
Bitcoin Spreads Like a Virus - mthwsjc_
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3356098
======
yingw787
Bitcoin reminds me a lot of monetarism, where the thinking goes to increase
the money supply at the same rate as that of productivity:
[https://en.wikipedia.org/wiki/Monetarism](https://en.wikipedia.org/wiki/Monetarism)

I'm not a huge believer in monetarism. It pretty much precludes all aspects of
monetary policy save growing the money supply to influence the economy. I
think Bernanke and the policy of quantitative easing played a crucial role
during the 2008 financial crisis, along with TARP and ARRA, and that would not
have been possible if the U.S. dollar physically obeyed the properties of
Bitcoin.

A thought experiment: how would an economy run solely on a Bitcoin-like
currency behave? And how would it respond to business cycles?

~~~
ucaetano
> A thought experiment: how would an economy run solely on a Bitcoin-like
> currency behave? And how would it respond to business cycles?

Terribly.

Bitcoin is by design deflationary, which creates an incentive to maintain
currency under the mattress. This is accentuated by the fact that bitcoin
can't be used in fractional-reserve-banking.

This means that there is little accumulated capital available to borrow and
invest.

It also means that any investment would need higher returns than the expected
appreciation of a bitcoin, which might set a very high bar for investments,
making raising capital nearly impossible.

Today, in most open economies, nobody controls the supply of money, it is
increased and decreased dynamically by the market according to supply and
demand and to maintain a certain level of risk on the banking system (with
some adjustments from the central bank).

~~~
theseatoms
> which creates an incentive to maintain currency under the mattress.

Continuing the thought experiment, consider what goods and services people
_would_ continue to spend money on, in spite of the expected increase in the
value of money.

> Today, in most open economies, nobody controls the supply of money, ...

With all due respect, this is demonstrably false. The Federal Reserve and its
member banks control the supply of money.

~~~
AznHisoka
"Continuing the thought experiment, consider what goods and services people
would continue to spend money on, in spite of the expected increase in the
value of money."

I love this comment. Everyone just blindly says "People will put money in
their mattress. Economy will go down" and then it's case closed.. but then
what happens next? They just won't buy food? water? won't go to the mall? They
just stay at home and hunker down? They won't even be watching entertainment
since they won't be paying for a Netflix subscription too, apparently.

~~~
lmkg
The proposition is not that people won't _spend_ money. The proposition is
that they won't _invest_ the money that they're not spending. Keeping money
under the mattress is not competing against groceries and Netflix, it's
competing against government bonds and/or interest-bearing bank accounts.

~~~
logicchains
If people sudddenly hoard money, they're essentially reducing the supply of
money, which means the value of money will go up (as there's less of it),
effectively acting as a transfer of purchasing power to the people who are
actually spending it at that time. Imagine for instance I do something that
generates a lot of value (money), then burn that money (or hide it under my
mattress 'til I die of old age). This essentially means I gave "value" to
society for free, as I created "value" but did not consume any "value" in
return, leaving that "value" I could have consumed with my money to be
consumed by others.

~~~
ucaetano
Nope, the problem isn't people hoarding money, the problem is doing so outside
of a banking system, where such money is put to work in investments.

If the economy is growing in the long term and the supply of money is
constant, the value of money (vs. goods) will always increase, and everyone
has an incentive to hold currency instead of investing in the economy.

The result is that you can't raise capital for a startup or for an
infrastructure project.

~~~
throwawaylolx
This is not responding to GP's argument: the point is that "hoarders"
implicitly provide capital for others by reducing the circulating supply.

~~~
ucaetano
Driving deflation isn't providing value.

The claim isn't even wrong, it doesn't make sense.

~~~
logicchains
To earn money, somebody has to have created value (people are paid for
creating value). Spending money is consuming value. Imagine there is $100
worth of total value in existence. Somebody creates $5 of value, they're paid
$5, and total value existing is now $105. They could immediately consume or
invest this $5 of value, leaving society with $100 of value, and if they
invested some productively then they'd have increased the rate at which
society's able to generate value in future. Or, they could do nothing with
that $5, leaving society with $105 of value. How does society access this
extra $5 of value? The person who choose to hoard the $5 effectively removes
that money from circulation, which decreases the supply of money and hence
increases its value. This means the purchasing power of other currency holders
is increased. Those who then decide to spend money can consume or invest the
$5 of value that was left unused.

------
jron
The price consolidates over long periods of time to establish an equilibrium
with demand. The network then shocks the supply side by halving newly created
coins every 4 years. The price starts to move and then human nature takes over
and runs the price well past previous highs. During this run, new adopters
form the base to support the inevitable decline. Repeat until the market
learns to price this in. Third time's a charm? We'll find out soon.

------
mr_spothawk
It looks like the Gompertz function is asymptotic... i wonder about how they
fit that model to the price spikes.

Also, stupid question: what's the expected price then, given that the
infection nears that asymptote by say, 90%?

~~~
wcoenen
The study says that the price almost perfectly fits the curve, but they
exclude the price spikes in that fit and label those periods as "manipulated
price".

