
The Bitcoin Economics lesson for Engineers - rogueeconomist
http://econgoat.com/a-lesson-in-economics-for-engineers
======
grovulent
The tone of condescension that comes from professional economists is telling.
It's impossible for them to just present their arguments, cleanly, simply and
without ostentation and vitriol. They have to try to make you feel stupid for
disagreeing with them.

When you don't have a sound scientific basis for your discipline, you need
something to step in to fill the void - in order to make other humans believe
in your worth. Economists use their enormous egos, as well as the frailties
inherent in the egos of others.

Heather R Morgan has not written an article which rises above the flaws of her
discipline. It starts with a jibe - oh, you invested in bitcoin, why not flush
it down the toilet - that's HOW STUPID YOU WOULD BE...

Engineers and hackers don't have to worry about whether or not their
discipline makes a genuine contribution. They have proved themselves time and
time again. They build a product - ship it - and if it fails, they start
working on the next idea. They don't have to worry about fighting over
'theories' with academics who desperately claw at one another for those
disappearing tenure tracks.

As we who have spruiked for bitcoin have always said: "This is an experiment
that might fail."

Heather might want to consider switching to a discipline in which experiments
are even possible...

~~~
k-mcgrady
>> As we who have spruiked for bitcoin have always said: "This is an
experiment that might fail."

It's fine to experiment but when Bitcoin became more mainstream the kind of
stupid mistakes MtGox has made are inexcusable. Ordinary people were using it
and are losing money now. You can't promote a new technology and push for it's
adoption by a wide audience and just call it an experiment when it fails.
That's reckless.

>> Heather might want to consider switching to a discipline in which
experiments are even possible...

And you're complaining about condescension?

~~~
grovulent
I presume the 'you' in your statement is directed at... well... who exactly?
Who was promoting Bitcoin in a way that did not foreground its extreme risk
front and center? Your journalistic finger wagging will not do here. I would
like to see examples. And if you provide them, then I will accept in each such
case that they were indeed irresponsible.

As for my last statement - I accept it comes off as no better. But I happen to
actually mean it with more sincerity than you can possibly imagine. I was a
PhD student in philosophy. After five years I quit because I couldn't stomach
my own bullshit any more. I'm currently training myself in math, machine
learning and programming. Even as a mediocre tech guy (and I don't doubt I'll
ever be more than mediocre) - I'll add more value to the world than I ever did
as a philosopher. I believe the same of economics.

~~~
davidw
Economics is fascinating. It's a fairly new discipline, and like, say,
astronomy, conducting experiments can be tricky, but throwing the whole thing
out is silly. There is a lot to be learned for those interested in learning,
rather than just backing up their own political view of the world.

~~~
glimmung
There is another huge difference, aside from the susceptibility to experiment
of the two fields - in astronomy one studies an objective natural system, in
the other one studies a subjective human-driven environment.

The thing that troubles me most about economics is its apparent inability to
address the fact that it cannot (yet?) make even modestly accurate
predictions, and seems to be in denial about the implications of that fact.

To be honest, I lost all interest in economics-as-science when I learned that
its theories were based on the idea that people were "rational actors" \- this
so flies in the face of my life experience that it simply doesn't pass the
smell test.

I wouldn't throw the /whole/ thing out, but we have to be realistic about its
limitations, and the fact that small changes in human sentiment or worldview
may potentially completely invalidate its core assumptions.

~~~
makomk
Also, in astronomy, the stars aren't actively searching for and exploiting
flaws in your models, whereas in economics the main actors very definitely
are.

------
glimmung
This is just silly - here we have someone lecturing us about economics who
describes herself as a "Rogue Economist" \- so are we expected to buy this
analysis because she is an orthodox economist (which is how it reads), or
because she is a "rogue economist"?

More significantly, the line "While we may dislike the government’s regulation
and intervention into financial markets, their oversight prevents moral hazard
and rampant fraud." is just laugh-out-loud funny - we've seen _PLENTY_ of
moral hazard and rampant fraud in orthodox financial markets, on a scale which
is simply mind-boggling in comparison to anything happening at Mt.Gox.

~~~
interstitial
Clearly, it's a new paradigm. It's different this time.

------
yummyfajitas
Did the 18 people who upvoted this crap not even notice the glaring factual
errors?

 _...the efficient market hypothesis (that free markets will regulate
themselves)..._

 _Fiat currencies (money) are pegged to real assets..._

 _...it is as vulnerable to financial crises as any deregulated financial
market... US subprime mortgage market, bubbles follow the same patterns for
growth and implosion._

Most amusing is the idea that unlike USD, BTC has no protection against fraud.
The same is true for most "regulated" transactions, credit card payments being
a notable exception.

~~~
NateDad
My guess is, half the people voted it up for pure schadenfreude, and the other
half voted it up so they could talk smack back to her :)

~~~
williamcotton
Laughing at someone's misery is called schadenfreude.

Laughing at someone's tragic folly is called comedy.

