Banks and ice

Some years ago, I happened to be reading William Bernstein’s A Splendid Exchange: How Trade Shaped the World when I was mildly startled to see a reference to the magnitude of America’s 19th century ice trade. Startled because I’d never heard of this trade despite that fact that ice was America’s second largest export tonnage (second only to King Cotton) at the time of the Civil War! I immediately resolved to learn more and a few moments of augmented intelligence (ie, Google) threw up the name of Frederic Tudor, the “Ice King” who invented the industry. From there it was a quick jump to Gavin Weightman’s The Frozen Water Trade, one of my favourite books.

The story of Frederic Tudor (perhaps “yarn” might be a better description) ranges over most of the seven seas, taking in privateers, shipwrecks, invention, speculation, enterprise and vision on the way. Tudor had an idea and spent years, in a truly American fashion, pursuing it until he had created an entirely new market and had satisfied it through an entirely new industry. When he shipped his first cargo of New England ice down to Martinique in 1806, he thought he would have a sure-fire success. But the inhabitants had no idea what to do with it: if you’ve never seen ice, would you buy some? Eventually he found using it to make ice cream a moderate economic success and was encouraged to continue. A decade later, his breakthrough came when he began shipping not to the Caribbean but to Charleston, Savannah and New Orleans and the business began taking off.

At the same time, an ice ecosystem began to develop. Downstream, the waste water coming off of the melting ice was sold as a cold draught rather than poured down the drain. Upstream, the demand for sawdust (used to insulate the ice cargos) from the Maine timber industry (previously a nuisance) generated more wealth. New technology was applied to cutting, storing and hauling the ice.

Frederic’s marketing strategy was dynamite. He created an insatiable demand for two main products: ice cream and cold drinks. When opening up a new town, he would provide free ice to bartenders knowing that customers would never go back to warm drinks once they’d tried a mint julip or an iced tea. It seemed to me slightly reminiscent of the bottled water industry today: create a demand, satisfy it and the use brand to drive up the price. Indeed, Weightman notes that the only difference between “Wenham Lake Ice” (one of the main brands of the time) and other ice was purely marketing.

Tudor was a ruthless businessman, seeing off competitors by lowering the price of his ice to ruin them, but not a perfect one. Some of his enterprises outside ice went well (graphite mining and property) and some not so well (he lost a fortune speculating on coffee futures). In any case, by 1849 the ice trade he had created was going so well that he ran out of ice in Boston and had to send a ship and a crew north to cut chunks off of icebergs!

“To speak literally, a hundred Irishmen, with Yankee overseers, came from Cambridge every day to get out the ice. They divided it into cakes by methods too well known to require description…” — Henry David Thoreau, from “The Pond in Winter,” Walden

From The ice men come to Walden Pond (Walden 186) | The Curious People

By the time Thoreau was moaning about the ice trade disturbing his peace on Walden Pond, Tudor was shipping ice to Calcutta (where the grateful British Raj coined him a medal), round the Cape to San Francisco and even to Australia. In America, ice was no longer a luxury item but an essential comfort.

Naturally, as I followed this wonderful tale, I couldn’t help but try and extract key messages around the intersection between economics and technology. In this field, there is a definite paradox around Frederic and I find it fascinating. Frederic was not a luddite by any means and appears excited by the new inventions of the time. In 1830, he predicted that “steam will soon take the place of horses” and went on to say that “the times are surcharged with novel inventions and improvements of all kinds… steam seems now the ordinary power: in all probability some other and more convenient one will be discovered”. And, of course, it was.

Yet as Weightman notes in passing, it never seems to have occurred to Frederic that someone might “undermine his ice trade by manufacturing ice or making an artificial refrigerator”. Perhaps it is some kind of innovator’s curse, to imagine change in all businesses except the one they have created: it’s why Bill Gates didn’t invent Google and why Akio Moirta didn’t invent the iPod.

As it turned out, when artificial refrigerators did arrive, they at first bolstered the trade by providing an inexhaustible, year-round supply of clean ice for shipping through the existing supply chain before, in time, they destroyed the trade by decentralising ice making to the point of consumption. Destroyed the trade so thoroughly, in fact, that few people remember that it ever existed. The market that Frederic’s genius created is still with us, but the industry he created to service it has melted away.

