Not sure why we still bother with the local CNY movies - blatant product placement aside, it's basically one public service announcement skit after another... with obligatory anthropomorphic God(dess) of Fortune (remember last year?). As our subreddit has it, the best bits came right at the end, and mainly because it was, well, finishing up.
Tamil too often gets the short end of the stick here
(Though there's more than enough to go around)
I vaguely being fascinated by AltaVista Babel Fish a long time ago
The torch has - as with so many online services - been passed to the behemoth that is Google for some time now, and they have to their credit not been resting on their laurels. They've transitioned from more straightforward statistical methods* (shout-out to our old n-gram based input system here), to a deep neural network-based system. As a recent presentation shows, they've not been alone in pursuing this direction.
You'd not be wrong if you guessed what this entails - gobs of data - but there's admittedly technique further involved. Google's 2016 paper on their Neural Machine Translation (NMT) System (open-source version available) describes the usage of Long Short-Term Memory (LSTM) recurrent neural networks (RNNs) with all the bells and whistles, in an encoder-decoder setup as with Deepfakes. This has lately been upgraded to support direct multilingual translation (i.e. without going through English, as is traditional), by simply including the target language as an input token, leaving all else untouched.
[*N.B. A small diversion on the history of machine translation here. Statistical methods were, probably understandably, viewed with heavy suspicion when they first emerged in the Eighties; Mallaby's More Money Than God recounts the opposition faced by Brown and Mercer, when they first applied the Expectation-Maximization (EM) algo to the task. Jelinek, who later employed the duo at IBM, would counter with his famous retort that "every time I fire a linguist, my system's performance improves"; also, Brown & Mercer would later jump to Renaissance Technologies, where they made like a bazillion bucks, so I suppose they had the last laugh too.]
But a little pulling back of the curtain here. Although official announcements might give the vibe that machine translation is a solved problem, slightly more involved inspection has to reveal that NMT is not quite up to actual human translators yet... and by some distance. Douglas Hofstadter provides an analysis with just such a conclusion in The Atlantic [Hacker News commentary] which covers most of the bases. Borrowing his German example (translations only):
Obviously (and unlike the example kindly supplied in Google's research blog), the nuance is well off at a minimum, before going into actual errors in conveying meaning. Hofstadter explains the context behind choices such as "undesirables" rather than "odd", and "Pan-Germanistic" instead of "German-National", but the most interesting miss here was perhaps the feminine case "-in", which completely threw the final sentence off. Skipping to the Chinese example, which I can independently corroborate, the translation of "他仍兼管研究生" as "He still holds the post of graduate student." (output slightly altered from Hofstadter's version; seems like Google has been doing some updating) is indeed egregiously wrong - "He still supervises [his] graduate students" would be the right translation as Hofstadter notes, although it can be noted that changing a single character (to "他仍兼是研究生") would bail NMT out.
Which returns us to the fundamental complaint about the ongoing A.I. boom - there's scant actual intelligence, as understood in the popular sense, involved. Some of the issues Hofstadter highlighted are perhaps to be expected, if the NMT implementation operates on a sentence level, as is suggested by the paper (in which evaluation was performed on isolated single sentences). As such, even the simplest agreement and reconciliation of terms between sentences would be absent! In this light, it is perhaps a wonder that paragraph-length texts are even comprehensible.
Despite there clearly being a lot left to be done, I do disagree with Hofstadter on one point. In his wrap-up, he hopes that true translation, artistic translation, by machines, will not be possible soon. But why? Should not the wisdom of the world be available to all, regardless of what tongue they were born with, and despite what gods might fear? Why should Westerners have to wait to read Jin Yong, for example, when Gu Long borrowed unstintingly from James Bond? There are at least two objections I can muster, the first of which is the impossibility of perfect translation - wordplay, for one, carries badly. And then there are the near-ineffables, like sonder...
The second would be the impact on minor languages. It is plausible that multilingualism would become rare, in a world where everyone has their own private translator - why agonize over learning Mandarin (as many local students may question), when one can just translate to it on demand? But then again, it's a trade-off really; if this opens communication between all and sundry - given how much woe lack of mutual intelligibility has historically caused - the loss could be worth it...
My personal suspicion here would be that of a future closing of the circle - while connectionism is currently king, the potential of re-integrating symbolic and domain knowledge has yet to catch up. This may perhaps become more apparent, when the shortcomings of "just pump in more! data" become harder to be brushed aside as saturation approaches, since it's unlikely - to me at least - that current architectures are the end-all on this.
The Age-Old Debate
Guy pays, or split the bill? Our resident alpha male CS prof has the answer, which has as usual sparked lively discourse amongst local netizens (as with his thoughts on the labour situation, which seems to echo latest policy).
Anyway, my two satoshis, for the record:
Dragonboated for the first time in what, sixteen years, for my unit's Cohesion Day - there's a reassuring simplicity to just pulling, in rhythm, over and over again.
Returning to my usual life, I'll continue with the first of two overdue tech discussions:
It was coming. Hey, netizens have been pulling humourous face-swapping photos for eons, first with Photoshop and then with apps (also: the ubiquitous SnapChat dogface filter), and there was Face2Face a couple of years back [paper], which admittedly focused purely on mouth gestures. How hard, then, could transplanting the eyes and nose be?
As it turns out, not very. Some months ago, FakeApp was released, allowing seamless face transfer on videos. Expectedly, this has energized dabblers to put it to productive use, such as subbing Nicholas Cage in as every actor in a movie, but probably mostly to, ahem, more risqué ends.
What manner of sorcery is this?!
