Apple will be Called to Account

Before 2030 Apple will be called to account by the United States government for their willingness to cooperate with the Chinese government.

Readers of no gradient will know that I’ve discussed this in my In 2018 and Facebook’s Feasible Future is Apple’s Fictitious Present posts. I have also tweeted about it several times (copied below).

For this prediction to be deemed correct, Apple must be called to account in some official capacity. That may be, but is not limited to, Apple having to testify before congress or being investigated at the federal or state level. A congress member or president merely making a statement about them is not enough.

Coinbase and the Future

Editor’s note: A business plan I wrote for Coinbase in late 2018. Publishing here for posterity.

Today
Coinbase has positioned itself as the most trusted cryptocurrency exchange with its perfect track record of security and its constant rollout of new products and features. More importantly though, it has established itself as the leader in pushing the industry and the technology forward with its educational tools, engagement in the community, and Coinbase Ventures.

Tomorrow
Coinbase will succeed if blockchain technology succeeds. Blockchain will succeed through increased adoption and innovative apps. In my opinion, the stated goal of Coinbase to “create an open financial system for the world” is not big enough. Blockchain is more than just finance, and that means Coinbase is too. I see enormous potential in focusing on education, diminishing reliance on fees, and Coinbase Ventures. This will create a flywheel effect that will make blockchain, with Coinbase as a global leader, even more successful.

  • Educate to encourage adoption and empower developers to build the future of blockchain.
    • The blog and Coinbase Learn are amazing resources. But there’s so much more untapped potential. Coinbase has an amazing network, utilize it. For example, create a podcast interviewing members of the internal team and also leaders in the space. With my podcasting experience and passion for the medium, I would love to be the driving force and host behind such a project.
    • Create a mining pool among exchanges that will agree to protect each other against double spend 51% attacks by having hash power at the ready should a chain come under attack.
    • It is still too hard to get up to speed on building blockchain apps, especially with how bad testnets can be. Coinbase should provide open source example dapps and create testnets for various blockchains to give developers an easy way to sandbox and test their ideas.
    • Create dashboards like Ethernodes and Ethstates to show the current state of various blockchains.
    • Expand the Coinbase API to allow extracting info and exploring various blockchains.
    • Create Ethereum Oracles with stock pricing data, weather data, etc.
  • Diminish reliance on fees.
    • Given consumers are more price sensitive, Coinbase must be prepared to lower fees on Coinbase.com as competition increases. Lowering fees to keep users on Coinbase will allow Coinbase to more easily direct them to products built internally and through Coinbase Ventures.
    • The trust that Coinbase has developed with regulators and institutions will allow it to keep institutional fees higher for longer, but cannot be relied on in the future. Financial institutions everywhere are lowering fees, investors are becoming accustomed to it, so they will expect that of crypto financial institutions as well.
    • Coinbase will not be able to sustain itself long term if the main revenue driver is collecting rent on the exchange of fiat to cryptocurrency. Not only because this can be replicated, but mainly because this is not where the true value is.
    • The fees are a stop gap to help grow the business, but it’s not going to be the moat.
  • Coinbase Ventures to build and profit from innovative blockchains, tokens, and apps.
    • Use the network, resources, and domain expertise at Coinbase to create and identify startups, invest in them, and help them succeed.
    • Internet protocols through tokens now have a means for their creators to be compensated for the value they create. Being at the center of valuable protocol creation will allow Coinbase to thrive.
    • This is where the profit should come from because this is where the value for humanity is created. This is the unfair advantage of Coinbase and how it establishes itself as the leader over the next several decades.

Facebook’s Feasible Future is Apple’s Fictitious Present

The things we think and do not say.

CEO of Facebook Mark Zuckerberg just had his Jerry Maguire moment. In his mid 30s and at the height of his career Zuckerberg has released an about face mission statement for the future of his company. That’s where the metaphor ends though. Unlike Tom Cruise’s character Zuckerberg won’t be getting fired given his 53.3% of voting rights in the company. And I don’t think he should. As I read his mission statement, I’m reminded of what a survivor Zuckerberg is and what a hypocrite Apple has become.

