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December 15, 2017

Bitcoin for dummies

Thumbnail image for Bitcoin_Digital_Currency_Logo.pngThe writers of the sitcom The Big Bang Theory probably thought they were on safe ground in early November when (at a guess) they pegged the price of bitcoin at $5,000 for the episode that had its first airing in the US on November 30 (Season 11, episode 9, "The Bitcoin Entanglement"). By then, it had doubled. This week, it neared $17,500, according to Coindesk. In between, it's dropped as much as 25% in a single day.

All of which explains why I've had numerous conversations this week in which I tried to talk people out of feeling bad that they didn't buy bitcoin back when it was cheap. Mortgaging your house or opening up credit card debt in order to buy bitcoin, as CNBC reports some people are doing, is a disastrously bad idea.

Bitcoin is at the stage where a sense of proportion is in short supply. You've got Deutsche Bank claiming that a bitcoin crash would endanger global markets, the Bank of England saying it's no threat, and Andrew Weilbacher at btcmanager.com arguing in return that the euro will be far more destructive. The Bank of England likely has it right: bitcoin is too small - at its $17,000 peak the whole market is $300 billion - to cause a global crash, even at current prices and volatility. It can certainly crash personal economies quite effectively, though.

But why stop Weilbacher when he's having fun? "Bitcoin is poised to overtake current technology for the internet and finance, not considering all of the other blockchain protocols. If and when this technology passes more archaic versions, it will begin to take on the total market valuation of the internet - $19 trillion - and the financial industry as a whole," he writes. Stuff like this always makes me think of this quote from Wall Street giant (and Warren Buffett teacher) Benjamin Graham: "Bright young men have been promising to work miracles with other people's money since time immemorial."

The dot-com bust was a great example. And yet, at its height in 2000 when even the most insistent dot-com boosters were admitting it was a bursting bubble, even the most skeptical believed that ten years later the internet would be much bigger. Many of those early internet companies never recovered, of course - but the internet still hasn't stopped growing.

So is bitcoin like an internet company or like the internet?

Bitcoin was conceived as two things: a cryptocurrency and a payment system. At the beginning people who mined or bought it were mostly curious and wanted to experiment. It was technically challenging, but cheap. A couple of years ago, we were hearing a lot about its potential for cutting costs out of financial transactions.

That dream is in trouble: the rapid rise in prices is killing bitcoin as a cost-cutter because as bitcoin's exchange rate goes up, so do its transaction costs. About 100,000 outlets worldwide accept payment in bitcoin, but there are also many private uses, particularly in areas where trust in government and the financial system is collapsing. The reality, though, is that very few people seriously use bitcoin as a currency and some of them are reconsidering. Steam, for example, announced on December 6 that it was ceasing to accept bitcoin payments partly because of pricing volatility but mostly because the fees are nearing $20 per transaction, 100 times what it cost when Steam started accepting it.

There's another problem, too: recent calculations say that the bitcoin transaction network is hideously energy-intensive, and even if miners derive all their power from renewables, if prices continue to rise it won't be sustainable. Even if it is, Visa is vastly faster and vastly more energy-efficient.

Those involved in fintech have been saying for some time that whatever happens to bitcoin, the blockchain, which records transactions in secure but verifiable blocks, is really significant (although older industry guys call it a "distributed ledger" and wonder why all the fuss over a 30-year-old technology). I see no reason not to believe them. However, you can't invest in the blockchain by buying bitcoin. Instead, the people investing in exploiting this are banks, other financial institutions, and large and small technology companies. That being the case, the idea that the power of the system lies in its decentralized peer-to-peer nature that requires no central authority seems likely to die even faster than the same idea about the internet itself. Get your libertarian rhetoric while you can. And your crypto kittens.

Bitcoin is not scaling. That doesn't mean other cryptocurrencies can't, but it does make Derek Thompson, who, writing for The Atlantic, called bitcoin a digital baseball card, without the faces or stats", even more likely to be right.

So, at present, most bitcoin owners are speculators hoping to cash out by selling to a greater fool. Over the time of bitcoin's existence, mining has moved from ordinary laptops to GPUs, to purpose-built ASICs. Today, most mining is controlled by a relative handful of players with giant clusters. If you are really insistent upon trying to make some money out of the bitcoin bubble, your best bet is the old picks and shovels approach. Needless to say, others have already thought of this.

