Cryptobanking: Brain Dump

I was recently having a conversation with Niraj about the upcoming Raiden release. We were having a bit of a debate about the upcoming Layer 2 protocols for off-chain transactions. The conversation centered around the risks of centralization within these networks, as the graphs are distributed, but rather decentralized. We also noticed that there seemed to be growing competition for crypto assets. Purchasing this token or that token, and with the influx of talent into the space, it seems to guarantee a future where many different things would be competing for your crypto dollars.

Competition for Crypto Dollars
  • Storage -> Filecoin, Sia, Storj
  • Computation -> Golem, Truebit, and other things?? vs something else
  • Bandwidth -> Source, or some other wifi coin.
  • Economic value (staking/tokens) -> Ethereum, you transform it to other tokens, lock it in RanDAO, or stake a Livepeer node.
  • Purchasing new tokens -> NEO, DASH etc.
  • Crypto Hedge Funds -> Prism
  • Layer 2 Protocols -> Lightning Network, Raiden, Plasma, Polkadot.

Since crypto assets are extremely liquid and can be instantaneously changed into some other digital asset, it's tempting to do so. Unless you're a day trader in the top 1%, you'll probably lose money. With all the complexity in dealing with crypto assets, a person's best bet is usually to hold, or rather HODL. In this case, individuals are hoping that the base crypto asset that they purchase appreciates in the future. HODLing is basically stashing your coins under your mattress, which many of my friends have expressed as their dominant investment strategy.

However, if we compare this to a traditional asset like cash, that can earn interest by sitting in a bank, stashing your cryptos under a mattress doesn't seem too enticing. No one's really figured out a way to earn interest by HODLing for this, of course, we’re not the only ones to have this thought.

Lending Right Now

If your intention is to earn interest in crypto, right now you can lend token on Poloniex. When the markets are volatile, you can earn up to 0.1% per day for essentially tapping a button. However, there are two downsides to this. You don’t earn that much money because of the fragmentation of order books. Fragmented order books drive down the liquidity and potentially the demand for your lent crypto assets. Which drives down any interest you could earn. Second, lending (and investing) on centralized exchanges carries high counterparty risk. A centralized exchange could be hacked and your funds stolen, the exchange could shut down leaving your assets locked up on the platform, or the exchange could invest your crypto and lost it.

Instead of a holding my token on a centralized exchange, I'd be interested in depositing my ETH or whatever token in a smart contract that would allow me to earn an interest rate, denominated in whatever token I'd deposited. All depositors can pool their funds together, which can then be lent to another party, with a loan that is administered through a separate contract. Of course, this is exactly what a traditional bank does. Lots of people deposit their money, banks lend it out at interest and split some of the money with depositors.

In crypto, there's already a movement to do this. Mining is effectively an operation that allows you to convert BTC into more BTC. Miners often finance the purchase of their equipment with other things. And by pooling your hardware assets together in a mining pool, you can turn this into less of a lottery and more of a fixed interest annuity on an emerging commodity. Decentralized mining pools potentially allow a decentralized, smart contract implementation of these things. Already we see in mining pools, those that have algorithms to optimize which alts they should be mining on at one specific time. This also carries the additional risk/annoyance of having to exchange your base token that you’d prefer HODLing into another, potentially more volatile currency to generate a return. However, we’re going to continue seeing a proliferation of protocols, and managing this will get unwieldy. 

Even more related to our crypto bank concept is a decentralized mining pool for staked tokens. You don’t have to convert your crypto into dollars to purchase hardware to earn crypto, instead, you give up the time value of your crypto assets for more cryptos in the future, and that’s okay if we’re HODLing. Rocket Pool and 1Protocol are both staked mining pools. Rocket Pool and 1Protocol both implement a token ontop. In Rocket Pool, every ETH deposit generates a one-to-one redeemable token for Ethereum. This harkens back to private currency solutions and other bearer bonds of years past. However, cryptobanks could be used for more than just for staking protocols and letting individuals margin trade.

Furthermore, lending to purchase other tokens is only a slice of activities someone might undertake with a lent crypto asset. Crypto banks could drive liquidity by lending into all these different protocols.
  • Staked mining on Ethereum
    • Things that let you earn money -> RanDAO, Swarm
  • Staked level 2 (Raiden or other things)
  • Delegated staking on protocols that share this design
    • Livepeer.
  • Exchanges to provide liquidity in general, and for margin trading.
  • Operating a 0x node
  • Augur/prediction markets
  • Oracles
  • Numeraire -> (if I really believe my model is superior), then I should go out and purchase token
    • But what if I don’t have assets??? 
  • NEO -> interest for holding token
  • Node operators -> Lightning Network/Truebit/Coinjoin-as-a-service
  • Polkadot/other scalability tokens
History Applied to Crypto

Fractional reserve serves two purposes. One role is operational. Banks make transferring money easy. Instead of moving my gold bar to Timmy, I can ask the bank to change the ledger entry. The other role is economic, providing investments to individuals. If we look at the history of banking in general reserve we went from warehousing money and not lending it to lending it for a fee and only retaining paper slips that allowed you to transfer money from another.

While the operational role of banks are greatly lessened in a crypto economy, as individuals can directly transfer tokens with other individuals using the built-in asymmetric key cryptography. However, individuals may still want to earn interest as they hold, and this is where a cryptobank might come in.

