Mark E. Jeftovic

Author Archives: Mark E. Jeftovic

Escape from the BUMMER Machine

(read on Medium)

(A long overdue review of Jaron Laniers’ “10 Arguments for Deleting Your Social Media Accounts Right Now“)

In 1978 a former public relations and advertising exec, Jerry Mander wrote “Four Arguments For the Elimination of Television”. Mander in essence argued that “the problems with television are inherent in the medium and technology itself, and thus cannot be reformed.” In his preface (“The Belly of the Beast”), Mander spoke of:

“learn[ing] that it is possible to speak through media directly into people’s heads and then, like some otherworldly magician, leave images inside that can cause people to do what they might otherwise never have thought to do.”

That was television. At the time it was the killer app of mass manipulation in the tradition of Edward Bernays, the nephew of Sigmund Freud who created the art and science of “public relations” in the first place. As I’ve observed in a much earlier writing, it was Bernays who was among the first figures in modernity to fully grasp the the power of using the technology of the day to create all-pervasive narratives to shape public opinion. He embraced the term “propaganda”:

2

The End Of An Empire in Two Data Sets

[ Read on Medium ]

There is an ever-widening recognition that started some time ago that we are living through an age of transition from a unipolar world that existed after the collapse of the Soviet Union, to a new multi-polar one.  This has been spoken about outside polite company for at least the past decade (I remember William Buckler, the Privateer, was already saying as much as far back as 1998-1999 when I became a subscriber, if not earlier). It was never a matter of “if” as much as “when” and what the ultimate catalyst will be.

3

Memo to Krugman: 7 Problems Cryptocurrency Solves

[ Read on Medium ]

Paul Krugman took time out from his European vacation to write why he’s a cryptocurrency skeptic. This is not surprising given who he is and what his positions have been over his career. Most of the orthodox criticisms against cryptocurrency  I covered previously in my “This Time is Different: What Bitcoin Isn’t” and “What Bitcoin Actually Is” series. But it’s worth recounting how one could easily take many of these criticisms against Bitcoin, search and replace “bitcoin” or “cryptocurrency” for “US dollar” and come out with are more applicable criticism of the modern fiat money system.

“Cryptocurrencies, by contrast, have no backstop, no tether to reality. Their value depends entirely on self-fulfilling expectations — which means that total collapse is a real possibility. If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless.”

This is more or less a truism that can be said about any fiat currency. Krugman seems to not notice, or care, that for most of recorded history, most currencies were either hard currencies (gold, silver, etc) or hard backed. Elastic, fiat currency, worldwide has only been around since the 70’s, and here’s Krugman complaining that it’s Bitcoin that has a tethering problem (or lack thereof). Further,

“In normal life, people don’t worry about where the value of green pieces of paper bearing portraits of dead presidents comes from: we accept dollar notes because other people will accept dollar notes. Yet the value of a dollar doesn’t come entirely from self-fulfilling expectations: ultimately, it’s backstopped by the fact that the U.S. government will accept dollars as payment of tax liabilities — liabilities it’s able to enforce because it’s a government.”

But people do lose faith in both currencies and governments. There have been 21 hyperinflations over the last 25 years.

It’s happening right now in Venezuela, where the inflation rate is on track to hit 1,000,000% by the end of the year, and Turkey may be next up.

Cryptocurrencies, meanwhile, are tethered to math. While in Krugman’s own words, fiat currencies can be created out of nothing:

“Instead of money created by the click of a mouse, we have money that must be mined — created through resource-intensive computations.”

Yes, that is entirely the point. In a recent Peak Prosperity podcast Chris Martenson quoted Charlie Munger’s observation:  “show me the incentives and I’ll show you the outcome”.

Krugman wonders “What problem does [Bitcoin] solve? I have yet to see a clear answer to that question.” Maybe we can clarify things by starting with the outcome: the fact that cryptocurrencies are here and as the data shows, steadily gaining traction, and then work backwards. (By gaining traction I’m not even talking about price action of any given cryptocurrency, I mean usage-based metrics like transaction volume, active addresses, hashing power, etc)

Via https://medium.com/@mccannatron/12-graphs-that-show-just-how-early-the-cryptocurrency-market-is-653a4b8b2720

When we work backwards we can arrive at what the incentives were that gave rise to this phenomenon. When we do so we’ll understand that they didn’t spontaneously arise out of whim, they came about for a reason, and those reasons are the problems that crypto solves.

