Steemit logo

Steemit, a fresh breath of hot air

This post is an edited collection of my responses to James Corbett’s presentation on the social bookmarking site Steemit.

A new social bookmarking site, Steemit, has been taking off recently, in libertarian and anarchist circles, promising decentralized, uncontrolled publishing via blockchain technology.  However, on closer analysis, Steemit does not look decentralized at all. It looks like a standard social bookmarking site, with the added feature of paying for tokens to increase your post/comment ranking. It seems like interest groups with deep pockets could easily game the ranking system, moreso than other sites. In fact, this operation seems more like a scheme to sell digital currency than a publishing platform.

As for the blockchain, besides the nice buzzword, I’m not sure what it solves in terms of preventing censorship, besides providing a public cache. This function is performed now by image-hosting sites, private websites, archive.org, as well as the social network platforms themselves. The big problem is discovery and ranking, how people actually communicate and find out about stuff, which Steemit is still very vulnerable to.

It’s very odd that Steemit requires a Facebook or Reddit account to function, with plans to add SMS verification, but no stated plans to remove these restrictions. I’m not sure what permissions they ask for, since I haven’t signed up, but it certainly opens the possibility of those social networks reading your Steemit posts and punishing you on their platform. In any case, it’s a big hint that this is not a decentralized system and is doubly strange because most platforms do not have such a restrictive requirement. A truly decentralized system would not have a spam/fake account problem, except as DDoS, since it would not rely on a central index.

Steemit does not look like any better of a solution than Facebook or Twitter at this point, except to the extent that you trust the people running it more. The links to the User Agreement and Privacy Policy are broken and there is no ownership information about the company on their website. Caution!

growing stages

WANTED: Liberty entrepreneurs

Money is a dirty word in the liberty movement.  Ironic, for a pro-free-market and free trade ideology.  But when theory becomes reality, many recoil at the idea of bloggers doing sales or advertising.  Why?

Spending time to make content or technology means taking time away from other activities, whether business or leisure.  That time has to be compensated.  Yet some act like entitled socialists, expecting this work to be provided for free!

To be fair, some monetization strategies are obnoxious or spammy.  But all that means is we need better monetization options.  Better technologies.  Better feedback and suggestion from audiences of what works and what doesn’t.

For the liberty movement to survive, much less thrive and change the world, it must be economically self-sufficient.  If you can’t feed yourself, you can’t change the world.  If our activities in pursuit of liberty are not profitable, but only financial drains, we will never grow and advance.

We need more business models around advancing liberty.  We need more content, more media platforms, more technologies.  With the fake news media collapsing before our eyes, there has never been a better opportunity than now.  There is so much pent up demand and very little supply.

We need more liberty entrepreneurs.

Not just from an economic perspective, but from a psychological one as well.  It can get depressing focusing only on what the poweful are doing to us.  Who wants to be on a constantly losing team, with a victim mentality?  It’s time we recognize our own power, take responsibility, and become agents of change.

I am working on several media technology projects with a group of liberty-minded developers and creators.  Want to join the effort?  Email me at apollo at apolloslater dot com and let’s get to work!

South Park - La Resistance

“Fake news” hysteria is a huge opportunity

It is an auspicious time for independent media.  The Fake Media’s “fake news” hysteria has capped off this year’s apotheosis of undisguised propaganda.  Now we learn that the US government will directly fund domestic pro-government propaganda in the press and on social media, with $160 million.  Let me explain why this is amazing news for independent media.

The media world has supply and demand, just like any other market.  There is a demand out there for real information and it is up to the media to satisfy that demand.  The more the media avoid this, and publish lies and hoaxes instead, the more business opportunity there is to fill the void.  This is how Fox News became such a cable news powerhouse.  Due to the “fake news” hysteria, the big platforms Facebook, Google, and Twitter are censoring alternative voices.  This creates an opportunity for a Fox News of social media (perhaps many!).

The government’s funding of propaganda reflects a fundamental misunderstanding of media.  It is treating the internet as an “enemy weapons system“.  But media consumption is not a win-lose, zero-sum game.  All this does is crowd out existing journalism and reduces the supply of real information.  But the demand remains the same.  That means there is now an even greater business opportunity for free speech advocates than before.

We have a real, tangible, action plan to dismantle the establishment’s hold on power: Start new media platforms and especially new media technologies.  Let us create independent media content, independent social networks, independent ad networks, independent video sharing, … independent everything!  The opportunities are boundless.  I myself am working with a group on such a project in the media tech space.  If you are interested in learning more about our effort, please email me at apollo at apolloslater dot com.

