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The Real Scandal?

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The Real Scandal Isn’t What Cambridge Analytica Did

It’s what Facebook made possible.

A couple of excerpts:

Sinister as it sounds, “psychographic” targeting—advertising to people based on information about their attitudes, interests, and personality traits—is an imprecise science at best and “snake oil” at worst.

….

If you think of that data, and the ads, as a relatively small price to pay for the privilege of seamless connection to everyone you know and care about, then Facebook looks like the wildly successful, path-breaking company that made it all possible. But if you start to think of the bargain as Faustian—with hidden long-term costs that overshadow the obvious benefits—then that would make Facebook the devil.

What this scandal did, then, was make the grand bargain of the social web look a little more Faustian than it did before.

From that perspective, the real scandal is that this wasn’t a data breach or some egregious isolated error on Facebook’s part. What Cambridge Analytica did was, in many ways, what Facebook was optimized for—collating personal information about vast numbers of people in handy packets that could then be used to try to sell them something.

Yes, the real scandal is that most of us are giving away real value that we need to survive in the digital economy.

Who’s Watching You?

Personal data is the new goldmine. Here’s who’s mining your gold:

What You Need to Know About Tech

Good article.

12 Things Everyone Should Understand About Tech

A couple of good excerpts:

9. Most big tech companies make money in just one of three ways.

It’s important to understand how tech companies make money if you want to understand why tech works the way that it does.

  • Advertising: Google and Facebook make nearly all of their money from selling information about you to advertisers. Almost every product they create is designed to extract as much information from you as possible, so that it can be used to create a more detailed profile of your behaviors and preferences, and the search results and social feeds made by advertising companies are strongly incentivized to push you toward sites or apps that show you more ads from these platforms. It’s a business model built around surveillance, which is particularly striking since it’s the one that most consumer internet businesses rely upon.
  • Big Business: Some of the larger (generally more boring) tech companies like Microsoft and Oracle and Salesforce exist to get money from other big companies that need business software but will pay a premium if it’s easy to manage and easy to lock down the ways that employees use it. Very little of this technology is a delight to use, especially because the customers for it are obsessed with controlling and monitoring their workers, but these are some of the most profitable companies in tech.
  • Individuals: Companies like Apple and Amazon want you to pay them directly for their products, or for the products that others sell in their store. (Although Amazon’s Web Services exist to serve that Big Business market, above.) This is one of the most straightforward business models—you know exactly what you’re getting when you buy an iPhone or a Kindle, or when you subscribe to Spotify, and because it doesn’t rely on advertising or cede purchasing control to your employer, companies with this model tend to be the ones where individual people have the most power.

That’s it. Pretty much every company in tech is trying to do one of those three things, and you can understand why they make their choices by seeing how it connects to these three business models.


10. The economic model of big companies skews all of tech.

Today’s biggest tech companies follow a simple formula:

  1. Make an interesting or useful product that transforms a big market
  2. Get lots of money from venture capital investors
  3. Try to quickly grow a huge audience of users even if that means losing a lot of money for a while
  4. Figure out how to turn that huge audience into a business worth enough to give investors an enormous return
  5. Start ferociously fighting (or buying off) other competitive companies in the market

This model looks very different than how we think of traditional growth companies, which start off as small businesses and primarily grow through attracting customers who directly pay for goods or services. Companies that follow this new model can grow much larger, much more quickly, than older companies that had to rely on revenue growth from paying customers. But these new companies also have much lower accountability to the markets they’re entering because they’re serving their investors’ short-term interests ahead of their users’ or community’s long-term interests.

The pervasiveness of this kind of business plan can make competition almost impossible for companies without venture capital investment. Regular companies that grow based on earning money from customers can’t afford to lose that much money for that long a time. It’s not a level playing field, which often means that companies are stuck being either little indie efforts or giant monstrous behemoths, with very little in between. The end result looks a lot like the movie industry, where there are tiny indie arthouse films and big superhero blockbusters, and not very much else. [This is amplifying the winner-take-all dynamics of technology.]

