Bitcoin is poised to shake the world – are you paying attention?

Bitcoin

Bitcoin: an amazing story involving aliens, gold, and the ancient currency of Rai Stones.

If you thought technology was already disruptive enough, here’s the news. We’re just getting started.

The Roman Rallying sequence in the Top Gear Middle East Special is an exhilarating example of the old world rubbing up against the new. As Jeremy Clarkson and Co charge around the sacred Jordan hippodrome in their battered sports cars, they inevitably start to kick up a lot of ancient dust. Clarkson starts to worry: “someone’s gonna see this dust, and then they’re gonna come, and then there’ll be anger and rage“.

There was a time when Bitcoin was able to rub up against the old financial world without anyone noticing. Now that time has gone. They’re simply kicking up too much dust to go unnoticed any more. Take the recent seminar at Stockholm’s School of Economics as a case in point. A simple two hour session featuring the current figurehead of the Bitcoin movement, Jon Matonis, turned out to be their quickest selling and most oversubscribed event in their 100 year history. But for those who know even a small amount about Bitcoin, this comes as no surprise. How could anyone resist a story involving giant stone money, gold, aliens, and the possibility of displacing some of the most significant polices of modern governments with an algorithm?

International Man of Mystery

Let’s start with a little background check. It’s a given nowadays that the most innovative  internet technologies no longer emerge from the R&D labs, but from the world’s student dorms. The case of Bitcoin is no different. Well, not entirely different anyway. The twist in this particular story is that the originator – who goes by the name of Satoshi Nakamoto – is closer in style to the techno duo Daft Punk than Mark Zuckerberg. According to modern folklore, Nakamoto could be a combination of any of the following: a gifted Japanese student (or even group of students); a graduate of Trinity College Dublin called Michael Clear; and/or a group of international entrepreneurs who filed a patent for something very similar to Bitcoin only 72 hours before the domain was registered. However all attempts so far to arrive at a real person have ended in either denials or dead ends. Perhaps this is as it should be. All this anonymity is entirely fitting for a distributed P2P network that champions the (somewhat contradictory) dual principles of open source and cryptography. The simple fact that no one seems to own Bitcoin means everyone does.

So What’s Different This Time Around?

The world has seen innovation in ICT and Finance before. In fact, Sweden itself can even claim to be a bit of a world leader in the field. While things like iZettle’s iPhone dongle, and services such as Tink, Flattr and Klarna may seem (and indeed are) groundbreaking, they are still little more than a smart interface into the traditional banking world. As such they’re not creating a new game so much as simply making it more efficient to play the old one – and taking their cut to do so too. What’s cool about Bitcoin is that it’s inventing a totally new ball game altogether.

Here’s the rub. In the world as we know it, each institution, credit card, bank or financial service has it’s own ledger (or set of ledgers), and every time we ask them to transfer some money in or out of our accounts they do so by adjusting their ledgers. And when they adjust those ledgers, they charge a (not insignificant) transaction fee. Not only that, increasingly these transactions are electronic, and that means they’re tagged with our identity too. Depending on your point of view, this could be either good for tracking criminals and/or a convenient tool for governments to snoop on what their citizens are up to.

Bitcoin does two significant things which drive this traditional paradigm into the sand.

First, it makes the transactions anonymous, much like cash transactions. Any transactions you make on Bitcoin are not coupled to your identity. That’s bad news for nosey governments.

Second, it has only one giant ledger in the cloud, so the transaction costs of transfers are as close to zero as you can get, and (because of Moore’s Law) they will keep falling. Essentially, in the Bitcoin universe, there is no difference in the transaction costs between a) buying a loaf of bread at your local store, or b) sending millions of Bitcoins through the ether from one side of the planet to the other. The cost for both is more or less zero.

The Go-Betweens

But before we get all excited about hopping up and down on the graves of clearing houses, banks and other financial middleman, it’s worth mentioning that there’s actually a really sound reason why these kind of institutions exist in the first place. Convenience.

