7 ms·

A LessWrong Crypto Autopsy

63 points by henryaj 9y ago

baby 9y ago
Is this about cryptography?
- thaumaturgy 9y ago
  No, sadly.
  - NoGravitas 9y ago
    Apparently "crypto" means exclusively cryptocurrencies now, like "cyber" means exclusively cybersecurity. Thanks, marketroids.
- decorator 9y ago
  No, it's about crypto.
  - baby 9y ago
    www.cryptoisnotcryptocurrency.com
    - decorator 9y ago
      See the world for my retort.
thaumaturgy 9y ago
Missing from this post: no matter how smart you think you are, the future is still unpredictable, because it involves other people and people are mostly gooey and not perfectly rational game theory state machines.
jstanley 9y ago
Page not loading for me.
- wozer 9y ago
  Cached: https://webcache.googleusercontent.com/search?q=cache:FWjBUR-t1QsJ:https://www.lesserwrong.com/posts/MajyZJrsf8fAywWgY/a-lesswrong-crypto-autopsy+&cd=1&hl=de&ct=clnk&gl=de https://webcache.googleusercontent.com/search?q=cache:FWjBUR...
07d046 9y ago
Because this is Less Wrong, I'll say that they're making a logical fallacy. A prediction was made that Bitcoin would go well, and it did, but the fact that it went well doesn't mean that the prediction was rationally founded.
- henryaj 9y ago
  > A prediction was made that Bitcoin would go well, and it did, but the fact that it went well doesn't mean that the prediction was rationally founded. This just looks like a naked assertion to me.
- k__ 9y ago
  I have the impression most predictions on modern companies or technologies are completely random. Some people tell you X will change the world. Some people tell you X won't change anything. We wait some time and look how X did and then say one of the two groups were totally right and saw it coming, while the rest was completely elusive to how the world works. To me it seems like there will always be some people who get it right if the questions are simply answered by enough people... I mean, just look at companies like Kodak or Nokia, who were filled with really smart people that simply failed to acknowledge the fact that their industry, which they knew deeper than anyone, were chaning.
  - nkrisc 9y ago
    How's the old scam go? Mail 500 people your promotional flyer claiming Stock A will jump and 500 people a version that says Stock A will plummet. Split the 500 people who got the correct prediction into two groups and repeat with Stock B. Then sell 250 people your third, 100% accurate prediction. You'll have 125 loyal followers to evangelize you. Sounds awfully familiar.
- Anderkent 9y ago
  There aren't that many predictions being made on LW though. If you expect this has only come true by chance, there should be a large amount of similar predictions that haven't come true in the LW archives. Are there?
api 9y ago
I had a bit of Bitcoin back then-- maybe 10 BTC. Some I mined back when you could CPU mine. I set up a process to mine in a pool whenever my 2011-2012 era MacBook was plugged in and had Internet, keeping it alive even when the lid was closed with another hack. I spent it on various things between then and the big Bitcoin pumps: coffee (there was a spot that would take BTC in SoCal), open source contributions, etc., and cashed a little out just to see Coinbase work. I never thought it would go anywhere near this high for the rational reason that Satoshi's Bitcoin is really not a very good currency. It's a significant innovation in distributed systems and the Bitcoin code base is a good proof of concept, but I expected it to stay semi-niche or to eventually crash if/when major technical limits were found. I saw three killer problems with it: (1) Proof of work inherently promotes centralization due to industrial economies of scale. I expected some miner to eventually have 51% and behave badly, or a government that felt threatened by it to invest in >=51% hash power (or nationalize a few miners) and wreck it. The latter would be cheaper both politically and monetarily than a full frontal assault, especially if done semi-secretly. (2) It doesn't scale and won't scale. It's far too heavy. Some of the issues are merely Bitcoin's choice of parameters and some are deeper problems with the implementation. (3) Hyper-deflationary behavior is not a desirable characteristic for a currency. (Hyper-inflationary isn't either, but Bitcoin will never have that problem.) A currency needs to have at least a somewhat stable price and the ability to grow in quantitative base if needed to act as a good medium of exchange. Bitcoin