Millennials get their revenge on the Boomers

I’ve been concerned about increasing generational conflict for many years. Some of it is justified, some isn’t, but in an era of fake news and conspiracy theories, it’s hard to resist having some fun with the idea. There’s too much reality right now. In any case, reality counts for little while perception is everything, and if your bubble tells you to feel aggrieved, that’s a lot easier than doing actual research on the figures. So here goes. Don’t take it too seriously.

The boomer generation had an easy ride through life, buying their big houses cheaply and getting fat index-linked pensions from their late 50s, lazing around on golf courses, while millennials and zoomers are having to pay too much for their homes, won’t get the nice pensions and will have to work far longer. Also, the boomers trashed the environment and wrecked the climate, filled the world with nuclear weapons, and did nothing to reduce racial or LGBT oppression. They even forced the UK to leave the wonderful EU, so now all our businesses will die and it won’t be long before we’re all on minimum wage with nothing to eat but recycled cardboard. Millennials are having to fix everything, absorb all the debt and pay all the bills, and won’t even inherit anything until we are old and grey.

So, payback time then. What mechanisms are available to punish the horrible boomers and restore fairness for millennials.

Sadly, we can’t just go and murder them all, well not unless we defund the police first anyway. We could try that, and see how it works, maybe some scope for experimentation with different approaches. A few manipulated riots and who knows how many we can get rid of?  We could do with some sort of  Logan’s Run style carousel, where the over 60s are ceremoniously terminated. Too obvious in that form, but applying some basic PR gumption,how about a system that allows them to be killed for their own good, with us making the decisions of course? So we needs a nice name that sounds compassionate and caring. How about Liverpool Care Pathway?, Yeah that’ll do, maybe we can tweak that now and then if people start to get wise to it. Perhaps design a nice form and smile sweetly while asking them to sign it so they suspect nothing. After all, a nice doctor from the wonderful NHS, what could possibly be wrong. They’ll assume DNR is just another medical term, like check blood pressure or something. Most of them won’t know what resuscitate means anyway. “Do not resuscitate”, they’ll think we mean not to wake them too early in the morning, let them lie in a bit or whatever. They grew old trusting the NHS so won’t suspect a thing. So, a couple of forms and we can get rid of quite a few of the old scroungers.

Oh look, a virus, that kills old people. Who’d have thought? If anyone suspects it was commissioned by Obama funding research in the Wuham virus lab, adapting a bat virus for human transmission, we can just dismiss that as a conspiracy theory – the Chinese are good at hiding stuff anyway so there won’t be any proof, they’ll just disappear anyone that might give the game away. Nobody would ever believe it and the media will all help to keep it quiet. So all we have to do is let it come over in planes and ships, not do anything at all to stop if until it’s everywhere and boomers will start dropping dead. If we say we need space in hospitals, we can chuck lots of infected boomers out of hospitals into old folks’ homes where they’ll infect loads more. Keep feigning incompetence, make sure the infection gets all the best chances of spreading, keep the old people in homes and delay any promising medications for any that get to hospital and before you know it, tens of thousands of them will be history. Think of all the pensions and benefits and the huge care and medical costs we’ll save. And all the inheritances that will be passed on years earlier.

But there will still be millions left, so we’ll need more viruses every few years.

Meanwhile, we still need ways of transferring their money. Boomers have loads of savings and investments so we need a way to transfer that to the state so we can have low taxes but still get all the good things. Taxes would work, but they’re too obvious. This idea of printing money is pretty good though. Let’s call it quantitative easing so people won’t pay attention and will just get bored if they investigate. So we borrow loads or money and increase public services, but then print loads of money to pay off the debt instead of raising taxes. That means any existing money is diluted, so its value falls, but the debt is worth less. Magic! Sure the existing money is worth less, but the boomers have most of that, we don’t have much yet, so they pay, and we don’t, our taxes stay low and the boomers pay. Serves them right. Everyone sees inflation of course, but the we will get pay rises to keep up, but the horrible boomers that didn’t work in the public sector probably won’t have their pensions index-linked, so will see their pensions worth less and their savings evaporate as the value transfers to the state, keeping our taxes low. In fact, while we’re at it, if we can persuade them to swap their pensions for cash, let’s call it transferring out, the quantitative easing will work much faster so we can get their money even quicker. The public sector boomers will still get their index linking, but we’ll still get their savings, and they’ll carry on voting for the left too – what’s not to like? So, suppose we do £1 Trillion of QE, that’s a decent start, but probably won’t even get any headlines. 15k per capita if it was everyone paying, but 50% don’t pay net tax and most of the rest only pay a bit, so that’s like a £50k Boomer tax, £100k for a couple. And we can do that every few years, and most will never notice, they’ll just carry on whining about increasing prices and we’ll just carry on making fun of them.

So we get to legally kill off a lot of them, and as for the survivors, we get to take their pensions and their savings. Best of all, we still get to make them feel guilty about how awful they’ve made it for us.

Revenge is sweet!

 

 

Enhanced cellular blockchain

I thought there was a need for a cellular blockchain variant, and a more sustainable alternative to cryptocurrencies like Bitcoin that depend on unsustainable proofs-of-work. So I designed one and gave it a temporary project name of Grapevine. I like biomimetics, which I used for both the blockchain itself and its derivative management/application/currency/SW distribution layer. The ANTs were my invention in 1993 when I was with BT, along with Chris Winter. BT never did anything with it, and I believe MIT later published some notes on the idea too. ANTs provide an ideal companion to blockchain and together, could be the basis of some very secure IT systems.

The following has not been thoroughly checked so may contain serious flaws, but hopefully contain some useful ideas to push the field a little in the right direction.

