Full disclosure – I have some pretty insignificant investments in the coin-o-sphere – please don’t make any investment decisions based on this story!!
I’ve been a tech-cum-businessman for about 30 years. More recently (last 7) I’d probably substitute the businessman for “social-entrepreneur”. Why “social”? I believe that a new lexicon needs to be developed for ALL organisations (business, government and charities) to be able to answer the question “why do you exist?”. That’s now got more to do with “social value” than “shareholder value”. I would argue that ALL shareholder value must be social for it to endure. But I digress…. I’m telling you this as I believe something significant has just happened. But unlike the twin-towers or the election of Donald Trump (see What Happens when institutions become networks?) this one is less visible to the naked eye. But no less significant.
In recent years, I can remember a handful of events which resulted in mindset-shifts (of the socio / tech / business type). Amongst them, the .COM boom (and then bust) of the late 90’s bred a wonderful and unprecedented wave of innovation and then creative destruction unlike any I have seen before. The Twin Towers (9/11/2001) created a shift in the emphasis of emerging dilemmas between institution (state) against rogue actors (networks). The various financial crises (United States bear market of 2007–09, European sovereign debt crisis 27 April 2010) have led to a persistent economic stagnation along with the consequent socio-economic issues and bubble building “quantitative easing” that continues to pass our current economic woes towards future generations – our children.
Last weekend another happened. However to the untrained eye you probably missed it. There were no news headlines after-all. They will come later. On the 8 November Bitcoins’ Segwit2X “hard fork” was cancelled in response, the “irrational markets” pumped the BTC price up to $7,900 – a near all time high. Probably they pushed it in the wrong direction!
To understand why this is SO significant we need to think of the social issues not the technical ones. It doesn’t really matter what Segwit2x is all about – all you need to understand is that Bitcoin is in trouble. Here are some of the technical issues. It’s slower than a horse and carriage, more costly than high-street banks and doing more environmental damage than the electricity consumption of 50,000 US households and each US household is a BIG offender, relatively speaking. As I write, each BTC transaction costs over $16 and is taking 1,000 minutes. Even with pumped up fees you are looking at a couple of hours. Worse each transaction takes 260KwH to mine and the network is consuming 27.28 TwH. Just to put that in perspective that’s 8.3% of the entire United Kingdom’s consumption – for just one blockchain!! There are more tech issues but they are not the problem and can be easily solved.
The main problems are not technical they are social.
Bitcoin is arguably the largest and most significant social innovation of our time; of our decade or perhaps even our century. With it we are seeing myriad beautiful innovations which seem set to reinvent just about everything we do and know. As Rick Falkvinge (who I’ll come to later) has just said “Creating liberty is solving a social problem by technical means, not the other way around. Therefore, being a positive influence in working together is far more important than being a top 1% coder or cryptographer.” Who could argue with that?
But bitcoin has just spectacularly failed to do that and this has potentially just put the whole $100,000,000,000 project in jeopardy. The institutions would never have let that happen (without spending much of the £100bn in defence!). LOL as they say in cyberspace. It’s why I’m no longer “long” on BTC.
What’s really going wrong here is the lack of a workable social context to make this work. What I mean by “workable social context” is a culture to resolve conflict and to preserve value without “command and control”, without “one leader” or “one owner” or “one institution”, However currently, institutions don’t have the answer, neither do networks.
Institutions don’t have the answer because nobody (not even Apple, Google, M$, or Facebook) are going to wage and win any “war” to enclose the Bitcoin ecosystem within an industrial complex or hierarchy with strict property rights, patents, copyrights and so forth. The closest we may get to that would be via regulation and a de-facto enclosure. There is a swathe of that coming down the track with each Nation State trying to figure out how to regulate (i.e. tax) BTC. Is it a currency or an asset? Separately, legacy finance is making moves to surround, engulf, triangulate and of course top-slice the transactions that are going through the system. Recently, the largest futures and options exchange the Chicago Mercantile Exchange (CME) announced that it will be launching a BTC futures product by the end of this year. So it may end up institutionalised by stealth. But institutions really don’t know how to play nicely with networks. Not when it comes to value exchange. And certainly not when it comes to social value exchange.
Networks don’t have the answer but have some pretty exciting models and the networks are learning quickly. Open source built a product (LINUX) to rival the de-facto operating system (Windows) and is now the most popular piece of software for Web Servers. Its collaborative method of creating code with the possibility to “fork” off in different directions is creating the ecosystems that we see emerging not just in the area of code but in all facets of the future of work.