is far more deflationary than gold. Not only does it have a strict known global limit, but it's subject to breakage (loss of coins) to a much greater degree than gold. So I didn't "hodl" because I thought it would probably top out at around $100/coin. I underestimated the irrationality of the rest of the market. Moral of the story? Markets are not rational and are therefore pretty tough to predict using purely rational models that don't delve into emotionally driven human behavior, herd dynamics, and game theory. Second moral of the story: I agree with point #3 here that sometimes extreme upside arguments do work. I should have held because I didn't need to cash out and there was the remote chance that... this... would happen. The latter works with startup investing too. I've talked to some angels and several said they made their biggest exits on companies they'd mentally written off. In one case when it came time to cash out he forgot where he put his certificate info or how many shares he had.
- dmichulke 9y ago
themark 9y ago
You can always place low risk, high reward bets on the stock market using options.
lukev 9y ago
Oh boy. For supposed rationalists, there's a lot wrong with this sentiment. Biggest issues: 1. Confirmation bias. How many things were discussed on rationalist websites that people were sure were going to be yuge, petered out, and were forgotten? You can't claim victory for rationalists without factoring in the ratio of failed predictions. 2. You can make a strong argument that the fundamentals of bitcoin itself are irrational (power consumption, transaction throughput, etc). Is accurately forecasting the irrationality of others itself rational? Maybe. But given how unreliable people are, feels more like augury than rationality to claim you saw it coming, post facto. Especially when your actual chain of reasoning turned out to be incorrect, despite a correct conclusion. 3. I did mine myself 20 bitcoins in the early days. But then I cashed out when they were $20 a pop and bought and iPad, and was well pleased with myself at the time. Obviously not a great idea in hindsight, but the point is that in order to make a 10000x return requires a strong belief that Bitcoin will actually go that high. Because to reach 10000x you have to resist the strong temptation to cash out at 10x, 100x and 1000x. I would argue that cashing out at 100x IS more rational in most scenarios than holding out for the moon shot (even if that eventually happened.) It could have just as easily crashed back down to zero.
- henryaj 9y ago
  > How many things were discussed on rationalist websites that people were sure were going to be yuge, petered out, and were forgotten? This is addressed in the article. The potential upside with Bitcoin was enormous, and so many people had predicted it amongst the rationalist community, that it made sense to make a tiny bet on it. The fact that other tiny bets might not have paid out doesn't really matter.
  - NoGravitas 9y ago
    The problem with huge potential upside arguments is that they are equivalent to Pascal's wager, which pretty much no one today takes seriously. And, if you accept them, you have to also accept huge potential downside arguments, which (along with accepting some other dubious premises that are popular in the "rationalist" community) lead you to Roko's Basilisk.
bhaak 9y ago
> [...] one bitcoin purchased today (for 90 cents, last time I checked) [...] My financial advice is to not buy more than ten [...] That's a really strange proposition. "It might be worth a lot more than now but don't spend more than 10 bucks on it"? I imagine, back then buying bitcoin wasn't easy (it's still not) so going through all that hassle for 10 bucks is odd. I would have expected a recommendation of maybe $100 or even $1000 if one was adventurous.
- Anderkent 9y ago
  I think it's consistent with the rest of the post. The claim is that long-term bitcoin is either going to be worth a shitton, in which case having 10 is enough, or 0, in which case having more than 10 is pointless. Buying more makes sense if you're planning to sell somewhere between, like if it gets to $10k.
- dankdurian 9y ago
  It also has to do with risk and risk tolerance. I assume $10 was chosen as an amount that wouldn't hurt too much to lose for most people whereas some people might miss $100. The higher the upside is, the higher the chance you'll lose the money can be and still be worth investing. In this case the argument is that although you'll almost certainly lose all the money you invest into bitcoin, it's still worth it because the upside is so high if bitcoin does end up succeeding.