In the far, far future, when on-chain transactions are too expensive (hopefully this never happens), crypto bank contracts/DAOs may enable scaling of transactions. They could operate as layer 2 hubs, with connections to other cryptobanks and then finally to individuals through payment channels. Although we should continue to work on scaling the base protocols, banks could potentially keep the operational role of transferring money (the traditional role of banks). We’ll leave the discussion of whether or not this is a good thing, due to centralization for a separate topic.

A common bitcoin debate is if it needs to be used as a medium of exchange as well as a store of value. The argument in one sentence for bitcoin needing to be a medium of exchange is that if everyone holds bitcoin and never spends it, there will be no transactions, miners won't be incentivized to secure the network and it'll fall apart. However with cryptobanking, bitcoin HODLers who are in it for the long haul are able to lend their bitcoin to others, driving transactions, paying fees to miners, and keeping the bitcoin as a medium of exchange dream alive. 

And that’s about it! Thanks for reading.

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Related Protocols

In Defense of Young Founders

Sometime during the summer, a friend of mine questioned if young founders (let's say younger than 26) would be able to develop the biggest startups of the future. The argument was that startups of the future will trend towards hard tech. Technologies like biotech, robotics, AI, and material science each take years to build domain expertise, not to mention capital intensive. Both those form barriers for young founders to get started. Contrast this with the recent history of companies centered in information technology/internet startups. We all have the image of genius hacker developing applications as a teenager. This was (and still is) an open industry, where the tools for development are literally on everyone's desktop. With all that said, it sounds like we have to say goodbye to the garage startup. So are there any reasons for us to be optimistic about the young founder of the future? 

In the past 20 years, there have been many examples of student founders. Michael Dell, Bill Gates, Woz, and Steve Jobs all come to mind. Yet, it's hard to think of examples that stretch outside of this range, but we should fall prey to availability bias. 

A quick survey of Wikipedia shows that in each technological era, young founders have always been able to make a name for themselves. This list is highly biased towards US companies and not comprehensive by any means. However, it's no guarantee that this trend of young founders will continue just because of this past trend--just ask Nassim Taleb. Startups are a uniquely creative pursuit. They sit between, mathematics, a totally abstract pursuit, and history. In "Age and Outstanding Achievement", Simonton examines the age of peak creative/leadership output of different fields. Poetry, pure mathematics, and theoretical physics --which exhibit a peak age in one's late 20s or early 30s -- and novel writing, history, philosophy, medicine, and general scholarship -- exhibit a peak age in one's late 40s or early 50s. I think entrepreneurship skews towards the younger side, but why? Naval Ravikant and Marc Andreessen have already written two great blog posts about this, and I'll quote liberally from them here. 
"The first set comprises problems that are solved by an emotional state (poetry, painting), by loading a very difficult single framework into your head (math, physics, coding), and / or competition (driven by sex drive and time-sensitive). The latter set are more rational, are systems problems rather than point problems, and don’t have time-sensitive competition. " - Naval
Compared to internet startups.
"Modern entrepreneurship, especially web entrepreneurship, is extremely competitive / time sensitive, requires enormous amounts of iteration even withina single product life-cycle, and often requires solving many challenging technicaland business problems one after the other in a public view (with the opposite sex watching). So, it favors the young and single." - Naval
While Naval says that the young founder phenomena may be limited to the modern age, I'm making the generalization using the list built above that entrepreneurship has historically and will for the foreseeable future maintain this youthful skew. Another biological factor that may cause the youthful skew is the difference in peaks of fluid and crystallized intelligence. The young founder's combination of enthusiasm
and peak in fluid intelligence help her with identifying new markets, iterating on products, and more. Yet founders are not alone sufficient to create huge startups. Networks of other talented people, financing, production infrastructure, and the right knowledge also need to be in the mix. 

Although hard tech startups will always require fundamental knowledge to get started to iterate, knowledge is now easier to acquire than ever. Youtube videos, pirated textbooks, Reddit, and StackOverflow are just a few aggregated knowledge bases. Knowing things within a domain is now easy enough, but young entrepreneurs of today also have the advantage of seeing the non-obvious connections between different fields. arXiv and scihub.org have allowed for academic papers to be shared as soon as they are written. It's amazing to watch when implementations of DeepMind's paper is worked on by communities around the globe simultaneously. Usually in one week you can expect to see code from that paper, and in another week that code doing something as interesting as writing episodes of Friends or analyzing the genome.

Sadly not all fields enjoy the low startup costs of software and AI startups. The hard tech startup often needs lab space or large capital commitments to start building prototypes. Not to mention the speed of iteration for AI is probably some factor of 10x faster than biological experimentation or material science, because you don't have to wait for cells to reproduce (or die). Again, new innovations help are on the young founder's side. Infrastructure is now almost as easy to deploy in hard tech as it is for a developer to use AWS making the speed of iteration 10x and cost 10x less.
  • CRISPR -> 10x easier to gene edit anything "“With CRISPR, literally overnight what had been the biggest frustration of my career turned into an undergraduate side project,” says Reed, of Cornell University. “It was incredible.”
  • Desktop gene sequencing -> 10x cheaper and faster to analyze your genome
  • Cloud experimentation platforms -> 10x faster/cheaper way to run and scale. I compiled some other bio related advancements here.
  • AI applied to VR Content Dev -> 10x faster generation of scenery and characters
  • Open Source CS -> 10x more stable and useful software... for free
  • Physics/material science/chemistry/protein folding -> 10x faster experiments with computer simulation (just wait for quantum computers)
  • Bitcoin/cryptocurrency -> 10x better way to incentivize open protocol adoption. 

