Key Excerpts and Commentary from NYAG/Tether Court Transcript

First of all link to the transcript: https://www.docdroid.net/Wk3pePO/transcript-may-16-2019.pdf

Second of all congrats to @lawmaster and The Block for a great scoop.  https://t.co/22w3xY8mc8 Now let’s get down to business.

Bitfinex is still being hesitant to hand over documents to the NYAG.  They have struggled to get access to documents relating to the transfer from Tether to Bitfinex, and this suggests to me that either the documents don’t exist or there is a very good reason they are not being shared.

Screen Shot 2019-05-21 at 5.03.56 PM

This is directly contrary to what Bitfinex has claimed to the public wherein they have claimed that they have been fully cooperative. https://www.bitfinex.com/posts/356 Archive link: https://web.archive.org/web/20190521220643/https://www.bitfinex.com/posts/356Screen Shot 2019-05-21 at 5.05.47 PMHowever, I’m sure that there is no reason to think that Bitfinex is hiding something. No reason at all.Screen Shot 2019-05-21 at 5.09.29 PM

Shortly after this we learn very interesting things, Tether’s lawyer admits to Tether investing in Bitcoin:

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Luckily we have a sharp judge here who quickly gets to the meet of the issue and correctly points out that this seems contrary to the nature of a “Stablecoin”.Screen Shot 2019-05-21 at 5.14.31 PM

The Tether lawyer responds by confirming what we all suspected since the ToS change is that other assets includes cryptocurrencies:Screen Shot 2019-05-21 at 5.15.35 PM

The Tether lawyer then continues basically saying they will not produce documents and will instead appeal and challenge every single step of the way:Screen Shot 2019-05-21 at 5.17.11 PM

The Tether lawyer then also says that they do not think there is any amount of dollars they need to keep in reserve:Screen Shot 2019-05-21 at 5.19.17 PM

The Tether lawyer then takes the classic Tether defender tactic of it’s okay because banks do it too:Screen Shot 2019-05-21 at 5.20.19 PM

The judge quickly ascertains the issue with this and points out that this effectively means there is no reserves:Screen Shot 2019-05-21 at 5.21.18 PM

The Tether lawyer responds by saying it’s okay, if they need to they’ll earn money some other way, pay it back, and just delay redemptions:

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A little further down the NYAG reveals that Bitfinex/Tether executives get lump sum payouts from the unsegregated Tether accounts where no reserves have to be kept:

Screen Shot 2019-05-21 at 5.25.12 PM

The NYAG also reveals the juicy tidbit that the largest redemption ever was less than $25 million:

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Why is this particularly juicy? Well let’s take a quick trip over to their treasury address on Omni: https://omniexplorer.info/address/1NTMakcgVwQpMdGxRQnFKyb3G1FAJysSfz/1 here it does not take long to find bigger transactions coming in than that like this: https://omniexplorer.info/tx/572792736c6846998ac0b8c532d0317f7d8460886ce900bb6005260ed66cd80a So somethign is seriously amiss here.

Now relevant to this entire document is the issue of disclosure. Tether claims that they are not in the wrong because once they started using other assets they disclosed it.  However, is that true? I will contend it is not. Let us consider Tether’s own website: https://web.archive.org/web/20150521003646/https://tether.to/faqs/

In 2015 Tether openly admits to exchanging Bitcoins for Tethers without KYC. Now it is possible, but in my opinion unlikely that they still had sufficient fiat reserves at that point, but I think it is plausible to doubt that and to believe that Bitcoins have often been a part of the backing.

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In conclusion: Tether has paid executives dividends out of non-segregated accounts, does not feel a need to keep cash reserves, is buying bitcoins with reserves, and cannot handle a rush to redeem.  Their largest claimed transaction is also smaller than multiple apparent redemptions on the blockchain.

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A Guide to a Hypothetical Internationally Coordinated State Level Attack On Bitcoin

There was a recent comment by Joseph Stiglitz in which he expressed his desire to “shut down the cryptocurrencies”.  This prompted me to seriously consider how one would go about shutting down or seriously damaging Bitcoin. This is not an easy problem because Bitcoin is designed to be a remarkably resilient system, however, I do think with coordinated international action a significant amount of damage could be done.  My proposed plan relies partially on how Bitcoin does difficulty adjustments.

Every 2016 blocks (~2 weeks) the difficulty of Bitcoin mining adjusts so that blocks continue to come approximately every 10 minutes.  This is important because the hashrate dedicated to mining Bitcoins has varied significantly over time, and so this helps keep block time relatively stable.  However, major swings in hashpower can significantly change the time between blocks.

Furthermore, it is important to remember that Bitcoin mining tends to run with a pretty narrow profit margin, and as such major swings in price can significantly affect the profitability of miners on the network.

So knowing these things, how do we attack Bitcoin? Step 1 is to start buying up old mining hardware.  Because mining demands a high level of efficiency to be profitable old generations of miners are rapidly abandoned as miners with access to more efficient technology can reap larger rewards.  However, if you do not care about profitability you can acquire these miners. Now make sure you keep them off the network, you do not want people to know that you are acquiring hashpower as it would cause suspicion.  Right after a difficulty adjust bring all of your hash online and wait until the next difficulty adjustment.

