Tag: virtual currency

a lever and a place to stand

~ ginsu ~ Leave a comment

“Give me a lever and a place to stand, and I will move the world.”

Archimedes (apocryphal)

When I was a kid growing up in New Jersey, all I ever wanted was to get out, across the river to the bright lights big city. I assumed that New Yawk City was the place that moves the world, because what else would a Jersey kid think amirite? And I loved everything about living there: I loved the hard work and the harder play, the high stakes and the almost tangible power and raw human energy that buzzed through the canyons between the skyscrapers. But after starting my career in “high” finance, I was disappointed in the financial engineering that passed as “creation” in that industry, and by 1999 it was obvious that the future was really being created across the country, in Silicon Valley.

So I headed West, searching for an industry that builds levers to move the world, searching for my place to stand. About a decade in, people began to tell me that my career path looked a little weird. From leveraged buyout lawyer in NYC to startup counsel in Silicon Valley to Korean venture capitalist to Fortune 100 corporate deal maker. And then it just kept getting weirder: international marketing, developer relations, enterprise product development, startup founder, BigTech product manager, startup sales manager and more. Not content with the variety of roles, I also wandered across sectors and products: enterprise hardware, metaverse consumer software, adtech, content moderation systems, maps, devops SaaS ….

Oh, and then I got sick of tech and ran for political office … now that was a weird move. But not to me, still just trying to understand what, if anything, moves the world in a better direction. Campaigning was a deeply moving experience for me, as I’m sure it is for any child of immigrants. I learned a lot, but the long and the short of it here is just that the political industry isn’t a place I can stand.

When I look back on it all, I feel lucky to have started my career in tech during that first decade from 1999-2008, before the global financial crisis, before BigTech was a thing … and maybe the last time we could have avoided the consequences we’re living out today. The dreams were big, the schemes were fun, and the common ambition was to put a dent in the universe with technology so good it seems like magic. The “why” behind this sparkling ambition was often unspoken, but I never thought it was about the money. Most of my friends in tech thought it was wonderful to see explosions of wealth of course, but we weren’t in technology to play the lottery, we were in it because we loved technology. 

We were mostly dorky kids who were lucky enough to have access to an Apple ][ or Commodore 64 in middle school or high school, we played Atari and Intellivision, we wrote our first programs in BASIC and we fell in love with the future. And though we might have loved technology for different reasons, I think the common thread was that we loved what technology could do for humanity. We loved the spirit of innovation for its delight, not the dollars. We loved the fun that tech could add to our lives.

So the place where I stood in the best years of my first decade in tech was in San Francisco, at a company called Linden Lab, and we tried to move the world with Second Life. Enough has been written about Second Life, I don’t like to add to the noise. But I can’t say enough about the company we “Lindens” called “the Lab,” especially now that people are recognizing Second Life as an OG when they talk about “the metaverse” today … 

Of course the product innovation was fascinating, but even more than that, I appreciate the workplace innovations we implemented at the Lab. Many of these are lost already in the sands of time, and frankly not all of our innovations were good ideas, but we had an authentic commitment to transparency, openness, and trying new ways to enable emergent bottoms-up innovation rather than top-down command-and-control management. We had open floor offices because it flattened hierarchy, not to save costs on real estate. We had snacks and games because we genuinely liked to have fun with each other, not as a nefarious scheme to keep overgrown adolescents at work. We had peer bonuses as a bonding experience, not as a competition for brownie points in the next performance review. We experimented in democratic decisionmaking, as messy as any experiment in democracy. We had remote offices, work from home, chat and video collaboration before any of these things were regarded as rational costs for a startup.

The Lab was also fearless with new business models, defining and implementing product lines in a way that felt like feeling around in the dark back then, but now seem prescient. “Freemium” as an acquisition strategy, the power of subscription metrics, data-driven decisions, SaaS-like pricing and practices before SaaS was a thing, defining product management roles before the internet industry had standardized skills for the role. We didn’t invent any of these by ourselves, but they were all relatively new business practices in our context.

