Helium, ‘useful crypto’ and why it matters

‘Blockchain’ is mostly bullshit. The Helium Network is the first example I’ve found of using crypto to build a real world application. I think it paves the way for a whole new paradigm for building public infrastructure. 

This article was spurred by the interview that Horace Dediu and Oliver did with Amir Haleem for the Critical Path/Micromobility podcasts, which can be found here. 

What is crypto good for?

While Bitcoin has strived to new highs in 2021 thanks to the ‘digital gold’ narrative, with investors seeking a hedge amid fears of a great monetary inflation, digital gold isn’t much use to most businesses on a daily basis. Eleven years after blockchain was invented, most ‘crypto’ applications are still largely detached from the real world. The ‘DeFi’ community is small and growing but still mostly serves as a casino for cryptonatives, and while NFTs are interesting and hold great potential, they don’t offer any real utility to the average person.

This state of affairs leads critics to say things like, “Honestly, cryptocurrencies are useless. They're only used by speculators looking for quick riches, people who don't like government-backed currencies, and criminals who want a black-market way to exchange money.”

For those involved in the blockchain space who see its immense potential, comments like that feel short-sighted and deeply frustrating, but how do you explain to a non-crypto native what blockchain is actually useful for?

Enter Helium. 

Permissionless, crowd-sourced public goods

Helium is building a permissionless, global wireless network that’s owned and operated by its users - aka “The People’s Network”. The goal is to make it simple and cheap to reliably connect devices to the internet anywhere in the world. And it’s working. In just 18 months, users have added 50,000+ Helium nodes or ‘Hotspots’ to the network in 3800+ cities around the world, and Helium now has the most coverage of any LoRaWan network in the world, and are looking to add new types of connectivity (Wifi, 5G) to their network in the coming months.

Despite the core Helium team spending almost nothing on advertising, thousands of new devices are connecting to the network each week, and there are several hundred thousand more Hotspots on backorder. So what makes this rapid infrastructure growth possible, without incurring massive debt?

You guessed it: crypto. 

Anyone plugging in a Helium Hotspot currently earns Helium Network Tokens (HNT) for providing coverage and facilitating data transfers. The increasing scarcity of the tokens has set off a 'land grab’ for coverage, with miners often paying off their Hotspots in the space of a few weeks with HNT tokens that they generate from being in a ‘useful’ location to the network (ie. highly populated). The tokens generated are owned by those who have done ‘work’ to contribute to the network build out and ongoing coverage, and a blockchain is used to track who owns them. As the network grows, it becomes a viable platform to build IoT solutions on, and as it gets more usage and tokens are consumed to fuel this, more coverage is incentivised to come online.

Those involved aren’t interested in shilling some meme coin. They’re involved to build a cheap, reliable global wireless network that anybody can use to connect to the internet without permission. At the same time, tokenomics and the distributed ownership of the Helium network create strong incentives for anyone who owns Helium Network Tokens (HNT) – like me, for example – to help grow the network and educate others about it. That’s a goal I’m excited to contribute to, but more importantly, it’s an everyday use-case that most people care about, whether or not they have even heard of blockchain.

A revolutionary business model

Helium is doing something that’s never been done before –  building a global public good from scratch, using crowd-sourced hardware, software, and funding. Take a moment to think about the revolutionary shift this represents for the legacy world. There’s no government funding the build out, nor a giant corporation clipping the ticket, monopolising profits, or deciding which areas deserve service and who does or doesn’t get to use the network. No one has accrued the massive debt typically associated with building a wireless network. And if the network goes down in one area due to regulatory capture, technical failure, or environmental disaster, the rest of the network will simply carry on as before.  

The crypto-magic that makes this possible is creating incentives that transcend traditional structures. In the past, someone working to ‘help’ build out a network would need to be employed by the company driving it. A companies ability to ‘buy’ this support was limited by their resources. Now, anyone who wants to help can simply buy a miner or start selling connectivity solutions to companies on the Helium platform without needing permission.

The result is a project that is totally asymmetric to anything else in the telco industry - Helium has 50,000+ users in their Discord chat that are all incentivised to cooperate, teach each other and make the collective project (and their own HNT holdings) bigger and more valuable. Most of them happen to be employed in another ‘job’. No one company can compete with that.

Helium is an example of this new model of cooperation to build new infrastructure: it didn’t start with a crypto hammer and go looking for a nail to hit. It looked around for ways to incentivise a group of people to achieve a collective goal and realised over time that a blockchain with crypto-tokens was the best – we would argue the only – way to achieve its mission.

At the moment, the Helium buildout is focused on a wireless protocol called LoRaWAN. This offers a very cheap way to connect low-power, low data devices to the internet. It’s ideal for Internet of Things (IoT) devices like water meters or location tags, and for industries that use IoT devices, like micromobility (e-bikes and scooters). But the network’s usefulness is not limited to low-fi devices:  Helium 5G is also coming down the pipeline in the US thanks to a partnership with FreedomFi.

It’s the first ‘useful crypto’, but it won’t be the last.

Future forward

Helium is rapidly proving that a distributed network of strangers can fund, build, and operate a public utility, cooperating thanks to blockchain and the crypto-economics it enables. But more than that, it’s providing significant economic benefits to the people helping build the network as the value of the network token increases with the network’s utility. So what else could we achieve with this model if we set our minds to it? What other local, national, or global public goods might it be possible to crowd-source? Could we do something similar with transport, health, or education services?

The Helium story shows that crypto is more than just useful. In fact, in the coming years it might be critical to both building public utilities and distributing the economic benefits from them to the people who are doing the work.

The People’s Network: Helium, the future of mobile wireless and why it matters

By Oliver Bruce

If you like the idea of a cheap, permissionless, global wireless network owned and operated by the people, you’ll like Helium.

