What exactly is an economy?

"There can't be such a thing as an economy based on the poems and paintings"

Is a phrase I caught in the video Humans Need Not Apply as I followed up the following tweet by Elon Musk. To spoil my punchline from the start: I think we very much need to establish an economy based on poems and paintings. I also think it can be done.

Scary Smart Video Predicts Automation Will Make Human Work Obsolete http://t.co/LNupCp3pYb
— Mashable (@mashable) August 19, 2014

Let's Start At The Beginning

The video above is well worth your time because it illustrates the next step in the automation revolution and how disruptive it will be to our current way of earning money to sustain and improve our participation and rank in society.

Modern western societies tend to be organized around some kind of market that includes human work force. Value is based on scarcity of the type of work needed to produce stuff. The rise of productivity reduces the necessity to assign work on producing food and provides the luxury of producing stuff that is less and less essential to primitive needs moving our demand profile up the Markov Pyramid day by day.

Coming from a long history of hunters, gatherers, merchants, workers and capitalists we can't avoid to structure our view of the world along the lines of scarcity for something. This is true despite of abundance of food and goods due to increased productivity and despite of minimized margin costs for the duplication of digital goods.

Let's Look At The Current State Of Economy

What we end up with is a set of rules that fails to distribute wealth derived from the abundance we achieved. Instead there is a happy few who end up living in the process of getting rich beyond measure. There is the decreasing part of the population doing the rat race to succeed in life. And there is those that have been dropped from or never were in the position of participating in the game of money and career.

This won't work as Nick Hanauer states in his Pitchfork Talk at TED. 

Let's Step Back And Rethink

As this is a bog and not politics it should be easy to start organizing things from scratch. Put aside greed generated by fear generated by thinking in terms of scarcity. Have a look at people you meet. They are interested, they want to participate and share. They want to earn positive feedback by involving them with others. From their day of birth they explore and try to make sense of why they are here and how to contribute so that in the end they may look back and see that it was a good life they lived. Not easy, not without risk, not without hardship but with curiosity, engagement, purpose and warmth.

Most of the time people are nice, motivated and trying to do the right thing.

Let's Organize Abundance

So how about building on all those people motivated to participate and move things along. Economy is a set of rules we come up with to organize ourselves. To organize us in a way that improves the fitness of our population given a set of circumstances. The circumstances have changed dramatically so we have to rethink the rules we established. The new set of rules needs to take into account that there is a link between individual welfare and the success of a population that is essential and absolutely non trivial. Personal welfare for all should align with being successful as a population inhabiting a planet with limited resources.

A lot of thought needs to go into that so increasing participation is a good idea.

Let's Define And Implement The Right Set Of Rules

The right set of rules needs to focus on what makes us human. Deriving a set of rules while having this in mind will enable us to have an economy that implements what is good for people and not the other way around.

Sharing poems and paintings seems like a good point to start. These are products that are very personal and human. Which is what we all crave for.

The rise of global social interaction is proof that an economy of abundance is possible.

Let's Reframe Our Point Of View

Human work won't be needed to keep up the economy of scarcity. We won't be able to compete with smart machines. But being and living as a human being is not restricted to working for the economy. We are free to come up with rules for an economy to try and help everyone of us to pursue his or her human potential. This is true even for an economy based on the use of smart machines.

@mashable @elonmusk human work to keep up the economy of scarcity might be obsolete. let's organize #abundance http://t.co/WDIVrNLpal
— Bernd Worsch (@Tegwick) August 19, 2014

Experiments on Money

Here is a tweet I responded to earlier this evening:

"Don't be a venture capitalist—be a speculative philanthropist." We love this. Great piece by the @NakamotoInst http://t.co/WzhtPMCLD6
— CollegeCryptoNetwork (@CollegeCrypto) May 17, 2014

The article "The Correct Strategy of Bitcoin Entrepreneurship" by Daniel Krawisz caught my attention and here is my comment:

@CollegeCrypto @twobitidiot @NakamotoInst interesting read but I don't agree. To much fear and scarcity thoughts.
— Bernd Worsch (@Tegwick) May 22, 2014

I failed to realize the ambiguity of my response until I read this:

@Tegwick @twobitidiot @NakamotoInst Fear in consumers, friend. Talk to VCs, companies, and merchants. They have no fear.
— CollegeCryptoNetwork (@CollegeCrypto) May 22, 2014

Twitter is just too short sometimes, so here goes some more text to clearify what i meant.