This is how I see the banking sector. As the former CEO of Barlcays, Anthony Jenkins, said (I paraphrase), banks digitised banking rather than make it digital and are facing the “Uber moments” to come. The digital financial services revolution has barely begun. Our cool new finance stuff is running on some very old rails.

The banks have indeed spotted the invention of refrigeration and they have taken the first primitive refrigerators (e.g., the blockchain) and are using them to make blocks of ice that are then packed in sawdust and sent off in sailing ships just as they were before (by which I, of course, mean the legacy information technology infrastructure). Meanwhile, other people (the fintechs, the internet giants, new businesses yet to be born) are looking at decentralisation and are shipping the fridges rather than the ice. They are looking at using blockchain technologies to create new and decentralised markets founded on translucent transactions and ambient accountability.

I hope this isn’t too clumsy a metaphor for taking a look at the 21st century technologies that are already upon us (ranging from biometrics and the blockchain to artificial intelligence and the internet of things) to try and see what they will really do to the financial services sector in general and the banking industry in particular. I think I have a fairly structured way of thinking through these issues and, more importantly, I think I have an idea for a new book…

ZCash and The Glass Bank

Interesting to see the cryptocurrency ZCash in the news today, since it’s one of the ones I focussed on in my new book (in case I haven’t mentioned it, it’s called Before Babylon, Beyond Bitcoin and you can buy it from all good booksellers). As I said about Zcash in the chapter “Counting on Cryptography” written toward the end of 2016, “people, companies and governments will not use the underlying anonymous currency but instead use the privacy-enhancing kinds of money built on top of it”.

This is indeed what J.P. Morgan just announced at Consensus 2017 (see “JP Morgan Chase to Integrate Cash Technology to its Enterprise Blockchain Platform“). Or, as American Banker put it in their story “So, just to be clear: JPMorgan isn’t using Zcash”. As was set out by the parties themselves, what they intend to do is to use the Zcash technology of zero-knowledge proofs on their own Quorum blockchain to deliver privacy into financial markets where the participants want the advantages of shared ledgers but do not want to disclose the contents of transactions to all participants. I think this is quite a big deal, but that’s because the institutional use of these new technologies to create markets that work in more efficient ways accords with my own mental roadmap for shared ledgers. 

In a paper I co-wrote a couple of years ago with Richard Brown, the CTO of R3, and Consult Hyperion colleague Salome Parulava [published as Birch, D., R. Brown and S. Parulava (2016). “Towards ambient accountability in financial services: shared ledgers, translucent transactions and the legacy of the great financial crisis.” Payment Strategy and Systems 10(2): 118-131.], we adopted the term “translucent” to mean transactions that are transparent for the purposes of consensus (in other words, we can all agree that the transaction took place and the order of transactions) but opaque to those not party to the trade or the appropriate regulators under the relevant circumstances. I gave a talk introducing these concepts at NextBank Barcelona back in 2015.

It seems to me that the JP Morgan / ZCash announcement takes us another step forward in this direction and moves use towards the era of “The Glass Bank” (something I used in client workshops for many years and that I first blogged about back in 2011), an era in which translucency develops as a response to the Great Financial Crisis (GFC) and as a fundamental improvement in the way that financial markets operate, and which I have already decided will be the title of my next book!

The official blockchain quatrain

The moving finger writes; and having writ

Moves on; nor all your piety nor wit

shall lure it back to cancel half a line,

Nor all your tears wash out a word of it.




OK, I added the hashtag, but the rest is from Edward Marlborough’s 1859 translation of the Rubáiyát of mathematician, astronomer, philosopher and poet Omar Ahayyám (1048-1131).

Identity is the New Money

Well, the book has been published. Identity is the New Money (London Publishing Partnership: 2014). I’m very excited about it. By the time I finished it, I was sick of it. Writing a book turned out to be much more work than I’d thought. But having done it, I’m ready to do it again and this time I think it will be a lot easier – I made a lot of mistakes, but I think I learned from them.

Birch cover for LPP site border

If you are curious about the subject, but can’t be bothered to read a book, here’s a nice two-page spread from Financial World magazine [PDF, 1.4Mb].