A cellular, distributed, secure ledger and value assurance system – a cheap, fast, sustainable blockchain variant

• Global blockchain grows quickly to enormous size because all transactions are recorded in single chain – e.g. bitcoin blockchain is already >100GB
• Grapevine (temp project name) cellular approach would keep local blocks small and self-contained but assured by blockchain-style verification during growth and protected from tampering after block is sealed and stripped by threading with a global thread
• Somewhat analogous to a grape vine. Think of each local block as a grape that grow in bunches. Vine links bunches together but grapes are all self-contained and stay small in size. Genetics/nutrients/materials/processes all common to entire vine.
• Grape starts as a flower, a small collection of unverified transactions. All stamens listen to transactions broadcast via any stamen. Flower is periodically (every minute) frozen (for 2 seconds) while pollen is emitted by each stamen, containing stamen signature, previous status verification and new transactions list. Stamens check the pollen they receive for origin signature and previous growth verification and then check all new transactions. If valid, they emit a signed pollination announcement. When each stamen has received signed pollination announcements from the majority of other stamens, that growth stage is closed, (all quite blockchain-like so far), stripped of unnecessary packaging such as previous hash, signatures etc) to leave a clean record of validated transactions, which is then secured from tampering by the grape signature and hash. The next stage of growth then begins, which needs another pollination process (deviating from biological analogy here). Each grape on the bunch grows like this throughout the day. When the grapes are all fully grown, and the final checks made by each grape, the grapes are stripped again and the whole bunch is signed onto the vine using a highly secure bunch signature and hash to prevent any later tampering. Grapes are therefore collections of verified local transactions that have grown in many fully verified stages during the day but are limited in size and stripped of unnecessary packaging. The bunch is a verified global record of all of the grapes grown that day that remains the same forever. The vine is a growing collection of bunches of grapes, but each new grape and bunch starts off fresh each day so signalling and the chain never grow significantly. Each transaction remains verified and recorded forever but signalling is kept minimal. As processing power increases, earlier bunches can be re-secured using a new bunch signature.

Key Advantages

• Grape vine analogy is easier for non-IT managers to understand than normal blockchain.
• Unlike conventional blockchains, blocks grow in stages so transactions don’t have to wait long to be verified and sealed.
• Cellular structure means signalling is always light, with just a few nearby nodes checking a few transactions and keeping short records.
• Ditto bunching, each day’s records start from zero and bunch is finished and locked at end of day.
• Cellular structure allows sojourn time for signalling to be kept low with potentially low periods for verification and checking. Will scale well with improving processing speed, less limited by signal propagation time than non-cellular chains.
• Global all-time record is still complete, duplicated, distributed, but signalling for new transactions always starts light and local every new day.
• Cellular approach allows easy re-use of globally authenticated tokens within each cell. This limits cost of token production.
• Cells may be either geographic or logical/virtual. Virtual cells can be geographically global (at penalty of slower comms), but since each is independent until the end of the day, virtual cell speed will not affect local cell speed.
• Protocols can be different for different cells, allowing cells with higher value transactions to use tighter security.

Associated mechanisms

• Inter-cell transactions can be implemented easily by using logical/virtual cell that includes both parties. Users may need to be registered for access to multiple cells. If value is being transferred, it is easy to arrange clearing of local cell first (1 minute overhead) and then check currency hasn’t already been spent before allowing transaction on another cell.
• Grapes are self-contained and data is held locally, duplicated among several stamens. Once sealed for the day, the grape data remains in place, signed off with the appropriate grape signature and the bunch signature verifies it with an extra lock that prevents even a future local majority from being able to tamper with it later. To preserve data in the very long-term against O/S changes, company failure etc, subsequent certified copies may be distributed and kept updated.
• Signalling during the day can be based on ANT (autonomous network telepher) protocols. These use a strictly limited variety of ANT species that are authenticated and shared at the start of a period (a day or a week perhaps), using period lifetime encryption keys. Level of encryption is determined by ensuring that period is much smaller than the estimated time to crack on current hardware at reasonable cost. All messages use this encryption and ANT mechanisms therefore chances of infiltration or fraudulent transaction is very low so associated signalling and time overhead costs are kept low.
• ANTs may include transaction descriptor packets, signature distribution packets, new key distribution packets, active (executable code) packets, new member verification packets, software distribution, other admin data, performance maintenance packets such as load distribution, RPCs and many others. Overall, perhaps 64 possible ANT species may be allowed at any one time. This facility makes the system ideal for secure OS and software distribution/maintenance.

Financial use

• ANTs can contain currency to make valuable packets, or an ANT variant could actually be currency.
• Optional coins could be made for privacy, otherwise transactions would use real world accounts. A coin-based system can be implemented simply by using the grape signature and coin number. Coins could be faked by decrypting the signature but that signature only lasts one period so by then they will be invalid. Remember, encryption level is set according to cost to decrypt during a period. Coins are globally unique due to different cells having different signatures. Once grapes are sealed no tampering is possible.
• One mechanism is that coins are used as temporary currency that only lasts one period. Coins are bought using any currency immediately before transactions. At end of day, coins are converted back to desired currency. Any profits/losses due to conversion differences during day accrue to user at point of conversion.
• A lingering cybercurrency can be made that renews its value to live longer than one period. It simply needs conversion to a new coin at the start of the new day, relying on signature security and short longevity to protect.
• ANTs can alternatively carry real currency value by direct connection to any account. At end of each growth stage or end of day, transaction clearing debits and deposits in each respective account accordingly.
• Transaction fees can be implemented easily and simply debited at either or both ends.
• No expensive PoW is needed. Wasteful mining and PoW activity is unnecessary. Entire system relies only on using encryption signatures that are valid for shorter times than their cost-effective decryption times. Tamper-resistance avoids decryption of earlier signatures being useful.

With thanks to my good friend Prof Nick Colosimo for letting me bounce the ideas off him.

