Page 1 of 1

A few thoughts - Monday, August 18, 2014

Posted: Mon Aug 18, 2014 4:58 pm
by Steve Sokolowski
Good afternoon! A few thoughts for lunch today:


/u/bit_by_bit's thoughts on "social capital"

bit_by_bit made an interesting post on the idea of "social capital," which I thought was worth mentioning here. At http://www.reddit.com/r/Bitcoin/comment ... of/cjsmm5q, he talks about the death of his grandfather, for which I offer my sincerest condolences. Having attended the funeral, he mentions how friends and family have caused him grief about his support of bitcoins. bit_by_bit is incorrect in his posts where he writes bitcoins off as "dying." At the same time, if bitcoins were "dying" right now, then my least concern would be about what my friends think of me.

What bit_by_bit says about "social capital" is completely true. If your goal is to make lots of friends, then you can approach the problem scientifically by following rules. For example, a good way to make friends is to talk to lots of people and to never share controversial opinions. Toastmasters has a good template for this in one of their advanced communications manuals; there is a four-step process they suggest on how to introduce yourself to someone you've never met before. Following the process, you can move from talking about the weather to politics to discussing your divorce in ten minutes. I imagine it would be possible to attend lots of parties and use this technique on many people, making lots of people one might misinterpret as friends.

Once you have those friends, then the best way to keep them is to agree with them as much as possible. Some people are shallow creatures and turn against their friends easily. I mentioned the situation with the family member and the damaged property in a previous post, and the core issue in that situation preventing action was the family member's worry of what friends of friends would think should a stand be taken on repayment.

For good or bad, unlike bit_by_bit, I don't worry about "social capital." I worry about whether I treat people fairly and about what is right and wrong, not about how many friends I will lose or gain by taking actions. People who live their lives worrying about what other people think end up with legions of shallow acquaintences, like the people I know who do little with each other except go out on Fridays and get drunk. Even if bitcoins were dead, friends and family members who would make rude jokes at someone's expense are lesser people who aren't worth associating with. Why should bit_by_bit (or you or I) place the same level of credence in what they think as in someone who is caring and treats others with respect? Rather than losing respect, bit_by_bit has actually gained valuable information, because the respect of such people doesn't matter, and because he now has a smaller number of friends who he deserve more of his time and attention.

If bitcoins were to die, I would not be concerned whatsoever about what colleagues or friends thought of my discussions about them. I would be profoundly disappointed that I live in a world where people are so stupid and closed-minded that they were not able to recognize how bitcoins could have improved the lives of everyone so dramatically.


Some comments on the recent decline

/u/sqrt7744 has an interesting comment about the ongoing decline at http://www.reddit.com/r/BitcoinMarkets/ ... 14/cjti1za. In it, he mentions that markets are irrational and also talks about how the falling prices make it difficult to convince newer people to invest. But I don't think that this selloff is irrational like he does.

One thing that's noteworthy about his comment is where he discusses the impact of Ben Lawsky on bitcoin prices. It's reasonable to make a case that this decline was directly caused by Lawsky's regulations. There are some issues with the timing of that argument, so readers can consider for themselves whether Lawsky singlehandedly caused these declines.

The selloffs during the last cycle every time there was some Chinese news were irrational, because bans in China never represented a fundamental threat to bitcoins. While there are still a few posts that continue to claim the fundamentals have not changed (/u/moral_agent has firmly sided with the people who think that we are still in the previous cycle by not changing his charts), some people in /r/bitcoinmarkets are finally starting to wake up now. The current selloffs are rational, because they are based on fear of one of the two things that can cause bitcoins to fail: that people simply don't want to use them. The question for this cycle is not whether governments will allow bitcoin usage but whether people will use them, and the cycle won't end until that is proven one way or the other months from now. What happened is very simple: people aren't using bitcoins at the same rate as before, July 24 came without adoption having increased, and people who see they can make more money in stocks and other investments left.

As an aside, I should note that the transaction volume has remained unchanged compared to the number of transactions, so it looks like the increasing number of transactions is a false indicator. Anyone can increase the number of transactions by spending a small amount to send a little money to lots of people. The chart to look at is "transaction volume," which hasn't moved.

My bottom line: I remain bearish, just as I did at every step since $620. This downturn does not end tomorrow or next week and because this crash was caused by a change in the fundamentals, there needs to be another change in the fundamentals before recovery begins. The only exception to this rule would be if the price reaches $150 or some unlikely absurd value in a matter of a day, in which case it would make sense to buy huge even if it is just to make short-term gains.


Redefining "speculation"

I think it's worth redefining the term "speculation" to mean "wealth storage." People who buy bitcoins and don't spend them are not leeches upon the network. In addition to providing liquidity, they are using bitcoins for one of their intended purposes: storing their wealth away from the hands of governments and everyone else so that it is available anywhere in the world.

Spending bitcoins on products and services is only one use of the bitcoin network. People who say that bitcoin is "overvalued" for its current uses based on spending alone are adhering to a very limited view of the network's usefulness. I argue that the most useful feature of the network is its ability to store huge amounts of wealth, and that is even more useful than the transactional features. When we redefine the value of bitcoins to include wealth storage, then we have to also redefine the "basic value" of the network to determine whether it is overbought or oversold.


PETA "changes its mind" about switching to P2Pool

On Friday, PETA changed its mind about switching to P2Pool, stating that its hardware wasn't compatible and that they could achieve lower variance by not switching. Such an action is likely illegal, as over 90% of shareholders voted for the switch. If I owned shares or had any association with them whatsoever, I would be selling and would get out immediately with whatever I can salvage.

The company made headlines a few months back when they announced that they would be switching to promote decentralization, and received huge support (and huge money) from the community. A post on Friday attracted quite a bit of negative publicity, so hopefully people who read it will stop supporting them and the company will pay for its duplicity.


Gavin Andresen makes over $206,000

I wanted to make a quick note that it was revealed last week that /u/gavinandresen makes over $206,000 for his work as a bitcoin developer. I've never heard of a software engineer who makes anywhere close to that much; it's almost three times what I make.

As a genius, this is the one case where I can say that he deserves every cent he makes. Most of the time, you hear about stories of CEOs who earn $3m or $10m in cash and bonuses and stock options - but these CEOs don't actually produce any work for the company. Andresen works hard and actually produces meaningful stuff that advances the purpose of his organization. A company can survive without a CEO, but it can't survive if it doesn't have deveopers producing a product. It's good to see the right people getting rewarded for their work, rather than CEOs leeching off others' hard work.


Other
* **Days until the comment period ends: 24**