October 23rd, 2014

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An open society… a free society… ♪♪ Dave says Tomato… ♪♪ Dan Quayle says Potatoe… let’s call the whole thing off.


Dave has written literally dozens of articles about the very fine distinction between “open” and “free” and the George Soros understanding of the words.  To oversimplify the concept, when a Realtor holds an “open house” they are not holding a “free house.”  Access is not freedom and with access comes a presumption of a certain level of the loss of privacy.

In other words, you can choose to subject yourself to attending an “open house” but you run the very high risk of also having to subject yourself to an interrogation by the housekeeper (in this example the big “R” Realtor supported by the Multiple Listing Service mafia) who will inquire as to your name, your contact information, probably request that  you sign a register signifying your attendance and so on.  Welcome to the Windhover where the plan to transition you to cryptocurrencies is also a plan to transition you to the singularity as it relates to your identity.


The Windhover Transition

A Declaration for Innovation in Trusted Social Sovereignty

The following are some guidelines for social technological design and innovation to further social sovereignty and sustainable self-governance.

1. All peoples shall have a sovereignty of equal and unobstructed access and control over the data, algorithms, sensors, and other means by which their unique biological and behavioral identities are to be defined and recognized.


I couldn’t help but notice the presumptive nature of “the transition.”  The presumption is that YOU have an algorithm, a sensor and “other means” by which you are defined.  You’re a simulation, not a man or a woman or a child.  Here’s the way The Pepsi Challenge works for behavioral economists.

First of all, the presumption is that you want cola.  It’s not like you can choose water.  The question is simple… which cola do you like?  If you’re the Koch Brothers or whoever makes high fructose corn syrup you don’t really care if consumers choose Coke or Pepsi because either way they’re choosing high fructose corn syrup that is somehow related to your nitrogen fertilizer Haber-Bosch processing business that is no doubt partnered with Monsanto so you make bank regardless of the choice.

Behavioral economics is about reducing free will (that is the fact that you were made in God’s image) to free choice which is all the advertising industry needs you to do.  Simply decide you are going to buy a new smart phone, they don’t really care which one you buy because they are all going to come with an NFC chip in them and once you add a fingerprint scanner to the phone it is now a risk reduced verifiable extension of your physical body and thereby your identity and if you are a regular Dave reader, you would have seen the coincinet coming long before it got here.


Dave on the coincinet:

Dave on “open” vs. “free” :


Enabled With Pegged Sidechains

October 22nd, 2014

Enabling Blockchain Innovations with Pegged Sidechains

Adam Back, Matt Corallo, Luke Dashjr,
Mark Friedenbach, Gregory Maxwell,
Andrew Miller, Andrew Poelstra,
Jorge Timón, and Pieter Wuille

2014-10-22 (commit 5620e43)
Since the introduction of Bitcoin[Nak09] in 2009, and the multiple computer science and electronic cash innovations it brought, there has been great interest in the potential of decentralised cryptocurrencies. At the same time, implementation changes to the consensus-critical parts of Bitcoin must necessarily be handled very conservatively. As a result, Bitcoin has greater difficulty than other Internet protocols in adapting to new demands and accommodating new innovation.
We propose a new technology, pegged sidechains, which enables bitcoins and other ledger assets to be transferred between multiple blockchains. This gives users access to new and innovative cryptocurrency systems using the assets they already own. By reusing Bitcoin’s currency, these systems can more easily interoperate with each other and with Bitcoin, avoiding the liquidity shortages and market fluctuations associated with new currencies. Since sidechains are separate systems, technical and economic innovation is not hindered. Despite bidirectional transferability between Bitcoin and pegged sidechains, they are isolated: in the case of a cryptographic break (or malicious design) in a sidechain, the damage is entirely confined to the sidechain itself.
This paper lays out pegged sidechains, their implementation requirements, and the work needed to fully benefit from the future of interconnected blockchains.

Here’s a link to the paper:


Peter Todd’s response to the paper:

“Business As Usual” In The Oil Patch

October 21st, 2014

“My message to Russia is simple—business as usual.”  Christophe de Margerie, CEO Total Oil Company describing his business plans despite EU sanctions against Russia on May 24, 2014.


Moscow attorney Tatyana Akimtseva was shot and killed on September 12. She was representing victims in a case against the Russian criminal ring Orekhovo. Akimtseva was also a defense attorney for Alexei Pichugin, the security chief of Russian oil giant yukos who was sentenced to 20 years in jail for murder.

Moscow attorney Alexander Karabanov worked jointly with Akimtseva on her case against the criminal ring. Karabanov has been given police protection after the murder of his colleague Akimtseva.

