Ended: June 25, 2016
A decade later in 2008, the global financial industry crashed. Perhaps propitiously, a pseudonymous person or persons named Satoshi Nakamoto outlined a new protocol for a peer-to-peer electronic cash system using a cryptocurrency called bitcoin. Cryptocurrencies (digital currencies) are different from traditional fiat currencies because they are not created or controlled by countries. This protocol established a set of rules—in the form of distributed computations—that ensured the integrity of the data exchanged among these billions of devices without going through a trusted third party. This seemingly subtle act set off a spark that has excited, terrified, or otherwise captured the imagination of the computing world and has spread like wildfire to businesses, governments, privacy advocates, social development activists, media theorists, and journalists, to name a few, everywhere. “They’re like, ‘Oh my god, this is it. This is the big breakthrough. This is the thing we’ve been waiting for,’” said Marc Andreessen, the cocreator of the first commercial Web browser, Netscape, and a big investor in technology ventures. “‘He solved all the problems. Whoever he is should get the Nobel Prize—he’s a genius.’ This is the thing! This is the distributed trust network that the Internet always needed and never had.”
Today thoughtful people everywhere are trying to understand the implications of a protocol that enables mere mortals to manufacture trust through clever code. This has never happened before—trusted transactions directly between two or more parties, authenticated by mass collaboration and powered by collective self-interests, rather than by large corporations motivated by profit.
Every ten minutes, like the heartbeat of the bitcoin network, all the transactions conducted are verified, cleared, and stored in a block which is linked to the preceding block, thereby creating a chain. Each block must refer to the preceding block to be valid. This structure permanently time-stamps and stores exchanges of value, preventing anyone from altering the ledger.
The financial services industry has already rebranded and privatized blockchain technology, referring to it as distributed ledger technology, in an attempt to reconcile the best of bitcoin—security, speed, and cost—with an entirely closed system that requires a bank or financial institution’s permission to use. To them, blockchains are more reliable databases than what they already have, databases that enable key stakeholders—buyers, sellers, custodians, and regulators—to keep shared, indelible records, thereby reducing cost, mitigating settlement risk, and eliminating central points of failure.
Vitalik Buterin, founder of the Ethereum blockchain: “Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.”
Abra and other companies are building payment networks using the blockchain. Abra’s goal is to turn every one of its users into a teller. The whole process—from the funds leaving one country to their arriving in another—takes an hour rather than a week and costs 2 percent versus 7 percent or higher. Abra wants its payment network to outnumber all physical ATMs in the world. It took Western Union 150 years to get to 500,000 agents worldwide. Abra will have that many tellers in its first year.
Our contemporary Enigma is a tool of freedom and prosperity. Designed at MIT Media Lab by Guy Zyskind and Oz Nathan, the new Enigma combines the virtues of blockchain’s public ledger, the transparency of which “provides strong incentives for honest behavior,” with something known as homomorphic encryption and secure multiparty computation.2 More simply put, “Enigma takes your information—any information—breaks it up, and encrypts it into pieces of data that are randomly distributed to nodes in the network. It doesn’t exist in one spot,” said Cavoukian. “Enigma uses blockchain technology to embed the data and track all the pieces of information.”3 You can share it with third parties and those parties can use it in computations without ever decrypting it.4 If it works, it could reshape how we approach our own identity online.
So important are the processes of mining—assembling a block of transactions, spending some resource, solving the problem, reaching consensus, maintaining a copy of the full ledger—that some have called the bitcoin blockchain a public utility like the Internet, a utility that requires public support. Paul Brody of Ernst & Young thinks that all our appliances should donate their processing power to the upkeep of a blockchain: “Your lawnmower or dishwasher is going to come with a CPU that is probably a thousand times more powerful than it actually needs, and so why not have it mine? Not for the purpose of making you money, but to maintain your share of the blockchain,”10 he said. Regardless of the consensus mechanism, the blockchain ensures integrity through clever code rather than through human beings who choose to do the right thing.
To be sure, this shields the network from the hands of the state, which could be good or bad depending on the situation—say a dissident in a totalitarian country fighting for women’s rights versus a criminal in a democratic country conducting extortion. Totalitarian regimes could not freeze bank accounts or seize funds of political activists. States could not arbitrarily seize assets on the blockchain as Franklin Delano Roosevelt’s administration did through FDR’s Executive Order 6102, which required citizens to turn their “gold coin, gold bullion, and gold certificates” over to the government or risk fines or imprisonment.11 Josh Fairfield of Washington and Lee University put it bluntly: “There’s no middleman to go after anymore.”12 The blockchain resides everywhere. Volunteers maintain it by keeping their copy of the blockchain up to date and lending their spare computer processing units for mining. No backdoor dealing. Every action or transaction is broadcast across the network for subsequent verification and validation. Nothing passes through a central third party; nothing is stored on a central server.
Satoshi expected participants to act in their own self-interests. He understood game theory. He knew that networks without gatekeepers have been vulnerable to Sybil attacks, where nodes forge multiple identities, dilute rights, and depreciate the value of reputation.16 The integrity of the peer-to-peer network and the reputation of its peers both diminish if you don’t know whether you’re dealing with three parties or one party using three identities. So Satoshi programmed the source code so that, no matter how selfishly people acted, their actions would benefit the system overall and accrue to their reputations, however they chose to identify themselves. The resource requirements of the consensus mechanism, combined with bitcoins as reward, could compel participants to do the right thing, making them trustworthy in the sense that they were predictable. Sybil attacks would be economically unviable.
Another breakthrough to preserve value is the monetary policy programmed into the software. “All money mankind has ever used has been insecure in one way or another,” said Nick Szabo. “This insecurity has been manifested in a wide variety of ways, from counterfeiting to theft, but the most pernicious of which has probably been inflation.”18 Satoshi capped the supply of bitcoins at 21 million to be issued over time to prevent arbitrary inflation. Given the halving every four years of bitcoins mined in a block and the current rate of mining—six blocks per hour—those 21 million BTC should be in circulation around the year 2140. No hyperinflation or currency devaluation caused by incompetent or corrupt bureaucracies.
Satoshi required participants to use public key infrastructure (PKI) for establishing a secure platform. PKI is an advanced form of “asymmetric” cryptography, where users get two keys that don’t perform the same function: one is for encryption and one for decryption. Hence, they are asymmetric. The bitcoin blockchain is now the largest civilian deployment of PKI in the world, and second overall to the U.S. Department of Defense common access system.
Remember what Austin Hill said at the start of this chapter about never using the newest and greatest in algorithms. Hill, who works with cryptographer Adam Back at Blockstream, expressed concern over cryptocurrencies that don’t use proof of work. “I don’t think proof of stake ultimately works. To me, it’s a system where the rich get richer, where people who have tokens get to decide what the consensus is, whereas proof of work ultimately is a system rooted in physics. I really like that because it’s very similar to the system for gold.”