Do not reply to this email

I realize I haven’t written anything here for awhile, it’s because I’m in the home stretch of submitting my manuscript for my DNS book, finally, after four years. I’m supposed to submit it today, in fact. Which I won’t because I still have a few chapters left to review. But we’re close.

But in my travels lately I always listen to audiobooks and podcasts in the car. Living in Toronto, you spend a lot of time in traffic. Brian Tracy once wrote that if you listen to audiobooks in the car (instead of listening to some morning DJ barking like a dog and discussing Survivor) you can obtain the equivalent of a university education in about 3 years.

This week I found a couple episodes from James Shramco’s Superfast Business podcast quite interesting to the small business seeking to compete with 800 lb gorillas in their space.

First up was #583 How Artificial Intelligence Can Be Used By Marketers To Enhance Performance. My takeaways here were that:

  1. AI is accessible to the small business. IBM Watson was mentioned in the podcast and while I was making a note to “investigate Watson pricing” I was stunned to find large swaths of the platform are actually free.
  2. The most effective use of AI is as an augment to human intelligence. This makes sense to me, as a former AI skeptic (I will elaborate why and what made me change my mind in another post), I feel as though AI will happen, but it will never become self-aware. Using AI to enhance human intelligence seems to be an unbeatable combination right now, in fact I remember listening to entire book about just that subject but the title escapes me.

The other Superfast podcast was #585 How to Engage Your Community which is very germane to those of us who run businesses and and view our customers as part of a community. What cracked me up here was Shrammie’s rant about businesses who tend to email you messages from addresses like do-not-reply@bigCo.com. He’s absolutely right here. When you send a message from do-not-reply@ the subtext of what you are telling your customer or prospect is… “fuck you”.

It’s laughable how important these people think they are. Too important to have to forward an email to the support team if somebody presses “reply” ? When I routinely send emails to the between 50,000 and 100,000 customers from easyDNS or Zoneedit and I always put my personal email address in either the reply-to or the signature, and my direct telephone extension in the signature. And I make it a point to reply to every single response I get, even if it’s just to tell them I’m forwarding their email over to the support team.

Do I get overwhelmed with so many responses from all my tiresome customers that I can’t do more important work? It’s never been an issue. Most of the time I get a smattering of responses, if it’s a hot-button topic that I know will get a lot of responses I would put in a P.S that even if I can’t respond individually to every email, I do read them all. Which I do.

This is also a great way to connect directly with your client base and get a sense of the state of your company on the front lines. If there is anything blinking bright red flashing lights, here’s where you can find out about it first.

Takeaways:

  • If your business has any automated processes emailing your customers with do-not-reply addresses, switch those to your main support address and funnel replies back into your ticketing system.
  • If you send any personal messages, like welcome sequences, letter from the CEO, etc then definitely do not send them from a do-not-reply email address, send them from your own personal email address, and take a moment to reply to anybody who actually replies to your email.

This is how you differentiate yourself from the 800lb gorillas in your space. They’re impossible to talk to, to connect with a human. Make it easy to connect with your company.

That’s it for now, back to my book.

 

 

1

Growth for Growth’s Sake is a Road to Nowhere

 

A few days ago a long time customer and CEO of a new security start-up came to see me. Ironically, given the way our conversation turned, he was in town to raise an angel round. We talked about how easyDNS will turn 20 years old this year and has never done a funding round or raised money. He promised to send me an article on Medium which talked about “Bootstrapping”, how tech companies have bucked the trend of serial funding rounds and build organically grown, sustainable businesses.

This morning he sent over “How to build a start-up Empire without Selling Your Freedom”, I highly recommend you read it.

Following on this theme it seems worthwhile to repost an article I penned on the easyDNS blog a few years back which anticipated “the bootstrapping” trend and this blog.

(Originally posted May 26, 2014)

The other day I had lunch with a colleague and he brought up Matthew Woodward’s epic rant against WPEngine  and he also mentioned Jason Cohen’s rebuttal post “Growth is Hard”  and that set us off on a long discussion around today’s tech biz climate (which is almost synonymous with the “start-up” culture, because these days everybody expects to sell their companies before they ever “grow up”)

While this post isn’t intended to single out WPengine as typical of what I’m talking about, Cohen’s rebuttal, while earnest, did seem to me to miss a point.