After a founder uses those basic tools of infrastructure to find an idea that looks like it could be impactful they leverage new funding mechanisms to can scale more quickly. The funding of innovative ideas has long been concentrated in the hands of a few. Governments once reigned supreme in funding things, as we became wealthier this trickled down to wealthy individuals, then to professional risk investors, and now to individuals in the form of crowd sales, Kickstarters, and most recently app-coin sales. If you accept the idea no one can judge innovation at the earliest of stages--that VCs and angels are using basic heuristics to cull bad startups as opposed to picking winners--then new funding mechanisms can. Free flow of capital through crowdfunding, more diversified risk at the seed stage benefits allows for more companies to get created. 

The internet and associated products should help entrepreneurship in general. If history is any guide, these types of innovation should help those out at the edge the most--today's young founders and others that are resource poor. More young founders can start hard tech companies of the future as the speed of iteration, cost of starting, and intellectual capital get easier to access. The more abstract tools get, the more quickly we can go from insight in mind to project in hand. I for one, am excited about this future.

TLDR

Young founders will win because:
  1. the nature of innovation in has always skewed young
  2. and will the composition of entrepreneurship stay the same change (more geared towards fluid and less towards crystallized)
  3. the inputs of entrepreneurship are increasingly getting easy for young entrepreneurs to access ie: knowledge.
  4. the tools of development and capital are easier for anyone to acquire

Some Work to be Done

Here are a few things that we don't know. If you are working on any of them, I'd be curious to learn more.

  • What consciousness is and feels like to other entities that are not ourselves
  • How the components of our brains work together to remember, generalize, learn, and act
  • How to safely augment our mental capabilities
  • How to create machines that can remember, generalize, learn, and act
    • How we can do this safely
  • How to create robots that can generalize and can act in a home
  • How to best help those suffering from mental illnesses
  • How to safely create powerful electronics that can remain inside the body indefinitely
  • How to reverse dementia, CBT, Alzheimer's, and more
  • How to reverse cancer
  • How to reverse heart disease
  • Why we keep getting fat and how to stop it
  • The best way to reverse diabetes (and other metabolic disorders)
  • The root causes of aging
    • How to measure biological age
  • How to model the large-scale systems of biology
  • How to cheaply mass produce DNA
  • We don’t know how to rearrange biological components to do useful things in a safe manner
    • We don’t know how what individual biological components do at various times
  • A cheap, safe, precise way of delivering drugs or other biologics
  • A safer, cheaper way of developing treatments
  • The best way of keeping good monopolies (those that create lots of consumer surplus early in their lifetime) and turn into rent-seeking organizations later in their lifetime
  • How to accurately model large-scale social systems 
  • We don’t know the best way to organize and make decision at a scale of 7+ billion people
  • The best way of solving the tragedy of the commons
    • Climate change
  • How to organize large-scale groups of people, capital, and knowledge in systems to create value
  • How to correctly allocate resources to those doing research
  • The best method of learning, an inefficient and difficult process and sometime unenjoyable process even for the smart and self-motivated
  • The best way to motivate people to stay happy, work on interesting problems, and to contribute to society
  • How to scale-up self-sustaining fusion reactions
  • How to scale up generalized quantum computation
  • What lies beyond our universe
  • What the fundamental nature of our reality, at the lowest levels
  • If the universe, at the lowest levels is continuous or discrete
  • How to get a lot of people off the planet onto another planet safely
  • How to get minerals and other resources from off the planet onto the planet

The Great Firewall of Facebook

Media when concentrated in a few individuals or the state has always been subject to censorship/influence whether by direct action or inaction. Western Union, China, and Napoleon are a few prominent examples. Now we have Facebook. The press lauded Facebook and Twitter when it influenced the Arab Spring, but is chafing at social media’s power now that it’s come to influence our politics in the States. 

Facebook and any social network has de-facto censorship through their use tweaking of newsfeed algorithms. Facebook is just the largest and easiest target. Of course unlike China, Facebook’s aim is not to achieve certain any certain political goal. The aim as a public company is to create long-term shareholder and user value. Therefore, any tailoring of the newsfeed algorithm will be made towards those ends. It is a bit scary that Zuck controls the majority of Facebook’s voting stock, control of the board, and further downstream of the algorithms that control our news feeds, and sheer scale of Facebook’s users. And when shareholder value seemingly comes into conflict with our user value in the most valuable walled garden in the world has a frightening influence when a country is just a medium sized audience in terms of their scale. Facebook has always been a walled garden, killing off any products (Facebook Platform, access to media, etc) that captured too much value from the all important newsfeed. Much like Facebook, the internet in China is also a walled garden. With the Chinese internet, we know the aims of censorships are to achieve political goals. 

