Episode 2: Andrea Castillo

Today's discussion was actually recorded on the first of March, 2014, shortly before Newsweek broke the story of the (alleged) identity of the creator of Bitcoin. If we would have had this chat a few days later, the discussion would have undoubtedly veered into journalistic integrity, the burden of proof, and the ephemeral nature of public vs private life.

As is, we talked about Mt. Gox, the blockchain, and why it is the BTC protocol is the actual story.


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Andrea's Mercatus Center page can be found here.
Andrea's Umlaut page can be found here.

Additional material mentioned in the podcast:

https://bitcoin.org/bitcoin.pdf

http://theumlaut.com/2014/01/08/bitcoin-internet-of-money/

http://theumlaut.com/2014/02/05/namecoin-icann/

http://theumlaut.com/2014/01/21/bitcoin-2-0-decentralized-corporations-derivatives-and-information-markets/

http://theumlaut.com/2013/12/10/bitcoin-watchers-think-protocol-not-price/

http://theumlaut.com/2013/12/02/bitcoins-greatest-weakness/

http://theumlaut.com/2013/08/13/silk-road-as-a-self-regulating-black-market/

http://theumlaut.com/2013/05/21/bitcoins-untapped-possibilities/
http://www.washingtonpost.com/blogs/the-switch/wp/2014/02/28/mt-gox-is-bankrupt-but-bitcoin-is-going-to-be-ok/

http://szabo.best.vwh.net/shell.html

and here's a good explanation of bitcoin mining: http://qz.com/154877/by-reading-this-page-you-are-mining-bitcoins/

Edit: I couldn't find the relevant clip from The Princess Bride, but here's the quote we referenced:

Roberts had grown so rich, he wanted to retire. He took me to his cabin and he told me his secret. 'I am not the Dread Pirate Roberts' he said. 'My name is Ryan; I inherited the ship from the previous Dread Pirate Roberts, just as you will inherit it from me. The man I inherited it from is not the real Dread Pirate Roberts either. His name was Cummerbund. The real Roberts has been retired 15 years and living like a king in Patagonia.

The Optimal Quantity of Unwarranted Media Harassment is not Zero

Today is the seventh of March, 2014. Yesterday, an elderly Japanese-American man was the subject of relentless media badgering. A Newsweek correspondent tracked this man down, suspecting him of being the fellow who wrote the Bitcoin protocol. The histrionics over the past day remind me less of Edward R. Murrow and more a fulvid Charles Foster Kane.

What would Coase say?

The Ouroborotic nature of journalism can be frustrating for those who have not yet learned to collapse the moral telescope. From the individual journalist's point of view, the public's interest is an ironclad straitjacket. Career incentives are centered on scoops, on eyeballs, on pageviews. But from the news consumer's point of view, the media exists to highlight what's interesting in the world. Each is in partial thrall to the other. It's an equilibrium. That does not imply that it's the only equilibrium.

The Schelling in this Point is man's natural propensity to truck, barter, and exchange in gossip. Individually, since each member of the public has as little to no ability to influence the content of the news, the costs of reckless quasi-paparazzi are easily swamped by the benefits of consuming salacious tabloid pablum. Curbing the hunger for frivolous human interest stories is costly: it requires the discipline of a well-informed temperance. Rigorous personal virtue is hard, therefore the analyst should expect it to be rare. Because it is rare, the rigorous analyst should also expect a vigorous market in sleazy journalism.

If you're so inclined, perhaps you might encourage the people in your circles to temper their propensity to gossip. For everyone else, journalism cannot ever be reasonably expected to be anything other than non-euvoluntary (particularly when the alternatives are too horrible to reasonably contemplate) and we'll just have to accept that the occasional harassment of people who just want to mind their own damn business and build play train sets in peace are simply part of the costs of having a free press.

Right?

Survivorship and the Precautionary Principle

Hindsight and Confirmation biases aid each other dearly.

Surely by now you've chuckled into your sleeve at some of the preposterous historical claims about how the Internet would be a flash in the pan, or about how we'd all be living in geodesic domes, eating reconstituted foods, traveling by jet-car, and sending our kids to summer camp on the moon. Prediction is hard, especially about the future.

