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The question that I keep coming back to is what are the implications of investing/speculating in a technology well before its implications are understood? Adam

The question that I keep coming back to is what are the implications of investing/speculating in a technology well before its implications are understood? Adam Ludwin, the CEO of Chain, talks about how when the dot-com bubble happened, everyone knew at least to an extent that online retail would be a thing. Social networks would be a thing. Digital media would be a thing. The required ingredients were competition, Moore's Law, and time. Bitcoin is different for a few reasons. It doesn't solve economic problems for most people in developed countries. It's also a development far deeper in the technology stack, a change in ledger management and accounting procedures. The last major update to this was double entry in the Italian Renaissance, which allowed the formation of corporations. The one before that was the invention of zero. We don't know what the implications of Bitcoin will be. I think a much better analogy for the current bubble is the South Sea Company, since that was essentially people speculating on a new asset class (equity) that was poorly understood at the time. But saying that it's a bad investment because the use cases are not immediately obvious misses the forest for the trees.

throwawayjava 9y ago
> a change in ledger management and accounting procedures. The last major update to this was double entry in the Italian Renaissance That seems wrong. I'm not an accountant, but I have a damn hard time believing that accounting practices haven't changed significantly since the Italian Renaissance...
- hectorr1 9y ago
  Accounting practices, professionalism, standardization, etc have obviously evolved tremendously since then, the same way any technology does as adoption increases. Math wasn't fixed between the invention of numbers and the concept of zero, but it became far more powerful when you incorporated it. Another way to think about it is with cars. Cars today bear no resemblance to what they looked like or were capable of when they were invented, but nothing around the core idea of putting an engine on wheels has changed. The airplane was different. (But so was the Segway)
- colorint 9y ago
  It's more of a technical note, but probably the last really important change was the accrual basis, which, as far as I know, was popularized in the 20th century. This is the system of accounting where you record revenues and expenses when you become aware of them, rather than when you pay them, so many things end up being recorded as debts. Notably, this is the currently-accepted way of doing accounting.
  - cbr 9y ago
    this is the currently-accepted way of doing accounting Cash basis is also accepted, and generally used by very small businesses where accrual accounting is too complicated.
    - colorint 9y ago
      Cash basis is accepted for the purposes of taxes, but my understanding is that it's not acceptable for legally-mandated reporting. That is, cash basis is not among the generally accepted accounting principles.
- s0rin 9y ago
  As a CPA, double-entry accounting is sort of considered the founding of modern accounting. Everything else is a question of accurate recognition. Luca Pacioli was an Italian dude who was the first person to publish something widespread on double-entry accounting, although the same methods existed in other regions without any formal documentation. https://en.wikipedia.org/wiki/Luca_Pacioli https://en.wikipedia.org/wiki/Luca_Pacioli
spookthesunset 9y ago
All this was thought about the last time bitcoin spiked. Bitcoin is 9 years old. The iPhone wasn’t even around when it was born. If bitcoin was gonna revolutionize money, bookkeeping, governments, and life in general, it would have happened already. The truth is, all bitcoin is at this point is an advanced form of gambling....
- brm 9y ago
  Point of order... iPhone June 2007, Bitcoin January 2009
- dpiers 9y ago
  Bitcoin came out in January 2009, and the first iPhone came out in June 2007. Other than that minor detail, I generally agree with your comment.
- deleted 9y ago
  [deleted]
- hectorr1 9y ago
  The pace of technological development in the past 20 years has been driven by scaling processing, storage, bandwidth, and networks. The intellectual, legal, cultural, and social infrastructure to make that happen already existed for the most part. When tech has an impact deeper in the societal stack, it takes a lot longer for its impact to be felt. NB: Eternal September was in 1993, when Usenet went mainstream. Facebook, Twitter, etc weren't invented for another decade. Since then, they've both toppled dictators and elected a reality TV star to the Presidency. Change happens gradually, then suddenly.
- nicky0 9y ago
  iPhone was a year old when Bitcoin was born.
QAPereo 9y ago
The big concern I think, is the insane use of electricity, which is manageable for now, but could really go overboard in a hurry.
- paulgb 9y ago
  Yes. The cognitive dissonance around this in the cryptocurrency community is worrying.
  - QAPereo 9y ago
    Not surprising though, given that said dissonance allows for profits to be pursued.
    - michaelchisari 9y ago
      "It is difficult to get a man to understand something, when his salary depends upon his not understanding it."
- tome 9y ago
  I would be interested to know what is the cost of that electricity per bitcoin transacted. Credit card processing fees are a small number of percent, AIUI. Is it comparable?
  - carlmr 9y ago
    Currently it stands at 250kWh per transaction. My two person household in a developed country with lots of appliances uses 6 Bitcoin transactions per year in electricity. Bitcoin eletricity uses is insanity and it's only set up to rise. https://digiconomist.net/bitcoin-energy-consumption https://digiconomist.net/bitcoin-energy-consumption
    - tome 9y ago
      Interesting. According to https://www.ukpower.co.uk/home_energy/tariffs-per-unit-kwh https://www.ukpower.co.uk/home_energy/tariffs-per-unit-kwh the price per kWh in the UK is of the order of 10p. So a transaction costs 25 pounds? That surely can't be right.
