I agree in one important sense: my comments today on store of value become irrelevant if a new coin (new ledger) emerges and gets massively more investment from outside the current crypto community such that Bitcoin users only constitute a tiny percentage of crypto users anymore. It's clear enough why, because in that situation, we potentially have most of the population using a cryptoledger for the first time without ever having considered Bitcoin a store of value. Instead they consider the new ledger as a store of value, because it's all they've ever known post-fiat. In their minds, the SoV-destroying precedent of "must switch ledger when upgrading protocol" has never been set.

However, I think the analysis I gave earlier today would apply to that ledger, and we'd never see any ledger switches after that except in catastrophic circumstances.

I see what you mean. It's a function of the strength of the holders' hands. The stronger the hands, the greater the wealth effect. As your excellent analysis of dishoarding shows, there's an incentive to hold for the first few doublings (whatever starts to be life-changing), then sell at a certain rate, so it doesn't seem that useful to generalize from an example where the maximum any holder could have made by selling is way less than $50,000.

However, your point holds to a degree because the 10% are very motivated to hold at first. But I think "at first" are the operative words. There's a whole lot of upside to traverse between, for example, XMR and BTC. All the more so in the case of an empty ledger or new coin.


I think I addressed this by saying that people wouldn't switch to a new coin all at once in any case, unless Bitcoin was already doomed. They need years of testing, high valuations, etc.


I still think this whole scenario ultimately relies on long-term holders getting spooked by short-term gyrations absent fundamentals, and that those gyrations probably wouldn't be allowed to happen by the arbitrageurs. However, I should note that I personally don't necessarily even think that if, for example, Dogecoin temporarily exceeded Bitcoin's market cap in a crazy rally that it would spell doom for Bitcoin. I take seriously the ledger-refinement point that has endowed Bitcoin with uniquely strong hands over the years, and of course Bitcoin's position isn't maintained merely by its price, but by infrastructure, track record, dev team, length of time at very high valuations (gigantic bullseye for attackers), etc.

This isn't a moral criticism, but a practical one, as argued in the post. Stores of value can change, but this cannot be a fast process as that contravenes the very definition of "store of value." Not unless it absolutely has to happen (facing catastrophe), as I also mentioned. Or let me make it more clear: I do not think the market will accept changing the store of value except as an absolute last resort.

FWIW, I don't agree with Justus's suggestion that altcoin investors are attempting to subvert the basis of money.

This is one reason I've been wary of the "Bitcoin is shopper's paradise" idea of the past few years where merchant adoption was overemphasized or emphasized before its time, and the premature reference to Bitcoin as "the currency of the Internet" (/r/Bitcoin's sidebar) when it only "has currency," as it were, in a few niche markets so far. This marketing brought in so many people who didn't understand that everything is founded on SoV, and who didn't understand the ledger but rather thought of BTC as "digital coins you can send through the Internet" (the famous WeUseCoins video with 6M views), with all the second-thoughts and objections that that distorted understanding results in.

This is the first time I've noticed that these three misunderstandings are all interconnected and feed on one another. Roughly:

1) "Bitcoin is (already) a currency," rather than an investment based in part on its future promise of becoming a currency,* and where store of value is an afterthought, if that.

2) "Bitcoins are digital tokens" where the ledger and Money as Memory concept is completely missed.

3) "Switching protocols means switching ledgers," a.k.a. the Fundamental Theory of Altcoin Investing, and the cries of "Bitcoin maximalism."

*My favorite refutation of this misunderstanding is the gilded comment here in response to Rick Falvinge.



Representative snapshots from the subreddit sidebar, the WeUseCoins "What is Bitcoin?" video, and an Ethereum blog post:

It seems the actual scenario posed is that 10% (or 20%) are convinced to move, and 90% (or 80%) remain convinced to stay. If we introduce the additional premise that the majority (80-90%) actually has major doubts as well, then I agree that something like what you're suggesting could happen (ignoring the spin-off option for now), though it depends on the degree of doubt.

