Fintech Digest from Autonomous ?NEXT -- How to Value Bitcoin and Crypto Assets; Amazon's Augmented Reality Commerce; Should AI Be For Sale?

Hi fellow futurists -- here are our top 3 favorite thoughts. It's a heavy concept week, hope it provides some food for thought!

How to Value Bitcoin and other Crypto Assets  

As the space matures, so does the thinking about what it's worth. We seem to be at least somewhat out of the "Why is Bitcoin worth anything" valley, with macro arguments about the evolution of money no longer needed to pacify critics. For those, see Nick Szabo's treatise on history of valuable tokens, Ole Bjerg's discussion of the commodity, credit and fiat theories of money applied to BTC, or the thesis that BTC intrinsic value comes from the economic cost of mining. These are important ideas as to why humans value things at all, but we are now in a place (i.e., BTC marketcap at $125 billion) where supply and demand have taken over.

The value of crypto tokens is also starting to be modeled more formally, and thankfully is moving away from being traded merely on technical analysis. Crypto investors are discarding the theory of the firm, and all of its associated discounted cash flow analysis, for a theory of token projects as circumscibed money/utility supplies within a machine economy. A major articulation of this approach was done by Chris Burniske, who starts with MV = PQ (money supply times velocity of exchange equals price of token times quantity of token), and expands the arithmetic to include timeline and structure of token issuance, percentage of long term holders, likely size of target market, discount rates, and generated token utility. Another iteration from Brett Winton implies massive devaluation in the VC and traditional financial markets as a result of crypto networks.

Vitalik Buterin is not entirely convinced that the money supply approach does the right thing longer term, and encourages token sinks and token buy-backs. Perhaps investors can then discount the impact of the buy-back to get to a more tangible valuation (fewer tokens worth more at a fixed rate) -- though it's likely that other factors influence token price more. For more articulated thoughts on Crypto dividends, see also CryptoFundamental.

Another useful tool is the Network Value to Transactions Ratio (NVT) from Woobull or CoinMetrics, that functions as a P/E ratio for crypto assets by comparing their activity to valuation. In reality, that is simple arithmetic in the face of complexity economics, a field of study that leverages the mathematics of physics, fluid dynamics, machine learning and network analysis to model economic activity and structure. A fascinating, albeit quiet difficult, article by EconomyMonitor traces the role of the attention economy in separate crypto ecosystems. One of our takeaways is that specialization -- i.e., ecosystems that have more actors with non-overlapping functions and high information density -- is a leading indicator of economic activity, and potentially, market value. So did we clear all this up? 

Source: Woobull (NVT), EconomyMonitor (Clustering, sample from the Bitcoin B2X social network)

Amazon's Augmented Reality Commerce

It seems insufficient to talk about augmented reality, and much more powerful to show it, so enjoy the images below. We are seeing the first iterations of thinking about AR commerce taking shape, with Amazon joining Ikea in deploying a product Preview (not Review) app that takes a rendered version of an Amazon product and places it in the shopper's home. The first image shows a chair being placed into a carpeted room. Other examples in the linked video show vases, kitchenware, and Amazon Alexa being projected around the house.

Commerce matters for Fintech because of payments and financing -- how will we pay for things in this future? Will we still use theiPhone or something like Magic Leap? The other two images show the power of artificial intelligence when it intersects with AR. In the first image, a neural network is used to "transfer" Van Gogh's artistic style on a rendered portrait. Think about how this could be applied to a customized bank experience, creating environments targeting the appropriate demographic with the right aesthetic. Popping gradients and futuristic designs for Millennials, marble and mahogany for Boomers?

The last image uses a neural network interface to build objects in a virtual world. You can see the user creating a house by drawing an icon of a house and placing it on the ground. The AI part comes into play mapping the house drawing, which would be different each time a user creates it, and the rendered object that appears. You can think of this as a freeform gesture that beckons a product. If AR is built into all operating systems and mapped to commerce via Amazon, anything you want is just a flicker of the hand away. Already, Google is building out the rendered library.

Click on images below for animated GIFs (not supported by LI)

Source: Amazon, Road to VR, Prosthetic Knowledge, Sam Snider-Held

Should our AI Overlords be for Sale? 

Facebook, Twitter and Google testified this past week in from of the American Congress about the activity of propaganda agents on their platforms during the 2016 election cycle. Putting aside anything relating to politics, we want to focus and highlight the incredible takeaways about the reach, power and ethics of what is currently for sale to the highest bidder. Let's just say the tech giants did not have the strongest hand in the conversation and are likely to face regulations on their attention economy monopolies.

Here are the data points. Around 126 million people on Facebookwere exposed to advertising campaigns associated with a propaganda organization, and another 20 million people were exposed on Instagram. On top of that, Facebook may have 270 million fake accounts (i.e., non-human agents) that may help spread misnformation. On Twitter, there were 37,000 accounts generating 1.4 million automated, election-related questionable propaganda Tweets, leading to 288 million impressions. That's a small number in the context of all tweets in the period -- only 1% was election related, and only 0.74% of that was automated propaganda. But given that American elections are nearly always 50-50, and flip based on the marginal voter in a marginal state, those numbers have real impact. 

One major point, highlighted by the always insightful Stratechery, is that the tech giants really have no practical way to scan and make ethical judgments about each and every ad and post. The reason for this is sheer scale -- Facebook runs 276 million unique ads per quarter, most delivered via automated self-service interfaces. Nor do we want our tech companies to become filters of free speech, akin to the great firewall of China. And yet, sovereigns, corporations and online communities have developed the language and weapons of "memetic warfare". See for example this article on how disinformation spread into the mainstream using swarm networks, botnets, and massive social media distribution. We don't need to freak out, but do need to understand the modern distribution of information and start making informed ethical guidelines and building appropriate defenses. These same information highways are being used in the crypto economy, and will make their way to the financial markets.

Source: Twitter, Facebook

Thanks for reading!

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