SOPHISTICATED FINANCE

Bitcoin as a Protocol for Trust

Bitcoin is the peer-to-peer virtual, encrypted currency not issued by a government authority.

Albert Wenger at USV, the New York VC, had an interesting blog post, "Bitcoin As Protocol". In the post Wenger talks about the possibilities for innovation if one recognizes and preserves Bitcoin as a shared "public ledger". Bitcoin could become the world's bookkeeper or bookkeeping protocol not just for monetary transactions, but also for stock holdings, trusts, etc. This apparently excites Wenger. OK.

What excites me about Bitcoin is that it could possibly "redefine the protocol for trust". When man first started doing commerce around 7-10,000 years ago, the big issue was trusting people outside their immediate community. Trust is the fundamental concept that underlies money, promissory notes, eBay and many other parts and types of commerce. The oldest concepts like money use  government backing or some suitable authority to establish the necessary trust. The newest concepts, like eBay, use peer ratings of vendors to establish trust. Somewhere in the middle of this timeline, legal systems became a part of the trust framework.

While some would argue that modern technology made possible the emergence of peer mechanisms to establish trust, I think such an approach misses an important point. The Snowden disclosures of secret NSA information made public the scope of U.S. government surveillance worldwide. I do not condone in any way the Snowden disclosures, but I understand the widespread anger at the scale of the surveillance. Nassim Taleb, author of The Black Swan, was one of the first writers to point out that we are outraged by the federal government’s behavior but no one complains about Google’s collection of so much private data related to our Internet behavior. Effectively, we have more trust and confidence in a Google or a Facebook than in the U.S. government. Whether Google or Facebook warrant the trust may still need to be determined, but they portend a new future.

What Bitcoin may be is an early step in the replacement of government as a mechanism of trust. That is pretty exciting! IT technology provides the basis to reduce or restrict government involvement in our lives. Bitcoin could replace the U.S. Dollar or at least the Argentine Peso. No partisan politics involved. Just a return to the original concepts of Locke and Hobbes initiated by individuals linked by technology.

Can Bitlections or Bitferendums be far behind. They will show up at the local level, where government is most effective and the resources are most limited. Urbanization may be a major contributor to such a change as the scale of social problems overwhelm the politicians to the dismay of "voters". Taxes payable in Bitcoins to Google, acting as a trustee??

Remember: disruptive innovations are frequently classified initially as "crazy".

Related articles

Couple lives off Bitcoins

A Note About Bitcoin

Bitcoins Bitcoins Everywhere

Outsourcing, Marginal Cost and Startups

In a recent post on strategy, "A Review of the McKinsey "Strategy Building Blocks"", I advocated for a simple three step approach to strategy inspired by Napoleon:

1. Pick the part of the market you want to dominate rather than fighting with the entrenched competition 
2. Execute a strategy that plays to your special strengths and expertise 
3. Bring sufficient resources to succeed 

 If we examine "special strengths and expertise" we realize something important about startups. Startups should only invest to establish and develop their special expertise, such as customer experience, sales, product design and development, programming and not much more. These are the key areas where a product is differentiated. Everything else should be outsourced... and I mean everything...and even design and programming could perhaps be partially outsourced.

Too often companies default to doing things themselves because that is the way it is done or it is perceived to be cheaper. After factoring in the cost of management time, few of these cheaper things are so cheap. If you cannot outsource the activity because you are in sub-Saharan Africa, then the default should be to convert an expense to a marginal as opposed to fixed cost. 

So to make this simple, when you start a company you make a quick list of every person and task that is required to operate and then identify which are important. Everything not important should be outsourced. It can be if you work at it.

 

Related articles

Another Outsourcing Example--Equities Trading

Startup as a service

Five Effective Outsourcing Techniques for Your Small Business

Does your startup really need to hire in-house developers?

Is Capitalism Moral?

The Jacobin has an interesting article, "Wall Street Isn’t Worth It", about the abuses by banks in the current regulatory environment. There are some ideas about how to achieve more meaningful regulation, an analysis of why that will not happen and a strategy for the Democrats to turn bank reform into the major issue of the next presidential elections. 

