The third myth is that the Internet will replace the PSTN. Sure, in the same way and degree that highways replaced railroads. Railroads remain; so will networks focused on various specialized or protected wireline voice and video communications with a focus on government needs. Politicians rarely relinquish their regulatory realms.
Myth number four is that the Internet is a libertarian arena that will prosper best if the government stays out of the way. In an ideal world, this might be so. But as many have noticed, the world is not ideal. Since the government is engaged with the Net at every possible stage, in every branch and at every level of government, this libertarian counsel is futile theology.
Nonetheless, a widespread small-government libertarian myth, shared, oddly enough, by the big-government libertarians at Google, has enabled regulators massively to expand their intervention, seriously retarding telecom progress. That is the myth that the electromagnetic spectrum is a scarce natural resource resembling “beachfront property” and that the government owns it in the name of the people and can sell it off at will.
Over the last quarter-century or so, government auctions of various swaths of the “air” have brought in some $60 billion. Although that amount is trivial to governments that spend between four and five trillion dollars annually, the auction pelf looms hugely for FCC regulators, who can preen as a government “profit center.” To a telecom industry that is already among the most highly taxed of all U.S. businesses, the auctions represent a substantial tax on mobile communications.
The science behind the auctions is seriously out of date and upheld chiefly by lawyers. Smart phones on the Internet, with their ever-lower-powered cellular technology, differ radically from radio and TV stations blasting their signals of hundreds of thousands of watts across the land. The over-the-air radio and TV model is as obsolete and pollutant as an ethanol plant.
Usable cellular spectrum is the product of ingenious engineers who have developed an ever-expanding array of transmitters and receivers, mixers and oscillators, masers and lasers and traveling wave tubes, klystrons and microwave radiators and sensors, plus ever more compact microcomputers to control them. At one time, transceivers were all fixed in their frequencies and unable to survey conditions in their path. But advances in microchips have rendered most of this equipment flexible, “smart,” and programmable.
Increasingly available is “software defined radio” technology that enables systems to avoid interference and transmit in open channels. Operating at ever lower power, with ever higher directionality and control, new antenna systems can restrict their reach to local communicators. Many cellular systems focus a beam on each phone. Frequencies in the air are less like railroad tracks and more like open skies for aviation or open roads for automobiles. Instead of clearing the road of all other traffic, the dominant “spread spectrum” radio systems allow transmitters and receivers to share the road. They need traffic controls rather than fixed allocations.3
Under the costly auction regime, these communications bands are available chiefly to huge companies. So the auctions function as a tax that restricts innovation and competition in telecom. The tax’s suppression of industry progress more than negates the revenue generated by it. Google’s support for this system merely reflects its power as a leviathan communicator.
Myth number five is that the Communications Act of 1934 applies to all communications. That act was based on the assumption that technology defines and identifies service: that conduit defines content. This concept is irreconcilable both with Information Theory and with the Internet that is based on it. A product of the long-gone days when broadcast meant TV and copper wires defined telephony, this law is ridiculous in an era of multipurpose digital networks using every kind of channel from fiber optics to satellite to near-field communicators for video, voice, money, and machinery.
Myth number six is that the Universal Service Fund, a tax on telecoms, has something to do with providing service to the poor and to rural areas. Landline links are far less available to the poor or remote areas than are relatively unregulated cellphones or television sets, which are actually almost universal. The USF is simply a $160 billion slush fund for politicians and bureaucrats to pay off constituencies and get special-interest telecom laws passed.
The seventh myth—all we need is a level playing field—is just another pretext for political intervention. Since there are no level playing fields anywhere in technology, in capitalism, or on the electromagnetic spectrum, this myth fuels demands for intervention everywhere.
The eighth myth is that inadequate investment in telecom is the result of insufficient incentives for network suppliers, who should be subsidized by government. Although government should purchase any secure communications systems that it needs, there is no need for programs to subsidize ordinary broadband service. Broadband should be profitable even if Google insists on providing it for free.
