Stephen Reed's Million Dollar Logistic Model

[Adrian-x]

The Bitcoin Network Will Probably Be Compelled To Abandon Electricity-Consuming Proof-Of-Work in 2018

It is widely known that bitcoin mining is entirely wasteful unless the heat can be reused.

Waste is relative in nature waste = food so repurposing heat in this case is key to mining profitability.

Before PoW is abandoned and to accommodate the bandwidth and storage I predict mining will be dependent on Proof-of-Storage, only those who maintain live nodes earn mining options, those mining options will be sold on the free market and consumed / destroyed when a miner participates in the mining lottery, the demand to mine will be kept in check by the ability of the network infrastructure to grow, in effect it will be the nodes ability to accommodate the network growth that limits mining.

[aliro38]

Metcalfe's Law Explains 10x Price Growth Vs. 3.2x Transaction Quantity Growth

At least two posters, gbianchi https://bitcointalk.org/index.php?topic=441336.0
and Peter R https://bitcointalk.org/index.php?topic=400235.msg5877592#msg5877592
have presented a theory on the relationship between Bitcoin transactions and bitcoin prices.

The consensus result is that prices are growing in proportion to the square of the transaction quantity and also in proportion to the number of addresses. Peter R uses the Blockchain.info data series that excludes the 100 most popular bitcoin addresses from the recorded transaction quantities.

Here is the outstanding chart provided by Peter R that best illustrates the application of Metcalfe's Law to bitcoin prices . . .

https://i.imgur.com/ktUvPjh.gif

And here is the example device network from the Wikipedia article on Metcalfe's Law. The insight of the law is that the utility of the network, e.g. bitcoin users, is directly related to the number of reachable nodes. The number of connections is the approximately the square of the number of nodes.

http://upload.wikimedia.org/wikipedia/commons/thumb/1/1d/Metcalfe-Network-Effect.svg/220px-Metcalfe-Network-Effect.svg.png

Supposing that Bitcoin completely replaces the current payment infrastructure entails a transaction rate that surpasses the current quantity of bank card transactions. At a growth rate of 3.2x annually, Bitcoin daily transaction quantity will exceed 350 thousand in 8 more years. But applying Metcalfe's law predicts a bitcoin price of 58 billion USD per coin at that point - which is implausible. Therefore it is reasonable to suppose that small-world effects will disconnect the bitcoin price relationship from transaction volume, in that the future whole Bitcoin network will not be uniformly well connected but rather be clusters of well connected nodes. Here is the example graph from the Wikipedia article on small world networks . . .

http://upload.wikimedia.org/wikipedia/commons/thumb/3/37/Small-world-network-example.png/220px-Small-world-network-example.png

I believe Metcalfe’s Law is already long disconnected.
The curves look good so far but I think it is rather arbitrarily chosen to do so without necessarily reflecting the fundamentals. If Metcalfe’s linear parameters were instead chosen to closely fit the early phase (first 3-400 days from 17Jul2010), one can see the predicted price values for 2013-2014 would fall well above of what they are currently drawn, hence my introductory statement.

My best guess is that Metcalfe’s Law was holding true and was suppose to give accurate predictions in a bitcoin-world of independent miners (&users). On contrarily, the vast majority of today miners gather around pools that I suppose can be regarded as ‘super-nodes’, where all miners hiding behind them are perceived by the outside bitcoin network as Neffective=k*Nreal, where k<1. In effect, Nreal is reduced to Neffective and similarly the number of transaction is reduced too (since most pools pay above a certain threshold instead of paying at each block found). Alike, many bitcoin users/traders (including those who are not necessarily miners) hide behind exchanges that act as super-nodes too.
If one assumes k=1 in early days, it would be interesting to see the curve broken in two parts (or three parts – I can see more than one inflexion points) and from there to firstly compute the proportional coefficient(s) for best fit on sqr(N) while k=1, then to use the same coefficients for computing k for later/present times.
By further including a k=f(t) in the model it may open it for exciting correlations and perspectives.

In the above I fully agree k would be the coefficient for small-world effect and k=f(t) would model the world getting smaller (from bitcoin viewpoint). Maybe instead of abandoning Metcalfe’s model altogether one may try to k-adjust it so as to correlate the price with transaction volume/ no. of addresses, which are imho very good input parameters.
So, in essence, my proposal would be to consider Metcalfe's adjusted model as a second tool to predict price variation and eventually to increase confidence in the logistic model during times when price under-perform instead of repeatedly questioning the validity of initial assumptions.
Please comment/criticize.

I’d take this opportunity to thanks for the great work done and published here! I think this is one of the best if not the best thread of the entire forum. Very clean, accurate and at high standards – my sincere congratulations! Great contributors too!
With your permission I will have some questions on the subject/logistic model but I’ll take some more time to go again through it.

