Ethereum’s Eternal September

Every platform undergoes a tipping point on the journey to mass adoption, and the results are not always nice. In the early 1990s, Usenet was obscure and inaccessible enough that the only participants were tech-savvy mature adults. Every September, college freshmen would get brand new internet access, jump onto Usenet, and generally act like twits for a month until they were properly acculturated.

In 1993, AOL messed it all up. After Congress passed Al Gore’s bill for commercial internet use, Usenet access was granted to AOL’s entire customer base. What used to be a brief annual nuisance turned into an onslaught of AOL n00bs, who overwhelmed Usenet’s cultural institutions and turned the newsgroup into a noisome wasteland. Veteran users fled to gated communities, and September 1993 went down in history as the September that never ended.

4chan, Reddit, and Digg were all once well-kept gardens of polite discourse until Eternal September set in. Facebook set the scene for its own demise when Zuck extended signups to our parents. bleahhh.

Ethereum, on the other hand, was born into an Eternal September.

Whereas Bitcoin toiled in obscurity for years, Ethereum was announced at a conference. The founders went on a marketing spree and raised over $18 million by pre-selling ether tokens for the blockchain they planned to build.

A foundation was created and partnerships were formed. Banks and enterprise software vendors signed on. Instead of seeking out a beachhead market, Ethereum went straight for the masses. Bitcoin’s first release was a wonky Windows executable, but Ethereum had a colorful browser called Mist. If downloading a browser was too much work, MyEtherWallet offered a web page where you could simply paste in your private key.

In terms of mass adoption, Ethereum has been a wild success. Every week I get a half-dozen emails from people asking how to buy “etherium”. Anyone can use it; you don’t even need to know how to spell it.

But there are some downsides to having a nonstop stream of n00bs.

Yesterday, a bug was discovered in a widely used smart contract. A hacker ran off with $32 million yoinked from four major projects. The day before, someone hijacked a web site during a crowdsale and tricked buyers into sending $10M to the wrong address. Before that, there was a Canadian exchange that accidentally trapped $13M in its own broken contract.

I’m just talking about technical issues here; I can’t even keep up with the ICO scams.

Today marks the anniversary of the DAO fork, a fissure that occurred when influential Ethereum leaders decided to bail out a smart contract after losing $60 million. Ethereum Classic is the minority chain that was left in its wake.

People often forget that Ethereum Classic exists. That’s okay — At this stage, low visibility is a good thing. Smart contracts have the technological maturity of Bitcoin circa 2010, which is not very mature at all. There are a million ways to lose your life savings, and nothing gets regulators moving faster than a critical mass of humans who hurt themselves.

While Ethereum struggles to contain its Eternal September, Ethereum Classic developers are hard at work on a lot of cool things. Toiling in obscurity is a blessing. When September eventually sets in, we’ll be ready for whatever they throw at us.

Happy Birthday Ethereum Classic!

Getting Access to the Old Boys’ Club

If you’re not winning, life will always seem horribly unfair. Women and minorities complain that the tech industry is an impenetrable animal house. Others complain about losing job opportunities to H-1B workers and diversity hires. But nothing seems more unjust than the venture capital industry, a circular institution that advertises meritocracy while celebrating a bunch of bros funding bros.

Silicon Valley is indeed insular and unfair. But hey, so is the whole rest of the world. The industry-disrupters of tomorrow should be the last ones demanding kid-glove treatment.

Here’s venture capitalist Mark Suster on getting access to the Old Boys’ club:

It may sound harsh but in reality I think it’s true. If you can’t get a warm introduction to a VC then how on Earth are you going to break down the doors to get to the VP of Sales, Biz Dev or Marketing in the organization that you’re looking to sell your products to to or develop partnerships with?

If you’re not assertive and creative enough to get through a VC’s doors then how are you going to get the most sought after journalists to write your stories or the most skeptical buyers to part with their hard-earned cash?

I might add: If you can’t tell an inappropriate investor to take a hike, how are you going to fire underperforming employees? If you can’t speak up about sexual harassment (until years later) for fear of retaliation, how are you going to defend your company against a media hatchet job?

