Details of the hottest, most secretive bitcoin start-up in Silicon Valley have finally been revealed by chairman and soon-to-be CEO Balaji Srinivasan of 21 Inc in a post on Medium. They are, by and large, exactly what FT Alphaville reported them to be. Cold sharp summary: Bitcoin mining devices in toasters.
Calling this a simple internet of things play, however, would be lazy. To really put the audacity of Srinivasan’s vision into perspective one first has to go back in time to the days of the early internet.
The first thing to understand is that the structure of today’s internet economy owes almost everything to a single bold assumption by the early web pioneers, namely that “information wants to be free!“.
Nowhere is this vision better set out than in the 1982 movie Tron, which tells the story of a bunch of anthropomorphised computer programmers going against the yoke of an oppressive Master Control Programme in “the grid”, a celluloid metaphor for the monopolistic tech corporations of the day.
What is less known about the film is that computer scientist and digital utopian Alan Kay — the founding father of object oriented computing — acted as its key technical consultant, rendering much of the narrative his personal call to digital nerds to rise up and be rid of the evil corporate overlords who constrain the dissemination of information, as much as a Disney-type fable.
And, in the real world, that’s pretty much how the web turned out. Information was set free; industries were Napsterised and the internet economy was transformed into a socialistic system in which data and information roamed free.
Except that, with time, it has become clear that things didn’t work out as intended. Instead of empowering the masses, the proliferation of free data has led to a Wild West free-for-all, where those who have a good understanding of how free information can be commandeered and exploited do exactly that.
Returning to the Tron analogy, destroying the Master Control Programme did not lead to the free society the web idealists envisioned. The old authoritarian powers were simply displaced by newly emergent authorities instead.
By the time the sequel to the Tron movie arrived in 2010, it’s clear the movie producers felt a need to communicate this change of heart as gracefully as possible. And so it was that the movie’s message turned from advocating free information to warning that systems which strive for too much perfection inevitably fail, and that ‘imperfection’ is desirable. In this recasting, the web’s most creative and vulnerable members needed protection if the web were to retain meaning and relevance in the real world.
As Kevin Flynn, chief protagonist and voice of the web pioneers, expresses ignominiously in the film: “I screwed it up, chasing after perfection.”
Back in the real world, decades worth of social conditioning about the merits of free information hasn’t been so easily overturned. Free digital content is pretty much taken for granted, even if there’s no such thing as “free.”
The tech sector has a problem publicly admitting this.
If the sequel to the web, as we know it, is a hierarchal and monetised system, the transition consequently needs to be achieved in the same way that capitalism defeated Soviet communism — namely, by providing a small flavour of what it feels like to be a profiteering capitalist to those who, under the old system, would not have been able to profiteer in the same way.
Which brings us back to the 21 Inc launch and a very obvious fact: Information is not free and Silicon Valley knows it
One of the reasons, we propose, the tech gods of Silicon Valley are so keen on forwarding Bitcoin as a concept is because it ultimately allows them to back-pedal on the original premise that information should be free.
In that regard, 21 Inc arguably plays a critical role in the new Silicon Valley vision for a “paid for” meritocracy on the internet.
When FT Alphaville first outlined 21 Inc’s business model, showing that it planned to ‘democratise’ Bitcoin mining by embedding ASIC mining chips into everyday connected devices like USB rechargers, we noted the economics didn’t seem to make any sense. For one thing, it didn’t seem conceivable that consumers could ever profit from the tiny fractions of bitcoins they were mining, especially after their energy costs were factored in. Secondly, it seemed much more likely the model would see consumers subsidising the energy costs of 21 Inc’s own mining pool.
But the clue to 21′s real intention comes in the second part of Srinivasan’s opening and explanatory paragraph:
After much hard work, we’ve created an embeddable mining chip which we call the BitShare that comes in a variety of form factors. The 21 BitShare can be embedded into an internet-connected device as a standalone chip or integrated into an existing chipset as a block of IP to generate a continuous stream of digital currency for use in a wide variety of applications. You can request a dev kit by signing up on our website to get started.
