Category: Web/Tech

Some simple Bitcoin economics

by  Tyler Cowen in

That is a new paper by Linda Schilling and Harald Uhlig, here is the abstract:

How do Bitcoin prices evolve? What are the consequences for monetary policy? We answer these questions in a novel, yet simple endowment economy. There are two types of money, both useful for transactions: Bitcoins and Dollars. A central bank keeps the real value of Dollars constant, while Bitcoin production is decentralized via proof-of-work. We obtain a “fundamental condition,” which is a version of the exchange-rate indeterminacy result in Kareken-Wallace (1981), and a “speculative” condition. Under some conditions, we show that Bitcoin prices form convergent supermartingales or submartingales and derive implications for monetary policy.

In this framework, I would attribute the volatility of the recent Bitcoin price to a) sometimes being in the speculative equilibrium or uncertainty about such, b) regulatory uncertainty, and c) uncertainty about the hedging or store of value properties of Bitcoin and other cryptoassets.  If you are interested in other considerations, here is a good Jimmy Song essay on why Bitcoin might be special.  And see this paper by Garratt and Wallace, though unlike with Schilling and Uhlig I am less sure how they are modeling the black/gray market uses for Bitcoin as a transactions medium.

What if we paid for Facebook?

by  Tyler Cowen in

Geoffrey Fowler asks that question, here is one bit from his analysis:

You can actually put a dollar figure on how much we’re worth to the social network. Facebook collected $82 in advertising for each member in North America last year. Across the world, it’s about $20 per member. Facebook the company is valued at about $450 billion because investors believe it will find even more ways to make money from collecting data on its 2 billion members.

You might imagine charging Americans $82 a year, though at that price the overall network would be smaller and of lower value to users.  Alternatively, Zeynep Tufekci wrote (NYT):

Internet sites should allow their users to be the customers. I would, as I bet many others would, happily pay more than 20 cents per month for a Facebook or a Google that did not track me, upgraded its encryption and treated me as a customer whose preferences and privacy matter. [She earlier had cited 20 cents per month as their profit per customer…TC takes all of these numbers with a grain of salt.]

Like Jonathan Swift, I have a simple proposal: don’t use “Facebook the service,” and conduct all of your social networking on WhatsApp, which by the way is owned by “Facebook the company.”  WhatsApp is fully encrypted, and it has no algorithms and indeed few bells and whistles of any kind.  From each person, messages are stacked in sequential order.  You can send photos and you can delete content, permanently I believe.  You can set up groups.  There is some kind of microphone function, though I’ve never figured it out.  And did I mention it is totally free?  Zero ads too.  Nor is the page cluttered, nor do you get these little notifications: “You have 37 messages, 49 notifications, 23 friend requests, 81 pokes, and a partridge and a pear tree,” etc.

Everything you are asking for exists now, from “Facebook the company,” though it is not “Facebook the service.”

Problem solved!  Oh, wait, you’re not interested…?  What should I infer from that?

Addendum: I do get that if everyone switched from “Facebook the service” to WhatsApp, the cross-subsidy would diminish and the terms of WhatsApp would change.  But still, at the margin, and in the meantime, plenty of people — including you — could switch and I expect this deal can remain the same.  Be a free rider!  Our democracy may depend on it.

Edward Tenner’s *The Efficiency Paradox*, or are big tech and finance actually the same?

by  Tyler Cowen in

The author is Edward Tenner and the subtitle is What Big Data Can’t Do.  Overall, I prefer to read Tenner on engineering more narrowly construed, but still I found some novel and interesting ideas in this book, as you might expect.

Most notably, I was struck by his claim that the rise of “Big Tech” and the rise of finance are more or less the same thing.  Many of the tech innovations are in fact transactional innovations, and both the “financialization” revolution and much of social network tech promulgate the idea of “life as a portfolio,” albeit portfolios of different kinds.  Both have an ideal of “friction-free commerce,” or social interactions, as the case may be, and of course in both cases this is organized by code.

Furthermore, if you make buying and finding things much easier, finance as a percentage of gdp likely will go up.  Do not forget that Jeff Bezos was first a young star at Shaw, a hedge fund.  Is it any accident that finance and tech are often, these days, competing for the same pool of talented young quant workers?

Here is one good bit from Tenner:

We have all heard of Jeff Bezos, founder of Amazon.com.  Only technical specialists and historians have heard of Jacobus Verhoeff.  Yet when Bezos planned to transform online retailing, bookselling was a natural beginning because, thanks to Verhoeff’s algorithm, more books had standardized product numbers than any other category of merchandise.

You can buy the book here.