That point is if your growth rate is a big factor impacting your customer experience, then possibly (strictly heretically speaking), you’re growing too fast. (Jim Collins wrote a dynamite series of books, Built to Last, Good To Great, and How the Mighty Fall and Great By Choice in which he found an inverse correlation between overclocked growth-for-the-sake-of-growth rates and what he termed “10X companies” – companies that grew organically and then outperformed their industry index by 10X over a significant window of time).

It’s not that growth is bad per se. I’ve always identified more with value investing than “serial entrepreneurship” and value investors have a phrase called “GARP”, which means “Growth at a Reasonable Price”. To me the words “reasonable price” mean more than just the money.

1

Should You Delete Your Facebook Page?

In 1994 Wired magazine ran a short story entitled “Hack the spew” . This was back when Wired was actually cutting edge and not the insufferable Silicon Valley stroke job it became after Conde Naste acquired it. In it our antihero “Stark” finds himself inexplicably recruited as a kind of data scout, looking for viable consumer trends emerging from the fully immersive, all encompassing data field known as “The Spew”.

“When a schmo buys something on the I-way it goes into his Profile, and if it happens to be something that he recently saw advertised there, we call that interesting, and when he uses the I-way to phone his friends and family, we Profile Auditors can navigate his social web out to a gazillion fractal iterations, the friends of his friends of his friends of his friends, what they buy and what they watch and if there’s a correlation.”

The Spew of course, was the near future analogy of where the internet was headed, and when I went looking to link to it for this post, the piece turned out to be written by none other than Neal Stephenson. That means I read “Hack The Spew” and it made an impression on me before I even knew who Stephenson was or perhaps was on his way to becoming. Few would argue that Stephenson has a gift for seeing the general ambience of our oncoming future.  Cryptonomiconuncannily anticipated the impetus toward crypto-currencies; the current systemic dysfunction of national sovereignty worldwide was foretold in Snow Crash; so it follows that all this will likely culminate in something that resembles The Diamond Age.

1

Welcome to Bitcoin’s “Trough of Disillusionment”

 

The Gartner Group is widely credited with formulating the “Hype Cycle”, a trend curve that is said to model the adaptation of a new technology or paradigm.

Simply put it looks like this:

via: https://en.wikipedia.org/wiki/Hype_cycle

(read on Medium)

It certainly seems to have held sway regarding the Internet revolution, where the Peak of Inflated Expectations culminated in the Nasdaq blow-off-top of 2000 and the ensuing “Tech Wreck” crash. I remember that well, for a number of reasons including that my co-founders and I were still in “start-up” mode with our company, easyDNS.  I remember profoundly misunderstanding what was happening in those final few months.

I remember thinking, literally “this is an entirely new economy, it’s not about running profitable businesses anymore, it’s about running up your stock price.” There was a Sun Microsystems commercial that was near music video length, set to the soundtrack of the iconic rock track “Hocus Pocus” whose sole call-to-action at the end of the ad was the “SUNW” ticker symbol. And then it all imploded. That was when I started seriously learning about economics, history and finance.

I remember sitting in a diner one night having a coffee with a friend, mere months before the crash. Bullshit .COM’s were getting funded all over the place and everybody else, except me it seemed, were becoming millionaires overnight.

5

Is Bitcoin Racist? (Review of “The Politics of Bitcoin”)

It is not only those who see themselves as libertarians who, through the adoption of Bitcoin and the political communities around it, routinely distribute political and economic views that are grounded in conspiratorial, far-right accounts of the Federal Reserve and the nature of representative government…

David Golumbia, “The Politics of Bitcoin: Software as Right-Wing Extremism”

(Read on Medium)

The Cryptocurrency / Blockchain revolution is the second technological seismic shift to occur within the past 40 years.  The first was of course, the Internet, and once that achieved critical mass the detractors and those who feared the erosion of centralized power that the net signalled began subtly promulgating the memes of  The Four Horsemen of the Internet Apocalypse to warn off the population and justify centralized control (those were: terrorists, drug dealers, pedophiles, and organized crime. I recently dubbed “Fake news” the fifth horseman of the Internet Apocalypse).

