Topic: The early-adoptor unfairness - page 4. (Read 10231 times)

Also, I still have yet to hear of a better distribution model. And by that I don't mean the value for the block creation reward (an s-shaped curve might have also handled that fine.) It seems clear what really irks some is that the block creation reward remains constant over time regardless of the number of people mining (which is the *real* reason early adopters managed to acquire large numbers of coins.)

Anyone care to speak to how that should have been different, taking into account all the ways any changes could also have led to potential "unfairness?" Just be sure your model assumes a hard cap on the total number if bitcoins, because that's a basic trait of bitcoin; might as well dump the decentralization or anonymity if your model tries to go that far.

That's a point that is also often missed. The ones who benefited the most are not just the early adopters; it's the early adopters who both acquired and held coins.

Here's a quick example of what I mean: someone got quite a windfall in exchange for two pizzas. Does this mean buying the pizzas for 10k btc was foolish? No, in fact if everyone had just held onto all their coins in the hopes of getting rich, we likely wouldn't even be having this conversation, because Bitcoin wouldn't have gone anywhere.

I think of myself, had I been on the ground floor of bitcoin creation. I would likely have accumulated quite a number of coins, sure, but I'm not sure how many I would have managed to hold. A year without much trade (or any real price to speak of) is a long time to wait if you're not already convinced it's going to succeed.

I might have gotten bored and reformatted my hard drive. Or given my coins away ("Here ya go, just think of it as a lotto ticket.") I know I at least would have been trying to spend a good portion, maybe the bulk, just to make use of them... I probably would have gone with Chinese delivery instead of pizza though.

That might all look silly in hindsight. But then, I'm not bothering to reveal the number of dead projects/ventures I invested time, money and effort into far beyond the point where many thought it made sense to continue doing so.

I consider myself lucky to have found out about bitcoin when I did (not much can be done about that,) but I have to say I consider it shrewd, not lucky or unfair, that I started investing into it when I did.

Best part for everyone else looking into it? It's not too late!

The way I see it is that you want there to be an uneven distribution of bitcoins anyway. You want there to be a smaller number of Bitcoin-rich people initially, because these are the people who are actually going to spend their bitcoins and thus encourage merchants to start offering their goods in exchange for bitcoins. Those with only a few bitcoins are less likely to buy anything with them.

To illustrate what I mean: imagine if 10,000 people each had 5 BTC, so that's 50,000 bitcoins between them. That's a perfectly 'fair', equal distribution for each of those 10,000 people. Nobody has an 'unfair advantage'. Now if there is a merchant selling something for 5 BTC or $25 (at today's exchange rate), each one of those 10,000 persons might desire what the merchant is selling, but ultimately decide not to buy it because it would cost them all of their bitcoins to do so. Let's just imagine they all decide to buy it using their dollars instead, because $25 is pocket change to them, and so they can all afford it. But then why should this merchant even bother offering their product for bitcoins? There's no bitcoin business happening; all of the merchant's sales are in dollars. In bitcoin terms, their product is too expensive because the marginal utility of 5 BTC is higher for all 10,000 people.

But if those 50,000 bitcoins were instead in the hands of only 5 people with 10,000 BTC each (and the other 9,995 people in this scenario all having 0 bitcoins to their name), those 5 people will not have any qualms about making the purchase in bitcoins instead of dollars, because the cost is only a small fraction of the total bitcoins that they each have. They wouldn't miss 5 bitcoins out of 10,000 because they're Bitcoin-rich, rather than the previous scenario where everybody was equally Bitcoin-poor. The value of 5 BTC diminishes the more and more bitcoins you have, exactly like how the value of a given unit of water diminishes the more and more water you have. So much like how $25 is pocket change for most of us, so too for a person with 10,000 bitcoins is 5 BTC pocket change. So from the merchant's perspective, he's doing 5x more bitcoin business than in the previous, 'fair' scenario. In-fact the merchant could probably bump the price up to 6 BTC, to cover his own risk of getting involved in this newfangled Internet currency, and he'd probably still get the business from those rich bitcoiners who could destroy 1 BTC if they wanted to and wouldn't even notice it. So you see, it gives merchants an avenue to actually get involved.

