# 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. • This post has been a clear example of how rationality has and has not worked in practice. It is also a subject of critical practical importance for future decisions, so it frequently occurs to me as a useful example of how and why rationality does and does not help with (in retrospect) critical decisions. • This post distinguishes between the success of the LW community on identifying crypto and the relative failure on acting on crypto in a way that reminds me of how important it is to actually act on information instead of just processing it mentally. I think this failure mode of understanding a problem but failing to act on that understanding is a very common one for me and I would expect for other readers. I think both emphasizing that this is a part of the problem to be solved, and illustrating specific benefits from solving that problem in a historical context, where you can actually assign monetary value to those outcomes, is a great way to emphasize the specific value involved in rationality. Also the discussion quickly converges on a relatively cheap solution of writing up tutorial style documentation for processes like this that you’ve found to be high value. That kind of intro tutorial is one of the most valuable things to read for exactly this reason, because it can close that “understanding->action” gap and I would love to read more articles inspired by this notion that there are plots of value ready to be grasped. • It is important to understand why we fail • Many people pointed out that the real cost of a Bitcoin in 2011 or whenever wasn’t the couple of cents that it cost, but the several hours of work it would take to figure out how to purchase it. And that costs needed to be discounted by the significant risk that a Bitcoin purchased in 2011 would be lost or hacked—or by the many hours of work it would have taken to ensure that didn’t happen. Also, that there was another hard problem of not selling your 2011-Bitcoins in 2014. I agree that all of these are problems with the original post, and that they significantly soften the parts that depend on “everyone should have bought lots of Bitcoins in 2011”. Obviously in retrospect this still would have been the right choice, but it makes it much harder to claim it was obvious at the time. • I wrote about this post extensively as part of my essay on Rationalist self-improvement. The general idea of this post is excellent: gathering data for a clever natural experiment of whether Rationalists actually win. Unfortunately, the analysis itself is very lacking and is not very data-driven. The core result is: 15% of SSC readers who were referred by LessWrong made over$1,000 in crypto, 3% made 100,000. These quantities require quantitative analysis: Is 15%/​3% a lot or a little compared to matched groups like the Silicon Valley or Libertarian blogosphere? How good a proxy is Scott’s selection for people who were on LessWrong when Bitcoin was launching and had the means to take advantage of the opportunity? How much of a consensus on LessWrong was the advice to buy cryptocurrencies? These are all questions that one could find data on (I did a bit of it in my own post), but the essay does no such thing. Scott declares by fiat that 15% earns the community a C grade, with very little justification provided. This conclusion aligns perfectly with what Scott previously opined on the utility of Rationality to things like making money, which doesn’t engender confidence in the objectivity of his evaluation. The idea behind this essay is very admirable; one of the main things we fail to do more as a community is to test ourselves against real world outcomes. And the fact that Scott gathered the data himself is laudable as well. But the essay in itself is more of a suggestion for a good research post than a good work of analysis in itself. • When this article came out, I put a bit of money into alternate cryptocurrencies that I thought might have upside. They are now worth less than I invested. I think it’s good to review how you did in the past, but it’s important not to overlearn specific lessons. In retrospect, I think that this article should have put more emphasis on that point. • I do not think this is a strong analysis. Things were a lot more complicated than this, on many levels. Analyzing that in detail would be more interesting. This post seems more interested in the question of ‘what grade should we get for our efforts’ than in learning from the situation going forward, which is what I think is the far more interesting problem. That’s not to say that the actual evaluation is especially unfair. I give myself very low marks because I had the trading skills to know better, or I should have had them, and the spare cycles to deal with it as well, with the key insight being that the fact that it was super hard to deal with was actually a reason to buy, not a reason to avoid buying. But it wasn’t until I worked with much better traders (who also, of course, all failed to bother acting despite knowing about it, the desk head said BTC was a “screaming buy” at1 long before I got there, then everyone did nothing) that I figured out what the real mistake here was. Any good analysis, to me, has to say why we should have believed BTC but not fallen for countless other things, even if it turns out that BTC did so well that it would have fine to fall for 100 (or 1000!) other similar things at the same time, in some sense...

