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There seems to be a pattern emerging in all of these 'disruptive' business models, whether it be Bitcoin (banking), AirBnb (hotels), or Uber (cabs). We look aro

There seems to be a pattern emerging in all of these 'disruptive' business models, whether it be Bitcoin (banking), AirBnb (hotels), or Uber (cabs). We look around and see these industries burdened by regulation, which tends to create entrenched players and which seem to us to be inefficient. So we create similar peer-to-peer equivalents, only to start rediscovering the reasons for all those regulations in the first place. I would argue that one reason mature industries seem inefficient to us is that it's been so long since we've encountered the problems the regulatory 'inefficiencies' were meant to address, that we've forgotten why our ancestors put them in place. Peer-to-peer is not a new idea, it's how things worked back before we started using government to solve the problems inherent in the peer-to-peer model.

AlexMuir 14y ago
Brilliant point. It's a case of experimenting with the balance of freedom vs regulation. Perhaps it's not vital that a hotel(or taxi) is licensed today, because we can easily see its realtime feedback from previous users. But then again, perhaps those users don't notice that there is no emergency lighting and the fire alarm is disabled, or that the driver has multiple convictions for dishonesty.
jberryman 14y ago
> it's been so long since we've encountered the problems the regulatory 'inefficiencies' were meant to address. This is the same effect that has made the anti-vaccine movement popular.
snitko 14y ago
Except that regulating things is not the same as holding a monopoly on regulations. If government is so completely confident that its currency is much more superior and stable, well, allow the competition! Make it legal to receive whatever I want to receive as a payment. Let businesses regulate the currency market and determine what currency is reliable. Oh wait, except that then government cannot tax you, of course. Also, this incident has nothing to do with regulating bitcoins. It has to do with Rails and this particular exchange site, whose reputation is now damaged and who's going to lose business. Note how free market works great in this case: the organization costs people their lost money and will most likely go out of business. Unlike big banks.
- chez17 14y ago
  This has everything to do with regulating bit coins and the exchanges. No bank in the US would ever dare run a stock rails site, I would bet they would be rightfully sued. On top of that, funds in a bank are insured to a point so if someone at a bank messes up, the innocent people who lost their money won't lose everything they own. The free market is cruel and so are it's proponents, we've advanced past this "fuck you I've got mine" mentality as a species. If bit coin was regulated like a bank, this wouldn't be a problem. Since anti-regulation people fail to grasp this point, let me add that I do not support every bit of regulation ever passed. There is good regulation and bad regulation. Only intellectually childish people view it as ALL good or ALL bad.
  - snitko 14y ago
    My point is not that all regulation is bad. People decide if a regulation is bad or good. One may think a guns regulation is a good thing, the other may decide that a drugs regulation is a good thing. You can't reach objectivity in most cases. And then regulations have side effects: we always have to look not at just the intentions of those regulations, but also at the incentives they create (and that we cannot always foresee, example: minimum wage law).
  - Xylakant 14y ago
    > No bank in the US would ever dare run a stock rails site, I would bet they would be rightfully sued. Why so? Even banking websites build on frameworks and if you'd have chosen Spring for example, there was a Remote Code Execution vulnerability in 2010. And even if you roll your own framework, you're just as likely to introduce a critical flaw. The Dutch governmental DigiD service runs rails [1]. The critical difference between the BC service and a bank or the government is that a responsible party would have secured their app immediately. The DigiD service was taken down pretty quickly and stayed down until patched. There were multiple workarounds that did not involve major patches and even if you didn't know which of your apps was vulnerable, you could filter the payload at your load-balancers if you had some [2]. [1] http://lwn.net/Articles/532224/ http://lwn.net/Articles/532224/ [2] An xml tag with the type "yaml" was required to trigger this. It's a pretty specific payload that is very unlikely to be used in a regular request.
