grandalf (u/grandalf)

grandalf commented on Algorithm efficiency comes from problem information stochasticlifestyle.com/a... · Posted by u/ChrisRackauckas

grandalf · 8 years ago

I made essentially this argument in the thread for the google announcement about beating stockfish and was down voted mercilessly.

I think neural nets and deep learning systems are misunderstood so profoundly because humans are bad at many kinds of reasoning and the explanation of the neural net being "smart" is so psychologically appealing.

grandalf commented on What Bitcoin shows us about how money works bzarg.com/p/what-bitcoin-... · Posted by u/tbabb

keithnoizu · 8 years ago

You're assuming BTC will appreciate in value. There is no guarantee it will eventually become worth millions of US or equivalent dollars.

Even with a fixed qty; uncovered exploits, technological breakthroughs, change in crypto trends (aka a move to another platform), or change in society could halt an increase of value.

Technically the same is true of gold. Even with out a massive change in qty, something as simple as a better gold like alloy for jewelry, an alternative for electronics, or a sudden cultural aversion to gold ownership could reduce the value.

grandalf · 8 years ago

Those are all valid points. I don't disagree at all. My comment was meant to present the hypothetical case where Bitcoin's governance model turns out to have better longevity than the USD governance model.

grandalf commented on What Bitcoin shows us about how money works bzarg.com/p/what-bitcoin-... · Posted by u/tbabb

RobertoG · 8 years ago

>"Goldbugs / conspiracy theorists have a line of argument where they describe all the fiat currencies that have ultimately experienced corruption and hyper-inflation"

And they are, practically in all the cases wrong. What we see is in history is a mismanagement of the real economy or external factors affecting the currency. They confound the symptom with the cause.

When the 'real' economy goes wrong, never mind if you have bit-coins, or whatever. In a desert, a bag with a million dollars buy you nothing. Of course, you can make a case for gold or similar because it could make easy run away to another place, but that it's not the argument they are pushing normally.

grandalf · 8 years ago

> Of course, you can make a case for gold or similar because it could make easy run away to another place, but that it's not the argument they are pushing normally.

I think this is the aspect of it that applies to Bitcoin. All of the steps along the road to hyper-inflation in a fiat currency may be quite reasonable and may constitute the smartest move using the available tools.

There is also the question of whether currencies should be tied to governments. The risks that (frequent) government failures pose to one of the core purposes of money (storing value) are not costless. Society bears the costs of those risks even though they are hard to measure.

Of course many of the same problems could apply equally (or more) to Bitcoin depending on how the governance process proceeds.

grandalf commented on What Bitcoin shows us about how money works bzarg.com/p/what-bitcoin-... · Posted by u/tbabb

blowski · 8 years ago

We quite often get firm evidence, and the evidence turns out to be wrong. But I'm a sceptic, which is why I never bought any Bitcoins for $1 in 2012.

grandalf · 8 years ago

I have no idea whether that will happen, just trying to express what I think the rational case is for investing in Bitcoin today.

Goldbugs / conspiracy theorists have a line of argument where they describe all the fiat currencies that have ultimately experienced corruption and hyper-inflation. So I think it's fair to say that running a fiat currency successfully for more than 500 years is something that is unprecedented in the history of the world.

So over a long time horizon this makes Bitcoin extremely interesting. It's not a question of whether 1 BTC will one day be worth millions of USD, it's a question of when. There is a good chance it will be hundreds of years from now if at all.

Much financial risk is in fact sovereign risk in one form or another. This doesn't mean it's rational to hoard gold or BTC, but for entities that have a long-term view of their own future, it makes sense to care a little bit and to diversify.

Even if 10% of the long-term entities diversify into Bitcoin, that alone will drive the price up substantially. It's far too soon for that to have happened.

We are also entering an era where politics are once again a bit part of international exchange, which adds additional sovereign risk for many areas of international business and financial planning.

But Bitcoin faces the same kinds of risks as governments for corruption, mismanagement, etc. The genius of it is that the governance model makes it a lot harder for one party to really control what happens with it.

grandalf commented on Bitcoin Climbs as Futures Debut Fails to Incite Attack by Shorts bloomberg.com/news/articl... · Posted by u/mancerayder

0003 · 8 years ago

It is not so much a directional play as it is a force for arbitrage opportunities.

grandalf · 8 years ago

True, but those arbitrage opportunities will stabilize the price and make other similar opportunities less profitable. I suspect that the real reason these haven't all been ironed out (exploited already) is because Bitcoin exchanges lack the infrastructure guarantee that transactions close when they are expected to, and thus the fee levels wash out much of the arbitrage (for now). But arbitrageurs operating outside the exchanges can use this to their advantage and probably harvest a bit of profit on the chaos for the time being.

grandalf commented on What Bitcoin shows us about how money works bzarg.com/p/what-bitcoin-... · Posted by u/tbabb

grandalf · 8 years ago

These are all good points except for the idea that it won't be used like normal money. The speculative environment and price volatility resulting from that, is all by design. The mining incentive creates a "boom" environment to help bootstrap the currency.

Now, a few years later, BTC is blessed by regulators. The next phase of world domination is for the governance model of Bitcoin to start to seem far better than fiat governance models. This is just a matter of time.

grandalf commented on Bitcoin Climbs as Futures Debut Fails to Incite Attack by Shorts bloomberg.com/news/articl... · Posted by u/mancerayder

grandalf · 8 years ago

Short term betting (for or against) Bitcoin is unlikely to result in much profit.

grandalf commented on Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional davidgerard.co.uk/blockch... · Posted by u/davidgerard

grandalf · 8 years ago

Any price is just the amount someone is willing to pay. This is why prices change even for things that do have intrinsic value like food commodities, oil, etc.

