Wednesday, January 23, 2013 102 Comments

How Bitcoin dies

TL:DR - Bitcoin dies in two very simple steps.

1: A DOJ indictment is unsealed which names everyone on Planet Three who operates, or has ever operated, or perhaps who has ever even breathed on, a BTC/USD exchange, as a criminal defendant.

The charge: money laundering.  The evidence: the defendants knew that BTC were used for organized criminal activity.  Therefore, they knew they were transferring money for criminals.  This is quite simply the definition of "money laundering."

(Obviously, prosecution under our modern "rule of law" proceeds according to these broad definitions, without regard to any specific technicalities.  For instance, Aaron Swartz downloaded many more papers from JSTOR than JSTOR wanted him to.  Therefore, he used JSTOR's computers in a way that JSTOR didn't want them to be used.  Therefore, he could be prosecuted for "computer hacking." Indeed he seemed to sense this when he put his bike helmet over his face and ran from the police.  The details?  They might have mattered, at the trial.  But of course there was no trial.)

2: The BTC/USD price falls to 0 and remains there.  BTC are permanently worthless.  Everyone who was involved in the Bitcoin market and was holding BTC when the indictments were unsealed feels burned.  Everyone who got out feels lucky.  Many who escape prosecution, in fact, feel lucky.  And BTC is remembered as an epic bubble.

This is a very strong prediction.  Am I right?  Am I this confident?  I never get hate mail.  Really - never.  But won't I get hate mail for this?

Obviously, I have no inside information at all and am just speculating - as a devout student of the fascinating organism that is USG.  However, my guess is that this event will happen soon - ie, probably in 2013.  Why?  Because of the ECB report on Bitcoin, which quoth:
All these issues raise serious concerns regarding the legal status and security of the system, as well as the finality and irrevocability of the transactions, in a system which is not subject to any kind of public oversight. In June 2011 two US senators, Charles Schumer and Joe Manchin, wrote to the Attorney General and to the Administrator of the Drug Enforcement Administration expressing their worries about Bitcoin and its use for illegal purposes. Mr Andresen was also asked to give a presentation to the CIA about this virtual currency scheme.
Further action from other authorities can reasonably be expected in the near future.
Neighbor, if you're at all involved with BTC, I'd advise you to heed this remarkably direct warning. You'll note that (a) the people who wrote this report do have inside information (since the ECB and our own dear "other authorities" operate, of course, in practice as a single global institution), and (b) these are people with actual power, and people with actual power tend to do what they say they're going to do - regardless of how Reddit might feel about the matter.


Obviously, I am no fan of USG, DOJ, or JSTOR.  My ideal outcome for the Aaron Swartz case would have involved Aaron getting away with it, and putting the JSTOR archive online.  Indeed this would have been a remarkable and wonderful outcome.  I can only hope the next person who tries the same thing comes has the same talents as Aaron Swartz, but brings his A game and comes armed for bear.  But certainly, don't take on the Man if you have any suspicion that the Man might take you instead.

And when it comes to USG, and USD - creating a successful distributed digital currency is what I call "coup-complete."  Ie, as a difficult problem, it is fundamentally equivalent to the well-known difficult problem of regime change.  Are coups impossible?  No, of course not.  What's impossible, however, is pulling a coup when you don't know you're even trying to pull a coup.

Government control (excuse me, "public oversight") of all major monetary transactions is one of the basic attributes of sovereignty in the modern world.  If you can get away with "money laundering," ie, circumventing this control, you can get away with anything.  If you can systematically disable it, perhaps you yourself are the new regime.  You're certainly on the way.

Indeed, if we all traded in our dollars and dollar assets, and fully restandardized the global monetary system on BTC (technically a far superior design), it's quite possible that Satoshi Nakamoto himself would simply emerge as our new global overlord.  I suspect he'd be richer than the Rockefellers.   How do you indict that?

My guess, solely from the broad public hint above, is that the collective bureaucratic decision to unleash the full right arm of USG on BTC was almost certainly made in 2012 or even 2011.  An easy decision - since it makes a lot of work for all the deciding agencies.   Meanwhile, the Bitcoin economy is buzzing merrily along, as if there was nothing wrong at all with Bitcoin.  Technically and economically, there is nothing wrong.  It's a remarkably beautiful architecture - in fact, I would say, a genuine work of art in the field of system software.  Its problems are entirely political.

Well, okay, that's not entirely true.  Bitcoin's engineering is impeccable and its economic design is entirely sound.  But most Bitcoin users - and, more important, supporters - seem to be laboring under a dangerous delusion as to the economic cause and effect behind Bitcoin's success.

To me, and I hope to other UR readers, the logical leap from step 1 (BTC exchangers are indicted) to step 2 (BTC price goes to 0) is obvious.  But here at UR, we are operating under our own special theory of money, which I have modestly dubbed MoMT (Moldbug Monetary Theory).  If you know and believe MoMT, the leap is obvious.  In the conventional wisdom, it's not obvious at all.  In fact, it's unclear why BTC wouldn't just preserve its value as is - without any gateway to USD.

Basically, MoMT tells us that money has anomalous value only because economic agents rationally speculate in it, whereas conventional thought (whether Austrian or orthodox) holds that money's price is explained primarily by its use in trade.  We are right, because we can explain ourselves clearly and they can't.

Here is an example of the conventional wisdom (the author is a professional quant trader):
[BTC] is not an asset, it is a currency. Asset values do well when investors buy-and-hold for the long-term. Currencies die that way - they increase in value when they are traded, i.e. transacted in. A high ratio of buy-and-hold investors to merchant activity in a currency is a sign of speculative build-up. Paradoxically, the attractiveness of a currency to trade in is partially a function of how well it holds value - price level volatility bodes badly for that cause.
and
A currency's value isn't a function of how much of it is outstanding but how much is transacted in it. If "most bitcoins are held by...people" holding on speculation, they contribute to holding its value down (don't think of stocks with dividends, think of fx).
I tremble for teh markets when I reflect that God is just.  And not just the BTC markets.

My general sense is that most Bitcoin boosters think this way.  If you hold BTC and you think this way, please let me take a moment to change your mind, so you can get out of East Gomorrah before DOJ turns you into a pillar of salt.

Of course, BTC is a distributed currency, so nothing USG can do can really stop the Internets from trading goods for BTC.  Well, they can do one thing to stop the Internets from trading goods for BTC.  They can make the price go to zero.  Then, no one will care.  But how do they do that?

Let's engage in some very simple causal thinking about the price of BTC.  BTC, like every other economic good, is an asset.  BTC, like every other asset, does not have a "value" - nothing has a value.  BTC, like every other asset, has a price - an exchange rate with USD.  (It has prices in all currencies, but all reflect the same variable.)  And, like all market prices, this exchange rate is set by supply and demand.

On any given day, smoothing out intraday volatility, the USD/BTC exchange rate is set such that the quantity of USD that BTC holders want to buy with BTC, and the quantity of BTC that USD holders want to buy with USD, is equal.  Again the same is true for any price, ie, exchange rate.

Let me try a different word than "holders" - "speculators."  It has a wonderful 20C retro ring.  The connotations of "speculators" are so negative that I always want to say, "speculators and Jews."  Suffice it to say that there are many people who think they believe in free-market economics, but don't.  You can hear it when they use "speculators" to mean "holders" - or "privilege" to mean "property."  Mr. Orwell was definitely on to something.

What is the direct effect of a BTC-for-goods exchange on this price?  Obviously, zero.  The size of the BTC economy, or the velocity of BTC in that economy, or for that matter the size of the USD economy and its own velocity, have no direct impact on the USD/BTC exchange rate.

Speculation is conserved.  Everyone who holds a currency, or an security denominated in said currency, is a "speculator."  First and foremost, they are speculating that the currency will not, relative to some other currency, decrease in its exchange price so as to make their investment a loser, relative to some other currency etc.  If your bond portfolio returned 6% last year, but gold went up 9%, you have speculated incorrectly; if you could go back in time and speculate again, you would speculate instead in gold.  (It's hard out there for a Jew.)

Of course, as always in MoMT, all these speculators are solving a joint coordination problem with multiple Nash equilibria and need to find a Schelling point.  There is always at least one overvalued commodity, asset or security, whose monetary premium usually explains most of its price.  In BTC, the monetary premium explains the entire price.  A better thought experiment could not be designed.

One could argue that BTC/goods trading volume has a psychological effect on the set of actors who do, or could, speculate in BTC.  Sure.  I didn't say "no impact," I said "no direct impact."  In a sense, monetary standardization is a situation in which, when enough people believe in fairies, the fairies become real.  For the shrewd speculator, however, it is essential to always know the truth - even when participating vicariously, even profitably, in a collective lie.  Sunspots would do as well.

