Coined: Semantics, Bitcoin, and Law

Semantics are the human window into the language of thought.

The existing financial terms are in place as ideals and generally accepted principles that businesses are supposed to know and abide by in order to provide consumer protection. The proposed BitLicense by the NYDFS is a perfect example of where existing financial terms overlook the capabilities of blockchain technology. The businesses and customers involved in “Virtual Currency Business Activities” do in fact need to be protected. However, the proposed rules and regulations in Part 200 Virtual Currencies will undoubtedly stifle innovation and the proposal completely ignores the underlying applications and functions of this new blockchain technology. In an effort to classify this technology with existing terms, the IRS classifies Bitcoin as an asset however FinCEN classifies companies in this space as money transmitters. So which one is it? How would you describe Bitcoin? A digital currency|commodity|network that enables the digital transfer and store of value over the internet? How would you describe the Internet? Really what is the Internet? A global network that enables transfer of bits of data? A digital medium that facilitates connection and communication?

The value in bitcoin and blockchain technology is in its transparent and equal cryptography nature. Application Programming Interfaces (APIs) with the blockchain’s and sidechains will create an unlimited range of financial tools and protective measures for consumers and businesses to:

  • ensure compliance with domestic and international laws, rules, and regulations.
  • augment the ability for anti-fraud, anti-money laundering, cyber security, and counter-terrorism finance.
  • protect consumers from privacy and information security events, fiat insolvency and ultimately financial instability.

Bitcoin calls the bluff of the existing financial terms. Software built on top of Blockchain technology does not allow default. The third party needed in so many of our trust based models is replaced by code. The escrow is software built in the form of mathematically bound hedges. Multi-signature cryptographic keys predetermine outputs based upon met or unmet inputs. The blockchain provides a perpetual and irreversible universal balance sheet with the most recent time stamped state of ownership. This universal ledger and medium of exchange is a digitally stored value technology that will bring everyone and everything on the same financial grid.

The existing lexicon doesn’t seem fit. We understand entities in terms of four things:

  • who or what brought it about
  • what it’s made of
  • what shape it has
  • what it’s for

There is this idea to get across; a huge, complex idea that value can be transferred as fast as bits of data travel over the internet. There is this narrative. It’s an unwritten script. It’s a public ledger. A universal digital ledger. Mathematically open for anyone to build on top of. The API for transferring assets without a trusted third party. There will only be 21 million coins and these coins are divisible down to 8 decimal places, 2.1 quadrillion units. It is radical, the network is universal. It augments the ability to check, store, and transfer value; human or machine.

The wordsmith, Satoshi Nakamoto, coined the word in a way so that other’s could relate it to what they already know. Language evokes meaning, it is what we use to form the metaphors that bring literal meaning from one dimension to the next . The correct word choice means everything.

Bit = Byte = Data –> Transfer Data over the Internet

Coin = Currency = Exchange –> Transfer of Value

To ease the listeners understanding of the coinage, we create a metaphor that reminds them of the idea and hopes it evokes a similar idea in their mind. Then at some point, the metaphorical ladder is kicked it out, and it just is. At this point everyone agrees on and understands what you mean. Right now, we are just relating it to things we know already know, to be able to understand what it is, when really, what it actually is, is something much more profound than that. So if the listener comes from a financial background then you own shares and that mining is like doing the accounting. If they come from a computational background you talk about the merkel trees.

If someone asked you “What is the Internet?” You would respond, what do you mean what is the Internet, it just is.

If someone today said “I am going to start an Internet company”, it would sound also sound redundant. Information technology has really almost upended the meaning of tech as a whole. “What type of internet company”, you would ask. This will be analogous for fintech companies in the next 20 years, they won’t be saying I am starting a Bitcoin company, it will be something built on top of the Bitcoin network and technology, similar to all of the huge venture backed companies built on top of the internet.

Nevertheless, right now the lexicon we use when dealing with Bitcoin is the difference between riches and jail.

I am mining Bitcoin and then I can use the Bitcoin in an app called Gyft to buy a giftcard to Amazon.com and redeem it online when at check out when I want to buy something. I am printing out a digital currency that I can use to purchase gift cards and then use these gift cards to buy things on the internet. In existing financial terms it,  kinda sounds like counter-fitting and money laundering.

