Bitcoin Value Questions

Does Bitcoin offer something of value today?  Does it have the potential to be more valuable in the future? Here are some thoughts how you might be able to answer yes or no to these questions.

I.

The first point is a question of how currencies have value. How does the US dollar have value? In a very concrete and practical sense, the dollar is valuable due to legal tender laws, where any legitimate transaction that occurs in the US must accept US dollars as a form of payment. Moreover, US taxes must be paid in dollars. However, that’s not a majority of the dollar’s value.

The US dollar has value because people believe it will be accepted in the future. That’s why the dollar is valuable in countries outside America where users are presumably not under US legal tender laws. Why do people believe it has value? Well partially its derived from the practical points made above combined with the size and scope of the US economy; if dollars are used in the United States, often by legal mandate, and if the US economy is large and vibrant, it will need lots of dollars. The US economy, even if it struggles, won’t be gone overnight, so you can bet in five or ten years, there will be plenty of transactions that need to occur in dollars. There’s also the point that trade with people in the United States mean dollars cross borders pretty easily. This creates a self-fulfilling prophecy; since people know there are Americans and traders who will accept dollars, other people accept dollars too, knowing they will be accepted in the future.

That accounts for the demand side of dollars. On the supply side, there is at least implied trust in the US central bank, the Federal Reserve. This may rub Ron Paul fans the wrong way, but I think it’s somewhat undeniable. People in the US and outside see the inflation track record of the American dollar and agree that it’s unlikely to be really poorly managed. Perhaps that’s just because alternative central banks are even less trustworthy, perhaps it’s because the Fed has a reputation of being stingy about inflation. It’s hard to say. What is undeniable is that the US dollar is widely used and held throughout the world.

II.

Does Bitcoin have a role to fulfill in the market when the US dollar serves as an excellent international medium of exchange and store of value? Yes. Bitcoin is inherently digital, meaning you just need some information, on a computer, in your head, or written on paper, in order to use it. Dollars require a bank, and if international, they require a bank that reports to a local government which may or may not allow foreign currency holdings.

This means today Bitcoin offers some advantages over American dollars in certain situations without any scaling updates to the Bitcoin network that we’ll discuss later. Such areas include international transfers, domestic currency mismanagement, and anonymous transactions.  International transactions because all you need is an internet connection, not a bank or Western Union office. Bitcoin transactions have fees, but they can be lower than international wire fees. Domestic currency mismanagement is Bitcoin’s clearest use case. Venezuela has experienced hyperinflation as its currency is worth less than World of Warcraft gold. Bitcoin has become highly useful as it does not lose its value over time like Bolivars. Bitcoin also saw a spike in India when they unanimously outlawed large denomination cash bills. In another interesting case Zimbabwe actually uses the US dollar (after hyperinflation destroyed the currency last decade), but because they cannot print it, liquid cash is scarce in the country, so Bitcoin is highly valuable since it is more easily imported than dollars.

Finally, Bitcoin is of course useful for illicit activities, such as the fabled Silk Road dark net trading site.  Not much to add here, except to point out that another cryptocurrency, Monero, may actually fill this niche better if you’re just looking for confidential transactions. More on other cryptocurrencies in the final section.

III.

However, if you are in a developed country, it’s unlikely Bitcoin is better than your national currency in terms of ease of use, acceptance by merchants, quickness of transactions, cost of transactions, etc. Certainly people who believe in Bitcoin politically can pay these increased costs and use it anyway, but that’s essentially paying for a political statement.

Bitcoin may be a better long term store of value than a state currency, e.g. the US dollar. It is governed by an algorithm as opposed to a committee. Algorithm changes are difficult and slow, and there is currently a cap on the total number of Bitcoins that will ever be created. If the US hits the Fed’s estimated inflation target of 2%, then the value of any currency owned by residents will halve in about 34 years.  However, Bitcoin is volatile, and buying it as a store of value uses it as an investment. Some Bitcoin investment today is certainly speculation. And if a decent chunk of the Bitcoin price is caused by investment/speculation instead of current usefulness, then a better store of value/investment could rapidly pull the money out of Bitcoin. Perhaps some investment is acceptable, but doing more radical actions, like putting your life savings in something that can lose its value relatively quickly isn’t a good idea.

We should keep in mind that there are people even in developed countries that have limited access to banking and credit. Large commercial banks are notorious for charging fees to customers who specifically don’t have the cash to spare on those fees. Bitcoin may be a way for those with poor access to banks to “be their own bank” and hold their savings securely without needing a national bank. Perhaps transfer fees are too high to make this practical, but at the very least, this is a potential market for Bitcoin, if scaling issues can be solved.