The next step is to try to negatively affect the price as much as possible in as short of a time as possible.  These steps need to occur right after the difficulty adjustment after you brought your hash online. You will accomplish this price with drop with two primary techniques. The first, as a major state level actor you have seized and safeguarded Bitcoin and other cryptocurrencies in the normal course of law enforcement actions. You will now sell it all, or as much of it as humanly possible.  Instead of trying to maximize your potential monetary gains from these sales you will instead try to sell them on the lowest liquidity places you can access, with the goal of throwing off indices and inciting further selling from major holders. While you are doing this you will simultaneously try to pull a major source of liquidity from the market. If there exists for example a poorly regulated exchange and stablecoin who combine for a significant portion of the liquidity in the market you will seize them right as you begin to sell.  Allow as many people as possible to stampede for the exits.

Now we must do everything we can to reduce hashpower on the network.  Turn off all of the hashpower you brought onto the network, and simultaneously coordinate with China to convince them to cutoff as many of their miners as possible.  Seize any mining hardware you reasonably can and keep it off the network for now. This drop in hashpower, combined with a major drop in price will cause many previous profitable miners to now be mining at a loss.  Many will choose to turn off their machines rather than lose money continuing to mine. The lower the hashrate goes here the less usable the network is. Block times will lengthen and people will grow increasingly frustrated and apt to sell, perpetuating the cycle.  Whenever anyone sells mining hardware buy it.

Now you wait for the next difficulty adjustment.  This will take longer than it normally will because the time between bloks has vastly increased.  However, Bitcoin is a stubborn beast and there are likely some people who have isolated themselves reasonably well from state intervention and will mine to keep it alive.  Once the difficulty adjusts again, you will again deploy your hash which should now be even more. If you control the majority of hash you will mine empty blocks making the network entirely useful.  The only transactions you will allow through are those meant to help you sell your block rewards. You will sell your entire block rewards with the goal of continuing to push the price even lower.

If you do not control the majority of hash, but do control >25% you will selfish mine and continue to try to identify other miners on the network and seize their hardware.

Regardless of whether or not you are controlling the majority of the hash the next difficulty adjustment should come quick, in less than two weeks.  Again you will withdraw your hash and let block times lengthen, but now transactions will be going through, giving desperate people a chance to sell.

Lather, rinse, and repeat.  Eventually you will control the majority of hashpower and once this happens you will force the community to make incredibly tough decisions.  These could include changing the hashing algorithm or changing how difficulty adjustments work. These decisions are likely to be contentious and will therefore further fragment the community.  If these contentious issues result in forks you will see people on each side of the fork trying to dump the other side of the fork, further depressing the price. Even if some vague semblance of a Bitcoin is left standing after this attack it will be a shell of its former self and you will have demonstrated to people that it is more vulnerable than they have ever believed.  Enjoy your continued monopoly on money printing.

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On the Social Scalability of Bitcoin and the 21 Million Cap

Many Bitcoin proponents, chief among them Nick Szabo, laud Bitcoin for its social scalability.  In order to discuss this issue fairly we must first define social scalability. In the famous blogpost where it was first used, Szabo defines it as:

“Social scalability is the ability of an institution –- a relationship or shared endeavor, in which multiple people repeatedly participate, and featuring customs, rules, or other features which constrain or motivate participants’ behaviors — to overcome shortcomings in human minds and in the motivating or constraining aspects of said institution that limit who or how many can successfully participate. Social scalability is about the ways and extents to which participants can think about and respond to institutions and fellow participants as the variety and numbers of participants in those institutions or relationships grow.  It’s about human limitations, not about technological limitations or physical resource constraints.” (http://unenumerated.blogspot.com/2017/02/money-blockchains-and-social-scalability.html)

First, I must acknowledge that there are significant benefits to Bitcoin’s design that enable social scalability.  Among these are the expense required to censor a transaction, the prevention of double spend without a centralized entity, and the issuance of rewards without a central entity.  Each of these has contributed significantly to the success of Bitcoin and are what make it such a compelling piece of technology to me. However, certain design decisions have created a significant and hard to rectify argument surface that may limit future growth.  The most important of these, in my opinion, is the choice of a finite, hard cap.

Challenging this hard cap is challenging many of the fundamental ideas held by Bitcoiners and as such I’ll belabor certain points in order to ensure they’re addressed thoroughly.  First of all there is a conception among Bitcoiner’s that inflation is inevitable in our modern fiat system, and that this inflation will be bad either for them individually, or for society as a whole.  I am willing to concede among these points that inflation may sometimes be bad for the individual, however I contend it is often still a net-positive. Furthermore, I want to challenge the assumption that a finite supply is useful in reducing argument surface.

As Bitcoin’s are lost to theft, technical mistakes, and deaths the supply will continue to contract as Bitcoin becomes a deflationary currency..  For existing holders this seems to be a positive thing. The more the supply contracts the greater proportion of the total value their investment represents.  However, it may still be a net negative if it places an upper bound on total value of Bitcoin. Furthermore, it is valuable to realize that, due to the emission schedule of Bitcoin, a large number of Bitcoins are held by a small number of people.  I will not attempt to estimate exactly how many, because it is beyond the scope of this article, but I would estimate 0.01% of the world’s population possess at least half of the Bitcoins that will ever exist (it is likely much less, for statistics go here: https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html).  This is an intense concentration of wealth, and as the price of a Bitcoin measured in fiat goes up you will expect significant wealth to accrue to these holders.

This natural enrichment of early holders could be considered fair for them shouldering the lion’s share of the initial risk, and believing in a nascent technology before there was significant evidence it would survive.  However, the truth of the matter is that having such disproportionately large early holders makes it harder to convince people to buy in, because the primary benefit to their investment is enrichment of the early investors.  Now, the response here would be that these people are still incentivized to buy in, as they will end up capturing a larger share than the later holders, however, a structure depending on convincing people to enrich early holders at the expense of later investors is a structure that has made many people at the top quite wealthy.  Even now while we are still relatively early in the long life of Bitcoin, it’s difficult for me to envision mass usage, as most are unwilling to enrich a few solely to gain censorship resistant transactions. However, they may purchase Bitcoin as a speculative asset, but my only response to that is I do not see it as a path to adoption.

