The early-adoptor unfairness

[Mark Oates]

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.

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.

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.)

[kgo]

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.

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.

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.

[dvide]

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

[westkybitcoins]

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.

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.

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.

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!

[westkybitcoins]

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.

[JoelKatz]

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.

The problem is not that you are incorrect about the amount risked or the potential reward. The problem is that you completely ignore the probability of the reward. By similar logic, we should all buy lots of lottery tickets. I mean, they cost a buck or two, you blow that on a latte without even thinking about it. And the potential rewards are millions.

And we should also buy lots of penny stocks.

And I suppose everyone who has ever sold a Bitcoin for less than $10 is a fool.

[neptop]

Yeah, I also always complain about the people winning in lottery, have been born into a wealthy family or had more luck than I. That's so unfair.

But seriously, any kind of business is a luck thing. See stock markets. There are various stocks, especially Asian where you can invest a very low amount of money and make a lot. Or lottery.

I am a (somewhat) early adopter. I found the project on SF and occasionally had it running. It defiantly wasn't day and night. It wasn't even in auto start. Most of my Bitcoins have been sold way below 20 cent per coin. In some way I've also been an early investor (or from the current point of view, just stupid). I too part in some sponsoring and gave coins to people creating Bitcoin stuff. In the early days it was common to tip people for cools stuff, even forum posts. I think most money has been made by early buyers. People who were still creating full blocks with CPUs were so amazed when early exchanges offered 0.0014 or something like that for one Bitcoin, so they sold. Also the uptrend has been very slow at the beginning, still the curves on the graphs were steep, so when someone was afraid of a falling price they sold. These days I guess most of the coins is in the hands of such buyers. I don't care too much. I am neither rich in my real life nor in the Bitcoin life. It wasn't my intention to become rich. The reason I downloaded the software is that I want an easy, sane, decentralized and independent way to trade stuff. I hate Paypal and all the other companies and I love the approach of pretty much doing it yourself. It still is my primary reason to use Bitcoins. I don't have a mining farm, nor a system running all day. It's not what I want.

About the thing that early adopters are rich now, just for running a small piece of software. Nope, it's not fair. If you want something fair, you should go for something like communism.

[Maged]

I think that most people can't even fathom just how worthless bitcoins were, and how little infrastructure there was back then. Heck, even when I came in here in March, I remember that, to buy bitcoins, my choices were mailing cash to some shady guy in Canada, or buying them on MtGox using some other shady currency that is backed by some company in Costa Rica. Not too long before that, none of this existed. Quite literally, for at least several months, the only bitcoin infrastructure that existed was... this forum. Bitcoins were completely worthless. People were happy to exchange weeks of CPU time to get a "free" pizza. To this point, I think the analogy to collecting comic books is completely accurate. Much like how many now extremely valuable comic books were just thrown away after they were read (or sold in garage sales or to friends for pennies), the same is true for bitcoin. Most likely, a good portion of the bitcoins were just simply deleted without a second thought. Individuals were wiping out thousands of coins each. Miners have come back to bitcoin after over a year to find out that their old harddrive that they were smart enough to archive somewhere is now worth tens of thousands of dollars. If they weren't such a pack-rat, they would have erased the bitcoins. It wouldn't surprise me if it turned out the the only remaining spendable bitcoins from that era are in the hands of less than ten people. Only three of them likely stored them on purpose, and are actively following Bitcoin. And one of those people won't spend them until he is ready to reveal his identity to the world and retire on a private island, which, personally, I think he completely deserves.

[TTBit]

"Early adopters" are not like the people who complain about "early adopters". They invest in new technology, new businesses, & new risks in general. They make a lot of bad investments, but deal with the loss differently than the whiners of "early adopters".

[BrightAnarchist]

I once complained regularly about early adopter unfairness, but now that prices have touched all the way down to $2 and stayed there long enough to be well within reach of anyone with vision, I don't think the complaint has merit anymore.