In the future, everyone will be famous for fifteen megabytes

The best thing since… oh, that’s not on the list

The Atlantic magazine published one of those articles based on the latest that I really should ignore and not take too seriously but can’t help reading — Fallows, J., “The 50 Greatest Breakthroughs Since The Wheel” in “The Atlantic” p.56(9) (Nov. 2013). This time it was the 50 greatest breakthroughs since the wheel. They asked various scientists, historians and technologists to rank a list of innovations for the article, and then put them together into a nice feature.

I’ll spoil the ending for you by telling you that number one on this list was the printing press! I was surprised that the telegraph only made it as far as position 26 because as an acolyte of the Economist writer Tom Standage (“The Victorian Internet”), I do think that the step change between being unable to communicate faster than physical matter could be propelled and being able to communicate at the speed of light represented some fundamental cusp in human history rather than any kind of marginal improvement, so think I would have pushed it further up the list. Damn. There I am getting caught up in thinking about the list again.

Oh and one more thing. The most amazing fact that I think I saw in the article concerns the sequencing of human DNA. The article notes that in the past 12 years the cost of sequencing human DNA has fallen to a millionth of its previous level. That’s an astonishing six orders of magnitude cost reduction in a decade. Now I can’t decide whether DNA sequencing or 3-D printing will feature in some future list as the most important technological breakthrough of our current era.

In the future, everyone will be famous for fifteen megabytes

Smart watches and dumb watchers

For reasons that are not entirely clear to me, the technology world is excited about the prospect of smart watches.

Now that rumors suggest Google and LG are both planning on jumping into the smart watch war to compete with Samsung and Apple it’s time to stop thinking of this thing as a time-telling piece. Yes, these gadgets will go around people’s wrists and probably display the time.

[From The Smartwatch Is Not a Watch – Rebecca Greenfield – The Atlantic Wire]

I have to tell you this story. Some years ago, I was at a dinner at IBM in Zurich. A chap from their research labs was showing off a Linux-powered watch. The chap was Swiss, and I imagine unfamiliar with the British sense of humour. When he’d finished demoing the watch’s ability to show some news and contacts, or whatever, he asked if we had any questions. “Yes”, I said, straightfaced, “does it tell the time?”. I’d said it as a joke, of course, and expected a laugh. But… ”No,” he told me, entirely seriously, they couldn’t load the “clock” programme because they’d run out of memory!

In the future, everyone will be famous for fifteen megabytes

Networks and the male brain

The Great She Elephant’s mention of City AM reminded me that I made a note on this organ in my little black book, but I couldn’t remember what it was, so I went and looked it up and I realised that it was a thing I was writing about the “laws” of networks and of male brains! Writing in his “The Long View” column in City AM, managing editor Marc Sidwell pointed to Metcalfe’s Law and Reed’s Law in a discussion on network economics and mentions that Reed’s Law may be more important — see “Bitcoin is a lesson in now networks can supercharge innovation economies”, City AM. p.16 (12th Apr. 2013). Now, I wrote a couple of articles about this a few years ago. As I said back in 2007…

I’m a Reed’s Law man, myself

[From Digital Money: More on Moore’s Law]

I tried really hard not to comment on Marc’s column but I wrote down those notes and because of GSE I just found them so I thought I would blog them for fun. They reveal a fundamental character flaw but I can’t help sharing it!

At a recent event, a telecommunications supplier invited me along to a reception they were having in a club downtown somewhere so I went over with the guys for a half of shandy and a packet of pork scratchings. While we were there, a magician was moving through the crowd doing tricks. The magician, who was absolutely brilliant (the card tricks he did with the group of us were jaw-dropping) was Indian. I mean he was English but of Indian descent. I introduce his ethnicity only because it is relevant to the story. He began one of the tricks by saying something along the lines “My great grandfather learned this trick from an old man back in New Delhi when Queen Victoria was still the Empress of India”. For what reason I don’t know, but a deep-seated and fundamentally male character flaw was exposed at that moment, because I couldn’t help myself from saying “But New Delhi wasn’t founded until Edwardian times”, thus ruining the atmosphere. I apologised unreservedly (I then googled and discovered it was founded in 1911.)

Sometimes, you see, I just can’t help myself. I know it doesn’t matter to the point being made but I’m driven to trip over factual errors. I can’t think round them. So back to communications laws. I read this in a magazine and made a note to post a comment (which I never did).