More arguments against blockchain, most of all about trust

by  Tyler Cowen in

Here are more arguments about blockchain from Kai Stinchcombe, here is one ouch:

93% of bitcoins are mined by managed consortiums, yet none of the consortiums use smart contracts to manage payouts. Instead, they promise things like a “long history of stable and accurate payouts.” Sounds like a trustworthy middleman!

And:

Auditing software is hard! The most-heavily scrutinized smart contract in history had a small bug that nobody noticed — that is, until someone did notice it, and used it to steal fifty million dollars. If cryptocurrency enthusiasts putting together a $150m investment fund can’t properly audit the software, how confident are you in your e-book audit? Perhaps you would rather write your own counteroffer software contract, in case this e-book author has hidden a recursion bug in their version to drain your ethereum wallet of all your life savings?

It’s a complicated way to buy a book! It’s not trustless, you’re trusting in the software (and your ability to defend yourself in a software-driven world), instead of trusting other people.

Here is the full essay, via Chris F. Masse.  Here is Kai’s earlier essay on blockchain.

Cross-cultural digital instruction

by  Tyler Cowen in

Comparative ethnographic analysis of three middle schools that vary by student class and race reveals that students’ similar digital skills are differently transformed by teachers into cultural capital for achievement. Teachers effectively discipline students’ digital play but in different ways. At a school serving working-class Latino youth, students are told their digital expressions are irrelevant to learning; at a school with mostly middle-class Asian American youth, students’ digital expressions are seen as threats to their ability to succeed academically; and at a private school with mainly wealthy white youth, students’ digital skills are positioned as essential to school success. Insofar as digital competency represents a kind of cultural capital, the minority and working-class students also have that capital. But theirs is not translated into teacher-supported opportunities for achievement.

Here is the AJS piece, by Matthew H. Rafalow.  For the pointer I thank Kevin Lewis.

Are Washington, D.C. and the Bay Area superseding New York City?

by  Tyler Cowen in

In terms of influence, absolutely:

Traditionally, Americans have thought of New York City as the country’s cultural and intellectual center. That’s no longer the case. New York dominates in many areas, most of all the arts, but those are no longer the most influential or innovative parts of the American Zeitgeist.

Don’t be fooled by the fact that NYC feels higher status or is so diverse or has some of the coolest people.  Right now it is not the place with the generative ideas — sorry!

Here is my bit on D.C.:

The D.C. area is the center of legalistic thinking, which is increasingly important with the growth of government and the regulatory state. Lawyers and policy-makers are our engineers for incentives, so to speak, even if they don’t always get it right. Their efforts are backed by an array of economic, legal, political, public opinion and bureaucratic expertise that is without parallel in history. If, for instance, you talk to the specialist at the Treasury Department on accelerated tax depreciation, that individual will be impressive, even though his or her final output may be filtered through some very unimpressive political constraints.

D.C. has also become an increasingly important media center, where so many rhetorical battles over the future of the country are started. President Donald Trump maximized his influence by moving to the nation’s capital, though augmented by Twitter, a San Francisco product.

I’m not saying you have to like this, in fact it may end in the overregulation of tech and the Bay Area — America’s other generative center — to the detriment of economic dynamism:

But the Bay Area and the D.C. area are built on such different principles, and they don’t understand each other very well. It’s more likely that we see a rude awakening, as the U.S. realizes its two most influential centers have been pulling the country in opposite directions.

Here is the rest of my Bloomberg column, recommended.

Blockchain vs. European privacy law (GDPR)

by  Tyler Cowen in

Under the European Union’s General Data Protection Regulation, companies will be required to completely erase the personal data of any citizen who requests that they do so. For businesses that use blockchain, specifically applications with publicly available data trails such as Bitcoin and Ethereum, truly purging that information could be impossible. “Some blockchains, as currently designed, are incompatible with the GDPR,” says Michèle Finck, a lecturer in EU law at the University of Oxford. EU regulators, she says, will need to decide whether the technology must be barred from the region or reconfigure the new rules to permit an uneasy coexistence.

Here is more from Olga Kharif at Bloomberg.

Solve for the China jaywalking equilibrium

by  Tyler Cowen in

Jaywalkers in China are to be named, shamed and slapped with an instant SMS fine.

And it’s all thanks to cutting-edge artificial intelligence.

In the southeastern city of Shenzhen, police have set up AI-powered boards by crossings.

If you jaywalk, a CCTV camera will scan your face and flash it up on the huge screens for all to see, according to the South China Morning Post (SCMP).

If that wasn’t embarrassing enough, there are now plans to ping offenders’ phones with quick-fire fines as soon as they violate the grim rule.

The AI company behind the billboards, Intellifusion, is in talks with mobile phone networks and local social media platforms to enforce the new system.

To be clear, I consider this report speculative.  But not impossible.