jvm 14y ago
This argument seems to beg the question (in the actual meaning of that phrase), at least w.r.t Uber and AirBNB. All the problems they've had have come from the regulatory authorities, except for those one or two bad incidents on AirBNB which are pretty much unavoidable in a business like that. So is the argument that regulation is good because it's hard to cope with the regulators? I just don't buy into the abrogation of common sense argument for regulation. If you let random people stay at your apartment, there's a chance they'll destroy it. If you're really worried about that then buy renter's insurance or don't sublet your place! If you give your bitcoins to some random website, there's a chance it'll get hacked! It's not like those people didn't have option of putting their money someplace more secure, like a bank. I think regulation in general is really important for making our society a decent place to live, but when it makes reasonable activities effectively illegal that is generally a sign that it has passed that point and started making things worse.
- rprasad 14y ago
  All the problems they've had have come from the regulatory authorities, except for those one or two bad incidents on AirBNB which are pretty much unavoidable in a business like that. Atlantic, Wired, the NY Times, Chicago Tribune, and the L.A. Times have variously run horror stories for renters who made the mistake of using AirBNB to book rooms (see, e.g., Toshi hotels and their variants). The whole point of hotel regulations is to protect the guests, not the hotelier.
  - jvm 14y ago
    This is the freedom from risk argument for regulation? There are plenty of horrible legal hotels in the world. I personally think cheap hotels are an important part of the ecosystem. > The whole point of hotel regulations is to protect the guests, not the hotelier. I wish this were true.
- vannevar 14y ago
  All the problems they've had have come from the regulatory authorities... I'm not sure about Uber, but this is most definitely not true of AirBnb, which has come under fire from many neighborhood associations. It's not just your quality of life that gets reduced when you rent your house to bad apples, it's your neighbors' as well.
acslater00 14y ago
That is an absolutely terrible lesson to draw from this episode. First and most importantly, Airbnb and Uber are not disrupting industries burdened primarily by consumer safety regulations; they are disrupting industries burdened primarily by barriers to entrance that are designed to direct economic rents to politically favored actors. Huge difference. There is no plausible 'consumer protection' story for preventing licensed livery cab drivers from picking up curb hails, whether on the iphone or otherwise. The law is there to protect the incomes of people who buy cab licences. There is no plausible 'consumer protection' story that would explain why building codes for permanent residence are not good enough for temporary residence as well. The law is there to protect hotel operators from vacation rental competition. So let's not compare Bitcoin with Uber and Airbnb, because they are completely different animals. Bank security regulations, OTOH, ARE designed to protect consumers, although I'd argue that they're mostly unnecessary in practice. Legitimate banks don't get hacked because there are billions of dollars at stake for the banking institution, and their business literally depends on their ability to secure payments. The incentives are there with or without bank regulations. Bitcoin sites, on the other hand, regularly get hacked because they are fly-by-night operations written by idiots who are probably also trying to steal from you. It's the fake-money equivalent of using www.send-monie-through-me.co.in and then being surprised when you get ripped off. Bottom line: there is nothing wrong with regulation designed to protect consumers from actual threats. There is everything wrong with regulation designed to protect business from competition. The latter is what needs to be 'disrupted'.
- rprasad 14y ago
  I disagree 100% with your non-Bitcoin factual assertions because they are demonstrably false but I do not have the time to address them point-by-point. But I will address this one major factual error: Legitimate banks don't get hacked because there are billions of dollars at stake for the banking institution, and their business literally depends on their ability to secure payments. Banks are not in the business of securing payments; that is what payment processors like Mastercard and Visa do. Banks are in the business of investing money which has been deposited with them. As a result of (state and federal) legislation, banks are liable for making depositors whole in the event of theft, so they are motivated to invest significant sums in security.