+1

Another thing late adopters don't get is what early adopters were thinking. To illustrate, I have a friend who mined about 5K bitcoins long before the first bubble and cashed out for practically nothing, he just thought "they were fun". I thought of them in the same way -- I got my first coins from selling an unused copy of Windows 7 on biddingpond just for fun. Early adopters were not thinking "I'm going to be rich!" at all, they thought BTC was just play money. I was kicking myself for not getting more back then when the price jumped. Late adopters don't understand this. There was no premeditation or anything for the vast majority of early adopters, it was just damn luck. It was also very hard to get BTC back then, you often had to sell stuff or do cash in the mail due to exchange problems.

Not to mention that I got royaly goxxed and all my "early adopter" coins were stolen anyway. I bought back in when it hit $3 (and keeping them safe this time!), and now have far more coins than before. This "second chance" to get into BTC on a fire sale was a real gift, and if you didn't take advantage of it, you have no right to complain.

[JoelKatz]

"Early adopters" are not like the people who complain about "early adopters". They invest in new technology, new businesses, & new risks in general. They make a lot of bad investments, but deal with the loss differently than the whiners of "early adopters".

In fact, instead of complaining about early adopter unfairness, just go out and find a technology to adopt early. Then you can be an early adopter.

Don't worry that you can't find the right technology to adopt early. You can pick dozens of them. The effort invested was minimal, right? The payoffs, massive. That's why it's unfair. So you should easily be able to invest that amount of energy in dozens of technologies and adopt *all* of them early.

Get started.

Now.

[istar]

When I got into Bitcoins at $7-8 I really whished I could have gotten in at $4-5. Now you can and you are complaining...
You can also invest in Litecoin which not many really believe in just like Bitcoin.

Or realise that you are a somewhat early adopter. Only 45.000 members on this forum!
Or you can wait and continue to complain until there are 90.000...120.000...245.000...

[farfiman]

I guess the complainers about early adopters  don't believe that bitcoin will get to the heights that some of us do.
All they see are people that bought or mined BTC at a few cents a piece and are capable of selling it now at a few dollars
( WTF! they can make 10,000's %!! maybe 100,000 %  Its not fair!!!)

[BubbleBoy]

The point of view of the "anti- early adopter" crowd, which I consider myself part of, is severely misrepresented.

What I don't say: "Hey, bitcoins are such a fabulous invention and they are concentrated in the hands of a few people - so when bitcoins make it big time it will be so unfair to the rest of us who did not get it at those low prices... We need communism, redistribution !"

What I do say: "Bitcoins are a flawed monetary medium because the early adopter crowd has already priced-in the chance that they will sometime be a widely used for exchange; so in order for Bitcoin to achieve it's potential as an exchange medium, an implausibly massive transfer of wealth must occur from the millions of people that would use it to the hundreds of people that currently hold it."

The unfairness is not yet realized, it's a potential unfairness that will materialize if and when bitcoins become widely used. At that point the early adopters would be able to exchange their bits for huge real-world assets without tanking the market, and that would be quite unfair - they have contributed nothing of substance to our society, with the exception of a few individuals like Satoshi or Gavin.

In fact this potential for unfairness is precisely one of the reasons bitcoin fails. It's a self-defeating prophecy: bitcoins are valuable only in as much as they can be widely used as an exchange medium, yet all those who acquire or have them treat them as a long term investment, preventing their very spread which would enable bitcoins to fulfill their promise. Therefore the promise is a lie.

In actuality, bitcoins are simply a zero-sum speculative commodity and there's nothing unfair in taking money away from fat geeks. So there's no "early adopter unfairness" to speak of - with the exception of the inherent unfairness of arriving late at a Ponzi party.

If I create two finely-crafted wooden chairs, then I am the only person possessing these chairs. How unfair!  NOT.

If you claim those are the only chairs the world needs, and that sometime in the future millions of people will give an arm and a leg for a few seconds on your chair, then there's nothing unfair about it, you are simply delusional. Yet that is the exact mantra of the Bitcoin people, with the nuance of "indefinitely divisible chairs".

[kjj]

The point of view of the "anti- early adopter" crowd, which I consider myself part of, is severely misrepresented.

