Where Should Bitcoin’s Default Decimal Be?

Around the time the price of a bitcoin rose into the high 900s late last year, some exchanges and bitcoin websites chose to offer the option to display bitcoins in terms of “milli” bitcoins. Bitcoinity, for example, made it their default display mode for the price, which persists today and has seen a great deal of adoption among bitcoin wallet applications. Bitcoin-qt, Blockchain.info and Electrum all offer mBTC as a display option for your bitcoin balance. This list isn’t exhaustive, but you get the idea. Bitcoin-qt does offer microbitcoins (uBTC) as a display option, but the others do not.

With the exchange rate of one standard BTC in the triple digits in most Western currencies, and higher still in Yen, Rubles or Yuan, hardly anyone disagrees that bitcoin’s ergonomics would be well-served by a move of the decimal. Based on implementations seen so far, it would appear the community’s consensus is to use mBTC for the time being. That may be, but the move to mBTC appears to be a move of expediency made somewhat in haste. As Jeff Garzik said today on the bitcoin development mailing list:

Shipping with mBTC defaults was decidedly unwise, considering that — like BTC — it fails to solve existing, known problems that uBTC can solve, and considering the inevitable mBTC to uBTC switch.

In other words, mBTC may temporarily solve the problem of appearances, but leaves other existing issues unresolved. Issues that can interfere with adoption, and the standardization the world expects from a currency. For example, currency formats in commonly-used software are almost always two decimal places. Neither the traditional BTC denomination nor millibitcoins fit this restriction. Microbitcoins do. Attempting to fit mBTC or BTC into systems not designed for more than two decimal places in currency could result in incorrect calculations. If the bitcoin software’s numbers do not exactly match those of the financial software, it will make audits very difficult. The reality of legacy financial software being what it is, a final move to uBTC seems inevitable.

The best argument in favor of sticking to millibitcoins for now is that it appears everyone is already doing it anyway. Further, microbitcoin balances would look very high compared to the numbers most people see every day, while the same number expressed in mBTC fits our day-to-day much better. In the words of Mike Hearn:

If you have to export to financial packages that can’t handle fractional pennies, then by all means represent prices in whatever units you like for that purpose, but in software designed for ordinary people in everyday life mBTC is a pretty good fit.

Besides, fractional pennies crop up in existing currencies too (the famous Verizon Math episode showed this), so if a financial package insists on rounding to 2dp then I guess it may sometimes do the wrong thing in some business cases already.

In one sense, the products we are talking about are software, so there is no technical reason we can’t do uBTC in one context and mBTC in another. It just might confuse people. We do see fractional cents from time to time in fiat currencies so it’s possible going all the way down to microbitcoins is unnecessary at the moment.

Regardless, with Wall Street knocking on bitcoin’s door more intently by the day, the decisions that go into the development of client software are only going to get more important. This is open source software, so the decisions will be made by those who choose to act and implement a solution.

Bubbles and Bitcoin

Every time the price of bitcoin rises sharply there is a lot of talk about whether or not it is “in a bubble.” Naysayers and true believers alike squawk that they’re right and everyone else is wrong. Bitcoin is either going “to the Moon!” or into the gutter. One side grumbles about speculators and the other seems blithely ignorant their influence. The same stock phrases are shot back and forth and nobody ends up understanding the situation any better. There seems to be lots of talk about bubbles but very little understanding of what actually comprises a speculative mania, so I hope you find my contribution helpful.

The Nature of Bubbles

Anyone interested in the subject of “bubble” economics should pick up Douglas E. French’s book Early Speculative Bubbles & Increases in the Money Supply. What we can learn from French’s research is that speculative bubbles are first and foremost monetary phenomena. The infamous case of tulip mania, for example, had its origins in a Dutch policy where the government would subsidize the transformation of any gold into the national currency. Combined with pirating operations and burgeoning foreign trade, gold rushed into the Dutch economy literally by the boatload. The book covers a number of other cases, but to make a long story short, rapid expansions in the money supply can instigate speculative manias, depending on what catches investors’ fancy during that time.

Bitcoin’s price has been on a sharply upward trajectory again, but as others have written before, new technologies don’t have linear adoption curves. Since bitcoin’s price is inextricably tied to its level of adoption, movements in price like this should be expected if the technology is indeed gaining traction.

