Tendentious With Dave

October 17th, 2014

File:Weimar Constitution.jpg

Quit your Weimaring…


17 October 2014

Statement on The Times of Dave articles

The Dave neither provides nor approves emergency liquidity assistance (ELA). It is Dave’s wife, in this case the Central Bank of Mrs. Dave, that provides ELA to Dave’s family that it judges to be solvent at its own risks and under its own terms and conditions. The Dave can object on monetary policy grounds; in order to do so at least two thirds of the Dave’s extended family members and neighbors (aka “Meet The Davers”) must see the provision of emergency liquidity as interfering with the tasks and objectives of Daveland monetary policy.In this specific case there was full consensus in Dave’s extended family members and neighbors (aka “Meet The Davers”) on the need to get assurances from the Central Bank of Mrs. Dave that this bank was solvent. This was confirmed explicitly by the Central Bank of Mrs. Dave, which also confirmed the proper valuation of collateral after an intense dialogue between it and the Dave.The Dave was not the supervisor and fully relied on the assessment of the Central Bank of Mrs. Dave. Therefore to draw conclusions about the Dave’s future banking supervision role on the basis of ELA to The Daves* is tendentious.
Central Bank of Dave
Directorate General Communications and Language Services
Frankfurt am Dave
Tel.: +BR 549
email: tradewithdave@gmail.com | website: www.tradewithdave.com |
* The Daves (not to be confused with The Davers) represents all stakeholders in the Dave be they shareholders, lenders, vendors, vegans, licensed drivers or pet owners.

Reproduction is permitted provided that the source is acknowledged.


Deter With Dave

October 16th, 2014

Can’t believe I missed this.  I’ll blame you guys for not telling me.  This is your government at work.  This is precisely how the definition of words, such as felon, get changed.

Tootsie Coin

October 16th, 2014


We all know what happens after this….  don’t we?

photo: Dirtymopwater


Do you remember those advertisements for Tootsie Pops… how many licks does it take to get to the center of a Tootsie Pop?  Well, the Bitcoin saga is getting good because we are getting closer and closer to that chewy center.

Gavin Andresen pulled back the robe a bit today revealing the emperor’s wardrobe and it appears a bit skimpy in the size matters debate.  With paragraph headings such as “Transaction Fee Death Spiral” and “Centralization Death Spiral” it would make you think that you were at the Bitcoin Fly-In at OshKosh and watching a wingwalker explain the Bitcoin safety program.  The proposal is to change the blocksize in a manner that would effectively allow  “anybody with a reasonably good home computer and network connection can participate as a full node on the network.”

Below is the full content of the article.  Dave’s comments are in blue.

Blocksize Economics ~ October 16, 2014

There are two sets of arguments for why we should keep the 1MB block size limit.

The first are technical; I address those in my Scalability Roadmap blog post, showing how a lot of geeky elbow grease should lead to “Bitcoin can replace every cash and credit card transaction in the world”.

The second are economic. I’ll discuss the economic arguments I’ve heard for keeping the 1MB blocksize limit, and explain why I think increasing the limit makes economic sense.

A couple of quick notes on vocabulary: when I say “miners”, I mean “solo miners and mining pool operators” — anybody selecting which transactions to include in new blocks. And when I say “people”, I mean “any entity capable of submitting transactions to the Bitcoin network.” I don’t want to insult our future Bitcoin-using Benevolent Robot Overlords.

Transaction Fee Death Spiral

The argument for not allowing arbitrarily large blocks: a maximum block size is necessary to create artificial scarcity so transaction fees do not drop to zero, leaving miners with no income, leading to no mining and the death of the network.

However, economic theory says that in a competitive market, supply, demand, and price will find an equilibrium where the price is equal to the marginal cost to suppliers plus some net income (because suppliers can always choose to do something more profitable with their time or money). In this case, price is transaction fees, supply is the willingness or ability of miners to confirm transactions, and demand is the number of transactions people want to have confirmed.

