Continuing the Bird Theme…

We all have them. Those books that just sit on your bookshelf, unbroken spines catching your eye from across the room. Berating you, each one a silent personal challenge – a demand that you prove that no, you weren’t so naive enough as to believe that by simply buying a book you’d also somehow be purchasing the time required to read it.

For me, one of those books was ‘The Black Swan‘ by Nassim Nicholas Taleb. Like many, I picked it up in the immediate aftermath of the 2008 financial collapse. And it’s only taken about 9 years for me to determinedly take it down from its shelf for the purpose for which it was intended.

As is often the case, once you’ve committed to read something, by the time you actually get between the covers, you remember why you bought it in the first place. It would be wrong to claim that there aren’t disappointments on occasion – and life’s too short for bad books of any genre – but not this time. I was immediately sucked in by Taleb’s original (and surprisingly witty) style.

I’ve read many books that hurt my brain. It’s not hard after all. And this one definitely falls into this category – in places. But stick in – the payoff is huge.

For me, there’s a few things that I still find myself mulling over the day after finishing it:-

Narrative Fallacy

Humans have a weakness (stop the press…). We’re unable to see data and accept it for what it is without rushing to create an explanation. Why? Because stories help us to remember and it’s always possible to build a narrative when looking back. However all stories are inevitably simplified – very much a case of inserting a fiction after the fact. As a result, after major events, we humans are great at agreeing that we now understand things – when really, we still have no clue and no ability were we to face a similar situation in the future.

Predictions and Experts

For proof, take a look at predictions made by those that we pay (in terms of salary, time or attention) to be experts. In many areas (say politics or economics, to name a couple), the reality is that these predictions are often totally wrong. Indeed, the evidence shows that experts often get no better results than the rest of us.

The Grateful Turkey

Say you run a farm in which you breed turkeys. You keep them for 99 days and ship them to the butcher on the 100th day. If you asked any of those turkeys how they felt their lives were going on Day 99 and also to predict the future, I suspect you’d get pretty positive feedback (in turkey-speak of course). Nice food, well-looked after, big social circle…

But then ask the last one standing the following day. He’d be (understandably) shocked at the day’s events (no doubt pyschologically scarred also). After a great life, the slaughter came from nowhere, there was no advance warning.

A true Black Swan event . an unknown unknown (for the turkeys). 

To grossly oversimplify his point: Taleb points out that the more we continue to predict the future from a position in society of being on the 99th day (our standard method of prediction, through reliance which is what we’ve grown accustomed to over the years, by a lazy reliance on such models as the standard Gaussian (Bell) Curve, the more we’re going to have problems.

Speaking Without The Full Knowledge

The final thought that struck me was that I’ve been using the term ‘Black Swan’ to describe an unforseen significant event for a number of years now. Yet it took me until this week to actually read the book. So at what point did the terminology actually cross that tipping point and make it into the popular lexicon?

And more importantly, how many other concepts and points of view are inadequately wielded by others with less than complete knowledge of what it is that they’re talking about across many different fields of society?

Thankfully, plenty of people have written plenty of words about Taleb’s Black Swan theory. Indeed, amazingly Mark Suster released a blog post (‘Don’t Be Fooled By Your Own Expertise‘) on this ‘old’ book yesterday on the day that I finished reading it.

A recent article told of the books that so many of us have claimed to have read but never ploughed through. When it comes to fiction, I don’t think I’d be too bothered if you’d claimed to have read ‘War & Peace’ because you felt it made me sound erudite. Whatever. But as the General Election approaches and once again the country considers appointing representatives, some of whom you would hope to be ‘experts’, perhaps out standards need to be higher.

Because this is a narrative in which we accept individuals expounding on concepts that they may have never fully (or partially) digested. And in a modern world, where knowledge is becoming increasingly specialised and the possibility of Black Swans is increasing, not reducing, that has to give us all some food for thought.

Turkey sandwich anyone?

 

 

Picking On Small Birds

When I was young, I thought that being ostracised was when you picked on someone because they were small (like a bird, see?). But it was only today that I came across the true origin of the word.

Back in the fifth century BC, Athenian democracy had a concept of Ostracism where the Greek citizenry could banish for 10 years a person that they didn’t like from society. Once a year, they’d have the option to do so by writing a name on a broken piece of pottery (ostracon, plural ostraka). Any individual who polled more than 6,000 votes was deemed the ‘winner’ and given 10 days to leave the city.

Seems pretty harsh by today’s standards – although preferable to the death sentences that weren’t uncommon back in those days. It doesn’t appear to have been invoked too frequently either (the last recorded incident involved the superbly-named Hyperbolus). Interestingly, it didn’t actually result in a loss of status or confiscation of assets for the individual either. They could return after a decade and pick up where they left off (in theory at least).

Which made me think: what if we still did this today? For politicians (albeit with a goalpost set higher than 6,000 votes I suspect….)? Work colleagues? Even extended family members?