psyc 9y ago
I was active on LessWrong in '09-10 (and not-as-active until '14). Bitcoin was mentioned rarely. Hal Finney and Wei Dai themselves barely talked about it there, if at all. IIRC they didn't mention it until a few years later. My awareness of Bitcoin came from various other tech/programmer forums. I mined 0.7 BTC in early 2011 and held it until a few months ago. Not life-changing, but certainly the biggest ROI on anything I've ever had by a few orders of magnitude. But my point is I don't remember becoming interested in Bitcoin because anyone on LW was talking about it. They weren't. Even though I regularly interacted with Finney and Dai, I didn't even know they had anything to do with cryptocurrency until last year. Edit: To be clear, I'm adding context, not arguing with the article. Yvain/Scott was certainly there.
- tgb 9y ago
  I mean, the article claims the first mention of it was in early 2011 on LW, so your timeline makes sense. Maybe it was on IRC or something else that you heard about it at all.
  - deleted 9y ago
    [deleted]
- kgwgk 9y ago
  According to the link, the first mention of Bitcoin on Less Wrong was in early 2011.
arnioxux 9y ago
> 3: Arguments-from-extreme-upside sometimes do work I have seen a bunch of less wrong articles on pascal's wager and variants so I assume they are familiar with them: - https://en.wikipedia.org/wiki/Pascal%27s_Wager https://en.wikipedia.org/wiki/Pascal%27s_Wager - http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilities_of_vast/ http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilitie... - http://lesswrong.com/lw/h8k/pascals_muggle_infinitesimal_priors_and_strong/ http://lesswrong.com/lw/h8k/pascals_muggle_infinitesimal_pri... With that fallacy in mind, is bitcoin still a good call? It could've been any other cryptocurrency winning and they all satisfy the same tiny probability with astronomical returns. It doesn't make sense to dump all your resources onto every new coin that pops up. Just like how you wouldn't adopt every religion to guarantee that you will never burn in any hells.
- semiel 9y ago
  > It doesn't make sense to dump all your resources onto every new coin that pops up. No, but if the odds work out, then it definitely makes sense to dump a _small_ amount of money into the ones you think have a shot. This is exactly how startup investing works: http://www.paulgraham.com/swan.html http://www.paulgraham.com/swan.html
- Bartweiss 9y ago
  Rationalists are familiar with Pascal's Wager, arguably to a fault. (There's a lot of discussion regarding how it ties into strong AI. The darker theories look something like Stross's A Colder War.) It's certainly true that long-odds betting isn't an inherent winner, and crypto better is long-odds betting. But BTC was the first blockchain currency, and is credited with being the first decentralized answer to the double-spend question. People who understood the tech and the importance of that idea at the beginning might well have made a prediction that this was different than your average investment bubble, and given that BTC and ETH are clearly the 'safest' cryptocurrencies they'd have a solid point. It was still a long odds chance. It could have dried up regardless of technical merit, or crashed when the selfish miner problem was unveiled, or been supplanted by a more-usable version of the same insight. But it's quite reasonable to argue that 2011-2013 BTC was a much more justified bet than early-stage Ripple or Litecoin or other cryptos.
monadmancer 9y ago
I was logically onboard back then, but the notion of Proof of Work mining seemed ridiculous and wasteful, so I didn't bother. I didn't even consider its purchase, which in retrospect would've been a good idea? I'm happy to hear the field is moving to Proof of Stake. I would've been on board from the beginning most likely.
CompelTechnic 9y ago
I find it really funny that even though the author of the original article from 2015 turned out to be fundamentally right about price movement, a lot of people here are nitpicking the reasoning to death. One factor that has contributed to crypto's explosive growth that does not get mentioned as much as I think it should is how controversial it is. I can't remember if it was PG or Mark Cuban or some other VC-related person, but I remember a quote that says (roughly)- If a new company is based on an idea I like, I want to buy. If it is based on an idea that makes me bored, I don't. But if it is based on an idea that I hate and can't stop thinking about how much I hate it, I want to buy. Looking back, the "memetic contagion" of people debating the merits of bitcoin has only helped it. The fact that a lot of people hated it (and continue to hate it) and can't stop talking about it has only added fuel to the fire.
