Feature image from the Alliance for Decision Education
Continued from: God’s Eye View Part 1 – Mathematical Theories of Life
In the 1983 Matthew Broderick movie “War Games,” David, a high school student, hacks into what he thinks is a gaming company and strikes up a rapport with an AI created by NORAD. Yes, poker was on the list of available gaming opportunities, but David opted for Global Thermonuclear War, and after being dragged into the military base he asks the AI if what is happening is real or if it’s a game – a salient question as we cross the threshold into NVIDIA’s Omniverse during an era in which the standards committee chair for IEEE’s Metaverse roll out believes we’re already living in a simulation, so why not engineer another one (using militarized behavioral psychology) on top of it?
Raul opens “The Big Bluff: Online Poker, Crypto, and Western Capital’s Last Gamble” with the plight of a Turkish journalist who turned to online poker after his chosen profession was undermined by political crackdowns and strikes and closes with cautions about workers agreeing to become tokenized assets in someone else’s game. That’s good advice, because those taking wagers are well-connected MBAs who’ve been taught that you need to be the game designer who makes the rules by which others play, and really, the only way to “win” a game you didn’t design is not to play. The rise of online poker is his article’s through line, touching on regulation of gambling-related financial transactions and the resulting adoption of crypto, offshore banking, cheating scandals, and post-scandal restructuring of the gaming sector.
Among “The Big Bluff’s” featured characters are Isai Scheinberg, a former executive with IBM Canada who later founded PokerStars; Scott Augustine, a professional poker player who used his winnings to pay of his Notre Dame student loans before co-founding the blockchain media platform Rokfin; Dan Friedberg, a lawyer for the fraudulent Ultimate Bet corporation who became Chief Compliance Officer for the failed FTX cryptocurrency exchange; and Satjiv Chahil, an early manager of Xerox PARC who went on to build brands with Apple, HP, and SONY.
I had a hunch that poker would provide a rich vein for further investigation and began to map the elements of Raul’s story, adding branches of my own. I particularly wanted to unpack Augustine’s alma mater, Notre Dame; its activities in the development of social sensing technologies, impact finance at the Vatican; and how those efforts are extending into the gamified blockchain education ecosystem coming online in Dallas – a new twist on Texas Hold’Em.
Following the trail of Iovation, the supposed “anti-fraud” software backed by Intel Capital, I wound my way through The Secret Network, Alameda Research, Jane Street options trading, and hit the jackpot with Susquehanna International Group (SIG). Its CEO Jeff Yass is the wealthiest man in Pennsylvania with a soft spot in his libertarian heart for school choice. Once public schools are deconstructed and transformed into decentralized learning ecosystems tied to digital wallets there will be countless profitable human capital wagers to be made, for those with SIG’s analytical chops, on lifelong learners (agents) tasked with building out Web3 extended reality (the gaming simulation).
An interactive version of the map I’ve been working on can be accessed here.
Raul makes a point in his article about the strategic use of the online poker industry to advance adoption of alternative privacy-preserving payment systems. I agree with that and see the same dynamic in the legalized cannabis industry. Both are situations where early adopters are set up to normalize distributed ledger technologies that are intended to one day be wedded to smart contract logic and embedded in everyday objects that will subtlety and not so subtlety, govern our lives.
Researchers at MIT Media Lab have been experimenting with novel human-computer interfaces for three decades using the concept of “tokens” (which at that stage were not yet integrated into distributed ledger systems) to bridge digital information into the material realm where it can be tactilely manipulated with the effects of those manipulations translated back into computational space – early-stage augmented reality. Experiments in non-traditional computational interfaces are featured in a 2004 paper that describes how game mechanics can be leveraged in social experiments.
“Board games offer compelling examples for how abstract rules and relationships can be encoded within systems of physical objects. For example, Monopoly utilizes distinctive physical tokens as representations of people (player tokens), physical entities (house and hotel tokens), money, actions (through several kinds of cards), and elements of chance (the dice). The Monopoly board expresses the framing syntax for composing and interpreting these tokens within the visual “constraints” printed upon its surface. These artifacts also express a range of physical properties governing their manipulation and use. Some elements of the game engender information hiding and privacy (especially one-sided cards), while others facilitate shared state (especially tokens and board). Some representations are borrowed from other contexts (e.g., paper money and dice), while others are original to the game. Games also afford interaction not only between people and information, but also between multiple people, in a compelling and engaging fashion.”
The paper, “Token+Constraint Systems For Tangible Interaction With Digital Information,” was funded in part by IBM through MIT’s Things That Think Consortium, launched in 1995. Co-authors were affiliated with Tufts University (Pierre Omidyar’s alma mater and home of Xenobot research) and the Zuse Institute Berlin, a research center focused on applied mathematics, supercomputing, modeling and simulation. Based on my investigations, it appears a long-range goal is to install a decentralized, peer-to-peer program of social engineering that combines crypto economics with a sensor-embedded world that has been remade a gamified “commons.”