There is one other use case where Bitcoin is clearly superior to even a developed world currency. That would be a tax-free asset and currency. It’s not particularly difficult to purchase Bitcoin and then launder it through another cryptocurrency or through CoinJoin (an anonymization protocol) and make the money untraceable. Assuming Bitcoin’s basic use cases of international transactions and troubled currency refuge continue to grow, Bitcoin offers a big tax haven. I should note, of course, that this is plainly illegal, and I suspect the more tax evasion an individual undertakes, the more likely they are to be scrutinized by authorities.

IV.

We’ve established Bitcoin has explicit use cases and therefore offers value today. We’ve also established that some of these uses cases may grow in the future. What about threats to Bitcoin’s value?

If a significant use case of Bitcoin is illicit transactions and tax avoidance, then I would claim Bitcoin is a direct threat to the state, even in developed countries. As stated in “What is Postlibertarianism? v2.0“, widespread adoption of cryptocurrencies could mean the end of taxable transactions, and possibly the end of the modern state. I’m not interested in making a judgment about whether this is good or bad, but I think the threat to states is undeniable (if still very far away).

The obvious next question: if states have an incentive to stop Bitcoin, can they do it In cases where Bitcoin has solid use cases, as in Venezuela and Zimbabwe, it seems highly unlikely. Bitcoin was built to be censorship resistant; deleting a node does almost nothing to the network, as all nodes are peer-to-peer and you can quickly switch to talking to another node or two or fifty. To shut down a Bitcoin payment network in a country, you’d likely have to shut down access to the outside internet. However, with new developments in the Bitcoin space, even partitioning a country’s internet from the outside won’t work anymore; Blockstream is currently broadcasting Bitcoin blocks from geostationary satellites (yes, really) to most of the world. Their goal is total global coverage. However, you can only receive the blockchain, not send transactions with this technology. So recently, Nick Szabo and Elaine Ou introduced a protocol for sending and receiving Bitcoin transactions (and block headers) over HF radio.

In reality, Venezuela hasn’t made Bitcoin illegal anyway. It seems unlikely that Nicholas Maduro’s ineffective government could substantially threaten the internet. China, while having the Great Firewall and having shut down Bitcoin exchanges, has not made the possession or use of Bitcoin illegal. These technologies are really only a just-in-case scenario. However, if you do live in a country with no internet or interaction with the outside world (North Korea), you still might not be able to use Bitcoin; no internet, no distributed systems, no censorship resistance (although the North Korean government itself uses Bitcoin to avoid international sanctions).  While I have to concede this point, it’s also important to acknowledge that technological advancement has enabled South Korean soap operas to be smuggled across the border; in the future Bitcoin may find a way into the Hermit Kingdom as well.

However, North Korea is one of the worst-case situations. In almost any other country, cheap computing technology and simple internet infrastructure has taken hold in an irreversible trend. And that’s all that’s really needed to use Bitcoin.

…Probably. What if a high trust societies made Bitcoin illegal? What if the United States and Europe made it illegal to own or transact in Bitcoin? I don’t think this is likely, as democracies tend be very slow when it comes to legislation, especially regulation where financial markets can make a lot of money. Moreover, institutional investors have already created legitimate companies in the US and Europe and so there would be lobbying, deliberating, compromising, etc. Japan has already recognized Bitcoin as an official form of payment, and if nothing else, the US making Bitcoin illegal would create an odd situation for American citizens living in Japan and vice versa.

But let’s say it happens.

It’s undeniable that Bitcoin’s value would drop. If you were already using Bitcoin for illicit activity, you might keep using it, but it might expose you to additional legal risk where it didn’t before. However, if you were using Bitcoin as an investment/speculative vehicle or as a way to send international transfers, an illegal Bitcoin is significantly less appealing because it would expose you to legal risk that you wouldn’t otherwise have to deal with at all. Bitcoin’s growth proposition wouldn’t be zero, but it might be pretty grim, and perhaps relegated to country’s with weak state legitimacy (and where widespread mistrust of the state means ordinary activities are criminalized anyway).

However, like I said previously, I find this scenario unlikely. Moreover, the Bitcoin network isn’t just waiting for governments to act, it is constantly under development with a large technical community.

V.

Can Bitcoin scale to take on more roles and use cases? Can it upgrade to become more censorship resistant? Definitely.

One big item we’ve talked about before is the Lightning Network. The idea behind the LN is pretty simple: you can create payment channels by putting some Bitcoin in escrow through a time-locked transaction that is signed but not posted to the blockchain. This channel can be continually updated with new transactions representing different payments back and forth across the channel until the channel closes by posting the final “net” transaction to the Bitcoin blockchain (read more about it here). This uses the blockchain as a settlement layer, and saves on transaction fees since only two transactions are ever posted to the blockchain (to open and close the channel) even if lots of payments occur.

