[XMR] Monero Speculation

[obit33]

mhh thinking about to sell all my moneroj. It looks like dash will become the leader of anon

I'll take them too...

Why would it be Dash? The way I see it, it works just like coinjoin with a few adaptations... Everyone who has more than 1000 DASH can start a masternode. These masternodes can form the masternode-network which takes care of the mixing of transactions... That sounds like a kind of centralisation, if there is eavesdropping on your masternodes you can forget about anonimity...
And because these masternodes give extra servicing to the network (processing power, bandwidth, ...) they also get paid, not only the miners, but also the masternodes. As a consequence most people will put their masternode on an always online server. Which is the most used kind of server for masternodes, you guessed it, Amazon... Yup, you're reading it right, the biggest part of the anonymous transactions are mixed via American servers... That's great news for the NSA...

and about the 1000 DASH-limit... only people with 1000+ DASH can start a masternode and get paid... this leads inevitably to a DASH-aristocracy... and then there's also the stories about the instamine etc...

Do what you want, but I'm staying away from this one!

[smooth]

and then there's also the stories about the instamine etc...

Not "stories" but well documented fact

http://www.devtome.com/doku.php?id=a_massive_investigation_of_instamines_and_fastmines_for_the_top_alt_coins#darkcoin

[obit33]

and then there's also the stories about the instamine etc...

Not "stories" but well documented fact

http://www.devtome.com/doku.php?id=a_massive_investigation_of_instamines_and_fastmines_for_the_top_alt_coins#darkcoin

well there you have it... and now the developers pick up money a second time by creating lots of masternodes... devteam isn't trustworthy imo so the coin isn't either...

best regards

[rpietila]

mhh thinking about to sell all my moneroj. It looks like dash will become the leader of anon

It's the difference between short and long term thinking.

To open up, I will share my latest price/scenario analysis for Monero. I did it for the following 32 months (the remainder of this year, and the 2 following years). As it was price scenario, the only variable actually mapped was price, the reasons why the price might go up, down or stay the same, were all approximated as part of the probabilities.

The scenarios had 6 possible prices: 1000, 100, 10, 1, 0.1 and 0 USD, and 0 was considered a terminal failure after which no recovery could happen. Each timepoint (end of year 2015, 2016, 2017) and price were assigned with a conditional probability based on the price in the previous timepoint.

It was always possible to go to 0, the probability that it would happen in a given period ranged from 5-24%. Also every lower price point was always possible. The increase in price was only deemed possible to be 10-200x per period though, excluding black swans. (Much larger price increases are not even uncommon in crypto - BTC had 6400x in less than a year in 2010-2011, and some premined coins have had even larger).

The complete table of conditional probabilities used (expressed in full %) is as follows:

Code:

price 2015 16/0.1 16/1 16/10 16/100 17/0.1 17/1 17/10 17/100 17/1000
10000 1 9
1000 1 5 1 12 45
100 2 2 15 50 1 12 45 35
10 15 2 15 40 33 1 10 45 32 4
1 46 20 48 30 5 10 50 32 4 1
0,1 25 54 25 6 1 65 31 4 1 1
0 12 24 10 8 6 24 8 6 5 5

When calculated, it yielded the following price scenario probability table for the end of 2017:

Code:

price Prob.... EV
10000 0,0642 % 6,42
1000 0,7535 % 7,54
100 3,9680 % 3,97
10 11,0986 % 1,11
1 23,1005 % 0,23
0,1 27,2754 % 0,03
0 33,7398 % 0,00

It looks like that an investment in Monero will return a loss of 80% or more in 61% probability, which is not promising. Also the probability of a rise to 1000 USD or more (reaching the historical peak in BTC marketcap, in about 2/3 of the timeframe that BTC reached it from launch) is at less than 1%, a reality check confirming the conservative assumptions.

Yet the EV of XMR in the end of the period (the sum of the partial EV in the above table) is 19.29 USD, a 38x gain in 32 months, with an annual expected return of 293%. When we evaluate this result, it is notable that 3/4s of the EV is produced from scenarios where XMR achieves the current size of BTC, or more. It is these scenarios that must exist to make the coin a stellar investment.

Now I don't want to bash Dash, but I haven't seen evidence that it could realistically (<1% (above) is still realistic, 0% is not) achieve such a prominent long-term position.

To create a fat tail probability distribution, there must be few flaws in the system. Dash has too many:
- single developer
- premine
- lying about the premine
- masternodes
- deficient anonymity.

It is like physically reaching the moon. The spacecraft does not need to be high-end, but if there are 5 large holes in its different systems, it soon tilts the odds of actually reaching the moon to become slim.

