Bitcoin Maxima & Other Crypto Things

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Joshua Summers
18:32, 19 May 20 (edit: 19:10, 19 May 20)
So this picture:

cropped-nyc.jpeg 43.4 KB

It is the background image for your cryptocurrency focused blog, for your Twitter bio, and we have chosen it as the image to represent this Taaalk.
What does this image mean to you and how does it relate to your thoughts on bitcoin?
Thomas Hartman
18:25, 20 May 20 (edit: 16:40, 21 May 20)
Great question. You're the first person to ever ask that. So thanks.
This is a callout to john michael greer's concept of retrotopia.
JMG is not a bitcoin guy, more of a gold bug if anything. But his idea that we have peaked technologically and that the future looks more like the past than some star trek utopia, or blade runner dystopia, resonates with me. To me what bitcoin represents most of all is a return to the gold standard. Except it will be a bitcoin standard. Because bitcoin is a bit more convenient to carry around and transact in.
As mircea popescu put it in Bitcoin and the Poor, "Bitcoin is the most conservative thing since at least queen Victoria, if not outright Jesus. Bitcoin makes so-called "progressive" tax schemes unworkable. Bitcoin makes any sort of public welfare untenable. Bitcoin makes anyone's pretense of equality with anyone else risible. Bitcoin isn't here to "make communes work", but quite the contrary : it will render communes both inoperable and uninteresting to pretty much everyone. Once it's done tearing away the crap these very people have tacked on to government, once we're back to something a lot more akin to what the slave states had before the Civil War (and that's exactly were we're headed, and that's exactly what that conflict was : a dispute between Big Government and individuals - unfortunately BG won) we'll obviously be in a much better position to grok all this. Retrovision is always 20/20, after all."
I'm not quite as dark enlightenment trolly as popescu, but there's a lot there that I agree with. Bitcoin is not some futuristic kumbaya sit around the campfire thing. It's a return of nature, of limits, of traditional values, and to a large degree it may feel like a reset to earlier times. 
I think some countries may be able to retain some vestiges of the modern welfare state, post hyperbitcoinization. It won't be easy. There is not going to be a universal basic income (UBI). Sorry.  
Joshua Summers
00:04, 23 May 20 (edit: 00:05, 23 May 20)

WOW

I was not expecting that. There are so many directions to explore.
Firstly, it seems bitcoin is instrumental to the development of a future like the one described above. This not obvious to me. Is this correct? And if so why is this the case?
Thomas Hartman
18:56, 24 May 20 (edit: 17:59, 27 May 20)
The gold standard is all about limits.
Under a gold standard, there is a limit to what the government can do to do to your money. Say the ruling class wants to start a war, or build a new stadium for your local community college. They can tax. Or they can borrow. If they borrow, they have to pay back what they borrowed in gold, like the Iron Bank in Game of Thrones.
And if gold actually worked that way, a gold standard would actually set some limits.
But there is a cheat code to the gold standard: devaluation.
Actually who needs a gold "standard" -- we could just transact in gold for everything, like god intended. No government currencies needed.
We got government currencies because gold does not in fact act like our platonic ideal of it.
1, Gold doesn't work for for small transactions. Even if the 711 liquor store wanted to accept gold, you couldn't buy a slurpee with it. You can't transact in dust. Because it blows away and gets lost.
2, gold is surprisingly easy to counterfeit. Lot of gold painted tungsten bars on ebay. This is good enough to pass a water volume test. Do you have an x ray crystallographer?
There's a bunch more properties where bitcoin wins. But I think even without 3, if we just had 1 and 2, we might have a ubiquitous gold transaction world like in fantasy novels.
But since gold is easy to counterfeit, we need coins stamped by the government, with government police to punish counterfeiters. You have to pay the police. It's expensive.
And since gold doesn't work with small transactions, we have small denomination coins and paper notes for that.
Let's add 4, maybe the most important one. Gold is hard to secure. So we keep it in the place we trust the most. The government bank. And we use paper that is redeemable for gold. When the ruling class then wants a war it is just too tempting for their lackeys in the government to say, sorry, that gold that used to be worth 16 ducats an ounce, is now worth 23. Your ducats just got less valuable. But don't worry about it. The economy needed it. Nixon. Roosevelt. Germany. England. The roman empire. Everyone did it. So it's not like people didn't see it coming after it happened all these times. But gold is just too hard to secure, there was really no better option.