But wait, you say.  Surely, BTC-for-goods exchange has some direct impact on the BTC price, because people need to buy BTC - with USD - so they can buy their weed on Silk Road.

While this is true enough, the effect of this round-trip transaction on the BTC price is negligible, because it quickly reverses itself - unless your weed connection is also a BTC speculator.  Let's think about this for a minute.

Imagine that the BTC/USD market is perfectly liquid with no exchange overhead.  Imagine also that there are two types of BTC users: Jews, who speculate (holding BTC long-term with the expectation that it will appreciate against USD); and Aryans, who only trade (and sweep all BTC balances into USD at the end of every day).  These are simplifications, of course - but edifying ones.

You'll see instantly that, since all overnight holders of BTC are Jews, if there are no Jews the overnight price of BTC in USD is 0.  The Aryans have no one to sell to at the end of the day.  Ergo, their BTC is worthless - and remains worthless in the morning.  If no one wants to speculate in a currency, if the currency is held only temporarily by traders for frictional reasons, the velocity of money goes to infinity and the price to zero.  (Of course, friction ensures that once the price is zero, the velocity goes back to zero as well.)

So DOJ, to crush Bitcoin utterly, doesn't need to do anything about the Aryans.  It doesn't need to be able to stop people from securely exchanging Bitcoin for goods.  They will stop on their own, when the BTC price goes to 0 - after DOJ crushes the Jews.

How does this work?  Well, suppose you're a Jew and hold 1000 worth of BTC.  (In your own private wallet, of course - not on some fool's server.)  At 8:59 tomorrow morning, you have something.  The price of a pretty decent Harley, in fact.

But at 9:00, the hypothetical indictments are unsealed (again, I have no inside knowledge at all).  Google Now tells you right away.  Your impulse?  Your impulse is to go to your favorite BTC exchange and sell.  All of a sudden, you'd really really really rather have that Harley.

But... your favorite exchange isn't open.  In fact, the domain name seems to have been seized.  Same with the next three you try.  Finally, you get down to #12 on your list.  It's 9:30.  The URL is being frantically passed around.  It's in Russia.

Fine, it's in Russia!  Give me rubles!  I don't care!  Anything!  But alas.  You cannot even get rubles for your BTC.  Everyone wants to sell.  No one wants to buy.  A classic market panic, with no mitigating factors whatsoever.  What could stop it?  The price goes all the way down to zero.
 
And I don't mean epsilon - I mean 0.  At the very beginning, the BTC price was epsilon because almost no one believed in fairies.  But some people did - because these people could, collectively, see the future.  BTC did not have a present, but it had a future.  Which turned out, for the lucky, to be a much larger number than epsilon.  And these people - successful speculators - indeed made bank.  The best of them will keep this bank, by selling high.

After the crackdown I expect (but, of course, hope won't happen - these are, after all, government agencies, so hope really can spring eternal) there will be neither present nor future for BTC, just a past.    Even today's lame Bitcoin competitors (for obvious reasons, if you understand monetary standardization) have a market cap of epsilon.  Why epsilon?  Because they have a small fragment of a future.  A possible future.  The Bitcoin network could screw up its crypto somehow, or something.  It won't.  But fine, maybe it's worth a try.

Whereas after any such crackdown, it will be plain as day that Bitcoin and anything like it have no future at all.  Those who speculated and stayed in speculated unwisely, because they chose a monetary standard that had all the qualities of a successful currency except one: resistance to government attack.  You'll note that our fine USG securities, while substandard on many indicators of monetary quality, have the world's only perfect score in this department.

If I have one lesson to impart, here at UR, it is this: USG is what it is.  It is not what you want it to be.  It is not what you hope it will become.  It is certainly not what it claims to be.  No - it is what it is.  Respect that reality, and you will neither run afoul of Leviathan, nor live "free" as his spiritual servant.  In short: think for yourself and obey the strong.

(Also, you should note that gold, while by no means perfectly resistant to USG attack, is at least somewhat resistant to USG attack - especially since we don't have anything like the badass USG of 1933.  While Au scores very poorly on some monetary standardization metrics, such as investment return, it does very well on others, including some where USD really doesn't sparkle.  Especially with reserve-accumulating central banks participating more and more openly in the monetary-standardization game (ie, "China buying on the dips"), the remonetization of gold can go much further than it already has, and strikes me as unlikely to reverse its course without some kind of major restructuring in the global economy, eg, a disastrous outbreak of democracy in China.)

102 Comments:

Blogger gwern said...

> Further action from other authorities can reasonably be expected in the near future.

Written by a bank bureaucrat who is out of touch and has not actually bothered to ask how well attempts at cracking the Silk Road have gone. Not well at all, according to the FBI (see leaked report on Bitcoin), the DEA (Tor developer anecdotes from government conferences), or the Australian federal police (internal memo quoted by newspapers).

January 23, 2013 at 4:54 PM  
Anonymous Anonymous said...

I stopped reading here: "The evidence: the defendants knew that BTC were used for organized criminal activity." You don't know what you are spewing here. First, how do I *know* anything? What evidence is there? Do I have a suspicion that there are shady characters that use bitcoin to further their own criminal interests? Sure. But that happens everytime I invest in the stock market here, too. I suppose I am guilty of money laundering for purchasing and investing with the USD when Bernie Madoff was committing securities fraud, or because my dollar ends up as change when a drug dealer buys a Big Mac and is handed one of my $1 bills as change. Don't be silly. You are filling people's heads with nonsense here, and your lack of understanding about money laundering and bitcoin itself is very apparent. Stop doing this before people actually begin to believe you.


January 23, 2013 at 5:13 PM  
Anonymous Anonymous said...

Looking at the history of weed and and other "contraband" and how their prices have gone up because of USG interference in the market, I can only assume that Bitcoin would follow the same trajectory should the USG make the grave mistake of trying to regulate a decentralized asset like Bitcoin.

January 23, 2013 at 5:33 PM  
Anonymous Anonymous said...

Mencius, really glad you're posting again. Hope you manage to find the time to continue.

I have assumed for quite a while that the BTC/USD markets are probably quite depressed relative to where they could be because this scenario is not so far-fetched as not to have occurred to at least a few speculators (hard for a Jew, indeed). Might be time to short BTC though!

January 23, 2013 at 5:34 PM  
Anonymous Anonymous said...

oh well... one more troll trying to buy the dip...

Listen, any attack will spark the whole of the internet to ONE SIDE; the SIDE THAT'S UNDER ATTACK. ANTIFRAGILITY. Aaron was terminated, yes, but look at what will happen to the Open Access movement now, precisely because of that. ANTIFRAGILITY, moron.

You say USG is strong; yet they're incapable of winning wars against fucking cavemen?

Bernanke is printing new $800,000.00 per new bitcoin created; I guarantee you many FBI/CIA/3 letter agency people are pissed off by that. They are seeing the US collapse right before their eyes; I guarantee you some of them are buying and holding bitcoins--they know the shenanigans going on at the too big to fail and the Fed.

TLDR: All USG can do is drive btc underground. That will make its value soar. That will also, rather like prohibition, take bitcoin out of peaceful people and create a new Enhanced Al Capone who is going to truly rule the land.

Read up on some history before spamming reddit, faggot.

January 23, 2013 at 6:08 PM  
Anonymous TJIC said...

@Anonymous said...

> I stopped reading here: "The evidence: the defendants knew that BTC were used for organized criminal activity." You don't know what you are spewing here. First, how do I *know* anything? What evidence is there?

Oh, I see.

a) the US government would never throw you in jail and keep you there for a year while it prepared it's case,

b) the US government would never instruct the jury that they MUST interpret X as meaning Y.

c) the US government would never force you to mortgage your house to raise $300k to defend yourself against a 30 year prison term.

...because, yes, you've made a clever argument about what the word "know" means.

If you'd read further, you'd have gotten to this key bit:

In short: think for yourself and obey the strong.

The strong will do what the strong will do. Your definition of "know", plus a pack of cigarettes MIGHT help you buy your way out of an ass-raping during your 30 year stretch.

January 23, 2013 at 6:32 PM  
OpenID deconstructingleftism said...

"The strong do what they can, the weak suffer what they must." I like to tell that to the kids at work.

January 23, 2013 at 7:05 PM  
Anonymous TJIC said...

