Notwithstanding all the good news and progress that’s occurred in the last six months, in many ways 2013 has been a bad year for Bitcoin businesses. As Bitcoin has moved closer to mainstream awareness, the companies that are working to build the fledgling Bitcoin economy have struggled to add capacity in the face of overwhelming demand and at the same time an increasing amount of their time, attention, and financial resources have been sapped by the demands of regulatory compliance as well as overcoming hostility from existing players in the financial sector. Many services like Bitfloor, Tangible Cryptography, and Bitspend have stopped operating despite being profitable and highly popular with a growing customer base. An uncountable number of other great ideas have been shelved because of the growing awareness of just how legal oppression can be brought to bear against them, as well as how expensive and time consuming it would be to even make an attempt at full compliance.
What are we trying to achieve?
Is this the best approach to growing the Bitcoin economy, or is there a better way to get to where we want to go? Is our vision for Bitcoin to be a slight upgrade to the existing financial structures in the world, or is our goal to implement a technological revolution that transforms the nature of money and brings an unprecedented level of personal empowerment to everyone in the world, in the same way the Internet revolutionized communication and made it possible for seven billion people to communicate directly with their peers without intermediaries or censorship?
If the goal is to revolutionize finance and empower the disenfranchised, then we’d be better served by taking the task seriously and not kidding ourselves about what that’s actually going to require.
No one ever introduced new technology which revolutionized a sector of the economy, much less its entire monetary foundation, without significant pushback from the legacy actors in that space. Especially in the case of banks, attempting to work with them in an attempt to introduce a new technology which largely renders them obsolete, is a fool’s errand. They will respond in a predictable and inevitable fashion to this existential threat to their business model just like the RIAA and MPAA responded to MP3 technology and peer to peer file sharing: with all the FUD, lawsuits, dirty tricks, and regulatory capture they can muster.
Looked at from another perspective, perhaps it’s time to take a page from Devin Coldewey’s recent piece and accept that if we want to build a technology that’s going to bring financial autonomy and the opportunity to move into the middle class to women in repressive Muslim theocracies, or to the masses of the unbanked in Asia, Africa, and Latin America, then the tools we use must necessarily be capable of running in circles around FinCEN and the IRS.
How do we get there?
At this point I expect a fair number of readers to believe that I’m expressing a grandiose and unrealistically optimistic potential for Bitcoin. Before moving on, I’d like to mention two responses to that objection. As I will explain later, our odds of success increase in a counterintuitive fashion as our goals become more audaciously ambitious. Also, we’ve seen this kind of revolution happen successfully in the recent past. Technology has completely reshaped the market for content distribution in spite of heavy resistance from the legacy copyright cartel.
In order to design the type of business model we’ll need to resist all forms of censorship, first we need to examine our embedded assumptions of what a business actually is. The word itself probably brings a lot of associations to mind based on our prior experiences of how they’ve always operated, but to build the responsive, anti-fragile, and censorship-resistant businesses of the future we’re going to need to question our assumptions.
In its most general formulation, a business is:
In its most general formulation, a business is:
- a group of people
- who are all working together
- in order to derive an income
- by solving problems.
Think about this for a second and you can see how it applies to every business you’ve ever heard of, and probably also some entities that you never thought of as a business. It’s also a definition that is true in a fractal sense. Just as businesses obtain income by solving their customers’ problems, individuals within a business do the same by solving their coworkers’ problems, and an economy is an entire population all working together to solve each other’s problems.
Are these things helping, or holding us back?
Once we know what a business is, we can start with a clean slate and ask what is really needed in order to accomplish all of those four points. In the 21st century, does a group of people all need to meet in the same building in order to work together? Do they even need to be located on the same continent, operate in the same time zone, or even speak the same language? Do they need corporate charters, headquarters, bank accounts, and hierarchical internal power structures, or is that just how everything was done in the past before we had access to modern technological capabilities?
Offices and bank accounts are some of the most important things to discard if possible because they are the two single biggest weaknesses that will be targeted when a business offends someone in power. Bank accounts are especially problematic because a bank can choose at any time to decline having a business as a customer, even if they haven’t done anything illegal or violated their agreement with the bank in any way.
Clearly we know it’s possible for people all around the world to connect online and work together. I’m typing this article right now on a computer running Linux, which was developed in exactly this fashion. There is a bit of resistance to the idea of running a business this way, but that’s just an effect of never having seen it before. If we already know people can come together online to work for a common goal, then the particular goal involved isn’t really relevant. If they can do it in order to build an operating system, then they can do it to operate a business too. In order to facilitate this new way of organizing, we should look at innovative solutions that are already beginning to emerge. Exciting new ways for individuals to collaborate are already being developed, like Bettermeans and Swarmwise.
Offices and bank accounts are some of the most important things to discard if possible because they are the two single biggest weaknesses that will be targeted when a business offends someone in power. Bank accounts are especially problematic because a bank can choose at any time to decline having a business as a customer, even if they haven’t done anything illegal or violated their agreement with the bank in any way.
Clearly we know it’s possible for people all around the world to connect online and work together. I’m typing this article right now on a computer running Linux, which was developed in exactly this fashion. There is a bit of resistance to the idea of running a business this way, but that’s just an effect of never having seen it before. If we already know people can come together online to work for a common goal, then the particular goal involved isn’t really relevant. If they can do it in order to build an operating system, then they can do it to operate a business too. In order to facilitate this new way of organizing, we should look at innovative solutions that are already beginning to emerge. Exciting new ways for individuals to collaborate are already being developed, like Bettermeans and Swarmwise.
