« on: April 12, 2013, 12:40:04 pm »
If there's enough interest, we can start an initial test and see if it effects performance at all and if it looks good we can have it as a permanent feature.
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Ok, I've been asked enough times, here it is -- my view and analysis of "Bitcoin", which I have taken to calling "Bitcon." That probably deserves an explanation....
Let's first define what an ideal currency would be. Currency serves two purposes; it allows me to express a preference for one good or service over another, and it allows me to express time preference (that is, when I acquire or consume a good or service.)
All currencies must satisfy at least one of these purposes, and an ideal currency must satisfy both.
The good and service preference is what allows you to, possessing a dozen eggs from a chicken, to obtain a gallon of gasoline without finding someone who has gasoline and wants eggs. That is, it is the ability to use the currency as a fungible intermediary between two goods and services, one of which you possess and the other of which you desire. Without this function in an economy you have only barter and poor specialization, with it you have excellent specialization and a much-more-diverse economic picture.
Time preference is the ability to choose to perform a service or sell a good now but obtain and consume the other part of the transaction for yourself later. With a perfect currency time preference has no finger on the scale; that is, the currency neither appreciates or depreciates over time against a reasonably-constant basket of goods and services. Since technological advancement tends to make it easier to produce "things" in real terms, a perfect currency reflects this and makes time preference inherently valuable. This in turn forces the producers of goods and services to innovate in order to attract your economic surplus from under the mattress and into their cash registers, since not spending your economic surplus is in fact to your advantage. Today's fiat currencies intentionally violate the natural time preference of increasing productivity, but even yesterday's metallic standards did a poor job of representing it. The problem here is the State, which always seeks (like most people) to get something for nothing and what it winds up doing instead (since getting something for nothing is impossible) is effectively stealing.
Unfortunately Bitcoin, as I will explain in detail, also does a*****-poor job of satisfying either of these requirements.
But before I get to that, I want to first demolish the argument for using it that is going around in various circles and media these days -- the idea that it is stateless (that is, without a State Sponsor) and this is somehow good, in that it allows the user to evade the tentacles of the State.
This is utterly false and, if you're foolish enough to believe it and are big enough to be worth making an example of you will eventually wind up in prison -- with certainty.
All currencies require some means of validation. That is, when you and I wish to transact using a currency I have to be able to know that you're not presenting a counterfeit token to me. Gold became popular because it was fairly difficult to "create" (you had to find it and dig it out of the ground) and it was reasonably-easy to validate. The mass and volume were easily verified and other materials of similar mass and volume had wildly-disparate physical properties and could be easily distinguished. (The recent claims of "salted" bars with tungsten notwithstanding!) With only a scale and a means of measuring displacement of a known thing (e.g. water) I could be reasonably-certain that if you presented to me something claiming to be one ounce of gold that it in fact was one ounce of gold. It therefore was "self-validating."
Likewise, dollar bills are reasonably self-validating. I can observe one and if it appears to be a dollar bill, feels correct and has the security features I can be reasonably certain that it is not counterfeit. The Secret Service can determine with a fairly high degree of certainty (and very quickly too) whether a particular bill is real as they can verify the serial number was actually issued and that a bunch of the same serial numbers are not being seen in circulation, but for ordinary commerce this is not necessary; the bill itself has enough unique features so for ordinary purposes it is self-validating.
Bitcoin and other digital currencies are different -- they're just a string of bits. To validate a coin, therefore, I must know that the one you are presenting to me is unique, that it wasn't just made up by you at random but in fact is a valid coin (you were either transferred it and the chain is intact or you personally "mined" it, a computationally-expensive thing to do), and has not been spent by you somewhere else first.
In order to do this the system that implements the currency must maintain and expose a full and complete record of each and every transfer from the origin of that particular coin forward!
This is the only way I can know that nobody else was presented the same token before I was, and that the last transfer made of that token was to you. I must know with certainty that both of these conditions are true, and then to be able to spend that coin I must make the fact that I hold it and you transferred it to me known to everyone as well.
