Musing on transactions cost

or how to think about Bitcoin.

In the end, there is no free lunch when we talk about transactions cost.

Consider Bitcoin as a digital equivalent of gold. We don’t know the price of gold a hundred years out because we reckon that price in terms of fiat, and there’s no way we can predict what central banks will do. We could try to measure the value of gold in terms of man-hours, but still that won’t work because we have no idea what technological advances will take place (that’s in the realm of the unknown unknown), or even which fiat currencies will be around to use as a benchmark.

Ergo, we won’t know what the price of Bitcoin will be a century hence. If we don’t know that, then we don’t know what’s the ‘correct’ price of Bitcoin today. This is just a consequence of using a present-value calculation (the uncertainty on the proper discount rate is not even material).

What we do know is that Bitcoin has had a run-up in price because the players behave like a collective Ponzi. Imagine if the Ponzi players got enamored with gold the way they have with Bitcoin. Not so far-fetched, is it?

There is a difference, of course. Gold is a commodity with ‘intrinsic’ value as jewelry. Unless humans suddenly decide gold has no worth at all, the jewelry component will set a floor to the gold price.

Bitcoin, once mined, is just that: a digital bit sitting in a thousand computers. You can’t eat it, wear it, etc. You might argue that it cost a miner $1,000 to get his Bitcoin, but that’s just sunk cost. It doesn’t guarantee a price that the next guy will pay.

But an even greater difference is this. Anyone else can cook up his Bitcoin wannabe. If he succeeds, then you have an ‘alt coin.’ If you cook it up from an existing alt coin, it’s called a fork. Theoretically, you can then have an infinity of forks and alt coins. In practice, you need a society of nuts willing to see a particular alt coin as money. How many in this society? I don’t know, but a good guess is 1 million. With global population at 7.6 billion, we might have 7,600 alt coins. No wonder, every Ponzi-loving geek goes out to try his luck. Lots of suckers out there still.

What this means is a ceiling on the Bitcoin price, analogous with the floor on gold. Where is that ceiling? Only the god of Ponzis knows. Individually, alt coins including Bitcoin will fluctuate according to the vagaries of sentiment. If an alt coin’s underlying ‘consensus’ mechanism, which is human psychology and not a matter of algorithms, gets compromised, that alt coin will crash. Kindleberger wrote the books on manias and crashes, and he would say that all assets are susceptible.

Can Bitcoin have a floor? If you start from zero, and if everybody deserts you, that floor is zero. (How many penny stocks have come to naught?)

Can Bitcoin (or any alt coin) have a stable non-zero equilibrium price? Bitcoin started out billed as an alternative to fiat, and perhaps it may run a very long run equilibrium if, collectively, Bitcoin users are convinced that their Bitcoin is worth a certain (stable) amount of fiat. This would be paradoxical. You end up holding Bitcoin as just another form of fiat. As it is, the transactions cost of using Bitcoin is on par with that of fiat. So, why bother?

Unless, of course, you think you can still play the Ponzi.



Star wars log – the return of the PCOS

The age-old problem

Since the 2010 elections, there has been the danger of a re-cranking of the machinery to fix elections, something all can admit as an open secret in the decades before automation. Then it was called dagdag bawas, and every insider knew how it worked. We now have draconian laws criminalizing electoral sabotage, but the crime is a conspiracy that is hard to prove unless an insider sings. We need to invent a videoke machine for them, along with a truth serum to spike their beer. I hear there’s a new brew called San Migz Light; it will at the right moment make you admit there is cheating, and at another moment allow you to proclaim you had no part in it. Even better, imbibing it will allow you to run for election all over again, just like nothing happened! Of course, if you believe the Rules on Evidence, the first is an admission, the second a neat self-serving statement.

The ‘nightmare’

Continue reading “Star wars log – the return of the PCOS”

Why blogs should be censored

This is a particularly good example of the inanity of freedom of expression, never mind that of the author.

One, he doesn’t like Christians, and calls the Philippines ‘Christianabad.’ Such cheek.  The religious of either left or right should mount a holy war to expose the Get Real folks as insult artists.

Two, he believes that FB, corporations, and religions are all the same crude banana.  Maybe.  Maybe not. But so what? Has he ever run a behemoth, or tried to deal with satanic cults?

Three, his solution to the predicament of FB users who upload bikini pics is to update privacy settings.  Fat chance.  No one really understands the privacy features of FB, or any site for that matter. Fine print is an automatic non-read.  Still the only way to avoid exposure is simple: Wear a fig leaf or Just Say No.  But we don’t do the latter because there is a nonzero value to FB users even if they now can’t quite capture the financial benefits.

Four, he thinks lawyers will be called upon to disentangle difficult social issues.  And I thought the bard said we should kill the lawyers.  I don’t know the solution but turning to lawyers and reading stuff from Get Real will get a nonthinking nobody nowhere.

Enough of blather.  Bring in the censors.  The site should be called We’re Unreal.

Disclaimer:  My one regret, though an iffy one, is this post just might promote site traffic to Get Real Philippines.  But it would have been worth it if just one reader gets saved from eternal intellectual damnation.  Also, I side with the good sisters of STC on the original issue.

