A few thoughts - Wednesday, May 28, 2014
Posted: Wed May 28, 2014 2:20 pm
I decided to try a new type of formatting today. A few thoughts:
The fundamentals of bitcoins
There was quite a bit of discussion yesterday about the bubble cycle and why it wasn't disrupted with those Mt Gox allegations. The reason is that Mt Gox was not one of the fundamentals of bitcoins. I maintain that the cycle of bubbles will continue until one of the fundamentals changes.
What are those fundamentals? I tried to create a list:
What I've been predicting
That brings me to clarifying what I've actually predicted, and what I cannot. Here's what I actually predicted about bubbles:
There are also some people who have ascribed too much to me. I am not willing to predict that the bubble cycle will continue past the upcoming crash. The reason is that the 1MB transaction limit affects several of the fundamentals I described in the paragraphs above. For example, the 1MB transaction limit could make bitcoins more expensive than existing bank-based methods of sending money, eliminating their usefulness for the remittances market - so that we end up with banks (yet again) sending huge numbers of bitcoins in bulk between them.
The 1MB transaction limit is a singularity that we cannot see past, like the event horizon of a black hole or the sort of event that Ray Kurzweil predicts. The idea of a singularity is that there is such a change that it is impossible to predict what will happen on the other side. The limit affects everything about the future of bitcoins and will determine things as basic as whether bitcoins will be limited to a protocol to transfer huge amounts of money between banks or whether everyone can continue to use them.
People who are saying that I predicted that the cycle will continue indefinitely are wrong. I only predicted that it will continue until there is a change in the fundamentals.
It's not cool to make fun of technical stuff
For some reason, our society has developed so that people can gain social proof by making fun of people who employ deep thought or discuss things that require some effort to understand. This annoys me, and I nearly lost my patience this weekend.
Some people at a Memorial Day party wanted to know about bitcoins. This happens often, and to me it demonstrates that people are fascinated by the idea of a currency that has sprung up out of nothing. After several people asked the same questions, I told them I would take a presentation I have that takes about 90 minutes, reduce it to about 15, and give them the basics.
For those interested, I've given the 90-minute presentation enough times to discover that there are several issues that are not worth covering if there is limited time. For example, I never mention mining when referring to bitcoins. Mining is a distraction; people always ask how they can start up their CPUs to mine, and while I can explain that, the hash algorithm is not important to know in order to understand the importance of bitcoins. It's also not worth discussing topics like Mt Gox or the dark markets given limited time, because they are also unrelated to the technology.
When you explain bitcoins, there are always three types of people. 10% of the people in every group get amazed and want to ask questions long after the presentation is over. They understand that bitcoins are the future. Some ask how they can buy bitcoins. Another portion of the people listens intently and then doesn't talk about bitcoins again afterward.
But there is a third type of person who always tries to interrupt the presentation with rude or denigrating comments. Every time you mention something that requires some thought, like the idea that I encrypted a 75-bitcoin wallet using a 64-character password, or that the network processes 80 quadrillion operations per second, these people laugh or make rude jokes and degrade the experience for others who want to learn. It is not a complicated concept to see why it is necessary to practice extreme security for extreme amounts of money. I wonder where it came to be socially preferred to appear dumb.
The fundamentals of bitcoins
There was quite a bit of discussion yesterday about the bubble cycle and why it wasn't disrupted with those Mt Gox allegations. The reason is that Mt Gox was not one of the fundamentals of bitcoins. I maintain that the cycle of bubbles will continue until one of the fundamentals changes.