And the biggest cost for these big new tech companies? Hiring coders. They pump the vast majority of their investment money into hiring and retaining the programmers who’ll build their new tech platforms. Precious little of these enormous piles of money is put into things that will serve a community or build equity for anyone other than the founders or investors in the company. There is no aspiration that making a hugely valuable company should also imply creating lots of jobs for lots of different kinds of people. [Note: I would add to this last point that the aspiration should be to distribute value more widely across the community, not necessarily create more jobs.]

What are the DApps of the Future?

But how?

DApps, or Distributed Applications, are the force multipliers for blockchain technologies, just like email, Amazon, eBay, Google, and social networks are the applications that have propelled the Internet. The race is on for the development of these Dapps to transform industries and the future of the Internet itself.

In Search of Blockchain’s Killer-Apps

By Irving Wladawsky-Berger, WSJ, Mar 9, 2018

Blockchain has been in the news lately, but beyond knowing that it has something to do with payments and digital currencies, most people don’t know what blockchain is or why they should care. A major part of the reason is that we still don’t have the kind of easy-to-explain blockchain killer-apps that propelled the internet forward.

Blockchain has yet to cross the chasm from technology enthusiasts and visionaries to the wider marketplace that’s more interested in business value and applications. There’s considerable research on blockchain technologies, platforms and applications as well as market experimentation in a number of industries, but blockchain today is roughly where the internet was in the mid-late 1980s: full of promise but still confined to a niche audience.

In addition, outside of digital currencies, blockchain applications are primarily aimed at institutions. And, given that blockchain is all about the creation, exchange and management of valuable assets, its applications are significantly more complex to understand and explain than internet applications.

The management of information is quite different from the management of transactions. The latter, especially for transactions dealing with valuable or sensitive assets, requires deep contractual negotiations among companies and jurisdictional negotiations among governments. Moreover, since blockchain is inherently multi-institutional in nature, its applications involve close collaboration among companies, governments and other entities.

In my opinion, there will likely be two major kinds of blockchain killer-apps: those primarily aimed at reducing the friction and overheads in complex transaction involving multiple institutions; and those primarily aimed at strengthening the security and privacy of the internet through identity management and data sharing. Let me discuss each in turn.

Complex transactions among institutions. “Contracts, transactions, and the records of them are among the defining structures in our economic, legal, and political systems,” wrote Harvard professors Marco Iansiti and Karim Lakhani in a 2017 HBR article.

With blockchain, “every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared… Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction.”

Blockchain holds the promise to transform the finance industry and other aspects of the digital economy by bringing one of the most important and oldest concepts, the ledger, to the internet age. Ledgers constitute a permanent record of all the economic transactions an institution handles, whether it’s a bank managing deposits, loans and payments; a brokerage house keeping track of stocks and bonds; or a government office recording the ownership and sale of land and houses.

Over the years, institutions have automated their original paper-based ledgers with sophisticated IT applications and data bases. But while most ledgers are now digital, their underlying structure has not changed. Each institution continues to own and manage its own ledger, synchronizing its records with those of other institutions as appropriate, – a cumbersome process that often takes days. While these legacy systems operate with a high degree of robustness, they’re rather inflexible and inefficient.

In August of 2016, the WEF published a very good report on how blockchain can help reshape the financial services industry. The report concluded that blockchain technologies have great potential to drive simplicity and efficiency through the establishment of new financial services infrastructure, processes and business models.

However, transforming the highly complex global financial ecosystem will take considerable investment and time. It requires the close collaboration of its various stakeholders, including existing financial institutions, fintech startups, merchants of all sizes, government regulators in just about every country, and huge numbers of individuals around the world. Getting them to work together and pull in the same direction is a major undertaking, given their diverging, competing interests. Overcoming these challenges will likely delay large-scale, multi-party blockchain implementations.

Supply chain applications will likely be among the earliest blockchain killer-apps, increasing the speed, security and accuracy of financial and commercial settlements; tracking the supply chain lifecycle of any component or product; and securely protecting all the transactions and data moving through the supply chain. The infrastructures and processes of supply chains are significantly less complex than those in financial services, healthcare, and other industries and there are already a number of experimental applications under way.