Convenience is the reason we buy our chewing gum and cigarettes from the local store and not from the out of town cash and carry. Even though we know the local store charges a premium, that’s still better than hopping in the car and driving across town for a small purchase. The same logic applies to the world of traditional banking. However unreasonable a transaction cost may be, it’ll still be cheaper than hopping on a plane with a sack full of cash. What makes the Bitcoin solution unique here is that it sidesteps this issue by making all financial transactions equally convenient. From the perspective of both the buyer and the seller that’s a very attractive proposition – from the perspective of the (possibly soon defunct) middlemen, it’s a nightmare. The emergence of Bitcoin is going to make a lot of very powerful, influential and traditional middlemen-style institutions very nervous.

Stark Contrast

Swift Premises, brussels

Swift Premises, Brussels – look carefully and you can see the Bitcoin Top Gear team driving around the grounds.

Jon Matonis tells a great story to demonstrate just how different Bitcoin is to the traditional money world. When he gave a talk on Bitcoin at the monumental premises of Swift HQ in Brussels – one of the world’s largest central clearing houses – he asked if he could see the “live transactions” that roll through their computers every nano-second of every day. He was told that the ledger (the bank of computers doing the work) was private and kept in a locked room. By contrast not only is the Bitcoin clearing system totally decentralised, it is also public. Very public. In fact it’s so public you can even watch the transactions as they happen in realtime on the web, and, because the entire enterprise is driven by open source and thereby open to the creative talents of the dorm world, you can even listen to it.

One other big paradigm shift in the Bitcoin world is around credit. In the Bitcoin world, there simply is no fictional money. This would make fractional banking (the method by which banks lend out more money than they actually have in reserves) almost impossible. In the Bitcoin world, banks would only be able to lend the money they actually have. Perhaps loans would be spread across Bitcoin’s distributed network, much like crowdfunding? However it works in practice, the impact of reduced credit on a world currently addicted to the stuff is anybody’s guess.

Area 52

Mars Attacks !!!

Mars Attacks !!!

The key point about Bitcoin’s decentralised nature vs the centralised nature of the traditional money world is worth exploring in more detail. It’s also where our story takes a slight off-road detour into Area 52 territory.

Until recently, SETI (the project who’s aim is to Search for Extraterrestrial Intelligence) has been the number one global distributed computing network. However now that Bitcoin is on the rise, it’s been bumped down to second place. In fact the surge in Bitcoin’s distributed computing power is like nothing we’ve ever seen before. As Bill Gates said, “Bitcoin is a technological tour de force“.

This distributed nature also makes it incredibly resilient. Imagine if the SWIFT building above was somehow taken out, either physically or by attacks on it’s network. That would more or less cripple the money exchange markets that depend on it. Compare that to Bitcoin. The loss of a few computers in any given country on the network makes no difference – the system simply adjusts and life carries on as before. In this regard Jon Matonis likes to draw a comparison between Bitcoin and the ancient Rai Stones that were used on the island of Yap, Micronesia. These huge stone wheels were used to demonstrate the wealth on the owner and serve as a public record of significant transactions. Even though the ownership of any given stone would change over time, as long as people knew where it was, the physical location of the Rai Stone did not matter. In fact one Rai Stone even sank to the bottom of the sea during a voyage, but as the villagers could all agree it still existed, the stone was still able to be used.

A Dismal Science No More?

Despite the fact that we’ve already covered the mysterious origins of Bitcoin, its power to reduce transaction costs to zero, and its distributed, anonymous nature, we’ve still only scraped the surface of its disruptive powers. What it can potentially do to governments is mind blowing.

While some progressive governments (such as Germany) have already embraced the power of Bitcoin, the majority remain sceptical. Some – such as the government of Thailand – have even opted to ban it (and good luck with that…).

So why all the worry and hoo-hah?

Here’s the punchline. Bitcoin would not only effectively sidestep a government’s monetary policy, it would severally restrict its fiscal policy too. But what does this mean in practice?

For those of us who are not economists, we can explain it this way. First, on the monetary side of the equation, governments often like to reserve the option of setting the base lending rate (or discount rate) themselves through a central bank. They’re also keen on printing more money if needed to help pay for stuff, and they like to control the markets by buying and selling their own bonds (known as open market operations). In the Bitcoin world, it is the Bitcoin algorithm which controls the flow of new Bitcoins, not a central bank. This would make it much harder (if not impossible) for governments to rely on the fictional money they’ve grown so use to. That’s goodbye to quantitative easing for starters.

