[XMR] rpietila Monero Economics thread

[aminorex]

I would expect more passive mining schemata, like MAID and STORJ, would be more appealling to botnets in the long run, as you can remain undetected in a much wider range of host environments.  ASIC algos are not botnet friendly, but they raise the barrier for punters by requiring a hardware purchase to stay in the game.  CPU/GPU algos I still think, despite the botnet issues, are a better choice for a new coin.  Botnets are providing transactional security no less than any other hash source.  We can prefer more upright sources, but I take comfort in the fact that botnet operators will likely dump ASAP, and distribute coins well, rather than hoarding.

[1714839687]

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[pa]

Our lives are technicolor anecdotes of miracles painted on a grey background of statistical ensembles which are scientifically determined.

I am reminded of Aldous Huxley's "The Doors of Perception." It is important to keep things in perspective.

[ArticMine]

Would it be possible to analyze the inputs to claymores wallet and estimate the percentage of mining done by GPU clients over time?

No. That is by design.

Indeed.  This is why we are here isn't it?

I loaned a friend a few bucks for a poker game recently.  From my wallet to his hand.   I busted out, but he cashed.  He paid me a portion of his winnings.  From his hand to my wallet.

The only people who know about this transaction are those I chose to tell.  And there is pretty much no way to confirm or deny my experience.  You take it on good faith that my story is true or you assume I made it up. 

This is one way money has been transacted for millennia.

Bitcoin brings speed and verifiable transparency to commerce.  <- Valuable!

Monero inherits that speed but allows for the privacy we are accustomed to for cash transactions.  <- also valuable!

The widespread introduction of third parties into financial transactions is actually a very recent phenomenon starting in the 1970s, and taking off in the 1980s and 1990s. Before then financial transactions were dominated by cash, and bearer instruments. As a baby boomer I am a member of the last generation that actually remembers experiencing a predominantly cash / bearer instrument society first hand. This is very important when introducing crypto currency to people over the age of 60. It is actually very simple. This is like cash that you can use on the Internet is my opening line. The next analogy is Bitcoin is like marked bills Moenro is like coins. They get it in an instant. On the other hand I was walking with a millennial (just over the age of 20) when a pan-handler approached us. His response to the pan-handler was "I only have debit". The cash analogy will fall flat with someone age 20.

[David Latapie]

I dont think Botnet mining will stay a big danger, in the long term.
Big text. I hope I did add some useful information to thread.

Interesting. I'd appreciate your opinon on Xulescu's botnet argument.

Bitcoin brings speed and verifiable transparency to commerce.  <- Valuable!

Monero inherits that speed but allows for the privacy we are accustomed to for cash transactions.  <- also valuable!

More than this: not only Monero is private, but it is also optionaly transparent How can Monero be both anonymous and transparent at the same time?  <-  even more valuable

But I can promise you, to buy you some beers and pizza at one the upcoming Monero meetups in the future (we both visit).

Weather is really nice in summer in Estonia.

[jehst]

During past adoption waves, money floods the space and the top altcoins make relative highs against bitcoin. That goes for April as well as November. As long as XMR remains a top 10 mineable coin and top 20 overall, I think it is likely that XMR will reach .004 to .006 during the next big adoption wave. With a one year outlook, I don't think it's a 20% chance of success or 80% chance of failure scenario, but rather a leveraged bet. If bitcoin continues going down, you will lose money (measured in BTC) faster holding altcoins. If bitcoin goes up, you will gain BTC faster holding altcoins.

[rpietila]

One should keep in mind that Kelly criterion doesn't really dominate until you get to a statistically usable number of bets.

In the one year following from my long-shot initial investment in BTC in 2011, I invested similar amounts to about 5 other projects/businesses that all failed resulting in loss or total loss. The ones who think that I've been lucky with BTC are certainly right, but luck favors the ones who constantly probe the new opportunities and throw money at them.

If this year I will make it big with some of the new ventures, I am of course lucky, but it's good to remember that also during the last year I've sown the seeds to about 5 projects/businesses. The probability of luck is zero if you don't invest, and increases considerably if you do it methodologically.

I would count that in my 18-year career as an investor/businessman, I've been lucky twice.

I believe XMR is going to be the third instance of luck, but just for the possibility that it isn't, Kelly comes in handy 

[smooth]

One should keep in mind that Kelly criterion doesn't really dominate until you get to a statistically usable number of bets.

You won't get that many bets on Monero and probably not cryptocurrencies, but you do get to make a lot of bets in a lifetime. You probably still don't get enough extreme long shot bets though, but these should only be very small bets (and therefore shouldn't cause much harm if they don't turn out) according to the stated rule.