A price graph alone isn’t enough to predict a bubble, and a bubble isn’t merely a rapid rise and fall of price. Bubbles are a specific kind of phenomenon and they include a few characteristics I haven’t yet seen in the bitcoin market. According to Antonin Murphy, the sequence of events in a bubble looks something like this:

  1. An exogenous shock, like the start or end of a war, a technological or natural resource discovery, or a precipitous drop in interest rates suddenly creates new opportunities for profit, and a boom begins.
  2. The boom is nurtured by an expansion of the money supply, or the velocity of circulation increases.
  3. As demand increases so do prices, and with higher prices come more profit opportunities. Multiplier and accelerator effects interact and a “euphoric state” begins. Overtrading may also happen.
  4. Overtrading might take the form of pure speculation: the buying of assets for capital gain as opposed to income return from the asset. It may also take the form of buying on margin or installment purchases.
  5. Newcomers anticipating easy money become numerous. The insiders start to recognize the risk and start selling.
  6. A “financial distress” period sets in when the newcomers realize that if there is a big sell-off, prices will collapse. The race to exit hastens.
  7. Revulsion for the asset develops as banks start calling in loans and selling collateral.
  8. Finally, panic sets in as the market collapses. Some may start looking to government for a bailout.

We’ve seen big price swings, but if we use the above as a rubric I wouldn’t say we’ve seen any “bubble” activity. Perhaps the exogenous shock might be the Federal Reserve’s “QE infinity” program, FinCEN’s announcement in the US, China’s announcement of non-regulation, or the invention of bitcoin itself. It is, after all, an unprecedented new technology. As for a growing money supply, the world’s central banks are doing that all the time. But that money hasn’t been going into bitcoin yet. From the evidence before us, bitcoin’s price explosions can be more easily attributed to the volatility of a small market gaining interest. In April we saw an 80% drop in the price, from $260 down to the neighborhood of $50, yet here we are at a multiple of that previous high. In a bubble, the crash occurs because everyone discovers that the high price was completely, idiotically, unrealistic. Once it pops there’s little reason to get back in for years. It is much more plausible that that particular case was just temporarily overzealous new money.

In the end, everyone who got in still believes bitcoin has a future. I have yet to hear someone say “I got burned and I’m never using bitcoin again!” Anyone who tries it discovers how empowering it is to have a cash-like asset that can be teleported across the globe at a moment’s notice, without the risks posed by credit cards or the limits imposed by the legacy banking system. The euphoric period of a bubble produces prices that are outlandishly beyond a logical valuation of the asset. But what’s the logical valuation of a bitcoin? It totally depends on what kind of future you anticipate for the technology. If it merely ends up being half of one percent of worldwide e-commerce, that’s still going to mean far and away more demand than we see today. If entrepreneurs and technologists can build the infrastructure that bitcoin needs for widespread adoption, and the world agrees that it wants bitcoin, a price of $800 per coin will seem like a bargain. Maybe that won’t happen. Either way, the price will respond accordingly.

Anecdotally, there don’t seem to be very many people taking enormous, deluded risks on bitcoin, which is the sort of thing you would see in a bubble. There certainly hasn’t been enough of that to call it “widespread.” It is still a difficult currency to get into, difficult to handle, and for most people who hear about it, the very concept is still confusing and arcane. It can take days or weeks to get fiat funds into a bitcoin exchange. You can’t buy bitcoin futures, buy them on margin, or anything else that speculators use other than making straight purchases. The financial ecosystem of bitcoin just isn’t developed enough to facilitate a real bubble.

Even if we did see a bubble, the cat is out of the bag. We now know that a distributed, headless payment network is possible, and there are just too many benefits to give up on the idea. If bitcoin turns out to be a failed implementation, then the crytpography hackers who have been working on it will either adapt it or come up with something better. Now that cryptocurrency is here, it’s not going away. The only question is: what role will it play in the future? With the rapid changes that took a geeky invention like email from university laboratories to your grandmother’s kitchen, I don’t think it’s unreasonable to suspect bitcoin can have a similar trajectory.

“Bubble” is Not an Epitaph

People will cry “bubble” as if it’s a knock against bitcoin or a sentence of doom. But the bubbles of history always had more to do with inflationary monetary policy than they did with any of the asset’s flaws. The Dutch tulips didn’t do anything wrong. Stocks in the 1920s didn’t do anything wrong. In 2007 the houses didn’t do anything wrong. We still have tulips, stocks and real estate today. The problem instead was bad monetary policy, which bamboozled entire industries into producing too much of the wrong thing.

