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How Crypto Suddenly made Complete Sense

Crypto landscape
The new crypto environment? economy? country?

I didn’t get it?!

With a background in payment systems, I watched the rise of Bitcoin and crypto with a mix of professional smugness, and an unexpected bemusement. Unlike many, I have a very clear technical understanding of the blockchain and the underlying cryptography that makes it possible, and so I expected to “get” the whole crypto thing.

Intellectually I could see the commercial benefits that might arise when the “trust” infrastructure that we rely on for our modern lives is provided by a distributed collective rather than a centralised monopoly.

However, I never really “got it” with crypto. There was always a gap between my academic understanding that bitcoin was as good as (and probably better than) gold, and the conviction needed to get involved or invest in it.

The hype around all the other cryptos that followed bitcoin probably made my scepticism even more profound. So, I passed on buying bitcoin at sub $100 and remained content as the whole thing passed me by. The best I could do when asked, was to deliver some “sage” advice about it being probably worth young people putting in $100 in case it takes off.

Somehow not even the ever-growing number of ICOs, the public adoption by a people I respect (Elon Musk, Chamath Palihapitiya), the hype, or my hands-on understanding of the foundational technology, cleared the mist blocking my view of this world changing capability.

However, a few weeks ago, a chance comment during a side conversation with someone (shoutout to Simon) I’m mentoring, triggered a series of thoughts, and the veil lifted. I now get it! That chance comment triggered the creation of a new connection between crypto and my existing world view, and once connected the inclusion of crypto into that worldview enabled me to see a huge range of new and exciting possibilities.

Let me try and explain

1 – Money is largely just the token that gives its holder a call on other people’s time (to make stuff) plus a little bit of access to raw resources

2 – An economy is the aggregate flow of money (tokens) that a particular environment (usually a country) enables. That money flow largely reflecting people making and selling stuff to others.

3 – And a particular environment consisting of certain bits of infrastructure, but will generally include:

  • The money token itself
  • All the rules that apply in that environment (laws),
  • All the infrastructure needed to enable people to make stuff (Roads, education, food, telecoms, healthcare etc),
  • A community of people who want to be in that environment.

If the case where the environment is a country, we name the money token a currency.

The big ah ha moment for me came when I realised that what crypto/blockchain/distributed technology has done is enable a new type of digital environment (country). Each “Crypto” has its own token (coin), rules, infrastructure (tools/capabilities), and community. This has in essence, created a new type of organising structure (crypto-country? Crypto-economy?).  

Once people start to make and sell stuff that are paid for by the money token of that environment, then money from outside that environment (other currencies) will flow in and put a price on that environment’s currency.

Within each of these crypto-countries specific rules and infrastructure is being built to allow stuff to be created that others value, and for which they are happy to pay (using the money-tokens relevant for that crypto-country).

 As an example, the Bitcoin environment is focused on being a place (almost a country) to store value. The money token (bitcoin) is the store of value, the rules define how many bitcoin can exist (21milllion), the infrastructure provides security of storage that even resists government power, provides a rapid (minutes vs hours/days to move gold around) means of exchange, dramatically lower costs (that bullion stores cannot offer), and anonymity that people with wealth often value.

The bitcoin “crypto-economy” is a place for people looking to preserve wealth, in the face of inflation, that’s unaffected by new gold deposit finds, and that resists government whims. Such people are happy to buy bitcoin using the currency of another environment/economy/country (thus moving the price of bitcoin up).

Clearly in the early days the initial inflows into the bitcoin (and most crypto) economy are likely to exceed the outflows and so the price (in other currencies) of bitcoins is likely to keep climbing.

Etherium is another example, but in that case the focus of that environment/economy is about removing all the cost, potential corruption, and bias of legal contract system.

The use of Etherium’s “smart-contracts” where obligations, rights and consequences are all managed by unchangeable code executing agreed contracts allows 2 parties to agree to trade without any need for trust (or even to know who the other party is).

For instance, one party, A, can agreed to pay another party, B, if party B does X by date Y or party A gets their money back. Doing this sort of transaction on Etherium , means party A can deposit payment and be totally confident that only one of the 2 outcomes are possible, even if a government, mafia or other force attempts to change that.

My realisation is that there are a large number of possible environments/economies/cypto-countries who can focus on solving real and digital world problems. And as such there is, and will, be an ever-growing number of new cryptos (i.e. IOTA, Solana, Dogecoin, etc.) each solving that subset of the world’s problems where it feels its particular mix of rules, infrastructure and token enables people to it best.