[aminorex]

During past adoption waves, money floods the space and the top altcoins make relative highs against bitcoin. ... If bitcoin continues going down, you will lose money (measured in BTC) faster holding altcoins. If bitcoin goes up, you will gain BTC faster holding altcoins.

I would qualify your comment:

I think there is another asymmetry here (besides the up/down range asymmetry).  I think the current price is currently dominated by the botnet dumping bound, which is not strongly connected to BTCUSD at all.  (It might have been when BTC was feasibly mined with a botnet, but certainly no longer.)  Thus the lower range is not connected to BTC.  When BTCUSD has a run up, it will slingshot XMR twice as hard, because XMR is in the quantum foam right now. BTC can go to zero and XMR compounds its hedge value and retains its utility (currently nigh zero).

[jehst]

XMR is in the quantum foam right now.

Hmm, you say that as if XMR can't possibly go any lower. I don't see any reason why it couldn't.

[rpietila]

XMR is in the quantum foam right now.

Hmm, you say that as if XMR can't possibly go any lower. I don't see any reason why it couldn't.

All traded assets experience changes in price if for example 2% of the marketcap wants to be bought or sold quickly.

Quantum foam (my try) is the assets whose price is so low that anyone can move it, volume is low, and there is no correlation between price and value. Bitcoin has last year gone to $102 (BTC-E), $116 (Mt.Gox), $275 (Bitstamp). Is any of these prices the value of bitcoin?

Bitcoin is also quantum foam, for which reason I don't care about its price until it rises to the measurable range of $3,000+. I just don't care. See the post history for proof

XMR can go to as low as psychology dictates (my personal take is that this limit is about 15% of the established value of 0.004-0.0045).

Going there bears no correlation to the value of XMR. In 1918 Berlin you could sell an urban house (7 floors, 30 rental units) for $500. Just that someone offers you 0.0015 BTC for your XMR does not mean that selling is a good idea.

[rpietila]

One should keep in mind that Kelly criterion doesn't really dominate until you get to a statistically usable number of bets.

You won't get that many bets on Monero and probably not cryptocurrencies, but you do get to make a lot of bets in a lifetime. You probably still don't get enough extreme long shot bets though, but these should only be very small bets (and therefore shouldn't cause much harm if they don't turn out) according to the stated rule.

The rule not only restricts you from making stupid high bets, but also prods to make bets large enough.

In my case, after correctly estimating that Bitcoin has a 75% chance to die after dropping 90% from $32 in 2011, but a 25% chance of recovering to the ATH, I should have invested 25% of my net worth to it. And so should you

[jehst]

XMR can go to as low as psychology dictates (my personal take is that this limit is about 15% of the established value of 0.004-0.0045).

Most cryptocurrencies including LTC and BTC have gone as low as 5-10% of their all time highs. I think XMR can do the same. 0.0004 - 0.0008. That is about the same as your estimate.

[aminorex]

I am not a very black & white guy.  I like to reason things out from many perspectives, on the theory that the more lines of reasoning support a given thesis, the more likely it is that one of them will carry the field, and the thesis prove utile.  This can fail spectacularly when perspectives and premises are selected with strong bias, but usually works pretty well otherwise, in the very long tail.  jehst just illustrated this process nicely, and so thanks to jehst.

I particularly enjoyed Risto's construction on quantum foam.  Thank you for that one.  You articulated aspects of the analogy which were to me yet incohate.  I definitely agree that the observables (clearing price, order book) offer essentially zero signal/noise as estimators of the long term fundamental value (the attractor curve for the central tendency of clearing price over time) for the moment.

[aminorex]

In my case, after correctly estimating that Bitcoin has a 75% chance to die after dropping 90% from $32 in 2011, but a 25% chance of recovering to the ATH, I should have invested 25% of my net worth to it. And so should you

I think you underestimate the probability of XMR achieving large magnitude gains.  But I would argue that you (probably - I do not know) have already reached a share of market cap such that further increases would only damage the upside, and hence should not make the Kelly bet.

[rpietila]

In my case, after correctly estimating that Bitcoin has a 75% chance to die after dropping 90% from $32 in 2011, but a 25% chance of recovering to the ATH, I should have invested 25% of my net worth to it. And so should you

I think you underestimate the probability of XMR achieving large magnitude gains.  But I would argue that you (probably - I do not know) have already reached a share of market cap such that further increases would only damage the upside, and hence should not make the Kelly bet.