It was the lack of consensus that may lead to the downfall of Bitcoin. More technically, if sufficient consensus cannot be achieved then how do we proceed? Does this problem sound familiar (world-peace, climate change!!). If consensus is not possible now with all the problems I’ve listed above (and potential value on the table) then when? If the only possibility is to fork (splinter off in a separate direction through disagreement) then what of the pre-existing value (the $100bn in this case) that has been created? Will this simply wither on the vine? I recommend some more background reading and context on this.
Firstly, read this short PDF from Rick Falkvinge who proclaims himself Bitcoin Cash CEO. One point of the article is to let us know that he has just about as much right to claim himself Bitcoin Cash CEO as you or I. And that is just the point. Next you should hop across to YouTube to watch this video by Ethos Partner Vinay Gupta. This intellectual whirlwind contrasts the current Bitcoin issues with different Political Ideologies. Making a very forceful point that we need to understand the religion we want to worship before we go to church. There is some truth in that. However I believe that extant Political Ideologies are doing a pretty awful job at creating any form of social cohesion. Wherever we look; we see fracture not cohesion.
If your brain isn’t hurting by now, it should be. But how is this relevant to Ethos? Ethos doesn’t have the answer. But we’ve been experimenting on the boundary of institutions and networks for several years now. The learning has been huge and exhausting. Here is some of my learning and where I think it will take us towards Ethos 2.0:
- Firstly, there are no solutions I know of to date that go anywhere near solving this problem. To the prizewinner the potential rewards could be huge. This is the issue of our time and like Rick says it a social one not a technical one. The technology is coming. The robots are coming. We can’t stop that.
- Second let’s hope the networks don’t find the answer or you might just have to say goodbye to every institution on the planet. Every company, charity and Nation State whilst you are at it. Trump, Farage and neo Libertarianism are nothing on where the networks might take us with profit, profit, profit before purpose.
- Third, let’s hope institutions don’t find the answer. If they do then Apple / Google 3.0 might make the first version of their companies look like throw away experiments. Robots really will make most of us superfluous.
- Fourth, I think you should have a look and a look at a product that Ethos has invented called the “Portfolio Office (PO)”. So far, we’ve just used this internally. It’s a way for a trusted intermediary (that’s Ethos!) to enter a system and to assist a number of projects (experiments) to help the system thrive; in a way that does not throw the baby out with the bathwater. How can you encourage a system to be an “innovation ecosystem” where both networks and institutions can play nicely with one another? For the benefit of both the network AND institutional side of the balance sheet. For 7 years, Ethos has been building its own portfolio offices (without calling them that!) in order to validate the efficacy of our system change approach. So far the products of that include Team Army, Team Ethos, SkillsPlanner, BuildLondon, BuildForce and Geomii. Not bad for a bunch of poor social entrepreneurs.
- Fifth, earlier this year we started using the PO externally by putting all this knowledge together and implementing this system change approach outside of Ethos. By getting the PO to be a multi-stakeholder approach with a systems (rather than within a walled garden called Ethos) we get an entity-less fractal that takes stakeholders from charities, government, business and the network to collaborate for a system wide effect. In the case of Reading it’s A Social Value Marketplace for Reading that helps organisations increase the benefit they deliver to society through projects that reduce demand for public services. I hope you get a minute to flick through the presentation. Make sure you view it in presentation mode so you can see the videos on slide 1 and 3. Imagine the fractal is what we are seeing in Bitcoin right now. With each fork being a tailored replication of the main pattern. That video is generated purely by maths (a fractal algorithm called the Mandelbrot set). It’s infinite. One can zoom into the detail and never get to the bottom. Rather like what’s happening in the open source community.
Finally, if you have 30 minutes I would recommend you have a look at a video from another Ethos Partner Sir Nigel Shadbolt – the future of Data. Open or closed data? How can this infrastructure be built? What are the key concerns of personal or private data? These are all prescient issues. Ethos has been a bumpy, frustrating, hugely intense experience for me and many of the people inside and outside of our organisation. The arguments, defections, our own forks, the emotions. But we are learning. I don’t think you teach this kind of stuff in a classroom. Our own complex governance models are not perfect. Our own coins, Ethos Coins need more work. Our systems of value accounting, value exchange, value recognition are steps in the right direction but there is much more to do. We need to learn faster. I think we need to turn Ethos a little more “inside out”. Without that being as extreme as a “hard fork” I think that by this time next year Ethos 2.0 will be running on it’s own blockchain but perhaps with some socio-tech improvements that we can take from our own learning in this space. We need your help (all the help we can get in fact) and a bigger network. But we’ve loads of good intentions and experience that we should try to share more. If you have got this far then we need to talk! I’d love your thoughts, comments and observations.