linkregister 9y ago
I think that Bitcoin is the Friendster or Napster of cryptocurrencies. It is paving the way, but the fundamentals of how it works are unsustainable. Transactions cost too much, take too long, and require too much proof of work. I also expect that a mild inflationary aspect is necessary to maintain liquidity and discourage hoarding. I think the South Sea Company or tulip mania are good analogies.
- mattrices 9y ago
  Friendster and napster were central systems that were shut down for legal reasons and were replaced with other more distributed systems. Btc value is derived from its distributed "anti-fragile" nature which would require a lot more effort to shut down.
  - iMuzz 9y ago
    When drawing an analogy to Friendster and Napster, I think the point linkregister is trying to make is that bitcoin is similar in the sense that it's a "first mover" and not a "last mover". The underlying _why_ for these "first movers" fail are not related at all since it's a totally different vertical.
    - mattrices 9y ago
      Sure, but first movers have an advantage due to wider name recognition and in this case a large established market cap and mining network. Unless the underlying tech shifts to somthing more stable or more profitable, last movers are at a disadvantage. The deflation and high transaction fees seem to favor btc bc miners wouldn't shift to somthing less profitable and those using btc as a value store profit from deflation long term.
  - linkregister 9y ago
    I absolutely agree with your distinction. I was using them as analogies for pioneer technologies. I have faith in the overall Bitcoin architecture. Its greatest threat is a malicious actor taking over enough processing power to alter the blockchain. I doubt that Bitcoin itself will be the dominant cryptocurrency due to the reasons I mentioned in my original post. These are two different issues and I appreciate your pointing that out.
hnarn 9y ago
The issue I have with Bitcoin is that people invest in it thinking that they are investing in cryptocurrencies, which is in your words what everybody knows will "be a thing". The problem is that they're investing in one very specific cryptocurrency, and there is no way of knowing if it's the one that will succeed. It's equally possible that we're seeing the pets.com or myspace of crypto-currencies -- failed projects in a genre that will change pretty much everything. It's the complete lack of understanding that worries me, and what makes me almost certain this is a bubble that will come down crashing hard.
- Retric 9y ago
  Exactly, the odds that something else wins are very high, but picking the winner is going to be difficult and possibly not profitable. Really, look for something that can scale to a billion users while incentives are linked to being useful not being an investment as they have different optimizations.
  - PeterisP 9y ago
    As the original article states, if you're sure that the concept is really going to be a big thing but you don't have a way to pick out the future winner, then investing proportionally in all of them can be highly profitable - as in the example of the dotcom bubble, if you invested in all of the IPOs, it'd eventually be very profitable; most of your investments are in losers, but the few winners make up for them.
    - Retric 9y ago
      IPO's are inherently an investment, a successful electronic currency on the other hand can get massive adoption without making early adopters rich.
- FooHentai 9y ago
  "Social media is certainly going to be of great importance, so I will invest heavily in Myspace"
Animats 9y ago
The big effect of the dot-com boom was that it forced every business to have an on-line presence. This was by no means a given at the time. We could have had a world where maybe 20% of businesses, mostly those that were doing mail order, had a web site.
cjensen 9y ago
Your question is spot on when you ask if the implications are well understood. History is littered with new financial technologies whose implications were not well-understood which immediately resulted in a bubble. The invention of stocks (South Seas Bubble), of stock margin (1929 crash), federal deposit insurance (S&L crash), collateralized debt obligations (2008 crash). Historically, being early on a new financial technology has rarely gone well for the participants.
- CryptoPunk 9y ago
  CDOs were not new in 2008. The 2008 crash was a result of growing federal intervention in the housing market (federal mortgage guarantees are a huge cash cow for financial institutions and politicians who get appointed as executives of GSEs like Fannie Mae after leaving office) and the FDIC's subsidization of housing construction loans. There were large markets in car loan and commercial real estate mortgage CDOs that didn't see a crash anywhere near as large as that seen in residential real estate CDOs and construction loans, and that's because they were not subject to GSE loan guarantees and FDIC deposit guarantees, respectively.
  - cjensen 9y ago
    You are both right and wrong. New financial tech takes awhile to become popular enough to become dangerous. So while CDOs were invented in the late 80s, it wasn't until 2000 or so that they started to become a craze that lead to dangerous conditions. The government through GSEs and FDIC did, as you say, constantly blow air into the housing bubble. CDOs were also a big compounding factor in that they were willing to back an enormous amount of low-interest high-risk loans. Exactly the loans which blew up.
aryehof 9y ago
> "a change in ledger management and accounting procedures" I'm not sure that this now oft repeated meme isn't entirely misleading in regards to accounting. Accounting system audit trails have always been immutable in concept and design, and Bitcoin and block chain brings no change to double-entry accounting and current accounting principles. In terms of general accounting systems, all block chain represents is a strong encryption based means of ensuring immutability of the audit trail - a feature simply not required.

