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[–]nrps400[S] 26 points27 points  (8 children)

I especially liked the "meta scam" discussion at the end.

We are looking at a meta scam: the scam is that you think it’s a scam that you can scam, but you get scammed as you try to scam the scam. The original scammer puts up a scam website, makes 4 shill accounts to claim it works and lay out the rules - send it X it sends you 2X back, and then the second time it keeps your money when you presumably sent it 2X+Y - but actually, the site simply keeps any money sent to it, and so the people who planned to scam the scam wind up being scammed.

[–]zergling_LesterSW 6193 11 points12 points  (6 children)

Why isn't O. Henry more popular among the English speakers? /u/Gwern did mention "you can't scam an honest man" disparagingly at the end, because honest men do get scammed all the time, but on the other hand it is also true that scamming people who are in the scammer mindset is like shooting fish in a barrel. O. Henry's short stories about scammers explore this at length in a convincing manner.

While I'm writing this comment, I'm not so sure about the whole "worse is better" analogy as applied here:

  1. the "worse" thing is supposed to have a simple implementation, that's the defining goal as per RPG's original article. That's emphatically not true for bitcoin.

  2. RPG's theory was that Worse wins over Better because it is faster to exploit a newly-opened ecological niche, and then reigns supreme because of network effects and because the originally simple implementation is amenable to extending to satisfy 90% of people's needs (and it turns ugly in the process).

    That doesn't answer the recurring question of "why wasn't bitcoin invented earlier" at all. In that framework bitcoin should have been invented in 1995, then prevent all better solutions like e-Cash from gaining ground.

    That didn't happen, and also bitcoin very emphatically doesn't evolve to satisfy user needs.

My personal opinion is that bitcoin is popular because it was (pretty much accidentally, I believe*) designed to be a decentralized Ponzi, and most of its popularity is because of digital tulip traders that it attracted and keeps attracting with that.

On a side note, is there any cryptocurrency that is intentionally designed to not give early adopters a golden ticket? And, uh, why should I become an early adopter then?

[*] unless you count the Libertarian belief that a deflationary currency isn't susceptible to turning into a Ponzi as "non-accidental", which I'm not in this case because the intent to make a p2p Ponzi was not there, probably. But otherwise yeah, it's not accidental.

[–][deleted] 2 points3 points  (0 children)

OpenUDC and duniter are basically crypto UBI although the motivation is to replace banks as the source of new money.

[–]why_are_we_god 5 points6 points  (0 children)

On a side note, is there any cryptocurrency that is intentionally designed to not give early adopters a golden ticket? And, uh, why should I become an early adopter then?

for the only reason should become an adopter: because you think it can do the task it sets out to do better than the others.

people who become adopters to get rich are just moochers who aren't making decisions based on the quality of the protocol, they're just trying to extract money out of others without doing work.

[–]Tophattingson 1 point2 points  (0 children)

On a side note, is there any cryptocurrency that is intentionally designed to not give early adopters a golden ticket?

As far as I am aware there is not yet such a thing. This is despite it being the easiest to solve of all of the major cryptocurrency problems, and at that its also likely the most major problem.

MV = PQ

Typical cryptocurrencies have constrained money supply M and growing (if adoption becomes widespread) economy output Q, so unless you endlessly increased velocity V, then P, price level, must decrease, causing deflation.

Q is best thought of as the amount of stuff that people are trying to exchange using the currency in this case, since cryptocurrencies are not national currencies so they don't hold sole control over all transactions in a specific economy.

The quick and dirty solution is to just try to get M to scale up with Q.

The quickest way to do this would be to change how mining difficulty works. For bitcoin, mining difficulty gets scaled so that the rate at which coins are mined has no relation to the sum of effort put into them.

Even if you did the easiest thing and just made coins mined per block scale with the difficulty, this would work better. Inflation would be pretty high as computing power per $ still grows, but even 40% yearly inflation would be vastly preferable to the current situation.

[–]gwern 2 points3 points  (0 children)

the "worse" thing is supposed to have a simple implementation, that's the defining goal as per RPG's original article. That's emphatically not true for bitcoin.

Bitcoin is simple in that it exists and works at all, even as non-PoW cryptocurrencies continue to spend decades (something like 3 and counting) fiddling with elaborate but perceived as efficient/elegant moon math they hope might finally work. That is definitely Worse is Better: an ugly but existing solution beats out incomplete or nonexistent elegant solutions. Like, say, Xanadu and HTTP.