A recent WSJ CIO Journal article noted that blockchain seems poised to change how supply chains work. The article cites examples of projects with Walmart and British Airwayswhere blockchain is used to maintain the integrity of the data being shared across the various institutions participating in their respective ecosystems. Earlier this year IBM and Maersk announced a joint venture to streamline operations for the entire global shipping ecosystem. Their joint venture aims to apply blockchain technologies to the current stack of paperwork needed to process and track the shipping of goods. Maersk estimates that the costs to process and administer the required documentation can be as high as 20 percent the actual physical transportation costs.

Identity management and data sharing. The other major kind of blockchain killer-apps will likely deal with identity management and data security.

As we move from a world of physical interactions and paper documents, to a world primarily governed by digital data and transactions, our existing methods for protecting identities and data are proving inadequate. Internet threats have been growing. Large-scale fraud, data breaches, and identity thefts are becoming more common. Companies are finding that cyberattacks are costly to prevent and recover from. The transition to a digital economy requires radically different identity systems.

A major reason for the internet’s ability to keep growing and adapting to widely different applications is that it’s stuck to its basic data-transport mission.  Consequently, there’s no one overall owner responsible for security, let alone identity management, over the internet. These important responsibilities are divided among several actors, making them significantly harder to achieve.

Blockchain technologies should help us enhance the security of digital transactions and data, by developing the required common services for secure communication, storage and data access, along with open source software implementations of these standard services, supported by all major blockchain platforms, such as Hyperledger and Ethereum.

Identity is the key that determines the particular transactions in which individuals, institutions, and the exploding number of IoT devices, can rightfully participate, as well as the data they’re entitled to access. But, our existing methods for managing digital identities are far from adequate.

To reach a higher level of privacy and security we need to establish a trusted data ecosystem, which requires the interoperability and sharing of data across the various institutions involved. The more data sources a trusted ecosystem has access to, the higher the probability of detecting fraud and identity theft. However, it’s not only highly unsafe, but also totally infeasible to gather all the needed attributes in a central data warehouse. Few institutions will let their critical data out of their premises.

MIT Connection Science, a research initiative led by MIT professor Sandy Pentland, has been developing a new identity framework that would enable the safe sharing of data across institutions. Instead of copying or moving the data across, the agreed upon queries are sent to the institution owning the data, executed behind the firewalls of the data owners, and only the encrypted results are shared. MIT Connection Science is implementing such an identity framework in its OPAL initiative, which makes extensive use of cryptographic and blockchain technologies. A number of pilots are underway around the world.

Irving Wladawsky-Berger worked at IBM for 37 years and has been a strategic advisor to Citigroup and to HBO. He is affiliated with MIT, NYU and Imperial College, and is a regular contributor to CIO Journal.

The Revolution: Bitcoin and/or Blockchain?

Dubai has vowed to become the ‘first blockchain-powered government in the world by 2020.’

Dubai has vowed to become the ‘first blockchain-powered government in the world by 2020.’ PHOTO: RUSTAM AZMI/GETTY IMAGES

Some interesting recent articles on blockchain and crypto:

Why Blockchain Will Survive, Even If Bitcoin Doesn’t

Latest blockchain applications could bring overdue change to critical, if unsexy, functions in shipping, real estate and…diamonds

We’re now awash in “crypto” hype—cryptocurrencies like bitcoin and fundraising efforts like initial coin offerings. For every venture capitalist or technical expert, there’s a half-dozen hype men and fly-by-night startups making the entire space look like a 21st-century version of the Amsterdam tulip mania.

All that noise has obscured the bona fide efforts involving the underlying technology, blockchain. Of all the manifestations of crypto, it’s the most seemingly mundane applications of blockchain that could lead to the biggest and most concrete changes in all of our lives.

These applications can’t be found on a coin exchange, and they aren’t going to turn anyone into an overnight billionaire. But they could bring much-needed change to some of the world’s most critical, if unsexy, industries. This means new ways of transferring real estate titles, managing cargo on shipping vessels, mapping the origins of conflict materials, guaranteeing the safety of the food we eat and more. Using blockchain, you could prove that a particular diamond on sale in a Milan boutique came from a particular mine in Russia.