Obviously that's a very simplistic analysis but I think it holds true. Those who managed to mine thousands of bitcoins early have more incentive to actually spend them today, so it all evens itself out. So I don't care about the lucky early adopters at all. Good on them. The reality is, so long as they did not get their riches through violent or fraudulent means, but instead through voluntary, peaceful means, it's all perfectly 'fair'.

It's similar to how in this video it explains that rich people drive the initial growth of new products in the technology sector, because they're the only people who have enough money to make the initial purchases to buy the worst, most expensive versions of the products that we all take for granted today. Without having the rich people as a market to buy these products in the first place, it wouldn't be profitable to even begin: http://www.youtube.com/watch?v=0FB0EhPM_M4

That's a fair enough counter-argument.  But I don't see many people complaining its unfair that someone took care of that rare magic card, or their copy of Action Comics #1, or their Jackie Robinson coin, etc.

You could say the investors are pushing the price up, and as a result also pushing up the hype encouraging press coverage.  Press coverage being the modern (open source) method for getting advertising.

That was one of my very first initial reactions to bitcoin, too.  Where's the logic that says burning your processor to max creates wealth?! o_0

In a strange abstract way it does.  It's an incentivized race to authenticate the coins.  In any currency the coins need to be produced authentically somehow and that takes work.  (However, since it's the future all we have to do is push the automation button.)

And bitcoin market cap isn't 1 billion either.  Hence the analogy.

And before someone brings up the precious metal argument:

The early miners are not comparable at all, because they got the standard maximum inflation rate we enjoy now as well due to a 4 yr inelastic reward. Basically they could carry home the same amount of gold per day, alone and maybe with a pickaxe, as people would be able to now with hi-tech and millions of people all over the world.

I simply do not think that donating a bit of computer time should be classified the same as an investment in a startup like Google. Call me old-fashioned.

I suppose the counter-argument is that (very) early adoption wasn't really that much of a risk, any more than buying a booster pack of magic cards is a risk.  And perhaps there is a disproportionate amount of benefit to the "bitcoin hipsters" who were "using bitcoin before it popular" - before it was anything of consequential wealth.

Don’t you get it? Running your CPU a bit is not comparable to a $5000 investment in a startup. People do that everyday for free for folding@home etc., it’s just a ridiculous "risk" to lose the CPU time or energy expenditure in comparison to the possible gains.

So yes, I think the risk/reward ratio was way higher, along with a lower barrier to entry, and I’m not at all using hindsight.

Here, perhaps this statement from Hal will help: http://www.mailarchive.com/[email protected]/msg10152.html

If you look at the actual rewards, then yes mining in 2009 was lower risk.  But that's using hindsight.  That's cheating.  You can't do the risk/reward calculation using today's numbers.  That's survivor bias.

As late as May 2010 those months and months of work would get you two pizzas.  When mtgox opened, early adopters sold bitcoins for pennies.  Were these people just stupid early adopters?  Or was it the general consensus among the adopters that bitcoins just weren't worth that much?

At the time (2009) you would need to measure potential reward, since the future is an unknown.  And at the time, I don't think anyone could say with any significant confidence that bitcoin would even break the dollar barrier, let alone the 10, 20, 30 dollar barrier.  It was not a sure thing.

Back to my startup analogy, when you invest in that company working in a garage for $5000, you need to go in with the assumption that you're going to lose everything.  Startups are inherently high risk.  If the startup does succeed, and end up being worth a billion dollars, this doesn't retroactively make your investment of $5000 a safe low-risk investment.

b/c ppl did go out and borrow USD's to funnel into btc on the way up; then the price crashed and then here's the kicker; Bitcoinica became available in September which caused an overshoot to the downside below the $4 breakeven point for miners.

we are now witnessing the snapback effect of that.

The early miner had a better risk/reward ratio, because the investment and barrier to entry with just a CPU running a few months for a few tens of thousands of BTC is ridiculous.

So yes, it was lower risk because there was less investment (hell, I wouldn’t even call it an investment, only in a very strict technical sense) to risk.

Thanks for your valid points, casascius. I think you are right.

And to me, there was never a bubble, just a depressive phase where everyone turned their back on Bitcoin and panic sold it because they were convinced it was a security black hole and that their bitcoins were next to go "poof" like allinvain or those victimized by mybitcoin.com.