Not knowing the difference between misery and folly is fucking hilarious.

~~~
NateDad
Folly and misery go hand in hand, would you not agree? I don't see why you
appear to think they are mutually exclusive.

I'd respond with more venom about your tone, but I hate feeding trolls.

------
JumpCrisscross
> _Bitcoin is possibly the most valueless asset in history. If people no
> longer wish to hold or accept Bitcoin, the value will be exactly zero since
> it has no inherent value, making it an extremely fragile asset._

Stock in a shell company also has zero inherent value. This is simply a
localised critique of the "most valueless asset" accusation - many assets
share that characteristic.

~~~
terranstyler
And then there is fiat money, the elephant in the room of valueless things.

~~~
nopinsight
Both stocks in shell companies and fiat money are protected by international
treaties and the military might of supporting governments. Has any government
declared official and unequivocal support for Bitcoin yet?

~~~
glimmung
Tell that to the Greeks!

How "protected" did their money turn out to be?

~~~
stephencanon
Given that the Greek government didn't simply close the country, pretty well.

~~~
glimmung
I'm not quite sure how one "closes" a country, but they have abdicated
responsibility for many of the core functions of government, and to the
individual citizens who are affected I'm sure the government seems "closed",
if not the country [1].

Details and semantics aside, my point was that the security that governments
allegedly bring to currency, and which Bitcoin allegedly lacks, is often much
less concrete than we would wish.

[1]
[http://www.theguardian.com/commentisfree/2014/feb/24/christi...](http://www.theguardian.com/commentisfree/2014/feb/24/christine-
lagarde-troika-wrong-on-greece)

------
VMG
Quote from the article: _Bitcoin mining is not valuable for anything other
than creating Bitcoins. Bitcoin is possibly the most valueless asset in
history. If people no longer wish to hold or accept Bitcoin, the value will be
exactly zero since it has no inherent value, making it an extremely fragile
asset._

Therein lies the trouble with taking lessons from economists who don't think
it through.

Also previously:

* [http://www.wired.com/magazine/2011/11/mf_bitcoin/](http://www.wired.com/magazine/2011/11/mf_bitcoin/)

* [http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-...](http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-the-end-of-bitcoin-then/)

* [http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/](http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/)

Don't get your hopes up just yet.

------
vijucat
The core argument surrounding Bitcoin can be brought to focus by asking the
question : "Would you rather trust a government or a mathematical algorithm?".
Of course, crypocurrencies are not just algorithms, they're more like
algorithms + protocols, but still, that's a great question to ask at a
gathering (of like-minded people); it generates some very interesting
discussion.

My personal take is that : there are two kinds of people. Some need a Central
authority. (They probably respect and believed everything uttered by their
parents and teachers as children, too. I'd LOVE it if someone did a
psychological study of such correlations in personal beliefs.) Others are
suspicious of the utility of government. One need not be a full-blown anarcho-
capitalist or whatever the well-read cool kids call it; it's just that the
2008 financial crisis has left a deeply unsettling feeling about whether
governments are serving the common man. Such people would rather trust a
computer science researcher's invention. I'm definitely in the 2nd camp.

I think the lack of central authority is what type 1 people find unsettling
and unbelievable about Bitcoin. What the world needs is a "Cartoon guide to
cryptocurrencies" book or video.

~~~
k-mcgrady
>> ""Would you rather trust a government or a mathematical algorithm?"."

Most people can understand government fiscal policy (to a useful extent
anyway). Very few can understand an algorithm even when it's explained to
them. They vote in the government and currency in it's current form (e.g. USD)
has worked for generations. Trusting the government seems much safer.

Also with Bitcoin you are trusting more than an algorithm. You're trusting
exchanges. You're trusting in the security of a digital system that can be
hacked and you don't understand how to secure properly. With physical currency
security is simple and understandable. With digital currency it's not.

~~~
ben0x539
When a government fucks up, you can vote to change it or sue them. When the
algorithm eats your savings, there's no recourse. I'll put my trust with the
concept that isn't claimed to be infallible here.

~~~
dnautics
have you ever tried suing the government? My dad did. It's taken him 10 years,
and he's probably lost about $2M in assets. Status of his suit is still
unresolved.

As for voting...

------
dwaltrip
It's pretty funny how she uses E-gold as an example, which failed due to
forcible dismantling by the government.

 _Hint_ : Bitcoin was created for the sole purpose of avoiding problems of
that nature.

As for the rest of the article, not much content and many unsupported
assertions. It would have been nice to hear _why_ bitcoin is completely value-
less, beyond not being "goverment backed". But I suppose that discussion would
involve actually understanding bitcoin.

------
adamnemecek
What a self-promotional garbage. Why was this not written when Bitcoin was
valued at $1000?

~~~
borplk
Next time it reaches $1000 she will come out with a shiny new article about
how fabulous bitcoin is

------
Fuxy
She doesn't get it bitcoin will never reach 0 there will always be people
buying and selling bitcoin just as there's customers for even the crappiest
websites.

Not to mention it's already reached critical mass which means it will never go
away and the advantages outweigh the risks.

Now will this hurt bitcoin? Yes. Is this a good thing in the long run?
Definitely.

