Why Blockchain has no economic future

When Bitcoin went public in 2009 it introduced to the world of finance and economics the technology of blockchain. Even the many who thought Bitcoin would never make it as a major currency were intrigued by the BlockChain technology and a large set of new companies have tried to figure out how to offer new services based on blockchain technology. It is still fair to say that very few economists and social scientists understand blockchain, and governments are even further behind.

I will argue that blockchain has no economic future in the regular economy. I will give you the bottom-line, then describe blockchain, discuss its key supposed advantages, and then take it apart as a viable technology by giving you a much more efficient alternative to the same market demand opportunities.

The bottom line for those not interested in the intricacies of blockchains and public trust

The essence of my argument is that a large country can organise a much more trustworthy information system than a distributed network using blockchain can, and at lower costs, meaning that any large economic role for blockchain is easily displaced by a cheaper and even larger national institution.

So in the 19th century, large private companies circulated their own money, in competition with towns and princedoms. In that competition, national governments won, as they will again now.

The reason that the tech community is investing in blockchain companies is partially because some are in love with the technicalities of blockchain, some hope to attract the same criminal and gullible element that Bitcoin has, some lack awareness of the evolution and reality of political systems, and some see a second-best opportunity not yet taken by others. But even in this brief period of missing-in-action governments, large companies will easily outperform blockchain communities on any mayor market. Except the criminal markets, which is hence the only real future of blockchain communities. Continue reading “Why Blockchain has no economic future”

Opportunities for innovation in Australia

The Australian startup ecosystem is growing too slowly, but existing firms are becoming more interested in innovation as a source of competitive advantage.

MBS students brainstorming during the Innovation Bootcamp
Students brainstorming during the MBS Innovation Bootcamp

Australia performed poorly in the global startup ecosystem ranking 2015 which was published recently (http://goo.gl/UXcGcO). Sydney fell 4 spots and now ranks 16th in the world, while Melbourne fell entirely out of the top 20 despite being on that chart in the previous version of the report published three years ago. The study expresses concerns about the Australian ecosystem that echo those in other studies performed by academics as well as in the Australian Government’s Innovation System Report (http://goo.gl/kvQZhK). The 2014 AIS report sums it up nicely: “Australia performs relatively poorly on ‘new to market’ innovation”.

Yet on the ground, interest in innovation and startups has never been stronger than before in Australia. Compared to five years ago, we now have many more ‘meetup’ groups in Melbourne and Sydney for founders and entrepreneurs, a variety of incubators and accelerators, and a number of innovation-oriented programs at leading universities including Melbourne, UTS, Swinburne and QUT. There is strong interest in courses on “design thinking” and “lean startups”. MBS has our innovation bootcamp for MBA students, while the University of Melbourne now has an accelerator and is about to launch a new Masters in Entrepreneurship program. A growing number of entrepreneurs are contacting me to discuss new business models, market entry and how to protect their innovations. These will take time to bear fruit.

How do we reconcile the weak findings at the ecosystem level with growing interest at the ground level? Part of what’s happening is that other startups ecosystems are maturing faster than the one in Australia. Many ecosystems abroad have continued to enjoy stronger government support, better access to venture capital and closer industry-university linkages. The most successful ecosystems (including Silicon Valley, New York, Los Angeles, Boston, Tel Aviv) have continued to develop and reinforce a coherent system for connecting resources, talent, funding and market access. Here in Australia, we have bits and pieces that are good in each major city, and we also have specific firms and sectors that are incredibly innovative. But that distribution is uneven and the parties involved are not as seamlessly interconnected as they could be.

A second part of the explanation is due to the business environment in Australia. Given our small domestic market, many of our startup entrepreneurs will continue to sink at least one foot (if not both feet) into other ecosystems. This makes sense from the point of view of being close to market and expertise.

A big change however is the growing interest in innovation by existing firms. In recent years, incumbent firms in industries ranging from retail to energy, news and financial services have been jolted out of a comfortable (often monopolistic or duopolistic) existence due to the threat of entrants, both online and offline.

The embrace of innovation by Australian firms has taken a long time, partly due to the difficulty of changing the mindsets of senior executives who run these organizations. However, it is clear that in a variety of industries across the globe, the terms of competition have changed and Australia is no exception. In conversations with senior managers at Australian organizations, I am discovering a growing interest in innovative strategy, business transformation, ‘design thinking’ and ‘business model innovation’. These conversations often begin with a reactive or defensive tone reflecting a need to respond to market or technological threats. However at some organizations the discussions have begun to advance beyond that stage: managers at some firms start to view innovation as an opportunity to reconsider their existing ways of doing things, engage new stakeholders and to develop new capabilities.