The security of Satoshi’s blockchain benefits greatly from its relative maturity and its established base of bitcoin users and miners. Hacking it would require more computing power than attacking short chains. Hill said, “Whenever one of these new networks start up with an all new chain, there’s a bunch of people who direct their latent computer power, all the computers and CPUs that they took offline from mining bitcoin, they point at these new networks to manipulate them and to essentially attack the networks.”
Satoshi installed no identity requirement for the network layer itself, meaning that no one had to provide a name, e-mail address, or any other personal data in order to download and use the bitcoin software. The blockchain doesn’t need to know who anybody is. (And Satoshi didn’t need to capture anybody’s data to market other products. His open source software was the ultimate in thought leadership marketing.) That’s how the Society for Worldwide Interbank Financial Telecommunication works—if you pay in cash, then SWIFT doesn’t generally ask for identification—but we’re guessing that many SWIFT offices have cameras, and financial institutions must comply with anti–money laundering/know your customer (AML/KYC) requirements to join and use SWIFT.
Additionally, the identification and verification layers are separate from the transaction layer, meaning that Party A broadcasts the transfer of bitcoins from Party A’s address to Party B’s address. There’s no reference to anyone’s identity in that transaction. Then the network confirms that Party A not only controlled the amount of bitcoin specified but also authorized the transaction before recognizing Party A’s message as “unspent transaction output” associated with Party B’s address. Only when Party B goes to spend that amount does the network verify that Party B now controls that bitcoin.
Haluk Kulin of Personal BlackBox said it best: “In the thousands of years of human social interaction, every time we’ve taken the right of participation from the people, they have come back and broken the system. We’re discovering that, even in digital, stealing their consent is not sustainable.”40 As the Ledger of Everything, the blockchain can serve as a public registry through such tools as Proof of Existence (PoE), a site that creates and registers cryptographic digests of deeds, titles, receipts, or licenses on the blockchain. Proof of Existence doesn’t maintain a copy of any original document; the hash of the document is calculated on the user’s machine, not on the PoE site, thus ensuring confidentiality of content. Even if a central authority shuts down Proof of Existence, the proof remains on the blockchain.41 So the blockchain provides means of proving ownership and preserving records without censorship.
Satoshi designed the system to work on top of the Internet stack (TCP/IP), but it could run without the Internet if necessary. Satoshi imagined that the typical person would be interacting with the blockchain through what he called “simplified payment verification” (SPV) mode that can work on cell phones to mobilize the blockchain. Now anyone with a flip phone can participate in the economy, or in a market, as a producer or consumer. No bank account required, no proof of citizenship required, no birth certificate required, no home address required, no stable local currency required to use the blockchain technologies. The blockchain drastically lowers the cost of transmitting such funds as remittances. It significantly lowers the barrier to having a bank account, obtaining credit, and investing. And it supports entrepreneurship and participation in global trade.
Then there are the large multinationals like Apple or GE that have to maintain hundreds of bank accounts in local currencies around the world just to facilitate their operations.2 When such a corporation needs to move money between two subsidiaries in two different countries, the manager of one subsidiary sends a bank wire from his operation’s bank account to the other subsidiary’s bank account. These transfers are needlessly complicated and take days, sometimes weeks to settle. During that time, neither subsidiary can use the money to fund operations or investment, but the intermediaries can earn interest on the float. “The advent of technology essentially took paper-based processes and turned them into semiautomated, semielectronic processes but the logic was still paper based,” said Vikram Pandit, former CEO of Citigroup.
It’s Franken-finance, full of absurd contradictions, incongruities, hot pipes, and pressure pots. Why, for example, does Western Union need 500,000 points of sale around the world, when more than half the world’s population has a smart phone?8 Erik Voorhees, an early bitcoin pioneer and outspoken critic of the banking system, told us, “It is faster to mail an anvil to China than it is to send money through the banking system to China. That’s crazy! Money is already digital, it’s not like they’re shipping pallets of cash when you do a wire!”
Why is it so inefficient? According to Paul David, the economist who coined the term productivity paradox, laying new technologies over existing infrastructure is “not unusual during historical transitions from one technological paradigm to the next.”10 For example, manufacturers needed forty years to embrace commercial electrification over steam power, and often the two worked side by side before manufacturers finally switched over for good. During that period of retrofitting, productivity actually decreased. In the financial system, however, the problem is compounded because there has been no clean transition from one technology to the next; there are multiple legacy technologies, some hundreds of years old, never quite living up to their full potential. Why? In part, because finance is a monopoly business.
Today, remittances take three to seven days to settle. Stock trades take two to three days, whereas bank loan trades take on average a staggering twenty-three days to settle.13 The SWIFT network handles fifteen million payment orders a day between ten thousand financial institutions globally but takes days to clear and settle them.14 The same is true of the Automated Clearing House (ACH) system, which handles trillions of dollars of U.S. payments annually. The bitcoin network takes an average of ten minutes to clear and settle all transactions conducted during that period. Other blockchain networks are even faster, and new innovations, such as the Bitcoin Lightning Network, aim to dramatically scale the capacity of the bitcoin blockchain while dropping settlement and clearing times to a fraction of a second.15 “In the corresponding banking world, where you have a sender in one network and a receiver in another, you have to go through multiple ledgers, multiple intermediaries, multiple hops. Things can literally fail in the middle. There’s all kinds of capital requirements for that,” said Ripple Labs CEO Chris Larsen.16 Indeed, the shift to instant and frictionless value transfer would free up capital otherwise trapped in transit, bad news for anyone profiting from the float.
Blockchain technology promises to mitigate several forms of financial risk. The first is settlement risk, the risk that your trade will bounce back because of some glitch in the settlement process. The second is counterparty risk, the risk that your counterparty will default before settling a trade. The most significant is systemic risk, the total sum of all outstanding counterparty risk in the system. Vikram Pandit called this Herstatt risk, named after a German bank that couldn’t meet its liabilities and subsequently went under: “We found through the financial crisis one of the risks was, if I’m trading with somebody, how do I know they’re going to settle on the other side?” According to Pandit, instant settlement on the blockchain could eliminate that risk completely. Accountants could look into the inner workings of a company at any point in time and see which transactions were occurring and how the network was recording them. Irrevocability of a transaction and instant reconciliation of financial reporting would eliminate one aspect of agency risk—the risk that unscrupulous managers will exploit the cumbersome paper trail and significant time delay to conceal wrongdoing.