It is no surprise then, with Central Banks and governments unable to control the uptake of cryptocurrency and further decentralization a new set of existential threats is being advanced. Let’s call this the “focus group” stage where all kinds of hyperbole will be floated to see what will stick.

The harbingers of the Bitcoin Apocalypse frontrunners are currently:

  1. All four horsemen of the Apocalypse plus
  2. Global Warming
  3. Energy Crisis

and if we are to take Virginia Commenwealth University associate professor of English David Golumbia seriously:

  1. Right Wing Extremism

Right-wing extremism, also known as “far right” politics is described in Wikipedia as…

often associated with Nazism, neo-Nazism, fascism, neo-fascism and other ideologies or organizations that feature extreme nationalist, chauvinist, xenophobic, racist or reactionary views. These can lead to oppression and violence against groups of people based on their supposed inferiority, or their perceived threat to the nation, state or ultraconservative traditional social institutions

In his book The Politics of Bitcoin: Software as Right-Wing Extremism, Golumbia attempts to make a case that “[these] political values are very literally coded into the software itself.”

The book was published in 2016 and appears to be an expansion of an earlier paper published in 2015. A colleague of mine made me aware of it before the holidays. It was admittedly a tough slog and I had to read it concurrently with Dave Collum’s year-end review in order to stay sane.

Left unchallenged, we run the risk that this book could eventually attain a simulcrum of academic credibility, from which it could be used as a basis for future fallacious criticisms of the crypto-space. Think “Bitcoin is racist, everybody knows that. (Golumbia, 2016). The end.”

Golumbia himself is somewhat active, publishing articles for Vice and others in which his bio always features a reference to this book among his credentials. He also has another paper entitled “Code is not Speech”:

“Advocates understand the idea that “code is speech” to create an impenetrable legal shield around anything built of programming code. When they do this they misunderstand, or misrepresent, free speech law…The idea that government cannot regulate things because they are made of code cannot be right.”

His core thesis in “Politics of Bitcoin” is that:

in the name of this new technology, extremist ideas were gaining far more traction than they previously had outside of the extremist literature to which they had largely been confined. Dogma propagated almost exclusively by far-right groups like the Liberty League, the John Birch Society, the militia movement, and the Tea Party, conspiracy theorists like Alex Jones and David Icke, and to a lesser extent rightist outlets like the Fox media group and some right-wing politicians, was now being repeated by many who seemed not to know the origin of the ideas, or the functions of those ideas in contemporary politics. These ideas are not simply heterodox or contrarian: they are pieces of a holistic worldview that has been deliberately developed and promulgated by right-wing ideologues.

This passage sets the tone for the rest of the book, the premise follows this basic line of reasoning:

  • Bitcoin was created out of a reaction to current monetary policy (The Fed / Central Banking / fiat money)
  • Previous critics of The Fed were racist, far-right extremists such as John Birch Society and Eustace Mullens

Therefore… and this may sound like I’m exaggerating to make my point, but I’m not:

  • any criticism of Central banking, the current monetary structure or “conventional mainstream economics” is right-wing extremism. And…
  • This extreme right-wing ideology is “very literally coded into the software itself”.

There isn’t a lot to unpack in this, but for a short book there certainly an abundance of problematic material to address.

By the time you finish this review you’ll understand that this book can’t be considered a work of scholarship by the most generous reader as much as it is a piece of academic negligence. It’s a rant, chock full of fallacies and flat out factual errors. I’m astounded that the book passed through editorial review and (presumably) fact checking and made it to press in its current form. I had to check my quoted material several times to make sure I wasn’t reading it incorrectly.

Here we go:

Golumbia’s book has three big problems:

5

This Time is Different Part 2: What Bitcoin Really Is.

[Read on Medium]

To me and many others, bitcoin is not a technical revolution as much as it is a triumph of political and economic incentives.

— Two  Bit Idiot

“Systems like Ethereum (and Bitcoin and NXT, and Bitshares, etc) are a fundamentally new class of cryptoeconomic organisms — decentralized, jurisdictionless entities that exist entirely in cyberspace, maintained by a combination of cryptography, economics and social consensus”

— Vitalik Buterin

In Part I we took a look at “What Bitcoin Isn’t”, where all the usual comparisons and analogies around Bitcoin were shown to be poor fits in explaining what the phenomenon really is, ending on the obvious next question:

What is Bitcoin then?