Now consider the typical clandestine transaction -- Joe wishes to buy a bag of pot, which happens to be illegal to transact. He has Bitcoins to buy the pot with. He finds a dealer willing to sell the pot despite it being illegal to do so, and transfers the coins to the dealer. The dealer must verify the block chain of the coins to insure that he is not being given coins that were already spent on gasoline or that Joe didn't counterfeit them, and then he transfers the pot to Joe. There is now an indelible and permanent record of the transfer of funds and that record will never go away.
This creates several problems for both Joe and the dealer. The dealer can (and might) take steps such as using "throw-away" wallets to try to unlink the transfer from his person, but that's dangerous. In all jurisdictions "structuring" transactions to evade money laundering or reporting constraints is a separate and unique crime and usually is a felony. Therefore, the very act of trying to split up transactions or use of "throw-away" wallets in and of itself is likely to be ruled a crime, leaving any party doing that exposed to separate and distinct criminal charges (along with whatever else they can bust you for.)
Second, due to the indelible nature of the records you're exposed for much longer that with traditional currencies to the risk of a bust and in many cases you might be exposed for the rest of your life. In particular if there is a tax evasion issue that arises you're in big trouble because there is no statute of limitations on willful non-reporting of taxes in the United States, along with many other jurisdictions. Since the records never go away your exposure, once you engage in a transaction that leads to liability, is permanent.
Third, because Bitcoin is not state-linked and thus fluctuates in value there is an FX tax issue. Let's say you "buy" Bitcoins (whether for cash or in exchange for a good or service you provide) at a time when they have a "value" of $5 each against the US dollar. You spend them when they have a "value" of $20 each. You have a capital gain of $15. At the time of the sale you have a tax liability too, and I'm willing to bet you didn't keep track of it or report it. That liability never goes away as it was wilfully evaded and yet the ability to track the transaction never goes away either!
Worse, most jurisdictions only permit the taking of a capital loss against other gains, and not against ordinary income taxes. This really sucks because it's a "heads you pay tax, tails you get screwed" situation. This is the inherent problem that gold and other commodities have as "inflation hedges"; the government always denominates its taxes in nominal dollars, not inflation-adjusted ones. The only currency against which there is no FX tax exposure is the one the government you live under uses and denominates its taxes in. That is why the government's issued currency will always be the preferred medium of exchange irrespective of all other competing currencies.
Incidentally, all of this exposure which you take with Bitcoin is very unlike transacting a bag of pot for a $100 bill -- or a gold coin. Unless you're caught pretty much "in the act" once the pot is smoked and the dealer spends the $100 the odds of an ex-post-facto investigation being able to disclose what happened and tie you to the event fades to near-zero.
This never happens with a Bitcoin transaction -- ever.
If that dealer is caught some time later, but still within the statute of limitations for the original offense, you could get tagged. And if the statute of limitations has expired you're still not in the clear if you had a capital gain on the transaction.
There isn't any way to avoid these facts -- they're structural in all digital currencies. And they don't just apply to buying or selling drugs -- they apply to any act that is intended to evade a government's currency or transaction controls. The very thing that makes Bitcoin work, the irrefutable knowledge that a coin is "good" predicated on digital cryptography, is the noose that will go around your neck at the most-inappropriate time.
Those who are using Bitcoin as a means to try to foil currency controls or state prohibitions on certain transactions are asking for a criminal indictment not only for the original evasion act itself but also the possibility of a money-laundering indictment on top of it, and the proof necessary to hang you in a court of law is inherently present in the design of the currency system!
Now let's talk about the other problems generally with all such currency systems in terms of an ideal currency and how Bitcoin stacks up.
First, the ability to use Bitcoin to express good and service preference.
Here the fundamental problem of wide acceptance comes into view. This is the problem that the proponents of the system are most-able to address through various promotional activities. Unfortunately it also leads to deception -- either by omission or commission -- of the flaw just discussed. To the extent that the popularity of the currency is driven by a desire to "escape" state control promotion of that currency on those grounds when in fact you are more likely to get caught (and irrefutably so!) than using conventional banknotes is an active fraud perpetrated upon those who are insufficiently aware of how a cryptocurrency works.