In the short run, I see a good opportunity in helping existing Australian firms learn to innovate and become more agile and competitive. In the longer run, it would be nice to see the startup ecosystem flourish in Australia, but that is something that will take time and sustained effort.

Note: I was invited to write this article for the Melbourne Business School student newsletter. It is reprinted above, sightly edited.

Should you activate fingerprint authentication on your new iPhone (or other mobile device?)

Bottom line: if you care about security you should avoid activating fingerprint authentication. Use an alphanumeric password in place of the 4-digit PIN and deal with the inconvenience. If you don’t care much about security but are careless about where you leave your phone or which networks you connect to, you should also probably skip it. For everyone else, it depends on your risk appetite. Good luck.

Fingerprint_picture.svgYesterday, Apple launched two new iPhones. The flagship model, the 5s, is impressive and includes many new features including fingerprint based authentication. It is part of a trend towards using biometrics on mobile devices, e.g., facial recognition on Android and voice recognition on the new Moto X.

The use of fingerprint authentication is not new (a family member has that on their Lenovo notebook), but deployment by Apple usually signals the onset of mainstream adoption. At present the iPhone offers it as an option, so you can still choose to use a traditional password instead. The main benefit of fingerprint technology is slightly faster unlocking than using a PIN code. Also the Apple device is said to be accurate and fast, unlike some earlier consumer-oriented implementations. At present Apple is allowing its use for iTunes and Apps Store purchases but one can imagine third-party applications are around the corner.

Before you activate this system, you should consider several issues. Online forums are abuzz about whether your fingerprint can be spoofed, whether the NSA might be spying on you, and whether you can be legally forced to unlock your device. In turn, Apple has tried to allay fears by stating that your fingerprint only exists in a “secure enclave” on the phone (strictly speaking, it is an electronic description rather than an image of your actual finger). However, there are several issues that I believe need consideration:

1. It is hard to replace your fingerprint.
If your password is compromised, you can just revoke it and create a new one. Replacing your finger can probably be done, but it will involve a bit of pain. If you lose your phone and a hacker gets in, or if they are able to remotely access your fingerprint data, the personal costs may be rather high. We also we have no information about know how cleanly (if at all) the data is erased when you sell your phone or recycle it; can the data be extracted afterwards?

2. The fingerprint encryption scheme will be hacked.
This is not a possibility but a certainty. The only questions are how long before it happens and whether you will get to hear about it. People are worried that the NSA is helping Apple keep a backup copy of the master encryption key (i.e., can you trust them to keep it secret, since they lost thousands of documents to some junior guy without knowing it?). But the problem is more fundamental than that: in order to make use of that encrypted data, your phone must contain the key. This is unlike the case where a password is kept separate from your encrypted fingerprint data, or a design in which a password (or some other security token) is needed in addition to your fingerprint data. Keeping the decryption key on the device makes it vulnerable, since with enough effort the key will be recovered, or some weakness in the encryption software can be found. If you think you have heard this story before, it’s because the same thing happened with DVDs. Any DVD player must contain the decryption key and mechanism for doing so, otherwise you won’t be able to view the movie contained on the disc. When DVDs were launched, manufacturers thought their encryption was sufficient, but were quickly proven wrong. Same thing with BluRay.

3. A magnet for attack
Some are worried about the NSA, but they probably already have your fingerprints. The real threat is elsewhere: encryption is broken and various encryption standards have been compromised (including at an atomic level involving encryption libraries used to build software). Thus, storing the data in encrypted format is just a deterrent. Apart from the NSA, you should worry about the other, possibly more nefarious organizations and governments out there. The fact that we know it is possible implies that others will try to get in, either through the same means or by creating new methods. Nathan Rosenberg calls these “inducement mechanisms” that focus the efforts of others; I have observed it in my own fieldwork on semiconductors. All over the world next week, communities of hackers and spy organisations will probably be posting “do not disturb” signs on their doors and begin working on this new challenge.

