Category Archives: Topics

Cognitive collaboration

I have a new report out on DU PressCognitive Collaboration: Why humans and computers think better together – where a couple of coauthors and I wade into the “will AI destroy the future or create utopia” debate.

Our big point is that AI doesn’t replicate human intelligence, it replicates specific human behaviours, and the mechanisms behind these behaviours are different to those behind their human equivalents. It’s in these differences that opportunity lies, as there’s evidence that machine and human intelligence are complimentary, rather than in competition. As we say in the report “humans and machines are [both] better together”. The poster child for this is freestyle chess.

Eight years later [after Deep Blue defeated Kasparov in 1997], it became clear that the story is considerably more interesting than “machine vanquishes man.” A competition called “freestyle chess” was held, allowing any combination of human and computer chess players to compete. The competition resulted in an upset victory that Kasparov later reflected upon:

The surprise came at the conclusion of the event. The winner was revealed to be not a grandmaster with a state-of-the-art PC but a pair of amateur American chess players using three computers at the same time. Their skill at manipulating and “coaching” their computers to look very deeply into positions effectively counteracted the superior chess understanding of their grandmaster opponents and the greater computational power of other participants. Weak human + machine + better process was superior to a strong computer alone and, more remarkably, superior to a strong human + machine + inferior process. . . . Human strategic guidance combined with the tactical acuity of a computer was overwhelming.1)Garry Kasparov, “The chess master and the computer,” New York Review of Books, February 11, 2010, www.nybooks.com/articles/2010/02/11/the-chess-master-and-the-computer/. View in article

So rather than thinking of AI as our enemy, we should think of it as supporting us in our failings.

We’re pretty happy with the report – so happy that we’re already working on a follow on – so wander over to DU Press and check it out.

References   [ + ]

1. Garry Kasparov, “The chess master and the computer,” New York Review of Books, February 11, 2010, www.nybooks.com/articles/2010/02/11/the-chess-master-and-the-computer/. View in article

Cryptocurrencies are problems, not features

CBA announced an Ethereum-based bond market solution1)James Eyers (24 Jan 2017), Commonwealth Bank puts government bonds on a blockchain, Australia Financial Review.) It’s the usual sort of thing: it’s thought that blockchain and smart contracts will make everything so much easier and cheaper by improving transparency and making the exchange of goods (bond) and value (currency) atomic.

What caught my eye though was the following:

CBA created a digital currency to facilitate the payment for the bond through its blockchain, and Ms Gilder called on the RBA to consider issuing a digital version of the Australian dollar, which she said would provide the market with more confidence.

“For the blockchain to recognise its full potential as an asset register and a payments mechanism, you need a blockchain-friendly form of currency,” she said. “In the future, we would hope the RBA will look at issuing a centrally issued, blockchain-friendly digital currency, which would help because then the currency would be exactly the same as a fiat currency dollar in your account today just in blockchain form.”

James Eyers (24 Jan 2017), Commonwealth Bank puts government bonds on a blockchain, Australian Financial Review

As is all to often with this sort of thing, the proponents of the blockchain solution don’t understand how money works and consequentially don’t realise that statements like “a centrally issued, blockchain-friendly digital currency, which would help because then the currency would be exactly the same as a fiat currency dollar in your account today just in blockchain form” are just wrong.

To provide the atomic operation the article talks about (atomic asset and currency exchange), both asset and currency need to be blockchain native: blockchain needs to the the ‘database of record’ for both. Further, this means that the currency must to be issued on the same blockchain as the asset.

The most obvious solution is a private currency secured against some AUD held by an issuer / market maker. If we want our currency to be exactly the same as AUD then it must be backed by AUD – i.e. a unit of private currency represents a claim on a unit of AUD – otherwise we’re forced to deal with change rates.

The problem is that no-one will want to obtain the AUD required to issue enough private currency to support transactions in the market, so the solution isn’t economically viable. Imagine deploying a market-based solution that requires the market manager to hold the same amount of working capital as the total market valuation? That’s what they’re talking about.

The proposed “centrally issued, blockchain-friendly digital currency” doesn’t solve the problem as the currency wouldn’t live on the same blockchain. All payments would be off-chain via a gateway / oracle and therefore that security-value exchange would not be atomic, with enforcement all of value exchanges off-chain in the gateways / oracles. The nature of the currency doesn’t matter (“blockchain-friendly” is meaningless): for the operation to be atomic the currency and asset must be issued on the same blockchain.

