
The Bitcoin Bubble and the Future of Currency - ldayley
https://medium.com/money-banking/2b5ef79482cb
======
cs702
Many currencies in existence are now riskier and less stable than Bitcoin.

Yes, it's true. As of right now, there are 182 official currencies
worldwide[1], most of which you've never heard of in your life, and many of
which have total market capitalization lower than Bitcoin.[2] Others are
subject to extreme sociopolitical, economic, or military-conflict risks. Would
you rather own bitcoins, which are traded globally, or, say, Libyan dinars,
North Korean wons, Syrian pounds, etc.?

Even the US dollar and euro, supposedly bastions of stability, have seen their
exchange rate jump from US$0.80 per euro in 2002 to US$1.60 in 2008 (100%
jump), only to drop back down to US$1.20 in 2010 (25% drop), then jump to
US$1.45 in 2011 (20% jump), only to drop back down to around US$1.29 today.[3]

If Bitcoin survives the horrific economic crises in countries like Spain,
Greece, and Cyprus, and the even more horrific military conflicts in countries
like Syria and Sudan, it will continue gaining credibility as _the currency of
last resort_ \-- the global digital commodity that will survive even if your
country or economy goes to hell.

\--

Edit: changed "most currencies in existence" to " _many_ currencies in
existence," which is what I actually intended to write.

\--

PS. I posted this on the other thread linking to the same article:
<https://news.ycombinator.com/item?id=5486100>

\--

[1]
[http://en.wikipedia.org/wiki/List_of_circulating_currencies_...](http://en.wikipedia.org/wiki/List_of_circulating_currencies_by_country)

[2] [http://reason.com/24-7/2013/04/01/at-1b-bitcoin-holds-
more-v...](http://reason.com/24-7/2013/04/01/at-1b-bitcoin-holds-more-value-
than-20-n)

[3]
[https://www.google.com/finance?chdnp=1&chdd=1&chds=1...](https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1364991894838&chddm=1773204&q=CURRENCY:EURUSD&ntsp=0&ei=gh9cUaDRGbKr0AG8tQE)

~~~
rjtavares
I wouldn't own Libyan dinars unless I lived in Libya. Since I don't live on
the Internet, I won't own Bitcoins.

~~~
johndevor
You don't live in a gold mine either, but I bet you wouldn't mind owning gold.
Same thing with Bitcoin, no?

~~~
jmharvey
I can't go into a store and buy a suit with gold, so it's not a useful medium
of exchange for me. If gold, or bitcoins, fell out of the sky and into my lap,
I certainly wouldn't mind. But given the same value of gold, bitcoins, or
dollars, dollars tend to be the most convenient for me.

~~~
BrokenPipe
the only issue with them is that little by little they lose more and more of
their purchasing power so you should either invest or use all immediately

------
Glyptodon
Bitcoin's deflationary nature makes me very nervous about it long term. I'd be
a lot more okay with it if there were some sort of built-in inflation or
arbitrage mechanism. However, outside of that argument, I think there's a more
fundamental problem.

As it stands, the total cap of 21 million bitcoins comes to 2.1e15 'satoshis.'

Meanwhile, total global economic output is around $7.9e14 USD.

Essentially, if bitcoins were to be 'the' global currency at today's level of
global GDP, the smallest unit of bitcoin allowed would be worth around $0.37
or $0.38, a value much too large for minimum granularity of currency.
(Likewise, 1 bitcoin would be worth ~ $37.5 million USD.)

Now most assume bitcoin will never be the global currency of choice. But even
so, it seems to me that the 21 million cap is far too small.

In any case, the so-called 'bubble' has every chance of inflating even larger
because even if bitcoin traffic were 1% of GDP, you're still talking maybe 700
times the current bitcoin monetary base.

That means a reasonable 'target' for a bitcoin valuation in USD might even be
well above the current price.

I'm not sure where things will go from here, but I'm sure it'll be
interesting.

~~~
tlrobinson
The protocol is malleable (the majority of miners need to agree on changes)
and can be migrated to use sub-Satoshi units if necessary.

~~~
Glyptodon
So bitcoin miners as a whole become a de-facto central bank based on majority
adoption?

That's actually a very interesting possibility.

~~~
drcode
Yes the "central bank" in bitcoin is essentially a diffuse network of trust
established via a large network of people.

