Mega Bit-Billions (my original DAO idea)

When I first became enthralled with bitcoin and decentralization one of my immediate (and likely not 100% original) ideas was the creation of a decentralized Mega-Millions Powerball. OK, OK, gambling isn’t the killer app bitcoins been waiting for, I get it. That being said, what bitcoin has the potential to do in many cases is completely co-opt the obviously immoral elements of society we all accept on a daily basis… enter predatory state promoted gambling rackets… and re-align their benefactors to worthy recipients.

UPDATE: After receiving some feedback on the post I think it is worth noting a more clear description of what a decentralized autonomous lottery would look like. This would be a completely decentralized application that could run autonomous of any specific owner. There would be no individual or company that actually collects funds or has the ability to redistribute them. The program would be open-source, would sell the “tickets” itself, generate randomized winning numbers and distribute the winnings completely on it’s own.

When I was a teenager landscaping in New England we had a fun game that added a little “spice” into the monotony of mowing lawns for 12 hours a day (May through September). We called it “SCRATCH TICKET FEVER!!!!!!” – feel the burn… My landscaping buddies and I salivated for gas-up stops to refill the mowers because it meant we had yet another opportunity to hit it big and win $50 to spend towards next weekends (or evenings) beer money. Practical. Reasonable. Human.

A reality for any privileged New England kid making money to have some fun. The sad reality – in full retrospection – is the very premise of state-backed gambling is immoral and ludicrous. Yes – it’s a free world and we are all responsible for our own decisions. That being said, we’ve likely all been sitting at a gas station waiting for our tank to fill while watching some poor desperate soul sitting in a shitty brokedown Chrysler Lebaron fidgeting at a small paper card with a small coin – a far cry from the “SCRATCH TICKET FEVER” that elevated my summer weekdays in high school.

So how do we justify this predatory practice – the targeting of our societies most needy and desperate citizens for a “one-in-a-million” circus of irresponsibility? Taxes of course. In 2010 state coffers benefited from the lottery to the tune of $17 billion. (source).

Welp – lets do away with that quick and easy. Please – someone…. anyone… design the following:

  • Decentralized Autonomous Open-Source Mega-Bit-Millions
  • Give 99% of revenues to the winner (or some relatively equivalent %)
  • Give 1% (or some relatively equivalent %) to a charity
  • The benefiting charity is decided by a decentralized “reddit style” up-voting pool portal where verified charities can enter their hand for a chance at the percentage. (maybe we promote specific charities that promote the poor / less-foruntate / disparaged and actually discourage gambling)

I would be the first to roll the dice every single week if I knew that I was gambling on a platform that actually fought the evil our states justify on a daily basis for the purpose of taxes. Imagine a decentralized autonomous organization that actually functioned for the sole purpose of eventually destroying itself. (a gambling platform awarding proceeds to anti-gambling / impoverished charities)

Big Money! Big Money! Big Money! No Whammies!!!!!

A Proposed Solution to Mining Centralization (from Someone that Clearly isn’t a Cryptographer)

Are TWO Blockchains Better than ONE?

I believe by leveraging two separate blockchains whose confirmations are pegged to one another we may be able to create even more secure blockchain based networks. I am no cryptographer as is evidenced by this proposal. Nevertheless, I am familiar with the fundamental concepts of the bitcoin blockchain, risk aversion and failure modes analysis. Here is why I believe there may be something to this idea.

Two Blockchains

Two Blockchains

One of the primary concerns echoed by bitcoin doubters, as well as bitcoin believers, is that of mining centralization. In such a scenario a single entity gains over 50% of mining power. Under these circumstances the entity could theoretically manipulate the blockchain by invalidating or reversing a limited number of transactions for the period of time it was in control. Despite the limited incentives (as such an attack makes no economic sense) and the limited potential impact of such an attack, it nevertheless exposes the network to risk.

A Second Layer of Security

Most bitcoin users should be familiar with the concepts of two-factor authentication (2FA) and multi-signature accounts by now. The idea is simple. A second “factor” of authentication is required to grant access to an account or approve a transaction. By requiring a second factor of authentication the user is safe even if the primary account information (username & password) has been compromised. Without this second piece of information an attacker cannot gain access.

