I think one problem with this view is that the bitcoin storage cost is likely a function of the capitalization of bitcoin.

Bitcoin security is a function of the amount of miners. The amount of miners is a function of mining revenue streams. If there are not enough miners, stealing bitcoins becomes possible. So the bitcoin network needs to generate enough mining revenues to keep enough miners interested. This amount has to be a function of the capitalization as if it ever diverges stealing bitcoin would become a valid strategy. So bitcoin must have a negative yield, either because you need to pay for the miners energy or because your bitcoins are going to be stolen. This is currently hidden by the wave of investment in the sector (and the funding from the bitcoin seniorage), but that’s got to stop at some point. I don’t think gold for example has similar features. Securing gold is not a function of of the dollar value.

If miners are a competitive industry, miners revenue has to roughly equal miners costs, so it’s a real cost. Compared with other fiat currency cost of storage it seems incredibly wasteful. Storing government bonds is basically costless. You might get negative yields, but those are transfers, not consumption. Gold was valuable because it doesn’t rust. It doesn’t require maintenance. Bitcoins require a lot of maintenece… I think that’s a weakness…

Here is the link.

Andy was great, here is the text and audio, here is the introductory summary:

Before writing a single word of his new book Artemis, Andy Weir worked out the economics of a lunar colony. Without the economics, how could the story hew to the hard sci-fi style Weir cornered the market on with The Martian? And, more importantly, how else can Tyler find out much a Cantonese meal would run him on the moon?

In addition to these important questions of lunar economics, Andy and Tyler talk about the technophobic trend in science fiction, private space efforts, seasteading, cryptocurrencies, the value of a human life, the outdated Outer Space Treaty, stories based on rebellion vs. cooperation, Heinlein, Asimov, Weir’s favorite episode of Star Trek, and the formula for finding someone else when stranded on a lonely planet.

My favorite part was this, which Andy answered with no hesitation:

COWEN: What if there were two immortal people, let’s say it’s the two of us, placed on opposite sides of the Earth, an Earth-like planet, and we can wander freely with no constraints but just foot speed. How long does it take us to find each other?

WEIR: Can we collude in advance in any way?

COWEN: No, we cannot.


COWEN: But we know we’re trying to find each other.

WEIR: We know we’re trying to find each other. Well, we should both — but can we have a — are we both rational actors and we —

COWEN: We’re as rational as you and I are; take that as you wish.

WEIR: So, no?



WEIR: I think the best thing to do would be for both of us to pick an arbitrary great circle to walk, around the planet, and leave markings along the way denoting what direction you’re walking. So I would arbitrarily pick a direction to go and I would just go that direction with the intention of circumnavigating the entire globe, and I would walk at maybe half what is a comfortable speed for me. And you would do the same thing. Now, somewhere, our two — in fact, in two points — our great circles will intersect.

COWEN: Right.

WEIR: And when one of us reaches the other one’s, then they start following the markers at full speed, and then you get the guy. Right?

COWEN: And what’s your best guess as to how long that would take?

WEIR: Well, if you pick two points, I’m guessing one of us would have to walk probably about a quarter of the way around the planet before we found the other one’s great circle. And then you’d have to walk again. So in terms of circumnavigation times, it would take you 2x to get all the way around the planet, because my initial plan was you’d walk half-speed. So I’m guessing it would be a quarter of that, so one-half x to get to your great circle, and then a quarter x to find you along your great circle, on average, I’m guessing. So one-half plus a quarter, so .75x. So three-quarters of the time that it would take to circumnavigate the planet.

COWEN: OK, great answer.

WEIR: That’s my guess.

Do read/listen to the whole thing

That is the topic of my latest Bloomberg column, here is one excerpt:

Virtual reality technology can create vivid multiprojected environments, designed to feel real in some ways. In essence, with virtual reality we will be able to manage our empathetic and emotional reactions in a manner currently beyond us. The technology may make our medical treatments seem less painful by providing distractions. It could help alleviate post-traumatic stress disorder, by allowing sufferers relive the bad experience in a way that helps them get over it. Athletes and test-takers might use simulations to get over “choking” and other performance problems. There are plenty of other uses we probably haven’t much thought of — I was struck by a recent report of a virtual reality “death simulation machine,” to help prepare people for their passing.