In 1980, Bob Metcalfe, an inventor trying to persuade people to buy his $5,000 Ethernet cards, which connected computers in a local area network, came up with a formula that expressed the value of a network as the number of connections squared. The specifics of “Metcalfe’s Law” have frequently been challenged, but the basic idea that networks add value exponentially as they grow has not.

[From The Web’s New Monopolists – Atlantic Mobile]

What was my comment? Well, for one thing, “squared” isn’t “exponential” – they mean completely different things – and for another thing Metcalfe’s Law has been measured to be something more like NlogN rather than N*N anyway. There is an exponential law to networking, but this is the Reed’s Law mentioned by Marc. It is named after the AT&T researcher David Reed, which says that the power of a networks grow according to the number of subgroups that can be formed with the network, and this is a 2^N curve. I agree with Marc about its importance. In fact I wrote an article for Financial World magazine back in November 2006 explaining these laws for financial services professionals and saying that I thought that over time Reed’s Law dominates (we place it centrally in the technology roadmaps that we develop for clients at Consult Hyperion). Metcalfe’s Law doesn’t shape financial services much anymore (everything is already connected to everything else) and Reed’s 2^N zooms off into the stratosphere leaving both Moore’s Law and Metcalfe’s Law behind.

What does this mean in strategy terms? I think it means that the shape financial services in any future that we can see is going to be shaped by the technologies that define, control and manage subgroups: in other words, the “disconnection technologies” of encryption, identification and authentication. 

In the future, everyone will be famous for fifteen megabytes

It was all fields round here

It is 1975, and at the Park Senior High School (as bog standard a comprehensive as they came) a group of curious schoolboys led by a farsighted maths teacher take the bus into Swindon town centre and enter the headquarters of the Nationwide Building Society. There, we potter down to the computer room where we are allowed access to their mainframe (a UNIVAC 1109 with drum storage, if my memory serves) because they didn’t use it in the evening. I will never forget that kindness from Nationwide and they still have place in my heart for it today. It was there we worked on our first serious programming project, a system to schedule appointments for the parent’s evenings! Can you imagine ringing up, say, Barclays Bank today and asking them if some school kids could use their mainframe in the evening if they’re not too busy? Astonishing.

Having a whole computer to yourself was then a novelty. When Brian Dyer, the then-deputy headmaster of Park asked me and a few friends if we’d be interested in sitting a Certificate of Secondary Education (CSE) in Computer Studies (the school had no lessons in the subject, so we had to just read up in our spare time) my first contact with a general-purpose stored-value computer system came via punched cards sent to the University of Bristol once each week. You punched your cards, they were sent off and a week later you got back your print out. I think it was an ICL 1902A, the first IC-based range they produced (the A meant it had a floating point unit for scientific calculations), and we wrote in FORTRAN. The school got a teletype, and we had access to a GEISCO time-sharing system using Dartmouth BASIC. I think we were allowed an hour per week, or something like that. I got Grade 1, and was set for life…

Other weeks we took the bus up to the now-demolished Swindon College, where we used their Elliott 803B with a then-amazing 8Kb of core memory (you tell the kids of today that…) to write Algol programmes on 5-track paper tape. You loaded the compiler, the loaded your program and the machine produced a machine code tape (for their strange 39-bit word instruction set) and then loaded your machine code and executed. Here’s a video of someone using one of these beasts! I don’t remember much about what software we wrote, although I do remember spending an inordinate amount of time working on my football simulation that used random numbers to work out where the ball went after each kick.

Park PiratesPark School 1976: Me, Clive Debenham (Rest in Peace), Simon Turpin and Bob Kirby (Rest in Peace).

In the hot summer of 1976, we were also allowed, and I have no memory of how this came about, to cycle out to the Royal Military College of Science in Shrivenham and use their more advanced computer system — although I can’t remember what this was — to write in Algol 68-R. In those pre-Al Qaeda days, we were allowed to amble around the campus and wander in and out of the computer room essentially unfettered. This all stood me in good stead. When I got my first vacation job at college it was for the Southern Water Authority in Eastleigh. One day my boss asked me if I could help him with a problem. The IT department (in Brighton) were sending him the wrong statistics. Did I know anything about computers? We opened the cupboard at the end of the corridor and found a teletype connected to a 1900-series (a 1906?) running Fortran under GEORGE III, which fortunately I knew how to use. I was instantly appointed departmental IT supremo, and never looked back!


