The Future of Currency: Bitcoin Hitting the Streets

bitcoinFor those familiar with digital currencies, the name Bitcoin ought to ring a bell. Developed back in 2009, this “cryptocurrency” – i.e. it uses cryptography to control the creation and transfer of money – was created as a form of online payment for products and services. Since that time, it has become the subject of scrutiny, legislative bans, volatile pricing, and a hailed as a hardinger of the coming age of “distributed currency”.

Unlike precious metals or more traditional forms of currency, which hold value because they are backed by a country or are used to manufacture goods, Bitcoin is only buoyed by market demand. There are only 12.3 million virtual Bitcoins in circulation and those “coins” are traded through a Peer-to-Peer computer network, much as people used to share music files.

bitcoin1What’s especially interesting is the fact that the creator of this new form of currency remains unknown. It is assumed that it originated with a programer from Japan, due to the fact that its first mention came in a 2008 paper published under the pseudonym “Satoshi Nakamoto”. It became operational roughly a year later with the release of the first open source Bitcoin client and the issuance of the first physical bitcoin.

And in an interesting and personally-relevant development, it now seems that a Bitcoin ATM is coming to my old hometown of Ottawa. In this respect, the nation’s capitol is joining other major cities around the globe as municipalities that dispense the crypto currency, in spite of the fact that it is still not recognized by any national banking institutions, or financial regulating bodies.

future_money_bitcoinWhat’s more, the publicly-traded cryptocurrency has seen its stock go through repeated highs and lows over the past few years, being subject to both bubbles and price drops as countries like India and China prohibited its use. But with these machines hitting the streets, a trend which began back in November with the distribution of Robocoin ATMs, there is speculation that the digital currency might just be here to stay.

Part of the appeal of cryptocurrencies is that they allow for anonymity, hence why bitcoin has been linked to a number of illegal activities, such as on the shuttered drug marketplace Silk Road. And because its value is strictly tied to speculators, and not backed by any tangible measure or authority, speculators are able to ratchet up demand and push the stock value higher.

future_money2But Bitcoin is also starting to be accepted as a mainstream form of payment for U.S.-centric sites like OkCupid and WordPress. And back in October of 2013, China’s web giant Baidu accounced that it would start accepting Bitcoin payments for a firewall security service it sells. And though the Chinese government put the brakes on Bitcoin exchanges by December, the number of mainstream institutions opening up its coffers to it is growing.

These include Richard Branson’s private space tourism company Virgin Galactic, the Sacramento Kings, the e-commerce giant Paypal, and Overstock.com, a major online retailer. And popular use is also growing, as evidenced by the visualization below which shows downloads of bitcoin client software since 2008, broken down by different operating systems.

bitcoin_globalWhat the graphic shows is quite indicative. All over the world, particularly in developed countries and areas of economic growth – the Eastern US, Europe, Brazil, Argentina, Russia, Sub-Saharan Africa, India, China, Australia and Southeast Asia – the Bitcoin software is being downloaded and used to oversee online exchanges in good and services.

And ultimately, those who believe in the service and choose to invest in it are doing so based on the promise that it will someday streamline monetary transactions and free the world from the financial manipulation of big government and big banks, breakdown the financial walls between nations, and remake the worldwide economy. In short, it will breakdown centralized economies and allow a “distributed economy” to takes its place.

bitcoin_popmapAdmittedly, the service is still flawed in a number of respects. For example, people who chose to collect bitcoins in the past were dissuaded from spending them since their value kept going up. The problem is, if economic incentives encourage people to hoard their bitcoins rather than spend them, the currency will never fulfill its role as the future of money.

Another problem is the one arising from the currency’s “deflationary nature”. Because the system was designed to allow the creation of only a finite number of bitcoins, there will come a point where, as demand rises, the value of the currency will only go up (making the price of goods and services fall, hence the term deflation). And that could lead to hoarding on an even larger scale.

bitcoin-atm-flagshipBut according to many economists who have closely followed the progress of the digital money, Bitcoin’s recent ups and downs are to be expected from a currency so young, and one that is just now attracting major attention from the mainstream population. The bottom could fall out of the market, but the currency could just as easily stabilize and reach a point where its value is consistent enough that people no longer hoard the stuff.

So at this point, its difficult to say what the future will hold for the new miracle money known as Bitcoin. But when it comes to cryptocurrencies in general, time seems to be on their side. Ever since the Internet Revolution took off, the possibilities for creating a new, de-centralized world order – research, development, politics and business are open and inclusive in ways like never before – has been emerging.