I would imagine this same fundamental principle could be applied to a blockchain. By requiring specific confirmations across two separate blockchains (using the second blockchain as a second factor of authentication) one could add a significantly higher degree of security. In such a scenario, I would also imagine the risk of mining centralization being displaced as any single mining entity would have to control the majority of both blockchains to truly corrupt the network. I’ve provided some initial thoughts/responses specific to some of the issues that become immediately apparent with this proposal:

  • How do you incentivize miners to mine the second proposed blockchain? The secondary blockchain could be tokenized in its own right. It might possibly be designed to only allow CPU-based mining (similar to early Vertcoin) so that by its nature is more distributed and would be more difficult to corrupt by a single entity. If this were the case you might have a highly incentivized blockchain with more centralized mining incentives (the Bitcoin Blockchain) and a slightly less incentivized blockchain with more distributed mining incentives (CPU based mining).
  • Wouldn’t this delay confirmation times? Most definitely yes, but maybe the added security would be worth it – especially in a future where people are comfortable with 3rd party off-blockchain transactions. Regardless innovation might still be able to move confirmation times down despite the redundancy in blockchains.
  • So how would this actually work? Like I said – I’m not a cryptographer so I have no freakin’ idea.

Despite my inability to define the technicalities of how this might be accomplished, I feel there could still be potential to this concept. Just like the 2FA set on many of our smartphones, the secondary code / password itself doesn’t have to be anywhere near as strong as the initial password to exponentially increase the degree of security.

I would imagine a secondary blockchain, even if it were far smaller, could provide an additional layer of confirmation periodically (or constantly) that re-enforces the activities of the first. In fact this second blockchain could be dramatically more distributed by design — solving the potential risk of centralized mining on the first.

Would love to have an actual cryptographer / blockchain expert confirm if I’m just a crazy person… which I’m estimating I’m 98% at risk of being.


Scratch That: From “Bitcoin” to “Blockchain”

I’ve made the decision to update the name of this blog early in its existence. I initially named it “Bitcoin for the Billions” in reference to the worthy use case of bitcoin to positively impact the financial services available to the populations of the world that are most in need. Noble, of course, but too narrow.

I’ve switched the title from “bitcoin” to “blockchain” for the simple reason that naming it under the moniker of bitcoin is limiting. Despite labeling myself a “bitcoin believer” I feel the scope of bitcoin alone would grossly overlook the big picture of blockchain technologies potential to disrupt and positively impact an array of industries and socioeconomic ecosystems. In fact, if you already have a sound understanding of bitcoin what keeps you coming back for more are the potential 2.0 applications of blockchain technology to manifest their own disruption while simultaneously contributing to the bitcoin ecosystem.

It is worth noting that it is slightly ironic that I make this update in the midst of a characteristic bitcoin price rally – that’s not lost on me. Here’s to both bitcoin and the blockchain! Cheers.

Healthcare and the Blockchain

I foresee blockchain technology and encryption driving innovation in preventative care and community-based healthcare models. This technology is the missing link that will enable a synergy between rising trends in healthcare that will be vital in helping the US (and world) improve the health of communities. The trends I foresee being involved that will enable this innovation are as follows:

  • Innovative Health Care Models: The rise of experiments in healthcare such as Accountable Care Organizations (ACO) and community-based healthcare indicate an increased focus on preventative vs. reactionary healthcare.
  • New Technology & Data: The increased utility and prevalence of Electronic Health Records (EHR) and mobile health applications (example: Apple Health) foreshadow a future where individual and aggregate population data has greater utility.
  • The Blockchain & Cryptography: A new method pseudonymously collecting, storing, protecting, and sharing  health data may be possible without violating the requirements of HIPAA that have traditionally limited the utility of health data and delayed its use in real-time.

In a time where we are only beginning to harness the utility of health-related data and technology the emergence of these three factors may make the following scenario possible in the near-term future.

1. More Data: Through the use of mobile health applications / services and the refinement of electronic health records / systems / databases we will be collecting more individual and population based health measures than ever. The sample size for population data will increase exponentially.

2. Encryption and Comprehensive Population Health Data: By properly securing the identity of patients through cryptography and storing individual health records to a blockchain we will make available an aggregate database of community health records that can be used in community focussed preventative care programs, driving population health without violating the critical rules of HIPAA. This would make it possible to use ALL data from ALL medical records for populations rather than relying on voluntary release.