As it’s started influence our domestic politics, there have been proposals in the tech community, within Facebook, and in the broader community to tweak the Facebook algorithm in various ways. These have been proposed solutions that I don't feel like are permanent fixes:
  1. Users proactively change feed, because people don’t shift from their default option.
  2. Tweaking the algorithm. We’ve seen with SEO and Google, this is just an arms race.
  3. We can use traditional anti-trust regulation. 
    • Iron rules of information economies, everything tends towards monopoly because of network effects and zero marginal cost of distribution
    • Smaller groups of people might become more of an echo chamber
  4. We could turn Facebook (and Twitter) into public utilities/non-profit
    • This returns to issue of who controls it. If it the government, this would always be at risk of turning into a propaganda machine.
    • If it another rich billionaire, it runs the same issues as traditional media organizations (as well as Facebook).
The core problem with Facebook, Twitter, Linkedin, is that they need to aggregate their data and users. That’s why they’ve closed off their APIs to developers. They know their graph is what makes them special. Twitter used to be open with their data, but closed it after they saw different clients like Tweetbot/Tweetdeck and like the like potential a threat to their data moat. They can’t relieve the tyranny of the algorithm

Yes, IMAP and access to emails is one example where multiple parties have access to data, and where companies can still make money.

However, the blockchain and app coins might provide a better solution to ending censorship by algorithm and still incentivizing people to create open products.. Just as we have in email, we can use multiple clients to look at our email, and as well as incentivize creators of these protocols.



 Facebook Email Blockchain Social Apps
Front End One (Money made up here with ads) One (Money made up here with ads) Many
Algos One Many Many
Token/access to data None None Money made down here with increasing data/users
Data/Blockchain Have to guard this Free to share Share freely/forkable

We can tie together a token that directly read/write access to data. The token should rise in value just as Bitcoin has risen in value as more transactions, more data is added to the ledger. When we tie the business model of the token directly to data, we don't have the same problem of not allowing Facebook to share their data. 

Just as we can view our email with multiple clients, we'd be able to view our friendship graph, the stories and links they post with multiple front ends. On the front-end, it doesn’t matter which UI/UX experience the user sees, or which algorithm the user sees*. Different entities can A/B algorithms for sorting newsfeeds. We can have ones that allow users to see fake news, ones that allow users to be exposed to more long-form content, or even ones that promote argument. Cryptocurrency based social networks can end the de facto censorship that Facebook holds over what news a user sees. And some people have already built prototypes of these social networks: Squeek.io and Eth-Tweet. To me, this seems like a potential solution that aligns everyone’s incentives. It’s a way for technology to solve problems created by technology.

Facebook represents a centralized model of social networks. They’ll still remain very important. While a great utility, it also runs counter to the spirit of the open web. Perhaps blockchain social networks can return us to the open-source past of the web, while still allowing creators to satisfy their self interest.

* Gating access to the underlying data doesn’t have to mean that the average user will have to pay access to use the service as different token distribution mechanisms can be used so that top users (which will be advertisers or celebrities) will subsidize access for the average user.  

Learning from Advice

College is a pretty stressful and uncertain time. And if you’ve heard anything about how cut-throat an environment Penn is, then you know how much people worry about their futures. Am I freaking out a bit? Are my friends freaking out a bit? Yea. But this essay isn’t about commiserating that experience directly. It’s about what we do when we face these uncertain times. Usually, we look for answers on Google, in churches, older peers, parents, and even fortune cookies. We look to anyone and anything that might have pertinent advice. Yet for all the so-called advice we get, why doesn’t much of it seem to stick?

When I ask for advice, I'm in a moment of semi-crisis or with someone who I think knows more than me. Hearing a piece of seemingly insightful advice is excellent instant gratification. Regardless of the quality of advice, anything that sounds remotely confirmatory of my planned direction gives my brain a small dose of dopamine. If I have a notebook handy, I might even write it down. But after a while I forget that piece of advice and move on with my life just as before. Until, of course, I invariably do the same thing all over again—ask, feel good, forget. When I ask for advice, I actually do want to improve my live trajectory. So that’s not that a very helpful cycle.

Advice is something that’s been gained through years of experience, and that’s how it’s should be applied. Advice is a little kernel that we are supposed to carry and ingrain in our minds, a habit or behavioral change that we should make. Yet in the moment of asking for advice, in our minds, we do something that’s called substitution. Because the question of how we will feel in mid-to-long term future is so cognitively hard (impossible?) to forecast, we substitute that hard question with the easy question of how we feel the moment after we receive a piece of advice.

Knowing that we have to be aware not to continue a cycle of taking advice is a good start, but it’s also pretty general. In the end, taking advice and acting upon it is about building new habits. Since there’s already mountains of literature out there about building habits, I won’t go into it. Deciding to take advice and change a habit is also a step past where advice can trip us up. Bad advice implemented well can lead us down an American Beauty-style midlife crisis. 

In general, advice from books is probably better than from a person. Books older than 50 years old and ones with ancient wisdom are extremely helpful. They give time-tested advice with the intuition/experience behind it. And when moving on to seeking wisdom from people, make sure to keep track of how much that person knows their domain before taking their advice. When someone is older or seems to have more esteem, it's hard not to get sucked in by their halo. If the advice is delivered confidently, it's harder to discount the advice even though it's often guess work from their end. Even if they do somewhat know what they are doing, be wary of how they came across their advice. The environment in which advice is sought and experience earned matters. Wicked environments are those where individuals can learn the wrong lesson from participating. A broad example of this is the 2001 dot-com crash. A whole swath of people learned from this time that tech is a bad investment, something that we can see now is not true. This applies to investing or any highly random, low feedback environment--(finding a soulmate, landing a dream job??). 