(Proof-of-stake might yet square the circle and supersede PoW but 8 years after Bitcoin began operation and inspired PoS, it's still not clear to me that PoS methods work.)

RPG's theory was that Worse wins over Better because it is faster to exploit a newly-opened ecological niche...That doesn't answer the recurring question of "why wasn't bitcoin invented earlier" at all. In that framework bitcoin should have been invented in 1995, then prevent all better solutions like e-Cash from gaining ground....My personal opinion is that bitcoin is popular because it was (pretty much accidentally, I believe*) designed to be a decentralized Ponzi,

I don't see how these claims are at all consistent. So, the niche was obvious and already occupied but it was accidentally deliberately made into a Ponzi? And why would that make a lick of difference to its success unless you think it's trivial to make multi-billion dollar ponzis (in which case why didn't it happen before, so you haven't answered your own question).

On a side note, is there any cryptocurrency that is intentionally designed to not give early adopters a golden ticket?

Many altcoins have explored different inflationary schedules or reward methods. For example, Zooko made a point of having the schedule be inflationary and the nonprofit also getting only a percentage over time; amusingly, the price got pushed highly quickly so either traders didn't realize or they were just that optimistic that zero-knowledge proofs were a big potential advantage.

[–]dualmindbladewe have nothing to lose but our fences 1 point2 points  (0 children)

How about DAI stablecoin?

[–]RT17 0 points1 point  (0 children)

On a side note, is there any cryptocurrency that is intentionally designed to not give early adopters a golden ticket? And, uh, why should I become an early adopter then?

As long as the price is tied to adoption/demand, early adopters are always going to get a golden ticket because by definition they're buying when the price is low.

In the case of USD Tether, the price is tied to USD, so there's no reason to be an early adopter.

[–]greyenlightenment 1 point2 points  (0 children)

however, the scammer must get enough momentum to make it profitable to cover the initial losses, but also provide some sort of justification for why he would agree to just give away his money

[–]ArtyDidNothingWronga boot stamping on the free market, forever 16 points17 points  (3 children)

There's some very simple answers as to why bitcoin appears to be a success, which seem obvious to me:

The first is that it isn't actually successful. No economic revolution has occurred, and few care about it beyond being a highly volatile asset to make some quick money on. This generates headlines, and headlines look like success.

The second is due to early growth from being an easy way to make money on your PC without any particular effort, being not a scam, being resistant to regulation, and generally being decentralised enough to survive until the "highly volatile asset" phase took off.

The author doesn't seem to have considered anything like that.

Bitcoin involves no major intellectual breakthroughs

The major breakthrough was "decentralised consensus", though it's as much social as "intellectual".

This combination of words does not appear in the article. The author doesn't acknowledge it as a problem, and this seems to lead to the core point of the article, a subjective sense of "ugliness". Other proposals which are presented as "elegant" don't solve the same problems. A car would seem like an ugly solution to travel if you believed the earth was 100 metres wide (you can just walk!).

The author comes very close to "getting it" in the objections section, but seems to interpret objections to ugliness as supposed explanations for the delay in it being invented, and dismisses the former by not seeing how it explains the latter.

Consider this part:

much of the behavior is socially determined by what the miners and clients collectively agree to accept, not by the protocol; etc.

This is a feature, yet it's listed like a bug. Currencies don't work on protocol specification, they work on people agreeing they have value.

Overall, I feel like the author was too fixated on one particular answer to one particular question, and ended up missing the key problems, misunderstanding the solutions, and generally being deeply confused.

[–]MengerianMango 5 points6 points  (0 children)

The Szabo link at the bottom goes further in explaining the view that the social advancement enabled by blockchains greatly outweighs their technical and practical "ugliness." I was going to post it here even before I saw the link.

https://unenumerated.blogspot.com/2017/02/money-blockchains-and-social-scalability.html

[–]Ilverin 3 points4 points  (1 child)

I'm not an expert, but I think your comment is mostly wrong because your concerns are discussed in the article.

The first is that it isn't actually successful

I think Gwern uses the word 'success' to mean 'used more than all the alternatives one alternative being DigiCash'.