By the way, off topic, but:

Mencious,

I only recently saw your debate with Robin Hanson. I'm a fan of futures markets, but your point to him taking the air out of his over-the-top enthusiasm was perfect. I've taken that bit and reworked it a tad and used it as a plot point in my novel: a statist uses libertarians' faith in their real-time futures markets against them by throwing money at the problem and thus generating false data.

http://morlockpublishing.com/the-book

I hope to have it in print by mid-year, but Q4 is certainly possible.

January 23, 2013 at 7:06 PM  
Blogger TGGP said...

I don't own any BC, but I am willing to bet Mencius $1000 that the USD exchange rate will be greater than 0 on Jan 1st 2014.

January 23, 2013 at 7:31 PM  
Blogger Anthony said...

This all depends on whether the USG sees BTC as an actual threat. Right now there aren't enough users of BTC to make it a real threat to the USG, and it faces the classic problem of anything with network externalities - how to get enough users interested that there are enough users to make it useful. In particular, BTC needs enough people who *make something worth selling* to accept BTC directly, in order to become popular as something more than a geeky proof-of-concept.

The USG is certainly capable of acting in ways which lower the probability that BTC will see widespread uptake, both as a part of its natural functions, and purely by accident.

Given that, I think it's more likely that BTC will remain marginal, and mostly ignored by USG and most people, and that the indictments will never come down.

January 23, 2013 at 8:16 PM  
Anonymous Anonymous said...

I would remark that the less than stultifying effects that various prohibitions have had in the case general would equally apply to prohibition in the case specific, but will accede that perhaps Bitcoin, being a medium of exchange, can potentially be considered a sum-of-all-illegalities, thereby forming a power set, not sub-set, of prohibited entities, and so will have a different legal pro/ersecution experience (though the same can be said for counterfeit money, which yet circulates (and for that matter, genuine tender)).

Taking the Jew/Aryan scenario at its merits, even the deflationary spiral incepted into being by government force will not crack a closed system of solely Bitcoin-for-Bitcoin priced transactions, with no need of exchange into, out of, or through fiat currency (which I believe the author has at least personally acknowledged as a possibility because of the "unless" implication in "While this is true enough, the effect of this round-trip transaction on the BTC price is negligible, because it quickly reverses itself - unless your weed connection is also a BTC speculator"). The question then remains: Is the Bitcoin-only economy self-sufficient enough to provide for its participants a stable loop of goods and services, without recourse to fiat injection at some point in the current of currency?

January 23, 2013 at 8:38 PM  
Anonymous Anonymous said...

Redneck brain dead yank

January 23, 2013 at 8:42 PM  
Anonymous Anonymous said...

If Btc is going down there are allready Lightcoin, Namecoin, Devcoin, Ixcoin and more waiting to take over. The idea is implanted in the system this process is not reversible.

January 23, 2013 at 8:48 PM  
Anonymous Anonymous said...

Two statements:

1. The author is a troll.
2. Don't criminals use cash for illegal activities? Shut down wall street!



Accumulator.

January 23, 2013 at 8:54 PM  
Anonymous Anonymous said...

The government does not represent the people, never has, never will - the Internet represents the people.

January 23, 2013 at 9:35 PM  
Anonymous The Undiscovered Jew said...

Theoretical Political engineering, which this blog has been engaged with for so long, is wondrous. But just as theoretical mathematics must eventually give birth to applied mathematics so too must Mencian theoretical politics give birth to applied Mencianism. On to applied Mencist anti-Cathedral scheming:

I hope some of you are sending brief letters that do not touch on any controversial topics you may be playing with to your state legislators and governors to legally mandate public universities accept MOOCs for credit. The Unis have been only very tenderly handing out credit for MOOCs because they know online classes will blast their finances into the stratoshpere. A more forceful legislative approach ought to be pursued by state level Republicans officials to force public universities to accept MOOCs on mass and drive the colleges over the cliff.

Bringing the topic of MOOCs up on mainstream GOP forums would also help drive statewide adoptions of online college credit.

MOOC the Cathedral from orbit:

http://techcrunch.com/2013/01/15/how-californias-new-online-education-pilot-will-end-college-as-we-know-it/

If I had to predict how the fallout of this pilot will go, here’s my timeline:

1. Pilot succeeds, expands to more universities and classes

2. Part-time faculty get laid off, more community colleges are shuttered, extracurricular college services are closed, and humanities and arts departments are dissolved for lack of enrollment (science enrollment increases–yay!?)

3. Graduate programs dry up, once master’s and PhD students realize there are no teaching jobs. Fewer graduate students means fewer teaching assistants and, therefore, fewer classes

January 23, 2013 at 9:38 PM  
Anonymous Anonymous said...

The government does not represent the people, never has, never will - the Internet represents the people.

Isn't most of the internet made up of porn?

January 23, 2013 at 9:52 PM  
Anonymous Anonymous said...

My guess, solely from the broad public hint above, is that the collective bureaucratic decision to unleash the full right arm of USG on BTC was almost certainly made in 2012 or even 2011. An easy decision - since it makes a lot of work for all the deciding agencies. Meanwhile, the Bitcoin economy is buzzing merrily along, as if there was nothing wrong at all with Bitcoin. Technically and economically, there is nothing wrong. It's a remarkably beautiful architecture - in fact, I would say, a genuine work of art in the field of system software. Its problems are entirely political.

So if you're saying that it all boils down to government decision, aren't you basically arguing for the state theory of money, the theory that money is established by the government? Austrian economics disagrees with this view.

January 23, 2013 at 10:09 PM  
Anonymous poz said...

You're gonna get a lot of abusive comments on this post. Many Bitcoin supporters are mentally ill, and view anyone who doubts that Bitcoin has an exceptionally bright future as an evil force conspiring against them.

January 23, 2013 at 10:12 PM  
Blogger Curious Bystander said...

Well, the moment the price of BTC falls to zero, I'll buy all of them.

And I'm hardly the only one, feeling that way.

Whether this will prove enough to bitcoin survival is anybody's guess

January 23, 2013 at 11:26 PM  
Anonymous Nick said...

Mencius,

It will be easier for your readers to respond to specific comments if you enable threaded comments.

Apparently, this feature was added to Blogger early last year.

January 23, 2013 at 11:53 PM  
Blogger Harald Korneliussen said...

Remember E-gold. They were of course centralized, but they were quite cooperative with government, and from the start marketed themselves as "less anonymous than cash, more anonymous than credit cards".

Their fall leaves no doubt in my mind that the US government wants bitcoin to go away. The question is whether its decentralized nature really is the obstacle that bitcoin supporters believe.

January 24, 2013 at 12:07 AM  
Anonymous TJIC said...

@ The Undiscovered Jew said...
> I hope some of you are sending brief letters ...to your state legislators and governors

LLLLOL!

This was a joke, right?

Right?

Because we all know how eager the Cathedral is to listen to advice from peasants on how to reign in the Cathedral.

Democracy works, citizen!

January 24, 2013 at 3:17 AM  
Anonymous Anonymous said...

"I don't own any BC, but I am willing to bet Mencius $1000 that the USD exchange rate will be greater than 0 on Jan 1st 2014."

Fuck off faggot.

January 24, 2013 at 4:43 AM  
Blogger Dave said...

I agree with Mencius's reasoning here, but I believe he might overestimate the USG's resolve in this matter.

In order for the USG to do something about bitcoins, it must:
1.) Recognize the level of threat to its regime
2.) take organized, coherent action

I'm just not convinced that the USG can really pull off either of those steps. Individuals inside the USG might see the truth, but they are merely small particles in the red giant state.

January 24, 2013 at 4:43 AM  
Anonymous Sardonic_sob said...

Drug dealers and "fucking cavemen" are no threat to USG and the Powers That Be. Neither are dipshits running torrents of Carly Rae Jepsen albums. These are pers... I mean, prosecuted just enough to keep various agencies busy, budgets up, and constituencies happy.

Actually viable monetary alternatives, like genuine efforts to free information that somebody might actually give a shit about, ARE threats to same. People foolish enough to engage in them, once said PTB notice and realize what they are up to, are doomed.

January 24, 2013 at 4:49 AM  
Blogger G. M. Palmer said...

TUJ:

While I see the inherent "value" of MOOCs (really they're just decentralized distrubution centers of information--i.e. really entertaining books) I don't think that they'll necessarily change private collegiate education--or at least not as much as they're going to change public collegiate education.

That is, states can save a pile of money (note: not a significant percentage of their total budgets but a pretty line item anyway) by forcing the AA degree/first 60 credit hours to be MOOCs.

Indeed, why not eliminate the senior year of high school?

You'll still, however, have upper division.

AND you'll still have the entire notion of requiring freshman to live on campus (i.e. pay more money to the university). The tension between these realities will make for some interesting headlines on the good old Chronicle.

