In the era of the internet, efficiency is the name of the game. The technology platforms that we interact with on a daily basis grow increasingly faster, smarter, and more all-encompassing; our smart devices are the keys to our banks, our businesses, and our means of connecting with the world.
But as the technology we rely on becomes increasingly efficient, so too does its ability to extract resources from us--our money, our data, our time, and our attention.
Miko Matsumura’s name is well-known in the cryptocurrency industry. He is the co-founder of the Evercoin Exchange and has helped to build multiple other companies, raising a collective $50m in venture capital. He is also a General Partner of Gumi Cryptos, a $30m Crypto Asset Fund, and a Limited Partner with Pantera Capital’s $100m ICO fund.
His expertise in crypto and Blockchain ventures has earned him a number of positions as a token advisor and speaker at some of the most prominent industry events, including Finance Magnates’ own Barcelona Trading Conference that took place in July 2019. There, Matsumura delivered a speech entitled “Uncertainties and Inevitabilities: The Rise of Open Source Money.”
Recently, we spoke to Matsumura about his concept of the “extraction economy”, how software is eating the world, and how open-source is eating software.
The “Extraction Economy”
The dawn of smartphones, instantaneous communication, and apps has fueled a new kind of economy: some refer to this as the “gig” economy; others (rather cutely) refer to it as the “sharing” economy. Others still, who see a more sinister side of the way the world works nowadays, call it the “surveillance” economy.
Matsumura has coined his own term for the world’s new financial system: the “extraction” economy.
What does that mean?
“What we’ve seen is a shift from primarily extractive industrial economics into primarily extractive information economics,” Matsumura said. He explained that extractive industrial economics involved things like mining and petroleum extraction - ”what you see in those kinds of industries is the technologies, including things like hydraulic fractionation, become extremely advanced, and you’re able to… ’squeeze’ the earth harder and get more out of it.”
“That’s not necessarily such a positive-sounding thing, and it shouldn’t be viewed that way.”
The world’s most valuable resource? Your attention.
“If you look at that metaphor and how it’s applied in information technology, the resource that’s being mined is, principally, people’s attention. And their attention is being mined at all levels of the economy.”
Matsumura explained that because attention is such an important resource, more and more tools and strategies are being developed to aggregate it. “Even when it comes down to the way that politicians behave--there’s a lot of attention-getting behavior that exists, and a lot of extreme behavior beyond even ‘fake news.’”
we need to elect a president that can do this. https://t.co/2i1EjLZyzk
— Miko Matsumura ㋡ (@mikojava) July 3, 2019
“We’re really reaching kind of a peak of this kind of economy,” he continued. “And it’s not just advertisement--it gets into companies trying to extract the maximum value out of their employees.”
Many of these strategies for ‘extraction’--used by politicians, companies, and others alike--involve “getting people’s attention, typically through producing some kind of a threat, and then harvesting that attention through machine learning. So, for example, Facebook is great at targeting ads--and their ability to promote what they call ‘emotionally engaging content’ and then harvesting the value of that.”
Matsumura explained that therefore, machine learning and artificial intelligence play an important--and perhaps troubling--role in the ‘extraction economy.’
“One of the dangers of this ‘extraction economy’ is that AI bots only optimize what they’re told to.” He described a scenario similar to the famous ‘paperclip maximizer’ thought experiment, in which an AI bot that’s told to produce as many paperclips as possible does so--but at the cost of destroying the planet completely.
https://t.co/NQvlhZvrho Keynote at the Barcelona Trading Conference BTC about the "Extraction Economy" and how open source money can help.
— Miko Matsumura ㋡ (@mikojava) July 17, 2019
“So when people talk about the ‘gig’ economy, it’s really just that we’re trying to ‘squeeze’ more [out of people],” he said. For example, “if you look at the economics of driving ‘Uber’, there’s definitely ‘squeezing’ going on.” Additionally, something like AirBnb - while it has revolutionized the way that people travel and provided new streams of income, people wouldn’t likely be letting out rooms in their homes in the first place if they could simply make ends meet.
And as for the “sharing” economy - ”It sounds very pleasant and nice, but people are obviously giving up thins and trying to get the most out of what they have because of [the movement toward extraction.]”
However, “the network provides the ability to coordinate sharing at an unprecedented level of efficiency,” he added.
“What happens with the ‘squeezing’ is that it’s so optimized - that the extraction is so efficient and so strong - that essentially, people live sort of a pressurized existence.”