- neaden 9y ago
  Friday is groundhog day. Phil might be right about his weather forecast, but it won't make me give any more credence to groundhog based weather prediction.
tgb 9y ago
Having recently received a reasonable fraction of a bitcoin, I am interested in what the optimal ways to cash out on it from a theoretical perspective are. Say I have some guess as to what chance it will have X value in Y years and have some quantified percentages of risk/security. How much do I sell now, how much should I hold on to "in case", etc? I feel like there is some mathematical advice here that I don't know. I feel like the best strategy should be something like "sell 50% every year" where 50% will be dependent on what I expect future performance to be. Edit: and ironically, it's the inconvenience of selling it that has kept me from doing so yet! The opposite of the author's problem.
pillowkusis 9y ago
Scott argues that Bitcoin is an example of why rationalists need to be more confident in their results — I’d argue it’s an example of where they should be much more modest. Hindsight bias is in play here. The line of reasoning that “this investment has a 1/10000 chance of going huge, and a 9999/10000 chance of being at best a waste of time, so I should invest” is not a rational strategy by itself. If you applied this logic to every moon-shot investment you came across you’d barely break even between the few winners and thousands of losers. You need to know something more interesting about the investment than “this could go to the moon”. Otherwise you’re spending all your time buying and then losing money in penny stocks. You also have to hold onto Bitcoin much longer than seems rational. It’s rare to find that someone buys Bitcoin at $1 a coin, and doesn't sell at $1000/coin. A 1000x return is the definition of moon-shot. Scott claims that “most people” agreed Bitcoin had a more than 1/10,000 chance of achieving $10,000 a coin — but this is a totally non-obvious result to me. Maybe it’s 1/1000 chance of a price of $1,000? A 1/100,000,000 chance of $100,000? In 2011, how could you reliably make such a precise prediction? For a community centered around epistemic modesty, such a finely calibrated probability like that seems unreasonable. And for the record — Bitcoin was expected to grow in price proportional to its value as a currency, tool, technology, etc. Nobody said “I’m going to buy Bitcoin because it’s going to enter into a giant speculative bubble and I want to be on the bottom”. Nobody seems to know why Bitcoin has exploded in price, so I’m hesitant to award points to rationalists. Seems more like a case of “correct by coincidence”. You made statistical inferences and acted on the result, and ended up being right, but not for any of the reasons that your statistical inference is based on.
- devereaux 9y ago
  > If you applied this logic to every moon-shot investment you came across you’d barely break even between the few winners and thousands of losers You would become... a VC Their method is to just select the moonshots on the basis of some common characteristics with previous moonshots
toyg 9y ago
Can mods please use "cryptocurrency" or "cryptocoin" ? How on Earth am I supposed to know which links are about cryptography now ? I was looking forward to a sweet post about cryptography failure, with possible advice relevant to my day-to-day work... but no, yet another Bitcoin analysis I really don't care about. Sigh.
csomar 9y ago
Wow. This is a very Wrong post. As much as I like crypto and bitcoin (and I'm an early investor), this post gets it all wrong. Bitcoin is kinda like a ponzi scheme. It can only benefit a few that bought in early. If most of LW readers bought in, the price to get them all in will be much higher thus making their investment less rewarding. Remember, in crypto we are not building houses but convincing the other guy to buy in. We are yet to have reliable instant and cheap transactions. We are yet to have stable non-volatile crypto. So from a usability point of view crypto is still not usable.

