A few thoughts - Wednesday, May 7, 2014
Posted: Wed May 07, 2014 12:00 pm
Today's thoughts:
1.
For those who aren't aware, there is a **developer productivity disparity** in the software engineering field. While there are some exceptions, there are generally three types of developers out there.
First, you have the high-school educated, learned it in my parents' basement type of developer (Mark Karpeles comes to mind). These people often produce poor quality work and do not adhere to standard software engineering practices. Then, there are the average developers who do a below average job that suffices to hold together a fragile system, but which is still better than the first group.
Finally, there are a very small number of developers who are 10 times more productive than the other groups, who are knowledgeable about software design principles, and who product amazing projects and exceptional quality work.
There is nothing between. Nobody is the "average" developer. There are only many below average developers, and then a few of these star developers who pull the average up far above the others. And the difference is not due to intelligence (neither is graduating college, by the way); it's due to perseverance and working hard, because programming is easy and you don't have to be an expert in 15 languages to be a star. At the previous company I worked, the "average" number of lines of code per hour was 3, but I averaged 17 and still took far too many breaks. The key to investing in a company is to determine what type of developers they have on board, because this isn't a continuum - it's either one or the other.
2.
Some newspaper articles are running stories claiming that nations are going to create "national cryptocurrencies." It just doesn't make sense.
Why would the Chinese government want to create a ChineseCoin? For that matter, why does it benefit Amazon to create an AmazonCoin? Centralized systems work great for these types of organizations. The Federal Reserve would give up power if they created a national currency, and why do they want Chinese miners to show up and start mining the American coin? They can't control the money supply of an altcoin.
Even if there were some fundamental reason that a distributed coin is better for governments than a centralized one, there is nothing that distinguishes it from bitcoins. If China launched such a coin, people would just sell them for bitcoins. It would be an embarassment for any government that did this, because unless they created a coin like 42, their coins would always be undervalued compared to bitcoins.
3.
I'd like to ask /u/moral_agent if he might consider expanding his bubble charts to include a transactions chart. Transactions per day also shows a trend over time, and there are bubbles in that number.
It is of significant importance to extrapolate where the lower boundary of this new chart intersects with the 1MB transaction limit.
For those who don't know, the limit is suspected to be at 8 transactions per second; however, that estimate is based on /u/gavinandresen's assumption of a constant transaction size. I disagree that the transaction size is constant. Simply because there are more possible transactions that have come before any particular transaction from which to choose, we would expect that the average new transaction would contain a slightly larger number of inputs than the last one. That would make the 1MB catastrophe occur sooner than /u/moral_agent's "transaction bubble chart" would show, should he or someone else take up the challenge of making one.
4.
Twitter was destroyed yesterday, falling 18% in a few hours. During this period of the bubble cycle, bitcoins are a pretty stable investment.
5.
The price of bitcoins is always higher than one would expect due to speculators. Even at the very bottom of the cycle, like now, speculators are responsible for a significant portion of the price. This is true of all assets. The price of gold is far higher than the amount of gold used in jewelery and electronics would indicate, because people speculate that gold is going to be more valuable in the future.
This will always be true of bitcoins as well. I often discount computations where people say that the price of bitcoins will never rise above $100,000, or $1m. Even if several countries conducted all trade in bitcoins, the price of bitcoins will not be the value of all the money in those countries; it will be higher because of speculators. When talking about future valuations, especially high numbers, the speculators won't just disappear. People speculate on dollars and euros as well, pushing their value up higher than the value of the goods they represent.
6.
Since we're talking about the far future, there are a lot of people who think that bitcoins will "top out" at some point short of being the world currency. Assuming that bitcoins survive two or three more bubbles, I don't see how that can happen. Here is a proof by induction.
Assume that we have a world where there are n countries accepting bitcoins for all trade, and assume that bitcoins are indeed a superior form of money to existing currencies (the second is likely true). If both of these assumptions are true, then to trade with these countries, people in country n+1 need to exchange their local currency for bitcoins, and then back again, with bitcoin dealers taking fees. But if I'm an exporter in the n+1 country, and I do business with other businesses in country n, why should I exchange bitcoins at all? I could just balance the books in bitcoins and never deal with any other currency. Eventually, country n+1 becomes a bitcoin-based economy. Now, increment the value of n by 1 and re-read the preceding paragraph.
From a different angle, assume that the international banking system uses bitcoins as a clearinghouse between banks of different currencies but nobody else used them, and that it is cheaper to use bitcoins in this way than the current system (the second is likely true). If that is the case, then every bank would be glad to accept my bitcoins instead of my local currency, because then they don't have to pay fees to perform a currency conversion. They probably give more interest because of lower fees.
If a bank is glad to accept bitcoins, then banks overseas will be as well. Therefore, I can go overseas with my brainwallet, and exchange bitcoins for some other currency over there. But if banks pay more to have bitcoins, then why would overseas vendors want local currency at all; why not just accept my bitcoins and only change out just enough to pay taxes every year?
This is why there will be an S-curve of adoption in bitcoins. There isn't a natural stopping point in any scenario where it makes sense for bitcoin adoption to slow, once adoption reaches a certain threshold.
7.
Something is going to happen soon. Everyone can feel that. The good news at /r/bitcoin is streaming across the front pages, and a post that listed banks that were closing accounts was ignored.
I'm waiting for /u/emocmo's point and figure chart today to figure out what to do and learn what the breakout point is for today, but a turning point is approaching.
Other
1.
For those who aren't aware, there is a **developer productivity disparity** in the software engineering field. While there are some exceptions, there are generally three types of developers out there.