Whatever you may call it, this kind of economy has resulted in the formation of new kinds of externalities (consequences of industrial or commercial activity that affect third but do not affect market prices.)
Matsumura named online privacy as one of these newly-formed externalities. “Because obviously, if you’re trying to maximize extraction, you’re going to prioritize things other than privacy because you’re an AI bot. So you’re really just trying to do whatever you can to kind of crawl the internet and make connections, figure out who people are, and then sell them things.”
“What happens with the ‘squeezing’ is that it’s so optimized--that the extraction is so efficient and so strong--that essentially, people live sort of a pressurized existence. And there’s not that much margin for error.”
“It’s efficient, but it’s not effective, and I think there are problems with the rules and the incentives that structure what’s deemed to be beneficial.”
Effective Regulation is Unlikely--But Structural Change Can Still Happen
Could anything stop this flow toward greater and greater extraction? “I’m not necessarily all that optimistic about regulation,” Matsumura said. “REgulators are always trying to do their best.[But] for example, if you take a regulatory body like the US SEC, they’re about 1% of the size of Goldman Sachs--and they have to regulate Goldman Sachs. That’s a big job.”
In fact, “it’s too much,” he said. “The people I’ve spoken to at the SEC are incredibly bright and really, really good at their jobs, but there just aren’t enough of them. There are too few people working on it, and it’s too hard--and obviously, so-called innovators--their full-time job is to skirt around the edges and sort of chip away.”
“So it’s too difficult to hope that these things will come from regulation,” he said.
Open-Source software is ”a competitive matrix that’s fueled by consent”
“But I do think that we do need some kind of a structural change in the rules of the game,” he continued. “One of the realms that I’ve been studying over the past 25 years is open-source software. If you look at open-source software, it’s [essentially] a competitive matrix that is fueled by consent--it’s not fueled by dollars.”
“The thing that’s interesting about that is that developers get the consent of other developers, they get the consent of contributors, they get the consent of users (who are sometimes other developers, and sometimes they’re end users)--the point being that the projects that get [the most] consent become really powerful projects and the ones that don’t get much consent get no users and no developers. They just kind of wither and die.”
“So, in a way--it’s a competition for consent,” he said.
A purely peer-to-peer version of electronic cash would allow online Payments to be sent directly from one party to another without going through a financial institution... but the main benefits are lost if a trusted third party is still required to prevent double-spending. https://t.co/VQDYacuS1Z
— Miko Matsumura ㋡ (@mikojava) July 2, 2019
“The thing that’s so interesting about the rules of the game of the world is that if you measure it by GDP (Gross Domestic Product)--actually, open-source software has a negative impact,” he continued.
”Software is eating the world; open-source is eating software.”
“The reason why is that you have these perfectly nice companies that sell proprietary databases. And if someone comes along and makes an open-source database for free, then--not only is the person who’s writing the code that makes the open-source database not getting paid to do that, but now you’ve got a commercial software company who used to be able to sell a database, and now they can no longer sell the database.”
“So, [looking] at it from the current ways of looking at the rules, if you measure the impact of open-source software, you would see it as destructive to GDP, when in fact tech companies (that are the largest and most valuable companies in the world)--as much as 90% of the lines of code that they’re shipping today are open-source software.”
“Software is eating the world; open-source is eating software,” he said. “How can we claim that this is not even of no value, but of negative value? Because you can just say, ‘look, no one has paid a penny for this software, which proves that it is of no value.’’”
“Which I think is really alarming and nonsensical,” he added.
”The incentives and the measuring mechanisms that we’re using to govern are broken.”
“And just to make a contrast, the thing that’s really interesting and kind of horrifying is that if we were to bomb a city, that would be accretive to the GDP, and it would be accretive to the GDP of both countries...ambulances and hospitals, lots of costs would be incurred; reconstruction would ensue in the bombed country, and the [bomber] country would build new weapon systems to replace the ones that they launched--[think of] all the fueling and the jobs created from that.”
“What I’m really suggesting is that the incentives and the measuring mechanisms that we’re using to govern are broken, and what we’re seeing is an aggressive pursuit of the growth of ‘the economy,’ but it’s really at the expense of everything else.”
This was an excerpt. To hear the rest of Finance Magnates’ fascinating interview with Miko Matsumura, click the Soundcloud or Youtube links.
