Sunday, 29 September 2013

Research update #2

I haven't posted a while, but that was because I have been reading, doing research for the book and writing it. I thought I'd post a quick update.

I do have several partially written posts that I plan to finish and gradually release. Mostly they will provide topics related to Bitcoin in a more looser way, such as hypothetical changes in the future or effects of Bitcoin, or critiques of some non-core critiques of Bitcoin.

In August, I started working part time at Megion Research & Development, which you might know under the name mycelium, the makers of the mycelium bitcoin wallet and the Bitcoincard. Once I finish the book I plant to work there full time. My role is business development.

I would like to thank a generous donor who bought me 13 books out of my Bitcoin Research wishlist on amazon. Also to people who donate Bitcoins (see in the right column for link). Thank you. I exchanged some of the donations for cash to offset the costs of my server and books. I used bitcoins from the donation wallet directly to pay for the renewal of the domain.

Earlier this week I attended the Future of money 2.0 conference in Bratislava, organised by the F. A. Hayek foundation. It was a conference about the risks of our financial system and possible consequences and outcomes, and how to protect one's assets. I was introducing the mostly Slovak and Czech audience into Bitcoin. I hope it helped people to understand the potential of it. You can download my slides (in English), the talk was in Slovak and it should be available soon (I'll update this post and the publication subpage once that's ready). I met with Jim Rickards (keynote speaker) and Philipp Bagus (he was on my panel). I was lucky because I had read both Currency Wars and The Tragedy of the Euro so I was familiar with both of their backgrounds. I had asked professor Bagus to read my thesis prior to the conference and he told me that it shows deep knowledge of Austrian economics. I actually promised him back in 2011 when I asked him some questions about Bitcoin that I'll post a review of his book on the German Amazon site, which I didn't do yet because I'm lazy. So go and buy his book, it's good. Jim Rickards liked my talk (I guess the translators did a good job too then) and asked if he can forward journalists to me because they keep asking him about Bitcoin and he's not a specialist on it. He also told me that his debate with Micky Malka about Bitcoin from earlier this year has been misinterpreted. He's not anti-bitcoin, he was just taking the anti- side of the debate because that's how a debate is supposed to work. I attempted to explain to him that some of the points he brought up are being addressed, and that it differs from country to country. I mentioned the taxation guide prepared by Trace Mayer and Bill Rounds, among other things. Jim seems like a smart and pragmatic guy. At a pre-conference dinner I also met Ivan Svejna, a libertarian-leaning member of the Slovak parliament. He was skeptical about Bitcoin, but luckily I had Bitbills and Casascius coins with me to "show" bitcoin, so he took a picture of them (Rickards also saw the coins and bills).

Now I'm in a hostel in Amsterdam where I was at European Bitcoin Conference 2013. I had a presentation about economic myths and Bitcoin. The slides (in English) are available for download, the recording will be put up by the organisers later. Today Eli Sklar couldn't make it for his presentation so Moe arranged an impromptu economics panel, where I was with Tuur Demeester (Macrotrends newsletter), Johann Gevers (Monetas/OpenTransactions) and Vitalik Buterin (Bitcoin Magazine). Both were a very enjoyable experience with participation of the audience and I thank you for your feedback.

During the conference, I met some old friends, like molecular and Dominik, Jorge Timon from the Freicoin project (we were actually able to clarify some of our positions better to each other after having a sort of flamewar in August at the linkedin Bitcoin group), Hakim Mamoni, slush, Tamas Blummer from Bits of Proof, Patrick van Zuijlen, Meni Rosenfeld, Gary Rowe, Dmitry and many others (if I forgot to mention you, complain and I'll add you to the list). There were also some which I either met for the first time or spoke to for the first time even though we saw each other at previous conferences. I spoke with Tony Gallippi of BitPay, Charlie Lee (Litecoin/Coinbase), Ron Gross from Bitblu, Tomer Kantor's (he's making a documentary), Jörg Platzer (ROOM77) and many others. Thank you Moe, Dmitry and the rest of the organisers, thank to all the panelists and of course all attendees. I always look forward to yet another Bitcoin conference.

I had the very pleasant surprise of meeting Konrad S. Graf in person, a fellow Austrian researcher interested in Bitcoin and we spoke at length about many of the facets of the Austrian School and praxeology. There was a funny scene where Konrad and n8rwJeTt8TrrLKPa55eU (I always forget his real name, sorry) were talking about the Austrian school and Konrad asked me if I read The Ethics of Money Production. I said that I read it twice, he laughed and said he read it twice too and told n8rwJeTt8TrrLKPa55eU that he should "witness this historical moment" and it's unlikely to ever happen that people like this are at the same place.

