Are Bitcoin Bubbles Predictable? Combining a Generalized ...

Calculating the value of Moon tokens using Metcalfe's Law

I have seen a few posts here with users wondering what the price of Moon tokens on this sub are worth, and while they're "technically" not worth anything, I thought it would be fun coming up with an estimate as to how much each token is roughly worth. To do this, I measured using a metric called "Metcalfe's Law". Metcalfe's Law states that the value of a network is n log(n) of the number of participants within the network.
For the calculations and statistics I'm using here, I'm getting my information from bitinfocharts.com. I figured to start with measuring this metric through the number of active users on this subreddit. For these metrics, I think it is fair to take the statistics of the last week into consideration, so that there are no outliers in this data set. Since these tokens are technically on Ethereum, that means I will be using some Ethereum statistics in this to get as accurate results as possible.
Now for determining the active number of users on the network, I took the top post for this entire week (which has 3,200 upvotes + 300 comments), and assumed an engagement rate of 2.5% (This is the average engagement rates of posts on social media). Using this, the number of active users in the sub can be calculated to be ~140,000. Using this figure, and entering it in the equation v = n log(n), we get a network value of ~720,500.
With this value in mind, we have to multiply it by some metric, so for this figure, I decided to multiply it by the median transaction value for Ethereum (7 day SMA). Though there are no available current metrics for median transaction value, the last SMA value for median transaction value is $0.013. I chose the median transaction value because unlike Ethereum, Moons aren't used for wealth transfer or large transactions. Otherwise, I would take the average transaction value into consideration. Multiplying this, the total market cap of Moon tokens is $9,365.95. This gives each token a value of ~$0.000605 per token. Looking at these metrics, this means the user who currently earned the most moons this month earned ~$28.52.
Just to show you how accurate this metric is, I'm going to compare it using the active addresses of some of the top coins, and the average transaction value (since other currencies ARE used for wealth transfer) and compare it to the real market cap of these coins:
Coin Market Cap Metcalfe's Law Market Cap
Bitcoin ~$174,000,000,000 ~$125,850,000,000
Ethereum ~$25,955,000,000 ~$1,188,000,000
Bitcoin Cash ~$4,425,000,000 ~$3,230,000,000
Bitcoin SV ~$3,280,000,000 ~$10,560,000
Litecoin ~$2,860,000,000 ~$1,380,000,000
* I think mainly the only reason there is a discrepancy for Ethereum is partly because it's not a currency intended for wealth transfer, but is more focused on creating dApps, and developing DeFi
submitted by 1MightBeAPenguin to CryptoCurrency [link] [comments]

Want to start fresh after the crypto crash? Here is a comprehensive guide on how to invest and prosper over the long term.

Well its happened, the crypto market just experienced the worst crash since 2014, the bubble has burst. The idiocy of newbies FOMO-ing into anything with low nominal value lead to endless twitter timelines like this, and now nobody has any idea where the market settles. What do you do now?
In the following weeks it will be a good time to rethink your investment approach and how you arrive at your decisions. Just buying whatever is shilled on Twitter or Reddit and jumping from one crypto to another isn't going to work like it did these last two months.
The good news is that we're finally back closer and closer to our long term moving average which is much more healthy for entrants, the bad news is that the fear might continue compounding if outstanding issues are not dealt with. Tether is the big concern for me personally for reasons I've stated many times, but some relief in the short term may come if the SEC and CFTC meeting on February 6th goes well. Nobody really knows where the bottom is but I think we're now past the "irrational exhuberance" stage and we're entering a period of more serious inspection where cryptos will actually have to prove themselves as useful. I suspect hype artists like CryptoNick and John McAfee will fall out of favor.
But perhaps most importantly use this as a learning experience, don't try to point fingers now. The type of dumb behavior that people were engaging in that was rewarded in a bull market (chasing pumps, going all in on a shillcoin, following hype..etc) could only ever lead to what we are experiencing now. Just like so many people jumped on the crypto bandwagon during the bull run, they will just as quickly jump on whatever bandwagon is to be used to blame for the deflation of the bubble. Nobody who pumped money into garbage without any use case will accept that they themselves with their own investing behavior were the real reason for the gross overvaluation of most cryptocurrencies, and the inevitable crash.
So if you're looking for a fresh start after the massacre (or just want to get in now), here is a guide:

Part A: Making a Investment Strategy

This is your money, put some effort into investing it with an actual strategy. Some simple yet essential advice that should apply to everyone, regardless of individual strategy:
  1. Slow down and research each crypto that you're buying for at least a week.
  2. Don't buy something just because it has risen.
  3. Don't exit a position just because it has declined.
  4. Invest only as much as you can afford to lose.
  5. Prepare enter and exit strategies in advance.
First take some time to think about your ROI target, set your hold periods for each position and how much you are actually ready to risk losing.
ROI targets
A lot of young investors who are in crypto have unrealistic expectations about returns and risk. A lot of them have never invested in any other type of financial asset, and hence many seem to consider a 5-10% ROI in a month to be unexciting.
But its important to temper your hype and realize why we had this exponential growth in the last year and how unlikely it is that we see 10x returns in the next year. What we saw recently was Greater Fool Theory in action. Those unexciting returns of 5-10% a month are much more of the norm, and much more healthy for an alternative investment class.
You can think about setting a target in terms of the market ROI over a relevant holding period and then add or decrease based on your own risk profile.
Example: Calculating a 2 year ROI target
Lets say you want to hold for 2 years now, how could you set a realistic target to strive for? You could look at a historical 2 year return as a base, preferably during a period similar to what we're facing now. Now that we had a major correction, I think we can look at the two year period starting in 2015 after we had the 2014 crash. To calculate a 2 year CAGR starting in 2015:
Year Total Crypto Market Cap
Jan 1, 2015: $5.5 billion
Jan 1, 2017: $18 billion
Compounded annual growth return (CAGR): [(18/5.5)1/2]-1 = 81%
This annual return rate of 81% comes out to about 4.9% compounded monthly. This may not sound exciting to the lambo moon crowd, but it will keep you grounded in reality. You can aim for a higher return (say 2x of that 81% rate) if you choose to take on more risky propositions. I can't tell you what return target you should set for yourself, but just make sure its not depended on you needing to achieve continual near vertical parabolic price action in small cap shillcoins because that isn't sustainable.
Once you have a target you can construct your risk profile (low risk vs. high risk category coins) in your portfolio based on your target.
Risk Management
Everything you buy in crypto is risky, but it still helps to think of these 3 risk categories:
How much risk should you take on? That depends on your own life situation for one, but also it should be proportional to how much expertise you have in both financial analysis and technology.
The general starting point I would recommend is:
Some more core principles on risk management to consider:
You can think of each crypto having a risk factor that is the summation of the general crypto market risk (Rm), but also its own inherent risk specific to its own goals (Ri).
Rt = Rm +Ri
The market risk is something you cannot avoid, it is essentially the risk that is carried by the entire market over things like regulations. What you can minimize though the Ri, the specific risks with your crypto. That will depend on the team composition, geographic risks (for example Chinese coins like NEO carry regulatory risks specific to China), competition within the space and likelihood of adoption and other factors, which I'll describe in Part 2: Crypto Picking Methodology.
Portfolio Allocation
Along with thinking about your portfolio in terms of risk categories described above, I really find it helpful to think about the segments you are in. OnChainFX has some segment categorization but I generally like to bring it down to:
Think about your "Circle of Competence", your body of knowledge that allows you to evaluate an investment. Your ability to properly judge risk and potential is going to largely correlated to your understanding of the subject matter. If you don't know anything about how supply chains functions, how can you competently judge whether VeChain or WaltonChain will achieve adoption? If you don't understand anything about the tech when you read the Cardano paper, are you really able to determine how likely it is to be adopted?
Consider the historic correlations between your holdings. Generally when Bitcoin pumps, altcoins dump but at what rate depends on the coin. When Bitcoin goes sideways we tend to see pumping in altcoins, while when Bitcoin goes down, everything goes down.
You should diversify but really shouldn't be in much more than around 12 cryptos, because you simply don't have enough competency to accurately access the risk across every segment and for every type of crypto you come across. If you have over 20 different cryptos in your portfolio you should probably think about consolidating to a few sectors you understand well.

Part B: Crypto Picking Methodology (Due Dilligence)

Do you struggle on how to fundamentally analyze cryptocurrencies? Here is a 3-step methodology to follow to perform your due dilligence:

Step 1: Filtering and Research

There is so much out there that you can get overwhelmed. The best way to start is to think back to your own portfolio allocation strategy and what you would like to get more off. For example in my view enterprise-focused blockchain solutions will be important in the next few years, and so I look to create a list of various cryptos that are in that segment.
Upfolio has brief descriptions of the top 100 cryptos and is filterable by categories, for example you can click the "Enterprise" category and you have a neat list of VEN, FCT, WTC...etc.
Once you have a list of potential candidates, its time to read about them:
  • Critically evaluate the website. If it's a cocktail of nonsensical buzzwords, if its unprofessional and poorly made, stay away. Always look for a roadmap, compare to what was actually delivered so far. Always check the team, try to find them on LinkedIn and what they did in the past.
  • Read the whitepaper or business development plan. You should fully understand how this crypto functions and how its trying to create value. If there is no use case or if the use case does not require or benefit from a blockchain, move on.
  • Check the blockchain explorer. How is the token distribution across accounts? Are the big accounts selling? Try to figure out who the whales are (not always easy!) and what the foundation/founder account is based on the initial allocation.
  • Look at the Github repos, does it look empty or is there plenty of activity?
  • Search out the subreddit and look at a few Medium or Steem blogs about the coin. How "shilly" is the community, and how much engagement is there between developer and the community?
  • I would also go through the BitcoinTalk thread and Twitter mentions, judge both the length and quality of the discussion.
You can actually filter out a lot of scams and bad investments by simply keeping your eye out on the following red flags:
  • allocations that give way too much to the founder
  • guaranteed promises of returns (Bitcooonnneeeect!)
  • vague whitepapers filled with buzzwords
  • vague timelines and no clear use case
  • Github with no useful code and sparse activity
  • a team that is difficult to find information on

Step 2: Passing a potential pick through a checklist

Once you feel fairly confident that a pick is worth analyzing further, run them through a standardized checklist of questions. This is one I use, you can add other questions yourself:
Crypto Analysis Checklist
What is the problem or transactional inefficiency the coin is trying to solve?
What is the Dev Team like? What is their track record? How are they funded, organized?
How big is the market they're targeting?
Who is their competition and what does it do better?
What is the roadmap they created and how well have they kept to it?
What current product exists?
How does the token/coin actually derive value for the holder? Is there a staking mechanism or is it transactional?
Is there any new tech, and is it informational or governance based?
Can it be easily copied?
What are the weaknesses or problems with this crypto?
The last question is the most important.
This is where the riskiness of your crypto is evaluated, the Ri I talked about above. Here you should be able to accurate place the crypto into one of the three risk categories. I also like to run through this checklist of blockchain benefits and consider which specific properties of the blockchain are being used by the specific crypto to provide some increased utility over the current transactional method:
Benefits of Cryptocurrency
Decentralization - no need for a third party to agree or validate transactions.
Transparency and trust - As blockchain are shared, everyone can see what transactions occur. Useful for something like an online casino.
Immutability - It is extremely difficult to change a transaction once its been put onto a blockchain
Distributed availability - The system is spread on thousands of nodes on a P2P network, so its difficult to take the system down.
Security - cryptographically secured transactions provide integrity
Simplification and consolidation - a blockchain can serve as a shared ledger in industries where multiple entities previously kept their own data sources
Quicker Settlement - In the financial industry when we're dealing with post-trade settlement, a blockchain can drastically increase the speed of verification
Cost - in some cases avoiding a third party verification would drastically reduce costs.

Step 3: Create a valuation model

You don't need to get into full modeling or have a financial background. Even a simple model that just tries to derive a valuation through relative terms will put you above most crypto investors. Some simple valuation methods that anyone can do:
Probablistic Scenario Valuation
This is all about thinking of scenarios and probability, a helpful exercise in itself. For example: Bill Miller, a prominent value investor, wrote a probabilistic valuation case for Bitcoin in 2015. He looked at two possible scenarios for probabalistic valuation:
  1. becoming a store-of-value equal to gold (a $6.4 trillion value), with a .25% probability of occurring
  2. replacing payment processors like VISA, MasterCard, etc. (a $350 million dollar value) with a 2.5% probability
Combining those scenarios would give you the total expected market cap: (0.25% x 6.4 trillion) + (2.5% x 350 million). Divide this by the outstanding supply and you have your valuation.
Metcalfe's Law
Metcalfe's Law which states that the value of a network is proportional to the square of the number of connected users of the system (n2). So you can compare various currencies based on their market cap and square of active users or traffic. We can alter this to crypto by thinking about it in terms of both users and transactions:
For example, compare the Coinbase pairs:
Metric Bitoin Ethereum Litecoin
Market Cap $152 Billion $93 Billion $7.3 Billion
Daily Transactions (last 24hrs) 249,851 1,051,427 70,397
Active Addresses (Peak 1Yr) 1,132,000 1,035,000 514,000
Metcalfe Ratio (Transactions Based) 2.43 0.08 1.47
Metcalfe Ratio (Address Based) 0.12 0.09 0.03
Generally the higher the ratio, the higher the valuation given for each address/transaction.
Market Cap to Industry comparisons
Another easy one is simply looking at the total market for the industry that the coin is supposedly targeting and comparing it to the market cap of the coin. Think of the market cap not only with circulating supply like its shown on CMC but including total supply. For example the total supply for Dentacoin is 1,841,395,638,392, and when multiplied by its price in early January we get a market cap that is actually higher than the entire industry it aims to disrupt: Dentistry.
More complex valuation models
If you would like to get into more fleshed out models with Excel, I highly recommend Chris Burniske's blog about using Quantity Theory of Money to build an equivalent of a DCF analysis for crypto.
Here is an Excel file example of OMG done by Nodar Janashia using Chris' model .
You should create multiple scenarios with multiple assumptions, both positive and negative. Have a base scenario and then moderately optimistic/pessimistic and highly optimistic/pessimistic scenario.
Personally I like to see at least a 50% upward potential before investing from my moderately pessimistic scenario, but you can set your own safety margin.
The real beneficial thing about modelling isn't even the price or valuation comparisons it spits out, but that it forces you to think about why the coin has value and what your own assumption about the future are. For example the discount rate you apply to the net present utility formula drastically affects the valuation, and it reflects your own assumptions of how risky the crypto is. What exactly would be a reasonable discount rate? What about the digital economy you are assuming for the coin, what levers affects its size and adoption and how likely are your assumptions to come true? You'll be a drastically more intelligent investor if you think about the fundamental variables that give your coin the market cap you think it should hold.