Helium has set itself an ambitious goal: to build a reliable, ubiquitous, global wireless network that’s owned and operated by the people – aka ‘the People’s Network.’ So far, progress is good. In just 18 months, Helium has built a functional network of more than 46,000 wireless ‘Hotspots’ in over 3800 cities around the world (here’s a global coverage map). That makes Helium the world’s largest LoRaWan network already, and it’s just getting started. There are 200,000 more Hotspots on back order and according to Helium CEO Amir Haleem, there’s a “strong forecast” for a network of 600,000 by late 2022. And all this has been achieved with virtually no advertising spend. At this rate, it’s plausible Helium could achieve its goal of ubiquitous, global LoRaWAN coverage in the next few years.

Thanks to crypto-economics and an energy-efficient blockchain design, Helium enables permissionless, low-bandwidth connectivity for Internet-of-Things (IoT) devices up to 100x cheaper than legacy networks.  And in April 2021, the community voted to begin 5G integration, so Helium’s now in the race to be the world’s first consumer-owned 5G network. At time of writing, the Helium market cap stands at US $1.3b, and the Helium Network Token (HNT) is trading at ~$15. 

The (broken) legacy model of wireless infrastructure

The core innovation driving Helium’s rapid growth is its network business model. To see what I mean, first consider the legacy telco model that Helium is disrupting, which is centralised and proprietary. 

For traditional telcos, building a large wireless network is extremely complex and expensive. Before you have any customers or revenue, you have enormous outgoings. First, you have to buy exclusive rights to broadcast spectrum to protect your future business. Next you have to develop and deploy a widespread network of proprietary hardware to operate only in that spectrum, including  buying or leasing real estate to host the hardware. In parallel, you have to develop proprietary software to run the system. Throughout, you need to ensure regulatory compliance, potentially across multiple local jurisdictions with overlapping or inconsistent requirements. 

The vast capital needed to build a wireless network this way is often financed through debt. That means traditional telcos have to charge a premium for wireless services and lock customers into long contracts to guarantee revenue. So attracting new customers can be slow, as well as incurring additional costs from advertising and offering incentives to get users to switch providers. Overall, building a centralised, proprietary wireless network is slow, inefficient, and very capital intensive. 

Once the network’s up and running, the high costs continue, with large operational outgoings for staffing, maintenance, and regulatory compliance. In 2021, the estimated capex for AT&T and Verizon, key players in the US wireless market, is US $21bn and $18bn respectively. And according to US census data for 2008-17, the ‘information’ industry saw the largest increase in capex of any sector, in both absolute and percentage terms (53.5%).

An example of how this inefficiency negatively affects other businesses is IoT. Despite years of hype from IoT developers, we still don’t have the cheap, reliable wireless coverage needed to build large-scale IoT networks. WiFi requires custom device configurations and offers limited range, and cellular is prohibitively expensive and energy intensive. Connecting a single IoT device via cellular can cost up to $10 a month, and high energy use means an impractically short battery life for small IoT devices. 

As a result, only a small niche of businesses – those with a lot of capital and a mission-critical need for real-time communications – have built reliable IoT networks, and those who have built them aren’t inclined to open them up to others. In fact, existing IoT networks tend to use proprietary software and/or hardware that prevent interoperability. The result is the fragmentation of IoT protocols, standards, and infrastructure that we have today, which means that many so-called smart devices end up staying dumb. 

That’s what led me to Helium.

Why Helium matters

Helium is not a meme-coin. It uses blockchain to offer practical, real-world solutions for end-users, offering value to both crypto-natives and legacy businesses. As Mozilla CEO Mitchell Baker observed, this kind of offering is crucial for the mainstreaming of blockchain.

I found Helium when was looking for low-cost connectivity solutions for personal micromobility (eg. privately-owned e-bikes and scooters). As an industry, micromobility is critical in helping fight climate change and making cities more liveable. E-bike sales have gone through the roof during the COVID-19 pandemic - but the primary issues with them are still theft and maintenance. This is where Helium can really help.   

A cheap IoT connection would make it possible to reliably track the location of an e-bike and perform remote shutdowns, making insurance much cheaper and deterring theft. Among other things, connectivity would also enable ‘smart repairs’, where an e-bike manufacturer would be able to  automatically alert an owner about a fault and order the necessary parts for a repair. Both applications would make micromobility more attractive to private users, helping reduce urban traffic and pollution. 

Helium makes this possible by delivering on the promise of cheap, reliable IoT connectivity. In fact, at up to 100x cheaper than legacy connections for low-power IoT devices, Helium makes it possible for manufacturers to build the cost of lifetime data use into the purchase price. (For a per-device cost estimate, check out the Helium data calculator.) That means devices will be ‘born smart’ and the owners never have to think about it – they just work. 

With demand surging for wireless connectivity across all sectors, Helium has a ton of real-world applications beyond micromobility. During the COVID-19 pandemic, Helium has been used to enable cheap, reliable contact tracing. It can help to remotely monitor the health of beehives, an essential part of healthy ecosystems. And research suggests the type of wireless infrastructure Helium is developing could even help to verify the dismantlement of nuclear weapons in a future disarmament process (albeit with an upgrade in protocol security!).

The network business model: Helium’s true innovation

As we mentioned above, the core innovation of the People’s Network is not the use of blockchain, but the decentralised business model. By distributing the costs and revenues of building and operating wireless infrastructure, Helium overcomes the barriers to building large-scale wireless networks that hamper centralised, proprietary businesses. Let’s break that down.

Open-source software, non-proprietary hardware

The adoption of ‘open’ hardware and software standards on the People’s Network has helped to radically reduce development and deployment costs. Helium has chosen an existing, open-source wireless protocol, LoRaWAN, for its first network. It is a relatively mature wireless technology that offers long-range coverage (measured in miles) with minimal power use, allowing long battery lifes in low-power IoT devices. 

Choosing an open-source wireless protocol means there’s already a worldwide community of software and hardware developers building solutions that are adaptable to the Helium network. More than 40 companies are already working on Helium-compatible devices and solutions, with more added every day. The People’s Network is permissionless, so any LoRaWAN-enabled device can connect, and anyone can build and deploy on the network without having to consult the Helium core team.