It’s often said that you’re the average of the five people you spend the most time with. If you found yourself writing the name of a member of your inner sanctum on that piece of pottery, what impact would that have on your life?

How would you alter your daily behaviour if you knew these rules were in play? Would you (or could you) consistently modify the hundreds of daily interactions to minimise your chances of being the centre of attention on that single day each year?

I suspect our collective egos permit few of us think that we’d be the ones chosen. But then again most of us tend to ascribe success to our own abilities and efforts but ascribe failure to external factors (the self-serving bias).

Perhaps one impact might be to normalise some of the extremes of negative, emotional behaviour within society. I doubt it though. Most of us would find it hard to associate this distant result with their daily actions. I suspect actions would alter most markedly with the proximity of the vote.

Interestingly, this isn’t just some random ancient story from a past civilisation either. Ostracism remains alive and well in today’s society as we know. The effects might have changed but social psychologist Kipling Williams who specialises in the subject has pointed out that it finds its modern-day equivalent when we refuse to communicate with somebody – the so-called cyber-ostracism of ignoring emails.

Williams has done some interesting work in the area, including the Cyberball experiment. It’s an open-source ball toss game which involves three players who choose to throw a virtual ball randomly amongst each other on a screen. After a couple of minutes, two of the players throw it only to each other, excluding the third (the human). It’s shown that he or she then experiences feelings of rejection, anger and sadness – all despite knowing it’s a computer that’s ‘picking on them’.

So here’s a thought experiment: it’s real and voting starts tomorrow. What are you going to do?

Look No Hands! 

One story that caught my eye today was the Tesla that managed to predict a car crash ahead and react before a human could have responded. 

The Autopilot technology, rolled out overnight to all Tesla cars by way of an software update, includes a radar processing capability – in effect, the ability for your car to see ahead of the car directly in front of you. 

There have been a few stories about the value of this newfound driving superpower kicking around but today’s story comes with a video of the incident which demonstrates precisely how powerful this technology could be in helping to avoid accidents


I drove a fair distance today, the last hour or so of which was in the worst fog I’ve seen for many years. Whilst nothing’s going to be perfect,  I would 100% have preferred to have been driving a Tesla (obviously…). But what’s really interesting here is the potential for so-called ‘fleet learning‘ – each car uploading data from its daily experiences to a central database, with this improved collective knowledge then being recycled for ongoing use by the same vehicles. 

A Safety Skynet anyone? 

The Death of Celebrity

As the year wraps up, there must be some news websites seriously considering whether to introduce new ‘Obituary’ sections alongside their usual News, Sport and Entertainment pages. After all, nothing drives click-throughs like a reminder that even the famous remain subject to the same rules as the rest of us and its been a busy year.

Yet even as the number of fake reports increase (although nothing that can top the original ‘Paul Is Dead‘ story from the heyday of The Beatles), is it the case that more of our celebrities are shuffling off this mortal coil than ever before? Perhaps some kind of Faustian pact is now a compulsory precursor to fame, a contract that must be signed in secret before your image, name or content may be shared online? Or is this just another case of the wisdom of the crowd, collectively latching onto another story, this time about the so-called ‘Curse of 2016’?

With no hard evidence either way, here’s my thoughts. We’re only now starting to see the effects of an increasingly heavily networked and interconnected world play out. Think of the number of minor celebrities we have today. The fifteen minutes of fame both bestowed upon and grasped at by so many leaves a trail of famous names, regardless of whether such fame is well-deserved or the inevitable byproduct of some mostly forgotten minor notoriety.

I can’t see the current situation changing. Indeed, as we each become aware of more people through a mesh of our networks covering locale, music, video, politics, profession and, in more general terms, TV, the chances of the number of ‘famous deaths’ doing anything other than increasing year on year must be tiny.

So 2016? It’s not good, it’s not bad.

It just is.

As an aside, it used to be the case that reading the Obituaries section of olde worlde newspapers used to be as valid a destination for learning as the reports of current affairs that monopolised the first few pages. With the passage of time, at least some of the bias can be erased and actions placed into context. If you want a place to learn about those who’ve done something special with the time they were given, you could do far worse than listen to the excellent  ‘Last Word‘ podcast.

Alas as the years pass, I suspect that increasing numbers of subjects for inclusion won’t translate into an equivalent increase in lives worth reporting. Our am I too cynical?

Where Do We Go From Here?

The recent win by Google’s AlphaGo computer program in a 5-game Go tournament against the world’s top player for over a decade, Lee Sedol made headlines around the world.

And once you look past some of the more superficial tabloid predictions of imminent robot enslavement, you’ll find a number of intelligent and fascinating accounts detailing exactly why the event represents something of a technology landmark.

It’s worth digging into Google’s blog post for the background. Because this was not just another case of a computer learning how to win a board game. Nor was it a resumption of competition between man and machine following our previous defeats in chess (against Kasparov) and in Jeopardy (by Watson).