Money is one of those “aquarium characteristics” of life. Aside from worrying about our bills or investments, the general structure  of “money” is a background medium that underpins everything and for the most part we don’t really pay attention to it. Other examples are the base utilities like electricity and running water.

As we live our lives in these “aquariums”, we don’t really question the nature or the delivery mechanisms of these structural/cultural mediums we’re immersed in, unless they stop working or until they undergo a radical change.

8

This Time Is Different Part I: What Bitcoin Isn’t

 

“[Bitcoin] won’t end well, it’s a fraud…worse than tulip bulbs…[but] if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars,”

— Jamie Dimon: CEO, JP Morgan

Headline: JPMorgan Guilty of Money Laundering, Tried To Hide Swiss Regulator Judgement

— via Cointelegraph

 

(Read on Medium)

Given the current, latest successive series of spikes to all time highs for Bitcoin, the detractors are working overtime to make the case that the crypto-currency is a Ponzi, a scam, a phantasm or at the very least, a bubble. Oddly, many of these same detractors spend a lot of time cheerleading “the other bubble”, that everything-bubble, stocks, bonds, real estate, even ETFs of ETFs, you name it.

It’s easy to make superficial apples-to-screwdrivers comparisons about why Bitcoin is doomed to fail. Until you really take some time to look into it. When first was exposed to the idea back in 2013 and researched it, I realized that “this really is different”, and the reason why was because of something John Kenneth Galbraith had once written which (until then) had invariably held up as true. In “A Short History of Financial Euphoria” Galbraith said:

“The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves in one form or another, the creation of debt secured in greater or lesser adequacy by real assets.

(emphasis added)

When one looks at the history this accurately maps every financial bubble from Tulipmania (which we will debunk as a suitable metaphor for Bitcoin shortly) right up to 2008 and beyond.

However one place where it isn’t applicable, is to the phenomenon of Bitcoin. Crypto-currencies, at least at present, have no leverage and are near impossible to purchase on credit. In other words, if asset bubbles get that way largely through leverage, and there is comparatively no leverage in Bitcoin, then something else has to be driving it.

That said…

The Price of Bitcoin is a Side Show.

Granted, at the moment it’s a very exciting sideshow for those who are on the train. A long time customer emailed me as I was writing this asking “at what point has easyDNS’ profits from accepting and holding bitcoin exceeded the actual operating profits of the company?” I had never considered that but some quick math revealed that even after cashing a chunk out to buy gold (not my greatest trade), that happened last year.

But the price action around this isn’t what is exciting about Bitcoin and the crypto-currency revolution. What is exciting is that the centralized, bankster controlled monopoly over the issuance of money itself is finished. It’s over. Even if they successfully manage to co-opt some major crypto-currencies or issue their own, Gresham’s Law will assert itself as capital managers will select a truly decentralized crypto-currency wherein they control, or have the option to control, their own private keys to safely store their wealth while they’ll use the government version to pay taxes, etc.

Whatever state issued “digital cash” comes out in the near future, I’m suspecting it will be centralized with mandatory key private key custody or escrow. When that happens it shouldn’t even be called crypto-currency, call it something else like “pseudo-crypto” or “fauxcoin” to differentiate.

Given the mostly bad analogies and unfounded criticisms being levelled at Bitcoin, let’s first take a serious look at what Bitcoin isn’t. Then in Part II we’ll look at what it is and why its different.

What Bitcoin Isn’t

“Backed by nothing”

This is the goto criticism for people who simply don’t understand that crypto-currencies are based upon mathematics, zero-trust, open-source and consensus. They think that bitcoins can simply be created “at will” and are backed by nothing.

They also say that as if the world’s reserve currency, the US dollar, isn’t, literally, “backed by nothing” and hasn’t been since 1972; and as if can’t be created at will, which it most certainly has, with a vengeance.

Source: St Louis Fed

Indeed as Galbraith continued in our earlier passage:

“This was true in one of the earliest seeming marvels: when banks discovered that they could print bank notes and issue them to borrowers in excess of the hard-money deposits in the banks’ strong rooms”.