AI presents a new route to attack corporate value

As AI increases in corporate, social, economic and political importance, it is becoming a big target for activists and I think there are too many vulnerabilities. I think we should be seeing a lot more articles than we are about what developers are doing to guard against deliberate misdirection or corruption, and already far too much enthusiasm for make AI open source and thereby giving mischief-makers the means to identify weaknesses.

I’ve written hundreds of times about AI and believe it will be a benefit to humanity if we develop it carefully. Current AI systems are not vulnerable to the terminator scenario, so we don’t have to worry about that happening yet. AI can’t yet go rogue and decide to wipe out humans by itself, though future AI could so we’ll soon need to take care with every step.

AI can be used in multiple ways by humans to attack systems.

First and most obvious, it can be used to enhance malware such as trojans or viruses, or to optimize denial of service attacks. AI enhanced security systems already battle against adaptive malware and AI can probe systems in complex ways to find vulnerabilities that would take longer to discover via manual inspection. As well as AI attacking operating systems, it can also attack AI by providing inputs that bias its learning and decision-making, giving AI ‘fake news’ to use current terminology. We don’t know the full extent of secret military AI.

Computer malware will grow in scope to address AI systems to undermine corporate value or political campaigns.

A new route to attacking corporate AI, and hence the value in that company that relates in some way to it is already starting to appear though. As companies such as Google try out AI-driven cars or others try out pavement/sidewalk delivery drones, so mischievous people are already developing devious ways to misdirect or confuse them. Kids will soon have such activity as hobbies. Deliberate deception of AI is much easier when people know how they work, and although it’s nice for AI companies to put their AI stuff out there into the open source markets for others to use to build theirs, that does rather steer future systems towards a mono-culture of vulnerability types. A trick that works against one future AI in one industry might well be adaptable to another use in another industry with a little devious imagination. Let’s take an example.

If someone builds a robot to deliberately step in front of a self-driving car every time it starts moving again, that might bring traffic to a halt, but police could quickly confiscate the robot, and they are expensive, a strong deterrent even if the pranksters are hiding and can’t be found. Cardboard cutouts might be cheaper though, even ones with hinged arms to look a little more lifelike. A social media orchestrated campaign against a company using such cars might involve thousands of people across a country or city deliberately waiting until the worst time to step out into a road when one of their vehicles comes along, thereby creating a sort of denial of service attack with that company seen as the cause of massive inconvenience for everyone. Corporate value would obviously suffer, and it might not always be very easy to circumvent such campaigns.

Similarly, the wheeled delivery drones we’ve been told to expect delivering packages any time soon will also have cameras to allow them to avoid bumping into objects or little old ladies or other people, or cats or dogs or cardboard cutouts or carefully crafted miniature tank traps or diversions or small roadblocks that people and pets can easily step over but drones can’t, that the local kids have built from a few twigs or cardboard from a design that has become viral that day. A few campaigns like that with the cold pizzas or missing packages that result could severely damage corporate value.

AI behind websites might also be similarly defeated. An early experiment in making a Twitter chat-bot that learns how to tweet by itself was quickly encouraged by mischief-makers to start tweeting offensively. If people have some idea how an AI is making its decisions, they will attempt to corrupt or distort it to their own ends. If it is heavily reliant on open source AI, then many of its decision processes will be known well enough for activists to develop appropriate corruption tactics. It’s not to early to predict that the proposed AI-based attempts by Facebook and Twitter to identify and defeat ‘fake news’ will fall right into the hands of people already working out how to use them to smear opposition campaigns with such labels.

It will be a sort of arms race of course, but I don’t think we’re seeing enough about this in the media. There is a great deal of hype about the various AI capabilities, a lot of doom-mongering about job cuts (and a lot of reasonable warnings about job cuts too) but very little about the fight back against AI systems by attacking them on their own ground using their own weaknesses.

That looks to me awfully like there isn’t enough awareness of how easily they can be defeated by deliberate mischief or activism, and I expect to see some red faces and corporate account damage as a result.

PS

This article appeared yesterday that also talks about the bias I mentioned: https://techcrunch.com/2016/12/10/5-unexpected-sources-of-bias-in-artificial-intelligence/

Since I wrote this blog, I was asked via Linked-In to clarify why I said that Open Source AI systems would have more security risk. Here is my response:

I wasn’t intending to heap fuel on a dying debate (though since current debate looks the same as in early 1990s it is dying slowly). I like and use open source too. I should have explained my reasoning better to facilitate open source checking: In regular (algorithmic) code, programming error rate should be similar so increasing the number of people checking should cancel out the risk from more contributors so there should be no a priori difference between open and closed. However:

In deep learning, obscurity reappears via neural net weightings being less intuitive to humans. That provides a tempting hiding place.

AI foundations are vulnerable to group-think, where team members share similar world models. These prejudices will affect the nature of OS and CS code and result in AI with inherent and subtle judgment biases which will be less easy to spot than bugs and be more visible to people with alternative world models. Those people are more likely to exist in an OS pool than a CS pool and more likely to be opponents so not share their results.

Deep learning may show the equivalent of political (or masculine and feminine). As well as encouraging group-think, that also distorts the distribution of biases and therefore the cancelling out of errors can no longer be assumed.

Human factors in defeating security often work better than exploiting software bugs. Some of the deep learning AI is designed to mimic humans as well as possible in thinking and in interfacing. I suspect that might also make them more vulnerable to meta-human-factor attacks. Again, exposure to different and diverse cultures will show a non-uniform distribution of error/bias spotting/disclosure/exploitation.

Deep learning will become harder for humans to understand as it develops and becomes more machine dependent. That will amplify the above weaknesses. Think of optical illusions that greatly distort human perception and think of similar in advanced AI deep learning. Errors or biases that are discovered will become more valuable to an opponent since they are less likely to be spotted by others, increasing their black market exploitation risk.