FOI anyone?

After listening to a discussion on FOI on tv, I’m convinced that we don’t need an FOI law, but perhaps not for the reasons advanced by officials of the Executive, such as that the right would be “abused.” Manolo Quezon’s heart bleeds for “innocents” whose secrets might come out. This is a lame excuse.

What is more important is the question of whether we even need an FOI act at all to enforce the public’s right to information.

The right to information is in the Bill of Rights, and such rights are typically self-executing. In Legaspi vs. Civil Service Commission, the SC held that mandamus is sufficient to enforce the right.  In other words, the right to information does NOT require an implementing law.

Art. III, Sec. 7 states: “The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law.”

What the Constitution seems to say is that if the state wishes to keep something secret, there should be a law or laws providing for such secrecy. And there already are. The penumbral constitutional right of privacy is one. Another is the jurisprudence on the secrecy of matters of law enforcement and national security. There are also civil code rules on secrets, including trade secrets, that have been shared with public agencies.

Absent such secrecy-protection devices, the public has already a “recognized right” to certain information, and, as held by the SC, the Constitution does not require the existence of an implementing FOI law to enforce that right.

The question then arises: Is the remedy of mandamus insufficient, as a practical means, to enforce the right? Here views likely differ.  Proponents of an FOI law believe that the remedy is insufficient.  Accepting, for the sake of argument, that mandamus can be insufficient, I believe the issue then boils down to details.  If the FOI law criminalizes the withholding of information, this may simply add to the laws that are difficult to enforce.  This is, of course, because criminal conviction requires proof beyond reasonable doubt.  What is perhaps sensible or needed is not just any FOI law, but one that is easy to enforce and not likely to backfire.  That is a fair challenge to those who have been agitating for an FOI law.

We already have laws and rules that are either bent or disobeyed. There is also the danger that an FOI law, when pushed by media, can be an aid to pushing the envelope of journalism. In short, adding to prostitutable laws can even do harm.

So why bother?

Do lawyers lie?

In a blog, I came across comments that suggested that lawyers focus on “form” and not substance because of the adversarial nature of Philippine courts.

This made me ask whether lawyers are obliged to seek justice even if it would go against the interest of their clients.  So I re-read the lawyer’s oath.  True enough, lawyers are not obliged to seek justice.  They only need to be faithful to the court and their clients, “without any mental reservation or purpose of evasion.”

Indeed, “intrinsic” fraud, the kind of fraud that the other party must be on guard against, seems to be fair game in litigation. (The legal dictionaries define intrinsic fraud as “deception that pertains to an issue involved in an original action, such as perjured testimony or fabricated evidence.”)

In effect, lawyers must be “truthful” but they do not have to tell all if by so doing they injure their client.  And of course it is not proper to ask a defense lawyer in open court, “Counselor, is your client guilty?”  Why?  Because that is the very essence of the case. The blog commentary did have a point!

Here is the lawyer’s oath:

I, do solemnly swear that I will maintain allegiance to the Republic of the Philippines, I will support the Constitution and obey the laws as well as the legal orders of the duly constituted authorities therein; I will do no falsehood, nor consent to the doing of any in court; I will not wittingly or willingly promote or sue any groundless, false or unlawful suit, or give aid nor consent to the same; I will delay no man for money or malice, and will conduct myself as a lawyer according to the best of my knowledge and discretion, with all good fidelity as well to the courts as to my clients; and I impose upon myself these voluntary obligations without any mental reservation or purpose of evasion. So help me God.

Idiots and “normals”

I thought the “new normal” was just a PR gimmick.  At one level it justifies how supposedly smart folks didn’t call the 2007-08 crisis, so that now it is ok to do some Monday morning QBing to say, ok, the world changed after 2008.

Here comes another view that the new normal is idiotic because the “old normal” is still around.

Both views are probably misguided.  Obviously, the financial world had had its 9/11, and things will never be the same.  But to offer pablum while continuing to play the legal Ponzi Buffett-PIMCO game is, well, at the very least, morally reprehensible.  Yeah, yeah – as they say in the Street, “Greed is good.”  Milton F must be turning in his grave.

There is no new normal because there was no old normal to begin with.  The old normal was the view that risk could be contained within statistical models using the Gaussian (or normal) distribution.  Taleb and Mandelbrot have pretty much shown that the distribution has to be other than normal because there is a fat-enough tail that means that those using Markowitz-Black-Scholes models would eventually lose their pants.  If there were a new normal, it would just have different values for the statistical parameters of mean and variance, but it would not be a fundamentally different probability concept.  And those who didn’t learn their lessons from 2008 (or even 1987) would continue to lose money for themselves and their foolish clients.

My best guess is that big money managers are simply competing for the lemmings.  Now, that’s a case of old dogs not learning new tricks.

Can economic statistics lie? And what about poll surveys?

Here’s a view from Prof. Habito.

I believe statistics are just numbers with properties that give headaches to students of applied math.  Numbers have no personality or will to concoct a falsehood.

For example, I’ve wondered how statisticians can confidently say that their sample surveys have a 3% error rate?  How did they get so confident?  A prize awaits any of my current and former students who can enlighten me on this one.