Furthermore, with Bitcoin (or any other deflationary currency) widescale adoption would provide the largest holders with an entrenched power base.  If it were to become globally accepted in the manner described by the proponents of hyperbitcoinization, then early adopters will obtain incredible wealth, and from that, shocking power.  Since they are incentivized to hold that wealth and not to spend or deploy it, the wealth changes hands infrequently.  This appears to predispose Bitcoin to create an entrenched oligarchic system.

Next, it’s pertinent to consider the value of inflation.  Important to this conception is the idea of a risk curve. The risk curve, which can be gracelessly summed up as a comparison between two assets showing how the change in risk affects the expected return, is important to understanding the said value of inflation:  For example, you may choose to switch your excess money from USD (low risk, negative expected return) to equities (high risk, high positive expected return). The value of maintaining the negative expected return for USD is that it incentivizes greater deployment of capital up the risk curve.  Investors are willing to take on risks in order to protect their wealth and ensure returns. This capital allows for the expansion of the total economic pie as businesses grow and create new products, new efficiencies, and new markets. However, deflationary money can seriously mess with this contention.  If you have a well-established deflationary money then your money will have (low risk, positive expected return), and as such you have little incentive to deploy it up the risk curve. This may seem to be a relatively small and technical matter but it is a significant matter. Hyperbitcoinization would be destructive for society and would result in a regression of economic games to zero-sum along with establishment of an entrenched oligarchy.  This may not prevent adoption, but it may affect the argument surface.

My argument rests on,  “a relationship or shared endeavor, in which multiple people repeatedly participate, and featuring customs, rules, or other features which constrain or motivate participants’ behaviors — to overcome shortcomings in human minds and in the motivating or constraining aspects of said institution that limit who or how many can successfully participate.”  The hard cap on Bitcoin has created disincentives to cooperative behavior. The reduction to zero-sum or net-negative games makes it such that the nature of every interaction becomes competitive instead of cooperative.

There are a couple potential counter-arguments to my points here.

The first many Bitcoiners/Austrians (big overlap there) will turn to is an effect referred to as the Cantillon effect or the injection effect. I am not a true economist, but it can be summarized as the place where money enters a system, has a significant effect, and is likely to enrich those closest to the injection point.  There is little, but not zero, empirical evidence for this in traditional central banking systems, but even if we accept that it is a real effect other features of Bitcoin help minimize it. Consider who is closest to the injection point in Bitcoin: the miners. The miners are required to either exchange it for fiat to pay power bills, or purchase power directly using Bitcoin.  This cost to produce helps eliminate the disproportionate wealth effect (if it exists) from monetary injection.

Some, Hasu comes to mind, have advocated that instead of removing the hard cap there could be a requirement to move your coins regularly or they will be ‘reclaimed’.  I have always considered this idea seriously problematic because of the implications it has for some of the fundamental tenets of Bitcoin. One of the primary tenets of Bitcoin is that your key gives you, and solely you, control of your Bitcoin, and this invalidates that assumption. For those who keep their coins in cold storage it also represents a (slight) security risk to have to access the coins and move them to a new wallet.  Additionally, this could destroy the predictability of mining rewards which may change the incentive structure. It seems to me this would more fundamentally change the protocol and argument structure than simply continual issuance.

The argument that creating a hard cap and creating such a cult around the inflation schedule has reduced the argument surface surrounding Bitcoin and in so doing improved its social scalability.  This would fit neatly with Szabo’s definition, as it basically limits the participant’s ability to influence the inflation rate. It also helps with the argument that a cap was necessary in order to achieve any social scaling of Bitcoin, because the early adopters would not have been motivated to use it without that cap.  This theory does have significant merit, and is even somewhat compelling to me. However, the fact that we are already having regular conversations about the cap suggests to me that the argument surface has not been maximally minimized.

The final argument I’ll address is that modification of the inflation schedule begets greater modification of the inflation schedule.  I may have to concede this argument. It is possible that by deviating from the cap we have created a scenario where people will continually advocate for changes to the inflation schedule, but Bitcoin governance is helpful here.  Bitcoin relies on what can be termed fork-based governance in which people have the freedom to run exactly what node implementation they choose, miners choose which chain to mine, and exchanges choose which versions to trade. This means that the only way for this inflation schedule to change is with a very difficult consensus making process, which reduces the likelihood of more than one switch (and makes the one switch I want incredibly difficult).

Fundamentally, Bitcoin does solve several important scaling issues by creating irreversible, censorship resistant transactions without a central party.  However, the economic model of Bitcoin limits social scalability and mass adoption.  It may also be important for Bitcoiners to realize that they may be potentially limited their returns and adoption due to devotion to this hard cap.

Thank you very much to CasPiancey and Kyle S Gibson for their help with this article.

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Why I Left Medium

So I have previously published pieces about the advantages of Medium (here) and later published a piece about the advantages of using it as a syndication platform, which mostly still stands. However, for me personally I will no longer be using it any capacity.