Each successful crypto creates an environment that either directly solves a problem (cf. bitcoin) or enables people to make “stuff” that solves a set of problems in a better way, thereby enabling a crypto/problem set, specific “economy” and adding value to its currency.

As we are just at the start of this new era, I believe there will be huge numbers of successes (and failures) and that this new organising structure will have wide reaching consequences on the world.

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The Myth of Ability

How a side effect of “strict discipline” gave me lifelong self belief

Jump in and be what you want

It was around 1970, the end of the school term and I was apprehensively awaiting my father’s reaction to my school report. Having come 29th in a class of 30 pupils I was pretty sure he would not be happy. I was not disappointed!

Up until that report I had always been in the top 5 of the class which was an expectation that my father had drummed into me from my earliest years. Unfortunately in a primary school of 40 children where my “class” comprised of only 6 or 7 kids, being in the top 5 said very little.

My father was a fairly typical parent of his era and firmly believed in the saying “spare the rod and spoil the child”. So having moved to secondary school only to find myself at the bottom of the class my dad did not spare the rod. In an episode of beating that today may have well got him arrested he demonstrated just how unhappy he was with my performance. Luckily the beating in itself is not the thing that had the greatest impact.

Jump forward one term and I’m again awaiting my father’s response to my end of term report. This time, having come 2nd in the same class of 30, I was hoping for a more upbeat reaction. Oddly he seemed almost as enraged by my coming second as he had by coming 29th! He decided that if I could go from nearly last to nearly first then:

  1. being 29th last term was even worse than he’d thought!  And
  2. after I’d said in my defence that I was only 2nd by 0.1%, that I should have come first.

In any event, his anger triggered a set of thoughts and a conclusion that has been my constant companion ever since.

The thoughts go as follows:

  • The first beating had created a strong fear motivation that I had somehow harnessed to study a bit harder.
  • The addition study had resulted in a dramatic change in my performance, moving from 29th to 2nd.
  • However, all my teachers and society in general were telling me that some mythical “Ability” is the key factor in what people can achieve?

Having reflecting on this I concluded that in any meaningful sense ability is a myth. To this day I remain convinced that in pretty much all spheres of human endeavour this is true.

Whilst having ability might make a difference if you are selecting Apollo astronauts or Nobel prize physicists or Olympic sprinters; in normal life the difference between whether you become the cleaner or the CEO is largely down to how much time you are exposed to the information needed to become CEO. That for each individual this time may vary slightly, the outcome is more about whether you are CEO at 35 or 40 (not as today a choice of being CEO or not).

I see the pride that parents have when their children walk or talk earlier than their peers, but have never seen the slower ones guided to give up walking or talking because they lack the ability.

I continue to live my life on the basis that in any meaningful sense (I have no desire to be an astronaut) pretty much everything is available to me if I’m prepared to learn the appropriate skills build the required strengths and ingrain the appropriate habits.

So jump in and be what you want. It took the world 3.6 billion years of trial and error to make you! It’s unlikely the world got it wrong; far more likely is that you’re perfect for it

🙂

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Brexit – Now we have left – 1/2/2020

About to set off on a new adventure –

Maybe surprising to some I watched the clock countdown to an 11.00pm Brexit reality last night without a hint of happiness about this thing that my vote has helped to bring about. Like an intimate relationship with someone  who wants a lifestyle you don’t want, the necessity of changing the intimate relationship  into a friendship carries the sadness of what could have been if only…

So I’m sad that we’ve left but feel that the UK’s culture is infused with its Island heritage and history in a way that makes ideas of sovereignty and individuality slightly more important to Brits than the EU could accommodate. Sadly, I also remain convinced that economic reality dictates we leave

I see that many across Europe are touched by the sadness of our exit and I’m heartened that whilst we have had to leave the club we remain friends. As with the end of a personal relationship I am stalked by my own set of “if only” questions: 

