Sunday 15 December 2013

Seedbombing: Applying the Principles of Permaculture to Finance



I originally wrote this article for Transition Free Press Edition 4. It's published under a Creative Commons licence (see side panel for details)


Finance, even in its most high-tech formulations, is rooted in ecological systems. A high-frequency trading hedge fund, for example, relies on electricity created by burning fossillised organic matter. It relies on employees, surviving via agricultural systems. It trades in company shares, given value by the actions of those companies’ employees using assets (like computers and telecommunications systems) that are all dependent (at some level) on mining, forestry, and other extractive industries.

The financial system has been a net drain on ecological systems though. Finance involves steering economic energy – symbolised in money – in an attempt to generate a yield over time. For example, investors may steer money via financial instruments like shares and bonds into economic activities, and attempt to extract returns in the form of dividends and interest. They aim to extract the highest short-term yield, from the minimum amount of expenditure, preferably at the lowest possible levels of risk.


Permaculture is a body of thought that attempts to build ecological dynamics into design. A permacultural designer entirely understands the idea of obtaining a yield from the earth by investing time and energy, but the key difference is that they attempt to do so without undermining ecological balance. The focus is on mutualistic integration with ecologies, acting in accordance with natural regenerative processes rather than parasitically exploiting them. So can we use permacultural principles to design financial instruments and institutions?

Cultivating long term balance
A classic example of a parasitic financial institution is a payday lender. The payday loan company is fixated with the short-term risks presented by a vulnerable borrower, and exploits that by demanding the highest possible interest rate from them. In so doing they further exhaust the community around them and increase deprivation. It’s akin to overfishing an already fragile river system, thereby further disrupting the ecological balance.

The permacultural designer, whether they are looking at fisheries or financial inclusion, will seek instead to build up the productive potential of the overall system. A permacultural financier thus looks to strengthen vulnerable borrowers, working with them to improve their credit-worthiness. The Permaculture Credit Union in Santa Fe is one such example of a regenerative financial institution. If we think in terms of economic energy, they aim to cultivate long-term energy balance, rather than extracting maximum short-term energy before collapse.

Observe and interact
But how do we get to a point of designing such systems? Anyone familiar with permaculture knows that it has 12 principles of design. The first, and perhaps most important, principle is ‘observe and interact’. Mainstream financial institutions such as large banks pay little attention to the cultural nuances of the communities they descend upon, and their designers certainly do not interact with such communities in any meaningful sense. They offer standardised products and services, no matter where they are, and in areas where these don’t work, the banks are simply not found (known as ‘financial exclusion’).

Alternative finance practitioners need to be attuned to the needs of their environment. I recently held a workshop at Shambala Festival where we explored the idea of building a pop-up currency for the duration of the festival. Several participants suggested we create something like the Brixton Pound, a local currency used for commerce in South London. The point of the Brixton Pound though, is to harness economic energy that would otherwise flow out of Brixton. The economic ecosystem of Shambala Festival, unlike Brixton, is already inherently local, so there is minimal need to introduce such a currency into that environment. To build something more interesting requires a much deeper observation of why people are at the festival (it’s not for commerce, for example), and how a different system of exchange might add a new dimension to that experience.

In anthropological terms, we might call this as ‘participant observation’, where you engage in slow observation and interaction with a particular cultural environment to experience the nuances. Through this process one can begin to get a feel for how a more integrated, inclusive, and interactive system can be built. A key problem in modern finance is just how disconnected people feel from it. Consider the average high-street bank. The people standing in the queue or using the ATM often appear utterly disconnected from the process. They often don’t know where the money comes from, or where it goes to. By contrast, a simple peer-to-peer lending platform like Abundance Generation – which allows you to lend directly to renewable energy projects – has reconnection embedded into its design.

Zones and diversity
Permaculturists are intensely interested by the flows of energy within and between different ecological zones and how to balance it. For example, in agricultural design, they’re thinking about how the household interacts with the immediate garden, and how the garden interacts with the zone of semi-wilderness beyond. They’re seeking synergies between the diverse components. This fostering of diversity is fundamental for building resilience (not having ‘all one’s eggs in one basket’), but the interrelations between diverse parts is also viewed as a source of creativity.

The mainstream financial sector is the ultimate monoculture. Not only is it not resilient, but it’s also not very creative or responsive to change. The banking sector is generally only good at one thing: extracting short-term profit whilst concentrating power in a single set of large institutions. What we rather need is something akin to an ‘open source’ financial movement, where that power is spread out to networks of smaller institutions, where access to financial services is widened, and where the means of producing financial services is extended to people who previously had little input. Local banking is one important element of this ethos, but we also catch glimpses of it in the array of niche crowdfunding platforms that have emerged, offering financing opportunities to projects that most banks would ignore.

Financial holism
At the core of permaculture is holism. Much mainstream thought encourages people to box aspects of their lives into intellectual silos, like ‘my economic life’ and ‘my political life’. That’s a terrible way to start a design process, because it ignores the inherently multifaceted nature of all our actions, and that we are always balancing various objectives and values. For example, a large national currency may be very efficient for exchange, but that very same efficiency can act to atomise individuals by weakening the ties of trust that would otherwise be required for exchange. Thus, rather than seeking to design for single, specialised and segregated uses (maximising a particular outcome), a permacultural designer seeks out holistic optimisation: For example, how does one create a currency that achieves efficiency without alienating people from one another? Can a local currency like the Bristol Pound blend the efficiency of mobile payment with the goal of energising local community exchange?

Very importantly, holism also involves integrating yourself into the design process, rather than imagining yourself as an objective outsider. Activists taking on the financial sector spend much time pitching themselves against the system, but frequently take little time to see how they personally form part of it. Have you ever wondered how the mainstream financial sector imprints itself and replicates itself in your own thoughts about exchange, and in the language you use? Much of the power of the financial system is predicated on people unconsciously deferring power to it without realising it. True holism, and the key to unveiling the hidden design principles in existing systems, is as much about observing yourself as it is about observing Canary Wharf. Think about it next time you take the note out of your wallet.