Helium also uses a non-proprietary standard for hardware production. Multiple third-party manufacturers are now building Helium-certified Hotspots (the nodes of the Helium blockchain), leaving the Helium core team to focus on defining the required specs and ensuring device compliance. Hotspots are privately owned and operated by network participants and cost around US $350-500 depending on the region, brand, and model, with Hotspot owners using their own broadband connections to provide backhaul connectivity. All this means the Helium team has extremely low costs related to hardware development and deployment, while the non-proprietary hardware standard drives competition and cross-pollination of ideas among third-party providers.

Finally, the distributed business model of the People’s Network will become more and more compelling with each new generation of mobile wireless (5G, 6G etc.). For technical reasons, each new generation requires more physical base stations to provide the same geographical coverage. That means that for centralised, proprietary operators, up-front capital requirements and operational costs will get higher, not lower, over time. Seen in this light, the Helium rollout of 5G – the current battleground in the high-value mobile business – will be an important test of whether we stick to the centralised infrastructure of old, or opt for a more efficient, reliable, decentralised design.

Strong tokenomics and network effects

While open hardware and software standards keep costs very low, tokenomics and network effects create strong financial incentives to actually build and use the People’s Network. In combination, these factors have driven Helium’s rapid, organic growth without needing to market itself. 

The Helium network uses a custom consensus mechanism called ‘proof-of-coverage’ to verify that Hotspots are operating correctly. This allows a Hotspot host  to ‘claim’ an area and then ‘challenge’ the nodes around it to prove that both are providing quality coverage. Since proof-of-coverage is needed before users will pay to use the network, the Helium protocol rewards Hotspot owners with the Helium Network Token (HNT) for participating in proof-of-coverage challenges, as well as for actually transmitting data for end users. 

These two HNT-earning mechanisms create a positive feedback loop between immediate financial gains and strong network effects, helping drive rapid network buildout. As more hotspots are deployed on the network, its geographical coverage grows, requiring more regular proof-of-coverage challenges that earn HNT for Hotspot owners. Meanwhile, expanding coverage and reliability, combined with extremely cheap data costs, are driving rapid adoption by end users. As user numbers increase, Hotspot revenues from data services also grow, further incentivising network buildout. 

Source: The Helium Flywheel by Tushar Jain

Tokenomics again drive growth here. To send data on the Helium network, you pay with data credits at a flat rate per kb, and to get data credits, you need HNT.  So as more devices enter the network, they create additional demand for HNT, helping sustain the token price. This also gives customers an incentive not just to use the network, but to help build it by deploying Hotspots of their own, thus earning the HNT they need to transact. As the practical value and operations of the network grow, so does the HNT price, so there’s a strong incentive to be an early adopter. 

This all leads to a very compelling economic case for Hotspot and HNT  owners. In mid-February 2021, with HNT trading at ±$4, James Fayal considered these dynamics and suggested HNT was “either going to be a 3 to 4 digit token or worth zero.” A month later, HNT was trading at $6.92, and Tushar Jain at Multicoin Capital – an early Helium investor – estimated the average time to full ROI on a $350 Hotspot to be about 10 days. Today, HNT is trading at ~$15. As Jain noted, the flywheel is spinning.

A new model for the network age?

The rapid, organic growth of the People’s Network shows that its model of user-owned infrastructure and blockchain integration has great potential in the wireless industry. For cryptonatives, it’s a no-brainer that resonates with the philosophy of decentralisation that helped create the crypto industry and makes sound economic sense. But for all the reasons above, it also has strong appeal for people in the legacy business world, who can see that it offers a cheaper, more robust, and more efficient way to build hardware and software networks. For end-users, it’s a form of financial empowerment that more evenly distributes the income generated through everyday interactions – income that previously accrued to giant, centralised corporations. With that in mind, it seems likely that as we build new businesses for the network age, others will explore how Helium’s user-owned model could provide these benefits in other areas. 

Thanks to Dr Lyndon Burford, Horace Dediu, Moira-Clare Donovan, Sam Bool, Winston Lazar, Raj Vaswani, Amir Haleem and others for their help, comments and suggestions.

What's at Stake? Why the Erasure Protocol is such a big deal (Part 2)

This is Part 2 of a two part series on the Erasure Protocol. Part 1 covers what it is and why it matters and can be found here. Part 2 covers what it’ll enable and the implications. 

SO!

In aggregate from Part 1 of What’s at Stake?, we established that: 

• Erasure’s fixes the collapse of the internet’s information market.

• it reduces the cost of bullshit discovery by pricing conviction.

In short, it makes it easier to work out if the information is true or not.

What does that actually enable in a practical sense? 

By lowering costs of engagement and friction, Erasure creates markets where we've never seen them before. 

To date, the first iteration of ErasureBay has been to source copies of 1930s New Yorker magazines, contact details of the lawyers who did Jeffrey Epstein’s deposition, a bunch of database building, CT scans of COVID patients lungs and more. 

It’s mainly just people playing, but it’s starting to get interesting.

As the market develops, new services for ‘selling’ information will emerge.

Here are a couple of examples of things that it *could* be used for: 

• Troll taxes for social media comments: If someone wanted to post a comment on social media or a newspaper article, they’d have to stake to be able to post. If it becomes costly to post things that are offensive, then people are likely rethink what they post, with the result being that it becomes possible to have more ‘constructive’ discussions given that both parties have skin in the game.

• Staked dating apps: On Tinder or Bumble, there’s a lot of ‘sorting’ through ill-fitting matches and dead-end chat conversations largely because daters don’t have much skin in the game. If they had the option to stake $20 which could be griefed if they were not respectful or trustworthy, it would be another signal that the dater has integrity, especially when compared against someone who doesn’t.