We could support atomic transactions via Ethereum by issuing a currency on-chain (a “cryptocurrency”, as with Bitcoin) and then have an exchange rate between the AUD and on-chain currency. I doubt the bankers would find the currency risk acceptable though. Plus each market participant would need to maintain an account with enough on-chain currency to support their operations, so all we’ve really done is take the “working capital is total market value” requirement and spread it around the market participants, with an additional currency risk. I can’t see the market having a lot of confidence in that solution.

Consequently the blockchain doesn’t buy us much more than a bit of transparency, and there are cheaper and more efficient ways of supporting that without Ethererum. If we dump Ethererum and the cryptocurrency, and build a conventional distributed solution (R3 is default mode without a blockchain – smart contracts optional – should do), then the solution should be quite practical.

References   [ + ]

1. James Eyers (24 Jan 2017), Commonwealth Bank puts government bonds on a blockchain, Australia Financial Review.

You can’t democratise trust

I have a new post on the Deloitte Digital blog.

There’s been a lot of talk about using technology to democratise trust, and much of it shows a deep misunderstanding of just what trust is. It’s implicitly assumed that trust is a fungible asset, something that can be quantified, captured and passed around via technology. This isn’t true though.

As I point out in the post:

Trust is different to technology. We can’t democratise trust. Trust is a subjective measure of risk. It’s something we construct internally when we observe a consistent pattern of behaviour. We can’t create new kinds of trust. Trust is not a fungible factor that we can manipulate and transfer.

Misunderstanding trust means that technical solutions are proposed rather than tackling the real problem. As I conclude in the post:

If we want to rebuild trust then we need to solve the hard social problems, and create the stable, consistent and transparent institutions (be they distributed or centralised) that all of us can trust.

Technology can enable us to create more transparent institutions, but if these institutions fail to behave in a trustworthy manner then few will trust them. This is why the recent Ethereum hard fork is interesting. Some people wanted an immutable ledger, and they’re now all on ETC as they no longer trust ETH. Others trust the Ethereum Foundation to “do the right thing by them” and they’re now on ETH, and don’t trust ETC.

Why is blockchain so wasteful?

I have a new post up on the Deloitte blog, coauthored with Robert Hillard.

As we point out in the post:

Bitcoin Miners are being paid somewhere between US $7-$9 to process each Bitcoin transaction.

To do this they’re consuming roughly 157% of a US household’s daily electricity usage per transaction. Those numbers don’t suggest a sustainable future for Bitcoin. They suggest an environmental disaster. And this is by design. So why is Bitcoin so wasteful?

The root of the problem is that in a permissionless and anonymous environment — where anyone can mine — you need to pay the miners, otherwise few will mine. We also know that miners will invest up to the margin (which looks to be around 20% for Bitcoin) to obtain this reward.

You can structure the mining algorithm to favour CAPEX or OPEX, though favouring OPEX is preferred, as it reduces the tendency to centralise. You can also play with where the resources are consumed, either direct in the mining process as with Proof of Work, or more indirectly via Proof of Stake. However, you cannot escape the fact that ultimately Bitcoin works because it consumes real world resources.

This leaves you trapped between two conflicting goals:

  • make the mining pool as large as possible to increase the security of the ledger
  • make the mining pool as small as possible to make the ledger more efficient

The only lever you have to pull is the size of the reward: either via seigniorage, or transaction fees.

Again, as we conclude in the post:

Bitcoin is wasteful as it must be wasteful to work. It isn’t actually waste, it’s really just the cost of securing Bitcoin’s ledger. It is, however, a rather high cost when compared to a more conventional, centralised solution.

Image: Mirko Tobias Schäfer

Can blockchain save the music industry?

I have a new post up at the Deloitte Digital blog: Can blockchain save the music industry?

One of the trends we’re seeing across industry is for the market to split in two – low cost, and high value – with the mid-market dying. The mass market, where everyone bought the same thing, is dying, and we’re transitioning to a market where individuals make their own trade-offs between high and low cost.

This makes me wonder if the attempts to modernised the old mass market music model will work. Mycelia and Mediachain are distribution strategies in a world where the mass market is dying.

The future for the music industry might lie elsewhere.

Image: Anefo Nationaal Archief.