All fiat currencies today really are backed by nothing and can be created at will (that’s what the word “fiat” actually means), and perhaps unbeknownst to many we are right now in a protracted, global currency war. Every nation is “racing to the bottom”, trying to devalue their currency against their trading partners so they can:

  1. give their exporters a competitive advantage
  2. pull stronger currencies in to make money on the exchange, and
  3. service their ever expanding debts back with devalued, cheaper currency

This is why everybody’s purchasing power is going down despite tenured academics and central bankers incessantly complaining about “low inflation” and political spokesmodels always talking up a “strong currency”.

Bitcoin isn’t: “Backed by nothing”
What is? The USD and every other fiat currency in the world.

“Bitcoin is a ponzi”

The idea that Bitcoin or most crypto-currencies are “a Ponzi” is easily debunked by understanding what a Ponzi actually is.

As observed in CryptoAssets (Burniske & Tartar, 2017), it’s very simple: new investors pay old investors.

It is important to realize that in a Ponzi, the earlier investors are literally paid with funds being injected by the new investors in a “flow through” fashion (as distinct from later investors having to pay higher prices to earlier ones to induce them to part with an asset).

As long as the number of new investors and thus the influx of funds is growing at a rate faster than the payouts to the earlier investors, the Ponzi scheme thrives. When the expected payouts exceed the rate of input, it dies.

One doesn’t have to look very far to find mechanisms that fit the definition exactly: Social security programs are all classic ponzis. The demographic reality today is that with the entry of the “Baby Boom” generation into retirement, given that the subsequent generations are so much smaller in size, additionally penalized by falling real wages, rising or multiple taxation, decaying purchasing power on their money and returns on any savings they can eek out suppressed into negative nominal yields; this Ponzi is in its terminal phase.

(Given that these exacerbating headwinds which face later generations can be summed up with the phrase “financial repression”, it is only logical that capital would “flee” to some asset or currency which appears resistant to them.)

Granted, the current ICO craze probably includes some ponzis. The Cryptoassets book describes the OneCoin Ponzi as well as how to spot a ponzi in crypto-currencies. I would have been hesitant to even call OneCoin a crypto-currency at all. It wasn’t open source and had no public blockchain.

In Bitcoin or other true crypto-currencies, early holders are not receiving bitcoin from later entrants. In fact, quite the opposite is happening. Later entrants must entice earlier ones to part with their bitcoin. Since Bitcoin cannot be created at will, it must be mined at a rate that drops over time (this year approximately 640K new bitcoin will be mined, about 3.8% of the total supply).

Demand for bitcoin is simply outstripping supply of new coins being mined (for reasons we will discuss in Part II). If said price action rises dramatically (like for example, Bitcoin suddenly became the highest performing asset class in the world) then a feedback loop would occur.  Ever higher prices would be required to induce earlier holders to sell.

Bitcoin Isn’t: A ponzi
What is: Social Security

Tulipmania

What is described above is the same dynamic that occurs in any “bull market”, as buying begets more buying, and “fear of missing out” kicks in. It is said one of the most accurate gauges of “happiness” correlates closely to how much wealth one has when compared to one’s brother-in-law.  Alex J Pollock describes it in “Boom and Bust: Financial Cycles and Human Prosperity”, as “The disturbing experience of watching one’s friends get rich”.

The trick would be to have some understanding of when a strong bull market has crossed into Bubble territory. One of the more popular analogies for Bitcoin is Tulipmania: the financial bubble that occurred in 1630’s Amsterdam with none other than tulip bulbs. Bitcoin is compared to Tulipmania so often I decided to take a closer look at Tulipmania to see if the comparison was valid.

What I found was that it most of what we know today about Tulipmania is superficial and self-referential, deriving primarily Charles Mackay’s chapter on Tulipmania in his seminal “Extraordinary Delusions and the Madness of Crowds” (1841). It is a scant 9 pages and is purely anecdotal, describing ridiculous prices paid by the otherwise pragmatic and level-headed Dutch and then it all just blew up like all bubbles do.

