Stephen Reed's Million Dollar Logistic Model

[SlipperySlope]

My question remains. Why are coinbase transactions included? Why are first-moved-coins pool-payouts transactions included? These are not actual usage, they are the results of coin issuing.

Thanks for contributing to this discussion!

You suggest a way that mining payouts can be filtered out of the ordinary bitcoin transactions, so that we have a more principled data series of economic bitcoin transactions as input to a Metcalfe Law network-effects model relating either bitcoin price or market cap. A scan of the recent blocks created could be used to filter out transactions output directly or indirectly from a coinbase, i.e. 25 BTC block reward transaction.

In addition to perhaps obtaining a less noisy Metcalfe Law model, I wonder if the unexpected might occur. Satoshi envisioned that miners would be enthusiastic supporters of Bitcoin, and I was there back in 2010 to see that happen. If we remove the effects of their reward-based transactions from the data series, we might end up with more noise instead of less, if indeed the filter removes a substantial portion of the daily transactions.

For the present, I will continue to rely on the Blockchain.info data series for the Number of transactions excluding popular addresses. I invite other modellers to pursue alternatives and share their findings.

[BombaUcigasa]

For the present, I will continue to rely on the Blockchain.info data series for the Number of transactions excluding popular addresses. I invite other modellers to pursue alternatives and share their findings.

Should I find someone or something that can filter blocks better (I am interested in writing something by the above rules), I will update here.

The chart shows levels of transactions when only Satoshi was mining (and he did not send money to himself), it seems 100 is the 2009 level with only 1-2 people inside. In reality there are only a few thousands transactions that year and not over 50000 which are coinbase transactions.

I also think the first coinbase output transaction should be filtered out because pools were invented and that transaction was basically required for operating a pool but it was not something of utility (send value, spend value, receive value). p2pool for example puts the payouts in the coinbase transaction. The utility starts when pool users start to send bitcoin around.



Another thing that happens at the top of the chart, which is correctly excluded are off-chain transactions. Coinbase, BitPay and Circle for example, execute value transfers inside their own servers between users of their service. They combine and reuse funds and only push transactions in the blockchain when people send value outside the service.

This however does not add fees, data or txs to the blockchain so they can be safely excluded and the model should still map correctly. It also shows the future, people will forgo the blockchain costs and time for internal service settling, causing the 7tx/s limit to remain sufficient.

There are also some issues for transactions from multipools and altcoin pools that pay thousands of users at once but you can consider this a service built on top of Bitcoin.

[cryptomad]

Very Interesting read,Thanks to you...

[BombaUcigasa]

Slightly irrelevant at the moment, the price of Bitcoin should be valued in a mix of other external value systems, including gold, S&P 500, inflation, CPI, etc.



In 2012, gold peaked and you can see that the black line is higher than the white line, Bitcoin had actually less value than indicated by today's dollar. Since the chart is logarithmic, this doesn't affect it much, but remember gold went up 300% during the time Bitcoin gained popularity.

Also according to the models presented in this thread, a bitcoin should be worth about 1500 USD now, it is clear that the current undervaluation is half the story, the models themselves need to be adjusted as well in the following year.

[sidhujag]

Still underbouhht either its that trade of the century or we see a long slow decline to weed out new dumb money

[zimmah]

For the present, I will continue to rely on the Blockchain.info data series for the Number of transactions excluding popular addresses. I invite other modellers to pursue alternatives and share their findings.

Should I find someone or something that can filter blocks better (I am interested in writing something by the above rules), I will update here.

The chart shows levels of transactions when only Satoshi was mining (and he did not send money to himself), it seems 100 is the 2009 level with only 1-2 people inside. In reality there are only a few thousands transactions that year and not over 50000 which are coinbase transactions.

I also think the first coinbase output transaction should be filtered out because pools were invented and that transaction was basically required for operating a pool but it was not something of utility (send value, spend value, receive value). p2pool for example puts the payouts in the coinbase transaction. The utility starts when pool users start to send bitcoin around.



Another thing that happens at the top of the chart, which is correctly excluded are off-chain transactions. Coinbase, BitPay and Circle for example, execute value transfers inside their own servers between users of their service. They combine and reuse funds and only push transactions in the blockchain when people send value outside the service.

This however does not add fees, data or txs to the blockchain so they can be safely excluded and the model should still map correctly. It also shows the future, people will forgo the blockchain costs and time for internal service settling, causing the 7tx/s limit to remain sufficient.