We don't need "more" STEM majors. What we need are fewer silly humanities majors (not, say, history or english or philosophy but ____ studies) and preferably a further division of post-grammar education into trade, technical, and philosophical tracks.

January 24, 2013 at 5:19 AM  
Anonymous Federico said...

Mencius is skeptical of countervailing power structures, and seeks an all-powerful sovereign entity. He believes this to be the "Cathedral".

I think the formal constitution of the States is shot to pieces, but countervailing elements remain, and new ones can appear. Since SOPA was defeated, I'm convinced that the real US constitution says: "The internet shall remain a libertarian paradise." I would be interested to see Mencius explain this event in any other terms.

I therefore predict that digital currencies will survive indefinitely.

However, I share Moldbug's skepticism of Bitcoin-as-political-weapon. USG can demand taxes in $, forbid physical businesses to accept Bitcoin payments, and forbid them to pay wages in Bitcoin. It can also force its contractors and sub-contractors, as a term of doing business with USG, not to accept even virtual Bitcoin transactions. It already makes private contractors comply with systems like ISO 14000, and affirmative action.

This makes Bitcoins inconvenient: most people would regularly need to exchange them for dollars. If, in addition, $-BTC exchanges are often taken down like Megaupload was, and their owners prosecuted—because USG can do this to the internet—then Bitcoin becomes a pretty inadequate medium of exchange. Therefore, although like gold it may be a viable store of wealth, it will not destroy the value of the dollar.

Bitcoin also has a security problem: I would not want my nest-egg to be stored on a hard drive. It may be possible to ameliorate the problem as it stands, but it will probably to remain a weakness of some degree in comparison to physical currency. And some likely technical solutions are not virtual enough to ward off government intervention.

Digital currency, as a political tool, is a good thing but modest in potential. The same is true of other internet freedom movements, like Alexis Ohanian's "bat signal for the internet". Until people can step into the internet and live there forever, etatism in meatspace will continue to be an overwhelming concern. Yet I'm optimistic about what people might learn from this experience of libertarian constitutionalism. What if curtailment of rights-to-exclude, free speech, private minting &c. were as taboo as restriction of internet freedom?

January 24, 2013 at 5:32 AM  
Anonymous Federico said...

Mencius: If you are reading this, please moderate your comments. There are numerous malodorous, foul-mouthed trolls, and this makes your site unpleasant to behold. Frederick the Great wouldn't tolerate them, and neither should you.

January 24, 2013 at 5:40 AM  
Anonymous hashman said...

So you think shutting down public exchanges of a good will bring the price of the good to zero?

Actually most people believe the opposite. If DOJ starts to make such moves watch the price go up up up.

Btw a bitcoin address can be coded as any string or number (see e.g. brainwallets if you don't know what i'm talking about). Therefore such a law must prohibit exchange of any type of information.

They would be even harder to prohibit than narcotics, which by the way we can't even keep out of prisons.

January 24, 2013 at 5:55 AM  
Blogger Peter Šurda said...

Mencius,

if such an indictment really comes out, it would mean that they are scared. In particular as exchanges typically do implement AML, so the indictment even makes no sense. It would create the perception that noone in the payment industry is safe, even if they weren't the primary target of the indictment. The shares of paypal, western union and so on would probably drop. I'll also skip over the issue of DoJ's ability to shut down foreign companies with no US assets.

It other words, it would be a proof that Bitcoin works, and there is more, not less, reason to hoard it. The exchanges are not necessary for Bitcoin's operation, even though they help. P2P exchanges have been hypothesised, there is at least #bitcoin-otc and localbitcoins, and hopefully solutions like this will get more mature and usable.

January 24, 2013 at 6:39 AM  
Blogger Plato said...

If DOJ indicted exchanges and users of exchanges, it would certainly drop the price. I disagree that it would drop to zero because some people would still consider it valuable and transact in BTC without involving exchanges. (OTC markets.)

Weed's illegal but it still holds value and is traded for other goods and services.

January 24, 2013 at 7:45 AM  
Anonymous Anonymous said...

You cowboys and indians still believe USG rule the whole world? And USG have nothing better to do? LOL!

January 24, 2013 at 8:01 AM  
Anonymous Anonymous said...

This is article is a joke. First off, there's no law which prevents people from using alternative currencies. Secondly, there is no law which prevents you from trading currencies. If someone commits a crime, they are responsible for that crime. It has nothing to do with which currency they are using for the sake of the crime.

January 24, 2013 at 8:09 AM  
Anonymous Anonymous said...

Not everyone lives in the US or trade in USD, y'know…

January 24, 2013 at 8:14 AM  
Blogger JP Koning said...

Like the post, like the reference to Ferguson: When Money Dies, like the Jewish - Aryan model of asset holding. In general, I agree that BTC will hit 0... in the long run.

I would disagree with one bit, though. You equate BTC to other assets. But if all Jewish speculators vacate the market for USD at night, there's no reason for USD to fall to 0. That's because USD is a liability of the Fed, who will typically buy back unwanted USD at a certain price. In fact, most central banks do issue large quantities of reserves intraday, only to collapse their issue of reserves at night when the Jews leave, so to say.

But unlike USD, BTC isn't the liability of any institution. If the Jews leave the market at night, there's no issuer to buy back and cancel BTC so as to preserve their value for the next trading day.

That makes BTC's positive price even more tenuous.

I've written a bit on BTC here.

January 24, 2013 at 8:14 AM  
Anonymous Anonymous said...

I'd love for BTC to go down to $0. I'd buy all of them and get access to unlimited weed!

January 24, 2013 at 8:15 AM  
Anonymous Anonymous said...

Stopped reading at "Obviously, I have no inside information at all and am just speculating"

January 24, 2013 at 8:22 AM  
Anonymous Mircea Popescu said...

Dude, seriously, enough with this bullshit. Nobody cares about the US. Literally, nobody.

If tomorrow some douche in the colonies "unseals" - heh, aren't we uppity & pretentious all of a sudden, unsealing shit and whatnot - whatever the hell he pleases it's going to make the proverbial sound of the tree falling in the empty forest.

All this aside, if you ever get some Bitcoin together to put in the general vicinty of your disproportionately large mouth, you know where to buy the PUTs.

January 24, 2013 at 8:40 AM  
Blogger Narcélio Filho said...

Good point! And it MUST happen or else it would mean the end of the banks and the Government (which could not earn any taxes, since it couldn't identify those trading).

January 24, 2013 at 9:03 AM  
Anonymous Anonymous said...

Another possibility for nuking Bitcoin, without indicting anyone, would be for the USG to spawn its own, Federally backed alt-chain. Call it Bitdollar. It would have all the online currency advantages Bitcoin has for legal/legitimate trade. And since it is Federally backed, competitive pressure would marginalize Bitcoin.

-Cloudswrest

January 24, 2013 at 9:46 AM  
Anonymous Anonymous said...

That is how it would go down, but Bitcoin might still be below USG's notice. We'll see.

I'd like to call out gwern's comment as especially moronic, since I see him around the internet. Dude, read the articles you comment on, please.

January 24, 2013 at 11:11 AM  
Blogger gwern said...

Anonymous: feel free to call names. Silk Road still is not cracked, we have inside information from 3 different agencies in different governments that they have no idea how to crack it, and SR is like 10% of the Bitcoin economy.

With exchanges outside the US and a major driver inviolate, Moldbug's scenario simply is not going to happen, and you'll notice he has not taken up TGGP's bet. His actions speak far louder than his words about conspiracies and speculation about pending indictments.

January 24, 2013 at 11:33 AM  
Anonymous Anonymous said...

Don't worry, I've satisfied my desire to anonymously call you names for the next few months. The harder SR is to directly attack, the more attractive the Moldbug Scenario becomes to DOJ etc. It's true that Bitcoins, weed, etc are ruling-class toys, but USG and friends are clearly not going to benignly neglect anything even slightly financial. I won't even buy gold for this reason, and I think Moldbug is deluding himself over gold just as much as you and your less erudite friends are deluding yourself over BTC.

January 24, 2013 at 12:23 PM  
Blogger TraderTimm said...

Mencius, your first point regarding a DOJ indictment on an edge-exchange seems to ignore the fact that any kind of prosecution on a decentralized system ever results in long-term harm to that system. Big media companies using collective suits against bitorrent users, for example.

This has hardly stopped any use of the protocol. To the contrary, it has only increased its popularity as people who have never had an inclination such things were going on became informed through various articles on the subject.

Then you assert that because one edge exchange is impacted, and for the sake of the argument lets just assume there was one successful shutdown, that the overall valuation of bitcoin would fall to zero.