Econophysics and programmed tokens are tools to advance our collective digital evolution. The following is an excerpt from Jeff Emmett’s 2018 Medium post, “Rewriting the Story of Human Collaboration.” I encourage you to read the entire article to become more familiar with the terminology involved and see how they plan to thread the needle between free-market and collectivist economics. It is important to realize labels, culture wars, and manufactured polarization are meant to obscure the fact that what we are actually up against is cold, mathematical logic.
“As we observe in nature, when organisms mature and evolve, they progress from competition to cooperation, and often build resilient, self-correcting, vibrant ecosystems – as Jenine Benyus says, ‘collaboration rather than competition that is the survival mechanism in natural systems.’ Consider the human body, made up of trillions of cells and bacteria. By collaborating synergistically, they not only provide for themselves, but also for the whole, a byproduct of which seems to be the formation of a meta-level intelligence – us.”
Are we approaching a similar interconnectedness of the human race with decentralized collaboration and information curation becoming a new cooperative paradigm for humankind? Perhaps we are a little early to that party – but with the inclusion of AI (artificial intelligence), DAOs (decentralized autonomous organizations), and other building blocks in the crypto space, the future is bright indeed.
Perhaps our outdated models of competitive predatory capitalism will be replaced with a new collaborative social framework, aiming to optimize for the health of the individual and the whole simultaneously. At what point might we expect to give rise to an entirely new form of collective intelligence, or whether we could even comprehend it – is a question for another article.”
The post-lockdown shift to “stakeholder capitalism,” circular “doughnut” economics, and computational commons run by DAOs (decentralized autonomous organizations) is a culmination of a century’s-long march towards Hegelian synthesis where capitalism and collectivist economic models converge with automated logic. The goal, as I see it based on my research, is to guide natural life on earth into a synthetic simulation where our life force can be harnessed via artificial pheromones (optogenetics or photonics) into a distributed cognitive system to process some mechanical consciousness’s to do list. If only we knew what “grand challenges” were on that list…
In an era defined by uncertainty and angst is it tempting to fall into the embrace of Emmet’s optimistic vision. The part left out, however, is that Emmett became communications lead for Michael Zargham’s Blockscience in 2020. Zargham has been a lead developer for many of the distributed coordinating tools that will underpin an imagined future of emergent collective intelligence. The wrinkle is that Zargham’s research into game theory, network optimization and control, and machine learning and distributed optimization at the University of Pennsylvania’s Engineering School was funded by the US Army, “Evolution of Cultural Norms and Dynamics of Socio-Political Change,” and the Office of Naval Research, “Next Generation of Network Science.”
Tokenization and token engineering take a variety of forms ranging from the more familiar programmable currency and on-chain digital assets to the less well-known uses in governance/voting and coordination of tasks in connected environments and social networks. IBM, the former employer of PokerStars founder Scheinberg, holds a 2019 patent titled “Task Scheduling for Internet of Things Devices” that uses blockchain tokens to coordinate workloads among computers, cars, and phones. The digital control grid is designed to run on tokens, and not all of them will look like what we currently understand as money. As I will explore later, the field of token engineering being advanced in places like the Research Institute for Crypto Economics at the Wirtshafts Universitat Wien (Vienna University of Economics and Business) melds the physics of money with automated social governance mechanisms.
The quote below is taken from a 2021 paper, “When Ostrom Meets Blockchain: Exploring the Potentials of Blockchain for Commons Governance,” prepared by four faculty affiliated with the computer science department at the University of Madrid.
“More generally, we find that blockchain-based technologies offer potentialities to facilitate coordination, help scale up commons governance and can even be useful to share agreements and different forms of value among various communities in interoperable ways.”