3. Pseudonymous Patient-Focussed Health Recommendations: The most exciting possibility of this scenario is that of encrypted health advisories and warnings. In a scenario where the identity of an indivudal  remains secure but their health information can be contributed to an aggregate of data on a blockchain it would be possible to blindly relay encrypted patient-specific health recommendations securely back to the patient based on their data in real-time. The recommendation, though delivered to an anonymous patient, would be based on their own information, risk factors, etc.

Health and the Blockchain

A potential scenario for synergy between EHR, mobile health applications, blockchain technology, and preventative care.

A potential scenario for synergy between EHR, mobile health applications, blockchain technology, and preventative care.

The overwhelming trend in healthcare to drive towards more proactive and community-focused preventative care models (preventing disease or injury before they occur or metastesize) make this potential scenario all the more relevant. A future where medical records can be fully shared but also fully secured and encrypted could usher in a new era of understanding for population health and care.


Medical Records Project Wins Hackathon

Tierion Startup: Cloud Datastore Backed by the Blockchain – Implications for verifiable records management

A Closer Look at Bitcoin Remittances


Yesterday I wrote a blog post regarding Western Union and the lack of focus displayed by their CEO specific to the implications of bitcoin technology to impact their business. It ended up getting quite a bit of traffic and I also received some criticism. Given that this was an opinionated blog post and not a published piece of journalism I was surprised it caused as much of a stir as it did. With that, it made me realize that I should take my blog posts just as seriously as any published article. It also challenged me to take a closer look at the case for bitcoin in the remittances market to assess whether my opinions were in fact valid or if I’d just been drinking the proverbial “bitcoin kool-aid”. Here’s what I’ve learned in the past 24 hours.

For bitcoin’ers the remittances industry has been a target vilified for supposed predatory practices. Granted, the idea of making money off the circumstances of the worldest poorest is something no decent person would want to associate themselves with. That being said, I think it is equally as important to recognize that remittance businesses like Western Union and MoneyGram do actually provide a service that is valued by our fellow inhabitants to the tune of over $440 billion in 2011 (source) according to the World Bank. Transferring value across the world has traditionally been a cumbersome, untimely, and costly process – these companies have provided a necessary service. There are also high costs of doing business for such businesses – compliance alone costs Western Union between 3.5 – 4.5% of their quarterly revenue (source).

The case for bitcoin in terms of remittances is that it can help the poorest migrant workers that are forced to send small amounts of value home on a paycheck-to-paycheck basis. As far as fees go, for large sums of money the Western Unions of the world are actually a pretty good deal. For example, to send $1,000 USD cash to Mexico a migrant worker paying cash at a terminal in Denver, CO would only pay $8 USD with the recipient in Mexico able to receive the cash in minutes… 0.8% is not bad! On the other hand, for the poor migrant worker only earning $200 USD a week and sending half ($100) home to their family just to get by they would also pay $8 USD. At 8% this is starting to get pretty significant. When you start to look at other transfer rates between different nations and values you can get some very high percentages. For example, in 2012 to send money from South Africa to Botswana the average fee was 22.7% (source). You can test these numbers and your own experiments using other amounts and countries HERE with Western Unions price calculator – just keep in mind that if you’re in the US it’ll assume your sending from here. With that – it is undeniable that for individuals sending small amounts of money home the fees are substantial.

The question now is, what is the actual percentage of remittances that are sent in small sums? More specifically – how many migrants are actually sending sums of money as small as $100 at a time? If you are in the United States, you might imagine few people send such small amounts home at a time knowing they will incur such a large fee. It is important to remember that many remittances are sent across the borders of the worlds developing nations where monthly wages may only be $200 per month or less. (Examples from 2010 can be viewed HERE). In such circumstances, saving for the more cost-efficient transfer is not realistic. Unfortunately, this has been an elusive number and the best I can do is make an estimation on available data, here’s what I’ve come up with. (if anyone can find this information please send it my way so I can update).