Best regards,

[SlipperySlope]

I’d take this opportunity to thanks for the great work done and published here! I think this is one of the best if not the best thread of the entire forum. Very clean, accurate and at high standards – my sincere congratulations! Great contributors too!
With your permission I will have some questions on the subject/logistic model but I’ll take some more time to go again through it.

Best regards,

Thanks so much!

My new project needs this level of scrutiny or it will fail . . . Bitcoin Proof-of-Stake

[SlipperySlope]

So, in essence, my proposal would be to consider Metcalfe's adjusted model as a second tool to predict price variation and eventually to increase confidence in the logistic model during times when price under-perform instead of repeatedly questioning the validity of initial assumptions.
Please comment/criticize.

I believe that a good time to revisit both models, beyond keeping them up-to-date, would be somewhere near the bottom of the next bubble. Perhaps in the late fall. By then we should see more adoption for ordinary transactions and perhaps a lesser proportion involving an exchange. Likewise with the worldwide growth of the Bitcoin Economy there will be more opportunity for small world effects to disconnect the Metcalfe Law model from its up-to-now very close fit to prices.

[Siegfried]

I understand the logic here, and agree that is seems as though mining is wasteful.  Maybe that was your point.  Your fictitious conversation illustrates the difficulty in explaining the benefits of PoW to a general audience.  

But now let's consider the rest of your story.  After the network switches to proof of stake, someone would have the following great idea:

Congressman Y: We have saved the people of the world huge amounts of natural resources by adopting PoS.  To reward the world with this new found abundance, we will issue new bitcoins and direct them towards projects for the greater good of humanity.  We will appoint a wise group of experts to determine the optimal amount of bitcoins to be issued so that we can maintain inflation at 2%, keep the people employed, and grow the economy.    

If bitcoin ever leaves PoW, I think it will be the beginning of the end.  I'm not saying it can't happen….

Ha. You are fast. I wanted to edit my post to include the Energy Charter Treaty signed by many countries in 1991 whose Article 19 requires that each Contracting Party "... shall strive to minimise in an economically efficient manner, harmful Environmental Impacts arising from energy use.". Governments already have a means to regulate bitcoin mining worldwide.

I point out the likelihood of a forced bureaucratic solution, because I want our industry to provide a solution given plenty of time to consider and implement it. The hardest part for us I think, would be the riddance of commercial miners and the equipment providers that benefit most from the earned block rewards.

Proof-of-Stake would reward network-attached, blockchain-maintaining bitcoin holders about 10% annual bitcoin dividends, halving according to schedule, on their respective held coins. If there was a 12 month or more advance notice of the blockchain fork, then datacenter owners could retain the bitcoin otherwise spent on new equipment - giving them a substantial stake in the new scheme.

The PoS scheme enables numerous more miners to participate with ordinary computers, and upon a blockchain fork, those new miners would outvote the current pools, who actually have only one miner for the entire pool, as the pool members submit shares and do not maintain a copy of the blockchain.

Bitcoin definitely consumes less energy than the traditional fiat financial system as a whole, so maybe the Energy Charter Treaty could be used to compel governments to adopt Bitcoin. Unlikely, I know, but the argument could be made.

[deisik]

Bitcoin definitely consumes less energy than the traditional fiat financial system as a whole, so maybe the Energy Charter Treaty could be used to compel governments to adopt Bitcoin. Unlikely, I know, but the argument could be made.

How do you know for sure that Bitcoin will consume less energy than the fiat financial system in case it grows to a scale comparable with the latter? Also, what do you mean by the whole? The cost of all transactions taken together?

[Adrian-x]

Bitcoin definitely consumes less energy than the traditional fiat financial system as a whole, so maybe the Energy Charter Treaty could be used to compel governments to adopt Bitcoin. Unlikely, I know, but the argument could be made.

How do you know for sure that Bitcoin will consume less energy than the fiat financial system in case it grows to a scale comparable with the latter? Also, what do you mean by the whole? The cost of all transactions taken together?

In one word "deflection death spiritual" as resources are reallocated to serve people's needs.

The deferred consumption during hyper deflation will radically alter the energy usage of society.

Edit: Energy prices will not hyper deflate.

[deisik]

Bitcoin definitely consumes less energy than the traditional fiat financial system as a whole, so maybe the Energy Charter Treaty could be used to compel governments to adopt Bitcoin. Unlikely, I know, but the argument could be made.

How do you know for sure that Bitcoin will consume less energy than the fiat financial system in case it grows to a scale comparable with the latter? Also, what do you mean by the whole? The cost of all transactions taken together?

In one word "deflection death spiritual" as resources are reallocated to serve people's needs.

The deferred consumption during hyper deflation will radically alter the energy usage of society.

Sounds horrific. A patient's body temperature lowered as he died...