Seedbombing the Frontiers of Ecological Finance


So how does the aspiring permacultural designer start making their visions a reality in the financial sector? After all, if you're surrounded by a monoculture it's hard to seed new ideas. It's helpful in this context to take inspiration from the guerilla gardening movement, and in particular their technique of seedbombing. Seedbombing is the act of chucking compressed bundles of seeds into rigidly controlled gardens. Most of the seeds don't make it, but it's fun to try, and what's more, every now and again one actually establishes an outpost for itself.

Using this as an analogy for economic change, we need to constantly create portfolios of alternatives and throw them into society, learning from what works and what doesn't. That's how great institutions like Ecology Building Society got started - a group of people with an idea went ahead and just did it. These solutions are often small, but that's the point. We don't want to replace one monoculture with another monoculture. The ideal is to create a rich, responsive jungle of creative and resilient services, rooted into the reality of their local context.

Postscript...
After I wrote this article I went to Totnes to talk on the topic at an event organised by Transition Town Totnes, Schumacher Colllege and Totnes REconomy Project. You can see the video below. I also discovered the Financial Permaculture Institute and Perennial Solutions which have looked at this topic before, so check them out too. Cheers



Friday 29 November 2013

Building Creative Commons: The Five Pillars of Open Source Finance

AHOY, THERE BE A CLOSED SYSTEM TO OPEN

This is an article about Open Source Finance. It's an idea I first sketched out at a talk I gave at the Open Data Institute in London. By 'Open Source Finance', I don't just mean open source software programmes. Rather, I'm referring to something much deeper and broader. It's a way of framing an overall change we might want to see in the financial system. To illustrate this, I set up an analogy between computer systems and economic systems, and I then explore what financial 'code' might be. I then sketch out the five pillars that could underpin an open finance movement.




Computer systems as economies
Computer systems are great metaphors for economic systems. That's because, in a sense, a computer is a microcosm of our economy, albeit one that is a lot more predictable and controllable. Economies, at some basic level, are based upon people using energy to extract useful stuff from the earth, using tools, procedures, systems of rules and labour to activate the earth's productive potential. Likewise, computer systems rely on taking inputs of energy (the computer plugged into the electricity grid) and combining it with software code (a kind of abstraction of human organisation), in order to activate the assemblage of physical hardware (signifying a latent productive potential) towards productive tasks, when willed to do so by a user of the computer.

We constantly interact with computers, but most people in the world do not perceive themselves as programmers of computers. They mostly perceive themselves as users of computers that others have programmed. And even if they wanted to dig deeper, they'd find that much of the software they use is proprietary, locked up in secretive, opaque, even obfuscated formations. Windows looks like a friendly interface, but you cannot see what it does, or how it does it. It's a useful intermediary interface between you and the inner workings of your computer, but it's also a hard-shelled barrier.


The Financial Status Quo: Power concentrated in intermediaries


Software code is the organising rule system that steers energy into activating hardware towards particular ends. So, extending this as an analogy, what might financial 'code' look like? A financial system, in a basic sense, is supposed to arrange for surplus resources (extracted from the earth), to be redistributed (in the form of money) via financial instruments (often created by financial intermediaries like banks and funds), into new economic production activities ('investments'), in exchange for a return over time.

Here, for example, is a rough financial circuit: A person manages to earn a surplus of money (a symbolic claim on real things in the world), which they deposit into a pension fund, which in turns invests in shares and bonds (which are conduits to the real world assets of a corporation), which in turn return dividends and interest over time back to the pension fund, and finally back to the person.

Shares and bonds are extractive financial conduits that plug into a corporate structure, but if you look for how they are coded, you'd discover they are built from legal documents that are informed by regulations, acts of parliament, and social norms. They are supported by IT systems and all manner of payments systems and auxiliary services.

But it takes more than clearly-worded documentation to be able to create financial instruments. The core means of financial production, by which we mean the things that allow people to produce financial services (or build financial instruments), includes having access to networks of investors and companies, having access to specialist knowledge of financial techniques, and having access to information. It's these elements that banks and other financial intermediaries really compete over: They battle to monopolise relationships, monopolise information, and to monopolise specialist knowledge of financial techniques.

And indeed, that's why production of financial services mostly occurs within the towering concrete skycrapers of the 'financial sector', spinners of the webs of the code that is mostly unknown to most people. We have very little direct access to the means of financial production ourselves, very little say in how financial institutions choose to steer money in society, and very little ability to monitor them.

We have, in essence, a situation of concentration of power in financial intermediaries, who in turn reinforce and seek to preserve that power structure. And while I may be happy to accept a concentration of power in small specialist industries like Swiss watchmaking, a concentration of power in the system responsible for redistributing human society's collective resources into new investments is not a good thing. It's systematically breaking our planetary hardware by steering money into destructive activities, whilst helping to fuel a culture of bland individualistic materialism in increasingly atomised communities.


Opening access, reconnecting emotion, liberating creativity


The Open Source movement started with software - and in particular with the concept of copyleft and free licensing - but the principles extend far past software. At core, Open Source is a philosophy of access: access to the underlying code of a system, access to the means of producing that code, access to usage rights of the resultant products that might be created with such code, and (in keeping with the viral quality of copyleft) access to using those products as the means to produce new things. Perhaps the ethos is best illustrated with the example of Wikipedia. Wikipedia has:
  1. A production process that encourages participation and a sense of common ownership: We can contribute to Wikipedia. In other words, it explicitly gives us access to the means of production
  2. A distribution process that encourages widespread access to usage rights, rather than limited access: If you have an internet connection you can access the articles. We might call this a commons
  3. An accountability model that offers the ability to monitor and contest changes: An open production process is also one that is more transparent. You can change articles, but people can monitor and contest your changes
  4. A community built around it that maintains the ethic of collaboration and continued commitment to open access. It's more than just isolated individuals, it's a culture with a (roughly) common sense of purpose
  5. Open source code that can be accessed and altered if the current incarnation of Wikipedia doesn't suit all your needs. Look, for example, at RationalWiki and SikhiWiki
You can thus take on five conceptually separate, but mutualistic roles: Producer, consumer, validator, community member, or (competitive or complementary) breakaway. And these same five elements can underpin a future system of Open Source Finance. I'm framing this as an overall change we might want to see in the financial system, but perhaps we are already seeing it happening. So let's look briefly at each pillar in turn.