You could argue war mongering lackeys is just a straw man. Well intentioned democratically elected leaders that want to promote social equality are even worse! Everyone wants to spend, spend spend, whether you agree with their ideals or not.
Getting back to point 4, secure storage. In Silas Marner, this weaver works his whole life to save up a gold hoard and hides it in the floor of his little hut. Then this dissolute upper class guy figures out where he hid it and just takes it to pay off a gambling debt.
Not so easy with bitcoin! Actually not so hard. If Dunstan had gotten Silas's hardware wallet paper backup and Silas wasn't using a passphrase, he could have gotten it all. But Silas CAN use a passphrase. Silas can use 2-of-2 or 2-of-3 multisig for deep cold storage, and keep the other keys with people he trusts. Or more realistically, since he has trust issues, at least somewhere harder to get at than the floor of his hut.
People say, bitcoin is too hard to use, nobody can go through all this hassle to secure a hardware wallet. Fine, have your bank secure it. The point is, bitcoin gives you a choice.
The issue with gold is, because of its physical properties you have no choice but to trust third party vaults. Once you are doing that, the best option is to trust the government central bank vault. And the government can't be trusted not to devalue.
Bitcoin works the way gold bugs imagine gold works. To my mind this is why you need bitcoin to get a real gold standard. Or rather a bitcoin standard.
PS: A great way to secure a hardware wallet is to embed it in a giant cube of concrete, say 10 feet on a side. The buttons and screen get routed to the outside . So if you have the pin code, it works as expected, just kind of unwieldy. If you want to steal it, you have to dig out and haul a huge block of concrete, or use jackhammers to get at the electronics somewhere in the middle of it. Hopefully the noise would wake up the neighbors. 
I expect in a few years, with hyperbitcoinization approaching, citibank or wells fargo or someone will actually be doing this. 
Joshua Summers
18:44, 25 May 20
Right. So I can see that Bitcoin solves the ugly properties of gold.
Before I get onto exploring hyper bitcoinization and the awkward monetary soup we must now be in, would you mind briefly explaining why gold is fundamental to money?
It is easy to forget about gold in a day-to-day world where I'm thinking more about the bag of sweets my $/£ is going to get me, than what is responsible for my $/£ having any value at all.
Thomas Hartman
20:03, 26 May 20 (edit: 18:01, 27 May 20)
Money isn't something that you usually think about, or most people ever think about. Money is just something you use, like electricity. As long as the lights go on when you flip the switch, who cares how electricity works. 
It's when the lights start flickering that you start to care. An argentine cab driver with a high school education is more sophisticated about how money works than a RAND thinktank economist with a phd. Because the lights haven't ever gone out for the economist. The cab driver if he's over 30 has had them go out already two or three times.
If you are paying attention,  the lights are starting to flicker just a bit, for everyone.
So what is money? What do we want money to be? And why is gold fundamental to that?
There's a lot of ink been spilled on this. I guess it’s my turn. Here goes!
1, we want money to just work. It should be CONVENIENT. Convenience for money means SCARCE, DURABLE, DIVISIBLE, and FUNGIBLE (aka interchangeable).
2, we want it to work, without having to trust too many systems or people. Money should be TRUST MINIMIZING.
Before money… we don’t actually know that much. Anthropologists and archaeologists do a lot of theorizing about how societies worked economically back in the day.  Luckily though, at least some of this is recorded history. 
At any rate the prevailing story, if you are a bitcoin maxi anyway,  goes something like this. 
The default system for tribes of the early days is gift economies and honor systems. These are great, and you still have them in communes and small villages. But they require a lot of TRUST. Money is what you use when you don't have trust.
Let's try bartering. I give you a cow, you give me some wheat. No trust required. Instant settlement. But not very convenient. Because what if the amount of wheat I want doesn’t match the value of the cow? Cows aren't very DIVISIBLE. And I don’t want to accept too much wheat for a whole (undivided) cow, because I would have to eat it before it goes bad. Wheat is fairly divisible but it isn't DURABLE. A cow is more durable than wheat, if you keep it alive. And both cows and wheat can be made more durable if you jerky the cow, or make flour and store it under certain conditions. But it's a lot of work.
We could try using debt. I give you a cow, you give me some wheat, and you owe me some wheat for later. If there’s something I want from another guy and he also wants wheat, I can get you to give him the wheat you owe me and then I get what I want. But this requires TRUST. Not just between you and me, but you and the other guy. The whole point of money is to minimize trust. Debt isn't money. It has its uses. But it isn't money.