It still all seems to come down to a more mundane conclusion: "If 10-20% are deadset on exiting and the remaining 80-90% are shaky and considering leaving, a mass exodus may well be in the cards." (Though as I've said I think a spin-off is what would actually happen, or just a hard fork-off with forkbitrage on the exchanges.)


Certainly, but I don't see a scenario where even 10% of bitcoiners would switch to an empty chain, as that would imply a chain with no track record. To switch, there must at minimum be a very compelling reason and also a reassuring guarantee that things would be all right. It takes a lot of testing with large amounts of money on the line to know a chain is secure. (One might even argue that those amounts need to be within something like an order of magnitude of the chain being replaced.)

A chain with a track record that was so promising would already have received significant investment from bitcoiners who keep abreast of such things (and in such a crisis scenario this would be most bitcoiners), with that investment corresponding to the chain's perceived chances of taking over on its fundamentals. So then my original point: The surge for no fundamental reason seems like it should incite these people to sell. "1% chance of takeover, so I want it as 1% of my portfolio...but now it's gone up 8x and is ~8% of my portfolio yet still seems to have a 1% chance of takeover. This is just market irrationality, I benefit by selling a bunch at this price."

I also note that Poloniex just opened leverage, which may mean they will allow shorting soon.


I'm not sure how you're using the term "wealth effect" here. It usually is used to mean "people spend more when their portfolio value rises," but here it sounds like you mean an amplified price effect due to thin markets on exchanges. If that's the meaning, then it seems like it would depend on market depth (relevant if you're generalizing from the CKG example).


I'm actually not talking about spinoffs here. I just used the word "ledger" because that's one of my preferred terms for "coin" or "altcoin." I meant that the 90% will sell their allocations in the altcoin and buy more BTC, for the reasons mentioned above, and that I think this negates the small float effect.


For a more generalized counterargument, presuming I understand what you intend by the term wealth effect, I would say that the scenario you posed relies on an inefficiency in the market, and insofar as we define arbitrage as "rectifying those inefficiencies for profit" we can say the effect should be mitigated/eliminated by arbitrageurs - as long as fairly basic market infrastructure is there.

It seems the opposite point is more relevant: no one has yet been caught via blockchain analysis (though someone did put together a plausible-looking connection between DPR and Carl Mark Force IV because he didn't even use a mixer).

This isn't to say that no one will be caught, but that the motivation of the community, investors, devs, etc. to work on and implement more complete/default anonymity is based entirely on conjecture at this point (as, one might add, is the functional anonymity of the anonycoins). You can expect a surge in interest once the first arrest is made using chainalysis, and the problem will likely repair itself through something like JoinMarket.

Ring sigs could end up being a cleaner solution, but again, switching ledgers destroys everything the whole crypto movement is based on (store of value), so if pressed I believe the market will adopt the spinoff solution. Note that a premature spinoff is bad because the snapshot goes out of date, and there is Schelling point consensus to consider, so arguably we shouldn't expect to see a serious spinoff until the eleventh hour.

Yeah I'd like to see it done, though didn't Stellar already do it? I think there are still some technical kinks to iron out in order to get a more perfect "snapshot" of the Bitcoin ledger at a given time (Peter may be able to comment), but as an experiment and pedagogical tool it would be neat to try.

Since this is the hard money thread, I'd like to query the group:

How can one understand that Bitcoin is first and foremost about store of value and still be interested in the idea of an altcoin (alt-ledger) taking over Bitcoin?

To me, accepting the precedent that the ledger gets replaced when the protocol does, means throwing away the entire concept of crypto as a store of value. How would the market value any cryptoledger as a store of value if you had to actively switch out of it every few years (months?) as new protocols came along? Worse, you'd have to pick the winners correctly.*

I'm in the "we don't switch ledgers" club, because I think that's the only one the market will ultimately support. Anything else subverts the entire basis of money. It's pushing the proverbial red button on the whole concept of cryptocurrency. The only time to switch ledgers is when it is absolutely necessary to avoid total catastrophe. It should be a once in several centuries event, or at most once a generation (~30 years).