api 14y ago
A decent observation, but it's also true that sometimes complexity becomes an end in itself. It cyclically begets more complexity until it collapses and a new, simpler form emerges. This Tetris-like complexity-collapse model is very common in biological evolution. When it works well, the new simpler system will still solve the problems that the old complex system solved. It will just solve them more elegantly.
jeffem 14y ago
You have a point, but you're taking it too far. I agree that companies need to take a look at how their industry is regulated and what purpose those regulations serve. But the fact that companies can come into these types of industries, openly skirt the regulations, and still be massively successful shows that the existing laws aren't meeting the needs of the people who use these services. And how exactly has government solved "the problems inherent in the peer-to-peer model"? I'm not sure what problems you're talking about in the first place.
- vannevar 14y ago
  I'm not sure what problems you're talking about in the first place. That's the point. :-) A number of them have been enumerated above: protecting banking customers from loss in the event of theft; regulating the location and safety of hotels; providing some means of recourse against a dishonest cabbie.
  - jeffem 14y ago
    How are those "problems inherent in the peer-to-peer model"? Aren't those problems any business in the industry has to face?
    - vannevar 14y ago
      They are inherent in peer-to-peer because peer-to-peer transactions are based on trust, and trust ultimately has to be based on accountability. If I'm in a small town, I can trust a local resident because I know their history and where they live. If they injure or steal from me in some way, I have some recourse, if nothing else with the social shame that can be brought to bear in a small society. But in a large-scale business, in a society of strangers, that accountability has to be enforced by some kind of regulatory body. And that kind of regulation implies at least some kind of comparatively centralized authority, which is at odds with a true peer-to-peer ideal.
      - jeffem 14y ago
temphn 14y ago
Paypal encountered many of the problems that central regulators were set up to solve. Their solution to fraud protection was better than anything else out there, and has been widely copied in the industry. Do they have false positives? Yes, but international person-to-person (vs. company-to-company) money transfers have never been easier. Newer startups will make it easier still. Regulators and incumbents need competition. No new product is ever better than an existing product in ALL respects, only in some features. Hitting the features that existing regulations are meant to ensure might not be #1 on the feature roadmap, but it's on there. The problem is when features that are less important to customers are prioritized by regulation (and therefore by guns) over features that are incredibly important to customers. Clearly, the existing taxi regulations did not incentivize rather important features like "convenient for taxi customers" but instead were about edge cases that are important, but only at scale.
vannevar 14y ago
It's great to see that this post has triggered so much discussion. Let me add that I'm not saying the status quo shouldn't be challenged, or that there aren't efficiencies to be had, only that if a business model looks too good to be true ("hey, I can rent a whole house for the cost of a hotel room and have 10 people stay for the price of 1!"), it probably is. Neighbors (who also qualify as consumers, I believe) are raising serious objections to AirBnb. At least one Bitcoin exchange has qualified itself as a bank---presumably raising its costs and requiring it to charge more fees than its competitors in return for the security it offers. Meet the new boss, same as the old boss.
dreamdu5t 14y ago
The market here IS protecting consumers by rewarding secure bitcoin exchanges through elimination of insecure ones.
bcheung 14y ago
Much of the regulation was created for good reason but it is hard to argue that there aren't a lot of regulation that is merely special interest to prevent competition or grant special favor. Rather than more regulation, perhaps more transparency is a better solution. 3rd party certification would do a much better job at security than a government regulation. And have much less abuse and overhead.