Cows and wheat also aren't FUNGIBLE. Which is a fancy word for interchangeable. "The property of a good or a commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part." Some wheat could be a little spoiled. You can't substitute an old cow for a new cow.
We're much better off using wampum, i.e. sea shells. Clam shells are scarce, fungible, durable, small enough you don't need to divide them, and hard to counterfeit. You can also wear them in necklaces, making them convenient to carry around. And while somewhat scarce, they aren't too scarce. There’s enough clam shells on the beach that you can run an economy on them. Much better than cows and wheat.
If you have enough wampum, I just sell you the cow and we square up right away. Thanks to its good properties, wampum becomes universally acceptable. Therefore, if I trust you for an IOU, it’s easy to denominate the debt in wampum. So it makes debt more manageable too. 
As far as what we want money to be, with wampum we are basically done. 
There are just some annoying details that get in the way. 
Shells get squished when you make giant piles. Not as durable as we'd like. And some shells are prettier than other shells, so you wind up trying to pick out the nicest shells from the wampum necklaces, which wastes time. Not as fungible as we'd like.  Also since clams grow on rocks, and you are eating them all the time, you get clam shell inflation if you are bringing in more clams than what gets squished or squirreled away as jewelry. Not as scarce as we'd like. 
Gold is basically wampum, but more uniform and durable, and limited in supply. You melt it down and purify it, all gold is the same. It doesn’t rust, it doesn’t smush. And it’s pretty well buried, so inflation is wrangled. Actually there are inflation issues when a big new gold deposit gets discovered, like what happened in the various historic gold rushes. But overall not too bad.
Gold is better wampum.  
And that’s why when we think about money, from dungeons and dragons to disney movies, what pops up in our collective minds is gold.
Nick Szabo talks about the transition from wampum to precious metals, and many other interesting things, in Shelling Out: The Origins of Money, which is canon to bitcoin maxis.
As an aside to Josh (or other readers) when considering the desired convenience properties -- SCARCE, DURABLE, DIVISIBLE, FUNGIBLE -- are you seeing issues with gold? Which, if any, would you say is the most significant? No right answer btw, just something to think about.
Joshua Summers
16:40, 27 May 20
Gold doesn't rust! That is interesting. That and the rest of your answer built a huge fundamental building block in my 'how to think about money' mind map.
So divisibility seems to be where gold falls down. And perhaps where Bitcoin stands up. (As well as being able to be sent through the internet - satoshi's post you linked to earlier, imagine a precious metal that "can be transported over a communications channel", is making more sense now.) 
But before we get there, why can't gold be totally abstracted from modern money? I know vaguely that the gold standard was removed or relaxed some time in the 70s/80s... and the world seems to have trundled on.
It feels in a community of shell traders, an influx of shells could cause a great deal of trouble, but in a modern developed economy it seems more opaque. I can't find modern money on the beach, so my own personal supply is constrained, how does a relaxing gold standard impact the world most people live in today?
Thomas Hartman
17:32, 27 May 20 (edit: 17:10, 28 May 20)
Good answers, yes, I would concur.
"why can't gold be totally abstracted from modern money?"
You can try. This isn't our first time at the rodeo. Governments have been inflating and going off the gold standard since the roman empire. But gold keeps coming back. Because people like saving in gold. Because they are rightfully afraid of the grinding value decay of inflation in government money. The majority of modern savers may prefer houses, or stocks, or art. But gold never quite goes away. It is the symbol of protected money. It occupies that spot in the collective mind.
"I can't find modern money on the beach, so my own personal supply is constrained"
That has been true for you, in your personal experience, but it is not universally true. It is not true for the Argentine cab driver. It was not true for Weimarian germans. It will not continue to be true for you, indefinitely.
Hyperinflation is like bankruptcy. It happens slowly over a long period of time. And then it happens all at once. We are getting near the inflection point between the slow and fast phases. You can look at the balance sheets of the various big central governments and see an enormous rise in the amount of government debt, which translates to money printing.
From what I can recall, US federal reserve balance sheet doubled since corona, from something like 3 Trillion to 6 Trillion USD. It's similar across the world. The numbers boggle the mind. In 2008 the numbers were smaller but still mind boggling. Each crisis the numbers get bigger. At some point, you tip.
