Archive | February 2014

“Because that’s where the money is.”

Dillinger 2

Apparently bank robber Willie Sutton did not say this, when asked why he robbed banks. But it sounds true, and it explains why Bitcoin exchanges – or ANY repository of large amounts of money – will always be important targets of thieves.

After my last blog post, which concluded that BTC thefts are occurring at a rate about a thousand times higher than US bank robberies, I had a phone conversation with some of my US Deloitte colleagues.

[Ed. Breaking news from Japan this morning: not only are the 740,000 BTC owned by customers missing, but the 110,000 BTC owned by Mt. Gox itself were also stolen. This means the total number of BTC stolen since 2011 rises to a cumulative 1.64 million, or 517,000 per year, which represents an annual theft rate of 4.2% of all Bitcoins currently in circulation.]

We asked the question: aren’t thefts likely to be higher in the early days of any new system with piles of money, real or electronic, lying around? The various safeguards haven’t been perfected yet, and an article from earlier this week says that fraud was a huge problem for another ‘honey pot’ of digital money:  the headline “Bitcoin is the new PayPal” tells you everything you need to know!

But we need to note that there are some very big differences between what PayPal experienced and what is happening now with Bitcoin. 1) The magnitude of the losses is much worse with BTC thefts: PayPal was running at about 100 basis points of fraud, and as my last post showed, BTC losses are over 400 basis points a year since 2011. 2) The PayPal frauds were numerous small thefts, not enormous robberies like the $350 million Mt. Gox theft. 3) The losses in the PayPal cases were not generally borne by individuals, but by PayPal and/or the credit card companies. The Bitcoin losses have hit individuals, and the money looks like it is gone forever.

Even if Bitcoin is just going through teething pains the way PayPal did, does that mean theft is a non-issue? I am not sure. Most new technologies have risks, but usually those risks are about the same as whatever it is they are trying to replace, or if they are a bit higher, it is only a bit, and they offer some sort of benefit. This was what PayPal overcame: there were some real challenges in global internet payments, and even though there were some big losses due to fraud, the benefits that PayPal offered were big enough to offset those risks, and gave them time to develop better security. While it is clear that BTC has many advantages, they need to be very large to offset a 400 bps annual loss rate due to theft or fraud! Finally, PayPal was able to work out its problems because they had lots of their own money to throw at the problem. It is not yet clear that the BTC community has the cohesion OR the budget to solve the theft issue.

Back to our bank robbers. What, I wondered, is the historic rate of bank robberies over time? In recent years, as technology has improved, the robbery rate has been dropping like a stone. In Canada, for example, bank robberies are down by almost half since 2000! But the corollary to that trend is that the bank robbery rate was even higher in the 1970s, and then higher again in the 1930s: John Dillinger, Bonnie and Clyde and Pretty Boy Floyd were celebrities! Going back even further, Jesse James and his gang stole $60,000 from a bank in Missouri in 1866. You might think inflation would make that worth $100 million today, but the actual effect is surprisingly small: one dollar in 1866 is worth $14.71 today, or just under $900,000. A lot of money, but still only 0.2% of the Mt. Gox heist.

As another example, Dillinger and his gang engaged in a series of bank robberies in 1933 and 1934. They appear to have robbed 12 banks in 12 months, netting a cumulative $318,000! Which, in today’s money is about $6.8 million: much more than the James-Younger gang got, but still only 2% of the Mt. Gox theft.

Annoyingly, there is no master database of ALL bank robberies over time. And of course the dollar value of all US currency in circulation was much smaller back then. But still…

While it is true that bank robbery rates were much higher when banks and handguns and getaway cars were “novel technologies”, it seem very likely that the bank robbery rate in the past was not much more than 10-20 times higher than today.

So that means that the current rates of Bitcoin robberies are not only 1000 times higher (as a percent of the currency available), but they are also 50-100 times higher than bank robberies have ever been, even when the market was similarly immature. Bitcoin, as a currency, seems remarkably and perhaps unprecedentedly vulnerable to theft.

Beware the forecasters of innovation failure What makes for a nighsayer?


Whether decades-old technologies like TV or the PC, relative newcomers like social media or SMS messaging, or something in its infancy such as the phablet (a cross between a smartphone and a tablet), there’s always someone trumpeting its imminent demise or utter failure. These types are not just naysayers: their level of scepticism and dire warning are more like that of a cartoon figure holding a sign proclaiming that the “End of the World is Nigh!” Hence my coining the term ‘nighsayer’.