Bottom line: you may regret missed opportunities but they don't make you feel nearly as stupid as the ones you took but wish you hadn't.


Illustrations: Bitcoin logo.

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.

December 8, 2017

Plastures of plenty

Thumbnail image for windows-xp-hilltop.jpegIt was while I was listening to Isabella Henriques talk about children and consumerism at this week's Children's Global Media Summit that it occurred to me that where most people see life happening advertisers see empty space.

Henriques, like Kathryn Montgomery earlier this year, is concerned about abusive advertising practices aimed at children. So much UK rhetoric around children and the internet focuses on pornography and extremism - see, for example, this week's Digital Childhood report calling for a digital environment that is "fit for childhood" - that it's refreshing to hear someone talk about other harms. Such as: teaching kids "consumerism". Under 12, Henriques said, children do not understand the persuasiveness and complexity of advertising. Under six, they don't identify ads (like the toddler who watched 12 minutes of Geico commercials). And even things that are *effectively* ads aren't necessarily easily identifiable as such, even by adults: unboxing videos, product placement, YouTube kids playing with branded toys, and in-app "opportunities" to buy stuff. Henriques' research finds that children influence family purchases by up to 80%. That's not a baby you're expecting; it's a sales promoter.

When we talk about the advertising arms race, we usually mean the expanding presence and intrusiveness of ads in places where we're already used to seeing them. That escalation has been astonishing.

To take one example: a half-hour sitcom episode on US network television in 1965 - specifically, the deservedly famous Coast to Coast Big Mouth episode of The Dick Van Dyke Show - was 25:30 minutes long. A 2017 episode of the top-rated US comedy, The Big Bang Theory, barely ekes out 18. That's over a third less content, double the percentage of time watching ads, or simply seven and a half extra minutes. No wonder people realized automatic ad marking and fast-forwarding would sell.

The internet kicked this into high gear. The lack of regulation and the uncertainty about business models led to legitimate experimentation. But it also led to today's complaints, both about maximally intrusive and attention-demanding ads and the data mining advertisers and their agencies use to target us, and also to increasingly powerful ad blockers - and ad blocker blockers.

The second, more subtle version of the arms race is the one where advertisers see every open space where people congregate as theirs to target. This was summed up for me once at a lunchtime seminar run by the UK's Internet Advertising Bureau in 2003, when a speaker gave an enthusiastic tutorial on marketing via viral email: "It gets us into the office. We've never been able to go there before." You could immediately see what office inboxes looked like to them: vast green fields just waiting to be cultivated. You know, the space we thought of as "work". And we were going to be grateful.

Childhood, as listening to Henriques, Montgomery, and the Campaign for a Commercial-Free Childhood makes plain, is one of those green fields advertisers have long fought to cultivate. On broadcast media, regulators were able to exercise some control. Even online, the Childhood Online Privacy Protection Act has been of some use.

Thumbnail image for isabella-henriques.jpegAdvertisers, like some religions, aim to capture children's affections young, on the basis that the tastes and habits you acquire in childhood are the hardest for an interloper to disrupt. The food industry has long been notorious unhealthy foods into finding ways around regulations that limit how they target children on broadcast and physical-world media. But the internet offers new options: "Smart" toys are one set of examples; Facebook's new Messenger Kids app is another. This arms race variant will escalate as the Internet of Things offers advertisers access to new areas of our lives.

Part of this story is the vastly increased quantities of data that will be available to sell to advertisers for data mining. On the web, "free" has long meant "pay with data". With the Internet of Things, no device will be free, but we will pay with data anyway. The cases we wrote about last week are early examples. As hardware becomes software, replacement life cycles become the manufacturer's choice, not yours. "My" mobile phone is as much mine as "my library book" - and a Tesla is a mobile phone with a chassis and wheels. Think of the advertising opportunities when drivers are superfluous to requirements, , beginning with the self-driving car;s dashboard and windshield. The voice-operated Echo/Home/Dot/whatever is clearly intended to turn homes into marketplaces.

A more important part is the risk of turning our homes into walled gardens, as Geoffrey A. Fowler writes in the Washington Post of his trial of Amazon Key. During the experiment, Fowler found strangers entering his house less disturbing than his sense of being "locked into an all-Amazon world". The Key experiment is, in Fowler's estimation, the first stab at Amazon's goal of becoming "the operating system for your home". Will Amazon, Google, and Apple homes be interoperable?