Pillar 1: Access to the means of financial production

Very few of us perceive ourselves as offering financial services when we deposit our money in banks. Mostly we perceive ourselves as passive recipients of services. Put another way, we frequently don’t imagine we have the capability to produce financial services, even though the entire financial system is foundationally constructed from the actions of small-scale players depositing money into banks and funds, buying the products of companies that receive loans, and culturally validating the money system that the banks uphold. Let’s look though, at a few examples of prototypes that are breaking this down:
  1. Peer-to-peer finance models: If you decide to lend money to your friend, you directly perceive yourself as offering them a service. P2P finance platforms extend that concept far beyond your circle of close contacts, so that you can directly offer a financial service to someone who needs it. In essence, such platforms offer you access to an active, direct role in producing financial services, rather than an indirect, passive one.
  2. There are many interesting examples of actual open source financial software aimed at helping to fulfil the overall mission of an open source financial system. Check out Mifos and Cyclos, and Hamlets (developed by Community Forge's Matthew Slater and others), all of which are designed to help people set up their own financial institutions
  3. Alternative currencies: There’s a reason why the broader public are suddenly interested in understanding Bitcoin. It’s a currency that people have produced themselves. As a member of the Bitcoin community, I am much more aware of my role in upholding – or producing – the system, than I am when using normal money, which I had no conscious role in producing. The scope to invent your own currency goes far beyond crypto-currencies though: local currencies, time-banks, and mutual credit systems are emerging all over
  4. The Open Bank Project is trying to open up banks to third party apps that would allow a depositor to have much greater customisability of their bank account. It's not aimed at bypassing banks in the way that P2P is, but it's seeking to create an environment where an ecosystem of alternative systems can plug into the underlying infrastructure provided by banks


Pillar 2: Widespread distribution
Financial intermediaries like banks and funds serve as powerful gatekeepers to access to financing. To some extent this is a valid role - much like a publisher or music label will attempt to only publish books or music that they believe are high quality enough - but on the other hand, this leads to excessive power vested in the intermediaries, and systematic bias in what gets to survive. When combined with a lack of democratic accountability on the part of the intermediaries, you can have whole societies held hostage to the (arbitrary) whims, prejudices and interests of such intermediaries. Expanding access to financial services is thus a big front in the battle for financial democratisation. In addition to more traditional means to building financial inclusion - such as credit unions and microfinance - here are two areas to look at:

  • Crowdfunding: In the dominant financial system, you have to suck up to a single set of gatekeepers to get financing, hoping they won’t exclude you. Crowdfunding though, has expanded access to receiving financial services to a whole host of people who previously wouldn’t have access, such as artists, small-scale filmmakers, activists, and entrepreneurs with no track record. Crowdfunding can serve as a micro redistribution system in society, offering people a direct way to transfer wealth to areas that traditional welfare systems might neglect
  • Mobile banking: This is a big area, with important implications for international development and ICT4D. Check out innovations like M-Pesa in Kenya, a technology to use mobile phones as proto-bank accounts. This in itself doesn’t necessarily guarantee inclusion, but it expands potential access to the system to people that most banks ignore


Pillar 3: The ability to monitor
Do you know where the money in the big banks goes? No, of course not. They don’t publish it, under the guise of commercial secrecy and confidentiality. It’s like they want to have their cake and eat it: “We’ll act as intermediaries on your behalf, but don’t ever ask for any accountability”. And what about the money in your pension fund? Also very little accountability. The intermediary system is incredibly opaque, but attempts to make it more transparent are emerging. Here are some examples:

  • Triodos Bank and Charity Bank are examples of banks that publish exactly what projects they lend to. This gives you the ability to hold them to account in a way that no other bank will allow you to do
  • Corporations are vehicles for extracting value out of assets and then distributing that value via financial instruments to shareholders and creditors. Corporate structures though, including those used by banks themselves, have reached a level of complexity approaching pure obsfucation. There can be no democratic accountability when you can’t even see who owns what, and how the money flows. Groups like OpenCorporates and Open Oil though, are offering new open data tools to shine a light on the shadowy world of tax havens, ownership structures and contracts
  • Embedded in peer-to-peer models is a new model of accountability too. When people are treated as mere account numbers with credit scores by banks, the people in return feel little accountability towards the banks. On the other hand, if an individual has directly placed trust in me, I feel much more compelled to respect that


Pillar 4: An ethos of non-prescriptive DIY collaboration
At the heart of open source movements is a deep DIY ethos. This is in part about the sheer joy of producing things, but also about asserting individual power over institutionalised arrangements and pre-established officialdom. Alongside this, and deeply tied to the DIY ethos, is the search to remove individual alienation: You are not a cog in a wheel, producing stuff you don't have a stake in, in order to consume stuff that you don't know the origins of. Unalienated labour includes the right to produce where you feel most capable or excited. 

This ethos of individual responsibility and creativity stands in contrast to the traditional passive frame of finance that is frequently found on both the Right and Left of the political spectrum. Indeed, the debates around 'socially useful finance' are seldom about reducing the alienation of people from their financial lives. They're mostly about turning the existing financial sector into a slightly more benign dictatorship. The essence of DIY though, is to band together, not via the enforced hierarchy of the corporation or bureaucracy, but as part of a likeminded community of individuals creatively offering services to each other. So let's take a look at a few examples of this

  1. BrewDog's 'Equity for Punks' share offering is probably only going to attract beer-lovers, but that's the point - you get together as a group who has a mutual appreciation for a project, and you finance it, and then when you're drinking the beer you'll know you helped make it happen in a small way 
  2. Community shares offer local groups the ability to finance projects that are meaningful to them in a local area. Here's one for a solar co-operative, a pub, and a ferry boat service in Bristol
  3. We've already discussed how crowdfunding platforms open access to finance to people excluded from it, but they do this by offering would-be crowdfunders the chance to support things that excite them. I don't have much cash, so I'm not in a position to actively finance people, but in my Indiegogo profile you can see I make an effort helping to publicise campaigns that I want to receive financing


Pillar 5: The right to fork


The right to dissent is a crucial component of a democratic society. But for dissent to be effective, it has to be informed and constructive, rather than reactive and regressive. There is much dissent towards the current financial system, but while people are free to voice their displeasure, they find it very difficult to actually act on their displeasure. We may loathe the smug banking oligopoly, but we're frequently compelled to use them.