There is another interesting aspect of this technology, which is that you can use a LN channel as an initial hook into a larger network. So if you (Person A) already have a channel open with Person B, you could pay Person C without opening up a new channel as long as both B and C have a channel between them already open. A pays B, then B pays C, and everyone updates their current balances on two payment channels, but no one needs to post anything to the blockchain, so no transaction fees are needed.

This is pretty good for scaling. However, it is somewhat negative for privacy. The most efficient way any Lightning Network will exist is through large central hubs. This is because end users will want to open a single payment channel (since it’s cheaper and ties up fewer funds), so they will want to connect to a hub everyone else is connected to. A hub that doesn’t stay available all the time would be unhelpful if you want to make instantaneous payments at any time, so the trend will be towards large, continuously available hubs. These hubs will also need access to lots of liquid cash as they will have lots of funds tied up in open channels, while also needing to have liquidity available to open new channels at any time.

This will lead to hubs with lots of cash and thus corporate backing. These large hubs will best be able to scale lots of LN instant payments while keeping LN node fees low. However, a central payment hub would have lots of information about its users, users who are using a single Bitcoin address for all of their transactions. Thus each address would have much more information leaked to the LN hub nodes, which you could track across time.

Of course, if you wanted more anonymity, you could just use a regular Bitcoin transaction; any service or individual who has a Lightning address must by definition have a Bitcoin address. This seems a reasonable tradeoff: instant transactions that can be tracked over time vs anonymous transactions that you pay a higher fee per use.

VI.

Another impressive project is Drivechain.  This project would allow for sidechains in the Bitcoin ecosystem. These would be soft-forked in (that means no network split), and these sidechains would not need to impact the mainchain. The sidechain could run its own nodes independent of the Bitcoin chain, although in practice we would expect Bitcoin nodes to watch the sidechains since we would imagine sidechains would only exist if there was significant value added there. The way these work is that Bitcoin would be sent to an escrow account watched by the sidechain. That would allow those coins to appear on the sidechain and be governed by any rules the sidechain wants.

Interesting sidechain ideas include Hivemind (decentralized Bitcoin prediction markets) and MimbleWimble (homomorphically encrypted confidential transactions). Needless to say, there is an enormous amount of potential here. Drivechains would allow limitless innovation, allowing new blockchain rules to flourish while maintaining the network effects and avoiding the coordination failure of multiple currencies or blockchains.

However, there are risks with this approach. One risk is that money stored in the sidechain is sitting in an escrow account on the mainchain. Mainchain nodes don’t have to watch the sidechain, and so if incorrect transactions are posted trying to withdraw money from the sidechain, it’s up to the miners to enforce the correct rules. As long as miners believe sidechains enhance the value of Bitcoin, there shouldn’t be a problem.  But if we don’t get to that point quickly, drivechains could be a short-lived experiment ending in grand theft. I’m hopeful this is not the case though, and sidechains would offer such a massive increase in the value of Bitcoin that several will survive and grow.

VII.

Let’s take a moment to elaborate on the implications here.  The creation of a MimbleWimble sidechain or the addition of the related idea of Confidential Transactions to Bitcoin would be game changers for Bitcoin privacy. Tax avoidance with Bitcoin would become simple, easy, and possibly unstoppable. Combined with improved scaling or the essentially limitless use cases for Bitcoin sidechains, there will be a combination of high demand and availability of Bitcoin with widespread privacy.  Even if governments can continue to collect tax revenues, their ability to combat Bitcoin would be completely diminished.

The interesting corollary is that governments aren’t really getting in the way of Bitcoin. Maybe they’ll crack down on it in the future, but for now there isn’t a lot of indication for heavy regulation. In the US, electoral politics means there will be a deregulatory environment for the next year, maybe three.

Finally, the Bitcoin and cryptocurrency space is not done developing. Sidechains offer the potential to incorporate all sorts of new rulesets and innovation into Bitcoin. The potential here is literally unknowable. For these reasons, I believe Bitcoin has the potential for significant value.

I would also of course like to point out that this is just some blog on the internet so take my advice as policy speculation and not investment speculation. There are plenty of other financial risks to Bitcoin I don’t have time to cover. This includes that if you lose your private keys, your money is gone forever. It includes that there could be an unknown flaw in the Bitcoin code that could be exploited, losing money and crashing the price of Bitcoin. It includes that government agencies could compromise developers and pay them off to put in code that helps to destroy the network. Bitcoin is risky and speculative. The fact that it has a lot of potential does not guarantee that it will have value in five years.

VIII.