And yes, the technology. A brief comparison with the now-dated Face2Face mouth expression transfer tech: then, a similarity-based energy metric was used to retrieve the closest-seeming mouth appearance from a frame in the target (to be doctored) video, relative to the source gesture. And, actually, the DeepFake pipeline remains broadly the same:
For each frame in the video,
So, what's an autoencoder? It can be thought of as a function consisting of two parts: an encoder that converts an input into another (usually compressed) representation, and a decoder after that that converts the representation back into the (perhaps slightly different) input. If it helps, compression can be thought of as a form of autoencoding: when you zip a file, the original binary data is converted (encoded) into a (hopefully smaller) representation, the zipped file; and when that zipped file is uncompressed (decoded), the original file is obtained.
Furthering this intuition, image compression is however not quite autoencoding, for popular formats such as JPEG - it's more of discarding relatively unimportant data, such that the compressed representation remains directly interpretable as a (lower-quality version of the) image. Certainly, neural network based autoencoders (henceforth, just autoencoders) can be trained on image data, althought as the Keras tutorial notes, this is seldom worth it for purely compression purposes.
The beauty of autoencoders lies instead in their flexibility - just throw them any (and enough) data, and they'll generally learn a decent representation for you. This property is cleverly exploited in the DeepFake setup, which utilizes a single encoder, and two decoders:
The heart of the system
(Source: DeepFakes Explained video, at 6:30)
Before we continue, a quick technical note: DeepFake is built on Google's TensorFlow library (which would have saved me rolling my own GPU code some years back), and the more user-friendly GUI FakeApp is a 1.8GB torrent download. The actual underlying scripts are however much more lightweight, and can be gotten from an unofficial GitHub repo. The autoencoder architecture can then be examined at
The slightly-surprising part here, is that there are no constraints applied on the dense layer, unlike for example in variational autoencoders; as such, it seems that faces from different people with the same expressions do naturally map to similar representations in the dense layer. In other words, if a photo of Person A with mouth open has a vector representation va in the trained encoder, Person B with the same expression would produce a vector vb ≈ va. Then again, since the basic structure of (aligned) faces are all but identical on major landmarks like the eyes, nose and mouth, perhaps this is not that unexpected.
What remains is conceptually straightforward - with hundreds (prefably thousands or more) of images of both subjects (victims?), we train the shared encoder to produce the same dense representations, for the same expressions of each subject. Then, to morph Person B's face onto Person A's face in the original video, we detect Person A's face in each frame, and run it through the encoder before decoding it with the decoder for Person B. Recall that Decoder B is specialized to generate only Person B's faces - therefore, we'll get an image of Person B with the same expression as that of Person A, which we can then merge straight back into the video.
Perhaps the most famous example
A pertinent point, then, is that the generated and overlaid face is not truly that of the target person. Strictly speaking, it is an indirect representation, akin to a sketch artist producing his own rendition of his sitter. This setup also allows the decoder to make up for missing data to an extent, by using its learned conceptual expression of a particular face, to "fill in" for missing data. And, despite some very impressive examples, creating good fake videos still takes some work.
Firstly, a ton of images of both subjects are required, with insufficient images leading to bad outputs; this is however perhaps not that big of a problem for celebrities. Secondly, rarer profile poses may be an issue, as are close-ups, with the autoencoder apparently working on 64 pixel square inputs. This may explain why the successful examples tend to be on clips where the subject is some distance away, and mostly facing the camera straight-on. Lastly, unlike Face2Face for example, there doesn't seem to be flow constraints between frames. This may contribute to sudden strange "flashes", if a frame in the middle of a sequence has a less-compatible face generated for it.
Of course, none of these weaknesses are insurmountable, especially for well-funded professional outfits (such as the now-exposed American Deep State). This has clear implications on video as evidence, particularly combined with voice synthesis - perhaps even by the same encoder-decoder mechanism - that would allow convincing evidence to be produced of any public figure saying and doing just about anything. Very fortunately, interest thus far has been mainly restricted to naughty vids, which has led to the deepfakes subreddit being banned (go to r/fakeapp instead), together with the vids themselves on major platforms - but, let's be honest, bans have never worked...
[To be continued with machine translation...]
Me: Human! Human! Am I glad... nah, always sounded more natural when the hamsters say it. For all their shortcomings, they've been accessible, or more accessible than whales - who've only now started conversing - at least... wait, what the hell is Mr. Ham doing kneeling out there?
It is a matter of relativity
Mr. Ham: Spare a copper, m'lud?
Me: It probably isn't that bad, you know. We've had like four 30+% dips over the last year, and the price even today remains an annualized 1000%; you know about Buffett's advice, to buy on the assumption that they could close the market for five years? Although it doesn't transfer directly, it remains a good attitude to approach Bitcoin with. I mean, if we rushed to sell at all-time highs, we'd be out at US$10, US$250, US$1000, USD$3000 or US$5000, or any number of smart-seeming points in between. What more with...
Mr. Ham: Um, see, I was getting all emotional-like when it was falling back through US$10k, so I texted Mr. Robo to get in 100x long with everything we had...
Me: YOU WHAT?! Oh, wait. Mr. Robo's been curled up in a ball shivering in my spare room for the past week or two, seeing as how it's plunging, so it's probably alright.
Mr. Ham: Oh. Oh. That's nice. *makes call* Eh, Sammy? Don't cancel my reservation at Puertopia just yet. And stall the bailiffs coming to repossess the lambos.
Me: ...and as I was saying, this sort of thing puts hair on your chest *looks at Mr. Ham* well, more fur than was originally there at any rate. Separates the men from the boys. You haven't begun to live until you experience eight-figure hits to your portfolio in a matter of weeks, they say.