What is blockchain? It’s essentially a secure database, or ledger, spread across multiple computers. Everybody has the same record of all transactions, so tampering with one instance of it is pointless. “Crypto” describes the cryptography that underlies it, which allows agents to securely interact—transfer assets, for example—while also guaranteeing that once a transaction has been made, the blockchain remains an immutable record of it.

Blockchain has the power to transform all these industries for three reasons. First, it’s genuinely well-suited to transactions that require trust and a permanent record. Second, blockchain typically requires the cooperation of many different parties. In cases where it’s implemented as open source software, it avoids the collective-action problem—the disincentives that prevent individuals from adopting something that would benefit them collectively—that occurs when a single company tries to push, and benefit from, a new standard.

The third reason is that hype I mentioned. The current excitement around cryptocurrency gives blockchain the visibility to attract developers and encourage adoption. Companies that have taken an “If it ain’t broke, don’t fix it” attitude toward back-office processes and logistics IT might be ready to spend big on updating those systems when they hear the buzzword “blockchain.”

In this way, blockchain resembles another buzzword, “the cloud.” While detractors argued that the cloud was just “someone else’s computer,” it gave many industries new business processes, new ways to charge for services, disruptive startups and new divisions within existing companies and an ecosystem of supporting technologies. Blockchain has the same potential.

Blockchain All the Things

Take logistics. Already, 1.1 million items sold or on sale at Walmart are on a blockchain—including chicken and almond milk—helping the company trace their journey from manufacturer to store shelf. Global shipping giant Maersk uses the same technology from IBM to track shipping containers, making it faster and easier to transfer them and get them through customs.

While these projects are still a fraction of the overall tracking that goes on at these giants, they are expanding rapidly both within the organizations and across their industries. Other companies using blockchain technology to track goods include Kroger, Nestlé, Tyson Foods and Unilever, with many more yet to be announced, says Bridget van Kralingen, senior vice president of platforms and blockchain at IBM.

Everledger, a company started in April 2014 with the intention of creating a blockchain-based registry of every certified diamond in the world, already has 2.2 million diamonds in its registry. It’s adding about 100,000 diamonds a month, says Leanne Kemp, chief executive and founder.

By recording 40 different measures of each stone, including “physically unclone-able features,” Everledger is able to trace the journey of a stone from when it’s pulled from the earth to the day it’s purchased by a consumer. Every participant in that chain, from the miner to the cutter to the retailer, maintains a node—with a complete copy of the database—in the Everledger blockchain network.

Global shipping giant Maersk uses blockchain technology from IBM to track and transfer shipping containers and move them more quickly through customs.
Global shipping giant Maersk uses blockchain technology from IBM to track and transfer shipping containers and move them more quickly through customs. PHOTO: SUSANA GONZALEZ/BLOOMBERG

CartaSense is an eight-year-old Tel Aviv company that puts internet-connected sensors on freight pallets and uses analytics to determine when goods may be delayed or damaged. CartaSense customers, rather than physically handing off scanned and signed paper documents, use a blockchain database on which freight companies can record every stage of the journey of a package, pallet or shipping container. Kuehne + Nagel, one of the world’s largest freight companies, is one of CartaSense’s clients.

Replacing Regulations With Code

Blockchain is being implemented first within companies and centralized governments that can move quickly on new technologies.

Dubai, for example, has declared its intent to make itself the “first blockchain-powered government in the world by 2020.” That could streamline things in real estate, says Stephen McKeon, an associate professor of finance at the University of Oregon who studies blockchain. By moving the central record of all real-estate transactions onto a blockchain, Dubai could make it faster and easier to transfer property titles.

Because such “smart contracts” on a blockchain are code, they can contain rules about how they can be modified or transferred. In this way, blockchain could become a way to transfer the obligation of enforcement from bureaucrats to computers. For example, to prevent fraud, titles could be transferable only to certain accounts, or might transfer only after another condition, such as the transfer of funds in escrow, is met.