Whenever ask myself what's worth more, Bitcoin - an idea I think is too big to fail - valued at the moment at $40 million - or three Walgreens stores like this one listed for sale at $14 million (http://www.cityfeet.com/Commercial/ForSale/7800-Redwood-Road-West-Jordan-UT-84088-15108158L15108158L1.aspx)... I can't help but conclude the value of a Bitcoin is a fucking steal right now.  Especially while the world is finally just waking up to the idea of "OK, bitcoins aren't so bad after all, we just shouldn't leave them right under hackers' noses and we'll be fine".

People seem to think that because the cost of mining bitcoins was lower in the old days, it was lower risk.  But that's not the way I do the math.  If you were mining (or working on the bitcoin software or writing exchange software) in 2009 it was highly likely that you would lose everything.  All of your investment.  Everything you contributed would be wasted if bitcoin simply failed, which was highly likely in the early days.

Now it's much more unlikely to lose everything.  Sure you might be down 85% if you bought at $30.  You might be down a significant amount if you spent a bunch of money on mining rigs as difficulty spiked.  But the likelihood of losing everything is much, much lower than it was two years ago.  Hence it's lower risk now.

Analogy time:

If someone spends 5-10K on a startup running out of a garage, they basically need to write off that investment.  It's most likely that the startup will fail completely and there will never be a return on the investment.  Now suppose the startup is successful.  And they do an IPO (or Google buys them) at $1 Billion dollars.  Who has a higher risk investment?  The original angel investor or google/people-buying-stock?


Huh?  Libertarians think the government has a monopoly on speculative bubbles?  It was irrational exuberance.

Those of you worried about all of the bitcoins mined at difficulty 1 need to take a look at this graph.

http://ecdsa.org/stats.html

What you'll see, is that the vast majority of those coins haven't been touched.  Not when bitcoins were $20, not when they were on their way up, not when they were on their way down.  Also, you'll be able to see that most of those coins didn't get produced at a rate of 50 every 10 minutes.

The more coins that get mined, the less they matter.  Those are what, a million coins?  Two million?  As time goes on, and we're cranking out a million new coins every few months, those first coins matter that much less.

Possibilities that have crossed my mind include:

1 - whoever owns them has so many, knows that dumping them would crash the market, and has enough faith in bitcoin's future to not blow his load all at once.  Is waiting for the big long term payoff, a $30 bitcoin price is maybe small potatoes in his vision, or is incentive only enough to dump a few.

2 - many of them may be lost forever.

3 - many of them must be owned by Satoshi, who maybe died, or perhaps is also smart enough to know that moving all of those early coins will give us clues to his existence and deliberately spends only newer coins.

I once feared that those coins would come out and crash the market - I'm not so worried at this point.  If someone has them and is able to spend them, I trust that whoever's got them isn't going to crash my bitcoins to pennies with them, and has an interest in seeing Bitcoin's long-term longevity.  (and if they do, I'll be standing by to buy many of them up for pennies).

Yeah right, all this mining with a CPU at difficulty 1 should clearly be rewarded with 5 digit Bitcoin sums, AT LEAST!

And then those poor folks are at risk of losing their money. Man, that sucks.

Yea, it's unfair that all the early adopters will lose all their money when bitcoin crashes.

or,

It's unfair that those investing their time and money in the success of a startup company (an open source project called bitcoin) should earn any reward if it's successful.  

Also, bubbles never reinflate (at least not that quickly), so surely a rally now to new alltime highs would be impossible?

The poor distribution becomes apparent when you have a look at this chart: http://bitcoin.sipa.be/speed-ever.png It shows difficulty 1 for a whole year. The market has never been distributing those coins properly, as there haven’t been huge panic sells like this.

The early miners have been enjoying an unfairly high price AND unfairly low risks to accumulate Bitcoins.

Also, how can a free market void of government influence even produce a bubble? I thought you libertarians believe that bubbles are only due to the expansion and contraction of credit?

They got raped by the collapse of a speculative bubble. I'm not sure how you're connecting that to "poor distribution" (or, for that matter, what you mean by that phrase).