The bitcoin blockchain was designed for moving bitcoins, not for handling other financial assets. However, the technology is open source, inviting experimentation. Some innovators are developing separate blockchains, known as altcoins, built for something other than bitcoin payments. Others are looking to leverage the bitcoin blockchain’s size and liquidity to create “spin-off” coins on so-called sidechains that can be “colored” to represent any asset or liability, physical or digital—a corporate stock or bond, a barrel of oil, a bar of gold, a car, a car payment, a receivable or a payable, or of course a currency. Sidechains are blockchains that have different features and functions from the bitcoin blockchain but that leverage bitcoin’s established network and hardware infrastructure without diminishing its security features. Sidechains interoperate with the blockchain through a two-way peg, a cryptographic means of transferring assets off the blockchain and back again without a third party exchange. Others still are trying to remove the coin or token altogether, building trading…
Masters is not alone in her enthusiasm for blockchain technology. NASDAQ CEO Bob Greifeld said, “I am a big believer in the ability of blockchain technology to effect fundamental change in the infrastructure of the financial service industry.”22 Greifeld is integrating blockchain’s distributed ledger technology into NASDAQ’s private markets platform through a platform called NASDAQ Linq. Exchanges are centralized marketplaces for securities and they are also ripe for disruption. On January 1, 2016, NASDAQ Linq completed its first trade on blockchain. According to Blockstream’s Hill, one of the largest asset managers in the world “has more people dedicated to its blockchain innovation group than we have in our entire company.” Hill’s company has raised over $75 million and employs more than twenty people. “These guys are serious about making sure that they understand how they can use the technology to change how they do business.”23 The NYSE, Goldman Sachs, Santander, Deloitte, RBC, Barclays, UBS, and virtually every major financial firm globally have taken a similar serious interest. In 2015, Wall Street’s opinion of blockchain technology became universally positive: in one study, 94 percent of respondents said blockchain could play an important role in finance.24
Call Circle what you like, just don’t call it a bitcoin company. “Amazon was not an HTTP company and Google was not an SMTP company. Circle is not a bitcoin company,” said Allaire. “We look at bitcoin as a next generation of fundamental Internet protocols that are used in society and the economy.”43 Allaire sees financial services as the last holdouts, and perhaps the largest prize, to be fundamentally transformed by technology. “If you look at retail banking, there are three or four things that retail banks do. One is that they provide a place to store value. A second is that they provide some kind of payment utility. Beyond that, they extend credit and provide a place for you to store wealth and generate potential income.”44 His vision: “Within three to five years, a person should be able to download an app, store value digitally in whatever currency they want—dollars, euro, yen, renminbi, as well as digital currency—and be able to make payments instantly or nearly instantly with global interoperability, with a very high level of security and without privacy leakage. Most importantly, it will be free.”45 As the Internet transformed information services, the blockchain will transform financial services, instigating unimagined new categories of capability.
The argument for triple-entry accounting is not against traditional accounting. There will always be areas where we will need competent auditors. But if triple-entry accounting can vastly increase transparency and responsiveness through real-time accruals, verifiable transaction records, and instant audit, then the blockchain could solve many of accounting’s biggest problems. Deloitte will need someone to assess in real time the value of intangibles and perform the other accounting functions that the blockchain cannot, rather than a large task force of auditors.
FICO, an American company originally called Fair, Isaac and Company, dominates the U.S. market for credit scores, yet it doesn’t factor most relevant information into its analysis. Marc Andreessen said, “PayPal can do a real-time credit score in milliseconds, based on your eBay purchase history—and it turns out that’s a better source of information than the stuff used to generate your FICO score.”72 These factors, combined with transaction and business data and other attributes generated by blockchain technology, can enable a far more robust algorithm for issuing credit and managing risk.
BTCjam is a peer-to-peer lending platform that uses reputation as the basis for extending credit. Users can link their profile on BTCjam to Facebook, LinkedIn, eBay, or Coinbase to add more depth and texture. Friends can volunteer recommendations from Facebook. You can even submit your actual credit score as one of many attributes. None of this private information is released. Users start on the platform with a low credit score. But you can quickly build a reputation by showing you are a reliable borrower. The best strategy is to start with a “reputation loan” to prove you’re reliable. As a user, you will have to respond to investor questions during the funding process. Ignoring these questions is a red flag; the community will hesitate to fund you. With your first loan, start with a manageable amount, and pay it back on time. Once you have, your quantitative score will improve, and other members in the community might give you a positive review. As of September 2015, BTCjam had funded eighteen thousand loans in excess of $14 million.
Matching investors with entrepreneurs is one of the eight functions of the financial services industry most likely to be disrupted. The process of raising equity capital—through private placements, initial public offerings, secondary offerings, and private investments in public equities (PIPEs)—has not changed significantly since the 1930s.
The blockchain IPO takes the concept further. Now, companies can raise funds “on the blockchain” by issuing tokens, or cryptosecurities, of some value in the company. They can represent equity, bonds, or, in the case of Augur, market-maker seats on the platform, granting owners the right to decide which prediction markets the company will open. Ethereum was an even greater success than Augur, funding the development of a whole new blockchain through a crowd sale of its native token, ether. Today Ethereum is the second-longest and fastest-growing public blockchain. The average investment in the Augur crowdfunding was $750, but one can easily imagine minimum subscriptions of a dollar or even ten cents. Anyone in the world—even the poorest and most remote people—could become stock market investors.
Overstock, the e-retailer, is launching perhaps the most ambitious cryptosecurity initiative yet. Overstock’s forward-thinking founder, Patrick Byrne, believes blockchain “can do for the capital markets what the Internet has done for consumers.” The project, dubbed Medici, enables companies to issue securities on the blockchain and recently received the support of the Securities and Exchange Commission.79 The company began issuing its first blockchain-based securities, such as the $5 million cryptobond for an affiliate of FNY Capital, in 2015.80 Overstock claims many financial services firms and other companies are lining up to use the platform. Surely, the tacit approval of the SEC will give Overstock a head start on what is sure to be a long journey.
Should blockchain IPOs continue to gain traction, they will ultimately disrupt many of the roles in the global financial system—brokers, investment bankers, and securities lawyers—and change the nature of investment. By integrating blockchain IPOs with new platforms for value exchange such as Circle, Coinbase (the most well-funded bitcoin exchange start-up), Smartwallet (a global asset exchange for all forms of value), and other emerging companies, we expect a distributed virtual exchange to emerge. The old guard is taking notice. The NYSE invested in Coinbase and NASDAQ is integrating blockchain technology into its private market. Bob Greifeld, CEO of NASDAQ, is starting…
Augur is building a decentralized prediction market platform that rewards users for correctly predicting future events—sporting events, election results, new product launches, the genders of celebrity babies. How does it work? Augur users can purchase or sell shares in the outcome of a future event, the value of which is an estimate of the probability of an event…
Augur relies on “the wisdom of the crowd,” the scientific principle that a large group of people can often predict the outcome of a future event with far greater accuracy than one or more experts.82 In other words, Augur brings the spirit of the market to bear on the accuracy of predictions. There have been a few attempts at centralized prediction markets, such as the Hollywood Stock Exchange, Intrade, and HedgeStreet (now Nadex), but most have been…
uly 30, 2015, was a big day for a global group of coders, investors, entrepreneurs, and corporate strategists who think that Ethereum is the next big thing—not just for business, but possibly for civilization. Ethereum, the blockchain platform eighteen months in the making, went live. We witnessed the launch firsthand in the Brooklyn office of Consensus Systems (ConsenSys), one of the first Ethereum software development companies. Around 11:45 a.m., there were high fives all around as the Ethereum network created its “genesis block,” after which a frenzy of miners raced to win the first block of ether, Ethereum’s currency. The
According to its Web site, Ethereum is a platform that runs decentralized applications, namely smart contracts, “exactly as programmed without any possibility of downtime, censorship, fraud, or third party interference.” Ethereum is like bitcoin in that its ether motivates a network of peers to validate transactions, secure the network, and achieve consensus about what exists and what has occurred. But unlike bitcoin it contains some powerful tools to help developers and others create software services ranging from decentralized games to stock exchanges.