throwawayjava 9y ago

> a change in ledger management and accounting procedures. The last major update to this was double entry in the Italian Renaissance That seems wrong. I'm not an accountant, but I have a damn hard time believing that accounting practices haven't changed significantly since the Italian Renaissance...

hectorr1 9y ago
Accounting practices, professionalism, standardization, etc have obviously evolved tremendously since then, the same way any technology does as adoption increases. Math wasn't fixed between the invention of numbers and the concept of zero, but it became far more powerful when you incorporated it. Another way to think about it is with cars. Cars today bear no resemblance to what they looked like or were capable of when they were invented, but nothing around the core idea of putting an engine on wheels has changed. The airplane was different. (But so was the Segway)
colorint 9y ago
It's more of a technical note, but probably the last really important change was the accrual basis, which, as far as I know, was popularized in the 20th century. This is the system of accounting where you record revenues and expenses when you become aware of them, rather than when you pay them, so many things end up being recorded as debts. Notably, this is the currently-accepted way of doing accounting.
- cbr 9y ago
  this is the currently-accepted way of doing accounting Cash basis is also accepted, and generally used by very small businesses where accrual accounting is too complicated.
  - colorint 9y ago
    Cash basis is accepted for the purposes of taxes, but my understanding is that it's not acceptable for legally-mandated reporting. That is, cash basis is not among the generally accepted accounting principles.
s0rin 9y ago
As a CPA, double-entry accounting is sort of considered the founding of modern accounting. Everything else is a question of accurate recognition. Luca Pacioli was an Italian dude who was the first person to publish something widespread on double-entry accounting, although the same methods existed in other regions without any formal documentation. https://en.wikipedia.org/wiki/Luca_Pacioli https://en.wikipedia.org/wiki/Luca_Pacioli

spookthesunset 9y ago

All this was thought about the last time bitcoin spiked. Bitcoin is 9 years old. The iPhone wasn’t even around when it was born. If bitcoin was gonna revolutionize money, bookkeeping, governments, and life in general, it would have happened already. The truth is, all bitcoin is at this point is an advanced form of gambling....

brm 9y ago
Point of order... iPhone June 2007, Bitcoin January 2009
dpiers 9y ago
Bitcoin came out in January 2009, and the first iPhone came out in June 2007. Other than that minor detail, I generally agree with your comment.
deleted 9y ago
[deleted]
hectorr1 9y ago
The pace of technological development in the past 20 years has been driven by scaling processing, storage, bandwidth, and networks. The intellectual, legal, cultural, and social infrastructure to make that happen already existed for the most part. When tech has an impact deeper in the societal stack, it takes a lot longer for its impact to be felt. NB: Eternal September was in 1993, when Usenet went mainstream. Facebook, Twitter, etc weren't invented for another decade. Since then, they've both toppled dictators and elected a reality TV star to the Presidency. Change happens gradually, then suddenly.
nicky0 9y ago
iPhone was a year old when Bitcoin was born.

QAPereo 9y ago

The big concern I think, is the insane use of electricity, which is manageable for now, but could really go overboard in a hurry.

paulgb 9y ago
Yes. The cognitive dissonance around this in the cryptocurrency community is worrying.
- QAPereo 9y ago
  Not surprising though, given that said dissonance allows for profits to be pursued.
  - michaelchisari 9y ago
    "It is difficult to get a man to understand something, when his salary depends upon his not understanding it."
tome 9y ago
I would be interested to know what is the cost of that electricity per bitcoin transacted. Credit card processing fees are a small number of percent, AIUI. Is it comparable?
- carlmr 9y ago
  Currently it stands at 250kWh per transaction. My two person household in a developed country with lots of appliances uses 6 Bitcoin transactions per year in electricity. Bitcoin eletricity uses is insanity and it's only set up to rise. https://digiconomist.net/bitcoin-energy-consumption https://digiconomist.net/bitcoin-energy-consumption
  - tome 9y ago
    Interesting. According to https://www.ukpower.co.uk/home_energy/tariffs-per-unit-kwh https://www.ukpower.co.uk/home_energy/tariffs-per-unit-kwh the price per kWh in the UK is of the order of 10p. So a transaction costs 25 pounds? That surely can't be right.