Summing it up

The time for lambo psychosis is over. But that's no reason to feel down, this is a new day and what many were waiting for. I've put together in one place here how to construct a portfolio allocation (taking into consideration risk and return targets), and how to go through a systematic crypto picking method. I'm won't tell you what to buy, you should always decide that for yourself and DYOR. But as long as you follow a rational and thorough methodology (feel free to modify anything I said above to suit your own needs) you will feel pretty good about your investments, even in times like these.
Edit: Also get a crypto prediction ferret. You won't regret it.
submitted by arsonbunny to CryptoCurrency [link] [comments]

Bitcoin Original: Reinstate Satoshi's original 32MB max blocksize. If actual blocks grow 54% per year (and price grows 1.54^2 = 2.37x per year - Metcalfe's Law), then in 8 years we'd have 32MB blocks, 100 txns/sec, 1 BTC = 1 million USD - 100% on-chain P2P cash, without SegWit/Lightning or Unlimited

TL;DR
Details
(1) The current observed rates of increase in available network bandwidth (which went up 70% last year) should easily be able to support actual blocksizes increasing at the modest, slightly lower rate of only 54% per year.
Recent data shows that the "provisioned bandwidth" actually available on the Bitcoin network increased 70% in the past year.
If this 70% yearly increase in available bandwidth continues for the next 8 years, then actual blocksizes could easily increase at the slightly lower rate of 54% per year.
This would mean that in 8 years, actual blocksizes would be quite reasonable at about 1.548 = 32MB:
Hacking, Distributed/State of the Bitcoin Network: "In other words, the provisioned bandwidth of a typical full node is now 1.7X of what it was in 2016. The network overall is 70% faster compared to last year."
https://np.reddit.com/btc/comments/5u85im/hacking_distributedstate_of_the_bitcoin_network/
http://hackingdistributed.com/2017/02/15/state-of-the-bitcoin-network/
Reinstating Satoshi's original 32MB "max blocksize" for the next 8 years or so would effectively be similar to the 1MB "max blocksize" which Bitcoin used for the previous 8 years: simply a "ceiling" which doesn't really get in the way, while preventing any "unreasonably" large blocks from being produced.
As we know, for most of the past 8 years, actual blocksizes have always been far below the "max blocksize" of 1MB. This is because miners have always set their own blocksize (below the official "max blocksize") - in order to maximize their profits, while avoiding "orphan" blocks.
This setting of blocksizes on the part of miners would simply continue "as-is" if we reinstated Satoshi's original 32MB "max blocksize" - with actual blocksizes continuing to grow gradually (still far below the 32MB "max blocksize" ceilng), and without introducing any new (risky, untested) "game theory" or economics - avoiding lots of worries and controversies, and bringing the community together around "Bitcoin Original".
So, simply reinstating Satoshi's original 32MB "max blocksize" would have many advantages:
  • It would keep fees low (so users would be happy);
  • It would support much higher prices (so miners would be happy) - as explained in section (2) below;
  • It would avoid the need for any any possibly controversial changes such as:
    • SegWit/Lightning (the hack of making all UTXOs "anyone-can-spend" necessitated by Blockstream's insistence on using a selfish and dangerous "soft fork", the centrally planned and questionable, arbitrary discount of 1-versus-4 for certain transactions); and
    • Bitcon Unlimited (the newly introduced parameters for Excessive Block "EB" / Acceptance Depth "AD").
(2) Bitcoin blocksize growth of 54% per year would correlate (under Metcalfe's Law) to Bitcoin price growth of around 1.542 = 2.37x per year - or 2.378 = 1000x higher price - ie 1 BTC = 1 million USDollars after 8 years.
The observed, empirical data suggests that Bitcoin does indeed obey "Metcalfe's Law" - which states that the value of a network is roughly proportional to the square of the number of transactions.
In other words, Bitcoin price has corresponded to the square of Bitcoin transactions (which is basically the same thing as the blocksize) for most of the past 8 years.
Historical footnote:
Bitcoin price started to dip slightly below Metcalfe's Law since late 2014 - when the privately held, central-banker-funded off-chain scaling company Blockstream was founded by (now) CEO Adam Back u/adam3us and CTO Greg Maxwell - two people who have historically demonstrated an extremely poor understanding of the economics of Bitcoin, leading to a very polarizing effect on the community.
Since that time, Blockstream launched a massive propaganda campaign, funded by $76 million in fiat from central bankers who would go bankrupt if Bitcoin succeeded, and exploiting censorship on r\bitcoin, attacking the on-chain scaling which Satoshi originally planned for Bitcoin.
Legend states that Einstein once said that the tragedy of humanity is that we don't understand exponential growth.
A lot of people might think that it's crazy to claim that 1 bitcoin could actually be worth 1 million dollars in just 8 years.
But a Bitcoin price of 1 million dollars would actually require "only" a 1000x increase in 8 years. Of course, that still might sound crazy to some people.
But let's break it down by year.
What we want to calculate is the "8th root" of 1000 - or 10001/8. That will give us the desired "annual growth rate" that we need, in order for the price to increase by 1000x after a total of 8 years.
If "you do the math" - which you can easily perform with a calculator or with Excel - you'll see that:
  • 54% annual actual blocksize growth for 8 years would give 1.548 = 1.54 * 1.54 * 1.54 * 1.54 * 1.54 * 1.54 * 1.54 * 1.54 = 32MB blocksize after 8 years
  • Metcalfe's Law (where Bitcoin price corresponds to the square of Bitcoin transactions or volume / blocksize) would give 1.542 = 2.37 - ie, 54% bigger blocks (higher volume or more transaction) each year could support about 2.37 higher price each year.
  • 2.37x annual price growth for 8 years would be 2.378 = 2.37 * 2.37 * 2.37 * 2.37 * 2.37 * 2.37 * 2.37 * 2.37 = 1000 - giving a price of 1 BTC = 1 million USDollars if the price increases an average of 2.37x per year for 8 years, starting from 1 BTC = 1000 USD now.
So, even though initially it might seem crazy to think that we could get to 1 BTC = 1 million USDollars in 8 years, it's actually not that far-fetched at all - based on:
  • some simple math,
  • the observed available bandwidth (already increasing at 70% per year), and
  • the increasing fragility and failures of many "legacy" debt-backed national fiat currencies and payment systems.
Does Metcalfe's Law hold for Bitcoin?
The past 8 years of data suggest that Metcalfe's Law really does hold for Bitcoin - you can check out some of the graphs here:
https://imgur.com/jLnrOuK
https://i.redd.it/kvjwzcuce3ay.png
https://cdn-images-1.medium.com/max/800/1*22ix0l4oBDJ3agoLzVtUgQ.gif
(3) Satoshi's original 32MB "max blocksize" would provide an ultra-simple, ultra-safe, non-controversial approach which perhaps everyone could agree on: Bitcoin's original promise of "p2p electronic cash", 100% on-chain, eventually worth 1 BTC = 1 million dollars.
This could all be done using only the whitepaper - eg, no need for possibly "controversial" changes like SegWit/Lightning, Bitcoin Unlimited, etc.
As we know, the Bitcoin community has been fighting a lot lately - mainly about various controversial scaling proposals.
Some people are worried about SegWit, because:
  • It's actually not much of a scaling proposal - it would only give 1.7MB blocks, and only if everyone adopts it, and based on some fancy, questionable blocksize or new "block weight" accounting;
  • It would be implemented as an overly complicated and anti-democratic "soft" fork - depriving people of their right to vote via a much simpler and safer "hard" fork, and adding massive and unnecessary "technical debt" to Bitcoin's codebase (for example, dangerously making all UTXOs "anyone-can-spend", making future upgrades much more difficult - but giving long-term "job security" to Core/Blockstream devs);
  • It would require rewriting (and testing!) thousands of lines of code for existing wallets, exchanges and businesses;
  • It would introduce an arbitrary 1-to-4 "discount" favoring some kinds of transactions over others.
And some people are worried about Lightning, because:
  • There is no decentralized (p2p) routing in Lightning, so Lightning would be a terrible step backwards to the "bad old days" of centralized, censorable hubs or "crypto banks";
  • Your funds "locked" in a Lightning channel could be stolen if you don't constantly monitor them;
  • Lighting would steal fees from miners, and make on-chain p2p transactions prohibitively expensive, basically destroying Satoshi's p2p network, and turning it into SWIFT.
And some people are worried about Bitcoin Unlimited, because:
  • Bitcoin Unlimited extends the notion of Nakamoto Consensus to the blocksize itself, introducing the new parameters EB (Excess Blocksize) and AD (Acceptance Depth);
  • Bitcoin Unlimited has a new, smaller dev team.
(Note: Out of all the current scaling proposals available, I support Bitcoin Unlimited - because its extension of Nakamoto Consensus to include the blocksize has been shown to work, and because Bitcoin Unlimited is actually already coded and running on about 25% of the network.)
It is normal for reasonable people to have the above "concerns"!
But what if we could get to 1 BTC = 1 million USDollars - without introducing any controversial new changes or discounts or consensus rules or game theory?
What if we could get to 1 BTC = 1 million USDollars using just the whitepaper itself - by simply reinstating Satoshi's original 32MB "max blocksize"?
(4) We can easily reach "million-dollar bitcoin" by gradually and safely growing blocks to 32MB - Satoshi's original "max blocksize" - without changing anything else in the system!
If we simply reinstate "Bitcoin Original" (Satoshi's original 32MB blocksize), then we could avoid all the above "controversial" changes to Bitcoin - and the following 8-year scenario would be quite realistic:
  • Actual blocksizes growing modestly at 54% per year - well within the 70% increase in available "provisioned bandwidth" which we actually happened last year
  • This would give us a reasonable, totally feasible blocksize of 1.548 = 32MB ... after 8 years.
  • Bitcoin price growing at 2.37x per year, or a total increase of 2.378 = 1000x over the next 8 years - which is similar to what happened during the previous 8 years, when the price went from under 1 USDollars to over 1000 USDollars.
  • This would give us a possible Bitcoin price of 1 BTC = 1 million USDollars after 8 years.
  • There would still be plenty of decentralization - plenty of fully-validating nodes and mining nodes), because:
    • The Cornell study showed that 90% of nodes could already handle 4MB blocks - and that was several years ago (so we could already handle blocks even bigger than 4MB now).
    • 70% yearly increase in available bandwidth, combined with a mere 54% yearly increase in used bandwidth (plus new "block compression" technologies such as XThin and Compact Blocks) mean that nearly all existing nodes could easily handle 32MB blocks after 8 years; and
    • The "economic incentives" to run a node would be strong if the price were steadily rising to 1 BTC = 1 million USDollars
    • This would give a total market cap of 20 trillion USDollars after about 8 years - comparable to the total "money" in the world which some estimates put at around 82 trillion USDollars.
So maybe we should consider the idea of reinstating Satoshi's Original Bitcoin with its 32MB blocksize - using just the whitepaper and avoiding controversial changes - so we could re-unite the community to get to "million-dollar bitcoin" (and 20 trillion dollar market cap) in as little as 8 years.
submitted by ydtm to btc [link] [comments]

u/guysir was getting downvoted in this thread for constantly asking "Can you explain why someone would have the desire for Bitcoin to die?" So I put together a couple of pointers to help him (and others like him) to wake up and smell the coffee.