Between Zuckerberg’s decisions to acquire Instagram, WhatsApp, and downright stealing the features of Snapchat he has proved ruthless in ensuring the future of his company. His next bet is that the “the future of communication will increasingly shift to private, encrypted services where people can be confident what they say to each other stays secure and their messages and content won’t stick around forever.” The focus is shifting from “a digital equivalent of a town square…[to] the digital equivalent of the living room.” No longer will the focus be on sharing with all your “friends” but only certain things with certain groups. Ironically, this was the exact stated goal of “Circles” in the now defunct Google Plus when it launched in 2011:

Not all relationships are created equal. So in life we share one thing with college buddies, another with parents, and almost nothing with our boss. The problem is that today’s online services turn friendship into fast food—wrapping everyone in “friend” paper—and sharing really suffers.

Google Plus Announcement, 2011

I think Zuckerberg is dead on with this shift in focus. As I look at my own social networking and those around me, it includes private email threads and more extensively group chats. It’s the latter that Facebook is now setting their sights on. As a society we tried the share everything with everyone thing and it was all new, fresh, fun, and internety. But all of a sudden everything got so real. People realized that as “we build up large collections of messages and photos over time, they can become a liability.” So now, now we go underground.

A privacy first mission is only possible with end to end encryption coupled with the keys never leaving your device. A point Zuckerberg made clear is going to be the modus operandi for their services going forward. Along with the plan they “won’t store sensitive data in countries with weak records on human rights” which “may mean that [their] services will get blocked in some countries…a tradeoff [they’re] willing to make.” This shines a bright light on the hypocrisy of Apple which “if you have iCloud Backup turned on, your backup includes a copy of the key protecting your Messages” and more egregiously “iCloud services in the mainland of China are now operated by Chinese internet services company Guizhou…this allows us to…comply with Chinese regulations.” Which means the human rights abusing dictatorship that is the government of China has full access to the data of their citizens.

Google received serious flack for the rumored Project Dragonfly which sought to create a censored version of Google Search that complied with Chinese regulations. Facebook receives little credit for bringing secure end to end encrypted messaging to more users than any company in history with WhatsApp. Meanwhile Apple is working directly with the Chinese government and still gets credit for caring more about its users’ privacy much more than any other tech company.

Apple still deserves credit for their device encryption made famous in the San Bernadino case, their hard stance against the FBI to not build a backdoor in iPhone, the security around Apple Pay and most recently the new Apple Card credit card. And Facebook is certainly not without sin with its history of privacy abuses. It remains to be seen whether Facebook will even cary out the plan outlined by Zuckerberg. But the focus of this publication is to shine a light on the issues where there is the biggest disconnect between public perception and reality. This includes covering what the world’s most profitable companies actually do versus what the public gives them credit for.

Right Jab, Left Hook- Two Experts Talk Climate Change

The Fighting Temeraire

Editor’s Note: Presented are opposing arguments addressing climate change from someone affecting policy in D.C. and another working directly in clean tech. As with any topic, whether you agree with their arguments or not, it is valuable to understand the positions of key stakeholders. Akash Chougule was formerly the Directory of Policy at Americans for Prosperity and now works in Washington D.C. as a staff member for the U.S. House of Representatives. James Newhouse is a Senior Business Development Analyst at EVgo, America’s largest electric vehicle charging network.

Akash Chougule: Perhaps the greatest achievement in the history of mankind is the ongoing near-elimination of extreme poverty worldwide over the past thirty years. After centuries of little progress, today’s poor live better than kings lived not long ago. What have been the driving forces behind this miracle? While charity and foreign aid have helped make material poverty less miserable, they do not create wealth. It is the spread of capitalist concepts such as property rights, free trade, the rule of law, and – yes, the use of fossil fuels – that are driving the spread of global prosperity, especially in the world’s poorest regions.

Access to abundant, affordable, reliable energy is a must to improve quality of life for the poor. Thus far, coal has been unparalleled in its ability to help the poor heat and light their homes and cook their food. That is why countries like China and India – working to lift billions from poverty – continue to expand their use of coal.

Undoubtedly, there is some environmental effect of doing so. But just the same, curbing those environmental effects will necessarily mean changing the behavior of India and China, and doing so will mean harming those countries’ poor. Nevertheless, ideologues in the United States continue to insist that America “do something” and “be a leader” on this issue fully aware that absent action in Asia, prescribed solutions will be all economic pain for no environmental gain.

A long-standing proposal to address the issue has been to price carbon, most often in the form of a carbon tax. While from a free-market standpoint this suggestion is logical, advocates cannot seem to agree whether a carbon tax is a means to price economic costs, or merely another method to grow the government to fund a litany of other left-wing political goals. This is precisely why environmental groups opposed a revenue-neutral carbon tax proposal that failed badly in Washington State. If this idea is to gain traction nationally, leftists must figure out its actual goal.