A final note on other cryptocurrencies. There are many other cryptocurrencies, and I’m doubtful on all of them for two reasons. (1) If Drivechain is successful, most use cases for other coins will be gone. (2) As it is, even if other chains have cool features, they don’t have the network effects of Bitcoin. Collective action failures mean that better features may be passed over if it involves transaction costs distributed over many individuals; in other words, it will be nearly impossible to get users, vendors, developers, and miners to switch over to a different cryptocurrency. In the long run, we’d probably expect one or two cryptocurrencies to dominate. This may be Bitcoin or it may be something else, but today, Bitcoin is the clear market leader. To bet on another cryptocurrency is to bet against the market and to bet against the large ecosystem that Bitcoin has built. This seems very risky.

Thanks for reading, and if you enjoyed this, feel free to donate to the Bitcoin address on the sidebar!

 


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Bitcoin Hard Fork Predictions

Tomorrow there is scheduled to be a hard fork of the Bitcoin blockchain and network. There’s a fair amount of uncertainty over what will happen. The hashrate is unknowable until the fork occurs. The price seems to be around 10% of the price of Bitcoin. However, there aren’t too many exchanges that will be accepting this currency, and there are even fewer places you can actually spend it.

I’m going to make some predictions about it to put on record what I think is going to occur and to see how correct or incorrect I end up being.

  1. There will be a Bitcoin Cash block mined before 12 AM August 2, US Eastern time: 80%
  2. The price of Bitcoin Cash at 12 AM August 2, US Eastern time will be <10% of Bitcoin’s price: 70%
  3. The price of Bitcoin Cash on August 5 will be < 10% of Bitcoin’s price: 90%
  4. The price of Bitcoin Cash on September 1 will be < 10% of Bitcoin’s price: 90%
  5. The value of all transactions of Bitcoin Cash around September 1 (maybe averaged over a week?) will be < 10% of the value of all transactions in Bitcoin: 95%

I have mixed hopes for the success of Bitcoin Cash. On the one hand, I wrote previously that if the two factions in Bitcoin split, we could have a competitive market showing which rules were better. However, due to network effects, I still don’t think it could happen and be very successful. Supposing it did succeed though (had a pretty high market price), what would that mean? I suppose it would mean forks would become more common. That might be better for competition, but not for stability of the currency.

Ultimately, the idea that it would be fairly easy to make a successful hard fork of Bitcoin would be pretty devastating to Bitcoin’s health. It would mean consensus doesn’t mean much, it would mean the Bitcoin community could splinter pretty easily, which would therefore mean Bitcoin’s usefulness as a currency decreases as each part of the community would be using their own forked blockchain and coin. Something like sidechains seems like a much better implementation of this idea.

I should probably also disclose that I do not have much faith in the current governance model of Bitcoin Cash, and that does concern me a bit as well. I hope that hasn’t clouded my judgment of the actual technological and economic implications, but only time will tell if my predictions are true.

A Few Thoughts on Bitcoin

I have been aware of Bitcoin’s existence for a while, and while I was excited about it a few years ago, it had somewhat dropped off my radar. Perhaps because over the past few months, Bitcoin has seen a big increase in value, I started to revisit it and analyze it as a technology. My experience has been nothing short of breathtaking.

A few years ago, Bitcoin was pretty cool. I even wrote a paper about it, discussing the huge potential of the technology and decentralized, autonomous transactions could totally upend the banking industry. But back when I first got into Bitcoin, I was also interested in Austrian Economics, which I’m largely over now. Their focus on control of the money supply and dire warnings about the Federal Reserve weren’t really borne out by the rather mundane economic growth of the last few years.

Nonetheless, the Bitcoin community has been working on without me, and it has paid off: you can now use Bitcoin to purchase from all sorts of retailers, including Dell, Overstock.com, Newegg, and more. You can also buy all sorts of internet specific services, which to me seems like the clearest use case. These include Steam credit, VPNs, cloud hosting, and even Reddit gold.

The price has jumped up to over $1000 at the end of April 2017 (that’s over $18 billion in total market value of all Bitcoins), and it was briefly even higher a month ago on speculation the SEC would allow for a Bitcoin ETF. The ETF was rejected, but the potential of the currency remains. And technologically, Bitcoin is far more impressive than it was, most notably with a concept called the Lightning Network.

This technology would allow for instantaneous Bitcoin transactions (without having to accept risky zero confirmation transactions). These transactions would have the full security of the Bitcoin network, and would also likely allow massive scaling of the Bitcoin payment network. Drivechain is another project with great potential to scale Bitcoin and allow for applications to be built on top of the Bitcoin blockchain. It would create a two-way peg, enforced by miners, that allowed tokens to be converted from Bitcoin to other sidechains and back again. This would allow experimentation of tons of new applications without risk to the original Bitcoin blockchain.

Hivemind is particularly exciting as a decentralized prediction market that is not subject to a central group creating markets; anyone can create and market and rely on a consensus algorithm to declare outcomes. If attached to the Bitcoin blockchain, it also wouldn’t suffer from cannibalization that Ethereum blockchains like Augur can suffer from.