Finally I found Anne Goldgar’s Tulipmania: Money, Honor and Knowledge in the Dutch Golden Age, which is the most in-depth investigation to the rise and subsequent fall of Tulipmania extant today. In it we learn about the circular references that went on to inform our present time about Tulipmania:

“If we trace these stories back through the centuries, we find how weak their foundations actually are. In fact, they are based on one or two contemporary pieces of propaganda and a prodigious amount of plagiarism. From there we have our modern story of tulipmania.”

She traces the lineage of MacKay’s chapter:

“Mackay’s chief source was Johann Beckmann, author of Beytrage zur Geschichte der Erfindungen, which, as A History of Inventions, Discoveries and Origins, went through many editions tions in English from 1797 on. Beckmann was concerned about financial speculation in his day, but his own sources were suspect.

He relied chiefly on Abraham Munting, a botanical writer from the late seventeenth century. Munting’s father, himself a botanist, had lost money on tulips, but Munting, writing in the early 1670s, was himself no reliable eyewitness. His own words, often verbatim, come chiefly from two places: the historical account of the chronicler, Lieuwe van Aitzema in 1669, and one of the longest of the contemporary pieces of propaganda against the trade, Adriaen Roman’s Samen-spraech tusschen Waermondt ende Gaergoedt (Dialogue logue between True-mouth and Greedy-goods) of 1637. As Aitzema was himself basing his chronicle on the pamphlet literature, we are left with a picture of tulipmania based almost solely on propaganda, cited as if it were fact.”

(emphasis added)

Goldgar helps the reader in pursuit of truly understanding Tulipmania by rewinding to the late 1590’s, when there were no tulips in what is now Holland, or in fact Europe. Gardens were purely functional, for growing food, herbs or medicinals. Then tulips and other curiosities began coming into the country and Europe from merchant vessels trading in the Mediterranean and Far East.

The “flower garden” arose for the first time, and it was spectacular – giving rise to an entire movement of collectors and aficionados, whom in the early days were as a rule well-to-do and affluent. In later years, more people sought out, and then speculated in the tulip trade to not only profit, but to lay their own claims on what they perceived to be a higher economic class or status.

At the risk of over simplifying her work, the Tulip trade became intertwined and inseparable from, art.

“The collecting of art seemed to go with the collecting of tulips. This meant that the tulip craze was part of a much bigger mentality a mentality of curiosity, of excitement, and of piecing together connections between the seemingly disparate worlds of art and nature. It also placed the tulip firmly in a social world, in which collectors strove for social status and sought to represent themselves as connoisseurs to each other and to themselves.”

The more I delved into understanding Tulipmania, the more I couldn’t escape thinking that the analogy was much more applicable to a different “asset class” which did enjoy a momentous bubble in recent times, but it wasn’t bitcoin or crypto-currencies. To belabour my point, Bitcoin was impelled not by art, beauty or any semblance of collectibility but emerged primarily as a resistance to financial repression.

Something that was driven by uniqueness and fostered an aristocratic in-club all it’s own and until recently enjoyed stratospheric price action, was the aftermarket in domain names. This isn’t the place to conduct a post-mortem on that bubble, but suffice it say that the distinct characteristics of domain names more closely resembled that of tulip bulbs than Bitcoin does. (For the reader interested, I have written at length about the domain aftermarket here and here).

Bitcoin isn’t: Tulipmania
What was like Tulipmania? Domain names.

If Bitcoin isn’t a digital fiat backed by nothing, nor a ponzi nor Tulipmania, then what is it? Why has this come out of literally nowhere to become the strongest performing and fastest growing asset / currency in the world?

When I started writing this post I wasn’t sure myself. I had to go back through my library and look at history and try to find some historical antecedent for what was happening. After looking back through the origins of money itself and working forward I still wasn’t any closer to a mental model that “worked”.

Then around 2am the other night I woke up with the idea that I was looking in the wrong place, and it hit me with such force that I had a hard time getting back to sleep – even though I had made an “off the cuff” tweet that captured the basic idea of it a few weeks earlier (which I can’t find now).

I’ll take you through it in Part II. (Hope to have it up soon). But in the meantime, I’ll leave you with another megabank CEO who’s take on all this is very different from Jamie Dimon’s. Goldman Sachs’ CEO Lloyd Blankfein here muses on why it’s entirely plausible that money may evolve from being based on fiat to being based on consensus. Some truly extraordinary remarks coming from a man in his position.


 

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