More specifically, price is a function of supply and demand. Bitcoin was created with a very specific bootstrapping plan baked into the design.

What people are missing is that the bootstrapping plan is well known and obvious to investors, and is meant to incentivize a speculative motivation for mining, which it has done successfully.

But think about it this way, the price of a currency is only loosely linked to supply and demand. Nobody really knows how many dollars exist, yet the currency has characteristics that make it trustworthy.

Bitcoin is the same phenomenon. The price is based on the success of the governance model and the appealing characteristics of the ecosystem.

Based on these appealing characteristics, there is the widespread expectation that Bitcoin will win market share from other currencies over the long term.

We know there will be a finite number of Bitcoin mined, what we don't know is how much market share Bitcoin will have in comparison to other currencies.

Market share is not a function of money supply as much as it is a function of the holders of the currency that rely on the currency because of its governance mechanism, fungibility, etc. Many countries hold USD in reserve because they find the governance characteristics of the USD appealing. Bitcoin is just a novel way of doing currency governance.

For all uses of currency other than holding inventory, the governance mechanism matters very little, since there is little risk exposure to price fluctuations or the risks associated with bad governance.

Critiques of Bitcoin get mired in an imprecise understanding of all of the above, but the most notable blind spot is that Bitcoin is a governance mechanism first and a currency second, and investors are pleased because the governance mechanism has been tested a few times and has (thus far) performed admirably.

grandalf commented on Why Aren’t Any Bankers in Prison for Causing the Financial Crisis? (2016) theatlantic.com/business/... · Posted by u/sidcool

topspin · 8 years ago

"The answer is that regulators did an abysmal job of understanding the perverse incentives that plagued the industry."

My cynicism kicks in here. They did not fail to understand. They actively ignored, downplayed and dismissed clear evidence and demonized everyone that failed to participate in the fiction. There are powerful pressure groups and special interests that support from the debt driven, government incentivized mortgage system. They have captured the necessary regulators and legislators and expect these people adopt the appropriate blind spots.

grandalf · 8 years ago

Mine too. I am not attempting to let regulators off easy in this comment, merely pointing out that regardless of their specific motivations or their specific level of human integrity, systems that rely upon the good judgment of a small number of people often trend toward corruption... not necessarily through willful graft but due to human nature.

grandalf commented on Why Aren’t Any Bankers in Prison for Causing the Financial Crisis? (2016) theatlantic.com/business/... · Posted by u/sidcool

grandalf · 8 years ago

As others have pointed out, the actions taken by the financial firms' employees were not illegal. In hindsight some were harmful and perhaps should have been, but the question should be why weren't they illegal in the first place.

The answer is that regulators did an abysmal job of understanding the perverse incentives that plagued the industry. Among the biggest causes of bad judgment was the incorrect price signaling created by GSEs that were not following proper accounting and disclosure procedures.

On one hand the financial firms had significant regulatory capture and had been enjoying lots of profits due to their success influencing regulators.

But on the other hand, the entire system of "markets" that were most relevant to the crisis were the most heavily regulated and tied to specific policy goals.

It seems odd that we'd ever expect a system that is so politicized to ever be regulated in a rational and appropriate way.

Broadly viewed, we can see that the combination of regulations and areas loosely regulated and left up to the discretion of firms constituted a significant degree of centralized control, which turned out to be "corrupt" enough to result in a lot of bad decisions and the crash that ensued.

If we assume that all systems are prone to this sort of "centralization risk" we can better appreciate the benefits of decentralized governance that exist with some block chain systems.

Forget about jail for what happened in 2008, why should we ever trust financial regulators of financial firms again to regulate our financial system responsibly? Are we supposed to believe that the perverse incentives for regulatory capture, socializing risk, etc., suddenly ceased to exist?

I'd argue that we should not. We should realize that human institutions typically require participants to have some trust in other participants, but that the more trust is required the more vulnerable the institution is to the kind of problems that plagued the finance industry.

We trusted the GSEs to be acting responsibly even though no financials were released. Regulators trusted ratings agencies to apply disciplined processes to rating generation in spite of the profit motive not to do so, the public trusted regulators to ensure adequate underwriting of risk capital, etc., etc. All these things, many of them not even measurable due to the significant accounting slop involved, were vulnerabilities waiting to be exploited.

When a building has marble pillars outside and everyone inside is wearing expensive suits, what we are seeing is signaling of trustworthiness. When the banker is wearing $1500 Italian leather shoes and a $50K watch we can assume he's earned those things by being trustworthy over time. When we enter the high ceilinged room and see the marble we are meant to trust the institution itself. After all, how could this structure, meant to last thousands of years in the elements, not indicate the highest level of accountability and honesty?

We must realize that even the most well-intentioned institutions are vulnerable to centralization risk, aka the corruption of the inner workings and mechanisms in a way that is not at first noticeable but benefits insiders.

The finance industry used to be simply about risk, money and time. But in today's world it typically follows the pattern of taking money as an input, and producing as an output financial products that foist off some of the risk to society so that the owners can make a profit, with the downside risk being borne by society as a whole.

We see this process in action time and again, and it will continue to happen as long as our regulatory approach rewards massive firm size, prevents competition, and socializes losses.

Let's hope that we see an emergence of an alternative system that relies on a lot less trust and is much less vulnerable to centralization and corruption.