What I don't say: "Hey, bitcoins are such a fabulous invention and they are concentrated in the hands of a few people - so when bitcoins make it big time it will be so unfair to the rest of us who did not get it at those low prices... We need communism, redistribution !"

What I do say: "Bitcoins are a flawed monetary medium because the early adopter crowd has already priced-in the chance that they will sometime be a widely used for exchange; so in order for Bitcoin to achieve it's potential as an exchange medium, an implausibly massive transfer of wealth must occur from the millions of people that would use it to the hundreds of people that currently hold it."

The unfairness is not yet realized, it's a potential unfairness that will materialize if and when bitcoins become widely used. At that point the early adopters would be able to exchange their bits for huge real-world assets without tanking the market, and that would be quite unfair - they have contributed nothing of substance to our society, with the exception of a few individuals like Satoshi or Gavin.

In fact this potential for unfairness is precisely one of the reasons bitcoin fails. It's a self-defeating prophecy: bitcoins are valuable only in as much as they can be widely used as an exchange medium, yet all those who acquire or have them treat them as a long term investment, preventing their very spread which would enable bitcoins to fulfill their promise. Therefore the promise is a lie.

In actuality, bitcoins are simply a zero-sum speculative commodity and there's nothing unfair in taking money away from fat geeks. So there's no "early adopter unfairness" to speak of - with the exception of the inherent unfairness of arriving late at a Ponzi party.

If I create two finely-crafted wooden chairs, then I am the only person possessing these chairs. How unfair!  NOT.

If you claim those are the only chairs the world needs, and that sometime in the future millions of people will give an arm and a leg for a few seconds on your chair, then there's nothing unfair about it, you are simply delusional. Yet that is the exact mantra of the Bitcoin people, with the nuance of "indefinitely divisible chairs".

Meh.  Your reasons are just as wrong as the reasons propping up your strawman.  You are ignoring the parts of the world that don't agree with your premise.

You say that the we "have contributed nothing of substance", but only because you don't understand the substance of what we are contributing.

How about you think really hard about what the early adopters are actually doing, and how it is valuable to the bitcoin community and also to the entire rest of the world.  After that, we can talk about how substantial our contributions are or are not.

[FreeMoney]

You are missing the contribution, bubbleboy. When coins were trading for 6 cents and  the total value of all coins was under $1M there wasn't much incentive to build apps and businesses. There just wasn't enough value in the whole system. The injection of value made possible a lot more.

And it isn't a transfer of wealth that's going to happen. It is wealth creation. If the value increases it's because Bitcoin is valuable. The new value will go to people in proportion to how quick and sure they are.

[westkybitcoins]

And it isn't a transfer of wealth that's going to happen. It is wealth creation. If the value increases it's because Bitcoin is valuable. The new value will go to people in proportion to how quick and sure they are.

This, right here.

Way too many people think the world is nothing but a huge zero-sum game. If this were true, the mean wealth of mankind would have done nothing but steadily shrink since the industrial revolution, at least in proportion to population growth.

Wealth doesn't always have to be redistributed. It can also be created, and yes, true, meaningful wealth (not to be confused with paper notes) CAN be created "out of thin air," as it were. That's the breathtaking beauty of human ingenuity.

[payb.tc]

bitcoins are valuable only in as much as they can be widely used as an exchange medium, yet all those who acquire or have them treat them as a long term investment, preventing their very spread which would enable bitcoins to fulfill their promise.

with at least 8 decimal places, this does nothing at all to prevent their spread.

even with massive hoarding, the remaining 3.62 btc could still be introduced and sold to millions of people.

[farfiman]

The unfairness is not yet realized, it's a potential unfairness that will materialize if and when bitcoins become widely used. At that point the early adopters would be able to exchange their bits for huge real-world assets without tanking the market, and that would be quite unfair - they have contributed nothing of substance to our society, with the exception of a few individuals like Satoshi or Gavin.

What do you care if an early adopter buys a yacht a private jet or even whole Islands with his "unfair worth"?
What effect does that have on you or the rest of the bitcoin users?

[gewure]

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.

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.

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.)

i like your way of thinking