So with absolutely no artificial limits to supply (like a maximum block size), transaction fees would drop to the marginal cost miners pay for hardware, electricity and bandwidth, plus enough net income to motivate them to keep on mining rather than investing their time and money in something else. Fees would be very small, but not zero.

Fairly big assumption here that you can apply “economic theory” when Ben Lawsky has clearly stated the final solution will be reverse-engineered to optimize someone’s technology or algorithm (cough Goldman Sachs).  So, right off the bat you’re building on sand rather than a free market cornerstone which is little more than a faded memory of our republic. 

Centralization Death Spiral

Another argument for not allowing arbitrarily large blocks: Since there are economies of scale for buying bandwidth (or racks of servers), if there is no blocksize limit then only people able to afford servers located in big data centers will be able to run fully-validating nodes. Everybody else will have to trust them, and we’ll end up with a highly centralized system.

This is a reasonable concern, and it is why I think we should put an artificial limit on the size of blocks designed so that anybody with a reasonably good home computer and network connection can participate as a full node on the network. Limiting the supply will both increase price (fees) and decrease demand (the number of transactions people try to send) until a new equilibrium is found.

Higher transaction fees will drive some applications off the blockchain, imposing extra costs. Those costs might be financial– off-blockchain solutions will need some way to pay for themselves. And there will be time and convenience costs; it is less convenient if you must plan in advance and move coins to an off-blockchain solution that supports very low-fee transactions.

Less demand for Bitcoin transactions will lower the overall value of the Bitcoin system compared to a perfect alternative where everybody has infinite bandwidth and CPU to validate transactions. But the value of keeping Bitcoin decentralized in the real world of finite computing resources likely exceeds these costs.

Great.  First you suggest a premise that applies economic theory as a form of price discovery application of supply and demand and now you want to put a governor on the go-kart of commerce so that it won’t optimize to speed.  Sure, I get the tragedy of the commons that occurred through the overgrazing of high dollar ($ make note of that for future value reference) mining equipment across the democratized Bitcoin landscape, but do you think that breaking out the Mac Classic is the answer?  Seriously?  Is this how Elon Musk got all those government contracts and tax incentives by saying that no electric car should exceed the speed of the Energizer Bunny? 

If Bitcoin in its current iteration doesn’t express a convenience yield that is sufficient to satisfy rapid and mass adoption (or at least risk managers acting as escrow agents that step forward and use Bitcoin as a wholesale platform while capturing the retail market), then let it die.  More than any other organization, the Bitcoin Foundation politicized the model, so if you can’t take the K Street heat, then either kick your lobbyist out of the kitchen or get a new cryptocurrency. 

Now, get back in there start paying for more congress critters to go to Ruth’s Chris because sending Jon Matonis to Budapest isn’t the answer and if Goldman Sachs is getting you down, you should cut your losses now because this is the big leagues and Savile Row custom-tailored suits are pricey and Ben Lawsky is making one for select Bitcoin enthusiasts… $400,000+ average per Goldman employee (including secretaries) and I don’t think they have a Chief Scientist.  http://blogs.wsj.com/moneybeat/2014/10/16/goldman-cuts-pay-ratio-but-average-still-exceeds-400000-per-employee/

Value?  Did you say value?  We’ll get back to that in a second.

Block Subsidy, Fees, and Blockchain Security

All of the above gets muddled with another economic issue: will transaction fees be great enough to attract enough mining power to secure the network as the number of new bitcoins created drops to zero?

The argument is that keeping one-megabyte blocks will push up transaction fees, so as the block subsidy falls smaller blocks will make it more likely that fees will make up the difference and keep the network secure.

The counter-argument is that bigger blocks allow more transactions, so even if each transaction pays a smaller fee, the total will be greater.

I think that both of those arguments are wrong, because they are equating apples and oranges. The supply being rationed by a maximum block size is some number of bytes, which translates into a certain number of transactions. But the demand for blockchain security depends on the value and nature of the transaction; very large value transactions are typically secured by real-world contracts, long-established trust relationships, lawyers, and court systems.