In this future, we will be able to steer and manage our emotional reactions to a greater degree. Do you think you don’t care enough about starving babies around the globe? There probably will be a virtual reality program to fix that, at least temporarily. You will be able to enter their world and experience their suffering in a manner that will seem almost real, perhaps in preparation for writing a check to your favorite charity.

One key question is which emotions we will decide to have more of. It would be nice to think we will use virtual reality to make ourselves more caring and more empathetic, but I’m not convinced. Just as gossip magazines and celebrity-based reality TV have long been popular, we might use virtual reality to vicariously sample the lifestyles of the rich and famous. That could make us more callous rather than more caring, or at least less involved in the suffering of others, as competing experiences will seem so much more exciting.

There is much more at the link, interesting throughout, Smith’s TMS lurks throughout.

The great Ken Regan on AlphaZero

by on December 18, 2017 at 6:20 pm in Games, Science, Web/Tech | Permalink

A must-read for anyone who has been following this issue, Ken considers how close to God AlphaZero actually came:

We must pause to reflect on how clarifying it is that this single heuristic suffices to master complex games—games that also represent a concrete face of asymptotic complexity insofar as their size n-by-ngeneralizations are polynomial-space hard…

It may be that we can heuristically solve some NP-type problems better by infusing an adversary—to make a PSPACE-type problem that hits back—and running AlphaZero.

That sort of thing.  And don’t neglect the comments.

Star Wars and net neutrality

by on December 18, 2017 at 1:49 am in Film, Web/Tech | Permalink

That’s why the latest Star Wars trilogy is so dark: It’s looking more and more like real life, where the credits never roll and problems can always recur…The Last Jedi premiered a few hours after we learned that the FCC had reversed its stance on net neutrality; we all sang “Yub Nub” back in 2015 when that vote went one way, but we know now that the war wasn’t won.

Here is the Ben Lindbergh piece on the pessimistic themes in Star Wars.  Ted Cruz also serves up some unusual remarks.

I have some tricks for doing this, which I have scrawled in the inner part of the margin of the manuscript.  Here is Matt Levine on Bitcoin:

I half-joked yesterday that “perhaps the cost of bitcoin storage — keeping your private key in a vault, worrying about hackers, etc. — is so high that arbitrageurs need to charge $1,000 for a month of it,” but maybe it’s the right explanation? Everything I read about bitcoin storage is utterly exhausting. “A private key printed out on a sheet of paper, cut into pieces, and distributed among family members who don’t know how to put it back together; an encrypted file loaded on a USB stick and buried in the backyard; a password committed only to memory;” a private key engraved on a metal plate and stored in a safe; a safe deposit box at a bank; an account at an exchange that gets hacked and loses its customers’ bitcoins. Buying bitcoin futures is a way to get exposure to bitcoin and avoid the bitcoin-storage problem: You never have to store bitcoins because you never own bitcoins; you just get paid dollars for the amount that bitcoin goes up. But the storage problem doesn’t go away; you just offload it to the arbitrageur who provides you the bitcoin exposure. Maybe the arbitrageur needs to charge you $1,000 to cover her storage costs. If you think these markets are efficient, then the gap between the futures and the spot is telling you how much — in out-of-pocket expenses, in theft risk, in psychic pain — it costs to store bitcoin.

Here is more from Matt:

If I told you that there was an asset that is an excellent store of value even in inflationary conditions, how much of your gold portfolio would you reallocate to that asset? One percent? Three percent? Fifty percent? All of it? Sure, whatever, if you believed me. But we are just assuming that bitcoin actually fulfills that function, in order to decide its valuation. Bitcoin has had a pretty good run, but so far it’s a short one; there’s no historical experience of bitcoin retaining its value in periods of global financial crisis or rich-world inflation or even just, you know, people not talking about bitcoin for a minute. So far the evidence that bitcoin is a good store of value consists of the fact that bitcoin’s price keeps going up. That is not bad evidence! But it is not a ton of evidence to build a store-of-value valuation around.