While the users of that exchange would certainly be hurt by such an action, the rest of the network would shrug and move on. There are other avenues besides edge-exchanges, and when bitcoin reaches its full potential, they won't be relevant anymore.

You then invoke the general fear-mongering strategy of suggesting a major government would ban the use of bitcoin - again ignoring that it would most likely encourage its use.

As for the rest of your article, you touch on the usual debunked myths such as "hoarding will kill bitcoin", and some rather long rambling about how well the shutdown would kill the network. (It won't, as I described earlier.)

The crowning jewel on the entire affair is how at the end you advocate gold being resistant to government prosecution and seizure, which is laughable in light of its density and material qualities that lend it to detection when carried in refined form.

I'm afraid that suitcase of gold in the lining won't be making it through the airport, while the transfer of wealth across the internet using bitcoin won't even weigh down the traveler using it.

Then again, that is all this piece is - a lot of hyperbolic reasoning sewn together with a rather unrealistic view of government efficiency.

Good luck, you'll need it with that cognitive bias dragging you down.

January 24, 2013 at 12:53 PM  
Blogger Tom Bacco said...

In fact outlawing drugs depressed their price and demand very much. lol

January 24, 2013 at 1:31 PM  
Anonymous Anonymous said...

The USG probably has more reasons to use Bitcoin than the criminals...in fact, the chance that the USG actually created Bitcoin is more plausible than the scenario you've laid out. Besides, as powerful as the USG might be, they aren't the only government on the planet and a move against Bitcoin would most likely embolden foreign governments to support it. And criminals won't care whether it's legal or not, they'll still use it. Bitcoin knows no geographic, political or legal boundaries.

January 24, 2013 at 3:00 PM  
Blogger Mirco Romanato said...

The USG could do many bad things to people using Bitcoin, but they would have a lot of problems doing it to them all or only to a large chunk of them.

The same is already true for drugs.

If the USG attacked frontally bitcoin, they could drive the usage underground, but the profits for the people dealing with them would be greater. At least great enough to offset the greater risks. Like for drugs.

And a lot of government employees would be paid to look the other way and they will look the other way, because they will profit for doing so.

The only real way to attack bitcoin is to shut down the miners. Because they are needed to keep up the trust of the network. But, until there are people willing to process the data and outside the reach of USG (for example, in Russia or China or Brazil, Venezuela, etc.) the network will work and will not be shut down.

January 24, 2013 at 3:02 PM  
Anonymous Federico said...

In fact outlawing drugs depressed their price and demand very much. lol

Drugs are a consumption good; Bitcoin is money, a special type of good that experiences anomalous demand. It is therefore conceivable that the effect would be different.

The value of BTC depends on game theory: the expectation that other people will also use it as a medium of exchange. Consumption goods are always valuable to certain people. I wouldn't want a Bitcoin if no-one else was likely to use them, but I might want cocaine if I were the last man on Earth.

January 24, 2013 at 3:07 PM  
Blogger Mirco Romanato said...

@federico
What you say is right, but people use US$ to pay for stuff even where they are banned, like in Iran.

as gwern (January 23, 2013 at 4:54 PM) wrote, one of the major driver of bitcoin is Silk Road. Until Silk Road (and any similar site) is shut down, there will be a reason to buy and own bitcoin. To exchange them with forbidden stuff.

People value drugs and value the fact Silk Road is violence free. And given the only way to buy from Silk Road is using bitcoins, many people will be interested in buying and owning and selling bitcoin.

If, as probable, other places like Silk Road will be created, it will be come increasingly difficult to shut them down completely and take the drive from bitcoin.

Worse, for the USG, if they are not able to kill all the bugs in the same time, the most effective and resistant will reproduce. Effectively, the War on Drugs selected for the most efficient, brutal, resistant drug traffickers.

To this, you need to add the ongoing war on cash done by so many governments in Europe, America and Japan. People unable to have a bank account (and there are a lot of them) will need to find a way to hold money as cash transaction are reduced. Bitcoin is a strong candidate for them. People unwilling to pay debt or credit cards for service and stuff questionable (like prostitutes) will find bitcoin interesting.

In many cases the penalty for duing what the government want will be greater than the penalty for doing what it don't want. And much more sure.

January 24, 2013 at 4:21 PM  
Anonymous Anonymous said...

For you bitcoin boosters, perhaps a quote from your friend gwern?

But being able to get money to the sellers, and the sellers being able to turn it back into usable cash on Mt.gox or another exchange, that is crucial. You cannot buy and sell drugs for free.

Emphasis mine. Perhaps he cares to come back and explain why he was wrong?

January 24, 2013 at 4:56 PM  
Blogger gwern said...

Is there anything wrong with pointing out that there are multiple exchanges besides Mtgox? I sure can't see it, do elaborate, anon.

January 24, 2013 at 5:01 PM  
Anonymous Bastiat said...

While I thought the article was very well written, it has two major flaws in its reasoning.

1) The price would not go to zero. It might go to $1, or $0.25, but not zero. This is because there will always be some people willing to risk a little money on this stuff. I know if the price went dropped precipitously, I'd grab a bunch for myself. I've speculated on wilder things than that.

2) The US is not the world. USG could certainly shut down every US exchange. So what? Only 1 or 2 exchanges are even in the US anyway, out of about 20, and the biggest three are in Japan (Gox), Russia (BTC-E), and eastern europe (BitStamp).

USG banning Bitcoin in the US may well suppress the price, maybe dramatically, for a while. But the system is resilient, and would simply move out of the US above ground and continue in the US below ground.

January 24, 2013 at 6:05 PM  
Anonymous The Undiscovered Jew said...

Getting rowdy in here.

January 24, 2013 at 9:02 PM  
Blogger DR said...

Hey actual quant trader (high-frequency futures/equities + stat-arb equities), here.

That guy you quoted is an idiot. Anyone who references Nanex has absolutely zero relevant experience in the HFT or probably any other space.

That guy is dropping names like "bandsaw" and "sharktooth" which are basically made up explanations for badly analyzed data, by a firm that's never made a single dollar trading. And entirely owes its existence to fear-mongering sensationalism.

The guy might have been a "quant trader" in the sense of being some back office IT grunt who never touched the markets or working for some failed prop shop. But Jim Simons he is not.

Think of someone claiming they're a top-level drug lord. Then they start using slang that wouldn't be out of place for your grandpa like calling blow "rocket fuel" or "devils dandruff." Finally they regale you with dubiously questionable stories of them being some real-world Tony Montana.

Anyway, yeah, that's that guy.

January 25, 2013 at 9:50 AM  
Anonymous Anonymous said...

Three comments:

1) Currencies are as you know issued by many different governments. Almost all of these currencies can be converted into one another, usually fairly easily. So currency creation & issuance is already "multi-modal." Bitcoin is interesting because it is created by a non-governmental entity, but it is just one of a set of many currencies. The USG can't stamp it out any more than it can stamp out the Norwegian Kronor.

2) Currency today is largely virtualized today. The USG doesn't need to create a virtual currency because it already has one, one that we all use constantly. The difference with Bitcoin is that it is as far as I know not tied to a physical currency. That is becoming less and less important as a distinction.

So I encourage you to focus on the similarities of Bitcoin to existing gov't-issued currencies.

3) On a pop culture note, did any of you see the episode of The Good Wife where the lead character, an attorney, was hired to defend Bitcoin from USG prosecution? An entertaining show with some scriptwriters who at least some of the time have interesting thoughts.

jult52

January 25, 2013 at 10:19 AM  
Blogger DR said...

Analysis is pretty strong, but I think you're leaving out a very critical missing piece of the puzzle: risk aversion.

"If your bond portfolio returned 6% last year, but gold went up 9%, you have speculated incorrectly; if you could go back in time and speculate again, you would speculate instead in gold."

The general framework of the Moldbug monetary theory posits that speculators want to hold the asset with the highest expected return. In reality they want to hold the asset with the highest return relative to risk.

And how is risk measured, namely the expected fluctuation in exchange rate relative to some future consumption basket.

This explains why dollars, and not higher expected return AAPL stock, is the monetary unit. Dollars, or dollar short-term denominated bank fixed income securities may have lower returns than AAPL, but offer far higher stability. Thus the risk averse investor holds dollars.

This also explains the barrier to the re-monetization of gold. Even if money supply is flooded and we all know that inflation will hit, most people will hold dollars as the monetary unit because gold is much more volatile. People will only switch from dollars to gold when inflation is so high (i.e. expected return so low) that it overcomes the risk premium to holding a fluctuating asset.