I have not been a programmer for over 20 years and am no security expert so my reasoning may be defective, but at least now you know what my reasoning was and can therefore spot errors in it.

Cellular blockchain, cellular bitcoin

Bitcoin has been around a while and the blockchain foundations on which it is built are extending organically into other areas.

Blockchain is a strongly encrypted distributed database, a ledger that records every transaction. That’s all fine, it works OK, and it doesn’t need fixed.

However, for some applications or new cryptocurrencies, there may be some benefit in making a cellular blockchain to limit database size, protect against network outage, and harden defenses against any local decryption. These may become important as cyber-terrorism increases and as quantum computing develops. They would also be more suited to micro-transactions and micro-currencies.

If you’ve made it this far, you almost certainly don’t need any further explanation.

The future of electronic cash and value

Picture first, I’m told people like to see pics in blogs. This one is from 1998; only the title has changed since.

Every once in a while I have to go to a bank. This time it was my 5th attempt to pay off a chunk of my Santander Mortgage. I didn’t know all the account details for web transfer so went to the Santander branch. Fail – they only take cash and cheques. Cash and what??? So I tried via internet banking. Entire transaction details plus security entered, THEN Fail – I exceeded what Barclays allows for their fast transfers. Tried again with smaller amount and again all details and all security. Fail again, Santander can’t receive said transfers, try CHAPS. Tried CHAPS, said it was all fine, all hunkydory. Happy bunny. Double fail. It failed due to amount exceeding limit AND told me it had succeeded when it hadn’t. I then drove 12 miles to my Barclays branch who eventually managed to do it, I think (though I haven’t checked that it worked  yet).

It is 2015. Why the hell is it so hard for two world class banks to offer a service we should have been able to take for granted 20 years ago?

Today, I got tweeted about Ripple Labs and a nice blog that quote their founder sympathising with my experience above and trying to solve it, with some success:

http://www.wfs.org/blogs/richard-samson/supermoney-new-wealth-beyond-banks-and-bitcoin

Ripple seems good as far as it goes, which is summarised in the blog, but do read the full original:

Basically the Ripple protocol “provides the ability for humans to confirm financial transactions without a central operator,” says Larsen. “This is major.” Bitcoin was the first technology to successfully bypass banks and other authorities as transaction validators, he points out, “but our method is much cheaper and takes only seconds rather than minutes.” And that’s just for starters. For example, “It also leverages the enormous power of banks and other financial institutions.”

The power of the value web stems from replacing archaic back-end systems with all their cumbersome delays and unnecessary costs. 

That’s great, I wish them the best of success. It is always nice to see new systems that are more efficient than the old ones, but the idea is early 1990s. Lots of IT people looked at phone billing systems and realised they managed to do for a penny what banks did for 65 pennies at the time, and telco business cases were developed to replace the banks with pretty much what Ripple tries to do. Those were never developed for a variety of reasons, both business and regulatory, but the ideas were certainly understood and developed broadly at engineer level to include not only traditional cash forms but many that didn’t exist then and still don’t. Even Ripple can only process transactions that are equivalent to money such as traditional currencies, electronic cash forms like bitcoin, sea shells or air-miles.

That much is easy, but some forms require other tokens to have value, such as personalized tokens. Some value varies according to queue lengths, time of day, who is spending it to whom. Some needs to be assignable, so you can give money that can only be used to purchase certain things, and may have a whole basket of conditions attached. Money is also only one form of value, and many forms of value are volatile, only existing at certain times and places in certain conditions for certain transactors. Aesthetic cash? Play money? IOUs? Favours?These are  all a bit like cash but not necessarily tradable or exchangeable using simple digital transaction engines because they carry emotional weighting as well as financial value. In the care economy, which is now thankfully starting to develop and is finally reaching concept critical mass, emotional value will become immensely important and it will have some tradable forms, though much will not be tradable ever. We understood all that then, but are still awaiting proper implementation. Most new startups on the web are old ideas finally being implemented and Ripple is only a very partial implementation so far.

Here is one of my early blogs from 1998, using ideas we’d developed several years earlier that were no longer commercially sensitive – you’ll observe just how much banks have under-performed against what we expected of them, and what was entirely feasible using already known technology then:

Future of Money

 ID Pearson, BT Labs, June 98

Already, people are buying things across the internet. Mostly, they hand over a credit card number, but some transactions already use electronic cash. The transactions are secure so the cash doesn’t go astray or disappear, nor can it easily be forged. In due course, using such cash will become an everyday occurrence for us all.

Also already, electronic cash based on smart cards has been trialled and found to work well. The BT form is called Mondex, but it is only one among several. These smart cards allow owners to ‘load’ the card with small amounts of money for use in transactions where small change would normally be used, paying bus fares, buying sweets etc. The cards are equivalent to a purse. But they can and eventually will allow much more. Of course, electronic cash doesn’t have to be held on a card. It can equally well be ‘stored’ in the network. Transactions then just require secure messaging across the network. Currently, the cost of this messaging makes it uneconomic for small transactions that the cards are aimed at, but in due course, this will become the more attractive option, especially since you no longer lose your cash when you lose the card.

When cash is digitised, it loses some of the restrictions of physical cash. Imagine a child has a cash card. Her parents can give her pocket money, dinner money, clothing allowance and so on. They can all be labelled separately, so that she can’t spend all her dinner money on chocolate. Electronic shopping can of course provide the information needed to enable the cash. She may have restrictions about how much of her pocket money she may spend on various items too. There is no reason why children couldn’t implement their own economies too, swapping tokens and IOUs. Of course, in the adult world this grows up into local exchange trading systems (LETS), where people exchange tokens too, a glorified babysitting circle. But these LETS don’t have to be just local, wider circles could be set up, even globally, to allow people to exchange services or information with each other.