linkregister 9y ago

I think that Bitcoin is the Friendster or Napster of cryptocurrencies. It is paving the way, but the fundamentals of how it works are unsustainable. Transactions cost too much, take too long, and require too much proof of work. I also expect that a mild inflationary aspect is necessary to maintain liquidity and discourage hoarding. I think the South Sea Company or tulip mania are good analogies.

mattrices 9y ago
Friendster and napster were central systems that were shut down for legal reasons and were replaced with other more distributed systems. Btc value is derived from its distributed "anti-fragile" nature which would require a lot more effort to shut down.
- iMuzz 9y ago
  When drawing an analogy to Friendster and Napster, I think the point linkregister is trying to make is that bitcoin is similar in the sense that it's a "first mover" and not a "last mover". The underlying _why_ for these "first movers" fail are not related at all since it's a totally different vertical.
  - mattrices 9y ago
    Sure, but first movers have an advantage due to wider name recognition and in this case a large established market cap and mining network. Unless the underlying tech shifts to somthing more stable or more profitable, last movers are at a disadvantage. The deflation and high transaction fees seem to favor btc bc miners wouldn't shift to somthing less profitable and those using btc as a value store profit from deflation long term.
- linkregister 9y ago
  I absolutely agree with your distinction. I was using them as analogies for pioneer technologies. I have faith in the overall Bitcoin architecture. Its greatest threat is a malicious actor taking over enough processing power to alter the blockchain. I doubt that Bitcoin itself will be the dominant cryptocurrency due to the reasons I mentioned in my original post. These are two different issues and I appreciate your pointing that out.

hnarn 9y ago

The issue I have with Bitcoin is that people invest in it thinking that they are investing in cryptocurrencies, which is in your words what everybody knows will "be a thing". The problem is that they're investing in one very specific cryptocurrency, and there is no way of knowing if it's the one that will succeed. It's equally possible that we're seeing the pets.com or myspace of crypto-currencies -- failed projects in a genre that will change pretty much everything. It's the complete lack of understanding that worries me, and what makes me almost certain this is a bubble that will come down crashing hard.

Retric 9y ago
Exactly, the odds that something else wins are very high, but picking the winner is going to be difficult and possibly not profitable. Really, look for something that can scale to a billion users while incentives are linked to being useful not being an investment as they have different optimizations.
- PeterisP 9y ago
  As the original article states, if you're sure that the concept is really going to be a big thing but you don't have a way to pick out the future winner, then investing proportionally in all of them can be highly profitable - as in the example of the dotcom bubble, if you invested in all of the IPOs, it'd eventually be very profitable; most of your investments are in losers, but the few winners make up for them.
  - Retric 9y ago
    IPO's are inherently an investment, a successful electronic currency on the other hand can get massive adoption without making early adopters rich.
FooHentai 9y ago
"Social media is certainly going to be of great importance, so I will invest heavily in Myspace"

Animats 9y ago

The big effect of the dot-com boom was that it forced every business to have an on-line presence. This was by no means a given at the time. We could have had a world where maybe 20% of businesses, mostly those that were doing mail order, had a web site.

cjensen 9y ago

Your question is spot on when you ask if the implications are well understood. History is littered with new financial technologies whose implications were not well-understood which immediately resulted in a bubble. The invention of stocks (South Seas Bubble), of stock margin (1929 crash), federal deposit insurance (S&L crash), collateralized debt obligations (2008 crash). Historically, being early on a new financial technology has rarely gone well for the participants.

CryptoPunk 9y ago
CDOs were not new in 2008. The 2008 crash was a result of growing federal intervention in the housing market (federal mortgage guarantees are a huge cash cow for financial institutions and politicians who get appointed as executives of GSEs like Fannie Mae after leaving office) and the FDIC's subsidization of housing construction loans. There were large markets in car loan and commercial real estate mortgage CDOs that didn't see a crash anywhere near as large as that seen in residential real estate CDOs and construction loans, and that's because they were not subject to GSE loan guarantees and FDIC deposit guarantees, respectively.
- cjensen 9y ago
  You are both right and wrong. New financial tech takes awhile to become popular enough to become dangerous. So while CDOs were invented in the late 80s, it wasn't until 2000 or so that they started to become a craze that lead to dangerous conditions. The government through GSEs and FDIC did, as you say, constantly blow air into the housing bubble. CDOs were also a big compounding factor in that they were willing to back an enormous amount of low-interest high-risk loans. Exactly the loans which blew up.

aryehof 9y ago

> "a change in ledger management and accounting procedures" I'm not sure that this now oft repeated meme isn't entirely misleading in regards to accounting. Accounting system audit trails have always been immutable in concept and design, and Bitcoin and block chain brings no change to double-entry accounting and current accounting principles. In terms of general accounting systems, all block chain represents is a strong encryption based means of ensuring immutability of the audit trail - a feature simply not required.