It’s too early to say whether blockchain, as both a technology and a movement, has the power to overcome issues that thwarted generations of software engineers. The most justifiable skepticism is that blockchain is incremental rather than revolutionary. In some cases, it isn’t much more than a marketing term imposed on systems that hardly differ from existing databases. (There’s a healthy debate about what blockchain even means, and even companies like CartaSense call their system a “blockchain-like technology.”)

But if it works, it has the potential to be a fundamental enabling technology, the way new standards for transmitting data across networks led to the internet. More concretely, it could someday underlie everything from how we vote to who we connect with online to what we buy.

Write to Christopher Mims at christopher.mims@wsj.com

Appeared in the March 12, 2018, print edition as ‘Blockchain Has Power to Transform.’

 

Art and Algorithms

 

Excerpt from a review of books in The New Yorker: “Are Liberals on the Wrong Side of History?”

The algorithms of human existence are not like the predictable, repeatable algorithms of a computer, or people would not have a history, and Donald Trump would not be President. In order to erase humanity as a special category—different from animals, on the one hand, and robots, on the other—Harari [author of Sapiens] points to the power of artificial intelligence, and the prospect that it will learn to do everything we can do, but better. Now, that might happen, but it has been predicted for a long time [there’s more to the human than we assume] and the arrival date keeps getting postponed.

The A.I. that Harari fears and admires doesn’t, on inspection, seem quite so smart. He mentions computer-generated haiku, as though they were on a par with those generated by Japanese poets. Even if such poems exist, they can seem plausible only because the computer is programmed to imitate stylistic tics that we have already been instructed to appreciate, something akin to the way the ocean can “create” a Brancusi—making smooth, oblong stones that our previous experience of art has helped us to see as beautiful—rather than to how artists make new styles, which involves breaking the algorithm, not following it.

This argument is relevant not only to the creation of art, but also the appreciation of same. And the appreciation of art is expressed in reviews, aesthetic appeal, and novelty, as well as popularity. Algorithms trigger mostly off various proxies for popularity, such as “likes” or sales. We need human aesthetic judgments to support true artistic creation.

Don’t Be Evil?

The alarm bells keep ringing on the tech quasi-monopolies that rule the Internet. There are two main issues to address: one is the ownership and control over personal data – this data rightly belongs to consumers, not network servers – and two is the positive network effects that drive these cos. to dominance.

How we analyze these tech titans differs along these two issues. Amazon, Apple and Microsoft sell products and product markets are not easily protected from competition. They are middlemen between producers/suppliers and consumers. I expect we will discover new competitive models to deliver goods and services, which will eat into these cos.’ dominance. The promise of blockchain technology is exactly to eliminate the middleman.

Google and Facebook are different animals. Search is starting to appear to resemble a public good, like public libraries. With the positive externalities of network effects, it also resembles a natural monopoly – the more people use a search engine, the better is the information obtained, meaning the search engine becomes ever more valuable. We probably don’t want to destroy this value. To me, this suggests that Google’s search engine eventually will become a publicly regulated utility – because the politics will demand it. We already see this outside the U.S.

Facebook, the ultimate social network, is going through some ups and downs because of issues of how it collects and uses personal information. My impression is that a single social network for all socializing needs is probably not the ideal solution. If correct, competition will eat into FB, which will start to break up into different targeted functions, reducing its value as a one-stop-fits-all OSN.

We shall see.

How Silicon Valley went from ‘don’t be evil’ to doing evil

March 4, 2018

The Google logo is seen at the Google headquarters in Brussels, Tuesday March 23, 2010.

Meet the new boss. Same as the old boss.

– The Who, “We won’t be fooled again”, 1971

Once seen as the saviors of America’s economy, Silicon Valley is turning into something more of an emerging axis of evil. “Brain-hacking” tech companies such as Apple, Google, Facebook, Microsoft and Amazon, as one prominent tech investor puts it, have become so intrusive as to alarm critics on both right and left.