AlexMuir 14y ago

Brilliant point. It's a case of experimenting with the balance of freedom vs regulation. Perhaps it's not vital that a hotel(or taxi) is licensed today, because we can easily see its realtime feedback from previous users. But then again, perhaps those users don't notice that there is no emergency lighting and the fire alarm is disabled, or that the driver has multiple convictions for dishonesty.

jberryman 14y ago

> it's been so long since we've encountered the problems the regulatory 'inefficiencies' were meant to address. This is the same effect that has made the anti-vaccine movement popular.

snitko 14y ago

Except that regulating things is not the same as holding a monopoly on regulations. If government is so completely confident that its currency is much more superior and stable, well, allow the competition! Make it legal to receive whatever I want to receive as a payment. Let businesses regulate the currency market and determine what currency is reliable. Oh wait, except that then government cannot tax you, of course. Also, this incident has nothing to do with regulating bitcoins. It has to do with Rails and this particular exchange site, whose reputation is now damaged and who's going to lose business. Note how free market works great in this case: the organization costs people their lost money and will most likely go out of business. Unlike big banks.

chez17 14y ago
This has everything to do with regulating bit coins and the exchanges. No bank in the US would ever dare run a stock rails site, I would bet they would be rightfully sued. On top of that, funds in a bank are insured to a point so if someone at a bank messes up, the innocent people who lost their money won't lose everything they own. The free market is cruel and so are it's proponents, we've advanced past this "fuck you I've got mine" mentality as a species. If bit coin was regulated like a bank, this wouldn't be a problem. Since anti-regulation people fail to grasp this point, let me add that I do not support every bit of regulation ever passed. There is good regulation and bad regulation. Only intellectually childish people view it as ALL good or ALL bad.
- snitko 14y ago
  My point is not that all regulation is bad. People decide if a regulation is bad or good. One may think a guns regulation is a good thing, the other may decide that a drugs regulation is a good thing. You can't reach objectivity in most cases. And then regulations have side effects: we always have to look not at just the intentions of those regulations, but also at the incentives they create (and that we cannot always foresee, example: minimum wage law).
- Xylakant 14y ago
  > No bank in the US would ever dare run a stock rails site, I would bet they would be rightfully sued. Why so? Even banking websites build on frameworks and if you'd have chosen Spring for example, there was a Remote Code Execution vulnerability in 2010. And even if you roll your own framework, you're just as likely to introduce a critical flaw. The Dutch governmental DigiD service runs rails [1]. The critical difference between the BC service and a bank or the government is that a responsible party would have secured their app immediately. The DigiD service was taken down pretty quickly and stayed down until patched. There were multiple workarounds that did not involve major patches and even if you didn't know which of your apps was vulnerable, you could filter the payload at your load-balancers if you had some [2]. [1] http://lwn.net/Articles/532224/ http://lwn.net/Articles/532224/ [2] An xml tag with the type "yaml" was required to trigger this. It's a pretty specific payload that is very unlikely to be used in a regular request.

jvm 14y ago

This argument seems to beg the question (in the actual meaning of that phrase), at least w.r.t Uber and AirBNB. All the problems they've had have come from the regulatory authorities, except for those one or two bad incidents on AirBNB which are pretty much unavoidable in a business like that. So is the argument that regulation is good because it's hard to cope with the regulators? I just don't buy into the abrogation of common sense argument for regulation. If you let random people stay at your apartment, there's a chance they'll destroy it. If you're really worried about that then buy renter's insurance or don't sublet your place! If you give your bitcoins to some random website, there's a chance it'll get hacked! It's not like those people didn't have option of putting their money someplace more secure, like a bank. I think regulation in general is really important for making our society a decent place to live, but when it makes reasonable activities effectively illegal that is generally a sign that it has passed that point and started making things worse.

rprasad 14y ago
All the problems they've had have come from the regulatory authorities, except for those one or two bad incidents on AirBNB which are pretty much unavoidable in a business like that. Atlantic, Wired, the NY Times, Chicago Tribune, and the L.A. Times have variously run horror stories for renters who made the mistake of using AirBNB to book rooms (see, e.g., Toshi hotels and their variants). The whole point of hotel regulations is to protect the guests, not the hotelier.
- jvm 14y ago
  This is the freedom from risk argument for regulation? There are plenty of horrible legal hotels in the world. I personally think cheap hotels are an important part of the ecosystem. > The whole point of hotel regulations is to protect the guests, not the hotelier. I wish this were true.
vannevar 14y ago
All the problems they've had have come from the regulatory authorities... I'm not sure about Uber, but this is most definitely not true of AirBnb, which has come under fire from many neighborhood associations. It's not just your quality of life that gets reduced when you rent your house to bad apples, it's your neighbors' as well.

acslater00 14y ago

That is an absolutely terrible lesson to draw from this episode. First and most importantly, Airbnb and Uber are not disrupting industries burdened primarily by consumer safety regulations; they are disrupting industries burdened primarily by barriers to entrance that are designed to direct economic rents to politically favored actors. Huge difference. There is no plausible 'consumer protection' story for preventing licensed livery cab drivers from picking up curb hails, whether on the iphone or otherwise. The law is there to protect the incomes of people who buy cab licences. There is no plausible 'consumer protection' story that would explain why building codes for permanent residence are not good enough for temporary residence as well. The law is there to protect hotel operators from vacation rental competition. So let's not compare Bitcoin with Uber and Airbnb, because they are completely different animals. Bank security regulations, OTOH, ARE designed to protect consumers, although I'd argue that they're mostly unnecessary in practice. Legitimate banks don't get hacked because there are billions of dollars at stake for the banking institution, and their business literally depends on their ability to secure payments. The incentives are there with or without bank regulations. Bitcoin sites, on the other hand, regularly get hacked because they are fly-by-night operations written by idiots who are probably also trying to steal from you. It's the fake-money equivalent of using www.send-monie-through-me.co.in and then being surprised when you get ripped off. Bottom line: there is nothing wrong with regulation designed to protect consumers from actual threats. There is everything wrong with regulation designed to protect business from competition. The latter is what needs to be 'disrupted'.