Ethereum was conceived in 2013 by then-nineteen-year-old Vitalik Buterin, a Canadian of Russian descent. He had argued to the bitcoin core developers that the platform needed a more robust scripting language for developing applications. When they rejected him, he decided to craft his own platform. ConsenSys was first off the block, so to speak, launched to create Ethereum-based apps. Flash-forward a…
Like many entrepreneurs, Lubin has a bold mission, not just to build a great company but to solve important problems in the world. He deadpans that the company is a “blockchain venture production studio, building decentralized applications, mostly on Ethereum.” Pretty low-key. But, if implemented, the applications that ConsenSys is building would shake the windows and rattle the walls of a dozen industries. Projects include a distributed triple-entry accounting system; a decentralized version of the massively popular Reddit discussion forum, plagued of late by controversy over its centralized control; a document formation and management system for self-enforcing contracts (aka smart contracts); prediction markets for business, sports, and entertainment; an open energy market; a distributed…
It’s about its efforts to cultivate a company of its own, pioneering important new ground in management science along the lines of holacracy, a collaborative rather than hierarchical process for defining and aligning the work to be done. “While I don’t want us to implement holacracy as is—it feels way too rigid and structured to me—we are working to incorporate many of its philosophies in our structure and processes,” said Lubin. Among those holacratic tenets are “dynamic roles rather than traditional job descriptions; distributed, not delegated authority; transparent rules rather than office politics; and rapid reiterations rather than big reorganizations,” all of which describe how blockchain…
In 1995, Don used Nobel Prize–winning economist Ronald Coase’s theory of the firm to explain how the Internet would affect the architecture of the corporation. In his 1937 paper “The Nature of the Firm,” Coase identified three types of costs in the economy: the costs of search (finding all the right information, people, resources to create something); coordination (getting all these people to work together efficiently); and contracting (negotiating the costs for labor and materials for every activity in production, keeping trade secrets, and policing and enforcing these agreements). He posited that a firm would expand until the cost of performing a transaction inside the firm exceeded the cost of performing the transaction outside the firm.5 Don argued that the Internet would reduce a firm’s internal transaction costs somewhat; but we thought, because of its global accessibility, it would reduce costs in the overall economy even more, in turn lowering barriers to entry for more people. Yes, it did drop search costs, through browsers and the World Wide Web. It also dropped coordination costs through e-mail, data processing applications like ERP, social networks, and cloud computing. Many companies benefited from outsourcing such units as customer service and accounting. Marketers engaged customers directly, even turning consumers into producers (prosumers). Product planners crowdsourced innovations. Manufacturers leveraged vast supply networks. However, the surprising reality is that the Internet has had peripheral impact on corporate architecture. The industrial-age hierarchy is pretty much intact as the recognizable foundation of capitalism. Sure, the networks have enabled companies to outsource to low-cost geographies. But the Internet dropped transaction costs inside the firm as well.
When firms have no real competition, they can grow as inefficient as they want, raising prices in and outside the firm. Look at governments. Even in the technology industry, many argue that monopolies may help with innovation in the short term but may harm society in the long term. Companies may amass monopoly power through cool products and services that customers love, but the honeymoon eventually ends. It’s not so much that their innovations no longer delight; it’s that the companies themselves begin to ossify.
In monopolies, layers of bureaucracy distance the executives at the top from market signals and emergent technology at the edges, where companies bump up against one another and other markets, other industries, other geographies, other intellectual disciplines, other generations. According to John Hagel and John Seely Brown, “The periphery of today’s global business environment is where innovation potential is the highest. Ignore it at your peril.”
Tapping into ideagoras (open markets for brainpower), companies like Procter & Gamble are finding uniquely qualified minds to innovate a new product or process. In fact, 60 percent of P&G’s innovations come from outside the company, by building or harnessing ideagoras like InnoCentive or inno360. Other firms like Goldcorp have created global challenges to search for the best minds to solve their toughest problems. Goldcorp, which published its geological data and talent outside its boundaries, discovered $3.4 billion worth of gold, resulting in a hundredfold increase in the company’s market value.
HR staff must master the use of reputation systems, moving forward with candidates without knowing anything irrelevant to the job, such as age, gender, race, country of origin. They also need search engines that can navigate various degrees of openness, from fully private to fully public information. The upside is an end to subconscious or even institutional bias and headhunter or executive recruiting fees. The downside is that precise queries lead to precise results. There is less possibility of serendipity, the discovery of a candidate who lacks the qualifications but has great capacity to learn and to make the random creative connections that a firm desperately needs.
The third distinction is value: where information on the Internet is abundant, unreliable, and perishable, it is scarce, tamperproof, and permanent on the blockchain. To this last characteristic, Antonopoulos notes: “If there is enough financial incentive to preserve this blockchain into the future, the possibility of it existing for tens, hundreds, or even thousands of years cannot be discounted.” What an amazing concept. The blockchain as part of the archaeological record, like the original stone tablets of Mesopotamia. Paper records are ephemeral and temporary, whereas (ironically) the oldest form of recording information, tablets, is the most permanent. The implications for corporate architecture are considerable. Imagine a permanent, searchable record of important historical information, like the history of finance. Corporate
How do we come to terms with other parties or enter into an agreement? It’s one thing to lower the costs of finding people and resources that can do the job. But that’s not enough to shrink a firm significantly. All parties must agree to work together. The second reason why we have firms is contractual costs, such as negotiating the price, establishing capacity, and spelling out the conditions of a supplier’s goods or services; policing them and enforcing the terms; and handling remedies if parties don’t deliver as promised.
We’ve always had social contracts, understandings of relationships in the specialization of roles where some people in the tribe hunted and protected the tribe, and others gathered and sheltered the tribe. People have traded physical objects in real time since the dawn of modern man. Contracts are a more recent phenomenon, as we began trading promises, not property. Oral agreements proved easily manipulated or misremembered, and eyewitnesses were unreliable. Doubt and distrust tempered collaboration with strangers. Contracts had to be fulfilled immediately, and there were no formal mechanisms for enforcement of the terms beyond what you could take by force. The written contract was a way of codifying an obligation, of establishing trust and setting expectations. Written contracts provided guidance when someone did not hold up his end of the bargain, or something unexpected happened. But they couldn’t exist in a vacuum; there had to be some legal framework that recognized contracts and enforced each party’s rights.