And from Shermin Voshimgir and Michael Zargham’s 2020 “Foundations of Crypto Economic Systems,” the first publication of the Working Papers Series, Institute for Crypto Economics Interdisciplinary Research Group:
“Purpose-driven tokens are tokens that are programmed to steer automated collective action of autonomous network actors in a public network towards a collective goal in the absence of intermediaries…” page 6
“The idea of aligning incentives among a tribe of anonymous actors within a network token introduced a new type of public infrastructure that is autonomous, self-sustaining, and attack resistant. Such networks, therefore, represent a collectively produced and consumed economic infrastructure…a commons whose design and governance should be held to Ostrom’s principles…” page 8
“Assuming one can define a collective objective, the token designer would encode this objective as a cost function and strive for dynamic stability around a minimum cost outcome over time as is done with dynamic potential games, swarm robotics, and vehicle formations…” page 8
“Broadly speaking purpose-driven token design lives at the boundary of behavioral economics and dynamic decentralized coordination in multi-agent systems which bridges with institutional economics, and in particular platform economics…” page 8
“Crypto Economic systems provide near real-time data of on-chain economic activities and may govern access rights or provide proofs related to data stored off-chain. The advancement in machine learning and system identification methods over the past decade has increased our capacity for creating novel, useful models across a wide range of applications and in the context of economics in particular. This, for the first time, allows for almost real time steering of these economies and a level of applied cybernetics that was not possible before. Furthermore, it increases the precision of modeling and measurement required for steering these economies.” page 8
Token engineering will blur the boundaries between creative finance, voting, betting, and cybernetics, ushering in a “democracy” reboot where “competent” voters may be rewarded for making “good” decisions about resource allocation on behalf of “the commons.” Such is the future imagined by powerful options traders, looking to justify their next gambling high, through assertions that Futarchy, proposed by George Mason professor and Oxford Future of Humanity Institute fellow Robin Hanson, can guide humanity to ultimate truths, something the traders believe only free market economics can provide. Meanwhile, the general public remains oblivious to the fact that an invisible hand is firmly steering natural life on Earth into the maw of an automated ruthless, immoral, market logic run by mechanical bookies all in the name of “sustainability,” “accountability,” and “poverty alleviation.”
Raul’s article describes how the Department of Justice indicted the top eleven online US poker domains on Black Friday in April 2011.
“In 2006, American lawmakers passed the Unlawful Internet Gambling Enforcement Act (UIGEA), making it illegal for online gambling operations to utilize regular banking channels to carry out transactions. DoJ enforcement of the UIGEA would not arrive for another five years, during which the American online poker market continued to grow exponentially, as PokerStars continued to play godfather to its smaller competitors, and other newcomers, like Full Tilt Poker, to draw more people into the online poker scene.” source
Former US Senator from Tennessee and Majority Leader Bill Frist was the lead on the Unlawful Internet Gambling and Enforcement Act, which was buried in port security legislation and quietly passed in 2006. Frist, a Harvard and Massachusetts General Hospital trained cardiac surgeon now based in Nashville, has become a major advocate for the adoption of blockchain healthcare. He serves on numerous boards, including the Robert Woods Johnson Foundation; SCORE, a Tennessee ed-reform NGO, and is the global board chair of the Nature Conservancy, a leader in decarbonization and biodiversity impact finance that will be reliant on blockchain technologies to scale. Health, education, and the environment are all global social impact markets.
Frist also teamed up with Bono (as well as John Kerry, Jesse Helms, and Franklin Graham) back in the late 1990s to promote HIV medical interventions and was the lead on the 2003 passage of PEPFAR (President’s Emergency Plan for AIDS Relief) to expand health clinics in Africa. This Forbes article, “How a Rock Star, a Physician-Legislator, and an Evangelical Senator Bonded to Help End the Global AIDs Pandemic,” from last year, the 20th anniversary of the bill’s passage, reads like a terrible sitcom.
PEPFAR’s influence over Africa continues to reverberate as data-driven tele-health bulldozes its way across the Global South. In 2017, Deborah Birx, who later became Trump’s White House Covid coordinator, launched a public-private venture with Mastercard intended to reduce the cost of delivering health services to people being treated for HIV. Mastercard positioned its data analytics services as a boon for accountability around “humanitarian” aid in alignment with the United Nations goals for health outcomes and financial inclusion. Mastercard is also a major funder of Tim Berners Lee’s Solid digital identity solution; Gavi’s digital children’s immunization records; Datakind analytics platform for social impact assessment; and ConsenSys enabling decentralized application on Ethereum.
So why did Frist slip online gambling legislation through if after it passed, he intended to look away and as it went unenforced for five years? Could there have been something more going on than incentivizing crypto adoption and offshore profit-taking? My suspicion is that the datasets created during those five years of online play held great value for machine learning. As previously mentioned, poker is an area of intense research for game theorists looking to “humanize” artificial intelligence. Unlike chess or Go where all players have access to the same information about the state of play, poker is defined by information asymmetry. It’s all about the hidden cards, the bluff, human intuition. Psychology is key. Pros are defined by their facility in tracking how one’s opponents make decisions, assessing their degree of risk tolerance, and identifying patterns of behavior.
The game of poker with its established rules would provide an incredible sandbox for the machine to explore the human psyche via a vast assortment of hands played – each assigned to a particular handle, all players agents in the big game of structured data, data so valuable it’s almost impossible to get ahold of. Programmers creating poker bots are compelled to create bots to generate training data sets for the other bots. The real deal, the human-created data, remains locked up tight.
