Bitcoin as a Display of Wealth

I just spent three weeks in bed with the flu from hell, which means I not only missed Bitcoin’s untimely death, but also its subsequent resurrection. Did everyone remember to buy the dip?

Had I been alert and conscious, I might have worried for a bit. Paul Krugman doesn’t know anything about anything, but I’ll grant him this one: There’s nothing to backstop a cryptocurrency’s value! If people come to believe that Bitcoin is worthless, it’s worthless. There’s no tether to reality 😮. If only Bitcoin could be used to make pretty jewelry!

One of the greatest tragedies of modern money is the decoupling between a store and display of wealth. Or, more accurately, the societal decoupling between wealth and status. For most of human history, the functions of display and storage were condensed. Even before people wore clothing, they wore piercings and tattoos. A full-body ink job isn’t transferable, but it’s a sort of proof of work.

Tribal tattoos on a mummified Scythian chieftain, 500 BC.

As societies increased in wealth, both people and objects became specialized in their functions. Stores of value were selected for their resistance to corrosion and theft. Displays of status optimize for just the opposite. The more unwieldy and vulnerable the display, the greater the power it conveys.

There’s no reliable way to physically project a bank account balance, so we use costly signals as a proxy. Designer shoes indicate disposable income. A diamond ring reveals your spouse’s bimonthly salary. An American Express Centurion card communicates the ability to spend half a million dollars a year.

Abundance signaling is wasteful, and often relies on a trusted third party to maintain the integrity of the signal. Bitcoin is regarded as a decentralized store of value, but still underappreciated as a way to disintermediate our displays of wealth.

Crypto-Bling

Cryptokitties, ugh. Why would anyone waste a perfectly good blockchain on a centrally controlled collectible? The only way to generate a cat image is to rely on the Cryptokitties website. And the only way to prove ownership of that image is to reveal your account address. There’s a better way to flaunt crypto wealth.

Secure multi-party computations were first introduced in 1982 as a solution to the Millionaires’ Problem: Multiple millionaires want to know their relative wealth standing, but no one wants to reveal their actual net worth.

One solution is to distribute shares of a secret to each participant. Each person combines the secret with the value of their net worth, broadcasts the result, and a blinded function processes the values to arrive at the final rankings. This function evaluation forms the basis for a zero-knowledge proof.

This can be done with any cryptocurrency. Instead of self-reporting a net worth, each participant signs a message to prove ownership of an account. The message is combined with a secret share, resulting in an output that indicates the user’s balance relative to everyone else. Turn the output into crypto-bling by mapping it to a unique identicon. Bitcoin can now be used as a visual display of wealth.

The identicons can even be made unforgeable. If each viewer distributes a different secret, then the set of identicons will look different to every observer while still communicating the same information about relative status. A display of wealth, then, is in the eye of the beholder.

WordPress identicons

But an identicon isn’t pretty…

Paul Krugman is wrong about the pretty jewelry, cuz that’s not what gold is about. Objectively speaking, silver is the most light-reflective element that exists. If you wanted to bedeck yourself in bling bling, you’d get the most bang for your buck with silver. But pound for pound, gold is more valuable because it’s harder to obtain.

Gold isn’t valuable because it’s used for jewelry, jewelry is valuable because it’s made of gold. –Nick Szabo

A display of wealth isn’t about being pretty, it’s about having stuff that others don’t. Roman emperors knew that wealth displays were a wasteful arms race, so they created sumptuary laws to prohibit conspicuous consumption.

Bitcoin bling removes the costly signaling by re-condensing the functions of a store and display of value, and does so without the need for a trusted third party. Someday, crypto-bling will be the prettiest bling around.

Your Twitter Followers are Probably Bots

The New York Times had an interesting feature over the weekend in which it calls out various social media influencers for follower fraud. Many people who appear to have huge Twitter followings actually don’t, and their fans are in fact paid-for bots. Oooh, busted! Apparently there’s a class of people who make a career out of being popular on Twitter, and it is terribly scandalous that they are not as cool as they might seem.

NYTimes identifies a person’s fake followers by examining the account creation date of each follower, and plotting the order in which they followed the target user:

For example, this is Twitter board member Martha Lane Fox. She gained tens of thousands of followers in 2016 and 2017, and it’s super obvious which ones are fake. A bulk bot purchase shows up as a large influx of followers, all with similar account creation dates (horizontal lines in the above plot).

The NYTimes analysis is compelling, but their target account selection was awfully limited. So I reproduced their Twitter tool to continue the investigation.

First, I ran the tool on my own Twitter account and charted my followers:

See that clump on the left? My first thousand followers were all bots. I know this, because I made them myself. For the first several years of my Twitter existence, the only people I interacted with were bots. Didn’t realize the platform could be useful for humans until 2016.