More shells on the beach for you. There will come a day for you when you feel it.
And then everyone is a millionaire, but there is no milk on the shelves. A government fiat money hyperinflation is a terrifying thing to live through. It's the stuff of genocide, world war, and generations of lingering trauma. This pain and fear is why savers have craved gold ever since there was government money. Protecting your purchasing power sounds boring if you are living through the slow phase of fiat money decay, but after you tip, it is literally life and death.
Good news though. This next time is different.
Instead of hyperinflation, what we face as a society is hyperbitcoinization.
Hyperbitcoinization won't be pleasant, especially emotionally, for those who are late adopting bitcoin. But it is a far better option than hyperinflation. Most people don't have the bulk of their savings in fiat anyway. Most people are debtors. Fiat debtors. With hyperbitcoinization in play, the home mortgages and student loans that feel like debt slavery to an increasing number of resentful millenials will be denominated in devalued and eventually worthless fiat. It amounts to a jubilee, where you essentially just write off all the debts that were never going to be paid anyway. 
My gut feeling is that hyperbitcoinization will feel a bit like the fall of communism in russia. A rough time, but moving in the right direction overall.  You will notice that your electric bill wants you to pay in bitcoin, and the 711 wants you to pay for your slurpee in bitcoin, and gradually first then everywhere all at once everyone just wants to be paid in bitcoin. And then it is done, and you don't think about it anymore. 
And the lights never go out again. 
Joshua Summers
16:51, 28 May 20
I get it.
Somehow the 'developed' economies have (for a long time, certainly in my living memory) avoided hyperinflation... But it's a'coming! And when it comes, Bitcoin is sitting there waiting to eat up/resolve all the chaos.
One could say you have a similar position to that of Warren Buffet (the value investor). He has felt markets have been overpriced for so long that he has a $130Bn+ cash pile he is not confident to invest at today's prices. But he believes in the fundamentals of 'value' based pricing to such an extent that waiting is an obvious strategy - even though he has missed out on a lot of debatably 'faux value' during that time.
Do you have the same faith that developed-economy-hyperinflation / hyperbitcoinization is such a fundamental event that it is a matter of when, rather than if?
Thomas Hartman
17:25, 28 May 20 (edit: 17:50, 28 May 20)
Buffett is on the record as disliking bitcoin. For him, stocks and businesses are a store of value. He understands them, and he does his homework. Warren doesn't invest in tech stocks either. Tech is not where he has an edge. 
For bitcoin hodlers, bitcoin is where they have an edge. They have done their homework. Not just on the economics story, but all the inconvenient and aversive tech stuff as well.  Like learning to use cold wallets, keeping backups safe, not keeping coins on exchanges where they have a tendency to evaporate, all of that. You got bitten here if I recall correctly. That's common. I have as well. A lot of bitcoin is just learning through pain. 
Bitcoin hodlers are fanatics, but they are rational fanatics. That's why you get these giant hoards of deep cold coins from the early days that just never sell. It's gollum from lord of the rings. Or smaug. 
So anyway, buffett and I disagree on bitcoin as a value investment -- because buffett hasn't done his homework on bitcoin -- but we agree on the general premise of value investing. I haven't done my homework on the kinds of stuff buffett invests in either, so no scorn from me. A lot of success as an investor is specializing, knowing what you know and don't know, and being smart enough to stay in your lane. 
For now the dollar is a good store of value, so buffett is fine holding onto his dollar hoard, though he may miss out on the next wave of bitcoin price appreciation. When he needs to get on board he will get it wrangled. 
Yes, I am convinced on bitcoin. Of course nothing is 100%. But my thinking is hyperbitcoinization in 12 to 15 years, at which point we stabilize at around $10m of purchasing power per bitcoin. 
Joshua Summers
20:07, 28 May 20
Sorry, just to be clear I wasn't saying that you held the same perspectives - but that you both have strong convictions about something which you view to be almost fundamental.
For him it is that you can't escape fair pricing, and for you it is hyperbitcoinization. And that because of your beliefs you are willing to take pain by waiting and not doing much (although perhaps holding bitcoin has not been as much of a pain as holding cash).
So on your journey of understanding bitcoin, what do you feel was the biggest conceptual hurdle that you had to get over to become comfortable with bitcoin as the tool that solves this problem?
I ask because, if you went through it I'm sure others face it too.
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