13 ms·

Bitcoin Spreads Like a Virus

114 points by mthwsjc_ 8y ago

thefounder 8y ago
You can say that everything spreads like a virus(i.e the internet, facebook, Google etc). Bitcoin (like any viral technology) is no exception
- Kiro 8y ago
  No, they don't follow the Gompertz sigmoid growth function so it's not the same thing.
- riazrizvi 8y ago
  You can say that every *viral thing spreads like a virus.
mr_spothawk 8y ago
It looks like the Gompertz function is asymptotic... i wonder about how they fit that model to the price spikes. Also, stupid question: what's the expected price then, given that the infection nears that asymptote by say, 90%?
- penagwin 8y ago
  I didn't read the the study to too much detail, but based off the charts they seem to suggest many (not all of course) deviations from the expected value is due to manipulation. To me this is in-line with the reports of market manipulation [0] and the inherit lack of regulation. [0] https://hackernoon.com/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4 https://hackernoon.com/meet-spoofy-how-a-single-entity-domin...
- wcoenen 8y ago
  The study says that the price almost perfectly fits the curve, but they exclude the price spikes in that fit and label those periods as "manipulated price". This strikes me as a rather strange approach to fitting data. But I'm not a data scientist, and they do give some references to other studies about bitcoin price manipulation to support this.
  - HarryHirsch 8y ago
    Isn't price manipulation the purpose of Bitcoin? The market is so small that you can actually corner it with very little effort, and since it's Bitcoin there's no one to enforce the rules.
    - wcoenen 8y ago
      No. According to the original author, the purpose of bitcoin is to provide an electronic payment system that does not require trusted third parties. See the introduction section of https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf
    - DennisP 8y ago
      As of today the market cap of Bitcoin is $70 billion and the daily volume is $10 billion, so it takes a little effort. And regulated exchanges in the U.S. and other developed countries actually do have to follow some rules.
ramblerman 8y ago
> We conclude that the long-term growth rate in users has considerable effect on the long-term price of bitcoin. Given there are finite bitcoins (21m), basic economics would indeed tell you an increase in users will increase the price of said resource. This feels a bit like intellectual masturbation to me.
hnuser123457 8y ago
Now do Islam.
yingw787 8y ago
Bitcoin reminds me a lot of monetarism, where the thinking goes to increase the money supply at the same rate as that of productivity: https://en.wikipedia.org/wiki/Monetarism https://en.wikipedia.org/wiki/Monetarism I'm not a huge believer in monetarism. It pretty much precludes all aspects of monetary policy save growing the money supply to influence the economy. I think Bernanke and the policy of quantitative easing played a crucial role during the 2008 financial crisis, along with TARP and ARRA, and that would not have been possible if the U.S. dollar physically obeyed the properties of Bitcoin. A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles?
- tdhz77 8y ago
  I'm in agreeance here. Using bitcoin takes away a lot of financial tools. The Federal Reserve has a purpose and a responsibility, using bitcoin would send us backwards not forwards.
  - sauwan 8y ago
    Regardless of the correctness of that, does it matter? If people begin to adopt crypto as a currency, what can be done about it?
    - Nursie 8y ago
      Even cryptocurrency enthusiasts aren't using 'crypto' as a currency, outside of a few niches like black market drug sales, they're using it as a sort of speculative commodity.
    - dmitriid 8y ago
      People using cryptocurrency will rediscover and re-invent all the institutions that are required to run an economy and have a currency: banks, regulations, courts, enforcement, proof of identity...
  - kneel 8y ago
    It's perfectly reasonable to use both fiat and cryptocurrencies. If you don't agree with the federal reserve policy or a politician's short-sightedness, you have an alternative.
Zelmor 8y ago
I like to think that people are being vaccinated against another crypto craze by the fraud and loss stories. Few got rich, most lost money on it. Like all good schemes.
magnamerc 8y ago
This reminds me of Metcalfe's law for telecommunications networks.
ionasiognio 8y ago
I see a few problems: 1. The author claims the lower bound is above 0 because "Bitcoin offers people a money storage and transfer system with two key properties: (i) permissionless access and (ii) decentralized database management." That might be true if Bitcoin were the only technology that offered those features, but it isn't. Cash is the most notable competitor, but there are also dozens of other cryptocurrencies which are drop-in replacements for Bitcoin. 2. The number of Bitcoin users has a hard cap because the technology is not scalable. It is just plain impossible for a large number of people to use it. This is not like Facebook, where the system is scalable and user growth is determined almost entirely by user interest. Also, those graphs make me nervous. Fitting a line to a log-(log-square-root) graph using linear regression sounds awfully fishy to me. Would anyone with a better grasp of the statistics care to chime in?
- csytan 8y ago