[Adrian-x]

Sounds horrific. A patient's body temperature lowered as he died...

More like a fever, the adjustment in temperature prevents the pathogen from replicating.
Cheep energy is consuming the world, we are destroying Non-renewable resource for trivial things it is like burning start up capital on in a business in SV to fly to the most extravagant restaurant in NY for daily lunch.

[deisik]

Sounds horrific. A patient's body temperature lowered as he died...

More like a fever, the adjustment in temperature prevents the pathogen from replicating.
Cheep energy is consuming the world, we are destroying Non-renewable resource for trivial things it is like burning start up capital on in a business in SV to fly to the most extravagant restaurant in NY for daily lunch

After you have burnt your start up capital, you have no more money. i.e. nothing else to live on. But it is not necessary to go that far, since your competitors would kick in even before that with more money on hand (read no extravagant restaurant in NY) and throw you out of business...

So you have to be thrifty and prudent as much as possible due to competition

[Adrian-x]

Sounds horrific. A patient's body temperature lowered as he died...

More like a fever, the adjustment in temperature prevents the pathogen from replicating.
Cheep energy is consuming the world, we are destroying Non-renewable resource for trivial things it is like burning start up capital on in a business in SV to fly to the most extravagant restaurant in NY for daily lunch

After you have burnt your start up capital, you have no more money. i.e. nothing else to live on. But it is not necessary to go that far, since your competitors would kick in even before that with more money on hand (read no extravagant restaurant in NY) and throw you out of business...

So you have to be thrifty and prudent as much as possible due to competition

OK you get it. But realistically our economy is in the equivalent of the dot com bubble. We are spending our natural resources/capital on consumer extravagances like flying in drinking water from fiji and making toxic Factory food with multi year shelf lives, dare I say it even roads.

The growth economy will die, can we save some capital before it does I hope will we. In this metaphor the competition are the cryptocurrencies. Industry has been corrupted with fraction reserve banking, and is serving the fiat masters. 

[deisik]

Sounds horrific. A patient's body temperature lowered as he died...

More like a fever, the adjustment in temperature prevents the pathogen from replicating.
Cheep energy is consuming the world, we are destroying Non-renewable resource for trivial things it is like burning start up capital on in a business in SV to fly to the most extravagant restaurant in NY for daily lunch

After you have burnt your start up capital, you have no more money. i.e. nothing else to live on. But it is not necessary to go that far, since your competitors would kick in even before that with more money on hand (read no extravagant restaurant in NY) and throw you out of business...

So you have to be thrifty and prudent as much as possible due to competition

OK you get it. But realistically our economy is in the equivalent of the dot com bubble. We are spending our natural resources/capital on consumer extravagances like flying in drinking water from fiji and making toxic Factory food with multi year shelf lives, dare I say it even roads

Though it may look true, or in fact be true, we should look at the whole thing. Spending natural resources/capital on consumer extravagances has a side effect (or is it a primary effect?) of stimulating scientific progress which is what ultimately matters and drives the economy ahead...

[deisik]

The growth economy will die, can we save some capital before it does I hope will we. In this metaphor the competition are the cryptocurrencies. Industry has been corrupted with fraction reserve banking, and is serving the fiat masters. 

And due to the said scientific progress, new resources would evidently come about (as it happened with natural gas and oil in the 19th century or uranium in the 20th, despite the fact that all of them had been known and used previously), so the growth economy should actually go on...

Helium-3 looks the most promising in this aspect that we can now think of 

[Adrian-x]

The growth economy will die, can we save some capital before it does I hope will we. In this metaphor the competition are the cryptocurrencies. Industry has been corrupted with fraction reserve banking, and is serving the fiat masters. 

And due to the said scientific progress, new resources would evidently come about (as it happened with natural gas and oil in the 19th century or uranium in the 20th, despite the fact that all of them had been known and used previously), so the growth economy should actually go on...

Helium-3 looks the most promising in this aspect that we can now think of 

By growth economy I was referring to, is driven by the goal of more. Fiat has done it's job it's time to move over.
The new economy working within finite constraints will evolve the goal of better,  scientific progress will be unimpeded.

[deisik]

The growth economy will die, can we save some capital before it does I hope will we. In this metaphor the competition are the cryptocurrencies. Industry has been corrupted with fraction reserve banking, and is serving the fiat masters.  

And due to the said scientific progress, new resources would evidently come about (as it happened with natural gas and oil in the 19th century or uranium in the 20th, despite the fact that all of them had been known and used previously), so the growth economy should actually go on...

Helium-3 looks the most promising in this aspect that we can now think of  

By growth economy I was referring to, is driven by the goal of more. Fiat has done it's job it's time to move over.
The new economy working within finite constraints will evolve the goal of better,  scientific progress will be unimpeded.