Mimblewimble is another interesting sidechain idea. It combines concepts of confidential transactions with (I think) homomorphic encryption to allow for completely unknowable transaction amounts and untraceable transaction histories. It would also do this while keeping the required data to run the blockchain fairly low (the Bitcoin blockchain grows over time). It would have to be implemented as a sidechain, but any transactions that occur there would be completely untraceable.

And there are even more cool projects: Namecoin, JoinMarket, the Elements Project, and of course other cryptocurrencies like Ethereum, Monero, and Zcash. This really makes the future of Bitcoin and cryptocurrencies seem pretty bright.

However, we’ve skipped a big point, which is that most of these cool innovations for Bitcoin can’t be done with Bitcoin’s present architecture. Moreover, the current number of Bitcoin transactions per block has just about maxed out at ~1800. This has resulted in something called the Scaling Debate, which centers about the best way to scale the Bitcoin blockchain. Upgrades to the blockchain must be done through consensus where miners mine new types of blocks, institutions running nodes approve of those new blocks, and users continue to create transactions that are included in new blocks (or else find another cryptocurrency). Before any of that can happen, developers have to write the code that miners, validation nodes, and users will run.

Right now, there is a big political fight that could very briefly be described as between users who support the most common implementation of the Bitcoin wallet and node (known as Bitcoin Core) and those who generally oppose that implementation and the loose group of developers behind it. I certainly am not here to take sides, and in fact it would probably have some long term benefits if both groups could go their separate ways and have the market decide which blockchain consensus rules are better. However, there is not much incentive to do that, as there are network effects in Bitcoin and any chain split would reduce the value of the entire ecosystem. The network effects would likely mean any two-chain system would quickly collapse to one chain or the other. No one wants to be on the losing side, yet no side can convince the other, and so there has been political infighting and digging in, resulting in the current stalemate.

There will eventually be a conclusion to this stalemate; there is too much money on the line to avoid it. Either the sides will figure out a compromise, the users or the miners will trigger a fork of the chain in some way and force the issue, or eventually a couple years down the road another cryptocurrency will overtake Bitcoin as the most prominent store of value and widely used blockchain. A compromise would obviously be the least costly, a chain split would be more expensive, but could possibly solve the disagreement more completely than a compromise, while another cryptocurrency winning would be by far the most expensive and damaging outcome. All development and code security that went into Bitcoin would have to be redone on any new crytocurrency. Nonetheless, Litecoin just this week seems to have approved of Segregated Witness, the code piece that is currently causing the Bitcoin stalemate. If Bitcoin’s stalemate continues for years, Litecoin is going to start looking pretty great.

Obviously it’s disappointing that even a system built on trustless transactions can’t avoid the pettiness of human politics, but it’s a good case study demonstrating just how pervasive and pernicious human political fights are. Ultimately, because cryptocurrencies are built in a competitive market, politics cannot derail this technology forever. And when the technology does win out, the impact on the word will be revolutionary. I just hope it’s sooner rather than later.

 


Bitcoin featured picture is a public domain image.

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What is Postlibertarianism? v2.0

When I started blogging here about 18 months ago, I knew that I was having trouble identifying myself as exactly “libertarian”, despite that being my primary blogging perspective for years before that. I’ve mapped out important parts of this “new” position in previous posts, but now I think it would make sense to put everything in one place. This post is labeled “2.0” since former postlibertarian.com blogger Joshua Hedlund defined it pretty well in 2011. This is a more in depth analysis.
Continue reading What is Postlibertarianism? v2.0

Links 2017-1-12

As we approach the time when free trade is the heretical advice rather than the obvious logical one, it’s time to brush up on our free trade arguments. Here’s an interesting one: would you ban new technology to save the jobs tied to the technology it replaces? Would you ban light bulbs to save candlemakers? Cars to save horsebreeders? It’s a ridiculous proposition to freeze the economy at a certain point in time. Well, there’s no economic difference between new technology and free trade. In fact, we can treat international trade as a fancy machine where we send corn away on a boat and the machine turns the corn into cars.  

And speaking of free trade, this is the economic modeling for why a tariff is unequivocally inefficient. One of the impacts of a tariff, by the way, is an increase in the market price of a good. Anyone saying that a tariff won’t have negative effects on consumers is just plain wrong.

The excellent open source encrypted messaging app Signal is so useful, it has to avoid having its application servers blacklisted by oppressive regimes. It uses a workaround of having encrypted connections through content delivery network, in this case, Google itself. Moxie Marlinspike, the creater of Signal says “Eventually disabling Signal starts to resemble disabling the internet.”