• It is a little bit unfair to say that buying 10 bicoins was everything you needed to do. I owned 10 bitcoins, and then sold them at a meager price. Nothing changed as a result of me merely understanding that buying bitcoins was a good idea.

What you really needed was to sit down and think up a strict selling schedule, and also commit to following it. E.g. spend $100 on bitcoin now, and later sell exactly 10% of your bitcoins every time that 10% becomes worth at least$10,000 (I didn’t run the numbers to check if these exact values make sense, but you get the idea).

Upstream of not taking effective action was unwillingness to spend a few hours thinking hard about what would actually be smart to do if the hypothetical proved true.

• A good general rule here is to think in terms of what percentage of your portfolio (or net worth) you want in a specific asset class, rather than making buying/​selling a binary decision. Then rebalance every 3 months.

For example, you might decide you want 2.5%-5% in crypto. If the price quadrupled, you would well about 75% of your stake at the end of the quarter. If it halved, you would buy more.

The major benefit is that this moves you from making many small decisions to one big decision, which is usually easier to get right.

• I agree that this is the appropriate strategy to use when adding an investment to your portfolio, but note that if applied to Bitcoin it did not yield the sort enormous gains that motivated this post. So if you think the Bitcoin example should lead us to update away from outside-view-motivated beliefs about our ability to spot market inefficiencies/​investment opportunities, you should probably also endorse updating away from outside-view-motivated portfolio strategies like picking an allocation and rebalancing.

I just ran some numbers on this. Suppose you had $100k in savings, read the 2011 LessWrong post and were convinced to adopt a 95% cash 5% bitcoin allocation at the end of Q1 2011, and thereafter rebalanced on the last Monday of every quarter. (Assume for simplicity that your non-Bitcoin holdings earn zero interest, that you don’t add or remove any money from your total savings during the period, and that you successfully avoided having your BTC stolen in MtGox etc.) If you ignore taxes, then at the end of 2017 you’d be left with$414k, which is decent but not life-changing. Further, since you’re rebalancing every quarter you’re paying a lot of taxes if you’re in the US; assuming a federal+state short term capital gains rate of 30% you’d end up with $284k. (By only rebalancing yearly you can decrease your tax liability but you miss out on some of the big rallies; assuming a 15% long-term capital gains rate you end up with$258k.)

By contrast just buying the same $5k of BTC in Q1 2011 and hodling until the end of 2017 would leave you with around$75M (perhaps $60M after tax), which is more like the sort of “winning” Scott seems to be thinking about here. But how would you know to do that rather than, say, selling in mid-2011 for$100k?

• A plausible strategy would be to buy say 100 bitcoins for $1 each, then sell 10 at$10, 10 at $100, and so on. With this strategy you would have made$111,000 and hold 60 bitcoins.

• I think this seems correct and is also what I have settled on. In theory you can use the Kelly Criterion to work out bounds on the percentages to use. In practice that seems hard.

• I strongly agree. Despite appearances, I wouldn’t say someone with 10 bitcoin today has “won” at all. Winning means getting more of what you ultimately care about, like goods and services. You only win if you convert your bitcoin into goods or dollars at the right time. I am reminded of “buy low, sell high”: an empty phrase that can sound deceptively like good investment advice.

• In my case, it was about not-so-trivial inconveniences. Like Richard, I couldn’t install the software and didn’t know a reliable place to buy. A few months ago, when a friend sent me a link to BitStamp and explained what to do, I bought some BTC, which are currently at triple the price I bought them. Nice, but not as nice as if the same thing would have happened a few years sooner.

(I am in a similar situation with index funds right now. I agree that it is a good idea to buy them. I just don’t know where exactly to go, what exactly to do, and what exactly will be the consequences for taxes. I am not an American, so I would need specific information for my country.)

But it is also my fault for not paying enough attention to this specific topic. Not realizing that this article is not the same as 99.99% of the rest; that this is the right moment to stop reading web and actually do something.