Gotta admit that it's fiendishly hard not to get caught up in the excitement and declare over-high price floors when it's rising, but other than that, it's all going swimmingly - new, better-backed exchanges sprouting everywhere, Robinhood integration, Lightning hitting a thousand channels already on mainnet despite haters not understanding what's up - can't wait for when LN instant and nearly-free transactions make the mainstream.
That was quick
By the way, there seems to be a pervasive misunderstanding about how the Lightning Network operates. At its most basic, two users can open a funded channel between themselves, which is limited by the constraint that the sum total of Bitcoin in that channel remains constant. Clearly, this is not particularly useful, even if transactions on the channel are fast and cheap. However, the point is that, like the Internet, it is a Lightning Network - users may not be directly connected by a channel, but they still can transfer value to each other by hopping over multiple nodes, same as with packet data!
Mr. Ham: Now, that's reassuring. Was beginning to get tired of my old Huracán. That he which hath no stomach to this downturn: Let him sodl; his limit order shall be filled. And tether for withdrawl put into his account: we would not hodl in that man's company: that fears his fellowship to hodl with us.
Me: Ah, the classic hodler's mantra. I don't know, Mr. Ham - these things can be hard to discuss. It pains me that sincere advice - say, on mining and altcoins - is seldom well-received, due to the taint of personal interest. Observations on liquidity advantages being historically self-reinforcing tend to fall on deaf ears, because it's far more tempting to believe that Special World-Beating Altcoin #371 will explode thousandfold, despite general past evidence to the contrary - for every ETH, there were countless dozens Auroracoins that never recovered after their initial burst of glory. To each his own, I say...
Mr. Ham: ...tell me why we are doing this again? I have a trading company to administer, darn it, and getting Pokéballs flung at you gets old really fast.
Me: Hey, they just released Generation 3, and I just got my first shiny after almost two whole years, an Aron.
Mr. Ham: So...?
Me: Enough prattle, more evolution. And about that gear...
Mr. Ham: You get to drag me into this, I get to bring my cattle prod. Listed as electric-type, remember?
It was a nice day.
The most-anticipated awards show in a long while has arrived, with Paul Krugman deservedly headlining it, for his entirely irresponsible assertion that "markets will never recover from TRUMP's election", published in no less than the New York Times. The dishonour roll then continues with a list of well-documented abuses by the chastised mainstream press, who have in response circled the wagons and termed the calling-out an assault on press freedoms... wait, what?
It should not escape discerning readers' attention, that the episodes celebrated in the Fakeys were indispituably false, i.e., fake. Fabricated. Fraudulent. Made up. Dishonestly presented. As such, the press had no real counter on that one. Instead, they went for the "press freedoms" diversionary counterattack, which if one sits down to think through, is completely off.
The modern consolidated press, it should be remembered, has become largely an engine for propaganda (see Herman & Chomsky's Manufacturing Consent - which I'm currently partway through - for more detail). POTUS publicizes FAKE NEWS reports: what does this have to do with press freedom?! Let's examine the L.A. Times' defence: "TRUMP is encouraging the violation of press freedoms around the globe... foreign despots have used it to dismiss unfavourable news stories. Libyan leaders followed his lead to discredit CNN International's reporting on the slave trade in their country."
Point One: since when have Putin and the CCP respected the American news establishment? It's not like the U.S. ever paid much heed to Pravda or the People's Daily either.
Point Two: it is noted that the press rebuttal isn't that they don't dish out FAKE NEWS, but rather that the POTUS and other distinguished personages should not expose their FAKE NEWS, because it could lead others to realise that they do report falsehoods. Somehow, I'm not very sympathetic here...
More real news you won't read about in the FAKE NEWS
Take the TRUMPIAN economy - that's a mighty big coincidence if it is one, and non-Krugman economists have finally capitulated as to the font of financial blessings: the GOD-EMPEROR's stably-genius policies. But no, you won't hear the usual commentators praising him for that, because he's not playing ball with them like previous complacent swamp dwellers. In the past, a Krugman could well coast blissedly on his lofty credentials despite being completely, utterly wrong; well, no longer.
Which brings us to Point Three: the mainstream press has wielded outsized influence with its first stab at forming impressions, a power that has likely not been adequately balanced. Such power has consequences. Consider a Fakey example by TIME magazine, on TRUMP removing a bust of Martin Luther King, Jr. from the Oval Office. Perhaps there were corrections made later, but the implications would have been applied (extremely unfairly, given that he's just proclaimed MLK Day), and harm done, by then.
We can note that the press has absolutely zero compunctions about maintaining their own list of TRUMP's alleged falsehoods, despite many of them being very contestable. Just for example, "So, look, when President Obama was there two weeks ago making a speech, very nice speech. Two people were shot and killed during his speech. You can't have that." - the NYT's rebuttal was that there were no gun homicide victims in Chicago that day. Erm, where did he talk about Chicago? And the very next line, "...How can you vet somebody when you don't know anything about them and you have no papers? How do you vet them? You can't." Sounds entirely reasonable to me...
The way I see it, the POTUS makes statements, the press critiques them, often with misleading framing. Now, the press makes statements, the POTUS critiques them, and the press are now crying foul like kiddies caught in a lie?
No, it's the same old, same old - the mainstream press wants to maintain their reputation and quasi-monopoly on trusted information, while being free to sculpt opinions, largely by calculated omission (which has probably engendered much sweating over at The State's Times, alongside authorities resorting to Committees of Public Truthies). Unfortunately, as it turns out, exposure to diverse sources of info - as the POTUS is encouraging - has consistently been the bane of weak dogma, and it certainly isn't stopping the common man - and fellow respected leaders - from seeing the essential truth within.