We may yet see that happen with bitcoin, but it will only happen once the institutions closer to the central banking money spigots get involved. Unusually high growth in the money supply has always been the lifeblood of speculative bubbles. If and when it does happen, all it means is that some self-deluding gamblers are probably going to lose money. But the technology will still be there, with better and better infrastructure all the time.

But here’s my prediction: if there are ever assets priced primarily in bitcoin, you will not see speculative bubbles in them the way we’ve seen bubbles happen on Wall Street. Why? Because big artificial boosts in the money supply are just not possible with bitcoin. Under the current Dollar regime, the Fed can pin interest rates to the floor, and this easy money can breed bubbles. Bitcoin doesn’t do that.

Try not to Think About Price so Much

It’s fun to see your balance in fiat grow by leaps and bounds overnight, but bitcoin is about something much more important. Bitcoin is about bringing some wonderful traits money used to have into the 21st century. Once upon a time the value of the currency was determined by the marketplace, not centrally managed by a government. Once upon a time the growth of the money supply happened at a predictable rate not set by a central planner. Instead, it happened commensurate with the time and effort spent making more of the currency and the uses it could be put to. Once upon a time, the money itself was not an instrument governments could use to impose shadow taxes on its people.

Bitcoin is about bringing those features back, in a form ready for the demands of a technologically sophisticated world. The price can zip up and down and do loop-de-loops every day for all I care, as long as the right features and infrastructure can keep developing and adoption grows.

Rand Paul is not his dad, and that’s a good thing

What sad times are these that all a man must do to rock the boat is refuse to sit down.

When I learned last Wednesday about Rand Paul’s filibuster of John Brennan’s appointment as CIA chief, I was thrilled that someone, anyone, in Congress was standing up against a war policy that should have every American fuming. To have our own government take the killing of mere suspects so cavalierly should have us very worried indeed.

I wasn’t as interested in the filibuster as I was in how it would be received in the media, or how it would affect the political discussion. Ron Paul has made many a lengthy speech in front of Congress, most of them more damning of horrific policies than Rand’s talkathon, and for all Ron’s eloquence and erudition, those seem to have moved the political needle none whatsoever. Would Rand’s gambit be any different?

John McCain denounced it as a “political stunt.” He’s not wrong that it was a political stunt. It was just as much as stunt as his “detainment” at the hands of the TSA. Nearly everything that happens in the in political news in America is a stunt of some nature. The real question is: what does it do to the news narrative? Does it benefit the cause of liberty or detract from it? Does it draw attention to a genuine issue we should care about or doesn’t it? Does it move the discussion towards freedom or away from it?

Ridiculous political stunts about irrelevant nonsense abound, but Rand Paul has managed to generate buzz about something that’s actually important. And this isn’t the first time he’s done it. Last year he faced off with the TSA. Just as it did this time, his outlandish stand alone struck a chord with a lot of Americans who don’t consider themselves libertarians. Unlike his first stand alone, he was eventually joined by the likes of Marco Rubio, Ted Cruz, and even Republican Party chairman Reince Priebus.

I expected to see universal mainstream media condemnation for the Senator. The Wall Street Journal certainly came through on that count but it is heartening to see the positive spin in places I didn’t expect. Since last week, some have described him as a new GOP leader. To others it is increasingly clear that he will be a strong contender for the Republican Party’s 2016 presidential nomination.

One NYT blog writer rightly states that while the topic of Rand’s filibuster was quite narrow, the important takeaway is this: A paleo-conservative with a sane foreign policy is growing in influence in the GOP.

This is what we sorely need. Great party influence is something Ron Paul never really achieved, but his years of work did open the door. The libertarian ideals have needed an advocate who knows how to proactively navigate the world of political power and influence. That man was not Ron Paul, power just isn’t his style. But maybe it is Rand.

To read more about how the filibuster was received, I recommend this post by Jack Hunter.

A Deepness in the Sky: A Fable of Liberty and Tyranny

A Deepness in the Sky is easily in my top three favorite science fiction novels of all time. It is a story that envisions what humanity’s spacefaring future might be, and the questions we’ll have to answer when making first contact. Best of all, it is about the eternal struggle between liberty and tyranny.