So there is no guarantee that future one-megabyte blocks will be full of high-fee million-dollar transactions; it is possible we would see blocks full of tiny-fee million dollar transactions, because Gringotts Bank will take the Bank of Elbonia to court if they double-spend some large value inter-bank-settlement transaction.

There is no guarantee that future one-gigabyte blocks full of smaller transactions will generate enough fees to secure the blockchain, either. Transaction confirmation speed is important for most small-value transactions, so it is likely they will be secured using semi-trusted third parties who co-sign transactions and guarantee to never allow double-spending. And if they are secured against double-spending that way, there is little incentive for either the sender or recipient to include a transaction fee to help secure the whole network against double-spending.

It is in everybody’s best interest for the blockchain to be secure against 51% attacks, but the maximum block size will not solve that “common good” problem. Assurance contracts are a time-tested way for a community to pay for common infrastructure; see the excellent forum post from Mike Hearn for details on one way assurance contracts for blockchain security could be funded.

Value?  There’s that word again?  So, how exactly are you measuring value?  Is it your values?  Maybe you value being a chief or maybe Jon Matonis values Business Class.  What’s your value metric?  I thought it was Bitcoin, but it’s sounding increasingly like some more arbitrary thought of building a museum dedicated to old computers where families gather around them like they gathered around the radio listening to FDR tell them about a chicken in every pot and a Pentium in every penthouse and convenience yield is measured in BTU’s during the winter months.

You instantly put yourself into a catch-22 where your ability to be a market prognosticator with no relative measurement for value nearly guarantees that even if you succeed in maintaining your values you destroy the entire escapade.  Are you talking value as measured in U.S. dollars?  If so, then come out and say it?  Is it network traffic and merchant adoption?  Maybe it’s Budapest penetration that you’re looking for. 

You see that’s the thing about genuine markets.  The people that are in those markets express their values and the market functions as a feedback loop bringing those values to the forefront, literally, in the bazaar bazaar known as the free market.  While I’m at it a genuine free market doesn’t have a chief scientist but rather it has a scientist in every chicken pot.  If you want to take this conversation into one that focuses on the commons, then I suggest your start off with the tragedy known as communism. 

If you want to delve into the depths of Garrett Hardin or Elinor Ostrom in your efforts to find the Nash Equilibrium of Bitcoin through some general populace SETI@home consensus, I would suggest you save yourself the trouble and jump straight into cybernetics and Ross Ashby’s law of requisite variety.  Only variety can destroy variety and setting an arbitrary boundary based on old computers is a surefire way to relegate Bitcoin to the great moments in financial history dust bin.

One other thing.  It is absolutely, positively not in everyone’s interest to secure the blockchain against 51% attacks.  Where do you come up with such a belief system?  That’s the equivalent of saying “It’s in everyone’s interest if Target’s credit card database doesn’t get hacked.”  On the contrary, it’s in someone’s interest to hack it (cough Putin) and that’s why they hack it.  Those interests may be financial or simply hacker cred, but unfortunately for you those interests do not get expressed in a blog post (ISIS withstanding), but rather usually come in the middle of the night when we are sleeping. 

Leveraging Network Effects

Opinions are divided on whether Bitcoin will evolve into primarily a digital token used for storing value, a currency used as a means of exchange, or as a general global distributed ledger used to secure many different types of transactions. As Bitcoin becomes more popular for all of those uses the number of transactions will rise.

Picking one “killer app” for Bitcoin is a bad idea because Bitcoin gets its value from network effects– the more people using it, for whatever reason, the more valuable it becomes.

Here is a thought experiment: what if we decreased the block size to support just one transaction per minute (ten transactions per block)? Would more or fewer people use it? Would the Bitcoin system overall be more or less valuable? I think any reasonable person would agree that a one-transaction-per-minute Bitcoin would be less valuable than the seven-transactions-per-second system we have today.

Working toward making the Bitcoin system even more valuable over time is something I think we can all agree on.

