A few thoughts - Monday, September 22, 2014

[Steve Sokolowski]

Good afternoon! A few thoughts for lunch today:

Capitulation hasn't occurred yet

The capitulation that looked like it was in progress on Friday aborted itself before that final devastating crash that has always happened before the trend reversal. I said on Friday that if we aren't sure that the capitulation has happened, then it probably hasn't.


Disconnect between /r/bitcoinmarkets and the real world

It seems to me that /r/bitcoinmarkets is becoming disconnected with the real world. It's striking how posters there are predicting that bitcoins are going to completely fall to zero and the technology is just going to disappear. Anything that's positive is being immediately downvoted. I'm glad that this forum doesn't have upvotes or downvotes. Long, detailed predictions get zero scores, while one-line joke comments get 20 or more upvotes.

It's ludicrous to believe that bitcoins are going to simply disappear. People who make posts like that make it seem as if they are not being used every day by a lot of people. At the very least, the gamblers and drug dealers aren't going to be happy if someone were able to pull the plug on the network. It's possible to debate what the price of bitcoins should be, but one gets the impression by reading /r/bitcoinmarkets that there are people there who have never actually used bitcoins. Perhaps some have gotten stuck in the weeds and their focus on bitcoins as an investment makes it impossible for many of them to see the technology as useful for any other purpose.

It's also ridiculous that everyone seems to have lost focus so quickly. It's only been four months since the last bubble. The speed at which people are developing stuff related to bitcoins is ridiculous. Look at Coinbase - their website seems to change every day or two, and their blog always has a new announcement. I'm amazed at how they can perform such frequent releases and not have had a crash due to a bug they introduced - I don't know of any other industry where new features are released at such a breakneck pace.

Just keeping up with this stuff requires a huge amount of time to read articles and learn the new features. I have no idea where people who say that the field has stagnated are coming from.


Bitcointalk.org is an unhappy place

I've made a few posts to bitcointalk.org. Regardless of the topic, in every single case except one, the posts have been met with extremely rude replies, most of which have simply been inaccurate. The site is a den for people who seem to exist solely to put down others and start flame wars.

I evaluated the site as a new location for these "thoughts" posts, but quickly found out that the sort of discussion that I was hoping for was not present. After I stopped posting there, I told Chris that he should make a post announcing the mining pool over there. Almost immediately, the first reply to his announcement was a personal attack by someone stating that the pool was not going to succeed because merge mining of dogecoins and litecoins is more profitable. Anyone who looks at the statistics can clearly see that he is lying; merge mining is less profitable than most switching pools. A little bit of examination indicates that merge mining will probably never be more profitable, because merge mining will simply drive up the difficulty of both networks proportionally to their combined prices.

Internet forums are difficult to manage. Some people may say that a popular forum is better than a forum that has few posts, so having hundreds of replies to each post is a good goal to them. However, is it really better to have hundreds of poor-quality posts, or is it better to have a small number of highly considerate and open-minded people debating with each other? The popular view today is that all opinions are equally valid, so that Republicans who misrepresent the facts are invited alongside opponents who do not for "fairness." While in many areas the popular consensus should be followed, in other areas there are some points of view that are simply more right than others. Truth and inclusiveness are two of those issues where popularity is irrelevant to what is correct.

I become more convinced every day that with Internet forums, it is necessary to have a strong hand in moderation. Some people get turned away by such rules, but turning away people who call names and lie encourages higher-quality people to become more active and engage in the discussion.


Chinese miners operating at a loss?

There is an article that offers a new theory of why the bitcoin difficulty continues to soar despite falling prices. I won't link to it because the author presents it as fact and cites anecdotal evidence as proof that his theory is correct. Instead, I'll just offer the argument here for people to decide.

The theory goes that rich people in China didn't go away from bitcoin during the last crackdown. Because it became more difficult for them to convert their yuan to bitcoins through the traditional exchanges, they instead decided to invest in miners. They acknowledge that the miners are going to lose money, and don't care. Their goal is to convert as much money as possible, and if they lose 25% of it, it's still less costly or less risky than what they see as an alternative scenario, which is a fall in the value of the yuan or the cost of black market services to buy bitcoins. Adding to their incentives is the availability of electricity which is paid for by the government by placing miners in government offices.

These miners may be holding bitcoins, or they may be selling them for other currencies. If the black market exchange rate is high enough for these other currencies, then mining at a loss may still be more profitable than paying a dealer to obtain dollars in large quantities.

If true, the theory offers a full explanation of why miners are not acting rationally in the face of falling prices. It could also suggest that the miners themselves are the cause for the falling prices, because the network is being largely taken over by Chinese citizens who are using it to get money out of China. It also demonstrates that the network is extremely useful for this purpose and offers further evidence that bitcoin will continue to be relevant after this latest low period ends.