Sources: ottawacitizen.com, wired.com, fastcoexist.com, bbc.co.uk, uxblog.idvsolutions.com

Your Reputation: The Currency of the Future

reputation_marketingNot too long ago, I did something I haven’t done in a long time and wrote a conceptual post, one which dealt with the concept of the “Internet of Things” and where its leading us. In that spirit, and in the hopes of tackling another concept which has been intriguing me of late, I wanted to delve into this thing known as Reputation Marketing, also known as the Trust Economy.

Here too, the concept has been batted around of late, and even addressed in a Ted Talks lecture (see below). And much like the Internet of Things, it addresses a growing trend that is the result of the digital revolution and everything we do online. To break it down succinctly, Reputation Marketing states that as more and more of our activities are quantified online, our behavior will become commodified, and our actions will become the new currency.

Facebook Reece ElliottAt the heart of this trend is such things as social media, online shopping, and online reviews. With everything from used goods, furniture, clothing and cars to accommodations up for review, people are turning to web-based recommendations like never before. In fact, a 2012 study done by Neilsen Media Research suggested that 70% of all consumers trust online reviews,  which are now second only to personal recommendations.

For some, this represents a positive development, since it means we are moving away from the depersonalized world of institutional production toward a new economy built on social connections and rewards. One such person is Marina Gorbis, who explores the development of what she calls socialstructing in her book The Nature Of The Future: Dispatches From The Socialstructed World. 

NatureOfTheFuture_cover_sml_01In Gorbis’ view, in addition to new opportunities, socialstructing will present new challenges as well. For one, there will be exciting opportunities to create new kinds of social organizations – systems for producing not merely goods but also meaning, purpose, and greater good. But at the same time, there is a possibility that this form of creation will bring new inequities, and new opportunities for abuse.

But at the same time, Gorbis was sure to point out the potential negative consequences. In the same way that one acquires friends on Facebook, or followers on Twitter, people in the near future could be able to hoard social connections for the sake of money, fame, or social standing. Basically, we need to understand the potential disadvantages of socialstructing if we are to minimize the potential pitfalls.

future_money_bitcoinOne such development she points to as an example is the rise of social currencies, such as Paypal, Bitcoin, and others. These operate much differently than regular currencies, as they are intended to facilitate social flows that often operate not on market principles but on intrinsic motivations to belong, to be respected, or to gain emotional support. But once these connections and flows begin to be measured, they may acquire a value of their own.

Basically, if we begin to value these currencies, motivations will arise (not necessarily altruistic ones) to acquire them. So instead of turning market transactions into social flows, we might be turning social interactions into market commodities. In the words of sociologist Chase, we would be applying ontic measurements to ontological phenomena. Or as she puts it in her book:

We created social technologies. Our next task is to create social organizations: systems for creating not merely goods but also meaning, purpose, and greater good. Can we imagine a society of “private wealth holders whose main objective is to lead good lives, not to turn their wealth into capital?” asks political economist Robert Skidelsky. Or better yet, might they turn their wealth into a different kind of capital—social, emotional, or spiritual? Our technologies are giving us an unprecedented opportunity to do so.

botsman-tedAnother person who sees this as a positive development is Rachel Botsman – consultant, author, former director at the William J. Clinton Foundation, and founder of the Collaborative Lab. In her ongoing series of lectures, consultations, and her book What’s Mine Is Yours: The Rise of Collaborative Consumption, she addresses the transformative power collaboration will have, giving rise to such things as “reputation capital” and the “reputation economy”.

In her 2012 Ted Talks lecture she explained how there’s been an explosion of collaborative consumption in recent years. This has embraced everything from the web-powered sharing of cars, to apartments, and even skills. In short, people are realizing the power of technology to enable the sharing and exchange of assets, skills and spaces in ways and on a scale that was never before possible.

collaborative_consumptionBut the real magic behind collaborative consumption, she explained, isn’t in the inventory or the money. It’s in using technology to build trust between strangers, something which is rarely available in the current industrialized, commodities market. Whereas this top-down economic model relies on depersonalized methods like brand name recognition and advertising to encourage consumption, this new model is far more open and democratic.

It is for this reason, and because of the potential it has for empowerment, that Botsman is such an advocate of this emerging trend. In addition to offering opportunities for micro-entrepreneurs , it also provides people with the chance to make human connections and rediscover a “humanness” that has been lost along the way. By engaging in marketplaces that are built on personal relationships, as opposed to “empty transactions”, people are able to reconnect.

future_moneyThe irony in this, as she states, is that this emerging trend is actually taking us back to old market principles which were thought to have been abandoned with modern industrial economy. Much like how Envisioning Technology predicted with their recent infographic, The Future of Money, this decentralizing, distributed trend has more in common with bartering and shopping at the local agora.