Complex Choices

Instead, the choice of game here is significant. Go is an ancient game with more possible legal board positions than there are number of atoms in the universe. In fact, we’ve only managed to calculate that number in 2016 after some 2,500 years. Why is this important? Because it means that a computer cannot possibly find the best options simply by brute-force guessing combinations. Building a system to index all possible moves in the game and then rely on the computer to look up the best move each time is simply not possible.

Instead, a successful Go player needs to use something that we can best understand as intuition. A human has to be able to act on no more than a feeling that one move is better than another – something that it was generally accepted that this was something that computers couldn’t do.

Turns out general opinion was wrong.

Self-Taught

By ‘simply’ learning 30 million possible moves played by human experts, the program showed that it could predict which move a human would make 57% of the time. But this would only go so far. To win, the AlphaGo algorithm needed to learn new strategies – by itself.

And it’s here that the outcome was stunning. During the games (live streamed online to massive audiences), the computer made certain moves that made no sense to Go experts. And yet (for the most part) they worked. As one commentator mentioned, this was, at some level, an alien intelligence learning to play the game by itself. And as another put it:

“..as I watched the game unfold and the realization of what was happening dawned on me, I felt physically unwell.”

When it comes to AI, it’s particularly important to reign in the hyperbole. Playing Go in a way that’s unrecognisable to humans at times is hardly Skynet. But it’s fascinating to think that the program reached a level of expertise that surpassed the best human player in a way that no one really fully understands. You can’t point to where it’s better because the program teaches itself to improve incrementally as a consequence of billions of tiny adjustments made automatically.

Neural Networks: Patience Pays Off

The success of computer over man came from a combination of different, but complementary, forms of AI – not least of which were Neural Networks. After reading a little about the godfather of Deep LearningGeoff Hinton, and listening to an another excellent podcast from Andressen Horowitz, it turns out that the approach of using Neural Networks (at the heart of AlphaGo) was an A.I. method that was ridiculed as a failure for a number of years by fellow scientists, particularly in the 1980’s.

It Turns out that the concept was just been too far ahead of its time. As Chris Dixon points out in ‘What’s Next In Computing?‘, every significant new technology has a gestation period. But that often doesn’t sit easy when the hype cycle is pointing towards success being just around the corner. And as the bubble bursts, the impact of the delays on the progress of innovation are usually negative.

Nowhere has that been seen so clearly as within the field of Artificial Intelligence. Indeed, the promise has exceeded the reality so often that it has its own phrase in the industry – AI Winters – where both funding and interest fall off a cliff. Turns out that some complex things are, well, complex (as well as highly dependent on other pieces of the ecosystem to fall into place). So in the UK, the Lighthill Report in 1974 criticised the utter failure of AI to achieve its grandiose objectives, leading to university funding being slashed and restricting work to a few key centres (including my home city, Edinburgh).

Expert Systems: Data Triumphs

Thankfully, the work did continue with a few believers such as Hinton however. And whilst the evolution of AI research and progress is far outside this blog post, it’s interesting to see how things evolved. At one stage, Expert Systems were seen as the future (check out this talk by Richard Susskind for how this applied in the context of legal systems).

To simplify, this is a method by which you find a highly knowledgeable human in a specific field, ask them as many questions as possible, compile the answers into a decision tree and then hope that the computer is able to generate a similar result to that expert when you ask it a question. Only problem is that it turns out that this doesn’t really work too well in practice.

But thankfully, those other missing pieces of the ecosystem are now falling into place. With massive computation, bandwith and memory available at extremely low cost these days, those barriers have now fallen. Which has led to the evolution of Neural Networks from a theoretical, heavily criticised approach into something altogether far more respected and valuable.

Welcome to self-learning algorithms – algorithms that (in this case) teach themselves how to play Go better – but without asking a Go expert.

Neural Networks aren’t new in any way. They started as a mathematical theory of the brain but didn’t make much progress for 40 years. But with the barriers gone, we’re now seeing neural networks being piled on top of each other. And AI is improving significantly not because the algorithms themselves are getting better. It’s improving because we’re now able to push increasing volumes of data into models which can in turn use this data to build out a better model of what the answer should be.

Learning By Intuition & Iteration

Instead of trying to capture and codify all existing knowledge, deep learning techniques are using data to create better results. It’s an approach that is scary to some people because it’s inherently un-debuggable. If you get the wrong result, you can’t simply check out each entry in a decision tree and fix the one that’s wrong.

But it’s got legs, particularly in the development of self-driving cars. So we don’t need to paint roads with special paint and maintain a huge global database of all roads and cars. Instead self-driving cars are going to use a collection of these machine learning techniques and algorithms in order to make the best guesses about how to drive each and every day.

Learn, iterate and improve. Scary? It shouldn’t be – because that’s exactly what we do as humans.