The entire Jacobin analysis appears to be based on the assumption that capitalism is not moral. The morality of capitalism became a popular question about the time of Karl Marx, experienced a rebirth during the Great Depression of the 1930s and rose again from the ashes in 2007 with the worldwide financial crisis. During periods of cataclysmic economic downturn, the issue faithfully re-emerges. Supporting the longevity of this issue is the absence of much writing in support of the morality of capitalism. 

However, I think the wrong question is being asked. Capitalism, like government and religion, is a social convention of a community. These conventions withstand the test of time because they are fair, equitable and socially beneficial to large numbers of people. Such conventions, in and of themselves, are not moral or immoral but only socially beneficial to varying degrees. Institutions that do not meet this standard disappear relatively quickly, e.g. Nazism, communism, certain mysticisms.

It is the people operating the systems who are immoral when events go astray. We do not ask if government is immoral just because of a Hitler or Stalin. We do not discontinue scientific research because of a Mengele. We do not question the morality of religion because of Jim Jones. It is the individuals, not capitalism, who are probably immoral. Nearly wrecking the world financial system has to be immoral. However, it is the individuals who are immoral and not capitalism.

This article, "A Refresher on the Fundamentals of Capitalism", provides a framework for a capitalist to be moral. Just in case this was a question.

 

Related articles

Keynes' Insights into Capitalism

Morality vs Legality

The Left is trying to rehabilitate Karl Marx. Let's remind them of the millions who died in his name

How to Work with a Mentor

This Fast Company post,"Startup Failing? You Might Be Asking The Wrong Questions" is an excellent article on thinking, learning and mentoring. Today I will just discuss working with a mentor.

Last week I did two mentoring events. The first event was the Women's Success Summit, produced by Miamian Michelle Villalobos. 300 women and me. What could be more fun? In a 30 minute session anyone in the audience had 30 seconds to describe their business and their problem and then I was supposed to give advice. Out of 7 questions, three people asked for specific solutions to problems. The other four had ideas and wanted to know how to turn them into a business. The three with specific questions could benefit from a mentor. The other four souls should probably come to one of my workshops on how to develop a business concept. They were pre-mentor.

The second mentoring event was the monthly session hosted by the FIU Pino Entrepreneurship Center. This group was all male except for my good friends Lauren and Karyne from Pino Center who organize this event. Four thirty minute mentoring sessions. 1 person had a specific question (his second startup). One person had a fully developed business concept and he wanted to stress test it before he talked to investors. That's fair and I think he got some good advice. 1 person without a business concept (workshop candidate) and one wacky person idea that will never, ever get done. . Doable, but one in a billion. Not suitable from mentoring. 

As Fast Company said:

"There are plenty of people who'd love to help you with your business; you just have to ask, but they don't have time to waste helping you figure out what your actual problems are. Get the most out of a potential mentor by approaching them with specific questions you've already identified and they've probably answered for themselves."

I struck out the point about "time wasting". Mentoring is not a billable hours business, but you get more benefit from the mentor the more well thought out the question. If you are not sure whether you have a business concept, you probably don't and you are a workshop candidate. 

I would like to do a radio show where people call in with questions about how to grow their business. Weekly co-hosts with specialties. Sponsor/advertising inquiries welcome. 

Related articles

How to Make VC Mentoring Work

U.S. Census Bureau Report on Jobs

The U.S. Census Bureau has released its latest data on jobs, which is shown below.

 

As the exhibit shows, we are becoming a country of healthcare workers. Ponce de Leon gets the award for strategic vision. Not to overstate the obvious, healthcare is an industry ripe for technology disruption given all the people working there.

The "family farm" is a political myth given that only 200,000 people work in agriculture. Why do we pay all those government subsidies to farmers?

Note that government workers are not broken out as a category. Forbes estimated 21.9 million federal, state and local government workers at December 2012. That figure represents the largest job category and approximately 10 percent of all U.S. jobs. So don't be worried about the U.S. becoming a country of healthcare workers. We are a country of government bureaucrats....administering the healthcare system.  

Susan Sontag--Another Kindred Spirit

Occassionally I find someone who helps me to resolve issues or conflicts that trouble me. This post from 2009 about George Polya, "George Polya-Problem Solving and Heuristics", is a case in point.

