Friday, May 02, 2014

Much more than a Bitcoin forecast

The internet began as a child's toy, more like a pen than a sword.  Internet freedom, while controversial, was little more than a question of free speech.  Companies were free to advertise online, everyone freely sent emails, and you could put up your family photos on your personal web server without any government-issued license, who cared?
The appearance of bitcoin was much more than the start of a new form of currency; it was the end of internet freedom as we knew it.  For the first time, covert groups conducted large-scale economic activity outside the umbrella of government regulation and taxation.  It started with billions of dollars of illicit drug deals over encrypted web forums, but spread within a few years to include
  • tax-evading transfers of wealth from aging parents to children
  • a new "dark" that delivered all manner of products (not only drugs) from the tax-evading parallel bitcoin economy; the products at first were shipped over standard mail with no return address
  • illicit online gambling (just a few ...)
  • bribes to win political favors or outright mercenary warfare.
In the first few years, this trend towards tax evasion earned little notice from the government, for two reasons.  First, the bitcoin economy was too small to matter much (only a few billion dollars by the end of 2013).  Second, it was widely believed that the public bitcoin blockchain (a kind of ledger) would make it easy to pursue tax evaders.
By the year 2016, when the price of a single bitcoin rose above $10,000 for the first time, it was becoming clear that the problem would only get worse.  Dark Wallet in 2014 was only the first of a long series of increasingly sophisticated software packages that would provide impenetrable secrecy for those who wanted to use bitcoin untraceably.
The regulatory backlash began with a hodgepodge of rules to increase penalties on those who used bitcoin illegally.  A new federal commission was founded, the Department of Cryptocurrency, to fight the war on crypto-crime, and everyone using bitcoin was required to register their bitcoin activities with the DOC on quarterly basis.  
These rules had little effect.  Advisers to the president soon realized that the only way to really monitor bitcoin (or ban it altogether) was to take over the infrastructure of the internet.  The internet consists of computers and the cables and wi-fi/satellite signal-generators that connect computers to each other.  Taking control was expense, but necessary.  Without tax revenue, the government would have to trim spending; the lower classes threatened a revolt at the prospect of harsh welfare reforms.
So, little by little, internet freedom disappeared.  In 2020, the DOC began requiring individuals to register every internet-connected computer annually, mirroring the much-older vehicle registration system.  The DOC nationalized Verizon and Comcast and declared it a criminal activity for a non-licensed civilian to run wires connecting computers across property boundaries.  Web servers faced exceptionally strict monitoring, and web administrators were required to grant root privileges for random examinations by government inspectors.
By 2025, bitcoin had fallen close to $0 in the US economy.  For the next 20 years it would continue to oscillate between $100 and $40,000 in the third world ... but how about I don't get too far ahead of myself.

Sunday, February 09, 2014

Lyft: my prophecy fullfilled

Friday was Lyft's big launch in Pittsburgh.  I learned of this soon after noticing a car with a great big pink mustache.  Why are the cars dressed up funny, I wondered, Didn't Hanukkah end a while back?

My prophecies don't always come to pass, as it were, and so I must celebrate when then do.  And never mind that the Californians anticipated my prophecy by more than a year -- how was I to know that?

Lyft showed up in San Francisco in 2012 as a futuristic ride-sharing service, or a taxi service.  The distinction between "ride-sharing" and "taxi" turns out to be a big deal.  Freedom haters are calling foul, since Lyft operates effectively like a taxi service and yet claims to operate beyond the scope of the regulations that define the taxi industry.  One must feel sorry for the traditional taxi drivers, whose jobs are being creatively destroyed quite suddenly.

And yet, as sorry as I feel for the taxi industry, I can't help but be overwhelmingly excited at this development.  Imagine roads less crowded, air less polluted, and taxi-style transportation much cheaper, all thanks to people using their "smart" phones smartly for once.

I regularly wait 5-15 minutes in the cold for the bus to show up to take me to work while steady stream of single-occupant cars passes me, quite oblivious to the obvious business opportunity.  Maybe if I wear this, someone will pick me up, and I can tip them with a $couple.

Wednesday, December 11, 2013

Digital Currency II

This post retracts a key point in the previous post and collects several relevant tidbits.

Retraction:  the Frequenter retracts the claim that a rise of bitcoin could plausibly hurt the dollar.  The Federal Reserve has the tools to contract the supply of the dollar.  If the dollar becomes less valuable (at least domestically) for any reason, including a bitcoin craze, the Fed will most likely contract the money supply enough to avoid inflation.

