This morning’s Observer column:
We’ve known for ages that somewhere in the bowels of Facebook people were beavering away designing a cryptocurrency. Various names were bandied about, including GlobalCoin and Facebook Coin. The latter led some people to conclude that it must be a joke. I mean to say, who would trust Facebook, of Cambridge Analytica fame, with their money?
Now it turns out that the rumours were true. Last week, Facebook unveiled its crypto plans in a white paper. It’s called Libra and it is a cryptocurrency, that is to say, “a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets”.
Like bitcoin, then? Er, not exactly…
LATER Merryn Somerset Webb of the Financial Times had a really good column ($) about the Facebook venture. Among the points she raises are:
Real cryptocurrencies are about privacy and freedom. They are decentralised and permissionless — no one runs them, no one can be prevented from using them and the system never needs reference to a central authority. (This last assertion is dubious — see Vili Lehdonvirta’s Turing Institute talk — but we will leave that pass for now.) Libra is to be none of these wonderful things. It is to be run by a single organisation based in Switzerland. It is centralised and permissioned — and its value will not depend on anything intrinsic to it but to a basket of fiat currencies.
The interest from the deposits and government bonds that back Libra will not go to the people holding the currency. It will be used to pay for the system’s operating costs and, once those are covered, to the founding members as dividends.
There are real privacy concerns raised by Libra, especially in relation to Facebook’s role in it in relation to the metadata that Libra will throw up. “If you are worried about the way financial apps might use data on your spending patterns, you should be really worried about how a vast social network morphing into a financial network might use it. Anyone with your social media data can guess what you might buy. Anyone with your financial data knows already.”
If Libra really is based on a basket of fiat currenties and is stable as a result, it might not take long for us to refer to the value of things in Libras. A Libra could just be a Libra. That, says Webb, “is a sovereignty game-changer”.
If Libra succeeds, it won’t because it’s a real cryptocurrency. It’ll be because it isn’t.
The Bitcoin boom is leading many people to lose their marbles. It’s also distracting public attention from what really important about cryptocurrencies — the blockchain or public ledger that underpins them. This is the really significant innovation IMHO, but it’s hard to convince people who know little about the technology and see just the Bitcoin hype in mainstream media.
Tyler Cowen has a thoughtful Bloomberg column about this, in which he comes up with a really useful suggestion:
If you think of these assets as “cryptocurrencies,” central bank involvement will seem natural, because of course central banks do manage currencies. Instead, this new class of assets is better conceptualized as ledger systems, designed to create agreement about some states of the world without the final judgment of a centralized authority, which use a crypto asset to pay participants for maintaining the flow and accuracy of information. Arguably these innovations come closer to being substitutes for corporations and legal systems than for currencies.
I like that: a blockchain is a public ledger which creates agreement about some state(s) of the world without the need for a centralised authority.
The biggest problem with the technology at the moment is that it doesn’t scale because of the computing (and associated environmental costs. But maybe we will find a way of overcoming this.
This morning’s Observer column:
Once upon a time, a very long time ago – 2009 in fact – there was a brief but interesting controversy about the carbon footprint of a Google search. It was kicked off by a newspaper story reporting a “calculation” of mysterious origin that suggested a single Google search generated 7 grams of CO2, which is about half of the carbon footprint of boiling a kettle. Irked by this, Google responded with a blogpost saying that this estimate was much too high. “In terms of greenhouse gases,” the company said, “one Google search is equivalent to about 0.2 grams of CO2. The current EU standard for tailpipe [exhaust] emissions calls for 140 grams of CO2 per kilometre driven, but most cars don’t reach that level yet. Thus, the average car driven for one kilometre (0.6 miles for those in the US) produces as many greenhouse gases as a thousand Google searches.”
Every service that Google provides is provided via its huge data centres, which consume vast amounts of electricity to power and cool the servers, and are therefore responsible for the emission of significant amounts of CO2. Since the advent of the modern smartphone in about 2007 our reliance on distant data centres has become total, because everything we do on our phones involves an interaction with the “cloud” and therefore has a carbon footprint.
The size of this footprint has been growing…
This morning’s Observer column:
There are not many occasions when one can give an unqualified thumbs-up to something the government does, but this is one such occasion. Last week, Sir Mark Walport, the government’s chief scientific adviser, published a report with the forbidding title Distributed Ledger Technology: Beyond Block Chain. The report sets out the findings of an official study that explores how the aforementioned technology “can revolutionise services, both in government and the private sector”. Since this is the kind of talk one normally hears from loopy startup founders pitching to venture capitalists rather than from sober Whitehall mandarins, it made this columnist choke on his muesli – especially given that, in so far as Joe Public thinks about distributed ledgers at all, it is in the context of Bitcoin, money laundering and online drug dealing. So what, one is tempted to ask, has the chief scientific adviser been smoking?
Nigel Dodd’s Inaugural Lecture.
This is the best, most succinct, answer to this question that I’ve some across so far. It’s by the Stanford economist, Susan Athey, and it goes like this:
At its core, the new technology that’s been invented in the last few years is a way to maintain a ledger or spreadsheet that keeps track of who has what. So if there’s an entry in that spreadsheet that says a certain address has 10 bitcoins and you know that address and the password, you can authorize a new entry on the spreadsheet that moves that digital currency to someone else. So Bitcoin is just a big spreadsheet that keeps track of who owns what, and what’s really innovative about it is that, first, it is secure. It uses decentralized maintenance of that spreadsheet, so there are copies all over the world. There’s not just one computer that can be hacked.
Second, the fact that it’s purely electronic means that if the spreadsheet says I have some bitcoins, and I have the key for those bitcoins, I can authorize a movement to someone else simply by entering my security code, which then immediately makes another entry on the spreadsheet and allows someone else to control this thing of value without any banks or companies or other types of middlemen. With just a password, I can almost instantly transfer something of value to someone else, purely digitally and without any promises from companies to honor it. It’s a piece of open-source software.
So digital currencies are a technological innovation for moving value digitally and securely and quickly, just like the internet was a fundamental technology for moving information somewhat securely and quickly.
That’s it. Lovely stuff.
My Observer review of Nathaniel Popper’s book about Bitcoin, Digital Gold.
Two things stand out from Mr Popper’s narrative. The first is confirmation of how long and tortuous is the road from a technological breakthrough to real-world acceptance. Anybody who thinks that bringing a technology to market is easy has never done it. The other is the colossal damage done to the prospects of bitcoin (and indeed of cryptocurrencies generally) by the Silk Road online black market, a platform known for selling illegal drugs that used bitcoins as its means of exchange, which was eventually shut down by the US authorities. Given that a currency – analogue or digital – is only as good as the trust that people place in it, the Silk Road fiasco gave governments and the media the spin that they needed – that cryptocurrencies are really only for bad people. Which is a shame, because it may be that they are just what a networked world needs.
Read entire review
This morning’s Observer column:
When the banking system went into meltdown in 2008, an intriguing glimpse of an alternative future appeared. On 31 October, an unknown cryptographer who went by the name of Satoshi Nakamoto launched what he described as “a new electronic cash system that’s fully peer to peer, with no trusted third party”. The name he assigned to this new currency was bitcoin.
Since then, the world has been divided into three camps: those who think that bitcoin must be a scam; those who think it’s one of the most interesting technological developments in decades; and (the vast majority) those who have no idea what the fuss is about.
I belong in the second camp, but I can see why others see it differently…