It’s a huge and fascinating field but the AlphaGo victory feels like an important bridge has been crossed, an inflection point when popular awareness coincided with a genuine step forward in the possibilities that the technology affords.

And of course, Google’s ultimate goal has never been to simply be better at winning games. Unless you define a game as being a challenge that is extremely difficult to beat. If so, then bring on the games – disease analysis, climate change modelling, the list is endless. When it comes to these contests, we might not expect them to be streamed live online. But as they increasingly become games that we have no option but to win, I’m pretty certain that the interest will be there.

Opening Up The Banks

It was a FinTech-tastic week in Edinburgh last week as – hot on the heels of the Bitcoin Meetup with Colu and the FinTech Scotland Conference – the Hack/Make The Bank hackathon took place, run by the hugely friendly team at the Open Bank Project. Well over 120 hackers and enthusiasts piled into the RBS Technology Solutions Centre in the New Town to build innovative ideas on top of the Open Bank API.

Open Bank Project Hackathon Visualisation
Hack/Make The Bank Hackathon, Edinburgh (9th to 11th October 2015)

The concept of open bank data is pretty much a no-brainer once you start to think about the implications. Providing free, standardised access to the banks in real time liberates developers, entrepreneurs and – most importantly – consumers around the world who are otherwise hampered by legacy technology deployed by financial institutions.

The team from TESOBE did a sterling job over the weekend leaving no stone unturned in their quest to create the ideal environment for those burning the midnight oil, providing a selection of massages, whisky and bagpipe accompaniment (!) in addition to the obligatory Red Bull, food and support throughout.

Ismail Chaib introducing the Hackathon
Ismail Chaib (Open Bank Project) introducing the Hackathon Prizes

I was delighted to be asked to act as a mentor at the event. It’s something that I’ve done at a few times at a number of hackathons (in different capacities) and it’s always an honour. I’m always full of admiration for anyone who chooses to come together to work – hard – over a weekend out of choice out of a simple desire to create and build something new and worthwhile.

The final pitches were great. As usual, I’m not going to share the ideas here (it’s not clear yet who wants to go forwards with these). Needless to say I was happy to see the guys from miiCard bring home the prizes for most disruptive (believe it or not, I had no say in the judging!)

All together, big congratulations go to Ismail Chaib, Simon Redfern and the rest of the Open Bank Project team; Kirsten Bennie and the rest of the RBS team who are clearly engaging positively with the upcoming disruption that’s undeniably en route; and last, but not least, all the developers and disruptors who proved that Scotland is now starting to really build on a burgeoning FinTech reputation.

Can’t wait for the next one.

Hackathon Collage

 

Time flies…

So – it’s been a while huh?

My only excuse for the lack of action round these parts in recent months is the same one that’s recycled by bloggers around the world. Namely life off-blog (believe it’s known as ‘real’ life) got crazy-busy over the summer months.

Can’t share all of the activities on here yet but here’s a quick roundup of some of the cool things (well I think so anyway) that have been taking up some of my time recently:

1. Paul Puey, CEO of my favourite Bitcoin wallet company Airbitz popped across from San Diego to chat at the Scottish Bitcoin Meetup a couple of weeks back, delivering a great talk on keeping Bitcoin decentralised.

Paul Puey (Airbitz CEO)
Paul Puey (Airbitz CEO)

2. We followed that up with the good news from The Royal Dick at Summerhall that it was to be the first bar in Edinburgh to accept bitcoin. And I’m glad to say that the meetup group took it upon itself to, er, thoroughly stress-test the new technology to the fullest. Let’s just say, we ensured that future customers wouldnt be at any risk of having a fractured experience in the future with staff who had no experience of dishing out drinks in return for bitcoin. Happy to report that everything held up beautifully under the strain.

 

360D Conference, Glasgow SECC (September 2015)
360D Conference, Glasgow SECC (September 2015)

3. I gave a talk on Bitcoin at the 360D Conference at the SECC in Glasgow earlier this month. Getting out of a sick bed to deliver it, it unfortunately wasn’t my finest performance but still seemed to provoke quite a bit of conversation afterwards.

4. I helped organise the Blockchain Workshop at this year’s Turing Festival and watched with disproportionate pleasure as 25 or so developers – all but a couple of whom had never had any exposure to blockchain tech beforehand – learn how to mine, send money and create simple smart contracts in little under 6 hours, all under the watchful eye of Konstantin and Ken from Ethereum. A fantastic example of the potential that this technology is providing for everyone.

5. Nine major banks announced they’d agreed to work together under the talented eye of new CTO Richard Gendal Brown at R3CEV in an ongoing investigation around how blockchain technologies can be incorporated into their current businesses. BIG news when you consider where we were 12 – even 6 – months ago. In case you’re wondering, the banks are: JP Morgan Chase, Goldman Sachs, Credit Suisse, State Street, UBS, Commonwealth Bank of Australia, BBVA, Barclays and Royal Bank of Scotland.