One of the biggest problems with Trump I pointed out last year was the total unknown of his policies. He keeps changing his mind on almost every issue, and when he does speak, he wanders aimlessly, using simplified language that is more blunt and less precise. Fitting right into this pattern, Trump has taken to Twitter for much of his communication, even since winning the election. Twitter is a short and imprecise tool for communication, and this New York Times article shows just how much uncertainty Trump creates with his tweets.

Related: Bill Perry is terrified of increased nuclear proliferation. The article is a little alarmist, but it’s worth remembering that nuclear war was a real threat just 30 years ago. It should not be taken for granted that nuclear war will never occur, and Trump seems the most likely of the post-Soviet presidents to get involved in a confrontation with a major nuclear power.

Scott Alexander reveals his ideal cabinet (and top advisers) if he were president. It’s not only remarkably better than Trump’s, it’s probably better than any cabinet and appointees we’ve ever had (Bernie Sanders notwithstanding). Highlights include: Alex Tabarrok as head of the FDA, Scott Sumner as Chairman of the Fed, Charles Murray as welfar czar, Peter Thiel as Commerce Secretary, and Elon Musk as both Secretary of Transportation and Energy.

Speaking of cabinets, George Will details just how out of touch soon-to-be-Attorney General Jeff Sessions is, recounting his 2015 defense of unlimited civil asset forfeiture, a procedure by which the government takes cash and property from civilians who have been convicted of no crime and therefore have no recourse or due process protections. Don’t buy into the story that all of Trump’s appointees are horrific and terrifying; there is a gradient of his cabinet appointments depending on their authoritarian tendencies and the importance of their department, and unfortunately Jeff Sessions as Attorney General is by far the most concerning.

Missed this earlier last year, and worth keeping in mind as BuzzFeed gets hammered this week over their publishing of an unverified dossier: apparently the FBI already has daily aerial surveillance flights over American cities. These seem to be for general investigative use, not vital national security issues: “But most of these government planes took the weekends off. The BuzzFeed News analysis found that surveillance flight time dropped more than 70% on Saturdays, Sundays, and federal holidays.” 

Speaking of BuzzFeed and the crisis of “fake news”, which itself may not even be anything compared the crisis of facts and truth itself, Nathan Robinson has an excellent take on the matter (very long read). With the lack of facts in the election, the media and Trump’s critics generally have to be twice as careful to rebuild trust in the very concept that objective truth exists and can be discussed in a political context.

Government regulations have hidden, unexpected costs. These regulations hurt people regardless of their political affiliations, as a Berkeley professor found out when trying to evict a tenant that refused to pay rent. California’s rather insane tenant laws mean that serial rent-cheaters can go from place to place staying rent free for months at a time.

I’ve often thought about the right ordering of presidents from best to worst, taking into account a libertarian, liberty-promoting approach. One difficulty is the non-comparability of presidents separated by centuries. However, this blog post from 2009 actually does a nice job of scoring the presidencies. I don’t agree with each one, but it’s a rough categorization that makes sense. It even gave me an additional appreciation for Ulysses Grant, who I figured was mostly president by the luck of being the general in charge when his army won the Civil War. Other highlights include William Henry Harrison scoring 11th, thus beating over three quarters of the competition despite only being in office for a month. I feel like I could have found more worse things on Andrew Jackson, and in general I feel like I agreed with the list more the closer I got the end.

Jeffrey Tucker at FEE has a nice article about the difference between spreading ideas and actual economic production of goods. His thesis is that we have much less control over the developing of ideas than we do of developing normal rivalrous goods. And since libertarians are pretty solid at grasping the idea that the production of goods cannot be controlled from the top down, we should also acknowledge that top-down approaches to developing ideas are even more preposterous, especially in the digital age of decentralized information. I’ve thought about this a fair amount considering I like I blogging but I’m well aware few people read this blog. The simplest way to restate Tucker’s point is that you have to have good ideas more than good distribution. I don’t know if that’s an accurate take, but certainly good ideas are the single most important part of spreading your ideas.

There’s a saying on the internet that “Democracy is two wolves and a lamb voting on what to eat for lunch”. The 2016 election is excellent demonstration of just how poorly democracy can fail, but what our all alternatives. How about Futarchy? This is Robin Hanson’s idea to improve public policy: “In futarchy, democracy would continue to say what we want, but betting markets would now say how to get it. That is, elected representatives would formally define and manage an after-the-fact measurement of national welfare, while market speculators would say which policies they expect to raise national welfare.” Let’s hold a referendum on it; those seem to work out.

Bitcoin has been on the rise in recent months. So have other cryptocurrencies. But rather than focus just the price of the cryptocurrency, why not look at the total market valuation of those currencies? Sure, you might have heard that Bitcoin was up to $1000 again recently, but did you know that its total market cap is ~$13 billion? At the very peak of the Bitcoin bubble in 2013, all Bitcoins together were valued around $13 billion, but only for a matter of days. This time Bitcoin has kept that valuation for over 3 weeks. With more markets and availability, Bitcoin is becoming a real alternative for people whose national currencies have failed them. 