Vernor Vinge has a remarkable talent for world-building. In this book he constructs a universe in which planetary civilizations rise and fall, while a culture of traders called the Qeng Ho (pronounced “Cheng Ho”) shuttle across the cosmos in great ramscoop fleets. The traders themselves live on their ships in a commercial meritocracy, and through their extensive travel and trade manage to spark settled human planets that have fallen into poverty, and glean the best advances from worlds that have come up with new inventions.

The story begins with the discovery of a non-human intelligence orbiting a mysterious star making its first radio signals. A Qeng Ho fleet rushes to investigate, only to be met by a fleet calling themselves Emergents. The Emergents come from an authoritarian society, as opposed to the free-trading meritocracy enjoyed by the Qeng Ho. The Emergents are not merely totalitarians. They have invented a unique technology that allows them to hijack human minds, and turn those humans into highly efficient automatons. This process called “focus” is a form of slavery, and appears to be more than a match for the sophisticated technological automation used by the Qeng Ho.

From the very first meeting of these two societies, there is tension. The two are competitors. Whoever is able to open trade first with the newly discovered race of “Spiders” on the planet below will enjoy unheard-of profits. Cooperation would benefit them both, but as in real life, authoritarians are not as interested in cooperation as they are in domination. Continue reading

Former

This is a story I wrote a few years ago. This is so far my only foray into a type of science fiction I could describe as “horror.” It came from wondering about how a machine might react when given a purpose but no moral context with which to fulfill it. The lead character has had something terrible happen to him, but at first he does not know what. As he slowly recalls, he is forced to decide whether or not to tell his friends. Would they accept the kind of monster he has become — has always been?

You can purchase it at Amazon for a dollar, or download Former in MOBI or EPUB formats.

Andrew Horning gracefully, gently, dashes the hopes of Indiana Libertarians

lplogosmallI’m from Indiana, one of the Libertarian Party’s stronger states. Dan Drexler, Sean Sheppard, Chris Spangle and Andrew Horning are just a few of the people I know of in our movement who are tireless crusaders for liberty. While I don’t know half of them half as well as I should like, I like more than half of them half again better than half my Republican colleagues.

Believe it or not, even the Libertarian Party has partisan drama to deal with. I have adopted the Paul strategy and have been spending my time working among Republicans, so I have not been privy to the details of whatever is going on in the LPIN. I do happen to see when Andy Horning posts to Facebook and I’m glad I do. He’s one of the better advocates we have in the state, and he articulates the message very well.

Anyway, He is among the higher-profile libertarian Hoosiers, and there were some who wanted to see him as the state party chairman. In a recent post to Facebook, he said this:

When I first heard the rumor that I was running for the job of Chair of the Libertarian Party of Indiana, I assumed it was some sort of political trick and I scoffed it. As others I respect supported the idea, I considered it. I sent out some emails and started some discussions that I think were timely and important. I offered what I think are valid criticisms of the party, and a lot of responses (positive and not-so-much) came back. The responses were (how shall I say it?) con brio e fuoco.
All good. My skin is thick enough. We need to talk and I’m happy to have started a discussion that will continue, I think. I’ll be happy to continue that discussion.
…But not in the context of me running for the job of a partisan insider. I can see by what I know of my self (and what others in the party obviously think of me) that I’m most definitely not the guy for the job.
I actually never intended to start any fights. But if I pull my name out of the hat for LPIN Chair, I think the stressin’ will become something much more constructive.
So to all you who’d hoped I’d run, I’m sorry; I can’t. To all those who flared up; I’m sorry I offended your delicate sensibilities – now get back to work. To the rest of you, let’s consider our current situation, and find a better way forward.
Our political struggles are just beginning and we need all hands on deck.

With a call for unity and an apology for any divisions inadvertently caused, he bows out from a race he never entered.

During his multiple candidacies for Indiana government offices, he has been a stalwart advocate of strict constitutionalism. He has stuck to that principle with such fervor, even I sometimes thought he should probably try more palatable marketing line. But matters of taste aside, the truth of the matter is that if the Libertarian Party is going to distinguish itself at all, it needs such principled extremists.

I’m not a part of that party right now so my opinion hardly matters, but that’s the sort of person I’d like to see at the helm of the LPIN for a while. Nevertheless, he’s not in charge of the party, doesn’t want to be, and those who do have a different vision than he would… And that’s okay.