Perhaps the argument is, "We only do it once, because we just got this bit wrong with Bitcoin. This altcoin is the ideal form. No more changes after that." But to the market, the precedent has been set. Everyone knows what happens when some obscure flaw comes to light requiring another protocol change. Store of value goes *splat* again. The whole concept has been set back decades.

*Lottery ticket investing (Pascal's Mugging investing?) only works when the set of credible lottery tickets (investment candidates) is somewhat limited; if this dynamic takes hold there will be thousands of plausible "next top dogs" because the incentive will be overwhelming to create and cleverly market them.

My sense is that most of the investors in the more promising altcoins like Monero are Bitcoin investors as well, who, like rpietila also are strongly weighted toward Bitcoin but have just a bit in an alt or two. I don't see how the top altcoins can have anywhere near their current market caps without simply being side investments by bitcoiners who are hedging against that possibility at the rates revealed in their market cap ratios to Bitcoin. "At the rates" is the key aspect. Why suddenly change your portfolio without a fundamental reason?

However, even if this isn't the case, what you're saying can only really hold true if most altcoin investors are single-coin investors. Because if they invest in, say, 50% Litecoin and 50% Dogecoin, why should they allow their portfolio to go to 90% LTC and 10% Doge, for example, as people rush into Litecoin for no fundamental reason? Their portfolio weighting already suggests they are happy with their bets, so why would they allow them to be changed? They should be selling LTC and buying Doge to maintain their weighting as they wanted it. Therefore the 10% "rogues" also empower their own altcoin competitors.

And in the end, even if you don't short or sell the altcoin at all, its holders are of course much weaker hands than typical BTC holders, so there should be a lot more selling on the way up. If it's a mined coin, also, the inflation rate tamps the price back down as mined coins flow into the system, just like Bitcoin in 2014. (Monero most especially because of its fast inflation rate.)

Maybe an unstated premise is that a temporary situations of an altcoin having a high "market cap" compared to Bitcoin would cause everyone to flood into that coin. I don't see that at all. Again, BTC holders tend to be Smaug-like strong hands, not price chasers. Plus, where are you going to get this sudden burst of an entire 10% of BTC holders changing their minds? If it's too slow, remember, it fails to sweep the thin markets. And even if it were somehow coordinated to deliberately spike the market cap on the thin exchanges, most of these people are going to lose horribly to slippage.

Overall I just don't see it. 10% is basically 10%. People don't switch their trust affiliations fast enough, and track records don't develop fast enough. I only see this as possibly being able to have some short-term psychological impact at the margins, in a hypothetical situation where the altcoin was already right about to take over anyway.

But if that situation ever looked plausible, it's spin-off time ♪

If your main point is how few "rogues" (~10%) it takes to switch to a new majority ledger, I think you may be neglecting the arbitrage opportunities that would create. Arbitrage seems to undo the cascade effect of the small exchange float, with arbitrageurs profiting from that market inefficiency.

That is, if the scenario is such that 10% of investors are motivated to switch their portfolio allocations (whether slowly or quickly), then by hypothesis the remaining 90% are not motivated to change their portfolio allocations. But the actions of the 10% result in the portfolios of the 90% changing anyway, against their will.

For example, suppose the 90% only wanted to hold a "tiny bit" of their crypto-wealth as LTC and all the rest as BTC, but now the ongoing price change has left them with say "5x a tiny bit" of LTC and a little less BTC.

Insofar as the 90% are mostly strong hands,* not price chasers, they will react by bringing their portfolios back in line. That means they will do the opposite to what the 10% are doing, but with 9x the force: sell their allocations in the minority ledger, now for a giant premium, and buy more BTC at these cheap prices. I believe this negates the "small float" issues of having only a tiny amount of each coin available on exchange at any one time (not to mention that when prices move drastically a lot of coins [and fiat] come out of hiding).

In the end it seems like the price will balance out as one would expect, with the market cap of the new ledger being about 10% that of the Bitcoin ledger, as I think Litecoin once was. The price will of course overshoot to the downside temporarily depending on how fast the switch happens and how weak the average hands are (but exhausting the coins on exchange and thereby bringing coins out of hiding means awakening the Smaug-level strong hands). And any overshoot is yet a further opportunity for arbitrage to further entrench the majority ledger investors who have the strongest hands.

