Sunday, May 31, 2020

Money, friction and momentum on the web

Back when I first moved to Silicon Valley in 1998, I tried to understand how capital markets made the valley such a unique place for inventors and entrepreneurs.  Corporate stocks, real estate, international currency and commodities markets were concepts I was well familiar with from my time working at a financial news service in the nation's capital in the mid 1990's.  However, crowdfunding and angel investing were new concepts to me 20 years ago.  Crowdfunding platforms seemed to be more to the advantage of the funding recipient than the balanced two-sided exchanges of the commercial financial system.  I often wondered what motivated generosity-driven models that was different from reward-driven sponsorships.

When trying to grasp the way angel investors think about entrepreneurship, my friend Willy, a serial entrepreneur and investor, said: “If you want to see something succeed, throw money at it!”  The idea behind the "angel" is that they are the riskiest of risk-capital.  Angel investors join the startup funding before banks and venture capital firms.  They seldom get payback in kind from the companies they sponsor and invest in.  Angels are the lenders of first-resort for founders because they tend to be more generous, more flexible and more forgiving than lenders.  They value the potential success of the venture far more than they value the money they put forth.  And the contributions of an angel investor can have an outsized benefit in the early stage of an initiative by sustaining the founder/creator at their most vulnerable stage.  But what is this essence they get out of it that is worth more than money to them?

Over the course of the last couple of decades I've become a part of the crowdfunding throng of inventors and sponsors.  I have contributed to small business projects on Kiva in over 30 countries, and backed many small-scale projects across Kickstarter, Indiegogo and Appbackr.  I've also been on the receiving side, having the chance to pitch my company for funding on Sand Hill Road, the strip of financial lending firms that populate Palo Alto's hillsides.  As a funder, it has been very enlightening to know that I can be part of someone else's project by chipping in time, sharing insights and capital to get improbable projects off the ground.  And the excitement of following the path of the entrepreneurs has been the greatest reward.  As a founder, I remember framing the potential of a future that, if funded, would yield significant returns to the lenders and shareholders.  Of course, the majority of new ventures do not come to market in the form of their initial invention.  Some of the projects I participated in have launched commercially and I've been able to benefit.  (By getting shares in a growing venture or by getting nifty gadgets and software as part of the pre-release test audience.)  But those things aren't the reward I was seeking when I signed up.  It was the energy of participating in the innovation process and the excitement about making a difference.  After many years of working in the corporate world, I became hooked on the idea of working with engineers and developers who are bringing about the next generation of our expressive/experiential platforms of the web.

During the Augmented World Expo in May, I attended a conference session called "Web Monetization and Social Signaling," hosted by Anselm Hook, a researcher at the web development non-profit Mozilla, where I also work.  He made an interesting assertion during his presentation, "Money appears to be a form of communication."  His study was observing platform-integrated social signals (such as up-voting, re-tweeting and applauding with hand-clapping emojis) to draw attention to content users had discovered on the web, in this case within the content recommendation platform of the Firefox Reality VR web browser.  There are multiple motivations and benefits for this kind of social signaling.  It serves as a bookmarking method for the user, it increases the content's visibility to friends who might also like the content, it signals affinity with the content as part of one's own identity and it gives reinforcement to the content/comment provider.  Anselm found in his research that participants actually reacted more strongly when they believed their action contributed financial benefit directly to the other participant.  Meaning, we don't just want to use emojis to make each other feel good about their web artistry.  In some cases, we want to cause profit for the artist/developer directly.  Perhaps a gesture of a smiley-face or a thumb is adequate to assuage our desire to give big-ups to an artist, and we can feel like our karmic balance book is settled.  But what if we want to do more than foist colored pixels on each other?  Could the web do more to allow us to financially sustain the artist wizards behind the curtain?  Can we "tip" the way we do our favorite street musicians?  Not conveniently, because the systems we have now mostly rely on the credit card.  But in the offline context, do we interrupt a street busker to ask for their Venmo or Paypal account?  We typically use cash, which has only rough analogues as of yet in our digital lives.

When I lived in Washington DC, I had the privilege to see the great Qawwali master Nusrat Fateh Ali Khan in concert.  Qawwali is a style of inspired Sufi mystical chant combined with call-and-response singing with a backup ensemble.  Listening for hours as his incantations built from quiet mutterings accompanied by harmonium and slow paced drums to a crescendo of shouts and wails of devotion at the culmination of his songs was very transporting in spite of my dissimilar cultural upbringing and language.  What surprised me, beyond the amazing performance of course, was that as the concert progressed people in the audience would get up, dance and then hurl money at the stage.  "This is supposed to be a devotional setting isn't it?  Hurling cash at the musicians seems so profane," I thought.  But apparently this is something that one does at concerts in Pakistan.  The relinquishing of cash is devotional, like Thai Buddhists offering gold leaf by pressing it into the statues of their teachers and monks.  Money is a form of communication of the ineffable appreciation we feel toward those of greatness in the moment of connection or the moment of realization of our indebtedness.  Buying is a different form of expression that is personal but not expressive.  When we buy, it is disconnected from artistry of the moment.  No lesser appreciation for sure.  It's different because it isn't social signaling, it's coveting.  When in concerts or in real-time scenarios we transmit our bounty upon another, it is an act of making sacrifice and conferring benefit.  The underlying meaning of it may be akin to "I hope you succeed!" or, "I relinquish my having so that you might have."  I'm glossing over the cultural complexity of the gesture surely.  Japanese verbs have subtle ways to distinguish the transfer/receipt of benefit according to seniority, societal position and degree of humility: Giving upward "ageru/agemasu", giving downward "kudasai/kudasaru", giving laterally "kureru/morau"  The psychological subtlety of the transfer of boons between individuals is scripted deeply within us, all the more accentuating how a plastic card or a piece of paper barely captures the breadth of expression we caring animals have.