I wrote an article (note this article is not up for reasons) criticizing a problematic cryptocurrency, this article was distributed by Medium curators, and was up for five months before I finally received this email:

You can review the article yourself but I do not think it was gratuitously abusive, and I do not think harmful is a meaningful metric here.  If any post that could be harmful to a business is taken down then you are effectively eliminating the ability for people to criticize or review.  Once I realized it had been taken down I decided to review their Terms of Service (something I should have done before ever promoting them).  They include in their terms this line right here: Capture.PNG

This blanket statement made me realize that it was no longer going to be a fortuitous relationship for me to allow them to use my content to advance their platform.  I encourage all content creators to control your own domain, control your own hosting if you can (or use one who has committed to being anti-censorship like WordPress), control your own email list, and keep backups of your content.  I did all of these things so this takedown has little effect on me, but I worry about the effect it could have on someone else.

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A New Brave World

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Disclaimer: This story is a fictional rendition of what it would be like if there was a company that chose to accept payments on the behalf of content creators without their knowing about it, and then give them away if not claimed in time. There is unlikely to be any resemblance to real life events because there is no chance anyone would do that right? It was also meant to be satire, but sometimes when you live in the craziest possible world, the best you can do is a retelling.

It was a long evening of grinding away on his stream. John had been working for months and finally built up a couple thousand followers on Twitch. He was far from a major name who could do it exclusively, but he did have a few people who were willing to subscribe and make sure he had a few dollars every month. They seemed to enjoy his dry wit and his ability to break down certain strategy games that were a little bit less common on Twitch. He figured he was going to playing anyway, might as well share his love of the games with a few others.

Erin was a huge fan of John. As often as she could she would tune into his streams. She had never met someone in real life who played these same games as her, and especially not someone who could make even the watching exciting. She was a huge supporter of her favorite content creators online, and luckily her browser had a couple of buttons that made it super easy to tip people she loved watching. She logged on to watch John stream and soon found herself laughing uproariously. She clicked a couple buttons and sent him a few dollars, glad to help someone who brightened up her days.

John’s lifeblood as a subscriber was the few people who chose to invest the money to subscribe to his channel. Those who chose to do this got a couple of little perks: a badge they can use in the chat, a subscriber only chat, no ads, and the pleasure of knowing they were supporting a content creator. He didn’t have a ton of subscribers, but the few he did have he started to gradually develop relationships with. Since they got access to the subscriber only chat he would pop in and talk to them, many of them fans of his same favorite games. It was a good arrangement. Besides those subscribers there were some people who were willing to hop in to his streams and “cheer” which acted as a small tip for John. This right now only added up to a about a hundred dollars a month for him right now, but this amount helped convince him it was worth continuing, and kept his equipment up to date. He was hoping in a couple of months he would able to justify an upgrade to a brand new keyboard, one he had been eyeing for a while.

Erin had continued to tip John through the browser, and finally decided one day to send him a message noting her appreciation for his channel.

Hey John,

Just wanted to send you a quick message to say that I love your channel. Not often do I find someone else who loves these games, and you make watching them fun and funny. I hope you keep doing what you are doing, and I hope my few small tips of RAT is helping to make that happen :).

Your fan,

Erin

John opened up his messages and was confused. He had never before heard of a tip of RAT and was totally confused what Erin might be doing. He decided to sent Erin a quick message back to find out what was going on.

Hey Erin,

I wanted to say thank you for your message, support like yours is why I keep doing this. I was wondering though what a “RAT” is, obviously I know the furry little rodent, but I’m guessing that is not what you are sending me.

-John

Erin was now the one confused, when she had opened up her tipping page on her browser, she had seen a total profile for John, complete with his profile picture and his information. It had seemed like all of her favorite content creators had pages, and so she would send them a few dollars when she can. Now she was a little bit confused, because it seemed like John had never gotten any of her tips. She decided to start digging and went looking through what she could find out about how this tipping worked.

In the meantime John who had a small but loyal following on Twitter decided that he wanted to describe his experience.

I want everyone to know that if you have been tipping me RAT that I am not set-up to receive it. I have shared no information with that company and I am not receiving those tips. 1/

It appears that this company decided to make a fake profile for me and they have been soliciting these tips on behalf of me and other creators. 2/

Glancing through the ToS for this company it also looks like they do not refund these tips to the people who choose to tip, but instead use them for their own purposes. 3/

This company seems to be exploitive and seems to take advantage of both creators and their fans. It is not right to use my image to solicit money that will never get to me. 4/4

This quickly became one of John’s most interacted with post he had ever made on Twitter. Turns out that RAT had previously been quite popular. Even the CEO of the company that made RAT decided to chime in on the issue. He wanted everyone around to know that he saw no problem with what he was doing, and that furthermore it was okay to be doing it because he saw himself as a Nietzschean Ubermensch. It turns out that many content creators had been “receiving” tips that they never received, and many people had been tipping people who never received.

It seemed that the goal of this company was to get content creators to opt-in by convincing them they were missing out on these tips, which then makes the platform look better to people because there are more people using it. Quite possibly one of the worst tactics in the sleazy growth-hacking playbook. John considered for a second signing up in order to receive these tokens, because every dollar did help, but the simple truth is he refused to support a sleazy model like this. He hoped that if he refused to participate and drew attention to it, other creators may eventually see some of the problems.

Erin seeing this whole debacle made a simple choice. It was time to find a new browser, and she decided to sign up as a channel subscriber to John. She still loved his content and wanted to do what she could to support him.

Disclaimer: I am not signed up to receive RAT or any similar products, please do not send them to me.

Totally Unrelated Link: https://twitter.com/tomscott/status/1076160753793683456

A Response to “Bitcoin’s Existential Crisis”


View at Medium.com

Nic Carter, one of the General Partners at Castle Island Ventures (a previous edition misidentified the fund), the VC fund infamous for investing in Flipside Crypto who sold baskets of shitcoins, recently wrote an article describing what he called the existential crisis of Bitcoin. If you don’t have 12 minutes to read it, it can be summarized as “Bitcoin has no leader and therefore it forks sometimes.” However, in this article that has some in the Crypto Media referring to Nic as Satoshi 2.0, he has several instances of flawed or incomplete thinking.