Furthermore, much dissent doesn't have a clear vision of what alternative is sought. This is partially due to the fact that access to financial 'source code' is so limited. It's hard to articulate ideas about what's wrong when one cannot articulate how the current system operates. Most financial knowledge is held in proprietary formulations and obscure jargon-laden language within the financial sector, and this needs to change. It's for this reason that I'm building the London School of Financial Activism, so ordinary people can explore the layers of financial code, from the deepest layer - the money itself - and then on to the institutions, instruments and networks that move it around.

Beyond access to this source code though, we need the ability to act on it. A core principle of OpenSource movements is the Right to Fork. This is the ability to take preexisting code, and to modify it or use it as the basis for your own. The Right to Fork is both a check on power, but also a force for diversity and creativity.

In the mainstream financial system though, there are extensive blocks on the right to fork, many of them actively enforced by financial regulators. They won't allow new banks to start, and apply inappropriate regulation to small, new financial technologies. The battle for the right to fork therefore, is one that has to also be fought at the regulatory level. That's why we need initiatives like the Disruptive Finance Policy program.

The Right to Fork needs to be instilled into the design of any alternatives to mainstream finance too though. I don't want to replace a world where I'm forced to use national fiat currencies with one in which I'm forced to use Bitcoin. The point is to create meaningful options for people. (To the credit of the original designers of Bitcoin, the right to fork has indeed been built in, and there has been significant use of the original Bitcoin sourcecode to create other cryptocurrencies, albeit it takes more to create a currency than merely deploying new code).


Ahoy! We set sail for the Open seas

EXPLORE THE DEEP
We may be in the early phase of a slow-moving revolution, which will only be perceptible in hindsight. As projects within these five pillars emerge, the infrastructure, norms and cultural acceptance for more connected, creative, open financial system may begin to emerge and coalesce into reality.

I hope this article has been of use to you, whether you're looking to design actual open source finance platforms, programs and free software, or pioneer a new element of open access and open data, or whether you're just keen to help beta-test new ideas as they get released. The financial sector is a big heavy conglomerate that is a perfect challenge for the adventurous pirate-meets-hacker-meets-activist-meets-entrepreneur. Please do tell me about anything you're up to, and, in the spirit of Open Source, please do leave suggested amendments to this article in the comments section. I'll try patch them into the next version of this.



Some things to do if you enjoyed this article...

I sometimes spend weeks writing these articles, and don't generally get paid to do it, so if you enjoyed please consider doing one or two of the following
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  3. Link to the article from your own blog so your readers can see it too

Sunday 6 October 2013

ATM Hacking and the Art of Hole-in-the-Wall Detournment


The Automatic Teller Machine is one the primary interfaces we have with the banking system. It's a machine of convenience, replicating what a human bank teller used to do. They're often placed next to physical bank branches, reinforcing the widespread notion that the money coming out of the wall somehow came from 'inside' the bank. Given that the majority of our money is in fact electronic, and stored in a bank's datacentre-based IT system, nowhere remotely close to the ATM, this is something of an illusion. Indeed, the ATM  can echo and reinforce much of the disconnection implicit in the broader banking system.

That said, the fact that people are constantly using ATMs makes them great venues for symbolic pranking. Maybe one could call it, like the situationists did, detournment - the art of throwing people's minds into an unexpected detour whilst they trudge through otherwise unthinking everyday practice. The hope of such a situationist prankster is to make someone reflect about the deeper meaning of economic life. Alternatively, it may be simply to have fun. What follows are some ideas and examples from the cutting edge of ATM artistry and activism (horray!).

Difficulty level 1: ATM as billboard
Plastering an ATM with stickers is a straightforward tactic for the social justice prankster. Here's an example from Rainforest Action Network activists who designed a sticker replicating the Bank of America ATM screen to protest BoAs funding of coal power. Options offered include 'Bankroll Climate Change' and 'Fund Executive Bonuses', forcing the user to reflect on the implications of the bank's continued support for a high carbon future (albeit it's possible that it also drove them into a rage at their inability to use the machine).




Difficulty level 2: ATM as street art

ATMs are economic installations, so why not use them as sites for further installation artworks? Here's one example from Jason Eppinks: He designed a magic spigot that gushes forth with whatever is inside the thing the spigot is attached to. In this case it gushes forth dollar bills (which admittedly are attached to a string).






Difficulty level 3: ATM for homemade money

If you make your own DIY money, you need your own DIY ATM. The Dutch money-artist Dadara uses Exchanghibition Bank, an outlet to dispense his hand-designed bills to members of the public. Ok, it's not quite an ATM, but it's only a matter of time before he automates it. (Dadara also lent his designs for a limited edition version of my book - check here)




Difficulty level 4: ATM as musical instrument
To do this you just get an ATM and attach it to a medium-sized pipe organ, or perhaps a synthesiser. I'm not entirely sure what the point is, but perhaps it's to give a person a audible sense of the consequences of their banking decisions. If you'd like to hear it in action, check out the video here.





Difficulty level 5: ATM as games arcade
Now we get a little bit more complex. Certain ATM designs have technical glitches that enable you to override their normal functionality. With a bit of practice you can play Angry Birds on your local Russian ATM whilst listening to Zero Day by the long-forgotten 90s hard rock band without a Wikipedia page, Nevada Beach. For more info on this, see here.



Difficulty level 6: Build your own ATM
My greatest ever Lego creation was a Landrover I designed from scratch, equipped with a winch, engine and moving propshaft. These guys though, have used Lego to make an ATM, a technically challenging task even for Lego obsessives. The beautiful thing about this is that by it's very nature Lego is deconstructable: thus, unlike your traditional ATM which exudes a lack of trust from under its armoured exterior, this machine relies on trust, and believes in the best in people. Only a complete arsehole would try to break up another's Lego creation.