I sure like the catchphrase "speculative philanthropist". It rings a bell of what I feel might be a good set of intentions to go about investing, entrepreneuring or otherwise dedicating your money and time.

Meaning, positive impact, personal fullfillment won't be achieved by money for it's own sake. This is no different if looking at bitcoin than for fiatmoney. Everyone needs to think about what to do with money. How to handle money issues in order to live up to ones own expectations and responsibility is a critical question. It is also a question many of us do neither ask nor answer while we are struggling to get a grip on our personal money issues.

Taking into account that the crucial money question is answered all too seldom, I object Mr. Krawisz's notion on all those "bad" alternate cryptocurrencies.
Why should we feel bad about investing time into alternative cryptocoin variants apart from bitcoin at this point in time? Is it really necessary to focus energy and sort things out before getting in too deep?

I believe the opposite is true: We need as many people to bring their various maybe weird ideas to life as new currencies. There is centuries of stagnation on how the money systems work to break. Experiments need to be done, we will learn a lot dropping mindblocks as we go. 

Bitcoin, Altcoins and the blockchain are recent concepts and technology with quite some power to disrupt. No one really knows how this story will proceed. Keeping an open mind and experimenting a lot is how to learn.

Learning is key to do good stuff based on cryptocurrencies. How money works is at the core of modern societies and hasn't changed a lot. You get money if you have money. The systems tends to concentrate wealth and works in favour of those who are fine off already.

But money is not reason. If money becomes reason bad things follow. No need to duplicate this bug with cryptocurrencies. Let's try something else. Let's design a money system that supports participation and engagement not hording.

This is why i think requesting the community to stop altcoin experiments and put their attention on Bitcoin only is a bad thing to do. Feeling the need to restrict engagement derives from a worldview of scarcity not appropriate in the digital age.

We are at the verge of giving economy a new set of rules. They will be encoded as algorithms and safeguarded by blockchain trust. Let's try to find a set of rules that works for the people not the other way around. 

Keep up the #altcoin experiments!

Hope and Fear, Greed, Responsibility and Bitcoin

People are strange, businesses are lead by people and stability emerges gradually.

This is what crosses my mind reading about the latest Mt. Gox Bitcoin incident at Coindesk and triggered putting down my thoughts on "What is Bitcoin?" below.

Disclaimer: I own bitcoin but have no money at Mt. Gox. Invest your time and money at your own risk.


Interesting to see how other bitcoin related businesses and people, blogs, journalists and all jump to tweeting and commenting on the subject. I am still trying to make sense of what happened at Mt. Gox and how it connects with Transaction Malleability. Whatever details will surface, if Mt. Gox managed to loose your coins and money you need to remember the risk you took was your personal responsibility.

Don't take me wrong, risk is tough and realized risk hurts. Managing risk and coping with whatever risks manifest in your life is at the very core of investing, starting and running businesses and of life itself.
Hope makes us go for a chance, fear helps to keep us away from risks too big and greed kicks in, when things play out smoothly or even better than expected.
But success is dangerous ground. If you allow greed to change how much risk you are willing to take, the blow you take will be harder than you like and expect, when success gives in to trouble. Success and failiure, every life has it both. Everyone successful in the long run knows and plans for this.

So what about bitcoin, money and the money industry?

1) Everybody investing in bitcoin knows that this is quite risky from whatever perspective you choose to look at it:

• Fragile Usecase: Bitcoin based consumption of goods is a tiny fraction of the transactions generated. Trading bitcoin vs various fiat-currencies ($, €, ...) is what happens most.
• Volatile Pricing: Bitcoin price went from a single cent to a thousand dollars in a snap but not without massive drawbacks along the way. 
• Young Technology: The technical bitcoin ecosystem is young, so is the business and service ecosystem building on top of that.
• Attractive Target: Bitcoin is a worthy target for digital theft, IT-Security is bad on average, so storing bitcoin safely is not easy.  
• Political Impact: Bitcoin money might be very disruptive to the system of fiat-currencies which has a lot of quite potent stakeholders.

2) Everybody investing at all should know that investing is inherently risky:

• Leaving your money alone decreases your money's worth.
• When first taking money to your bank you signed a contract that is about risk.
• When buying an asset you try to make an informed decision balancing chance, that is risk and potential in your favor.
• Buying and selling assets doesn't always leave you with more money.
• The value of your assets keep changing every day.
• There is a lot of folks telling you how to invest and most of them earn their money from feeding you this information as opposed to following their own advice. 