A recent story in Slate about Susan Sontag answered several questions that I have been pondering in recent years. Sontag was an acclaimed 20th century novelist and essayist. We shared a liberal period in the early 1970s, but for Sontag it was a life calling whereas for me it was just a period on the way to a more conservative outlook. I find it somewhat amusing that I draw so much insight from a gay, Jewish woman, which probably shows that none of that is relevant. Perhaps our common interests in philosophy, writing and teaching explain this "bond", but I think not. I suspect that we have just thought about some on the same questions and now I can probably consider some answered or at least resolved.

This description of Sontag I found particularly interesting.

"Sontag’s ongoing investment in the development and definition of herself always seemed less like self-obsession than a kind of existential industriousness....you get the sense of a person who was always working toward an ideal version of herself. The ideal changed in its particulars over time, but the ideal of change remained constant... a useful reminder that being a pseudo-intellectual is a necessary stage on the way to being a nonpseudo-intellectual, and that the two classifications aren’t necessarily mutually exclusive. Being an intellectual is often, after all, a matter of getting away with trying to be seen as one." 

"The ideal of change remained constant" is comforting. While such an expression sounds like a cliche, it is not so mundane when the change is in large part in your mind and how it works.  How to become an intellectual I also found to be very telling.

This description of her erudition was insightful for me.

 “As I listened to her clear, authoritative, and direct responses to my questions, it was obvious that she had attained the conversational goal that she had set for herself many years before.” The idea of this persuasive fluency of speech as something constructed, something striven for and achieved"

This is the standard of speech that any thinking person should strive for. It is an amazing demonstration of discipline and intellect, especially when done everyday.

This quote about curiosity is the point missed in the education debate.

"The way in which she positions curiosity as not just a primary critical value, but a primary human value." To be curious is, in the most vital sense, to be serious."

Curiosity is the driving force behind all discovery but rarely used as a pedagogical device in most schools.

 I think this quote from Sontag provides great insight into writing.

"I feel I’m changing all the time, and that’s something that’s hard to explain to people, because a writer is generally thought to be someone who’s either engaging in self-expression or else doing work to convince or change people along the lines of his or her views. And I don’t feel that either of those models makes much sense for me. I mean, I write partly in order to change myself so that once I write about something I don’t have to think about it anymore. And when I write, it actually is to get rid of those ideas. That may sound contemptuous of the public, because obviously when I’ve gotten rid of those ideas, I’ve passed them on as things that I believe— and I do believe them when I write them— but I don’t believe them after I’ve written them because I’ve moved on to some other view of things, and it’s become still more complicated ... or perhaps more simple."

I like the concept that writing rids one of the ideas and also that the ideas can evolve. This idea of evolution explains a great thinker like Friedrich Hayek, whose views on certain subjects change profoundly, in my opinion, over his lifetime. Of course, the talent shows itself in differentiating the half-baked idea from the foundational thinking.

 Note: In the related article below, Sontag's views on photography are interesting. She explained my lack of interest in taking photos, something which I had been pondering for 40 years.

Related articles

Philosophy and Physics

The Intellectual: Susan Sontag Really Did Read Everything There Was to Read

Susan Sontag on Literature and Freedom

Susan Sontag - On Photography

Not Everything Political has to be Ideological

I should have written this myself about a year ago.

"If you drill down deep enough into any problem or stance, you’ll find an ideology lurking there. But the point is, we don’t need to drill miles down to find the ideological bedrock beneath the problem, and make that the “real” or galvanizing issue. We don’t need to take every political act that attempts to make government work better, and find ideology there, and move ideology from the back stage to the front."
                                                                  Pamela Haag in Big Think

I have about _____ reasons I think Ms. Haag is correct:

1.  
   1. Some things we just need such as the judiciary and the CDC
   2. Some things deserve not to be tainted by ideology such as the military and freedom of religion
   3. Some things are just obvious such as services for disabled and homeless children, veterans and the elderly
   4. Some things are bedrock principles such as political asylum and freedom of speech

I will stop now. You hopefully get the point, and if you disagree with my reasons, just don't make it ideological.

Related articles

Fixing What's Wrong with U.S. Politics

I'm Sick of Ideology - Even My Own

Everyone Is In Love With Ideology

Student Consumer Survey Request

A team of my undergraduate students is working on a startup for a consumer business. As part of their initial environmental analysis they have prepared a survey. I did not review this survey, but I would ask that you complete the online survey. The survey is available at the link below.