There are also some issues for transactions from multipools and altcoin pools that pay thousands of users at once but you can consider this a service built on top of Bitcoin.

This will be very bad for bitcoin

If some centralized companies like circle and coin base become the de facto way of using bitcoin we're back to centralization. Sure, some smart people may be able to use the blockchain itself to avoid being controlled by centralized corporations, and at least they can't print real bitcoin (although who's to say they don't inflate bitcoin by fractional reserve, if the mayority uses their centralized systems without even actually owning their own bitcoin, no one is going to notice the bitcoin aren't real) well, they may notice there's more than 21 million bitcoin are in circulation, but it will be hard to seperate the real from the fake.

What's more, if all or most of the transactions are off-chain, than eventually miners will not get enough transactions so not enough fees and the hashrate will drop. Which will make bitcoin not very secure anymore, with all that hardware idling, it'd be pretty easy to attack the network.

[JayJuanGee]

For the present, I will continue to rely on the Blockchain.info data series for the Number of transactions excluding popular addresses. I invite other modellers to pursue alternatives and share their findings.

Should I find someone or something that can filter blocks better (I am interested in writing something by the above rules), I will update here.

The chart shows levels of transactions when only Satoshi was mining (and he did not send money to himself), it seems 100 is the 2009 level with only 1-2 people inside. In reality there are only a few thousands transactions that year and not over 50000 which are coinbase transactions.

I also think the first coinbase output transaction should be filtered out because pools were invented and that transaction was basically required for operating a pool but it was not something of utility (send value, spend value, receive value). p2pool for example puts the payouts in the coinbase transaction. The utility starts when pool users start to send bitcoin around.



Another thing that happens at the top of the chart, which is correctly excluded are off-chain transactions. Coinbase, BitPay and Circle for example, execute value transfers inside their own servers between users of their service. They combine and reuse funds and only push transactions in the blockchain when people send value outside the service.

This however does not add fees, data or txs to the blockchain so they can be safely excluded and the model should still map correctly. It also shows the future, people will forgo the blockchain costs and time for internal service settling, causing the 7tx/s limit to remain sufficient.

There are also some issues for transactions from multipools and altcoin pools that pay thousands of users at once but you can consider this a service built on top of Bitcoin.

This will be very bad for bitcoin

If some centralized companies like circle and coin base become the de facto way of using bitcoin we're back to centralization. Sure, some smart people may be able to use the blockchain itself to avoid being controlled by centralized corporations, and at least they can't print real bitcoin (although who's to say they don't inflate bitcoin by fractional reserve, if the mayority uses their centralized systems without even actually owning their own bitcoin, no one is going to notice the bitcoin aren't real) well, they may notice there's more than 21 million bitcoin are in circulation, but it will be hard to seperate the real from the fake.

What's more, if all or most of the transactions are off-chain, than eventually miners will not get enough transactions so not enough fees and the hashrate will drop. Which will make bitcoin not very secure anymore, with all that hardware idling, it'd be pretty easy to attack the network.

Aren't these various quasi-centralized and off the blockchain systems, such as coinbase and circle and even most of the established exchanges transitional institutions - because currently, there are a lot of obstacles in transitioning in and out of fiat and there is NOT really very credibly established decentralized exchanges.

Once bitcoin becomes more widely established and there becomes fewer needs to convert in and out of fiat, then there will likely evolve more and more businesses providing decentralized services.  I certainly do NOT know the answers to these questions nor do I have a crystal ball, but it does seem that bitcoin does NEED to go through some transitional phase(s) until it becomes more widely adopted and more part of the regular financial fabric - before we get there, however, there are going to be a lot more attempts, by traditional status quo banking institutions to take stabs at undermining bitcoin because bitcoin challenges the very core of some of the status quo financial arrangements.

[BombaUcigasa]

Once bitcoin becomes more widely established and there becomes fewer needs to convert in and out of fiat, then there will likely evolve more and more businesses providing decentralized services.