Here’s another example:

“A crowdsale of digital tokens” is a lot different then “Initial coin offerings”

One sounds like kickstarter, the other sounds like unregistered securities offerings.

There is this block between what we know we can use Bitcoin for and what this technology has everyone excited about. Yeah we know, we can send an unlimited amount of money to anyone, anywhere with a bitcoin wallet. But this already exists, Bitcoin just makes it much more efficient. But then you take the block chain, the universal ledger that allows for trust-less transactions, an irreversible history of every transaction, and a exponentially growing network; and there is this whole new unknown realm of applications. It is a true technological advancement. People following this are becoming more cognizant of this. People dismissing it still see a fake internet currency. The conventions and abstractions that we are  trying to imagine will be the Facebook, the Google, the Twitter, the Amazon, that are going to be created on top of Bitcoin. Why should the businesses that are building the wallets, exchanges, and financial tools that are laying down the foundation for these abstractions be subject to this kind such a strict regulatory environment? How could these regulations affect our advancement if the proposal is used as a guide for future legislation in the United States?

There is this need for a new payment system. Creditcards were not made for the internet. Look at the huge corporate security breaches at Home Depot, Target, and JP Morgan. Information that leads to identity, such as name, physical address, and card numbers all compromised.

The existing terms fall short of the potential of the underlying Blockchain technology of Bitcoin. The recent FinCEN update suggest that all companies in this space are money transmitters when the use cases for decentralized Blockchain technology go far beyond just money. They need to trust the trust-less network and what it is backed by. As Galileo once said, ” Our Universe is a “grand book” written in the language of mathematics.” Bitcoin is the next chapter, waiting to be written.

So…

  • If you are going to build a Bitcoin business do not have it involve the transmission of money
  • If you are going to, get a money transmission license. (Federal and State Laws)
  • Apply for a bank account
  • KNC and anti-money laundering reporting is a necessity
  • Use the right vocabulary and make it well documented
  • Find someone with a talent for cooperation

November 13′ Bitcoin Price Comparison

November 2013. Bitcoin went from 250$-$1000 in a month.

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Dreamforce 2014

I attended Dreamforce last week and I was blown away by all of the new technology and the overall buzz that surrounded the conference.

I started off the week by hacking at the Salesforce $1 Million Hackathon, my team and I built Cointract in a 48 period. After some sleep on Sunday night, I took the train up to the city and walked to Dreamforce. The first day I got to sit in an Audi R8 using Oculus Rift, checked the price of Bitcoin in Yuan using Google Glass, and probably the coolest thing I got to do was wear an Emotiv EPOC headset and control a object on a screen with my thoughts. It was unreal. The Emotiv headset could read your facial expressions, your emotions, and let you control objects on a screen. Yes. I literally pushed a 3D cube deeper into the screen just by thinking about it.  The first thing they had me do was a baseline neural test for 8 seconds not thinking about anything. Then they took a baseline of me thinking about pushing the object. Then they made the push demo active and told me to think about pushing the object again and it actually moved via my brain waves. It was a pretty remarkable experience. There were a ton of great companies I took note of and had to pleasure of talking.

Tessel, a Javascript programmable microcontroller was very cool. They have over 15 modules that can be added onto the microcontroller with packages all available through npm.

Thalmic Lab’s Myo, a gesture controlled armband that uses electrical activity in your muscles to wirelessly control digital technologies.

Nymi, a wearable that uses your unique cardiac rhythm to authenticate your identity with all of your digital devices.

APX Labs, creates enterprise software for smart glasses.

One thing I noticed was that it was hard to distinguish the companies that all kind of use the same ABC buzz words. “Analytics” “Big Data” and “Cloud”. Despite the noise, enterprise cloud applications are where the money is at. Increasing business productivity and reducing costs through Salesforce’s platform.

In the developer zone I learned how to build a static web server using Node.js , Express, and Heroku. They also were handing out free workbooks and guides to their newest release Salesforce Lighting. Lightning allows you to build your own components to your applications. In the Developer Keynote, they said Lightning components were analogous to parts of a car. The parts are the components, and the app is your car. You can now customize and build the components and deploy them right to your Salesforce 1 applications.