3) Fiat-money is established and regulated:

• Digging down in the history of money is interesting and boils down to the basic fact that money is about the convenience of trading goods and risks. 
• Money needs services and infrastructure to be practically useful.
• Those providing established money related services tend to be powerful players in their time.
• Seems like power needs regulation to keep a society stable. 
• Regulation is never perfect and always biased. Beneficiaries of the bias are essential to keeping the regulation up and running.
• Most people have small money and little knowledge about it. They end up using established services of big money companies to manage their money. 
• Small money tends not to be smart money and the small money people tend not to be among those who benefit the most. Stability and a reasonable standard of living is what they get out of the system.
• The harsh downside of the established system is all those people struggling to get mere minimal access to the system, devoting their lifetime to sawing clothes is some factory in Bangladesh or whatever.

What is Bitcoin?

Bitcoin is yet another currency, a label to attach at numbers used to trade goods and risks. The currency is algorithmically designed, so that the amount available increases but scarcity remains intact. Provided that demand does not break down that is. The rules of the game are coded in software and fortified by cryptography. Who owns what is stored redundantly by the peers themselves. Bitcoin wallets are a decentralized net of peers keeping each others transactions. No need for Banks, that's it. 

It is quite common to think of bitcoin as digital gold. That is why the process of bitcoin creation is referred to as "mining".  The cryptography is there to ensure there won't be no alchemists somehow magically creating bitcoin (gold) from lead (electricity). Actually mining is alchemy transforming electricity to bitcoin but the cryptographic challenge keeps getting harder and harder.

The digital peer2peer nature of bitcoin make it a much better fit for the digital and mobile age than gold. But as with gold there is no man made central authority in charge of creating bitcoin as it is with the nation dominated fiat-money system.

As with every currency the value of bitcoin is derived from trust. Lacking the central authority backup and as opposed to gold being around for a very short time only, the trust basis of bitcoin is quite volatile. (I kind of miss out on why people keep being dumbfounded by this.)

What value does the Bitcoin-System create?

As a currency bitcoin is a measure for value not a value in itself. But the bitcoin infrastructure provides value by cutting down on transaction costs for currencies especially in a global digital economy.

Cutting down on transaction cost is profane but disruptive. It is disruptive to the established money system. In fact i think this to be so disruptive that I'll have to do another article to dig into this.

Finally: Is  the Mt. Gox incident a mortal wound for Bitcoin?

I doubt so very much. Reading what I read, I tend to believe that another early mover in the bitcoin ecosystem stumbled. Maybe they stumbled for the last time, maybe some investor grabs them by their hair pulling them from the mud.

Either way, digital money rigorously cutting down on transaction costs won't go away. But could not some other currency take over? Sure. If bitcoin demand drops in favor of some other digital currency that might happen. 
I tend to think this won't happen unless someone finds a major unfixable flaw in the bitcoin concept or the unknown-digital-currency-to-be offers a major benefit that i can not think of for now. Remember there are lots of alternative digital currencies around, but they all trade for bitcoin thus increasing the bitcoin ecosystem.

In a nutshell Mt. Gox seems to have lost track of what they have been doing on a really big scale. There is no excuse for that and courts will have to judge if this was careless, negligent or criminal. Bitcoin will move on and that is move on without being "put back 5 to 10 years". This pu-back-hypothesis from the crisis strategy draft of Mt. Gox tells a lot. It is a self-deceiving notion of Mt. Gox to believe they are an essential ingredient to the bitcoin-ecosystem. They are not. Investors won't move on the behalf of Mt. Gox to save the bitcoin-ecosystem. Why should they?

Investors balance risk and potential. So should you!

Best of luck!

Update: Nice dive into the Mt Gox Topic by @aantonop is at http://www.youtube.com/watch?v=1mWkY5yIAnc. The main point is: when in #bitcoin take and keep control of your keys, ensure that your trust is based on the blockchain.

Three hours into this live video and still running. This is the internet age. Tech-kids running major businesses and before anyone notices what the hell happens, they fail miserably. Will Karpeles join the session? Will MtGox rize again as gox.com? Is @goxreloaded a hoax? Staying tuned.

Entrepreneurship, Money and Morals

A somewhat lengthy comment on Mohamed Ali's talk at TED

http://www.ted.com/talk/mohamed_ali_the_link_between_unemployment_and_terrorism.html

There is no golden bullet. This sure does not mean that there is no hope in overcoming poverty and "Waithood". Unless people willing to make possitive impact as, Muhamed Ali, Aden and Mohamed Mohamoud, fall to disencouragement, fear and judgeful critisism or violence, there is hope. And it depends on people daring to make positive impact.