 

https://fiu.qualtrics.com/SE/?SID=SV_b7wpoYdq0EmLdJz

 

Please feel free to share the survey on social media. Thank you.

Related articles

Consumerism Threatens the Enterprise Cloud

Surveys - why we need them by Kerena Sheath

Nobody Voting in Elections

Today is election day in Florida. There are no presidential or congressional seats on the ballot, but local officials and referendums are on the ballot. The voter turnout where I live is light, very, very light, which prompts this post.

Despite the embarrassing partisan politics recently in Washington, this is no reason to forego local elections. In fact, the partisanship of Washington is evidence of the continuing breakdown of the federal government. I plan a complete post on this theme, but basically the development of IT is going to enable us to reduce federal government significantly over time. This trend is part of the social evolution of man and has nothing to do with Republicans and Democrats. 

However, with the reduction in federal government, state and most importantly city government is going to become increasingly important. Increased urbanization will only accelerate this trend. 

So the real political battle ground is going to become the cities and that's why you need to vote in local elections.

 

Related articles

Thoughts on the Voting Rights Act

Bill Gates: Malaria vs Information

The Gates Foundation is commendable for its focus on the "big problems" and the use of more rigorous selection and evaluation criteria for grants. One of Bill Gates' recurring themes is that the founders of Google and Facebook should not be prioritizing Internet access over projects such as a malaria cure. I think Gates is wrong.

As Nobel economist Michael Spence explains in The Next Covergence, poverty is caused by the absence of information. One's net worth is constantly depleted because one lacks the information to price transactions correctly. If information is easily available through the Internet and the recipeient has basic reading skills, then the idividual has the necessary foundation to manage their own life (assuming no discrimination). Information availability is the most challenging ingredient to achieve individual empowerment, but with individual empowerment people can then address their own economic, health and political problems. 

One could argue that if the people die from Malaria, then individual empowerment never has a chance to operate. One could argue that if they don't die from Malaria, the poor could die from Aids, political insurrection or one hundred other causes. 

The scale of the social problems suggests to me that focused approaches such as Gate's malaria research will not make as much of an impact as the Internet-Information approach that lays the groundwork for individual empowerment. Basically, what Gates appears to miss is that education and information availability are the best way to mobilize sufficient people to solve the large social problems.

 

 

Related articles

Intellectual Thought in Business

Entrepreneurship and Economics

What Forbes Missed in the List of the Most Powerful

An Insight on Thinking from the iPhone 5S

This morning I had breakfast with a successful young businessman who a few years ago graduated from Yale. Suffice it to say, a very smart guy.

While he went to pick up some food, I noticed his brand new iPhone 5S. I have not spent much time with the phone so I figured I had a few minutes to check it out. As soon as I brought up the home page I stopped exploring the phone. This man's phone was organized so differently from my iPhone that I started thinking about why it was organized so differently. His phone had many, many different collections of apps organized into boxes labelled "productivity", "business", etc. and did not even use the second home page for apps. Each box had about ten individual apps inside. When he returned with his food, I asked him why he organized his apps the way he did. He first answered that he did not like to flip through pages to find apps, but that could not be the real answer because we all flip pages constantly on our iPhones. I suggested to him that the way he thinks is using frameworks. He fits new ideas into existing frameworks. The "productivity" box was a framework. Framework thinkers excel at analysis and deductive thinking.

My iPhone uses multiple home pages and almost no boxes to collect related apps. That form of organization suggests to me that I am more of a pattern recognition thinker (individual icons match to the app) and not passionate about a subject, such as music. Pattern recognition normally suggests more creativity and inductive thinking. I must be the exception that proves the rule.

One of the smartest people I know has an iPhone home page that is almost evenly balanced between boxes of apps and individual apps. The boxes all have many apps inside. She excels at problem solving and operations.

Three data points do not establish a valid theory. More research is required to prove me correct about home page organization reflecting thinking styles or strengths. However, the next time you interview a new hire candidate, perhaps you should ask to see their phone. Note: A mix of boxes and individual apps on the home page, but where the boxes have few apps inside, probably suggests a lower quality thinker. Only one box filled with many, many apps probably signals a person's passion, which may or may not be consistent with job requirements.

Comments about how you organize your phone home page and what kind of thinker you are can be posted below.

Related articles

]