In 2014 there are an estimated 230 million international migrant workers and 700 million internal migrants. (source). The World Bank expects remittance flows to increase to $700 billion annually by 2016 (source). With $540 of the $700 billion (77%) expected to be to developing nations, it seems a conservative estimation that at least 25% of these remittances would be sent in small sums by poor workers. This would be a sum of $135 billion in 2016. Given the existing average fee of 8.5% and bitcoin’s potential in a liquid market to bring fees to 2% or lower (1% in and 1% out) we’re looking at a potential savings to the world poorest of 6.5%, equivalent to $8.7 billion. When you then consider the possibility of migrant workers being paid in bitcoin, the savings potential increases even further. Furthermore, if you consider the moonshot scenario of people holding bitcoin and not transferring, however unlikely, the fees would go to 0.

In conclusion, I do think bitcoins potential to disrupt remittances is real. My conservative estimation would say that the utilization of bitcoin could directly impact one fifth of the future remittance market, with the potential to disrupt much more. The greater realization is what this savings might mean to the world poorest classes and the exponential impact it may have on their standards of living. Is Western Union pure evil? No. Will they disappear entirely? Probably not. But the reality is that the future of their business may rely on the remittance flows of the wealthy and middle class. If this is the case, I think we all win, especially the worlds most needy.

Here’s Why Western Union is in Serious Trouble

Like many who follow cryptocurrency closely I’ve had my eye on the ongoing Money2020 conference taking place in Las Vegas, NV. One of the specific interviews that has surfaced and caused a stir is the Erik Schatzker (Bloomberg) interview with Western Union CEO Hikmet Ersek. It can be viewed here.

In this interview, Ersek struggles to describe how bitcoin will impact Western Unions legacy money transfer business. Some excerpts:

ES (Bloomberg): “Is the bricks and mortar network a melting ice-cube?”

HE (Western Union): “It’s not. If you’re a Philippino nurse leaving your country from the Philippines and coming to the US, serving US society in a hospital … Half of your salary is sent back home and you want to give the money to somebody you trust. You trust somebody, you go to a location, it’s a big event.”

ES (Bloomberg): “What about bitcoin?”

HE (Western Union): “Well, I think bitcoin is a good system. I always say – what is bitcoin? Is is a currency or a system? I’ve been asked, would you transfer bitcoin? Bitcoin is not a regulated currency. In the moment that it is regulated, any currency, as we do transfer 122 currencies, we would transfer any currency worldwide. Once it is regulated – it has to be regulated!”

ES (Bloomberg): “But once it’s regulated does it then become a legitimate competitor to what you do at Western Union?”

HE (Western Union): “Definitely not…. …Erik, you want to send me one bitcoin, lets say. I get it in Dirhams, right? What is in the middle is Western Union.”

First it appears clear that english is not Ersek’s primary language (he’s originally from Istanbul) and with that I feel the need to grant some leniency in this regard – clearly describing complex ideas under a camera lens on live television is hard enough. That said, he is the CEO of a multi-billion dollar international company and there are some telling responses that do not bode well for Western Union. Here are some specifics:

  • It is ironic that Ersek specifies “trust” as an important factor in transferring money. He’s 100% correct, it certainly is a key element. That being said, what he fails to appreciate is that crypto currencies are peer-to-peer and require no middleman for international transfer. Trust not required. That said, users will still likely have to trust a 3rd party if they want to transfer into local currency. It is clear that should they do so they would choose to go through an exchange (most charge 0.4% or lower for withdrawals into local currency). This beats the Western Union average of 10.8% by 10.4%. Yikes.
  • Next, Ersek specifies that the only requirement for Western Union to accept bitcoin is that it be regulated. This implies that once it is regulated Western Union will add it to their offerings. To anyone that understands how bitcoin works this response is very confusing. The obvious threat is that of the 122 currencies Western Union currently serves all that is required is the emergence of liquidity (likely in the form of native bitcoin exchanges) for each of those customer bases to disappear seemingly overnight. (I will describe the likely scenario for this below).
  • Finally, when pushed to describe if bitcoin is a competitor, Ersek completely misses the mark in not acknowledging, or possibly even recognizing, that bitcoin is the proverbial comet that is about to disrupt his business. In his example, he describes Western Union as the middle man for transferring Bitcoin to Dirhams. If this is the case, they better hurry up and make some offers to crypto-exchanges.

