A LessWrong Crypto Autopsy

Wei Dai, one of the first peo­ple Satoshi Nakamoto con­tacted about Bit­coin, was a fre­quent Less Wrong con­trib­u­tor. So was Hal Fin­ney, the first per­son be­sides Satoshi to make a Bit­coin trans­ac­tion.

The first men­tion of Bit­coin on Less Wrong, a post called Mak­ing Money With Bit­coin, was in early 2011 - when it was worth 91 cents. Gw­ern pre­dicted that it could some­day be worth “up­wards of $10,000 a bit­coin”. He also quoted Mold­bug, who ad­vised that:

If Bit­coin be­comes the new global mon­e­tary sys­tem, one bit­coin pur­chased to­day (for 90 cents, last time I checked) will make you a very wealthy in­di­vi­d­ual...Even if the prob­a­bil­ity of Bit­coin suc­ceed­ing is ep­silon, a mil­lion to one, it’s still worth­while for any­one to buy at least a few bit­coins now...I would not put it at a mil­lion to one, though, so I recom­mend that you go out and buy a few bit­coins if you have the tech­ni­cal chops. My fi­nan­cial ad­vice is to not buy more than ten, which should be F-U money if Bit­coin wins.

A few peo­ple brought up some other points, like that if it ever be­came pop­u­lar peo­ple might cre­ate a bunch of other cryp­tocur­ren­cies, or that if there was too much con­tro­versy the Bit­coin econ­omy might have to fork. The thread got a hun­dred or so com­ments be­fore dy­ing down.

But Bit­coin kept get­ting men­tioned on Less Wrong over the next few years. It’s hard to se­lect high­lights, but one of them is surely An­der’s Why You Should Con­sider Buy­ing Bit­coin Right Now If You Have High Risk Tol­er­ance from Jan­uary 2015. Again, peo­ple made ba­si­cally the cor­rect points and the cor­rect pre­dic­tions, and the thread got about a hun­dred com­ments be­fore dy­ing down.

I men­tion all this be­cause of an idea, with a long his­tory in this move­ment, that “ra­tio­nal­ists should win”. They should be able to use their train­ing in crit­i­cal think­ing to rec­og­nize more op­por­tu­ni­ties, make bet­ter choices, and end up with more of what­ever they want. So far it’s been con­tro­ver­sial to what de­gree we’ve lived up to that hope, or to what de­gree it’s even re­al­is­tic.

Well, sup­pose God had de­cided, out of some sym­pa­thy for our pro­ject, to make win­ning as easy as pos­si­ble for ra­tio­nal­ists. He might have cre­ated the biggest in­vest­ment op­por­tu­nity of the cen­tury, and made it visi­ble only to liber­tar­ian pro­gram­mers will­ing to dab­ble in crazy ideas. And then He might have made sure that all of the ear­liest adapters were Less Wrong reg­u­lars, just to make things ex­tra ob­vi­ous.

This was the eas­iest test case of our “make good choices” abil­ity that we could pos­si­bly have got­ten, the one where a mul­ti­ply-your-money-by-a-thou­sand-times op­por­tu­nity ba­si­cally fell out of the sky and hit our com­mu­nity on its col­lec­tive head. So how did we do?

I would say we did mediocre.

Ac­cord­ing to the re­cent SSC sur­vey, 9% of SSC read­ers made $1000+ from crypto as of 12/​2017. Among peo­ple who were referred to SSC from Less Wrong—my stand-in for long-time LW reg­u­lars − 15% made over $1000 on crypto, nearly twice as many. A full 3% of LWers made over $100K. That’s pretty good.

On the other hand, 97% of us—in­clud­ing me—didn’t make over $100K. All we would have needed to do was in­vest $10 (or a few CPU cy­cles) back when peo­ple on LW started recom­mend­ing it. But we didn’t. How bad should we feel, and what should we learn?

Here are the les­sons I’m tak­ing from this.

1: Our epistemic ra­tio­nal­ity has prob­a­bly got­ten way ahead of our in­stru­men­tal ra­tio­nal­ity

When I first saw the posts say­ing that cryp­tocur­rency in­vest­ments were a good idea, I agreed with them. I even Googled “how to get Bit­coin” and got a bunch of tech­ni­cal stuff that seemed like a lot of work. So I didn’t do it.

Back in 2016, my father asked me what this whole “cryp­tocur­rency” thing was, and I told him he should in­vest in Ethereum. He did, and cen­tu­pled his money. I never got around to it, and didn’t.

On the broader scale, I saw what looked like wide­spread con­sen­sus on a lot of the rele­vant Less Wrong posts that in­vest­ing in cryp­tocur­rency was a good idea. The prob­lem wasn’t that we failed at the epistemic task of iden­ti­fy­ing it as an op­por­tu­nity. The prob­lem was that not too many peo­ple con­verted that into ac­tion.

2: You can only pre­dict the fu­ture in broad strokes, but some­times broad strokes are enough

Gw­ern’s ar­gu­ment for why Bit­coin might be worth $10,000 doesn’t match what ac­tu­ally hap­pened. He thought it would only reach that level if it be­came the world cur­rency; in­stead it’s there for...un­clear rea­sons.

I don’t count this as a com­plete failed pre­dic­tion be­cause it seems like he was mak­ing sort of the right men­tal mo­tion—calcu­late the size of the best-case sce­nario, calcu­late the chance of that sce­nario, and re­al­ize there’s no way Bit­coin wasn’t un­der­val­ued un­der a broad range of as­sump­tions.

3: Ar­gu­ments-from-ex­treme-up­side some­times do work

I think Mold­bug’s com­ment aged the best of all the ones on the origi­nal thread. He said he had no idea what was go­ing to hap­pen, but recom­mended buy­ing ten bit­coins. If Bit­coin flopped, you were out $10. If it suc­ceeded, you might end up with some crazy strato­spheric amount (right now, ten bit­coins = $116,000). Sure, this de­pends on an as­sump­tion that Bit­coin had more than a 110,000 chance of suc­ceed­ing at this level, but most peo­ple seemed to agree that was true.

This re­minds me of eg the ar­gu­ment for cry­on­ics. Most LWers be­lieve there’s a less than 10% chance of cry­on­ics work­ing. But if it does work, you’re im­mor­tal. Based on the ex­traor­di­nary na­ture of the benefits, the gam­ble can be worth it even if the chances of suc­cess are very low.

We seem to be un­usu­ally fond of these ar­gu­ments—a lot of peo­ple cite the as­tro­nom­i­cal scale of the far fu­ture as their rea­son for car­ing about su­per­in­tel­li­gent AI de­spite the difficulty of any­thing we do af­fect­ing it. Th­ese ar­gu­ments are weird-sound­ing, easy to dis­like, and guaran­teed to leave you worse off al­most all the time.

But you only need one of them to be right be­fore the peo­ple who take them end up bet­ter off than the peo­ple who don’t. This decade, that one was Bit­coin.

Over­all, if this was a test for us, I give the com­mu­nity a C and me per­son­ally an F. God ar­ranged for the perfect op­por­tu­nity to fall into our lap. We vaguely con­verged onto the right an­swer in an epistemic sense. And 3 − 15% of us, not in­clud­ing me, ac­tu­ally took ad­van­tage of it and got some­what rich. Good work to ev­ery­one who suc­ceeded. And for those of us who failed—well, the world is get­ting way too weird to ex­pect there won’t be similarly in­ter­est­ing challenges ahead in the fu­ture.