Cryptocurrencies have a secondary problem in that because they are not self-validating there is a time delay between your proposed transaction using a given token and when you can know that the token is valid. Bitcoin typically takes a few minutes (about 10) to gain reasonable certainty that a given token is good, but quite a bit longer (an hour or so) to know with reasonable certainty that it is good. That is, it is computationally reasonable to believe after 10 minutes or so that the chain integrity you are relying on is good. It approaches computational impracticality after about an hour that the chain is invalid.
This is not a problem where ordering of a good or service and fulfillment is separated by a reasonable amount of time, but for "point of transaction" situations it is a very serious problem. If you wish to fill up your tank with gasoline, for example, few people are going to be willing to wait for 10 minutes, say much less an hour, before being permitted to pump the gas -- or drive off with it. This makes such a currency severely handicapped for general transaction use in an economy, and that in turn damages goods and service preference -- the ability to use it to exchange one good or service for another. What's worse is that as the volume of transactions and the widespread acceptance rises so does the value of someone tampering with the block chain and as such the amount of time you must wait to be reasonably secure against that risk goes up rather than down.
Then there is what I consider to be Bitcoin's fatal flaw -- the inherent design and de-coupling of the currency from the obligation of sovereigns. Yes, obligation -- not privilege.
Bitcoins are basically cryptographic "solutions." The design is such that when the system was initialized it was reasonably easy to compute a new solution, and thus "mine" a coin. As each coin is "mined" the next solution becomes more difficult. The scale of difficulty was set up in such a fashion that it is computationally infeasable using known technology and that expected to be able to be developed in the foreseeable future to reach the maximum number of coins that can be in circulation. Since each cryptographic solution is finite and singular, and each one gets progressively harder to discern, those who first initiated Bitcoin were rewarded with a large number of easily-mined coins for a very cheap "investment" while the computational difficulty of "extracting" each additional one goes up.
That means that if you were one of the early adopters you get paid through the difficulty of those who attempt to mine coins later! That is, your value increases because the later person's expenditure of energy increases rather than through your own expenditure of energy. If that sounds kind of like a pyramid scheme, it's because it is very similar to to how the "early adopters" in all pyramid schemes get a return -- your later and ever-increasing effort for each subsequent unit of return accrues far more to the early adopter than it does to you!
The other problem that a cryptocurrency has is that it possesses entropy.
Entropy is simply the tendency toward disorder (that is, loss of value.) A car, left out in the open, exhibits this as it rusts away. Gold has very low entropy, in that it is almost-impossible to actually destroy it. It does not oxidize or react with most other elements and as such virtually all of the gold ever dug out of the ground still exists as actual gold.
Fiat currencies, of course, have entropy in both directions because they can be emitted and withdrawn at will. We'll get to that in a minute, and it's quite important to understand.
Bitcoin exhibits irreversible entropy. A coin that is "lost", that is, which the current possessor loses control over either by physically losing their wallet or the key to it, can never be recovered. That cryptographic sequence is effectively and permanently abandoned since there is no way for the entity who currently has possession of it to pass it on to someone else. This is often touted as a feature in that it inevitably is deflationary, but whether that's good or bad remains to be seen. It certainly is something that those who tout the currency think is good for the value of what they hold, but the irreversible loss of value can also easily lead people to abandon the use of the currency in which case its utility value to express goods and service preference is damaged, quite-possibly to the point of revulsion.
This is not true, incidentally, for something like a gold coin. The coin can be lost or stolen but unless it's lost over the side of a boat at irretrievable depth it can be recovered and the person who recovers it can spend it. What constitutes "irretrievable depth" has a great deal to do with exactly how many coins might be there too -- what's impractical for one coin is most-certainly not when the potential haul reaches into the thousands of pounds!
I mentioned above about fiat currencies being able to be issued and withdrawn. There is often much hay made about the principle of seigniorage, which is the term for the "from thin air" creation of value that a state actor obtains in creating tokens of money. Seigniorage is simply the difference in represented value between the cost of emitting the token (in the case of paper money, the paper, security features and ink) and the "value" represented in the market. There is much outrage directed at the premise of fiat currency in this regard but nearly all of it is misplaced because people do not understand that in a just and proper currency system the benefit of seigniorage comes with the responsibility for it as well, and it is supposed to be bi-directional.