This strikes me as a rather strange approach to fitting data. But I'm not a
data scientist, and they do give some references to other studies about
bitcoin price manipulation to support this.

~~~
HarryHirsch
Isn't price manipulation the purpose of Bitcoin? The market is so small that
you can actually corner it with very little effort, and since it's Bitcoin
there's no one to enforce the rules.

~~~
wcoenen
No. According to the original author, the purpose of bitcoin is to provide an
electronic payment system that does not require trusted third parties. See the
introduction section of
[https://bitcoin.org/bitcoin.pdf](https://bitcoin.org/bitcoin.pdf)

------
briatx
> number of users (proxied as active addresses)

New wallets cost nothing to create and manipulation in this sector is rife.

The assumptions are flawed from the start.

~~~
sprash
Transaction costs are very significant. As soon as a wallet contains money it
is save to consider it as real. Distributing your money to multiple wallets as
a single owner is very costly and makes no sense.

~~~
briatx
1\. Tx costs are basically free if you are willing to wait long enough.

2\. Using a new address per Tx is one of the only ways you can preserve
anonymity.

3\. Lots of people have more than one wallet.

4\. Manipulators could automate the creation of wallets at essentially no
cost.

5\. The minimum value of bitcoin is 1 satoshi which is 0.00000001 BTC or
0.0000398886 USD at current prices.

To put that in perspective you could fund approximately 250 wallets with 1
satoshi each for one penny.

------
ionasiognio
I see a few problems:

1\. The author claims the lower bound is above 0 because "Bitcoin offers
people a money storage and transfer system with two key properties: (i)
permissionless access and (ii) decentralized database management." That might
be true if Bitcoin were the _only_ technology that offered those features, but
it isn't. Cash is the most notable competitor, but there are also dozens of
other cryptocurrencies which are drop-in replacements for Bitcoin.

2\. The number of Bitcoin users has a hard cap because the technology is not
scalable. It is just plain impossible for a large number of people to use it.
This is not like Facebook, where the system is scalable and user growth is
determined almost entirely by user interest.

Also, those graphs make me nervous. Fitting a line to a log-(log-square-root)
graph using linear regression sounds awfully fishy to me. Would anyone with a
better grasp of the statistics care to chime in?

~~~
soVeryTired
> Fitting a line to a log-(log-square-root) graph using linear regression
> sounds awfully fishy to me. Would anyone with a better grasp of the
> statistics care to chime in?

It's fishy, but depressingly common in Economics. There's an old joke that
'everything on a log-log plot is linear when drawn with a fat magic marker'.

The errors at the top-right of the chart are much larger than the errors on
the bottom left: they just don't look that way because of the log scale.
They're also systematically biased at the top-left.

If you want to run OLS on a timeseries, you need ergodicity (i.e. the time
series forgets its own history) for the regression to be valid. The number of
observations also needs to be across a time much larger than the relaxation
time of the timeseries. I don't see that here.

The entire thing triggers my spider sense for cranks. It's written in word and
uses excel for its plots, the author runs some sort of crypto fund, and the
fact that it uses 'square root of time' as a regressor is just bizzarre.

------
magnamerc
This reminds me of Metcalfe's law for telecommunications networks.

------
btcama
I am the author of "Bitcoin Spreads Like a Virus" and "Metcalfe's Law as a
Model for Bitcoin's Value." I will be releasing an explanatory video next week
(tentatively Wednesday, March 27th.) The video will incorporate an AMA at the
end. Send your questions to BTCAMA@caneislandcrypto.com. You can also visit
caneislandcrypto.com/learn for more information.

------
algaeontoast
Bitcoin was a great experiment... but it arguably failed.

Nobody really ever used it for normal things.

The one attempt at actually attempting to take a first step to fix scaling
issues collapsed due to governance issues.

It never worked as a reliable store of value or means of reasonably
transferring funds.

Really cool project but it was an experiment. We can still learn from failed
experiments to make even better new ones...

~~~
HashBasher
> it arguably failed.

I wonder how many people called the internet a failure, 10 years in.

------
thefounder
You can say that everything spreads like a virus(i.e the internet, facebook,
Google etc). Bitcoin (like any viral technology) is no exception

~~~
Kiro
No, they don't follow the Gompertz sigmoid growth function so it's not the
same thing.

------
radiusvector
I think the analogy with FB might be interesting, but intrinsically
inaccurate.

The value people get from FB is related to the value of other people being on
the network, but there is an intrinsic value drived from the different use
cases on the platform - photos, messaging, likes, fomo and what not. Which has
directly been monetized using advertising.

The value you get from other people using Bitcoin is that the price goes up,
without any other intrinsic value aside from "Maybe my investment grows" \- in
effect following the 'greater fool' theory (Buffett), or the 'castle in the
air' theory (Malkiel et al).

~~~
dcow
No! Bitcoin is a _currency_ not a commodity. There is plenty of value in using
it on those merits and that value increases the currency proliferates.

~~~
radiusvector
The "currency" use-case has not proliferated or reached adoption at a scale
(by any measure) that would make it a worthy medium of exchange, which
fundamentally is the definition of a currency.

~~~
dcow
The paper precisely argues that the proliferation of BTC as a currency is a
factor in their assertion about the value.