It was a great week and I definitely am looking forward to next years Dreamforce.

Next:

Vegas for the Money 20/20 hackathon and conference.

Zero to One

Today I finished the book Zero to One and I wanted to go over exactly what parts I highlighted and took note of, and what passages I wrote “THIS.” in the margin of. Overall I think the book is following the theme of the importance of asking the right questions. The author, Peter Thiel of the Paypal mafia, explains what questions and answers are necessary to successfully re-create the world we live in in order to preserve it for the future.

1 to n vs. 0 to 1

1 to n is not a singular moment. It is taking something we already know and spreading it else where. It is globalization. It is nothing new, it is just more of something familiar. Horizontal. Synthetic imagination.

0 to 1 is technology. The singular act of some new thing. It is found in by founders in unexpected places. Vertical. Creative imagination. Any new and better way of doing things.

“No one can predict the future exactly, but we know two things: “it’s going to be different, and it must be rooted in today’s world.”

“Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resource, globalization without new technology is unsustainable.”

THIS. 

“The Old Economy couldn’t handle the challenges of globalization. Something needed to work- and work in a big way- if the future was going to be better at all. By indirect proof, the New Economy of the internet was the only way forward.”

“when you pay people to be your customers, exponential growth means an exponentially growing cost structure”

“The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.”

“Victory awaits him who has everything in order- luck, people call it”.

“Long-term planning is often undervalued by out indefinite short-term world”

“A business with a good definite plan will always be underrated in a world where people see the future as random.”

“The best investment in a successful fund equals or outperforms the entire rest of the fund combined.”

“If insights that look so elementary in retrospect can support important and valuable businesses, there must remain many great companies still to start.”

“Sales- an orchestrated campaign to change surface appearances without changing the underlying reality.”

“Effective distribution = CLV (Customer Liftetime Value) > CAC (Customer Acquistion Cost). It is the hidden bottleneck if you have something new but you havent invented an effective way to sell it.”

“If every new user leads to more than one additional user, you can achieve a chain reaction of exponential growth.”

“If you can get just one distribution channel to work, you have a great business.”

“An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale. No sector will ever be so important that merely participating in it will be enough to build a great company”

The Power Law

This is hiding in plain sight. It’s understanding makes all the difference in business and life. The last two books I have read have talked about this. Both say that it is actually the world we live in verus the bell curve which is the perception.

imagThe degree of difference are profound.

“Venture-backed companies create 11% of all private sector jobs. They generate annual revenues equivalent to an astounding 21% of GDP. The dozen largest tech companies were all venture-backed. Together those 12 companies are worth more than $2 trillion, more than all other tech companies combined”.

“People who understand the power law will hesitate more than others when it comes to founding a new venture: they know how tremendously successful they could become by joining the very best company while it’s growing fast. The power law means that differences between companies will dwarf the differences in roles inside companies.”


Monopoly is the condition of every successful business. Competition is an ideology and leanness is a methodology. Iteration without a bold plan won’t take you from 0 to 1. Make a 10x improvement to an existing small market and dominate it. Expand into adjacent markets and make it part of the founding narrative. Be the last mover. The last great development and scale up from there. Whoever is the first to dominate the most important segment of a market with viral potential, will  be the last mover in the whole market. 

The Questions

What important truth do very few people agree with you on?

What valuable company is nobody building?

How can computers help humans solve hard problems?

Can you create breakthrough technology instead of incremental improvements? Is now the right time to start your particular business?

Are you starting with a big share of a small market?

Do you have the right team?

Do you have a way to not just create but deliver your product?

Will your market position be defensible 10 and 20 years into the future?

Have you identified a unique opportunity that others don’t see?

Recurring Themes

The Power Laws

IBM WATSON

AI(computers) Substitution vs. Complementary for humans

The right questions

Cointract

This past weekend I participated in the Salesforce $1 Million Hackathon. I arrived at the Metreon on Friday around 4:30, found team members and in 48 hours we built a working mobile app on the Salesforce1 platform. This application was called Cointract.

Cointract allows Salesforce users to trade assets through b2b and p2p contracts with no middleman and no counterparty risk.