My account isn’t too interesting, because I don’t have many followers. The NYTimes neglected to conduct the fake-follower analysis on any of their own staffers, so for the sake of journalistic objectivity, let’s look at NYTimes columnist @paulkrugman.

Paul Krugman has over 4 million Twitter followers. It would have taken forever to download the entire list, so here’s a plot of the most recent ones:

Over the last 3 days, @paulkrugman gained over 20,000 followers, and nearly all the accounts were created just minutes before the follow. That’s the solid horizontal line you see across the top.

Who are these mysterious users who join Twitter and immediately follow @paulkrugman? Let’s have a look:

I’m gonna guess that approximately zero of these accounts belong to real people. This is not to imply that Paul Krugman paid for his followers – many bots automatically follow popular accounts upon creation. Every chart we generate will show a concentration of followers created at the most recent date. If you have more than a few thousand followers, you probably get a lot of bots too, whether you pay for them or not.

Fake followers are nothing new, and mostly harmless. But for whatever reason, New York attorney general Eric Schneiderman was concerned enough that he opened an investigation into the matter. You’d think he’s never used Twitter before, except that he’s had an account since 2010.

While Attorney General Schneiderman is busy chasing bots on the internet, let’s have a look at his Twitter followers:

@AGSchneiderman acquired 25,000 followers from the date he joined to the end of 2016. While the initial growth looks organic, his account suddenly gained over 125,000 followers during 2017. Of those 125,000, a significant number created their accounts within days of each other. This shows up as a solid horizontal line during the last week of January 2017.

Fascinating! It would appear that Attorney General Schneiderman has a lot of fake followers himself. I hope he includes this analysis in his investigation.

Note:
You, too, can help Eric Schneiderman solve the mystery of the fake Twitter accounts! The script for generating Twitter-follower plots is available here.

Trusted Third Parties are Moral Hazards

Yesterday an exchange called Coincheck got hacked and lost $400 million worth of NEM, a token I’d never heard of. Woops! That sounds like a lot of money, but it’s just another line item in the long list of crypto hacks.

Cryptocurrencies get a bad rap for being susceptible to theft. Bitcoin &co function as bearer instruments, where transactions are pseudonymous, irreversible, and potentially quite valuable. But people get unduly worried about assets where the holder bears the consequence of loss. Cryptocurrency is no more prone to theft than any other item of value, like a bicycle or wallet or social security number. That’s why we try to protect these things.

You know what’s worse than an irreversible transaction where the holder carries the risk of loss? A reversible transaction where the holder doesn’t carry the risk of loss.

I’ve had my credit card info stolen. A lot. Sometimes it’s my fault, sometimes it’s the fault of JP Morgan Chase, Equifax, Home Depot, Target, the gas station, or the asshole who stole my wallet. Maybe I should be more careful about where I swipe my card, but the onus isn’t on me to do so. The card issuer offers fraud protection, which insulates me from the consequences of being a dumbass.

$190 Billion. That’s how much US merchants lose each year to credit card fraud. Risk doesn’t ever disappear; we just push the liability on to someone else.

When it comes to credit cards, the issuing bank wants me to swipe with reckless abandon, because they make money off interest on my outstanding balance. Intermediaries work for the customer. That’s why Ebay always sides with the buyer in the event of a dispute. There’s no such thing as a trusted third party that serves as an impartial arbiter of justice.

The creators of NEM have come up with a clever solution for Coincheck’s situation. They’ll update the software to flag any account that receives stolen tokens! Ordinarily, users would be hesitant to adopt a modification that ruins the token’s functionality as a bearer asset, but NEM can get away with it because the software is closed source and centrally maintained. Coincheck will come away from this disaster with the same lesson Ethereum learned from the DAO: Socialism for the rich and capitalism for the poor! Trusted third parties are great when they’re on your side.

See Also:
Stop calling Bitcoin hacks, “Bitcoin hacks”

Hating on Crypto-Millionaires

There’s a silly article going around about crypto-millionaires who act like douchebags. “Everyone’s Getting Hilariously Rich and You’re Not,” the headline says. Better yet is the print headline: “Meet Your Masters.”

This is what me and my coworkers look like every day.

Yes yes, the goal is to make cypherpunk people seem as obnoxious as possible. The author did a great job unearthing the most repugnant techbros alive and portraying them as exemplars of the industry. Now that we’ve stacked the court of public opinion, we can all root for Bitcoin’s failure together.

Sheesh. What did Bitcoin ever do to you, NY Times columnist?

I suspect this is the result of NY Times’ prohibition on cryptoasset ownership. As much as I want to believe that journalists are aspirational ascetics who put vocational interests over financial ones…

Some of these reporters have been covering crypto since 2012! Can you imagine having the foresight to analyze bitcoin at $20, but not the wherewithal to put any skin in the game? How does it feel to sit on the sidelines for half a decade while dumb kids become disgustingly rich through no effort or talent of their own??