That would be expected, however look at the advantages of off-chain built services:
- instant no-wait transactions (1-2 seconds to update a central database)
- zero network fees (company can choose fees between 0 and regular blockchain levels, required for a single server)
- brand recognition (see http://www.google.com/trends/explore#q=blockchain%2C%20coinbase&date=today%2012-m&cmpt=q)
- familiar model (centralized company with visible public trust rating and identifiable representatives)
- less technical overhead (use email to manage bitcoins)
- very accessible (very simple intuitive processes compared to regular wallets)
- apparently more secure (centralized security, individuals are exempt from applying security practices, until
- fit for fiat-only AND bitcoin-only B2B processes (payment processors)

Some disadvantages
- centralized control, policy and security applies to all users in generic models which affects some users but is acceptable to the majority
- risk of bankruptcy which is not apparent until the company goes under and is actionable in courts (punish vs manage risks)
- network downtime (is critical for the blockchain but not as critical for a single domain)

In the future, people will still ignore the disadvantages and trade in security and costs for accessibility.

[shockload]

Some data for you in terms of internet adoption:

https://twitter.com/conradhackett/status/521485477870727168/photo/1

https://pbs.twimg.com/media/BzywR2nCcAAb2LF.png

[Trolololo]

I have made a non-linear regression of the historic Bitcoin prices:



More info here: Logarithmic (non-linear) regression - Bitcoin estimated value

[mmortal03]

Some data for you in terms of internet adoption:

https://twitter.com/conradhackett/status/521485477870727168/photo/1

What year is the first data point? I really hate badly labeled axes.

[cuddaloreappu]

Today there is thread at r/bitcoin claiming the number of transactions( excluding popular address) has hit all time high!

and here is the proof

https://blockchain.info/charts/n-transactions-excluding-popular?timespan=1year&showDataPoints=false&daysAverageString=14&show_header=true&scale=0&address=


So how can we take this into account?

[2586]

Today there is thread at r/bitcoin claiming the number of transactions( excluding popular address) has hit all time high!

and here is the proof

https://blockchain.info/charts/n-transactions-excluding-popular?timespan=1year&showDataPoints=false&daysAverageString=14&show_header=true&scale=0&address=


So how can we take this into account?

They're cherry-picking data. Notice the "daysAverageString=14" term in the URL.

[Pruden]

If you take the last 28 days, it's been setting new records for months.

[BitDreams]

When I read into metcalfe law it states

"Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system"

 You were modelling with number of transaction previously , and have decided now to model with the market cap since you say
 "market cap takes into account the supply of bitcoin that meets the demand of the marginal new adopter".

Buy my basic question here is if every new user who is running a wallet represent the nodes in the network, then is not the number of users a better variable to run the model than no.of transactions or market cap? and this model fits with metcalfe law better than no.of transactions or market cap right!

It would be really difficult to accurately predict the number of users across globe using bitcoin but am I right in what I say?

So why not have a model like this?

Personally, I have not sync'd a Bitcoin wallet in probably 6 months. Nor have I upgraded the client. If I had the ability to be rewarded by the network for participating, I'd be happy to keep my bitcoin client online but there is simply no reward that comes directly to me for accepting the very small risk of keeping my client connected.

There needs to be some sort of proof of stake because altruistic node hosting simply isn't cutting it.

Perhaps someone could eventually figure out what a typical consumer wallet looks like.

Pay a power bill, buy 15 gallons of gasoline, buy groceries - yep, you look exactly like a consumer by your spending habits so you get a satoshi for keeping your wallet in sync with the blockchain.

Otherwise I'm just going to use a centralized wallet host and that's going to reduce the number of participants in the network. So I find it interesting that POW is having a negative effect on the growth of participation in the network.

[mmortal03]

When I read into metcalfe law it states

"Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system"

 You were modelling with number of transaction previously , and have decided now to model with the market cap since you say
 "market cap takes into account the supply of bitcoin that meets the demand of the marginal new adopter".

Buy my basic question here is if every new user who is running a wallet represent the nodes in the network, then is not the number of users a better variable to run the model than no.of transactions or market cap? and this model fits with metcalfe law better than no.of transactions or market cap right!

It would be really difficult to accurately predict the number of users across globe using bitcoin but am I right in what I say?

So why not have a model like this?

Personally, I have not sync'd a Bitcoin wallet in probably 6 months. Nor have I upgraded the client. If I had the ability to be rewarded by the network for participating, I'd be happy to keep my bitcoin client online but there is simply no reward that comes directly to me for accepting the very small risk of keeping my client connected.

There needs to be some sort of proof of stake because altruistic node hosting simply isn't cutting it.

Perhaps someone could eventually figure out what a typical consumer wallet looks like.

Pay a power bill, buy 15 gallons of gasoline, buy groceries - yep, you look exactly like a consumer by your spending habits so you get a satoshi for keeping your wallet in sync with the blockchain.