Another common suggestion is for government to grant privilege to “clean” energy sources by providing billions in subsidies to wind and solar. In any other industry, the Left would rightly decry this as corporate welfare. That is precisely what it is – government giving taxpayer dollars to politically-favored private businesses. We have seen this fail miserably before, leaving American taxpayers on the hook. To this day, renewable energy receives far more in subsidies than coal, oil, and natural gas. Until and unless renewable energies can compete on a level playing field in the free market, they will not be competitive or viable, and the government should not give them an advantage at taxpayers’ expense. Making lower- and middle-class Americans foot the bill to enrich California billionaires is wrong and unnecessary. If the hope is that private capital markets will lead the way without government pressure, environmentalists must realize the onus first lies on the providers of that technology before it lies with financiers.

Fortunately, there is good news: the free market, not government control, is solving this problem. US carbon emissions have been plummeting for years without a carbon tax or socialist controls, while they continue to increase in Asia. Better yet, in the US they continue to fall faster than they are in Europe, where our betters insist America is the problem. The biggest driver of this decline in emissions has been the expansion of fracking, which has greatly expanded the use of natural gas and thus weaned dependence on coal.

Shockingly, the free market solves problems when free people place value on solutions and are left to their own devices.

Finally, in discussing this issue, not only must we be realistic about the environmental impact of climate change (for which predictions have been laughably inaccurate), but also the economic costs. The government’s own report stated that the “worst-worst case” scenario of climate change would reduce the average annual economic growth rate by just 0.05 percentage points. There is no economic catastrophe coming from climate change – unless environmentalists impose one on us.

James Newhouse: As I read Akash’s response, I was reminded of Bill Nye’s remarks on CNN last year. Nye, a longtime climate change mitigation advocate, criticized the network for giving equal air time to climate skeptics. By my count, Akash’s piece contained 16 misleading claims ranging from topics about the effects of climate change, concerns about the global poor, and the definition of socialism. I was not surprised by this tactic, as special interest groups have used climate denial to obstruct federal climate change policy. And this is exactly the problem. Whereas Reagan and Bush acknowledged that climate change is a problem and John McCain even ran his 2008 presidential campaign on being more active on climate than Barack Obama, many elected officials today deny that climate change will negatively impact the U.S. economy. This effort by special interest groups has been tragically successfully; as of 2017, 180 congressmen and women deny climate change and have received >$82 million in funding from fossil fuel industries, in direct contrast to the beliefs of their constituents.

I want to write about infrastructure finance and not get bogged down addressing the flaws in Akash’s argument, so I will keep my response to Akash brief. Climate change is happening. It threatens human progress through a variety of ways, including but not limited to: natural disasters, floods and drought, decreased GDP, deadly heat waves, mass migration, and loss of biodiversity. All of this is already happening. And it will disproportionately affect the poor in the global and U.S. south.

With that out of the way, I want to address infrastructure finance and investment-spurring regulation. Free market neoliberalism cannot solve climate change. Only public-private partnerships and government-created market signals, which are rejected by neoliberal economic theory, can spur the infrastructure overhaul required to decarbonize our entire economy.

Neoliberalism fails because it propounds a capitalism that is apathetic to sustainable growth. Investments are awarded to companies that provide high internal rates of return (IRRs) and returns on investment (ROIs). These metrics fail to account for the social benefits of decarbonization. Without accounting for this benefit and without government intervention, clean infrastructure projects valuations are terrible, as these projects are capital-intensive, in nascent markets, and often never see positive returns. The resulting IRRs and ROIs paint a clear, unprofitable picture for private investors whose primary focus is earning a return on their investment.

And this should be investors’ focus. That’s how capitalism works. But because infrastructure is expensive, government must introduce policy that improves the IRRs and ROIs on these projects and thereby attracts investors. Policy measures such as infrastructure subsidization, consumer rebates, cap-and-trade programs, and tax breaks improve supply and demand dynamics for infrastructure. For example, Tesla could not have attracted >$19B in post-IPO investment without the existence of California’s zero-emissions vehicle mandate, which required a portion of every automaker’s business in California come from electric vehicles. In the nation’s largest auto market, this gave Tesla a huge advantage over its competition.

This argument is not controversial. Infrastructure subsidization has existed throughout U.S. history. In fact, we have the Republican party to thank for the transcontinental railroad, the Morrill Land Grant, the Hoover Dam, and our interstate highway system. None of these would be profitable enough for private investment without government intervention. This is not socialism, it’s regulation. Today, infrastructure spending is supported by 75% of Americans, the entire Democratic Party, and even President Trump. It’s just the GOP platform, which is influenced by neoliberal special interests, that prioritizes market growth at the expense of sustainability. The solution, of course, is to elect officials that support climate change policy. That means politicians that aren’t married to special interest groups.