If Matt told me, I would allocate at least two percent.

That is a new paper by Aghion, Akcigit, Hyytinen, and Toivanen, here is one brief excerpt:

In particular we see that IQ is by far the main characteristic for the probability of becoming an inventor in terms of the share of variation it explains, followed by parental education.  These two groups of variables account for 66% and 16% of the overall variation captured by our model.  In contrast, IQ plays a relatively speaking much more minor role for becoming a medical doctor or a lawyer.  Parental education is the main explanatory variable for the probability of becoming a medical doctor or a lawyer (40% and 53%), with base controls and parental income also playing clearly more important roles than for inventors.

The paper offers many other points of value, and you will note the data are from Finland.

That is the title of my latest Bloomberg column.  Rather than giving you the main argument, let’s instead cut to the end:

The real story of bitcoin is a heartening one of community. Less than 10 years ago, the bitcoin asset was worth virtually nothing, but a small group of people believed in it and worked tirelessly to promote it, and now the whole world is watching. It’s a tale at least as old as Christ and the Apostles. Maybe the bitcoin believers are as much of a miracle story as that of the brilliant inventor Satoshi.

The thing is, I don’t always believe in miracle stories of community, not in these days of declining governance and possibly fraying social order. Yet I’ve become emotionally involved in tracking the bitcoin price, perhaps because I realize that if one such miracle of “ex nihilo” creation can be sustained, others are on the way. I don’t think bitcoin is a bubble, but every morning I wake up doubting.

More broadly the piece considers what should be the appropriate price for Bitcoin.

“Mastering Chess and Shogi by Self-Play with a General Reinforcement Learning Algorithm”

The game of chess is the most widely-studied domain in the history of artificial intelligence. The strongest programs are based on a combination of sophisticated search techniques, domain-specific adaptations, and handcrafted evaluation functions that have been refined by human experts over several decades. In contrast, the AlphaGo Zero program recently achieved superhuman performance in the game of Go, by tabula rasa reinforcement learning from games of self-play. In this paper, we generalise this approach into a single AlphaZero algorithm that can achieve, tabula rasa, superhuman performance in many challenging domains. Starting from random play, and given no domain knowledge except the game rules, AlphaZero achieved within 24 hours a superhuman level of play in the games of chess and shogi (Japanese chess) as well as Go, and convincingly defeated a world-champion program in each case.

In other words, the human now adds absolutely nothing to man-machine chess-playing teams.  That’s in addition to the surprising power of this approach in solving problems.

Here is the link, via Trey Kollmer, who writes “Stockfish Dethroned.”  Here is coverage from Wired.  Via Justin Barclay, here is commentary from the chess world, including some of the (very impressive) games.  And it seems to prefer 1.d4 and 1.c4, loves the Queen’s Gambit, rejected the French Defense, never liked the King’s Indian, grew disillusioned with the Ruy Lopez, and surprisingly never fell in love with the Sicilian Defense.  By the way the program reinvented most of chess opening theory by playing against itself for less than a day.  Having the white pieces matters more than we thought from previous computer vs. computer contests.  Here is the best chess commentary I have seen, excerpt:

If Karpov had been a chess engine, he might have been called AlphaZero. There is a relentless positional boa constrictor approach that is simply unheard of. Modern chess engines are focused on activity, and have special safeguards to avoid blocked positions as they have no understanding of them and often find themselves in a dead end before they realize it. AlphaZero has no such prejudices or issues, and seems to thrive on snuffing out the opponent’s play. It is singularly impressive, and what is astonishing is how it is able to also find tactics that the engines seem blind to.

Did you know that the older Stockfish program considered 900 times more positions, but the greater “thinking depth” of the new innovation was decisive nonetheless.  I will never forget how stunned I was to learn of this breakthrough.

Finally, I’ve long said that Google’s final fate will be to evolve into a hedge fund.

