Payments, Technology, and a Curve with a Kink in It
|May 11th, 2014 | Filed under: Academic Research, Alpha Hunters, Alpha Seekers, Currencies, Today's Post | By: cfaille||
I spoke recently with Bill Barhydt, the IT professional who holds the distinction of having given the first ever TED talk on Bitcoin. He gave that talk back in February 2012, when a Bitcoin would sell for $2 and few knew what the heck it was.
This year, he is bringing his understanding of Bitcoin and his IT savvy to Singularity University, a Silicon Valley based operation dedicated to studying the technological drivers of exponential change in the world.
“Singularity” is a fascinating and multifaceted word. It is used by deep thinkers (a/k/a “futurists”) such as Ray Kurzweil and it refers to a hypothetical moment in the near or medium-distant future when, according to the pertinent theorists, humans will either be superseded by artificial intelligences or will themselves become transhuman in important respects, perhaps as a consequence of the interface of technology and biology at the cellular or molecular level.
That concept in turn seems to have developed out of the mathematical use of the same term. To a mathematician, a singularity is a point at which a set is not well-behaved. For example, if you graph the simple-looking equation y2 = x you’ll find a curve with a kink in it at (0, 0). That point is the singularity.
For aficionados of the term, I’ll note that “singularity” is also employed by astrophysicists. It refers in that context to a point at which matter has an infinite density and no volume. Big Bang theorists sometimes postulate the universe at its start as just such a single point, a singularity. If I understand these things at all correctly (an open question!): relativity theory encourages physicists to make that postulation, but quantum theory discourages it, and the two are as yet unreconciled.
Singularity University, founded by Kurzweil and Peter Diamandis* in 2008, embraces this weighted word, with of course the emphasis on the technological/futurist use. When I asked Barhydt about Singularity, he described the notion of exponential change briefly and added, “Cryptocurrencies such as Bitcoin fit readily into that big picture: they and the trends they represent will likely replace traditional commerce of all kinds.”
On June 10-11th , SU in conjunction with CNBC co-hosts an intensive conference on “Exponential Finance.” Topics will include3D printing, digital medicine, robotics, and … digital currencies. The goal, according to the SU website, is to bring together experts (such as Mr. Barhydt) to “inform financial services leaders how technology is impacting business.”
We’ve done our duty by the notion(s) of singularity and exponential growth here. Let us set that aside and look at the pedestrian issue of the appeal of bitcoin from another perspective. This appeal, at first glance, seems to be simply that cryptocurrencies can do the work of money without being subject to the manipulation of governments or central banks.
But … isn’t that also the appeal of the precious metals? Some of the writers who are most skeptical of any long-term prospects for Bitcoin are gold bugs. The world already has an alternative to fiat money.
I raised this point with Barhydt. He replied, “What is distinctive about Bitcoin is that it is a virtual asset type and protocol that mankind created out of thin air. Accordingly, we know exactly how much Bitcoin the protocol calls for. 21 million Bitcoin will be mined. No more and no less. Other cryptocurrencies have built on Bitcoin to either have a larger float or add concepts like smart contracts or smart property to the protocol.”
That introduces a bit more terminology that may be unfamiliar to some of our readers. A “smart contract” is a computer protocol designed to make contracts self-executing and/or self-enforcing. “Smart property,” likewise, is property designed to make theft difficult or to make repossession easy. Nick Szabo theorized in 1997 about an automobile, purchased on credit, that would become inoperable to the ‘owner’ who fails to make payments, eliminating the mediating services of the repo man.
QWERTY is Atypical
Thus, on Barhydt’s view, we have to see Bitcoin and other currencies like it as part of an evolution of the whole world of commerce, payments, and exchange, a vast movement of disintermediation that threatens to disrupt the banking and finance industries.
Should we see Bitcoin in particular as having an advantage over potential competing currencies? If so, how important is the so-called “first mover” advantage that is said to explain why we still use keyboards that begin QWERTY?
Barhydt thinks such an advantage exists, but not that it is of overwhelming importance. “What the history of technology has shown is that it is hardly ever the first mover who wins,” he said.
We closed by discussing recent legal and tax developments in the U.S. The Internal Revenue Service says that bitcoins aren’t money, they are property, and insofar as they are property profits made from their sale are subject to capital gains taxation. Barhydt considers this a reasonable decision and not one that should give pause to owners or users of Bitcoins.
Finally, Bitcoins are often discussed today in close proximity with the phrase “money laundering.” Is there a crackdown underway or in prospect?
“There is no crackdown that I have seen, at least in the U.S.,” Barhydt tells me. His own “interactions with regulators have been very positive. They are often fascinated by Bitcoin and intelligently curious. But there is definitely some concern about a potential for this new technology to be used for money laundering.”
*–Exponential Finance, hosted by Singularity University in partnership with CNBC, is an intensive two-day conference that brings together top experts to inform financial services leaders how technology is impacting business. This unprecedented event will explore how accelerating technologies—such as artificial intelligence, quantum computing, crowdfunding, digital currencies and robotics—are disrupting the business world. Participants will gain a critical understanding of exponential technologies, the current explosions of digital information, the quickening pace of change, and what companies and individuals need to do to be prepared for this disruption. Join us in New York City on June 10-11 for Exponential Finance. XFIN.CO/AAALPHA Discount Code: AAALPHA Good for: $750 off general participant ticket or 50% off VIP ticket.
Christopher Faille is a Jamesian pragmatist. William James has taught him, for example, that "you can say of a line that it runs east, or you can say that it runs west, and the line per se accepts both descriptions without rebelling at the inconsistency."