Henriques is calling for global regulation to limit the targeting of children for food and other advertising. It makes sense: every country is dealing with the same multinational companies, and most of us can agree on what "abusive advertising" means. But then you have to ask: why do they get a pass on the rest of us?


Illustrations: Windows XP start-up screen

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.

December 1, 2017

Unstacking the deck

Thumbnail image for Alice_par_John_Tenniel_42.pngA couple of weeks ago, I was asked to talk to a workshop studying issues in decision-making in standards development organizations about why the consumer voice is important. This is what I think I may have said.

About a year ago, my home router got hacked thanks to a port deliberately left open by the manufacturer and documented (I now know) in somewhat vague terms on page 210 of a 320-page manual. The really important lesson I took from the experience was that security is a market failure: you can do everything right and still lose. The router was made by an eminently respectable manufacturer, sold by a knowledgeable expert, configured correctly, patched up to date, and yet still failed a basic security test. The underlying problem was that the manufacturer imagined that the port it left open would only ever be used by ISPs wishing to push updates to their customers and that ordinary customers would not be technically capable of opening the port when needed. The latter assumption is probably true, but the former is nonsense. No attacker says, "Oh, look, a hole! I wonder if we're allowed to use it." Consumers are defenseless against manufacturers who fail to understand this.

But they are also, as we have seen this year, defenseless against companies' changing business plans and models. In April, Google's Nest subsidiary decided to turn off devices made by Revolv, a company it bought in 2014 that made a smart home hub. Again, this is not a question of ending support for a device that continues to function as would have happened any time in the past. The fact that the hub is controlled by an app means both the hardware and the software can be turned off when the company loses interest in the product. These are, as Arlo Gilbert wrote at Medium, devices people bought and paid for. Where does Google get the right, in Gilbert's phrasing, to "reach into your home and pull the plug"?

In August, sound system manufacturer Sonos offered its customers two choices: accept its new privacy policy, which requires customers to agree to broader and more detailed data collection, or watch your equipment decline in functionality as updates are no longer applied and possibly cease to function. Here, the issue appears to be that Sonos wants its speakers to integrate with voice assistants, and the company therefore must conform to privacy policies issued by upstream companies such as Amazon. If you do not accept, eventually you have an ex-sound system. Why can't you accept the privacy policy if and only if you want to add the voice assistant?

Finally, in November, Logitech announced it would end service and support for its Harmony Hub devices in March 2018. This might have been a "yawn" moment except that "end of life" means "stop working". The company eventually promised to replace all these devices with newer Harmony Hubs, which can control a somewhat larger range of devices, but the really interesting thing is why it made the change. According to Ars Technica, Logitech did not want to renew an encryption certificate whose expiration will leave Harmony Link devices vulnerable to attacks. It was, as the linked blog posting makes plain, a business decision. For consumers and the ecologically conscientious, a wasteful one.

So, three cases where consumers, having paid money for devices in good faith, are either forced to replace them or accept being extorted for their data. In a world where even the most mundane devices are reconfigurable via software and receive updates over the internet, consumers need to be protected in new ways. Standards development organizations have a role to play in that, even if it's not traditionally been their job. We have accepted "Pay-with-data" as a tradeoff for "free" online; now this is "pay-with-data" as part of devices we've paid to buy.

The irony is that the internet was supposed to empower consumers by redressing the pricing information imbalance between buyers and sellers. While that has certainly happened, the incoming hybrid cyber-physical world will up-end that. We will continue to know a lot more about pricing than we used to, but connected software allows the companies that make the objects that clutter our homes to retain control of those items throughout their useful lives. In such a situation the power balance that applies is "Possession is nine-tenths of the law." And possession will no longer be measurable by the physical location of the object but by who has access to change what it does. Increasingly, that's not us. Consumers have no ability to test their cars for regulatory failures (VW) or know whether Uber is screwing the regulators or Uber drivers are screwing riders. This is a new imbalance of power we cannot fix by ourselves.

Worse, much of this will be invisible to us. All the situations discussed here became visible. But I only found out about the hack on my router because I am eccentric enough to run my own mail server and the spam my router sent got my outgoing email bounced when it caused an anti-spam service to blacklist my mail server. In the billion-object Internet of Things, such communications and many of their effects will primarily be machine-to-machine and hidden from human users, and the world will cease to function in unpredictable odd ways.

Illustrations: John Tenniel's Alice, under attack by a pack of cards.

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.