The reason for inadequate investment is that, apart from alcohol and tobacco, telecom is the nation’s most heavily taxed and regulated industry, and it is capital-intensive and changing more rapidly than any other industry. Now with 5G and the blockchain, it is entering an era of new opportunities. Yet companies such as Google urge politicians to treat this turbulent arena as a public utility.
The ninth and tenth myths are really repetitions of previous myths on the reach of telecom laws, such as the acts of 1934 and 1996, which were enacted to administer what was seen as a natural monopoly and which is now the most competitive market in the global economy: communications of all kinds converging on worldwide webs of glass and light and air. But the regulators cruise on with new legal principles for their increasingly otiose interventions.
Charged with defending the emerging blockchain economy from such regulation in Washington, Perianne Boring of the Chamber of Digital Commerce feels like Alice at the Mad Hatter’s tea party.4 To the riddle of cryptographic innovation, like the riddle of Internet neutrality, everyone has a different answer. The U.S. Commodity Futures Trading Commission eyes virtual currency as a “commodity.” But money cannot be part of what it measures. The SEC, as we have seen, increasingly treats tokens as “securities.” The U.S. Treasury Department’s Financial Crimes Enforcement Network believes that crypto-assets constitute money “transmissions,” and they seem to want them treated as potential crimes. The IRS treats virtual currency as “property” and proposes to assess capital gains and losses on every transaction, potentially burying the industry in accounting paperwork.
“Commodity? Security? Currency? Property? What is it?” Perianne asks. “I haven’t the slightest idea,” answers the Mad Hatter, observing Washington’s rule: “If it moves tax it. If it keeps moving regulate it. If it stops moving subsidize it.” Since the Cambrian explosion of cryptographic innovation is not going to stop moving, it faces a growing threat of taxation and regulation, as every regulatory faction seeks jurisdiction over it.
Faced with the similar efflorescence of the Internet, the FCC and Congress allowed it to flourish, with huge benefits to the U.S. economy and the world. A similar policy of tax and regulatory restraint is needed for this new outbreak of entrepreneurial creativity. It isn’t going to stop moving. Make it a public utility, and it will move overseas.
Google, perhaps the world’s leading technology company, should know this better than anyone. But the mythology suffusing the Google system of the world is now a serious threat to Google itself as a technology leader. In the evolving technological economy, shaped by cryptographic innovations, Google is going to have to compete again. Preening over its avoidance of evil, its free goods, and its clout in Washington will do no good. It is going to confront a new world where its center will not hold.
Most of all, it will need the spread of 5G and the huge investments it entails. It will need the creativity of the new blockchain movement. As Hölzle told the fiber optic engineers, Google will need hugely expanded bandwidth. And it will need to attract investment again. Google will have to be
come truly entrepreneurial to compete under a new system of the world.
CHAPTER 21
The Empire Strikes Back
In the halls of the cryptocosm, we all smiled and slapped hands when a chorus of hoary establishment lions rose up on cue to condemn crypto. JPMorgan Chase’s Jamie Dimon (“It’s a fraud”), Berkshire Hathaway’s Warren Buffett and Charlie Munger (“It’s rat poison”), and Paul Krugman of Princeton and the New York Times (“It’s evil”) were just the kind of “aging white men” whom Marc Andreessen dissed as dependably wrong about technology “almost 100 percent of the time.” To our contrarian ears, those fusty guys were singing a contrapuntal chorus of affirmation.
