Tuesday, June 20, 2017

The Bitcoin Scaling Debate in Brief

This is intended to be an overly short description of the bitcoin scaling debate and where we stand as of June 20, 2017. My hope is that this will serve mostly online poker players who are using bitcoin on a daily basis. As such, it glosses over a lot of details, but hopefully is sufficient to outline the problem for that group of people.

The problem
Bitcoin blocks are what are used to keep track of all bitcoin transactions and ensure that the same bitcoin can’t be given to more than one person. A bitcoin transaction isn’t real until it’s been added to a block. Currently the maximum size of a block is 1MB. Consequently there are a maximum number of transactions that can fit into a 1MB block. The current demand for transactions is greater than the amount that can fit into a block. This results in two things: longer wait times for transactions to be confirmed, and higher transaction fees in order to create an incentive for miners to include transactions in a block.

The Sides
On one side we have the group that would like to see bigger blocks. This would increase the capacity of the transactions but would also make it harder for smaller miners to compete as the hardware requirements to compute and transmit these blocks would also increase. Causing a fear that mining would be more centralized. Additionally this can only be implemented as something called a “hard fork”.

On the other side we have those who would like to see something called “segwit” activated. Segwit = segregated witness. It’s a way of changing the location in the block where signatures live. And the new location doesn't count as heavily in the blocksize.

This does two things. The first is it effectively doubles the number of transactions that can be stored within the existing 1MB block. And second it fixes a problem called transaction malleability. That problem prevents an offchain scaling solution called “lightning network” from working. The good news is that segwit activation is done through  a “soft fork”. The concern is that it requires 95% of minors to activate. That is a very difficult standard to achieve, and may never activate.

The consequence of segwit is that enabling offchain transactions removes transactions from the system and handles them off the system. Which means that the miners won't see any fees from those transactions. AND the demand for transactions on the system goes down so the fees associated with onchain transactions get reduced. Consequently, people who mine bitcoin really hate this. They are primarily the ones who are blocking segwit activation. They want bigger blocks so that they can collect more transaction fees.

Splitting the blockchain
Both of these sides create a risk of a split in bitcoin. The reason to set the bar at 95% for segwit is to avoid a contentious fork where those that don’t agree continue to maintain a separate blockchain after the fork. If this happens, people who held coins before the fork would be able to spend them on each side of the fork, effectively doubling the number of bitcoin in the world. An increase in the monetary supply is not supposed to happen in bitcoin and would have very large economic impacts for those who hold bitcoin.

As a consequence any resolution to this has to involve a high degree of confidence that there will be only one bitcoin blockchain.

A compromise
A compromise has been proposed called “segwit2x”. This compromise is two things: 1) Activate Segwit by end of August 2017 and 2) double the blocksize by December 2017.  These two things are tied together such that if the first happens, the second must also happen. Remembering that segwit effectively doubles the number of transactions that can fit into a block and a doubling of the blocksize, this is effectively quadrupling the number of transactions that can be in a block. In addition offchain scaling solutions like lightning network become possible.  Segwit2x will be activated if 80% of miners signal support for it.

This is a compromise. The segwit crowd does not like the increase in the blocksize and the bigger block crowd thinks the blocksize increase is too small. But the good news is that more than 80% of miners have signaled support. So it looks like this will happen by the end of the summer of 2017. Which means that offchain scaling experiments can begin in earnest. And, hopefully, the transaction fees will start to reduce making bitcoin much more useful. There is still a risk that the minorities will maintain a separate blockchain. I do not know how to assess how big that risk is.

My opinion
I’m glad to see that some resolution to the scaling debate appears to be within reach. And I’m hopeful that it will not result in splitting bitcoin. Ultimately each side gets a little bit of what they want, and they’re going to be better off staying with the 80% (or more) majority than splitting.

But here's the thing. It may not happen. And it may turn out that bitcoin only becomes useful for large transactions. Transactions where the fee to send the transaction is rational. So say you're sending $10,000 worth of bitcoin. At that point a $2.50 fee doesn't seem that bad.  Whereas that fee for a $2 transaction seems exhorbitant. Who decides? No one person or group. This may happen because this is the bubbled up result of all of incentives in bitcoin determining that this is the most efficient use of bitcoin.  In which case, bitcoin will likely have a lot less value for poker players.