  • Why did the people supporting EU ideology not understand that the UK position of: Flexible job market, English language, long term openness to immigration; might make the UK a target for mass East European migration and that migration might break the fragile social adjustments that were already underway to accommodate the historical commonwealth immigration. A relaxation of the EU free movement rules to allow the UK to set a less open immigration policy might have helped Cameron and removed some of the impetus to leave.
  • Does the EU not realise that bloc level trade policy can only work in the long term once people feel European first (Like Americans do). Brits currently have little appetite for suffering higher costs to protect Spanish Orange growers or the French to protect British pork pies. The level of openness that the intersection of hard-line ideology and EU expansion into more culturally diverse countries requires, is well ahead of EU citizens’ preparedness to tolerate it.
  • Does the EU not see that the communal huddling at the back of the cave that seems to characterise much of EU policy is at odds with the active, entrepreneurial, dynamic rest of the world? How can the EU build a future with ever larger portions of its human and financial resources being used to pander to naive, idealistic, ‘woke’ groups whilst ignoring the growing hostility of their own populations?
  • Why, after the vote, did Tusk not articulate specific positive reasons for the UK to remain in the EU in response to the obvious concerns that drove Brexit? Rather than seek “special places in hell” for those who had championed Brexit. This (along with other EU approaches) has poisoned the UK view of the EU
  • Why was the UK remainer community so devious and dishonourable in looking to make the counter case to the vote? Creating a mistrust of liberal elites and pushing ‘normal’ (non-woke) Brits away from the main stream (media, elites, politics) probably for decades and provide fertile recruiting grounds for extreme politics

The answers to these questions and a reflection of their validity in EU policy & approach may have resulted in a different outcome to today. However, it would also have led to a different EU. An EU that is less involved in member country affairs, with fewer powers, and probably one that most EU citizens don’t want.

Maybe WW2 is the historical context that means EU and UK citizens will always have different perspectives.  Preventing a war from happening again may be more deeply ingrained on the continent than in the UK.  Perhaps the plucky Brits standing alone against the Germans cf the military conquest of your home might be the 2 cultural foundations that shape the different destinations for the EU and the UK.

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How a Europhile voted leave in the Brexit referendum

Having lived and worked in 4 EU countries I expected that my voting decision on Brexit would be a very easy “Remain”.  But it wasn’t! I ended up voting leave despite my emotions telling me to do otherwise and even now, over 3 years on, I would do the same.

Let me explain.

Many years ago I stumbled into a realisation that political tribalism was probably a stupid position to adopt. Until that realisation, as someone from a working class background, I had always voted Labour and assumed I always would.

The realisation came when it dawned on me that if there were a single political position that actually worked we would have discovered it by now and be using it! Like the wheel that has remained unchanged for millennia, we would have resolved the problem of how to organise ourselves and be doing it.  That we haven’t resolved how we should organise ourselves indicates that this is a dynamic problem requiring an ever adjusting solution. In that context it’s hard to find a broad role for option-constraining political dogma. Like driving a car – left, right and straight on are all viable options depending on the prevailing circumstances.

Since that realization my voting record has covered all three major parties only dependent on whether I felt we needed a bit more social justice (turn left) a bit more wealth (turn right) or a bit more political humility (straight on – Lib Dem) at the time.

So when the Brexit vote came up I adopted what has become my normal approach to voting and tried to assemble some objective data on which to base my decision between the two choices (albeit with the expectation that whatever data I looked at it would confirm my Remain expectation).

I decided to make my Brexit choice based on historic performance data rather than to try and guess the future which I had concluded decades ago was a fool’s errand. The accuracy of predictions about the future for any new situation are largely meaningless (Economic predictions on any new situation seem to be no better than coin tosses, predictions on any new infrastructure delivery times are useless –HS2, NHS IT etc),

So for the Brexit vote I decided that my most heavily weighted data parameter would be per capita GDP figures and set a time window of 1980 (easier access to numbers) to 2015 (subsequently updated to 2016). I measured per capital GDP in 1980 for each of the countries in the EU at the time, again for 2016 and compared those numbers to comparable non-eu countries (Canada, Iceland, Australia, USA, New Zealand, Norway Switzerland and Singapore).

I used these Wikipedia figures and I leave you to collect and check the data.

From that data & other trends I concluded that:

  • The economic per capita GDP argument for the EU wasn’t that strong.
  • The clubbing together (economies of scale and negotiating power) argument was weak.
  • Shrinking agility & growing membership was not an optimistic indicator of the EU’s future.

GDP argument

From that (admittedly simplistic analysis) I came away with the following analysis:

  • The EU has done significantly (20%-30%) worse in relative per capita GDP terms than comparable non-EU countries over the period.
  • That Southern EU countries seem to have fared slightly worse than the EU as an average and it appears that wealth might even be moving from the poorer south to the wealthier north!
  • The only economies that have done very well are the  low tax (tax haven)  countries of Ireland and Luxemburg
  • With Australia, Canada, Singapore, Iceland, Norway and Switzerland having higher relative per capita GDP than Germany  it’s clearly possible to prosper outside the EU

Better together argument

What about the clubbing together (economies of scale and negotiating power) argument?