Akash Chougule: My friend James’ argument relies on several tried-and-true tactics of central planners that all distract from the folly of their ideology and public policy goals.

The first is to simply paint those who disagree with their proposed policies as “climate deniers.” In my initial post, I explicitly did not deny the existence of climate change, or even human impact on it. Quite the contrary, I noted how human innovation is helping reduce carbon emissions in the United States, something climate activists strangely never applaud – perhaps because it is happening as a result of the free market, without massive government intervention.

The second is placing blame for people’s democratically-elected representatives’ failure to adopt leftists’ preferred policies on evil fossil fuel companies pumping millions of dollars into political campaigns. Except, fossil fuel companies are nowhere near the biggest donors in our political system. Strangely, leftist activists never level similar complaints about labor unions or environmental groups, both of which are scattered throughout the list of the top 20 biggest donors. Also unmentioned are the campaign donations to politicians advocating for “green energy” policies from those who stand to profit off those policies (investors, entrepreneurs, researchers, etc).

Liberals seem to have a problem with issue advocacy, organizing, and campaign donation only when it goes against causes and candidates they support. More broadly, there seems to be a reluctance to accept the simple fact that many of the radical environmental left’s ideas are simply unpopular with the American people. One only need look at the backlash after House Democrats passed cap-and-trade legislation in 2009 for recent evidence of this.

Finally, there is seldom acknowledgment of the fact that the United States cannot solve climate change on its own. India, China, sub-Saharan Africa and the rest of the world would be required to act, too, and would never agree to any plan to seriously reduce carbon emissions for the reason stated in my original post – fossil fuels are fueling a reduction of poverty around the world. For those serious about curbing emissions quickly, the Paris Climate Agreement’s expectations of China were laughable. Their “goals” were little different than what they were already doing, and they were continuing to increase carbon emissions anyway.

Nevertheless, on government financing to combat climate change, it seems James made two different kinds of proposals, but they share the same problems: infrastructure financing (such as building roads, or in the case of what many environmentalists prefer, light rail systems) and financial incentives for favored market actors (such as tax breaks for Tesla).

On infrastructure financing, James is correct that government plays a huge (and fairly obvious) role and has for decades. I’d be curious to hear specifically what kind of infrastructure environmentalists would prefer the government subsidize. But it would also be important to know how much it would cost (on top of what we already need to spend to repair roads and bridges), the tax hikes necessary to pay for it (and who will pay them), and – perhaps most importantly – what level of control they plan to exert on people’s freedom of choice to ensure that environmentally-friendly infrastructure becomes the default choice.

Just recently, California Democrat Governor Gavin Newsom cancelled plans for a high-speed rail system in his state, saying it would cost too much and take too long. Democrats recently introduced – and several presidential candidates endorsed – a so-called “Green New Deal” that would seemingly necessitate abolishing or at least significantly curbing the use of cars and airplanes. The resolution introduced in Congress lacked sufficient detail on how they plan to achieve their climate goals in terms of restrictions on choices and growth in taxpayer costs, but these are details worth knowing before we take these proposals seriously. Are these choices the American people are willing to make? Or must they be forced into making them? Would they elect politicians who would enforce this regime?

There are undoubtedly infrastructure investments that can be made, in lieu of other infrastructure choices, that would seemingly be better for the environment. But if the people’s elected representatives are to make these decisions, people deserve to know the pain they will have to endure and for what gain environmentally they will do so.

On the matter of increasing IRR and ROI for clean energy private sector ventures, such as Tesla, most environmentalists readily admit that this is a form of government picking winners and losers. This is corporate welfare that leftists rightfully decry in any other setting. They will obviously claim that climate change is a crisis for which it is worth setting aside their principled opposition to corporate welfare, but then, what else is worth it? When politicians get involved in making decisions for the economy, no single group gets to decide when or how they do so.

Are blatantly harmful tariffs that protect American steel companies justified because we have a crisis of economic mobility in the Rust Belt? Should we subsidize American shoe companies so that we don’t have to buy shoes made in China, our greatest geopolitical foe? These are all important matters that might theoretically result in politicians deciding to grant privilege (tax incentives, subsidies, etc.) to some mega-corporations over their competitors.

