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”.

NASDAQ Meets The Blockchain

And yes, it is THE blockchain. Not a different standalone implementation of blockchain technology.

When news broke late last night from WSJ writer (and previous Scottish Bitcoin Meetup guest) Michael Casey that NASDAQ, the second largest stock exchange in the US, already has 75 companies signed up in its NASDAQ Private Market to test blockchain technology to simplify handle pre-IPO trading, Twitter immediately lit up with conversation.

It soon became clear that their plan is to use the Open Assets Protocol – basically a Colored Coins implementation. If you haven’t heard of Colored Coins, it’s basically a way of connecting a ‘real world’ item with a tiny amount of Bitcoin. To exchange ownership of that ‘real world’ item, now you simply need to transfer that specific bitcoin. The benefits are clear and hugely powerful: a public record of verifiable ownership in which transfers are immediate, global and of an order of magnitude cheaper than most systems in which ownership is registered.

The reality is that this is huge news for Bitcoin and the scene in general. There’s a far wider narrative here (Bitcoin v blockchain etc) that I’m not going to touch on today. But if you think back a couple of years, this, a press release containing a quote like this really was unthinkable.

 “Utilizing the blockchain is a natural digital evolution for managing physical securities,” said Bob Greifeld, CEO, Nasdaq. “Once you cut the apron strings of need for the physical, the opportunities we can envision blockchain providing stand to benefit not only our clients, but the broader global capital markets.”

Within the securities industry, T+3 is standard – i.e. payment and certificates for trades in securities must change hands no later than three days after the date of the transaction. Now, with blockchain technology at work, the potential is there to go after that holy grail of T+0 or real-time transactions – a system that reduces both regulatory and counterparty risk significantly whilst also releasing funds that are otherwise tied up during those three days in the current settlement process.

Anything that increases transparency through a fully-digital service that simultaneously facilitates the issuance, transfer and management of private company shares whilst slashing existing inefficiencies and remaining impervious to bad actors sounds like a pretty compelling use case to me.

Yet another application that I and many others will be watching with huge interest.

 

This Is A Call

I’ve just sent out a message to all of the members of the Scottish Bitcoin Meetup. In case anyone is reading this blog that isn’t signed up (why not? it’s free! and you get to hear what’s happening in the scene as it evolves in Scotland), here’s the text in full.

Hi folks,

Hope you’re all having a great Sunday.

Where It All Started

When I started the Scottish Bitcoin Meetup back, I did so for one simple reason: I’d been convinced for a long time that we were witnessing the start of a paradigm shift across technology, business and wider society. The exact form that this disruption would take was unclear but it was beyond doubt in my mind that ‘something’ was coming. Try as I might, I couldn’t find another forum in Scotland for people to get together in person and discuss what was coming. So I thought, sod it, let’s just do it myself.

Thankfully, some of you turned up to that first meetup! And many of you have continued to do so ever since. Since those early days, we’ve managed to gather in one way or another for 29 meetups to date, with two particular highlights being the first ever Scottish Bitcoin Conference taking place in August 2014 and Design In Action’s residential Creative Currencies Chiasma earlier this year where a mix of people got together to learn together and dream big about the possibilities.

Today’s Landscape

In recent times, the main Edinburgh meetup has evolved in format, to include video calls with great stalwarts of the scene from around the world. In last couple of months, for example, we’ve chatted with Coin Center, Paul and Michael from the Wall Street Journal and Victoria from ChangeTip (check out the livestream video here if you haven’t seen it yet).

All of this is going to continue. Please do try to make it along if you’re still interested as there’s some great guests lined up over the coming months (and for those of you who keep asking – yes, I’ll do my best get Andreas at some stage…!)

However, it’s become clear to me over the past six months or so that we’re seeing an evolution in the general conversation. The heady days of speculative easy money that attracted a certain type of interest in the early days are gone, replaced by a period of intense work and consolidation across the industry. In part, this is driven by the evolution of connected and parallel technologies (such as Ethereum, MaidSafe, Eris etc) but it’s also being driven by the unavoidable fact that larger financial institutions are starting to take the technology more seriously (UBS open labNew York Stock Exchange invest in Coinbase,Fidor and Ripple, Barclays, Goldman Sachs invest in Circle etc).

I’m increasingly being invited to give talks or get into conversations with ‘serious’ institutions – in common with many who follow the scene. Regardless of the narrative in the press or the details of the specific technology, there is definitely something happening that validates the feeling that most of us have held for a long time now.

So – why the rambling email?

The Future

On Tuesday 19th May at 6:30pm, there is going to be a get together in Edinburgh to which you are all invited. But this isn’t going to be a typical Bitcoin meetup. This is a group for people who want to get together in a room and roll up their sleeves. People who want to code, build projects and businesses related to blockchain tech and – put simply – stop the talking and start the doing.