There are only two things required to dissolve Western Union’s business worldwide. The scenario for each region will require the following:

  1. Liquidity: Currently bitcoin is not truly “international” in the sense that many countries do not have native exchanges. Of the 122 currencies mentioned by Ersek established bitcoin exchanges likely only operate in 10-20 of them. What this means is, unless users are willing to hold bitcoin, there is no way to “cash out” and use that value at home. That said, countless exchanges are in the works and fighting to bring this liquidity to their countries – much faster than many might suspect. Furthermore, the big fish like Coinbase and Circle will continue to expand their reach. Once they do anyone in the world will be able to send value at almost zero cost and cash out in their native currency.
  2. Awareness: Once liquidity has been established the only remaining requirement is for entrepreneurial individuals in these markets to setup a lawn chair across from a brick and mortar money transmitter terminal, cash and cellphone in hand, and undercut the rate. Boom! Instant entrepreneur. In fact, it would be silly for the employees of these terminals to not take the business for themselves, one might imagine they likely would.

As someone that has travelled extensively in the developing world, I can say that it will take little time for individuals in liquid markets to exploit this opportunity. Last October 2013, while traveling in Buenos Aires, Argentina I saw first hand the industriousness of local individuals in acquiring US dollars. On the streets the price for USD was double that of local exchanges. You should expect the other parts of the world to be no different, when there is a margin to be made the gap closes pretty quickly. At 10%, the gap in remittances is significant incentive.

With this understanding, I must admit I was very surprised to hear the CEO of the world remittance leader speaking so casually about bitcoin technology. If his statements truly reflect the awareness and strategy of his company they are in for a world of hurt.

UPDATE: Within minutes of making this post I’ve received some criticism for the title, particularly the inclusion of “serious trouble”. By “serious trouble” I do not mean that the organization is on the verge of collapse or immenently doomed. What I do mean, and stand by, is that evidence would suggest that their leadership is unaware of a technology that has arisen that is in direct competition with them and could likely disrupt the core of their business. If the CEO of Kodak had displayed an equal disregard for digital cameras in 2002 I would have felt the very same way. It is the job of leaders to be aware of the ocean in which they are navigating their ship, in this case the captain seems relatively unaware of the choppy seas.

The Monetization of Centralized Bitcoin Services

The Bitcoin industry continues to pick up steam as startups gather round after round of Venture Capital funding. To date over $317 million has been raised by startup companies in the space. The lions share of funds have gone to the biggest players that focus on universal bitcoin services (Coinbase, Circle), wallet services (Blockchain, Xapo), exchanges (Kraken, Bitstamp), mining (KNC Miner), API developers (Chain, Gem); the list goes on… Despite the tremendous amount of investment most companies are currently offering their services at little to no cost whatsoever… this has left many asking themselves; “how will these organizations eventually monetize their business?”

This conundrum is further instigated by Jeremy Allaire, CEO of Circle, who was quoted earlier this month by stating:

“If you go on social media sites like Reddit, there are a lot of users speculating. But right now, possible business models are not things that we’re going to talk about, or have really given that much thought to.” – Jeremy Allaire

When the first unpaid mobile applications (non-bitcoin) were released for smartphones in the late 2000’s many consumers were equally as dumbfounded. How will these developers pay for their costs let alone make a profit? In the era of multi-billion dollar mobile acquisitions (WhatsApp: $19 billion, Instagram: $1 billion) it has become clear that the value of any application is access to the user-base and their information. In many ways the era of bitcoin related services is not much different.

When considering centralized startups in the bitcoin industry one thing is clear – it is a race for the user-base where quarterly earnings are not of any concern for the time-being. As exposure and adoption grows it is not hard to imagine an increasingly competitive landscape where free may not be cheap enough. To help understand the “state of monetization” for these organizations I’ve provided a table below (click to enlarge) to summarize the current and speculative methods of monetization. It should be recognized that many of these service providers are in direct competition that could lead to a battle of attrition or a windfall of mergers and acquisitions. Additionally, I would encourage viewers to please leave comments and help build this table as you view.

A summary of major bitcoin startups. For each the existing revenue streams have been defined as well as speculations on potential future methods of monetization.

A summary of major bitcoin startups. For each the existing revenue streams have been defined as well as speculations on potential future methods of monetization.