BitCoin vs PayPal: a 100X+ difference

Both BitCoin and PayPal allow parties who don't trust each other's identity to exchange money electronically. The big difference is transaction costs. Because PayPal uses the existing system for electronic payments, it extracts high fees from the seller; the smaller the transaction, the larger the percentage of the fee. In short, PayPal doesn't scale down.

In contrast, BitCoin transactions are almost free. Moreover, they scale down as computing power (thanks to the Moore's law) becomes cheaper over time. The adoption of BitCoin or any similar monetary transaction system should stimulate development of businesses that involve high-volume payments. If posting on Twitter is free, BitCoin transactions should also be free.

Companies that will make Bitcoin payments reliable and secure are going to reap huge benefits in the mobile and financial markets.

tags: money, deontic, payload, control, machine1, machine2, finance, commerce, 10x, innovation

Lab Notebook: the meaning of Bitcoin

Money has been around for thousands of years. Amazingly, people keep reinventing it over and over again. Money innovation (not invention!) is always a telltale sign of a deep, underlying change in large-scale commercial systems. It serves two vitally important tasks: value exchange and information diffusion. The growing acceptance of Bitcoin sends a loud and clear message:

Dear Government, we the People, no longer trust your ability to manage our money (The Fed). We also don't trust your shameless handling of our privacy (NSA). Therefore, we are going to create an alternative mechanism for commercial transactions and sharing information about them. The new computing and communication technologies give us the power to do so. 

In the 6th century BC, Lydians developed silver and gold coinage, which made them incredibly rich and powerful. In the 21st century AD, the first respectable government that will support a new trusted currency will have a once-in-a-thousand-years chance to create an economic miracle out of, practically, nothing. I hope it will be an American government.

tags: invention, innovation, deontic, payload, problem, money, solution, growth, economics, commerce

Lab Notebook: a computer security disaster waiting to happen.

Legacy computing systems are notoriously difficult to retrofit for new threats. Recently, Target got hacked, with in a possible loss of 110 million user records (including mine). Now, the banks have discovered that their good old ATMs need to be upgraded to new software to be ready for new hacking dangers. According to Bloomberg Newsweek,

When ATMs were introduced more than 40 years ago, they were considered advanced technology. Today, not so much.
Inside every ATM casing is a computer, and like all such devices, each one runs on an OS. Microsoft’s 12-year-old Windows XP dominates the ATM market, powering more than 95 percent of the world’s machines and a similar percentage in the U.S., according to Robert Johnston, a marketing director at NCR (NCR), the largest ATM supplier in the U.S.

For banks, investing into a massive upgrade of an old computer system would be a waste of money because customers are switching to mobile payments. We can deposit checks, pay bills, and invest with a smartphone. The only thing we can't get from the smartphone is beer physical cash. A lot of startups and established companies, including Square and PayPal, are going after this market. The success of BitCoin is also a strong indicator that physical banking is dying.

If the banks don't invest in a rigorous new security system, old ATM networks will become a juicy target for hackers. Like any other parasites, hackers love weak targets: newborns and elderly, a legacy ATM system being the latter. A computer security disaster with a major ATM network will speed up the adoption of digital currencies immensely. A great financial play would be to buy a lot of bitcoins, then hack an ATM system just to scare people into using the new technology.

tags: innovation, deontic, payload, system, money, business

Lab Notebook: Amazon drones for local marijuana delivery

The drone technology can potentially cut out the middleman from pot retail, now legal in Washington and Colorado. Moreover, in the future the entire process — from growing the plant to harvesting, packaging, and delivery — can be fully automated using Google robotics systems. :)

On a related topic, we can use banking problems of Colorado marijuana retailers to show the importance of Packaged Payload (Scalable Innovation, Chapter 2). According to Huffington Post (Jan 3, 2014),

Owners in the city expressed concern about taking in large amount of cash, since federal banking regulations currently prohibit banks from working with the marijuana industry while the drug remains classified as illegal by the federal government.

In System terms, cash is a physical "mass" type of Packaged Payload; its handling requires a complex set of procedures to control the transfer. The entire system is not scalable because it is subject to a trade-off between the amount of cash to handle and system security costs. That is, the more cash is available in the system, the more expensive security procedures have to become. By contrast, electronic bank money is an information type of Packaged Payload. The change in PP type breaks the trade-off and allows for unlimited, nearly costless money transfers.

tags: trade-off, packaged, payload, example, control, system, deontic, innovation, scalability

Lab Notebook: Why money technology works

5 goats = 1 cow
12 eggs = 4 loafs of bread
1 gun = 2 horses
....
1 goat = 20 loafs of bread
1 horse = 3 goats
...

All these barter equations carry enormous amount of information about goods involved in the exchange and rules to calculate their "aboutness," including expectations about the future (weather, hunger, wisdom of the ruling king, etc.) The more goods, services, and experiences (GSE) are available, the more information is necessary to make calculations and decisions whether to transfer the GSEs into one's future.
When instead of the barter equations we use money, we compress huge amounts of GSE aboutness into a single number. That is, from an innovation perspective, money and markets are compression mechanisms. The compress payloads, so that we can increase the GSE space exponentially.