4. Large attack surface
The data on the fingerprint chip itself might be fairly secure but IOS, like all operating systems, is complex and has been compromised. Every year we hear of interesting exploits at events like Black Hat. There is no such things as a completely safe program, especially one as elaborate as a modern operating system. Your phone or mobile device is not locked down, unlike the scanning device at your neighborhood immigration counter. You bring it everywhere: to airports, cafes, public places, friends’ homes and to pubs). It is exposed to many angles of attack: physical hacking, software backdoors, security holes, hidden code in apps, and compromised websites that you might visit on the phone’s web browser. Another way in is through your computer that syncs to the phone via iTunes because your phone treats it as a trusted connection. Apple claims that the operating system has no access to the fingerprint data on the chip itself, but you’ll have to go on trust with that one as it is not verifiable (Apple also said it did not store your GPS data!).  The question remains of how separate the fingerprint system really is, since iTunes and the App Store will be able to authenticate using the fingerprint sensor, suggesting there may be some indirect paths available to hijack the authentication process, even if one does not touch the data itself.

Conclusion
While these risks are real, they do not necessarily imply that you will be hacked. That depends on whether you are a high enough value target. It also depends upon your personal habits and whether these practices expose you to a larger or smaller attack surface. And it depends upon your luck. Even with a regular old password, you could still end up being hacked, but at least you won’t risk losing your fingerprint data along with your other stuff. It is just a question of being aware of the risks. By no means am I dissuading you from buying that shiny new iPhone.

Bottom line: if you care about security you should avoid activating fingerprint authentication. Use an alphanumeric password in place of the 4-digit PIN and deal with the inconvenience. If you don’t care much about security but are careless about where you leave your phone or which networks you connect to, you should also probably skip it. For everyone else, it depends on your risk appetite. Good luck.

Image source: https://commons.wikimedia.org/wiki/File:Fingerprint_picture.svg

Unlocking DRM Lets You Open Multiple eBooks Simultaneously

The Amazon Kindle, Apple iPad and other e-readers are fast becoming mainstream and their usability has improved tremendously over the past years. However there is one area in which printed books are still much better: the ability to open multiple books at once. This might not matter if you are reading the latest “50 shades” novel and want to be uninterrupted. However, if you are working on a research project and constantly need to switch across multiple books, you will find that current eBook readers are a nightmare. Switching eBooks involves creating bookmarks, returning to a main menu (library page), going to another book and navigating it. This quickly becomes tedious. I cannot understand why tabbed browsing is absent from eBook software since it is rudimentary and exists in practically every web browser.

One solution is to buy multiple eBook readers and open one book per device. This turns out to work quite well. One might argue that the savings from not having to ship printed books will more than cover the cost of additional eBook readers. However it occurred to me recently that another solution exists: simply remove the DRM from your existing books. This is really easy to do. You can then manage your books using software like calibre, which allows multiple eBooks to be opened at the same time. On a fast computer with a large screen, this is a liberating experience! A 27″ or 30″ screen is sufficient to give me as good an experience as with 3-4 printed books. You can even do things that you cannot with regular books (without mutilating them) such as opening multiple instances of the same book for quick cross-referencing across different sections. If you take the extra step and export your library into pdf format, you then have the ability to manage, annotate and search your eBooks using software like Papers 2, treating them just like any other pdf file and merging them with your collection of journal articles.

There are other benefits of unlocking DRM, including the ability to prevent vendor lock-in (e.g., read your Amazon ebooks using Apple iBooks), avoid arbitrary and unfair removal of your books, and to overcome silly device download limits. For some of us, opening multiple books at the same time is another big plus. I suspect that over time, eBook DRM will go away. We are at the stage of the eBook industry that we were at with music 10 years ago, when we had to rip music from our personal CD collections or the proprietary formats on iTunes and convert them into unlocked files that were more flexible. Today music is sold unlocked and I don’t see why it should end up otherwise with eBooks.

(ps: yes I know eBooks are licensed, not sold, but lets save that for another discussion).

Reading multiple books at once
Your 30″ monitor can show all these books at the same time

The water you drink has been piss at least 10 times already!

Last thursday I posed the question of how often the water you drink has been pissed by a vertebrate already. If the number is very small, then those who baulk at drinking recycled water have more cause to complain than if the number is very high.

As some commentators to that post pointed out, in reality we are all drinking water that includes some recycled piss: every dam from which we drink has ducks, lizards, and all sorts of animals pissing and shitting in it, so it is already a bit of a myth to think one can drink water that has not been recently mixed with piss. Still, as another comment revealed, many think the idea of copying Singapore and drinking water that is officially recycled sewage is deemed ‘gross’. So the question how often water has been piss in the past still matters for the ‘yuk factor’.

