Saturday, June 18, 2016

On Blockchain Layers, Risk and Learning

Here is some thoughts on Bitcoin, Blockchain, Ethereum and TheDAO, risks involved and the driving power of money.

The Fintech Bubble by Joi Ito calls for "as many of us as possible [to] focus on the infrastructure and the opportunities at the lowest layers of this stack we are trying to build." The article points out that it might be a bad idea to build castles on top of slippery ground that needs to be properly secured before putting too much pressure on it. This is a good thing to keep in mind, but learning fast is the positive side to having a lot of interesting and ambitious activity in the application layer. If everybody involved keeps a close eye on how much risk he or she can personally take, I think that learning fast even if it involves failing is a good thing to do. Chances are that being quick is necessary to "completely reinvent the nature of money and accounting". If regulation and big names in the money business should really catch up they will try to defend their assets. This has a lot of potential to get in the way of strengthening and exploring the blockchain.
Why do we need learning?

As we have no final idea how the layers in block chain tech should be organized to optimize for robustness, adaptability and ease of understanding/using the technology, it won't work out to get things right without experiments in applications. There will be fails, major ones likely, before the platform or landscape of platforms has settled. Comparing early blockchain to early internet is a fruitful point of view but you need to keep in mind that the link to money is much more direct for the blockchain and the link to user applications is less direct for blockchain tech. This makes for a very much different risk profile. Blockchain, Coins, Platforms for distributed consensus dig into the major conflict between centralized and decentralized infrastructure and are dealing with assets that convert to fiat currencies instantly. Hope and greed at scale will always have a seat at this table and everyone involved needs to find his very personal balance for investing time and money.

Is risk realized a bad thing?

No it is not. There is no doubt, whenever some risk materializes. it hurts. Someone will be in pain and needs to ask: Could I have known this to avoid the trouble I got myself into. This is learning and it is never more direct as in moments of great clearity when you lost a sum of money recently. If you take risk you better know that you can handle it. That said we should remember that money is not lost but changes hands. Blown investments are one of the more efficient mechanisms to transfer money from the relatively wealthy to those who invested time and devotion. This is why we should continue to aggressively evaluate the problem landscape for fast learning while embracing and controlling risk at the personal and corporate level.

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