• A crowdsourced Climate X-Prize Fund: Jeff Bezos recently announced a $10B climate fund, with a focus on funding scientists, activists and nongovernmental organizations with grants to be issued starting in summer 2020. Given the scale of the funds, they’re inundated with applications. The personnel in the Climate Fund organisation could assign $20m for a staked, crowdsourced database of potential research and technologies to invest in, paying out anyone who contributes staked intelligence of interesting projects with rewards, allowing them to find previously undiscovered potential. It’d rapidly harness the intelligence of the crowd to find the most effective areas of investment, amplifying investment impact. 

• Due diligence marketplace: Bernie Madoff's Ponzi scheme was the largest in history. It was also 'an open secret...one of those situations where everybody knew except the people who needed to know.' There was a market failure because those who knew weren’t incentized to say anything, and those that did weren’t trusted. Savvy investors could seek red flags about companies they’re looking to invest in quickly and rapidly.

• Technical/code audits: Having skin-in-the-game will help avoid issues like the recent situation where user funds get locked up/lost. 

• Internal whistleblower markets at firms: a way for management to better uncover internal conflicts or abuse is by offering to pay to discover information that an employee has, using staking to incentivise skin-in-the-game. Merely the threat of malpractice being more easily discoverable is likely to improve behaviour.

• An Earn.com with griefing: The original Earn.com was a conceptually good idea: allow people to send someone famous an email with the recipient being paid only if they respond. It never took off, and I posit that it’s because it missed the other side of the equation, which was ensuring that the person responding also had skin in the game, and could be ‘griefed’ if they took advantage of it. It will monetise influencers in ways that we’ve not even conceived of yet.

Put all together, we’ll be able to stitch together models of the world that we can all agree are the ‘truth’ and then build a larger single metamodel of the best information in a way that is both true and able to evolve (thanks Fred Ehrsam for this conceptual idea). 

Further, as markets like the above get built out, the current model of search can be inverted. Instead of people having to search for information, information competes for people’s attention with the risk that it’ll be griefed thus increasing the ‘cost’ (and incentive) of getting it right.

Why does this matter

There are three primary reasons that I think that Erasure matters for building a better world: 

Firstly, it opens up high-trust interactions to wider groups. Erasure lowers the friction to a world that already exists for a small group of people. Anyone who’s had the luxury of working in a highly networked and trusting society where you can call your very smart and well-connected friends to vet someone or provide you reliable information has had a taste of what Erasure can offer. It substantially expands the group that you can do this with and cuts through the crap using a trust-pricing mechanism. 

Secondly, it flattens information marketplaces: It replaces workplace and university degree credentialism with staked conviction of ‘authenticity’ and truth. It allows the young, disadvantaged, ignored and unfairly discredited to at least be able to compete in the information economy alongside those who are more well connected in a ‘flat’ marketplace. I expect it to reduce the amount of rent-seeking those who are in positions of authority or privilege are able to demand respect. 

Say for example, you're a 22 year old math graduate who lives in Kampala, Uganda and has a job working in the Treasury Department. In your spare time, you have developed really good data and models for equities predictions in the Uganda Securities Exchange that are not currently covered by any analysts.

At the moment you cannot sell that trading information easily - it’s hard to connect to hedge funds who are based overseas as they have no reason to know who you are or how to trust you. You might not have anywhere near enough capital to be able to materially trade these predictions yourself but it’s plausible you could sell that information to someone who would find that information valuable on Numerai Signals eventually substantially unlocking both new revenue for you and new investment for Uganda.

Lastly, it allows us to collectively build ‘truth’ databases: Using these tools and knowing that the information we’re gathering is accurate means we can quickly crowdsource large generalised datasets with staked information that can be used as the basis of other calculations without needing to trust any centralized authority for that information. At its core, it’ll help us agree on a common set of facts that will help us ‘weaponise truth’ to help counter disinformation and fake news. 

The Case for the Numeraire (NMR) token

So, if you’re to believe the above, what is the case for the underlying token, and why would it have value? 

The supply of the token is fixed - there will only be 11 million tokens created in total of which 4.5m are currently circulating with the remainder sitting with the Numerai/Erasure team to be used to pay out Numerai tournament winners and help fund the development of the protocol.

Conceptually, I think of the token as buying usable access to the community that is built around it.

Intelligently, when Numerai was started, it assembled the largest group of machine learning specialists and data scientists by giving everyone at Kaggle free Numeraire tokens. Those users supercharged the early days of the hedge fund, and they’re now leveraging this ‘supply’ over into things like Numerai Signals. 

This has a natural tension tendency towards network effects in the sense that if the protocol is useful, then it’ll attract in more users who’ll use the tokens to utilise the talents of the community it has built around it. And it’s working - with 10x the number of NMR tokens staked in the last 8 months. 

From Olaf Carlson-Wee of Polychain Capital (when Numeraire was only being used for Numerai): 

“If the Numerai fund performs well, that should lead to more assets under management, which should lead to more revenue for Numerai’s general partner which should lead to higher payouts for the data scientists, which implies a higher Numeraire valuation.”

He says a good proxy for what a Numeraire should be worth (to either holders or speculators on secondary exchanges) is the value of all future payouts to data scientists on the Numerai platform.

Further, it will benefit from a growing scarcity over time as more and more people grief each other and tokens are burned (ie. removed from the supply). While only 3% of existing bids actually end up with a griefing process happening, a removal of 1-2% (assuming they’re not griefed at 100%) of the supply a year helps create further scarcity. 

As of writing, the token is valued at around US$19. With a circulating supply of around 4.5m of their 11m total released, that gives the project a valuation of around $85m. 

The total market for global market research industry turned over around $76B a year in 2018 (and this is quite narrowly defined definition of what could be done on Erasure). If 1% of that migrated to Erasure’s platform, we’d see $760 million per year in business transacted across the platform. Assuming that 25% of that gets staked as skin in the game for the information provided, we’d be looking at market demand of around $190m of NMR just for the year.

If the project continues to build new features and scale exponentially, it is not unreasonable to think that the overall Numeraire project would be valued at 5x annualized staked rate (across all use cases), or around $1 billion. If that was the case, the overall price per token would be in the range of USD$222, or 11x from current valuation. 