The web of yesteryear has done a really good job of covering the coveting use case.  Well done web! Now, what do we build for an encore?  How can we emulate the other expressions of human intent that coveting and credit cards don't cover?

In the panic surrounding the current Covid pandemic, I felt a sense of being disconnected from the community I usually am rooted in.  I sought information about those affected internationally in the countries I've visited and lived in, where my friends and favorite artists live.  I sought out charitable organizations positioned there and gave them money, as it was the least I felt I could do to reach those impacted by the crisis remote from me.  Locally, my network banded together to find ways that we could mobilize to help those affected in our community.  We found that using the metaphor of "gift cards" (a paper coupon) could be used to foist cash quickly into the coffers of local businesses so they could meet short-term spending needs to keep their employees paid and their businesses operational even while their shops were forced into closure in the interest of posterity.   I found the process very slow and cumbersome as I had to write checks, give out credit cards (to places I never would typically share sensitive financial data) find email addresses for people to transmit PayPal to, and in come cases I had to resort to paper cash for those whom the web could not reach.

This experience made me keenly aware that the systems we have on the web don't replicate the ways we think and the ways that we express our generosity in the modern world.  As web developers, we need to enable a new kind of gesture akin to the act of tipping with cash in offline society.  Discussing this with my friend Aneil, he asserted that both anonymous donor platforms like Patreon and other block-chain currencies can fit the bill for addressing the donor need, if the recipient is set up to receive them. He cautioned that online transactions are held to a different standard than cash in US society because of “Know Your Customer” regulation which was put in place to stem the risk of money laundering through anonymous transactions. As we discussed the idea of peer-to-peer transactions in virtual environments, he pointed out, ”The way game companies get around that is to have consumers purchase in game credits that cannot be converted back into money.” The government is fine with people putting money into something. It’s the extraction from the flow of exchange in monetary sense that needs to be subject to the regulations designed for taxation and investment controls.

Patreon, like PayPal, is a cash-value paired system while virtual currencies such as Bitcoin, BAT and Etherium can be variable in exchange value for their coin. Blockchain ledger transactions trace exactly who gave what to whom. So, they are in theory able to comply with KYC restrictions even in situations where the exchange is relatively anonymous. Yet they are wildly different in terms of how the currency holders perceive their value. Aneil pointed out that Bitcoin is bad for online transactions because its scarcity model incentivizes people to hold onto it. It’s like gold, a slow currency. A valuable crypto currency therefore would slow down rather than facilitating donation and tipping. You need a currency that people are comfortable to hold for only short periods of time like the funds in a Kiva or Patreon wallet. If people are always withdrawing from the currency for fear of its losing value, then the currency itself isn’t stable enough to be the basis of a robust transaction system. For instance, when I was in Zimbabwe, where inflation is incredibly high for their paper currency, people wanted to get rid of it quickly for some other asset that lost value slower than the paper notes. Similarly, Aneil pointed out, any coin that you use to transact virtually could suffer the incentive to cash out quickly, which would drive the value of the asset in a fluid marketplace lower. Cash proxies don’t have an inherent value unless they are underpinned by an artificial or perceived scarcity mechanism.  The US government has an agency, the Federal Reserve, whose mission it is to ensure that money depreciates slowly enough that the underlying credit of the government stays stable and encourages growth of its economy.  Any other currency system would need the same.  Bitcoin can't be it because of its exceedingly high scarcity which leads to hoarding.  Until web developers solve this friction problem, web transactions and therefore web authorship will be stifled of support it needs to grow.

Understanding this underlying problem of financial sustainability, my colleague Anselm is working with crypto-currency enabler Coil to try to apply cyrpto-currency sponsorship to peer and creator/recipient exchanges on the web.  He envisions a future where users could casually exchange funds in a virtual, web-based or real-world "augmented reality" transaction without needing to exchange credit card or personal account data.  This may sound mundane, because the use-case and need is obvious, as we're used to doing it with cash every day.  The question it begs is, why can't the web do this?#!  Why do I need to exchange credit cards (sensitive data) or email (not sensitive but not public) if I just want to send credits or tips to somebody?  There was an early success in this kind of micropayments model when Anshe Chung became the world's first self-made millionaire by selling virtual goods to Second Life enthusiasts.  The LindenLabs virtual platform had the ability for users to pay money to other peer users inside the virtual environment.  With a bit more development collaboration, this kind of model may be beneficial to others outside of specific game environments.

Anselm's speech at AWE was to introduce the concept of a "tip-jar," something we're familiar with from colloquial offline life, for the nascent developer ecosystem of virtual and augmented reality web developers.  For most people who are used to high-end software being sold as apps in a marketplace like iTunes or Android Play Store, the idea that we would pay web pages may seem peculiar.  But it's not too far a leap from how we generally spend our money in society.  Leaving tips with cash is common practice for Americans.  Even when service fees are not required, Americans tend to tip generously.  Lonely Planet dedicates sections of its guidebooks to concepts of money and I've typically seen that Americans have a looser idea of tip amount than other countries.

Anselm and the team managing the "Grant for the Web" hope to bring this kind of peer-to-peer mechanism to the broader web around us by utilizing Coil's grant of $100 Million in crypto-currency toward achieving this vision. 

If you're interested in learning more about web-monetization initiative from Coil and Mozilla please visit:

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