Basically, these behaviors – which predate all the rationalization and vertical/horizontal integration that’s been taking place the industrial revolution – are hardwired into us, but are being updated to take place in the “Facebook age”. Through connections enables by internet access and a worldwide network of optic cables, we are able to circumvent the impersonal economic structures of the 20th century and build something that is more akin to our needs.

future_money2Or, as Botsman summarized it in her article with Wired UK:

Imagine a world where banks take into account your online reputation alongside traditional credit ratings to determine your loan; where headhunters hire you based on the expertise you’ve demonstrated on online forums such as Quora… where traditional business cards are replaced by profiles of your digital trustworthiness, updated in real-time. Where reputation data becomes the window into how we behave, what motivates us, how our peers view us and ultimately whether we can or can’t be trusted…

Another potential irony is the fact that although online shopping does allow people to avoid face-to-face interactions at their local store, it also draws customers to businesses that they may not have otherwise heard about. What’s more, online reviews of local businesses are becoming a boon to entrepreneurs, expanding on the traditional power of written reviews and word of mouth.

And at the risk of making a shameless plug, this all puts me in mind of a short story I wrote back in April, as part of the April 2013 A to Z Challenge. It was called Repute, and deals with a young executive in charge of hiring new talent, in part based on what I referred to as their Reputation Index Placement (RIP), which was basically a tabulation of their digital presence. Like I said, the concept has been on mind for some time!

And of course, be sure to check out Botsman full lecture below:


Sources:
fastcoexist.com, wired.co.uk, ted.com
, envisioning.io

The Future of Money

future_money4The good people over at Envisioning Technology – the independent research organization based on Brazil – have produced yet another intriguing infographic. As some of you may recall, whenever ET has released a new inforgraphic, I’ve been right there to post about it. So far, they have produced graphics addressing the future of Technology, Education, Health, and Finance.

There latest graphic is similarly significant and addresses the future of something that concerns and effects us all: money. Entitled “The Past, Present and Future of Money”, this graph looks at the trends affecting the buying, selling and investment patterns of people over time, contrasting three trends that are interwoven and have moved between centralized, decentralized, and distributed monetary systems.

future_money1In this scenario, centralized tendencies refer to networks where the nodes are connected through dense centers (aka. urban environments), which rely on hierarchically structures institutions (i.e. banks) and require legal tender (physical money). This sort of system relies on an ordered distribution of power, one that generally favor the connected few, and which emerged with the advent of modern industrial civilization.

Decentralized tendencies are those which are based on networks where nodes connect in clusters, that have irregular distributions of power, and favor the selected individual. As the graph shows, these types of networks predate centralized networks, taking the form of bartering and commodities in earliest times, but which have emerged yet again in the modern era and are predicted to continue to grow.

PrintExamples of current and future trends here include crowdsourcing, crowdfunding, banking APIs (Application Programming Interfaces), microfinance, and collaborative consumptions – where access is developed so that consumers can lend, swap, barter, share, and gift products. Whereas this model predates centralized tendencies, it is once again emerging with decentralizing potential of digital technology and open-source databases.

In the third and final method, one which is emerging, is the distributed network of money. These are networks where nodes connect independently, where power is distributed horizontally, and which favor the entire network. This trend began as a result of global real-time communications (i.e. the internet, satellite communications, etc.), and which are expected to expand.

future_money2Combining the concepts of attention economies, digital currencies, peer-to-peer communications, and digital wallets, the essence of this final stage is a network economy that is controlled by individuals, not financial institutions or corporations. In addition, currencies are based shared belief in their value, transactions occur between individuals, and physical currencies are replaced by digital ones.

Other trends that are incorporated and cross-referenced into this infographic include global population versus the number of people per capita who have online access. As it stands, less than half the world’s 7 billion people currently have access to the internet, and are hence able to take part in the decentralizing and distributed trends affecting money. However, the infographic predicts that by 2063, nearly 90% of the world’s 10 billion people will be online.

future_money_bitcoinLike many predictions that I’ve come to know and respect, this latest infographic from ET gives us a glimpse of a future where a Distributed model of politics, economics and technological development – otherwise known as Democratic Anarchy – will be the norm. It’s an exciting possibility, and places history in a new and interesting light. In short, it makes one reconsider the possibility that true socialism might exist.

While this was crudely predicted by Karl Marx, the basic concept is quite intriguing when considered in the context of current trends. What’s more, subsequent thinkers – Max Weber, Proudhon, Gramsci and George Orwell – refined and expressed the principle more eloquently. Nowhere was this more apparent than in the Goldstein Manifesto in 1984, where Orwell addressed how the process of industrial civilization was making class distinction virtually unnecessary.

the_future_of_money_timelineSource: envisioning.io/money/

Cyberwars: Stuxnet and Cryptolocker

cyber_security1It’s been quite the year for cybercops, cybercriminals, and all those of us who are caught in between. Between viruses which continue to involve and viruses that target sensitive information in new ways, it seems clear that the information age is fraught with peril. In addition to cyberwars raging between nations, there is also the danger of guerrilla warfare and the digital weapons running amok.