Mr. Robo: Really, Mr. Ham, there was no need to rush to get through the buffet, it's only us four here; look, Mr. Ducky isn't even approaching the table, probably out of politeness...
Mr. Ham: *munching with mouth full* Iszt commitment to competitiveness, Robo. Lifeblood of a trader! No rest, no mercy! You don't have the proper mindset and edge to succeed in this side of the business, I see.
Me: *sighs* Seeing as Mr. Ham has appropriated the remaining food to his cheek pouches, we might as well get on with the econs part.
Bubble, Toil, Trouble
Back to the statement made a month ago, that Bitcoin's growth is not a bubble - considering that the price was somewhat over US$14k then, roughly the same as it is now, the evidence appears to have borne out on that for the time being.
And what growth it has been; in these heady days, it's easy to forget that some lucky few are sitting on thousands of Bitcoins just by participating in some random geek experiment maybe seven years ago, with a slightly less lucky fellow inadvertently having spent over US$700 million at today's valuation on pirated movie torrents. Price-wise, its rise to the moon and beyond has been inexorable over the past year: its breaking of US$1500 as recently as May last year brought some attention, but that was nothing compared to what came after. Predictions were raised to the giddy heights of US$5000, heck, US$6000 in 2018, and were almost immediately shattered as Tim Draper's understated foresight proved to be prescient.
Wary of being caught short after that, pundits have begun throwing out larger and larger figures - US$50k with money put on it, US$200k by the Titan Digital Asset Group, all the way up to millions and more (which, by the way, has long been breached in Yen). And perhaps more impressive than all this, is the cast of luminaries who have had to eat their words thus far: the distinguished jstolfi, of course, must top this list, with the victory of the Core dev team and now China's miner ban (on which more later) not helping his rhetoric either. Nobel laureate Eugene Fama is on it too, and perhaps Buffett himself may yet join them - check back in five years.
As for Wall Street, they have gone straight from "blockchain not Bitcoin", to elbowing their way to the feeding trough, without the slightest hint of irony; JP Morgan CEO Jamie Dimon went from an eyebrow-raising fraud accusation to regretting the statement in a short few months, possibly owing to competitors like Goldman Sachs being rather more open to the idea... while feverishly building their crypto patent portfolio on the down-low. Definitely, it's getting tougher to dismiss the crypto space outright with former Fed chairs speaking at blockchain conferences, and even as the public faces of big financial institutions take a hard line, they have to be watching with trepidation as nimbler hedge funds get a headstart, and their own rank-and-file ditch banker suits for hoodies.
The Deathless Hybrid at the Big Boys' Table
- Spencer Borgart, head of research at Blockchain Capital
Here, an obvious question presents itself: do these Masters of the Universe like what's happening? The short answer is an unqualified no - in general, those at the top disdain shakeups, if only because there's only one direction to go for them - down. As such, the hostility from much of the banking sector as well as government actors is only expected, with South Korea the latest to spread some classic China-style ban FUD.
However, the same proposition has played out with any number of disruptive technologies - borrowing a recurrent example from the military arts, aristocrats have oft endeavoured to outlaw equalizing innovations such as the crossbow with full blessing of the Church, because why should some filthy peasant be able to skewer a gentleman knight (later Kipling: "Two thousand pounds of education/Drops to a ten-rupee jezail")? The Chinese and Japanese feudal lords, secure in their insular superiority, closed their borders (and not in the sensible GOD-EMPEROR way); it didn't take long for them to be completely pwned.
Erm, the guys who want to win?
The main point here is then that, cryptocurrencies cannot be un-invented. Leaders may contend with the Internet for its deleterious impact on good old-fashioned propaganda and thought control - some much more than others - but there is no longer any question about opting out wholesale. The same, we feel, goes for cryptos. Certainly, the world elite might prefer that Satoshi had never existed. However, going by what we've seen in the United Nations, achieving consensus on any action of import is a pipe dream, and cryptocommodities present a classic Prisoner's Dilemma: ban its use, and suffer as other nations latch on to the tech and investment; don't, and risk losing control of one's own monetary policy. Decisions...
While it has become fashionable of late to deride the store-of-value utility of Bitcoin, the enormity of this single function, we feel, has seldom been properly recognized. In particular, consider the prevailing distinction between money and investment assets; one holds cash for its liquidity, but it is basically guaranteed to depreciate. Indeed, over longer time horizons, one would do better to trade liquidity for returns, by investing in some asset - bonds for the cautious, stocks for the more adventurous, and it only gets more fun from there.
Such investment has traditionally come with all sorts of barriers to entry, however. For instance, if one wishes to invest in real estate, there are minimum down-payment and mortgage eligibility requirements to satisfy. For blue-chip stocks, there's a minimum lot size, with all sorts of costs for smaller holdings. The little guy just can't catch a break, it seems... and then, there's BTC, a global currency-commodity divisible to eight decimal places or sub-cent amounts, a decreasing rate of supply, and only twenty-one million units ever.
Now, perhaps this alone may not be irresistable to your average first-worlder, but consider the masses in well, less competently-managed economies, and the attraction of Bitcoin is evident. Consider your average Venezuelan - why would they want to hold ever-inflating Madurobucks, if they had any alternative at all? It follows, then, that a strong currency-commodity would continually vacuum up capital from weaker currencies, and unlike fiat, there's no recourse to legacy financial institutions to try and stem the outflow of larger amounts.
Well, professional economists can't always be wrong,
though they've generally been quite reliably clueless on crypto.
Probably still better than journalists and many analysts though.
