Ross Schulman

Bitcoin is Getting More Boring, and That May be a Good Thing

by Ross Schulman on March 28, 2013

The Bitcoin community has been up in arms again the past few weeks, but I’m not convinced that it’s for a good reason. The agency of the U.S. Treasury Department charged with organizing the fight against financial crime and money laundering, the Financial Crimes Enforcement Network (FinCEN), released a “guidance” on March 18th, targeting virtual currencies. Clearly this guidance is aimed at Bitcoin. While there have been outcries on various comment boards from people enamoured of Bitcoin and inherently suspicious of anything with the word “government” attached, this guidance may well be the best thing to happen to Bitcoin in a long time.

The mark of any early disruptive technology has to be the moment when the government perks up its ears and begins to take action to bring the technology under its supervision. You can learn a lot about the future of that technology by how the government goes about this. A technology that sees the government seriously limit or ban its use will live a different life than one where the government takes a light touch. Despite the panic of the more libertarian wing of the bitcoin movement, FinCEN’s guidance seems like it is firmly in the latter category. Indeed, as Timothy Lee mentions in a piece on Forbes, government regulation may be a good sign for Bitcoin.

The new guidance spells out who in the Bitcoin community will be bound by federal laws that require “money transmitters” to collect certain information about their customers, for the purposes of fighting money laundering. (By the way, if the topic of money transmitters interests you, Ali wrote about Square’s regulatory issues a few weeks ago.) The good news is that FinCEN stated the obvious and said that in virtual currencies, just as in real currencies, average users who buy things with the currency are not subject to FinCEN’s regulations. Just as obviously, the guidance states that individuals or companies that exchange bitcoins for non-virtual currency are money transmitters in the same way as banks that deal with converting non-virtual currencies are.

More to the point, the guidance places Bitcoin on the same range as non-virtual currencies.  If I sell my friend 5 BTC, FinCEN isn’t going to get involved anymore than if I sold him the leftover €5 I had from my trip last week. These sorts of low level private exchanges, while they may be technically under the rule, aren’t what concerns FinCEN.

As a quick aside, the new guidelines are not specific to Bitcoin and claim to sweep in all virtual currencies. It will be interesting to see how, if at all, these regulations apply to the virtual currencies that are used in video games. Particularly in some of the larger massively multiplayer games, the in-game currency is broadly used to buy goods (if only virtual ones), and at least in the case of the currency ISK from CCP’s game Eve Online, the company tacitly allows transfers into and out of the currency from real world money through a somewhat convoluted system.

The big question left from the FinCEN guidance concerns the “miners” that do the work that powers the Bitcoin network and are rewarded by receiving newly minted bitcoins. As it stands in the recently received guidance, miners in the system are considered money transmitters only insofar as they sell the bitcoins they mine. If they keep those bitcoins to be used as their own, they are not. This part of the regulation I’m less comfortable with, but again a lot will depend on how it is implemented in the real world.

Just a few days ago Reuters ran an article on Bitcoin, entitled “Bitcoins Need More than Fear and Love to Thrive” in which the author argues that jolts to the stability of Bitcoin are coming about because fear and love are the forces driving it. The author ends the article by saying that “Bitcoin’s success depends on it becoming more of a bore.” I can’t think of anything more boring than FinCEN regulation.

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Terms of Service Revisited: Docracy’s ToS Tracker

by Ross Schulman on February 6, 2013

The Verge pointed out in a blog post today a new service from one of my favorite websites, Docracy (a website that takes a GitHub approach to drafting contracts? How could that not be a straight shot to my heart?). I hadn’t heard of the service yet, and it fits neatly into a series of posts [1, 2, 3] that Rob, Matt, and I wrote around a month ago. As The Verge details, the service scrapes a large number of terms of service every day, stores them, and highlights changes.

The Verge sees the opportunity here for people to catch companies who silently change the terms that bind their users, and that’s true. This service, though, can also serve to help the competition in terms of service that we were discussing in our previous blog posts. Companies that are proud of their terms should start linking to their page at Docracy to show that they will be transparent about how and when their ToS change.

Any companies that wanted to take it to the next level could use Docracy as a collaborative space to design changes to the terms alongside their users, allowing them to propose changes and discuss their impact. The end result would clearly not necessarily be the result of that collaboration, but companies that even went so far as to have the discussion would get plenty of points with discriminating users.