That is, in order for time preference to be neutrally expressed, less the natural deflationary tendency from productivity improvement, the government entity issuing currency gets the benefit of seigniorage when the economy is expanding. But -- during times of economic contraction they also get the duty to withdraw currency (or credit) so as to maintain the same balance, as otherwise the consequence is inflation -- that is, a generalized rise in the price level and the destruction of the common person's purchasing power.
That this is honored in the breach rather than the observance does not change how these functions are supposed to work, any more than the fact that we have bank robbers means we shouldn't have banks. This, fundamentally, is why currency schemes like Bitcoin will never replace a properly functioning national currency and are always at risk of becoming worthless without warning should such a currency system arise, even ignoring the potential for legal (or extra-legal) attack.
Simply put there is no obligation to go along with the privilege that the originators of a crypto-currency scheme have left for themselves -- the ability to profit without effort by the future efforts of others who engage in the mining of coins.
Those who argue that state actors creating currencies get the same privilege are correct, but those state actors also have the countervailing duty to withdraw that currency during economic contractions associated with their privilege, whether they properly discharge that duty or not.
For these reasons I do not now and never will support Bitcoin or its offshoots, nor will I accept and transact in it in commerce. I prefer instead to effort toward political recognition of the duties that come with the privilege that is bestowed on a sovereign currency issuer in the hope of solving the underlying problem rather than sniveling in the corner trying to evade it.
The latter is, in my opinion, unworthy of my involvement.
HOW TO SEE THE FUTURE
The concept of calling an event Improving Reality is one of those great science fiction ideas. Twenty five years ago, you’d have gone right along with the story that, in 2012, people will come to a tech-centric town to talk about how to improve reality. Being able to locally adjust the brightness of the sky. Why wouldn’t you? That’s the stuff of the consensus future, right there. The stories we agree upon. Like how in old science fiction stories Venus was always a “green hell” of alien jungle, and Mars was always an exotic red desert crisscrossed by canals.
In reality, of course, Venus is a high-pressure shithole that we’re technologically a thousand years away from being able to walk on, and there’s bugger all on Mars. Welcome to JG Ballard’s future, fast becoming a consensus of its own, wherein the future is intrinsically banal. It is, essentially, the sensible position to take right now.
A writer called Ventakesh Rao recently used the term “manufactured normalcy” to describe this. The idea is that things are designed to activate a psychological predisposition to believe that we’re in a static and dull continuous present. Atemporality, considered to be the condition of the early 21st century. Of course Venus isn’t a green hell – that would be too interesting, right? Of course things like Google Glass and Google Gloves look like props from ill-received science fiction film and tv from the 90s and 2000’s. Of course getting on a plane to jump halfway across the planet isn’t a wildly different experience from getting on a train from London to Scotland in the 1920s – aside from the radiation and groping.
We hold up iPhones and, if we’re relatively conscious of history, we point out that this is an amazing device that contains a live map of the world and the biggest libraries imaginable and that it’s an absolute paradigm shift in personal communication and empowerment. And then some knob says that it looks like something from Star Trek Next Generation, and then someone else says that it doesn’t even look as cool as Captain Kirk’s communicator in the original and then someone else says no but you can buy a case for it to make it look like one and you’re off to the manufactured normalcy races, where nobody wins because everyone goes to fucking sleep.
And reality does not get improved, does it?
But I’ll suggest to you something. The theories of atemporality and manufactured normalcy and zero history can be short-circuited by just one thing.
Ballardian banality comes from not getting the future that we were promised, or getting it too late to make the promised difference.
This is because we look at the present day through a rear-view mirror. This is something Marshall McLuhan said back in the Sixties, when the world was in the grip of authentic-seeming future narratives. He said, “We look at the present through a rear-view mirror. We march backwards into the future.”
He went on to say this, in 1969, the year of the crewed Moon landing: “Because of the invisibility of any environment during the period of its innovation, man is only consciously aware of the environment that has preceded it; in other words, an environment becomes fully visible only when it has been superseded by a new environment; thus we are always one step behind in our view of the world. The present is always invisible because it’s environmental and saturates the whole field of attention so overwhelmingly; thus everyone is alive in an earlier day.”
Three years earlier, Philip K Dick wrote a book called Now Wait For Last Year.