rprasad 14y ago
I disagree 100% with your non-Bitcoin factual assertions because they are demonstrably false but I do not have the time to address them point-by-point. But I will address this one major factual error: Legitimate banks don't get hacked because there are billions of dollars at stake for the banking institution, and their business literally depends on their ability to secure payments. Banks are not in the business of securing payments; that is what payment processors like Mastercard and Visa do. Banks are in the business of investing money which has been deposited with them. As a result of (state and federal) legislation, banks are liable for making depositors whole in the event of theft, so they are motivated to invest significant sums in security.

api 14y ago

A decent observation, but it's also true that sometimes complexity becomes an end in itself. It cyclically begets more complexity until it collapses and a new, simpler form emerges. This Tetris-like complexity-collapse model is very common in biological evolution. When it works well, the new simpler system will still solve the problems that the old complex system solved. It will just solve them more elegantly.

jeffem 14y ago

You have a point, but you're taking it too far. I agree that companies need to take a look at how their industry is regulated and what purpose those regulations serve. But the fact that companies can come into these types of industries, openly skirt the regulations, and still be massively successful shows that the existing laws aren't meeting the needs of the people who use these services. And how exactly has government solved "the problems inherent in the peer-to-peer model"? I'm not sure what problems you're talking about in the first place.

vannevar 14y ago
I'm not sure what problems you're talking about in the first place. That's the point. :-) A number of them have been enumerated above: protecting banking customers from loss in the event of theft; regulating the location and safety of hotels; providing some means of recourse against a dishonest cabbie.
- jeffem 14y ago
  How are those "problems inherent in the peer-to-peer model"? Aren't those problems any business in the industry has to face?
  - vannevar 14y ago
    They are inherent in peer-to-peer because peer-to-peer transactions are based on trust, and trust ultimately has to be based on accountability. If I'm in a small town, I can trust a local resident because I know their history and where they live. If they injure or steal from me in some way, I have some recourse, if nothing else with the social shame that can be brought to bear in a small society. But in a large-scale business, in a society of strangers, that accountability has to be enforced by some kind of regulatory body. And that kind of regulation implies at least some kind of comparatively centralized authority, which is at odds with a true peer-to-peer ideal.
    - jeffem 14y ago

temphn 14y ago

Paypal encountered many of the problems that central regulators were set up to solve. Their solution to fraud protection was better than anything else out there, and has been widely copied in the industry. Do they have false positives? Yes, but international person-to-person (vs. company-to-company) money transfers have never been easier. Newer startups will make it easier still. Regulators and incumbents need competition. No new product is ever better than an existing product in ALL respects, only in some features. Hitting the features that existing regulations are meant to ensure might not be #1 on the feature roadmap, but it's on there. The problem is when features that are less important to customers are prioritized by regulation (and therefore by guns) over features that are incredibly important to customers. Clearly, the existing taxi regulations did not incentivize rather important features like "convenient for taxi customers" but instead were about edge cases that are important, but only at scale.

vannevar 14y ago

It's great to see that this post has triggered so much discussion. Let me add that I'm not saying the status quo shouldn't be challenged, or that there aren't efficiencies to be had, only that if a business model looks too good to be true ("hey, I can rent a whole house for the cost of a hotel room and have 10 people stay for the price of 1!"), it probably is. Neighbors (who also qualify as consumers, I believe) are raising serious objections to AirBnb. At least one Bitcoin exchange has qualified itself as a bank---presumably raising its costs and requiring it to charge more fees than its competitors in return for the security it offers. Meet the new boss, same as the old boss.

dreamdu5t 14y ago

The market here IS protecting consumers by rewarding secure bitcoin exchanges through elimination of insecure ones.

bcheung 14y ago

Much of the regulation was created for good reason but it is hard to argue that there aren't a lot of regulation that is merely special interest to prevent competition or grant special favor. Rather than more regulation, perhaps more transparency is a better solution. 3rd party certification would do a much better job at security than a government regulation. And have much less abuse and overhead.