The irony is that even today, I explained to 2 wealthy ~50y guys, how the 3 investment approaches compare:

- cash flow regardless of valuation (Buffett, RE owning)
- valuation regardless of cash flow (RE development, speculation)
- long shot: +EV regardless of the chance of losing all (Kelly betting)

They are so mentally inclined to the 2 former ones that even the presenting of mathematically clear case of 1000x return in 5% probability in 3 years (268% expected APR), did not make them invest the 5% of their worth (or any smaller amount for that matter) to it.

[TrueCryptonaire]

In my case, after correctly estimating that Bitcoin has a 75% chance to die after dropping 90% from $32 in 2011, but a 25% chance of recovering to the ATH, I should have invested 25% of my net worth to it. And so should you

I think you underestimate the probability of XMR achieving large magnitude gains.  But I would argue that you (probably - I do not know) have already reached a share of market cap such that further increases would only damage the upside, and hence should not make the Kelly bet.

The irony is that even today, I explained to 2 wealthy ~50y guys, how the 3 investment approaches compare:

- cash flow regardless of valuation (Buffett, RE owning)
- valuation regardless of cash flow (RE development, speculation)
- long shot: +EV regardless of the chance of losing all (Kelly betting)

They are so mentally inclined to the 2 former ones that even the presenting of mathematically clear case of 1000x return in 5% probability in 3 years (268% expected APR), did not make them invest the 5% of their worth (or any smaller amount for that matter) to it.

This type of people are very risk averse. They do not like chance of losing money since they are about to retire soon.

[smooth]

One should keep in mind that Kelly criterion doesn't really dominate until you get to a statistically usable number of bets.

You won't get that many bets on Monero and probably not cryptocurrencies, but you do get to make a lot of bets in a lifetime. You probably still don't get enough extreme long shot bets though, but these should only be very small bets (and therefore shouldn't cause much harm if they don't turn out) according to the stated rule.

The rule not only restricts you from making stupid high bets, but also prods to make bets large enough.

As an influencing factor -- that may influence some people to make good bets they might otherwise not risk -- it is certainly useful. But caution is still advised, since you never in general know the probability of success, and making bets that are too large is more costly than bets that are too small.

[rpietila]

As an influencing factor -- that may influence some people to make good bets they might otherwise not risk -- it is certainly useful. But caution is still advised, since you never in general know the probability of success, and making bets that are too large is more costly than bets that are too small.

With Kelly, you are quite well shielded if you make only the most long-shots possible. The bets which are +EV despite having a 5% probability of success come to you only a few times in your life. You cannot easily lose all your wealth if you invest 5% at a time.

[smooth]

As an influencing factor -- that may influence some people to make good bets they might otherwise not risk -- it is certainly useful. But caution is still advised, since you never in general know the probability of success, and making bets that are too large is more costly than bets that are too small.

With Kelly, you are quite well shielded if you make only the most long-shots possible. The bets which are +EV despite having a 5% probability of success come to you only a few times in your life. You cannot easily lose all your wealth if you invest 5% at a time.

That depends how aggressively you seek them out. I've made many 5% +EV (I hope) bets. EDIT: I think it is precisely because the people you described forgo these opportunities that they exist for those who are good at finding them.

Losing all your wealth isn't really the issue though. You literally can't do that unless you think something is 100% and are incorrect. But you can reduce your wealth and therefore reduce your return on other investments.

[Liquid71]

As an influencing factor -- that may influence some people to make good bets they might otherwise not risk -- it is certainly useful. But caution is still advised, since you never in general know the probability of success, and making bets that are too large is more costly than bets that are too small.

With Kelly, you are quite well shielded if you make only the most long-shots possible. The bets which are +EV despite having a 5% probability of success come to you only a few times in your life. You cannot easily lose all your wealth if you invest 5% at a time.

That depends how aggressively you seek them out. I've made many 5% +EV (I hope) bets. EDIT: I think it is precisely because the people you described forgo these opportunities that they exist for those who are good at finding them.

Losing all your wealth isn't really the issue though. You literally can't do that unless you think something is 100% and are incorrect. But you can reduce your wealth and therefore reduce your return on other investments.

Gamblers often use "half kelly" on high variance +EV bets to reduce opportunity cost. A shrinking bankroll due to variance has opportunity cost, lowering bet size and return on lower variance +EV bets. Not a great comparison since a gambler is has many more opportunities to take risk than a longer term investor, but for those not comfortable with variance investing half on high risk high return investments might be a good idea.