The first three paragraphs of this piece are quite well thought out, and if you ignore the usage of phrases like “intersubjective consensus” (for those who do not know intersubjective consensus is an idea that pops up in cognitive and philosophical journals to describe how people create a shared conception of reality) a useful introduction to some of the issues in the identity of cryptocurrency.

“The first and most common method is to give a corporation or foundation rights to a trademark, as is the case with Tezos or EOS.IO. This is the default for non-Bitcoin blockchains and gives an entity the legal force to anoint and ratify a single chain. Of course, no one is bound to follow this, and there could be a fork of Tezos that everyone mutually agrees to use.

However, the trademark carries certain legal protections, and if a fork tried to retain the name, the trademark owner would have recourse, at least where the fork tried to interact with regulated institutions. In this case, the trademark is just one manifestation of the core issue, which is confirmation that the leadership of a blockchain is seeking authoritative ratification of their control. Other activities this entity might engage in would be pressuring exchanges to use one ticker over another or support one fork over another as well as spreading a consistent message to the media. All of these give the entity de facto control over which fork is chosen in a dispute.”

This section is humorous to me because people have tried to trademark Bitcoin. See here, here, here, here (cash), here, here, here, here, and here. (Note many of these are for different products, not actual Bitcoin.) However, Nic is making a good point. Namely, that you can either defend against identity crises with legal structures, which are generally antithetical to the stated goals of this space, or you can embrace the difficulty.

The other approach is to throw caution to the wind and spurn any external marker of identity, relying instead on an intersubjective consensus, such that the system can change over time while remaining faithful to its original goals. This is the approach leaderless (or, more accurately, leader-minimized) systems like Bitcoin and Monero go for. Of course, there are influential individuals in both systems, but neither has a foundation or corporation in control of a trademark or a clear decision-making body. Many critics would say that Bitcoin Core, as the author of the dominant implementation of Bitcoin, wields disproportionate control, but that’s a reductive reading. It is not an official body, and the dominant implementation that they create does not define the essence of Bitcoin but rather its instantiation.

Here is where we get into some of the fun parts of the argument. The idea that Bitcoin Core is solely an instance of the consensus around the rules that define Bitcoin. This is ostensibly true, but it is important to remember that Bitcoin is at its core the software the nodes run. There was a recent instance wherein Bitcoin Core had a massive denial of service and inflation bug. Any inflation bug like that is inherently against the social consensus that governs the emission schedule of Bitcoin, yet it existed nonetheless in the instantiation, suggesting the influence of Bitcoin Core here is much larger than Nic is trying to imply. I do agree that there is no single leader of Bitcoin, but denying the influence of Core is myopic. He tries to cover it up with a Pierre Rochard quote that claims when the software and the consensus conflict, the software is mistaken, however, since we have established the software is the instantiation of the rules, the practical reality is that Bitcoin depends on the software. Without the code instantiating the network, there is a brief paper popular amount cypherpunks. Furthermore, since Bitcoin is decided solely by social consensus, and due to the primary software being written by one body, we actually see an increased likelihood for forks arising when the incentives of Core do not align with the incentives of holders or users.

Absolute commitment to the sound monetary policy (the 21 million hard cap) is a core virtue of Bitcoin but limits its design space and ability to pivot if the fee market doesn’t work. But this is the tradeoff Bitcoin has opted for.

Okay quick pet peeve here: finite supply is not the only way to sound money. Even gold had an elastic supply that inflated over time. Furthermore, in order to accept that Bitcoin has a capped supply, we must accept that forks do not represent an increase in the supply. This is true to a point, in that a Bitcoin will likely always remain capped. However, there is still an incentive to increase supply, meaning that in the future the social consensus around Bitcoin could change and the supply could increase. Claiming that Bitcoin will always have a capped supply is ignoring the practical realities of the incentive model that governs the security of the network. As former Bitcoin Foundation member Brock Pierce once said, “If I need money, I just make a token.” The appeal of determining the values, and taking the lion’s share of the reward is immense and difficult to avoid, even for those closely connected to Bitcoin for years like Brock.

Moreover, when forks occur due to a contentious issue in the community they will likely fracture the community, damage the networks effect around Bitcoin, and may, therefore, represent an increase in supply in proportion to the degree they fracture the community. This point is a little bit difficult to understand immediately and so I would like to break it out a little bit in an attempt to make it more clear.

  1. A significant portion of Bitcoin’s value derives from the network effects and continual strengthening of the community.
  2. The “real” Bitcoin is determined by social consensus.
  3. Contentious forks fracture the community and diminish the ability to reach unified consensus.
  4. Therefore, contentious forks increase the quantity of “effective” Bitcoin by diluting the ability for any fork to clearly claim to be Bitcoin.

The solution to this fracturing that Nic claims is the dedication to a few very stable values. However, we have already established that it is hard to keep this community aligned.

The remainder of the article divides perspectives on Bitcoin into various philosophical camps. I actually believe he may have usefully pointed out the ideological differences. However, I see the existence of these different camps as evidence that Bitcoin may never achieve alignment between these different positions, and is likely therefore to continue to fork as various issues arise. Every contentious fork that arises represents an increased difficulty in Bitcoin ever achieving the network effects it requires in order to be effective.