63 points by henryaj 9y ago

baby 9y ago

Is this about cryptography?

thaumaturgy 9y ago
No, sadly.
- NoGravitas 9y ago
  Apparently "crypto" means exclusively cryptocurrencies now, like "cyber" means exclusively cybersecurity. Thanks, marketroids.
decorator 9y ago
No, it's about crypto.
- baby 9y ago
  www.cryptoisnotcryptocurrency.com
  - decorator 9y ago
    See the world for my retort.

thaumaturgy 9y ago

Missing from this post: no matter how smart you think you are, the future is still unpredictable, because it involves other people and people are mostly gooey and not perfectly rational game theory state machines.

jstanley 9y ago

Page not loading for me.

wozer 9y ago
Cached: https://webcache.googleusercontent.com/search?q=cache:FWjBUR-t1QsJ:https://www.lesserwrong.com/posts/MajyZJrsf8fAywWgY/a-lesswrong-crypto-autopsy+&cd=1&hl=de&ct=clnk&gl=de https://webcache.googleusercontent.com/search?q=cache:FWjBUR...

07d046 9y ago

Because this is Less Wrong, I'll say that they're making a logical fallacy. A prediction was made that Bitcoin would go well, and it did, but the fact that it went well doesn't mean that the prediction was rationally founded.

henryaj 9y ago
> A prediction was made that Bitcoin would go well, and it did, but the fact that it went well doesn't mean that the prediction was rationally founded. This just looks like a naked assertion to me.
k__ 9y ago
I have the impression most predictions on modern companies or technologies are completely random. Some people tell you X will change the world. Some people tell you X won't change anything. We wait some time and look how X did and then say one of the two groups were totally right and saw it coming, while the rest was completely elusive to how the world works. To me it seems like there will always be some people who get it right if the questions are simply answered by enough people... I mean, just look at companies like Kodak or Nokia, who were filled with really smart people that simply failed to acknowledge the fact that their industry, which they knew deeper than anyone, were chaning.
- nkrisc 9y ago
  How's the old scam go? Mail 500 people your promotional flyer claiming Stock A will jump and 500 people a version that says Stock A will plummet. Split the 500 people who got the correct prediction into two groups and repeat with Stock B. Then sell 250 people your third, 100% accurate prediction. You'll have 125 loyal followers to evangelize you. Sounds awfully familiar.
Anderkent 9y ago
There aren't that many predictions being made on LW though. If you expect this has only come true by chance, there should be a large amount of similar predictions that haven't come true in the LW archives. Are there?

api 9y ago

I had a bit of Bitcoin back then-- maybe 10 BTC. Some I mined back when you could CPU mine. I set up a process to mine in a pool whenever my 2011-2012 era MacBook was plugged in and had Internet, keeping it alive even when the lid was closed with another hack. I spent it on various things between then and the big Bitcoin pumps: coffee (there was a spot that would take BTC in SoCal), open source contributions, etc., and cashed a little out just to see Coinbase work. I never thought it would go anywhere near this high for the rational reason that Satoshi's Bitcoin is really not a very good currency. It's a significant innovation in distributed systems and the Bitcoin code base is a good proof of concept, but I expected it to stay semi-niche or to eventually crash if/when major technical limits were found. I saw three killer problems with it: (1) Proof of work inherently promotes centralization due to industrial economies of scale. I expected some miner to eventually have 51% and behave badly, or a government that felt threatened by it to invest in >=51% hash power (or nationalize a few miners) and wreck it. The latter would be cheaper both politically and monetarily than a full frontal assault, especially if done semi-secretly. (2) It doesn't scale and won't scale. It's far too heavy. Some of the issues are merely Bitcoin's choice of parameters and some are deeper problems with the implementation. (3) Hyper-deflationary behavior is not a desirable characteristic for a currency. (Hyper-inflationary isn't either, but Bitcoin will never have that problem.) A currency needs to have at least a somewhat stable price and the ability to grow in quantitative base if needed to act as a good medium of exchange. Bitcoin is far more deflationary than gold. Not only does it have a strict known global limit, but it's subject to breakage (loss of coins) to a much greater degree than gold. So I didn't "hodl" because I thought it would probably top out at around $100/coin. I underestimated the irrationality of the rest of the market. Moral of the story? Markets are not rational and are therefore pretty tough to predict using purely rational models that don't delve into emotionally driven human behavior, herd dynamics, and game theory. Second moral of the story: I agree with point #3 here that sometimes extreme upside arguments do work. I should have held because I didn't need to cash out and there was the remote chance that... this... would happen. The latter works with startup investing too. I've talked to some angels and several said they made their biggest exits on companies they'd mentally written off. In one case when it came time to cash out he forgot where he put his certificate info or how many shares he had.