So we endlessly experimented and adopted internal management and business practices on the fly while also attempting a product so ridiculously difficult that the largest technology companies in the world continue to fail today in their modern attempts to replicate the possibilities we demonstrated fifteen years ago. Maybe the only way we were old-school was that we built a profitable business, even though many companies had already amply demonstrated that tech investors prefer a fanciful growth story to the reality of profitable results.

[I’m leaving out the best part about the Lab: I could write a book about the people, but to even begin that here would be to raise uncontrollable emotions that are not at all the point here. Suffice to say that to this day I feel a bond with every Linden, past and present.]

What I realize now was that rather than being ahead of its time, the Lab was at the end of an era, before technology became Big Tech. The people that first populated Silicon Valley with technology workers were geeky idealists. Many of them, especially those who entered the scene from San Francisco, descended from a local cultural heritage of hackers and pranksters, the kind of Merry Pranksters that gave rise to the Cacophony Club and Burning Man – a culture of anti-authoritarianism, a community of individualists, a spirit of creativity and freedom and fun.

After the global financial crisis, for a variety of reasons, that culture gave way to people who … well, let me not judge any person, because we all live in glass houses, but looking at where we are today … the legacy of my last decade or so in technology is not about any of that spirit from my first decade. Too many technologists began to insist that technology could lead humanity, going so far as to believe in the inevitability of technological progress as if it were some natural force more powerful than the needs of humanity. And so we got surveillance capitalism, walled gardens, dark patterns, monopolistic rent-seeking, more and more exploitative and community-destroying business models and practices, and ever bigger and bolder next-gen Ponzi plays. None of those are technology; they are instead the social and economic results of favoring technology over humanity.

I’m an old man now, perhaps just yelling at the clouds. Sure, sure, I understand that some kind souls will object that I’m not that old, that there’s plenty of life ahead, plenty to do, plenty to dream. But see, I don’t think there’s anything to object to, I don’t think there’s anything wrong with being old. There are a lot of things that I see and understand now that I simply could not have understood with less experience in life. That experience – not just the technology and business experience, but ALL of the experience of living – is the lever that I’ve sought all my life.

And now I’d like to share the leverage of experience with as many people as I can who might use it to move the world in the right direction.

And the place to stand? Well, it has to be San Francisco. There are places in the world that I love more, but there is no other place that I know with that particular spirit of love for humanity over technology. That spirit has been dominated of late, it has been beaten, it has been bruised … but it is not gone – I just know it because I have been around long enough to know it. San Francisco is currently in the worst shape that I’ve seen in my quarter-century in California, so bad that it almost reminds me of New York City in the ’70s and ’80s … a place that we Jersey kids regarded as a bankrupt disaster, only later to realize that we should have spent way more time trying to get into CBGB. What I’m saying here is that we’ll later remember now as the time when San Francisco was authentically cool.

So – this is all my way of saying that I’m going to be spending my time in San Francisco working on technology startups in generative AI, virtual currencies, and metaverse technologies. I have the idealism of my first decade in tech, the experience of my second decade, and the determination to put humanity over technology. Most importantly, I have a few like-minded friends figuring out how to work together, and we have room for more.

If you are looking for a lever and a place to stand, let’s talk 🙂 A ping on LinkedIn is best if you don’t already have other contact info.

from Linden to Libra

~ ginsu ~ 1 Comment

Join me, friends, in the Wayback Machine …

In 2007, Facebook sent a couple of strategists to Linden Lab to ask us about virtual currency. Of course they would ask us – at the time, we were the world’s leading experts in managing a virtual economy, heading towards a billion dollars of L$ transactions. Yes, that’s a billion real US dollars – unique among all virtual currencies at the time, we supported the exchange of L$ to real US$, so our virtual currency had real world value.

When we heard that they wanted to meet, my colleagues huddled in a room to decide how much we should tell them. We decided to emphasize the difficulties of managing a virtual currency: complexity of implementation, responsibility for users’ financial transactions, intrusive governmental inquiry and oversight, competitive dynamics with banks and payment partners. We went into the meeting and told them this story about how terrible it all was, and how they’d be better off simply issuing credits paid for with real money.

