Category: Web/Tech

Stripe Atlas update

Five years ago, Marginal Revolution covered a new project, Stripe Atlas, to help founders incorporate their start-ups and thus make them successful realities.  There is a one-time fee of $500.  Here are the results:

In 2016, we launched Stripe Atlas to help founders turn their ideas into startups, and in turn, collectively grow the GDP of the internet. Since then, over 20,000 businesses have started with Atlas and have generated over $3 billion in revenue. We surveyed over 1,000 Atlas founders to get a snapshot of this generation of entrepreneurs and their needs…

Ninety-one percent of Atlas founders are not in Silicon Valley. In fact, outside of the US, some of the places where we’re seeing the fastest growth are Nigeria (400% year-over-year), United Arab Emirates (165%), and India (66%). Twenty-eight percent of founders told us that they identify as minorities in their country, and 24% are immigrants. Just 12% of founders identified as female. (This is slightly better when compared to the portfolios of major startup accelerators or venture capital firms.) Over time we hope to help more female founders start and scale. Forty-three percent of Atlas founders are building businesses for the first time—nearly 10,000 of them started in just the past year (an indication of an upward trend in entrepreneurship after nearly three decades of decline).

That is from Edwin Wee.  The core lesson, at the meta-level, is that business services for an internet age remain drastically underprovided.  But on the bright side, entrepreneurs are starting to remedy this…

The economics of ransomware attacks

That is the topic of my latest Bloomberg column, here is one part:

In economic terms, the private value of internet security is often less than the public value. A ransomware attack that results in only a slight decrease in profits for a business could translate into a major social inconvenience.

One consolation is that hackers will almost certainly “overfish” the pool of victims. At some point there will be so many attacks that most institutions will have no choice but to respond with significant defensive measures. The hackers themselves will accelerate this process, because each will try to maximize their profits before the game is over. Curiously, this means that a successful attempt to “slow down” the hackers could just delay the necessary adjustments that businesses need to make, leaving everyone worse off.

There is much more at the link.

Wyoming fact of the day

Wyoming—the first US state to grant a charter to a crypto bank—has approved legal status for a decentralized autonomous organization (DAO), the American CryptoFed DAO, according to an announcement on Sunday. The organization, which has a mission to introduce a new monetary system, now becomes the first legally recognized DAO in the U.S.

It comes after Wyoming lawmakers voted in March to pass a bill allowing DAOs to be officially registered in the state. The law affords these entities—which are governed by smart contracts and dispense with the hierarchical control structure seen in traditional companies—the same rights as a limited liability company. The bill came into effect on July 1, 2021.

Just think — limited liability for “a company managed by nobody”!  And:

The DAO law also solidifies Wyoming’s reputation as the most crypto-friendly U.S. state. Last year, it was the first in the US to issue a state charter for crypto banks and has already licensed two: Kraken and Avanti.

Here is the full story, via Shaffin Shariff.

Which media have proven sticky as pandemic has diminished?

The single biggest new media habit to be formed during the pandemic appears to be gaming. The extra hour per week that people spent gaming last year represented the largest percentage increase of any media category. And unlike other lockdown hobbies, it is showing no sign of falling away as life gets back to normal. It has become “a sticky habit”, says Craig Chapple of Sensor Tower. He finds that last year people installed 56.2bn gaming apps, a third more than in 2019 (and three times the rate of increase the previous year). The easing of lockdowns is not denting the habit: the first quarter of 2021 saw more installations than any quarter of 2020. Roblox, a sprawling platform on which people make and share their own basic games, reported that in the first quarter of this year players spent nearly 10bn hours on the platform, nearly twice as much time as they spent in the same period in 2020.

And:

…whereas all other generations of Americans named television and films as their favourite form of home entertainment, Generation Z ranked them last, after video games, music, web browsing and social media.

Here is more from The Economist.