But for right now. No one knows, and bitcoin continues to be pretty valuable tool for poker players. Although I personally have modified my behavior. I used to immediately withdraw everytime I got over about $100 on each poker site.  Now I wait a little longer. Now I'm waiting for a withdrawal that's at least $200. And the reason is that I don't want to pay the high fees.  As the fees get higher, the amount of money that I'll transact must get bigger and bigger. At some point, if the fees get too high, I simply won't transact on bitcoin, and I'll convert to something else - maybe litecoin, maybe iota, maybe zcash. Who knows.

For now it remains bitcoin.

6/26/17 Update:
For those curious, Andreas Antonopolous just published a *FANTASTIC* video describing the different types of forks within bitcoin. Highly recommended.

 Here's another one describing the fee situation in bitcoin:

Wednesday, August 26, 2015

People are stupid

Stopped by youtube today and this video was on my front page. I posted this comment on his video that I liked and wanted to save here.

Your conclusion that libertarianism doesn't work is based on the premise that people are stupid.  And that premise is true but misleading.  Some people are stupid across the board, but those people are pretty rare.  Generally, most people are smart in areas where it matters to them and ignorant in areas that don't.  In "The Use of Knowledge in Society", Hayak described this as "the particular circumstances of time and place". It's also called, "the local knowledge problem." Which is to say that markets excel where local knowledge can be used efficiently.

An example: imagine a parts assembler who works for a machine manufacturer.  Imagine that the assembler is taught that the optimal placement of the tools he's not using is at some location. Let's call that spot "location X".  But in his part of the shop due to forces that no one could have imagined, location X has a lot of vibrations. And it causes his tools to fall a LOT causing the worker to be less efficient because he's constantly stopping to pick up his tools. So the worker decides to place his tools at some other spot, (location Y) that is much more stable but not as convenient as location X.

Now it's too easy for someone far away evaluating that worker to conclude that he's an idiot because he doesn't put his tools in the optimal spot he was taught. But what's really going on is that the worker is exercising knowledge of the particular circumstances of his work place. And what looks idiotic from afar is actually optimal when local knowledge is accounted for.

IMHO, most of the claims that "people are stupid" are of this type. We look at people far away from us and do not understand why they do what they do and proclaim that they are dumb. But what's really going on is that we are arrogant in presuming to understand all the local knowledge that they take advantage of but that is invisible to us.

I wonder how often we'd conclude that people are stupid if we were a little more humble about what we presume to know about them.

Saturday, February 28, 2015

Liberals vs Conservatives vs Libertarians

Any woman who strips for men (or otherwise exploits her sexuality to please men) makes men see all women as non-human objects. We should outlaw this because it’s a moral outrage that men and women might voluntarily behave that way, and it has an external cost on non-involved people.
Any homosexual behavior, and worst of all, homosexual marriage, normalizes homosexuality and makes it more likely that kids will be homosexual. We should outlaw this because it’s a moral outrage that men and women might voluntarily behave that way, and it has an external cost on non-involved people.
Both seem like private matters between the parties involved. The externality is tiny, if not entirely non-existent. No one should have any authority to intervene.

Tuesday, August 12, 2014

Depression & Suicide

Robin Williams recent death is sad. Especially sad is that it appears to have been a suicide. Matt Walsh wrote a blog on the reaction that people are having to this. I wanted to write this as a comment on his blog, but thought it might be better here.


Thank you for your post. I want so badly to agree with you. I want what you are saying to be the end of the discussion on depression. But I can’t get there.

As far as I’m aware, I have never suffered from clinical depression. I have had periods in which I was sad or down. But I’ve never looked at the world the way that the depressed people in my life describe it. Yes life is hard, but the moments of joy are so much better than the moments of agony that it’s not even close. Yes, there are bad people in the world who attempt to impose themselves on me, but I can walk away.  I am very much one of those people who "just doesn’t get it". I don’t get how people who are depressed can’t see that their attitudes are also a choice. I don’t get how they’re capable of forgetting all the wonderful things in their lives and remembering only the pain. That seems to me like a choice too. So I don’t get it.

But I do know what it’s like to be influenced by brain chemistry that completely changes my decision making process. I consume alcohol. And I have, on occasion, been drunk. Reflecting on my decisions afterwards, it is amazing to me how the presence of that chemical completely changes how I see and value events and people in my life. I am not in complete control of my full faculties when that happens and only afterwards, when my entire brain is available to me, does the stupidity of my decisions suddenly become obvious.