There's a feedback loop here, because listed prices are in the used monetary unit. And listed prices are sticky. So the fact that an asset is the monetary unit makes its volatility (relative to any given consumption basket lower).

In short the champ tends to stay the champ unless equilibrium gets really far out of whack.

January 25, 2013 at 10:23 AM  
Blogger DR said...

Finally the commenters are largely missing the forest for the trees here. Based on the volume of comments you'd surmise the most contentious point was that the government could effectively shut BitCoin down.

That's peanuts compared to the whooper he just dropped: The claim that prices are independent of money velocity.

There's no economist in history who's made this claim. It's so fundamental that Milton Friedman had MV=PQ as his license plate.

The reasoning in the post is pretty sound, but it's a pretty bold claim. I'm really going to have to think about it for a while.

Anyway, there tends to be a lot of pretty smart and insightful commenters here (don't get me wrong a lot of dumb ones too). I'd wish they'd spend more of their effort evaluating this part of the post, rather then the specifics of how a government crackdown on BitCoin would work.

January 25, 2013 at 10:42 AM  
Blogger Mirco Romanato said...

@DR
About Velocity of Money and Prices:

"Ludwig von Mises agreed that there was a core of truth in the Quantity Theory, but criticized its focus on the supply of money without adequately explaining the demand for money. He said the theory "fails to explain the mechanism of variations in the value of money".[23]"

The key here is to explain "the variations in the value of money". In this case money is Bitcoin

January 25, 2013 at 11:08 AM  
Anonymous Crackpot History and the Right to Lie said...

"Teh US gubmints will nevar be able to shut down BTC cuz it is not in US jursidiction! Teh majjor exchanges r not even on US soil! NE1 who disagrees r prepz and pozers!"

-Explain to me why porn websites in located in the UK have 18 U.S.C. 2257 disclaimers. Explain to me why, barring a few anomalies like pseudoephedrine in Japan, the same recreational substances are illegal in the rest of the world as in the US.

The US government does control the world, give or take a few fuzzy spots in the coverage like Russia and China. This is UR 101. Doing something USG doesn't like in another "sovereign" country is at best a thin insulation from their wrath. Sometimes, e.g. online poker, simply moving your online bank to Iceland works. Sometimes USG decides that it is worth chasing you after all, see the crackdown on overseas "tax avoidance" or sex tourism. If you argue that these situations are somehow legally different than putting your BTC server in a different country, there may be no help for you. USG can demonstrably enforce its own laws overseas if they get riled up enough. Ask any Iraqi.

"Use of BTC isn't illegal! Look at my cunning legal sophistry that proves so!"

-TJIC elegantly demolished this one, but it bears repeating; "illegal" is whatever the hell USG decides it is. My expertise lies in small arms, so I'll give you an example from there. It's illegal to make a semi-automatic weapon that fires from an open bolt in the US. I realize that's just technobabble for most of you, but it's true. The ATF will fucking burn down your house and kids and shoot your dog and throw what's left of you into prison for ten years if you do it. Supposedly this is enforcing the 1934 National Firearms Act, but the funny thing about that is that the National Firearms Act has nothing to say about firing from an open bolt at all. The 1934 NFA does place certain restrictions on the manufacture of fully automatic firearms, and what the ATF tech branch ruled one day is that open bolt weapons are too readily converted to full auto, and therefore making one actually constitutes making a full auto weapon. Thus, house burning down, mother raping, father stabbing, et cetera et cetera. I'm sure that people familiar with regulatory agency rulings in other walks of life could supply a thousand more examples. The takeaway message is straight out of UR 101, regulations are the same thing as laws, unelected bureaucrats make regulations, ergo unelected bureaucrats make laws. Oh, and by the way, since these regulations can be changed at whim and can be and have been applied ex post facto, good luck in court, buddy.

"Silk Road and BTC are built on teh bestest that modern crypto can provide! All previous attempts at destroying it have resulted in ignominious failure! The antifragile, distributed nature of the internet laughs at any attempt at central control!"

-This counter-argument is a little more convincing. It really comes down to a question of how hard the agencies in question were trying to get rid of Silk Road. Did the site resist full-on tentacle rape, or just a few exploratory caresses? Yeah, their crypto may be solid, but how does that help them when the NSA gets roped into the boondoggle, takes control of a majority of TOR nodes, and sending out goons to tap wires? Again, it's a question of just how bad USG wants to smoke you.

January 25, 2013 at 12:55 PM  
Blogger DR said...

@Mirco,

My understanding of von Mises' criticism of the quantity theory of money is not that the frequency of transfers don't matter. Rather that simply aggregating the frequency of transfers into a scalar and calling it "money velocity" insufficiently explains the subtlety of what's going on.

Moldbug is saying something else entirely. That for money (or any other asset for that matter) the rate of exchange doesn't matter, only the total demand to hold it. It's the stock of money, not the flow.

To go back to the posts' analogy of speculators versus transactors, the former have a long horizon the latter have a much shorter horizon. But there's no firm sense of what's a speculator and what's a transactor. A holding horizon is a continuous value and it can vary from very short to very long and everything in between.

In this analogy let's say that the horizon of the transactors on average doubled. E.g. maybe they tend to hold for 2 nights before converting instead of 1.

Milton Friedman would say that V has fallen in half, and therefore for a constant supply of M, P will fall in half. Ludwig von Mises would say that prices would tend to fall, but exactly how much and which prices would depend on the individual and heterogeneous shift in the behavior of the transactors. (A middle ground between Austrian and heterodox would be the monetarist concession to the non-neutrality of money).

But Moldbug is saying something different entirely. He's claiming that this shift would produce little to no change. Although the transactors make up the vast majority of the velocity, the long-term speculators make up the vast majority of the total demand. And therefore any shift in the behavior of the transactors would have minimal effects on the market.

January 25, 2013 at 1:18 PM  
Blogger Dave said...

@DR

Did you read this post?

January 25, 2013 at 3:42 PM  
Anonymous Anonymous said...

Can't understand why the government would consider Bitcoin a greater threat than the rating agencies that downgraded its credit rating?

January 25, 2013 at 4:01 PM  
Anonymous Alrenous said...

Re: monetary velocity.

Moldbug probably shouldn't have included the point, as it's irrelevant to the conclusion. (Which I'm taking to be "USG can and will kill bitcoin," diregarding a fair amount of smoke.) But anyway, velocity.

Velocity smells funny.

The claim: when three people see a particular dollar in a given month instead of two, the economy sees three dollars instead of two and reacts accordingly. Thus, when people buy more stuff, prices go up.

Unfortunately, this forgets the other side of the equation. Goods demand dollars just as dollars demand goods. To buy more stuff, all else equal, more stuff needs to get made. The increase of apparent supply of money is roughly matched by an increase in the supply of stuff. For example, in this Khan video supposedly explaining this, prices go up due to 'velocity' and 'optimism,' seemingly innocent of the idea that the extra hours worked and extra food in existence might be relevant. Even within their model, the rental cost of the first house stays the same. (In other words, I invite you to try to fix the video's explanation.)

Thus, I conclude that velocity smells funny because it's covered in putrid sophistry. It's even possible that higher velocity could make prices go down, if vendors undercharge a little for the extra stuff.

This recession, like most, is the same dynamic in reverse. Less stuff is managing to get made, which necessarily means less stuff to be bought. For example, imagine USG tried price controls. It would bring up the velocity - goods would get off shelves, and vendors would have more liquidity to try to court more custom. Right? Heh. The shelves would empty. Velocity would go up and then plummet, ending up even further down. There's not enough stuff to support the supply USG wants to will into existence.

By contrast, speculators' effect on the apparent money supply has no countervailing factors. When they buy, you end up with less money chasing the same goods. E.g. speculating doesn't cause the mean, median, or modal speculator to quit their job, they just change from trading labour for goods through money to stopping at the money stage.

January 25, 2013 at 4:55 PM  
Anonymous The Undiscovered Jew said...

This was a joke, right?

Right?

Because we all know how eager the Cathedral is to listen to advice from peasants on how to reign in the Cathedral.


Tis no joke.

Local Republicans will hesitate to take advice on controversial issue from the plebs. But if it's a non-controversial issue with bipartisan support, such as MOOCs, then their secretary may pass your advice on to his or her boss. But remember to not discuss anything remotely controversial or ramble on and on when calling; mention only the financial benefits of MOOCs.

Just call them up and ask them to copy Scott Walker's online education reform which closely emulates what I've been calling for.