dmichulke 9y ago

themark 9y ago

You can always place low risk, high reward bets on the stock market using options.

lukev 9y ago

Oh boy. For supposed rationalists, there's a lot wrong with this sentiment. Biggest issues: 1. Confirmation bias. How many things were discussed on rationalist websites that people were sure were going to be yuge, petered out, and were forgotten? You can't claim victory for rationalists without factoring in the ratio of failed predictions. 2. You can make a strong argument that the fundamentals of bitcoin itself are irrational (power consumption, transaction throughput, etc). Is accurately forecasting the irrationality of others itself rational? Maybe. But given how unreliable people are, feels more like augury than rationality to claim you saw it coming, post facto. Especially when your actual chain of reasoning turned out to be incorrect, despite a correct conclusion. 3. I did mine myself 20 bitcoins in the early days. But then I cashed out when they were $20 a pop and bought and iPad, and was well pleased with myself at the time. Obviously not a great idea in hindsight, but the point is that in order to make a 10000x return requires a strong belief that Bitcoin will actually go that high. Because to reach 10000x you have to resist the strong temptation to cash out at 10x, 100x and 1000x. I would argue that cashing out at 100x IS more rational in most scenarios than holding out for the moon shot (even if that eventually happened.) It could have just as easily crashed back down to zero.

henryaj 9y ago
> How many things were discussed on rationalist websites that people were sure were going to be yuge, petered out, and were forgotten? This is addressed in the article. The potential upside with Bitcoin was enormous, and so many people had predicted it amongst the rationalist community, that it made sense to make a tiny bet on it. The fact that other tiny bets might not have paid out doesn't really matter.
- NoGravitas 9y ago
  The problem with huge potential upside arguments is that they are equivalent to Pascal's wager, which pretty much no one today takes seriously. And, if you accept them, you have to also accept huge potential downside arguments, which (along with accepting some other dubious premises that are popular in the "rationalist" community) lead you to Roko's Basilisk.

bhaak 9y ago

> [...] one bitcoin purchased today (for 90 cents, last time I checked) [...] My financial advice is to not buy more than ten [...] That's a really strange proposition. "It might be worth a lot more than now but don't spend more than 10 bucks on it"? I imagine, back then buying bitcoin wasn't easy (it's still not) so going through all that hassle for 10 bucks is odd. I would have expected a recommendation of maybe $100 or even $1000 if one was adventurous.