~~~
olefoo
And we know for a fact that it's not possible to manipulate large networks of
people in an organized manner...

~~~
polarix
Certainly it's easier to do that than to manipulate a small group of mostly
hidden individuals with severe conflicts of interest.

~~~
knowaveragejoe
How is consensus reached? Who has the 'final say' to merge in the patches
necessary to make such a fundamental change?

~~~
BrokenPipe
You know, open source. I can decide not to take the new version or I can even
fork it. The majority decides, democracy like.

~~~
knowaveragejoe
Wouldn't a fork lead to decreased value for everyone...?

------
ontoillogical
> And in any event, bitcoin is never going to work as a global payments
> system. Not only does it suffer from having a slow-growing money supply and
> a metastasizing transactions file which has to live on every user’s
> computer, it also encourages destructive computer hacking. The way that the
> money supply grows, in the bitcoin system, is by people harnessing the power
> of hundreds or thousands of computers to solve very complicated mathematical
> tasks, earning bitcoins for doing so along the way. And the easiest and
> cheapest way of doing that is to do so illegally, by stealth: set up a
> “botnet” of hacked computers to do your bidding for you. The incentives,
> here, are very bad indeed.

I'm not an expert, but I thought that these days you basically need
specialized hardware/GPUs and a traditional botnet isn't going to get you that
far. Am I right?

~~~
EA
Modest CPUs produce bitcoins very slowly. So, there is an incentive to create
a botnet to harness the power of thousands of CPUs to mine bitcoins.

<https://en.bitcoin.it/wiki/Mining_hardware_comparison>

~~~
jacquesm
There is no point in even putting together a botnet with thousands of CPUs
anymore, a couple of FPGAs or an ASIC based solution would run rings around
that botnet. Ok, an ASIC will cost a bit of money and a botnet is free but the
difference in performance is such that only a very large botnet would be worth
it and those can probably be monetized more effectively in other ways.

------
fab13n
Again this deflation misunderstanding...

Deflation is (might be) a problem with money as a wealth-storage facility;
it's not a problem for a wealth-transfer technology. People get confused about
this because government-issued currencies serve both purposes. Let's untangle
them.

As a money transfer tool, you convert your wealth into BTC, spend them, and
the receiver converts them back into his own currency (or other liquid
commodity) of choice. If both conversions occur fast enough, you're both
protected from BTC fluctuations. That's what non-speculators will do as long
as the BTC remains highly volatile; by doing so, they keep the BTC liquid
against their wealth-storing currencies.

As a speculative tool, what makes BTC valuable is the fact that you can buy
actual stuff with it. The value of the BTC will adjust so that the active BTCs
(those already mined and regularly exchanged, rather than stored for
speculation) will represent the value necessary for the liquid trade of BTC-
priced goods. In the long term, an investment in BTC is indexed on the BTC
economy. Since the cumulated value of all BTC-traded goods can't indefinitely
grow faster than the actual economy, the value of a BTC can't indefinitely
grow faster than a derivative indexed on the world's economic health.

Conclusion: the BTC will asymptotically converge, either toward 0, or toward
very-large-spread indexes such as S&P500.

Economists' understanding of deflation is based on government-controlled
currencies, where manipulations are expected. When you make wealth by hoarding
a deflationary money, you bet that a government will reward you for not
lending your wealth to someone who will put it to work. Nobody can make BTC do
that: if less BTC-purchasable wealth is available, the liquid portion of BTCs
lose value, and so does the speculative portion, thus counteracting the
deflationary trend.

And anyway, when was the last time economists accurately predicted anything
but the past? :)

~~~
redblacktree
Gold was also deflationary, when it was used as a medium of exchange, so you
can't say that "Economists' understanding of deflation is based on government-
controlled currencies, where manipulations are expected."

Well, you can, but you'd be wrong.

------
josscrowcroft
> _"A few days ago, the value of all the bitcoins in the world blew past $1
> billion for the first time ever"_

Can somebody help me understand something? Might be very basic, and perhaps I
should understand this already, but...

How is it possible for the _"value_ of all the bitcoins in the world" to be
anything, in truth?

I understand that this comes from saying "1 BTC is selling on average for $X
USD, and there are X Bitcoins in circulation, therefore the total market size
is $1BN"

But... knowing that they are not underwritten or backed, surely they're only
"worth" what somebody will pay for them. Nobody would pay $1BN for all of
them, because that would render them all worthless.

Even if 10% of them were sold in one day, surely the value would drop
precipitously, therefore slashing the total "value" of all the bitcoins to
maybe half or a tenth of its current estimation.

So I ask again, how can the "value of all the bitcoins in the world" be any
figure, let alone $1BN?