Walker was even insightful enough to give any and all brick and mortar 4-year undergrads the option to take their prereq courses online --- I swear he must not only be a UR reader but an actual Mencian special ops officer:

College Degree, No Class Time Required

University of Wisconsin to Offer a Bachelor's to Students Who Take Online Competency Tests About What They Know

http://online.wsj.com/article/SB10001424127887323301104578255992379228564.html?mod=googlenews_wsj


http://lacrossetribune.com/news/opinion/bradley-butterfield-we-must-value-liberal-arts-education/article_8181de6a-5386-11e2-a521-001a4bcf887a.html

But this plan to “revolutionize higher education” is not just about granting technical degrees to people who have more than mastered the skills they need outside of the classroom. “Additionally,” to quote the program’s website, “students can use the flexible option to complete the general education requirements toward any four-year degree.”

January 25, 2013 at 7:36 PM  
Anonymous Anonymous said...

If nothing else, bitcoins in a brain wallet can help you pay off the ass bandits should you land in jail :-)

January 25, 2013 at 9:36 PM  
Anonymous Anonymous said...

But this plan to “revolutionize higher education” is not just about granting technical degrees to people who have more than mastered the skills they need outside of the classroom. “Additionally,” to quote the program’s website, “students can use the flexible option to complete the general education requirements toward any four-year degree.”

They have won't jobs though, so what difference will it make?

January 25, 2013 at 10:52 PM  
Anonymous Anonymous said...

To the person making the flip offer to bet Mencius one-thousand bucks that BTC would be trading at greater than $0 on 20140101: If I were Mencius, I'd make that bet today (based on the current price on MtGox) as, "Mencius agrees to pay (anonymous) 58.82 BTC before 20140103 if BTC is not worth zero USD anytime before 20140102. Otherwise, (anonymous) will pay Mencius $1000 USD before 20140103."

Any bitcoin bear should find this tends to limit their risk if they lose, while the counterparty bitcoin bull should see this as an opportunity.

January 25, 2013 at 11:09 PM  
Anonymous peasant said...

Someone please write an essay explaining that Noam Chomsky killed Bitcoin.

January 26, 2013 at 1:47 AM  
Anonymous Federico said...

Hazlitt (again) on "monetary velocity" and the quantity theory:

The quantity of money is always a relevant consideration in determining the value of the monetary unit, just as the total supply of wheat is relevant in determining the value of a bushel of wheat. But the value of the monetary unit is not necessarily in exact inverse proportion to the quantity of money (as held by the rigid or Mechanical Quantity Theory) any more than the value of a bushel of wheat is necessarily in exact inverse proportion to the supply of wheat.

The inflexible Quantity Theory of Money tacitly assumes that the "elasticity of demand" for money is unity. This proposition has never been proved, and receives little statistical support. The value of the monetary unit is determined not merely by the quantity of money but by the quality of that money. Putting the matter another way, the value of the monetary unit is not determined merely by the present quantity of money but by people's expectations concerning the future quantity, and by such other factors as the assumed integrity or stability of the issuing government or banks. Hence it is typical at the beginning of any inflation to find that prices rise less than the increase in the money supply, and that in the later stages of an inflation prices rise more than the increase in the money supply.

It must be borne in mind furthermore that an increase in the quantity of money, no matter by how much it may raise the average of prices, never results in an exactly proportionate increase in each price. It is only, in fact, because Keynes and other inflationists tacitly assume that an increase in the quantity of money will raise some prices more than others (particularly retail prices more than "costs" and wage-rates) that they conclude that inflation will cure unemployment.

I have said nothing above about the much-discussed "velocity-of-circulation" of money, and its supposed effect on prices. This is because I believe the term "velocity-of-circulation" involves numerous irrelevancies and confusions. Strictly speaking, money does not "circulate"; it is exchanged against goods. A house that frequently changes hands does not "circulate." A man can only spend his monetary income once. Other things remaining equal, "velocity-of-circulation" of money can increase only if the number of times that goods also change hands (say stocks or bonds or speculative commodities) increases correspondingly. The annual rate of turnover of demand bank deposits is normally twice as great in New York City as in the rest of the country. In 1957, for example, it was 49.5 in New York and averaged only 23.0 in 337 other reporting districts. This is because New York is the speculative center.

An increase in the "velocity-of-circulation" of money, therefore, does not necessarily mean (other things remaining unchanged) a corresponding or proportionate increase in "the price-level". An increased "velocity-of-circulation" of money is not a cause of an increase in commodity prices; it is itself a result of changing valuations on the part of buyers and sellers. It is usually a sign merely of an increase in speculative activity. An increased "velocity-of-circulation" of money may even accompany, especially in a crisis at the peak of a boom, a fall in prices of stocks or bonds or commodities.

January 26, 2013 at 3:36 AM  
Blogger John Tyson said...

To the anonymous person comparing BC to other state-issued currencies, quoting:

"Bitcoin is interesting because it is created by a non-governmental entity, but it is just one of a set of many currencies."

I'm not an expert but I believe other government-issued currencies are by and large controlled by the same monetary policies than the USD. If they are not, such as the Chinese Yen, the USG does indeed get annoyed and puts pressure on the offending government to devalue their currency as much as they do.

Since BC can't be devalued, it's at least as much a threat to the USG as the Chinese Yen.

This leads me to something I haven't read by MM yet (he probably did say something, please provide me with a link if you know) about the Eastern Asian pro-capitalistic city state of Singapore and China's special economic zones.

Here we have examples for something that isn't controlled by the Cathedral and isn't infected with the Synopsis - and it doesn't exactly look like the Cathedral can do much about it, does it?

January 26, 2013 at 8:38 AM  
Anonymous The Undiscovered Jew said...

They have won't jobs though, so what difference will it make?

The difference is most fluff academics will be out of jobs as well rather than profiting from the Cathedral's disastrous policies; how many diversity "administrators" would be out of jobs if the diversity gravy train were shut down?:


http://techcrunch.com/2013/01/15/how-californias-new-online-education-pilot-will-end-college-as-we-know-it/

2. Part-time faculty get laid off, more community colleges are shuttered, extracurricular college services are closed, and humanities and arts departments are dissolved for lack of enrollment (science enrollment increases–yay!?)

January 26, 2013 at 9:04 AM  
Anonymous The Undiscovered Jew said...

Today the Census reveals DC's median income has surpassed Silicon Valley in median wealth.

January 26, 2013 at 9:20 AM  
Blogger George Weinberg said...

Speculation is conserved. Everyone who holds a currency, or an security denominated in said currency, is a "speculator." First and foremost, they are speculating that the currency will not, relative to some other currency, decrease in its exchange price so as to make their investment a loser, relative to some other currency etc.

This is a total crock. Nobody holds currencies because they expect the currencies to increase in value. In particular, everyone knows that the purchasing power of USD will tend to decrease over time.

People hold currency because they expect to use it to pay for stuff, and because there is always time and effort involved in exchanging the currency for an asset that will tend to increase in price over time.

January 26, 2013 at 10:07 AM  
Blogger DR said...

"People hold currency because they expect to use it to pay for stuff, and because there is always time and effort involved in exchanging the currency for an asset that will tend to increase in price over time."

That's a piece of the puzzle. And true for some cash holdings, if not the majority.

But the fact of the matter is that cash is still very much considered an investment class.
E.g. investment managers will "exit stocks and go to cash" even if they have no intention of spending that cash and fully intend to re-convert back to stocks in the future.

I think it's quite a bit more complex than either money solely being used for transactions, and money solely being the best store of value. Without considering the dimension of risk you're missing something important.

An investment portfolio is simply a way to shift consumption into the future. Most people have some dual criteria of 1) maximizing their expected future purchasing power, and 2) minimize the variance in their future purchasing power.

Judged solely on criteria 1) USD is pretty crappy compared to many other available assets. But judged on criteria 2) it's pretty strong. The variance in inflation (i.e. the variance in future purchasing power from holding USD) is usually much lower than the variance of equities, credit, or even gold.

This is particularly true if your future consumption basket mostly consists are goods and services domestic to that currency. I strongly suspect that this is mostly due to prices being sticky to whatever exchange unit they're listed in.
In other words money being used as a medium of exchange drives its use as the low-risk store of value.

Occasionally some currencies will do so poor on metric 1, that they're totally abandoned as stores of value (i.e. Zimbabwe dollar), but this is relatively rare.

January 26, 2013 at 1:02 PM  
Blogger TGGP said...

Alrenous, the importance of velocity to the price level has been known at least back to David Hume. His example involved creating extra money, then just keeping it locked in chests. It might as well not have been created, as far as the rest of the world is concerned. Price-setters don't have to know the total quantity of money in existence, just how much is being thrown at them for a particular good/service.