Anderkent 9y ago
I think it's consistent with the rest of the post. The claim is that long-term bitcoin is either going to be worth a shitton, in which case having 10 is enough, or 0, in which case having more than 10 is pointless. Buying more makes sense if you're planning to sell somewhere between, like if it gets to $10k.
dankdurian 9y ago
It also has to do with risk and risk tolerance. I assume $10 was chosen as an amount that wouldn't hurt too much to lose for most people whereas some people might miss $100. The higher the upside is, the higher the chance you'll lose the money can be and still be worth investing. In this case the argument is that although you'll almost certainly lose all the money you invest into bitcoin, it's still worth it because the upside is so high if bitcoin does end up succeeding.

psyc 9y ago

I was active on LessWrong in '09-10 (and not-as-active until '14). Bitcoin was mentioned rarely. Hal Finney and Wei Dai themselves barely talked about it there, if at all. IIRC they didn't mention it until a few years later. My awareness of Bitcoin came from various other tech/programmer forums. I mined 0.7 BTC in early 2011 and held it until a few months ago. Not life-changing, but certainly the biggest ROI on anything I've ever had by a few orders of magnitude. But my point is I don't remember becoming interested in Bitcoin because anyone on LW was talking about it. They weren't. Even though I regularly interacted with Finney and Dai, I didn't even know they had anything to do with cryptocurrency until last year. Edit: To be clear, I'm adding context, not arguing with the article. Yvain/Scott was certainly there.

tgb 9y ago
I mean, the article claims the first mention of it was in early 2011 on LW, so your timeline makes sense. Maybe it was on IRC or something else that you heard about it at all.
- deleted 9y ago
  [deleted]
kgwgk 9y ago
According to the link, the first mention of Bitcoin on Less Wrong was in early 2011.

arnioxux 9y ago

> 3: Arguments-from-extreme-upside sometimes do work I have seen a bunch of less wrong articles on pascal's wager and variants so I assume they are familiar with them: - https://en.wikipedia.org/wiki/Pascal%27s_Wager https://en.wikipedia.org/wiki/Pascal%27s_Wager - http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilities_of_vast/ http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilitie... - http://lesswrong.com/lw/h8k/pascals_muggle_infinitesimal_priors_and_strong/ http://lesswrong.com/lw/h8k/pascals_muggle_infinitesimal_pri... With that fallacy in mind, is bitcoin still a good call? It could've been any other cryptocurrency winning and they all satisfy the same tiny probability with astronomical returns. It doesn't make sense to dump all your resources onto every new coin that pops up. Just like how you wouldn't adopt every religion to guarantee that you will never burn in any hells.

semiel 9y ago
> It doesn't make sense to dump all your resources onto every new coin that pops up. No, but if the odds work out, then it definitely makes sense to dump a _small_ amount of money into the ones you think have a shot. This is exactly how startup investing works: http://www.paulgraham.com/swan.html http://www.paulgraham.com/swan.html
Bartweiss 9y ago
Rationalists are familiar with Pascal's Wager, arguably to a fault. (There's a lot of discussion regarding how it ties into strong AI. The darker theories look something like Stross's A Colder War.) It's certainly true that long-odds betting isn't an inherent winner, and crypto better is long-odds betting. But BTC was the first blockchain currency, and is credited with being the first decentralized answer to the double-spend question. People who understood the tech and the importance of that idea at the beginning might well have made a prediction that this was different than your average investment bubble, and given that BTC and ETH are clearly the 'safest' cryptocurrencies they'd have a solid point. It was still a long odds chance. It could have dried up regardless of technical merit, or crashed when the selfish miner problem was unveiled, or been supplanted by a more-usable version of the same insight. But it's quite reasonable to argue that 2011-2013 BTC was a much more justified bet than early-stage Ripple or Litecoin or other cryptos.

monadmancer 9y ago

I was logically onboard back then, but the notion of Proof of Work mining seemed ridiculous and wasteful, so I didn't bother. I didn't even consider its purchase, which in retrospect would've been a good idea? I'm happy to hear the field is moving to Proof of Stake. I would've been on board from the beginning most likely.