[N.B. To us, Satoshi roundly deserves the Economics Nobel,
for effectively devising a scheme for the scarcity of bits]
(Source: r/bitcoin; see article text circa 1988)
Here, we return to Borgart's characterization of Bitcoin: it may not qualify as a currency, some sneer (but not Goldman Sachs, not any longer), and traditional commodity dealers may not know what to make about it, but is this in fact a deficiency? What if, in its hybrid vigour, it turns out to be accepted widely enough to be used as a neutral global currency, while retaining the quite-desirable appreciation-through-deflation property of a rare commodity, further improving on gold?
It should be evident that Bitcoin, by its very nature, avoids many issues thought conterminous with state-issued fiat currency. While demand through taxation has been held as a supporting intrinsic of fiat, this brings with it its own problems. This denomination irrevocably ties a fiat currency's fate to its country's - or more usually, the country's ruling elite - needs, and the ongoing Greek debacle amply illustrates the difficulty of administering an international, or even inter-regional, currency. Shorn of the ability to influence the exchange rate of one's own Eurofiat, Merkel has done to Greece what Hitler failed to.
Although we are not so bold as to suggest that Bitcoin is a financial panacea, it does fill a very large void in the emerging space: being completely opt-in and free of any state-level encumbrance, there are no natural restrictions on its price level. While even Great America and China have to sweat over the consequences of exchange rate fluctuations on their import-export balance, Bitcoin just exists in a parallel space. With no taxes payable in it, no transactions forced to take place with it as with the embattled petrodollar (another Saudi princeling and Bitcoin hater falls to the TRUMP CURSE), and no inscrutable central bank pulling its strings, Bitcoin returns a long-lost simplicity to the monetary fold: what you see is what you get.
The implication, then, is of a near-frictionless global crypto economy overlaid on current nation-state markets, with capital flowly freely in and out - but mostly in. Increasingly, the attractions of this store of value will be recognized, as world citizens seek an outlet for the products of untrammeled quantitative easing, which has expressed itself for some time in the form of burgeoning asset values - in particular, real estate. When the next currency crisis hits, we may well see some exciting crypto fireworks...
Venezuela has turned to the Pepedollar, I shit you not.
Doubtless at least some governments and central banksters have seen the writing on the wall, as they quietly dabble in their own state-sanctioned cryptos, while issuing warnings about the free-market ones rather more loudly. There's Venezuela trying to save themselves with oil-backed crypto (good luck), Russia's CryptoRuble (possibly with Vitalik's input), Sweden's e-krona, Israel's crypto-shekel, the Catalans are thumbing their noses at Spain with the idea... even the venerable Bank of England is getting into the act, with a digital pound.
None will catch on.
The trouble with trying to retain control this way, as with the pointless R3 bankster initiative, is that state cryptos bring nothing extra to the table. Case in point, the Bank of England's proposition that "British citizens can now keep their money with the central bank itself, without needing a retail bank"; the obvious response would be: what's the difference? It goes without saying that the digital pound will be subject to the BoE's Q.E. whims, exactly as the paper pound is, while exposing users to additional privacy intrusions. No, they have totally missed the point about Bitcoin's founding slogan: Be Your Own Bank.
Thing is, much of fiat cash is already digital anyway. The machinery has been deployed throughout, with credit card and online payment processors prevalent in developed countries, and next-generation mobile solutions like M-Pesa and WeChat popular elsewhere. A cryptofiat, if it is to stay under state control, makes no sense to be decentralised, because it is centralised by definition. A citizen may be forced to use state fiat for his local transactions, but a crypto version of that fiat proffers zero attraction over existing avenues.
Certainly, it's hard to believe that at least some central bank advisors haven't seen through this logic, which may however explain why Singapore for one has abandoned the notion after initial forays into cryptofiat. In summary, the brave new financial space that Bitcoin and other cryptos are opening up, cannot be challenged by state-sponsored products. All that can be done is to try and stem the outflow by regulation and banking red tape, but this opens democratic governments to public outrage, as in South Korea, and merely drives the trade underground in more heavy-handed authoritarian states, as in China. Moreover, even if a state actually manages to eradicate crypto within its borders through egregious penalties, it would still have to suffer the penalty of financial isolation, as in Best Korea.
The definition of futility
A related folly should now be addressed - that of non-backed stablecoins. The previous argument does not deny that government fiat can be embedded in crypto, only that it is meaningless. However, some have approached this in the other direction: since excess volatility is not desired, is it possible to peg a crypto's price to some stable value (hence stablecoin), while retaining its independence?
The short answer is no. We note first that this function has largely been fulfilled by tokens like Tether, which admittedly do not escape central authority through a simple mechanism - X units of the pegged token are issued for X units of the pegged fiat received by the authority, with tokens likewise destroyed by the authority when the corresponding fiat is cashed out.
This has not stopped plush VC-funded outfits from trying. Take for instance Basecoin, founded by three former quants, on the concept of an algorithmic central bank. Traditional central banking money market operations automatically occur as needs arise: bonds are issued for coins when the price relative to the chosen peg is too low, contracting supply and driving the price up. These bonds throw off more coins when the price is too high, expanding supply and driving the price down.
Without even going into the technicalities and gameability of fixed algos (which is why most central banks worth their salt employ a hidden peg), along with the cost of providing security, there are broader reasons why this won't work. A simple proof by empirical example would be the travails of real-life central banks - it turns out that they have never been able to consistently maintain stable fiat values despite access to these operations, and other measures besides, in the first place! In particular, while new coin issuance might work to suppress Basecoin price increases, its problem is that there's no real safety net when price falls - only Basecoin bonds can be issued within the Basecoin system, and the trouble is that capital flights out of a currency tend to be self-perpetuating in practice, per Taleb's well-worn warning on rate convergence.