6. A few weeks ago, I took part in a British Interactive Media Association (BIMA) panel on ‘Can FinTech Make Banking More Human’ in Edinburgh, exploring disruption across the sector.

The Ivy, London
The Ivy, London

7. I gave another talk on Bitcoin and the promise of Blockchain technology at The Ivy of all places in London as part of an event put together by the Tayburn Agency and Engine. Thanks to Nadine and the rest of the team for inviting me down. I tell you – for all the furore about this so-called ‘geek money’, it doesn’t half get you into some interesting places 😉

Swiss Embassy, Bitcoin & Blockchain Event
Swiss Embassy, Bitcoin & Blockchain Event

8. I went along to a fascinating event run by the Swiss Embassy in London on, yup, you guessed it (no prizes) the B thing. Fantastic panel (Mike Hearn, Christian Decker, Richard Gendal Brown, Vitalik ButerinRobleh Ali from the Bank of England and Oliver Bussman of UBS). Held under Chatham House rules (hmm, hate that concept – really, in a world of permanent mobile and social network connection, are we really going to still hang onto the pretension that we can restrict such conversations and attribution spreading?), I can’t really say too much of value about the discussion – other than it was a fantastic event, with loads of old and new faces from the scene in attendance. Interesting to note Switzerland’s drive to become a base for crypto-based businesses in the future as well.

And yeah, there’s been a lot more. But this is turning more into a diary entry now so I’ll wrap it up.

So we might still be no clearer to finding out where this roller coaster will finally stop and what the scenery will look like if it finally does. But to me, the outlook’s never been so positive. As a great man once sung – keep on keeping’ on

London Blockchain Conference 2015

Blockchain Conference London 2015
Blockchain Conference London 2015 – Jon Matonis (ex-Bitcoin Foundation), Marc Warne (Bittylicious), George Hallam (Ethereum) & Alex Kotenko (XBTerminal)

It’s noticeable that there have been far fewer Bitcoin Conferences taking place this year. Speaking from experience, I can understand why. Conference organising brings its own challenges, particularly when you add into the mix the topic of an emerging technology that most people don’t yet understand whose application could disrupt a variety of industries. What area(s) should you focus on when programming a coherent and informative event?

There were no such worries for the London Blockchain Conference on 24th June. It turns out that hosting this in the Barclays Accelerator and simply dropping the ‘B’ word from the title (that’s ‘Bitcoin’, not ‘blockchain’) was a smart move, evidenced by the huge turn out of representatives from a broad range of financial organisations.

How things have changed over the past few months.

But whilst the terminology might have changed slightly (and to be serious for a minute, it’s only partially up for debate whether this represents an evolution in PR treatment or the concepts themselves), there’s no doubt that traction is definitely building.

A new architecture for financial services

Hardly surprising. Because, as Simon Taylor pointed out in his brief opening, the potential for cryptographic proof equates to “an accountant’s wet dream”. Now, lofty claims about the power of a blockchain to instantly solve the world’s collective ills (or to “benchpress the earth”, as Simon put it) might not be helpful. But the simple, undeniable truth is that the existing financial system needs a reboot. So what’s the appropriate architecture to let this building commence in a digital world? Because it’s pretty clear that the system of the near future is not one that relies on masses of independently-verified, slow and expensive paper-based processes.

Undoubtedly, many in the room that day have been attracted by this shift in focus. The conversation was not, like so many in the past, one about consumer applications. Instead, this discussion sidestepped the question almost in its entirety and looked instead at the application of blockchain solutions at an enterprise level – seeking efficiencies where the industry currently shoulders significant costs and collectively dreams of reducing the settlement time for trades that travel at a snail’s pace today.

Less of a currency focus – but still unmissable

That’s not to say that there was no discussion of Bitcoin as a digital currency however. It was good to hear both Adam (Diacle) and Dan (Innovate Finance) remind everyone that the UK continues to lead the way globally when it comes to building a supportive environment on the basis of a non-interventionist policy, with money being allocated to research into digital currency. Far from being a regulator’s worst nightmare, the blockchain promises a completely different and seemingly vastly improved model for compliance (where the necessary data is verifiably correct and ‘pushed up’ as required as opposed to being extracted painfully by the regulator in a top-down model).

I don’t write about regulation on this blog often (partly to avoid people assuming I’m giving legal advice given my previous career – but mainly because, to be frank, it doesn’t really excite me). But one thing I haven’t really flagged up previously (because it’s obvious to anyone other than perhaps a newcomer to the scene) is a very valid concern that emerging regulation of Bitcoin risks somehow ensnaring those building businesses that rely on blockchain technology to certify the provenance of data (as part of a non-financial transaction – such as Provenance for example which uses Ethereum). We’re fortunate that this hasn’t turned into a major issue (in the UK) at present – but it remains an area to watch closely.

Of course, when it comes to legitimisation, you can’t go much further than demonstrating a government that is actively encouraging bitcoin businesses to relocate with a beneficial tax regime and working with Credits to create a blockchain-based company registry.