But one need not drink to have this experience. I have learned to forgive the decisions that I make while dreaming. In my dreams I have been a womanizer and a murderer.  I’ve even been a woman trying to seduce my husband. Does these dreams mean that I am a womanizer while awake, or a murder, or attracted to men? I don’t think so. I think these are mostly random roles playing out while a significant portion of my mental faculties are not available. So I give myself permission to ignore the decisions I made in the dream.

And then I think of the movie “A Beautiful Mind”. If I were seeing and hearing people who weren’t actually there, how could I tell the difference? If I really believed that some figment of my mind was an actual person chasing me with a knife, would my running and screaming for help be something I “chose”?

Yes, we are both spiritual and physical beings. But when a critical part of our what allows us to make decisions is unavailable, it’s hard to call what happens a decision. At least not a fully informed and reasoned decision.

I look forward to the time when my depressed family members get their new bodies as promised in 2 Cor 5:1-5. I look forward to a time when that body won’t be corrupted by the fragility of this body, and when that fragility won’t create adverse decision making. But until then it’s really hard for me to accept that depressed decisions are the same thing as rational decisions. I’m not sure that depressed people are any more in control than drunk people are. And apart from heaven, my only hope is that humanity figures out (through medicine) how to resolve the brain chemistry imbalance that seems to be at the heart of this awful disease.

Wednesday, June 25, 2014

Road Trips With Kids

3 years is a long time. It's the difference between 1st grade and 4th grade. It's the difference between the end of your freshman year of high school and graduation. Those spans of 3 years seem like forever. So it's a bit of shock to me that it's been more than 3 years since I posted a blog. But the posts don't lie and I just have to accept that as I get older, time seems to be passing by more quickly.

The truth of the matter is that I probably wouldn't be writing this post at all and my blog would be sitting dormant for an even longer span of time. Except that, unexpectedly, a complete stranger requested that I blog something. So here it is.

A little context, I am an aspiring poker player. And to get better, I listen to The Thinking Poker podcast. And on a lark I happened to read the blog today where I saw this article. And having made an annual trip to Wisconsin for the last ten years (*), I thought I might share some of the things that make the drive much more survivable, and occasionally, pleasant. Here are the fairly quick thoughts that I had:

1) Break up your trip into 3 hour segments, with scheduled stops for at least 10-15 minutes to let the kids get pent up energy out. Regardless of your dietary requirements, McDonald’s playlands are blessings… except in Indiana where they’re apparently outlawed, since none seem to exist. Plan things like lunch and dinner around these stops.

2) Travel no more than 9 hours per day... meaning 9 hours on the road with kids belted in their seats. Stops will increase the total trip time. But doing this we can usually make about 500 miles a day.

3) At least once per travel day, give the kids some new thing to explore. Puzzle books and books on tape have worked for us. Self contained toys work also. Movies are an option but we try to limit those.

4) Have an ample supply of snacks. But ration them.

5) When you stop for the night, have options for the kids to do something fun. Looking forward to the evening’s activities is a benefit for both adults and kids. Swimming is (by far) our kids favorite.

6) Pack destination bags and overnight bags. The destination bags can remain in the vehicle not to be taken out until you get there. The overnight bags are the only things you should have to unload when you stop overnight. Eases the unpacking & repacking the vehicle when stopping.

The trip that we take is an 18 hour trip, and takes us 2 days each way. I’m not sure if these ideas can scale to a cross-country trip. But if I were going to make such a trip, I would start with this but then be flexible enough to decide if it’s wearing thin by day 4-5.

(*) Holy crap, we've been doing this for 10 years!?

Saturday, April 09, 2011

This picture is amazing to me. It really makes a very strong case for the budget resolution from the House of Representatives.

I recall both President Bush and President Obama arguing that the increased spending was a temporary measure required in a time of economic crisis. This is Keynesian economics. In the time of reduced aggregate demand, the government can temporarily increase its spending to restore aggregate demand until consumer spending comes back to normal. I dont personally grok this argument. There are a lot of economists who disagree with it. Strongly. They suggest, instead, that increasing spending will simply prolong the problem, and they point to data that shows the great depression didnt actually end until after WWII, some 15 years (or so) after it started.

But in this case, it matters little. The spending measures were made into law. And we cant go back and change that.