~~~
lojack
> But... knowing that they are not underwritten or backed, surely they're only
> "worth" what somebody will pay for them.

I don't understand how this is any different from a fiat currency. The value
of bitcoins are currently being quantified by its exchange rate in USD. Sure,
someone could buy all BTC and drive its exchange rate (and thus its value)
down. Someone could also print more USD which would create a mass inflation
and the exchange rate would be driven up. The exchange rate of all currencies
would all be driven up, and the value of USD would go down.

~~~
drcode
> someone could buy all BTC and drive its exchange rate (and thus its value)
> down

If someone buys it like crazy, why would the price go down?

> Someone could also print more USD...

The use of the word "also" here is wrong since btcs can't be "printed" by
"someone" like the dollar.

~~~
the_mitsuhiko
> If someone buys it like crazy, why would the price go down?

If someone has all the bitcoin in the world, why would anyone want some?

~~~
drcode
You couldn't... All the money in the world wouldn't be enough to accomplish
this.

------
mrharrison
"The first is just that it’s a bubble, and any chart which looks like the one
at the top of this post is bound to end in tears at some point."

Wow very scientific, over time any hockey stick can look like a bump in the
road.

~~~
aethertap
Yes, what you said. Bitcoin is just getting started, so it seems reasonable to
think that the slope from "none" to "some" might be both bumpy and steep. Does
anybody know of a good source of data for the exchange rates of other
currencies when they were in their infancies? That could make an interesting
comparison.

I don't know whether bitcoin is in a bubble or not (it does seem likely), but
the rising slope of a sigmoid graph can also look exponential until you get
out further in time.

------
arithma
Let's enumerate the grand possibilities filtered by an increasing bitcoin
value versus dollars (without predicting small-time-scale changes): \-
Bitcoins will grow to a peak and then decrease to a much smaller value

\- Bitcoins will continue to increase and then plateau to their real market
value (which later on, in hindsight, everyone will claim has always been very
rational.) This will make them take a share in between the available global
currencies, and then everyone will continue life normally.

\- Bitcoins will be continue to increase in value such that no one can ignore
them anymore. This will effectively destroy the old notion of currency and
push economy into a totally new realm.

I really hope it's at least the second option. I am not sure I want the last
option to be true, since I haven't invested in Bitcoins enough yet.

On the speculative side: The way I see it is, Bitcoin is currently feeding on
an open field of existing wealth. It hasn't even started to be used as a
currency of exchange, as many have said. When that starts happening on a wider
scale, there's really nothing that will stop Bitcoin from eating the whole
market of currencies, and becoming the defacto coin of exchange (except the
ridiculous large spans of time that are required for verification).

~~~
iSnow
More possibilities:

\- Govt's try to crack down on BTC. The usual asperger reaction "haha, it's
_mathematically_ unbreakable" is followed by a tug-of-war and probably ends
with taxes levied on exchanges and merchants.

\- BTC become a speculator's haven like penny stocks, the endless boom/bust
cycles driving out merchants (except for drugs) and consumers

\- The protocol weaknesses overwhelm BTC (e.g. it takes hours for any
transaction to clear) - scaling P2P is goddamn hard.

------
paul
The shape of the graph proves it's a bubble? I don't own any bitcoins, but
this kind of silly fud makes me think I should buy some...

~~~
wcgortel
Generally in financial time series, any exponential growth is indicative that
something is growing "too fast." It has a better than "pure luck" shot at
being right eventually when applied to stocks, but is misapplied when used on
fiat currency....There is no constancy underlying the asset.

Of course...in order to prove something was a bubble you'd have to define
"bubble" which is surprisingly hard.

~~~
alexmat
It's only hard to define what a bubble is if you're an armchair economist.
Traditionally a bubble can be defined as:

"A single asset class that rises in price sharply and continually for years
due to some underlying cause. This cause is usually central bank inflation.
But a particular asset market, for reasons unknown, becomes the focus of this
flow of funds. Other markets do not. This is what makes it a bubble."