Difficulty level 7: The ATM as Robin Hood
At the 2010 Black Hat hacker conference the late great Barnaby Jack demonstrated how to 'jackspot' an ATM, using some technical wizardry to get it to spit out money in a manner reminiscent to the Doctor Who episode 'The Runaway Bride'. This is of course illegal, so if you're going to do this, please make sure the proceeds go to a worthwhile cause.

The Next Step: Alternative Currency ATMs
The potential to subvert ATMs goes beyond immediate jamming of conventional finance. There is also the opportunity to promote alternative versions of finance. For example, Bitcoin ATMs have already been designed, and I've previously suggested that I'd like to see Brixton Pound ATMs. I'm going to start working on some schematics for that (and download some DIY engineering courses at the same time). If you have any ideas for other cool ATM artworks, pranks, and (legal) hacks, please do share.



Some things to do if you enjoyed this article...

I sometimes spend weeks writing these articles, and don't generally get paid to do it, so if you enjoyed please consider doing one or two of the following
  1. Support by buying me a virtual beer
  2. Submit to Reddit
  3. Link to the article from your own blog so your readers can see it too

Saturday 31 August 2013

Adventures in Alternative Currency


I published an epic 4200 word article on alternative currency in Aeon magazine. Take a read if you're having a lazy weekend afternoon and wish to casually reflect on the nature of economic reality. I believe that coming to basic grips with money itself is a good foundation for making further explorations into the financial system, and economic systems more generally. As I say in the article:
"The financial system exists, above all, to mediate flows of money, not to question what money is. Investment banks create financial instruments that steer money from one place to another, with built-in sub-conduits to siphon it back... To draw an analogy with computer coding, we might say that financial instruments are analogous to ‘high-level’ programming languages such as Java or Ruby: they let you string commands together in order to perform certain actions. You want to get resources from A to B over time? Well, we can program a financial instrument to do that for you... By contrast, money itself is more like a low-level programming language, very hard to see or to understand but closer to gritty reality. It’s like your computer’s machine code, interfacing with the hardware: even the experts take it for granted.
The piece has been pretty well received. I'll leave you with some Twitter recommendations, to convince you to read it. The first comes from Izabella Kaminska of FT Alphaville

Friday 2 August 2013

LSFA crowdfunding update: Meet the Hedge Fund Gamblers & The Three Hackers

PICK A CARD
A few months ago I ran a campaign to seedfund a London School of Financial Activism on the crowdfunding site Indiegogo. That was a great success (here's a post I wrote about some crowdfunding tips I learned from the campaign). Then my book got released, which has since swallowed up much of my time, but now I've hired some interns (that I'm paying in alternative currencies like bitcoin, barter and Brixton Pounds), so I've now got more space to refocus back on developing the School.

I've met some awesome people over the last few months, exchanging ideas over Skype with campaigners, entrepreneurs and academics in Oz, Hong Kong, China, USA, Germany, South Africa and various other places, all informing my designs for finance campaigning courses.

In the mean time though, I wanted to share some photos of the crowdfunding rewards that came with the Indiegogo campaign, and one short video which shows one of the reward's magical secret. (More photos can be found on The Heretic's Guide Facebook Album)

The Guerilla Brokers, Junior Traders and Hardass Cityboys

HERETIC IN SOUTH AFRICA
First on the list were 18 sets of Chartered Financial Activist stickers that I sent out to the Guerilla Brokers who contributed under £10. If you see these plastered on the toilet wall of your local City pub, you know where they came from.

Then I sent 100 signed paperback copies of my book for those who opted to be Junior Traders, and 25 hardbacks for the Hardass Cityboys series (each representing one of the wards of the City of London). These books ended up all over the world, admittedly costing me a small fortune in postage fees (note to self for next crowdfunding campaign - it matters where you're posting to). Here's a photo of a mate in South Africa with his copy (Thanks Tim!)





The Hedge Fund Gamblers

Now onto the higher end rewards. Five generous individuals opted to be Hedge Fund Gamblers and as part of their package they received custom poker cards from Steve Shedden of Ivory Graphics. These cards are fit for James Bond, with non-stick coating to ensure super-fast shuffling. I've agreed to go play poker with two of the recipients of this reward, so I imagine I'm going to lose more cash on this than I made from the crowdfunding.



The Three Hackers

DADARA COVER, STIDY COVER, & THERMOCHROMIC COVER

The top rewards were 'The Three Hackers' , three hardcopies with bespoke handmade covers that went to my three top contributors. Locating the right people to design the limited edition covers took some time, but in the end I ended up with fantastic designs from:
  1. The Dutch artist Dadara, who is featured in the book for his fantastic Art as Money designs. He very kindly lent me two of his black and white money drawings
  2. The brilliant South African political cartoonist Stidy, who also happens to be my uncle. He drew a classic scene out of Moby Dick, set against the backdrop of the City of London
  3. My amazingly talented friend Jessi Baker (designer, coder, augmented reality guru, onsultant to peeps like Will.I.Am), and the textile alchemist Lauren Bowker, who designed a cover which literally changes colour as a person holds it (see video below for demonstration)


MY FRIEND CHRIS WORKS HIS PRODUCTION MAGIC

A LOOK INSIDE THE THIRD HACKER


AND NOW, the Hairdryer in Action
Ok, to fully appreciate Jessi and Lauren's cover you've got to watch the end of this video. Enjoy!



Wednesday 26 June 2013

Seeking #futureofmoney interns for help with gonzo finance: Will pay with alternative currency

WANTED: UNDERDOGS WITH ATTITUDE
I've got some alternative currency, and I'm willing to give it to interns who can do part-time work for me to help me with publicity for my new book on global finance. I'm going to be resuming work on the London School of Financial Activism soon too, so there are possibilities to get involved there as well.