Suicide attackers, the drone wars, and self-driving vehicles

by  Tyler Cowen in

To remind you of the Tempe story:

Police say a video from the Uber self-driving car that struck and killed a woman on [the prior] Sunday shows her moving in front of it suddenly…”The driver said it was like a flash, the person walked out in front of them,” Moir said, referring to the backup driver who was behind the wheel but not operating the vehicle. “His first alert to the collision was the sound of the collision.”

From other sources I have read, the chance this was an actual intentional suicide seems to be low.  But I wonder if that is an angle to self-driving cars which we haven’t thought through yet, namely they could become a target for suicidal Luddites, intent on changing the course of history (they don’t like cars or social control).  It may indeed be the case that only a small number of pedestrian deaths will significantly slow down the progress of these vehicles, and thus they may be targeted.  Let’s turn to the sunny state of California:

So far in 2018, there have been only six reported traffic incidents involving self-driving vehicles in California, according to the state’s Department of Motor Vehicles. But of those six incidents, two involved angry, violent Californians going up to the futuristic cars on San Francisco streets and attacking.

This is just a speculative thought…

China simulated death markets in everything

by  Tyler Cowen in

Beijing’s biggest funeral parlor held an open day last Thursday that featured a virtual reality simulation of death, reported The Beijing News — though it left some wondering why you would want to experience death prematurely.

Visitors could don VR glasses and earphones to experience having a seizure at work, a failed paramedic rescue, and entrance into the afterlife. Funeral parlor employee Dong Ziyi told The Beijing News that the immersive experience “enables people to better cherish the beauty of life.”

In addition to the death experience, visitors can use VR to explore funeral services with a five-minute session that goes through corpse delivery and storage, mortuary preparations, the memorial service, and cremation — a tour that would take an hour in real life.

Here is more by Liang Chenyu from Sixth Tone, one of my favorite media outlets.

How economists use Twitter

by  Tyler Cowen in

When using Twitter, both economists and natural scientists communicate mostly with people outside their profession, but economists tweet less, mention fewer people and have fewer conversations with strangers than a comparable group of experts in the sciences. That is the central finding of research by Marina Della Giusta and colleagues, to be presented at the Royal Economic Society’s annual conference at the University of Sussex in Brighton in March 2018.

Their study also finds that economists use less accessible language with words that are more complex and more abbreviations. What’s more, their tone is more distant, less personal and less inclusive than that used by scientists.

The researchers reached these conclusions gathering data on tens of thousands of tweets from the Twitter accounts of both the top 25 economists and 25 scientists as identified by IDEAS and sciencemag. The top three economists are Paul Krugman, Joseph Stiglitz and Erik Brynjolfsson; the top three scientists are Neil deGrasse Tyson, Brian Cox and Richard Dawkins.

Here is further information, via Romesh Vaitilingam.  But I cannot find the original research paper on-line.  These are interesting results, but still I would like to see the shape of the entire distribution…

Testing the eggheads in the cryptocurrency market

by  Tyler Cowen in

Some of the world’s best-known economists on Thursday announced plans to create what could be described as the thinking person’s cryptocurrency. Saga aims to address many of the criticisms frequently thrown at bitcoin, the world’s biggest cryptocurrency, to position itself as an alternative digital currency that is more acceptable to the financial and political establishment.

It is being launched by a Swiss foundation with an advisory board featuring Jacob Frenkel, chairman of JPMorgan Chase International and former governor of the Bank of Israel; Myron Scholes, the Nobel Prize-winning economist; and Dan Galai, co-creator of the Vix volatility index. The Saga token aims to avoid the wild price swings of many cryptocurrencies by tethering itself to reserves deposited in a basket of fiat currencies at commercial banks. Holders of Saga will be able to claim their money back by cashing in the cryptocurrency.

The currency also aims to avoid the anonymity afforded by bitcoin, which has raised financial crime concerns with regulators and bankers. Saga will require owners to pass anti-money laundering checks and allow national authorities to check the identity of a holder when required.

Oh so respectable sounding!  They’re not doing an ICO, instead there is a variable fractional reserve system, and the ruling principle is that Saga, the asset, “entitles its investors to a rising number of Saga as usage of the cryptocurrency grows.”  It sounds like a bet on the notion that bootstrapping is central to crypto success.  But do investors really want “safe harbours from the raging volatility”?  Do investors want a currency at all?  By the way, this one is proof of stake, not proof of work.

Here is their web site, and here is the White Paper.  Here are other readings on the asset.  Here is the original FT article, FTAlphaville is less impressed.

Do the participants have too much skin in other games?  So far I don’t see the point of doing this one, as it doesn’t create an asset with a truly different risk profile than the others, not from what I can see.