Take advice from people whose shoes people want to be in. The future is indeterminate. In ten years, I could see myself as a startup entrepreneur, a VC, or even doing something in public policy. Therefore the cross-section of people that I'd seek advice career advice from is large. After asking and compiling advice from multiple sources, I try to discern the experience behind the advice, look for ways in which the advice breaks, make sure the incentives of people dispensing advice align with mine, and not ask for more advice before changing my own behavior. And in the case that their advice conflicts, as it often will, I will just go with my gut. I do this because I know that it probably either I'm asking for the wrong advice or that the decision point of the advice leads is inconsequential, or both. Not overanalyzing the situation can be tough when deciding whether or not to drop out of school. In the case that their own actions conflict with their own advice, it matters even less what course of action we take. Advice is just a data point as every situation is different. Being able to live with your decision is what's most important in the end (Thanks Demps).

Free Internet and Electricity (And Crypto) Everywhere

Before finals last year, I traveled to Belize to escape school. I felt the full force of the 100% humidity and the sun beating down on our backs at a scalding 97 degrees. Trouble began to brew as our car rental fell through. It wasn't turning out to be the relaxing getaway we thought it'd be. Luckily, we got a car from Pauncho's, a local car rental service, at double the normal insurance premium. We soon pulled away the airport, and set our sites on a long drive. 

Belize is undeniably beautiful. Glancing up from the road, I caught glimpses of lush greenery and huge mountains in the distance. And later in the trip, we spent time in a rainforest tree house, surrounded by the all the coos and croaks from all sides. However, this beauty was juxtaposed by the conditions of the towns we visited. I saw weather-worn houses and one-room schools deprived of access to internet. On the trip, we paid a huge premium for this privilege: $70 for a hotspot and 2GB of data. This was a luxury that many of the people I was surrounded by wouldn't be able to acquire. While meditating on that, I caught up with the connected world. 

I read about how solar energy was spreading around the developing world due to low-cost Chinese panels and about the new release of the 21 Bitcoin Computer. The "21" press release had a quote that stuck with me--"a miner in every chip and device". Sometime while reading this article, a flash of inspiration hit. I envisioned an integrated system to give access to the internet and electricity for free--a solar panel, embedded cryptocurrency miner, battery, and Wifi/3G access point. We would give the device and internet services away for free and earn money by mining cryptocurrency with free solar-generated electricity.

While we have 5 billion phones on the planet, developing nations around the world not only pay the highest costs per capita for smartphone usage but also for merely powering those phones. We know that the smartphone is everyone's gateway to the internet. However, the internet that you and I use at home is not what those in the developing world use. Phones are often unable to update their firmware because the cost of that download alone would eat up an entire month of data. Data plans can cost as much as 37% of a worker's salary per month in the developing world, and in rural areas, this is even more stark. These areas often don't have access to cellular service at all. I know this not only from months living in my ancestral farm town in China but also from this recent experience in Belize.

I recently ran a back of the envelope model to test the feasibility of this design. Thanks to increasing solar panel efficiency, decreasing hardware costs, cheap computing power, new 4G/LTE/Wifi satellites, and Bitcoin, the numbers seem to work. We could potentially give everyone in the world access to today's essential utilities--free internet, electricity, and access to a global financial system. Who knows if this idea will end up working, but the potential seems pretty great :) If anyone has any info to invalidate this idea, please do so; in the meantime, I'll be learning more about the crypto price dynamics, satellite internet, and reliability of hotspots. Then moving on to building a prototype!

Biology in the Coming Years

If I had to compare the development of the synthetic biology/biotech stack to that of the computer, I would say we’re still pretty early. In biology, we’re in the big mainframe era, before the development of the transistor and integrated circuit.


Here's my thinking:


 Biology Today Mainframe Era
Long Dev. Cycle Times/Sharing resources Waiting for western blots and gels to run… Waiting for cultures to grow. Few hours to a few days. Trying to get mainframe time to run programs. Few hours to a few days.
Low Debugging No idea if an organism works until actually produced (no in silico modeling) Punch Cards!!! and No compiler
Low reusability/reliability of parts Genes often don’t work outside of their original organism Vaccuum tubes get moths stuck in them
Fragmented community Limited hackers, mostly stuck within universities limited hackers, mostly stuck within universities
Low Abstraction Individual Gene Sequences Punch Cards/Machine Code
Low Complexity of Programs

 Today: Yeast that makes beer and a scent

Future: Designer cows??		 Then: Computing missile trajectories

Today: Google

And moreover, right now, Ph.D. students and Undergrads are oftentimes just manual labor.

  • Compare: 

    to 

These student while credentialed as ever don’t touch the interesting problems like experimental design, have much of a say in what projects they work on. I can personally attest to this. For the few short months that I worked in a cancer lab, I was bored to tears. I spent the first week excited from learning to perform different protocols. The next few months were spent being bored to tears. Day in and day out, all I did was move a small amount of liquid from point A to point B. The automation of labor will bring huge headwinds.

It’s not all bad news. Just as the mainframe era evolved into the computer revolution, the bench-work era in biology will give way to a cloud-based, automated version of biology. This is great news for the general public and a great business opportunity. Here are the startups that are bringing a CS approach to biology.