1. Moore’s Law plus the internet makes smart people smarter, and stupid people less smart.

2. Manipulable people can be reached with a greater flood of information, so over time as data on them accumulate, they become more manipulable.

3. It is often easier to manipulate smart people than stupid people, because the latter may be oblivious to a greater set of cues and clues.

4. Social media bring smarter people together with the less smart more than used to be the case, Twitter more so than Facebook.  Members of each group are appalled by what they experience.  The smarter people see the lesser smarts of many others.  The less smart people — who often are not entirely so stupid after all — can see how manipulated the smarter people are.  They also see that the smarter people look down on them and attack their motives and intellects.  Both groups go away thinking less of each other.

4b. The smarter people, in reacting this way, in fact are being manipulated by the (stupider) powers that be.

5. “There is a performative dimension that renders both sides more rigid and dishonest.”  From a correspondent.

6. Consider a second distinction, namely between people who are too sensitive to social information, and people who are relatively insensitive to social information.  A quick test of this one is to ask how often a person’s tweets (and thoughts) refer to the motivations, intentions, or status hierarchies held by others.  Get the picture?  (Here is an A+ example.)

7. People who are overly sensitive to social information will be driven to distraction by Twitter.  They will find the world to be intolerably bad.  The status distinctions they value will be violated so, so many times, and in a manner which becomes common knowledge.  And they will perceive what are at times the questionable motives held by others.  Twitter is like negative catnip for them.  In fact, they will find it more and more necessary to focus on negative social information, thereby exacerbating their own tendencies toward oversensitivity.

8. People who are not so sensitive to social information will pursue social media with greater equanimity, and they may find those media productivity-enhancing.  Nevertheless they will become rather visibly introduced to a relatively new category of people for them — those who are overly sensitive to social information.  This group will become so transparent, so in their face, and also somewhat annoying.  Even those extremely insensitive to social information will not be able to help perceiving this alternate approach, and also the sometimes bad motivations that lie behind it.  The overly sensitive ones in turn will notice that another group is under-sensitive to the social considerations they value.  These two groups will think less and less of each other.  The insensitive will have been made sensitive.  It’s like playing “overrated vs. underrated” almost 24/7 on issues you really care about, and which affect your own personal status.

9. The philosophy of Stoicism will return to Silicon Valley.  It will gain adherents but fail, because the rest of the system is stacked against it.

10. The socially sensitive, very smart people will become the most despairing, the most manipulated, and the most angry.  The socially insensitive will either jump ship into the camp of the socially sensitive, or they will cultivate new methods of detachment, with or without Stoicism.  Straussianism will compete with Stoicism.

11. Parts of social media will peel off into smaller, more private groups.  At the end of the day, many will wonder which economies of scale and scope have been lost.  And gained.  Others will be too manipulated to wonder such things.

12. The “finance guy” in me thinks: how can I use all this for intellectual arbitrage?  Which camp does that put me in?

13.  What bounds this process?

Doug’s new book Clashing over Commerce: A History of US Trade Policy is the greatest book on trade policy ever written, bar none. and also a splendid work of American history more generally.  So I thought he and I should sit down to chat, now I have both the transcript and audio.

We covered how much of 19th century American growth was due to tariffs, trade policy toward China, the cultural argument against free trade, whether there is a national security argument for agricultural protectionism, TPP, how new trade agreements should be structured, the trade bureaucracy in D.C., whether free trade still brings peace, Smoot-Hawley, the American Revolution (we are spoiled brats), Dunkirk, why New Hampshire is so wealthy, Brexit, Alexander Hamilton, NAFTA, the global trade slowdown, premature deindustrialization, and the history of the Chicago School of Economics, among other topics.  Here is one excerpt:

COWEN: Here goes. The claim that 19th century American growth was driven by high tariffs. What’s your take?

IRWIN: Not really true. If you look at why the US economy performed very well, particularly relative to Britain or Germany or other countries, Steve Broadberry’s shown that a lot of the overtaking of Britain in terms of per capita income was in terms of the service sector.