Consider the Stuxnet virus, a piece of programming that made headlines last year by sabotaging the Iranian nuclear enrichment program. At the time, the target – not to mention its source (within the US) – seemed all too convenient to have been unintentional. However, this year, Stuxnet is once again garnering attention thanks to its latest target: the International Space Station.

ISSApparently, this has been the result of the virus having gone rogue, or at least become too big for its creators to control. In addition to the ISS, the latest reports state that Stuxnet is hitting nuclear plants in countries for which the virus was not originally intended. In one case, the virus even managed to infect an internal network at a Russian power planet that wasn’t even connected to the internet.

According to Eugene Kaspersky, famed head of IT security at Kaspersky Labs, the virus can travel through methods other than internet connectivity, such as via optical media or a USB drive. Kaspersky claims that this is apparently how it made its way aboard the ISS, and that it was brought aboard on more than one occasion through infected USB drives.

computer-virus.istockFor the moment, it is unclear how this virus will be taken care of, or whether or not it will continue to grow beyond any single organization’s ability to control it. All that is clear at this point is that this particular virus has returned to its original handlers. For the time being, various nations and multinational corporations are looking to harden their databases and infrastructure against cyber attack, with Stuxnet in mind.

And they are not the only ones who need to be on their guard about protecting against intrusion. Average consumers are only at risk of having their databases being accessed by an unwanted digital visitor, one that goes by the name of Cryptolocker. Designed with aggressive salesmanship – and blackmail – in mind, this virus is bringing fears about personal information being accessed to new heights.

cryptolockerBasically, the Cryptolocker works by finding people’s most important and sensitive files and selling it back to them. After obtaining the files its needs, it then contacts a remote server to create a 2048-bit key pair to encrypt them so they cannot be recovered, and then contacts the owner with an ultimatum. People are told to pay up, or the virus will begin deleting the info.

When the virus first emerged in October of this year, victims were given three days to cough up roughly $200 via BitCoin or MoneyPak currency transfer. If the virus’ authors did not receive payment within 72 hours, they said, a single line would be deleted from a text file on some hidden foreign server, forever erasing the only string of numbers that could ever bring the affected files back from the dead.

cyber_virusSome users responded by simply setting their system’s internal clock back. A temporary measure, to be sure, but one which worked by tricking the virus into thinking the deadline had not expired. In addition, the three-day deadline worked against the viruses makers, since it’s proven restrictive to the types of people who mostly contract a virus like this – i.e. senior citizens and people working on corporate networks.

Such people are more vulnerable to such scams, but seldom have the computer-savvy skills to to set up BitCoin or other such accounts and transfer the money in time. Meanwhile, infecting a corporate server means that a bloated corporate bureaucracies will be responsible for making the decision of whether or not to pay, not an individual who can decide quickly.

virus-detected-640x353So basically, the designers of Cryptolocker were facing a catch-22. They could not extend the deadline on the virus without diminishing the sense of panic that makes many people pay, but would continue to lose money as long as people couldn’t pay. Their solution: If a victim does not pay up in time, the hackers simply raise the ransom – by a factor of 10!

This allows people more time to mull over the loss of sensitive data and make a decision, but by that time – should they decide to pay up – the price tag has gone up to a bloated $2000. Luckily, this has revealed a crucial bluff in the virus’s workings by showing that all the keys to the encrypted files are in fact not deleted after the three day time limit.

???????????????As such, the security industry is encouraging people to hold on to the useless, encrypted files and waiting for the criminal server to be someday seized by the authorities. Since any ransom paid is a de-facto encouragement to hackers to write a similar virus again — or indeed to re-infect the same companies twice – people are currently being told to simply hold out and not pay up.

What’s more, regular backups are the key to protecting your database from viruses like Cryptolocker. Regular backups to off-network machines that do not auto-sync will minimize the virus’ potential for damage. The best defense is even simpler: Cryptolocker infects computers via a bogus email attachment disguised as a PDF file, so simple email safety should keep you immune.

Alas, its a world of digital warfare, and there there are no discernible sides. Just millions of perpetrators, dozens of authorities, and billions of people fearing for the safety and integrity of their data. One can only wonder what an age of quantum computers, graphene and nanotube processors will bring. But more on that later!

Sources: extremetech.com, (2), fastcoexist.com