Free choice means mixed results

Success or Failure?This past week the bitcoin exchange Mt Gox went offline and eventually declared bankruptcy.

Massive media attention followed worldwide. And comments.

Though not all media coverage was accurate or informative, most refrained from direct editorial. Comments on the other hand, such as those here, were less restrained. While some were analytical, many were along the lines of “I told you” – especially in the US media.

In a free market choices have consequences. Some choices turn out to be good (i.e. utility-enhancing), others less so. This is normal and is the process which creates wealth.

In a controlled “market” by contrast, choices are restricted – and of course results are, as well. In Socialism v2.0, typically the idea is to provide (limited) choice between very similar “options”, in combination with security and predictability. At least that’s how it’s marketed.

If in a certain sector of society free choices are severely curtailed – as is the case for investment and money in the United States – then many people will tend to forget the fact that free choice comes at a price. In such a case, they may well react with shock when witnessing the consequences of bad choices. Why? For the simple and understandable reason that they have little experience with the upside offered by good ones.

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Capital controls in Italy not worth reporting

On February 13th Il Sole reported that Italian banks had been required by the government to withhold 20% of all incoming wire transfers to personal accounts, the so-called “ritenuta fiscale”. The banks would get to keep the loot until July 16th. Moreover, the measure would be applied retroactively starting Feb. 1st, presumably in order to make a catch those not in the loop. I guess this sort of retroactive application is only possible in a place like Italy, where no-one is surprised when banks take two weeks just to credit an account. [We can assume that the banks were privy to this information before it was published in the press, but that's a detail.]

After a week of protests, on the 19th it was announced that the implementation of the measure would be delayed until July 2014, and that the funds confiscated thus far would be returned the following week.

Bank Bailout or Bail-In?As for the measure itself, while on the surface a nice sop to the banks, with a confiscatory policy like this in place, realistically not very many idiots are likely to be wiring large sums to Italy. So one has to wonder what the point was.

What is however perhaps more interesting is the fact that this whole affair went almost completely unreported outside of Italy.  As far as printed newspapers are concerned, if Google is to be believed, one of the few mentions was in a leading Austrian paper with a headline referring to the “strengthening of anti-money laundering measures in Italy”. That was about it.

What did get a lot of press was the supposedly dynamic leadership of Italy’s new 39-year old socialist prime minister. It seems that the new 20% tax was not worth even a mention.

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E-Currency Trading in China – Addendum



According to the self-reported volumes, today reported a volume of 186,000 bitcoins traded – close to 1 billion RMB. #2 worldwide was OKCoin with about 46,000. While impossible to verify, given the actual market liquidity and rapid movement, there is certainly no reason to doubt that was in fact #1.

Today I see that bitcoinity finally added Huobi to their CNY exchange lineup:

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E-Currency Trading in China

Chinese financial markets don’t typically get a lot of press in the English-speaking world, with the occasional exception of some finger wagging about the lack of proper government controls over what goes on, or the occasional reference to a “shadow banking system”, something which presumably takes place in dark and foreboding back alleys. [The more mundane descriptions - e.g. people loaning money to one another - just don't sound exciting enough, do they?] Though I have shared a few observations from the front on such topics, e.g. here, here, here and here, no doubt I am also partially responsible for not taking a lot of time to do so.

Bitebi CrazeAt least to a certain extent, the recent euphoria over the electronic currency phenomenon has been an exception, as well. Since the recent price surge in late 2013, various commentators have dutifully credited BTCChina with being the world’s largest exchange in terms of trading volume. Despite this limited acknowledgement, if we overlook some of the China-oriented blogs, e.g. Tim Swanson’s “Of Numbers” site, other major Chinese exchanges such as or got virtually no English-language press at all. Calculations of “market share” simply left them out of the calculations. Even bitcoin-specific sites such as simply left (and leave) them out of their lists. I am fairly positive that an exchange like, which was the world’s second-largest litecoin exchange for most of 2013, was never once mentioned in English-language media. True,  these sites lack an English-language interface, so they are less accessible to international observers. Nonetheless, even if one factors in the fact that trading volumes can be falsified, to neglect them completely is to communicate a rather distorted view of reality.

Despite the substantial publicity given to recent pronouncements by the PBoC specifying some ground rules, objectively speaking China remains far and away both the largest and the freest market for trading in electronic currency. Where else can you trade for free as well as deposit and withdraw fiat within hours 24×7? Where else do you have 10 or more active exchanges competing for market share? Nothing in the recent pronouncements casts any doubt on the explicit commitment of the PBoC to the free exchange of electronic currency.

To take the opposite extreme, look at India, where until recently the exchanges got away with charging a 3% fee on EACH SIDE OF THE TRADE. Now of course the RBI (the Indian central bank) has banned bitcoin trading completely. Needless to say, there was little bitcoin trading going on in India, even before the ban. Is it a coincidence that the prosperity gap between India and China increases with every passing year?

Of course, to a certain extent this merely reflects the general laissez-faire approach which characterizes the Chinese government’s approach to private wealth, an aspect of Chinese reality which understandably attracts little coverage in countries with more voracious governments. The reality on the ground is in fact almost unimaginable to younger inhabitants of, say, the United States or Western Europe. Not only is there is no capital gains tax in China, but C2C bank transfers are for the most part instantaneous and unlimited. I can send 50000 yuan to my buddy in Xinjiang and he will have it in seconds, all for a token transmission fee. You can also walk into any bank in China with the equivalent of one million euro in cash and deposit it with no questions asked. Simply put, the government’s policy is to leave people and their money alone. While they do endeavor to tax some income at the source, for the most part that’s about as far as they go.

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On the Origins of Money and Bitcoin

Recent textual analysis done on the original bitcoin whitepaper leads down interesting paths.