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In Defense of Legalese in Terms of Service

by Ross Schulman on January 7, 2013

Last week, Rob Pegoraro posted here on Project DisCo on some things companies should think about when writing and revising their terms of service. Rob offers great advice, including giving plain English descriptions of provisions in the terms and offering red lines to users when terms do change. I wanted to elaborate on Rob’s post, however, because I think it’s worth countering the “legalese-is-always-bad” idea that was a little implied by his post (although I don’t think he necessarily believes in that idea).

Terms of service are important for two big reasons. One Rob talked about yesterday, and that is to clearly communicate to your users how the service operates and what they can expect. The other, though, is to form the language of a contract between the service provider and the user. In that second context, legal language like we see in many terms of service is actually of importance, as it would be in any complex contract. The language of the terms of service binds the provider, and savvy companies can use it to distinguish themselves from one another.

There can be no doubt that some companies have been known for using their terms of service to force unfavorable conditions on users. By contrast, however, some companies today are learning that terms of service can be used to highlight good policies and convince potential users that they bind the provider just as much as the user. In other words, terms of service that respect users and give them rights are just another way that companies can compete with one another.

To give an example, Personal.com, a startup based right here in Washington, DC, has a policy that users own the data that they upload to the service. Now, their website could (and does) just give that information in plain English, and that will help convince some users and might even stand up in court. But they also have a fairly detailed terms of service and privacy policy that gives legal descriptions of how they handle the data you give them (note that they also take Rob’s advice from yesterday and explain everything in easy to understand language). The legalistic and detailed language that we often see in terms of service gives everyone involved the benefit of knowing that the language is part of a contract and binds the company, giving potential users a feeling of security that encourages them to use the service.

The plain English helps everyone understand this new difference, but the legal phrasing gives it the image of teeth that people expect from binding contracts, and that image enables competing on how well you treat your customers.

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The ITU, Internet Control, and Competition

by Ross Schulman on December 21, 2012

Clearly the Internet isn’t fundamentally necessary to the sort of competition we like to talk about here on a regular basis, but there can be no doubt that a free and open Internet with low barriers to entry encourages the sort of business approaches that lead to disruptions in markets. That’s why so many of the companies we talk about here are Internet related, and why we have been closely tracking the ITU’s World Conference on International Telecommunications (WCIT).In fact, I was there for the past two weeks as a part of the United States Delegation (these thoughts are my own, of course, and I’m not speaking for the US government), and blogged here at DisCo about some of the proposals a while ago.

The WCIT was a forum for the UN’s International Telecommunications Union to review one of its underlying treaties, the International Telecommunications Regulations (ITRs). The ITRs were written in 1988 and addressed low level questions of interconnection between international telephone and telegraph networks, including such details as who should pay who. This year, however, the ITU called a conference to update that treaty and some governments saw it as a chance to achieve what they had so far been unable to do: gain more control over the workings of the Internet. For a great behind-the-scenes look at what happened at WCIT, check out Eli Dourado’s summary over at Ars Technica from yesterday.

The final treaty text has a few provisions that cause concern for competition on the Internet. Mostly they give license to countries that already are looking for ways to control content on the Internet. For example, the treaty now has language on spam and cybersecurity in it, both of which clearly address the question of content of communications. We also gave you an update during the conference on the Internet-related provisions in the treaty. When governments get tacit permission to start toying with traffic across the network based on its contents, all sorts of evils become possible.

The Internet is such a great force for disruption because it is flat and open. Gatekeepers are not able to keep out smaller competitors, which forces all the parties to work to make a better product instead. When governments have international blessing to start investigating the contents of communications, they start picking winners and losers and disruption is often sacrificed.

That’s why it was great to see the US and many other nations refuse to sign the resulting document. While not a perfect resolution to the conference, the US government did a lot to keep the worst of the worst out of the treaty. Still, vigilance on this topic is of the utmost importance. The WCIT was just one battle in an ongoing war between those who prefer governments to control everything on the Internet and those who believe in an open and free exchange of ideas. We will be there to fight those future battles and we hope the Internet community will be too.

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New Apple Patent Takes Wrong Approach to Privacy

by Ross Schulman on November 9, 2012

Apple was recently granted a patent for a system that would make a cell phone respond to specific signals sent to it by disabling certain features or by disabling the phone entirely. For example, a movie theater could (if it hated its customers) turn off the cameras on all the phones in its theater to prevent really poor recordings of new movies getting out. Of course, the obvious problems start cropping up immediately.