If the Numerai hedge fund on the Erasure protocol was to grow to eventually ‘manage all the money in the world’ as was Richard Craib’s stated aim when he launched Numerai, then we’d be looking at an even larger TAM. 

The world had around $75T in capital under management in 2018. If we assumed that they were generating fees of around 1% of AUM, that’s around $750B in fees paid to financial service managers a year. If Erasure/Numerai was to capture 10% of this through much superior returns to the market through their crowdsourced intelligence, and again, 25% of this was staked, the annual demand for NMR would be in the region of US$18.75B. With a valuation of 5x staked value again, we’d be at 447x in value from where we are today, or ~US$8.5k per NMR (based on full supply). 

And that’s just Numerai, without also adding the other services that would also generate demand for the Numeraire token (such as the other examples above).

I’m the first to admit that the above valuation sounds outlandish. I almost didn’t include it because I know that it’ll likely attract ‘wen moon’ eyerolling that I myself direct at others in the crypto space. But this project is building a service that already has paying customers, has traction, is hard to replicate with strong network effects in a world that is looking for ways to empower new lower-cost and crypto-enabled business models. 

There have been multiple calls for an more sophisticated NMR valuation model, but it’s yet to be built. I’m not sufficiently skilled to build it myself yet, but would be interested to collaborate.

I’ve got a few more points to make on Erasure/Numeraire but they’ll have to be for another day. In the meantime, would love to hear your thoughts and feedback. DM me on Twitter (@oliverbruce) if you want to talk further.

What's at Stake? Why the Erasure Protocol is such a big deal

This is Part 1 of a two part series on the Erasure Protocol. Part 1 covers what it is and why it matters. Part 2 covers what it’ll enable and the implications. 

What is Erasure and how does it work?

I think that the Erasure Protocol is going to be a big deal and you should pay attention to it. 

In fact, I’m so sure of it, I’d be willing to stake decent money on it.

Right now I can’t do that easily, but if the team there has their way, I will be able to very soon. And if it takes off, I think it’ll change the world as we know it. 

I haven’t yet found anybody articulating a sufficiently in-depth explanation for why Erasure’s potential is so big, nor its implications so profound, so I wrote this up for a few friends and thought I’d publish it more widely for others to read, question and critique.

I hope you like it and would love feedback - ping me at @oliverbruce on Twitter.

How do you know if something can be trusted?

Say you run a tours business to South America and some random person reaches out to you by email and says that they’ve discovered unicorns in Peru, and they alone can tell you how this is going to create a massive boon of unicorn tourism that will create massive profits for you.

However, you need to pay them $50,000. 

This, but a unicorn…

Your scam senses go off. Unicorns sound preposterous, but what if they’re right? Crazier things have happened.

Technically, you should buy it if you have a way to know the information will lead to the profits they claim but without *knowing* if it’s actually any good, you'll have to go and spend a lot of time researching who they are and whether you can trust them.

This research is a hassle and takes energy with no guarantees. You can’t know if you can trust their website with ‘quotes’ from satisfied customers called Steve, nor if the sites giving rave reviews aren’t just a scam themselves. Balanced against all the other options you have of how you can spend your time, the likelihood is that you just write it off as not a good use of your time and keep doing what you’re doing.

BUT if this same person emailed you and said they have the exclusive details about the forthcoming explosion in Peruvian unicorn tourism and the information will cost $50,000, but offer the following: 

• An easily verifiable history showing that they also discovered and sold information about flying narwals in Argentina and rainbow zebra’s in Tanzania, both of which have seen a massive boom in magical animal tourism,

• AND that they’ll lock the money you pay them AND $10,000 of their own money into a box with a remote controlled bomb that you can detonate for $2,000 anytime in the month after the transaction. 

The now infamous Argentinian flying narwals.

Image credit: FeartheFuzzyBear

Effectively, you and the seller are in a ‘Mutually Assured Destruction’ or MAD transaction - where you will both lose if what they give you is not what it says on the tin.

Chances are, you’d be far more willing to consider this offer, and thus we build a bridge of trust that enables a trade to occur. 

This is a solution to something deemed ‘market collapse’ or ‘the lemon problem’, and that turns out that that is a really big deal, but more on that later. Before we get there, we need to understand what is trust, and why does it matter. 

How do you know what you know? 

At the moment, if you want to find some information out, where would you go and find it? 

If you’re like me, for small stuff you’ll go to Yelp or Rotten Tomatoes or some sort of news site where you trust the journalists to know what they're talking about, or in the case of larger knowledge sets, to a university or company with expertise in that area.

Over time we’ve delegated trust to institutions like this to delineate for us what is or isn’t true. We extend trust to them because it offloads the mental lifting of having to assess the relative ‘safety’ of information in their area of expertise.

Practically speaking, if two people trust the same institution they can easily trust each other. 

If someone tells you that they’ve transferred money to your bank account, you check with them, and if they tell you it’s there, you can complete the transaction. Similarly, if you order an Uber and the car turns up, you know that that drivers been vetted, while they know your credit card is on file and they’ll be paid. These institutions work like iterative games - we build one way of trusting someone, and then continue to seek new ways to create additional links of trust with them and others over time (thanks to Flo for this insight).

Our ability to trade scales easily as long as you both have institutions that allow you to trust each other. It’s why trade, in general, is easier in countries with strong standards and rule of law. 

But establishing trust is expensive and only extends as far as the institution’s reach does. If you want to trade with someone who doesn’t have access to the traditional mechanisms of building trust - access to legal and banking services, credentialing from institutions that you can’t determine the quality of etc. - you’ll likely not bother, and instead try and find someone who has links to things you trust, so that you can feel ‘safer’ in engaging with them. 

The internet was a marvellous invention, in that it allowed anyone to publish anything they wanted online, going over the top of the ‘trusted’ institutions that had been the arbiters of information till that point.

As Alfred Whitehead said, “Civilization advances by extending the number of important operations which we can perform without thinking about them”. 