TL;DR:
If you just want a 3-minute (NSFW) video which explains why certain rich assholes don't want you to have nice things, here goes:
George Carlin - The big club (NSFW!!!)
https://www.youtube.com/watch?v=cKUaqFzZLxU
Reference:
u/guysir has been asking a lot of questions like this:
Can you explain why [they] would have the desire for Bitcoin to die?
Edit: I like how I'm being downvoted for simply asking a question.
~ u/guysir
https://np.reddit.com/btc/comments/6qjw0o/small_blockers_want_even_smaller_blocks_o_o/dkxz7t3/?context=2
etc etc etc...
Below are some introductory lessons to help u/guysir grow up and face the reality of how the world actually works.
Lesson 1: Money doesn't grow on trees. Nor does it get mined from the ground very much anymore, as gold and silver. (Correction because I was half-asleep when I wrote that: Gold and silver still do get mined quite a bit of course - but most people don't use them day-to-day as money.) And gold and silver prices are probably heavily manipulated (suppressed) these days anyways - in order to prevent the value of fiat currencies (such as the USD, EUR, GBP, YEN) from collapsing.
So, where does money come from, in the modern world?
Bankers print unlimited supplies of money out of thin air (which they then give to their buddies).
That may sound somewhat surprising to someone who hasn't ever sat down and examined how the world actually works - but basically, it's the reality we do live in.
Exercise 1: Put on your thinking cap now for 30 seconds and try to imagine what your life would be like if you could "print money out of thin air" (and give it to your buddies).
OK, your 30 seconds are up.
Hopefully you realized that being able to "print money out of thin air" (and give it to your buddies) would give you immense power - correct?
This was just a simple exercise, and of course the politics and economics of the world as a whole are much more complicated - but hopefully at this point you have managed to finally grasp one basic concept:
The ability to print money (and give it to your buddies) confers great power.
So, as the saying goes: "Money makes the world go around."
And some lucky people (bankers) have arrogated to themselves the right to print money (which they then give to their buddies).
These buddies of theirs constitute a kind of exclusive club of mega-rich people who control all the essentials which you need to survive: mainly housing, education, healthcare.
Notice how the prices of these essentials are always going through the roof - while your salary stays pretty much stagnant.
And notice how you never have enough cash to buy these things outright using the little bit of cash money that you actually have.
So these people also control one other thing you need in life - credit.
Credit is actually just "money that you have to buy" (at a gigantic markup, called "interest") from those same mega-rich people in that "club", who happen to be lucky enough to be buddies with the bankers who "print up money out of thin air".
It's a very exclusive club, which runs the world - and you ain't in it.
Extracurricular Activity 1: Watch this short video by George Carlin for a vivid explanation of this "club" which you ain't in:
George Carlin - The big club (NSFW!!!)
https://www.youtube.com/watch?v=cKUaqFzZLxU
Lesson 2: Bitcoin is "peer-to-peer electronic cash". One of the most important aspects of it is that there will only be 21 million bitcoins (or 21 trillion "bits" - where there are a million "bits" in 1 bitcoin).
Many people believe that one of the main reasons Satoshi designed Bitcoin this way (with a cap of 21 million bitcoins) was to take away the power of the bankers and their buddies to keep running the world by printing up money.
Exercise 2: Read as much as you can of the Bitcoin whitepaper, and the Bitcoin wiki. Since this is about economics, you can skip over the technical stuff about how this whole thing was programmed in C++ - and just focus on how it works at the level of economics.
https://en.bitcoin.it/wiki/Main_Page
https://www.bitcoin.com/bitcoin.pdf
Another good site to read about the economic aspects of Bitcoin is Nakamoto Institute:
http://nakamotoinstitute.org/
Again, you can skip the articles about C++ programming - and just focus on articles dealing with the economic (and social, and political) aspects of having a form of money which an exclusive club of rich bankers and their buddies can't simply print up and use to control your life.
Extracurricular Activity 2: Read (or watch a video) about The Creature from Jekyll Island or about the Federal Reserve - which explains how the current banking system in a powerful country (the USA) really works:
https://duckduckgo.com/?q=creature+jekyll+island&t=hb&ia=web
https://www.youtube.com/results?search_query=crature+from+jekyll+island
https://www.youtube.com/results?search_query=federal+reserve+conspiracy
Or, alternatively, read up on topics like the petrodollar, quantitative easing, fractional reserve, ZIRP and NIRP, the Austrian school of economics - to start understanding some of the more advanced topics of how a certain exclusive club of bankers arrogate to themselves the right to print money out of thin air (which they then hand out to their buddies, who then use this power to control your access to all the expensive essentials in life).
Yes, there's a lot of tinfoil or Illuminati stuff in there which could be just delusional paranoia - but there's also a lot of cold hard facts about where money comes from. And it doesn't come from trees - or out of the ground - instead, it just comes from bankers typing in numbers on a keyboard, and then handing out this freshly-printed money to their friends - who then use this "fiat" to control you.
Lesson 3: Do a search on this subreddit for "AXA" to learn more about this one particular company.
https://np.reddit.com/btc/search?q=axa&restrict_sr=on&sort=relevance&t=all
You will see that AXA isn't just any old insurance company or financial firm - it actually happens to be the second-most-connected financial company in the world.
Who owns the world? (1) Barclays, (2) AXA, (3) State Street Bank. (Infographic in German - but you can understand it without knowing much German: "Wem gehört die Welt?" = "Who owns the world?") AXA is the #2 company with the most economic poweconnections in the world. And AXA owns Blockstream.
https://np.reddit.com/btc/comments/5btu02/who_owns_the_world_1_barclays_2_axa_3_state/
In addition, AXA is heavily involved in derivatives - in fact, it is the insurance company most heavily involved with derivatives:
If Bitcoin becomes a major currency, then tens of trillions of dollars on the "legacy ledger of fantasy fiat" will evaporate, destroying AXA, whose CEO is head of the Bilderbergers. This is the real reason why AXA bought Blockstream: to artificially suppress Bitcoin volume and price with 1MB blocks.
https://np.reddit.com/btc/comments/4r2pw5/if_bitcoin_becomes_a_major_currency_then_tens_of/?ref=search_posts
Lesson 4: How do debt-based fiat currencies (and derivatives) work? And how could companies that depend on such "assets" (such as AXA) be negatively affected by Bitcoin?
Derivatives are basically the total opposite of Bitcoin, when it comes to something called "counterparty risk" .
Counterparty risk is the possibility that you might not get what's owed to you - because "your money" isn't actually in your hands, it's in someone else's hands, and all you have is a "claim" on what they're holding in their hands: in other words, they have a debt to you (a promise to pay you) - and you only get "your" money if that other "counterparty" actually pays their debt to you, or makes good on their promise to pay you.
Compare that to Bitcoin - which is basically one of the only "counterparty-free" assets in the world. If you have a bitcoin (ie, if you control your own private key), then you're not dependent on anybody to pay you. You already are holding your own "cash".
You've probably seen company balance sheets, with Assets (including Receivables) and Liabilities (including Payables) and Income and Expenses and Equity. To calculate how much the company "has", you just add up all the positive stuff (Assets and Receivables), then subtract all the negative stuff (Liabilities and Payables), and the difference is what the company "has": its Equity. (The Income and Expense accounts are just temporary accounts used for incoming and outgoing cash flows.) But a lot of what the company "has" also could involve "counterparties" - other entities who (in the future) will (hopefully) come through and pay what they promised to pay.
So there is risk here. Risk of not getting paid. Risk of breach of contract. Risk of credit default. Because most of these "assets" are not "counterparty-free". Your "net worth" on paper might be just that: on paper. In reality (if the people who promised to pay you end up never paying you), then your "net worth" could actually turn out to be much less than what it says "on paper".
Derivatives are just another layer built on top of that: they're basically "bets" about whether someone is actually going to get paid or not. (In fact, one of the most important types of derivatives are Credit Default Swaps - or CDOs - which are used to place "bets" on whether someone is going to default on their debts.)
So, a company like AXA (which is heavily involved in derivativs) is technically "rich" - but only "on paper". In reality, like most major financial firms, if you just looked at what they actually have "on hand", they'd probably literally be bankrupt.
This may sound shocking, but many economic experts have stated that a majority of the major financial firms around the world (including most major banks, and most major insurance firms such as AXA) are actually bankrupt - if you just look at the reality of what they actually have "on hand" (and not the "fantasy" of what they have "on paper").
So, in addition to the ability to print money out of thin air, there is this other strange aspect to the world's current financial system: many companies (mainly finance companies) would be considered bankrupt if viewed strictly in terms of what they have "on hand" ... but they're are able to parade around acting like they're mega-rich, based on what they have "on paper" (most of which is debt-based or derivatives-based).
Bitcoin coin is a major threat to the existing power system based on debt and dervatives - which AXA is at the absolute center of
So, the people who are supposedly "powerful", who run our world - their power comes from two sources:
  • Their ability to print up money out of thin air;
  • Debt-based and derivatives-based numbers on paper.
Bitcoin threatens the first item above.
And the global financial crisis which started in 2008 threatens the second item above.
In fact, Bitcoin itself also probably threatens the second item above too.
This is because as Bitcoin becomes worth more and more, those debt-based and derivatives-based numbers on paper become worth less and less, in relative terms.
And if the current financial crisis becomes acute again (like it did when another "systemically important" insurance company / derivatives "playa" went under: AIG)...
...then a lot of those numbers on balance sheets will get wiped out, written off - because people aren't paying up
...and so companies (including companies like AXA - in fact especially companies like AXA) might go belly up
...because they don't actually have any real money "on hand" - all they have is debt-based and derivatives-based numbers on paper.
So nearly all of the world's major banks and insurance companies - especially AXA - are on a mad, mad merry-go-round of debt and derivatives.
They're like someone with no cash, living on an almost-maxxed-out credit card - desperately hoping that the banks will lend give them more money (a/k/a "credit" - a/k/a debt), and terrified that the counterparties who owe them money will actually turn out to be in the same boat that they are: ie, bankrupt, deadbeats.
It's actually less like a merry-go-round, and more like a game of musical chairs: and nearly all the major banks and financial companies are terrified of what will happen if/when the music stops, and they're not able to scramble to find a chair - especially AXA.
AXA is the "second-most-connected" financial company in the world
AXA also has more derivatives than any other insurance company in the world - which means they're basically flat-broke, totally dependent on their "counterparties" in this "web of debt".
And derivatives aren't just some minor part of the world financial system. Actually, there is currently around 1.2 quadrillion dollars in derivatives - so derivatives are by far the biggest part of the world financial system.
Here's an infographic to give you an idea:
http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/
You'll notice that Bitcoin is also included on that infographic.
Maybe you look at it and think: Well, Bitcoin is so small, why would they be worried about it?
But size isn't everything.
Remember that (unlike nearly every other asset on that infographic) - bitcoin is "counterparty-free". (Also gold and silver are "counterparty-free".)
So gold, silver and bitcoin are a lot more "independent" than all the other so-called "assets" on that infographic. In fact, it wouldn't be much of a stretch to say that gold, silver and bitcoin are the only totally real assets on that infographic - and the rest of those assets are to some degree fake (since they could evaporate at any minute - unlike gold, silver and bitcoin, where your ownership is totally guaranteed).
Also, due to the "law of reversion to mean", something small on that infographic basically has only one direction it can go: towards getting bigger. We say that Bitcoin has a lot of "upside" for growth.
And something gigantic on that infographic also has one direction it can go: towards getting smaller. We say that derivatives have a lot of downside - derivatives might be in a bubble, or due for a crash.
And one way that could easily happen would be for billions of dollars (or trillions of dollars) to flow into Bitcoin - while flowing out of the other asset classes on that infographic.
Of course, in order for trillions of dollars to flow into Bitcoin...
We're gonna need a bigger blocksize.
And that's actually basically all we'd probably need - the software already runs fine, and (despite the propaganda from Blockstream and r\bitcoin), the network / hardware / infrastructure / bandwidth can already handle blocksizes of 4MB-8MB - so with things like Moore's law working in tandem with Metcalfe's law, it is quite reaonable to assume that in 8-10 years (after the next two Bitcoin "halvings") it is quite possible for 1 bitcoin to be worth 1 million US Dollars.
I did some rough growth projections here showing how feasible this actually is:
Bitcoin Original: Reinstate Satoshi's original 32MB max blocksize. If actual blocks grow 54% per year (and price grows 1.542 = 2.37x per year - Metcalfe's Law), then in 8 years we'd have 32MB blocks, 100 txns/sec, 1 BTC = 1 million USD - 100% on-chain P2P cash, without SegWit/Lightning or Unlimited
https://np.reddit.com/btc/comments/5uljaf/bitcoin_original_reinstate_satoshis_original_32mb/
So Bitcoin (with bigger blocks - not under the control of Blockstream or AXA) could be a serious competitor - or a threat - or a safe haven - or an "inversely correlated" asset class - versus all the other asset classes on that infographic.
Bitcoin is an alternative
Bitcoin is an alternative - an option people might turn to, if they decide to abandon the other options on that infographic.
So AXA - whose wealth and power depends on heavily on the derivatives shown in that infographic - might want to either see Bitcoin fail, or suppress Bitcoin, or eliminate it as an alternative, or simply control it somehow - just to make sure it doesn't "eat their lunch".
Remember that one of the tactics used by oppressors is to spread propaganda to brainwash you into giving up hope and believing that "There Is No Alternative".
Bitcoin is an alternative to the current messed-up financial system (which helps prop up bankrupt companies like AXA) - so for that reason alone it's enough for a company like AXA to want to eliminate or suppress or at least control Bitcoin. Not just by buying up some bitcoins - but by paying the devs who write the code that determines the blocksize which ultimately affects the price.
"Bitcoin users unaffected."
If/when the music stops in the game of debt- and derivatives-backed musical chairs that makes the world go 'round, some of the "systemically important" financial firms will be exposed as being bankrupt - and it is very, very likely that one of those firms could be AXA (just like AIG in 2008).
In all honesty, I have to admit that it's still not totally clear to me (or maybe to anyone) precisely how Bitcoin will ultimately impact this whole "web of debt". After all, this is the first time the world has ever had a digital, counterparty-free asset like Bitcoin. (Gold and silver are also counterparty-free - but they're not digital, so it's harder to store them and move them around.)
But one basic fact is certain: Bitcoin is really not a part of this whole "web of debt". Bitcoin stands quite outside this whole "web of debt". Bitcoin is "inversely correlated" to this whole "web of debt".
Bitcoin is an alternative.
Voice and Exit
If you feel like you don't have a voice / vote in the system, it's good to know that you can exit the system.
https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty
Balaji Srinivasan (founder of 21.co) on Voice and Exit
https://www.youtube.com/watch?v=cOubCHLXT6A
Can we ever really know what AXA might be up to with Bitcoin?
Probably not - because it is unlikely that they would ever tell us.
But, we can make some rational guesses.
On some level, a lot of people whose wealth and power come from this whole "web of debt" are probably just reasoning as follows:
  • If/when this whole "web of debt" goes down, Bitcoin goes up. (This is already pretty much an established fact: money flees to "safe havens" like gold, silver and bitcoin when "traditional" investments go down.)
  • If/when Bitcoin goes up, then the importance and power (and credibility) of this whole "web of debt" goes down. (This makes sense: being counterparty-free, bitcoin is obviously a safer investment - and so it's worth more - and so all those other debt-based and derivatives-based investments become worth less, as bitcoin becomes worth more.)
  • If Bitcoin goes down (or totally goes away), then this whole "web of debt" will probably be able to hang on for a while longer. (This also be more of just just a conjecture - but it seems quite reasonable.)
Maybe they just want to keep you trapped in their system - by destroying (or suppressing) the alternative (Bitcoin) which gives you a chance to exit their system.
Some more posts about AXA and what they might be up to:
Anyways, there's a bunch of articles on btc about AXA and what they might be up to with Bitcoin:
https://np.reddit.com/btc/search?q=axa&restrict_sr=on
Finally, if you need some extra help dispelling the quaint notion that the people who run the world are honest and transparent and helpful, then the following two (admittedly highly conjectural) posts might help spell things out a bit more explicitly for you:
Blockstream may be just another Embrace-Extend-Extinguish strategy.
https://np.reddit.com/btc/comments/3y8o9c/is_the_real_power_behind_blockstream_straussian/
The owners of Blockstream are spending $75 million to do a "controlled demolition" of Bitcoin by manipulating the Core devs & the Chinese miners. This is cheap compared to the $ trillions spent on the wars on Iraq & Libya - who also defied the Fed / PetroDollar / BIS private central banking cartel.
https://np.reddit.com/btc/comments/48vhn0/the_owners_of_blockstream_are_spending_75_million/
Sorry I don't have any more time right now to "school" you further on this subject.
Ideally, learning should be a self-driven process anyways - once someone helps you get started.
Some advice
Finally, if I may give you some parting advice.
If you want to be truly respected on these forums, you're probably going to have to stop going around acting like such a doe-eyed innocent little pollyanna.
It is assumed that most people here already pretty much know the harsh reality of how the world works, and are trying to use Bitcoin as a way to not get screwed over by this harsh reality.
So some of the more informed people around here might not have much patience with you (or trust in you) if you don't even understand the basic principles outlined above, namely:
  1. Our planet is being run by an exclusive club of rich assholes who have immense power, because we "allow" them to print out money (which they then hand out to their buddies, not to us - basically enslaving us).
  2. Bitcoin was designed (many believe) to help fix this dire situation.
  3. The ancien régime (those people who up till now who have been running the world, due to their ability to print money) might not like Bitcoin for this reason, and might try to do something to stop it - and they might not tell you why they're doing it - and they might not even tell you that they are doing it in the first place!
Sorry to be such a curmudgeon, but pollyannas like you tend to get on my nerves after a while - not least because it seems to me that one of the factors which allows those rich assholes to continue to stay in power and run the world is because so many uninformed credulous people like you either can't or won't just wake up and open your goddamn eyes and see how you're getting fucked over by this whole "web of debt" based around that exclusive "club" of rich assholes who get free money which the bankers are simply printing up out of thin air.
So, 99% of people in the world are living lives of quiet desperation and oppression, becoming poorer and poorer - while the rich keep getting richer and richer (with all that money they keep printing out of thin air - which by the way, if you do the math, ends up making your money worth less) - and now there are finally some serious attempts at revolution or change afoot, to try to fix some of this mess - and you've just wandered in to a meeting where some of these people struggling for change are making plans, and you basically keep going around asking "What are you guys so worked up about?"
Maybe if you also realized that you are saying the exact same thing that the oppressors are always saying (basically some variation of "Nothing to see here, move on!") - then maybe that will provide another hint to you as to why some people have been less-than-totally-welcoming of your non-stop naïve-sounding questions.
Every subreddit has a topic - plus certain assumptions
For comparison: Would you wander around on a subreddit about fitness or weightlifting constantly asking: "Why do you want to get in shape?"? (Or maybe here's an even better comparison: Would you wander around on a subreddit for some oppressed group, and keep asking "Why would anyone be oppressing you?"?)
There are certain "givens" which are assumed on a subreddit - and one of the "givens" for a lot of people on this subreddit is that the current monetary regime running the world is not working for most people (or: it is oppressing most people), and so we need something better. (Also another one of the "givens" is that r\bitcoin is censoring everyone's posts - and that Blockstream is damaging Bitcoin.)
Nobody is forcing you to get into fitness or weightlifting - and nobody is forcing you to get into Bitcoin. Maybe you think your physique is already fine the way it is, so you don't see the point of fitness or bodybuilding - and maybe you think that VISA and PayPal and JPMorganChase and Wells Fargo and the Fed and the ECB or whatever are fine for you, so you don't see the point of Bitcoin. (Or maybe you were born a millionaire so you don't feel financially oppressed.) You're free to get involved or not get involved. Most people who are here are involved for some particular reason. And whatever that reason may be, it usually tends to involve using Bitcoin as it was designed in the whitepaper - in order to improve their lives. And part of this also means actually using Bitcoin as it was designed in the whitepaper - free of any interference from companies like Blockstream - or their financial backers AXA - who might not really want us to be able to use Bitcoin the way it was designed in the whitepaper.
In particular, it has been quite obvious for years to people on btc that the actions of r\bitcoin and Blockstream have been damaging to Bitcoin (whatever their actual motives may be - which we may ultimately never even be able to find out since they're probably never going to actually tell us) - but meanwhile we've had to fight tooth and nail to get a vast brainwashed army of pollyannas - a lot of whom quite frankly sound a lot like you - to understand that Satoshi did not design Bitcoin to work like this:
Every Core supporter wants to run their own node. Apparently to help banks settle transactions, instead of their own transactions.
https://np.reddit.com/btc/comments/6qgy7s/every_core_supporter_wants_to_run_their_own_node/
Satoshi designed Bitcoin to work like this:
Bitcoin Original: Reinstate Satoshi's original 32MB max blocksize. If actual blocks grow 54% per year (and price grows 1.542 = 2.37x per year - Metcalfe's Law), then in 8 years we'd have 32MB blocks, 100 txns/sec, 1 BTC = 1 million USD - 100% on-chain P2P cash, without SegWit/Lightning or Unlimited
https://np.reddit.com/btc/comments/5uljaf/bitcoin_original_reinstate_satoshis_original_32mb/
We all have our own reasons for being here.
So hopefully that gives you some background regarding why many people are here on this subreddit in the first place, and what some of our goals and desires are.
We want to use Bitcoin - and we don't want the bankers funding Blockstream or the censors silencing r\bitcoin to get in our way.
We understand that Bitcoin is a disruptive technology which could be liberating and empowering for many of us in various ways.
We are realistic about the fact (ie, we take it as a "given") that certain powerful individuals or institutions might not want us to be empowered and liberated like this (maybe because their power depends on our enslavement).
And so we allow for the possibility that certain powerful individuals or institutions might be trying to stop us - and that they might not even have the courtesy to inform us that they are trying to stop us.
I should of course clarify that these are ultimately really only my reasons for being on this forum.
Other people may have their own reasons - some the same as me, and some different from me - and so I can only speak for myself.
It is important for all of us - me, you and everyone else - to have a clear understanding of why we are here.
In particular, if you - u/guysir - ever felt like giving people a brief explanation of why you are here - then that might help people understand why you keep asking the kind of questions you keep asking.
Why people are rejecting Blockstream's heavily modified version of Bitcoin - and sticking with Satoshi's original version of Bitcoin (now called Bitcoin Cash or BCC)
The above reasons are why many of us will not use AXA-owned Blockstream's Bitcoin.
We want to continue using Satoshi's original Bitcoin, now being renamed Bitcoin Cash (ticker: BCC, or BCH) - because we want to continue to enjoy the benefits of:
submitted by ydtm to btc [link] [comments]