So, is that a false trichotomy?  Does success as store of value (in Tootsie Pops specifically) somehow displace Bitcoins ability to satisfy the double coincidence of wants?  Who cares where it works just so long as it works.  Are you setting the agenda or is the user base?  I don’t get why you even wrote this section.  It’s not like you’re Mark Zuckerberg and get to decide… or are you? 

Are you now clarifying your “value” as being measured specifically as transaction volume, presumably measured in dollars?  Well, if that’s the case Satoshi should have, could have and would have made a faster blockchain.  Since when does value equate to speed?  Oil tankers are valuable… or at least they were until last week?  You lost me here.  It’s like asking someone which car would they prefer  to take on vacation;  the one that drives 25 miles per hour or the one that drives 30 miles per hour?  Seriously?  No… SRSLY Chief?  That’s your thought experiment?

Acknowledgements and Further Reading

Thanks to the following for reviewing a draft of this post: Andrea Castillo, Apostolos Chatzilakos, Carlos Guberman, Daniel Krawisz and Fernando Ulrich.

Oleg Andreev posted about block size economics earlier this year:

Assurance contracts: Mike Hearn

Technical scalability roadmap




The problem with eating out a lot is that you gain weight.  The good thing about custom-tailored suits is they have plenty of extra fabric to allow your regulatory tailor, in this case the #NYDFS to let out the waistband:  http://tradewithdave.com/?p=22230

Sean With Dave

October 16th, 2014

Well, actually it’s not Sean Hannity, it’s Russell Brand again outside of Sean Hannity’s building.  I know I have been promoting Russell Brand a lot lately, but you can hardly blame me considering how prolific Monsieur Brand has been of late.  I have been plenty critical of Russell and his Wristband Revolution and will continue to do so, but I can also be critical of Rupert Murdoch’s Fox News.  Why?  Because Russell makes it so easy.

Dave got in plenty of fights in his day. You see, I had four older brothers and two of them were competitive wrestlers. I’m of average stature and physical strength so people underestimated me. For the most part fighting is tactical and Russell Brand is a tactician and a darn good one. There are plenty of folks who should have been able to beat me up, but they never did. Why? I was an expert in fighting and people who picked fights with me quickly lost. If I was not 100% certain they would lose, I made sure they didn’t pick a fight with me in the first place.

Russell Brand is a much better fighter than Sean Hannity and Sean picked a fight with Russell Brand when he cancelled his appearance… assuming that it is true that he cancelled Russell’s appearance. Sean Hannity either needs to apologize for picking a fight with Russell Brand or he needs to prepare to lose.

“May I have a look around… touch some stuff?”  I’m telling you this guy is good.

The Existentialist Easy Button

October 16th, 2014


Easy to be powerful… hard to be safe

Genuine trust can never be binary.  It would require the simultaneous measurement of position and velocity.  Trust exists in a matter of degrees that never stops moving up and down.  When trust is stationary, such as in the blockchain protocol, then it’s no longer human trust and that’s why it’s better referred to as trustless or trustlessness.  In the absence of uncertainty there is an absence of genuine trust and that’s why I say there’s no forgiveness in the blockchain.

Trust is a gift that we can give to each other if we have first experienced forgiveness.  I trust you.  Come into my home, come into my life, come into my heart although I know you are flawed and imperfect and a sinner who will hurt me.  You’re like me.  Yet, I forgive you because I was forgiven.  That’s love and you can never love a computer although I’m sure I will love my new Iphone or Apple Watch when I get it and those who own the data it provides to them will love the money that it makes for them.

On the existentialist path, there is no forgiveness or the need for forgiveness because there is no personal accountability.  Sin is an inconvenient externality that is born, manifests and dies outside of one’s own personage.  “Hell is other people” as Sartre said and no one trusts hell because hell is the absence of trust and this explains  our natural desire to subject to the blockchain for “it is in anguish that man gets the consciousness of his freedom” because this understanding IS accountability.