~~~
wcgortel
I don't think that definition helps much[1].

For one, arguing that the cause is usually central bank inflation would
eliminate a great deal, including the dutch tulip bubble.

What about bubbles that took place before central banks existed or were
powerful?

What about bubbles that had nothing to do with inflation like the tech bubble?

Must other markets remain stagnant to satisfy this definition of bubble? What
if one market goes up a little, and another goes up a lot?

If there is an underlying cause, how can the movement be "for reasons
unknown"?

Can bubble tendencies occur in only one direction? Is it not possible to have
a bubble in negativity towards something?

[1] I may be an armchair economist, but my armchair is located at a large
academic institution.

~~~
alexmat
Located at a large academic institution? I had not realized the weight of your
authority. Please forgive my naive pedestrian musings ;)

"What about bubbles that took place before central banks existed or were
powerful?"

Quoting wikipedia: The term "bubble", in reference to financial crises,
originated in the 1711–1720 British South Sea Bubble, and originally referred
to the companies themselves, and their inflated stock, rather than to the
crisis itself. This was one of the earliest modern financial crises; other
episodes were referred to as "manias", as in the Dutch tulip mania.

<https://en.wikipedia.org/wiki/Economic_bubble>

I am a bit rushed and cannot respond to all your questions immediately, but I
will say that definitions are tricky things, and I admit there are many
nuances we can spend years exploring.

------
walru
Regardless of what I think about Bitcoin's longterm significance in the world.
I feel this spike in Bitcoins's price might just be Russian mobsters making
their money back after the Cyprus nonsense. The timing between the two events
is just too convenient and this whole run-up smells like a classic pump and
dump from my dot-com trading days.

~~~
GnarlinBrando
I thought a lot of that money was accounted for coming out of branches of
Cypriot banks that remained open in the UK and Russia.

Not saying that bitcoin isn't where some or a lot of it ended up, but the
black market was basically the first adopter of bitcoin, and black markets
(and pornographers) are traditionally early adopters of any new technology.

Sort of the price we pay.

Doesn't mean it's a pump and dump. If it is where international criminal
syndicates (who probably have more economic power than some nations) decide to
bank long term in bitcoins it might actually be a stabilizing force.

------
rfugger
The fact that Bitcoin is deflationary isn't a big deal because you don't need
to use it as a unit of account in order to use it as a cheap, fast, and
reliable way to transfer value globally. You just need easy ways to convert to
and from Bitcoin at either end of payments. Systems like ripple.com will
automate this process to a large degree.

------
fnordfnordfnord
>Those strengths are also weaknesses. No one wants to risk losing millions of
dollars worth of currency overnight, just because they were outsmarted by some
computer hacker.

Why do people keep repeating this crap as a reason for the impending failure
of Bitcoin? People didn't abandon cash or even banks because of John
Dillinger.

~~~
jellicle
You may want to read up a little. People did and do abandon banks en masse if
they suspect their money is not safe.

"The FDIC was created in 1933 in response to the thousands of bank failures
that occurred in the 1920s and early 1930s. As the FDIC celebrates its 75th
anniversary, we present a historical perspective on the rich history of
protecting consumers."

<http://www.fdic.gov/about/history/index.html>

<http://en.wikipedia.org/wiki/Bank_run>

~~~
fnordfnordfnord
Yeah, I've heard of the FDIC, it's no magic bullet, and it wasn't created to
insure people getting mugged in the street.

------
Shinkei
"rather than burying $1,000 under a black volcanic rock in a dry stone wall
next to an old oak tree"

Shawshank Redemption.

~~~
danielweber
The next example was of Rep William Jefferson.
[http://articles.chicagotribune.com/2006-05-29/news/060529020...](http://articles.chicagotribune.com/2006-05-29/news/0605290207_1_freezer-
mom-lids)

------
mathattack
I liked the article until he got to this point...

"Bitcoins, like gold, are beholden to no government; they can’t be printed by
any central bank, and they certainly won’t be subject to hyperinflation, since
the global supply of bitcoins will never exceed 21 million."

This defies everything he previously wrote. If there is a bubble, and it pops,
you have inflation. If each Bitcoin can only purchase a tenth of what it
previously purchased, that's heavy duty inflation. If people stop using it
outright and the value drops to zero, then you have hyperinflation. Just
having a finite money supply isn't enough. (And this is coming from someone
who has read Milton Friedman)

------
Noughmad
The big graph on top looks nice, but it really annoys the physicist in me.
There should at least be another in logarithmic scale, so we can actually see
how the value is rising.