“I started from the Bitcoin whitepaper published in late 2008, and proceeded to run reverse textual analysis – essentially, searching the internet for highly unusual turns of phrase and vocabulary patterns (in particular places which you would expect a cryptography researcher to contribute to), then evaluating the fitness of each match found by running textual similarity metrics on several pages of their writing. [This] led me rather directly to several articles from Nick Szabo’s blog.”

This analysis appears in a post dated 1 December 2013 on the WordPress blog Likeinamirror.

Here is some of the evidence he cites:

Content-neural terms:

  • Repeated use of “of course” without isolating commas, contrary to convention (“the problem of course is”)
  • Expression “can be characterized”, frequent in Nick’s blog (found in 1% of crypto papers)
  • Use of “for our purposes” when describing hypotheses (found in 1.5% of crypto papers)
  • Starting sentences with “It should be noted”(found in 5.25% of crypto papers)
  • Use of “preclude” (found in 1.5% of crypto papers)
  • Expression “a level of “ + noun  (“achieves a level of privacy by…”) as a standalone qualifier

Content-bearing terms that have common synonyms in the field and thus could easily have been expressed in a different way:

  • Expression “timestamp server”, central in the Bitcoin paper, used in Nick’s blog as early as January 2006
  • Repeated use of expression “trusted third party”
  • Expressions “cryptographic proof” and “digital signatures”
  • Repeated use of “timestamp” as a verb

While this does not necessarily imply that Nick Szabo “is” Satoshi Nakamoto, at a minimum, it is strong evidence that significant parts of the writing in the whitepaper entitled bitcoin.pdf came from his keyboard. Moreover, it seems clear that he was one of the key thinkers contributing CPU-time to what eventually evolved into today’s cryptocurrencies.

Nick Szabo’s comments on the origins of money are worth reading. He writes:

Hardly anybody actually understands money. Money just doesn’t work like that, I was told fervently and often. Gold couldn’t work as money until it was already shiny or useful for electronics or something else besides money, they told me. (Do insurance services also have to start out useful for something else, maybe as power plants?) This common argument coming ironically from libertarians who misinterpreted Menger’s account of the origin of money as being the only way it could arise (rather than an account of how it could arise) and, in the same way misapplying Mises’ regression theorem. [This] even though I had rebutted these arguments in my study of the origins of money, which I humbly suggest should be should be required reading for anybody debating the economics of Bitcoin.

On a related note, Nick Szabo’s blog contain plenty of intriguing thinking on a wide range of topics.

Thanks to David Gilbert at the IB Times for publicizing this.

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An Under-Appreciated Power of Media

Michael Parenti once wisely remarked: You may believe that the media do not control WHAT you think; but one thing is clear, they certainly have an overwhelming impact on what you think ABOUT.

It seems to me that this is a vastly under-appreciated power of media. Take this past year’s bitcoin price run-up. Would this have happened without the blanket media coverage it received all around the world? The answer is obvious.

At the same time, it is worth noting what media tend to talk little about: causes. Endless about of print is devoted to what is happening now. Maybe even some is devoted to speculation about the future of phenomenon X. Little space is devoted to context – putting phenomenon X in a causal historical framework.

Two recent phenomena from the China context come to mind: One is the floating pigs incident this past spring. The other is the excitement about so-called pollution levels – the now infamous “Air Quality Index“. This index has been around for quite a while, but the attention has not. This year the topic is so “hot” that air filters are all sold out and a new word has entered into everyday speech: “wùmái” (雾霾), meaning something like smog (i.e. smoke + fog – very accurate in this case, as we shall see). Is the air any better or worse this year than last? It doesn’t seem too different to me, but in any case, the media won’t help you much to get an answer to that question.

I’ll leave the floating pigs incident for another time, though that is also worth more than a footnote, since it is a prime example of this same phenomenon and ultimately goes back to yet another case of “unintended” consequences of government meddling. Well, what about that supposedly “polluted” air we are breathing, full of fine particulate matter? Wouldn’t it be a relevant question to consider WHERE all those fine particles floating around in the fall months come from? For those who have bothered to ask (and there are admittedly a few), the primary source seems clear: burnt-off agricultural refuse, particularly wheat stalks, so-called jiēgǎn (秸秆). Though burning them is illegal, the fact is that burning is not only cheaper than paying someone to cart the stuff off, but it also produces useful ash fertilizer. In decades past this was less of an issue, because farmers tended to burn off the refuse slowly to provide heat for their homes and fire for their hearths. Now most have switched to natural gas instead, leaving a big pile of unloved wheat stalks behind.

There is likely more to this story worth telling, but I’ll leave it at that for the moment. In any case, though ash from burnt off wheat stalks may not be the most healthy thing in the world, is it a fair guess that the public reaction would be quite different if the source of those feared particles were better known?

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The Importance of Caring

What happens to a person when he ceases to care about his or her fate? What happens to groups?

In his book Descartes’ Error, Antonio Damásio makes a strong case that emotions are the mechanism which helps translate the survival urge into good decision-making. He figured this out by observing people whose damaged brains for various reasons no longer supported those “emotional” circuits. Many of these unfortunate people were able to calmly observe and analyze their own demise without any concern for themselves and their fate. They essentially became bystanders to their own ongoing demise.

Why did this happen? Because they just didn’t care. In a way, one could say that they lacked a sense of self-ownership.

I see the same phenomenon all the time in the corporate world. Where people with a sense of ownership are not present, often nothing gets done. Things stagnate and decay. Obvious tasks are left undone. Often literally dust settles over everything and the “non-owners” present watch as the decay proceeds. The staff may have the know-how to make a difference, but they lack the motivation.

Of course in a way this is obvious. What is perhaps less obvious is that this is the exact same mechanism which drives living creatures to survive and flourish – or not.

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