In the absence of forgiveness such accountability for myself is hell indeed.  That is why we enter the collective for relief and strap on the next wristband revolution as we spread the accountability around in smaller and smaller debit postings into the virtual trustless wallets of our fellow man.  Although in our own power we cannot escape from sin, maybe we can spread the layer thin enough that the smell is barely perceptible and for each person we add to our acceptance network, the proportional cost of carrying the demurrage for the burden of our sin seems to decline while our temporary store of wealth oxymoronically increases as the new blockchain ledger will proudly display for everyone to see.

If we have sin in our life, then forgiveness and repentance is the only exit, but within a public record of all transactions there can never be trust restored only trust measured in bits of performance… a final solution… a singularity that never needs to reboot.  Because forgiveness erases the past like an eraser on a chalkboard, in the absence of trust there is no eraser and we have lost the password to the heart.  We can give the gift of loving someone who is imperfect as if they were perfect because the only perfect One gave himself as a ransom for both you and me.

For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.  1 Timothy 6:10 KJV





Peter Sand, CEO of Standard Chartered

(Bitcoin blockchain technology) is “a true computational innovation that could be very powerful in the context of financial inclusion.”  “You could transfer title to the thing you’re buying… If you’re buying a car or a house, your transfer of title using this kind of distributed ledger-type technology could be massively more efficient than the system at the moment. [...]That’s where I think actually some of these block chain technologies could be really powerful.”

IMF & World Bank see potential in blockchain technology:


By the way, if you see a guy that looks like Peter Sand walking down the street, it’s either Peter Sand or Dave and like Dave says in the Ricardian contract of the blockchain the receipt IS the transaction and the map IS the territory.

Tailored With Dave

October 15th, 2014


Justice may be blind, but some nice looking haberdashery makes a fine substitute for the rule of law… don’t you think?


Dave knows quite a bit about custom tailoring.  I started out working in clothing stores from the age of fifteen and spent the best part of the next thirty years retailing, designing, merchandising, marketing and manufacturing everything from custom men’s clothing to upholstery for your couch.  I sold names like Oxxford, Hickey Freeman, Norman Hilton, Southwick and manufactured the first-ever line of organic cotton workwear – think Carhartt meets Martha Stewart.

I was even the president of the first group of Jos. A. Bank franchise stores in the country.  Jose’, as I affectionately referred to that era most definitely didn’t fall under the luxury banner and was more of a defensive maneuver against the off-shoring of an industry.  I admit that I sold it, but I must admit that I never wore it.

In business, you do what you have to do to fight off the cheap imports and in government the same capitalist ends would seem to apply in the battle for the cryptocurrency championship belt.  So, if you’re a financial enforcement regulator with subpoena power and you cut your teeth on Eric Holder’s #Himpton Doctrine, you learned a thing or two about situational ethics as applied to the imposition of justice.  When it comes to the Bitcoin regulatory environment, this is how Ben Lawsky rolls…

So before you get whacked because you fail to understand the nuance of a made-to-measure Wacker Drive suit of clothes and a fully bespoke Savile Row custom tailoring job, take a lesson from Dave… the difference is crucial.  The rumor on the always reliable Reddit boards is that enforcement actions are coming down the pike (http://www.reddit.com/r/Bitcoin/comments/2iujgv/secfincen_preparing_action_against_us_bitcoin/).  Just who exactly is having their measurements taken for a new fall wardrobe and who is going to be pacing in a 10′ x 10′ custom made cohabitation, or at least be staring at some serious fines in the mirror is tough to say.

If the issue is relative to the issuance of tokens, then names such as Ethereum, Swarm, Storj and Ultra-coin come to mind, then again the NYDFS’ Subject Matter Jurisdiction, unlike Ebola, is not a planetary issue.  Dave can’t say for sure that these companies issued tokens because Dave doesn’t know what Ben Lawsky’s been smokin’ when he can so glibly state that “carefully tailored” (i.e. “dressed to the nines”) and “rule of law” can co-exist on the same clothing rack as 9 black robes hanging in the Supreme Court dressing room.  Then again, it’s more than mere financialization if you ask Lloyd Blankfein… and Dave will most definitely ask Lloyd about his connections with Ethereum(if any) when I get the chance.