  but there are also dozens of other cryptocurrencies which are drop-in replacements for Bitcoin. I don't see any drop-in replacements. I can see your point if you meant sharing a codebase. However, if you look at it as if it were a business, brand & marketing count for a lot.
- DennisP 8y ago
  I'm no expert but here's a paper on using least-squares to fit a Gompertz curve: https://www.sciencedirect.com/science/article/pii/S0377042704000032 https://www.sciencedirect.com/science/article/pii/S037704270...
- soVeryTired 8y ago
  > Fitting a line to a log-(log-square-root) graph using linear regression sounds awfully fishy to me. Would anyone with a better grasp of the statistics care to chime in? It's fishy, but depressingly common in Economics. There's an old joke that 'everything on a log-log plot is linear when drawn with a fat magic marker'. The errors at the top-right of the chart are much larger than the errors on the bottom left: they just don't look that way because of the log scale. They're also systematically biased at the top-left. If you want to run OLS on a timeseries, you need ergodicity (i.e. the time series forgets its own history) for the regression to be valid. The number of observations also needs to be across a time much larger than the relaxation time of the timeseries. I don't see that here. The entire thing triggers my spider sense for cranks. It's written in word and uses excel for its plots, the author runs some sort of crypto fund, and the fact that it uses 'square root of time' as a regressor is just bizzarre.
algaeontoast 8y ago
Bitcoin was a great experiment... but it arguably failed. Nobody really ever used it for normal things. The one attempt at actually attempting to take a first step to fix scaling issues collapsed due to governance issues. It never worked as a reliable store of value or means of reasonably transferring funds. Really cool project but it was an experiment. We can still learn from failed experiments to make even better new ones...
- monsterbash506 8y ago
  >The one attempt at actually attempting to take a first step to fix scaling issues collapsed due to governance issues. what attempt? We have a fix for scaling issues, it's called lightning and it hasn't failed.
- HashBasher 8y ago
  > it arguably failed. I wonder how many people called the internet a failure, 10 years in.
radiusvector 8y ago
I think the analogy with FB might be interesting, but intrinsically inaccurate. The value people get from FB is related to the value of other people being on the network, but there is an intrinsic value drived from the different use cases on the platform - photos, messaging, likes, fomo and what not. Which has directly been monetized using advertising. The value you get from other people using Bitcoin is that the price goes up, without any other intrinsic value aside from "Maybe my investment grows" - in effect following the 'greater fool' theory (Buffett), or the 'castle in the air' theory (Malkiel et al).
- dcow 8y ago
  No! Bitcoin is a currency not a commodity. There is plenty of value in using it on those merits and that value increases the currency proliferates.
  - radiusvector 8y ago
    The "currency" use-case has not proliferated or reached adoption at a scale (by any measure) that would make it a worthy medium of exchange, which fundamentally is the definition of a currency.
    - dcow 8y ago
      The paper precisely argues that the proliferation of BTC as a currency is a factor in their assertion about the value.
briatx 8y ago
> number of users (proxied as active addresses) New wallets cost nothing to create and manipulation in this sector is rife. The assumptions are flawed from the start.
- sprash 8y ago
  Transaction costs are very significant. As soon as a wallet contains money it is save to consider it as real. Distributing your money to multiple wallets as a single owner is very costly and makes no sense.
  - briatx 8y ago
    1. Tx costs are basically free if you are willing to wait long enough. 2. Using a new address per Tx is one of the only ways you can preserve anonymity. 3. Lots of people have more than one wallet. 4. Manipulators could automate the creation of wallets at essentially no cost. 5. The minimum value of bitcoin is 1 satoshi which is 0.00000001 BTC or 0.0000398886 USD at current prices. To put that in perspective you could fund approximately 250 wallets with 1 satoshi each for one penny.
just_one_time_ 8y ago
This should be subtitled, why Greg Maxwell is an idiot. The Core Team from day one has pushed to reduce on chain usage of Bitcoin, and the only explanation is that it was sabotage.
jron 8y ago
The price consolidates over long periods of time to establish an equilibrium with demand. The network then shocks the supply side by halving newly created coins every 4 years. The price starts to move and then human nature takes over and runs the price well past previous highs. During this run, new adopters form the base to support the inevitable decline. Repeat until the market learns to price this in. Third time's a charm? We'll find out soon.
btcama 8y ago
I am the author of "Bitcoin Spreads Like a Virus" and "Metcalfe's Law as a Model for Bitcoin's Value." I will be releasing an explanatory video next week (tentatively Wednesday, March 27th.) The video will incorporate an AMA at the end. Send your questions to BTCAMA@caneislandcrypto.com. You can also visit caneislandcrypto.com/learn for more information.

