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.



Senior Citizens of Makati – Know Your Rights in Traffic

[Blast from the past: April 25, 2013 at 1:29am]

The traffic law has since been re-written (see below).  But a bit of this post is still relevant.

This is almost a tongue-in-cheek note.

On April 23, 2013, I was stopped by a traffic enforcer on Buendia in Makati. He claimed that my car was “smoke belching.” Quietly, I argued that I maintained my car in good shape and smoke belching is not an issue. He asked for my license and car registration, which I politely and promptly gave him to inspect.

He then talked about a “manual test” of my exhaust, and informed me that if the car failed the test he would confiscate my car’s license plate. I protested that as far as I knew there was no authority for him to confiscate my car’s license plate.

After a little bit of hemming and hawing by the enforcer, I gave him my senior citizen ID, and informed him that I am a resident of Makati. His response was to consult with another traffic enforcer. His tone of voice changed from one of threat to one of exasperation. Finally, he said he would let me go because, according to him, senior citizens were “exempted” from traffic violations.

In my mind I hadn’t heard of such a rule, but I simply thanked him for letting me go. I don’t know whether what the enforcer told me was true or correct.

Still, I have the following suspicions:

One, the smoke-belching story is just another ruse to extort money. It may work against public use buses and jeepneys, but an informed motorist should resist such an extortion attempt (politely, of course).

Two, the enforcer did not have any authority to apprehend a private car on smoke belching. (Subsequently, from the MMDA website, I learned that as a motorist, I have the right to ask for the enforcer’s mission order, and the scope of his authority in this regard.)

Three, the idea that senior citizens are exempt from traffic rules is ridiculous. But let it be. Perhaps this was just the enforcer’s way of saving face because by then he decided that I would not offer him a bribe.

Four, the traffic enforcer was abusing his position. A reading of official pronouncements from the MMDA suggests that the authority of an enforcer to issue a TVR while confiscating a driver’s license is limited to instances of a crime, accident, or certain administrative violations by the motorist, such as a tampered taxi meter in the case of a taxi. Outside these circumstances, the enforcer may not confiscate a driver’s license. The official rules also state that under certain conditions, the enforcer may detach the car’s license plate. One such condition is when the motorist refuses to surrender his driver’s license. (I am not sure what other conditions will allow a traffic enforcer to confiscate a car’s license plate.)


NB.  The new traffic law of 2014 has changed some of the rules of traffic enforcement.

New Rules for 2014

The new rules do not allow the confiscation of license plates, but allow the impoundment of vehicles if they operate with smoke belching (determined by observation), or have modified equipment (presumably, illegal modifications).  The penalties are the same for cars, trucks, and motorcycles, which means that those with motorcycles are vulnerable for impoundment for even very minor equipment violations, such as those pertaining to mirrors, mufflers, and lights. A motorcycle owner with three equipment violations faces a fine of P15,000 and impoundment on the spot.

(Whether this is an unreasonable deprivation of property without due process seems a proper constitutional challenge, as well as a violation of equal protection since the fine for a truck with faulty brakes or unsafe tires is P5,000, the same as for a motorcycle with ‘modified’ wheels or tires.  Also, the determination of what is street-legal for equipment seems to be vulnerable to abuse of discretion on the part of the enforcement officer.)

The old traffic violation receipt (TVR) is back, even for minor violations, but now called TOP (temporary operator’s permit).  The penalties are lesser for driving without carrying the driver’s license, relative to driving without any license at all.  This means that  the old TVR/TOP extortion schemes won’t work so well if you carry only a copy of the original license with you.  You may show the enforcing officer the copy of your driver’s license, so he can charge you with not carrying the ‘real’ license, but he can’t inconvenience you with having to go to LTO to retrieve your license.  You now have 30 days to pay the fine, after which the LTO can suspend the license, whereas the TOP (if the enforcement officer has ‘confiscated’ your license) is valid for only 3 days.