There’s a saying in the industry, Outcomes are Binary. Either you’re building a billion-dollar company or you’re not. If you’re not building a billion-dollar company, you have the wrong business model for venture capital.

Raising money can be hard, but it’s the least-hard part of growing a startup. And if you can’t navigate the racist sexist VC circuit, you have a snowflake’s chance in hell of building a billion-dollar company.

Note: I don’t actually think Silicon Valley investors are sexist or racist. The ones in question mistreat male founders just as readily as they abuse women and minorities. That makes them assholes, not bigots.

The Business of Black Market Bribery

In 1937, a district attorney ordered an investigation of corruption in the SFPD. San Francisco was a pretty lawless place back then; houses of prostitution and gambling operated open and abundantly so long as they made monthly payoffs to the police force. There were so many brothels that in North Beach, tenants placed signs on their doors announcing they were private residences – to prevent the gentlemen callers from calling.

The typical tribute payment was $250 a month for a brothel, and $100 for a bookmaker. Adjusted for inflation, that’s about $4200 and $1700. That seems high! The nominal cost of ignoring an illegal establishment is zero, and I would expect police graft to be subject to competitive forces. Establishment operators who find themselves excessively shaken down could simply pack up and move to another officer’s beat.

Decentralized resource control is necessary but insufficient for a functioning economy. There also has to be some price system for communicating personal knowledge. Cops can’t walk around advertising their bribery rates (although I wish they would) so corruption is best handled collectively.

As a result, black markets tend to be monopolized markets. Ultimately, San Francisco’s vice industry was controlled by a couple of bail bondsmen who determined the price of payoff. The police department had to make regular arrests to keep their numbers up, and those who were up to date on their tribute payments would get a quick release while the holdouts were left in jail.

This all would have continued indefinitely, except that one prominent madam began listing police payoffs as a tax-deductible expense. This led the IRS to come after the SFPD for undeclared income, which prompted the whole investigation. See, even tribute collectors have to pay their tribute.

See Also:
1937 Police Graft Report by Edwin Atherton

Sexual Harassment in Silicon Valley

The venture capital industry continues its nonstop string of sexual harassment scandals. I was gonna write something sooner, but a New York Times article on gender discrimination made me roll my eyes so hard that they fell out of their sockets. It took several days to recover but I’m all better now thanks.

The Times draws on two dozen stories as evidence that sexual harassment in the startup ecosystem is “pervasive and ingrained”. Good grief. Aside from some brief detours, I’ve lived and worked in Silicon Valley since 1982. I promise it’s not that bad.

A typical early-stage founder will meet with over a hundred investors before closing a seed round with a handful of term sheets. Fundraising is a miserable experience only slightly less humiliating than public begging, and a startup CEO can expect to repeat this process every 18 months if her company doesn’t die before then.

Sand Hill Road: Will work for term sheets

When you have an industry that revolves around glorified panhandling, it’s inevitable that participants end up getting kicked and spat on. The Times describes some founders who put up with unwanted sexual advances because they were desperate to raise money for their startups. There’s an old-fashioned word for what these ladies are doing that I shan’t repeat here.

Male founders have to run this emasculating gauntlet too, except that they can’t blame gender discrimination for how dirty they feel at the end of the day.

There’s nothing unusual about the idea that the rich and powerful might abuse those who beg them for money. I imagine it’s one of the most attractive features of being rich. Some VCs are drafting a Code of Conduct that proposes to create a list of “bad actors” known to mistreat women or minorities. That’s a noble idea and all, but most of the bad actors recently harangued by the media were investing their own money. Call them out and paint a scarlet letter on their heads — Do you think the homeless people in Union Square check the Sex Offender Registry before accepting a dollar from a stranger?

The only thing more timeless than the abuse of power is the tolerance of abuse by those who most need the money. A common VC complaint is that there’s too much money chasing a few good companies. The flip side is that there’s a glut of unappreciated startups desperate for any funding at all. Silicon Valley is run by idealists, and I understand the desire to purify the industry — But to think that we can enforce a code of conduct is to completely misunderstand the nature of the supply and demand of capital.