In a series of blog posts, I’ll take a swing at breaking down the various motivations for this kind of behaviour. These folks are often wrong, and understanding why is important for anyone who wants to be more accurate in judging when something truly is about to go away, and how soon. We are all futurists these days: tech, media and telecom are changing fast, and being able to predict the winners and losers is important to leaders at all levels and in all industries.

Conflict of interest The first and most obvious motivation for predicting the failure of a new technology or media is when someone’s livelihood is directly at stake; to quote the lawyers, cui bono (who benefits?). This phenomenon is often seen on financial news channels, when portfolio managers who own a million shares of a stock publicly put down that stock’s largest competitor. The phrase in the stock market is that the manager is “talking their book”, meaning every word out of their mouth is going to reflect their current holdings. A similar pattern is seen in government meetings: in a discussion about the military, for example, the opinions from the representatives of the army, navy and air force are entirely predictable based on the perceived self-interest of each service. The idiom used here is “where you stand depends on where you sit!”

Similarly, we can imagine blacksmiths or ostlers bad-mouthing these newfangled horseless carriages 120 years ago. They made their living on a horse-based economy, and the economic threat from the automobile and the internal combustion engine was real and material. Their negative views should have surprised no one. Equally, swing jazz musicians belittled the future of rock and roll in the late 1950s. It may have been a matter of taste, but it was certainly a matter of money. Therefore, the person who makes tablets or smartphones — but not PCs — is probably not the most reliable predictor of the likely fate of the personal computer. Makers of online video have skin in the game on predicting the death of TV. Instant messaging app makers are dying to tell you that the number of Mobile Instant Messages (MIM) sent over data plans is 50 billion a day while Short Message Service (SMS) is a ‘mere’ 20 billion a day, and that the two formats were tied as recently as 2012. But they are curiously mute on the dollar value accruing to each service; SMS’s $100 billion per year is over 50 times as big as all MIM revenues combined.

So the next time someone tells you that a hundred-billion-dollar business like SMS or TV is dead, consider on which side of the debate his or her bread is buttered. The next post will look at the old fogeys who ‘nighsay’, and the one after will be about the hipsters.

This post originally was published at the Deloitte iDeas blog:

Bitcoins and Bank Robberies


The Bitcoin world is in turmoil. Its formerly highest profile exchange, Mt. Gox, has shut down overnight, surrounded by allegations of theft. According to the Globe and Mail (and numerous other sources) about 740,000 BTC may have been stolen, worth roughly $350 million at current prices.

This is not the first theft of Bitcoins, and it won’t be the last. But, as defenders of the cryptocurrency point out, theft occurs in every currency! US dollars are stolen every day: and just because there are bank robberies from time to time doesn’t mean the US dollar isn’t a useful currency with a long and viable future ahead of it, right?

What I have never seen is an evidence based analysis of the robbery rate in dollars and Bitcoins. My work below is a first attempt, and I appreciate any concrete suggestions and data for making it more rigorous.

My first caveat is that measuring theft is tricky: a US dollar stolen in 2011 is worth about the same today…perhaps $0.95 due to the effects of inflation. Meanwhile a thousand BTC stolen when it was worth $10 in 2011 is very different from the same number of BTC stolen when it was worth $1000 in late 2013! The extreme volatility of the BTC/USD conversion means that I think we need to calculate all BTC thefts denominated in Bitcoins, and not convert them into the dollar equivalent. Next, due to the relatively recent history of Bitcoin, I am using a time frame of 2011 to end of February 2014, or 3.17 years.

According to the list of Bitcoin thefts online, and counting only thefts of 1,000 BTC and more, from 2011 up until the Mt. Gox news, there were roughly 792,000 BTC stolen. Add the 740,000 stolen from Mt. Gox, and the total is about 1.53 million BTC stolen in 3.17 years, or just over 480,000 BTC stolen per year.

The total number of Bitcoins is growing over time, and was about 6 million at the start of 2011 and is about 12.2 million today. Properly speaking, each robbery should be measured as a percentage of the total BTC is circulation as of the date of the theft, but that is hard to calculate and may be irrelevant, as the thieves can keep the stolen coins and only use them later. But assuming the ~12 million number for today, and that the annual losses due to thefts stays around 480K BTC per year, that suggests that about 4% of all BTC in circulation is stolen every year.