114 points by mthwsjc_ 8y ago

You can say that everything spreads like a virus(i.e the internet, facebook, Google etc). Bitcoin (like any viral technology) is no exception

Kiro 8y ago
No, they don't follow the Gompertz sigmoid growth function so it's not the same thing.
riazrizvi 8y ago
You can say that every *viral thing spreads like a virus.

mr_spothawk 8y ago

It looks like the Gompertz function is asymptotic... i wonder about how they fit that model to the price spikes. Also, stupid question: what's the expected price then, given that the infection nears that asymptote by say, 90%?

penagwin 8y ago
I didn't read the the study to too much detail, but based off the charts they seem to suggest many (not all of course) deviations from the expected value is due to manipulation. To me this is in-line with the reports of market manipulation [0] and the inherit lack of regulation. [0] https://hackernoon.com/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4 https://hackernoon.com/meet-spoofy-how-a-single-entity-domin...
wcoenen 8y ago
The study says that the price almost perfectly fits the curve, but they exclude the price spikes in that fit and label those periods as "manipulated price". This strikes me as a rather strange approach to fitting data. But I'm not a data scientist, and they do give some references to other studies about bitcoin price manipulation to support this.
- HarryHirsch 8y ago
  Isn't price manipulation the purpose of Bitcoin? The market is so small that you can actually corner it with very little effort, and since it's Bitcoin there's no one to enforce the rules.
  - wcoenen 8y ago
    No. According to the original author, the purpose of bitcoin is to provide an electronic payment system that does not require trusted third parties. See the introduction section of https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf
  - DennisP 8y ago
    As of today the market cap of Bitcoin is $70 billion and the daily volume is $10 billion, so it takes a little effort. And regulated exchanges in the U.S. and other developed countries actually do have to follow some rules.

ramblerman 8y ago

> We conclude that the long-term growth rate in users has considerable effect on the long-term price of bitcoin. Given there are finite bitcoins (21m), basic economics would indeed tell you an increase in users will increase the price of said resource. This feels a bit like intellectual masturbation to me.

hnuser123457 8y ago

Now do Islam.

yingw787 8y ago

Bitcoin reminds me a lot of monetarism, where the thinking goes to increase the money supply at the same rate as that of productivity: https://en.wikipedia.org/wiki/Monetarism https://en.wikipedia.org/wiki/Monetarism I'm not a huge believer in monetarism. It pretty much precludes all aspects of monetary policy save growing the money supply to influence the economy. I think Bernanke and the policy of quantitative easing played a crucial role during the 2008 financial crisis, along with TARP and ARRA, and that would not have been possible if the U.S. dollar physically obeyed the properties of Bitcoin. A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles?

tdhz77 8y ago
I'm in agreeance here. Using bitcoin takes away a lot of financial tools. The Federal Reserve has a purpose and a responsibility, using bitcoin would send us backwards not forwards.
- sauwan 8y ago
  Regardless of the correctness of that, does it matter? If people begin to adopt crypto as a currency, what can be done about it?
  - Nursie 8y ago
    Even cryptocurrency enthusiasts aren't using 'crypto' as a currency, outside of a few niches like black market drug sales, they're using it as a sort of speculative commodity.
  - dmitriid 8y ago
    People using cryptocurrency will rediscover and re-invent all the institutions that are required to run an economy and have a currency: banks, regulations, courts, enforcement, proof of identity...
- kneel 8y ago
  It's perfectly reasonable to use both fiat and cryptocurrencies. If you don't agree with the federal reserve policy or a politician's short-sightedness, you have an alternative.

Zelmor 8y ago

I like to think that people are being vaccinated against another crypto craze by the fraud and loss stories. Few got rich, most lost money on it. Like all good schemes.

magnamerc 8y ago

This reminds me of Metcalfe's law for telecommunications networks.

ionasiognio 8y ago

I see a few problems: 1. The author claims the lower bound is above 0 because "Bitcoin offers people a money storage and transfer system with two key properties: (i) permissionless access and (ii) decentralized database management." That might be true if Bitcoin were the only technology that offered those features, but it isn't. Cash is the most notable competitor, but there are also dozens of other cryptocurrencies which are drop-in replacements for Bitcoin. 2. The number of Bitcoin users has a hard cap because the technology is not scalable. It is just plain impossible for a large number of people to use it. This is not like Facebook, where the system is scalable and user growth is determined almost entirely by user interest. Also, those graphs make me nervous. Fitting a line to a log-(log-square-root) graph using linear regression sounds awfully fishy to me. Would anyone with a better grasp of the statistics care to chime in?