Another problem, of course, is that the utility of such a stablecoin, even if somehow implemented, is necessarily limited. A US Dollar stablecoin would be worth exactly one greenback, but in this case, why bother with the stablecoin at all, when typical cryptos have the potential to appreciate wildly?
Against All Alts
Here, we again qualify H.L. Ham's belief in Bitcoin maximalism, in the face of a red-hot altcoin market. Note that this does not preclude multiple cryptos from existing, nor even that some new crypto may produce returns much higher than that with Bitcoin (and other major cryptos). This does, however, suggest that there will be a single crypto encompassing most of the entire market's value (with roughly Zipf distribution, which is indeed currently the case), and that almost all altcoins, assuming they survive, will remain relatively tiny.
This general analysis has not changed from 2013, since the overarching economic reality remains the same - the natural tendency is for value to coalesce in a single, or at most a few, cryptos over the long term, because of positive liquidity and security feedback effects, despite largely misguided opinions on the applicability of "substitutability". A case may be made for broad-enough use-case differentials, e.g. Ethereum for apps, but to be honest this is already pushing it.
Definitely, altcoins do have one very tempting selling point - outrageous and quick speculative returns, particularly for smaller sums involved. The trouble however is that these gains are often ephemeral, with tenfold losses seldom given a fraction as much airing as tenfold gains, once the pump-and-dump merchants have moved on. Quite unfortunately, many old and now-illegal stock market techniques apply only too naturally to the crypto space, and sadly one expects that history will repeat with too many derivative penny alts.
This is certainly hardly a popular point of view in forums such as the CryptoCurrency subreddit, where every other post seems to be egging for Bitcoin's collapse, or proclaiming as to why this particular crypto will overhaul it from nowhere. The motivations are easily understood, though the arguments are, to put it lightly, extremely one-sided, even by crypto-cult standards. A follow-up on IOTA's feud with the MIT Media Lab is deserved, as well as discussions on at-least-interesting tech like RaiBlocks, but the maximalist response remains: if open-source, it can be incorporated as a Bitcoin sidechain. If not... let's see just how much trust a closed system can garner.
The Bad News On Wealth Inequality
Before wrapping up, some negativity - Bitcoin, and crypto in general, probably won't do much for inequality. Sorry.
There's the oft-acknowledged fact of Bitcoin holdings been highly-concentrated, but it's not even the main reason why talk like "Bitcoin is the real Occupy Wall Street", or that it's "a gift from God to help humanity sort out its [monetary] mess" isn't quite accurate. Yes, there may be some redistribution to longtime hodlers as their (outsized) reward for taking on early adopter risk, but in the grander scheme of things, it simply isn't that big a deal - the already-wealthy as a whole will simply buy in, as they have with every other new asset class, which should be a named economic law; concrete case in point, the Bitcoin billionaires Winklevii started out as multi-millionaires.
Sadly, sudden wealth does tend to skew attitudes. Eighteen year-old Erik Finman made some waves half a year back by declaring that he saw no value in attending college after turning US$1000 into about 400 Bitcoins, worth over a million at that time (and well over US$5 million today). Then again, he appears to appreciate the GOD-EMPEROR, so we have to suppose he's indeed pretty intelligent. Less happy is the tale of a young electrical engineer who offed himself, because he lost some 6000 Bitcoin back in 2013, which today represents a windfall he could likely not have earned in many lifetimes; to compound the sadness, he might have made the bulk of it back simply by picking the right altcoin. Hodl without regrets...
Finally, on the "rich get richer" trend, many altcoins are offering interest-bearing options whether by node hosting or proof of stake, while the Big Two of Bitcoin and Ethereum often attract free airdrops of new alts or forks - all the more reason to stick something with the elephants in the room.
The Path Forward
We have not shied from sticking our necks out with bold predictions in the past, and we have done so once more with price projections, last week.
And, despite last year's crazy growth, the crypto game is only just beginning. Each government will have to choose as to how it wants to deal with this inconvenient upstart, and as we have stated, this is hardly an easy choice. We have thus far mainly seen a mix of denial and regulation, as states try to delay crypto's relentless growth, to buy time for their own solutions. However, as also explained, this is unlikely to work.
Big finance, as usual, has been faster on the uptake, given that their allegiance has always been to profits. We have seen Goldman Sachs and JP Morgan change their tune, and with Bitcoin taking the next step towards legitimacy with its futures offerings, the real money is beating down the door. Geopolitically, the lure of a flagless reserve currency has to be tantalising, if only for ideological reasons. America's competitors have been straining at the bit to abandon the dollar, but are at the same time wary of trying to promote their own coinage. If only there were something truly international...
The stranger thing is perhaps China foregoing their advantage by exiling their miners, but this could be understood by their preference for sandboxing their economy, which has been tenable if only due to sheer scale. Their role has apparently been taken over by Russia, who have been busy organizing their own crypto mining sector, while launching their own firms and opening trades on the Moscow exchange. Non-strategic powers have been less circumspect, with Belarus for one aiming to be a crypto haven, and Bulgaria digging three billion up from under the sofa probably won't hurt either.
Meanwhile, the honey badger that is Bitcoin lurks, and its winning formula remains the same as ever: spread to more users (its price has been startlingly correlated with user numbers, by Metcalfe's law), soak up value, and wait for fiat currencies to hang themselves - as they have unfailingly done...
Me: It's slightly delayed, but finally, the fifth annual general meeting of the firm of H.L. Ham... hey, what's on the wall here?