Monero, on the other hand, seems quite antifragile. The only problem that is as severe as the ones listed above for Dash, is
- botnet mining.

The developers have correctly understood that the potential and payoff for Monero is not in the order of 10-100x the current price, but 1000x or more. The priorities of development are set accordingly.

If Monero and Dash are mooncraft, Monero's design philosophy is to maximize the probability of hitting moon, and the resulting payoff, while Dash concentrates on getting as many people on board as possible.

[smooth]

Deleted one spam post promoting another coin which contained zero content relevant to Monero (and not even any relevant to the promoted coin), along with one reply to it

[Oscilson]

Monero, on the other hand, seems quite antifragile. The only problem that is as severe as the ones listed above for Dash, is
- botnet mining.

Is there any thoughts about changing the hash algorithm to minimize botnet mining?

[GingerAle]

Monero, on the other hand, seems quite antifragile. The only problem that is as severe as the ones listed above for Dash, is
- botnet mining.

Is there any thoughts about changing the hash algorithm to minimize botnet mining?

While it can't be known what the actual percentage of bonnet mining is, this post speculates that its not as profitable to mine monero using a bonnet as you might think.

https://bitcointalk.org/index.php?topic=753252.msg11153671#msg11153671


IMO, I speculate that the majority of the relatively huge hashrate (compared to other cryptonite) and subsequent dumping is due to people that had litecoin GPU rigs coming over.

Fluffy posted in the main XMR thread about some other POW at some point - I want to call it crazy clown but thats probably not the name - and its on the R&D goals to get a new POW.

But IMO, I don't think bonnet mining is really a concern, but its a completely unknowable factor.

[rpietila]

How to benefit the most from the analysis above?

First, all the probabilities are public, and the formula (which only calculates the total trees, 100+ of them) is easily reconstructible, and I can share it if needed (took about an hour to construct without programming skills).

So there is no prediction involved except in assessing the probabilities.

An important assumption is that the probabilities are asymmetric, meaning that it is not equally likely that the price would move a large percentage down (because it cannot - the maximum is to zero) as it is to move a large percentage up (+5000% in 2 months is already experienced in XMR, not to mention other coins).

This is in contrast to bond prices, for example. A bond now priced at 90% or 95% can at maximum go a little over 100% (meaning negative interest rates) but often enough goes to zero (total default). These are also asymmetric, but to the opposite direction. There are also assets whose price is by and large symmetric.

It is this asymmetry which creates the Expected Value mostly based on the low-probability high-payoff scenarios. The longer the investment horizon, the more pronounced this property is.

Second, the EV result is little if at all dependent on the probability of total failure. In the above numbers, the probability of failure came out at 61% but the result would not have changed materially if it were 20% or 80% instead. Only the probability of a major success, not that of a major failure, determines the EV.

Third, the fat tail of success needs to be analysed level-headedly. Since it is the only thing that matters, the assumptions of maximum potential, what conditions must be present to reach it, it partial success realistic, what is the maximum sustainable growth, and many other things, need to be considered.

I, for example, regard it as possible that Monero replaces gold as it is a "better gold". Yet, this scenario which corresponds to a value of 1,000,000 USD/XMR is not present, the maximum in this timeframe was 1,000 USD/XMR. If the model was extended to 3-5 more years, this would have become a possibility, yet with a very small probability.

The highest growth rate considered possible was from 0.50 to 100 USD in the next 8 months. This has been experienced with both Bitcoin and Litecoin so saying it could not happen with Monero is being ignorant of a very recent history. In the future years, the maximum growth was only 10-100x, again mimicking Bitcoin's breakthrough year of 2013.

The probability for XMR dropping in value was always evaluated much higher than the probability of it increasing in value. The calculus nevertheless shows a hefty profit because of the logarithmic scale - it is more meaningful to have a 10x gain than to lose all.

Since XMR has such a built-in leverage, conventional investors have a hard time fitting it into the portfolio. VC-type investors and statistics-oriented gamblers don't have the problem, for which reason the community has them in overweight.

XMR might become a more easily approachable investment, if it was "diluted" by 10 for instance (making a conceptual asset which is 10% exposed to XMR moves, with the rest invested in T-bonds). That could enable someone to invest 5% of his net worth to an asset with a maximum 10% downside but still essentially unlimited upside. Of course the same result (minus fees) would be achieved by investing 0.5% into XMR undiluted. But a large percentage of people are both unwilling to invest so little, and unwilling to accept a most probable scenario of losing 100% of the amount invested.