Some of us were smarter than others. Good for them! But if we want to help each other, and avoid having the same thing happen the next time, next time when you see an exceptionally important article, don’t just think “others have read the same article, and they are smart people, so they know what to do”. That’s another form of illusion of transparency; after reading the same text, some people will jump up, others will just continue reading. Here are two things you can do to nudge your fellow rationalists in the right direction:

1) Imagine a person who has very little knowledge in this specific area, and for some reason is not going to study more. Can the whole thing be simplified; ideally into a short list that is easy to follow? For example: “Step 1: register online at BitStamp. Step 2: send them the required KYC documents. Step 3: do the money transfer. Step 4: buy Bitcoins. Step 5: HODL!” More people will follow this procedure, than if they just read “buy and/​or mine some Bitcoins, find out how”.

2) Offer help at your local meetup. Make a short lecture, explain the details, answer questions. When people are interested, guide them step by step.

All we would have needed to do was invest $100 (or a few CPU cycles) back when people on LW started recommending it. All we needed was someone who would make a lecture about Bitcoins at a meetup and then say: “If you are interested, bring a laptop and USD 100 to the next meetup and we will do this together.” Today, you would have a local rationalist millionaires’ club. Think how awesome that could be! More generally, if we want to win, we need to seriously improve our teamwork. Sometimes that means to cooperate with other people. Sometimes that means to lead them. It is not true that each of us needs to play the game of life alone. • This post is interesting to me, because I feel strong resistance to acting as you suggest. (Background: I made a lot of money from buying Ether at$0.80, but was into crypto before I was into rationalism.)

I think my intuition is some sort of fear of social risk? I’m mostly willing to tell people what I think the right move is, but if they’re not motivated to figure out the details themselves, then I worry that they will be upset if the most likely outcome (losing 100% of their money) happens, and that I’ll bear the social cost.

• Yeah, I tend to agree that social factors work against the idea of telling someone to invest in cryptocurrency or other high-risk high-reward things like this. (And despite Eliezer’s point that modesty is not necessarily correct in making decisions for oneself, I find it hard to sensibly eliminate modesty in what one tells other people to do.)

• Strongly agree that I probably would have bought some crypto on LW advice had there been a nearby meetup to go through the process of doing it. Otherwise my priors about not giving my credit card info (or whatever) to strange websites were too strong to believe I would even successfully engage in the strategy.

• I’m one of the 3% who made over $100K (I made ~$500K).

I have to agree with other commenters that it was genuinely difficult to buy the cryptocurrency in the first place. It took me about 5 solid hours to learn how it worked, and then several days to funnel the currency through the various necessary conversions, any of which might’ve unexpectedly eaten my hard-earned cash for some incomprehensible reason.

In hindsight it’s easy to see this as “5 hours’ work for $100,000/​hour, plus some waiting”, but at the time there was no such guarantee of success. The only reason I persisted was because I was interested in the cryptography aspect and wanted to be a part of an up-and-coming technology. • The only reason I persisted was because I was interested in the cryptography aspect and wanted to be a part of an up-and-coming technology. And that is a reward I guess a very high fraction of the people actually ‘investing’ in Bitcoin had. Those hackers, nerds, tech enthusists didn’t need high fractions of likelihood times payoff. And maybe the true lesson to draw from this is not to look at an abstract payoff but at the social dynamic: Are there enough people attracted to something. • To take a different set of data points in the community, MIRI and CFAR easily filled up their respective funding gaps recently (largely as a result of crypto), and if this continues to be the new normal then I’ll consider us to have passed fairly well (maybe a B+). If it’s a one off hit then I’ll agree to the C grade. Edit: Fixed the links. • I can’t click your link, but I disagree. MIRI got most of its money from Vitalik, who I think was into crypto first and then found rationality/​LW. We don’t get any credit for that. Also, MIRI got a 500,000 dollar (why can’t I make the dollar sign on this site?) worth of Ripple donation in 2014. If they had kept it as Ripple, it would be worth 50 million now. Instead they sold it for 500,000 dollars (I’m not blaming them, this made sense at the time). So although MIRI and CFAR lucked out into getting some money from crypto, I don’t think it was primarily because of their (or our) great decisions. And if people had made great decisions they could have gotten much more. • MIRI got most of its money from Vitalik While not technically part of the winter fundraiser, don’t forget that MIRI also got a million dollar ETH donation in the spring. For the year, it’s more than half crypto, even after accounting for the 1.25M from Open Phil. • Maybe this is nitpicking, but per their post MIRI got a plurality of cryptocurrency from Vitalik but not a majority. If the website is accurate, then out of 66% of the funds raised ($1.656m) Vitalik contributed $763k, the other$893k of cryptocurrency being from other donors.