Today contracts are still made of atoms (paper), not bits (software). As such they have huge limitations, serving to simply document an agreement. As we shall see, if contracts were software—smart and distributed on the blockchain—they could open a world of possibilities, not the least of which is to make it easier for companies to collaborate with external resources. And just imagine how the Uniform Commercial Code might look on the blockchain.
Coase and his successors argued that contracting costs are lower inside the boundaries of firms rather than outside in the market—that a firm is essentially a vehicle for creating long-term contracts when short-term contracts are too much effort. Williamson advanced this idea by arguing that firms exist to resolve conflicts, largely through making contracts with various parties inside the firm. In the open market, the only dispute mechanism is the court—costly, timely, and often unsatisfactory.
That’s why the blockchain, by reducing contracting costs, enables firms to open up and develop new relationships outside their boundaries. ConsenSys, for example, can architect complex relationships with a diverse set of members, some inside its boundaries, some outside, and some straddling walls, because smart contracts govern these relationships rather than traditional managers. Members self-assign to projects, define agreed-upon deliverables, and get paid when they deliver—all on the blockchain.
Smart Contracts The rate of change is increasingly setting the stage for smart contracts. More people are developing not only computer literacy, but also fluency. As far as evidencing transactions goes, this new digital medium has significantly different properties from its paper predecessors. As cryptographer Nick Szabo highlighted, not only can they capture a greater array of information (such as nonlinguistic sensory data) but they are dynamic: they can transmit information and execute certain kinds of decisions. In Szabo’s words, “Digital media can perform calculations, directly operate machinery, and work through some kinds of reasoning much more efficiently than humans.”
For the purposes of this discussion, smart contracts are computer programs that secure, enforce, and execute settlement of recorded agreements between people and organizations. As such, they assist in negotiating and defining these agreements. Szabo coined the phrase in 1994, the same year that Netscape, the first Web browser, hit the market: A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs.
In 2012, “core developer” Gavin Andresen introduced a new type of bitcoin address to the bitcoin protocols called “pay to script hash” (P2SH). Its purpose was to allow one party “to fund any arbitrary transaction, no matter how complicated.”23 Parties use multiple authenticating signatures or keys rather than a single private key to complete a transaction. The community usually refers to this multiple-signature feature as simply “multisig.” In a multisig transaction, parties agree on the total number of keys generated (N) and how many will be required to complete a transaction (M). This is called an M-of-N signature scheme or security protocol. Think of a lockbox requiring multiple physical keys to open. With this feature, Bob and Alice would agree in advance to employ a neutral, disinterested third-party arbitrator to help them complete their transaction. Each of the three parties would hold one of three private keys, two of which are needed to access the transferred funds. Alice would send her bitcoin to a public address. At this point, those funds can be viewed by anyone, but accessed by no one. Once Bob sees the funds have been posted, he fulfills his end of the bargain. If, upon receipt of Bob’s good or service, Alice is unsatisfied and feels cheated, she could refuse to provide Bob with the second key. The two parties would then look to the arbitrator, holder of the third key, to help them resolve their disagreement. The intervention of such arbitrators is called for only in cases of disputes like these, and at no point do they themselves have access to the funds—a mechanism enabling the rise of “smart contracts.”
“What’s exciting to me about blockchain technology is that it can enable people to function together with the persistence and stability of an organization, but without the hierarchy.”27 It also suggests that managers should brace themselves for radical transparency in how they do coordinate and conduct themselves because shareholders will now be able to see the inefficiencies, the unnecessary complexity, and the huge gap between executive pay and the value executives actually contribute. Remember, managers aren’t agents of owners; they’re intermediaries.
Blockchain developer Gavin Wood makes this point describing the Ethereum blockchain as a platform for processing. “There is only one Ethereum computer in the world,” he said. “It’s also multiuser—anyone who ever uses it is automatically signed in.” Because Ethereum is distributed and built to the highest standards of cryptosecurity, “all code, processing, and storage exists within its own encapsulated space and no one can ever mess with that data.” He argued that critical rules are built into the computer, comparing it to “virtual silicon.”
The company Storj is a distributed cloud storage platform and a suite of DApps that allow users to store data securely, inexpensively, and privately. No centralized authority has access to a user’s encrypted password. The service eliminates the high costs of centralized storage facilities; it’s superfast; and it pays users for renting their extra disk space. It’s like Airbnb for your computer’s spare memory space.
As smart contracts grow in complexity and interoperate with other contracts, they can contribute to what we call open networked enterprises (ONEs). If we combine ONEs with autonomous agents—software that makes decisions and acts on them without human intervention—we get what we’re calling a distributed autonomous enterprise that requires little or no traditional management or hierarchy to generate customer value and owner wealth. And we think that very large numbers of people, thousands or millions, might be able to collaborate in creating a venture and sharing in the wealth it creates—distributing, rather than redistributing, wealth.
Peer production as a business model matters for two reasons. First, sometimes peers collaborate voluntarily to produce goods and services where a corporation acts as curator and achieves commercial benefit. Readers create the content on the Reddit discussion platform, but they don’t own it. Reddit is the tenth-biggest site in the United States in terms of traffic. Second, companies can tap into vast pools of external labor. IBM embraced Linux and donated hundreds of millions of dollars’ worth of software to the Linux community. In doing so, IBM saved $900 million a year developing its own proprietary systems and created a platform on which it built a multibillion-dollar software and services business.
the case of Linux, most of the participants get paid by companies like IBM or Google to ensure that Linux meets their strategic needs. Linux is still an example of social production. Benkler told us, “The fact that some developers are paid by third parties to participate does not change the governance model of Linux, or the fact that it is socially developed.” This is more than so-called open innovation that involves cooperation between firms and sharing certain intellectual property, he said. “There is still substantial social motivation for many contributors and as such it’s a hybrid model.”
Consider Reddit. The community has revolted over centralized control but still suffers from flippant, abrasive members. Reddit could benefit from moving to a more distributed model that rewards great contributors. ConsenSys is already working on a blockchain alternative to Reddit that does just that. By offering financial incentives, the ConsenSys team thinks it can improve the quality of Redditlike conversations, without centralized control and censorship. The Ethereum platform provides incentives, perhaps in real time, to produce high-quality content and behave civilly while contributing to collective understanding.
You could apply this same model to other fields as well. In science, a researcher could publish a paper to a limited audience of peers, as Satoshi Nakamoto did, and receive reviews and the credibility to publish to a larger audience, rather than assigning all rights to a scientific journal. The paper might even be available for free but other scientists could subscribe to a deeper analysis or threaded discussions with the author about it. She could make her raw data available or perhaps share data with other scientists as part of a smart contract. If there is a commercial opportunity flowing from the paper, the rights could all be protected in advance. More on this in chapter 9.