We never heard from them again, but in 2010 they launched Facebook Credits. I laughed at the thought that it seemed our little misdirection had worked – they went down a path that was entirely uninteresting and ultimately untenable, just as we’d hoped. Yeah, I know: that was kinda evil. But at the time, I was just a little evil, trying to stay ahead of bigger evils.

Why didn’t we want Facebook to work on virtual currency? Because I believed that the Linden Dollar was the greatest innovation created by the Lab. Sure, the 3D virtual world was mind-bending – all the avatars and the world building and the art and the boob physics – but for me, the virtual currency was the one element of Second Life that had the opportunity to break out of SL and into prominence in the whole wide world. Facebook had only 50 million users in 2007, and I didn’t want them to get their virtual currency right, so early in the game.

Well, it’s a dozen years later, and blockchain inspired a Facebook exec to figure it out. Facebook has launched Libra, a new cryptocurrency. It is a brilliant implementation: meticulously researched, expertly engineered, broadly partnered, poised for global domination. There’s only two problems: it’s too late, and they’re doing it wrong.

The right time for Facebook to launch a virtual currency would have been, oh, around 2007. That’s right: I’m saying you can thank me and Chris Collins for talking them out of it at the time. As I’ve written previously, a cryptocurrency can only succeed as a medium of exchange if it is a core currency of a powerful platform. Don’t even get me started on Bitcoin. What I didn’t call out in those posts is that the platform must implement currency strategy early in its growth. This is because when you are messing around with payments, you are in a field of giants – global banks and entire nations that have a vested interest in preventing your success. You have to implement your new currency while your platform is still small enough to ignore, or at least dismiss as “merely a game.” Then when you reach enormous scale, it’s too late to do anything about the economy that’s been baked in since the early days.

When a platform already has billions of people, it’s not going to fly under the radar. Facebook is already seeing immediate regulatory interest in Libra. Even with less than a million users, Second Life had to deal with aggressive regulatory interest from Congress and international bodies. I like to think that we talked our way out if it with my silver tongue, but the truth is that we were too small for sustained inquiry. Facebook is far, far, far past that point. Libra will be hounded by regulators until the cost outweighs the benefits.

The part that Libra has wrong is its reserve policy. This is getting into the weeds of managing virtual currency, but to vastly oversimplify: the reserve is a guarantee of currency redemption. If you buy Libra with real currency, you can sell it back to the Libra consortium for a relatively stable amount of real currency. Libra has launched this way in the hopes that a stable currency value will engender trust. The amusing mistake here is that only in the insular world of technocracy could someone believe that Facebook has consumer trust problems that can be cured by a stable rate of exchange on their cryptocurrency. The more serious mistake is that requiring a full reserve limits the utility of the currency.

All major world currencies are fiat currencies, which means that they can be issued at the will of the governing authority. They are not backed by gold or any other asset – though nearly all of them started out backed by a guarantee of redemption in gold. But there is a reason that all of them have moved off of the gold standard: fiat provides the maximum flexibility to manage the currency and its related economy. While it’s true that fiat currencies are more susceptible to hyperinflation, that is only a consequence of bad management. If the manager (i.e. the government, or in this case, Facebook) can be trusted to make good economic decisions, inflation is a limited risk.

Perhaps Facebook is aware of all this, and their plan is to launch with a full reserve, but later evolve into a fiat currency, after some history has demonstrated their trustworthy stewardship. After all, this is actually how all the major world currencies developed: first on the gold standard, then eventually declaring a switch to fiat currency. So if the launch with reserve is a bit of knowing subterfuge, kudos to them.