  • The “App” Layer” -> Machine learning applied to discovery: These companies are using large data sets and deep learning techniques to make biological products to sell.
    • Existing drugs: Mine drug databases to find new combinations that will work for treatment on different diseases. This is a huge growth area and makes a lot of sense for a deep learning company firm to enter the market. Since drugs combinations don't have to go through Stage 3 Clinical Trials again, and only have to prove that the drug combination is safe, this can give a capital efficient method to producing cures.
    • Molecular: Companies that are making small molecules to treat disease. Atomwise is the most successful company in this space. This also seems like a type of data that deep learning techniques are able to represent more easily than the complex biological circuits. http://arxiv.org/pdf/1510.02855.pdf
    • Genomics/Biologics: These companies are using ML/DL techniques to create useful DNA Sequences and Antibodies. 
    • Organisms: These companies create functional microbes that do different things. End users buy products that these microbes produce--fragrances for perfumes, oil, and therapeutics. Although these companies might use machine learning, this process is more about trial and error and iterative design, compared to the more automated process of small-drug discovery.
  • The “Backend” -> The "Biological Data Analysis Software: Companies here either sell analysis software or offer specific recommendations based on their proprietary algorithms to clinicians, end consumers, or researchers. I’m not sure who will win in this space, as I don’t think it’s clear that having large datasets are very defensible. I think this mostly because the cost of data acquisition is decaying exponentially. I think this may be a reverse situation to consumer internet companies. Where data is easy to get, but the algorithms are the important things. See Craig Venter’s attempt at monetizing the very first full human genome sequencing that failed. Is the timing right, now? 
    • -Omics: Besides our genes, there is RNA, small molecules (like lipids), proteins that make up our cells, and their own “-omics” which respectively are transcriptomics, metabolomics, proteomics (and don’t forget the microbiome. HLI and iCarbonX are the two largest companies trying to make sense all this stuff.
    • Genomics: Genetic analysis software that goes to researchers and clinicians that help drive better decisions.
    • Consumer: Recommendations are given to end consumers. It’s interesting to see that a large consumer player is transitioning from making money on selling tests/data to developing drugs. Will other players follow?
    • Imaging and Misc: More biological data such as image data, ultrasound, or public health. There’s a lot of interesting things that can happen here. Using MRI data to help doctors diagnose PTSD and other neurological conditions is one big thing that comes to mind.
  • Protocol Layer -> Distribution of existing datasets: These companies provide what data there is, how to share data, and how to compute on data.
    • -Omics: Public organizations provide data sets. Companies like Google Cloud Platform allow you to store large data sets and analyze them to a certain extent.
    • Genetic Variation: Companies here are able mapping out the variation within genes.
    • Circuits: These companies build off the popular iGEMs competition and the synthetic bio movement to provide a reusable set of genes to build with. These are usually free to the public, however, organism discovery companies usually have proprietary gene and circuits that they use.
  • The Internet -> Collaboration Software for People: These are more traditional software products—content platforms, data sharing, and design tools.
    • Literature and the Research Network: There are many attempts at making journal articles easy to find and researchers more accessible.
    • Protocols: These are attempts to make biology more reproducible through the creation of standardized languages to describe experiments in discrete, repeatable steps.
    • Gene Design Tools: The IDEs for biology. Software here is trying to make genes and organisms easy to build with WYSIWYG and visual interfaces. A lot of these products are put out by DNA synthesis companies that want to make the designs scientists produce… for a profit.
  • Creating a Functioning Lab: Funding and bench work are broken. Moving towards a fully automated lab.
    • Funding/Equity Models: Everyone knows that basic research funding is broken. Both the number and average size of grants is decreasing. There are many crowdfunding competitors here. There’s an interesting attempt at creating “equity” with the blockchain.
    • Machine Automation in the Lab: Companies here are looking at the hardware in the lab. Different approaches include an Uber for Lab Experiments, an AWS for experiments, and creating remote access for your own lab.
    • Automating Assays: Taking care of the mixing and matching of assays/reactions within a lab.
    • Lab Management Software: Traditional software that is trying to get a lab functioning better.

My initial thoughts on investment themes:
  • The AWS for lab automation as well as computation will be huge. Automation frees up more than man hours, the lower cost of science will allow scientists to conduct ever more research. Biology has historically been a pretty good adopter of computer techniques to model/simulate/discover organisms. However, historically all three things necessary for machine learning—data, computational capacity, and the algorithms haven’t been able to handle modeling of biological systems. All three areas are now changing. In the past, 1 petaflop would have cost infinite money, now this only costs $400 dollars on AWS. By 2020, we’ll be producing more genomic data than is uploaded to Youtube. All this data will need to be stored safely and computed on. Deep learning in discovery is only going to become more interesting as those algorithms continue to develop.
  • Continuing machine learning’s march into basic research/medicine. There are lots of attempts at making sure research is read, and that people can collaborate, but is that the right approach? Even now, there's not enough time for a biologist to stay on top of current literature. Although early, there are attempts extracting structured data from literature and pushing them through Watson to synthesize finding. After synthesis, researchers or clinicians can use data to create new experiments/make more informed decisions. This will only quicken as adoption of a high-level language used to describe experiments that are machine readable spreads.
  • How to share data is an open problem: There haven’t been many businesses that are trying to build large scale open sharing of genetic info/data sets. Although both HLI and iCarbonX endeavor to aggregate huge data sets to (in the long term) create medicines that extend human lifespan, their short term plan is to sell sequenced consumer data to drug companies thru B2B licensing agreements. This places the valuable data outside the hands of smaller researchers and gives patient data to large companies. I’d be interested in seeing how bitcoin (and especially 21) play into the development of open sharing in biology. With projects like https://github.com/joepickrell/genome-server-21 and https://github.com/joepickrell/phenopredict21 happening, bitcoin shows it's flexibility. Although this was a proof of concept, I think analysis of data, has the potential to put personal health data sharing in the hands of the people rather than doctors and companies.
  • Developing direct relationships between patients and drug companies. Many companies are taking a very new model for finding patients. These companies are directly developing relationships with patients/users of their drugs. Instead of partnering with hospitals and large health care networks to find study candidates, they can do so with a lower cost of capital with the internet. 23andMe is a shining example.
  • Bio is becoming a lot cheaper.  Look at the Perlstein Lab. They're able to do drug and mouse studies on software startup run rates.