• Are the numbers MIRI cites for crypto donation amounts in USD based on how much they worth at the time of the donation? Or how much that donation is worth in USD based on price right now?

• Based on price at the time of donation. My understanding is that they usually sell right away.

• You can’t write a dollar sign because it’s interpreted as “start writing mathematics”. But if you type a backslash first it gets escaped and you get the dollar sign you hoped for: $. • I think it says something good about our community that whoever implemented this feature assumed people would be more likely to want to write mathematics than to discuss amounts of money. • That is a nice thought, but it seems more likely that they just didn’t think of it… (also, I don’t think that particular bit was custom-written for LW, though the dev team can correct me on that if I’m mistaken) • Nope, not custom-written. We are using this plugin: https://​​github.com/​​efloti/​​draft-js-mathjax-plugin However, I did consider whether to change the behavior of pressing ‘$’ and decided that people would probably use LaTeX more often than trying to use the dollar sign, and so was reasonably happy with that default behavior.

• FWIW, I ran into the same issue with Arbital, and very quickly decided to change it to . Otherwise, any time you’re writing a post about money, it’s super inconvinient.

• Interesting!

I actually had in mind the original author of the plugin, when I said whoever it was just didn’t consider it; but it’s interesting that you did think about it in this way!

It might be cool to survey current users of the site, to see what in fact are the relative prevalences of these two use cases. (Also there are lots of other similar questions I’d love to have the answers to.)

• decided that people would probably use LaTeX more often than trying to use the dollar sign

Err… this seems like the kind of thing that *really* wouldn’t stand up to user testing.

• Taking my place in history—one of my first tasks as an intern at MIRI was to write some ruby scripts that dealt with some aspects of that donation.

Not only did that experience land me my first programming job, but just realizing now that it was also the impetus that led me to grab more bitcoin (I had sold mine at the first peak in 2013) AND look into Stellar. Probably the most lucrative internship ever.

(Shoutout to Malo/​Alex if you guys are still lurking LW)

• (Re-writing this comment from the original to make my point a little more clear).

I think it is probably quite difficult to map the decisions of someone on a continuum from really bad to really good if you can’t simulate the outcomes of many different possible actions. There’s reason to suspect that the “optimal” outcome in any situation looks vastly better than even very good but slightly sub-optimal decisions, and vise-versa for the least optimal outcome.

In this case we observed a few people who took massive risks (by devoting their time and energy into understanding or developing a particular technology which very well may have turned out to be a boondoggle) receive massive rewards from the success of it, although it could have very well turned out differently, based on what everyone knew at the time. I think the arguments for cryptocurrency becoming sucessful that existed in the past were very compelling but they weren’t exactly airtight logical proofs (and still aren’t even now). Not winning hugely because a legitimately large risk wasn’t taken isn’t exactly “losing” (and while buying bitcoins when they were cheap wasn’t a large risk, investing time and energy into becoming knowledgable enough about crypto to know it was worth taking the chance may have been. A lot of the biggest winners were people who were close to the development of cryptocurrencies).

But even so, a few of these winners are close to the LW community and have invested in its development or some of its projects. Doesn’t that count for something? Can they be considered part of the community too? I see no reason to keep the definition so strict.

• Did quick stats on SSC survey data, wanted to report null results: a person’s favourability rating of the rationality community predicted the amount of money someone made in crypto very weakly (r=0.07), though more than IQ (r=0.03). Both with tiny p values.

• I suspect it was the trivial inconveninece of setting it up that stopped most of those who were considering it.

• I remember reciting “beware trivial inconveniences” to myself in my head when I went through the process of figuring out how to buy BTC in December 2010. It was good advice.