Oppressive governments could use the system to turn off all cell phones when and where protests were being planned. Come to think of it, so could San Francisco’s Bay Area Rapid Transit system. Similarly, police officers who aren’t too keen on having the public record them (rather than the other way around) could use such a system to turn off the cell phone cameras of anyone that can see them at a given time.

Apple seems to be claiming that the technology is actually privacy protective, in that people could create areas of space in which cameras or social networking would not function for example. This entire idea of privacy, of course, is faulty. Even if we could technologically completely prohibit others from documenting our presence or our actions in public, this is not the kind of privacy that people actually want or should have the right to have. I don’t have the right to ask every person I pass on the street to please forget they ever saw me there. The delicate niceties of such interactions in private spaces, on the other hand, are better handled with the scalpel of customary norms than the sledgehammer of technological mandates.

Of course, the greater failure of this proposed system is actually its one saving grace: competition. Even if Apple implements this system in all of its next generation phones, people who don’t want their devices to be able to be crippled at the whim of a random person will simply buy Android or Windows phones instead. Ubuntu Linux is also exploring the possibilities of running their OS on tablet computers as well. Since both Android and Ubuntu are open source, it seems obvious that options will always exist (short of legislation mandating such) that can get around this sort of ubiquitous control. This is to say nothing of actual physical cameras (separate from phones), as antiquated as that idea is starting to sound. The only way to enact such a system is the same way to achieve perfect control over copyrighted materials: remove the power of people to have complete control over the electronics they buy. Even then, the “analog hole” still remains. I can still take a photo of you with a 35mm film camera and upload it later.

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ETNO’s ITU Proposal Threatens to Raise the Cost of Innovation on the Internet

by Ross Schulman on September 24, 2012

Lots of people have heard about the upcoming World Conference on International Telecommunications (WCIT) at the International Telecommunications Union, and how it may serve as a forum for repressive governments to gain some measure of control over the underpinnings of the Internet at the expense of more open multi-stakeholder forums. There are a number of different resources available for those who are curious or concerned about that process and I’m spending a lot of my time here in Washington working on fighting against that outcome. One of the other proposals that may come up at the WCIT, however, doesn’t raise the specter of government control of the Internet and yet could pose a serious threat to disruptive competition in the marketplace. That proposal is from the European Telecommunications Network Operators Association (ETNO) and it calls for what is generally known as “sending party pays.”

We already know what sending party pays is, because it’s how telephone calls work, both domestically and internationally. Whoever picked up the phone and dialed the number pays for the call; the recipient does not (other than any monthly fee he or she already pays). In the world of international termination of telephone calls, what it means is that the network that originates a call pays the network that receives the call for the use of the circuit carrying the call. In nearly all circumstances of course, the network operator then passes that cost on to the customer making the phone call. The ETNO proposal would take this means of accounting and apply it to the Internet. Internet users would be required to pay recipient networks to which they wanted to send information. ETNO claims that this payment would recoup the expenses they incurred building out the network and make possible future expansion.

Unfortunately, ETNO’s proposal betrays a stunning lack of understanding in how the Internet actually works. They complain that there is a category of users (they refer to them as Over the Top players but you and I know them simply as the services that make using the Internet worth it) who they say are not contributing to network investment. Of course, the websites and services we use every day are contributing massively to network investment. At the very least services must pay their own Internet Access Providers for the bandwidth they use in delivering their service. Content delivery networks are also busy spending large amounts of money to build out server clusters around the world to better serve video and image content to users. MORE »

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Bitcoin’s Imminent Arrival

by Ross Schulman on September 5, 2012

A couple weeks ago I pointed to the disruptive potential of Bitcoin, a currency and value exchange that used peer-to-peer and cryptographic technologies to disrupt the currency and payment marketplaces. At the time I was left wondering how you might be able to tell when something like Bitcoin had “arrived.” Obviously when everyone started using it to buy their morning coffee, you might have a clue, but a few different stories breaking over the past weeks have given some subtler signs.
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Bitcoin and Disruptive Currencies

by Ross Schulman on July 30, 2012

Ars Technica reported earlier this month that Bitcoin, the open source cryptographically secured alternate currency, was back to trading at 9 US dollars per bitcoin. The currency had experienced a bubble last year, trading as high as almost 30 USD before crashing spectacularly. Since then, however, it has regained stability and traded within a fairly small range around 5 USD. If Bitcoin can keep its stability, what might it mean for disruptive competition?
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Neo-Luddite Nonsense: The Manufactured Controversy Surrounding Digital Maps

by Ross Schulman on June 21, 2012

Apple’s newly-announced iOS map app, Microsoft’s Bing Maps, and Google Maps all contain imagery taken from above by planes and satellites that give us all a real-life bird’s eye view of the maps we look at.  Users can get a better idea of where they’re going of course, but there are plenty of other uses as well.  Fears are generally overblown (especially when balanced against the enormous benefits associated with more detailed mapping technology), and largely driven by misconceptions.