Work being done by these companies to bring biology up to software speed is incredible. But what does it really mean for end consumers? What kind of products will we see? Here are my predictions for what we'll see by the end of 2020:

DisneyWorld and Tech Habits

I had the good fortune of spending a lot of time with my extended family this past holiday season. A group of twelve with ages ranging from four to eighty-plus were shuttled down to DisneyWorld. 

"Are we having fun yet?"


It was endearing to see my youngest cousin's eyes light up as we explored the amusement park in between her bouts of crying. However, my next youngest cousin, age thirteen, did not share this same sense of wonderment. Instead, he was obsessed with maximizing the number of likes on his Instagram photos. The eldest among us, the young Baby Boomers were also stuck on their phones browsing WeChat. Although the samples sizes are small, each generation had a different relationship to their phones, but used their phone no less than any other group.

Generation Z kids were virtually born with their smart phones in their hands. They think Facebook is too confusing, but as they enter HS, they'll be forced to use it. Sorry kids. Facebook is the New Linkedin (which is the New Email). After getting off of Aladdin's Magic Carpet ride, we went to go cool off by getting Dole Whip, pineapple flavored ice cream. As soon we got the Dole Whip into our hands, my twelve year old cousin was taking pictures to post to Instagram. He continued to edit, filter, and post Instagram photos ASAP. I quizzed him on his strategies to garner more likes on Instagram and he talked about how specific times during the day were better and worse, how he had multiple accounts to drive traffic (read: SPAM), how he'd use Instagram Direct to organize group chats, and would add hashtags on hashtags on each photo. While older folks might share that they ate Dole Whip in casual conversation around the water cooler, he wanted to share in real-time. Just goes to show that internet really is everywhere.

Millennials grew up on a desktop computer. We might be able to put their phones down while waiting in line, but probably not. We talk mostly with friends through groupchats and Snapchat. On my own phone, I kept up with college friends in several different GroupMe's. Sometimes simultaneously sending chats back and forth with the same friends in different GroupMe Groups. To a certain extent, we're caught in the middle conscious of when we use our phones, but still trying to share things on Snapchat in the moment. We browse Facebook as a last resort and mostly while at home. We're the only ones who think it's a good idea to carry around a DSLR, the other groups stick to using their phones. We're still trying to outgrow our hipster phase.

(Yung) Baby Boomers. These folks came to internet and mobile phone late in their lives, and as a result of that unfortunate occurrence, their thumbs aren't as fully developed as the younger generations. Because of that, Baby Boomers are forced to poke at their screens with their pointer fingers. Although this trait makes me laugh, it is actually an advantage while browsing their app of choice, WeChat. WeChat employs a heavy text interface, with several layers of menus and lists that need to be carefully navigated to post the pictures and chat in group chats. A fat thumb is just not up to this task. These Baby Boomers also favor voice conversations when trying to make the smallest of smallest of small talk. They treat their text messages as an email inbox, by allowing unread messages to pile up. While I'd be compelled to tap at each blue dot, my mom has no problem letting hundreds of messages go unopened.

While these groups may have the same apps downloaded, their habits across apps greatly varies. The metaphors they bring from their previous experiences with tech inform how they'll use their phones. For me, the best moments of our trip were times when we put our phones down phones and share cringeworthy family jokes.

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Thanks to Josh Lee for reading a draft of this.

The Startup Game

A few weeks ago, the Guesstimate beta came out. It's pretty cool; it’s like Excel with Crystal Ball built right in. You can input a single number or a range of values and build models with it. Guesstimate’s release and the holiday season gave me the perfect chance to explore an idea on the startup industry. I had been meaning to building a model to understand the formation and development of a startup to its eventual failure or exit.

This is one in of a long line of attempts to try and quantify an often-times opaque industry. Two prominent examples of data-driven approaches to venture financing are Aileen Lee’s TechCrunch article that popularized the term ‘unicorn’ and a recent Cambridge Associates research report on venture returns becoming less concentrated. While both of these reports are good attempts to understand an aspect of the startup formation and funding, it’s often hard to understand how a startup in moved along through this process if you are new to the industry.

 
The startup industry model in Guesstimate takes inspiration from Sam Gerstenzang's Open Source Venture Model and Bryan Johnson’s OSF Playbook. Like any model, my startup model is an attempt to make explicit assumptions and beliefs about the world to be tested. It allows you to change values to see how each element can push and pull on each other. It follows one cohort of companies started in a year and follows them through their life cycle. It assumes a set amount of capital available at each stage that is always spent on financing that set of companies. You can play with the model here. Right now, you can make changes the model on Guesstimate, but no changes are saved once you leave the page. Varying the “exit multiple” and the number of deals participated in by VCs have the most dramatic effect on the model.