  1. The need for economy of scale in bitcoin mining may mean that an extremely small number of players will end up collecting the vast majority of new bitcoins.
  2. If bitcoins were to take over a large fraction of commerce, wealth inequality would take on a whole new meaning.
  3. The "experts" seem to have trouble agreeing on exactly how to value the bitcoin:  high, low, high, low.  The current valuation remains well below the peak, and it's looking mighty frothy.
  4. The Assassination Market is one of the most flamboyant illustrations of the bitcoin's potential as the currency of choice for the dark underworld of web-based crime.  How hard must it be for the secret government agencies to resist using such a market to destabilize its worst enemies?
  5. This sloppy rant by a brilliant young reinventer of the internets is perhaps the second most likely scenario for how the bitcoin will disappear (the most likely being that it goes poof spontaneously, or due to animal spirits).

Sunday, December 08, 2013

Digital currency and the future of money

It is easy not to care about the precise meaning of money.  We all have a basic idea of how to use money, how to spend and save.  The problem, however, is that we could be on the verge of a big shake around.  The recent emergence of digital currencies, particularly bitcoin, may have historical importance comparable to that of genetic engineering, climate change, pretzels, democracy, or nuclear power, take your pick.

Money is a notoriously tricky concept, and my brief history of money is all too brief.  Money is anything that carries out the functions of money.  These include common-sense things like being easy to store, being easy to exchange, and retaining value.  Perfect money does not exist.  Gold coins, an early form of money, did pretty well.  But gold would be even better, as money, if you didn't have to worry about people paying you with coins that are not pure gold. The ordinary cash dollar (USD) is excellent money for the day-to-day, but tends to lose value over time due to inflation.  Also, if you're traveling internationally, USD can be a hassle to exchange in countries that use ther currencies.

Gold and USD are only examples of a large number of materials, currencies, and other bits of paper that are traded as money.  Adding to this long list, we now have digital currencies to think about. 

Bitcoin, introduced in 2009, is the most successful digital currency to date, recently trading at around $1000 USD per coin.  About 12 million bitcoins exist, for a total market capitalization of about $12 billion.  If the anonymous creator of bitcoin were to be hording a million coins, he or she could now be the world's first digital currency billionaire.

Bitcoins are created by "mining," a process that requires significant effort to understand.  By design, the number of bitcoins can never exceed 21 million.  Like gold, and unlike tulip bulbs, bitcoins are unlikely to suffer large losses in value that are driven by growth in supply.

The appearance of the bitcoin (or one of its competitors) raises a perplexing set of related questions:
  1. What will the bitcoin be worth a week/month/year/decade from now? 
  2. How might the rise of bitcoin affect the value of the dollar?
We begin with question 1.  Anyone who can answer this consistently can quickly get rich by trading on the bitcoin's wild swings.  The best we can do may be to put some vague upper and lower bounds on the future price of a bitcoin.  For the lower bound, let's say zero.  For an upper bound, I turn to this nifty little calculator, explained here.  Adjusting all of the sliders to their maximum positions, I get a maximum long-term bitcoin value of about $600k USD, or about 600 times the current valuation. 

But, turning to question 2, the $600k figure quoted above is on the scale of the present purchasing power of USD.  If bitcoin were to reach such heights as to replace government-backed currencies in most large transactions, the purchasing power of USD could also fall, making price of bitcoins, denominated in USD, nominally orders of magnitude higher than $600k.

Thus, the question of how much to "invest" in bitcoin is not exactly analogous to how much you should invest in Apple stock.  If you decline to buy stock in Apple, and subsequently the price of Apple spikes upward, you may have been left behind, but at least you still have the USD in your savings account, and the value of that USD is not hurt by the success of Apple.  On the other hand, if you choose not to buy bitcoins, and bitcoin subsequently becomes the dominant currency of the world, you not only miss the chance to get rich, but your USD savings also lose most of their value.

The Frequenter is genuinely perplexed, so take this advice at your own peril.  As a hedge against getting left behind, it might be a good idea to spend about 0.2% percent of your savings on bitcoins.  For this purpose, savings include checking account balances and retirement funds, but not your physical possessions, which have intrinsic value.  Then, in the extreme case, i.e., if bitcoin were to rise in purchasing power by a factor of 600, you'll come out slightly ahead, assuming you manage to buy in before the price spikes well beyond $1000 per coin.

Sunday, November 17, 2013

You know you live in a great neighborhood when ...

... a flyer shows up on your doorstep entitled GETTING A JOB WITH A CRIMINAL BACKGROUND.

Saturday, November 02, 2013

Ride sharing: the future of transport?

Rising gas prices, crowded roads, and lack of affordable public transportation all across America.  In the age of the internet, we have a huge opportunity for improvement.