One example of how the Internet is turning upside down old mechanisms of trust is fake news. With the low cost of spinning up a website and appearing trustworthy, there is no or little cost to spreading disinformation. The old mechanisms that we used to trust no longer seem to be working as well as they did, and trust in our institutions is at an all time low. 

If you’re anything like me, you find yourself spending a lot of your time on social media trying to work out what’s going on and whether the information is actually accurate or not. This is dangerous, especially in the era of things like COVID, as we discover and distribute existentially important information. 

Trust is a prerequisite to doing business, and is immensely value-creating. But we still haven't found a way to create it that is truly digital-native. 

The important question is: how do we build tools that expand trust in each other? How can we use them to hold those who purport the ‘truth’ to account?

With that context, what is Erasure?

The Erasure Protocol is an information marketplace. It allows two people who don’t know each other to trade ‘true’ information. It does this by using a series of tools to build trust.

Rory Sutherland, Ogilvy vice chairman, TED superstar and an amazing thinker on perceived value, argues that there are three ways to establish trust: Reputation, pre-commitment, and reciprocation. (Again, thanks Flo for this ;).

Erasure offers all three through a series of smart contracts built upon Ethereum. 

1. Immutable Reputation: a user’s history of trading is there for all to see, including ratings and past mistakes in a way that can’t be deleted.

2. Pre-Commitment: requires the owner of the information to commit some of their own money to be locked up for a set amount of time in a process known as ‘staking’. Think of it as making a bet on the reliability of the information (‘I bet you $500 it’s correct’).

3. Reciprocation:  If the purchaser doesn’t like the information - it wasn't correct, not what they said it was, not adequate, etc - then they can pay to destroy the sellers stake through something called ‘griefing’. If they try and screw you, you can screw them.

At the moment, there are three projects that work on the Erasure protocol. 

• Numerai: The original project deployed on the protocol was the Numerai hedge fund. Users are given anonymised financial datasets on which they predict what will happen next. They stake their predictions with a bet on how accurate they are. If they’re right, they get rewarded in crypto currency. It’s now one of the largest weekly data science tournaments on the internet.

• Numerai Signals (formerly ErasureQuant): allows anybody to provide staked predictions for the stocks on the Russell 3000 for hedge funds to buy.

• ErasureBay: a generalised information market that lets anyone pay for any information they want on Twitter and have people stake money with their responses. 

So that's the nuts and bolts. If you want to understand more I highly suggest you go and check out the Placeholder VC thesis about Erasure or the Erasure blog, both of which have far better and in depth breakdowns of how it works.

Why is it significant? 

Erasure is important for two reasons - it fixes the collapse of the internet’s information market and it reduces the cost of bullshit discovery by pricing conviction.

Fixes the Collapse of the Internet’s Information Market:

In 1979, the economist Frank Akerlof won a Nobel Prize for identifying the ‘lemon problem’. It explained why information asymmetry results in a market collapse. 

He used the example of the second hand car market for ‘lemons’: If the car buyer has no information about the car they’re buying and the seller has a lot of information, and the average price of a second hand car is with a certain price range, then the buyer can’t know if the seller is giving them a ‘good’ car, or a ‘bad’ car for the price. 

Because the buyer cannot determine the quality, and having a crap car that breaks all the time is very costly, they’re likely to err on the side of not purchasing, thus the term ‘market collapse’.

But how do you *know* he’s not?

Over time we've done things like regulate car dealers to provide guarantees and track mileage so that sellers can’t lie. These measures give buyers peace of mind and allows them to trust the seller enough to make a purchase. 

But regulations are slow and only apply to people who are in the same legal jurisdiction. It’s hard to extend it to information on the internet, where enforcement is very hard. 

Erasure establishes a globally accessible and trustless market incentive to provide the same surety for information. 

Want to claim that 5G will cause coronavirus? Put up $500 to prove your conviction. Eventually people consuming information will be able to easily assess and trust information they find. 

Being able to establish trust between two people who don’t know each other where the incentives are all aligned for good behaviour substantially expands the potential scope of human co-operation.

Reduces cost of discovery by pricing conviction

To the earlier example of magical unicorns in Peru, you would need to spend a lot of time working out if that person and their (seemingly preposterous information) is trustworthy through a long and intensive process of research, reference checks and consultations with local magical animal experts. Or you can see that they’ve priced their stake at $10,000 (vs. $100), and deduce very quickly that they clearly know what they’re doing because otherwise they wouldn’t put that amount of money up.

This is ‘price signalling’ at work. Freidrich Hayek, in his seminal essay, The Use of Knowledge in Society, laid out how price communicates all the information along a supply chain for a product in a highly digestible number. You don’t need to know everything about the dynamics of supply and demand or challenges with governments in some far-off remote area when buying something - this is all just folded into the price.

In Erasure, the staking price communicates ‘how sure are they’ about the information. A buyer can see how highly convicted a seller is about the veracity simply by seeing the price that they are willing to assign to it. 

All up, it’s a digitally native version of ‘I promise you I’m not bullshitting you. Hold onto my wallet as proof’.  And that, extended out into the world through the internet can be an amazing thing. 
What does it all mean? In Part 2, I take us through the implications. 

Thanks to the following for their insights: Horace Dediu, James Gross, Georgie Fenwicke, Flo Crivello, Moira-Clare Donovan, Adriaan Kroon, Jay McNally, Adam Flynn, Hank Rowe, Josh Daniell, Junia Ooi, and Anders Brownworth.

Elon Musk got all his best ideas from a 1960's puppet show

In the 1960s, one of the most popular TV programs on British television was a puppet show called Thunderbirds. Set between 2065 and 2067, it recounted the exploits of International Rescue, a set of anthropomorphic rocketships (aka ‘Thunderbirds’) that would fly around the world and save people in precarious situations. 

When I was growing up it used to show in New Zealand at 6:30am on Saturdays. I watched it religiously. It made me dream of a world of rockets. It was a celebration of the 1960s optimism of using new technology for good.