Up for grabs: Alternative currency for alternative work
I'd like open-minded people who are keen to learn more about alternative finance. I'll be straight up with you though: Some of it is total drudge work, like trawling through a list of 100 institutions and finding email addresses for them. I have a series of discreet tasks you can volunteer for in exchange for a bounty in certain esoteric currencies I've got from selling my book. Choices include:
  1. Bitcoin: Not only is this an interesting experience to use in itself, but you get to tell people at parties that you're paid in cryptocurrency
  2. Brixton Pounds: I'd like to get at least one South London dweller to do a couple hours for Brixton Pounds
  3. Barter: This option is available for people who'd like a copy of my book in exchange for an hour or two of work

How to apply
My email is in the right-hand column, so ping me message if you're interested. I'm favourable towards slightly outsider, underdog, anarchic types. I'm not so interested in how clever you are, or what extra-curricular activities you did at school. Send me a brief description of yourself, and a (non-finance) Youtube video you particularly like (could be anything), or write a haiku about money. I can then send a list of things I'm looking to get done, and we can start a conversation.

Sunday 19 May 2013

So you want to be a DIY gonzo financial activist? The Heretic's Guide has arrived!

My new book, The Heretic's Guide to Global Finance: Hacking the Future of Money, is now officially out, published by the superb Pluto Press. Boom! I've set up a dedicated page for it here, and a Facebook page for it here.

3 THINGS YOU WILL LEARN FROM THIS BOOK
After reading this book, you will be an ass-kicking financial fighting monk on a mission to hack the future of money. The book uses a unique three part structure to achieve this:


Part 1: Exploring
This is where you learn the wiring under the bonnet of the global financial system. You'll see the circuitry of investment banks, commercial banks, institutional investors, hedge funds, and private equity funds, and explore investment processes, trading culture, and much much more as well.

Part 2: Jamming: This is the part where we learn how to bend the circuits of global finance. I cover how to destabilise investment cases in damaging projects, how to uncover information in opaque corporate structures, and how to design your own subversive hedge funds of dissent.

Part 3: Building: If you're going to bust dams, then you better build canals too. In part 3 we get creative and look at how to start building alternatives to channel money in positive ways. You'll explore alternative currencies, P2P, co-operative systems and open source finance, and learn what insights Jimi Hendrix offers us about the path forward to a more democratic financial system.



3 THINGS PEOPLE ARE SAYING ABOUT IT
Just is case that doesn't get you excited, take a look at what my three endorsers are saying.

Bill McKibben, the epic, inspiring environmental warrior who started 350.org, says: 
"This is an imaginative, even exuberant exploration of the daunting world of finance - it will unleash a generation of activists, and do a world of good."



Ha-Joon Chang, the irreverent, ass-kicking Cambridge economist who wrote 23 They Don't Tell You About Capitalism, says: 
"This book provides a unique inside-out look at our financial system, based on the author's unusual personal adventure. It not only provides us with a user-friendly guide to the complex maze of modern finance but also tells us how to utilise and subvert it for social purposes in innovative ways. Smart and street-smart."

Tony Greenham, alternative finance guru with the awesome New Economics Foundation, says:
“Money is power, but so too is knowledge. Tinkering with regulation will not change the world, but empowered citizens just might. Brett Scott’s entertaining and informative book is brimming with good ideas on how we can engage and change global finance on our own terms.”



3 WAYS YOU CAN HELP ME OUT
Pluto Press is a bold, independent publisher, which firstly means they produce great books, and secondly means they're not a global corporate megalith with a massive marketing budget. Any help that you can give Pluto and myself promoting the book is thus vital and would be much appreciated! Here are three things you can do:
  • Please can you help share this on Twitter: Here's a tweet you can retweet if you're short on time
  • Please like the Facebook page, and share it with you friends
  • Please email this blog to 1 friend who you think will appreciate it - you can find an email button at the bottom of this post

And if you feel like ordering it ;)
You can order it directly from the publisher, or from Amazon, or if you're feeling creative, you can use alternative currencies to get a signed copy (see details at bottom of page). Thanks, and I'd love to hear your feedback on the book - my email is in the right hand panel so please do contact me with your thoughts. Cheers!

Monday 22 April 2013

How to explain Bitcoin to your grandmother

As anyone who doesn't have a degree in advanced computer science knows, Bitcoin is conceptually tricky. Thus, when your grandmother is wanting to buy marijuana off the Silk Road and begins asking you to explain Bitcoin to her, what do you do? Ever since early 2012, when I asked the question 'what the hell is Bitcoin?', I've been trying to find ways to explain it to myself. Initially I used the example of the Borg from Star Trek, but more recently I've come to believe that one key to describing it is to start from normal currency, and to then describe Bitcoin in relation to that, rather than trying to describe it as a standalone phenomenon. I'm no Bitcoin expert, so this is still a work-in-progress (Warning!), but next time granny asks you, here's a rough-and-ready way you might lay down the foundations (I've deliberately included a lot of repetition, because that's important when learning).

1) Start from physical cash
We all have a basic understanding of physical bank notes. We know that we can store a banknote in our wallet, and then exchange it directly with someone else for goods or services. We can do this because we collectively believe the note to have value, anchored as it is within an immensely powerful cultural system which gives it such value, and further reinforced by our belief in the central banks that issue it, and the governments that accept it for tax.

2) Now contrast physical cash with electronic bank money
Most of our transactions though, are with electronic money. That's the money you see when you log into your online banking account, and that you can use to make electronic payments (if you granny doesn't do internet banking, talk about the numbers on the ATM screen). Where is that electronic money stored? It's not like I have a wallet that has electronic cash in it that I can take out and give to someone. All our electronic money is actually stored in the IT systems of commercial banks.

3) Point out that electronic money is just a number in a bank's computer, attached to your account ID
DATACENTRE: WHERE YOUR E-MONEY IS STORED
To 'store' your electronic money, all the bank really does is maintain an internal ledger, which is a list that says "Brett has deposited X amount into the bank, and he has received X amount in payments, and he has withdrawn X amount from ATMs, and has paid X amount to other people via electronic payments, and this is how much he has left." And that's the amount you see on your bank statement. Your current bank balance is thus the product of a series of transactions over time that the bank validates and records.

