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Contents
- Bitcoin Commentary
- What Ive been reading recently
2.1 Economics
2.2 Investing
2.3 Cryptocurrency
2.4 Philosophy
2.5 Software Engineering
1. Bitcoin Commentary
In what has begun to look like an annual tradition, Ive started researching decentralized currencies again. This time, Im focused on Bitcoin.
While I already understand the basics Bitcoin technically (some have even made it into blog posts of mine a few years back) Id written it off some years back as a currency due to:
- The number of competing (and superior) digital currencies
- Its inability to scale out (both in terms of raw transactions, and due to the energy cost required to power it)
- The hype. I dont like getting in on things when I feel rushed.
A financial blogger I like, Lyn Alden, tweeted positively about it recently however, plus the CEO of Twitter, Jack Dorsey, keeps shilling it lately, so I decided to poke the bear.
This spawned a lot of mad Bitcoin enthusiasts getting on me about this or that, and got me a host of resources to read up on. A lot has changed since I last read about Bitcoin in particular, so hell, maybe my opinion should change?
Lyns article still remains the best Ive seen:
Note: I assume some basic knowledge of Bitcoin below. I trust you can find an article explaining Bitcoin to you already, if someone hasnt already explained it to you already. Lyns article is also a great resource for beginners.
I think Lyn has a really compelling article as to why Bitcoins price could increase in the coming years. She convinced me that, for an investorI would assume one with a lot of disposable incomeBitcoin may be a solid asymmetric bet, worth putting 1% or so of ones portfolio into. If some of the gold enthusiasts pour just a little bit of cash into it, it could moon. And shes being proven right, with Bitcoin reaching new highs recently. Further, considering the increase in dollar supply most folks are expecting to see in the next few years, Bitcoin seems like a considerable hedge, given its fixed supply. Perhaps most importantly, Bitcoin stood the test of time. During the big craze a few years back, mostincluding myselffigured Bitcoin would be usurped by another cryptocurrency. It was not, and hence, it retained its lead in security (which, for Bitcoin, is tied to adoption). Lyn paints a conceivable picture about how, in the medium terma couple of years timeBitcoin could be a solid investment.
Full disclosure: I still own 0 Bitcoin as of this post.
But whether Bitcoin is a good currencyone that could function as a true reserve currency long termor if Bitcoin merely has medium-term investing potential due inflation dodging or the Theory of the Larger Fool are two separate things. Lyn talks about investing, so she shies away from long-term speculation, at least in the post I read.
Its tough to understate how pivotal the separation of currency and state would be. And its tougher to know how governments would respond. What would the role of fiat be if Bitcoin, a fixed asset that governments could not control, were to become the global standard?
Ray Dalio, a famous hedge fund manager and author, seems to think governments wouldnt let this happen:
There are a lot of reasons governments want flexibility over their currencies, a la Modern Monetary Theory. The cliff notes version of MMT is that it allows governments with reserve currencies, like the US, to control price stability and employment, irrespective of the debt they take on. Other countries that borrow in reserve currencies do not enjoy this benefit; this is just one of the many critiques of MMT.
Theres a common line of reasoning arguing that decentralized currencies pose problems for central banks that manipulate fiat currency via MMT. My understanding is that True mass adoption would effectively upend the way global finance is done today by shifting demand from current world reserves to Bitcoin, thereby decreasing the power states have over currency. Today, especially in Coronavirus times, the Power of the Purse seems unlimited: the fed has signaled to congress that is willing to buy a practically unlimited amount of debt as stimulus by generating dollars out of thin air. In a world under mass Bitcoin adoption, this kind of stimulus simply doesnt work, as the supply of Bitcoin is fixed, and fiat currencies, like dollars, might look like monopoly money by comparison.
For an excellent overview of MMT, read this piece: Modern Monetary Theory (MMT): A General Introduction.
Today, as most even mildly interested in economics know, the dollar is the world reserve currency. Many people are worried about the stability of the dollar, given that were injecting trillions of dollars monthly. This is like going to Iraq, but every month. Iraq was only 1.1 trillion dollars. A standard reserve currency, like Bitcoin, does give people an escape hatch from hyperinflation and other currency manipulation problems, stemming from state decision making.
- Im still trying to piece together what exactly how much control governments really lose under Bitcoin, whether I can see that as a positive or a negative, and whether I agree with Dalio that governments would (or could) take action to prevent it.
- Im still trying to wrap my head around what mass Bitcoin adoption might mean for lending, or other financial obligations, like settlements. The enforcement of debt and the ability to track money seem, to me, like some of its most important properties. If I cant tell how much Bitcoin someone has, how can they be made financially responsible in court? Perhaps we already have this problem today, to some extent, but it seems to me that Bitcoin would increase its scope greatly.
- Im also interested in what a world with a fixed amount of currency really looks like. I would imagine inflating away debtors obligations through fiat would not really be on the table. This avenue seems like it might have some interesting consequences.
- The percentage of hash ratethe mining of Bitcoinowned by Chinese firms is another looming concern I havent really seen an answer to either (65%). 51% of Bitcoins hash rate is what it would take it manipulate the network by an attacker or state actor.
- The answers folks have given me on Bitcoins energy consumptionwhich is already matching Switzerlandshave not been good either. One response to this recommended to me boiled down to the benefits of fighting inflation worth climate change. The promise of a lightning network that settles transactions as an intermediary seems promising, but requires more research on my end.
Put a price on economic stability and the economic freedom a stable monetary system provides; that is the true justification for the amount of energy bitcoin should and will consume. Everything else is a distraction.
Ew!
And yet, despite the above concerns, I can still imagine a scenario where Bitcoinor a digital currency like itbecomes a reserve. Theres a part of me thats worried this is a prisoners dilemma, and, at the end of the Bitcoin tunnel, we all end up being worse off.
I should have a final blog post once Im finished researching. My hunch is Im still a ways away from having a complete picture of Bitcoin.
2. What Ive been reading recently
2.1 Economics
2.2 Investing
2.3 Cryptocurrency
- Gradually, then suddenly articles. I read about half of these to try and get a Bitcoiners perspective. These are very hit or miss. Ill still probably read the rest before I write a real blog post on Bitcoin.
2.4 Philosophy
- The Moral Landscape – Sam Harris gives an overview of his flavor of moral realism. I was already very aware of Sams take on this question, but, given all the Bitcoin reading, I wanted to dive into something I knew Id mostly agree with. Im considering writing a post in defense of Sams argument here, as Ive seen several posts online critical of it.
- Language, Truth, & Logic – Some years back Nassim Taleb converted me to some form of empiricism, and, since then, Ive wanted to work my way through some of its older iterations, like Logical Positivism, the topic this book is on (written 1936). The critique of mathematical apropri truths was particularly interesting, even if Im not sure I entirely agree. However, sometimes I got lost on the linguistic points the author made. This book is, weirdly, a page-turner, and very short to boot!
Whatever instance we care to take, we shall always find that the situations in which a logical or mathematical principal might appear to be confuted are accounted for in such a way as to leave the principal unassailed.
2.5 Software Engineering
- Spark: The Definitive Guide – Ive started work as a data engineer at a new company recently, so Ive been poking at some resources on Spark. This books first couple chapters are written very clearly; its definitely above and beyond the other resources on Spark Ive been able to find online.
- How to copy between Encrypted S3 Bucket – An article I wrote for Towards Data Science as a follow up for an AWS IAM introduction I wrote for work. The IAM introduction got to the top of r/aws. Cloud security is pretty tricky. In my time at AWS, I had some pretty solid mentors that taught me most of the basics, so I felt comfortable talking about it at an introductory level online.