The Case for an Extreme ETH Mispricing

The format of this post has been modified to be more reddit friendly. Apologies for any momentum lost.
This piece was written in collaboration with u/beerchicken8. He deserves a massive amount of credit and our thought experiment could not have been generated without him.
We wrote this piece to remind the community and new investors that we are incredibly early to this investment, and also to demonstrate that ETH is massively undervalued even if viewed as a network utility token. We meant for this to be as simple, yet impactful as possible. We are not in the practice of writing academic papers, but the narrative is clearly demonstrated.
all data is accurate to May 22, 2017
A Crude Valuation of ETH
Pundits and the media will look at the recent price graph and will likely tell you that cryptocurrencies are in a bubble. Sure the recent price action looks aggressive and may appear unsustainable, but it is hardly a bubble. In fact, it is likely that ETH is significantly undervalued.
ETH Price Graph
Crypto skeptics attempt to value bitcoin or ETH using conventional stock market metrics like P/E ratio or by comparing market capitalizations of crypto versus blue chip companies. These metrics do not fairly translate to cryptocurrencies. We can improve on that.
Metcalfe's Law Image Description
A close friend of mine stumbled across Metcalfe’s Law in an effort to properly value the market price of ETH, the cryptocurrency of ethereum. We can think of ETH as a demand-driven digital asset, since it is converted to gas to execute the smart contracts on the blockchain. It provides a vital network function: incentivizing miners to secure the blockchain. Therefore we should attempt to value ETH by attempting to value the ethereum network itself. We can use the daily transactions as our tool.
Metcalfe’s Law aims to value the network effects of communication technologies like the Internet or social networking. The premise is that the value of a telecommunications network is proportional to the square of the number of connected users of the system.
To determine a fair market price of ETH, we can compare the ethereum network transactions squared (or the network value) versus the market cap of ethereum.
In the following chart, we chose to graph the log of our inputs for a better visualization of the correlation.
Log graph of Transaction2 and Marketcap
The scale is misleading, but when we look back at the ETH market cap and see that it fell below the network valuation around the time of the DAO hack. The market cap languished as the ETH price suffered from a lack of investor confidence. But as investors licked their wounds and Bitcoin maximalists cheered, the ethereum transactions have steadily increased; they even outpaced the price correction. Yet, that was just the log graph. This is the actual Metcalfe’s Law graph demonstrating that network value of ethereum vs the market cap:
Metcalfe's Law for Ethereum
We can see clearly that the market cap is significantly lagging the network effect. Theoretically, the network valuation calculated by transactions squared should equal the market cap.
So here we are. We can conclude ETH appears cheap. But this is probably far from the truth: If the current network value equals the current market cap, we are completely discounting the future growth of the network.
Stock investors will buy stocks on their future earnings and growth potential years in advance. The Tesla stock has outperformed every incumbent metric due to tantalizing growth projections. But Tesla will likely not generate profits for years. In the case of ETH, this growth discount is significant. Not only does it not appear to exist in the price, but we can make 3 safe assumptions to forecast the opportunity for incredible growth:
Also, there are additional factors accelerating the scarcity of ETH:
Further Reading: u/mr_yukon_c touched on some other metrics signalling the strength of Ethereum Network in an excellent post the other day:
https://np.reddit.com/ethtradecomments/6cr75s/current_state_of_the_ethereum_network_extremely/
submitted by pittinout7 to ethtrader [link] [comments]

Have another perspective about Electroneum supply and decimal points! (RE-POST/reformat)