In the future, everyone will be famous for fifteen megabytes


Ambling back towards Waterloo, through the frozen streets of a wintry London, I noticed (via the Twitterverse) that old Guardian chum Aleks Krotoski was lecturing at the London School of Economics (LSE) on Tuesday night. What happy chance! Informed by serendipity, I executed a smartish turn into Portugal Street and then into the LSE East Building. I was a few minutes early, so I caught an impenetrable end session of a lecture about calculus (game theory calculus, if I wasn’t mistaken) and then settled down to a terrific talk from Alex. She was talking about her new book — based on some Guardian and Observer columns — on “Untangling the Web”.


Alex kicked off by saying that there is a culture of fear about the Internet because people (and especially, in my opinion, politicians) don’t really understand it. I thought this was an interesting observation to make during the week where world governments are squabbling about the control of the Internet at some UN beanfeast in Dubai! I’m sure she’s right, by the way. Everything seems a little scary: Facebook, Twitter, Amazon, Google and Apple are all scary to someone, which crystallised set of thoughts for me and I think I will write something about that in the future. Her central point, at least to me, is that insofar as we understand how power will work in the virtual world (which is not very much at the moment) it is something to do with the role of the inter-mediate in technologies and those technologies have context. Right now, it’s essentially a Northern Californian context.

Aleks talked about the Google search algorithms as an example of how technology isn’t neutral in shaping our views of the world, but it occurred to me that there is an even more fundamental angle on this which links to the Dubai wrangling. When it came to question time I asked her about this and she said that she was neither optimistic nor pessimistic about the direction that we might take. I think I might be mildly pessimistic, in that I think it likely that the Internet will fracture into a number of different blocs in the future, but that may be an age related disorder!

Aleks asked (these aren’t her exact words, this is a paraphrase) if we are stuck in a quicksand of me, me, me narcissistic exhibitionism. I certainly am.


In the future, everyone will be famous for fifteen megabytes

Slide rule precision

I’ve written before about my interest in paleofutures. I think it’s important not just to look at what people used to think about the future but why they thought it. Not to make fun of them, but to try and understand why they were wrong, so that we can use that knowledge to help to construct our own narratives about the future. I need these for work, because narratives are the way to create shared visions for organisations try to develop realistic strategies (and therefore make the right tactical investments right now).

Technology’s Martyrs: The Slide Rule” by Kirk Johnson in the New York Times (3rd January 1987) covers the story of Keuffel & Esser. This company, founded in 1867, was America’s pre-eminent manufacturer of slide rules. In 1965, they sold one million of them. In 1967, their centenary, they were commissioned to prepare a report about the future called “Life in the year 2067”, looking a century on. They interviewed scientists to come up with a vision that predicted electric cars and 3D TV. What it didn’t predict was that they would be out of business within a few years because of the electronic calculator. The end came quickly. On this day in 1976

K&E produced its last slide rule, which it presented to the Smithsonian Institution.

[From Computer History Museum | Exhibits | This Day in History: July 11]

In less than a decade they were gone because of technological change. But note the “Gibson” take on this: the invention that destroyed them, the electronic calculator, already existed when they wrote their report. In fact the first all electronic calculator desktop calculator went on sale in 1961

At the end of 1961 the Bell Punch Company put the Anita Mk VII on the market in continental Europe and the Anita Mk 8 in the rest of the world as the world’s first electronic desktop calculators. These were the only commercial electronic desktop calculators for more than 2 years

[From Anita: the world’s first electronic desktop calculator]

What’s more, the first electronic all-transistor calculator (from Sharp) went on sale in 1964. So by the time the slide rule guys did their study, the technology that would destroy them had been on open sale for several years. They made the mistake, I guess, of thinking that because slide rules cost $10 and calculators cost $1,000 they would never compete, forgetting that the inevitable curve of technology price/performance would do for them in time. And, I suspect, the scientists that wrote the report all used slide rules and were perfectly happy with them.


In the future, everyone will be famous for fifteen megabytes