To be clear, we won’t be focused exclusively on projects that relate solely to financial services. For the most part, we’re going to be technology- and sector-agnostic. We’re simply going to be focused on solving real problems. But at this stage, the plan is to sit around a table and lay the foundations of a group that will evolve over the next few months for those who consider themselves serious (either in terms of existing talents or intention to get involved) about the future of the sector in Scotland.

One important point: this gathering is in no way exclusive. So please pass this invite on as you see fit. Nor is it for ‘experts’ (whatever that term could possibly mean at this stage in any event). The only pre-requisite for attending is a willingness to roll up your sleeves and get involved moving forwards. Ideas are ten-a-penny. This group is all about whittling down some of the best and starting to execute on them. So it doesn’t matter whether you’ve just fallen down the rabbit hole recently or whether it happened years ago.

Without disclosing too much, we’ve got buy-in externally from some big names across the Bitcoin/2.0 scene. And I’m as convinced as I’ve ever been that we’ve already got the talent in Scotland.

If you’re interested, please get in touch. Whilst I’m currently co-ordinating this on behalf of what will, I hope, turn out to be a sizeable number of people, I don’t intend to lead it or dictate the direction in any way. But don’t take my word for it – all will be revealed at the first meeting!

If this chimes with you and you happen to be in Edinburgh next week, please do get in touch. As ever, the more the merrier.

 

Bitcoin and Transparency in Politics

So it’s General Election day. Maybe it’s me but it all feels a bit anti-climactic here in Scotland, coming as it does hard on the heels of the Referendum. Regardless of which side you were on in that process, it feels different when you’re voting ‘just’ for the next five years (as opposed to the indefinite future) of your country.

But while we’re on the subject of politics, I wanted to just flag one thing up quickly which has intrigued me about the political process this time around that’s new. And (surprise!) it relates to Bitcoin.

Some of you might know Gulnar Hasnain as one half of the team (together with Pamir) behind the awesome CoinSummit conferences. Interestingly, during this General Election campaign, Green Party candidate Gulnar became the first UK politician to start accepting Bitcoin donations. It’s a great example of how the transparency of the blockchain can be used for good in an area that’s not always known for, shall we say, impeccable behaviour.

For example, you can see every donation that was made as part of the campaign, recorded permanently and publicly here. Every. Single. Donation.

Of course, it’s not exactly taxing for anyone to follow funds donated in this way moving forwards. And for any others to audit donations in order to provide any necessary checks and balances within the electoral system. Develop the potential a little further, scale it up and then unleash that (free) technology on a country that went through the parliamentary expenses scandal in 2009.

So, if you still don’t think that Bitcoin helps with real-world issues, it’s worth having a think about this. I predict that if we do end up with a government by the morning that can govern for a few years (far from a certainty at this stage) then by the time we go through the next major political event, this kind of transparency should be something that’s expected – and demanded – by the electorate.

Now where’s the popcorn? Looks like it’s a long night ahead.

The Cyber Academy Launches In Edinburgh

In a post almost exactly two years ago, I talked about a concern of mine that I’m pretty certain I share with many who work in the ‘technology’ sphere in general. To summarise, if one of the primary goals of education is to provide kids with the skills that they need to secure employment in later life, how can the teachers of today possibly keep up with the pace of progress?

As Noam Chomsky said in an interview I read this week,  “If you are teaching today what you were teaching five years ago, either the field is dead or you are“. And if the majority of kids in school today will end up working in jobs that don’t currently exist, it’s clear that finding ways to bridge that widening gap will become increasingly critical.

The thought hit me again today as  I went along to the launch of The Cyber Academy at Napier University this afternoon. The new venture, which pulls in a wide range of collaborators from across academia, government and business, is focused on developing an environment which will produce many of the people that are so badly needed as security threats continue to rise daily in our increasingly-networked society.

There were a number of interesting talks but the one that stood out for me was by John Howie who gave a great summary of just how far we’ve come and the challenges that lie ahead in a world where everyone – with a little knowhow – can use the mobile in their pocket to access any other connected device in the world. A situation which of course is only going to become more complicated if the much-trailed Internet of Things suddenly explodes (hence the blockchain solution that IBM have been investigating).

John also drew a key distinction between information security – defending data contained within your own database or system – and cyber security – a term which has no accepted definition but which he convincingly argued relates to the interconnectedness of such databases. For example, if malware attacks your system, how do other databases then react and collaborate to ensure that overall that weakness become systemic across a networked world.

It’s a great programme and credit must go to Bill Buchanan who has clearly championed and worked hard to build the idea and ultimately deliver an Academy that has the potential to gain significant importance over the next few years. From a personal perspective, I’m also intrigued to see how it evolves within our post-Snowden society. And, of course, if there’s going to be a raft of highly-skilled new cryptographers coming knocking about in the area, who knows, I *may* just happen to redirect a few towards the Scottish Bitcoin Meetups…