Most so-called sharing economy companies are really service aggregators. They aggregate the willingness of suppliers to sell their excess capacity (cars, equipment, vacant rooms, handyman skills) through a centralized platform and then resell them, all while collecting valuable data for further commercial exploitation.
Blockchain technology provides suppliers of these services a means to collaborate that delivers a greater share of the value to them. For Benkler, “Blockchain enables people to translate their willingness to work together into a set of reliable accounting—of rights, assets, deeds, contributions, uses—that displaces some of what a company like Uber does. So that if drivers want to set up their own Uber and replace Uber with a pure cooperative, blockchain enables that.” He emphasized the word enable. To him, “There’s a difference between enabling and moving the world in a new direction.” He said, “People still have to want to do it, to take the risk of doing it.”31 So get ready for blockchain Airbnb, blockchain Uber, blockchain Lyft, blockchain Task Rabbit, and blockchain everything wherever there is an opportunity for real sharing and for value creation to work together in a cooperative way and receive most of the value they create.
Perhaps blockchain technology can take us beyond the sharing economy into a metering economy where we can rent out and meter the use of our excess capacity. One problem with the actual sharing economy, where, for example, home owners agree to share power tools or small farming equipment, fishing gear, a woodworking shop, garage or parking, and more, was that it was just too much of a hassle. “There are 80 million power drills in America that are used an average of 13 minutes,” Airbnb CEO Brian Chesky wrote in The New York Times. “Does everyone really need their own drill?”
This can work for physical assets too. For example, we’ve heard a lot about autonomous vehicles. We can build an open transportation network on the blockchain where owners each have a private encrypted key (number) that lets them reserve a car. Using the public key infrastructure and existing blockchain technologies like EtherLock and Airlock, they can unlock and use the car for a certain amount of time, as specified by the rules of the smart contract—all the while paying the vehicle (or its owners) in real time for the time and energy that they use—as metered on a blockchain. Because blockchain technology is transparent, the group of owners can track who is abiding by their commitments. Those who aren’t take a reputational hit and eventually lose access altogether.
Blockchains and blockchain-based software repositories will fuel such activity. Companies can now use powerful new programming languages like the Ethereum blockchain with built-in payment systems. An excerpt from a conversation on Hacker News: “Imagine how cool it would be if I could share a guid for my repo—and then your bit client (let’s call it gitcoin, or maybe just bit) can fetch new commits from a distributed block chain (essentially the git log). Github is no longer an intermediary or a single point of failure. Private repo? Don’t share the guid.”
The food industry could store on the blockchain not just the number of every steer, but of every cut of meat, potentially linked to its DNA. Three-dimensional search abilities could enable comprehensive tracking of livestock and poultry so that users could link an animal’s identity to its history. Using sophisticated (but relatively simple to use) DNA-based technologies and smart database management, even the largest meat producers could guarantee quality and safety. Imagine how these data might expedite lab tests and a community health response to a crisis.
Knowing how our food was raised or grown is not a radical idea. Our ancestors bought supplies at local markets or from retailers who sourced products locally. If they didn’t like how a local rancher treated his cattle, they didn’t buy his beef. But transportation and refrigeration have estranged us from our foodstuffs. We’ve lost the values of the old food chain. We could restore these values. We could lead the world in developing a modern, industrialized, open food system with down-to-earth family farm values. Transparency lets companies with superior practices differentiate themselves. The brand could evolve from the marketing notion of a trustmark—something that customers believe in because it’s familiar—into a relationship based on transparency. Surely food producers have an appetite for that.
Filament’s business model is a service model involving three parties: Filament, its integration customer, and the utility company. Filament owns the hardware; its devices continually monitor the condition of the power poles and report changes, whether they’re fallen, on fire, or compromised by dust accumulation or brush fire smoke. Filament sells the sensor data stream to the integrator, and this integrator sells to the utility. The utility pays monthly for a monitoring service. The service enables the power company to eliminate the very expensive field inspection of its operations. Because power poles rarely fall, the power company rarely uses the actual communication capability of the mesh network, and so Filament could deploy the excess capacity of the taps for other uses. “Since Filament owns the devices, we can sell extra network capacity on top of this network that spans most of the continent,” said Eric Jennings, Filament’s cofounder and CEO. “Filament could strike a deal with FedEx to give their semitrucks the ability to send telemetry data to HQ in real time, over our network in rural Australia. We add FedEx to the smart contract list, and now they can pay each device to send data on their behalf.”3 FedEx drivers could use the mesh network for communications and vehicle tracking across remote areas to indicate estimated arrival times and breakdowns. The network could alert the nearest repair facility to dispatch the necessary parts and equipment.
Remember, Satoshi Nakamoto designed the bitcoin blockchain to ensure the integrity of each bitcoin transaction online and the bitcoin currency overall. By recording each transaction at every node and then sharing that record with every other node on the network (i.e., the blockchain), the blockchain ensures that we can verify the transaction quickly and seamlessly across the peer-to-peer network. We can conduct transactions of value—in this case financial—automatically, securely, and confidently without needing to know or trust each node on the network, and without going through an intermediary. The Ledger of Everything requires minimal trust.
times of traffic congestion, your vehicle will negotiate a passing rate so that you arrive at your destination on time, and freight managers will use the blockchain-enabled IoT on all cargo to clear customs or other required inspections quickly. No red tape. Allianz, a manufacturer of street sweepers, could equip its municipal machines with minicam or sensor technology that identified cars whose owners hadn’t moved them (if they couldn’t move themselves) on alternate-side-of-the-street-parking days in New York City, feed that sensor data to the traffic police, and spare the physical writing of parking tickets. Or, the street sweeper itself could extract the parking fine in bitcoin from the car itself as it swept by—because the New York State Department of Transportation would require all cars registered in the five New York City boroughs to maintain bitcoin wallets connected to their license plates. Autonomous vehicles, on the other hand, would sense the oncoming sweeper and simply move themselves to let it pass.
An estimated 65 percent of the twelve billion square feet of commercial real estate in the United States is vacant.22 Digital sensors can create marketplaces of these real estate assets by enabling real-time discovery, usability, and payment. Vendors are now entering this field and developing new service models to rent the space in off hours.
Blockchain can enable every person to have a unique and verifiable reputation-based identity that allows them to participate equally in the economy. The implications of this equality are profound. Lubin imagines a future where the “unbanked and underbanked will become increasingly enfranchised as microlending services will enable investors across the globe to construct diverse portfolios of many microloans of which the usage and repayment can be tracked in full detail on the blockchain, using Balanc3’s [a ConsenSys portfolio company] triple-entry accounting system, for instance.”30 In this new future, when people repay microloans, they are on their way to securing more and larger loans to build their businesses.