Note well however, what the Precautionary Principle attempts to do. It slings on the back of mulish regulators the saddlebags of not just ordinary prediction, but anticipation of Calliopic non-ergodic entangled threats, dolloping kaibosh after kaibosh atop the delicate sundae of human invention.

Shannon Chamberlain: Railroads: stopping deaths from turning into famines since 1775...

Lynne Kiesling: [nit picky economic historian] since 1815 [/nit picky economic historian]. Shannon, I may plagiarize you on that in my classes! 1815 is the approximate date when Stephenson's Rocket became commercially available, after Watt's low-pressure steam engine patents expired, which had thwarted the development of high-pressure steam engines since 1776.

Samuel L Wilson: Shouldn't it be 1827, when the B&O first started running?

Why do I adore this exchange? Shannon's claim is that the initial development of commercially viable steam powered travel was the significant evolution of rail. Lynne made the point that the bottleneck in the development of the technology was patent squatting. My approach is to refrain from counting chickens until they're hatched. Each of these claims has some merit, albeit from different approaches. I'd give credit on an exam for any of these, contingent on an appropriate defense of the claim.

"Inevitablity" is immutably ex post. It wasn't "inevitable" in 1602 that the following year Japan would ditch foreign trade, fold its arms, and lionize the warrior class till Commodore Perry crested the horizon, the ruddy light of the rising sun backlighting his sails. Similarly, James Watt's external condenser (this word still gives me the heebie-jeebies two decades after having worked in an engine room for my Naval stint) is a necessary development for intercity rail transportation, but it's not sufficient. Like Professor Kiesling notes, the regulatory environment influences which technologies flourish and which can end up throttled on the workshop floor.

And as I point out, there may be good reason ex ante to indulge patience. Can we count 2009 as quando ex for cryptocurrency? Or will 2014 and the rise of dogecoin matter? Regular circulation sometime in the future? Could the PP have killed rail in 1815? What can the PP kill today?

How much less euvoluntary will the world be if innovation is stifled from overactive applications of the precautionary principle?

Remittance Payments and Directional Euvoluntarity: Buttercoin and Brito

Jerry Brito (along with our pal Andrea Castillo) is busy doing the heavy lifting when it comes to the economics (and political economy) of Bitcoin, and since his work already addresses EE points, I have ruled it prudent and polite to keep from sailing upwind of his research. If you'll forgive a note of conceit, I'd like to cross tack just this once.

Buttercoin is a nascent startup aimed at slashing the tendon of Western Union's business model using Bitcoins as the medium of exchange* in lieu of the staple currency: US dollars. Their praedicatum is that the extant firms are circumstantially coercive. Expats have little recourse but to submit to being "gouged" to the tune of 10% per transaction. These guys call shenanigans and say that they can operate for less.

I for one hope they're right. Now, I don't claim to know what the "correct" price is here by any stretch, but I do know the following:
1) Overseas postal workers are far far more likely to steal from parcels and letters than US workers.
2) Setting up an international account with a bank is a hassle the likes of which most Americans have no idea.
3) Even if you do manage to safely and securely get your cash from point A to country B, you're still not out of the woods, since as cash shifts hands, you're not entirely unlikely to end up with a wad of counterfeit Russian bills lining your palms.

Given all that, 10% is often a lot better than the alternatives. Voluntary, as it were, though not euvoluntary. Buttercoin promises to sidestep all that. Bitcoin can't be counterfeited, can't be seized by unscrupulous agents of the state, and can be quickly and painlessly converted into the local currency. If it turns out that the prices charged are thanks chiefly to these technical hurdles, then the Buttercoin folks might well be able to successfully undercut them. If, as I fear might be the case, it's a matter of regime uncertainty (grease the right palms or your business license won't get through), it could well be that the 10% is there as a normal cost of doing business.

Fingers crossed, guys. Godspeed.



*this is sort of an interesting point of semantics here. In this application, is Bitcoin more a medium of exchange or a unit of account? It's a wonky question, and I'm not sure it really matters apart from some technical legal questions across regimes. After all, what really counts as "money" is a matter to be hashed out in arbitration, yes?