The LTO is in charge of collecting fines, and allows a motorist five days to file a written contest of the charges.  After that period, the motorist is deemed to have admitted the violations on the traffic ticket. The five-day period seems to be there to provide a kind of due process protection, and test cases of contests raised on appeal to a higher authority than the LTO can be raised by concerned citizens.


EC42 basics – how to

develop a thesis topic.

The goal is to convince your stakeholders (parent, teachers, future employers) that you have learned a substantial amount of economics, although the gain is more yours than theirs.

The University of Michigan gives some pointers, the most important is that you have to do some hard reading.  Long, wide, and even deep.  See also the format of a student essay contest.

So, there, for the Christmas break, take some time to smell the academic coffee. Read.  Do it at Starbucks.  At Jollibee.  On the web.  But don’t strain your eyes.


The value of Facebook

Early on, I saved a small bundle on hard copy subscriptions. Realizing that mainstream media was into ACDC was a bonus.

Of course, there remain honest folk in mainstream media. The trick is to know.

Someone smart said we need mainstream media to sort out the trash. True enough. Mainstream has to maintain at least the credibility and gravitas of a piece on its face. The troll and clickbait sites are uncovered soon enough, unless you’re too willing to be trolled.

So, what to do?

Find good friends and enemies. Find good people to follow.

What makes for “good?” It’s when they point you to something credible, or hint that something is unduly biased. Those with opposing views are best because you have to work against your own grain.

In the end, free expression is just a clause that works when people think.

Is living well the best revenge?

The poet George Herbert once said, “Living well is the best revenge.” When I’m down, I think of this as an urging to take it easy, get up, and do a re-set button of sorts in my life.

Then I ponder. What does it mean exactly? Revenge against what or whom? And what exactly is ‘living well’?

Continue reading “Is living well the best revenge?”

Facebook and Doronila

The connection looks remote. The first is a social web phenom, albeit an abuser of privacy rights of those who choose to join. The second is an old-school journalist in the Philippines who, unfortunately, has ‘lost it.’

Because Facebook exists, I have decided to make good on a teeny protest against the inanity of broadsheet newspapers, especially the Inquirer, who thinks highly enough of Amando Doronila to keep running his unreadable stuffs. And stuffs they are. The protest is simple: I will no longer be a paid subscriber to the Inquirer’s print version. In any case, I’m sure the newspaper will survive (it has enough ‘friends’ in the economy who will pay for ads). It’s also a protest against the presence of one Rigoberto Tiglao on the newspaper’s pages.

The protest is on balance easy, even profitable. Some news is still important. But aha, that’s where web 2.0 kicks in. The news I think important are those some FB friends consider as well. I noticed that we ‘help’ each other by linking to things we may agree – and more often – disagree on. This makes for an interesting experience. My news world has expanded to include the two Times (Los Angeles and New York), the Philippine Star (which used to have some kind of strange bias a while back), the Manila Standard (which is fast becoming the better version of the Daily Tribune), something called the Onion, and even that openly unbiased wanna-bee called The reality is that everything out there has a bias, so caveat lector be.

Doronila has already taken up enough of my time. Fool that I was, I kept hoping there might still be some redeeming value in his pieces, but it seems that the better ‘gamble’ is to just say No. Now, I no longer have to pay real money to the Inquirer, but can keep a tab on what’s up through FB friends’ links. The nice thing is that pulling the plug was painless. I simply told the household help to call up, on the landline, the local news vendor. The dogs will miss barking at the delivery guy, but they have other folks to bark at.

It now turns out that FB has some personal value even if I can’t get a piece of its IPO incomings. I get to avoid P1,000/month of news print subscription fees. That’s not exactly peanuts. (It’s more expensive by twice than the monthly dues on an unli-call/text postpaid plan at the post-merger Sun.) The capitalized present value of this opportunity ‘gain’ is roughly US$1,200. Not bad as my valuation of my FB friends’ news-wise wisdom.

Finally, I must thank Mr. Doronila for getting me to think about the matter. He didn’t exactly show me the way, but, hey, you can’t win it all.