So I tend to think "it all boils down to normalcy" with this one. That is, 10% switching just means 10% switching. If they switched to Litecoin, for example, that would put its market cap at something like 10-15% of Bitcoin's, and for lesser-valued coins a bit closer to 10%.

*Which is one of the nice things about having a mature ledger that has used years of extreme volatility to throw all but the strongest hands off the bronco

The nice thing is we now have this wonderful market mechanism for separating the wheat from the chaff in economic theory. And once prediction markets arise, this mechanism will become even more powerful and with far-reaching implications.

Haven't tried these. Rogue Legacy looks interesting. How does it compare to Dungeon Crawl?

I think this boils down to the set of scenarios where the government quasi-embraces Bitcoin but tries to control it to various degrees, wherein depending on how much control they exert, there are various possible results ranging from a fork to a spin-off. When and if it becomes compelling enough to make Bitcoin as default-anonymous as Monero appears to be, that will happen. So far no real attacks have been lobbed from the state, so there is no need yet. The market punishes premature action.

It would be fruitless because Bitcoin could just fork off to evade. If Bitcoin ultimately needs to be private by default, it will become that way (and if it can't hard fork that in, it can spin off an anonycoin...but the market won't accept this prematurely).

We're doing our part here and elsewhere. A systematic guide would be very nice, though I think people do pick up the key ideas with enough exposure via high-visibility forum/reddit posts. I've seen many come around over the months and years. A comprehensive education project would certainly speed up that process.

In a scenario where miners are banned from processing "many to many" transactions, what happens to anonycoin miners? Are you saying there is something about Bitcoin miners that makes them unable to anonymize themselves? (If so, who is Satoshi? )

Actually it's important to note that BTC are fundamentally fungible, in that UTXO are indistinguishable, even in principle, once they are part of a many-to-many transaction. It's just that it's not super-convenient to do that with Bitcoin in a systematic way (for now; it could be argued that it will never be feasible enough to avoid chainalysis, but I haven't seen such an argument*).

*And if we go down the conjectural road this slingshots back to the "anonymity coins" because how sure can you really be of their complete anonymity? It remains up in the air whether there is any advantage until we experience an attack by an entity wanting to de-anonymize people who are actually using each coin's anonymity options to their fullest.

I'm a Bitcoin-ledger "maximalist," but not a Bitcoin-protocol maximalist

Aren't you worried about your favored altcoins being spun off? You don't need to be able to hard fork ring sigs into Bitcoin-the-protocol, only spin off the feature into Bitcoin-the-ledger.

After all, if one accepts the premise that every time a better protocol comes along we should start a bran new ledger, there can be no long-term investment value in any coin, since it is bound to be replaced by something better in a few years.

This leads to the idea that we should hop around collecting little chunks of all the "promising" altcoins, but under this Pascal's Wager argument it is very hard to determine what is really promising, and there are eventually an intractable number of such wagers to have to both evaluate and invest small amounts into (making the total a big amount).

In contrast with this what seems to me rather tortured logic, we have the simplicity and elegance of spin offs. Change the protocol without changing the ledger. Even keep many protocols at the same time, each with their own Bitcoin-ledger where if you own 1% of all BTC you always by default own 1% of each of the other coins. Instead of the onus being on the Bitcoin investor to ferret out all the possible good altcoins, the investor is an investor in everything by default, and only would investigate the newcomer-protocols for the purpose of selling off the obviously un-promising ones for extra money.

In addition to all this, to discard the ledger upon protocol upgrade also seems to ignore the economic importance of the ledger.

So not a pegged sidechain but something else?

Coders gonna code. But I think it's too much to say they're ignoring the economics. I think a lot of them simply prefer a technical solution because it is more tractable/knowable/familiar to them. They may acknowledge that the market may make everything work out in the end, but they don't see it as their position to jump into the unknown like that, or at least to support that idea ("the nail that sticks out gets hammered down" - if bad stuff happens, they get the blame if they were the one supporting an idea that is perceived as not being appropriately conservative).