Thousands years ago, Spartans used heavy metal bars to represent value. You couldn't carry it; only mark up one's ownership of a "slice" of iron.
Today, we use hard drives of financial institutions to accomplish the same task. Except, using computer technology and market mechanisms, we managed to compress our expectations about the past, present, and future of a myriad of GSEs in a bunch of zeros and ones.

5 goats = 0000010000
12 eggs = 0000001010
1 gun = 0001010010
...

The amazing aspect of this mechanism is that money and markets allow us to decompress a single number into all kinds of GSEs - pure magic.
tags: invention, innovation, money, technology, book, tool, control, deontic, payload, aboutness

Steve Jobs vs Elon Musk: an innovation perspective

Some raw notes for the BUS/SCI 117 course and book draft:

1. Many in the media and VC community say that Elon Musk is "Steve Jobs today."
-- 1.1. Based, e.g., on the marketing flair he presents his products.
2. How can we evaluate these statements?
3. Let's take an "innovation impact" point of view
4. Steve Jobs was instrumental in 3 technology/business revolutions
-- 4.1. PC (Apple)
-- 4.2. computer animation (Pixar)
-- 4.3. smartphone and connected media (Apple)
5. Elon Musk  was instrumental in 3 technology/business developments
-- 5.1. Person-to-person electronic payments (PayPal)
-- 5.2. Private space vehicle operations (Space X)
-- 5.3. Luxury electric car (Tesla Motors)
6. Steve Jobs' innovations initiated major changes in lives of billions of people (the "New World" test)
-- 6.1. Applications of Moore's, Nielsen's, Kryder's laws
-- 6.2. System-level impact: solving a Synthesis problem for new industries
----6.2.1. Exponential growth of devices, apps, services, communications
7. Elon Musk's innovations target(ed) lucrative niches
-- 7.1. long-distance money transactions between untrusted market participants
---- 7.1.1. One element of a much larger system (Deontic Payload)
-- 7.2. US government exit from space exploration
-- 7.3. Green-minded segment of the "conspicuous consumption" population
---- 7.3.1. Compare to Hummer, BMW, Nissan Leaf and Toyota Prius
8. Conclusion: Elon Musk's innovations are not even close to those of Steve Jobs' (yet)
-- 8.1. Has a chance if somebody develops an energy element (e.g. battery) with exponential growth of energy density or an extremely low resistance material (superconductor at high T)

tags: innovation, system, creativity, synthesis, deontic, payload, battle

Just for fun, a highly superficial visual comparison bw EM and SJ at businessinsider.com

Zynga vs Personalized Media Communications.

Feb 14, 2012. WebProNews -- Personalized Media Communications filed a patent suit in the U.S. District Court for the Eastern District of Texas against Zynga. They claim that the social games maker has infringed on four of their patents.

The four patents in the suit ( US7,797,717; US7,908,638; US7,734,251; US7,860,131) are continuations of an application filed in 1981, now US4,694,490.


tags:patents, information, deontic, gaming, business

End-to-End Analysis of the Spam Value Chain

A fascinating paper analyzing spam as a business model. Here's a picture showing how a typical Viagra spam transaction works:

With all its complexity, the spam business has a choke point: bank transactions. According to the study, only three banks clear the vast majority of high-risk transfers.

...it is the banking component of the spam value chain that is both the least studied and, we believe, the most critical. Without an effective mechanism to transfer consumer payments, it would be difficult to finance the rest of the spam ecosystem. Moreover, there are only two networks—Visa and Mastercard—that have the consumer footprint in Western countries to reach spam’s principal customers. While there are thousands of banks, the number who are willing to knowingly process what the industry calls “high-risk” transactions is far smaller. This situation is dramatically reflected in Figure 5, which shows that just three banks provide the payment servicing for over 95% of the spam-advertised goods in our study.

via MTR

Source: Levchenko, K., et. al. "Click Trajectories: End-to-End Analysis of the Spam Value Chain," Security and Privacy (SP), 2011 IEEE Symposium on , vol., no., pp.431-446, 22-25 May 2011

tags: business, model, deontic, information, commerce

Mobile ads: Apple vs Google

Using IDC data, WSJ shows (12/13/11) that Apple is losing to Google in the mobile ads market.

 

Last year, Apple shared the top spot in the mobile display ad market with Google, with each company capturing 19%, according to research firm IDC. This year, Apple fell to the No. 3 spot, behind Google and independent mobile ad firm Millennial Media, capturing 15%, or $95 million, of the $630 million market, IDC says.

Hordes of developers have activated iAd, but they say that Apple hasn't sold enough to make any meaningful revenue for them. David Barnard, founder of mobile app company App Cubby, says he earned $320 from iAd in the past 30 days and that the service is only filling roughly 13% of his apps requests.

As I wrote recently, Apple is not an ad company. In this market they are going to lose to Google  because, among other things, Google has a much better targeting and delivery platform. The ad-based business model fits Google setup like a glove. On the other hand, Steve Jobs always hated ads and as the result, in Apple's kingdom content is the king and ads are an afterthought.