In the show, International Rescue is funded and run by Jeff Tracy, an ex-astronaut billionaire who makes his fortune in civil engineering, construction, and aerospace. After his wife passes away, he single-handedly raises his five sons, eventually retiring to a private island somewhere in the Pacific to secretly run International Rescue.

The Thunderbirds fleet was made up of five vehicles:

T1

A hypersonic rocketship that can fly anywhere in the world within an hour.

T2

A heavy transport ship that transports smaller Thunderbirds

T3

A single-stage-to-orbit outer space rocket

T4

A rescue mini-submarine

T5

a satellite to track distress calls from around the world

They also had a few other vehicles that they used in rescues, including the Mole:

If you know anything about Elon's story, you'll know that there are a number of parallels to the above, namely:

	Jeff Tracy	Elon Musk
Source of Billionaire Status	Aerospace, Construction	Aerospace, Cars/Energy, Internet
Number of sons	Five	Five
Vertical takeoff/landing rockets	Thunderbird 1	Falcon 9/Heavy
Outerspace rocket	Thunderbird 3	The BFR
Digging Machines	The 'Mole'	The Boring Company
Underwater rescues	Thunderbird 4	The Thai rescue sub/The Lotus Sub
Surveillance Satellites	Thunderbird 5	Starlink system

I'm not suggesting that Elon Musk is modelling everything he does on a 1960s puppet icon, but I do know that there's a reasonably high probability that he watched Thunderbirds growing up. It showed in the 1970s (he was born in ‘71) in South Africa, redubbed into Afrikaans as Redding Internassional.

Does the show also provide some hints about what else we can see from him? 

• A tiny EVTOL rescue craft (as per the story in Thunderbird 6)

• A heavy lift transporter craft that can transport large equipment quickly anywhere in the world in hours (cargo planes are *so* passé)

• Him buying a Pacific Island like his fellow billionaire Larry Ellison for his secret lair.

• Amalgamating all his coolest tech, coming up with a great theme song and calling it a preposterous name like ‘International Rescue’ then dispatching it around the world to save people.

It does also perhaps provide explanation as to why he provided Tesla batteries to help restore the power grid after Hurricane Maria in Puerto Rico and provided the submarine to the Thai government as they tried to rescue the boys stuck in the cave.

Why does this matter?

It doesn't - it’s just one of those interesting cases of art foreshadowing life, and makes me wonder what the kids of today are watching him do it it in real life, inspired that they themselves might be able to do the same thing.

The pointy edge of tech hits concrete

Previous waves of tech have been largely abstract - computers, phones and Uber arrived, but the built world looked the same. 

The emergence of micromobility feels like where the pointy edge of disruptive tech hits the hard concrete of infrastructure. 

The explosion of these new vehicles requires a repurposing of our roads and parking. This will be expensive and take time while the vehicles and platforms they run on will evolve quickly. 

The question I’ve been asking myself recently is how to accelerate that infrastructure adaptation. Because it’s often built on public land, it requires engagement in local politics to discuss landuse, roadspace and public spending allocation. 

It’s not sexy. It’s hyper-local, gritty and often hard-fought.

I’ve struggled to find venture investable opportunities for building better e-bike and scooter infrastructure. It requires advocates to communicate and spur deeper conversations about what we value.

It’s both important and mostly unpaid, but people do it because we care about where we live.

With that context, I’m excited to share my contribution to this movement: Along with a friend, we published the #LetsGetWellingtonRiding Vision of what the low-speed infrastructure for New Zealand’s capital city could look like.

It calls for NZ$400m worth of spending on lanes to accommodate the explosive growth of electric bikes and scooters in our streets. 

There are approx 3600 cities around the world that are Wellington’s size or bigger. They will all need to eventually cater to these new vehicles. 

They’ll either get proactive to ‘micro manage’ these vehicles, or they’ll reflexively find themselves overwhelmed these new vehicles with nowhere safe to operate them and have to scramble to catch up. 

I know which camp I’m in. 

This was originally posted as part of my newsletter. Sign up here to get future updates:

Why Micromobility Waste Is Irrelevant

I get asked a lot about the waste from #micromobility - e-scooters, and those big piles of Chinese shared bikes.

They definitely wear out faster and have short lifecycles. Lime's average 45-60 days. Look at all that waste!!

Here's why that's the wrong way think about it.

The average Chinese bikeshare bike weighed 20kgs at most. There were 25 million of them deployed over the last few years and are mostly scrapped by now.

But here's the thing.

In aggregate, those 25m were made from steel that weighed about half a million tons (25m*20kg=500k tons).

Your average car weighs 1600kgs/3500lbs. So all of the Chinese bikes that have been produced to date equate to around 300,000 cars.

For reference, that's only about 1-2% of what the US will *scrap* THIS YEAR. Man, if you worry about this waste, I have a pile of used cars to show you.

Plus, we are trying to deploy scooters and e-bikes that were largely designed for consumer recreational use into commercial shared use cases where they get thrashed. They're very fragile. We don't have 100 years of evolution and refinement like the car has had.

Source: Chester Energy and Policy

It's understandable the tech sucks.

You can see this in the new designs from Bird and Lime - they're now building scooters that will last 6-12-18 months now.

They’re more incentivised than anyone to make these things last longer to improve their unit economics.

Spending all their VC money replacing scooters all the time means their business is going to succccccck.

It's largely useless to look at the waste now and compare it to where things will be in even 2 years from now. The quality of vehicles is improving super quickly. Waste will minimise as we refine the use cases and better design for them.

I’m not saying it’s not an issue.

I’m just saying that it’s irrelevant when we’ve got a burning planet and these solutions are obviously better on so many other dimensions.

As an aside, I really appreciate the work that Chester Energy and Policy has done in this space. While they’ve looked at where things are today, and I’m more bullish about how quickly they’ll improve, they’ve provided great initial research into this space.

Interested in learning more? Sign up below, check out the Micromobility Podcast with Horace Dediu and myself, or come and join us at Micromobility Europe in Berlin on October 1st.

