Design + cryptography

When big groups of strangers collide, the intensity of competition increases. If there are inviolable rules in place for this competition to mete out, and they’re good rules, then sometimes you get a productive little society going.

Bitcoin and Ethereum have been characterized as “toy” economies because they are, at $11B combined, a pitifully small “asset class,” even compared to venture capital, which is in turn dwarfed by private equity. Still, it’s working. And it has some distinctive features.

Crucially, this little asset class is weightless, ingeniously secure, and at least as durable as the rest of our electrical infrastructure. Except nobody knows where all the nodes are, so probably more so.

But, this security-talk is such a buzzkill, isn’t it? The secret reason that these protocols get people so enthusiastic is that they are fun. Wildly interesting, ingenious, and ultimately profitable. Because these little networks come with tokens built-in, and you can speculate on these tokens if you’re so inclined.

It is worth pointing out the enormous impact that fun, profitable games of speculation have had on our civilization(s) over the last 500 years. And this is by far the coolest one yet.

“Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics, the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday. The game does not change and neither does human nature.” Edwin Lefevre, Reminiscences of a Stock Operator (1923)

There’s a world war on, and you brought a butter knife

There are lots of ways that our global financial system is screwed up, but the biggest one is that it is so global. The current “game” of speculative finance that many people participate in today is much the same thing as the “stockjobbing” that took place in London’s Exchange Alley in the 17th century.

Except it’s far larger, and full of leaks and caveats and loopholes, making it far harder for any one “local” investor to know what the heck is actually going on, and what the truly good deals are.

This is made worse by the trustworthy image the “markets” have burnished for themselves over the decades. If you wander into a poker room at a casino, and you try your hand as a complete newbie, then you’re fresh fish, and you will lose your money. Some of today’s retirement-oriented financial products like 401ks are effectively high-stakes poker rooms disguised as a safe bet, with heavy fees to get in and out the door. One way of rigging a game is by making it too confusing for working, busy, child-rearing people to figure out. Or elderly people. Or non-native English speakers. And the list goes on.

The best way to look at blockchain’s three core technologies is as an unriggable financial game that, in theory, can be deployed for a group of any size, so big that neighborhoods and cities could operate entirely within their own trusted crypto-economy. A city like Brooklyn could have its own currencies, its own stock market listing local businesses, and its own futures or options market. National financial markets would still exist, but local markets would exist, too.

Even if you didn’t see that movie about Alan Turing, you may know that “cryptography” is the private transmission of information in an untrustworthy environment. Crypto-economics is the conducting of an entire private economy in an adversarial environment. Any environment is adversarial when it’s under attack, whether by a foreign or domestic menace. A resilient national economy is really a bucket of resilient local economies, viewed as one network.

Did I mention that Ripple and Ethereum use a cryptographic algorithm that a quantum computer couldn’t crack? We’re talking about highly durable, highly resilient, highly secure digital information networks here. This isn’t Wells Fargo. Zing!

Cognitive dissonance only lasts so long

Over time, the contrast in user experience between new financial services (which leverage blockchain) and legacy services will become absurdly stark. This will be true also for the various services firms and data providers that Wall Street relies on, which are themselves not perfect, or cheap. But the costs and benefits will all accrue mostly within the industry, with restructurings, upgrades, renovations, re-brandings, and hopefully-not-but-probably layoffs.

“In financial markets, one might say they are prepared to ignore bad news because they still hunger after the immediate profits of speculation… A group will maintain a state of cognitive dissonance until the pain exceeds the rewards.”— Edward Chancellor, Devil Take The Hindmost: A History of Financial Speculation, p. 212–214

There are some financial institutions in trouble, but even more that are just plain boring, not terribly profitable, not innovating, just… default. Blockchain-based banks could clear transactions instantly with tiny fees, so moving money, trading, interpersonal loans, and micro-payments become far more dynamic. Everything gets more liquid and traceable. And this doesn’t even touch the potential of programmable contracts in a private, permissioned system.

Our thesis: unite design + cryptography

Networked software technology is good at two things: disintermediation and scale. The volume and trustworthiness of data in a blockchain-based financial system will become a common resource for both service providers and customers; this is disintermediation. And just as with the mobile computing revolution, it will fall to designers and product managers to make these new systems accessible; this, with concomitant smart infrastructure projects, will achieve scale.