Post, Buy & Track Contracts, Anywhere, Anytime, Any Device.

Here is the summary from our Challengepost submission:

5 billion people and 50 billion things will be connected to the internet in 2020. The introduction of a digital transfer value systems that goes beyond currency transactions will disrupt many verticals in international markets. Blockchain technology acts as a verifiable public leger that is sustained on the internet by a network of distributed nodes around the world, and its next wave of applications is difficult to conceptualize.

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At Cointract, we forge trust, increase resources, and boost better business practices by creating contracts, contract tracking, and a trust rating system to benefit Salesforce users who use emerging and existing virtual currencies. Our clients are Saleforce users in the B2B and P2P space. Salesforce is the perfect platform for Cointract because it has the capability to implement native business applications, can be applied quickly, and functions globally.

Based on abstractions of non-currency transactions made possible using timestamps and public ledgers for ownership transfers, our products save money by:

  • removing third parties currently charging for their services,
  • creating value by giving the user the ability to turn their assets into self sustaining economic units
  • expediting transaction times from days/weeks to minutes, streamlining business supply side logistics

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Our favorite features are the rate of currency verification, the SMS and email notifications associated with contracts, and the User rating system. Cointract pulls data from the Bitcoin block chain, confirms the state of ownership in real-time, and then verifies whether a contract should be executed or not. Apex applied in Salesforce notifies users with SMS and/or email to let them know where they are in the contract process, benefiting both parties. Contract rating promotes customer retention and future contracts with straight or modified rebuys.

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Currently most businesses and individuals are unaware of the non-currency transactions that are possible using block-chain technology. Cointract builds these streamlined processes which saves users time and money in a evolving global economy.

Cointract was built using Chain.com APIs, Counterparty, and Force.com

Bitcoin 2.0: Decentralized Asset Transfer

Bitcoin’s Killer Apps – Chain.com’s Blog –  by Adam Ludwin

Some ideas for native bitcoin apps – by Chris Dixon

Bitcoin 2.0 relates to the non-currency use cases of the Bitcoin blockchain as a distributed ledger for tracking ownership of various other assets. These have been coined as native applications or use cases that would not be possible without Bitcoin technology. These are the 0 to 1’s that will completely disrupt a number of verticals over the next coming years.

The first stage of Bitcoin was about transferring currency from A to B without C. Doing things that we already know how to do as far as transferring money or buying things but in a more efficient and effective way in terms of speed and reach because of the blockchain. The next stage is the non-currency use cases. The abstractions that provide services that would not be possible without Bitcoin and blockchain technology. Another way to think about it is building the use cases for non-monetary transactions. Moving any amount of value on an open ledger between things connected to the internet. In this sense Bitcoin 2.0 is not a BIP or a newer version of the protocol, but instead a namespace for the new use cases that will be be built on top of and embedded into the blockchain.

It turns money as we know it into bits of data on a decentralized ledger that operate as token of allowances based upon the timestamps and parameters set by the parties involved. These smart contracts can allocate digital resources such as bandwidth, storage, computation, and private keys between people and things connected to the internet. The parameters of the contract are set in code using if-then statements which predetermine what value producing assets are aware and what terms are at hand.  This can enable a whole new set of IoT micrometering and communication by passing the data through mesh networks like Zigbee. This is being recognized at the enterprise level by IBM in the form of its premium solutions partner Adept. They are building open source software that allows devices to communicate and then authenticate instructions based on real-time data that is being pulled from the blockchain.

The abstractions that use blockchain technology will remove friction in various processes by removing the middlemen necessary in current models. Combined with multisig and additional opt-in signatures to attach identity, these types of contracts will be completely transparent and automated. The hard part is conceptualizing these 2.0 abstractions and developing the various models using blockchain tools like Chain. This technology brings everyone and everything on the entire planet to the same financial grid.

2.0 applications:

Platforms

Sources

Panel at Perkins Coie and virtualcurrencyreport.com

Thoughts

How do we increase the volume the transaction capacity of the blockchain but compress entire size of the blockchain?

How do we incentivize people to run a full bitcoin node? Or how do we increase the number of bitcoin nodes?

What is the transaction equivalent in frequency, speed, and scale of tweets and likes?