Now the question is will it be a made-to-measure garment that allows for a select handful of participants (think SIFI Richmond Fed bankruptcy candidates ) such as Jamie Dimon to receive a dinner invitation or are we going to be talking a one-of-a-kind bespoke garment custom tailored solely for doing Goldman Sachs’ version of “God’s work .”  We can only wait and see if the JPMorgan CEO’s prophetical statement that “Bitcoin will try to eat our lunch” comes true while the rule of law and the U.S. Constitution get the business end of the pinking shears.



Think With Dave

October 14th, 2014


Rethink with Jeffrey… I didn’t think it… he thunk it.

Rethinking the Unthinkable: Bankruptcy for Large Financial Institutions
October 10, 2014
Jeffrey M. Lacker
Federal Reserve Bank of Richmond



Overseeing Ebola Stigma

October 13th, 2014

And you thought the virus was deadly.  Wait until you get turned back from the counter at Starbucks.


Has the stigma associated with Ebola got you down?  Is heading out to the mall or the movies feeling more and more like a life and death decision.  Is your boss asking you to take your temperature every hour on the hour?   Maybe you’re a resident of the Vickery Meadows Improvement District?  Well, if so then you may not realize it, but you are being “overseen” by the Vickery Meadows Management Corporation (a 501(c)3 corporation) also known as the overseers.

Are you experiencing adverse issues from your employer or retailers as a result of Ebola stigma?  If so, your overseer at the Vickery Meadows Management Corporation (VMMC) want to hear from you.  Sign up today!




Beauty and the Meat

October 11th, 2014

Sal Khan is one of my heroes. I love Khan academy (if you can love a website). Not only do I still use it as an educational tool for my youngest, it’s assuring to know it’s there when someone says “Hey Dave, can you explain the Pythagorean theorem one more time?” or “What exactly is a Euler diagram?” Like they say about lawyers, they don’t necessarily know the law, but they know where to find the law.  Well, the same thing can be said about sixth grade algebra as long as you can type www.khanacademy.org

So, Dave’s celebrating his sixth year without cable television, but I do have satellite radio in the GMC. My wife says that the way to get satellite radio is to get it and then when it runs out you should threaten to cancel it and they offer it to your for half price.  At that point you tell them you are stil going to cancel and then they drop the price some more.

I don’t know. I didn’t buy it, but when I’m driving I can listen to the mainstream business media channels such as CNBC, Fox Business and Bloomberg. Obviously they need the listeners because all I keep hearing are these commercials from some guy who owns Mama Mancini’s Meatball company (the meatball lovers meatball) and I think he’s listed on the NASDAQ or something… go figure.

So, I’m listening to Sal Khan being interviewed by ARS-One… not KRS-One. You can tell them apart because One said “You’ll never have justice on stolen land” while the other One appears to be helping them steal the land. Towards the end of the interview ARS-One asked Sal what he thought the future was for tuition-based education (say Universities and those diploma mills with the lighted signs on the side of the freeway) and textbook publishing. Sal had a very clear answer, but you won’t find it in the interview above because it was edited out at the end.

Sal said (and I paraphrase), that he’s not bullish on paid education and he’s not bullish on high-priced textbooks because all learning in the future will be free.  He went on to explain how Khan Academy runs on an $11 million budget and gets money from rich people and from $5 donations from grateful kids who Sal helped from flunking sixth grade algebra.  Dave envisions self-motivated kids in third grade doing fifth grade math and flourishing intellectually.  While Robert Johnson envisions private school being outlawed (http://tradewithdave.com/?p=22170).  Either way, we appear to be heading to One or the other One.

Pretty cool… but pretty uncool that CNBC “First In Business Worldwide” and likely first in declining ratings cut out that part of the interview.  I’ll tell you one thing they never cut out… those meatball commercials… and the teeth whitening guy… and some guy who does “pod casting.”  What’s pod casting?

Hopscotch Fatigue: Can’t Fight This Feeling Anymore

October 11th, 2014

More media options…. the restoration of the republic… a chicken in every home… and the enemy within. BTW Government no longer has any power.