Mr. Ham: *entering with coffee in paw* Ah, human, I see you've just discovered our updated organizational chart; pretty damned fine year for the firm, you got to admit; revenue up, profits up, headcount up... come, come, we'll start with the presentation of the Employee of the Year award.
Me: The voting's done, I expect. *shaking ballot box* And why am I disenfranchised, may I ask?
Mr. Ham: You're not a full-time member, and more importantly, I had the feeling you might be biased against me.
Me: Well, you're probably right on that. So, going over the rules again, one ham one vote, one duck one vote, no-one can vote for himself. That was quick. And the first vote, by Mr. Ham, goes to... *opening envelope* Mister Ducky!
Mr. Ham: Well, communication has really improved since he got hired. In the past, whenever I set a direction for the company, Mr. Robo would talk about things like "not practical" or "unrealistic" or "impossible by the basic laws of physics". What poppycock! I can't fulfil my grand visions for the company, with such a negative attitude from my subordinates! Now, look at Mr. Ducky; he doesn't say no, he just looks me straight in the eye, with that ever-present confident smile of his. That's what I expect from a middle manager!
Me: Point taken, I guess. And the next vote, from... *reads name on envelope* Mr. Robo, is for... Mr. Ducky too!
Mr. Robo: Really, he's the best overseer I've ever had; unlike Mr. Ham, he won't peek over your shoulder and try to teach you how to program when he doesn't know nuts about it himself, or ring you up at two in the morning and insist you come back to the office to balance the books, because he forgot the inspection date. No, Mr. Ducky just sits there with that kind, supportive expression on his face, and lets me get on with my job! Er, no offense intended, Mr. Ham.
Me: *turning ballot box over* And it seems that Mr. Ducky has abstained, not that it matters.
Mr. Robo: How diplomatic! I always knew he was considerate and mindful of others' feelings!
Mr. Ham: What self-effacing dedication! The quiet and unshakable sort! Top leadership material!
Me: So it's settled, the rubber duck is H.L. Ham's employee of 2017. That went better than I feared.
Mr. Ham: On to the review of the past year. *flicks projector on*
We were off by an order of magnitude from our US$1800 projection, but in our defence, we did state that it was less set in stone than our previous spot-on calls; a big pop was almost inevitable from our models, the big question was when, and we were holding out for closer to 2020.
On the bright side, we simply hedl our reserves due to that, even as other gurus cashed out for understandable if probably misguided reasons. Recall the big events of the year - the Winklevii's ETF was rejected in March, tanking the price temporarily, before segwit was finally forced through by threat of UASF in the middle of the year. This brought about the BCash and other Bitforks, and of course, the price just kept steadily steaming along in the middle of all that, with regular pullbacks.
Before that, a recap on our previous AGMs:
Me: Sometimes I think, we should have charged a lot for our newsletters, you know. Publish our research for free on a blog, and next to nobody takes an interest, even if they would have been looking at 100x returns in less than three years had they followed it; maybe people will value it more, if we typeset it nicely and print it on high-grade glossy paper, and stick a, I don't know, US$10000 tag on it or something.
Mr. Ham: I'll get Mr. Ducky onto that. So, our research assistant assistant, what's the outlook?
Mr. Robo: Erm, it's a bit long, so I've broken it into bite-sized sections. We'll also reveal our price targets at the midway point before the luncheon, as Mr. Ham requested.
*shuffles notes* We'll start with the tech, then, before the econs and finance part after the break. It's not news that there has been much acrimony over the direction of Bitcoin, although that has been solidly settled in the Bitcoin Core dev team's favour, despite rogue miners and Bitcoin Judas trying to wrest control. It is perhaps testament to the Bitcoin brand's strength, that BCash somehow remains the coin with the fourth-highest market cap, a cool US$50 billion, despite being a complete rip-off that left out the latest Core improvements, because their dev team couldn't figure out how to integrate it.
Inside Attacks - Bitforks
The Pirate Bay knows what's up
[N.B. And oh yes, it is BCash, whatever they try to say]
While Bitcoin's cryptographic security has thus far been bulletproof, there looms an ever-present threat to its integrity: internal splits. One of the worst-case scenarios would be roughly evenly-matched hostile fork camps, that further actively perform double-spending attacks on enemy Bitcoin fork chains. Thankfully, despite the BCash faction's grandstanding and shilling, the BCash chain has settled into a clearly-subsidiary and generally-declining position, leaving no doubt as to what chain the venerable Bitcoin name refers to.
Though the Segwit drama and power struggle had us concerned for a bit, all's well that ends well, and its conclusion supports one welcome realisation: miners are not in practice as influential as we feared. Indeed, despite the vast majority of hashpower supposedly signing onto the ultimately-misconceived New York Segwit2X agreement, the devs called their bluff by doing almost nothing, and miners and other signatories ended up gradually dropping out, despite their cheap signalling beforehand, likely encouraged by Bitmain's near-monopoly on ASIC supply.
Fortunately, that last may be coming to an end with GMO and others entering the manufacturing business, and the failure of B2X - which to be honest, could have been an agreeable compromise had the Core devs acquiesced - should give added confidence that future attempts to hijack Bitcoin are probably not going to succeed. Interestingly, many BCash supporters appear against Segwit (and thus, S2X) in any case, for what I personally think are short-sighted reasons, as so often explained since 2014. Moreover, the proliferation of random Bitforks should also help to subtly inform the public, that not all that has "Bitcoin" in its name (unlike BCash) is, well, Bitcoin.