Vive la resistance!

Facebook groups by political group

Is Facebook censoring right-wing groups?

There’s been a lot of talk recently about Facebook and Twitter censoring conservative and libertarian groups and personalities, such as Milo Yiannopoulos and Lauren Southern.  While this is undoubtedly true in many specific instances, how big of an issue is this overall?

One thing we can look at is the number of left- or right-leaning groups.  I did a quick search for Facebook groups containing popular political keywords.  It seems that the right-wing is much more active, at least measured by number of groups:

Republican 141 Democrat 108
Conservative 178 Progressive 112
Libertarian 103 Socialist 93

Caveats:

  • I used Facebook’s Graph API to conduct searches. You may get different results using the browser or app search.
  • These are only the most popular keywords, but there are many more specific keywords, with more groups.
  • These numbers do not reflect group membership counts or engagement levels. Perhaps that’s a future post!
Bitcoin pipes

Bitcoin’s dubious utility value

Bitcoin fanbois point to bitcoin’s utility as a payment network. But, unlike Visa, holders of bitcoin don’t get any of the mining revenues, so there is no revenue stream on which to value a bitcoin.
 
Participants do need to have bitcoin to transfer funds, but they don’t need to hold it for longer than the transaction itself. Since bitcoin is limited to ~3 transactions per second, and average confirmation times are several hours, depending on network congestion, there is no need for more than a few bitcoin to accomplish all payments across the network. As an example, assuming 1 bitcoin per transaction, 3/sec * 3,600 sec/hr * 3 hr/confirmation = 32,400 bitcoin to execute all payments on the network.
 
Also, since bitcoin can be divided into satoshi, hundreds of millionths of a Bitcoin, there is no need to hold a particular amount of bitcoin to accomplish a transaction. The bitcoin itself just represents the transaction record, not the value of the contract, just as a record in Visa’s database represents the transaction, and is not in and of itself valuable, beyond the market price of the transaction mechanism (about 1%).
 
Even if holders of bitcoin shared in the mining revenues, the competitive mining market produces a flat fee per transaction, not a percentage fee, which allows the transfer of massive fortunes for a tiny fraction of a percent. It would be a much worse value proposition, for investors, than Visa.
 
The fiat price of a bitcoin arises from an artificial restriction on bitcoin supply & mining, and people’s expectation that these restrictions will entice others to buy their bitcoin in the future at a higher price. The “greater fool” theory. But this is separate from bitcoin’s utility as a payment network.
 
It is no different from other speculative phenomena such as Beanie Babies, baseball cards, and other artificially restricted commodities. People misinterpret the restriction as an ipso facto justification for a high price. Once all available cash & credit has poured into the commodity, there are no further buyers, the mania ends, and the price drops to the utility value of the commodity.  In bitcoin’s case, its utility value is close to zero.
Tether collapse scenario hindenberg style

Tether collapse scenario

Current situation with dumb money buying BTC:

  • Tether prints tethers to buy bitcoin
  • BTC-USDT price skyrockets
  • Arbitrage bots buy BTC-USD, because everyone assumes 1 USDT = 1 USD
  • BTC-USD price matches BTC-USDT price
  • Price increase brings in more dumb money USD to buy BTC, skyrocketing price further
  • Arbitrage bots sell BTC for USD, profit
  • Tether sells BTC for USD
  • Tether is now “backed” by USD — can afford to redeem tethers for the small number of people who convert USDT to USD
  • Tether pockets USD, prints more tethers …

What if the flow of dumb money slows down or stops? (due to higher prices, and simply no more mattress cash to dump into BTC)

  • Tether prints tethers to buy bitcoin
  • BTC-USDT price skyrockets
  • Arbitrage bots buy BTC-USD
  • No more dumb money = no more USD arbitrage profit
  • Less arbitrage = increasing gap between BTC-USDT and BTC-USD prices
  • Now there is arbitrage opportunity the other direction
  • Buy BTC-USD, sell BTC-USDT, sell USDT for USD
  • Tether now has to redeem tethers for USD
  • The bigger the gap, the more tethers they have to redeem
  • If they stop printing tethers, the BTC-USDT price collapses
  • If BTC-USDT price collapses, arbitrage bots buy BTC-USDT and sell BTC-USD, further collapsing BTC-USD
  • If they keep printing, the gap widens and they have to redeem more and more tethers for USD
  • At that point, the game is up and Tether will have no incentive to continue redeeming tethers.  The tether market collapses.  You can redeem 1 USDT for 1 cent.  BTC paper profits are wiped out.  Tether is left with >600 million USD in the bank.