Argument 1: It is wrong that less number of decimals = less supply
Let starts with the background of the debate:
Hypothesis 1: Electroneum (ETN) has less supply than Bitcoin (BTC)
Hypothesis 2: BTC has less supply than ETN
The argument of Hypothesis 1 is that BTC has 8 “decimal points” and ETN only 2 “decimal points” which bring the argument to something like this:
1 satoshi = 0.00000001 BTC
1 mETN = 0.01 ETN
Max supply of BTC is 21 Million, which is equal to 21 * 1014 satoshi.
Max supply of ETN is 21 Billion which is equal to 21 * 1011 mETN.
Which means ETN’s total supply is 1/1000 of BTC’s.
The argument of Hypothesis 2 is that the “decimal points” is just “fractional notation” and it is not significant in the calculation of supply.
Max supply of BTC is 21 Million BTC
Max supply of ETN is 21 Billion ETN
Which means BTC’s total supply is 1/1000 of ETN’s.
At the beginning when Richard Ells explain about the 2 decimal points, I immediately thought: “No, you can’t do that!” “The fraction is insignificant; how can you include that into the calculation of total supply?”
So, for quite a while, just the same as other people I tend to believe Hypothesis 2 is right and this is quite disturbing to think that ETN has this “flaw”.
Then I came to a realization that I am thinking in technical/engineering formula concept and try to forced it into a dynamic currency calculation.
This is a big flaw in hypothesis 2 argument, because we are using Math (as in pure Math calculation) perspective instead of the understanding of how Currency behaves or works.
In Math, the unit of numbers is a standard, where 1 (100) is the lowest denominator, and decimal points are just the “fraction of the unit”, which gives the argument that no matter what is the length of the fraction, 21 Million will still be less than 21 Billion.
But we are not talking/discussing about “just numbers” here, we are talking about a Currency.
Currency has what is called as “circulating denomination unit”, and every currency has the lowest circulating denomination unit. For US Dollar and UK Pound, it is 1 cent or a penny. In Australian Dollar and Canadian Dollar, it is 5 cents (5 cents coin).
So, when we talk about BTC has 8 decimal points and ETN has 2 decimal points, we are not just talking about fraction of unit, we are talking about the “lowest circulating denomination unit” of a currency.
Consider this:
Let say that ETN and BTC mining is getting harder and harder. The lowest unit a miner can earn is 0.01 ETN in Electroneum supply and 0.00000001 BTC in Bitcoin supply (we are not talking about price at the moment, but focus on supply).
With 0.01 as the lowest unit that can be mined in ETN, that means for ETN to reach max supply is 21 Billion/0.01 or 21 * 1011.
With 0.00000001 as the lowest unit that can be mined in BTC, that means for BTC to reach max supply is 21 Million/0.00000001 or 21 * 1014.
Which simply means ETN will reach max supply faster, hence lower supply (or vice versa).
If we are talking about token, then arguably Hypothesis 2 can be right, because tokens are just token; and they are not designed to be a currency, there are significant differences.
Electroneum is designed as a currency and projected to be the “de-facto mass adopted” currency. So, think about it as a currency, NOT token.
Let’s get further into this with some examples of “real” (i.e.: fiat) currencies.
We know that currently US Dollar is one of the most (if not the most) dominant and popular currencies (fiat currencies). At the time of writing, these are the exchange rates of USD (US Dollar) to some other currencies (source: xe.com):
1 IDR (Indonesian Rupiah) = 0.0000736762 USD (US Dollar)
1 USD = 13572.90414000722 IDR
1 VND (Vietnamese Dong) = 0.0000440036 USD (US Dollar)
1 USD = 22725.4133752693 VND
Argument 2: The 2 decimal point in Electroneum is a flaw?
Now, let’s talk about the lowest transactional/circulating denomination unit of USD. It is $0.01 USD, which is represented by a penny or 1 cent coin.
Have you ever heard anyone say: “Hey, because USD lowest denomination unit is $0.01, this doesn’t make sense, this is a flaw. How am I going to exchange 100 IDR to USD? Because based on the exchange rate, 100 IDR is 0.0073762, it is not even 1 cent USD.
The answer is you don’t. People (currency users) behaviour change, and they adjust to it.
Currency is dynamic and involves people’s behaviour, not a static Math numbers.
If you go to Bali (Bali is in Indonesia), the most common lowest denomination unit of IDR in circulation is Rp.500 (IDR). There might be 200, 100, 50 IDR in circulation, but people don’t use them much. I saw some drivers (Taxi or Uber) using 500 IDR as “parking fee” or as “small change”, some “parking operators” even say that 500 IDR is not enough for parking fee, it has to be 1000 or 2000 IDR or even more.
Let say you come back from Bali with 10000 IDR left in your pocket. So, you go to bank to convert 10000 IDR to USD. You will get a weird looking face from the Teller trying to say “Are you serious?”
Why? Because it is not practical or common practice to exchange 10000 IDR to USD (in cash), as it is less than 1 USD (not including fee/commission). They EXPECT you to exchange a much larger amount of IDR.
Argument 3: The 2 decimal point will limit the price of Electroneum to something like $100, so 0.01 ETN will still be $1
Consider this:
I never heard anyone say: “Oh no, this 2 decimal points in USD will limit the price of USD, so 1 USD will never go beyond 100 or 1000 IDR.
The fact is, in the 90’s, 1 USD was around 1000 IDR or maybe even less, and now it is more than 13000 IDR.
How can a 2 decimal points affect the price or limit the price of a currency? I cannot understand the argument.
And this is just a fiat currency, as we all know that crypto currency is more “explosive” in creating price trend.
Borrowing some examples from fiat currency again, does this mean that people will never use calculation that is beyond 2 decimal points (like 3 or more decimal points)?
No, not necessarily, I believe more decimal points (something like 4 decimal points or even finer) are used in calculation of interest, loans, in exchanges, etc. Yet, it doesn’t deny the fact that the circulating denomination unit only has 2 decimal point.
Currency is dynamic, people and businesses will find one way or another to adjust with the price and denomination unit.
For example, in the old days when cash was king, when someone buy something in a shop with price of 80 cents, paid with 1 dollar bill. Then, the owner of the shop realized that he/she runs out of 20 cents coin and other less value coins. The owner of the shop will try to offer candy or chocolate or other cheap items as replacement for the change. The buyer might actually be happy with that because the buyer might appreciate candy or chocolate more than the spare change or coins.
In some payment systems, they mathematically rounded the number to the closest denominator units, like 5 cents or 10 cents.
In term of ETN, if necessary, when the price is skyrocketing. I believe, there will be some options, including creating “sub-currency”, akin to “Dollar coins”. You can buy something in ETN and get the “sub-currency” as a change. The sub-currency can either be pegged to ETN value or not, that can be defined later in the dynamic.
Argument 4: Technology affects the price of currency. Really?
Consider this article or infographic: https://illicittrade.com/infographics/worlds-most-counterfeited-currencies/
US Dollar is considered as the one of the world’s most counterfeited currency.
Then, consider another article: https://www.investopedia.com/financial-edge/0412/the-most-counterfeit-proof-currencies.aspx
“ International Association of Currency Affairs (IACA) holds an awards ceremony for currencies and individuals that have made great leaps in protecting the integrity of currencies and the technologies that go into creating and manufacturing them. In 2011, the IACA voted the Bank of Uganda as the winner of the best new banknote.”
Yet, 1 UGX = 0.000277417 USD. How come? Based on some arguments, that the more advanced the technology a currency has, the more valuable is the currency. Then, it supposed to be 1 USD = 0.000277417 UGX, not the opposite, right?
How about Bitcoin? At the moment, BTC has relatively the least technological advantage to other coins. Then why its price is the top of the chart?
Yes, you don’t want a currency that is very easily counterfeited that it is become “public secret” that everyone can counterfeit the currency at will. But you also don’t need the most secure anti-counterfeit technology to give value to the currency or make the currency as the most valuable currency.
Consider this:
  • US Dollar, EU Euro, Japanese Yen, UK Pound, Australian Dollar, Canadian Dollar and Swiss Franc, why are they perceived as valuable currency to people, investor and trader?
Because they are the most traded currency in the world. I understand there are fundamentals factors affecting the value, but it cannot be denied that people perceived the most traded currencies are more stable and valuable.
“Analyst says 94% of bitcoin's price movement over the past four years can be explained by one equation”.
That equation is about mass adoption or network effect. Put it simply, it shows that the success of Bitcoin and its price are NOT because it is the first, it is the most advanced technologically, it has the most unique features, etc. But because it gets the biggest mass adoption among other crypto currencies, at least for the time being.
  • Currency is dynamic. It involves people and people’s behaviour, not a static Math numbers or Technology features.
  • There are significant differences between crypto that is projected to be just token and the one that is projected to be currency.
When we talk about currency, people give value to currency because of “the fundamentals” value (because currency relates to the fundamentals of a country, policies and its users) and because it is the top traded/used currency in the world.
But when we talk about crypto currency, I think many people agreed it is hard to understand “the fundamentals”, so I believe the easiest to understand the value is how it will be mass adopted. The fundamentals values, I believe, will be easier to see at later stages as they will become more tangible.
These include relationships/partnerships, networks, how it will scale, how the team will keep progressing and keep making improvements (including technological improvements), the progression and manifestation of the planned roadmap, how agile is the team to respond to changes and challenges, and for ETN specifically, is the “ETN Community”. ETN community is a big asset for Electroneum like no other crypto currency has.
So, what’s the deal with 2 decimal points?
At the beginning, I thought this “2 decimal points” can be a drawback for ETN, but now I think it is a brilliant idea. Consider the following advantages of using 2 decimal points for ETN:
  • Easy to understand, human friendly notation.
Why is this important? In order for a currency to be widely adopted, people need to be comfortable enough to use it and understand the transaction quickly and easily. People are already accustomed to 2 decimal points in currency. People mindset are already trained to calculate in cents as in 0.01 and not more decimal points. Thus, this will greatly help mass adoption
  • Businesses’ accounting or business model are setup around this mindset of 2 decimal points or cents of currency.
So, if the business community wants to adopt a crypto currency like ETN, it is “just natural” adoption.
For examples, some little things like, how are you going to invoice customer with a number that has 8 decimal points? It will take longer for the business to adapt and adjust with 8 decimals. It looks like simple thing, but if you try to implement it in the business model, then it can be huge.
Another example, Businesses don’t need to adjust the format in their receipt/docket, because their current format is already 2 decimal points, just change the currency name to ETN, compare this with if the Business has to change the format of the purchase docket/receipt in 8 decimals. I am quite sure it will be quite chaotic in the first few weeks of implementation.
Then how about the data format in the database, reconciliation process, etc, etc. The list can be very long just trying to adapt with 8 decimals.
  • When Electroneum tries to create business partnerships and relationships with other big Enterprise, entity, organisation, network, etc. They don’t need to “overhaul” their system for ETN to be included in their systems.
Thanks to 2 decimal points, which comes natural in every system that uses fiat currency, these integrations can be done faster and more easily.
I think most IT people and developers understand how mind blogging it can be to change whole system just because we need to adapt with 8 decimal points and 2 decimal points at the same time.
The key here is the integration of the systems can be done faster and easier.
  • One of the target of Electroneum is to be adopted by the unbanked people, which means ETN will become one of the main currency for the payment system, which might involves, at least at early stage, features for exchanging between ETN and local currency.
You can see as ETN comes naturally with 2 decimal points, just like other fiat currencies. Integration of payment system and legacy point of sale (POS) systems can be done much easier, because ETN behaves similar to other fiat currency in term of calculation (decimal points).
The only differences (or benefits) are ETN is a crypto currency with faster transaction settlement, cheaper transaction fees, no country boundary (cheaper transfer fees), with no “middle man” like banks, no complicated registration to bank accounts, and has privacy features.
So, Electroneum community and ETN HODLers, we can look forward to the full realization of Electroneum’s potentials in the near future. I got the “feeling” that Electroneum community will play significant roles like in no other crypto currency.
Cheers,
PS: In using some currencies as examples, I am not undermining the currencies or users of the currencies. I have some friends and relatives from some of these countries whom I know are richemuch richer than average people in developed countries (in terms of Dollar wealth). It is just for the sake of example. I hope no one get offended by this.
Disclaimer: I am not affiliated with Electroneum, but I am an ETN ICO investor and HODLer. This is my personal opinion and perspective regarding the matter and NOT to be seen/taken as advise or suggestion in any kind.
submitted by CryptoDeluge to Electroneum [link] [comments]

Revisiting Metacalf

I've had a few people ask me what my take is on Metacalf - which has been floated in the telegram for sometime. I figured I'd break it down easily for us all to see below.
Simply stated, Metacalf theorized that the value of a network is proportional to the number of connected users in it. So more users, means more value. Metacalf put it mathematically as follows:
NV ~ n.n
The Network Value (NV) is proportional to the number of users (n) squared. (n.n)
Or as an equality
NV=k.n.n
k is a constant that holds a bunch of hidden variables, and changes over time. For example, doubling the size of a network of 100 users, will not have the same effect as doubling the size of a network of 50,000 users. Also, doubling the size of the Bitcoin network, will not increase its value in the same way as doubling the size of the Ethereum network. Also, doubling the number of Kin users if it's only a sticker economy, is not the same as doubling the number of Kin users in a fully developed economy.
k is what changes the equation, depending on which network you apply it to, and the maturity of that network.
So how do we figure out the value of k?
k is a funny constant that changes as the network grows, and needs to be evaluated regularly. But very simply put, you need to find two or three price points of the network.
e.g.
Network value with 1,000 users
Network value with 5,000 users
Network value with 10,000 users
From that, you can use this method to calculate k and project the network's value at 50,000 users.
A final note
Metacalf's original law made the assumption that every node is connected to every node in a network, and it tends to overestimate the value of the network looking forward. It has undergone several modifications, with a notable one done by Zipf that changes it from: NV=k.n.n to NV=k.n.ln(n)
further reading
A final final note
Metacalf's law is one of many models that have attempted to predict the value of networks, social networks and crypto-currencies. Like all models, it is prone to mistakes and should be taken as a best guess, and it is more accurate in the short term than the long term.
Also, in a highly speculative environment like crypto, it can also be overshadowed by excessive speculation. For example a crypto network can easily be overvalued by speculators (bitconnect) and it can also be massively undervalued. (crypto j-curve). However, as a network gets more real word users, the effect of speculation decreases substantially, and it reaches a point where speculators have little effect on the price.
submitted by kidwonder to KinFoundation [link] [comments]