Some key things learned and reinforced in the course of building the model:
  • There’s a huge amount of disagreement in just how many startups are started every year. The Kauffman Foundation says that ~6,000,000 new businesses are created, while not stating how many are high growth startups. Marc Andreessen says there are 4,000 startups that are created. In addition, people still don’t agree on the definition of a startup.
  • It’s really hard to build startup. So, so many fail. The vast majority of new businesses fail to attract any angel or VC funds at all.
  • Power law distributions are still not internalized by people (and not well represented by this model). The magnitude and difference of returns that one company can generate is just astounding. WhatsApp raised a total of $60 million while exiting at a total valuation of $19 billion, a 316x return on invested capital. 50% of startups will fail to return anything, and the next 40% of startups above that will hopefully return the the total invested capital of investors. It is the WhatsApps of the world, the top 1% that bring home meaningful returns.
  • Angel Investors make up a huge not-as-often-recognized pool of capital to startups. $20 billion is invested per year by Angels into startups. Their importance is hard to overstate at the earliest stages where they enter 50 to 70k deals per year. This prominence has grown since the 2000s due to the low cost of doing a startup provided by AWS and other related services. Since the costs of starting a software startup have dropped so low, VCs aren’t able to deploy such little capital in one deal. Their model does not work like that. Angel Investors, do in fact generate a nice return, in line with VC returns. 
As previously said, Guesstimate has only two distributions normal and uniform distribution and isn’t able to capture much of the statistical reality of startups. While normal distributions may be a good way to model the likelihood of a startup moving onto the next stage of funding, it’s not a very good way to measure the return generated at exit. Right now, the model is merely descriptive (and barely so). In the future, I’d like to move towards a prescriptive model to answer the question: “how can we change the current system to create more impactful innovation in the world?”. Questions such as "Do we need a more diverse group of VCs to allocate capital to different startups?" or  "Is the most effective way to create innovation to pump more money towards VCs or to lower the cost of starting startups?" may be more easily answered with this model.

With that said, here are a few directions I’d like to explore:
  • Exploring how broader macroeconomic trends influence the startup industry. At the midpoint of 2015, China was on pace to invest $30 billion through venture capital. How will 2016 China influence funding this year, and how will these impact the startup ecosystem 5 - 10 years down the line? (Thanks Daniel)
  • How the industry (and cost of doing a startup) affects the rate of formation. While we’ve seen a veritable boom in the formation of software startups, the same can’t be said for life science startups, where the number of initial financings by VCs has remained unchanged. As the cost of doing startups comes down, we should see a pattern of more hardware and biology startups being funded at the early stages. PCH International and Transcriptic are working to do their part to lower costs in their respective industries.
  • Making this model more of a simulation to see how the ecosystem evolves over time. I would like to see how exits by the large companies are able to seed the next generation of angel investors and provide landing grounds for acquisitions. Silicon Valley wasn't built overnight. The dynamic process of companies exiting and investors passing on advice to the next generation is an important to creating huge companies and innovative ecosystems.
  • Add more data! I’d like to see how individual firms, investors, and entrepreneurs are able to influence the growth of a startup instead of aggregated statistics provided by reports.
Thanks for reading! Drop a note on Twitter if you found this interesting!


Thanks to Daniel Kao, Jonathan Zong, and Reed Rosenbluth for reading a draft.

Observations on Company Culture

I recently visited around fifteen companies in SF — small startups just past series A to 20-year old internet companies — without dropping any names, here are some observations.

Authentic belief in a company’s mission — that one’s work is actually important — is different than the normal lip service that companies pay when talking about “changing the world”. Culture isn’t just letting dogs in your office, or nice couches, or wearing Hawaiian shirts. You can literally smell the culture. It’s in the air, written on people’s faces, in how they speak and act. It’s imbued from the top-down through founding stories and values. As well as also from the bottom-up from the interactions between co-workers and visitors . Everyone’s attitude influenced the overall culture, positively or negatively. We all know that communication is 85% percent body language — culture is communicated non-verbally as well.

It’s seems very, very hard to keep missionary cultures as companies grow. Finding engineers is hard enough, but finding engineers is harder still when they need to believe in the mission. Finding engineers is tripley hard when a company is also quadrupling in size. Everywhere we went had smart people, that was clear. However, challenging them to do great work and getting them to believe is hard. The “craziness” of the mission (not a scientific measure) seemed directly correlated with the quality of people.

A focus on metrics and product direction lent a sense of urgency to everyday activity. We visited a company where in the center of the office, the hockey stick was prominently featured. It’s a visual reminder of where the company is, where the company has been, and how the company is doing. Without a view of the metrics, they could kid themselves into believing that they were doing well. There was a huge difference between the companies talked a big game of growth and those that could actually show outsiders their growth.

With all that said, here are a couple of my suggested ingredients for what makes a great culture: founder myths — the trials and tribulations of what the founders had to do to create change in the world (i.e. hero’s journey), missionary people — people who believe they are doing something for others, heaps of trust, a focus towards continual improvement, and luck.

Getting the culture right seems really, really hard, but seems vital to getting real work done.