The idea could have merit in the core community thinking as well. To be enough exposed to XMR does not really take so much money, nor risk, nor anything. It only requires that there is certain exposure, and the hand is very strong. The easiest way to strengthen your hand is to cut your exposure. If you think of investing all of your risk capital to Monero because it is the most promising investment (correct), are you really ready to handle the prospect that it is more probable to lose practically all before 3 years have gone, than to gain something?

If you feel that it's too much, and know yourself that you would likely be prone to panic reduction of the position at a disadvantageous time, how about thinking that you are 100% invested in an asset that consists of only 50% XMR? This way your portfolio still has 10x, even 100x possible gains, but the maximum loss is 50%, comparable to what the other markets offer?
 
The series continues.

[rpietila]

But IMO, I don't think botnet mining is really a concern, but its a completely unknowable factor.

I wanted to list it to be fair to the comparison. Many investors don't consider all the 5 problems of Dash to be serious problems either, some (the ones who invest) may not consider any of them serious.

I believe the prospect of botnet mining, which is very difficult to prove either true or untrue, is a negative and a problem. It is a lesser problem though than the ones in Dash, or the ones in Bitcoin currently.

[aminorex]

I believe the prospect of botnet mining, which is very difficult to prove either true or untrue, is a negative and a problem. It is a lesser problem though than the ones in Dash, or the ones in Bitcoin currently.

If it were perceived to be prevalent, it might be a PR problem.  The technical factors which facilitate it are actually a huge plus, as they are proven conducive to decentralization.  The economics described elsewhere tend to indicate that the perception is larger than the reality.  In terms of market action, it helps to distribute coins, and botnets are relatively unlikely to hoard.  And it is precisely the robust supply which has enabled us to accumulate in the early phase, so long-term holders have all benefited substantially from any impact of botnet mining. 

In the end, I find it difficult to feel very bad about the reality.  Perception is another question, but the perception will align to reality over time, in all likelihood.

[jehst]

I believe the prospect of botnet mining, which is very difficult to prove either true or untrue, is a negative and a problem. It is a lesser problem though than the ones in Dash, or the ones in Bitcoin currently.

If it were perceived to be prevalent, it might be a PR problem.  The technical factors which facilitate it are actually a huge plus, as they are proven conducive to decentralization.  The economics described elsewhere tend to indicate that the perception is larger than the reality.  In terms of market action, it helps to distribute coins, and botnets are relatively unlikely to hoard.  And it is precisely the robust supply which has enabled us to accumulate in the early phase, so long-term holders have all benefited substantially from any impact of botnet mining. 

In the end, I find it difficult to feel very bad about the reality.  Perception is another question, but the perception will align to reality over time, in all likelihood.

Botnet centralization:ASIC centralization :: acne:cancer.

[pa]

Monero, on the other hand, seems quite antifragile. The only problem that is as severe as the ones listed above for Dash, is
- botnet mining.

Is there any thoughts about changing the hash algorithm to minimize botnet mining?

While it can't be known what the actual percentage of bonnet mining is, this post speculates that its not as profitable to mine monero using a bonnet as you might think.

https://bitcointalk.org/index.php?topic=753252.msg11153671#msg11153671

But IMO, I don't think bonnet mining is really a concern, but its a completely unknowable factor.

Don't disregard my Monero bonnet miners! 

[rpietila]

Now we go to the philosophical question of how much is enough  

If we calculate an average 38x gain in 32 months, and the calculation is factual, it should have fulfilled itself already.


In its first year, Monero rose 5x, which is 400%, which is about the same that I am now projecting to be the average until end of 2017. Still, the general feeling is that the rise could and should have been faster.

What is keeping people from investing at such outlandish odds? One reason could be the declining marginal utility of money. Let's make an assumption that the reader is a 30-year old person with no family and irregular lifestyle, with capability to earn the living in a normal job.

The total assets are all liquid and consist of $20k of savings. There has never been the motivation to save more, yet the prospect of being penniless is not interesting, so this is the local optimum.

The scenarios are now:

A. Multiply it to $20 million
B. Multiply it to $2 million
C. Multiply it to $200k
D. Retain it
E. Lose half of it
F. Lose all of it.

We assign 100 to be the value of D, the present situation. We earlier calculated the mathematical EV for XMR and found it to be really lucrative. But is it actually so from a lifestyle perspective? People are different, and few have constant marginal utility for money. Paradoxically, the ones who care about lifestyle the most (and claim to be much happier if they had more money), seldom are very effectively working towards maximizing their money! Riches tend to accrue to people who don't care about spending. (Another paradox is that such people may be so unaccustomed to spending that when they do, it is perceived as showy, when the truth is that they are clumsy, and honestly don't care what others think because spending is not of importance to them.)