~~~
klapinat0r
Here you go (from source): [http://blockchain.info/charts/market-
cap?showDataPoints=fals...](http://blockchain.info/charts/market-
cap?showDataPoints=false&show_header=true&daysAverageString=1&timespan=all&scale=1&address=)

~~~
Noughmad
Thanks. It looks pretty exponential this way.

------
tlrobinson
_"But trusting someone else to look after your coins requires the very trust
that bitcoin was designed to circumvent."_

Bitcoin is decentralized and doesn't rely on trusted parties, but that doesn't
mean you can't or shouldn't rely on trusted parties if you choose.

I fully expect most people will use a Bitcoin bank/wallet service/whatever,
the problem is most of them are amateurs right now. It turns out these are
essentially banks, and need bank level security.

------
trusche
> Banks and central banks are given an important job to do, are regulated and
> scrutinized, and can be held responsible for their actions.

If only.

------
ryusage
> how are you meant to do business in a place where an item costing one unit
> of currency is worth $10 one day and $20 the next

I think this is only really a problem if you need to convert between the two
very frequently, no? If bitcoin grows enough, it seems like this may not be
such an issue.

------
avaku
Is there a way to short bitcoin?

~~~
codesuela
Is this becoming a joke or something? In every god damn Bitcoin thread there
is a very smart person who always asks the same question. If you are so
serious about it why not just use Google?

[https://encrypted.google.com/search?hl=en&q=is%20there%2...](https://encrypted.google.com/search?hl=en&q=is%20there%20a%20way%20to%20short%20bitcoins)

there you go.

[https://www.hnsearch.com/search#request/all&q=way+to+sho...](https://www.hnsearch.com/search#request/all&q=way+to+short+bitcoins&start=0)

FYI asking this question does not make you seem like a financial genius nor is
it a witty reply.

~~~
zecho
It is a legitimate question, though, with an answer that is yes you can, in
theory, but no large markets currently support it, and the ones that do don't
allow naked shorts.

As mentioned elsewhere in the thread, two that allow shorting look pretty
sketchy.

So I guess it sort of is a joke. When do the markets for bitcoins start acting
like actual markets instead of hype machines for bitcoins?

------
altertoad
It can't be a bubble if it's not inflated. There's no real inflation in
bitcoin there is though deflation which is a great thing. It's how all
monetary systems should be

------
phusion
Interesting article... but what blew me away was the page itself. Is this a
CMS or a custom job? It looks fantastic.

~~~
polarix
<https://medium.com/about/9e53ca408c48>

------
EGreg
<http://magarshak.com/blog/?p=148>

------
skore
There are a couple of core points that this article seems to get completely
wrong about bitcoin. I'm certainly no expert, but quotes like:

> the perfect digital currency: they’re frictionless, anonymous[...]

seem to suggest that the author has read a lot _about_ bitcoin (by other
authors), but not investigated _that_ deeply. (As for the content: It's bogus
mainly because they're at best pseudo-anonymous, or rather: Actual anonymous
payment via bitcoin takes a lot of effort to conceal. And it may only be
frictionless _for now_ \- looking at the way transaction fees develop in the
future is one of the most exciting concepts about it, to me.)

> Inflation is bad, but deflation is worse. [...] People hoard their cash, and
> spend it only begrudgingly, on absolute necessities.

I see how that is very different from the way capitalism works at the moment.
But, conceptually, would it really be that bad?

I think an economy that builds on people buying loads of crap they don't need
is at least comparatively bad. We certainly seem to have a problem with using
more than we need from the planet.

> And they certainly don’t spend it on hiring people — no matter how
> productive their employees might be, they’d still be better off just holding
> on to that money and not paying anybody anything.

Again, wouldn't the result just be that you only hire people who create more
value than deflation? And wouldn't "nobody paying anybody anything" eventually
cause inflation?

Finally, a lot of the arguments employed seem rather shoddy.