H/t to Kyle Gibson and Joshua Davis for help editing this

Expertise, Diminishing Returns, and Intersecting Niches

I have been thinking recently about skill development, because I have a habit of never being focused in a single area and instead trying to learn as much as I can in as many niches as I can. Because of this, I am only what could be considered an expert in a relatively narrow subset. However, I am significantly knowledgeable in a wider array of niches. I am beginning to think that this form of knowledge may actually be more valuable. (Crazy that I would try to justify my own shortcomings right?)

I also want to try to treat these mathematically in order to explain my thinking, however, do not worry the math will be kept relatively simple.

So this idea came to me after I was sitting and reflecting on the kinds of tasks that will become valuable as our economy progresses with increasing automation. The conclusion I came to is that many jobs now will be either partially or completely automated. Many industries where there is little fear of automation, will end up being partially automated, destroying job prospects and wages. For example: accounting. It likely will not be fully automated anytime soon, however, a significant number of hours are spent on heuristic based tasks that computers will be able to in large part supplant. There will still need to be humans, but if one person can do the work of ten wages will fall and job prospects will dissapear.

So what will become valuable? Until there is significant progress on Artificial General Intelligence, a huge amount of the automation will be in very focused niches. So the value will come from humans who can bridge niches, understand broader pictures and connect information from disparate realms. Now the issue with this at first glance seems to be that it is going to require significantly more time and effort to reach a competitive level in multiple niches rather than just one. I believe that may be a little bit simplistic however, and I will explain why.

There is this concept when you are learning a new skill called the point of diminishing returns. Basically as we asymptotically approach expertise the amount of effort required to gain additional expertise is exponentially greater. Or to phrase it more simply the vast majority of the improvement comes from the initial investments of efforts. The move from middle 50% to 95% may take the same amount of effort as the move from 95% to 99% which will take the same effort as the move to 99.9% which will take the same effort as the move to 99.99%. Why is this valuable to us? Because by focusing on intersecting niches we do not the same super high level of expertise in order to be successful.

Let me explain: expertise in intersecting niches can be expressed as the product of your expertise in each individual niche. So let’s say for example I am in the top 5% of the world in knowledge about healthcare, and in the top 5% of the world in knowledge about running a non profit, for expertise in running a healthcare based non profit I am not in the top 5% I am instead in the top 0.25%. How is this possible? Because our expertise in this intersection is equal to the product so in this case: total expertise=.05 * .05 = .0025. If I am correct about this construction of expertise (and I am not, it is vastly simplified but focus on the concept) then if we can bring even more niches into our areas of expertise we reach progressively rarefied realms of cumulative expertise.

To really emphasize this, consider the fact that we have already established that it will take the same amount of effort to reach the top 1% of a single niche, as it will take to reach the top 0.25% of the intersection of two niches. If I am correct about this vision of the future the value of the Renaissance man is back. Being able to conceptualize and view the world through multiple well honed viewpoints and see the connections between them will become an incredibly valuable skill.

If I am wrong, I have a whole list of skills where I am almost good enough to be an expert but not quite.

“Incels”, Toxic Masculinity, The New York Times, Philosophical Flaws, and Misogyny

This piece is somewhat heteronormative, that was done as the vast majority of people who self-identify under this term seem to be heterosexual.

“Incels” a self-described label used by men who feel that they are involuntarily celibate have entered the news recently because of the despicable and awful actions of a man, who will remained unnamed as I do not men like this to become notorious, in Toronto who killed 10 people. He was a self-described “incel” and it appears that may have motivated this attack. The terrorist posted ten minutes before the attack, “The Incel Rebellion has already begun!” as reported by CNN. It seems relatively clear from this to me that this was a primary motivating factor for him. This is not even the first terrorist attack motivated by this. There was another one in Santa Barbara in 2014. There is an entire online subculture that believes in this kind of thing that I refuse to link to where many members cheered on both of these terrorists. Many, although not all members of these communities, feel that men are being systematically discriminated and denied sex, because they feel women are exclusively attracted to hyper-masculine muscular men and that this is a form of discrimination against them.

All views like this are rooted in a form of toxic masculinity. These men have tied their entire idea of manhood, and as such their personhood, into sex. Since they feel that sex is an essential component of the male identity, they feel that as men they should be entitled to receive sex. This kind of thought process is shockingly prevalent in my experience and contributes to misogyny, rape culture, and many of the emotional issues men suffer from. Those emotional issues are also tied up in this as many of these men are deeply lonely and insecure. This form of toxic masculinity promoted by many of these communities does not allow for healthy ways to express this loneliness, to work on this insecurity, to take steps for emotional self improvement. The kind of acts that could help these men: sensitivity, openness, therapy, self-reflection, in toxic masculinity are seen as feminine and as such undesirable. This allows for this resentment and entitlement to ferment and now in multiple cases result in violence and death.

The fact that communities like this exist that advocate for violence, for rape, for acid attacks, is disturbing. That is why I was particularly disappointed when I read Ross Douthat’s opinion piece in The New York Times entitled, “The Redistribution of Sex.” You can tell from this title that he is following an argument in favor of the idea that there is something awry about the way sex is distributed. I am going to do my best to summarize his argument in the most generous form combining what he states in this opinion piece combined with a tweetstorm he made “restating the argument.” Although I do not think he actually restated the argument and instead made a second related argument if we are talking technically.

https://twitter.com/DouthatNYT/status/992047486318579712


Argument summarized to the best of my ability:

  1. If the sexual revolution occurred, then a new heirarchy of sexual desirability arose.
  2. If a new heirarchy of sexual desirability arose then certain members who were once sexually desirable will no longer be so.
  3. The sexual revolution occured.
  4. Therefore, members who were once sexually desirable are no longer so.
  5. If there is a general decline in the ability of the sexes to relate, then it exacerbates the problem of the lack of sexual desirability.
  6. There is a general decline in the ability of the sexes to relate.
  7. Therefore the problem of lack of sexual desirability is exacerbated.
  8. If there is a society that promotes sex as an ultimate goal, then those who do not receive it will be likely to look for recourse in revolution.
  9. Society promotes sex as an ultimate goal.
  10. Therefore those who do not receive sex are likely to look for recourse in revolution

It is important for me to note that the author does not specifically cite violent revolution, but it is important to remember that the recent terrorist used the phrase “rebellion”, and the Santa Barbara attack was cheered on as a “revolution” by these communities online.