Bulletin: a more than marginal boost for Marginal Revolution

We are proud to announce that Marginal Revolution now exists on a second site as well, affiliated with Facebook, at marginalrevolution.bulletin.com.

We are excited to be part of this new project, called Bulletin.  Please note that marginalrevolution.bulletin.com will be fully free and open, just as the current site is.

If you prefer to stay here, you can do so — no need to make any changes.  RSS, Twitter feed, email service, everything remains intact.  Or if you prefer it over there, that is great too.  Facebook obviously has a reputation for producing great software, and we look forward to seeing what they can do with this project.  Many other content creators have been recruited for this venture, they will have their own Bulletin sites, and we will tell you more about them soon.

We are keen to see our ideas and writings brought to new audiences, and our new partnership with Facebook will enable this.  So far they have been great to work with, and we will be able to continue with our fully independent status.

We are also delighted to see that some of you will have the opportunity to comment on two different sites, not just one.

Onwards and upwards!  We are in this for the long haul.

And as always, we thank you all for reading.

Bulletin!

We are thrilled that Marginal Revolution is a featured part of Facebook’s new Bulletin writing service. Facebook has nearly 3 billion active users and this new partnership will bring additional readers to Marginal Revolution. Don’t worry, however, we remain an independent source of news and opinion and Marginal Revolution will continue to exist at Marginal Revolution as well as at MarginalRevolution.Bulletin.com. Bulletin will bring us new readers and we are excited about the new methods of content delivery that Facebook will bring to the table. More on that in the future!

Is blockchain puny?

Here is a new and intriguing idea (link now fixed) from StarkWare, a blockchain start-up based in Israel.  Authored by Eli Ben-Sasson, here is one excerpt:

Imagine if we accepted, for the foreseeable future, that we can only write on a given blockchain ten times per second, but instead of writing ten single transactions, made ten additions to the blockchain, each attesting to thousands of transactions. Despite the scale-up, there would be no significant rise in the number of kilobytes being added to the chain.

In short, I’m talking about a fix that would mean the same blockchains that I brazenly called puny would suddenly become mighty.

This fix is the adoption of  cryptographic proofs — a concept that captured my imagination when I was a PhD student under Professor Avi Wigderson, one of the pioneers of this area of mathematics, and when I was a postdoc under Professor Madhu Sudan, another of the founding fathers of this field. After 20 years in academia, today I am president of StarkWare (@StarkWareLtd on Twitter), a company I co-founded to move this fix from the realm of theory to reality – a reality that will scale-up blockchain to an unprecedented degree.

Currently, Bitcoin establishes integrity the way you do it with your waiter or waitress. As you sit at your table, the waiting staff present a bill with the food you ordered, taking up the role of the “prover.” You check the calculation — making you the “verifier.”

With Bitcoin, the miner of a new block is the “prover.” Every block acts as proof that the payments contained in it are valid. And the nodes, meaning the many computers which host and synchronize a copy of the entire Bitcoin blockchain, naively replay each transaction in the block to verify that it is correct.

With cryptographic proofs, instead of recording this data-heavy information to the blockchain, we write on the chain in a kind of shorthand — proofs which verify that transactions have been conducted with integrity. All the heavy computational lift, meaning the work done to obtain the proof, happens in the cloud, not the blockchain.

It is logic we’re all familiar with in other areas of life. A large company may have its flagship office in central Manhattan, but wouldn’t dream of using such prime real estate for its huge factory, where the heavy lifting takes place.

Stay tuned….

What crypto people get wrong

That is the topic of my latest Bloomberg column, here is one excerpt:

If anything, crypto is more likely to hurt the currencies of countries that are doing very poorly, such as Venezuela. Fiat currency won’t just go away, so over the long run crypto could actually boost the value of the dollar by stifling the rise of potential competitors.

A second point, oft neglected in the crypto community, is that crypto prices won’t continue to go up forever at high rates. It doesn’t matter whether money supply deflation is built into a crypto system, or that new and valuable uses will be discovered each year. At some point the market will figure out the value of crypto and incorporate that information into a high level of price for those assets. From then on, expected rates of return will be — dare I say — normal.