Postlibertarian throwback: When Capitalism and the Internet Make Food Better. A reminder that the despite the ongoing horrors of government we are witnessing, the market is still busy providing better products and cheaper prices.


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Links 2016-5-30

Gary Johnson selected former Republican Massachusetts Governor William Weld  to be his running mate. This was pretty surprising for Libertarians considering Weld isn’t really a well-known libertarian guy.  Obviously, the Johnson campaign hoped not to repeat the failings of Jim Gray who was essentially unknown to the national media. During the Libertarian Party convention this weekend, the delegates selected both Gary Johnson and Bill Weld opting for pragmatism rather than party purity.  This is some election year when the libertarians are more reasonable than the Republicans and Democrats.

With 2 former Republican governors on the ticket, the Libertarian Party is now poised to be a real third party alternative. This could be a huge year for them, even if they don’t win. Remember, from our archives, if you reach 5% of the popular vote in a presidential election, you are entitled to real money in the next cycle (the irony of Libertarians accepting Federal handouts not withstanding).

Nicholas Kristof has a follow up to his column “A Confession of Liberal Intolerance” where he condemned the intolerance of progressives especially in the university. Apparently, the left universally scoffed at the thought of tolerating conservatives…which essentially confirmed his point.

The EFF is shutting down their canary watch program after a year. I have previously discussed the importance and usefulness of warrant canaries. It seems the EFF has decided it isn’t worth the effort to keep track of all the notices because they seem to change too much from post to post.  These aren’t bad reasons, but it is a little concerning. It seems likely that you’ll just have to stick to the default that any website you visit has received national security letters asking for information.

Jason Brennan at Bleeding Heart Libertarians on the difference between Ignorance, Misinformation, and Irrationality in democracies.  Essentially ignorance isn’t exactly the problem in democracies, since if everyone is equally ignorant, then the non-ignorant people will be able to make rational decisions; there is no bias for the ignorant people since they have no opinion. Misinformation can be a problem though, if most people are misinformed, they will make poor decisions. But even if people are misinformed, having a deliberative discussion will help as rational logic should triumph. But irrationality is a serious problem, since even discussions would just spread more misinformation. This relates to the thesis of Bryan Caplan’s book The Myth of the Rational Voter (Wikipedia, full text for free).  I look forward to reading Brennan’s new book, iconoclastically titled Against Democracy.

Tangentially related: John Oliver has a segment on the flaws of the primary system. Unfortunately, he sort of glosses over the assumption that they need to be more democratic, but do they? He says this time we “got lucky” in that the candidates with the most votes were the ones actually chosen, but we need to change things in the future. I disagree; the candidates we did choose are awful. If the system is working now, making it work better won’t help anything. Check out my previous post for more on this, and forward it to John Oliver if you get a chance. Better than reforming the primary system, let’s try making more parties more viable with some proportional representation in the House of Representatives!

Why Bernie doesn’t quit: Polisci 101 analysis of Bernie Sanders’ intentions. Basically, he wants to stop Hillary from turning towards the center, since he wants the Democratic party to be very a progressive Social Democrat party. This is also the reason that anyone who’s not a Social Democrat wants Bernie out of the race.

Ilya Shapiro at the Cato Institute, who knows his stuff pretty well, called Donald Trump’s list for replacing Justice Scalia’s SCOTUS seat “exceptional”. This is good news in that a Trump presidency would at least have this going for it. I don’t know if all this would make him a better choice than Clinton, but it is a big deal, at least to me.  Doubtful if this alone would be enough to unite all Republicans around him.

Nick Gillespie has two solid blog posts. One is a great overview of a recent Foreign Relations Committee Hearing and the constrasting views of Marco Rubio and Rand Paul.  Paul, we should note, won his primary to stand for reelection for his Kentucky Senate seat. This should largely guarantee his victory (PredictIt doesn’t have a market yet but PredictWise has it at 90% Republican).  The other post discusses how Obama’s new overtime regulations are going to harm workers by reducing hours, workers, or both.

Meta-blog post. Do you need more economics blogs? Here is a giant list of them. They’re vaguely ordered by popularity, and you shouldn’t just dismiss it because Paul Krugman is first; there’s a lot of good blogs I didn’t know about.

Dylan Matthews at Vox makes the case for getting rid of the TSA. Doesn’t even mention the financial cost savings (their budget is $8 billion, and cost of time is at least that).

Scott Sumner on the problems with government policy responses to crises. Scott also did a much better job predicting the economy than the Fed. Takeaway: please, please institute prediction markets for the basic macroeconomic indicators.