This is an inherently flawed argument for several reasons. Let’s begin with the first three premises, that center around the sexual revolution. The institution of a “new heirachy” inherently implies the existence of an old heirachy. Yet, for unknown reasons these attacks are a modern phenoma. Focusing purely on the changing heirachy does not contribute any explanatory power to why this is such a modern phenomena. Is it not wrong, but it is meaningless.

My second problem relates to his claim that there is a fundamental decrease in the ability of the sexes to relate. In order to support this claim he uses the evidence of falling marriage rates, and a decrease in sexual activity. I am not convinced that those pieces of evidence in any meaningful way show what he is trying to claim. There is relatively good evidence, that the change in marriage rates can at least in large part be explained by changing socioeconomics conditions. Namely, young people are reaching financial stability at a later age and as such marriage is being delayed until that point. The decrease in sexual activity is likely a side-effect of the decrease in marriage rates. Namely sexual activity is significantly more common in stable relationships, and as such without those relationships total amount of sexual activity declines.

The third issue I have is the claim that sex is promoted as the ultimate goal in society. If anything, and the author admits this, this has been decreased in recent years. As such it fails to contribute any explanatory power to the more recent emergence of this phenomena. Again it is not wrong, it is just meaningless in allowing for this to be better understood.

The fourth issue I have is the claim that if people are kept from some “ultimate good” they will eventually seek recourse in revolution. Even if this is accurate, that does not make any form of revolution necessarily moral. Explaining why someone does something does not inherently make that thing okay. The author is aware of this claiming in this piece that he sees the potential commercial and technological revolution to this as “bad.” As such again we are left at a point that provides no additional explanatory power.


As such I feel purely on a philosophical assessment of his argument it fails to contribute any explanatory power to the current phenomena, and lacks appropriate intellectual rigor. It is also odd to see such philosophical detachment from an issue when there are literal people dying. This is not a thought experiment. There are literally men being motivated by the factors explained who are actively committing atrocities. There are women who now live in fear, knowing that there are entire online communities plotting violence. Ignoring that reality when discussing this is dangerous.

The other factor being ignored is that it is men committing the atrocities. The sexless women are not responding in the same manner, and as such any explanation that ignores the role of masculinity is fundamentally incomplete. Trying to use an argument like this to create some kind of intellectual separation from this issue while ignoring that fact is to me a form of intellectual dishonesty. Since is it men who are committing this form of atrocity it then paints arguments like this in an even more disheartening light as a continuation of the normalization of misogyny. It is suggesting, subtly and quietly, that it is men who are going to be pushed to revolution, and subtly and quietly suggests, that there exists a justification for that. This inherently suggests that women who choose not to have a sex with a subset of men are in turn helping provide justification for this “revolution.” This is awful. It is not the responsibility of women to provide sex in order to make up for the stunted emotional development of men. It is not the responsibility of women to provide companionship to make up for the stunted emotional development of men. It is not the responsibility of women to aid men in developing healthy social coping skills. The belief that women have the responsibility to do these things is rooted in toxic masculinity that prevents men from dealing with their issues, because it is feminine, and misogyny that treats women as a tool to “complete” a man.


Toxic masculinity like this is a difficult, but not intractable problem. There are several steps that I believe need to be taken to start trying to help correct this problem. One, men from a very early age need to be taught to view women as people. Not objects, but equal beings (often better if I’m being quite honest) with moral judgement, agency, and intelligence. My hope is that once men truly see women as equals with their own agency it will allow for an expansion of platonic male-female relationships, which will hopefully help men continue to challenge misogyny, rape culture, and toxic masculinity when it comes up. Secondly, male-male relationships need to become more open. Men, especially in America will often have friends who know very little about them internally. They hide their struggles, their fears, their hopes. More openness in male-male relationships like this will allow for men to realize many of their insecurities, many of their flaws, many of their fears, are not unique, and that others share them. Finally, misogyny of any sort cannot be tolerated. It must be called out, and treated as a serious offense, not to be waved away as just a “joke.”


I was a “late bloomer.” I did not have my first kiss until I was 19. I am speaking as someone who can understand the loneliness and the insecurity. I am speaking as someone who intimately knows the sting of rejection. However, when I was graduating High School and realized I was suffering from social anxiety I sought help, including therapy. After my first relationship when I realized I had been acting in ways that were unhealthy I started reading about healthy relationships so that I could improve myself. When I realized I was still missing social cues and messing up small talk, I bought books and worked on improving that part of myself. If you are someone who feels that frustration, who feels that rejection, who feels that insecurity, I am speaking to you and saying that you have the option to improve yourself. It is not easy, and you will have setbacks, failures, and moments that crush you. However, it is possible to improve yourself and work through things. No one owes you anything, and that includes sex. However, if you work on improving yourself, treating others with respect, and living as a good person, it is much more likely that you will become sexually desired.