Blockchain startup tips – from your target customers

But what about the startup scene? Are the institutions starting to see an evolution and growth in maturity from those who are seeking to sell blockchain-influenced solutions into the financial services market?

Lee Braine of Barclays made a number of good points during the day. It’s time to move on from the early rhetoric of the Bitcoin startup scene. Financial institutions continue to look for solutions to a screed of vast array of problems, relating to everything from SLA’s to regulatory requirements. It’s clear that blockchain technology provides a new approach. But it’s been hard for them to engage with many entrepreneurs to date who have approached such problems from the opposite perspective – more along the lines of “we have the solution, we just need to implement it”.

I liked Lee’s comment that the blockchain is nothing more than a massive WORM (Write-Once Read Many) drive. He also had a couple of valuable pieces of advice for the Bitcoin community:

  1. To sell into financial services enterprises, you have to ‘bake in’ the bank’s non-functional requirements from the start (e.g. strive for security, reliability and low-latency at all stages).
  2. Solving part of a known issue isn’t good enough from a bank’s perspective. In other enterprise business sectors, a solution often requires a collaboration between third party vendors who collectively solve the problem in its entirety. Perhaps it’s time for startups to think in terms of forging similar alliances in order to bring blockchain-based solutions to the banks.

The message that seems to be coming across loud and clear in these discussions is that banks are (finally) starting to understand the power of blockchain technology. However, their challenge comes in trusting that the legal entity (or group) that possesses the ‘right to write’ to the (private) blockchain is sufficiently robust to provide them with trust that all of the information recorded is legally enforceable and correct (as I outlined previously). But, in general terms, they all seem to be looking for a system that provides a private ledger with designated miners, collective administration and one that focuses on the assets being exchanged, with the details of the technology itself being hidden.

Onwards and upwards

So there was definitely a much-improved level of understanding in general around the technology in comparison to a few events that I’ve been at recently, although we’re clearly still at the start of the curve. It was impressive to see the newly-launched Everledger burst out of the accelerator and set out their vision for (initially) the use of the blockchain to track diamonds “from the mine to the mistress” to prove provenance and slash insurance costs for physical items within the legacy system. And that’s without even mentioning what appeares to be an extremely promising new entrant into the world of private blockchains as a new whitepaper was released by MultiChain, developed by the hugely talented team behind Coin Sciences.

I’ll leave you with a thought from Nathaniel Popper. The New York Times reporter and author of the fascinating history ‘Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying To Reinvent Money’, pointed out that the Bitcoin ‘movement’ grew out of a desire to avoid governments and banks. Yet some of the biggest movements in the scene are by both.

I wouldn’t be in any doubt that full integration of blockchain solutions is still going to take a long time to mature. But it’s clear to me that the banks and others have started their engines.

Game on.

Reflections on MoneyConf 2015

The organisers of the WebSummit got in touch a few weeks ago and asked me to head across to Belfast for a couple of days to chair a couple of panels at their new event MoneyConf last week. It was a great gathering of some of the big names in FinTech and it was striking just how predominant Bitcoin and/or blockchain businesses were in the conference programming.

MoneyConf 2015
My MoneyConf Panel on 16th June 2015 with Stephen Pair (BitPay), Naveed Sherwani (PeerNova), Matthieu Riou (BlockCypher)

Whilst I’ve spoken increasingly frequently in public on Bitcoin over the past couple of years or so and compered/organised the Scottish Bitcoin Conference, this was actually the first time I’ve chaired panel sessions. I wasn’t too sure of what to expect (how opinionated should you be as the chair, what to do if someone talks too much or – worse – too little etc). However, I’m happy to say that it was a blast. Both panels seemed to go down well and I’m eager to do it all over again just as soon as possible.

My MoneyConf Panel on 15th June 2015 with Damian Kimmelman (Duedil), Anil Stocker (MarketInvoice) & Hiroki Takeuchi (GoCardless)
My MoneyConf Panel on 15th June 2015 with Damian Kimmelman (Duedil), Anil Stocker (MarketInvoice) & Hiroki Takeuchi (GoCardless)

Panel MoneyConfAccording to research carried out by Goldman Sachs, 33% of millennials don’t think that they’ll need a bank in the next 5 years.

Nic Cary, blockchain.info, MoneyConf, Belfast, June 2015
Nic Cary, blockchain.info, MoneyConf, Belfast, June 2015

And, as Nic Cary pointed out, any financial institution that does not have a blockchain strategy discussion of sorts taking place in its boardroom at present is not a business that’s likely to be around in a few years’ time.

It was fascinating to hear Halsey Minor of BitReserve in conversation with Max Keiser (here’s another conversation if they’ve had since). For those of you who aren’t aware, Halsey is – there’s no other words for it – a serious player. When someone who helped to create not one but two billion dollar businesses (CNET and Salesforce)  says that the announcements that he has planned for the next few months about the evolution of BitReserve are by far the most disruptive of his entire career – take note.