What are those fundamentals? I tried to create a list:
- Bitcoins are not able to suppressed by a government
- In the case of perfect security, it is impossible to trace the ownership of bitcoins
- The transaction fees are significantly cheaper than any other method of sending money
- There is a set amount of money and nobody can create more
- The SHA-256 algorithm does not have a significant number of collisions
- Nobody has figured out a workable method of factoring large numbers
- Development of the protocol continues at a good pace
- The engineering team does not get stonewalled by disagreements between the developers
What I've been predicting
That brings me to clarifying what I've actually predicted, and what I cannot. Here's what I actually predicted about bubbles:
- There will be another bubble, and it will occur around the same interval as the previous bubbles
- The bubble will crash, just as the previous bubbles have
- The price is responsible for and required for all the other things that happen, like developers building stuff and the way good or bad news happens
- Companies are not interested in using bitcoins until the price is above a certain threshold
- Good or bad news that is unrelated to the fundamentals is irrelevant to the price; any news would have caused the same price movement at that time
- The market is heavily manipulated and the Mt Gox manipulation, if it was manipulation, was a drop in the bucket
- It is nearly impossible to make money in short-term daytrading
There are also some people who have ascribed too much to me. I am not willing to predict that the bubble cycle will continue past the upcoming crash. The reason is that the 1MB transaction limit affects several of the fundamentals I described in the paragraphs above. For example, the 1MB transaction limit could make bitcoins more expensive than existing bank-based methods of sending money, eliminating their usefulness for the remittances market - so that we end up with banks (yet again) sending huge numbers of bitcoins in bulk between them.
The 1MB transaction limit is a singularity that we cannot see past, like the event horizon of a black hole or the sort of event that Ray Kurzweil predicts. The idea of a singularity is that there is such a change that it is impossible to predict what will happen on the other side. The limit affects everything about the future of bitcoins and will determine things as basic as whether bitcoins will be limited to a protocol to transfer huge amounts of money between banks or whether everyone can continue to use them.
People who are saying that I predicted that the cycle will continue indefinitely are wrong. I only predicted that it will continue until there is a change in the fundamentals.
It's not cool to make fun of technical stuff
For some reason, our society has developed so that people can gain social proof by making fun of people who employ deep thought or discuss things that require some effort to understand. This annoys me, and I nearly lost my patience this weekend.
Some people at a Memorial Day party wanted to know about bitcoins. This happens often, and to me it demonstrates that people are fascinated by the idea of a currency that has sprung up out of nothing. After several people asked the same questions, I told them I would take a presentation I have that takes about 90 minutes, reduce it to about 15, and give them the basics.
For those interested, I've given the 90-minute presentation enough times to discover that there are several issues that are not worth covering if there is limited time. For example, I never mention mining when referring to bitcoins. Mining is a distraction; people always ask how they can start up their CPUs to mine, and while I can explain that, the hash algorithm is not important to know in order to understand the importance of bitcoins. It's also not worth discussing topics like Mt Gox or the dark markets given limited time, because they are also unrelated to the technology.
When you explain bitcoins, there are always three types of people. 10% of the people in every group get amazed and want to ask questions long after the presentation is over. They understand that bitcoins are the future. Some ask how they can buy bitcoins. Another portion of the people listens intently and then doesn't talk about bitcoins again afterward.
But there is a third type of person who always tries to interrupt the presentation with rude or denigrating comments. Every time you mention something that requires some thought, like the idea that I encrypted a 75-bitcoin wallet using a 64-character password, or that the network processes 80 quadrillion operations per second, these people laugh or make rude jokes and degrade the experience for others who want to learn. It is not a complicated concept to see why it is necessary to practice extreme security for extreme amounts of money. I wonder where it came to be socially preferred to appear dumb.
- I edited this comment to add that there is another type of person: people who are not involved in the presentation, but who walk by and shout things like "enough of this, it's time to eat," or "we can all get rich after we go out there and have our cigar" and so on. People who want to leave can stand up by themselves and do so; they don't need someone telling them when they are hungry, and people who are interested in the presentation aren't interrupting the other people who want to do other things.
- Some people criticized previous posts for being too long, but they received 50 upvotes. I write a lot because I think that it is important to give the supporting evidence for things that I say, and I'm not interested in saying things without explaining them. If the posts start getting downvoted, then I'll leave, of course, but it's easy enough to read others' posts instead if you aren't interested.
- Days until July 24: 57