What this means for the front-end of application development is consistency. A good practical example might be the keywords and methods that come standard in Ethereum’s language, Solidity, which is akin to a strongly-typed version of JavaScript. It has a limited number of built-in ways to move value. Here’s a little function written in Solidity :

function setOwner() {
      owner = tx.origin;
   }

That “special variable” called tx.origin is recognizable by the dot in its name. It represents the same concept in every Ethereum contract you see; it comes with the Solidity language. So when a front-end developer or designer looks at someone’s code, he or she knows what the interaction might look like in the UI. It’s actually very simple.

In Ethereum, there are two types of accounts: humans and smart contracts. Smart contracts, for all intents and purposes, are little bots. Both human and contract accounts are empowered to move money in the Ethereum system, but generally speaking, these bot-accounts don’t just go triggering themselves to, say, create more accounts and put money in them, like for example at Wells Fargo. (2x burn!) With the exception of smart contracts triggered by a trustworthy API endpoint (or “oracle”) contracts are generally triggered by people. (You trigger a contract by sending some ether to it.)

Smart contracts can however send data to other smart contracts; these data are called messages. I use this example because it’s inherently a little tricky when you first look at a contract. Who is the human and who is the bot? In Solidity:

msg.sender refers to a message from a smart contract.

tx.origin is an account (ie., the human) which initiated a smart contract.

So in the code, tx.origin means, “the person that initiated this set of transactions.” This is always the same, in any Ethereum smart contract, on anyone’s public or private chain. If you build Ethereum distributed apps, or dapps as they’re called, you learn this distinction once and that’s it, for every Ethereum thing you ever see.

This is an important nuance because it is conducive to clear and simple interfaces. Today’s proprietary data layers are not. All this proprietary application programming also contributes to lock-in at large companies; you learn a unique system and become useless outside it.

A dead horse that needs kicking here is the whole “Apple revolutionized software design with the HIG” argument, and the HIG works because Apple software frameworks are fairly meticulously curated and documented. The same standardization and curation comes built-in to distributed P2P protocols. And they are highly, highly generalized.

Build the right thing

I don’t use the word “design” to mean aesthetic beauty. Rather, I mean looking at the world and deciding how it should be different; and the iterative process of creating a thing that will affect the change you want, at the right time, in the right way, which will hopefully impact humans and the world at large in a way you want.

Part of the process is approaching the solution with the very humans you’re trying to impact in mind. It helps a lot if you talk to those humans before (and while) you make your thing.

The unbelievable trust problems that characterize our large-scale human systems today, in every country, is rendered at least a little bit more tractable thanks to this technology.

But most crypto-projects today, uh, lack a human touch. Human systems must account for folly, which is one of our defining characteristics as a species. It may actually be our most lovable trait. (Even, and perhaps especially, in our most “objectivist” thinkers.)

Good design helps prevents human folly for new users in a system, and enables those good ol’ humans to accomplish what they mean to accomplish, without doing some dumb thing. This is especially vital for systems and interfaces that deal with money or money-ish things like equities, lottery tickets, personal debts, taxes, parking tickets, and so on.

Financial health and wellness

We humans are getting pretty good at civilization, with some major, major caveats. We will need to examine our existing systems of reputation, community, money transmission, investment, regulation, and commercial environment […] and see what works and what doesn’t.

Some bureaucracies won’t be necessary any more; blockchain, for example, can help reduce the legal and financial complexity around copyright, IP, and royalties. It can also reduce counterfeiting and shrinkage in retail, pharmaceuticals, and e-commerce. It may even reduce corruption, if people can convince governments to use it. (The cost-cutting argument is a good way in; they’re always broke.)

Banking and investing will change, too. The last generation of fintech entrepreneurs seems to want to sell to the existing banks and financial service providers, rather than upset them and steal their customers.

The up-and-coming generation of fintech entrepreneurs will combine design and cryptography to create transparent, data-rich, mass-market financial products. Then, they are going to add machine-learning and deep learning algorithms, many of which run on the same type of multi-GPU Frankenstein servers that I have mining ether in my very own basement. There are some nice adjacencies.

The point is, these systems are going to be strong before they’re smart. But oh boy will they be smart. They can be used to educate and inform people about their money as they help manage their investments, acting as a decision support tool sometimes and an AI others. Most importantly, it gives people the power to hold and manage their own wealth, eschewing the age-old principal-agent problem.

When I was young, people called me a gambler. As the scale of my operations increase I became known as a speculator. Now I am called a banker. But I have been doing the same thing all the time. — Sir Ernest Cassell, banker to Edward VII

Not too shabby for a tiny asset class, is it?