4) Then point out that I cannot hold this electronic money in my own computer
If I had to call Co-Operative Bank up and say, "I have £350 in my account with you. It's currently in electronic form. I'd like to take it out of the bank. Please can you transfer it to me in electronic form, so that I can store it directly on my computer", they'd laugh at me. They'd just say "Sorry Mr. Scott, it's just numbers recorded next to your account ID. We can convert it into cash and give that to you if you come into a branch, but we cannot give it to you in electronic form, unless you could specify another bank where you have another account."

5) And point out that banks are thus intermediaries that 'keep score' of e-money
When we make electronic payments with electronic money, what actually happens is that we send a message to our bank to transfer money to someone else's bank. Your bank then records on its ledger that money associated with your account ID is no longer associated with it (has 'left your acccount'), and the other person's bank records that the money can now be associated with the recipient's account (Later the two banks clear it with each other via their reserve accounts at the central bank if necessary). The important point  is that I never personally send the electronic money to the recipient and they never personally receive it - intermediaries do it on our behalf.

Thus, unlike a physical bank note, there is no 'independent existence' of electronic money. With cash, I could hoard it in a suitcase and count it myself, and show it to other people who agreed it was real. For electronic money to be real though, we rely on a bank to say "yes, Brett originally had £400 in here, and then someone sent him £50, and now he has £450, and then he sent £100 to someone, and now he has £350." We rely on the intermediary to maintain accurate 'score' of our electronic money on its ledger so that I can look on my statement and see an amount I apparently have.

6) Bring up the issue of double-spending of e-money, and how banks prevent it
Let's say my current electronic money balance in my bank account is £15. If I went onto Amazon and spent that on an awesome financial activism book, and then 5 seconds later tried to spend the same £15 on second-hand shoes from Gumtree, that would be an attempt to double-spend electronic money. My bank though, would quickly clock on to the fact that on their internal ledger I only have £15, and that the latter attempted Gumtree payment is thus invalid, at which point they'd reject or reverse it. Thus, there is a 'time-based priority system' in which the first payment is the legitimate one, and can be validated, and the latter is illegitimate, and will not be validated. Only bank intermediaries have the birds-eye view to mediate attempted electronic payments by 'timestamping' them, like a clerk saying "this payment came first, and then this one, but only the first one is valid, because the account does not have a high enough score to complete the second payment".

7) Point out that a trusted intermediary is thus required in order to maintain 'realness' of electronic money
Imagine HSBC could hypothetically find a way to transfer you money in electronic form, so that you personally could store it on your computer. What would that money be? Presumably it would be some type of computer file, but if it was just a computer file, what would there be to stop you just copying and pasting it many times to replicate it? It would be akin to being able to counterfeit money very easily and rapidly. If we were willy-nilly allowed to copy and paste our own electronic money, there would be widespread breakdown in trust in it. If you knew that people kept their electronic money on their own computers, would you trust a payment that came from them, or would you think that maybe they were just creating it whenever they felt like paying someone?

A physical banknote has an identity number, and the mint is supposed to maintain 'realness' of the money by validating each bank note as a real one. With electronic money though, we have to trust in the banking system in order to trust in the money. If we believed that Barclays could randomly change the ledger and type in random amounts of money into people's accounts, we wouldn't trust people's bank balances. Banks maintain 'realness' of electronic currency by convincing us that it's basically the same as physical currency, only much more convenient, and that they keep valid score of it on our behalf. (Let's leave aside the complexities of fractional reserve banking for now).

8) You've now set up the Holy Grail question: Is it possible to create a version of electronic money that, like physical cash, does not require a central intermediary?
Turn to gran and say "So while it's true that I can send cash in an envelope to someone in Hong Kong, how could I do the same with electronic currency without having banks acting as central intermediaries in the process?" Gran ain't stupid, and she knows where you're going with this. She yells "Ta da, enter Bitcoin!"




9) Leap up and shout "Yes Granny, what is required is a decentralised intermediary!"
Let's cut straight to the chase. Bitcoin is a system to replace a centralised banking intermediary (that we have to trust to accurately record electronic money transactions), with a decentralised intermediary that we don't have to trust. That decentralised intermediary is a network of Bitcoin users.

10) Start from a hypothetical bitcoin payment. Explain that I must do a 'shout out' to the Bitcoin network, asking  them to validate, and then record, the transaction
Ignore for a moment how the bitcoins enter circulation, and go straight into describing a transaction. In an ordinary bank-mediated electronic payment, you'd say "I want to pay £25 from my Co-Operative Bank account to Mr. Jones' HSBC bank account, please transfer the money" and the two banks involved would record it on their ledger, first checking to see if you actually had enough to pay that, leaving you with a residual amount in your account. Let's now imagine you have 3 bitcoins (ignore for a moment where they are stored). It's like having a positive balance in your normal bank account. In the Bitcoin system, there are no people's names, there are only numbered addresses, called Public Keys. This is just an identification number, and any bitcoins in the system are attached to (or belong to) particular public keys, which in turn belong to actual people. If I want to spend bitcoins, I must first broadcast an electronic message to the Bitcoin network saying something roughly like:
  • "Hello I am Public Key 191Zh2XUc54EMNZcbkchVfApNQrBjL4Zb3
  • I wish to transfer 1 Bitcoin to Public Key 1M9fzriM7DgxDfGEhKqD2takTkXziqPkYF
  • Please check this and record it on the ledger".

11) Explain what the ledger is
But wait, what is this ledger? In an ordinary bank, the ledger they record your transactions onto is an internal list, almost like an excel spreadsheet. Take a look at your printed bank statement: It starts with an Opening Balance, then lists a bunch of transactions, and then ends with a Closing Balance. Commercial banks hold millions of these ledgers to record the history of money in each account. Now imagine all those were melded into one giant interconnected ledger showing all transactions that had ever occurred between users of a particular electronic currency. In the case of Bitcoin, this ledger is called the Blockchain. It is just a computer file that gets constantly updated, and it is held on the computers of everyone in the Bitcoin network.