Let’s be honest: I would be bitter too. And I would want to portray the industry in as ugly a light as possible. Look, everyone has their biases; at least I’m honest about my lack of journalistic integrity.

Maybe it’s time for financial media to get off their moral high horse. You guys don’t have to go out of your way to invest in bitcoin; it can be as simple as holding out a Bitcoin begging bowl (Generate a paper wallet here). Crypto-millionaires tend to be a generous bunch. Get in step while there’s still time left, before the parade passes by, and so on. Really, the crypto people aren’t so bad.

The libertarian cypherpunk crypto-millionaires voted for Bernie. How bad could they be??

Disclosure: I’ve never bought crypto, and have no plans to do so in the future. Any bitcoin that I have was acquired through the trade of goods and services. Believe it or not, there’s a whole economy of human beings who spend bitcoin like cash.

My Plan for Hyperbitcoinization

If familial history is any indication, I’ve got about thirty years left on this planet. Forty if I play my cards right. That’s not a lot of time, and I’m worried that I’ll miss out on the era of hyperbitcoinization.

See, as Bitcoin establishes itself as a supreme store of value, people will continually abandon their local currencies until central banks capitulate. In time, fiat money will die, all the worlds’ wealth will be denominated in bitcoin, and anyone who had the foresight to accumulate even a few satoshis will find themselves tremendously rich.

I’ve decided that the most extropian thing I can do is have myself cryogenically frozen with my private keys. In a few thousand years, when hyperbitcoinization puts me squarely in the 1%, they’ll thaw me out and I’ll live like a king. Yessssssss.

For inspiration, I look to King Tutankhamun, Egyptian pharaoh of the 18th dynasty. King Tut was entombed at Luxor in 1323 BC with all manner of gold jewelry and artifacts. With sufficiently advanced medical technology, we could, in theory, rehydrate his mummified body and bring him back to life. Presumably he would demand the return of his buried wealth, which insurers have appraised at $680 million.

$680 million is a lot of money! Still, King Tut might be disappointed. The last president of Egypt had a net worth of $70 billion. The reanimated corpse of Tutankhamun is unlikely to restore his pharaonic privilege with such a relatively meager hoard. Turns out military contracts and foreign property would have made for a better investment.

This high-status dude was buried at the Varna Necropolis. After HODLing for 6600 years, today his gold is worth about $181,000 by weight.

Perhaps Tutankhamun’s mistake was choosing gold to escort his wealth into the afterlife. The purchasing power of gold is mean-reverting over the long run, because mining operations can scale according to the price level. In other words, gold doesn’t meet the criteria for a securely constrained supply.

This guy in Sungir, Russia – now he had the right idea. In 32,000 BC, this Paleolithic man was buried with 13,000 mammoth ivory beads. Mammoths have been extinct for four thousand years, so the supply doesn’t get any scarcer than this! It might take some time for doctors to figure out how to revive Sungir Man from his temporarily dead condition, but once they do, boy will he be excited about hypermammothization.

Bad news. Despite embodying all the attributes of trust-minimized money, mammoth ivory has not been embraced as a global store of value. A few weeks ago, an entire mammoth skeleton was auctioned off for just $645k. The CEO of a roofing company bought it to display at his office.

This family of four sold for $550k last year.

Things don’t look so promising here. It seems that no matter how reliable my store of value, the world will keep producing more wealth. As we all know, you’re not truly wealthy unless you have something that no one else can afford.

Let’s do one more.

Qin Shi Huang, the first emperor of China, is resting in the largest underground mausoleum in the world. According to historical records, 48 concubines were buried alive to service the emperor in the afterlife. We’re really pushing the bounds of medical imagination here, but suppose we brought the harem back to life. The four-dozen ladies would be just as valuable today as they were in 208 BC!

What is the purpose of money if not to increase reproductive success? The Qin emperor cuts right to the chase by stockpiling concubines in his tomb. There is one catch: Modern-day China does not abide women as chattel the way they did during the Qin dynasty. Wouldn’t it suck if the emperor HODLed for 2200 years only to have his wealth emancipated?

Circumstances change. Bitcoin can’t be seized or censored, but what if we enter some post-scarcity future with replicators and transporters, where money itself is irrelevant? You know, like Star Trek.

Star Trek’s communist utopia transcends money because energy is free and objects can be replicated in abundance. Even then, the Federation recognizes the need for a pecking order. Captain Kirk gets all the ladies while the Redshirts get vaporized. In a world without wealth, social status is denominated by shirt color. Attain it by ingratiating yourself with Hollywood scriptwriters.

So if we’re trying to preserve status rather than wealth, that leaves a limited window for hyperbitcoinization. It has to be far enough in the future that society recognizes Bitcoin as a status symbol, but not so distant that it becomes completely irrelevant. I think we’re almost there. Live long and HODL. 🖖

See Also:
Gold Rush, What Took Ye So Long?