There are about US$1.2 trillion of Federal Reserve notes in circulation today. The FBI hasn’t been publishing the data in more recent years, but they provided a great annual summary of all bank robberies (including armoured cars!) from 2008-2011. The number was declining, but ranged from about $60 million in 2008 to the $40 million area in the other three years. Using a $50 million midpoint, that implies that 0.0042% of all US dollars in circulation was stolen from a bank annually.

As a first order approximation, I therefore conclude that the annual losses due to theft in the Bitcoin currency world have been roughly 1,000x greater than the equivalent losses in the US dollar currency ecosystem over the same time period.

3 Tips for Keeping the Romance in Your Marriage

2014-02-16 10.38.10

Yesterday, someone described me and my wife as being ‘heart meltingly romantic.’
As a couple, we are lucky to have many chances to be romantic, with some cool travel and nice restaurants. But we have been married almost nine years, and some of the travel and such can be stressful on us, and the exact opposite of romantic: 5 am flights, jet lag, business dinners apart…and so on.
So what are three of the behaviours that we do, that are not work…but perhaps are more like water for flowers? Necessary to keep us blooming romantically?
  1. Speaking of flowers. If we are in a single city for more than three days, we buy a plant or a bouquet and put it in the room. Every morning Barbara wakes up and smiles at her flowers, and I smile at her smile. The ones in the photo happen to be roses (it was the day after Valentine’s and they were on sale) but a cheap and nice-smelling hyacinth is just as good!
  2. Romance isn’t confined to Valentine’s Day or anniversaries. We had a perfectly lovely Feb 14, but an even better and more romantic February 15, at a finer restaurant and wearing sexier clothes. Don’t let the greeting card industry tell you when to be romantic — it can be any day (or every day) you want.
  3. Love letters. 10-15 times per year (not just on birthdays and anniversaries, but then too) we buy a blank card, like the ones you see in the picture. We take some time before dinner and sit apart, and write both sides of the inside of the blank card: 250-300 words. Just the usual love letter stuff that we wrote when we were dating, but we still do it. Almost every month, sometimes more. And we take turns reading each other’s cards out on our date night, holding hands, and snuffling. (Well, that would be Barbara – she sometimes mists up during the card reading!)

Just a few ‘best practises’, as we say in the Consulting business! 🙂

#Chimpitas: The Legend Begins…(the real story)


This September, I happened to use the word “gravitas” in a conversation with Barbara. She’d seen the word before, of course, but hadn’t ever heard it spoken aloud. One of the Roman Virtues, it can be translated as weight, seriousness and dignity, but always connotes a certain substance or depth of personality (to quote the Wikipedia definition.)

She was delighted by the word, and used it 30-40 times per day: “This book has a certain gravitas.” Or perhaps “That actor has gravitas.” Or even “Gee, this morning’s blueberries have a lot of gravitas.” Needless to say, I found this charming. 

While she was still in the grip of gravitas-mania, we were also preparing for her presentation in Helsinki for the NASDAQ OMX to an audience of about 500 people. Barbara knew her material cold, but wanted some accompanying slides that would educate, inform and entertain. She happens to think highly of my PowerPoint craft, and asked me to help her out, which was a not inconsiderable effort: maybe 10-20 hours. In return for which, when we swung through Paris on our way home from Helsinki, Barbara would reward me with a lavish dinner at the Tour d’Argent. (Woot!)

One morning, after a couple of hours of me PowerPointing away, Barbara made a joke: like technological services such as Mail Chimp, I was her Slide Chimp! I pondered briefly, looked stern, and said that I was not merely any old Slide Chimp, but rather “Mr. Slide Chimpitas.”

She immediately went into hysterics, and stayed there. For weeks, she would refer to S. Chimpitas, and when we were in Paris after our trip to the Nordics, she spent nearly two whole days prowling the various arrondisements for the perfect physical embodiment of Chimpitas in puppet form, presumably leaving a trail of rejected and discarded stuffed chimps across Paris.

But at last her search was successfully concluded, and she gave him to me with a card at the Tour…which makes him, I suspect, one of the relatively few chimpanzee hand puppets to have graced that institution.

I decided to make #Chimpitas the mascot of the Deloitte 2014 TMT Predictions world tour, for reasons to be discussed shortly…

Next post: In which we all discover the TRUE meaning of #Chimpitas.