A few thoughts - Monday, February 23, 2015

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Steve Sokolowski
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A few thoughts - Monday, February 23, 2015

Post by Steve Sokolowski » Mon Feb 23, 2015 11:22 am

I wanted to focus on technology today and how that relates to bitcoins:

Change is in the air

I've been paying close attention over the past few years to self-driving cars, both because I think they will be the most significant transformation in society in a long time, and also because I want to be one of the first to buy one. What's striking about the field is that self-driving cars, as recent as a year ago, were a joke. Prototypes could roar around carefully controlled test tracks, with 12 large servers in the back and a driver needing to be behind the wheel to take over in case of a disaster. There were one or two companies that were working on such cars.

Now, just in the past two months alone, news broke that there are about ten companies, most of them traditional auto manufacturers, racing to get the first car out. Google has a functioning "beta" model that has no steering wheel and has its final body style. Nissan wants to roll out cars to test in 2017. Volvo then one-upped Nissan by stating they would be selling 100 production cars to actual owners for a road test before then. Now, it was revealed that Apple has 1000 (!) engineers working on what is most likely a car. The progress in this field is so remarkable that one should not be surprised to see some company start producing working models next year, not in 2020 or 2017. I would not recommend buying a new car today because its value be near zero in five or seven years.

Of course, self-driving cars are advancing so quickly because of advances in artificial intelligence. Last year at this time, people also thought AI was a joke, with chatbots continuing to fail the Turing test in an absurd fashion. By the end of the year, researchers had created a facial recognition system that can recognize people with greater speed and accuracy than a human can.

Driving this change is something called deep learning (or neural networks). The astonishing fact is that no human understands exactly how the computers are able to drive these cars or to recognize faces. Computers themselves are improving their own algorithms in limited areas. Humans simply take the database that the learning algorithms have created and provide it to the cars and facial recognizers to use, without having any idea how the computers created that database.

One can see that technology is starting to advance at an incredible pace. Things like virtual reality (HoloLens, Sony's new VR headset, Oculus Rift, and more just announced) will be commonplace at the end of the year, and if not then, within one or two years later. While people like Ray Kurzweil predicted this acceleration 30 years ago, it's still surprising to the average person to experience it coming about. There are many people who are going to be left behind as they can't comprehend how AI is now able to figure out the solutions to problems (like driving a car) that would take humans decades to resolve. Just wait until someone designs an AI that can teach itself how to develop drugs.

Bitcoins are not accelerating

How does this relate to bitcoins? The short answer is that bitcoins are being left behind. We've reached a world where progress is starting to accelerate exponentially. When I look at bitcoin development, I see stalled adoption, few unique use cases, and where development is occurring, it is unfolding slowly.

I've stated before that if there is not a bubble within a few months, then bitcoins are likely to face a downward spiral of shrinking investment and failing companies. We've already seen a number of companies failing every week: exchanges, poker sites, and miners, just to name a few. Transaction volume in real dollars (not including spam) is completely stalled or declining.

Some people are trying to write these problems off as temporary setbacks. Alternatively, they believe that bitcoins will simply take longer to develop than originally thought. While this pace of progress was fine with the Internet, technology in today's world no longer has the opportunity of 20 years to develop. When I compare self-driving cars to bitcoins, I see the automotive industry where there are millions of people in multiple companies competing to be the first to achieve a technological breakthrough that will change the world. There is absolutely zero chance that in 10 years, anyone other than a collector will see a manual car as superior to a self-driving one. No reasonable person doubts that as soon as a car is proven safe and inexpensive, there are millions of kids and the elderly who will snatch these up, at the very least.

On the other hand, I see the bitcoin industry where there are a few thousand people (at most) implementing solutions that are better than the existing system that are not being used by the public. Not only that, but all the excuses people are giving for the solutions remaining unused are invalid. The idea that "regulations" are holding back bitcoins is ridiculous, because nobody dies when a bitcoin is sent to the wrong address. When a car drives in the wrong lane, people die. There are plenty of regulations in both fields, but the automakers are moving forward anyway. When enough people buy self-driving cars, the regulations will be either ignored or changed. If enough people started to use bitcoins, they would ignore the regulations (as most companies do now) or change them, but adoption is not great enough to force changes in regulations. People who look to regulations need to realize that there's no reason to change regulations unless public pressure forces that change (not the other way around).

Bitcoins are not growing fast enough to keep up with the rate of change everywhere else. If the price and transaction volume don't start to increase exponentially within a few months, that is a signal that the technology is not useful to people.

I know that I'm personally not buying any more bitcoins at this price; I just transferred thousands of dollars into stocks in the industries I've been talking about here. There is too much risk at this slow growth rate. I never sell, but I wouldn't buy unless price were $100 now. The rate of growth simply has to increase. Technologies that take 20 years to develop have no place in today's world.