataset and test their own participation to find opportunities for productive interaction.

Reader DApps:

When a match is made, a transaction can be negotiated.  However, this functionality is beyond the scope of the Curiosumé writer.  Instead, an innumerable amount of Readers will be developed by entrepreneurs to collect, form, and test scenarios negotiating the decentralized production of all useful things.

Innumerable use cases will create moderate generalized disruption across the current economic paradigm until a tipping point is reached where factors of production will flip from finite tangible to infinite intangible basis of account. Social priorities regarding what is invented and produced will be altered in favor of shared asset preservation rather than private asset consumption. Income equality, by design, will be normalized.  Collaboration will replace competition eliminating the need for over reaching controls and associated force.

 

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Decentralized Integration of Complex Systems

The recent Panel at The Future of Money and Technology Summit on Fueling the Decentralization Movement ended on a very interesting point: The Integration of Complex Systems.

The last comments from Chris Peel suggested that the iPhone program was more complex than Apollo and that we are a far way off from the ability to decentralize production to the degree that a space program or revolutionary consumer product would require. From my years in aviation, I am keenly aware that the complexities associated with an aircraft program would be extremely difficult and risky to manage with a series of autonomous agents and smart contracts – as we know them today.

Wisdom of Crowds

However, the proposition made by Joel Dietz at Swarm is significant. Swarm proposes to crowd-select, crowd-vet, and crowd-fund start-ups. Several efficiencies are cited:

1. The crowd knows best what is needed in a specific time and domain,

2. The same crowd is also the first user/customer/advocates of the product, and

3. The same crowd is the first to iterate the project.

Such diverse and comprehensive “single source” domain expertise is unlikely to be available from any Venture Capital Firm.  Instead, far too many start-ups are designed specifically for the Venture Capital process effectively inbred with the centralized DNA.  The VC formula is fairly simple, well documented, and contains suitably developed infrastructure. The VC process efficiently removes promising innovations from a decentralized ecosystem, repackages them, and injects them into the 20th century finance model of banks, brokers, and IPOs.

Today, the decentralization movement is portrayed in the media by silos like AirBnB and Uber, who may eventually expand into other markets (such as Amazon did from books), but from a relative monopoly position of acquisitions, scale, and market dominance – which is the antithesis of decentralization.

Fueling The Decentralization Movement

This Panel at Future of Money was selected in a very different manner.  The idea that I was trying to get at is that an ecosystem is like scaffolding being populated with individual applications. At first they are sparse, but soon they expand to depend upon each other. At first, each of the panelists seemed very different and related only by ideology. As the session progressed, we could see the each of the panelists were filling in the gaps between themselves soon appearing like a full stack.

Paige Peterson suggested that Maidsafe’s ideas and technology would solve specific problems in the crypto-space that the blockchain could not. Christian Peel suggested that Swarm and Maidsafe may reduce scale risk with what Ethereum has to offer. Sam Yilmaz at DApps Fund is betting on cryptoequity and a broad spectrum of “work proofs” as a means of holding these DApps together rather than letting them become disassembled by a single minded Venture Capital process. Of course, our interest at The Ingenesist Project is precisely on decentralizing both supply AND demand as a means of articulating intangible assets to society (ref: Coengineers.com and Curiosumé).

What is Cryptoequity?

“Cryptoequity,” as defined by Swarm (from this Source) is an umbrella term that covers various applications of cryptographic ledger offerings.

These can include:

(1) Product presales in which the token serves as a coupon redeemable for a real world good (i.e. the Comic Book sale done via Swarm)

(2) Product sales in which the token is redeemable for some service in a decentralized network (i.e. Storj or Ethereum)

(3) Product sales which serve as a “subscription” or membership to some decentralized network (i.e. Swarm)

(4) Token which serves as a license to use some type of intellectual property, potentially with an attached legal contract (i.e. sales being conducted in the Swarm 5th of November launch)

(5) “Shares” serving as stock equivalent for organizations that have no legal entity (i.e. BitShares)

(6) Shares serving as stock for legal entities (i.e. Overstock/Medici)

Efficiency in Zero Marginal Cost

The relative benefit of many of these is that it solves an interesting problem related to the near zero marginal cost of software distribution; the fixed scarcity of a good or service allows the market to determine the appropriate price point for a product rather than centralized forced scarcity or management selection.

Decentralized Integration of Complex Systems

If we are to ever reach a point where complex systems (such as space travel or consumer products – or even equitable governance, environmental stewardship, and fair wealth distribution)  can ever be achieved in a decentralized manner, we must start with the integration of decentralized applications among themselves in a decentralized way.  We should not exclusively extract and seal critical components off from an ecosystem and run them through the VC gamut – the disruption goes both ways.