The future of retail: The need for a new trust architecture

Deloitte ran a series of breakfasts recently for the retail community, and they kindly asked C4tE to participate. My contribution, which you can find at Scribd or embedded below, sprang out of our recent report The Future of Exchanging Value: Cryptocurrencies and the trust economy(FoEV) when, during a chance conversation, Robbie (the left-brained person who leads the Spatial team) pointed out that that we were arguing for a new trust architecture in retail.

The nutshell explanation of the idea is:

  • The current retail model is a constructed environment and shopping a learnt experience. This model is a response to the creation of mass market products and supply chains.
  • The model is build on there pillars: customers identifying a need, searching for a solution to the need, and then transacting with a merchant that they may not know or trust. Money – cash – facilitates this, as it enables us to transact with someone we don’t know and may never meet again.
  • However, a number of trends we saw in FoEV suggest that this model might be breaking down. The mid-market dies, consumers seized control of the customer-merchant relationship, peers replaced brands, value is now defined by the consumer rather than the producer, payments are moving away from the till, and shopping is becoming increasingly impulse driven.
  • What will retail look like in a world where need is never fully formed, search is irrelevant, and transactions are seen as distasteful? What is the new trust architecture?

See what you think of the presentation and feel free ping us if you have any thoughts.

The two reports mentioned in the presentation are:

Future of Retail – a New Trust Architecture by Peter Evans-Greenwood

Blockchain performance might always suck, but that’s not a problem

I’ve been watching the Bitcoin scaling debate with some amusement, given that my technical background is in distributed AI and operational simulation (with some VR for good measure). Repeatedly explaining blockchain’s limitations to colleagues has worn thin so I’ve posted a survey of the various scaling approaches on the Deloitte blog,1)Peter Evans-Greenwood (5 May 2016), Blockchain performance might always suck, but that’s not a problem, Deloitte Australia blog. Available at <http://blog.deloitte.com.au/greendot/2016/05/05/blockchain-performance-sucks-not-problem/> pointing out why they won’t deliver – either separately or together – the 10,000 time improvement everyone is wishing for, and why this is not a problem. This post is the short version, one not intended for the general audience of the Deloitte blog has.

Continue reading Blockchain performance might always suck, but that’s not a problem

References   [ + ]

1. Peter Evans-Greenwood (5 May 2016), Blockchain performance might always suck, but that’s not a problem, Deloitte Australia blog. Available at <http://blog.deloitte.com.au/greendot/2016/05/05/blockchain-performance-sucks-not-problem/>

To code or not to code, is that the question?

Centre for the Edge is dipping our toe into the education waters again after last years report, , Redefining EducationWe’re collaborating with Geelong Grammar‘s School of Creative Education to look into “Does everyone need to learn how to code?”

Computers are at the heart of the economy, and coding is at the heart of computers. Australia’s prosperity depends on equipping the next generation with the skills they need to thrive in this environment, but does this mean that we need to teach everyone how to code? Coding has a proud role in digital technology’s past, but is it an essential skill in the future? Our relationship with technology is evolving and coding, while still important, is just one of the many new skills that will be required.

Prime Minister Malcolm Turnbull has called for the country’s schools to introduce IT skills to students much earlier than they do now, suggesting that children as young as five or six should be introduced to coding. President Obama affirmed the need for coding education in his final state of the nation address. Some educators, however, are already pointing out that that teaching coding on its own might not be enough.

We will be holding a series of round table discussions across Geelong, Melbourne,  Sydney, Adelaide and Perth in May 2016 to explore the following questions:

  • What is the intention behind “we need to teach everyone to code”?
  • What educational and social outcomes we should be striving for?
  • Are there key skills from “learning to code” not covered in the current curriculum?
  • Is there a better definition for digital literacy?
  • How does digital literacy relate to coding and the rest of computer science?
  • How do we demystify digital technology and bring the community along?

Please contact me if you are interested in participating.

To code or not to code, is that the question?

Image: Ruiwen Chua.

Bitcoin’s not broken

Cryptocurrency_Mining_Farm

A lot of high profile Bitcoin people are getting their knickers in a knot as they’re starting to realise that they don’t have any real control over Bitcoin and how it evolves.

As Wired points out,1)Cade Metz (2016/02/11), The Schism Over Bitcoin is How Bitcoin is Supposed to Work, TechCrunch. the current schism is more akin to a vote than anything else, and it is working as designed.

Bitcoin’s ledger is protected by an indirect consensus process. Rather than voting on which ledger is correct, with Bitcoin we prefer the ledger (the version of the truth) that has contains the most “embedded work”, as this should be the ledger with the support of the largest proportion of the mining community.

