What Robinhood and Cryptocurrency Outlaws Can Teach Us About Success in the Cloud

What Robinhood and Cryptocurrency Outlaws Can Teach Us About Success in the Cloud

Lessons from Sherwood Forest and Beyond

The old English legend of Robin Hood, the leader of a band of Merry Men that stole from the rich to give to the poor, still resonates today, particularly with financial technology (fintech) companies that are intent on disrupting the status quo. In fact, the “Robinhood” name and philosophy has been adopted by one of the most successful new fintech investment platforms ever deployed – one that may soon have an IPO. The idea of directly challenging authority has also been taken up by cryptocurrency mining “pirates” that are leveraging public cloud resources to attack specific cryptocurrencies. Taken together, Robinhood and these crypto pirates are leveraging emerging technology and development best practices in order to figuratively and literally “win like bandits.”

The old English legend of Robin Hood, the leader of a band of Merry Men that stole from the rich to give to the poor, still resonates today, particularly with financial technology (fintech) companies that are intent on disrupting the status quo. In fact, the “Robinhood” name and philosophy has been adopted by one of the most successful new fintech investment platforms ever deployed – one that may soon have an IPO. The idea of directly challenging authority has also been taken up by cryptocurrency mining “pirates” that are leveraging public cloud resources to attack specific cryptocurrencies. Taken together, Robinhood and these crypto pirates are leveraging emerging technology and development best practices in order to figuratively and literally “win like bandits.”

Robinhood: The Investment Platform for Millennials

If you had to choose one company to epitomize what a disruptive fintech company looks like, it might have to be Robinhood. In several short years since its founding in 2013, Robinhood has captured the imagination of the millennial generation and witnessed explosive growth. After signing up 100,000 customers in the first month following its launch, the company has now grown to over 6 million customers with a valuation that has been estimated at $5.6 billion and it’s poised to likely go public in the near future. How did Robinhood achieve this record of success? A potent mixture of best development practices and technology principles have guided Robinhood to the top:

  • Start simple and keep it simple: Robinhood was founded on the premise that retail customers should have zero commission (free) trading and it is backed by the idea that the technology should be “fast, dead simple, and just works.” As a result, Robinhood needs just 250 employees to support 5 million customers while one of their more traditional competitors has over 4,000 in headcount to support half as many customers

  • Make maximum use of open source and public cloud resources: Maximizing the incredible power of open source and cloud, Robinhood was able to develop its first platform by using just two DevOps people. Rather than reinventing the wheel, the company utilized ready-built components for complex tasks such as fraud detection.

  • Listen to the customer and put things in their terms: Robinhood looked to deliver investing on customers terms and their “app simple” philosophy resonates with millennials: over 75% of their users are under 35 years old. A great example of approaching a new product from the point of view of the customer can be found in their Robinhood Gold product, a margin trading service that was launched in 2016. Traditional competitors charge a percentage interest rate for trading on margin and Robinhood found that this was confusing and unattractive to their customers. By flipping the equation and expressing the cost of the Gold service in dollar terms for a subscription service instead of as an interest rate, Robinhood found that customers could better understand and accept the product.

Cryptocurrency Pirates: Making the Most of Public Cloud

A more unusual and unique development has occurred recently in the realm of cryptocurrencies in the form of making the most of the public cloud to seize an opportunity. Specifically, cloud compute resources have been utilized by hackers to conduct “51% attacks” on selected cryptocurrencies. In these attacks, the speed, flexibility, and other attributes of the cloud have been utilized for what might be best described as nefarious ends.

Many cryptocurrencies use a “proof of work” protocol for the mining (creation) of new coins/tokens, and it’s this process that can be susceptible to a 51% attack.

If a specific miner is able to gain control of a cryptocurrency by virtue of having the majority of the nodes for that specific cryptocurrency, then that miner can either make off with coins/tokens or execute a double-spend transaction. This type of attack has occurred recently.

Cloud resources are particularly well-suited to researching, designing, and executing a 51% attack. Specifically, the cloud allows for:

  • Low cost to experimentation: In such an attack, the crypto bandit can perform a calculation that considers the underlying value of the cryptocurrency, the amount of resources needed to control 51% of the protocol and the cost to rent the computing power. From there, the attacker can determine how well the opportunity is panning out and minimize costs as necessary.

  • Ability to scale up/scale down: The speed and flexibility of deploying cloud resources makes it possible to both initiate and call off a 51% attack virtually instantly.

  • Opportunity to iterate quickly, move on: The qualities of speed and flexibility also make it possible to learn quickly and improvise as necessary. The conditions to successfully complete a 51% attack may be fleeting and a chance to learn and improvise that is inherent to the cloud is well suited to this task.

While 51% attacks might not be illegal, per se, they are definitely on shaky moral ground and are by no means endorsed by Maven Wave. However, as is so often the case, the first uses of new technology come from bad actors and there are valuable lessons to be learned from their actions. In this light, the actions of “crypto bandits” are a pure application of cloud technology to solve a problem or exploit an opportunity, one that would never have been possible in a world of expensive data centers and antiquated technology protocols.

Conclusion

The advent of the cloud has had profound impacts on all industries and the financial services industry has not been immune to the power of the cloud as well. While the embrace of the cloud by financial services has been slow in coming, hindered by high regulatory requirements, fiduciary responsibilities, and a hidebound perspective on technology, examples of both Robinhood and 51% cryptocurrency attacks illustrate that change is indeed taking place. Maven Wave specializes in helping companies make the transformation to a digital future and financial services is a prime area for making this happen.

2018-11-05T08:33:43+00:00November 1, 2018|Categories: Digital Transformation, Fusion Blog|Tags: , , , , |

About the Author:

Erdem Ergin
Erdem Ergin is a Principal at Maven Wave Partners, focusing on engineering leadership at financial services clients. He has over a decade experience delivering low-latency solutions for trading firms, hedge funds, and exchanges with minimal team sizes. Prior to Maven Wave, Erdem was a partner at Akuna Capital and subsequently co-founded a fintech startup. Erdem holds BS and MS degrees in Computer Science from Viterbi School of Engineering at the University of Southern California.