Dispatch From The Future #1: Things That Will Look Absurd In 100 Years

I was reading this excellent overview of this history of slavery and segregation in American and one of the many things that stood out for me was the banality and normalization and rationalization of evil.   To wit:

"The consequences of 250 years of enslavement, of war upon black families and black people, were profound. Like homeownership today, slave ownership was aspirational, attracting not just those who owned slaves but those who wished to. Much as homeowners today might discuss the addition of a patio or the painting of a living room, slaveholders traded tips on the best methods for breeding workers, exacting labor, and doling out punishment. Just as a homeowner today might subscribe to a magazine like This Old House, slaveholders had journals such as De Bow’s Review, which recommended the best practices for wringing profits from slaves. By the dawn of the Civil War, the enslavement of black America was thought to be so foundational to the country that those who sought to end it were branded heretics worthy of death. Imagine what would happen if a president today came out in favor of taking all American homes from their owners: the reaction might well be violent."

Since it is highly unlikely that we have finished human moral development in 2014, I asked myself and others what might look ridiculous / evil / "how could they do that?" in 100 years.  By definition, some things on this list might make us uncomfortable precisely because we have normalized and rationalized them.   I am putting both my responses and any responses I get on Twitter.   I don't necessarily agree or disagree with any particular proposal, the point is to stimulate thinking.

1. Global childhood malnutrition / basic health (vaccines, etc)
2. War
3. Women's rights
4. Religious rights
5. Factory farming / animal rights
6. Drug 'war'
7. Prisons (not being naive, but putting people in a time-out box at great $ expense seems pretty low-tech for the Singularity future of 2114)
8. Driving and driving deaths (massive annual slaughter of people will look absurd in 30-40 years)
9. Climate change
10. Central Banking
11. Slaughtering animals for foods
12. Death penalty
13. Whale killing
14. Forced marriages
15. Class
16. Racism
17. Famine
18. Failures of International Law
19. Abuse of antibiotics
20. Drunk driving
21. Non-electronic voting
22. Gerrymandering
23. Filibustering
24. Four year mandates
25. Gun rights
26. Water misuse
27. Patents on genetic seeds
28. Mandatory and restrictive dress codes
29. Genital mutiliation
30. Fiat currency
31. Individual car ownership
32. Owning things in general (things - cars, homes, etc - will be rented)
33. NSA dragnetting
34. Death (we won't wipe out death for sure (shit happens) but we should strive for it. My bet is v. optimistic)
35. Mental illness as we know it will probably be a thing of the past, either 'cured' or made 'functional' with assistive tools
36. Top-down organizational structures / "bosses"
37. Educational model of sitting in a classroom for 18 years with 20 randomly selected people
38. Captive killer whales
39. Displays of wealth, lavish hedonism while others lack basic needs like water
40. Attempts to suppress monetary freedom
41. Corporate sponsorship of politics
42. Gladiator style sporting events
43. Processed foods in affluent countries
44. Drone warfare
45. Much milder, much less blind patriotism as folks form even more cross-cutting communities digitally that humanize the "other"
46. People being famous for having a reality tv show; fame in general
47. Cross-national, cross-regional differences in per-capita GDP
48. Current prisons.  Online, always on monitoring will substitute it
49. 3 hr+ baseball games having ever the status of America's national pastime :)
50. Eating junk food / eating inorganic
51. Smoking (good example of one in progress of being changed)
52. LA - real public transportation to reduce pollution
53. Size of defense budget / inefficiency of current defense contractor / government nexus
54. Many things moved online (education, banking/fin svcs/counseling/ more 'remote' work)

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Bitcoin Series 27: Bitcoin - a 6-sided Market and Network Effect

A good bazaar will have at least a 2-sided market and network effect.   Old Delhi, October 2011.

This is a brief post about network effects.  They exist in various forms and at various depths in different fields and today we will look at Bitcoin through this prism.   I must, at this point, thank Chris Dixon for introducing the '4-sided market' to my vocabulary.   Today, I will posit that Bitcoin is actually a 6 sided market.

(1) The basic example of a powerful 1-sided network effect is a social network.   The more people on it, the more valuable it is for others to be on it.   It can, however, be broken by a competitor that provides a more valuable service to one group, the users, who might then migrate en-masse (see Facebook v. MySpace).

(2) Successful 2-sided markets like eBay or Craigslist are significantly more difficult to disrupt.   Customers want to be there because vendors are there; vendors want to be there because customers are there.   To break them apart, you have to simultaneously have a better value proposition for both parties, otherwise nobody moves.   That is why Craigslist, with limited innovation, is still a dominant website, leveraging its early 2-sided lead.

My hypothesis is that the leading cryptocurrency (which, as of today, is clearly Bitcoin, but in theory any other cryptocurrency that gains a big lead) has actually a six sided market working in its favor, with six-sided network effects that will be very difficult to disrupt:

Side 1: Merchants will adopt Bitcoin because more customers hold Bitcoins

Side 2: Customers will adopt Bitcoin because more merchants accept Bitcoins

Side 3: Developers will adopt Bitcoin because more customers and merchants use Bitcoins.   Note that in a complex regulated financial product like Bitcoin, this does not only relate to the applications existing, but reaching scale, going through trial-by-fire, proving their trustworthiness, gaining regulatory approval and so on.  This is similar to the dynamics of an OS platform.