Electronic cash can be versatile enough to allow for negotiable cash too. Credit may be exchanged just as cash and cash may be labelled with source. For instance, we may see celebrity cash, signed by the celebrity, worth more because they have used it. Cash may be labelled as tax paid, so those donations from cards to charities could automatically expand with the recovered tax. Alternatively, VAT could be recovered at point of sale.

With these advanced facilities, it becomes obvious that the cash needs to become better woven into taxation systems, as well as auditing and accounting systems. These functions can be much more streamlined as a result, with less human administration associated with money.

When ID verification is added to the transactions, we can guarantee who it is carrying out the transaction. We can then implement personal taxation, with people paying different amounts for the same goods. This would only work for certain types of purchase – for physical goods there would otherwise be a thriving black market.

But one of the best advantages of making cash digital is the seamlessness of international purchases. Even without common official currency, the electronic cash systems will become de facto international standards. This will reduce the currency exchange tax we currently pay to the banks every time we travel to a different country, which can add up to as much as 25% for an overnight visit. This is one of the justifications often cited for European monetary union, but it is happening anyway in global e-commerce.

Future of banks

 Banks will have to change dramatically from today’s traditional institutions if they want to survive in the networked world. They are currently introducing internet banking to try to keep customers, but the move to digital electronic cash, held perhaps by the customer or an independent third party, will mean that the cash can be quite separate from the transaction agent. Cash does not need to be stored in a bank if records in secured databases anywhere can be digitally signed and authenticated. The customer may hold it on his own computer, or in a cyberspace vault elsewhere. With digital signatures and high network security, advanced software will put the customer firmly in control with access to any facility or service anywhere.

In fact, no-one need hold cash at all, or even move it around. Cash is just bits today, already electronic records. In the future, it will be an increasingly blurred entity, mixing credit, reputation, information, and simply promises into exchangeable tokens. My salary may be just a digitally signed certificate from BT yielding control of a certain amount of credit, just another signature on a long list as the credit migrates round the economy. The ‘promise to pay the bearer’ just becomes a complex series of serial promises. Nothing particularly new here, just more of what we already have. Any corporation or reputable individual may easily capture the bank’s role of keeping track of the credit. It is just one service among many that may leave the bank.

As the world becomes increasingly networked, the customer could thus retain complete control of the cash and its use, and could buy banking services on a transaction by transaction basis. For instance, I could employ one company to hold my cash securely and prevent its loss or forgery, while renting the cash out to companies that want to borrow via another company, keeping the bulk of the revenue for myself. Another company might manage my account, arrange transfers etc, and deal with the taxation, auditing etc. I could probably get these done on my personal computer, but why have a dog and bark yourself.

The key is flexibility, none of these services need be fixed any more. Banks will not compete on overall package, but on every aspect of service. Worse still (for the banks), some of their competitors will be just freeware agents. The whole of the finance industry will fragment. The banks that survive will almost by definition be very adaptable. Services will continue and be added to, but not by the rigid structures of today. Surviving banks should be able to compete for a share of the future market as well as anyone. They certainly have a head start in many of the required skills, and have the advantage of customer lethargy when it comes to changing to potentially better suppliers. Many of their customers will still value tradition and will not wish to use the better and cheaper facilities available on the network. So as always, it looks like there will be a balance.

Firstly, with large numbers of customers moving to the network for their banking services, banks must either cater for this market or become a niche operator, perhaps specialising in tradition, human service and even nostalgia. Most banks however will adapt well to network existence and will either be entirely network based, or maintain a high street presence to complement their network presence.

High Street banking

 Facilities in high street banking will echo this real world/cyberspace nature. It must be possible to access network facilities from within the banks, probably including those of competitors. The high street bank may therefore be more like shops today, selling wares from many suppliers, but with a strongly placed own brand. There is of course a niche for banks with no services of their own at all who just provide access to services from other suppliers. All they offer in addition is a convenient and pleasant place to access them, with some human assistance as appropriate.

Traditional service may sometimes be pushed as a differentiator, and human service is bound to attract many customers too. In an increasingly machine dominated world, actually having the right kind of real people may be significant value add.

But many banks will be bursting with high technology either alongside or in place of people. Video terminals to access remote services, perhaps with translation to access foreign services. Biometric identification based on iris scan, fingerprints etc may be used to authenticate smart cards, passports or other legal documents before their use, or simply a means of registering securely onto the network. High quality printers and electronic security embedding would enable banks to offer additional facilities like personal bank notes, usable as cash.

Of course, banks can compete in any financial service. Because the management of financial affairs gives them a good picture of many customer’s habits and preferences, they will be able to use this information to sell customer lists, identify market niches for new businesses, and predict the likely success of customers proposing setting up businesses.

As they try to stretch their brands into new territories, one area they may be successful is in information banking. People may use banks as the publishers of the future. Already knowledge guilds are emerging. Ultimately, any piece of information from any source can be marketed at very low publishing and distribution cost, making previously unpublishable works viable. Many people have wanted to write, but have been unable to find publishers due to the high cost of getting to market in paper. A work may be sold on the network for just pennies, and achieve market success by selling many more copies than could have been achieved by the high priced paper alternative. The success of electronic encyclopedias and the demise of Encyclopedia Britannica is evidence of this. Banks could allow people to upload information onto the net, which they would then manage the resultant financial transactions. If there aren’t very many, the maximum loss to the bank is very small. Of course, electronic cash and micropayment technology mean that the bank is not necessary, but for many, it may smooth the road.

Virtual business centres

Their exposure to the detailed financial affairs of the community put banks in a privileged position in identifying potential markets. They could therefore act as co-ordinators for virtual companies and co-operatives. Building on the knowledge guilds, they could broker the skills of their many customers to existing virtual companies and link people together to address business needs not addressed by existing companies, or where existing companies are inadequate or inefficient. In this way, short-term contractors, who may dominate the employment community, can be efficiently utilised to everyone’s gain. The employees win by getting more lucrative work, their customers get more efficient services at lower cost, and the banks laugh to themselves.