CompelTechnic 9y ago

I find it really funny that even though the author of the original article from 2015 turned out to be fundamentally right about price movement, a lot of people here are nitpicking the reasoning to death. One factor that has contributed to crypto's explosive growth that does not get mentioned as much as I think it should is how controversial it is. I can't remember if it was PG or Mark Cuban or some other VC-related person, but I remember a quote that says (roughly)- If a new company is based on an idea I like, I want to buy. If it is based on an idea that makes me bored, I don't. But if it is based on an idea that I hate and can't stop thinking about how much I hate it, I want to buy. Looking back, the "memetic contagion" of people debating the merits of bitcoin has only helped it. The fact that a lot of people hated it (and continue to hate it) and can't stop talking about it has only added fuel to the fire.

neaden 9y ago
Friday is groundhog day. Phil might be right about his weather forecast, but it won't make me give any more credence to groundhog based weather prediction.

tgb 9y ago

Having recently received a reasonable fraction of a bitcoin, I am interested in what the optimal ways to cash out on it from a theoretical perspective are. Say I have some guess as to what chance it will have X value in Y years and have some quantified percentages of risk/security. How much do I sell now, how much should I hold on to "in case", etc? I feel like there is some mathematical advice here that I don't know. I feel like the best strategy should be something like "sell 50% every year" where 50% will be dependent on what I expect future performance to be. Edit: and ironically, it's the inconvenience of selling it that has kept me from doing so yet! The opposite of the author's problem.

pillowkusis 9y ago

Scott argues that Bitcoin is an example of why rationalists need to be more confident in their results — I’d argue it’s an example of where they should be much more modest. Hindsight bias is in play here. The line of reasoning that “this investment has a 1/10000 chance of going huge, and a 9999/10000 chance of being at best a waste of time, so I should invest” is not a rational strategy by itself. If you applied this logic to every moon-shot investment you came across you’d barely break even between the few winners and thousands of losers. You need to know something more interesting about the investment than “this could go to the moon”. Otherwise you’re spending all your time buying and then losing money in penny stocks. You also have to hold onto Bitcoin much longer than seems rational. It’s rare to find that someone buys Bitcoin at $1 a coin, and doesn't sell at $1000/coin. A 1000x return is the definition of moon-shot. Scott claims that “most people” agreed Bitcoin had a more than 1/10,000 chance of achieving $10,000 a coin — but this is a totally non-obvious result to me. Maybe it’s 1/1000 chance of a price of $1,000? A 1/100,000,000 chance of $100,000? In 2011, how could you reliably make such a precise prediction? For a community centered around epistemic modesty, such a finely calibrated probability like that seems unreasonable. And for the record — Bitcoin was expected to grow in price proportional to its value as a currency, tool, technology, etc. Nobody said “I’m going to buy Bitcoin because it’s going to enter into a giant speculative bubble and I want to be on the bottom”. Nobody seems to know why Bitcoin has exploded in price, so I’m hesitant to award points to rationalists. Seems more like a case of “correct by coincidence”. You made statistical inferences and acted on the result, and ended up being right, but not for any of the reasons that your statistical inference is based on.

devereaux 9y ago
> If you applied this logic to every moon-shot investment you came across you’d barely break even between the few winners and thousands of losers You would become... a VC Their method is to just select the moonshots on the basis of some common characteristics with previous moonshots

toyg 9y ago

Can mods please use "cryptocurrency" or "cryptocoin" ? How on Earth am I supposed to know which links are about cryptography now ? I was looking forward to a sweet post about cryptography failure, with possible advice relevant to my day-to-day work... but no, yet another Bitcoin analysis I really don't care about. Sigh.

csomar 9y ago

Wow. This is a very Wrong post. As much as I like crypto and bitcoin (and I'm an early investor), this post gets it all wrong. Bitcoin is kinda like a ponzi scheme. It can only benefit a few that bought in early. If most of LW readers bought in, the price to get them all in will be much higher thus making their investment less rewarding. Remember, in crypto we are not building houses but convincing the other guy to buy in. We are yet to have reliable instant and cheap transactions. We are yet to have stable non-volatile crypto. So from a usability point of view crypto is still not usable.