The service sector was expanding rapidly. It had very high productivity growth rates. We usually don’t think as that being affected by the tariff per se. That’s one reason.

We had also very high productivity growth rates in agriculture. I’ve done some counterfactual simulations. If you remove the tariff, how much resources would we take out of manufacturing and put into services or agriculture is actually pretty small. It just doesn’t account for the success we had during this period.

COWEN: Is there any country where you would say, “Their late 19th century economic growth was driven by tariffs?” Argentina, Canada, Germany, anything, anywhere?

IRWIN: No. If you look at all those, once again, in late 19th century, they were major exporters, largely of commodities, but they did very well that way. You know that Argentina was one of the richest countries in the world in the late 19th century. It really wasn’t until they adopted more import substitution policies after World War I that they began to fall behind.

Definitely recommended, and here is Doug’s Wikipedia page.

Some people think so, in the associated video clip Joe Stiglitz says Bitcoin should be banned.  Here is some FT skepticism from Jean Tirole.

I used to think Bitcoin was a bubble, but I no longer hold this view.  If nothing else, put all the more complicated factors aside and think of Bitcoin as competing for some of the asset space held by gold and also to some extent art.  Gold, too, in its hedging functions is a “bubble,” though not a bubble.  It is hard to ship, but has some extra value because it is perceived as a focal asset and one that does not covary positively in a simple way with the market portfolio.  The same is true of Bitcoin, yet that kind of focality-based “bubbliness” can persist for centuries.  Note by the way that gold has become less of a hedge, partly because inflation has been low and partly because China and India dominate the gold market more than a few decades ago.  So new and better hedges are needed.  And what a backstory Bitcoin has, making it a strong competitor in this regard.

I am not saying that is the Bitcoin story, it is simply a Bitcoin story, a minimalist account that can appeal to skeptics.  And you can buy this story and still think the current price is either too high or too low.

This estimate claims there is $241 trillion of wealth in the world, make of that what you will (there is something nonsensical about such aggregate measures because they are not traded against anything).  If you imagine people wish to hold one quarter of one percent of that in crypto form, that gets you to about $600 billion in value.  Currently crypto assets (on good days) hover near $300 billion in market capitalization.  Is that so crazy?  I genuinely don’t know, but that is one way of thinking about market cap in this sector.

I will continue to watch with interest.

1 – My favorite unpopular blockchain ideas: 99% of corporate experiments regarding blockchains are better handled with Apache Kafka and multiple archivers. Anything that attempts to be a fast, global ledger has to accept the reality that global ordering is a limitation, not a feature, and instead use logical clocks. The intersection between blockchain enthusiast and distributed system researchers is close to zero. When we look back 100 years, Bitcoin itself will be seen as far more relevant in retrospect than blockchain technologies.

That is from MR reader Bob.

That is the new and excellent history by Leslie Berlin, substantive throughout, here is one good bit of many:

In March 1967, Robert and Taylor, jointly leading a meeting of ARPA’s principal investigators in Ann Arbor, Michigan, told the researchers that ARPA was going to build a computer network and they were all expected to connect to it.  The principle investigators were not enthusiastic.  They were busy running their labs and doing their own work.  They saw no real reason to add this network to their responsibilities.  Researchers with more powerful computers worried that those with less computing power would use the network to commandeer precious computing cycles.  “If I could not get some ARPA-funded participants involved in a commitment to a purpose higher than “Who is going to steal the next ten percent of my memory cycles?”, there would be no network,” Taylor later wrote.  Roberts agreed: “They wanted to buy their own machines and hide in the corner.”

You can buy the book here, here is one good review from Wired, excerpt:

While piecing together a timeline of the Valley’s early history—picture end-to-end sheets of paper covered in black dots—Berlin was amazed to discover a period of rapid-fire innovation between 1969 and 1976 that included the first Arpanet transmission; the birth of videogames; and the launch of Apple, Atari, Genentech, and major venture firms such as Kleiner Perkins and Sequoia Capital. “I just thought, ‘What the heck was going on in those years?’ ” she says.

Here is praise from Patrick Collison on Twitter.