Real fakes and fake fakes

My good friend Chris Skinner pointed me at a story about counterfeit art. The art in question, a “Picasso”, is apparently the work of a counterfeiter called Davd Henty. According to The Daily Telegraph, after being exposed as a forger a few years ago, “the publicity led to him being feted on television programmes and his copies – marked clearly as ‘Henty’s’ – now sell for £5,000 and upwards”. This reminded me of something I wrote a decade ago after a visit to Halifax, where I saw an interesting use case for RFID chips that were being bonded into the canvas used for painting. So here’s a picture of such a picture (and me).

RFID_Picture

This caught my eye all those years ago and it’s worth showing it again, because it’s a fascinating case study of using RFID in the real/counterfeit problem space. It’s not just about what’s real and what’s fake.  The picture I am looking at here was painted by John Myatt. If you don’t recognise the name… well, his story  is introduced in The Daily Telegraph this way: “From talented chart-topping songwriter, to Brixton prison for being involved in ‘the biggest art fraud of the 20th century’, John Myatt’s incredible life is now the subject of a Hollywood movie and his artistic talent the focus of a major TV series”.

Interesting guy. Take a look at his “genuine fakes”.

The reason Mr Myatt can make a good living doing genuine fake art, as noted in the Financial Times, is his notoriety as a master forger, which resulted in a six-month prison sentence in 1995. The picture I am looking at has RFID tags bonded to it, but in this case the purpose of the tags is to prove not only that the picture is a fake, rather than real, but that it’s a John Myatt fake and not someone else’s fake. So, basically, the idea is to use a combination of primary and secondary identification technologies to connect product and provenance in such a way as to prove that the picture is a real fake, if you see what I mean. Great stuff.

So if we are going to use technology to create a new identity infrastructure that works for things as well as people, it must not only distinguish real from fake, but fake from fake!

Talking about real fakes, rather than fake fakes, I have an important one at home. I got it after reading about a donation of drawings to Yad Vashem, Israel’s holocaust memorial. The drawings are of the men who worked in the once-secret Nazi operation to produce fake money, a story told in the brilliant film “The Counterfeiters”, which won the 2007 Oscar for best foreign film. It is the true story of Operation Bernhard, which was the Nazi plan to devastate the British economy. The idea, conceived at the very start of the Second World War, was to drop the worthless banknotes over England, thus causing economic instability, inflation and recession. Remember, in 1939 the German people had very recent memory of worthless paper currency devastating the economy, as is well chronicled in Adam Fergusson’s book “When Money Dies”.

The film is based on a memoir written by Adolf Burger, a Jewish Slovak typographer who was imprisoned in 1942 for forging baptismal certificates to save Jews from deportation. The Nazis took Burger and more than a hundred other Jews from a variety of trades—printing, engraving and at least one convicted master counterfeiter, Salomon Smolianoff—and moved them from different death camps to a special unit: “Block 19” in Sachsenhausen concentration camp. There they set about forging first the British and then the American currency. In the end, the prisoners forged around Sterling 132 million, which is about four billion quid in today’s prices.

The Nazis were never able to put their plot into operation. At the end of the war, they packed up all the printers’ plates and counterfeit bills into crates which they dumped into Lake Toplitz in Austria, from which they were subsequently retrieved. Some of the counterfeit notes went to the purchase of war materiel for the nascent Israeli army, some went to collectors. I bought an authenticated Operation Berhard counterfeit “white fiver” from a banknote collector and that is how I came to have a real fake on my wall at home.

Innovation in blockchain innovation

A couple of years ago, I was invited along to the Scottish Blockchain Conference (ScotChain17). I have to say that it was a really enjoyable, well-organised and interesting day out in Edinburgh. Here I am in one of the panel discussions.

Scotchain panel

At this excellent event, I gave a talk about the use of blockchain in supply chains. Professor Angela Walsh kindly commented on my presentation, saying that it had her crying with laughter while learning a lot, a compliment that I treasure. The content was summarised thus by a keen observer…  “The point,” said Birch, “is that people are talking absolute bollocks about blockchain, on an industrial level”. If you at all interested, the talk was filmed and you can see it here:

 

Well, my comments on ideas of using the blockchain to solve supply chain problems being somewhat misguided may have seemed a trifle harsh at the time, but as far as I can tell they were a broadly correct characterisation of the state of the industry and a broadly accurate prediction of the sector’s trajectory. Two years on, I just read that the noted research house Gartner says that nine in ten blockchain-based supply chain projects are “faltering” because they cannot figure out important (or, in my opinion, any) uses for the new technology.

Hence I feel that my somewhat uncharitable remarks were justified and my blockchain crystal ball remains intact, its reputation enhanced. 