Future of the stock market

 In the next 10 years, we will probably see a factor of 1000 in computer speed and memory capacity. In parallel with hardware development, there are numerous research forays into software techniques that might yield more factors of 10 in the execution speed for programs. Tasks that used to take a second will be reduced to a millisecond. As if this impact were not enough, software will very soon be able to make logical deductions from the flood of information on the internet, not just from Reuters or Bloomberg, but from anywhere. They will be able to assess the quality and integrity of the data, correlate it with other data, run models, and infer likely other events and make buy or sell recommendations. Much dealing will still be done automatically subject to human-imposed restrictions, and the speed and quality of this dealing could far exceed current capability.

Which brings problems…

Firstly, the speed of light is fast but finite. With these huge processing speeds, computers will be able to make decisions within microseconds of receiving information. Differences in distance from the information source become increasingly important. Being just 200m closer to the Bank of England makes one microsecond difference to the time of arrival of information on interest rates, the information, insignificant to a human, but of sufficient duration for a fast computer to but or sell before competitors even receive the information. As speeds increase further over following years, the significant distance drops. This effect will cause great unfairness according to geographic proximity to important sources. There are two obvious outcomes. Either there becomes a strong premium on being closest, with rises in property values nearby to key sources, or perhaps network operators could be asked to provide guaranteed simultaneous delivery of information. This is entirely technically feasible but would need regulation, otherwise users could simply use alternative networks.

Secondly, exactly simultaneous processing will cause problems. If many requests for transactions arrive at exactly the same moment, computers or networks have to give priority in some way. This is bound to be a source of contention. Also, simultaneous events can often cause malfunctions, as was demonstrated perfectly at the launch of Big Bang. Information waves caused by such events are a network phenomenon that could potentially crash networks.

Such a delay-sensitive system may dictate network technology. Direct transmission through the air by means of radio or infrared (optical wireless) would be faster than routing signals through fibres that take a more tortuous route, especially since the speed of light in fibre is only two third that in air.

Ultimately, there is a final solution if speed of computing increases so far that transmission delay is too big a problem. The processing engines could actually be shared, with all the deals and information processing taking place in a central computer, using massive parallelism. It would be possible to construct such a machine that treated each subscribing company fairly.

An interesting future side effect of all this is that the predicted flood of people into the countryside may be averted. Even though people can work from anywhere, their computers have to be geographically very close to the information centres, i.e. the City. Automated dealing has to live in the city, human based dealing can work from anywhere. If people and machines have to work together, perhaps they must both work in the City.

Consumer dealing

 The stock exchange long since stopped being a trading floor with scraps of paper and became a distributed computer environment – it effectively moved into cyberspace. The deals still take place, but in cyberspace. There are no virtual environments yet, but the other tools such as automated buying and selling already exist. These computers are becoming smarter and exist in cyberspace every bit the same as the people. As a result, there is more automated analysis, more easy visualisation and more computer assisted dealing. People will be able to see which shares are doing well, spot trends and act on their computer’s advice at a button push. Markets will grow for tools to profit from shares, whether they be dealing software, advice services or visualisation software.

However, as we see more people buying personal access to share dealing and software to determine best buys, or even to automatically buy or sell on certain clues, we will see some very negative behaviours. Firstly, traffic will be highly correlated if personal computers can all act on the same information at the same time. We will see information waves, and also enormous swings in share prices. Most private individuals will suffer because of this, while institutions and individuals with better software will benefit. This is because prices will rise and fall simply because of the correlated activity of the automated software and not because of any real effects related to the shares themselves. Institutions may have to limit private share transactions to control this problem, but can also make a lot of money from modelling the private software and thus determining in advance what the recommendations and actions will be, capitalising enormously on the resultant share movements, and indeed even stimulating them. Of course, if this problem is generally perceived by the share dealing public, the AI software will not take off so the problem will not arise. What is more likely is that such software will sell in limited quantities, causing the effects to be significant, but not destroying the markets.

A money making scam is thus apparent. A company need only write a piece of reasonably good AI share portfolio management software for it to capture a fraction of the available market. The company writing it will of course understand how it works and what the effects of a piece of information will be (which they will receive at the same time), and thus able to predict the buying or selling activity of the subscribers. If they were then to produce another service which makes recommendations, they would have even more notice of an effect and able to directly influence prices. They would then be in the position of the top market forecasters who know their advice will be self fulfilling. This is neither insider dealing nor fraud, and of course once the software captures a significant share, the quality of its advice would be very high, decoupling share performance from the real world. Only the last people to react would lose out, paying the most, or selling at least, as the price is restored to ‘correct’ by the stock exchange, and of course even this is predictable to a point. The fastest will profit most.

The most significant factor in this is the proportion of share dealing influenced by that companies software. The problem is that software markets tend to be dominated by just two or three companies, and the nature of this type of software is that their is strong positive reinforcement for the company with the biggest influence, which could quickly lead to a virtual monopoly. Also, it really doesn’t matter whether the software is on the visualisation tools or AI side. Each can have a predictability associated with it.

It is interesting to contemplate the effects this widespread automated dealing would have of the stock market. Black Monday is unlikely to happen again as a result of computer activity within the City, but it certainly looks like prices will occasionally become decoupled from actual value, and price swings will become more significant. Of course, much money can be made on predicting the swings or getting access to the software-critical information before someone else, so we may see a need for equalised delivery services. Without equalised delivery, assuming a continuum of time, those closest to the dealing point will be able to buy or sell quicker, and since the swings could be extremely rapid, this would be very important. Dealers would have to have price information immediately, and of course the finite speed of light does not permit this. If dealing time is quantified, i.e. share prices are updated at fixed intervals, the duration of the interval becomes all important, strongly affect the nature of the market, i.e. whether everyone in that interval pays the same or the first to act gain.