Side 4:  All the parties in 1-3 adopting Bitcoin creates demand for the currency, causing its price to rise, making mining rewards more valuable, drawing miners and their computational power to the currency and therefore making the blockchain more secure against a fatal 51% attack.   This makes it more appealing to developers and investors at a minimum.

Side 5: Adoption by the ecosystem plus the security of a strong blockchain, draws pure financial investors to the currency, who push the price up, drawing more miners.

Side 6:  More adoption plus better financial institutions ("Side 3") means more liquidity running through the exchanges that exchange Bitcoins back and forth to sovereign currency, which reduces the spreads to exchange into/out of the currency and making it more cost-effective for customers, merchants, developers and investors to use it.   (Spreads to sovereign currencies are the main transaction costs in any cryptocurrency, far outweighing the currencies internal transaction fees).  

And the cycle repeats.

Summary
Each one of the six sides reinforces at least one or more of the other sides.    In aggregate, it is a superb setup of market incentives for the first currency to hit escape velocity.  It is as if, by buying stock in eBay the company, you magically gave eBay a direct cost and security advantage in executing transactions that other auction sites could not match, that drew more customers to it, that raised its stock price and so on.

I can't guarantee of course that Bitcoin will maintain its lead and there might be a technical flaw that has been uncovered to date.   I will state with some confidence however that Bitcoin's 'lead' over other alt-coins will not be easily disrupted by other non-state backed coins and certainly not by small feature tweaks.   

The network effects are very strong in this one.

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Bitcoin Series 26: the Polemitis Impossible Trinity*

Lunch, unfortunately, is never free.   Dumplings, Shanghai, March 2013, paid for in yuan.

* Credit for the tongue-in-cheek name to Ruben Damiao.  

I am sure that this has been stated much more formally and correctly by many economists - consider this a layman's version to keep from missing where your lunch is being charged to you.  And if there is a formal statement of this, please let me know.

The Polemitis Impossible Trinity posits that a designer of a new currency can, at best, embed two of the following three desirable characteristics in a currency:

1. No Foreign Exchange Risk:  In other words, the new currency is not volatile vs. the existing presentational currency / national unit of account.

2. No Counterparty Risk: There is no need to trust a counterparty for redemption of the currency.  In other words, there is no chance that the issuer will become insolvent and default in general or choose to (or be forced to) default to a specific party due to sanctions, political pressure and so on.

3. No Money Supply Risk: There is no risk that the money issuer will increase the money supply beyond a pre-defined amount.

Some Examples:

A.  Most sovereign ('fiat') currencies are designed to embed characteristics 1 and 2.   The USD dollar is an excellent unit of account in the United States and has no volatility vs. the dollar.  (in fact, the FX question is silly for sovereign currency, but we have to have it in here for other examples).  

The Fed can choose to never default in USD terms - this is precisely why it is a good 'lender of last resort' for example and the most trustworthy USD counterparty.  On the other hand, the supply of dollars is not fixed and can be expanded - in fact this is what creates the lack of counterparty risk (in USD terms).

A FedCoin or nationally backed cryptocurrency would have the same characteristics.   It would trade 1:1 with the USD, it would be redeemable for USD but it would be vulnerable to increases in money supply

B.  Centralized private currencies (pre bitcoin) fared horrifically on this metric which is why they usually ended very badly.  

They had FX risk and, in many cases, both money supply and counterparty risk.   In other words, at best, they scored 1/3 (depending on if you believed the issuer would prioritize money supply over default risk), but one can easily imagine a private centralized currency issuer scoring a 0/3.

C.  Bitcoin prioritizes #2 and #3.   You can hold bitcoins with no counterparty risk and the money supply is fixed / predictable.   What you lose is #1 - Bitcoin's value will fluctuate against any given national currency and unit of account.

D.  Old-fashioned commodity money like gold is closest to Bitcoin in this regard.  If you hold physical gold, you can eliminate counterparty risk and money supply is fairly predictable / fixed.   There is, however, foreign exchange risk as the price of gold will vary vs. your national unit of account.

The point of this exercise is not to judge which one currency is better or if counterparty or money supply or exchange rate risk is high or low in any given circumstance.   In fact, it is highly plausible that certain trade-offs make a lot of sense for certain situations -- most economists would argue that trading off #3 for #2 is an excellent choice in a sovereign currency.

The point is to avoid falling for the 'free lunch' trap.

In terms of Bitcoin, the trap goes like this:  "Bitcoin is great, but I dislike this volatility.   We look forward to NewBitcoin that has all the neat features of Bitcoin but no FX volatility."

That may be a wonderful idea, but if you have eliminated the FX risk, you have just introduced somewhere into the system counterparty or money supply risk.   Look carefully and you will find it!   That still might be a good choice, but it is no longer Bitcoin.   It is something else you have designed along the Impossible Trinity.

P.S.  Spare a thought for the Eurozone.   Scoring 2/3 on this metric should be easy for a leading global economy, but the Eurozone is at best a 1.5/3.   The debacle of the last few years has shown that  #2 (counterparty risk) exists in European sovereigns, based on the mood in Germany that week, along with the always money supply risk in any political currency.

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