Cool YouTube video on computational complexity and the P vs NP problem.

Short summary of one of the best essays on markets: Hayek’s “The Use of Knowledge in Society”.

What are the components of airline ticket prices? Great YouTube video explanation.

All the Scott Alexander: Apparently good kindergarden teachers have massive effects on income decades later, but no lasting effect on test scores. There really bizarre studies and all I can tell is that education research is hard.

As part of his ongoing philosophy of niceness and tolerance in society, and relating to my post on tolerance, Scott discusses more on tolerance and coordinated vs uncoordinated meanness.

Scott also has a great post on his experience in the Irish health system, related to the UK junior doctors’ strike.  There are serious barriers to entry to the US medical system because the benefits are so high if you become a doctor. In UK, this is not true, since the state regulates how much doctors can make, so of course many doctors are leaving the UK and Ireland for places where the pay is less regulated. Scott says he’s not sure how to solve labor disputes, but if you have a freer market in hiring and payment, you don’t end up having labor disputes. The American system has problems as well, and if the barriers to entry could be reduced

And finally: Scott Alexander’s review of Albion’s Seed, and his analysis of the importance of culture in determining beliefs.

Apparently non-technical people don’t know this, but Craig Wright isn’t Satoshi Nakamoto. He had an “exclusive” interview with several media outlets discussing how he was really the inventor of Bitcoin. But if you read the story pretty quickly, you notice he doesn’t provide a signature with Satoshi’s private key (the reddit and Hacker News threads found he stole a signature from a transaction in one of the early blocks), and he doesn’t move any of Satoshi’s money to a publicly declared account. Those are very easy ways to prove he is Satoshi Nakamoto, and he didn’t do them, instead relying on some weird demonstration directly to a journalist. I would have guessed most people would have figured he was lying (he has a weird history as well), especially because Satoshi Nakamoto has gone to great lengths to protect his identity, and this guy is clearly trying to get attention. But several news outlets printed it as true. Gavin Andresen, the lead developer of Bitcoin, has declared that he has seen proof, but he hasn’t told us what the proof is.  But you shouldn’t need a really famous person to vouch for someone’s identity, that’s the whole point of Bitcoin; decentralized proof is easy and clear.

From Ars Technica: Death by GPS.

Bryan Caplan on global warming cost-benefit analyses.

The Fourth Amendment apparently no longer applies to the federal government. The FBI can access any data gathered from general warrants issued under the FISA court to the NSA, which is only supposed to be targeting foreign nationals, but which we know just grabs all data a company has.

Marginal Revolution discusses the issue of public bathrooms in context on North Carolina’s recent law.

2016 Predictions

How confident should we be? People tend to be overconfident.  One way to figure out if our confidence levels are correct is to test our calibration levels by making predictions and seeing how many of them pan out. Inspired by Slate Star Codex’s predictions, here are my predictions and accompanying confidence levels. For the sake of convenience I will choose from confidence levels of 50%, 60%, 70%, 80%, 90%, 95% or 99%. All predictions are by December 31, 2016 unless noted otherwise.

Postlibertarian Specific

  1. Postlibertarian to have >10 additional posts by July 1, 2016:  70%
  2. Postlibertarian Twitter to have more than 240 followers:  70%
  3. Postlibertarian.com to have >10k page loads in 2016: 50%
  4. The predictions on this page will end up being underconfident: 60%

World Events

  1. Liberland will be recognized by <5 UN members: 99%
  2. Free State Project to reach 20,000 person goal in 2016: 50%
  3. ISIS to still exist: 80%
  4. ISIS to kill < 100 Americans 2016: 80%
  5. US will not get involved in any new major war with death toll of > 100 US soldiers: 80%
  6. No terrorist attack in the USA will kill > 100 people: 80%
  7. Donald Trump will not be Republican Nominee: 80%
  8. Hillary Clinton to be Democratic Nominee: 90%
  9. Republicans to hold Senate: 60%
  10. Republicans to hold House: 80%
  11. Republicans to win Presidential Election: 50%
  12. I will vote for the Libertarian Presidential Candidate: 70%
  13. S&P 500 level end of year < 2500: 70%
  14. Unemployment rate December 2016 < 6% : 70%
  15. WTI Crude Oil price < $50 : 80%
  16. Price of Bitcoin > $500:  60%
  17. Price of Bitcoin < $1000: 80%
  18. Sentient General AI will not be created this year: 99%
  19. Self-driving cars will not be available this year to purchase / legally operate for < $100k: 99%
  20. Customers will not be able to rent trips on self-driving cars from Uber/ Lyft: 90%
  21. Humans will not land on moon by end of 2016: 95%
  22. Edward Snowden will not be pardoned by end of Obama Administration: 80%