Are we prepared for more and more of the direction of our economy to be determined not by market signals (government does not create market signals…market actors create market signals) but rather on the whims of Washington politicians? The same politicians who can’t seem to perform the most basic tasks of governing?

What impact would that realistically have on the opportunity, choice, and innovation in our economy that has produced the wealthiest and most powerful nation on earth?

Moreover, as mentioned above we have seen this fail miserably before within the green energy space, leaving American taxpayers on the hook, and to this day, renewable energy receives far more in subsidies than coal, oil, and natural gas. How many more billions in subsidies do green energy companies need in order to satisfy the environmentalists?

How much much of our money and freedom of choice will it take to solve climate change?

The fact of the matter remains that climate change cannot simply be solved with a “carrot” for cleaner technology or the right kind of infrastructure. It will necessitate the “stick” of increased government control over personal choices and higher taxes to pay for it – including on the middle class. Environmentalists are free to make that case to the American people. But the American people deserve an open, honest, and full discussion of what that entails – not merely sloganeering and lofty promises.
Until they can do so successfully and be rewarded for it at the ballot box, we’ll have to settle for free-market innovations – the ones environmentalists are certain can’t address climate change – to keep driving down emissions.

James Newhouse: Perhaps the single greatest achievement of capitalism is the vast reduction of global poverty. Akash and I agree on that. The unfortunate reality, though, is that our economy runs on natural resources. Unlike renewable energy, these resources expire. Not only that, overconsumption of these resources threatens our entire system. That means continued reliance on these sources threatens the capitalist mantra of growth. Akash is a climate denier because he cited a Trump federal government study and American Enterprise Institute source that doubt the likelihood of this possibility.

Recently, economic mobility has decreased, inequality has increased, and credible sources (see the links I provided in my first response) consistently show that climate change will only exacerbate these troubling trends. Fortunately, Capitalism provides a solution: subsidize clean infrastructure (e.g. solar development and electric vehicle infrastructure). This is embraced by the Chinese, Europeans, and Californians. Republican governors Larry Hogan of Maryland, Charlie Baker of Massachusetts, and Phil Scott of Vermont also embrace this solution. This has seen slow uptake on the federal level because the oil industry enjoys outsized influence and because it requires an adjustment to the modern neoliberal over-embrace of free markets.

To ensure the sustainable growth of capitalism, both of these barriers to regulation must be removed. That doesn’t mean that everyone should vote Democrat. Multiple parties are good. They bring diversity of thought and checks and balances. But it does mean that we should actively support politicians that embrace this effort. To frame things in a capitalist mindset one final time, what is a couple billion dollars to safeguard against the existential threat of climate changes? Those billions may be the highest ROI risk-mitigation investment ever made.

To be gay, with Mathew Holliday

On Hyde and California in San Francisco we talk SF culture, the short fuse in the court of public opinion, and how “being gay isn’t all roses and penises.”

Watch on YouTube, subscribe via iTunesSpotify, or wherever podcasts are available. Support the show on Patreon. Follow on Instagram and Twitter for pictures of the guests and show updates.

Produced by Chris Derr and James Newhouse. Music by Chris Hoogewerff.

Cloudflare, The Most Important Company You’ve Never Heard Of

Nearly a decade ago when it was difficult for small sites to handle large amounts of traffic, especially from DDoS attacks, I remember stumbling on Cloudflare‘s first promotional video. At the time it seemed like magic. No hardware or software configuration needed, and you could ensure your site would stay up using Cloudflare’s infrastructure. Today, they are valued at over three billion dollars and are gearing up for an IPO.

I’ve talked about Cloudflare for some time now and championed their free to use privacy first DNS service and their suite of products and experimentation that are making the internet a better place. But for a company that powers nearly 10 percent of all internet requests you would be hard pressed to find them mentioned next to the cloud services giants of the world like Amazon, Microsoft, Oracle, and Google- that is about to change. With reports Cloudflare is going to IPO at over a 3 billion dollar valuation, it’s prediction time:

Before 2030 Cloudflare will be valued at over $20 billion. This equates to an ~18% growth rate every year.

Microsoft capitalized on software, Google on the internet, Apple on mobile, and Cloudflare will capitalize on cloud services. Unlike the other cloud services providers in the space who have added cloud services to their offerings, Cloudflare has been doing it from the beginning- it’s in their DNA. I’m always bullish on companies that are built to take advantage of a specific booming sector from the beginning- avoiding the pitfalls that come with trying to reorient their business to handle it. Let’s see what happens.