At this point, I could launch into an extended discussion about the relationship between virtual currencies and MMT. But I’ll leave that exercise for another day. In the meantime, for Linden historians who have stayed with me this long through the discussion, I’ll give you a little blast from the past: a record of posts from Linden Lab as we decided how to think about our currency, and whether to implement fiat sales of L$ into existing exchanges. Enjoy!

virtually great currency

~ ginsu ~ Leave a comment

The acquisition of SuperRewards by Adknowledge is a notable milestone in the evolution of virtual currency business models. This is the first time an independent virtual currency platform has been acquired by a company outside of the virtual goods category, and so the first time that a virtual currency has achieved monetization for someone other than its creators and users. We’ve moved into the peak of the third phase of business models for virtual currency.

The first phase was a sort of prehistory where virtual currency was a gameplay feature of massively multiplayer online games – points that players could gain through the completion of tasks, and use to acquire in-game items that were valuable for further progress in the game. Although points have been a feature of most videogames since the inception of the medium, the relevant new thing about MMOGs was the operation of a “persistent” online economic environment. That meant that even when particular players weren’t online, the service constantly maintained an environment where items of value could be acquired and traded. Much of the trading of items for value was “off-service” – often against the game rules – but this was the first step in virtual currencies breaking free of gameplay rules.

The second phase started when online services that were not solely game-oriented used virtual currencies to encourage trading of service assets – this time trading currency for service items wasn’t against the rules, but specifically designed to encourage sales within the service. Korea’s Cyworld was a pioneer in this use, with “Cyholics” using “acorns” as a medium of exchange for digital presents that users could buy for themselves and each other. Chinese Internet portal Tencent built QQ coins into a $900 million economy, while in the U.S., Second Life users are heading towards $450 million (in U.S. Dollars) of Linden Dollar transactions. The authorized use of virtual currency within these services led naturally to implicitly or explicitly authorized use of their virtual currencies outside of the traditional boundaries of the service, demonstrated by Chinese users buying real-world items for QQ coins and Second Life users setting up 3rd-party currency exchanges and virtual goods stores. (As an illustration of the differences in culture, it’s interesting to note that the Chinese government eventually banned the use of virtual currency for “real” items, and that Linden Lab rebuilt or acquired the third party services.)

In the third phase, we have businesses that were natively built as a platform for virtual currency to be used on other services (rather than a feature of an economy within a more comprehensive service). Some have stayed closer to virtual currency’s MMOG roots, like PlaySpan and LiveGamer, while others have tried to ride the wave of social media apps platforms, like TwoFish and SocialGold. SuperRewards and OfferPal brought a new twist by using marketing offers as the underlying value to the virtual currency.

This part takes a little bit of explaining. For any currency to gain favor with a user base, there must be some underlying value to the medium of exchange – from a consumer point of view, this is sometimes expressed as a demand that the currency be “backed” by something of value. In ye olden days, governmental currency was backed by precious metal; in theory you could turn in your dollars to the government in return for equivalent value in gold. Most governmental currencies came off the gold standard decades ago, and are now backed by the declaration of the government that the currency is legal tender. The meaning of this declaration is a little murky both in theory and in practice.

Suffice to say that there are virtual currencies that emulate most of the historical models of real governmental currencies. e-Gold tried the gold-backed model, to disastrous result. Some virtual currencies are run as essentially stored value systems for governmental currency, so ultimately they are backed by the same declaration of the government. QQ coins to some extent, and Linden Dollars to a greater extent, are free-floating media of exchange that are backed by the commercial viability of their operators – a private rather than governmental declaration of value (this is not as revolutionary as it may seem, since in many ways it’s similar to airline miles and other customer loyalty programs).

By using marketing offers as the underlying value, virtual currency operators can sidestep some of the difficulties involved in demonstrating that a currency is sufficiently “backed” to satisfy customer demand for stable value. This technique introduces significant complexity and cost by introducing many additional parties to the value chain, but now SuperRewards has demonstrated (to its investors if not yet a skeptical public) that this kind of backing does create a valuable virtual currency. OfferPal is not far behind, and of course is now far ahead in terms of its ability to maintain an independent business.

So what’s coming for the fourth phase of virtual currency business models? That’ll have to be the subject of another post. But for now the developments to watch are the competition between Facebook and MySpace in their own virtual currencies, app developer currencies from companies like Zynga, and the continued progress of OfferPal.