Otherwise I'm just going to use a centralized wallet host and that's going to reduce the number of participants in the network. So I find it interesting that POW is having a negative effect on the growth of participation in the network.

Theoretically, even without forcing Proof of Stake upon anyone, the more bitcoins a person holds, the more incentive that there will be for them to want to hold their bitcoins on a well secured network, and therefore they will be incentivized to "give back" by way of mining.

Tangentially related to this, the more that someone holds, the more that they will also want to maintain their bitcoins in a completely trustless manner by way of downloading the entire blockchain.

This being said, as far as the necessity of mining is concerned, the fact that a said behavior is proportionally in a person's best interest does not always directly lead to a person choosing to follow through on their best interests. Exhibit A: people's diets and the widespread nature of obesity.

As the saying goes, a fool and their money are soon parted. I would think that those who have been rewarded with the most bitcoins by others over time would likely be smart enough to act in their best interests, as they would have the most to lose if the system failed.

A practical example: Consider the LeBron James' of the world (the rich people out there without any supposed technical savvy, that might not directly act in their best interests, due to their sheer ignorance of the matters at hand). They would not directly know the technical reasons as to why the network needs to be secured, but they would still know, at a basic level, that they need to secure their money somehow, and will thus trust others to secure their money by keeping money it in a bank, referring their questions to financial advisers who ARE in the know.

The banks and financial advisers of the bitcoin world will undoubtedly arise over time, then, and they will be directly responsible for the health of the network. They will stay apprised of the situation and how much of an overall hashrate is necessary, and they will, undoubtedly charge the nontechnical rich for their mining services.

[BitDreams]

"Theoretically, even without forcing Proof of Stake upon anyone,..."

I was hoping it wouldn't be forced but enticed. If it looks like a consumer wallet, spends like a consumer wallet, therefore it is rewarded as a stakeholder for being a consumer wallet. It doesn't have to be all of the reward for the formulation of a block but enough of a part of it that people sync wallets and become a node on a neighborhood level. This could be worked from the retailers angle as well: I am a gas station, I've got a bitlicense in fact from NY proving so and also a blockchain co signature that I paid $ to the IRS (mixing service hiding actual income of course) so I have proof of retail sales, and I can also prove that the following wallets were retail customers if need be (subpoena required of course), so I provide proof that I know a consumer. Kick in a reward to retailers for being part of the stake and their regulation fees are covered by the network too.

People just don't yet realize how magnetized commerce and blockchains are going to be and anyway, Bitcoin 2.0 is magnitudes more exciting that Bitcoin 1.0 and that's saying something. < evil grin moment > speculators will soon be realizing this...



Bitcoin vs GLD (U.S. Gold EFT) is the orange line, tight correlation since July, being held as an asset. Bitcoin 2.0, sidechains and a clear path forward regarding regulation will allow transactions on the existing network to grow. Right now, bitcoin is trading similar to gold, an asset that can be held when speculation seems dangerous - it's an odd thought I admit. Basically the speculators are absent from bitcoin at the moment, but with guidance they'll be set loose to bid up the promise of sidechains and one clear leader.

More people are seeing it... Brian Kelly (CNBC) @BKBrianKelly  ·  Oct 29 Be careful what you wish for...#bitcoin trading in lockstep with $gld for the last three months...  https://t.co/5yUMUwm00i

[mmortal03]

Sorry for the cross-post, but Trolololo's work definitely seems applicable here. Thoughts?

In this OP I will always post the last updated charts:

Calculate today's trendline price HERE

[79b79aa8d5047da6d3XX]

If I had the ability to be rewarded by the network for participating, I'd be happy to keep my bitcoin client online but there is simply no reward that comes directly to me for accepting the very small risk of keeping my client connected.

Can you please elaborate on why keeping Bitcoin Core connected represents a small risk? Not completely clear to me how that opens up an attack vector. Thanks!

[Adrian-x]

If I had the ability to be rewarded by the network for participating, I'd be happy to keep my bitcoin client online but there is simply no reward that comes directly to me for accepting the very small risk of keeping my client connected.

Can you please elaborate on why keeping Bitcoin Core connected represents a small risk? Not completely clear to me how that opens up an attack vector. Thanks!

I run a Bitcoin node on my network, the core client has an empty wallet so there is no risk of hacking my coins, as they are kept elsewhere. 

The risk is someone may find your client and some how get access to your wallet file and install a key-logger on your PC.