Whilst a large market offers an attractive opportunity, the disparate national interests often present a significant and growing barrier to actually taking advantage of it. As an example most European countries probably don’t care about protecting a single Belgium village beer, but it nearly sabotaged the Canada trade deal.

And when you look at the external tariffs that the EU applies to non-EU countries it seems to me that EU citizens are paying higher than global market prices for many foods and goods to protect EU producers. That protection seems to be also resulting in those protected producers falling behind in terms of productivity when compared to the wider global market.

The other economic figure that influenced my thinking was how despite significantly growing in size the EU economy has shrunk as a percentage of the world economy (from 24% for the members in 1980 to 16% today despite the number of countries increasing substantially).  So whilst the EU remains the largest trading block its role in the world economy continues to shrink.

Now some of this shrinkage (along with the US) is a reflection of the growth in the world economy as countries develop but that also amplifies the importance of working with the rest of the world that EU rigidity makes harder.

The longer outlook for the EU?

Whilst largely neutral I have a concern that growing EU Federalism, EU dogmatism and a lack of flexibility may collide with growing nationalism within EU countries and (in my view) a growing need for agility in trade, economic and political matters. The faster downward trend in the % of the world’s GDP that the EU represents (even compared to similar developed economies), seems to reinforce the growing gap between the rate of change and the EU’s ability to accommodate it. I don’t think this bodes well for the future.

I think some things take as long as needed and cannot be accelerated. I describe these sorts of situations as being subject to the ”laws of the farm” where plants grow at a rate determined by their nature and our ability to change that rate is severely constrained.

So whilst I agree with the long term goals of the EU I think they have allowed dogma and ideology to override the fact that the EU is a collection of individual countries, cultures and histories that make integrating them into a single entity subject to the “Law of the farm”

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Bernard Shaw on Progress

be reasonable
Sounds like good advice?
  • The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.
  • Reason enslaves all whose minds are not strong enough to master her.

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Brexit, family twists & turns

Beautiful – with as many lines (plots), twists and turns as Brexit

With today’s announcement of Jo Johnson’s decision to quit his brother’s government I couldn’t get out of my mind the image of the younger brother, who wanting to be part of his big brother’s gang, abandons his toy trains to join up with the “Big boys” only to wet himself when he gets shouted at as the big boys get into a tussle with rivals.

He’s now done the honourable thing and gone back to things less scary than the uncertainty of the radical change his brother is leading. And whilst Jo’s ‘joining then leaving’ smacks of the sort of middle management indecision and appeasment that plagues swathes of corporate and middle Britain, as a younger brother myself, I recognise the spark of ambition, the over-reaching of available courage, and the push of family loyalty that probably prompted him to accept the ministerial post in the first place. He’s a good, genuine and reasonable man but as the Bernard Shaw quote points out “all progress depends on the unreasonable man“.

As for his brother Boris, I’ve been unexpectedly impressed by the steel, focus and clarity of purpose that I’ve witnessed since he was elected PM. I was expecting that Boris’s affable, bumbling style would result in the usual compromises and accommodations that are the hallmark of the amateur.

But not a hint of hestiation! Boris cleaned out the uncertain and hostile in the cabinet with a speed that got it over quickly. He then set out his vision for Britain with energy and humour. All the time maintaing an unwavering certainty about how Brexit would be resolved. Very different to May’s weakness and dithering.

Is what Boris is doing correct? possibly, but correct or not I’m pleased to see that he has recognised that to have a chance of doing well you need all the players on the team to be committed to their teammates and to the agreed strategy. So you might call removing the uncommitted a purge, or just a difficult reality. But like jumping across a ravine, Brexit needs a team with the single focus of getting to the other side, and I’m glad that Boris is showing the leadership to commit to the jump.

The last 3 years has been an impossible search for the safe middle ground and the May premiership lies broken at the bottom of the ravine as a consequence. It’s been like watching the Liverpool team players run onto the pitch with 4 different approaches and the strikers only prepared to put in 2 goals because the oppositions told them that’s all they can have! Luckily great football managers know the emotionally tough demands of team leadership and I think Boris may also.

My mantra when faced with tough decisions is to remind myself that “a painful end is better than pain without end”. As Boris navigates through his own difficult choices I hope that despite family, party and parliamentary challenges he gets the chance to try things his way.