Young entrepreneurs sure are such people and I am humbled by Muhamed Ali who found his lever to try and change a small bit of the world for the better. I am even more humbled by Aden and Muhamed Mohamoud who dare starting businesses in Mogadishu. From this talk I think one can understand that even in the face of massive adversities young entrepreneurship can happen and succeed having "social impact". How can anyone think someone starting this can not be aware that his business is not likely to be a golden bullet to fix defunct society, violence or terrorism?

It is not only the talk that has a lot to tell about the human condition but comments on it also. Why is there so much criticism due to bias in the talk and blame that it does not cover all aspects that lead to violence or even terrorism? The talk is clearly moving for many of us. Seems we can't take in how much-needed positive entrepreneurship is, acknowledging that people find the courage to act and just handle our own shame for being born rich.

The main problem sure is not in fearing that someone generates false hope and inspires people to try do something good risking to fail. Entrepreneurship is not easy in rich societies much less in poor ones. The problem is help without motivating entrepreneurs too often fails in being sustainable. Is that because the rich need to keep the poor poor and in "Waithood"? I think it is because being treated is not what humans want. People want to make an impact. That is human nature. Sustainability needs to respect and use that. Gangs, pirates, terrorists they all know or sense that. They from their point of view (twisted as it might be) try to do good too. The question is good to whom and what is the ruleset that will be respected to keep others outside this group from harm.

In my opinion a major problem (i do not believe in one main problem) is what social mechanisms are in place to define and enforce the rules everyone especially entrepreneurs need to comply to. We can't put this pressure on Muhamed Ali or any other entrepreneur and the issue is insanely hard to tackle in general.

Here is what the talk boils down to for me:

Business for good is and needs to be personal because responsibility ultimately is personal and without responsibility adherence to moral standards begins to crumble. It is our duty to watch out for responsible entrepreneurs and try supporting them by various means of actions not the least important of which is try keeping them safe from criminal business in their environment. Money without rules won't do much good. Money with sound rulesets might spike something as complex and intresting as the micro credit movement.

Money needs rules to strengthen morals.

Points Of View

Where should one start to write about money? I started by grabbing one of the books i read about the topic quite some time ago and stumbled upon the following:

"But you only pay me 10 cents."
"So what are you learning?"
"That you're cheap."
"See you think I am the problem."
"But you are."
"Well, keep that attitude and you learn nothing."

Money is a matter of perspective. It is a necessity for all, the power to shape fortune to some. It is an offending object, a measurement of value, a medium for exchange.

Let's start by assessing our attitude concerning money:

Is money a tool to you or are you driven by money?

I try to think money as a tool. But all so often end up feeling not quite like that is true. There is a baseline of necessities that need to be met for my family and me. Screw that and your in trouble. Money as a necessity will start to dominate a lot of your decisions. Feels like someone else is in the driver seat to me: the boss, the bank, the empoyment agency? Hard to keep up the idea of using money as a tool, if you are running low on cash.

The welfaring point of view suggests everyone should be entitled to enough money to come by. The empowerment point of view suggests people should live in an environment where engagement puts them in a position to care for themselves. There is quite some polarity out there about which point of view one should take. It seems most of us tend to argue like there was a fixed amount of money so that we are stuck in a world of scarcity bound to battle for our share. This is not where I want to go. I believe polarity to be neither helpful nor true.

Shaping fortune is not about money at least it is not about money alone. Shaping fortune is about people. Getting things accomplished is not about money either. Accomplishment happens when people lean into problems, when they are motivated to impact their life and the lives of others around them. Money might be involved in this. It often is, but there is a lot of value that is never attributed with a moneys worth.

I will be thinking and writing about money as a feedback-engine. We all crave for positive feedback. Positive feedback is good as it provides motivation to do good. At it's best the money system is quite good at providing such feedback. What a shame that the system is far from being at it's best quite often. We will have to explore that.

Thanks for reading! Feel free to comment!
@Tegwick

The conversation quote is from "Rich Dad Poor Dad" by Robert T. Kiyosaki.

The Start

The chief value of money lies in the fact that one lives in a world in which it is overestimated. --H. L. Mencken

Starting today i will be blogging on money. Why? Because money is a form of feedback, we use every day. Money is a personal necessity and at the core of how we arrange our lives. Money is one of the core systems of rules our society is based upon. Therefor money reflects upon our belief systems. Money runs deep, influences all of us and is moving into the digital domain. So it happens many of my interests, projects and thoughts touch on money. It's interesting. That is why!