The phenomena to watch out for in this scenario are:

  • Increasing gap between BTC-USDT and BTC-USD prices
  • Increasing volatility of USDT-USD price, followed by collapse

Bitcoin’s paper price bump

What’s behind Bitcoin’s recent price increase? I’ll tell you — and it’s not Bitcoin’s utility as a currency, or wonderful investment opportunity.
 
Bitfinex accounts for the largest share of BTC trading volume. Yet they stopped accepting USD deposits back in April. This inevitably spilled into restricting USD withdrawals.  After that, BTC price on their exchange went up. Why?
 
If you were an account holder, what would you do? I’m not able to withdraw my USD. Therefore, I’ll buy BTC so I can move it to another wallet. Hence, increased demand for BTC on their exchange, and increased price AND volume.
 
Other exchanges did the same; there are not many that allow USD deposits & withdrawals now.
 
This recent BTC price increase is caused by the fact that no one can withdraw USD!
What happens when this bottled-up demand to withdraw finally moves into USD, other fiat, or other crypto?
Updated on 10/20/2017 to reflect USD withdrawal restrictions and supporting link.

Alt-coins are vulnerable to attack

The strength of a cryptocurrency is the share of global processing power it can muster in service of its ledger.  An attack by a significant computational resource (botnet, mining pool, government supercomputer, etc.) could potentially reverse recent transactions or cause a fork of the currency.  The reason the global share matters is that computational power is fungible, and may be used in service of any cryptocurrency.

The less computational power dedicated to mining a crypto, the more vulnerable it is to attack.  Alt-coins that do not command as much hash power as Bitcoin would be first in line.

Processing power over time is governed by the price per computational unit and by the price of electricity.  For example, a spike in electricity prices or transistor prices would increase mining costs, and therefore transaction fees, possibly disrupting the usability of the currency.  A sudden drop in electricity prices or transistor prices would reduce mining costs, increasing the chance of attacks on a currency’s ledger.

Such attacks could be orchestrated, not necessarily to steal the underlying wealth of currency holders, but to accomplish secondary effects beneficial to the attacker.  For example:

  • A large investor in a particular crypto may attack a competing (smaller) crypto intruding in the space.  This implies a first-mover advantage in the cryptocurrency space and stratification of crypto, with one per defensible economic niche.  Eventually, the market may consolidate into one global crypto.
  • Momentarily disrupt the functioning of a crypto at a critical moment in its development, for maximum PR effect, to spread fear & uncertainty to potential investors and adopters.
  • Momentarily disrupt recent transactions to create uncertainty for retailers accepting the currency & consumers using it.
  • Permanently disrupt or fork a smaller currency.

You would only need to bid on computing power for a short time to cause a major disruption.  Miners are very sensitive to transaction fees, so would quickly respond to any change in market demand.  Furthermore, cloud mining operations, and cloud computing in general, provide an easy way to quickly spool up computing power for a short time, disrupt the target crypto, and spool down, thus minimizing costs.

Alt-coins based on a permissionless, global blockchain are very vulnerable to this type of attack. Eventually, even Bitcoin itself may come under attack should there be a revolutionary development in computational hardware, exploited by a group of early adopters, or a government willing to throw massive fiat to kill it once and for all.

Bitcoin is a ponzi scheme

All “cryptocurrencies” based on artificial limits are inherently pump-and-dump schemes.  If they were true free market currencies, the money supply would grow with demand. Instead, they are artificially restricted.  Why?  To create the illusion of limited supply and therefore expectation of future scarcity and speculative profit.

Bitcoin price chart 2017They are fiat currencies, based on nothing but this speculation.  The Bitcoin price chart shows this.  Bitcoin fanboys point to the skyrocketing price as a badge of honor, but all it shows is that it is a speculation, not a store of value.  It has no price stability, and cannot be considered a “currency”.

In the short term, the price will keep going up for various reasons.  Mining is getting more expensive and less profitable, driving out miners and restricting supply.  Use as a pseudo-anonymous money transfer scheme is increasing on the dark web.  A method of circumventing Chinese capital controls.  An investment vehicle for Chinese with not enough local investment options.

But eventually, people will realize NOTHING holds up the value of Bitcoin.  No petrodollar, no USG taxation.  And it will collapse, as will the rest of the currencies that will inevitably fork off this one.  This is even ignoring the major security and regulatory issues that plague Bitcoin.

Currency is a form of social credit.  It’s an implied debt, that someone will pay off with goods & services in the future.  This should be the basis of any cryptocurrency, not arbitrary and artificial limits on supply, and fancy math for its issuance.