First, you have the high-school educated, learned it in my parents' basement type of developer (Mark Karpeles comes to mind). These people often produce poor quality work and do not adhere to standard software engineering practices. Then, there are the average developers who do a below average job that suffices to hold together a fragile system, but which is still better than the first group.
Finally, there are a very small number of developers who are 10 times more productive than the other groups, who are knowledgeable about software design principles, and who product amazing projects and exceptional quality work.
There is nothing between. Nobody is the "average" developer. There are only many below average developers, and then a few of these star developers who pull the average up far above the others. And the difference is not due to intelligence (neither is graduating college, by the way); it's due to perseverance and working hard, because programming is easy and you don't have to be an expert in 15 languages to be a star. At the previous company I worked, the "average" number of lines of code per hour was 3, but I averaged 17 and still took far too many breaks. The key to investing in a company is to determine what type of developers they have on board, because this isn't a continuum - it's either one or the other.
2.
Some newspaper articles are running stories claiming that nations are going to create "national cryptocurrencies." It just doesn't make sense.
Why would the Chinese government want to create a ChineseCoin? For that matter, why does it benefit Amazon to create an AmazonCoin? Centralized systems work great for these types of organizations. The Federal Reserve would give up power if they created a national currency, and why do they want Chinese miners to show up and start mining the American coin? They can't control the money supply of an altcoin.
Even if there were some fundamental reason that a distributed coin is better for governments than a centralized one, there is nothing that distinguishes it from bitcoins. If China launched such a coin, people would just sell them for bitcoins. It would be an embarassment for any government that did this, because unless they created a coin like 42, their coins would always be undervalued compared to bitcoins.
3.
I'd like to ask /u/moral_agent if he might consider expanding his bubble charts to include a transactions chart. Transactions per day also shows a trend over time, and there are bubbles in that number.
It is of significant importance to extrapolate where the lower boundary of this new chart intersects with the 1MB transaction limit.
For those who don't know, the limit is suspected to be at 8 transactions per second; however, that estimate is based on /u/gavinandresen's assumption of a constant transaction size. I disagree that the transaction size is constant. Simply because there are more possible transactions that have come before any particular transaction from which to choose, we would expect that the average new transaction would contain a slightly larger number of inputs than the last one. That would make the 1MB catastrophe occur sooner than /u/moral_agent's "transaction bubble chart" would show, should he or someone else take up the challenge of making one.
4.
Twitter was destroyed yesterday, falling 18% in a few hours. During this period of the bubble cycle, bitcoins are a pretty stable investment.
5.
The price of bitcoins is always higher than one would expect due to speculators. Even at the very bottom of the cycle, like now, speculators are responsible for a significant portion of the price. This is true of all assets. The price of gold is far higher than the amount of gold used in jewelery and electronics would indicate, because people speculate that gold is going to be more valuable in the future.
This will always be true of bitcoins as well. I often discount computations where people say that the price of bitcoins will never rise above $100,000, or $1m. Even if several countries conducted all trade in bitcoins, the price of bitcoins will not be the value of all the money in those countries; it will be higher because of speculators. When talking about future valuations, especially high numbers, the speculators won't just disappear. People speculate on dollars and euros as well, pushing their value up higher than the value of the goods they represent.
6.
Since we're talking about the far future, there are a lot of people who think that bitcoins will "top out" at some point short of being the world currency. Assuming that bitcoins survive two or three more bubbles, I don't see how that can happen. Here is a proof by induction.
Assume that we have a world where there are n countries accepting bitcoins for all trade, and assume that bitcoins are indeed a superior form of money to existing currencies (the second is likely true). If both of these assumptions are true, then to trade with these countries, people in country n+1 need to exchange their local currency for bitcoins, and then back again, with bitcoin dealers taking fees. But if I'm an exporter in the n+1 country, and I do business with other businesses in country n, why should I exchange bitcoins at all? I could just balance the books in bitcoins and never deal with any other currency. Eventually, country n+1 becomes a bitcoin-based economy. Now, increment the value of n by 1 and re-read the preceding paragraph.
From a different angle, assume that the international banking system uses bitcoins as a clearinghouse between banks of different currencies but nobody else used them, and that it is cheaper to use bitcoins in this way than the current system (the second is likely true). If that is the case, then every bank would be glad to accept my bitcoins instead of my local currency, because then they don't have to pay fees to perform a currency conversion. They probably give more interest because of lower fees.
If a bank is glad to accept bitcoins, then banks overseas will be as well. Therefore, I can go overseas with my brainwallet, and exchange bitcoins for some other currency over there. But if banks pay more to have bitcoins, then why would overseas vendors want local currency at all; why not just accept my bitcoins and only change out just enough to pay taxes every year?
This is why there will be an S-curve of adoption in bitcoins. There isn't a natural stopping point in any scenario where it makes sense for bitcoin adoption to slow, once adoption reaches a certain threshold.
7.
Something is going to happen soon. Everyone can feel that. The good news at /r/bitcoin is streaming across the front pages, and a post that listed banks that were closing accounts was ignored.
I'm waiting for /u/emocmo's point and figure chart today to figure out what to do and learn what the breakout point is for today, but a turning point is approaching.
Other
- Read this article (http://www.newyorker.com/reporting/2014 ... ntPage=all) about a product called Soylent, which replaces the need for humans to eat. For less than $1.50 per meal, it provides better nutrition than what most people eat and takes 2 minutes to consume. They are shipping now. Once the safety of this product is proven, I'll be one of their customers for sure. Few people recognize how revolutionary something like this could be for malnourished people in Africa.
- Days until July 24: 78