But then, in December 2017, a blog post appeared by Kai Stinchcombe, a smirking young financial consultant and entrepreneur who describes himself as “whatever the opposite of a futurist is.” His declaration that “after years of tireless effort and billions of dollars invested, nobody has actually come up with a use for the blockchain—besides currency speculation and illegal transactions” went viral. Announcing that the crypto party is over, he said it’s time to pack up the toots and touts, bitcoin caps and cups, books and brochures, time to close down the CoinSummits, fintech hackathons, initial coin offering jubilees, and blockchain revues. With a note of sanctimony, he called us instead to return to the laborious creation of real trust and real value in the existing global economy.1
Previously hidden in the crowd along Satoshi’s parade, Stinchcombe stepped forth with bravado to tell us that not only is the pseudonymous founder himself nakedly a nincompoop, but similarly bare-brained are all his Byzantine VC generals touting “blockchain.” That means you, Tim Draper, and you, Peter Thiel, and you over there, Marc Andreessen.
“Blockchain is not only crappy technology,” wrote Stinchcombe, “but a bad vision for the future.” It is not just destructive but “permanently” so, aiming the world in a diametrically wrong direction. The better it gets the worse it will be.
He acknowledged that “a data-structure founded on a string of small files containing hashes of previous files” may solve the non-problem of establishing an immutable database. But who wants that? Immutable? Really? No matter how big the error or the fraud, it cannot be reversed?
Surely Vitalik Buterin doesn’t want such a system. When the Ethereum DAO was hacked of some $150 million, he waded into his code base wielding his personal “hard fork” and rescinded the transaction. Do you want set in concrete all the flimflam contracts of “terms and conditions” that you sign on the Internet for various last-forever digital subscriptions or live-forever priapic pills? Or do you prefer to call a “trusted third party,” whether Visa or Amazon, or the Federal Trade Commission, or even Preet Bharara, and have mistakes corrected?
Stinchcombe amply showed that blockchains and smart contracts do not obviate the need for trust, regulation, law enforcement, government, or trusted intermediaries. I cannot say that he is wrong in these rather obvious assertions. In a previous article, he grandly proposed that after ten years of experiments and ambitious claims there are still no viable “use-cases” for cryptocurrencies or blockchains. Even Ripple, despite many advertisements of its blockchain and cryptocurrency XRP, does not actually use these devices for most of its ongoing currency exchanges, wrote Stinchcombe. Ripple prefers to resort to more liquid and simpler, less volatile and cumbersome dollars, yen, yuan, and euros.
Likewise, all the other blockchain or hashchain prophets—from Dan Larimer at EOS to David Sønstebø at IOTA to Leemon Baird at Hashgraph and Mike Hearn at R3—deploy trusted third parties, elected “witnesses,” delegated stakeholders, “reputable institutions,” corporate consortia, mining pools, righteous regulators, or intervening “coordinators” somewhere to make the system work.
Stinchcombe points out that “smart contracts” merely move the point of trust from lawyers writing quasi-English sentences in small print to software engineers on GitHub writing unintelligible code in one of scores of exotic languages. Solidity, anyone? Ruby-on-Rails? PHP? Haskell? Python? Except to an elite of crypto punk coders (you know them, those super-smart guys with pony tails, conspiratorial maze-minds, and a dazed belief that the world may well be an alien simulation), smart contracts are the ultimate in opacity. To everyone but the coders, “open source” is merely a fancy form of extremely secret sauce. Software languages make even legal jargon seem transparent by comparison.
So why do I think Stinchcombe’s objections are irrelevant? Or flatly wrong, as on Ripple, whose currency is the most widely used in the entire cryptocosm. Since its origin in an obscure white paper on an abstruse crypto punk board, this entrepreneurial wave is just ten years old. Its products remain buggy and undeveloped. But there are thousands of such companies, and their creativity is prodigious. Stinchcombe sees all the flaws and limitations of most of the existing solutions, but that makes him no more perceptive than their authors. Their work is as innovative and creative as the products of the 1990s Internet outbreak of new companies and technologies.