To move on with the thought model, however, start from the easiest which is the losing of money. How much did your life suffer last time you lost half of your savings? Most of us did not actually suffer that much, at least not long-term. Perhaps a value of 95 is correct. In this example case, even losing all your savings would likely not affect the long-term that much, because we assumed a young person with an earnings potential and few responsibilities, but it would certainly hurt more than double because of the shock. Let's say 80.

The difficult part is to predict how much the gaining of money improves life. With spendthrifts, it improves very little, as they are capable of squandering even millions in a few years easily. But if we assume prudent finances, it is unquestionable that a positive effect is present and we need to evaluate it.

We assumed that a $10k shortfall translated to -5 quality_of_life points because getting back to the previous level of savings, requires extra work, or less spending, or both, for a time of perhaps a year. Adding $180k would translate to +90 points if the marginal utility were constant in this range. After all, if the money was spent in reduction of work and increased spending over 18 years, it would be a major improvement!

Research says that people get accustomed to a lifestyle in a few months. So in reality, to get the kicks of it via spending, you would need to increase the level gradually until the sum is rather soon exhausted and then you need to go back to work and reduce spending and it was not a big deal after all! I would posit that the larger gains in quality_of_life in this case ($20k->$200k) are actually achieved in those who aim higher, and are not even seeking to increase their lifestyle with the sudden one-time gains.

What if good luck hits you and you get 2 million instead? In my opinion, the difference between $2M and $200k is larger than that of $200k and $20k. In relative terms it is the same, but in absolute terms it is 10 times more, and as the sum of money, it's 1.8 million dollars!   Whereas the previous increase in wealth cannot bring financial independence (at most a promise of it, if you are able to do more good investments), banking 2 million is a completely different thing. It may not guarantee a luxury lifestyle for life in your home country, but very well does it in many places in the world. Or it opens a completely new world of investment opportunities. Once you have earned 2 million, it's easy to earn more (depending on skill of course, but investing in Monero is a multiskilled exercise and proof of it). If your wish is to make the world a better place, you anyway do it mostly with your time, so not needing to work increases the effect greatly, and having the option to spend sums of money to make the effect greater, amplifies it. So regardless if the intent is to spend the money or invest it, if you do it prudently, 2 million is a lifechanger.

In case of 20 million, well, I have to admit being there for such a passing moment that I cannot really speak from experience. The worries of not having enough will be transformed to the constant threat of legal and tax actions against you, and wealth managers eat their share annually, unless you are willing to manage it yourself, in which case it is a full time work. The spenders enjoy a much more extravagant lifestyle of course, and the people aiming to do something meaningful have increased resources to do so, but not any more time in their hands. My overall estimate is that the benefit from moving from 2 to 20 million is less than that of the previous move.

So, to quantify, let's use the following figures:

A. Multiply it to $20 million = 650
B. Multiply it to $2 million = 400
C. Multiply it to $200k = 150
D. Retain it = 100
E. Lose half of it = 95
F. Lose all of it = 80.

Then apply the XMR scenarios to this much reduced scale of quality_of_life_EV:

A. 1% * 650 = 6.5
B. 4% * 400 = 16
C. 11% * 150 = 16.5
D. 23% * 100 = 23
E. 0% * 95 = 0
F. 61% * 80 = 48.8
------------------------------
average 110.8

The average corresponds to the quality of life increase of about doubling your money from $20k to $40k in 32 months. So there is a price to pay from the extreme variance in expected returns. A 38x increase in the mathematical EV is only a 10% increase in quality_of_life_EV, which corresponds to the benefit of doubling your money!

I did not know the result when started writing (novel research does not know results beforehand).

This might be a tool that has potential. With some tuning of the numbers (especially if we constructed a continuous event scenario instead of fixed price points), we could easily see that for the person with these attributes, investing only half into XMR is preferable to investing 100%. This caps the maximum downside to 5 points. Since the night is still young, we might as well do it.

The new positive scenario outcomes are divided by 2, and quality_of_life points modified accordingly. The percentages are kept the same:

A. ($10M) 1% * 580 = 5.8
B. ($1M) 4% * 300 = 12
C. ($110k) 11% * 130 = 14.3
D. ($20k) 23% * 100 = 23
E. ($10k) 61% * 95 = 57.95
F. ($0) 0% * 80 = 0
------------------------------
average 113.05

While the outcome does not look impressive, the result of +13.05 compared to +10.8 is 21% better!