Back to the miners, all evidence over the past year has been that they are ultimately self-interested, as assumed by Bitcoin's design. Once price signals confirmed, upon BCash's release, that users preferred the original Bitcoin by far, miners flocked to it (and Segwit), pledges be damned. Resistance was limited to mostly snide mempool spamming, with next to no actual attacks, even on the much-weaker BCash chain. Then again, this makes complete sense - miners are in it for the long haul, after all, and have plenty of fixed equipment and location costs. From Bitmain's perspective, yes, they may prefer BCash since it retains their proprietary ASICBOOST advantage, but is that worth risking it all going up in flames, especially with Bitcoin exploding in value over the past year?
Hey, it's a *healthy* bait-and-switch!
Me: Disclosure here: H.L. Ham has swopped the bulk of its BCash for Bitcoin on ViaBTC and later Bitfinex, whom we have to commend for their sensible reading of the situation. We foresee no reason to doubt our decision.
Altcoins, Scaling & Security
Just to make it clear, H.L. Ham remains fully behind Bitcoin Core's scaling roadmap, which remains on track with Segwit leading into Lightning Network, and on-chain scaling also in the picture - but only once Segwit etc have been properly evaluated, as it should well be. And then, there's Mimblewimble and other proposals, that are certainly more sustainable than simply raising the block size limit every time they become full...
A mention of altcoins here cannot be avoided, given how some of them have achieved on-paper gains that dwarf even Bitcoin; while we're at this, it may be timely to address the "cashing out" issue, which not a few of my acquaintances seem to doubt can be done. Although there have been scattered account closures, converting Bitcoin into the fiat of your choice hasn't been a problem - Coinbase, for all their other faults, would probably do for smaller amounts, and even if you're talking low millions, breaking it up into several orders should do the trick on most major exchanges. Anything more than that, and there will be over-the-counter trade specialists from those exchanges eager to assist, for a small commission.
The other interpretation of not being able to cash out, is not being able to cash out at a fixed price. Personally, this assertion appears very strange, since traders of other commodities such as oil, soy beans, etc are definitely not guaranteed a certain price, especially for large lots, either. If the point to be made is that crypto is volatile, then certainly that is true, in which case the statement could stand to be more precise.
With the understanding that H.L. Ham's view may be biased in light of our major holdings being in BTC and ETH, we find it difficult to recommend longer-term investments in alts in general. It is true that an altcoin can more plausibly increase in price by say, five-fold in 2018 (with associated GPU mining craze), while we think it unlikely for Bitcoin. However, in the same vein, we think it unlikely that Bitcoin's price will fall to one-fifth its current value, which is harder to vouch for for most alts. In a sector that is already high-risk, high-return, we deem the current altcoin mania too much of a pure gamble.
New innovation: Proof Of Marketing
[Winning quote: Bitcoin was developed as a decentralized digital currency, meaning that, until now it has had no single administrator. Kitcoin overcomes this deficiency by establishing an administrator.]
Going back to the cashing-out issue, it should be noted that this is exacerbated with altcoins, especially those not in the current Top 50 and therefore having a cap of less than a billion bucks. Of course, if you're punting a few hundred dollars about and it grows to tens of thousands, good on ya; trouble is, when you start talking about hundreds of thousands or millions, the slippage when trying to get out would be enormous; in these cases, there really aren't that many reasonable options in crypto to place the capital. The take-home point being, one seriously needs to know what to expect with one's investment decisions.
Our other main knock on many alts, is that their value proposition is extremely unclear. Some, like Ripple and various Ethereum-based ICOs, hawk institutional support, which while better than nothing, should be carefully analysed on a case-by-case basis - it is not unlikely that they fail the basic sniff test: given the setup, would a simple database server do as well? And then we enter oBikeCoin and DentaCoin territory, and we've got to say, well...
Mr. Ham: Hey, don't knock my SPANK hoard!
Me: *ignoring Mr. Ham* To summarize, while many altcoins tout superiority in some way over Bitcoin and competitors, there are really very few free lunches in crypto; yes, maybe you can demo thousands of transactions per second with low fees (quite common, frankly), but does it really hold up under serious attack? An admirable attitude that the Core devs hold, I feel, is that of no second chances. If they open the door to premature node centralisation by raising the block size too much, there's no way back. If they introduce a zero-day vulnerability by rushing Segwit or Schnorr or whatever, ditto. I'd say they understand well what they've been entrusted with, and aren't about to risk it for temporary - and probably non-critical - competitiveness.
Mr. Ham: I'm hungry.
Me: Gah, fine, on to the price projection.
(Source: r/bitcoin, also enlarged at bitcointalk.org)
A New Valuation Era
Mr. Ham: What's this? A chart for ants?
Me: You can just click to the bigger version. The important thing is that we have moved away from our previous models from 2014-2017, which emphasized micro effects on Bitcoin's price... which, from how it missed last year, was getting outdated.
It's no secret, I believe, that H.L. Ham peruses external data in our own research - not all of which makes any sense, obviously. As such, when we come across a model that closely approximates what we had in mind, it is only proper to acknowledge the idea.
Here, we see US$100k reached sometime in 2021, which we feel reasonable if maybe slightly optimistic - but hardly unrealistic, given that it's just a five-fold increase on what has already been reached, over three years. A more conservative outlook would be US$40k stable - coincidentally the Winklevii's small bull outlook, and Novogratz's end-2018 call - before the next halving, and then stable six figures around the halving after that, or closer to 2024.
Given this, a annual projection is not really relevant for the firm's purposes given our long-term horizon, somewhere between say US$12k-30k would be very comfortable, for the coming year. And we note that this should mitigate energy concerns somewhat, since this implies that mining energy demand should not increase overmuch from today, broadly assuming that it remains in proportion to profits.
[To be continued...]
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