Bitcoin Metcalfe's Law Analysis

First would like to credit an article from Willy Woo from September as an inspiration for this analysis. Secondly I'm posting in the spirit of spurring discussion and getting feedback. I'm most definitely not an expert, not giving financial advise, yada yada yada. For God's sakes, if I were an "expert" I'd be sipping brandy, smoking cigars, and having some nice times with my girlfriend in the back of a yacht in Thailand, not posting on reddit in a condo eating mangos.
Anyway, Metcalfe's Law: in short, the value of a network is proportional to the square of the number of participants. This means that as members increase linearly, network value will increase quadratically (not exponentially). A simple way to think of it is a doubling in users increases value 4x.
For this analysis to be valid we have to assume that Bitcoin is fundamentally a network (the "internet of money" as Andreas Antonopoulos calls it), not simply analogous to a commodity, stock, or precious metal, and therefore it's underlying value is tied to the size of it's network.
So how big is the bitcoin network? Alas, there is no way to directly measure the number of Bitcoin users. You can't just count wallets because 1) the vast majority of wallets contain "dust" <0.001 bitcoin and 2) many users own multiple wallets. So the best we can do is find measurable data we think is correlated to the number of users. One set of data that's been suggested is network transactions excluding long chains (currently ~200k transactions/day). There are benefits and drawbacks to using this as I'm sure folks will point out. Let's roll with it.
Taking the current market cap, and dividing it by this transaction value squared should (if Metcalfe's Law holds) produce a proportionality constant that remains roughly consistent over time. I'll call this the Transaction Metcalfe Ratio (TMR). Notice that by the ways it's calculated, a high TMR indicates the price is relatively high given the amount of actual transactions occurring (ie could indicate it's "overvalued" as a network).
When we calculate TMR over the past 5 years you get the following chart:
https://ibb.co/cqfKDF
Two things that stand out: the Metcalfe ratio was relatively high and very volatile during and after the 2013-2014 price run-up.
However when you look at the ratio starting around Q3 2015, it's remained both low and remarkably consistent, settling around 0.5, spiking up here and there occasionally to just above 1. This is an order of magnitude lower than where we were at in 2013. Interesting indeed.
TLDR: Market cap may be holding consistent with Metcalfe's Law for at least a year and a half now. I like brandy.
submitted by Platypodes_Attack to BitcoinMarkets [link] [comments]

The block size debate is really a debate over the origins of value

One debate that has haunted Bitcoin from its beginning is whether individual bitcoins have "intrinsic value", and whether or not they need to.
It's clear to me that bitcoins DO have intrinsic value for the following reasons:
1) Bitcoin is a network with unique and never-before-seen capabilities.
2) As Metcalfe's Law and the n (log)n valuation metric indicate, all networks have "use value" that varies with the number of users/nodes, and that use value can be calculated and quantified rather easily.
3) Individual bitcoins are really "just" a transferable license to access and use the Bitcoin network, granted in limited quantities by a Decentralized Application (DApp). Network use/access is impossible without some fraction of a bitcoin.
4) Thus, if using the network is for any reason useful, then bitcoins have inherent use value. The more useful the network, the higher the value of bitcoins.
Those who believe as I do therefore understand that the value of individual bitcoins comes from the usefulness of the network itself. The larger, more useful, and more used the network is for any number of purposes, the more valuable is the right to access and use it (as Metcalfe's Law and its derivatives would indicate). In short, Bitcoin (the network) must be useful before bitcoins (the unit of account on the network) have any value.
Those who believe as I do ultimately think that Bitcoin and bitcoin owners/miners are best served by EXPANDING ACCESS to the network as quickly as possible by making it as useful for as many things as possible as cheaply as possible. During these early stages of network growth, miners earn their keep from the "miner's reward" given every ten minutes rather than from "transaction fees" that would inhibit network use.
But others believe the exact opposite. They view Bitcoin as a currency rather than a network, and they believe that there is no such thing as, and no need for, "inherent" value in a currency. Currencies have value just...because they do--because humans esteem them for inscrutable or perhaps even irrational purposes.
Those in this camp believe that the Bitcoin network, being nothing more than a means of transferring valued bitcoins between parties, is valuable only because individual bitcoins are valuable.
Failing to recognize that the network itself is valuable only to the extent it is well-used by great numbers of people (as indicated by Metcalfe's Law and its derivatives), and believing that bitcoins can grow in value as currency or a store of value (just because they are esteemed for inscrutable reasons) even if the network is not highly used, this camp seeks to charge a fee for miner services--to charge users a "toll" when they move bitcoins from one place/address on the network to another--even if doing so reduces network usage considerably. In other words, they are against appreciably increasing the transaction block size on the Bitcoin network because they believe that bitcoin can survive and prosper as a special purpose settlement network for only or primarily high value monetary transactions, while other networks can handle everything else (day-to-day transactions, non-monetary use cases, etc.).
Respectfully, I think the assumptions of those opposing the cap are just wrong. First, individual bitcoins are valuable only because and to the extent the network itself is valuable. The more we make it usable for as many purposes as possible, the more valuable it becomes for all. Second, the power of network effects strongly suggest that consciously limiting the usefulness of the bitcoin network--that is, intentionally limiting it to a special purpose settlement network for only high value transactions--is likely to backfire. The "other" network (e.g., Ethereum?) that does things the Bitcoin network declines to do (e.g., small value transactions, non-monetary use cases, etc.), can certainly ALSO do those things that Bitcoin can do. With its value growing with its accelerating usefulness, and with its usefulness over time easily exceeding that of the Bitcoin network (due to additional use cases and lower costs), people will have no reason at all to cling to their bitcoins for limited use in high value transactions. If they use Ethereum or some other altcoin for multiple daily activities, we can't expect them to suddenly switch to Bitcoin every time a transaction exceeds "x" dollars. Network effects make such a scenario damn near impossible.
CONCLUSION: Do everything possible to enhance the value and usability of the Bitcoin network now, including keeping transactions costs to an absolute minimum for as long as humanly possible. All tech startups realize that attempting to "monetize" the network too early is a grave, grave mistake. It's way, way too early for Bitcoin's miners to seek to monetize their services.
submitted by Wefivekings to Bitcoin [link] [comments]

Is anyone else freaked out by this whole blocksize debate? Does anyone else find themself often agreeing with *both* sides - depending on whichever argument you happen to be reading at the moment? And do we need some better algorithms and data structures?