Another thing that easily improves the results is the periodic selling when the price rises. Temporary rises in price are quite prevalent in altcoins, and small increases in absolute wealth tend to always bring greater absolute benefit to the quality of life compared to larger ones. (This lemma, that the marginal utility of money is always decreasing, is well known to not hold true in isolated cases such as trying to purchase a plane ticket to flee from calamity - the last dollar needed is the deciding one - but is supposed to hold true in all general cases; nevertheless you can use the model even if you are not general.)

Also the emotional thrill of having a prospect of a different lifestyle vs. the emotional avoidance of possible changes plays a role. This was opened up in a previous post already with my lamentation that people sell at a loss or after a small gain. The psychological driver behind that might be unwillingness to accept the change in the social position, which true enough can be avoided by refusing the gains. For these people, investing can be compared to playing a slot machine - it gives the thrill of playing and sucks up the excess money not needed in consumption, but does not rock the boat by forcing a lifestyle change.

[mitkos1]

@rpietila how will 2015.75 effect xmr or even btc? What's your best guess?

[medusa13]

thanks for this posts rpietila, much appreciated. I respect your effort for this community 

i am like saddam, all in kamikaze get rich or die trying

[ArticMine]

...
is it wrong to mine on mutlple computers?

It is wrong to mine on computers you do not own without the explicit permission of the computer's owner.

[KLONE]

@rpietila, what chance do you give to the possibility that XMR fails as a currency, but crypto kingdom succeeds as a game, thus XMR becomes 100% tied to CK as the in-game currency? I see that outcome as quite possible.

[rpietila]

A few hours more work on the topic. I have now construed the utility function for the example guy (values of personal utility mapped to amounts of money. The marginal utility of money is largest near zero (1500 units) and smallest at 20 million dollars (the end of range, 7 units).

Based on these values, the investment plan is now as follows:

- Keep $10k in cash. Invest $10k in XMR right now at 0.50 USD/XMR; gain 20,000 XMR.
- When the price hits $10, sell 5,000 XMR and pocket 50k USD.
- When the price hits $100, sell 10,000 XMR and pocket a million dollars.
- When the price hits $1000, sell out and pocket an additional 5 million.
- If the period expires and there are XMR left, they are valued at the going rate.

With these rules and the previous assumptions:

- The expected utility is now 124, which corresponds to increasing the net worth to $90,000 from the initial $20,000.
- The best case scenario is selling out, which nets in total 6.05 million, at the utility of 510. This happens at 0.9% probability.
- The nice scenario is being able to sell half at $100, which nets 1-1.5 million, at the utility of 310-360. Probability = 6.5%.
- Not bad scenario is having $210k at the end. Utility 150, probability 9.4%.
- OK scenario is being able to cash out some at $10 while the rest lose their value. $60-$75k, probability 11.7%.
- In 16% more of the cases, you gain back at least the amount invested. In total, 44.6% of the cases are at least even.
- The rest 55.4% are about total losses of the invested amount. Utility = 95.

Conclusion: in the volatile price environment and declining marginal utility of money, it makes very much sense to have a plan for premeditated sales triggered by price. The utility-normalized EV in 32 months is now increased to (90000:20000)^(12:32) = 76% APR.
 

[rpietila]

@rpietila, what chance do you give to the possibility that XMR fails as a currency, but crypto kingdom succeeds as a game, thus XMR becomes 100% tied to CK as the in-game currency? I see that outcome as quite possible.

CK has absorbed about $50k of wealth in the form of XMR, maybe. It has about 100 players.

Even if the average wealth of players declines by a factor of 10, getting 10k players means $500k in game assets. This almost qualifies to the lowest "XMR alive" scenario of $0.1/XMR. I mean so that all XMR are absorbed by the game.

If Crypto Kingdom succeeds, it means a million players, and becoming the main driver in XMR price, pushing it to multiples of the current price. In this environment, XMR can fail only from the technology side.

It is possible that most of the active XMR users with largest balances become tied to CK in a way or another. 3/7 of the core team joined independently, and the rest after they were promised 1,000 CKG each. The 3 MEW Executives hold the Character id's of #1-#3.

I don't really think that the possiblity for XMR to fail in as little as 32 months is 61%, it.. just.. is.. smaller than that based on the mechanism of market failure (there being nobody to buy the coins offered) compared to the ownerbase of XMR and their capabilities and willingness to buy as long as the technology is sound.

[rpietila]

Depending if you calculate from high/lows or closes, and from the December low or February low, the mighty 2nd Fibonacci retracement level from the latest megamove is either in 217k, 220k, 220k or 225k.

I am rather sure that we will visit that zone before resuming uptrend. The price action has not been very promising so this is the situation.

Also I have a strong feeling that people wishing for <200 will be disappointed.

Conduct your own DD. It's unlikely that I would trade anyway.