 

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Fueling The Decentralization Movement

I recently moderated a panel at The Future of Money and Technology Summit in San Francisco on December 2, 2014.  When I put this panel together, my intention was to make the distinction more intuitive between an economy based in tangible assets and an economy based in intangible assets.   Whether they realized it or not, this particular group of panelists provided early  characteristics of a “full stack” new economic architecture as we described in this early 2009 series: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7

Here is the video of the conference panel.  Below that, are the questions that I had prepared for the group – most of which I did not need to ask.  This panel, in my opinion not only represents some of the most forward thinking people in the crypto-space but also the extremely important integration of applications that are arising in crypto-space.  That is the landmark condition that I am looking for, where applications integrate with each other.

Fueling The Decentralization Movement

 

Below is my prep sheet for the panel;

 

Dan: Welcome to Fueling The Decentralization Movement

 

How many people know what bitcoin is?

Are you familiar with decentralized applications beyond currency?

Would you know how to issue your own currency?

How many people are familiar with Ethereum?

Open: 1-2 minute introduction from each panelist

Q1; Sam. Please define Decentralized Applications (ref: whitepaper) and what you look for in an “investment grade” DApp.

Q2; Paige: Please expand definition of DApp to include non-block chain applications and discuss the off-BCP ways of accomplishing similar results.

Q3: Chris: Where does Ethereum fit in the DApps movement (now and in the next revision) that would facilitate DApp formation and integration.

Q4: Joel: Traditional VC are looking for 1000% on money. Banks lend at 10%, so obviously, there must be a whole lot happening between 10-1000%. What does that look like to you? How could we all release this potential.

Open: Suppose there is a spectrum where on one side, traditional bankers are the ledger holders and adjudicators conjure new money into existence. And on the other side, Bitcoin is a fully decentralized ledger and algorithm that brings new coins into existence. At some point, aren’t we trading one master for another or isn’t their some hybrid model that solves the problems of each? The goal it seems is to be judged as somewhat better than the banking system rather than somewhat less perfect than bitcoin. Do we have priorities s traight?

Open: What are people talking about in the Bitcoin Meetups and the Ethereum Meetups? What is the range of discussion and how viable are the ideas that people are bringing forward? What is the size and demographic of the meet up communities? What do they want to achieve? What are the resentments and where is the optimism?

Open; Nothing economic happens until two or more people get together to build something useful. Virtual goods are cool but something eventually has to touch the earth – to make something real. What can DApps do to bridge the virtual and the real? Stated in another way; when can I buy groceries with my altcoin?

Open: Bitcoin cryptographic “proof of work” creates a new coin and establishes order. The Fiat Banker’s “Proof of future productivity (debt)” also creates a new coin and established ownership. Assuming this to be a trust spectrum; how would “mining” be defined along this spectrum? Can adjudicated smart contracts serve as proof of work to mine coin into existence?

Open: Please describe differences between proof of work, proof of stake, proof of incentive, proof of resource, proof of performance and any number of proofs types. How interchangeable are they, what individual purposes do they serve? Can they combine to serve additional purposes?

Open: Do you believe that decentralization can reach a point where people become their own coin mined by themselves as they accumulate knowledge asset, collaboration, innovation capacity, i.e., representing their own productivity?

Open: What happens when the output of one DApp becomes the input to another forming a fault tolerant network or DApps? Ultimately this has to do with the convertibility of each other’s coins and ultimately convertibility with Fiat currency. What will these exchanges look like?

Open; I like to draw the distinction between classical economics and the New Value Movement. Classical economics posits merchant class allocation of land, labor, and capital for the ideal production of the things that society needs. The New Value movement is describing a decentralized allocation of social capital, creative capital, and intellectual capital for the ideal production of the things that society needs. Where are we on that spectrum and when do you believe that a big flip will happen between the two (if any)? Will it be gradual or sudden? What externalities are involved? Does one hedge the other? What are the possible worldwide implications of this?

 

 

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Future Of Money Part 2

In 1801, Eli Whitney went before the US Congress with 10 working muskets. He proceeded to disassemble each of them, mix and scramble all the parts, then reassemble 10 muskets – all of them worked.  Prior to that day, most things were custom made by craftsmen using hand tools. Then, in a flash of geological time, the idea of interchangeable parts was released to the world – it would be impossible to put the idea back in its cage. Extraordinary levels of innovation followed as the industrial revolution was born.

In the murky world of crypto-currencies, the financial instruments of tomorrow may not necessarily be assembled like they are today. The new applications of decentralized currency are modeled more like “energy” flows rather than individual units of account. Energy exists in many forms such as electrical energy, chemical energy, thermodynamic energy, kinetic energy, nuclear energy, etc., but the objective is always the same, to move something in the physical world – to create change. The value of crypto-currency is proportional to the magnitude of change it can induce.