The unbanked business
Eliminating your business’s dependence on a bank account requires taking a new approach to how you handle legacy currencies. For example, let’s consider the case of Bitspend.net. They offered a service via which bitcoin holders could shop online with bitcoin on any site by allowing Bitspend to make the order on their behalf. At the present time their service is on hiatus while they find a new banking partner, as the old bank simply decided they were “high risk” and terminated their account. In an open letter, I suggested they take a different approach by connecting people who want to shop with their bitcoins to people who want to buy bitcoins using their credit and debit cards who can make the purchases for them.
This is the basic model for an unbanked business: instead of using a company bank account to move (non-Bitcoin) currency from one place to another, find two groups of customers who want to move their money to where the other group has it, and act as a matchmaker and trusted escrow. If one group of people has dollars and wishes they had an easy way to move them into a Bitcoin exchange, and another group of people has dollars on that same exchange and wishes they had an easy way to move them to their bank accounts, a business can facilitate this by having the first group deposit their dollars into the account of the second group in exchange for dollar credits on the exchange which came from the second group. They get paid for their services in bitcoins and never need to touch the dollars themselves. We can move legacy currencies without ever touching them directly by locating suitable groups of people and solving the double coincidence of wants problem for those groups.
This is the basic model for an unbanked business: instead of using a company bank account to move (non-Bitcoin) currency from one place to another, find two groups of customers who want to move their money to where the other group has it, and act as a matchmaker and trusted escrow. If one group of people has dollars and wishes they had an easy way to move them into a Bitcoin exchange, and another group of people has dollars on that same exchange and wishes they had an easy way to move them to their bank accounts, a business can facilitate this by having the first group deposit their dollars into the account of the second group in exchange for dollar credits on the exchange which came from the second group. They get paid for their services in bitcoins and never need to touch the dollars themselves. We can move legacy currencies without ever touching them directly by locating suitable groups of people and solving the double coincidence of wants problem for those groups.
Doing this successfully means attracting large numbers of customers who are all willing to participate in this activity, which could be especially difficult if a business model requires millions of customers willing to take actions which could potentially subject them to legal harassment or punishment. To overcome this hurdle, it’s time to learn from the online gaming sector.
Victory through gamification
Many of the people reading this might not clearly remember the pre-MMORPG era, but for those that do, the difference between gaming then and now is phenomenal. Gaming is mainstream now, openly enjoyed by people of all ages, genders, and walks of life. It’s no longer an activity that respectable adults feel embarrassed to admit to indulging. This transformation to mainstream acceptance can be traced back to a single change which began to appear in the MMO genre. Prior to the rise of Everquest, gaming was about solo play, or about direct competition between players. Cooperative play was nearly unheard of and not particularly well explored. Then MMORPGs started introducing a revolutionary new feature to their games: bosses and quests which could not be completed by a solo player. The need for players to regularly cooperate and specialize in order to progress resulted in a near-instant transformation in the culture and appeal of gaming.
Misanthropic theories of human nature aside, it turns out that we humans love to cooperate with each other. Players enjoyed this new capability so much that they began forming entire societies online. For the vast majority of humans, participation is addictive. We are social animals. Why is this important to the problem of building censorship-resistant businesses? If you are building a distributed business model which requires millions of participants to make it viable, then look at the incentives game developers who attract millions of people to work together online have created and adapt the same principles to your project.
Changing the world
Beyond the enjoyment of a well-designed user experience, we can offer more compelling incentives to would-be participants in our future Bitcoin projects. A true revolution never comes about by conforming to and appeasing the past - it’s always a matter of inspiring the future. We are living in a point in history in which few people believe in the existing financial and economic systems, and especially not the youth who are coming of age into a world that has nothing to offer them except staggeringly high unemployment, massive unpayable debts everywhere they look, and disappearing opportunities. If we want Bitcoin to change the world, these are the people who we should be looking to inspire.
Unfortunately the approach that most Bitcoin ventures are taking doesn't do this. Taking a public position that we’ll do our best to wait until the regulators give us permission to serve our customers while apologizing for all the inconvenient capabilities Bitcoin brings to the table is the exact opposite of inspiring. If you want to appeal to the incoming generation of people who are preparing to take over from their predecessors you need to offer them a vision worth getting excited about, something like this:
“Our goal is not to placate and obey the rules of the people responsible for navigating the world into a permanent financial crisis. With or without their permission, we are going to build a better future out of the ashes of this system which they broke, and you can help.”
“Our goal is not to placate and obey the rules of the people responsible for navigating the world into a permanent financial crisis. With or without their permission, we are going to build a better future out of the ashes of this system which they broke, and you can help.”
So when you’re working out how you can turn your next great idea into a viable Bitcoin business, don’t restrict the range of solutions you’re willing to consider to only those that will be met with the approval of the masters of the system which we are seeking to make obsolete. Bitcoin is about bringing new possibilities into the world, ones that the people who are comfortable with the status quo will oppose. If you’re willing to think in terms of what could be, instead of what is allowed, you can free your imagination to assemble the best team from a global talent pool, who all work together to solve problems for your customers in the best way possible, while only devoting as much of your resources towards the regulators as it takes to operate, such that they can not get in your way. No one has ever changed the world by waiting for permission.