Second, on the fiscal side, as income gets harder and harder to trace back to individuals, governments would have to switch taxation to the consumption side of the equation. In turn this would rather limit the governments supply of tax revenues, and may even force them to get real about balancing their books.

As Al Gore has wryly noted, “I think the fact that within the Bitcoin universe an algorithm replaces the functions of [the government] … is actually pretty cool.”

System D

So now we’ve looked at the potential impacts on governments, we’re done, right? No.

Some of the most exciting implementations of all this kind of new technology isn’t happening in the old world, but the new. While the EU and the States are mired in government bureaucracy, restricted by powerful lobbying bodies, and stunted by military units run with half an eye on health and safety regulations, Africa and Asia are leapfrogging a lot of these issues to implement some truly original solutions.

At the Stockholm seminar, we also got to hear from the amazing Pelle Braendgaard who runs Kipochi. He told us about the everyday use of digital currencies like M-Pesa in Kenya, and how people there who have been let down by the traditional banking sector have found an exchange lifeline with digital currencies that run on old cellphone technology and sim cards. M-PESA in effect gives a banking-like infrastructure to those people who would otherwise be “off the grid” and operating in the System D economy. Imagine the possibilities for anyone in Africa or Asia to either wire money in our out of the country for free (or as good as), while at the same time sell their goods without having access to a bank account. They could also shop around for a loan on a global scale, and even pay for their groceries at the local store in the same currency.

So What Happens Next?

The exponential rise of Bitcoin will no doubt start to generate some heat from here on in. It’s only a matter of time before we see the traditional gatekeepers start to cry foul. No doubt we’ll see a lot of anger and rage in the courtrooms. At least in the west. In Africa and Asia we’ll probably see things take off a little quicker. I predict it will only be a few years from now before we see Bitcoin (or other similar digital currencies) emerge as the exchange of choice for the majority of people otherwise denied access to the established money structures. And when that happens, prepare for the world to shake.

More Info?

Infographic on the history of digital currencies

Five things your company can learn from the legacy of Steve Jobs

steve jobs

As there must be close to a zillion proper reviews out there already of Walter Issacson’s mammoth biography of Steve Jobs, so I’m not going to even bother doing that here. Instead what I’m going to do is pull out a few key thoughts about what your average company might learn from the world’s number one brand.

1. Apple’s Three Key Principles

mike_markkula_steve_jobs1

When the angel investor Mike Markkula presented the first real cheque to the fledging Apple Computing company to get things kick started, it made Steve Jobs a happy man. But the cheque was only part of the Markkula deal. What Jobs found even more useful were his three principles of what makes a good company tick – something Steve took onboard and put at the core of the Apple business philosophy.

In short these are:

  • Focus – in order to do a good job on the things a company decides to do, it must eliminate all of the unimportant opportunities
  • Impute – a company needs to “impute” its philosophy by conveying its values in everything it does, from the products to the packaging to the marketing. In other words: things presented in a slipshod manner will be perceived as slipshod; it is no good having great, high-quality products with brilliant design if they are not presented to the customer in a professional and creative way
  •  Empathy – truly understand the needs of the customer

Steve took these principles and gave them his own specific spin.

He was able to combine an eye for exacting detail and for seeing the big picture at the same time. So from the big picture perspective, when Jobs returned to Apple to save it from the brink of disaster, he was immediately able to strip back production from hundreds of confusing and competing offers to just four. That’s right. Four! Now that’s how to focus…

From the other perspective, Jobs’ eye for obsessing over details was legendary, a trait he inherited from his mechanic / carpenter dad, who taught him that when building something you need to care about every aspect and detail, even when assembling the bits you can’t see at the back of a cupboard. Steve took this to the extreme, fussing over the arrangement of the microchips on the motherboard buried deep inside his computers – a detail none of his customers would ever see. This enabled him to control every aspect of his products – and hence to impute the trademark quality of the Apple brand into everything they did, including how the packing box looked on the shelf and felt when it was first opened. As T.S. Eliot noted, “there falls a shadow between conception and creation” – but not for Jobs. He realised that the execution of the idea was just as important as the inception.

Finally his genius enabled him to intuitively put these two aspects together in a way that appealed to people: he knew what people wanted even before they did themselves (Jobs came from the Henry Ford, “if I’d had listened to my customers I would have built a faster horse” school). It’s only a pity that his amazing empathy for his customers’ needs didn’t extend to his hapless employees…

So focus, impute and empathy. Now ask yourself for each of these three principles how well your company stacks up. If the answer is “not every well”, you might consider doing something about it.