Stinchcombe writes from the womb of the incumbent financial establishment, which has recently crippled world capitalism with a ten-year global recession. He believes in the efficacy of foreign exchange trading, the Dodd-Frank law, central banking, gigantic commercial banks guaranteed by government as “systemically important,” the Volker rule, the Securities and Exchange Commission, insider-trading laws, and the magic of zero interest rates and quantitative easing. He is part of the problem.
He sees the fabric of global finance as static and capable of only incremental improvements. Just imagine, says he, the global complexities solved by a Visa card. His answer to people who are frustrated with the existing bureaucracies is not to hide behind some Rube Goldberg crypto-variation, but simply to “vote” them out. Good idea, Kai!
If you want better social networks, don’t botch them with “immutable” blockchains but design better regulations. (More regulations for the Net!) If you want more responsive services for the poor, don’t offer to put their contested land titles on an immutable database; volunteer to do title searches and community development, serve at a soup kitchen, or become a lawyer and offer your skills to Legal Aid. (More community-action programs and lawsuits!) Central banks, as he assures us, are “appointed by elected officials.” If you “the people” really want an unregulated banking system, just vote out the incumbent pols. Why not? They’re the ones who appoint these imperial currency managers, piling on the transfer payment bloat and bribing the voters with impossible promises of never-ending pensions. (If you can’t vote them out, then just stir in more fiat money and debt into the $280 trillion doomsday pot.)
Let us pass by these prescriptions without comment. The premise of the cryptocurrency movement is the recognition that the old bureaucracies of socialism and crony-capitalism have failed. That is the problem, not the solution.
A source of the confusion is Stinchcombe’s notion, fostered by the crypto-movement itself, that smart contracts and global currencies are something entirely new. He implies that the disintermediation of trusted third parties is a radical departure fostered by a blockchain apocalypse. But every advance for mechanization and industry, from the loom to the sewing machine, the linotype, the metal cutter, the telephone switch, and the Internet router to the World Wide Web, has required relinquishing some measure of human control to machine languages of various kinds. A numerical controlled welder is governed by a smart contract. So is an ATM or other vending machine. So is a network processor in a top-of-rack switch in a data center.
The reason people like Stinchcombe regard blockchains and other such technologies as novel and threatening is that they accept the Google era eschaton. They see the advance of automation, machine learning, and artificial intelligence as occupying a limited landscape of human dominance and control that ultimately will be exhausted in a robotic universe—Life 3.0. But Charles Sanders Peirce, Kurt Gödel, Alonzo Church, Alan Turing, Emil Post, and Gregory Chaitin disproved this
assumption on the most fundamental level of mathematical logic itself.
Mathematics is not a closed or bounded system. It opens up at every step to a universe of human imagination. As Peirce’s triadic logic illuminates, every symbol engenders its own infinity of imaginative interpretation. A symbol and its object are incoherent without an interpreter (Peirce says “interpretant”). Chaitin celebrates this regime as a new mathematics of creativity that opened up after Gödel and Turing disproved the Hilbert hypothesis of a complete and consistent mathematical universe.
The inevitable conclusion is that machines based on mathematical logic cannot exhaust the human domain; they can only expand it. Every new mechanism frees the human mind for more creative adventures and accomplishments. Expectations of human sacrifices to the Moloch of machinery are at odds with nature and truth.
Blockchains, hashchains, blockstacks, smart contracts, token issues, and cryptocurrencies are new ways to address the evils of the Google Age: porous Internet security, unmoored money, regulatory overreach, network concentration, officious delays, and diminishing returns of big data. All of these problems derive from the hypertrophy of trusted third parties that need to be collapsed into simpler systems controlled by individual agents closer to the actual point of service. Some of these third parties are financial traders, search engines, social networks, or global retailers run by huge agglomerations of Siren Servers. Other examples of overreach are monetary systems run by central banks, parliaments, and treasuries wielding money as a magic wand rather than employing the measuring stick of gold. All need to be decentralized and brought back under the management of the private parties that understand the business constraints and the real investment opportunities.
Life After Google Page 24