The answer comes from a very simple formula, which requires a few guesstimates as inputs:

Piss ratio = (total water pissed)/(total water) = (total vertebrate biomass ever lived* piss rate)/ (total water) = (average biomass vertebrates * piss rate per year * years of vertebrates) / (total water)

This simple formula thus boils down to 4 inputs for which we can search for good guesstimates.

The amount of water on the planet (total water) is the easiest one because it is the sort of thing geologists and physicists are good at estimating. As this linked article computes, there is around 1.386 billion cubic kilometers of water on the planet. Whilst it is true that this water comes in various forms, that is not relevant for the calculation: since we are considering hundreds of millions of years, it doesn’t matter how much of that water is currently salt, fresh, stored in ice, or whatever: compared to such long time horizons it all circulates pretty fast so there is no problem in taking it all as one blob of water.

I can already say that my best guess for how much water we humans have pissed during our existence is around 800 cubic kilometers, meaning that only one 2-millionth of the atoms in the average water molecule will have been pissed out by a human. So we might be drinking reconstituted piss, but not much is reconstituted human piss.

Now, onto the other three inputs into our crucial equation. What is the average wet biomass of vertebrates? If we take the present as a reasonable guess for how much vertebrate biomass the earth continuously houses, then the answer we can gleam here is around 10% of total animal biomass (zoomass), or in the order of 5 billion tonnes of wet biomass (a lot more than dry biomass which you will often see reported). This includes up to 2 billion tonnes of dry-biomass fish, a little under half a billion tonnes of human, close to a billion tonne of things we might eat that walk on land (cattle and such), and 2 billion other wet biomass. In turn, this is in the order of one thousands of total biomass.

Admittedly, the estimate of 5 billion tonnes of wet vertebrate biomass may be out by a factor of 2 or so, but can easily be an under-estimate since I only found a dry biomass estimate for fish.

Then the next part of the equation: how much does a vertebrate piss per year? Again, this turns out to be a tricky question because only birds and mammals produce concentrated urine like we do. The rest pisses much weaker stuff, though things like fish still produce ammonia and the other normal elements of piss because the basic physiology is not that different between us and a fish. So the process and form of piss is not the same across species but the substances produced by our bodies and eventually excreted somehow are not that dissimilar.

So we need to slightly alter the definition of what we are looking for and think of piss as a ‘human-like’ substance. We can then again take a conservative approach and don’t count the watery piss that fish produce as ‘100% piss’ but rather as a much weaker variety of what we produce. We can then take ourselves as the measure of what a body produces and simply scale up, getting an easier question to start out with: how much do we humans piss in a year? The answer turns out to be that we piss around 1.5 liters per day, or 500 liters per year. Another way to put this is that we piss out 8 to 9 times our weight in wet biomass per year.

Then onto the last unknown, which is the number of years that vertebrates have been around in the abundant form of life we have now. Again, a tough one. The earth is now quite a bit cooler and probably less fertile than it was in the times of the dinosaurs, so the amount of biomass walking around now is probably quite a bit less than it was in the more productive phases of earth, but by the same token for much of the earth’s inhabited history the inhabitants were bacteria and not things with spines. If we concentrate on the period of the vertebrates, the best guess is that fish arose some 500 millions years ago, whilst land was conquered by vertebrates some 380 million years ago. Taking a conservative guess for the total period of time that the volume of vertebrates we have now has been present, this means that the wet vertebrate biomass we have now has occupied earth for around 350 million years.

We can now put the pieces together to compute our piss ratio: 350 million years of 5 billion tonnes of wet vertebrates pissing 8 times their body weight per year equals 14,000 million cubic kilometers of piss. This means the atoms in your average water molecule will have been concentrated piss some 10 times already. And that is a conservative estimate. In the more likely scenario, there would have been more like 10 billion tonnes of vertebrate biomass on average, pissing 10 times their own body weight, living 400 million years, equating to water having been piss around 25 times already.

Perhaps equally interesting I can give some idea how often the water has been piss from a particular group of vertebrates. Starting from the best guess estimate, water has been fish piss some 10 times, mammal piss around twice, and other forms of piss 13 times. Only a trickle has been monkey piss.

As per usual, champagne to all those who thought the answer was ‘often’ (which is all commentators game to give a guess). Unflavoured recycled filtered desalinated naturalised piss for the rest!