What this really is, in other words, is a plan to bring a digital metering system to the internet.
And on that note the two following paragraphs are critical to understanding the vision here:
Devices that can pay your channel partners. At the manufacturer’s discretion, the 21 BitShare chip can be configured to support a variety of different revenue shares for the mined bitcoin. For example, one could build an internet-connected device that shared some portion of mined bitcoin between the user, the retailer, the handset maker, and the carrier — thereby reducing costs and/or increasing margins throughout the entire supply chain. And because of the nature of mining as an embarrassingly parallel problem, embedded mining can scale up or down to fit within the power and thermal envelope of virtually any device.
Bitcoin-subsidized devices for the developing world. 21 was built by immigrants, and using our technology to get more people around the world online is important to us. We believe the most significant long-term application of bitcoin may be reducing the upfront cost of internet-connected devices to make them more accessible for the developing world. The success of the iPhone was in nontrivial part due to the carrier subsidy; with embedded bitcoin mining we can in theory extend that model to any internet-enabled device, turning a lump sum upfront cost into a potentially more manageable cost of power over time.
Suddenly, a few of the 21 Inc pitch deck slides, which are circulating online and dare to compare 21 Inc to Google and Facebook, begin to make more sense:
This isn’t about disrupting fiat money, central banks or the existing financial rentier system. It’s about making the internet much more like the financialised real world. Namely, by adding an energy and scarcity cost to digital transfers on the web so that information can’t be as easily exploited as it is today.
Up for grabs, notably, is the marketshare of Google, Facebook and Twitter and their ilk, due to their dependency on free consumer data to drive their advertising-based revenue.
A market mechanism for valuing data and trust?
As it stands today, nobody really has an idea of what their data is worth because there’s no mechanism by which processed or unprocessed data bundles can be valued.
Yet we know for a fact that personal data, especially when processed in aggregate form, does have a value in the open market. If it didn’t, Facebook and Google wouldn’t be the multi-billion dollar organisations that they are today.
But the data market trades much more like highly illiquid OTC commodities than anything akin to an open market exchange. Deals seem to be done bilaterally, on a bespoke and opaque basis. There is no “processed data”-value index. And there is no inspection agent akin to a Platts or an Argus agent setting out the frequency and value of the trades that are taking place.
The market economy as a consequence has no way of factoring these costs into the bigger economic picture or of judging how these costs affect macroeconomic conditions in the real world.
What’s more, even if there was an inspection agent, it would be hard to make sense of such prices without the presence of some sort of universal data benchmark.
A benchmark for data value
Anyone who hangs around the Bitcoin faithful long enough will encounter the assertion that bitcoin is superior to fiat currency because it is “backed by maths” — which, of course, is utterly meaningless. It would be much better to say that bitcoin is backed by the sum of human knowledge about maths.
Or alternatively, and much more accurately, that it’s backed by a stock of pre-processed data.
While it’s true that the processed data in question is light on both information (due to so much of it being pseudonymous in nature), there’s no denying the energy it took to create it.
It’s this base energy cost that can now be used as a public benchmark to price more information-intensive data against.
This makes us think the key objective of the high-order bitcoin enthusiasts (as opposed to the financial speculators) is mostly about giving consumers a choice. On the one hand to pay for specially designed web services with spent processing time (and energy) that helps support the public digital commons (which acts as a glue that links up all sorts of different datasets). Or, on the other hand, to pay for open web services directly with personal data on a trust basis.
Either way, once a transparent price is established for the former, it stands to reason a price for the latter can also be equally derived, opening the door to a meritocratic paid-for internet and a market where all personal data has a clear market price.
This, in any case, seems to be the vision Srinivasan is outlining for both 21 Inc and the web when he speaks of “reducing costs and/or increasing margins throughout the entire supply chain”.
The question is, to what degree will factoring in a price for something that was previously free upset the economic balance? And will the average user — especially the one who opts to subscribe to rental contracts for device access — understand the value of their own worth any better in this new paradigm than in the last one?
Scenes from the 21 Inc pitch book – FT Alphaville
Meet the company that wants to put a bitcoin miner in your toaster – FT Alphaville