Future Of Money Part 2

A generalized theory is emerging to define and specify decentralized applications (DApps). This makes them easier to identify, measure, and replicate. If ignored, these innovations have the potential to be extremely disruptive to the insurance industry. If adapted, they can greatly increase the efficiency, variety, precision, and granularity for insurance products of tomorrow.

Not unlike the dawn of the industrial revolution, there is an extraordinary level of innovation in crypto-currencies since the inception of Bitcoin. The objective of these efforts is to move something in computational space such as flipping a switch, verifying a data set, securing identity, establishing order, establishing ownership, verifying capacity, etc.   This may seem somewhat obscure until you realize that these “energies” can convert and combine in immeasurable combinations to form autonomous logic circuits – i.e. complex contracts.

Since all businesses are based on contracts that act upon some physical space, it is only a matter of time before crypto-contracts jump to the physical space as well. As David Johnson, CEO of DApps Fund (a venture capital firm for decentralized innovation) says; “Everything that can be decentralized will be decentralized”. Eli Whitney was said to have uttered similar sentiments.

The early manifestations of this phenomenon are called Decentralized Application (DApps); these are little computational engines that operate autonomously and whose output is determined by an algorithm. The resulting decisions are binary and final. There are three characteristics that an application must have in order to be classified as a DApps. As you read these conditions, note how different they are from a traditional corporate structure.

  1. The application must be completely open-source, it must operate Autonomously, with no entity controlling the majority of its tokens, and its data and records of operation must be cryptographically stored in a public, decentralized block chain.
  2. The application must generate tokens according to a standard algorithm or set of criteria. These tokens must be necessary for the use of the application and any contribution from users should be rewarded by payment in the application’s tokens.
  3. The application may adapt its protocol in response to proposed improvements and market feedback but all changes must be decided by majority consensus of its users.

Next, there are three classes of Decentralized Applications that align loosely to a familiar computer analogy:

  • A Type I DApp is analogous to a computer operating system such as Windows or the Mac OS X, etc.
  • A Type II DApp is analogous to a general-purpose software program such as Word, Excel, or iPhoto.
  • A Type III DApp is analogous to a specialized software solution like a mail merge, or an expense macro, or a blogging platform.

As such, we can expect that there will be a fewest type I DApps, more type II DApps and even more type III DApps.

The more direct definition of these three classes is as follows: 

  • Type I decentralized applications has its own block chain. Bitcoin is the most famous example of a type I decentralized application but there are others. 
  • Type II decentralized applications use the block chain of a type I decentralized application. Type II decentralized applications are protocols and have tokens that are necessary for their function. 
  • Type III decentralized applications use the protocol of a type II decentralized application. For example: A hypothetical Cloud Protocol that uses a type II DApp to issue ‘cloudcoins’ that can be used to buy cloud computing services would be an example of a type III decentralized application.

Taken together we have most, if not all, of the familiar components of governance and interdependencies without the layers of management that are associated with traditional corporations. As you absorb the analogy and definitions, consider how DApps can be nested, combined, and integrated with other DApps to emulate complex contracts.

One particularly interesting DApp that recently launched is called Counterparty . Counterparty is a Type II DApp that performs one single task extremely well.

Counterparty is a betting platform; or we can put it politely and call it an escrow platform. Two parties may enter into an agreement about the outcome of a future event such as a horse race or football game. Each player puts his or her money into an escrow account that is sealed prior to the race. After the results are registered, the DApp autonomously transfers the money from the combined account to the winner.

Now imagine 500 bettors putting their money into the escrow account prior to the contract event. Upon completion of the event, the money is automatically assigned by algorithm to the winners in pre-assigned proportions. It does not take too much imagination to see this as an insurance product, except without agents, executives, managers, office towers or cute little geckos.

Soon, marathon runners can pool health insurance more towards sprains and falls, and less toward heart disease. Mini-van moms can pool auto insurance for number of passengers rather than miles driven. Professionals can pool E&O insurance by peer review. In fact, any affinity group can accurately price the perils that they are also most capable to manage.  DApps are massively scalable; one application can serve infinite users.

The market size of binary betting (sports, insurance, coin toss, etc.) combined with complex betting (contracts for difference, hedging, options, etc.) is in the trillions of dollars. So while Counterparty has only one use case, the use case is massive.  Now imagine 100,000 DApps operating autonomously, combining and integrating into complex relationships – not unlike building a jigsaw puzzle.

There was once a time when craftsmen guilds were the most powerful organization in the republic. Many of us remember the days when labor was increasingly replaced by machinery. The time may be arriving where machinery can also replace management. The insurance industry must become familiar with this environment and have the wherewithal to reorganize itself, before someone else does it for them.

***

Come Join us At The Future of Money and Technology Summit in San Francisco, December 2, 2014 for my panel discussion on Fueling the Decentralization Movement.

Speakers:

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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Future Of Money – Not What You Think

Never 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.

Future Of Money – Not What You Think

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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