“We don’t necessarily need all of the money for the Gigafactory right now, but I decided to raise it in advance because you never know when there will be some bloody meltdown,” Musk said. “There could be external factors or there could be some unexpected recall and then suddenly we need to raise money on top of dealing with that. I feel a bit like my grandmother. She lived through the Great Depression and some real hard times. Once you’ve been through that, it stays with you for a long time. I’m not sure it ever leaves really. So, I do feel joy now, but there’s still that nagging feeling that it might all go away. Even later in life when my grandmother knew there was really no possibility of her going hungry, she always had this thing about food. With Tesla, I decided to raise a huge amount of money just in case something terrible happens.”
“The competitors are all sort of pooh-poohing the Gigafactory,” Musk said. “They think it’s a stupid idea, that the battery supplier should just go build something like that. But I know all the suppliers, and I can tell you that they don’t like the idea of spending several billion dollars on a battery factory. You’ve got a chicken-and-egg problem where the car companies are not going to commit to a giant volume because they’re not sure you can sell enough electric cars. So, I know we can’t get enough lithium ion batteries unless we build this bloody factory, and I know no one else is building this thing.”
If, and it’s a big if, Tesla’s Model 3 turned into a massive hit—the thing that everyone with enough money wanted because buying something else would just be paying for the past—then the rival automakers would be in a terrible bind. Most of the car companies dabbling in electric vehicles continue to buy bulky, off-the-shelf batteries rather than developing their own technology. No matter how much they wanted to respond to the Model 3, the automakers would need years to come up with a real challenger and even then they might not have a ready supply of batteries for their vehicles.
In 2014, SpaceX also began construction on its own spaceport in South Texas. It has acquired dozens of acres where it plans to construct a modern rocket launch facility unlike anything the world has seen. Musk wants to automate a great deal of the launch process, so that the rockets can be refueled, stood up, and fired on their own with computers handling the safety procedures. SpaceX wants to fly rockets several times a month for its business, and having its own spaceport should help speed up such capabilities. Getting to Mars will require an even more impressive set of skills and technology.
“We need to figure out how to launch multiple times a day,” Musk said. “The thing that’s important in the long run is establishing a self-sustaining base on Mars. In order for that to work—in order to have a self-sustaining city on Mars—there would need to be millions of tons of equipment and probably millions of people. So how many launches is that? Well, if you send up 100 people at a time, which is a lot to go on such a long journey, you’d need to do 10,000 flights to get to a million people. So 10,000 flights over what period of time? Given that you can only really depart for Mars once every two years, that means you would need like forty or fifty years. “And then I think for each flight that departs to Mars you want to sort of launch the spacecraft into orbit and then have it be in a parking orbit and refuel its tanks with propellant. Essentially, the spacecraft would use a bunch of its propellant to get to orbit, but then you send up a tanker spacecraft to fill up the propellant tanks of the spacecraft so that it can depart for Mars at high speed and can do so and get there in three months instead of six months and with a large payload. I don’t have a detailed plan for Mars but I know of something at least that would work, which is sort of this all-methane system with a big booster, a spacecraft, and a tanker potentially. I think SpaceX will have developed a booster and spaceship in the 2025 time frame capable of taking large quantities of people and cargo to Mars.
“I would only be on the first trip to Mars if I was confident that SpaceX would be fine if I die,” he said. “I’d like to go, but I don’t have to go. The point is not about me visiting Mars but about enabling large numbers of people to go to the planet.” Musk may not even go into space. He does not plan to participate in SpaceX’s upcoming human test flights. “I don’t think that would be wise,” he said. “It would be like the head of Boeing being a test pilot for a new plane. It’s not the right thing for SpaceX or the future of space exploration. I might be on there if it’s been flying for three or four years. Honestly, if I never go to space, that will be okay. The point is to maximize the probable life span of humanity.”
“Over one thousand miles, the tube cost starts to become prohibitive, and you don’t want tubes every which way. You don’t want to live in Tube Land.”
“Elon’s worst trait by far, in my opinion, is a complete lack of loyalty or human connection,” said one former employee. “Many of us worked tirelessly for him for years and were tossed to the curb like a piece of litter without a second thought. Maybe it was calculated to keep the rest of the workforce on their toes and scared; maybe he was just able to detach from human connection to a remarkable degree. What was clear is that people who worked for him were like ammunition: used for a specific purpose until exhausted and discarded.”
Even in social settings, Musk might get up from the dinner table without a word of explanation to head outside and look at the stars, simply because he’s not willing to suffer fools or small talk. After adding up this behavior, dozens of people expressed to me their conclusion that Musk sits somewhere on the autism spectrum and that he has trouble considering other people’s emotions and caring about their well-being.
There’s a tendency, especially in Silicon Valley, to label people who are a bit different or quirky as autistic or afflicted with Asperger’s syndrome. It’s armchair psychology for conditions that can be inherently funky to diagnose or even codify. To slap this label on Musk feels ill-informed and too easy.
Musk’s behavior matches up much more closely with someone who is described by neuropsychologists as profoundly gifted. These are people who in childhood exhibit exceptional intellectual depth and max out IQ tests. It’s not uncommon for these children to look out into the world and find flaws—glitches in the system—and construct logical paths in their minds to fix them. For Musk, the call to ensure that mankind is a multiplanetary species partly stems from a life richly influenced by science fiction and technology. Equally it’s a moral imperative that dates back to his childhood. In some form, this has forever been his mandate.
Each facet of Musk’s life might be an attempt to soothe a type of existential depression that seems to gnaw at his every fiber. He sees man as self-limiting and in peril and wants to fix the situation. The people who suggest bad ideas during meetings or make mistakes at work are getting in the way of all of this and slowing Musk down. He does not dislike them as people. It’s more that he feels pained by their mistakes, which have consigned man to peril that much longer. The perceived lack of emotion is a symptom of Musk sometimes feeling like he’s the only one who really grasps the urgency of his mission. He’s less sensitive and less tolerant than other people because the stakes are so high. Employees need to help solve the problems to the absolute best of their ability or they need to get out of the way.
Musk does not rehearse his presentations or polish speeches. He wings most of the announcements from Tesla and SpaceX. He’ll also fire off some major bit of news on a Friday afternoon when it’s likely to get lost as reporters head home for the weekend, simply because that’s when he finished writing the press release or wanted to move on to something else. Jobs, by contrast, treated every presentation and media moment as precious. Musk simply does not have the luxury to work that way. “I don’t have days to practice,” he said. “I’ve got to give impromptu talks, and the results may vary.”
From there, his more fanciful ideas start to seem inevitable. “Elon is one of the few people that I feel is more accomplished than I am,” said Craig Venter, the man who decoded the human genome and went on to create synthetic lifeforms. At some point he hopes to work with Musk on a type of DNA printer that could be sent to Mars. It would, in theory, allow humans to create medicines, food, and helpful microbes for early settlers of the planet. “I think biological teleportation is what is going to truly enable the colonization of space,” he said. “Elon and I have been talking about how this might play out.”