• Yeah. I was wondering if I get any points for spending two or three evenings back in 2014 trying to get some bitcoin and failing due to the complete crappiness of the user experience.

• I mean, you get points for trying, but those points don’t go to your final grade. Your final grade is only ever determined by reality, and if you didn’t make millions because of a trivial inconvenience, then you didn’t make millions.

• I’m a little curious, can you go into more detail? I had always assumed that the “too inconvenient” barrier was when you had to mine it yourself, or when you had to slowly wire money to some fishy site like Dwolla and from there to some fishy exchange like Mt. Gox, and that by 2014 it would largely seem easier and less risky.

• Specifically, I first looked into buying some. I found that all the exchanges required far more of my personal information than I was willing to submit to what looked like and, in retrospect, very well may have been a scam.

Next I tried to mine some, but I didn’t own any computers that could really do it effectively. I only had laptops and if I recall correctly I didn’t have enough spare disk space to hold the blockchain.

I could have persisted along the route of purchasing the bitcoin and exposed myself to really quite significant financial risk. I could have persisted along the mining route and purchased a new expensive computer. While I felt like bitcoin could become A Thing, neither of those options seemed worth the tradeoff.

• I found the inconvenience more than trivial. I made several attempts over the life of Bitcoin to either mine some (back when that was practical for anyone) or buy some, but my efforts always ran into the sand. The software didn’t work, or the web sites didn’t look like credible places to send substantial sums of money to, or whatever. Scandals like Mt Gox didn’t help. Of course, plenty of people did get past those hurdles, so I can’t blame anyone but myelf.

I did finally manage to buy a token quantity of Bitcoin a few months ago, but I expect the boom is now over. I haven’t bothered tracking the price since then. I’ve even had ads for digital coins in my Facebook feed, targetted at the general public (eww!). In fairness to Bitcoin, they mostly looked like scams with little likelihood of doing anything with their customers’ money but keeping it.

• or web sites didn’t look like credible places to send substantial sums of money to

It seems to me that this particular barrier is some sort of double counting. If you’ve already decided that this bitcoin thing is weird and risky, but also worth a shot, then you shouldn’t change your mind when presented with evidence that it’s indeed weird and risky.

• It’s multiple risks, each singly counted. Bitcoin in general is risky for definite reasons: volatility, the possibility that governments will come down hard on it, security of the cryptography it depends on, etc. But any particular method of operating in Bitcoin has its additional risks of the probity and security of those involved. My unconfidence in some of the cryptocurrency dealers I looked at was not simply because they were cryptocurrency dealers.

• Yeah, it’s definitely true that it’s an additional risk. My intuition that it’s likely to be a misfiring heuristic lingers, though.

Say any given exchange has a 50% chance of losing or stealing your money, and that it’s independent of the chance Bitcoin succeeds. (That feels pretty pessimistic to me, and the actual track record has been notably better than that.) If you needed 1/​10000 credence for success before adding that factor, now you need 15000. I’m skeptical that any of us are well-calibrated enough to put Bitcoin’s success at higher than 1/​10000 but lower than 15000.

It also seems that it’s unlikely to be uncorrelated. I would expect a higher chance of exchanges working in worlds where Bitcoin is successful. (Because if exchanges are consistently unreliable, that will make Bitcoin less attractive, and because they’re both entangled with difficult-to-observe factors like “the community actually tries to make it work rather than just scamming everyone”.)

This is of course all hindsight, so I could easily be wrong. But it seems definitely true to me that most people have a lot of trouble overcoming conservative heuristics enough for successful “black swan farming”, and paying too much attention to superficial feelings of sketchiness seems likely to be -EV in that context.

• Say any given exchange has a 50% chance of losing or stealing your money

Applying a population average to an individual is a course of last resort, especially in a marketplace that contains everything from solidly reliable businesspeople to those who will just take your money and run. One must seek further information about each individual to make a judgement about who can best be trusted.

For example, the reviews I found of one of the exchanges I considered were almost all negative, the main complaint being that it was next to impossible to withdraw funds from it and customer support was uncontactable. The few positive reviews I found read like spam. No-brainer there—avoid.