csytan 8y ago
but there are also dozens of other cryptocurrencies which are drop-in replacements for Bitcoin. I don't see any drop-in replacements. I can see your point if you meant sharing a codebase. However, if you look at it as if it were a business, brand & marketing count for a lot.
DennisP 8y ago
I'm no expert but here's a paper on using least-squares to fit a Gompertz curve: https://www.sciencedirect.com/science/article/pii/S0377042704000032 https://www.sciencedirect.com/science/article/pii/S037704270...
soVeryTired 8y ago
> Fitting a line to a log-(log-square-root) graph using linear regression sounds awfully fishy to me. Would anyone with a better grasp of the statistics care to chime in? It's fishy, but depressingly common in Economics. There's an old joke that 'everything on a log-log plot is linear when drawn with a fat magic marker'. The errors at the top-right of the chart are much larger than the errors on the bottom left: they just don't look that way because of the log scale. They're also systematically biased at the top-left. If you want to run OLS on a timeseries, you need ergodicity (i.e. the time series forgets its own history) for the regression to be valid. The number of observations also needs to be across a time much larger than the relaxation time of the timeseries. I don't see that here. The entire thing triggers my spider sense for cranks. It's written in word and uses excel for its plots, the author runs some sort of crypto fund, and the fact that it uses 'square root of time' as a regressor is just bizzarre.

algaeontoast 8y ago

Bitcoin was a great experiment... but it arguably failed. Nobody really ever used it for normal things. The one attempt at actually attempting to take a first step to fix scaling issues collapsed due to governance issues. It never worked as a reliable store of value or means of reasonably transferring funds. Really cool project but it was an experiment. We can still learn from failed experiments to make even better new ones...

monsterbash506 8y ago
>The one attempt at actually attempting to take a first step to fix scaling issues collapsed due to governance issues. what attempt? We have a fix for scaling issues, it's called lightning and it hasn't failed.
HashBasher 8y ago
> it arguably failed. I wonder how many people called the internet a failure, 10 years in.

radiusvector 8y ago

I think the analogy with FB might be interesting, but intrinsically inaccurate. The value people get from FB is related to the value of other people being on the network, but there is an intrinsic value drived from the different use cases on the platform - photos, messaging, likes, fomo and what not. Which has directly been monetized using advertising. The value you get from other people using Bitcoin is that the price goes up, without any other intrinsic value aside from "Maybe my investment grows" - in effect following the 'greater fool' theory (Buffett), or the 'castle in the air' theory (Malkiel et al).

dcow 8y ago
No! Bitcoin is a currency not a commodity. There is plenty of value in using it on those merits and that value increases the currency proliferates.
- radiusvector 8y ago
  The "currency" use-case has not proliferated or reached adoption at a scale (by any measure) that would make it a worthy medium of exchange, which fundamentally is the definition of a currency.
  - dcow 8y ago
    The paper precisely argues that the proliferation of BTC as a currency is a factor in their assertion about the value.

briatx 8y ago

> number of users (proxied as active addresses) New wallets cost nothing to create and manipulation in this sector is rife. The assumptions are flawed from the start.

sprash 8y ago
Transaction costs are very significant. As soon as a wallet contains money it is save to consider it as real. Distributing your money to multiple wallets as a single owner is very costly and makes no sense.
- briatx 8y ago
  1. Tx costs are basically free if you are willing to wait long enough. 2. Using a new address per Tx is one of the only ways you can preserve anonymity. 3. Lots of people have more than one wallet. 4. Manipulators could automate the creation of wallets at essentially no cost. 5. The minimum value of bitcoin is 1 satoshi which is 0.00000001 BTC or 0.0000398886 USD at current prices. To put that in perspective you could fund approximately 250 wallets with 1 satoshi each for one penny.

just_one_time_ 8y ago

This should be subtitled, why Greg Maxwell is an idiot. The Core Team from day one has pushed to reduce on chain usage of Bitcoin, and the only explanation is that it was sabotage.

jron 8y ago

The price consolidates over long periods of time to establish an equilibrium with demand. The network then shocks the supply side by halving newly created coins every 4 years. The price starts to move and then human nature takes over and runs the price well past previous highs. During this run, new adopters form the base to support the inevitable decline. Repeat until the market learns to price this in. Third time's a charm? We'll find out soon.

btcama 8y ago

I am the author of "Bitcoin Spreads Like a Virus" and "Metcalfe's Law as a Model for Bitcoin's Value." I will be releasing an explanatory video next week (tentatively Wednesday, March 27th.) The video will incorporate an AMA at the end. Send your questions to BTCAMA@caneislandcrypto.com. You can also visit caneislandcrypto.com/learn for more information.