Why do both sides of the debate seem “right” to me?
I know, I know, a healthy debate is healthy and all - and maybe I'm just not used to the tumult and jostling which would be inevitable in a real live open major debate about something as vital as Bitcoin.
And I really do agree with the starry-eyed idealists who say Bitcoin is vital. Imperfect as it may be, it certainly does seem to represent the first real chance we've had in the past few hundred years to try to steer our civilization and our planet away from the dead-ends and disasters which our government-issued debt-based currencies keep dragging us into.
But this particular debate, about the blocksize, doesn't seem to be getting resolved at all.
Pretty much every time I read one of the long-form major arguments contributed by Bitcoin "thinkers" who I've come to respect over the past few years, this weird thing happens: I usually end up finding myself nodding my head and agreeing with whatever particular piece I'm reading!
But that should be impossible - because a lot of these people vehemently disagree!
So how can both sides sound so convincing to me, simply depending on whichever piece I currently happen to be reading?
Does anyone else feel this way? Or am I just a gullible idiot?
Just Do It?
When you first look at it or hear about it, increasing the size seems almost like a no-brainer: The "big-block" supporters say just increase the blocksize to 20 MB or 8 MB, or do some kind of scheduled or calculated regular increment which tries to take into account the capabilities of the infrastructure and the needs of the users. We do have the bandwidth and the memory to at least increase the blocksize now, they say - and we're probably gonna continue to have more bandwidth and memory in order to be able to keep increasing the blocksize for another couple decades - pretty much like everything else computer-based we've seen over the years (some of this stuff is called by names such as "Moore's Law").
On the other hand, whenever the "small-block" supporters warn about the utter catastrophe that a failed hard-fork would mean, I get totally freaked by their possible doomsday scenarios, which seem totally plausible and terrifying - so I end up feeling that the only way I'd want to go with a hard-fork would be if there was some pre-agreed "triggering" mechanism where the fork itself would only actually "switch on" and take effect provided that some "supermajority" of the network (of who? the miners? the full nodes?) had signaled (presumably via some kind of totally reliable p2p trustless software-based voting system?) that they do indeed "pre-agree" to actually adopt the pre-scheduled fork (and thereby avoid any possibility whatsoever of the precious blockchain somehow tragically splitting into two and pretty much killing this cryptocurrency off in its infancy).
So in this "conservative" scenario, I'm talking about wanting at least 95% pre-adoption agreement - not the mere 75% which I recall some proposals call for, which seems like it could easily lead to a 75/25 blockchain split.
But this time, with this long drawn-out blocksize debate, the core devs, and several other important voices who have become prominent opinion shapers over the past few years, can't seem to come to any real agreement on this.
Weird split among the devs
As far as I can see, there's this weird split: Gavin and Mike seem to be the only people among the devs who really want a major blocksize increase - and all the other devs seem to be vehemently against them.
But then on the other hand, the users seem to be overwhelmingly in favor of a major increase.
And there are meta-questions about governance, about about why this didn't come out as a BIP, and what the availability of Bitcoin XT means.
And today or yesterday there was this really cool big-blockian exponential graph based on doubling the blocksize every two years for twenty years, reminding us of the pure mathematical fact that 210 is indeed about 1000 - but not really addressing any of the game-theoretic points raised by the small-blockians. So a lot of the users seem to like it, but when so few devs say anything positive about it, I worry: is this just yet more exponential chart porn?
On the one hand, Gavin's and Mike's blocksize increase proposal initially seemed like a no-brainer to me.
And on the other hand, all the other devs seem to be against them. Which is weird - not what I'd initially expected at all (but maybe I'm just a fool who's seduced by exponential chart porn?).
Look, I don't mean to be rude to any of the core devs, and I don't want to come off like someone wearing a tinfoil hat - but it has to cross people's minds that the powers that be (the Fed and the other central banks and the governments that use their debt-issued money to run this world into a ditch) could very well be much more scared shitless than they're letting on. If we assume that the powers that be are using their usual playbook and tactics, then it could be worth looking at the book "Confessions of an Economic Hitman" by John Perkins, to get an idea of how they might try to attack Bitcoin. So, what I'm saying is, they do have a track record of sending in "experts" to try to derail projects and keep everyone enslaved to the Creature from Jekyll Island. I'm just saying. So, without getting ad hominem - let's just make sure that our ideas can really stand scrutiny on their own - as Nick Szabo says, we need to make sure there is "more computer science, less noise" in this debate.
When Gavin Andresen first came out with the 20 MB thing - I sat back and tried to imagine if I could download 20 MB in 10 minutes (which seems to be one of the basic mathematical and technological constraints here - right?)
I figured, "Yeah, I could download that" - even with my crappy internet connection.
And I guess the telecoms might be nice enough to continue to double our bandwidth every two years for the next couple decades – if we ask them politely?
On the other hand - I think we should be careful about entrusting the financial freedom of the world into the greedy hands of the telecoms companies - given all their shady shenanigans over the past few years in many countries. After decades of the MPAA and the FBI trying to chip away at BitTorrent, lately PirateBay has been hard to access. I would say it's quite likely that certain persons at institutions like JPMorgan and Goldman Sachs and the Fed might be very, very motivated to see Bitcoin fail - so we shouldn't be too sure about scaling plans which depend on the willingness of companies Verizon and AT&T to double our bandwith every two years.
Maybe the real important hardware buildout challenge for a company like 21 (and its allies such as Qualcomm) to take on now would not be "a miner in every toaster" but rather "Google Fiber Download and Upload Speeds in every Country, including China".
I think I've read all the major stuff on the blocksize debate from Gavin Andresen, Mike Hearn, Greg Maxwell, Peter Todd, Adam Back, and Jeff Garzick and several other major contributors - and, oddly enough, all their arguments seem reasonable - heck even Luke-Jr seems reasonable to me on the blocksize debate, and I always thought he was a whackjob overly influenced by superstition and numerology - and now today I'm reading the article by Bram Cohen - the inventor of BitTorrent - and I find myself agreeing with him too!
I say to myself: What's going on with me? How can I possibly agree with all of these guys, if they all have such vehemently opposing viewpoints?
I mean, think back to the glory days of a couple of years ago, when all we were hearing was how this amazing unprecedented grassroots innovation called Bitcoin was going to benefit everyone from all walks of life, all around the world:
...basically the entire human race transacting everything into the blockchain.
(Although let me say that I think that people's focus on ideas like driverless cabs creating realtime fare markets based on supply and demand seems to be setting our sights a bit low as far as Bitcoin's abilities to correct the financial world's capital-misallocation problems which seem to have been made possible by infinite debt-based fiat. I would have hoped that a Bitcoin-based economy would solve much more noble, much more urgent capital-allocation problems than driverless taxicabs creating fare markets or refrigerators ordering milk on the internet of things. I was thinking more along the lines that Bitcoin would finally strangle dead-end debt-based deadly-toxic energy industries like fossil fuels and let profitable clean energy industries like Thorium LFTRs take over - but that's another topic. :=)
Paradoxes in the blocksize debate
Let me summarize the major paradoxes I see here:
(1) Regarding the people (the majority of the core devs) who are against a blocksize increase: Well, the small-blocks arguments do seem kinda weird, and certainly not very "populist", in the sense that: When on earth have end-users ever heard of a computer technology whose capacity didn't grow pretty much exponentially year-on-year? All the cool new technology we've had - from hard drives to RAM to bandwidth - started out pathetically tiny and grew to unimaginably huge over the past few decades - and all our software has in turn gotten massively powerful and big and complex (sometimes bloated) to take advantage of the enormous new capacity available.
But now suddenly, for the first time in the history of technology, we seem to have a majority of the devs, on a major p2p project - saying: "Let's not scale the system up. It could be dangerous. It might break the whole system (if the hard-fork fails)."
I don't know, maybe I'm missing something here, maybe someone else could enlighten me, but I don't think I've ever seen this sort of thing happen in the last few decades of the history of technology - devs arguing against scaling up p2p technology to take advantage of expected growth in infrastructure capacity.
(2) But... on the other hand... the dire warnings of the small-blockians about what could happen if a hard-fork were to fail - wow, they do seem really dire! And these guys are pretty much all heavyweight, experienced programmers and/or game theorists and/or p2p open-source project managers.
I must say, that nearly all of the long-form arguments I've read - as well as many, many of the shorter comments I've read from many users in the threads, whose names I at least have come to more-or-less recognize over the past few months and years on reddit and bitcointalk - have been amazingly impressive in their ability to analyze all aspects of the lifecycle and management of open-source software projects, bringing up lots of serious points which I could never have come up with, and which seem to come from long experience with programming and project management - as well as dealing with economics and human nature (eg, greed - the game-theory stuff).
So a lot of really smart and experienced people with major expertise in various areas ranging from programming to management to game theory to politics to economics have been making some serious, mature, compelling arguments.
But, as I've been saying, the only problem to me is: in many of these cases, these arguments are vehemently in opposition to each other! So I find myself agreeing with pretty much all of them, one by one - which means the end result is just a giant contradiction.
I mean, today we have Bram Cohen, the inventor of BitTorrent, arguing (quite cogently and convincingly to me), that it would be dangerous to increase the blocksize. And this seems to be a guy who would know a few things about scaling out a massive global p2p network - since the protocol which he invented, BitTorrent, is now apparently responsible for like a third of the traffic on the internet (and this despite the long-term concerted efforts of major evil players such as the MPAA and the FBI to shut the whole thing down).
Was the BitTorrent analogy too "glib"?
By the way - I would like to go on a slight tangent here and say that one of the main reasons why I felt so "comfortable" jumping on the Bitcoin train back a few years ago, when I first heard about it and got into it, was the whole rough analogy I saw with BitTorrent.
I remembered the perhaps paradoxical fact that when a torrent is more popular (eg, a major movie release that just came out last week), then it actually becomes faster to download. More people want it, so more people have a few pieces of it, so more people are able to get it from each other. A kind of self-correcting economic feedback loop, where more demand directly leads to more supply.
(BitTorrent manages to pull this off by essentially adding a certain structure to the file being shared, so that it's not simply like an append-only list of 1 MB blocks, but rather more like an random-access or indexed array of 1 MB chunks. Say you're downloading a film which is 700 MB. As soon as your "client" program has downloaded a single 1-MB chunk - say chunk #99 - your "client" program instantly turns into a "server" program as well - offering that chunk #99 to other clients. From my simplistic understanding, I believe the Bitcoin protocol does something similar, to provide a p2p architecture. Hence my - perhaps naïve - assumption that Bitcoin already had the right algorithms / architecture / data structure to scale.)
The efficiency of the BitTorrent network seemed to jive with that "network law" (Metcalfe's Law?) about fax machines. This law states that the more fax machines there are, the more valuable the network of fax machines becomes. Or the value of the network grows on the order of the square of the number of nodes.
This is in contrast with other technology like cars, where the more you have, the worse things get. The more cars there are, the more traffic jams you have, so things start going downhill. I guess this is because highway space is limited - after all, we can't pave over the entire countryside, and we never did get those flying cars we were promised, as David Graeber laments in a recent essay in The Baffler magazine :-)
And regarding the "stress test" supposedly happening right now in the middle of this ongoing blocksize debate, I don't know what worries me more: the fact that it apparently is taking only $5,000 to do a simple kind of DoS on the blockchain - or the fact that there are a few rumors swirling around saying that the unknown company doing the stress test shares the same physical mailing address with a "scam" company?
Or maybe we should just be worried that so much of this debate is happening on a handful of forums which are controlled by some guy named theymos who's already engaged in some pretty "contentious" or "controversial" behavior like blowing a million dollars on writing forum software (I guess he never heard that reddit.com software is open-source)?
So I worry that the great promise of "decentralization" might be more fragile than we originally thought.
Scaling
Anyways, back to Metcalfe's Law: with virtual stuff, like torrents and fax machines, the more the merrier. The more people downloading a given movie, the faster it arrives - and the more people own fax machines, the more valuable the overall fax network.
So I kindof (naïvely?) assumed that Bitcoin, being "virtual" and p2p, would somehow scale up the same magical way BitTorrrent did. I just figured that more people using it would somehow automatically make it stronger and faster.
But now a lot of devs have started talking in terms of the old "scarcity" paradigm, talking about blockspace being a "scarce resource" and talking about "fee markets" - which seems kinda scary, and antithetical to much of the earlier rhetoric we heard about Bitcoin (the stuff about supporting our favorite creators with micropayments, and the stuff about Africans using SMS to send around payments).
Look, when some asshole is in line in front of you at the cash register and he's holding up the line so they can run his credit card to buy a bag of Cheeto's, we tend to get pissed off at the guy - clogging up our expensive global electronic payment infrastructure to make a two-dollar purchase. And that's on a fairly efficient centralized system - and presumably after a year or so, VISA and the guy's bank can delete or compress the transaction in their SQL databases.
Now, correct me if I'm wrong, but if some guy buys a coffee on the blockchain, or if somebody pays an online artist $1.99 for their work - then that transaction, a few bytes or so, has to live on the blockchain forever?
Or is there some "pruning" thing that gets rid of it after a while?
And this could lead to another question: Viewed from the perspective of double-entry bookkeeping, is the blockchain "world-wide ledger" more like the "balance sheet" part of accounting, i.e. a snapshot showing current assets and liabilities? Or is it more like the "cash flow" part of accounting, i.e. a journal showing historical revenues and expenses?
When I think of thousands of machines around the globe having to lug around multiple identical copies of a multi-gigabyte file containing some asshole's coffee purchase forever and ever... I feel like I'm ideologically drifting in one direction (where I'd end up also being against really cool stuff like online micropayments and Africans banking via SMS)... so I don't want to go there.
But on the other hand, when really experienced and battle-tested veterans with major experience in the world of open-souce programming and project management (the "small-blockians") warn of the catastrophic consequences of a possible failed hard-fork, I get freaked out and I wonder if Bitcoin really was destined to be a settlement layer for big transactions.
Could the original programmer(s) possibly weigh in?
And I don't mean to appeal to authority - but heck, where the hell is Satoshi Nakamoto in all this? I do understand that he/she/they would want to maintain absolute anonymity - but on the other hand, I assume SN wants Bitcoin to succeed (both for the future of humanity - or at least for all the bitcoins SN allegedly holds :-) - and I understand there is a way that SN can cryptographically sign a message - and I understand that as the original developer of Bitcoin, SN had some very specific opinions about the blocksize... So I'm kinda wondering of Satoshi could weigh in from time to time. Just to help out a bit. I'm not saying "Show us a sign" like a deity or something - but damn it sure would be fascinating and possibly very helpful if Satoshi gave us his/hetheir 2 satoshis worth at this really confusing juncture.
Are we using our capacity wisely?
I'm not a programming or game-theory whiz, I'm just a casual user who has tried to keep up with technology over the years.
It just seems weird to me that here we have this massive supercomputer (500 times more powerful than the all the supercomputers in the world combined) doing fairly straightforward "embarassingly parallel" number-crunching operations to secure a p2p world-wide ledger called the blockchain to keep track of a measly 2.1 quadrillion tokens spread out among a few billion addresses - and a couple of years ago you had people like Rick Falkvinge saying the blockchain would someday be supporting multi-million-dollar letters of credit for international trade and you had people like Andreas Antonopoulos saying the blockchain would someday allow billions of "unbanked" people to send remittances around the village or around the world dirt-cheap - and now suddenly in June 2015 we're talking about blockspace as a "scarce resource" and talking about "fee markets" and partially centralized, corporate-sponsored "Level 2" vaporware like Lightning Network and some mysterious company is "stess testing" or "DoS-ing" the system by throwing away a measly $5,000 and suddenly it sounds like the whole system could eventually head right back into PayPal and Western Union territory again, in terms of expensive fees.
When I got into Bitcoin, I really was heavily influenced by vague analogies with BitTorrent: I figured everyone would just have tiny little like utorrent-type program running on their machine (ie, Bitcoin-QT or Armory or Mycelium etc.).
I figured that just like anyone can host a their own blog or webserver, anyone would be able to host their own bank.
Yeah, Google and and Mozilla and Twitter and Facebook and WhatsApp did come along and build stuff on top of TCP/IP, so I did expect a bunch of companies to build layers on top of the Bitcoin protocol as well. But I still figured the basic unit of bitcoin client software powering the overall system would be small and personal and affordable and p2p - like a bittorrent client - or at the most, like a cheap server hosting a blog or email server.
And I figured there would be a way at the software level, at the architecture level, at the algorithmic level, at the data structure level - to let the thing scale - if not infinitely, at least fairly massively and gracefully - the same way the BitTorrent network has.
Of course, I do also understand that with BitTorrent, you're sharing a read-only object (eg, a movie) - whereas with Bitcoin, you're achieving distributed trustless consensus and appending it to a write-only (or append-only) database.
So I do understand that the problem which BitTorrent solves is much simpler than the problem which Bitcoin sets out to solve.
But still, it seems that there's got to be a way to make this thing scale. It's p2p and it's got 500 times more computing power than all the supercomputers in the world combined - and so many brilliant and motivated and inspired people want this thing to succeed! And Bitcoin could be our civilization's last chance to steer away from the oncoming debt-based ditch of disaster we seem to be driving into!
It just seems that Bitcoin has got to be able to scale somehow - and all these smart people working together should be able to come up with a solution which pretty much everyone can agree - in advance - will work.
Right? Right?
A (probably irrelevant) tangent on algorithms and architecture and data structures
I'll finally weigh with my personal perspective - although I might be biased due to my background (which is more on the theoretical side of computer science).
My own modest - or perhaps radical - suggestion would be to ask whether we're really looking at all the best possible algorithms and architectures and data structures out there.
From this perspective, I sometimes worry that the overwhelming majority of the great minds working on the programming and game-theory stuff might come from a rather specific, shall we say "von Neumann" or "procedural" or "imperative" school of programming (ie, C and Python and Java programmers).
It seems strange to me that such a cutting-edge and important computer project would have so little participation from the great minds at the other end of the spectrum of programming paradigms - namely, the "functional" and "declarative" and "algebraic" (and co-algebraic!) worlds.
For example, I was struck in particular by statements I've seen here and there (which seemed rather hubristic or lackadaisical to me - for something as important as Bitcoin), that the specification of Bitcoin and the blockchain doesn't really exist in any form other than the reference implementation(s) (in procedural languages such as C or Python?).
Curry-Howard anyone?
I mean, many computer scientists are aware of the Curry-Howard isomorophism, which basically says that the relationship between a theorem and its proof is equivalent to the relationship between a specification and its implementation. In other words, there is a long tradition in mathematics (and in computer programming) of:
And it's not exactly "turtles all the way down" either: a specification is generally simple and compact enough that a good programmer can usually simply visually inspect it to determine if it is indeed "correct" - something which is very difficult, if not impossible, to do with a program written in a procedural, implementation-oriented language such as C or Python or Java.
So I worry that we've got this tradition, from the open-source github C/Java programming tradition, of never actually writing our "specification", and only writing the "implementation". In mission-critical military-grade programming projects (which often use languages like Ada or Maude) this is simply not allowed. It would seem that a project as mission-critical as Bitcoin - which could literally be crucial for humanity's continued survival - should also use this kind of military-grade software development approach.
And I'm not saying rewrite the implementations in these kind of theoretical languages. But it might be helpful if the C/Python/Java programmers in the Bitcoin imperative programming world could build some bridges to the Maude/Haskell/ML programmers of the functional and algebraic programming worlds to see if any kind of useful cross-pollination might take place - between specifications and implementations.
For example, the JavaFAN formal analyzer for multi-threaded Java programs (developed using tools based on the Maude language) was applied to the Remote Agent AI program aboard NASA's Deep Space 1 shuttle, written in Java - and it took only a few minutes using formal mathematical reasoning to detect a potential deadlock which would have occurred years later during the space mission when the damn spacecraft was already way out around Pluto.
And "the Maude-NRL (Naval Research Laboratory) Protocol Analyzer (Maude-NPA) is a tool used to provide security proofs of cryptographic protocols and to search for protocol flaws and cryptosystem attacks."
These are open-source formal reasoning tools developed by DARPA and used by NASA and the US Navy to ensure that program implementations satisfy their specifications. It would be great if some of the people involved in these kinds of projects could contribute to help ensure the security and scalability of Bitcoin.
But there is a wide abyss between the kinds of programmers who use languages like Maude and the kinds of programmers who use languages like C/Python/Java - and it can be really hard to get the two worlds to meet. There is a bit of rapprochement between these language communities in languages which might be considered as being somewhere in the middle, such as Haskell and ML. I just worry that Bitcoin might be turning into being an exclusively C/Python/Java project (with the algorithms and practitioners traditionally of that community), when it could be more advantageous if it also had some people from the functional and algebraic-specification and program-verification community involved as well. The thing is, though: the theoretical practitioners are big on "semantics" - I've heard them say stuff like "Yes but a C / C++ program has no easily identifiable semantics". So to get them involved, you really have to first be able to talk about what your program does (specification) - before proceeding to describe how it does it (implementation). And writing high-level specifications is typically very hard using the syntax and semantics of languages like C and Java and Python - whereas specs are fairly easy to write in Maude - and not only that, they're executable, and you state and verify properties about them - which provides for the kind of debate Nick Szabo was advocating ("more computer science, less noise").
Imagine if we had an executable algebraic specification of Bitcoin in Maude, where we could formally reason about and verify certain crucial game-theoretical properties - rather than merely hand-waving and arguing and deploying and praying.
And so in the theoretical programming community you've got major research on various logics such as Girard's Linear Logic (which is resource-conscious) and Bruni and Montanari's Tile Logic (which enables "pasting" bigger systems together from smaller ones in space and time), and executable algebraic specification languages such as Meseguer's Maude (which would be perfect for game theory modeling, with its functional modules for specifying the deterministic parts of systems and its system modules for specifiying non-deterministic parts of systems, and its parameterized skeletons for sketching out the typical architectures of mobile systems, and its formal reasoning and verification tools and libraries which have been specifically applied to testing and breaking - and fixing - cryptographic protocols).
And somewhat closer to the practical hands-on world, you've got stuff like Google's MapReduce and lots of Big Data database languages developed by Google as well. And yet here we are with a mempool growing dangerously big for RAM on a single machine, and a 20-GB append-only list as our database - and not much debate on practical results from Google's Big Data databases.
(And by the way: maybe I'm totally ignorant for asking this, but I'll ask anyways: why the hell does the mempool have to stay in RAM? Couldn't it work just as well if it were stored temporarily on the hard drive?)
And you've got CalvinDB out of Yale which apparently provides an ACID layer on top of a massively distributed database.
Look, I'm just an armchair follower cheering on these projects. I can barely manage to write a query in SQL, or read through a C or Python or Java program. But I would argue two points here: (1) these languages may be too low-level and "non-formal" for writing and modeling and formally reasoning about and proving properties of mission-critical specifications - and (2) there seem to be some Big Data tools already deployed by institutions such as Google and Yale which support global petabyte-size databases on commodity boxes with nice properties such as near-real-time and ACID - and I sometimes worry that the "core devs" might be failing to review the literature (and reach out to fellow programmers) out there to see if there might be some formal program-verification and practical Big Data tools out there which could be applied to coming up with rock-solid, 100% consensus proposals to handle an issue such as blocksize scaling, which seems to have become much more intractable than many people might have expected.
I mean, the protocol solved the hard stuff: the elliptical-curve stuff and the Byzantine General stuff. How the heck can we be falling down on the comparatively "easier" stuff - like scaling the blocksize?
It just seems like defeatism to say "Well, the blockchain is already 20-30 GB and it's gonna be 20-30 TB ten years from now - and we need 10 Mbs bandwidth now and 10,000 Mbs bandwidth 20 years from - assuming the evil Verizon and AT&T actually give us that - so let's just become a settlement platform and give up on buying coffee or banking the unbanked or doing micropayments, and let's push all that stuff into some corporate-controlled vaporware without even a whitepaper yet."
So you've got Peter Todd doing some possibly brilliant theorizing and extrapolating on the idea of "treechains" - there is a Let's Talk Bitcoin podcast from about a year ago where he sketches the rough outlines of this idea out in a very inspiring, high-level way - although the specifics have yet to be hammered out. And we've got Blockstream also doing some hopeful hand-waving about the Lightning Network.
Things like Peter Todd's treechains - which may be similar to the spark in some devs' eyes called Lightning Network - are examples of the kind of algorithm or architecture which might manage to harness the massive computing power of miners and nodes in such a way that certain kinds of massive and graceful scaling become possible.
It just seems like a kindof tiny dev community working on this stuff.
Being a C or Python or Java programmer should not be a pre-req to being able to help contribute to the specification (and formal reasoning and program verification) for Bitcoin and the blockchain.
XML and UML are crap modeling and specification languages, and C and Java and Python are even worse (as specification languages - although as implementation languages, they are of course fine).
But there are serious modeling and specification languages out there, and they could be very helpful at times like this - where what we're dealing with is questions of modeling and specification (ie, "needs and requirements").
One just doesn't often see the practical, hands-on world of open-source github implementation-level programmers and the academic, theoretical world of specification-level programmers meeting very often. I wish there were some way to get these two worlds to collaborate on Bitcoin.
Maybe a good first step to reach out to the theoretical people would be to provide a modular executable algebraic specification of the Bitcoin protocol in a recognized, military/NASA-grade specification language such as Maude - because that's something the theoretical community can actually wrap their heads around, whereas it's very hard to get them to pay attention to something written only as a C / Python / Java implementation (without an accompanying specification in a formal language).
They can't check whether the program does what it's supposed to do - if you don't provide a formal mathematical definition of what the program is supposed to do.
Specification : Implementation :: Theorem : Proof
You have to remember: the theoretical community is very aware of the Curry-Howard isomorphism. Just like it would be hard to get a mathematician's attention by merely showing them a proof without telling also telling them what theorem the proof is proving - by the same token, it's hard to get the attention of a theoretical computer scientist by merely showing them an implementation without showing them the specification that it implements.
Bitcoin is currently confronted with a mathematical or "computer science" problem: how to secure the network while getting high enough transactional throughput, while staying within the limited RAM, bandwidth and hard drive space limitations of current and future infrastructure.
The problem only becomes a political and economic problem if we give up on trying to solve it as a mathematical and "theoretical computer science" problem.
There should be a plethora of whitepapers out now proposing algorithmic solutions to these scaling issues. Remember, all we have to do is apply the Byzantine General consensus-reaching procedure to a worldwide database which shuffles 2.1 quadrillion tokens among a few billion addresses. The 21 company has emphatically pointed out that racing to compute a hash to add a block is an "embarrassingly parallel" problem - very easy to decompose among cheap, fault-prone, commodity boxes, and recompose into an overall solution - along the lines of Google's highly successful MapReduce.
I guess what I'm really saying is (and I don't mean to be rude here), is that C and Python and Java programmers might not be the best qualified people to develop and formally prove the correctness of (note I do not say: "test", I say "formally prove the correctness of") these kinds of algorithms.
I really believe in the importance of getting the algorithms and architectures right - look at Google Search itself, it uses some pretty brilliant algorithms and architectures (eg, MapReduce, Paxos) which enable it to achieve amazing performance - on pretty crappy commodity hardware. And look at BitTorrent, which is truly p2p, where more demand leads to more supply.
So, in this vein, I will close this lengthy rant with an oddly specific link - which may or may not be able to make some interesting contributions to finding suitable algorithms, architectures and data structures which might help Bitcoin scale massively. I have no idea if this link could be helpful - but given the near-total lack of people from the Haskell and ML and functional worlds in these Bitcoin specification debates, I thought I'd be remiss if I didn't throw this out - just in case there might be something here which could help us channel the massive computing power of the Bitcoin network in such a way as to enable us simply sidestep this kind of desperate debate where both sides seem right because the other side seems wrong.
https://personal.cis.strath.ac.uk/neil.ghani/papers/ghani-calco07
The above paper is about "higher dimensional trees". It uses a bit of category theory (not a whole lot) and a bit of Haskell (again not a lot - just a simple data structure called a Rose tree, which has a wikipedia page) to develop a very expressive and efficient data structure which generalizes from lists to trees to higher dimensions.
I have no idea if this kind of data structure could be applicable to the current scaling mess we apparently are getting bogged down in - I don't have the game-theory skills to figure it out.
I just thought that since the blockchain is like a list, and since there are some tree-like structures which have been grafted on for efficiency (eg Merkle trees) and since many of the futuristic scaling proposals seem to also involve generalizing from list-like structures (eg, the blockchain) to tree-like structures (eg, side-chains and tree-chains)... well, who knows, there might be some nugget of algorithmic or architectural or data-structure inspiration there.
So... TL;DR:
(1) I'm freaked out that this blocksize debate has splintered the community so badly and dragged on so long, with no resolution in sight, and both sides seeming so right (because the other side seems so wrong).
(2) I think Bitcoin could gain immensely by using high-level formal, algebraic and co-algebraic program specification and verification languages (such as Maude including Maude-NPA, Mobile Maude parameterized skeletons, etc.) to specify (and possibly also, to some degree, verify) what Bitcoin does - before translating to low-level implementation languages such as C and Python and Java saying how Bitcoin does it. This would help to communicate and reason about programs with much more mathematical certitude - and possibly obviate the need for many political and economic tradeoffs which currently seem dismally inevitable - and possibly widen the collaboration on this project.
(3) I wonder if there are some Big Data approaches out there (eg, along the lines of Google's MapReduce and BigTable, or Yale's CalvinDB), which could be implemented to allow Bitcoin to scale massively and painlessly - and to satisfy all stakeholders, ranging from millionaires to micropayments, coffee drinkers to the great "unbanked".
submitted by BeYourOwnBank to Bitcoin [link] [comments]