Allow me to briefly describe a futuristic system of transportation that need not be more than a few years away.  First, here are the goals of the system:
  • Reduce the amount of traffic, allowing the remaining traffic to proceed more efficiently.
  • Reduce the total amount of gas/energy consumed in traffic.
  • Allow mid-size cities to stop wasting money on bus schedules that don't run frequently enough to be of much use to the majority of the population.
Here are the specifics of a web-based ride sharing system that would achieve such goals:
  •  The ride sharing website allows you to register as a rider or driver (or both).  If you are a driver, you must submit information that identifies all of the vehicles that you might use to pick people up, such as license plate numbers and car photos.  All drivers and riders must submit a couple of high quality mug-shots.
  • Each user (driver or rider) can choose to have their physical location monitored, perhaps by the GPS on a smart phone, or by periodic manual updates.
  • Each user submits as much information as possible about their travel plans.  Regular commutes can be entered as repeating events in a calendar. 
  • A simple statistical algorithm does pairwise comparisons of trip descriptions between riders and drivers, and displays the complementary trips to the respective users.
  • For longer trips that are planned in advance, users may send messages to each other to make arrangements for a ride share.
  • Other rides may function like a bus ride.  A rider may walk out to the road, holding the smart phone, and, having selected real-time location monitoring, can be seen by all approaching drivers whose scheduled trip has them passing by the rider.  The rider clicks on all oncoming drivers with compatible plans (perhaps ranking them in order of desirability).  Similarly, drivers with available seats may pause momentarily by the road to click to offer rides to any riders ahead.  Once a match is made, the rider disappears from the list of riders that is viewable by all other drivers.
  • A user rating system allows riders and drivers to flag other users who act inappropriately.  Users may consider other user's ratings when considering who to partner with for travel.
  • Users have control over personal privacy settings that allows them to restrict who can view their photos, location, and other such information.
  • Drivers can set prices for rides, as well as specify forms of payment.  Payment options could include phone-to-phone money transfer or cash.

Several ride sharing websites, already exist, offering bits and pieces of the grand scheme outlined above.  Unfortunately, the political culture currently makes it difficult for these services to gain momentum.  Over-regulation of the taxi industry in municipalities has given ride sharing services a hard time.  Here's to dreaming of a free-er future and better transportation.

Sunday, October 13, 2013

Almost everyone is stupid by default

Including me.  How dumb must I be to freely share my pearly political punditry with the raging masses of shallow voters who will never really understand or care enough to read what I have written more deeply than a quick scan for emotive catch phrases on which to tack a pathetically pithy comment?

Here is how it is.  Some political issues are complex, and some are simple.  Some issues matter a lot, and some matter less.  I'm here to tell you about the simple issues that matter a lot.  Everyone who disagrees with me on at least one of the following points is stupid:
  1. Climate change is happening, and it's worth worrying about.  Any Republican who denies this deserves to be called a Tea Partier for being so obstinate.  The single most important national policy to slow global warming is to raise the gas tax.  Doing so would make us a little bit more like our liberal friends in Europe.
  2. The U.S. government has a lot of debt, and the debt is growing fast.  Failing to stop this trend will bring great regret, in the year 2026 by one economist's guess.
  3. Invading Iraq was a mistake.  But that's not even the point.  Here is the point:  If a lonely group of rogue liberal members of Congress had found a way to prevent the Iraq war by any means possible, including shutting down the George Bush administration by voting no to everything he wanted, we would owe these lonely congressional heros some debt of gratitude for saving the U.S. from a useless multi-trillion dollar war bill.
  4. A lonely group of rogue Tea Partiers, much like the hypothetical group in (3), claims to be doing whatever it can to resolve (2), and they deserve respect for that, despite their great shortcomings (1).  This desperate situation gives Obama an opportunity to negotiate drastic future spending cuts to save the homeland from disintegrating like the Roman empire.  Go Obama!
Update on the meaning of a default (10/14/2013):  This article does an exceptionally good job of describing the mechanics of a default.  Some key points:  Default would be bad, but no one knows how bad.  At best, various payments would simply be delayed until Congress removes the debt ceiling.  At worst, these delays would trigger some greater economic collapse.  
In the past, I have speculated about how a doomsday default scenario might play out.  The present situation differs from my doomsday scenario in one big way.  Politicians aside, the U.S. is presently fully capable of keeping up with its interest payments, and will remain capable even if the interest rates shot back up to pre-financial crisis levels, about 5%.  That's because the debt maintenance, say 5% of 15 trillion, is far less than federal tax revenues.  By contrast, in a doomsday scenario, we'd be looking at 10% of 30 trillion, which could eat up ALL government revenue, leaving nothing for social security, defense, or national parks, etc.  When that time comes, it will be impossible (even if politicians cooperate) to pay the debt, and that's when the government and economy shut down for reals, folks.
In comparison to the horror of my apocalyptic medium-distant future default scenario, I am optimistic (but not certain!) that the present default, if it occurs, will be quite mild.  I am also optimistic that the default pains will be growing pains that prompt the electorate to become more conscious of fiscal sustainability, so that federal deficit spending can be corrected before it is truly too late.  Ideally, our dear leaders can agree to correct the spending problem right away to avoid all defaults, present and future.