I don't really see how something being constrained could be growing. What you say can be reduced to saying that the goal of economy lies beyond human needs, wants and desires. Which is obviously flat out wrong... 

[Siegfried]

Bitcoin definitely consumes less energy than the traditional fiat financial system as a whole, so maybe the Energy Charter Treaty could be used to compel governments to adopt Bitcoin. Unlikely, I know, but the argument could be made.

How do you know for sure that Bitcoin will consume less energy than the fiat financial system in case it grows to a scale comparable with the latter? Also, what do you mean by the whole? The cost of all transactions taken together?

There was a great article about this on Coindesk recently. The fiat financial system energy cost includes energy for all of the physical bank buildings and computers, transportation for millions of bank employees, production and transportation of massive amounts of paper and plastic, etc. All of that could be eliminated by Bitcoin. The only energy demand in Bitcoin is mining. While the energy consumption of Bitcoin mining will increase, it is inconceivable that it will approach the level of the fiat system today.

[Siegfried]

The growth economy will die, can we save some capital before it does I hope will we. In this metaphor the competition are the cryptocurrencies. Industry has been corrupted with fraction reserve banking, and is serving the fiat masters.  

And due to the said scientific progress, new resources would evidently come about (as it happened with natural gas and oil in the 19th century or uranium in the 20th, despite the fact that all of them had been known and used previously), so the growth economy should actually go on...

Helium-3 looks the most promising in this aspect that we can now think of  

By growth economy I was referring to, is driven by the goal of more. Fiat has done it's job it's time to move over.
The new economy working within finite constraints will evolve the goal of better,  scientific progress will be unimpeded.

I don't really see how something being constrained could be growing. What you say can be reduced to saying that the goal of economy lies beyond human needs, wants and desires. Which is obviously flat out wrong...  

Think of growth as getting better instead of getting bigger. When we talk about personal growth we usually mean learning to paint or play the piano, not eating 50,000 calories per day and injecting ourselves with steroids. You won't survive long if you do that. The goal of the economy should be to satisfy human needs, wants, and desires in a sustainable way. If we ignore sustainability, we will soon perish.

[deisik]

By growth economy I was referring to, is driven by the goal of more. Fiat has done it's job it's time to move over.
The new economy working within finite constraints will evolve the goal of better,  scientific progress will be unimpeded.

I don't really see how something being constrained could be growing. What you say can be reduced to saying that the goal of economy lies beyond human needs, wants and desires. Which is obviously flat out wrong...  

Think of growth as getting better instead of getting bigger. When we talk about personal growth we usually mean learning to paint or play the piano, not eating 50,000 calories per day and injecting ourselves with steroids. You won't survive long if you do that. The goal of the economy should be to satisfy human needs, wants, and desires in a sustainable way. If we ignore sustainability, we will soon perish.

You can't define "getting better" in any measurable way since every individual thinks of better in a unique way. Actually, the goal of the economy is to satisfy human needs in the most efficient way... Nothing is sustainable in the long run!

[Adrian-x]

You can't define "getting better" in any measurable way since every individual thinks of better in a unique way. Actually, the goal of the economy is to satisfy human needs in the most efficient way... Nothing is sustainable in the long run!

I like your definition of getting better as unmeasurable and better for every individual in a unique there own way.
Economy's cant have goals, an economy is a measure of the interactions of of the individuals in the economy, to attempt to control it requires the manufacturing of consent and a controller. (there is nothing wrong with measuring predicting and acting on that information, we are now dependent on it)

The economic system we have constructed as a constraint today, is a system some believe is the most effective way to maximize resource allocation with maximum efficiency, it isn't and they are wrong. Our economic system should be nothing more than an extension of the natural systems is depends on. It is not barbaric as many fear, if it isn't embraced we will consume the natural support systems we depend on and that will be very unpleasant but today's standards.  

Siegfried explained it, we don't need more food, more roads,  more houses, we need a better and enjoyable food, we need better ways to get around,  we need better ways to accommodate our selves, and better in the context of the entire ecosystem not just the virtual meme we call an economy.

[deisik]

You can't define "getting better" in any measurable way since every individual thinks of better in a unique way. Actually, the goal of the economy is to satisfy human needs in the most efficient way... Nothing is sustainable in the long run!

I like your definition of getting better as unmeasurable and better for every individual in a unique there own way.
Economy's cant have goals, an economy is a measure of the interactions of of the individuals in the economy, to attempt to control it requires the manufacturing of consent and a controller. (there is nothing wrong with measuring predicting and acting on that information, we are now dependent on it)

I'm not talking about a goal as a concious effort of setting an aim and making plans to reach it. Actually, it was not me who first used the term here. But nevertheless, if we proceed from the fact that humans act rationally (after all this is what the whole science of economics is based on), we can talk about economy having a goal since all humans are of a kind...