Bitcoin compared with Metcalfe's and Zipf's law

Besides the sun goes up every day, there are few predictable patterns in life. There are systems that follow precise power laws that have to do with the nature of the phenomenon. Bitcoin is such a phenomenon. That is what is not understood. Regulations, pump and dumps, news are almost non a factor. They can momentarily jump the price up and down but BTC then goes back to its trend line or oscillates around it. In average we have been 14 % away from this trend line in both directions with occasional 70 or 80 percent discrepancies (rare events). But even factors of 2 are meaningless when you talk about exponential growth.
The exponential growth is driven by one factor only, not millions. The rate of adoption. Period. In fact there is a strong correlation (R2 = 0.82) between number of users and price. All these things are not understood by too many people, unfortunately. Also the price doesn't grow linearly with the number of users but instead with the power of 1.45 of the number of users. That is nice because for the price to increase 1000 times you need only 140 times the number of users of today. We have about 2 million BTC users.
So 300 million people using BTC is very reasonable. That would bring the price up to 1 million dollars. These are not numbers I made up but I have spent hours studying the data and I have extracted the information from 3.5 years of BTC history. There is no reason why this predictable growth, that has been very smooth and not affected by news or other irrelevant factors, would not continue until saturation that is very far from now.
Look up Geoffrey West, a physicist that has worked on growth patterns of organisms, cities and corporations to understand what I'm talking about: http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and_corporations.html
Here a comparison between Metcalfe's, Zipf's and Bitcoin's law.
https://i.imgur.com/AWEfTjZ.jpg
And a graph of the relationship between transaction per day (excluding popular addresses) and price. https://i.imgur.com/CiOxeBY.jpg
Here the steps used to produce the first chart:
1) Used the empirical data of unique addresses as a function of time.
2) Fitted a logistic model to the data in 1) with only one free variable (number of final users)
3) Fitted with a linear regression model the data points in a log-log graph with price in the y axis and users in the x axis. Derived a power law with a power if 1.45 by measuring the slope.
4) Used this power law and the logistic model to predict the price.
5) Calculated how well the model fits the empirical trend of price vs time and obtained a highly statistical significant value.
6) Plotted as a comparison what one would obtain using Metcalfe's or Zipf's law. They don't fit very well at all. Bitcoin law is in between these two (power of 1.45).
I also used Granger causality to show that there is causation not just correlation between users and price (there is a weak feedback loop in the other direction too but the main direction is more users --- > higher price).
submitted by gsantostasi to Bitcoin [link] [comments]

Why Bitcoin Has Become Such A Popular Cryptocurrency Metcalfe's Law After 40 Years of Ethernet - YouTube Metcalfe's Law and Uber How to value a bitcoin - YouTube $50,000 Bitcoin YES Metcalfe's Law for BITCOIN $1 million ...

Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2). A phone network is a perfect example to illustrate Metcalfe's Law. A single phone really just being an end point in a network called a node. (The name comes from the Latin root of nodus, meaning 'knot'). Obviously, today there are. Like Moore's ... A new study has concluded that Metcalfe’s law may only be applicable to Bitcoin for the long term. In the short term, the researchers found the validity of the law to be “questionable.” Metcalfe’s Law Only Good For The Long TermA new study called Met arXiv:1803.05663v1 [econ.EM] 15 Mar 2018 Are Bitcoin Bubbles Predictable? Combining a Generalized Metcalfe’s Law and the LPPLS Model Spencer Wheatley1∗ , Didier Sornette1,2∗ , Tobias Huber1 , Max Reppen3 , and Robert N. Gantner 1 ETH Zurich, Department of Management, Technology and Economics, Switzerland 2 Swiss Finance Institute, c/o University of Geneva, Switzerland 3 ETH Zurich ... Bitcoin’s correlation with Metcalfe’s law; MA moving average. Ethereum’s correlation with Metcalfe’s law. The analysis undertaken by Clearblocks is not at a level of scientific scrutiny, but they propose a new Price-to-Metcalfe Ratio (PMR), which can operate somewhat similar to a price-to-book ratio in equity analysis. They claim PMR “appears to be a rather strong leading indicator ... Metcalfe’s Law, which states that the value of a network is proportional to the square of the number of its users, applies to bitcoin and ethereum according to a new study published at the journal of Electronic Commerce Research and Applications. The study measured the value of the network based on the price of relevant […]

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Why Bitcoin Has Become Such A Popular Cryptocurrency

Using Metcalfe's Law to calculate John McAfee's Bitcoin price prediction. Will bitcoin reach $50,000? $100,000? $1 million? not impossible Metcalfe's Law After 40 Years of Ethernet - Duration: 18:57. CockrellSchool 9,079 views. 18:57. The Bitcoin Network Effect - Duration: 28:26. ... NEW Bitcoin Price Prediction Here is How BTC Can ... It has the Social network effect. the Metcalfe’s law that says that the value of a network is proportional to the square of the number of users on the network. The Viral Effect: It receives the ... The value of a network may grow as the square of the number of its users, according to Metcalfe's Law, but how does the number of a network's users grow over... Frank Holmes, chairman of HIVE Blockchain Technologies is our special guest, we discuss Metcalfe’s Law and what it says for Bitcoin’s long-term growth. We also gain fresh insights on how ...

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