The second is due to early growth from being an easy way to make money

A quote about this topic is "a blatant bribe to early adopters rubs against the grain. Again, ugly and inelegant"

The major breakthrough was "decentralised consensus"

The word 'byzantine' appears 3 times in the article and 5 times in the citations. Gwern says this breakthrough happened in 1999.

Overall, I feel like the author was too fixated on one particular answer to one particular question, and ended up missing the key problems, misunderstanding the solutions, and generally being deeply confused.

Gwern isn't arguing that Bitcoin is worse than the alternatives, merely that it is an example of the phenomena 'Worse is Better'. 'Worse is Better' by Peter Richard P. Gabriel is itself agnostic on whether examples of the pattern which occur are good or not good. 'Worse is Better' is a pattern of things that happen in the world, and a particular example (example Bitcoin) of the pattern could be either good or bad.

In summary, my non-expert opinion is Gwern understands bitcoin well, successfully argues Bitcoin is an example of the phenomenon 'Worse is Better', but the writing could be slightly more clear.

[–]ArtyDidNothingWronga boot stamping on the free market, forever 1 point2 points  (0 children)

A quote about this topic is "a blatant bribe to early adopters rubs against the grain. Again, ugly and inelegant"

This is very subjective. "Fair" coin issuance without centralisation is probably impossible. It's certainly better than alternatives such as "the original creator gets all the coins".

The word 'byzantine' appears 3 times in the article and 5 times in the citations.

Okay, fine, the count of exact word sequences isn't terribly important.

Gwern says this breakthrough happened in 1999.

My understanding is that PBFT doesn't provide decentralised consensus in a trustless environment, which is the key feature that makes bitcoin work. Gwern again calls its implementation "ugly".

Gwern isn't arguing that Bitcoin is worse than the alternatives, merely that it is an example of the phenomena 'Worse is Better'

I don't agree. The "worse" part appears to be based on a subjective sense of ugliness, that I don't share. Therefore I don't think it fits the pattern.

I also think part of why he saw it as "ugly" was due to not seeing how the pieces fit together (particularly the parts involving user behaviour), but I could be wrong there.

Edit: On further thought, the author could turn out to be right in the end. I still see bitcoin as a breakthrough at the the time, but now there's alternatives which do literally everything better (except maybe making headlines). If bitcoin (or a near-identical clone, as opposed to something like ETH) is still dominant one year from now, I will concede the point.

[–]greyenlightenment 5 points6 points  (12 children)

Bitcoin is almost useless for transactions, cause fees are too high and it's too slow. Bought a bunch of litecoin, since it's accepted by as many retailers as Bitcoin but the fees and confirmations are much lower . Also bought some Dash

[–]nrps400[S] 10 points11 points  (11 children)

I've cap-weighted my cryptoasset investments among the top coins. I'm not ecstatic with current prices, but I remain mildly bullish long-term. (Though the volatility tells us prices can continue to decline and may never recover to recent highs).

Just in simple EMH terms, prices tell me that the market sees something valuable in Bitcoin. Prices have surged even though it has been slow and expensive for quite some time now.

I'm persuaded by the view that it'll be a store of value and a vehicle to evade capital controls and/or protection against home country risk. I don't think it's an accident that Bitcoin is very popular in countries which neighbor North Korea.

Instead of goldbugs among the Baby Boomers, we'll have Cryptobugs.

In terms of Bitcoin being slow and expensive to exchange, the same is true of gold bars, Picassos, and Vancouver real estate. Bitcoin only needs to capture a little bit of that share to justify it's current value.

[–]VelveteenAmbush 8 points9 points  (8 children)

Just in simple EMH terms, prices tell me that the market sees something valuable in Bitcoin.

Is there a liquid options market in Bitcoin yet? The EMH is predicated on there being a relatively free market, which means people who want to buy puts need to be able to do so without requiring heroic (i.e. costly or risky) efforts.

[–]sflicht 1 point2 points  (0 children)

CBOE intends (AFAICT) to add options on the bitcoin futures it launched a couple of weeks ago. Not sure the ETA for this.

[–]nrps400[S] 1 point2 points  (6 children)

Options should do a lot for cryptoasset price discovery (see Bitcoin Options Would Tame This Beast). A short ETF should be helpful too (hopefully coming in 2018).