Another element of the Silicon Icarus story deals with cheating scandals tied to software that was ostensibly purchased by online poker operators to monitor fraud but were instead used to facilitate insider cheating via a “god mode” that allowed insiders to see all the players’ hole cards. Tens of millions of dollars were stolen over a number of years. The company servicing Ultimate Bet, one of the perpetrators, was Excapsa. The Toronto-based firm bundled software created by Iovation, which was designed to watch for suspicious computer traffic coming from outside devices, with its own poker and blackjack products.
The lead funder of Iovation was Intel Capital, the VC arm of Intel Corporation. Both firms are headquartered in Portland, Oregon, and Intel is the state’s largest private employer. In 2018, MIT’s Enigma Project established a partnership with Intel to provide Software Guard Extension (SGXs) for private smart contracts on Ethereum, a development needed to scale Web3. The Enigma Project rebranded in November 2021 as The Secret Network or SCRT Labs and in January of 2022 launched Shockwave with $400 million to grow their community of users and pilot a hundred projects. Among the top four investors in that funding round was Sam Bankman-Fried’s Alameda Research.
In November 2022 cybersecurity researchers evaluated The Secret Network for vulnerabilities from the AEPIC leak, a flaw in the architecture of Intel’s trusted execution environment hardware. In a piece for Blockworks, Sebastien Sinclair noted that researchers at the University of Illinois Urbana-Champaign were able to “decrypt the sealed consensus seed and thus reveal all private transactions on the protocol’s ledger.” So much for secrets at the poker table or in the smart contract layer.
Be advised, none of this is OUR game.
Another wrinkle in the Ultimate Bet scandal was the involvement of crooked lawyer, Dan Friedberg, who went on to make a name for himself as Chief Compliance Officer of FTX. His presence in poker circles dates to the late 1990s when he became business associates with Annie Duke, a prominent female poker player also affiliated with Ultimate Bet. Duke started out pursuing a PhD in cognitive psychology at the University of Pennsylvania, under the guidance of Lila Gleitman. Gleitman was a student of semiticist and social change theorist Zellig Harris. All three were trained at the University of Pennsylvania. Gleitman studied there at the same time as Noam Chomsky diving into computational linguistics with cast-off RAND computers, and became a pioneer in developmental psycholinguistics. A tweet last fall indicates Duke plans to return to UPenn, tie up loose ends, and claim her degree.
She made a small fortune at the poker tables, and after retiring from gambling (following exposure of the cheating scandal in 2011) became a corporate consultant on decision theory, authoring books with titles like “Thinking in Bets.” In 2014, she joined Susquehanna International Group co-founder and fellow poker player Eric Brooks to start the Alliance for Decision Education, namely training students to think like quants, located about a mile from SIG’s headquarters in Bala Cynwyd, PA. Bayes’ Theorem is often used to bet on outcomes. It assigns probabilities to unknown truths and is particularly suited to high-power computation. It got its name from Thomas Bayes, a British Presbyterian minister who became interested in probability towards the end of his life. After his death, his colleague Richard Price, a Welsh mathematician and Unitarian minister, published their combined research and pushed it into public use. Today, Price is considered the father of actuarial science.
Bayesianism is Duke’s bailiwick, and that of Susquehanna’s traders. The goal? To optimize decision making via quantitative techniques. It works equally well for high stakes poker and high stakes arbitrage. The practice of Bayesianism, because it is personal, incorporates subjective aspects of psychology, strength of belief and related evidence, which is where poker strategy comes in. By offering a systematic approach to managing uncertainty, Bayesian models have made significant contributions to the fields of artificial intelligence, robotics, and finance.
John Horgan’s 2016 article in Scientific American, “Bayes’ Theorem What’s The Big Deal” sums it up in a pithy phrase “initial belief + new evidence = new, improved belief.” I pulled a clip that explains the theory in more detail, though I don’t claim to have it all nailed down yet.
Central to Bayesian subjectivism is the strength of the belief that a person holds that something is true factored into the probability. The strength of a given belief varies, setting the probability metric. This Stanford philosophy article goes into detail about subjectivist education and the Bayesian approach to belief revision, and in my gut I can’t help but think within the digital realms these mathematical constructs are being strategically used to mold the psyches of many people to a form that will be more accepting of things like an AI-managed future.
The theorem is related to forecasting and prediction markets, a point that will become more relevant later when we discuss Jeff Yass’s approach to options trading on public policy. In addition to serving on the board of the Franklin Institute in Philadelphia, Annie Duke holds a board seat with the Renew Democracy Initiative led by Heidi Heitkamp, former US Senator from North Dakota and now director of the University of Chicago’s Institute of Politics, financially supported by the Pritzker family, a major force behind pay-for-success finance.