2. Taking Marketing Seriously

You may think from the Henry Ford example above that Jobs didn’t take marketing seriously. You’d be dead wrong. In fact he took marketing so seriously that he dedicated EVERY Wednesday afternoon to a freewheeling, three hour meeting with his top agency, marketing and communications people to kick around messaging strategy. Now ask yourself: does my company do that? The answer is probably no. But fair’s fair, just about every company on the planet falls short in this regard. As Lee Clow said (the genius behind Apple’s “1984” ad and the “Think Different” campaign), “there’s not a CEO on the planet who deals with marketing the way Steve does”. But look what a difference it made!

3. Creativity

technology and liberal arts
Jobs was convinced that what made Apple super successful as a company were its people, and the fact Apple employees had what we might call a “hinterland”, i.e. people with other interests outside of their day job. All Apple employees were not just brilliant technologists, programmers or designers; they were failed writers, artists, musicians, film makers and photographers too. In other words not only were they good at what they did, they brought a whole host of liberal arts interests to the table as well. According to Jobs, this is what made Apple different to Microsoft, who employed brilliant technicians, but with little interest in anything else.

4. The power of simplicity

Jobs was a master presenter of his ideas. He was able to “impute” his philosophy in a personal way that really resonated with people. His “and one more thing…” – as he unveiled the next big thing to turn our lives upside down – became a common catchphrase in the tech world. But the key to this was his insistence on simplicity. Taken initially from his respect for the user-friendliness of the Atari “insert-quarter-destroy-aliens” games, Jobs respect for simplicity boiled down to his belief that simplicity was in fact the ultimate form of sophistication. But getting there isn’t simple – in fact for Jobs it takes creativity, hard work, determination and lots of hands-on personal engagement in the products. It worked. One critic remembers being amazed when, during a visit to South America, an illiterate six year old took his iPad from him and started flipping around it intuitively after just a couple of minutes use – something unthinkable with regard to most other IT devices.

5. Finally, how NOT to do it

Steve Jobs behaviour towards his friends, family and work colleagues was at times unfathomable. His tyrannical outbursts, off-the-scale temper tantrums, and weeping fits were described inside Apple as his “non-linear” moments. He had weird, compulsive diets (eating little but apples or carrots for weeks on end); developed and nurtured intimidation tactics including staring out opponents and using long silences; and he had a calculated and deliberately provocative stance about psychedelic drugs. So compared to his contemporary Bill Gates (who could these days be easily described as a leader with real “moral” authority), he does not stack up well. Unlike Gates, Jobs was never interested in philanthropy (although being super rich wasn’t cool either – Jobs said he was never interested in being “the richest man in the graveyard”). The core of Jobs problem personality is that he considered himself to be a kind of superhuman to whom the normal rules of behaviour simply did not apply (he ignored speed restrictions and refused to have a licence plate on his car to underline this point). All of this is of course problematic when considering Steve Jobs the man.

The legacy

In the end, what is most inspiring is the legacy, both in its breadth and its depth:

  • At Pixar, Jobs opened the door (with John Lasseter) to the world of digital animation with Toy Story
  • Apple Stores, which reinvented how a store can define a brand
  • The iPod, which redefined how we listen to music
  • The iTunes Store, which paved the way for paying for digital music in the wake of Napster and helped to save the music industry
  • The iPhone, which redefined the paradigm of a mobile phone and what it can do
  • The App Store, which spawned a whole new creative industry
  • The iPad, which launched tablet computing, and which offered a new way of consuming digital publishing for newspapers and magazines
  • The iCloud, which seamlessly synchs all of your devices
  • And Apple itself, arguably one of the most creative companies on the planet

Bill Gates is undoubtedly a better and more humane person, and a genius in his own right too; but Jobs, despite all his flaws, took creativity to a whole other level. His tragedy is that, as his old friends and colleagues testify in the book, he would doubtless have achieved the same results without recourse to his all too often terrible, humiliating and childish behaviour. Despite all that, whatever you think of Jobs the man, he certainly fulfilled his dream to leave a “dent” in the universe.