12) And explain that it is built and maintained by a network of 'clerks' called Miners
As proposed transactions (like the one in No.10 above) are broadcast, the Bitcoin network collects them them into neat cohorts called blocks (a block of transactions), which are (figuratively speaking) dropped onto the virtual desk of a decentralised network of clerks who go about checking that they are legitimate (picture a decentralised version of a giant room of clerks receiving big dumps of transaction slips to process). This is called 'mining'.

13) If granny asks "Why's it called mining rather than checking", you say:
Perhaps the most elegant aspect of Bitcoin is that to reward people for the arduous task of validating and recording transactions in Bitcoin, they can get rewarded with new Bitcoins. The system is built such that you mine new bitcoins by checking that old bitcoin transactions are legitimate, and it's thus a currency that grows in the process of people trying to maintain its integrity. Moreover, the people in the network actually compete to validate the transactions, lured by the prospect of being rewarded with new bitcoins. So unlike a single central intermediary, where all clerks would be theoretically just be paid salaries to do the drudge work, this is a decentralised intermediary made up of competing mercenary-like clerks, paid only if they succeed.

You can see this process in action at http://blockchain.info:
  • If you look at the bottom of the webpage, you'll see the latest transactions that are being broadcast to the network. If you click on one of them, you'll see they are unconfirmed (i.e. transactions waiting to be validated by the 'clerks')
  • If you look at the top of the page, you'll see the latest blocks of transactions that have been confirmed, each with an ID number, and the number of transactions contained within it (e.g. Block 232412 contains 165 transactions and was confirmed by BTC Guild, a mercenary group of collaborating miners. You can also see that they've been awarded with 25 new bitcoins as a reward for validating the block)
  • On average it takes 10 minutes for new transactions to be validated and included into a block. This means that if you make a bitcoin payment, you'll have to wait for a little while before the payment is confirmed and embedded into the blockchain record

14) Granny looks puzzled. She asks "but how do these miners/clerks check the transactions and why is it so arduous that they have to be rewarded with new bitcoins to incentivise them?"
Yeah, this is where it gets a bit more complex. You want to convey the basic point that the validation process has to be difficult enough that no renegade power group (like the CIA for example) could game the system, but this is also where some of the more advanced cryptography comes in. Even if you understand the cryptography, it's probably unnecessary to explain it in any depth to your grandmother. If she wants to know more, refer her to the original document by Satoshi Nakomoto, and perhaps to this useful paper from Stanford. Just reiterate that as the transaction 'shout-outs' (described in No.10) are received by the network, the miners/clerks must exert a lot of computing power into checking that the people attempting to make payments have enough bitcoins credits to do so (by checking the existing ledger of transactions) and must then update the ledger with these new payments (kind of like saying "OK, it appears your opening balance was this, and you are indeed able to spend this amount of bitcoins, so we'll add the transaction to the blockchain, and now your closing balance is this"). Reiterate that the transactions are validated in groups called blocks, and that when the validation is complete, the block is then added to the blockchain (chain of blocks strung together = blockchain).

15) Which leads to the obvious point that the blockchain thus gets longer over time
The blockchain, being a historical record of all the transactions accepted by the community, thus gets bigger as the transactions go on. Check out a visual representation of its increasing size here.

16) Now the key point to put it all together: The Blockchain is a historical list of transactions, and  is thus also the list of outstanding coins
This is the piece that most trips me up. It seems counterproductive to think of bitcoins as 'things', as if they were like metal coins. The only obvious 'things' in the Bitcoin world are the blockchain and peoples' public key IDs. A bitcoin payment, and the resulting shift in the balances associated with two bitcoin IDs, has 'happened' only once it is recorded on the blockchain by network members that are mining. In other words, it's not like the transaction first occurs and is then later recorded (a bit like me giving someone cash and then later recording it). It is in fact the very act of recording that changes the coin balances, or makes the transaction real.

Payment is thus an act of public recording, not an act of private giving. Using this system, I am able to pay someone in Spain using a simple internet connection to give an electronic shout-out to a public network. After 10 minutes or so the recipient will see the changes reflected in the blockchain, and voila they have received their bitcoins from you.

Thus, my 'coins' actually reside in, or are implied in, the historical record of the blockchain. The blockchain started from the very first 'genesis block' (Block No.0) created by Satoshi Nakomoto, and has since then recorded the creation of new coins, and which public key they belong to. It is a collaboratively-built knowledge bank that holds the record of the amounts each public key has received and spent, and thereby how many coins can be attributed to each public key. Much like your current bank balance is merely the result of the bank having a centralised ledger to record transactions in and out of the account, your bitcoin balance is merely the residual product of changes recorded in the decentralised blockchain ledger. All I have on my computer is a public key which says that I am the rightful owner to a part of that history. My public key is like the key to a virtual, decentralised safe-deposit box facility, and if I lose access to it, I lose access to my claims to the coins attributable to my public key in the blockchain.

17) Some final musings: In what way is Bitcoin peer-to-peer?
People frequently call Bitcoin a peer-to-peer electronic currency, which could easily imply that you could send bitcoins directly to someone else with no third party involved. As you can see though, there is a third party involved. It's just that the third party is a decentralised network of people rather than a single centralised institution like a bank. It is 'peer-to-peer' in the sense of being a payment system under the control of no single institution, but it involves more than just two parties to a transaction.

Sorry gran
Ok, so that's the opening gist of it, and I'm really not sure how many grandmothers would understand this. Even if they did though, the first question that would pop into their wise heads is "Ok my dear, it's all very well to have a clever system like this to validate transactions undertaken in this currency, but you still haven't explained why Bitcoin has value." Right on Gran. That's a much more subtle question entirely. I have my theories about that, and particularly about the quasi-mystical underground hype that initially gave Bitcoin value (see the section called 'The mojo of Nakamoto). If I were you, I'd take a seat and listen to the words of warning your gran may have. Bitcoin indeed is pretty amazing, but it has also attracted a lot of hype from a lot of ideologues. I'd recommend ignoring them and taking time to think clearly about this yourself.

End Note: This is an ongoing Wiki Project
As mentioned at the beginning, I'm not a Bitcoin expert and this is still a work in progress. My main concern is how to find clear ways to explain things in intuitive ways to people. If you have ideas for how I can do so more accurately and effectively, please let me know!



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