LedgerX is CFTC approved in the US but liquidity is modest. See https://www.bloomberg.com/view/articles/2017-12-21/bitcoin-billionaires-may-have-found-a-way-to-cash-out

Deribit is in the Netherlands. I believe they started in the US but did not want to deal with CFTC oversight. That might imply something about counterparty risk, though they may be complying with NL regulations.

I believe you can short cryptoassets on a few exchanges, but that obviously comes with a lot of counterparty risk.

[–]greyenlightenment 0 points1 point  (1 child)

The belief that options reduce volatility is unsupported by evidence . The reason is, even if options temporarily remove some coins from the market, it doesn't take that many coins to drive the price lower 10+% in a day.

[–]nrps400[S] 2 points3 points  (0 children)

If you do a Google Scholar search for derivatives and volatility, there's good evidence that they reduce volatility and/or improve markets in other positive ways.

See, e.g., The Impact of Options Trading on the Market Quality of the Underlying Security: An Empirical Analysis

The authors empirically examine the impact of option listing on the market quality of the underlying security. Results indicate that option listing increases trading volume, average transaction size, trading frequency, and market depth; bid–ask spreads decrease. Improvements in spread and market depth are significant even after controlling for changes in price, variance, and volume of the underlying stock. The results support the hypothesis that option trading improves underlying market liquidity.

Prior research indicates option listing lowers spreads, reduces return volatility, and increases trading volume.

The variance of the pricing error is a measure of overall market quality. Pricing error variance declines by a median value of 16.7 percent after option listing (marginally significant). The decrease is 25.5 percent for firms with small market capitalizations, which is significant at the 1.5 percent level. The results are consistent with the hypothesis that option listing increases underlying market price efficiency.

One of the authors recently put Bitcoin into the context of his research: This new way to trade bitcoin could kill its rally

My research paper, “The Impact of Options Trading on the Market Quality of the Underlying Security: An Empirical Analysis,” published in The Journal of Finance (1998), showed that derivative trading (i) completes the market by increasing the opportunity set for traders, (ii) increases liquidity, (iii) reduces volatility, and (iv) improves pricing efficiency. Similar improvement in bitcoin markets can be expected from bitcoin futures.

[–]VelveteenAmbush -1 points0 points  (3 children)

Interesting. I'll be much more inclined to agree that "the market sees something valuable in Bitcoin" when the options markets go live (i.e. large, liquid, low regulatory risk, low counterparty risk).

Of course, if you trust in EMH, EMH tells you that bitcoin is already efficiently priced, so you shouldn't expect to gain anything by investing in it!

[–]greyenlightenment 2 points3 points  (1 child)

the EMH in the context of markets means that prices follow a random walk with some sort of drift , and skill is not possible

But one can still attain gains in an efficient market through diversification if the aggregate, collective 'fair value' rises. The efficiency means one cannot obtain superior returns through timing methods (such as daytrading) and or picking individual stocks/coins.

[–]dualmindbladewe have nothing to lose but our fences 3 points4 points  (0 children)

I have a really hard time believing that crypto markets are efficient in this sense, with BTC being so valuable relative to more useful currencies, with tweets from John McAfee skyrocketing the price of otherwise unremarkable coins, and literal Ponzi schemes in the top 20. Not sure how this could be, so late in the game, but it seems the technology is uniquely difficult to grok for most people, even at a high level. I don't think this is a full explanation, but it's got to have something to do with it.

[–]nrps400[S] 0 points1 point  (0 children)

Of course, if you trust in EMH, EMH tells you that bitcoin is already efficiently priced, so you shouldn't expect to gain anything by investing in it!

Fair point, but I want to buy and hold the "world portfolio" of all financial assets, roughly cap-weighted, to the extent I can access them. I think cryptoassets are now financial assets and belong (as a very small part) in a diverisifed portfolio.

I do think the world is currently underweight cryptoassets relative to where it is likely to be in the near future. But the price and volatility tell me that my view is far from certain.

[–]greyenlightenment 3 points4 points  (0 children)

I'm not saying that bitcoin does not have value, but If I want to buy a $15 webhositng plan, why would I want to spend $14 on transaction fees? . Because cause bitcoin and litecoin are highly correlated in price and both are stores of value, $ in bitcoin should be roughly the same as $ in litecoin, but litecoin is better for spending. Sometimes litecoin lags but it always explodes higher when one least expects it.