It's always a bad thing when 70% of all speculation is done on one platform
and that platform closes down.

I'm somewhat glad mtgox was allowed to fail that juts proves that the awful
too big to fail mentality of the US did not corrupt the bitcoin marketplace.

This is a good thing in the long run even if it's going to hurt like hell in
the short run.

~~~
NateDad
Mt Gox was like the #3 exchange, not number 1 for some time, and definitely
not 70%. They'd been having problems for a long long time, which is why a lost
of people didn't want to go there anymore. They had name recognition, but it
was nearly impossible to get cash out.

~~~
Fuxy
That's what I've been reading in the media anyway and i couldn't be bothered
to check the numbers.

I tried using them once and they were asking to many unnecessary questions so
i just went elsewhere.

------
terranstyler
The lesson is:

If you don't understand anything about something but need to opine, put the
words "lesson" and "engineer" in the head to fake your understanding.

------
NateDad
"Oh you silly engineers and your bit of coins, let me econ'splain how dumb you
were."

Madam, there is nothing in your article that any of the engineers who were
(and are) so excited by bitcoin didn't already know long before you'd even
heard of bitcoin.

------
joosters
_" You might as well flush your money down the toilet by investing in the
Egyptian pound."_

Does the author have some insider information on Egyptian currency trading? I
hope they are putting their money where their mouth is by selling EGP on the
foreign exchanges!

Or in other words, the author opens this article by spouting speculative
bullshit. Why then should we treat the rest of it as useful?

------
quarterto

      Bitcoin mining is not valuable for anything other than creating Bitcoins
    

Bitcoin mining ensures the validity of the blockchain. Bitcoin is valuable as
the unit of account by which things can be entered into the blockchain. Good
luck trying to convince people that a distributed, consistent transaction
ledger has no value.

~~~
NateDad
By the same token, what value does gold mining have beyond "creating" gold?

~~~
graeham
Gold has value and use aside from as a currency.

~~~
NateDad
It has some very niche uses, but they're incredibly limited and would not put
gold's value at even 0.1% of its current value.

The bitcoin protocol has quite a lot of potential uses (see master coin and
colored coins), even if actual bitcoins were worth nothing monetarily.

------
lesingerouge
On-topic: I remember my undergrad course in macroeconomics. It was a total and
utter mess. Just tons and tons of theories and formulas that could not be
demonstrated, but had to be memorized. Most macro-economists suffer greatly
from the lack of a "credible" scientific base for their studies. Hence the
article, a generous serving of all possible stereotypes that macro-economy can
give. BUT, I also remember microeconomics, and that was a totally different
story. Most useful when thinking about markets and how people behave, but
interesting if applied to greater scales (macro-micro-economics?).

Off-topic, but considered interesting: Am I the only one that finds it
frustrating that Subtle blogs have no local comments? I find it diminishes the
value of the text in itself.

------
bachback
why the upvotes? but I'm sure the author is an expert in Elliptic Curve
Cryptography and understands the subtleties of hierarchical deterministic
wallets.

~~~
Fuxy
Because we want everybody to see just how clueless she really is.

------
weavejester
This article has very little intelligent to say. There are plenty of
legitimate criticisms against Bitcoin, but I really thought we were past the
stage when economists with little or no understanding of Bitcoin attempt to
weigh in on the subject.

------
facepalm
Complete bullshit. If my computer gets hacked, my bank passwords will also be
stolen and my money is in danger. Banks have also gone bust before.

I don't know what the eventual value of Bitcoin will be, but this economist
doesn't, either...

------
rjtavares
In the article, an economist assumes engineers have no knowledge about
economics. In return, Hacker News assumes economists have no knowledge. And
this comment assumes everybody in Hacker News thinks the same way about
economists.

Assumptions...

------
Thiz
The article is bullshit.

Here are the real three lessons we have learned the hard way.

#1 My money stays in my wallet. All the time.

#2 If not possible #1, know the names of those who keep your money, you're
trusting them, they should be held accountable and strongly punished by law to
set a precedent. Do not trust your money to a faceless business.

#3 Cryptomoney is the future, spend more in research, protect wallets, methods
to test solvency, public audits, webs of trust, etc.

This tragically had to happen so we could learn these lessons. Monetary
darwinism at its best.

We will raise from the ashes stronger, Spartans.

------
threepipeproblm
To me, it seems like this article merely repeats Keynsian axioms without
bothering to argue for them. Not, in my experience, the way engineers like to
be talked to.

------
Patient0
"As people watch asset prices rise and people make money herding mentality
kicks in and many people jump on the bandwagon with hopes of grabbing some of
the riches."

A few too many mixed metaphors in this article! I'm trying to imagine herds of
people jumping on a bandwagon...

What is a bandwagon anyway, I realise now I've never known - it's only ever
used in the phrase/cliche "jumping on the bandwagon".

------
jbb555
One reason the value should rise faster than this is that there are a limited
amount of bitcoin in circulation. (That is, not help as long term assets). And
the number needed for day to day transations is growing very quickly. So it's
likely the price to acquire those needed for day to day transactions will also
grown fairly rapidly.