It also became clear to me that to deal seriously in cryptocoins (and dealing at all is too expensive to do frivolously), you must have your own wallet on your own machine, and not merely have an account with an exchange that holds your coins for you in their own wallet. The track record says that no exchange can be trusted to that extent. The latter is the usual way of handling conventional currency, but that is because banks, funds, etc. are on the whole and by and large, reasonably reliable, notwithstanding notable financial crashes from time to time. (Even then, you need to mitigate the risk by diversifying not just your kinds of investment, but the institutions they are invested with.) You then have to take seriously the security of that wallet, to the point of never exposing it to the internet except as absolutely necessary and for the shortest possible time.

In short, you have to think about specific failure modes and plan against them.

• Your post is a good summary of how to have excellent cryptocurrency security, but why is it a requirement to have excellent security? In sentences like this one:

Where does the “must” come from? What would happen if you didn’t?

This seems like applying K-selection strategy, in a situation where a r-selection strategy might outperform. I posit that it would have been better to use $10 to buy 5 Bitcoin without substantial consideration of security risk, rather than put$0 in due to worries about security. Yes, you might lose that $10 in all sorts of ways, but that’s the risk you’re signing up to take, and the potential reward makes it worth it. • I bought 200 BTC and lost them in a hack. Later bought 50 ether and kept them in a wallet, so I still have those. In light of that, I’d say security was pretty important! • Security is great! I love security. I recommend hardware wallets if you’re storing a non-trivial amount of crypto. But the question is about what someone should do when it’s 2011 and they want to buy$10 worth of Bitcoin as a (+EV) lottery ticket. My claim is that, if your goal is “have some Bitcoin”, then the options go like this:

It’s great if you can get the first one, but it’s irrational to let the existence of the first strategy push you into the third strategy. The second strategy ends up with “maybe some Bitcoin”, which is more Bitcoin then “definitely no Bitcoin”.

• Th easiest way to buy Bitcoin was MtGox for a long time and anybody who just kept the Bitcoins at MtGox lost them afterwards.

• Yep! When you make 1000-to-1 bets, usually you lose.

• For my purposes, I rate the middle option lower than the last. I’m not interested in merely “having some Bitcoin” (or other cryptocurrencies, some of which look more promising going forward). My only reason for doing this is for a significant chance of making some useful amount of money. By “useful” I am roughly thinking in terms of at least 6-figure sums of money. Proper security is essential at that scale, and caution over who I deal with. My currently trifling amount of BTC was only to test the basics of how to do it, and in fact I haven’t yet tested the other half of the matter, i.e. turning BTC back into conventional currency.

• a significant chance of making some useful amount of money

It sounds like you’re talking about a different bet than the one the article is about. Gwern’s 0.05% is not “a significant chance”.

I agree that for your totally different case, you should put more effort into security.

[Edit: The 8020 for crypto security is to buy from Coinbase if you’re in the US, or the most credible local exchange if not. If you’re buying altcoins, convert from BTC/​ETH on poloniex or shapeshift. Then put it in a hardware wallet such as Trezor or Ledger, with paper copies of your private key in a couple secure locations.]

• Completely agreed. I even publicly announced on my Facebook when Bitcoin was USD that I was buying 100USD worth, but then once I looked into how to even convert USD to Bitcoin, I said “eh, not worth, even it for some interesting economic experiment”.

• This is pretty low on the list of opportunities I’d kick myself for missing. A longer reply is here: https://​​www.facebook.com/​​yudkowsky/​​posts/​​10156147605134228

• I think a large part of what prevented many people from investing in Bitcoin may have been the epistemic norms commonly referred to nowadays as “the absurdity heuristic”, “the outside view”, “modest epistemology”, etc. In other words, many of us may have held the (subconscious) belief that it’s impossible to perform substantially better than the market, even in situations where the Efficient Markets Hypothesis may not fully apply. To put it another way:

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.

I think many of us considered this, and unconsciously dismissed it due to the obvious absurdity: surely things can’t be that easy, right? Sure, we may be rationalists, and sure, rationalists “ought to win”, but surely winning can’t be so easy that the opportunity to win literally hits us on the head, right?