One final note: Adam Ludwin of Chain and Vinny Lingham of Gyft announced a ridiculously cool collaboration in the form of blockchain-powered gift cards. I’ve just found the video here of the presentation here as well if you’re interested. So all in all, a great couple of days in Belfast. If I had to find fault with anything, it was the lack of Bitcoin ATM’s…. but you can’t have everything 😉 I for one will be heading back next year to see how the event grows that’s for sure  

Panel1 Day 2

Bitcoin v The Blockchain?

“blockchain technology…is presented as a piece of innovation on a par with the introduction of limited liability for corporations, or private property rights, or the internet itself” (The Economist)

Over recent months, we’ve seen a number of recurring themes in the Bitcoin community. Whilst the heated block size debate appears high up on that list, I wanted to touch on another key narrative that’s continuing to provoke much discussion.

Driven by rising interest levels within the mainstream financial services industry, the issue revolves around a deceptively simple question.

Can We Have Blockchains without Bitcoin?

I’ve had a number of conversations recently within traditional financial services organisations who are starting to explore the potential of blockchain technology. But one thing is clear. Whilst the technology is becoming increasingly attractive to them, Bitcoin itself is still sometimes seen as a weird crypto-anarchic-libertarian concept that must first be set aside in order to let the real work commence.

Now for those who understand Bitcoin in depth, this is surely a deeply flawed concept. When it comes to the blockchain and Bitcoin, each needs the other for survival right? And any attempt to split the two will kill the value of both.

But innovation should be welcomed in whatever form it takes – whether incremental or ‘Big Bang’ disruptive. Whilst the second option is clearly more attractive, I’d argue smaller steps are still worth taking when the true enemy is actually the status quo. The value of innovation is often subjective in any event, viewed differently according to each person’s unique mix of perspective and timescale.

So, to draw a parallel from my past life, a law firm that develops automated document assembly plans for the future will be dismissed without a second thought by those who are seeking to develop smart contracts that automate those firms themselves out of existence and vice versa. But then the technologists fail to develop an understanding of the all-too-real existing constraints and the incumbents fail to set their sights high enough.

The lesson? If opposing sides simply dismiss competing arguments without taking the time to genuinely explore their merits, both risk missing out on the subtleties. So with this post, I intend to do just that. Not to provide answers per se but to collect some key arguments from both side of the debate. Of course, it’s merely scraping the surface. But it’s worth starting with an overview.

Let’s Start With The Easy Bit – A Misunderstanding

Many who repeat the “blockchain good, bitcoin bad” refrain have overlooked one key fact. Many businesses that the press are now championing as being pioneers of blockchain technology are actually reliant on Bitcoin.

Whether that’s NASDAQ’s decision to use ‘a blockchain ledger’ on its Private Market platform, the use of ‘distributed ledgers’ to streamline financial settlement by Digital Assets Holdings (check out this recent talk by the CEO, ex-JP Morgan senior exec Blythe Masters) or even Overstock’s CryptoBond, any mention of Bitcoin itself is often abstracted by the press in favour of a focus on blockchain technology.

So it’s important to remember that each of these not-insubstantial bets have been made by people and organisations who believe that Bitcoin’s blockchain will succeed (check out the diplomatically-worded blog post by Peter at CoinCenter for a similar perspective).

For the rest of this post, I’ll call the (permissionless) blockchain that underpins Bitcoin the ‘Satoshi Blockchain’ for clarity.

The Argument for No

Secure. Public. Permanent. Immutable. Massively resilient. Just a few of the features that describe the Satoshi Blockchain. Yet all of these features cannot exist without one thing: Bitcoin miners who believe that they will earn more money than they spend if they turn on their computers to take part.

Incentive is crucial to the Satoshi Blockchain. If it will cost a miner £151 to get one Bitcoin by turning on his computer to mine when he could simply buy one for £150, which option do you think he will choose?

This mechanism beautifully balanced. And the result? Take away the bitcoins and the Satoshi Blockchain can’t function.

Unless the value of bitcoins to be won by miners exceeds the money they spend in burning electricity and investing in the capital infrastructure necessary to compete for dominance in the current mining arms race, the Satoshi Blockchain would be far less secure – and all of those fascinating projects listed above would be going nowhere.

The mining game might be preparing to undergo significant change with the resolution of the current block size impasse, just as 21 turns on its mining capacity (and BitFury their lightbulbs!). But irrespective, under the current model, it’s clear that the miners need to be paid for the system to work.

So if it’s clear that those who secure the network need a financial reward, why can’t we simply pay them with fiat currency, instead of bitcoins?

For one very good reason. Do that and you destroy one of the characteristics that has enabled Bitcoin to thrive over the years.

Censorship resistance.