Let me try this on you:
The Olympus Mons mountain on Mars is so tall and yet so gently sloped that, were you suited and supplied correctly, ascending it would allow you to walk most of the way to space. Mars has a big, puffy atmosphere, taller than ours, but there’s barely anything to it at that level. 30 Pascals of pressure, which is what we get in an industrial vacuum furnace here on Earth. You may as well be in space. Imagine that. Imagine a world where you could quite literally walk to space.
That’s actually got a bit more going for it, as an idea, than exotic red deserts and canals. Imagine living in a Martian culture for a moment, where this thing is a presence in the existence of an entire sentient species. A mountain that you cannot see the top of, because it’s a small world and the summit wraps behind the horizon. Imagine settlements creeping up the side of Olympus Mons. Imagine battles fought over sections of slope. Generations upon generations of explorers dying further and further up its height, technologies iterated and expended upon being able to walk to within leaping distance of orbital space. Manufactured normalcy would suggest that, if we were the Martians, we would find this completely dull within ten years and bitch about not being able to simply fart our way into space.
Now imagine a world where space travel to other worlds is an antique curiosity. Imagine reading the words “vintage space.” Can you even consider being part of a culture that could go to space and then stopped?
If the future is dead, then today we must summon it and learn how to see it properly.
You can’t see the present properly through the rear view mirror. It’s in front of you. It’s right here.
There are six people living in space right now. There are people printing prototypes of human organs, and people printing nanowire tissue that will bond with human flesh and the human electrical system.
We’ve photographed the shadow of a single atom. We’ve got robot legs controlled by brainwaves. Explorers have just stood in the deepest unsubmerged place in the world, a cave more than two kilometres under Abkhazia. NASA are getting ready to launch three satellites the size of coffee mugs, that will be controllable by mobile phone apps.
Here’s another angle on vintage space: Voyager 1 is more than 11 billion miles away, and it’s run off 64K of computing power and an eight-track tape deck.
In the last ten years, we’ve discovered two previously unknown species of human. We can film eruptions on the surface of the sun, landings on Mars and even landings on Titan. Is all of this very boring to you? Because all this is happening right now, in this moment. Check the time on your phone, because this is the present time and these things are happening. The most basic mobile phone is in fact a communications devices that shames all of science fiction, all the wrist radios and handheld communicators. Captain Kirk had to tune his fucking communicator and it couldn’t text or take a photo that he could stick a nice Polaroid filter on. Science fiction didn’t see the mobile phone coming. It certainly didn’t see the glowing glass windows many of us carry now, where we make amazing things happen by pointing at it with our fingers like goddamn wizards.
That, by the way, is what Steve Jobs meant when he said that iPads were magical. The central metaphor is magic. And perhaps magic seems an odd thing to bring up here, but magic and fiction are deeply entangled, and you are all now present at a séance for the future. We are summoning it into the present. It’s here right now. It’s in the room with us. We live in the future. We live in the Science Fiction Condition, where we can see under atoms and across the world and across the methane lakes of Titan.
Use the rear view mirror for its true purpose. If I were sitting next to you twenty-five years ago, and you heard a phone ring, and I took out a bar of glass and said, sorry, my phone just told me it’s got new video of a solar flare, you’d have me sectioned in a flash. Use the rear view mirror to imagine telling someone just twenty five years ago about GPS. This is the last generation in the Western world that will ever be lost. LifeStraws. Synthetic biology. Genetic sequencing. SARS was genetically sequenced within 48 hours of its identification. I’m not even touching the web, wifi, mobile broadband, cloud computing, electronic cigarettes…
Understand that our present time is the furthest thing from banality. Reality as we know it is exploding with novelty every day. Not all of it’s good. It’s a strange and not entirely comfortable time to be alive. But I want you to feel the future as present in the room. I want you to understand, before you start the day here, that the invisible thing in the room is the felt presence of living in future time, not in the years behind us.
To be a futurist, in pursuit of improving reality, is not to have your face continually turned upstream, waiting for the future to come. To improve reality is to clearly see where you are, and then wonder how to make that better.
Act like you live in the Science Fiction Condition. Act like you can do magic and hold séances for the future and build a brightness control for the sky.
Act like you live in a place where you could walk into space if you wanted. Think big. And then make it better.