Compare the crypto market to the art market, which for a long time didn’t grasp the potential value of an Andy Warhol painting. For years, prices went up a lot. At this point, however, a liquid market remains, and the expected value of an investment in Warhol is not necessarily better or worse than the value of an investment in other well-known works of art.

It is an entirely defensible (albeit contested) view that the market still hasn’t appreciated the full value of crypto. This state of affairs may yet endure for some while, but it will not last for decades.

The irony is that so many of the arguments made by crypto types imply especially low pecuniary rates of return on crypto. To the extent crypto is useful as collateral or for liquidity purposes, people will be more willing to hold crypto at lower pecuniary rates of return, just as they are willing to hold cash, or just as the collateral uses for U.S. Treasury bonds raise their price and lower their expected rates of return.

If we eventually arrive at a world in which equities are expected to rise by say 5% to 7% a year, and Bitcoin by say 1%, then that will be a sign crypto has made it. The more general point is that while crypto has been a highly unusual asset class for its entire history, it won’t act like an unusual asset class forever.

And this:

Satoshi and Vitalik Buterin are not only significant innovators, but also the two most important monetary economists of our time.

Recommended.

Austin Vernon on El Salvadoran bitcoin acceptance, from my email

Sent this to [redacted, a man of substance] yesterday. LN = Lightning Network, Bitcoins layer 2 scaling solution based on channels:

As far as I understand it, everyone using LN in El Salvador has primarily been using Strike. Classic crypto conundrum in that they had to centralize to get it to work. There is a Twitter thread with the CEO where he shows they had to block their software using most non Strike LN nodes because there were so many failed payments.

https://mobile.twitter.com/JackMallers/status/1291403528116883456

https://strike.me/faq/howitworks

Also looks like you submit USD and they have some kind of centralized payment system to manage the transactions to the Bitcoin layer 1 chain.

I imagine this is a big improvement for people in El Salvador and I’ve heard Strike has already been popular, but I don’t see it as what is being touted as.

Additionally to the email above:

There was an out at the end of the law that says you don’t have to accept Bitcoin if you are too poor. But a basic smartphone with the app means you can accept it. There is a small town where a donor gave the town Bitcoin and forced them to use it as currency and even started doing a private UBI in Bitcoin. Some of the stores started taking it. Strike is only available in the US and El Salvador. So in a truth is stranger than fiction, the idea probably got jumpstarted by a surfer that loved both a beach town and bitcoin. Helps that El Salvador uses the dollar. The legislators would just have to drive to the town to see how it works rather than read about it.

https://www.bitcoinbeach.com

To me this is more like a new kind of bank than some decentralized currency takeover, because Strike is relatively centralized. Being like a bank probably implies some of the same advantages and vulnerabilities of a regular bank. The PR is nice! Not having to get cash at a Western Union that might be far (and where you can get robbed) could have more impact than cheaper fees. It will be a few years before the technology exists to do this in a more decentralized way. Interesting nonetheless.

DeFi is the killer app for crypto

That is the topic of my latest Bloomberg column, let me just give you one segment from the end:

And if the question is whether crypto is good for anything, there is now at least one clear answer: Crypto enables DeFi. You don’t have to like every consequence of that reality, but a reality it is.

You could say that crypto is a Trojan horse of a new and quite different financial system. If you have ever dealt with U.S. banks, and suffered through their bureaucracy and mediocre software, you might conclude that they are ripe for  disruption. Banks in other countries may be even more vulnerable.

Obviously, as DeFi grows, questions of government oversight and control will come to the fore. Still, it seems unlikely that DeFi institutions will be regulated out of existence. DeFi can be run on platforms outside of the U.S., and American and European regulators cannot shut it down any more than they can prevent me from placing an online bet on a Mexican soccer game.