Today Karabanov, who is now representing the snow plow driver at the airport where Christophe de Margerie’s plane crashed killing the CEO of Europe’s third largest oil company (Total) after impacting the snowplow made the following statement in regard to the widely reported news that Vladimir Martynenko (the snow plow driver) was drunk at the time of the accident.

“My client is suffering from an acute heart condition; he does not drink at all and his relatives and friends can testify to that. He was sober at the time of the crash.  He (Martynenko) is in shock. He considers himself guiltless as he followed all the instructions from the dispatcher.”

Alexander Karabanov, attorney for the snow plow driver


Tatyana Morozova with the Russian investigative committee:

“At the current time, it has been established that the driver of the snowplow was in a state of alcoholic intoxication.”


Here is how people described de Margerie’s role in the global chess game relating to Europe’s energy needs.

Vladimir Putin in a Kremlin telegram sent to French President Hollande:

“Please convey my sincerest condolences and sympathy to the family and friends of Christophe de Margerie – a prominent French businessman who pioneered many of the major joint projects, which laid the foundation for many years of fruitful cooperation between France and Russia in the energy sector … We have lost a true friend of our country and his legacy will remain with us.”

Dmitry Peskov, Russian Presidential Press Secretary:

“Vladimir Putin has long known de Margerie and had a close working relationship with him.  The president highly appreciated de Mergerie’s business skills and his continued commitment to the development of bilateral Russian-French relations on multifaceted levels.” 

French President Hollande:

“The president was shocked and saddened by the news of the death of Christophe de Margerie. Christophe de Margerie dedicated his life to French industry and the development of the Total group…”

Former French Finance Minister Alexei Kudrin:

Described de Margerie’s efforts by saying he “did a lot to attract investments to Russia.”

Eric Kraus, Director at Principal Asset Management:

Was quoted in news reports as saying that de Margerie was a close friend to Russia, even though he was legally constrained by the sanctions and by European law.  “Leaving the politics aside for a moment, Russia is one of the few geopolitically safe places where one can still find oil reserves which are not extremely challenging geologically, so having a close relationship with the Russian oil and gas world was very valuable to Total.”


Yesterday’s weather in Moscow, Russia


In unrelated news, the European Central Bank started buying French bonds the same day:

Not too snowy at the crash site:

Middle Age Mutant Ninja Broadcaster

October 20th, 2014

The stakes are rising in the Brand vs. Hannity culture and media wars and Max Keiser is providing the color.

Boy, They’re Overstocked On Towels

October 20th, 2014


OSTK 12 month stock price chart


Patrick Byrne, CEO of Overstock, Bitcoin enthusiast and founder of a new stock exchange based on blockchain technology refers to the federal regulators as “towel boys.”

Patrick’s technology team formerly of Counterparty describe their plan to deal with the regulatory path as “Working with the regulators and helping evolve the framework.”

Patrick continues by saying “It’s important not to confuse the map with the terrain.  We can describe the terrain, but let’s set aside the map.”

Don’t confuse the map with the terrain?  Seriously.  In the blockchain the map is the terrain.  That’s the entire point.  What I read into this is that this will be a Patrick Byrne vs. Ethereum battle for this new form of so-called “stock market”.  I couldn’t help but notice that Patrick used the word “ether” in his description of his new Medici platform.  If my suspicions are correct is an Overstock vs. Goldman Sachs battle.  Who would you bet on?

The irony that Patrick refers to the Medicis as some form of honest non-fractional reserve banking is laughable.  It was the Medicis who gave us accrual accounting in the form of double-entry debits and credits as opposed to split tally sticks (stock & foil) which had previously been accepted as tax payments by King Henry I.  In accrual double-entry accounting, unlike blockchain (or momentum) triple-entry accounting, you can recognize revenue when you produce an invoice (rather than when you collect the money) and you can recognize expenses when you post an account payable (rather than when you pay the bill).

There is no doubt that we are living in interesting times as we move through the spectrum of money systems from one based on tally sticks and gold to a fiat based system of credit money (pay later), then to one based on debit money (pay now) and finally to one based on electronic prebit money (pay in advance) as expressed in the Bitcoin blockchain.

Here’s the audio from Mr. Byrne’s interview on Let’s Talk Bitcoin:

Here’s the latest from his law firm:

Dave on the prebit:

Tendentious With Dave

October 17th, 2014

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Quit your Weimaring…


17 October 2014

Statement on The Times of Dave articles

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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.

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;all

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:

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.