Firms like Google, which once advertised themselves as committed to being not “evil,” are now increasingly seen as epitomizing Hades’ legions. The tech giants now constitute the world’s five largest companies in market capitalization. Rather than idealistic newcomers, they increasingly reflect the worst of American capitalism — squashing competitors, using indentured servants, attempting to fix wagesdepressing incomes, creating ever more social anomie and alienation.

At the same time these firms are fostering what British academic David Lyon has called a “surveillance society” both here and abroad. Companies like Facebook and Google thrive by mining personal data, and their only way to grow, as Wired recently suggested, was, creepily, to “know you better.”

The techie vision of the future is one in which the middle class all but disappears, with those not sufficiently merged with machine intelligence relegated to rent-paying serfs living on “income maintenance.” Theirs is a world in where long-standing local affinities are supplanted by Facebook’s concept of digitally-created “meaningful communities.”

The progressive rebellion

Back during the Obama years, the tech oligarchy was widely admired throughout the progressive circles. Companies like Google gained massive access to the administration’s inner circles, with many top aides eventually entering a “revolving door” for jobs with firms like Google, Facebook, Uber, Lyft and Airbnb.

Although the vast majority of all political contributions from these firms, not surprisingly, go to the Democrats, many progressives — at least not those on their payroll — are expressing alarm about the oligarchs’ move to gain control of whole industries, such as education, finance, groceries, space, print media and entertainment. Left-leaning luminaries like Franklin Foer, former editor of the New Republic, rant against technology firms as a threat to basic liberties and coarsening culture.

Progressives are increasingly calling for ever growing tech monolith to be “broken up,” calling for new regulation to limit their size and scope. Many have embraced European proposals to restrain tech monopolies which now resemble “predatory capitalism” at its worse.

The right also rises

Traditionally, conservatives celebrated entrepreneurial success and opposed governmental intervention in the economy. Yet increasingly even libertarians, like Instapundit’s Glen Reynolds, have suggested that some form of anti-trust action may be necessary to curb oligarchic power. The National Review even recently suggested that these firms be treated as utilities, that is, regulated by government.

Conservatives are also concerned about pervasive political bias in the industry. The Bay Area, the heartland of the industry, has evolved as Facebook co-founder Peter Thiel notes, into a “one party state.” Ideological homogeneity discourages debate and dissent, both inside their companies.

More importantly, conservatives seek to curb their ability — increasingly evident as traditional media declines — to control content on the internet. As the techies expand their domain, America’s media, entertainment and cultural industries would seem destined to become ever less heterogenous in politics and cultural world-view.

A clear and present danger

Whether one sits on the progressive left or the political right, this growing hegemony presents a clear and present danger. It is increasingly clear that the oligarchs have forgotten that Americans are more than a collection of data-bases to be exploited. People, whatever their ideology, generally want to maintain a modicum of privacy, and choose their way of life.

The perfect world of the oligarchs can be seen in the Bay Area, where, despite the massive explosion in employment, even tech workers, due to high costs, do worse than their counterparts elsewhere. Meanwhile San Francisco, among the most unequal places in the country, has evolved into a walking advertisement for a post-modern dystopia, an ultra-expensive city filled with homeless people and streets filled with excrement and needles. It is also increasingly exporting people elsewhere, including many people making high salaries.

Of course, technology is critical to a brighter future, but need not be the province of a handful of companies or concentrated in one or two regions. The great progress in the 1980s and 1990s took place in a highly competitive, and dispersed, environment not one dominated by firms that control 80 or 90 percent of key markets. Not surprisingly, the rise of the oligarchs coincides with a general decline in business startups, including in tech.

We have traveled far from the heroic era of spunky start-ups nurtured in suburban garages. But a future of ever greater robotic dependence — a kind of high-tech feudalism — is not inevitable. Setting aside their many differences, conservatives and progressives need to agree on strategies to limit the oligarch’s stranglehold on our future.

Joel Kotkin is the R.C. Hobbs Presidential Fellow in Urban Futures at Chapman University in Orange and executive director of the Houston-based Center for Opportunity Urbanism (www.opportunityurbanism.org).