Open Source Hardware: Phantom Menace

Queue theme music from Star Wars... dun dun dun dun.... The SEC is like Jar Jar Binks. Annoying as heck, but if he wasn't there, the plot wouldn't have happened, so you put up with it until you fix it and figure out how to get along without him.

I like hacking systems, and the idea that information wants to be free. That's why I do OSHW, and why I think it needs Open Source Finance (OSF?). And it's nice when someone agrees enough to write an email for how to deal with the regulatory issues identified over here in the Wired blog article (thanks Nick, Paul, Steve, Mike, the other Matt). And thanks Priya for not pulling quotes out of context to make me look dumb... she basically said, it's not going to work, but did so objectively and honestly... I'm ok with that.

"These guys do not have a regulatory strategy and they need one," he says" - that's Mr. Pitts from Zopa. First of all, that's RIDICULOUS - he's a real guy that does this stuff for a living! I used to think Zopa and Prosper were really cool sites when I read about them years ago, but I still felt like they were too web 2.0y for my tastes (in general, I don't like "companies" where all they do is just run websites... I think companies ought to have a real, tangible thing they make like a motorcylce or a dishwasher or a RAID controller card, but I digress...).

Ok, so here are 4 ideas for official regulatory strategies that I got over email:

1. Model after commodities exchange, rather than equity or debt
2. Remove system return, and tie everything to hardware
3. Only issue new I-Bills for the bank when it needs them
4. Don't take any money from someone who isn't a hardware hacker

1) Model after commodities exchange, rather than equity or debt

Apparently there's a problem with debt that says "there's a guarantee of X% return on investment" because guess what? A guaranteed return doesn't exist! I'm not a finance whiz, but even I can understand that there's no such thing as free return. There's also a problem with equity, because it's just based on expectations. I've never held stocks, I don't buy and trade, blabla because I don't understand how it works - honestly: I don't get what my money is doing when it's supposedly owning a stock, but really it's owned by an investment bank who's just issuing things like butterfly spreads and such on it - sounds stupid to me. Anyway, the price only goes up when others think it will... hmmm... equity seems like a bad idea for funding open source hardware. Either it's going to sell or it's not. Equity in companies makes sense sometimes because it's like a bet on the expectation or idea that someone wants to buy what you just built, and now you're trying to sell it to someone. So it's a gamble...

But equity is like a solution to a problem that DIY Open Source Hardware doesn't have: if I built it, if I want it, if I designed it, guess what? I'm gonna buy it. So there's really no speculation when there's a group of people building it for themselves. There's no "speculation" when you're Doing-It-Yourself.

A while ago, I went to see George Soros speak about reflexivity at this "forum on risk" event and after he was done, I ran up to him, and asked him about what institutions should do if they don't want to be exposed to the kinds of bubbles that create risk and that led to the crash in the first place. He said, "then don't issue equities." Ok, fine I won't. George Soros said so :-)


2) Remove system return, and tie everything to hardware

Thanks to Paul (who was a lawyer in a previous life, and now just goes around helping Open Source projects when they get screwed by companies), he's helping to draft up a new set of documents that basically remove the SEC problem from the system. As I understand it, the SEC gets involved whenever anyone says, "I promise that there's a X% return on investment always" because if someone says that, they're lying, and the US government steps in to make sure that when you get called out for lying, the person that bought into it gets FDIC insured. That's because in the real economy you either get your 5% return on investment or nothing.

That's ridiculous. That's like saying the entire system is based on someone's promise to back up a paper promise... but only up to a point of $250,000. That doesn't sound scalable to me. One solution is that anyone who donates money is a personal friend to me or Justin or Andrew (for instance a friend on facebook) and who I've met in person over lunch or dinner or coffee or something else. Or, another way is that money that anyone contributes is tied directly to the underlying hardware that got funded. That means: if someone's spending money to help hardware get built, Mike and Justin and I are building that hardware, selling it for you, and when it sells, you get the money back. Kind of like a flee market - except for new hardware, not old 2nd hand stuff. Or as Steve wrote in, "just be an intermediary between buyers and developers." Sounds completely reasonable to me.


3) Only issue new I-Bills for the bank when it needs them

One of the benefits of starting out slowly and small and taking time is that Justin and I are discovering and learning nuances along the way. Like, when should I-Bills be issued for the bank? If the I-Bills are issued when there's no hardware to fund, then there's money just sitting around in the bank account not doing anything useful, and that's dumb. So the simple answer is that Justin and I aren't going to issue new I-Bills until right before they're needed to fund hardware. That makes sense for a lot of reasons, but it also makes it clear what the money is going towards.

If someone wants to be on the list of people who get emailed when hardware is about to get built, just email me at inthebitz at gmail.


4) Don't take any money from someone who isn't a hardware hacker

Veni vidi hackici. The worst case scenario is the momentum principle doesn't work, and you're left with a ton of hardware PCB's, then that's not the right type of person to participate in the system. Speaking on a personal note, if I woke up tomorrow and had a ton of EqualizerShields sitting on the floor that I had bought at cost, I would be *in heaven*. I would build the craziest multi-perspective, synchronized, Fourier-transforming equalizer running off of all kinds of signals - weather data, the number of emails I had, let alone the music I was currently listening to. So I suppose that's an example of the kind of person who's good to get involved... I'm a hacker, I'm proud of it, and that's the point :)


Other rebellious ideas

Hmmm... I think I'll pass on a couple of these ideas that I got sent in over email:

-Don't incorporate - that way there's no central authority (well, I'm not giving up the non profit idea just yet, but I'm shopping around other countries to see if someone has a better and cheaper system than the USA).
-Set up base camp wherever Pirate Bay is set up (no thanks I'm not 11 years old any more, so I'm more legitimate than that).
-Run the whole thing over BitTorrent or FreeNet (ummmm that sounds like a LOT of coding)
-Run everything out of a truck and have yearly meetings at Burning Man festival (I am not a nomad, I like living in one place)
-Start your own currency... hmmmm OpenBucks? Maybe I could make work with Philip to issue a currency exchange rate from OpenBucks to Linden Dollars? Sounds like an interesting idea, but personally I think that Second Life needs a Central Bank too, in order to manage the virtual economy, so that's maybe just delaying the problem...

Ha - that was fun :-) Anyway, the point is to be legitimate, transparent, open, and public. If I was trying to be secretive, misleading, deceptive, or evil, I suppose I could just go to a normal bank - oh wait... now back to setting up the wiki...