In other words, if you build a permissionless system (that is open to anyone to join) that requires money, it must use a native currency. You cannot use money that is issued by a third party because there is always a risk that that third party might then censor (e.g. delay or withhold) payments. Instead, the money must be created within the system itself and it must function as a bearer instrument itself (like cash) – in other words, if you hold it, it’s yours (with no third party rights cutting across the ownership).

And this is why it is impossible to separate Bitcoin from the Satoshi Blockchain. There is simply no other way to incentivise the miners. It needs native digital money that is valuable and a guarantee that this will only be distributed according to the rules of the protocol.

The Argument for Yes

So it’s agreed then. If you want to reach decentralised consensus under adversarial conditions, you need an incentive structure.

But – hold on a second. Proof of Work (a security model that intentionally makes it very expensive to attack the network because it requires miners to burn all this electricity) is surely only necessary under certain conditions.

What if you’re a financial organisation? You don’t actually want the system to be open to everyone. You want to restrict those who have the ability to update the ledger to an agreed number of known people – because if it all goes wrong, you’ve then got someone to sue. You’re perfectly happy with the security systems that you currently use within your organisation to date and provided you control the small number of people who can update the ledger, you don’t need Proof of Work to protect the integrity of the network.

And I believe that it’s here that you see the key point emerge. Bitcoin’s model works amazingly well because it is a close-to-perfect solution for people for whom the anonymous verification of transactions carried out on a P2P basis (meaning that no third party is required) is one of the key attractions.

But within financial services, a heavily-regulated sector that views anonymity as a weakness and collectively has no desire to avoid censorship by third parties, a demand for a related type of blockchain-technology with a different feature-set appears to have emerged.

Here, there’s no need for miners. Save the money and replace them with ‘permissioned’ blockchains. This simply means that those using this private blockchain can ensure that someone who wishes to update the ledger must be authorised in advance and their identity known. Suddenly we have a very different beast. Now we have a database tool that no longer needs tokens that command a market value – because they have no need to act as an incentive. And of course, it avoids any uncomfortable questions about bitcoins within an environment that demands a high level of compliance and box-ticking.

Different Use-cases – Or A Fundamentally Different Technology?

For many, this closing of the doors and restricting access goes against the very essence of the (Satoshi) Blockchain. But there seems to be a growing understanding that as the area continues to be explored, people are most likely talking about (at least) two very different concepts. There’s an argument that the term ‘blockchain’ cannot cover both concepts.

But is a permissioned blockchain not simply a database?

In some ways, yes. But this is a database on steroids. One that contains rules about who can update the ledger and how. One that gives you conclusive evidence of when the records were changed and by whom. One that can be designed to reject any types of transactions that are deemed to be unacceptable at the outset. And one that will be reconciled globally in a fraction of the time that it currently takes and therefore can be automatically audited.

When it comes to the banking industry, it’s hard to believe that back office settlement platforms won’t move soon to decentralised ledgers. Think about the current system for a minute. Currently every bank has to spend huge amounts of time recording and continually reconciling complete records of every single transaction that takes place between them. If A sends money to B, both A and B have to record that transaction in their respective books. One transaction, two records. But what if that transaction was instead recorded automatically on one single ledger?

Clearly the financial services industry will have privacy concerns.
However, as Richard Gendall Brown explains in writing about this concept that he has called the replicated, shared ledger, these should not now be an issue. The system works because there is a single record of all transactions, a copy of which (complete, updated and protected) is held by each financial institution. Each would only be allowed to update the records that relate directly to its own dealings – and so the master record is now collectively maintained by all, allowing everyone to enjoy the benefits of a system with vastly improved efficiency.

Conclusion

To me, it’s clear there is a use-case for both types – and no doubt many variations in between (and beyond). Undoubtedly permissioned block chains are a significant step forwards for the financial services industry (amongst others). However, as progressive as such a change would be, it still doesn’t provide the oxygen that is so readily available within a permissionless system such as Bitcoin to nurture the truly ground-breaking innovations.

With the evidence to date, the answer to me seems to come down to this. Large financial services will inevitably focus on incremental change – because when you’re dealing with such significant sums of money and the strictures of regulation, any improvements in efficiency, no matter how small, will have massive financial benefits. Permissioned systems will therefore fill this role successfully in the shorter term.

Yet the true innovation, the moon shots and the long-term disruption must, in my view still be discovered within the Bitcoin ecosystem. It’s almost certain that the business models that will truly disrupt the existing financial sector have not yet been found. But I do believe they’re coming. So if you’re in a bank and you think that there’s even a 1% chance of Bitcoin being successful, you surely need to be thinking extremely carefully about the future and position yourself accordingly because the effects of waking up and seeingt such a day arrive are so significant.

I’ll leave you with a quote from one of the most powerful women on Wall Street, Blythe Masters:-

“How seriously should you take this? I would take it about as seriously as you should have taken the concept of the internet in the early 1990’s. It’s a big deal. And it is going to change the way that our financial world operates”.