That’s why I find Elon to be an inspiring example. He said, ‘Well, what should I really do in this world? Solve cars, global warming, and make humans multiplanetary.’ I mean those are pretty compelling goals, and now he has businesses to do that.”
“I’ve learned that your intuition about things you don’t know that much about isn’t very good,” Page said. “The way Elon talks about this is that you always need to start with the first principles of a problem. What are the physics of it? How much time will it take? How much will it cost? How much cheaper can I make it? There’s this level of engineering and physics that you need to make judgments about what’s possible and interesting. Elon is unusual in that he knows that, and he also knows business and organization and leadership and governmental issues.”
“I was there once, and Elon was talking about building an electric jet plane that can take off and land vertically,” said George Zachary, the venture capitalist and friend of Musk’s. “Larry said the plane should be able to land on ski slopes, and Sergey said it needed to be able to dock at a port in Manhattan. Then they started talking about building a commuter plane that was always circling the Earth, and you’d hop up to it and get places incredibly fast. I thought everyone was kidding, but at the end I asked Elon, ‘Are you really going to do that?’ And he said, ‘Yes.’”
Page holds Musk up as a model he wishes others would emulate—a figure that should be replicated during a time in which the businessmen and politicians have fixated on short-term, inconsequential goals. “I don’t think we’re doing a good job as a society deciding what things are really important to do,” Page said. “I think like we’re just not educating people in this kind of general way. You should have a pretty broad engineering and scientific background. You should have some leadership training and a bit of MBA training or knowledge of how to run things, organize stuff, and raise money. I don’t think most people are doing that, and it’s a big problem. Engineers are usually trained in a very fixed area. When you’re able to think about all of these disciplines together, you kind of think differently and can dream of much crazier things and how they might work. I think that’s really an important thing for the world. That’s how we make progress.”
It’s funny in a way that Musk spends so much time talking about man’s survival but isn’t willing to address the consequences of what his lifestyle does to his body. “Elon came to the conclusion early in his career that life is short,” Straubel said. “If you really embrace this, it leaves you with the obvious conclusion that you should be working as hard as you can.”
Musk has talked about having more kids, and it’s on this subject that he delivers some controversial philosophizing vis-à-vis the creator of Beavis and Butt-head. “There’s this point that Mike Judge makes in Idiocracy, which is like smart people, you know, should at least sustain their numbers,” Musk said. “Like, if it’s a negative Darwinian vector, then obviously that’s not a good thing. It should be at least neutral. But if each successive generation of smart people has fewer kids, that’s probably bad, too. I mean, Europe, Japan, Russia, China are all headed for demographic implosion. And the fact of the matter is that basically the wealthier—basically wealth, education, and being secular are all indicative of low birth rate. They all correlate with low birth rate. I’m not saying like only smart people should have kids. I’m just saying that smart people should have kids as well. They should at least maintain—at least be a replacement rate. And the fact of the matter is that I notice that a lot of really smart women have zero or one kid. You’re like, ‘Wow, that’s probably not good.’”
By 2025 Tesla could very well have a lineup of five or six cars and be the dominant force in a booming electric car market. Playing off its current growth rate, SolarCity will have had time to emerge as a massive utility company and the leader in a solar market that had finally lived up to its promise. SpaceX? Well, it’s perhaps the most intriguing. According to Musk’s calculations, SpaceX should be conducting weekly flights to space, carrying humans and cargo, and have put most of its competitors out of business. Its rockets should be capable of doing a couple of laps around the moon and then landing with pinpoint accuracy back at the spaceport in Texas. And the preparation for the first few dozen trips to Mars should be well under way.
Musk, of course, also sees this space Internet as key to his long-term ambitions around Mars. “It will be important for Mars to have a global communications network,” he said. “I think this needs to be done, and I don’t see anyone else doing it.” SpaceX will build these satellites at a new factory and will also look to sell more satellites to commercial customers as it perfects the technology. To fund part of this unbelievably ambitious project, SpaceX secured $1 billion from Google and Fidelity. In a rare moment of restraint, Musk declined to provide an exact delivery date for his space Internet, which he forecasts will cost more than $10 billion to build. “People should not expect this to be active sooner than five years,” he said. “But we see it as a long-term revenue source for SpaceX to be able to fund a city on Mars.”
I’m also more convinced than ever that Musk is a deeply emotional person who suffers and rejoices in an epic fashion. This side of him is likely obscured by the fact that he feels most deeply about his own humanity-altering quest and so has trouble recognizing the strong emotions of those around him. This tends to make Musk come off as aloof and hard. I would argue, however, that his brand of empathy is unique. He seems to feel for the human species as a whole without always wanting to consider the wants and needs of individuals. And it may well be the case that this is exactly the type of person it takes to make a freaking space Internet real.
“Square is doing the wrong version of PayPal. The critical thing is to achieve internal transactions. This is vital because they are instant, fraud-free, and fee-free. If you’re a seller and have various options, and PayPal has the lowest fees and is the most secure, it’s obviously the right thing to use.
Rather insanely, NASA is building a next-generation, giant spaceship that could one day get to Mars even though SpaceX is building the same type of craft—the Falcon Heavy—on its own. NASA’s program is budgeted to cost $18 billion, although government studies say that figure is very conservative. “NASA has no fucking business doing this,” said Andrew Beal, the billionaire investor and onetime commercial space entrepreneur. “The whole space shuttle system was a disaster. They’re fucking clueless. Who in their right mind would use huge solid boosters, especially ones built in segments requiring dynamic seals? They are so lucky they only had one disastrous failure of the boosters.” Beal’s firm criticisms come from years of watching the government compete against private space companies by subsidizing the construction of spacecraft and launches. His company Beal Aerospace quit the business because the government kept funding competing rockets. “Governments around the world have spent billions trying to do what Elon is doing, and they have failed,” he said. “We have to have governments, but the idea that the government goes out and competes with companies is fucking nuts.”
As for the origins of the Model S name, Musk said, “Well, I like calling things what they are. We had the Roadster, but there was no good word for a sedan. You can’t call it the Tesla Sedan. That’s boring as hell. In the U.K., they say ‘saloon,’ but then it’s sort of like, ‘What are you? A cowboy or something?’ We went through a bunch of iterations, and the Model S sounded the best. And it was like a vague nod to Ford being the Model T in that electric cars preceded the Model T, and in a way we’re coming full circle and the thing that proceeded the Model T is now going into production in the twenty-first century, hence the Model S. But that’s sort of more like reversing the logic.”
We will end up launching the third-generation car into a world where this charging network is free and ubiquitous. It bugs me when people compare us to a car company. The cars are absolutely our main product, but we are also an energy company and a technology company. We are going down to the dirt and having discussions with mining companies about the materials for our batteries and going up to commercialize all the pieces that make up an electronic vehicle and all the pieces that make an awesome product.”
No, really. Both Lyndon and his wife play underwater hockey and used these skills to secure green cards, meeting the criteria for the “exceptional abilities” the United States desires. They ultimately played for the U.S. national teams.