My thoughts go out to the victims and the families of these atrocious attacks.

A Rant About Grade Inflation and GPA and A Half Baked Solution

What follows is a poorly organized rant about my frustrations with the current grading system, and a solution that makes sense to me in theory, but that I have never actually tested. This article was prompted by a recent discussion at a meeting of the Augustana Socratic Society.

First things first, there has recently been a push among certain people to make the claim that GPA does not matter. These people likely did not apply to graduate programs, many of which will ignore applicants with below a certain GPA or research internships that use it as a first pass filtering criteria. GPA matters a lot, but it is broken, and I see it broken for three clear reasons. Those reasons are: grade inflation, difficulty, and outside factors.

Let’s start with grade inflation. This has been pretty well covered by a variety of outlets, so all I am going to focus on here is some of my own experiences I can share with you guys. So first and foremost, I’m pretty sure this is happening at my own college. In 1944 the standard for the “Smart Set” at Augustana College was a 2.5 GPA and 34 students out of the 377 students enrolled. This is less than 10%. To make the list now requires a 3.5 GPA and 1,138 Students out of 2,647. This is about 43%. The standard has been raised by an entire grade and the number of people achieving it has quadrupled. This to me seems to suggest rampant grade inflation. This kind of grade inflation makes GPA’s much less meaningful as a useful determinant of academic ability. But as we have already established GPAs are important and because of that it leads to a secondary feature, grade grubbing. Students are desperate to do everything they can to preserve their GPA. Students will ask for teachers to round up, beg for extra credit, and do everything they can to eke out every single point they can in order to try to preserve their GPA. This puts Professor’s in an uncomfortable position, they often care deeply about their students and want them to be successful, and can understand the importance of GPA, but are also hesitant to change their standards or apply them in an unequal way. This is an uncomfortable position for every single person involved in the interaction. However, there are also students who Professors have described as acting as if they are entitled to a certain grade. The overall inflation of grades has made it such that students tend to react negatively to more difficult grading standards, which is understandable because again GPAS MATTER.

The second part of the issue is what I call the difficulty issue. Namely the way the current system is designed it currently strongly incentives against taking difficult classes, or classes outside of your expertise. Right now if you take a class that is something you are not good in, or a class with a difficult grading scale, it runs a decent chance of hurting your GPA. Since the GPA is important for so many students, those students are less likely to push themselves and take classes from different disciplines. This is especially disappointing for me to see at a school like Augustana College, which is supposed to be a liberal arts education in which students develop these interdisciplinary skills. And this makes me even crazier, because in the new economy those interdisciplinary skills are going to be much more important. Many (but not all) of the direct skills for fields like the sciences, math, and accounting and the like will be automated over the next three decades. Thus, the higher level thinking skills helped by an interdisciplinary approach will become those in demand. The current system due to this difficulty dilemma is actually contributing to a reduction in the most important skill development there could be.

The third part, and this is sometimes considered is what the student is doing outside of class. Now there are the areas that people do frequently think about, such as extracurricular involvement, but there are many that are often forgotten including jobs. There was a recent Washington Post article that suggested that 36% of students are food insecure. There are a huge number of students who are working incredible hours in order to get themselves through their college experience. This is an issue I cannot solve with my half baked solution, but is something that every single admissions committee should consider fully, and every college that considers raising their tuition should feel personally. These students are always going to have a more difficult time maintaining the same academic levels due to greater stress and less time to complete work. I worry that this factor is not being considered as fully as it needs to be by college administrators and by admissions committees.

So finally, my half baked solution to the GPA problem. I had this idea one day when I was really frustrated having one teacher tell me that it requires incredible effort to get a C, and then another saying that they don’t believe in C’s and that if you participate and show up you were basically guaranteed a B. Each of these classes will count equally towards my GPA. That doesn’t seem to make sense though does it? So what I propose instead, and this is only a partial solution, is to throw out GPA’s. Now I can already hear you protesting, and saying that there needs to be some way to differentiate students. I agree. What I propose instead is showing how students compare to the overall distribution of the class. Meaning instead of the grade being reported, you are directly told how far above or below mean you are, and you are given an idea of what the distribution looks like. This will make it so you are unequal classes no longer have equivalent weight. However, there are several issues I still see with it and I will do my best to answer them:

  1. What about small classes?

Good question. My first thought is that for teachers who have thought the same course in a similar way for extended periods of time, they can compile the data over many years and use that instead. However, there also may be times it’s a new class and for those we need to rely on the distribution description to help cover it.

2. What about classes outside your expertise?

This question is focusing on a question I raised earlier, basically students are disincentivized from taking classes outside their expertise. My answer is basically that it would be possible to segment this data to show data for majors vs. non-majors and give a more accurate number.

3. Won’t this promote a dangerous level of competition?

Quite honestly I hope so. I love and thrive on competition, and I see no reason making what is currently the implicit competition explicit will have negative effects.

4. Doesn’t this exacerbate the problem with students who are taking on significant work outside the classroom?

Unfortunately yes. I do think it would make it more clear which students are struggling to perform due to external obligations. The only solution I have been able to come up with for that is for admission committees to start taking note of that fact, and for there to be some kind of change in student loans and the continually rising tuition.

It is not a perfect solution, but it does provide an opportunity to help eliminate grade inflation, and make the GPA a more meaningful measure. There are ways to expand it for large universities, including difficulty quotients and the like, but that seems excessive to cover in here. Do you have any comments or ideas, please let me know. This was an unedited rant I put together quickly. I would love more developed and well-researched thoughts so I can improve my thinking, especially from educators.