He is not unique in this type of conduct, by the way. Among my liberty-minded friends I see this attitude constantly. Libertarians are often viewed as overly vocal egoists who have a problem with authority. The reality is quite different. Among libertarians — the good ones, anyway — your self-worth does not come from how much power you have amassed, but by how well you respect the rights of others. You don’t become a libertarian because you crave power.

We’re repeatedly accused of having an “I got mine” mentality, as if individualism meant every man living like Robinson Crusoe minus Friday. To the contrary, respect for the individual makes genuine cooperation possible. If political rivals can’t find a way to coexist without ripping each other’s heads off, it’s going to be within the LP. At least that’s what I’m hoping.

From my perch in the GOP I’ll keep rooting for anyone who is constructively pursuing a freer world, no matter what party they are in. Particularly all of you in the Indiana LP, both party insiders and activist outsiders. It would be a darker world without you.

Overlords and Freedom

I hope every science fiction fan has the same affection for the classics as I do. The good ones provide a window into what was on the minds of authors of that era. The great ones offer a timeless window into ourselves.

One book that I think does both is Childhood’s End by Arthur C. Clarke. After only a few chapters the book has made quite clear the horror many felt in the 1950s toward the recently-concluded war, and the terrifying invention that punctuated the bloodshed: nuclear weapons. Arthur C. Clarke’s contemporaries experienced the Second World War directly and personally. The image of a mushroom cloud was new, alien, the scale of its destructiveness should still boggle the mind. Suddenly, Man had crossed a threshold where one false step could end our species in a flash. Hitler was not just a fresh memory, but a recent experience, and tyrannical communist regimes and revolutions had cut a bloody path through Asia. Under those conditions, such a false step was a credible fear. It must have indeed felt as if humanity’s “childhood” ended with the close of World War II, and a dangerous adolescence had begun.

Childhood’s End begins with the arrival of a seemingly all-powerful race calling themselves the Overlords. From their city-sized flying saucers parked over Earth’s major cities, they govern and guide humanity from this tense post-war period into an age of peace and enlightenment. Religion slowly recedes to be “replaced” by science. Society flourishes thanks to the careful engineering of the Overlords, who issue orders to the world’s governments, with the implication that resistance means instant death.

Right from the beginning, I can tell I am ideologically incompatible with this book.

“All political problems,” says the chief Overlord in the book, “can be solved by the correct application of power.”

I suppose in a way that is true, since government exists on a foundation of force in the first place, but the message is broader than that. The character then explains that humanity had so many political problems because political power was never great enough, and humans lacked the wisdom to apply it wisely.

If his storytelling is indicative of his worldview, Clarke seems to believe that an all-powerful state might solve our problems, if only it was wielded wisely. Libertarians reading this will immediately recognize the circular logic. If men are evil, why give any man arbitrary power in a state? Of course, Clarke gets around that question by making the rulers otherworldly supermen. As for me, I believe that both goodness and evil exist in all human beings. A peaceful world is possible without overlords. Even if it isn’t, an all-powerful dictatorship is certainly not the way to achieve it.

While the Overlords cultivate humanity into a race of empiricists living in seemingly limitless luxury, there is a simultaneous waning of the culture. Imagination comes to a standstill. I find Clarke’s assumption here flawed. Compared to the 1950s, we live today in a world with many of the luxuries then thought of as science fiction. We carry devices that can entertain us in myriad ways, diversions are almost infinite. Yet because of this, culture is flourishing. Certainly there are many who are entertaining themselves with very poor-quality works, but the information age has brought us a world in which new and constantly improving content appears at a breakneck pace, and almost all of it is free. Clarke seems to believe that struggle and hardship drive human creativity, and that technological advancement reduces those inputs to creativity. Creativity may indeed come from struggle and loss, but because we will never be free from scarcity, there will always be something more to strain and strive for.

Contrary to what Clarke believed about humanity, we find that neither peace nor great technological advancement dull our imagination. If anything, it only extends our reach and expands our minds.

All that said, in technical terms it is a masterfully composed science fiction novel. Typical of Clarke, you are tantalized with an intriguing extraterrestrial mystery, with glimpses of the full picture gradually revealed. If you can stomach the worldview, give it a shot. Just know that while Clarke had his finger ever on the pulse of scientific curiosity, he had a lot to learn about the fires of the human spirit.