LTE is a Game Changer Because of Upload (not Download) Speeds.

What makes LTE a game changer is not its download speed but its upload speed instead. LTE is faster than the internet connection to many homes.

I recently upgraded to a smartphone that supports LTE, a new “pseudo-4G” standard that claims much faster speeds than 3G networks. Around the world, telecommunications operators are just beginning to roll out LTE. My first impression when using LTE was one of incredulity. This thing is smoking fast! The screenshot below shows 2 tests performed on my cellphone within minutes of each other in Melbourne’s CBD. The panel on the left is with my phone connected to 3G, while the one on the right is for the same phone connected via LTE. Download speeds for LTE are in the 21+ Mbps range as compared to 3+ Mbps on 3G. The phone feels noticeably faster when browsing the web or running web-connected apps such as Facebook. 3-dimensional maps appear really quickly on LTE. It is really a pleasure to use, but truth be told the old 3G speeds were already respectable for a mobile device.

What makes LTE a game changer is its upload rather than download speed, which is shown in the photo at around 20Mbps. On 3G, uploads are 16 times slower (at 1.2Mbps), and that is being generous as I am often only able to connect at half or a quarter of that speed around Melbourne. The amazing thing is that 20Mbps is much faster than most residential broadband connections. Many people are connected to the internet at home via ADSL2+ technology, which typically has download speeds of 5-8Mbps (despite what your Telco’s marketing brochure says) and upload speeds limited to a measly 1Mbps. In contrast, at various places around Melbourne’s CBD I have measured LTE upload speeds ranging from 6 to 20 Mbps, but of course this is not a scientific test.

In practical terms, what this means is that on an LTE phone, I can upload photos and videos much faster than many people can from their home networks. Uploading to Youtube, Instagram and Flickr from my cellphone while on the move has become amazingly practical, and no longer feels like a hopeless endeavour. Video conferencing over LTE is quite smooth, e.g., using FaceTime or similar programs. Applications that capture data locally and process it remotely (including Siri and other voice recognition apps) work quite well. This make the end-user experience so much better. While better download speeds are certainly welcome, the new upload speeds have removed a critical bottleneck that existed before. I believe it will open up all sorts of new opportunities for innovation and new applications.

It remains to be seen whether LTE speeds will remain impressive after everyone piles onto the network. I hope it won’t slow down to a crawl. The design of LTE incorporates better traffic handling than earlier networks, plus LTE has theoretical download and upload limits of 300Mbps and 75Mbps respectively, but how well will it cope in practice? Before it gets too congested, I am enjoying the boost in speed, glad to be working and living downtown and bathed in LTE goodness.

speedtest.net: LTE vs 3g
Speedtest.net: LTE vs 3G on Optus Australia’s Network

Improving Wireless Ordering at Restaurants

Last night, we got to order dinner on a wireless touchscreen, actually an iPad in Aluminum body armour. Pretty cool. This was not our first time, but it was a surprise because we were not at some fancy restaurant but instead at a modest place in Chinatown. It just goes to show how widely this technology has diffused. The use of a touchscreen menu was useful in this context for overcoming language barriers as the waiters weren’t the most fluent English speakers and although some of us spoke Chinese it was not the same dialect.

Unfortunately, like at many other places, we found that the restaurant was using a smart tablet in the same old “non-smart” way. i.e., just as an electronic version of their printed menu but with ordering capability built-in. I suspect that we’ll be seeing smarter devices soon. For instance, the computer should make customised recommendations based on your dining preferences, group composition and the chef’s knowledge of which dishes and beverages go well together. It should be more interactive, adapting the menu recommendations as you progress through a meal based on whether you liked a particular dish. This could change the dining experience from being a static one, where you order at the start and cannot make changes, to one that is more interesting and dynamic.

At a basic level, many restaurants are using the wrong device: instead of investing in their own tablets they should be offering a software application that downloads directly to your own smartphone/tablet as soon as you sit down at a table. This would allow you to make more personalised selections, for example using your own (private) dining history and food restrictions to help find suitable matches in the menu as well as making recommendations based on reviews posted by others online, or maybe even via a transitory peer-to-peer network of other diners.

ps: now that I’ve put these ideas out, they become “prior art” so hopefully this prevents companies from patenting them and filing frivolous lawsuits, thus ruining my future dining experiences.

Ordering on a Tablet
Ordering on a Tablet