Heres the thing, though. If you buy the Keynesian argument that the spending increases were necessary and temporary, then shouldnt we acknowledge the temporary part? You can argue that they may still be necessary. But if, as the administration proposes, the spending increases stay in place until 2021 (and beyond) on the idea that theyre still necessary that far out, doesnt that give credence to the original criticism of the spending increases? That theyve prolonged, and will continue to prolong the problem?

When I look at this chart, I can see no justification at all for continuing spending at these levels. If you believe these spending increases continue to be necessary, then how can you justify that theyve helped. If they are no longer necessary, then how can you justify keeping them?

What possible reason could we have for not returning (eventually) to the spending levels that we had prior to the crisis?

Thursday, March 10, 2011

Government vs Corporate Power

I play poker with a group of guys once a month. Mostly these guys are pretty darn "liberal". Meaning that they tend to share my distrust of corporate power, but they tend, instead to trust government as a counterbalance to that power. E.g. an increase in government power is an effective means to neutralize corporate power.

I tend not to express my opinions in this group. Mainly because I'm grossly outnumbered. Any time I have tried to express my opinion, I get 3-4 people arguing over me, and I never really get to finish my thought. It's basically pointless. I don't think they're interested in listening anyway, so I just bite my tongue. It's not that these are bad guys. In fact, I really enjoy their company. They're smart and funny and (unfortunately) much better than I am at poker. But when it comes to politics, we don't see things similarly. And there doesn't seem to be much willingness on either my part or theirs to see each other's point of view.

Tonight, I managed to accidentally start a rant session when one of the guys suggested that soda should be illegal. I responded saying that I wasn't particularly fond of telling other adults what to do. I was about to say that I was totally in favor of telling kids what to do, but, predictably, I wasn't able to finish my thought while I was being told how that was wrong. I immediately shut up, because all that could happen was that tempers would flare - most likely including my own.

This eventually turned into one of the guys ranting about how bad it was that corporations bought politicians. And on that topic I couldn't have agreed more with him. The purchase of politicians is a huge problem. But it was interesting how differently he and I would approach a solution. His response was that we should demand all campaign finance be opened up completely. And in general I don't have a problem with that. But he seemed to think that it was the root cause of the problem. And there I disagree. I tend to see this as a symptom of a different problem rather than the root problem.

I think the root cause of the problem is politicians with too much power. Corporations attempting to purchase those politicians are just a symptom of that root problem. Because, of course, if you're a corporation, you don't lobby those who don't have power. There's no point. You lobby, and bribe, and attempt to influence those who have the power to make changes in your favor. If you give politicians more power - e.g. the power to regulate campaign finance, or the power to regulate financial markets, or the power to rescue GM - what you'll end up with is *more* attempts by those with money to purchase those with the power. You'll end up stoking the problem that you're trying to solve.

I imagine my friend's response to be that we need to elect the "right" people so that they will stand up to this corporate influence. And maybe that'd work. The problem is that the people who are most likely to win an election are the ones who are the most duplicitous - the ones who can promise everything to everyone, knowing that they can't keep those promises. The winners in politics are very rarely - in fact almost never - the "right" people. Politics rewards people who are best at being two-faced. As a result relying on electing the right people seems unlikely to improve anything.

IMHO, the way to remove the negative influence of corporations purchasing politicians is to reduce the power of the politicians. Reduce their regulatory authority. Make it harder for politicians to create laws and regulations. If the politicians don't have power, corporations will not be interested in influencing them.

There are, of course, two problems with this answer. First, you have to elect politicians who's goal it would be to reduce their own power. What incentive will such politicians have? Once they're elected they will face a set of incentives that pushes them towards increasing their power. Put another way, my solution also requires electing the "right" people. Which I've already mentioned is pretty unlikely. Still my "right" people are fundamentally different than my friend's "right" people. My right people would go in with the goal of reducing government power, while my friend's "right" people would be smart and able to gather more power so that they could put the right solutions in place to curtail corporate influence. I believe the latter to be impossible, even if the former is highly unlikely.

Second, my friend would probably respond that this would allow corporations to run amok over the public with nothing to counterbalance corporate power. At this point, we would be at a standoff. If I were able to get to this point without being shouted down and outnumbered, I suspect that I could get no further. Because I think that individuals making voluntary choices with their money would act as better regulators of corporations than a government. And I suspect that this would be a very difficult - if not impossible - topic to sway my friend's opinion.