I place a significantly higher probability on Bitcoin being worth epsilon rather than zero, while Mencius believes the opposite. I've never used Bitcoin and don't have a wallet, but I know someone who does, so I'm open to the suggestion by Anonymous January 25, 2013 at 11:09 PM. I'm neither a "bear", nor a "bull", agnostic on whether it will rise or fall in value over that time. But due in part to the volatility premium that's been discussed, $1000 sounds better.

January 26, 2013 at 6:01 PM  
Blogger Mohamed Atif said...

This comment has been removed by the author.

January 27, 2013 at 8:02 AM  
Anonymous Dan said...

"The crowning jewel on the entire affair is how at the end you advocate gold being resistant to government prosecution and seizure, which is laughable in light of its density and material qualities that lend it to detection when carried in refined form.

I'm afraid that suitcase of gold in the lining won't be making it through the airport, while the transfer of wealth across the internet using bitcoin won't even weigh down the traveler using it."

I thought the value of gold is for a currency collapse, but when during a currency collapse, does the government have its act together? Wouldn't they be in shambles, in between regimes, or something like that?

It seems like the all powerful hand of government and currency collapse are mutually exclusive.

January 28, 2013 at 1:18 PM  
OpenID mukatsuku said...

http://www.forbes.com/forbes/2006/0327/112.html

If 'Satoshi' ever makes the cover of Forbes or Businessweek, that would be your very final chance to sell out of bitcoins.

January 28, 2013 at 3:21 PM  
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January 28, 2013 at 10:04 PM  
Blogger HcoRealEstate said...

This comment has been removed by the author.

January 28, 2013 at 11:40 PM  
Anonymous Anonymous said...

And who f*cking cares? Why devote so much energy to write some much speculative crap. If you don't like BTC, just don't buy any. F*ck off and stop wasting time only to make yourself look a complete uninformed twat. What are ya? 12?

The truth of the matter is nobody knows what will happen if governments ban BTC. But you have to give Satoshi some credit, for BTC's design is nothing less than total genius.

January 29, 2013 at 1:23 PM  
Blogger DR said...

6 days of geeks discussing encrypted money and the collapse of government and no one mentions Snow Crash...

January 29, 2013 at 2:13 PM  
Anonymous Anonymous said...

... ANTIFRAGILITY, moron.

Nassim Taleb's books have created a generation of arrogant morons.

January 29, 2013 at 4:58 PM  
Anonymous AWC said...

Here's a new blog: Occam's Razor

http://occamsrazormag.wordpress.com/

It has multiple bloggers and will include topics: HBD, politics, history and economics, immigration, etc.

We are still working on blogroll. If we do not have you added, please add us, leave comment or email, and we'll add you.

Thanks.

January 31, 2013 at 9:24 AM  
Anonymous Firepower said...

Yes, Bitcoin dies.

And you know what?
So WILL the next challenge to State Primacy over money.

The Big Question is: What do you do.

January 31, 2013 at 12:29 PM  
Anonymous Anonymous said...

If there were ANY legal actions on the horizon vis a vis Bitcoin, both Ebay AND their subsidiary Paypal would have banned any and all transactions for Bitcoins by now, yet they're traded freely there every day. Ebay and Paypal have a hardcore reputation for Banning their use for anything that the DOJ might be cracking down on and HUGE legal departments.. so... no.

January 31, 2013 at 5:46 PM  
Anonymous Anonymous said...

The US government would have to devote enormous legal (DOJ) and political resources to shutting down Bitcoin. If they just shut down the leaders of major Bitcoin services then the decentralized nature of Bitcoin means it will continue to be used by everyone else. Because thousands of people wouldn't go easily to jail for 30 years there would be a lot of political fallout and chaos from "prosecuting everyone." Further, the people really motivated to buy Bitcoin would start providing anonymizing services (similar to those currently provided for BitTorrent). Moving simultaneously to close down Bitcoin in other foreign countries might be "too many juggling balls in the air at once." It would result in all sorts of counter political and business movements in other countries such as when France protested the U.S.'s invasion of Iraq. Certain of these business and political groups would buy up the Bitcoins as the price is lowered due to uncertainty, and support their business groups using the software to avoid giving profits to American payment companies such as Visa and PayPal. The volatility in the price of Bitcoin would be tremendous and the price trajectory generally downwards but all the power vacuums and opportunities created would prevent the price from going to zero.

Even if the US government succeeded at making Bitcoin as prohibited as cocaine worldwide, it seems more likely that some Bitcoin derivative system would survive, since there is a strong demand for it, similar to how BitTorrent succeeded Kazaa and Gnutella. In the latter case the price of the currency could go to near zero but nevertheless a similar technology would continue to be used. Probably even in that case though it would be hard to drive the price down below say 5 cents because there are a lot of rich and strange collector/investor types in Silicon Valley and some of them might start hoarding BTC as a historical curiosity or museum piece. And of course long-term value investors who might start buying based on statistical cheapness (e.g. Bitcoin could be a good value investment if the price is sufficiently depressed relative to the "business fundamentals" -- with merchants who maintain balances always acting partially as speculators you might work an intrinsic valuation based on this).

In short I think this blog post is an attention-grabbing piece trying to get traffic and does not spell out a plausible set of scenarios of the effects of Bitcoin bans.

February 1, 2013 at 6:47 PM  
Anonymous James A. Donald said...

Every time the USG forbids exchanging federal reserve notes for X, that is another reason to use something other than federal reserve notes as money.

Thus banning the exchange of federal reserve notes for bitcoins is likely to hasten to abandonment of federal reserve notes for something that can be exchanged for bitcoins.

February 2, 2013 at 3:25 AM  
Anonymous Firepower said...

Now, with
Homeland Security
BUSTIN' n' gettin' "Collars"
For counterfeit
NFL SUPERBOWL jerseys

There's NO limit to the pennies they'll stoop to pick up to feed their waistline.

Keep on a votin'
MOUT

ps_f captchas...

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February 7, 2013 at 4:02 AM  
Blogger dbk_999 said...

"Swartz, but brings his A game and comes armed for bear. But certainly, don't take on the Man if you have any suspicion that the Man might take you instead. "

found some steely dan bootlegs on Silk Road, eh hipster?

February 7, 2013 at 6:25 PM  
Blogger  said...

If Bitcoin exchanges go down, within 5 minutes I will be all over this:
https://localbitcoins.com/

Offering to buy every single Bitcoin at a 95% discount.

Unfortunately I'm pretty sure that others will be offering more.

February 10, 2013 at 7:08 AM  
Anonymous Anonymous said...

If they're going to do something they better do it fast, otherwise Paypal will be going down the tubes in the not too distant future. Bitcoin will be crushing them!

In case you don't know, Paypal practices economic censorship in service to the authorities without due process. This is causing a flock to Bitcoin. Here's the latest high profile example

http://uptweet.com/viewStory?id=832

Bitcoin has been rocketing up in value over the last month. It's now past $25.

http://bitcoincharts.com/charts/mtgoxUSD#rg360zig6-hourztgMzm1g10zm2g25zv

February 12, 2013 at 9:48 AM  
Anonymous Anonymous said...

If Bitcoin exchanges go down, within 5 minutes I will be all over this:
https://localbitcoins.com/


I can see it now. BATFE will now be BATFEB, The Bureau of Alcohol, Tobacco, Firearms, Explosives and Bitcoin. The Dept. of the Treasury will have gone full circle! Narcos will be on the lookout for BBBs (Backstreet Bitcoin Brokers)!

February 12, 2013 at 10:28 AM  
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February 13, 2013 at 6:12 AM  
Anonymous bitcoins said...

bitcoins are an awesome way to make investment!

February 19, 2013 at 8:23 AM  
Blogger ChristianKl said...

@Anonymous: "Can't understand why the government would consider Bitcoin a greater threat than the rating agencies that downgraded its credit rating?"

Why do you think that the US lately sued one of those rating agencies for massive fraud?

February 19, 2013 at 1:22 PM  
Anonymous PoisonBitcoin said...

I doubt either of those things will happen. The first step is necessary for the second, (because illegal trade will continue keeping bitcoin at least somewhat afloat, even if another bubble eventually pops) and the first step will not happen. I doubt the legality of it in the first place, and there would be a public outcry a la SOPA if any politicians tried that kind of thing.

April 3, 2013 at 5:18 PM  
Blogger reymark perry said...

Bitcoin is far from dying. The two simple steps you mentioned have happened in the past but it did not stop bitcoin from circulating and rising. It’s now the most valuable cryptocurrency. Businesses that are accepting bitcoin are continuously rising, which strongly keeps bitcoin from dying.

May 9, 2014 at 12:39 AM  

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