Update: I cited the graph from Chester Energy and Policy.

We're in the Nokia 3310 era of micromobility

While Reilly Brennan is looking for the Ford F150 of scooters, I think that's the wrong way to think about this.

Micromobility vehicles are like phones on wheels.

At the moment, they're still largely dumb. The Xiaomi Mi365 was the best selling scooter of 2018. It has no locks, connectivity or intelligence.

It's the scooter equivalent of the Nokia 3310: cheap, robust, and easy to use.

What will the iPhone of this space look like? How will we know when we see it?

My hunch is that it'll be:

• Fun and Stylish: we like vehicles to be reflective of us. As such, we deny the importance of aesthetics and sex appeal at our peril. I love Bird's efforts in this area.

• A computing platform: Autonomy, safety and social engagement will be apps.

• Shared: While privately owned vehicles will be where the bulk of the micromobility sales happen, I think the ease of access of shared vehicles will supercharge their usage and see more trips.

Interested in learning more? Sign up below, check out the Micromobility Podcast with Horace Dediu and myself, or come and join us at Micromobility Europe in Berlin on October 1st.

Why the future of transport looks like scooters not supersonic jets

When I used to visit the library as a 9 year old, I’d invariably bee-line for the section that had the books on cars, boats or planes, pick one out and turn to the last page.

That was where the authors visualised what they thought the future of transport looked like.

I still can feel the giddiness of finding incredible concept supercars, Seaquest style submarines or (in books from the heady 60’s) nuclear powered supersonic jets.

The future was going to be fast. Sleek. Sexy. Aspirations of something ‘better’.

And they were almost always wrong.

We are all fallible to fantastical futures. I was definitely the most prone.

In 2015, I joined Uber, thinking that we would be rolling out autonomous cars within the next year or two. I joined in New Zealand knowing that high transport and labour costs made it a high probability target market for testing and deployment of large fleets of AV’s. I dreamed of families being whisked around on quiet streets, paying a subscription for their travel similar to their smartphone and enabling a golden age of cheap mobility for all. The future would be sweet!

It was clear pretty quickly that my timelines were way off. Even today, there are no driverless vehicles planned for the market till at least 2022.

Which makes the recent explosion of electric scooters and ebikes all the more fascinating.

When I left Uber I paired up with Horace Dediu, famed analyst, and started the Micromobility Podcast, exploring the disruptive potential of these new vehicles. They have the potential to change everything we thought we knew about the future of urban transport.

Horace made his name as the analyst who ‘spotted the iPhone’. He had been at Nokia, and prior to that, studied under Clayton Christensen, the creator of disruptive innovation theory at Harvard.

When the iPhone launched, it was dismissed by Nokia and Microsoft, the two largest vendors of phone hardware and software in the world at the time. But Horace saw more than a phone - he saw a computing platform. They performed worse that almost all computers available at the time, but it had one key differentiator: you could carry it with you.

Phones improved at the same rate as computers had in the 1990s. Today, most people use their phones as their primary computing devices, and the market for phones is an order of magnitude bigger than the personal computer industry ever was.

In 2018 Horace had been looking at the car industry for three years trying to identify what a ‘disruptive’ entry for the world of transport looked like. Given its size and relatively imperviousness to technological innovation over the years, it was a logical large industry for Apple to bring its attention to after the phone.

What we spotted with electric bikes and scooters was what we saw with the introduction of the iPhone - a product that is underserving in a lot of key dimensions (can't do long journeys! very unsafe! no infrastructure!) but nails a core job perfectly: short trips.

Turns out, human's tend to travel short distances an order of magnitude more than they do long. If you plot our trip distances on a graph, they look like this:

The box on the left has more trips than the box on the right.

Yet almost all our 'options' for travel aren't very good at these distances. Walking is good up to around 1 mile. Bikes make us sweaty and don't have safe infrastructure to ride on. Cars get really congested if you have a lot of them doing short trips in a confined space.

Enter the humble electric scooter and e-bike.

They're typically very well suited to these shorter journeys, especially if they're paired to a network and can be easily rented with a smartphone. In fact, if we look at the data from San Francisco, you can see the 'fingerprint' of different modes in terms of how they're used,

Scooters are best used for super short trips.

Bikes for ones a little longer.

E-bikes and mopeds for trips further still.

They've exploded in popularity, both as rented and personally owned vehicles, for a few reasons:

• They're now really cheap: When the Segway was released in 2001, it was a $9,000 device. A scooter with a 40 mile range and ‘enough’ power to get up to 20mph these days is around $600 - a 15x reduction.

• They're far more convenient: You don't have to think about parking, fuel, maintenance, licencing or insurance for these vehicles.

• They pair well with your other modes of travel: If you take Uber's and the train when it makes sense, then these suit these shorter trips that would take a long time in a congested space (especially where the wait time is 5+ mins).

They're not perfect, and don't suit the needs of all consumers. I get it.

When the iPhone was launched, it was dismissed because Microsoft Exchange, the predominant form of work email server, wasn't supported. These vehicles are interesting because they have the same attributes as these early smartphones did when they were launched:

• They're very short lived, which means they're replaced very quickly. When a car is designed, it takes 5-7 years to get it to production. Bird is shipping new models with improved tech/features every 3-6 months. They’re iterating VERY fast compared to any other vehicles type we have.

• They're getting intelligent. See the latest announcement from Segway of its autonomous shared scooter that'll drive itself back to the charging station. It’s an autonomous vehicle for $1500 - or around 100x (+) cheaper than a testing autonomous car.

• They're addressing material needs for cities - most cities around the world are struggling with congestion. The existing car-fuelled paradigm can't scale as the rest of the world urbanises. These new vehicles offer a solution that more and more cities will actively encourage.

While they're not sexy, sleek or fast, they're a rethink of the very fundamentals of how we get around.

If my 9 year old self could see me now, I think he'd be pretty chuffed that this is what I get to be working on.

To learn more about micromobility, come and join us in Berlin on October 1st at Micromobility Europe or listen in to the podcast.