Further, I would venture to say that when (not if) Google and Apple come out with their digital TV products, the overall business outcome will be the same: Apple = content; Google = ads.

tags: content, information, technology, business, model, apple, google, control, deontic

Apple is outsourcing patent trolling.

(Dec 10, 11. VBeat). In a clever deal that effectively gives Apple immunity from attack by the troll, Apple agreed to some cross-licensing deals that gave Digitude the ammunition for a heavy attack against Apple’s rivals. Digitude recently filed suit against RIM, HTC, LG, Motorola, Samsung, Sony, Amazon, and Nokia. It did so at the International Trade Commission, a body that can quickly bock the import of products deemed to infringe on patents. Moreover, it included four patents in its claim, two of which were owned by Apple earlier this year, before they were transferred to Digitude.

Finally, the industry is waking up to the fact that patents are not about protecting inventions. Rather, they function as a business asset for improving company's competitive position. It doesn't matter who is using the asset, as long as its purpose is preserved.

tags: patents, business, model, innovation, apple, deontic, intellectual, property

Visa as iTunes for credit card phones.

This shows the incredible power of a dominant market player to force innovation upon its customers:

As of October 1, 2015, Visa will shift liability of fraud to merchants instead of card companies. Since dynamic card authentication offers better fraud protection, most merchants will opt to upgrade their terminals instead of having to deal with fraud charges. Fuel merchants will have an extra two years before liability will shift for terminals at self-service gas pumps.
 

Visa controls risk allocation within the payment system, which allows the company to be very flexible when new business models emerge. For example, to get a foothold in e-commerce, Visa promised web merchants that it will absorb credit card fraud losses. This approach let Visa enter a growing market for internet transactions and accelerate consumer adoption of the technology. Now, that it is in a controlling position, the company can start shifting risks back to merchants. Or at least Visa can make a very credible threat of the action because it knows, due to its access to all information about transactions, where the actual risk is.

With the right application on the wallet-phone, it can easily implement elements of social commerce too, including special deals, coupons, location-specific services, etc. - either directly, or as a backend service to merchants and banks.


tags: business, model, commerce, control, deontic, payload, risk, value, mobile

Facebook Credits, the reserve currency of the future.

Facebook and Zynga are taking great strides in making social commerce a reality:

Because Facebook appears to favor Zynga more than other game developer, including through an unusual growth-target agreement, those two companies seem to be just about joined at the hip.

A year ago, Zynga’s chief executive Mark Pincus told employees that Zynga planned to expand beyond Facebook and start its own Zynga Live web site as a portal for its own social games. That never happened because Facebook cut the deal on Facebook Credits with Zynga.

Zynga already has enormous advantages over other developers on Facebook, with more than 264 million monthly active users on the social network, more than the top 15 other game companies combined.

If this partnership is a long-term cooperation game like the one Intel and Microsoft played in 1980-2000, Google will have a hard time catching up with this freight train. Facebook Credits represents a new transactions technology, which has a chance to become a platform for new commercial applications beyond games, e.g. video conferencing, content sales, etc. You can see Netflix's cooperation with Facebook as an example of a possible Zynga-like play in a different entertainment domain.

Can you finance a Facebook revolution with Facebook Credits? ;)

A couple of diagrams to illustrate the transition from social networking to social commerce.

tags: games, facebook, commerce, virtual, deontic, payload, platform, 4q diagram, social, control point, business model

How embodied math shapes us, humans.

Kevin Slavin about the world of algorithms (15 min TED video):

"... these complex computer programs determine: espionage tactics, stock prices, movie scripts, and architecture. ... we are writing code we can't understand, with implications we can't control. ... we are writing what we can't read."



tags: problem, solution, control, 10x, tool, cloud, art, science, deontic, video, social, intelligence, scale, detection, creative crowd

An ancient business recipe for modern success.

In 2009, I commented on the similarities between eBay and ancient king Croesus: in both business models one becomes enormously rich by owning a money standard. 2,500 years ago, the newly introduced money standard was gold coins, now, it's digital coins. eBay's 2009 strategy to make PayPal the largest part of the company is beginning to bear a hefty fruit:

CNET. July 20, 2011 1:44 PM PDT.

eBay reported second-quarter earnings of $283 million, or 22 cents a share, on revenue of $2.76 billion.

Overall, PayPal is carrying eBay. PayPal delivered its first $1 billion quarter and had 100.3 million registered accounts, up 15 percent from a year ago.

Note, that this growth happened during one of the worst recessions in American history. This would make Croesus proud. The business model he invented in the 6th century BC continues to work like a charm.

tags: money, business, model, commerce, system, deontic, payload, transfer, economics

Rhetorical question of the day.

VentureBeat asks:

Mobile gaming is the wide-open battleground of the entertainment industry. While Zynga dominates social and big publishers rule console games, the global smartphone game market is up for grabs. Since there are potentially billions of users in this market, mobile gaming could become the largest game market of them all. Who will win it?

Answer: Apple. They get 25-30% of revenue from every game sold with 0% in R&D costs.


tags: games, mobile, business, model, information, payload, deontic