Keep in mind that significant swaths of the developing world currently use micro-credit, where borrowing rates of interest are often 50% or 100% on an annualized basis. It is likely that some of those countries will experiment with DeFi as an alternative method of credit allocation, regardless of whether those new institutions satisfy U.S. regulators in every regard.

If you are baffled by a lot of DeFi, well … welcome to the club. The confusing and ever-changing nature of DeFi helps explains why the prices of crypto assets are so volatile. If DeFi lies in part behind the demand for crypto, and you don’t know exactly where DeFi is headed, the future for crypto is also highly uncertain. It is very unusual to have such a highly visible window on what is essentially the value of a bunch of startups.

Recommended, and here are some earlier posts by Alex on DeFi.  And here is a new essay on DeFi.

Some points about corporate tax

Written from the British context:

Should the system be changed to one where companies are taxed on all the profits they make from their sales in the country?

There are a few downsides to this.

First of all it would be very hard for one country to switch to such a system without getting the rest of the world to do it too. If we did it unilaterally it would open up more differences between national tax regimes and so create, rather than reduce tax avoidance loopholes.

It is also far from clear the UK would gain from such a change. We might gain from some of the big US-based multinationals paying more tax here, but we have plenty of multinationals of our own and they would generally end up paying less here. The biggest losers could well be poorer developing countries, especially those reliant on extractive industries such as mining. If they could only tax companies based on their sales to their residents in that country that would bring in a lot less than taxing them on the share of the economic value of the products generated in that country. The UK itself still generates between 8 and 9 percent of Government revenues from corporation tax, which is pretty respectable internationally, despite being a very open economy exposed to competition.

There is also an economic question as to who ultimately bears the burden of taxes ‎on a company – is it the shareholders, the customers, or the workers, and if the workers, is it the highly-paid top management or the people at the bottom? The answer is not certain, but it does seem likely that a shift to sales-based tax would be at the expense of the customers. In other words, by taxing internet-based suppliers more, we could be more heavily taxing ourselves.

But the strongest argument against is fairness. If a product is invented / developed / mined / refined / built and potentially even marketed and sold all round the world entirely from country X, making use of staff educated in country X, who use country X’s health care system and transport network, often with tax breaks from country X to encourage its growth, and maybe even wage subsidies from country X for its employees, who deserves to be able to tax the company’s profits? Is it country X, or every country that has someone in it who buys a product from the company? Of course if a country wants to tax sales it can, and sales taxes such as VAT are a perfectly reasonable and sensible part of a country’s tax mix; though in the EU, this is governed to a considerable extent by EU rules.

There are many further detailed points at the link.  And do note this:

There is a perceived issue with the internet making it easier than ever for companies to ‘sell into’ a country with little or no presence in that country, and therefore offering little or no taxable base for the government of that country to tax the profits of. Sales taxes can be part of the answer to this.

But of course a sales tax does not appear to consumers to be a free lunch, and so it is not as politically popular as a sales-based hike in corporate rates.  And so we arrive at the current mess of a situation: “We want tax equity, but you can’t possibly expect us to do that in a way that is transparent!”

Tax incidence on competing two-sided platforms

That is a paper by Paul Belleflamme and Eric Toulemonde, from a few years ago:

We analyze the effects of various taxes on competing two-sided platforms. First, we consider nondiscriminating taxes. We show that specific taxes are entirely passed to the agents on the side on which they are levied; other agents and platforms are left unaffected. Transaction taxes hurt agents on both sides and benefit platforms. Ad valorem taxes are the only tax instrument that allows the tax authority to capture part of the platforms’ profits. Second, regarding asymmetric taxes, we show that agents on the untaxed side benefit from the tax. At least one platform, possibly the taxed one, benefits from the tax.

This may all turn out to matter more if the new multinational corporate tax regime comes into existence.  Of course you can vary the assumptions further yet, and get additional and differing results, but please keep in mind: the tax you impose is not the incidence you get.