Also of interest is the possibility of agents acting on behalf of many people to negotiate amongst themselves to increase the price of a company’s shares, and then sell on a pre-negotiated time or signal.

Such automated  systems would also be potentially vulnerable to false information from people or agents hoping to capitalise on their correlated behaviour.

Legal problems are also likely. If I write, and sell to a company, a piece of AI based share dealing software which learns by itself how stock market fluctuations arise, and then commits a fraud such as insider dealing (I might not have explained the law, or the law may have changed since it was written), who would be liable?

 And ultimately

 Finally, the 60s sci-fi film, The Forbin Project, considered a world where two massively powerful computers were each assigned control of competing defence systems, each side hoping to gain the edge. After a brief period of cultural exchange, mutual education and negotiation between the machines, they both decided to co-operate rather than compete, and hold all mankind at nuclear gunpoint to prevent wars. In the City of the future, similar competition between massively intelligent supercomputers in share dealing may have equally interesting consequences. Will they all just agree a fixed price and see the market stagnate instantly, or could the system result in economic chaos with massive fluctuations. Perhaps we humans can’t predict how machines much smarter than us would behave. We may just have to wait and see.

End of original blog piece

In a networked age, nice guys win

A wide variety of marketing tools have been developed to fool customers into buying products that are more expensive than they need. A huge volume of psychology research has created departments of precision marketing staff whose main skill is tricking customers. Coupled with accounting trickery, pricing, packaging and phantom special offer tricks are often used to disguise price hikes or pretend something is a bargain when it simply isn’t.

This is not clever. It is dumb. It reaps an apparent short term gain at the expense of overall customer spending and customer loyalty. If you want proof, Tesco is proof. Even the dumbest Tesco customers eventually noticed that the company had changed from one that was looking after their interests and giving excellent service and excellent prices to one that seemed to be trying hard to trick and fleece them at every opportunity. Since marketers share ideas, the other big supermarkets used many of the same practices, with the same result. When new entrants arrived that didn’t try to trick people, customers walked and profits dived.

Using the very latest psychology and neuroscience is not the problem. Nor is honing marketing and sales tools to the Nth degree. It is using those top level skills while forgetting the basics that is bad, or worse still, using them quite deliberately to abuse customers.

Customers like to feel they are getting genuinely good products at genuinely good prices. If they are used to that in a shop, they come to feel safe there and more willing to spend. They don’t feel on their guard all the time, feeling they have to do hard sums to work out which one is the least rip-off, and buying only what they need, saving the rest for elsewhere. When they feel safe, they spend more, they buy things they might not otherwise have bought, and they’ll come back again and again, so your profits will be sustainable. They take far more notice of your marketing too. They won’t look at something and then go and shop around for it online. They come to trust you, and they’ll do more business with you. That is so simple and obvious it doesn’t need years of training to learn. Being simple doesn’t mean it is untrue. Basics are easy, but still important.

Good marketing lets customers know about your product and its relative merits. It can even be honest about its limitations. Good marketing is that which customers would seek out themselves if you didn’t deliver it to them already. Bad marketing is trying to fool someone into buying something they otherwise wouldn’t. You can fool someone once, maybe twice, but in the end it is you who loses a good customer. Social media exposes trickery quickly and effectively and tricksters lose. In the networked age, nice guys win.

If you use sophisticated marketing to fool customers, the fool is you. If you want a friend, be a friend.

The future of Tesco – a recovery strategy

Tesco’s share price has fallen dramatically after yet another profit warning. A once thriving supermarket chain finds itself in real trouble. Tesco blames the discount supermarkets, but although that is an easy excuse and some of the other chains are also suffering, it is too simplistic an analysis and merely distracts attention from Tesco’s own blame for the profit drop. The reason some others are suffering too is that similar problems also apply to them, the big chains copy each other a great deal. They take similar approaches and suffer the same consequences.

The root of the problem

Overall basket price is a big factor in customers migrating to the new discounters, but failure of trust is an even bigger one. A customer who is worried by prices still knows they have to eat and accepts having to pay, but is particularly worried about being overcharged, so trust becomes more important. It isn’t just the absolute shopping budget they care about. Feeling confident that they are getting the best value for what they have is equally important. Having to be constantly on their guard to avoid store tricks while doing what is already a boring chore is a sure way of making them want to shop elsewhere, and that is exactly why Tesco is suffering now.

Death by accountant and marketer

Accountants are critical to a successful company. If they are good, the company can flourish. If they are bad, it can die. The worst employee a company can have is an accountant who thinks they are cleverer than their customers. If they work with an equivalent self-regarding boss from marketing, they can destroy a company. Tesco sells a lot of products and its accountants and marketers have developed a large number of tricks to get customers to pay more than they should. It is easy to trick customers occasionally, and easy to think up new ways of doing so, but it isn’t clever. Eventually the customer notices. The practice of trying to trick customers to spend over the odds destroys trust and customer loyalty. When another supplier arrives that doesn’t abuse the customer in the same way, people vote with their feet, as we are now seeing.

I discussed death by marketing in a blog 9 months ago: https://timeguide.wordpress.com/2013/11/29/fake-sales-death-by-marketing/. If Tesco had read it and acted on it, perhaps the share price wouldn’t just have dropped.

I don’t need to list all the tricks here, you know them all too well, so just a few headline ones – reducing sizes while keeping the price the same, fake 50% off offers by charging double for a period, selling larger boxes at higher price per unit weight and so on. These are all technically legal, but any idiot can do that, and only an idiot would. A trivial short term gain may be had from a customer not concentrating enough, but the customer soon loses trust in the company. While it is inconvenient or more expensive overall to shop elsewhere they might still keep coming, but all the unnecessary effort they have to expend every time they go to avoid being fleeced all adds up. In the end, they walk. Nobody wants to be the poor sucker who paid £10 for a £5 bottle of win just so that others can be conned by a half price offer.