Recently, Senator Schumer gained a press hit by sending a letter to Apple and Google inquiring into their use of aerial photography in their maps products.  He expressed concerns about the privacy implications of the technology, claiming it could intrude into “intimate locations” such as backyards and pools.  His other concerns included the use of maps by terrorists and criminals “create more complete schematic maps of the power and water grids in the United States.”  Besides the baseless fear mongering,  his suggested “fixes” were even more impractical and included the suggestion that companies “provide notification to communities” when they plan to conduct mapping updates.  While I’m sure the junk mail industry would be thrilled, I don’t think Americans want an announcement every time a plane takes photos of their house from 35,000 feet.

With due respect to the Senator, this is silly to begin with.  The photographs taken from these planes and satellites can indeed see into backyards, but the resolution involved makes people, even those lying by the pool, into nothing more than blobs of color.  Out of curiosity, I pointed Google Maps at my local community pool, and sure enough there are people there enjoying the sun. I could even be one of them, but of course there’s clearly no way to tell, even at the highest zoom level (click on the image for the full size version).

Schumer’s faux outrage and desire to rewind progress in online mapping industry over fears that do not even accurately reflect the capabilities of the technology threaten incredibly useful innovation.  In fact, the U.S. Geological Survey itself produces aerial imagery and makes it available to the public at no cost.  Besides direction-finding, it can also have other high-value uses, such as in property development and disaster recovery. Google helped rescue workers after the Japanese tidal wave and the Haiti earthquake by providing aerial imagery. Carl Franzen, writing in Talking Points Memo, recently described how maps (and competition in the maps space) benefit users. He writes:

“I think that it’s exciting for the industry,” said Terry Keating, the chief technology officer and senior VP at digital mapping and surveying company AeroMetric, in a phone interview with TPM. “It adds to the overall thirst for more and more details.”

Specifically, Keating said that his firm’s primary customer base — railroad and highway engineers, plant operators and other infrastructure project managers — would be prompted by the new detailed 3D maps of metropolitan areas offered by the likes of Google and Apple to request site-specific 3D renderings of pipelines and power or production plants, renderings that must be far more accurate than those provided by Apple and Google for the consumer market.

In addition to the exaggerated privacy concerns, some have raised the specter of drones (or autonomous flying vehicles) in the context of this conversation. Such a comparison is specious at best — none of the companies use drones to take their aerial photography at the moment. However you come down on the privacy implications of drones (and that’s certainly a blog post for another day), these aren’t the drones you’re looking for.

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Big Data, Big Opportunities

by Ross Schulman on June 13, 2012

In my last post on Do Not Track I pointed briefly to an article that ran recently in the New York Times about “Big Data” and some of the ways in which people are starting to employ these new databases and pieces of software. The article is so interesting that it deserves to be highlighted on its own, however. Some of the examples listed in the article are textbook cases of the disruptive potential of big data and the importance of being very careful about regulating in the area of privacy.

(Not 100% clear on what “big data” is? Check out this great infographic from HP-owned Autonomy via Venture Beat that can help provide some insight.)

The companies listed in the article all share a fundamental similarity, which is that none would exist if not for today’s explosion of innovation in the data storage and analysis marketplace. The results in most cases have been to disrupt existing business models and to create entirely new ones. Amazon.com took its vast stores of data about what people viewed and bought on its site and completely revolutionized how we learn about new content we might enjoy. That’s just one example of how big data changes businesses and our everyday lives.

In this vein, another recent publication worth checking out is a paper by Omer Tene and Jules Polonetsky called “Privacy in the Age of Big Data: A Time for Big Decisions.” Omer and Jules examine the same trends as the New York Times article, highlighting the value of big data. Access to all this information, they say, “driv[es] innovation, productivity, efficiency, and growth.” MORE »

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