My reason for highlighting this Caledonian chronicle, and subsequent validation, is to point you to my forthcoming talk at Vincent Everts’ super Blockchain Innovation conference in Amsterdam. If you are going to the excellent Money2020 in Amsterdam that week – where I will be chairing the Open Banking track – stick around and join me at the ABN Amro headquarters on June 7th for a wide perspective on the state of the blockchain world.

I’ll be making a presentation on the intersection of blockchain and artificial intelligence. This is a space where I have observed an avalanche of absolute bollocks, so I’m going to stick my neck out and make a (well-informed) prediction about the key impact of AI on the blockchain world. It has nothing to do with supply chains, but I think has more significance and will mean big changes in the blockchain ecosystem.

I think have some solid foundations for making this prediction, so come along to cheer or jeer and I’ll be delighted to see you there either way.

Stablecoins and stable coins

I notice that in the considerable press comment concerning the possible introduction of a Facebook payment system and perhaps even a Facebook currency of some kind, commentators continually refer to a Facebook “stablecoin”. I am certain that they are wrong to use this term, because it does not mean what they think it means. I may well be facing a losing battle about this, but I am stickler for correct currency terminology.

So. Stablecoin. What?

In the Bank of England’s excellent “Bank Underground” blog, there was a post on this topic that said “The chances of a stablecoin keeping a stable price depends on its design. There are generally two designs of stablecoin: those backed by assets, and those that are unbacked or ‘algorithmic’”. They are right, of course, but I would like to present slightly more granular classification of stablecoin currencies. I think there are three kinds:

  1. Algorithmic Currencies, in which algorithms manage supply and demand to obtain stability of the digital currency. This is what a stable cryptocurrency is: since a cryptocurrency is backed by nothing other than mathematics, it is mathematics that manages the money supply to hold the value of the steady against some external benchmark. This is what is meant by stablecoin in the original crypto use of the term.

  2. Assetbacked Currencies, in which an asset or basket of assets are used to back the digital currency. I don’t know why people refer to these a stablecoins, since they are stable only against the specific assets that back them. An asset that is backed by, say, crude oil is stable against crude oil but nothing else.

  3. Fiat-backed (aka Currency Boards), which are similar to a asset-backed currencies but where the assets backing the digital currency are fiat currencies only. There are mundane versions of these already: in Bulgaria, for example, where the local currency (the Lev) is backed by a 100% reserve of Euros

As for that last category, it is effectively what is currently defined as electronic money under the existing EU directives, and therefore already regulated. Those coins backed by fiat currency, such as JPM Coin, simply provide a convenient way to transfer value around the internet without going through banking networks. Now, this may well be an advantage in cost and convenience for some uses cases but it is a long way from an algorithmic currency. If this is indeed what Facebucks turn out to be (ie, actual bucks that you can send around on Facebook, something along the lines of Apple Cash), then I have written before why I think they will be successful.

So will any or all of these catch on?

Predictions are of course difficult, but my general feeling is that it is the asset-backed currencies that are most interesting and most likely to succeed in causing an actual revolution in finance and banking. Algorithmic stablecoins and fiat “stablecoins” exist to serve a demand for value transfer, but this is increasingly served well by conventional means. I notice this week, for example, that Transferwise can now send money from the UK to Hong Kong in 11 seconds, a feat made possible by their direct connection to the payments networks of both countries. Why would I use a fiat token when I can send fiat money faster and cheaper?

Of course, you might argue that a digital currency board might allow people who are excluded from the global financial system to hold and transfer value but I am unconvinced. There plenty of ways to hold and transfer electronic value (eg, M-PESA) without using bank accounts. Generally speaking, people around the world are excluded because of regulation (eg, KYC) and if we want to do something about inclusion we should probably start here. If you are going to require KYC for the electronic wallet needed to hold your digital currency they customers may as well open a bank account, right?

(I’ve written before about how the need for an account hampered Mondex. When it was first launched, I went to a bank branch with £50 expecting to walk out with a Mondex card with £50 on it. What I actually walked out with was a multi-page form to open a bank account so that I could get a Mondex card which arrived some time later. And since I had to put my debit card into the ATM in order to load the Mondex card, I did what most other people did and drew out cash instead.)

I suppose there are some people who think that the anonymity and pseduonymity of cryptocurrencies might make them an attractive alternative to certain sectors, but this is probably a window. If cryptocurrencies were used for crime on a large scale then efforts would be made to police them. Bitcoin, in particular, is not a good choice for criminals since it leaves a public and immutable record of their actions but you can imagine a future in which the mere possession of an anonymous cryptocurrency becomes a prima facie cash of money laundering.

Looking at the “stable” stable, then, I’ll put my money on the middle way. I’ve said it before and I’ll say it again, there is a real marketplace logic to the trading of asset-backed currencies in the form of tokens and I expect to see an explosion of different kinds.