Trust has most definitely been squandered by repeated bad experiences of being fleeced. Frequently bad signage and misleading labelling don’t help. Some of that seems to be quite deliberate confusion marketing too, another fundamentally bad idea that only looks clever to the dumbest or marketers or store managers. Add to that rubbish customer service that seeks to defend the store against refunds and just argues that the customer is in the wrong and it’s a sure recipe for failure. The adverts may try to portray Tesco as the shopper’s best friend, desperate to give them the best possible value and service, but the reality experienced by the shopper is often the opposite. Many customers think of Tesco as the enemy rather than a friend. The share price drop is the direct result.

Solving this isn’t rocket science and it is astonishing just how reluctant previous managers have been to abandon so obviously flawed practice. The new boss needs to avoid these obvious mistakes. Treating customers as fools to be fleeced at every opportunity will not restore profits or the share price but will instead ensure continued collapse of loyalty.

The first foundation stone for a recovery is to stop trying to fool customers. The above points firmly to that. If you want that as ancient wisdom: “Once bitten, twice shy”. All the fake half-price and special offers have to go, and all the confusion marketing and confusion pricing. I know that accountants and marketers want to show off to their peers how smart they are, but really, fooling customers is NOT smart. The smartest way to show off to customers is by getting them really good deals occasionally, genuine special purchases.

Secondly, there can be no profit without customers. The customer is not the enemy and certainly not prey. The second foundation stone is to start treating the customer as a friend, as a potentially loyal source of future profit who just wants good value and good service. If the ethos is right, that customers should be looked after, then Tesco will recover. That the marketing says so but the reality is the opposite is a key clue to finding out where the problems really are. All the areas where customers are seen as the enemy need to be eradicated from corporate thinking. The new CEO should look down that avenue and kick the butts that need kicked.

Customer services should also go back to the old wisdom that the customer is always right. That was understood by retailers for centuries. Why has Tesco forgotten it? It needs to learn it afresh.

Thirdly, customers want consistently fair markups. They don’t want to get bread cheap and pay double for fruit and veg to make up the profits. They’d rather have purchase price + x%. Profit isn’t a dirty word and customers don’t expect shops to be charities. Markup is both expected and accepted. They just want a fair deal.

These foundations can create a solid platform for recovery. More bricks are needed on top of course, but that will come down to company flair. Tesco is huge and has enough market clout to get excellent special buys on occasion. It can offer some things the discounters can’t. It can add value in a myriad ways without adding to cost. Survival ultimately isn’t about price wars, but about looking after your customers.

My 6S guide to retailing is my view for high street retailing from 18 months ago, and is only partly appropriate to superstores, but a company the size of Tesco should know better that me anyway:

The future of high street survival: the 6S guide

Tesco was once a great company. You could be sure of getting good quality at a good price and you didn’t have to be on your guard the whole time. On that strategy, it grew from a tiny company into a huge one. All it needs to do to recover is to remember its old values and apply them again. Those are the very same techniques the new discounters are using. They treat customers as friends, they try to get them the best deals, they offer good service, and they don’t try to fleece them. Tesco can even charge a little more than the discounters and survive, because price isn’t the only factor in play – the environment, types of display, range and quality of produce all count too. But it needs to go back to its original ethos. Genuinely.

If Tesco wants to survive, it can’t carry on treating customers as dumb prey. The trust has run dry.

 

Fake sales: death by marketing

The papers are full of stories alerting customers that massive discounts in the sales are meaningless because the original prices were highly inflated and only a few items were sold at that price to a few people who got badly ripped off. Even after a 70% discount, the sale price can often still mean an actual 45% mark-up for the retailer (to save you the mental arithmetic, that means some shoppers have actually paid almost 5 times the original price paid by the shop).

A few thoughts:

1) Why is this practice still happening? It is supposed to have been banned. Are the authorities all on holiday?

2) The banks have had several fines now and had to repay billions due to bad selling campaigns, such as in credit card insurance or mortgage protection. How long can it be before a class action against the big retailers using fake discount practices is launched on behalf of the sacrificial customers who paid far too much for something so that many others could get a fair price later under the marketing pretense of a deep discount?

3) How long after that will it be before some of the claimed discounts are enforced on a sensible original price as a punishment?

4) How long will it be before one of the big retailers seizes the obviously vacant moral high ground of playing fair and uses the advantage to blast competitors and seize huge market share. With a struggling economy, the advantage of being first mover could be huge.

5) How long will customers who have been ripped off in this way remember the companies who did it and tend to buy from their competitors instead? Has nobody in their marketing departments ever heard the expression ‘once bitten, twice shy’?

6) Has anyone in these companies done any proper agent-based modelling to study the effect of people delaying or even abandoning purchases because they don’t want to be the sacrificial customer? Many people are struggling financially, and will have huge problems buying their loved ones Christmas gifts. If they have also to worry about the exact timing of purchase to make sure they don’t get ripped off, they will struggle even more. In a recession that cause so many people so much misery already, this practice borders on inhuman.

7) Has nobody taken account of the system-wide effects of concentrating  too large a proportion of shopping into a short period such as Black Friday? It cannot possibly be optimal from a logistics point of view. It must also cause severe stress for any employees that have to work extremely hard for short periods and then be unemployed on zero hours for the other days. Again, the system-wide effects can’t be overall beneficial.

9 Why try to rip customers off as much as you can get away with? Why not instead treat customers with respect and offer relatively constant prices with a fair markup and watch your profits go up?

10) Many companies have died because of accountants thinking they were being cleverer than reality shows when their company eventually dies. Will the biggest cause of corporate demise be death by accountant or death by marketer?