I also had a great experience meeting the inventor of hashcash, Adam Back (also, one of the few people who were in contact with Satoshi before he published his paper). Among other interesting things he told me his experience with DigiCash. DigiCash was a predecessor of Bitcoin in the early 90s. It was also a cryptographic currency that from economic point of view was a pseudo-commodity, like Bitcoin. And people did start to use it in trades, such as for t-shirts. There were no fiat-exchanges and no real time price. Adam said he just mimicked the approximate ratios that others were using, and traded t-shirts for DigiCash. The experiment however was shut down by the Dutch regulators and since then, cryptocash enthusiasts knew that you can't have a centralised server. Based on his description, I'm hesitant to classify DigiCash as "medium of exchange" or "liquid", but it appears to have become a good even though it was a completely virtual "thing" without non-monetary uses. So Bitcoin wasn't even the first wannabe-money to overcome the first step. Rather, Bitcoin was the first one to manage to overcome all the obstacles to become a medium of exchange, and to resist the regulators' attempt to shut it down for a significant amount of time. One thing Adam recollected that I found funny was that after Bitcoin launched, Satoshi emailed him again and Adam wasn't able to get excited because "we already know that it can work". Adam also doesn't want to own any Bitcoins and got "angry" when people used the bitcointip reddit bot to send him Bitcoins anyway (maybe he was joking, I'm not sure).

Next week I'm in Atlanta at the Crypto-Currency Con 2013, I have a presentation about sound money. I try to create a new presentation for each conference I go to, so look forward to it. See you there.


  1. Hi Peter I was searching for your email address and came across your blog entry which mentioned our fun lunch discussion. I want to clarify where I was maybe ambiguous.

    After Satoshi published his paper I contented myself with understanding the technical proposal of bitcoin, and the clever dynamic difficulty solution to inflation control. In earlier cryptocurrency research we had grappled with moore's law inflation, or alternatively strong deflation (from capped supply) while we were asking almost the right question we did not see the dynamic difficulty solution, which is a key missing feature to create engineered mathematically enforced production rate of mined digital scarcity. Actually the target inflation function I had had in mind was flat, inflation adjusted and pegged to USD, and there was weak distributed version of that in the way hashcash is used for anti-spam. But bitcoin does not take exchange rate as an input to the inflation control function and so cant achieve pegging either. The mining supply function can not take an external price feed as input without breaking the decentralization requirement.

    Why I did not mine bitcoins in jan 2009: while intellectually the dynamic difficulty was very interesting and a tour de force from Satoshi, there were costs - bitcoin network scalability was not ideal because of the broadcast model, and it lacked most of the privacy features of the existing crypto ecash systems, and still was unable to provide inflation control vs existing currencies, so I was still hoping for the discovery of more efficient solutions, with better features and so continued to work on other cryptocurrency avenues. I was also thinking bitcoin was a 1 in a
    million chance that it could bootstrap to a non-toy value. So I did not download, nor mine at that time unlike Hal Finney, who had developed RPOW, and apparently did very well from short early stage experimentation. So despite inventing the mining function that bitcoin uses, and spending a lot of research effort over perhaps 5 years on and off with others like Wei Dai, Hal Finney, Nick Szabo and a cast of dozens including anonymous contributors (one of who may have been Satoshi) in trying to figure out how to design a decentralized ecash system using hashcash as a mining function, I didnt wake up until years later when it was clearly obvious that bitcoin had long bootstrapped, at which point it was impossible to make money via mining. I do plan to buy in and maintain a bitcion position for the mid-term (probably I should give up on hoping for a dip and just buy and hold).

    The reddit thing was funny because I did not want to appear to be "begging" for bitcoins, by replying (the guy said "if Adam posts here I'll give him his first bitcoins"), and I thought I was safe that he couldnt give me any as I did not have a bitcoin address published. But it turns out you can give people bitcoins on reddit without the recipient having an address so he had the last laugh.

    I should clarify about digicash that it was that the startup company went bankrupt that made the coins evaporate, not the regulator. The regulator story was third hand and more like the regulator expressed displeasure to the company for running a demo even without a banking interface, which I was speculating would be more because of the user bootstrap experiment, than running a demo server with a promised fixed supply of 1 million betabucks.

    Unlike bitcoins chaum coins have no private key so their value is not securely transferable or even easily provable due to potential for rampant double spending without the bank server. So that reinforced the lesson that relying on a central party for issuance and double spend protection would be problematic and motivated the research I mentioned above. Monetas/opentransactions offchain model also draws in a different way from that lesson and provides enough signed receipts for the users to reconstruct the server double-spend db as I understand it.


    1. Thanks for the clarification Adam, I will probably contact you during further historical research if you don't mind. I think both the precursors of Bitcoin and the early days of Bitcoin are a very interesting period.

      What I find fascinating is that apparently noone knew in advance which mix of properties is best from economic point of view. And even now, Bitcoin still baffles economists. Years after the bootstrap phase is over, I still hear from everywhere that it can't happen :-)