This is the argument against being your own bank:

> In Hollywood, if you show someone counting out huge sums of cash, that’s an
> easy way for the director to say that he’s a criminal.

This is the argument trying to discredit bitcoins principle of mistrust:

> Bitcoin, in that sense, is anti democratic. It’s based on mistrust rather
> than trust, it refuses to take any responsibility onto itself – indeed, it
> doesn’t even have a self to take responsibility onto.

So far so half-good...

It’s nihilistic[...].

Nope, does not follow.

> I do have hope that in the future, someone, somewhere, is going to learn
> from bitcoin’s mistakes, and build a better system.

The author seems to suggest that this is his conclusion, but I thought that
was the main idea in bitcoin itself. That it's artificial limit is a rather
clear "we will have to come up with something better by then". Not as a "we
will never need more bitcoins than this many".

I may be wrong here, but didn't Satoshi set up bitcoin precisely to be a
testing ground? Beta Software? The author seems to be a little too occupied
putting words in his mouth to actually read the concepts. Instead, he claims
that Satoshi wants bitcoin "to be the perfectly anonymous payment mechanism
for a digital world". I don't think that's true.

~~~
jeremyjh
> Inflation is bad, but deflation is worse. [...] People hoard their cash, and
> spend it only begrudgingly, on absolute necessities. I see how that is very
> different from the way capitalism works at the moment. But, conceptually,
> would it really be that bad?

Would it be better to have government responsible for most investment ? I
don't really care about consumers hoarding their cash - they'll buy the things
they really need or want. But I am concerned if investors are better served by
hoarding than by demand deposits or any other kind of debt instrument. This
could drive up interest rates to unprecedented levels. Higher interest rates
mean higher cost of goods and thus higher costs for consumers.

~~~
dragontamer
Higher interest rates will correlate to higher inflation.

So on the contrary, Bitcoins are a deflationary economy. Deposits will have a
negative interest rate (ie: holding your money in a bitcoin bank will
correlate to fees), and borrowing BTC means you only will have to return bits
of it. (ie: if I borrow 100 BTC from you today, I only will have to repay you
75 BTC two months from now).

It is only fair, as people learn to expect BTC to keep growing in price.

I don't think its a very healthy economy to be in, but its a completely
different endgame scenario than what you describe.

~~~
jeremyjh
Why would I hold BTC in a bank that charges me for that service? I can hold
them with complete safety in my wallet. The reason interest rates will rise is
that there is essentially a base interest rate paid to people who hoard BTC
due to deflation. In order to attract investors, I would have to offer an
interest rate that exceeds the risk-adjusted return on capital for simple
hoarding. Since that risk is effectively 0, and the deflation rate may be
high, the interest rate I offer would need to be very high.

~~~
dragontamer
Indeed. But inside a deflationary economy, it is impossible for banks to make
money off of deposits by lending them to someone else. So I dare say that
banks cannot remain solvent with BTCs, the economics don't make sense.

That said, plenty of people are "banking" with online BTC wallets.
Instawallet, Coinbase, etc. etc. The economics for these services work against
them, and they are hopelessly doomed to failure.

------
michaelochurch
The problem: debt currencies from nation-states are slowly going obsolete.
_Very_ slowly, so don't jump the gun on a bad idea.

Material wealth, before 1800, was usually a metal. It had legible value
anywhere so you could use it to defend or attack the means of production:
land. People say land was wealth before industry, but "owning" it just means
having the means to defend it (which could, in modern times, be a legal claim;
no one wants most land enough to take it by force) so what you really needed
was the metal to fund an army. You were rich if you had gold and could defend
the land you had and get more if needed.

Between 1800 and ~2075, wealth is debt from an establishment like a nation
state or corporation. Being rich means that you can call in favors. You use
this debt to build an industrial or business process that gives you a good
return on investment. You don't need to own the gold; you just need a
certificate saying you had the legal right to it or that someone owes it to
you.

In 2025, wealth is going to be access to talent. I'm writing a monstrously
large blog series and the penultimate post (21 of 22) is going to hint at the
economics of that. I'm afraid to get too specific; that might compromise a
startup idea that's been percolating in my mind for a few years and might be
ripe in the mid-late 2010s. But we're now in a world (convexity) where capital
is scarce in comparison to the talent that can do something with it. The new
currency (post-2075, I'd guess, because people are conservative when it comes
to money; metal and debt currencies aren't going out of business any time
soon) will be some proof-of-work model related to technical talent but I've
got no idea what it will look like.