Bitcoin’s definition – its consensus process (protocol in geek, the whole transaction definition, proof-of-work thing) – is protected via a similar mechanism. Miners are free to adopt any version of the consensus process they chose; big blocks, small blocks, etc. We should also remember that there is no restriction on who can offer up a version; they don’t need to be from the “core team” or other blessed group of individuals.

Consequently Bitcoin governance – just like the state of the ledger – is based on the consensus of the miners. This is quite different from the governance models we’re used to in industry or government. It’s also a long way from the traditional open source world.

What we’re seeing is a bunch of high profile individuals getting in knots as they realise that they don’t have any real control over Bitcoin, which is working as designed.

Image source: Marco Krohn.

References   [ + ]

1. Cade Metz (2016/02/11), The Schism Over Bitcoin is How Bitcoin is Supposed to Work, TechCrunch.

The Future of Exchanging Value: Cryptocurrencies and the trust economy

FoEV2_coverOur latest piece at Centre for the Edge is out: The Future of Exchanging Value.

This report started life as a followup to a report we published in 2012. As we say in the current report:

Our findings in that report centred on the realisation that we were reaching the end of the initial build-out
of a digital payments infrastructure. The task of provisioning the infrastructure merchants require to accept real-time digital payments, or for two individuals to settle a debt, was largely complete. Consequently, our focus had shifted to streamlining the buying journey – from the pieces and parts to the whole.

Our key point then was that the future of exchanging value would be shaped by social forces – how payments fit into the end-to-end consumer experience – rather than the technological challenge of deploying yet-another generation of payments solutions.

This new report, which was intended to be a short update, when in an entirely different and much more interesting direction.

Our key insight this time is that we’re all thinking about money the wrong way.

It’s common to assume that we use money (cash, currency…) to build trust relationships. This assumes that our adoption of money stems from the coincidence of wants. I need shoes. You have shoes. You want a fish. I have a chicken. We use money to bridge the gap.

The problem is that this assumption is incorrect. As David Graeber points out in Debt: The First 5,000 Years, debt came before barter and the coincidence of wants. Most folk in antiquity didn’t need money. They knew everyone they interacted with, and could rely on the community to enforce the collection of a debt if need be. Money’s first use was as a measure of value, typically to help calculate damages in a criminal or civil manner. Communities had carefully drawn up lists to capture exactly what you owed, in a convenient currency, someone if you destroyed their house, stole their food. In Somalia, for example, they use camels (commodity money). The other uses of money – as a medium of exchange and store of value – came later.

This is a fascinating fact, is it points out that we have the consumer-merchant relationship backward. We’re focusing on the transaction when we should be focusing on the relationship. The future of payments is not micropayments and tap-and-go. Indeed, the future of payments might be to use a loyalty scheme (a complimentary currency) to anchor the relationship and then move the transactions from the centre of the relationship to the edge. This ties is cultural preferences that we have, and which equate money and transactions as “dirty”. The future of payments might be not to have payments at all.

Bitcoin and the whole cryptocurrency thing is influenced by this too. There’s a huge amount of noise in this area at the moment, and everyone one is waiting for the killer app that will drive Bitcoin (or another cryptocurrency) into mass adoption. If, however, you view Bitcoin adoption as a cultural problem, rather than the search for a killer app, then you end up at the conclusion that no cryptocurrency will become much more than a large niche. The best equivalent in the current environment that we’re all familiar with would be a large frequent flyer scheme. It’s hard to scale trust, even with technology support, and these frequent flyer schemes seem to up near a nature limit.

There is one use case for currencies growing larger, though: when a sovereign nation mandates that you pay taxes in a specific currency. This trick is behind all the major currencies, and was used by the colonial powers to pull conquered land into their monetary system. Acquire currency to pay tax, or we send the bruisers around.

We conclude in the report that the best analogy for cryptocurrencies is rum and cigarettes. Rum was used in Australia’s early days when there wasn’t enough government issued currency to go around. Cigarettes were used by prisoners or war as they had few other options.

We can expect cryptocurrencies to see some adoption in countries where the population doesn’t trust – or can’t access – the national currency. Argentina springs to mind. Cryptocurrencies are mush less useful in other countries with mature and stable economies.

A similar argument can be made against cryptocurrencies as internal reserve currencies. (And that argument is in the report.)

There’s a lot more in the report, and I’ve been told that it’s a bit of a ripping yard. Go grab a copy and read it.