How to define money in that world is an open question. That said, I don't
think we need to get rid of fiat currencies just yet; I don't know what would
replace them.

With BitCoin, there's no intrinsic value. Someone else could create a ZitCoin
with similar structure but not that stupid enforced deflation designed to
enrich the first entrants. Now it's a red-ocean with a zillion copycats, so we
have ZitCoin and FitCoin (for gym memberships) and PitCoin (for dog breeders)
and LitCoin (for getting drunk) and a couple of other *itCoins too crude to
mention. Now it's just about branding; most of these alternative currencies
(which are too volatile to be real currencies) fail.

There's this idea that BitCoin is going to become the next Black Lotus (a
$1000 Magic card) but the vast majority of Magic cards have lost value (and
all of the cards from the copycat TCGs that flooded the market in '90s). I
remember when Shivan Dragons were $25 because a 5/5 flying creature for 6 mana
was badass. Last I checked, they were about $2. The thing about a Black Lotus
is that (a) it's extremely scarce and indivisible unlike BTC, and (b) there's
actually something you can do with it, which is play a powerful Magic card
legally.

Until you can get 3 mana of any color out of a BitCoin, or drop it from at
least 12 inches and destroy permanents based on table position, I'm going to
be skeptical.

~~~
mapgrep
>"we're now in a world (convexity) where capital is scarce in comparison to
the talent that can do something with it."

Is this really a new condition?

>"The new currency... will be some proof-of-work model related to technical
talent"

So other types of talent will all be secondary to technical talent? That would
be quite a revolution, even with a 65-year timeframe.

~~~
michaelochurch
_Is this really a new condition?_

Actually, yes. In less than 20 hours (probably) I'm going to release a
gigantic blog post (the 2nd-to-last in my Gervais/MacLeod series; I'm
finishing that up because I have technical projects I want to start and will
probably be starting a new job soon) that gets into the economics of it.

Essentially, convexity pertains to work that's hard and where the maximal
possible performance isn't well-defined. Now, Sharpe Ratio (ratio of yield to
risk) is an affine exponential that decays as the work gets harder. In other
words, it's exponentially favorable for easiness on concave work, but for
convex work (no matter how difficult) the yield/risk curve is almost constant.

Old, industrial work: favor concavity because the limiting factor is how much
capital you have to put at risk. Though convex work has more yield, it's
yield-per-risk is unfavorable.

If work is concave, we can define "perfect completion" (it's a commodity) and
machines can be programmed to do it. So they're pushing us out of that. The
convex work is all that's left for humans. It won't all be _technical_ ; there
is convex service work.

Financial risk (not smart people with good ideas) _was_ the limiting factor
for old-style industrial processes, but all that concave work is being given
over to machines by the convex labor of programming them. With convex work in
the _technological_ era, the Sharpe Ratio is constant and irrelevant. Your
limiting factor, instead, is the time and attention of the highly talented
people capable of doing (usually specialized) convex work.

Check my blog in about 6-18 hours and there'll be more on this topic than
you'd ever want to see.

~~~
mapgrep
It just sounds like you meant to say "capital is ABUNDANT in comparison to the
talent." Capital being scarce in comparison to the talent has been the case
for decades if not centuries.

>"With convex work in the technological era... your limiting factor, instead,
is the time and attention of the highly talented people"

Right, not capital, which is why I thought it odd you said capital was scarce
in comparison to talent. I think you meant abundant.

~~~
michaelochurch
Good catch. Thanks!

~~~
mapgrep
Cool, glad I wasn't just dumb or crazy :-) And I look forward to the blog
posts.

~~~
michaelochurch
About 20 minutes and I'll kick it out. Had a great productive spell in a cafe.

Over 15 kilowords, though. I doubt many people will read it in 1 sitting. :)

ETA: [http://michaelochurch.wordpress.com/2013/04/03/gervais-
macle...](http://michaelochurch.wordpress.com/2013/04/03/gervais-
macleod-21-why-does-work-suck/)

------
reaclmbs
"The commodity value of bitcoins is rooted in their currency value, but the
more of a commodity they become, the less useful they are as a currency."

Yep..