I think what this points to is a fundamental inability on our part to Take Ideas Seriously. Of course, most people don’t have this ability at all, and we’re surely doing much better on that count—but what matters in this case isn’t your relative superiority to other people, but your absolute level of skill. (I’m using the pronoun “your” here to refer to the majority of rationalists who didn’t invest in Bitcoin, not the few who did.) The corresponding solution seems obvious: work to improve our ability to Take Ideas Seriously, without dismissing absurd-sounding ideas too quickly.

Easier said than done, of course.

• A hindsight solution for rationalists to have reduced the setup costs of buying bitcoin would have been either to have had a Rationalist mining pool or arrange to have a few people buy in bulk and serve as points of distribution within the community.

This suggests that if a future opportunity appears to be worth the risk of investment, but has some barrier to entry that is individually costly but collectively trivial, we ought to work first to eliminate that barrier to entry, and then allow the community to evaluate more dispassionately on risk and return alone.

• I like this much much better than the other proposed proposed solution, of effectively pressuring people to buy. Removing inconveniences (trivial and otherwise) would probably have been the most helpful thing someone could do. (I can’t honestly remember if I was in the LW community yet when I started in Bitcoin, as they were both so long ago, but I was definitely not part of an IRL rationalist community, and it didn’t occur to me that rationalists would be interested in Bitcoin at the time.)

• That’s a smart idea!

• There’s something I should note that doesn’t come through in this post: one of the reasons I was interested in Bitcoin in 2011 is because it was obvious to me that the ‘experts’ (economists, cryptographers, what have you) scoffing at it Just Did Not Get It.

The critics generally made blitheringly stupid criticisms which showed that they had not even read the (very short) whitepaper, saying things like ‘what if the Bitcoin operator just rolls back transactions or gets hacked’ or ‘what stops miners from just rewriting the history’ or ‘the deflationary death spiral will kick in any day now’ or ‘what happens when someone uses a lot of computers to take over the network’. (There were much dumber ones than that, which I have mercifully forgotten.) Even the most basic reading comprehension was enough to reveal most of the criticisms were sheer nonsense, you didn’t need to be a crypto expert (certainly I was not, and still am not, either a mathematician or C++ coder, and wouldn’t know what to do with an exponent if you gave it to me). Many of them showed their ideological cards, like Paul Krugman or Charles Stross, and revealed that their objections were excuses because they disliked the potential reduction in state power—I mean, wow, talk about ‘politics is the mind-killer’. I think I remarked on IRC back then that every time I read a blog post or op-ed ‘debunking’ Bitcoin, it made me want to buy even more Bitcoin. (I couldn’t because I was pretty much bankrupt and wound up selling most of the Bitcoin I did have. But I sure did want to.)

Even cryptopunks often didn’t seem to get it, and I wrote a whole essay in 2011 trying to explain their incomprehension and explain to them what the whole point was and why it worked in practice but not their theory (“Bitcoin is Worse is Better”). So, it was quite clear to me that Bitcoin was, objectively, misunderstood, and a ‘secret’ in the Thiel sense.

And in a market where a price is either too low or too high, ‘reversed stupidity’ is intelligence...

(If anyone was wondering: I don’t think this argument really holds right now. Discussions of Bitcoin are far more sophisticated, and the critics generally avoid the dumbest old arguments. They often even manage to avoid making any factual errors—although I’ve wondered about some of the Tether criticisms, which rely on what looks like rather dubious statistics.)

What sort of luck or cognitive strategy did this require? I think it did require a good deal of luck simply to be in LW circles where we have enough cryptopunk influence to happen to hear about Bitcoin early on. Otherwise, it would be unreasonable to expect people to somehow pluck Bitcoin out of the entire universe of obscure niche products like ‘all penny stocks’. But once you pass that filter, all you really needed was to, while reading about interesting fun developments online, simply not let your brains fall out and notice that the critics were not doing even the most basic due diligence or making logically valid arguments and had clear (bad) reasons for opposing Bitcoin, and understand that implied Bitcoin was undervalued and a financial opportunity. I definitely do not see anything negative about most people for not getting into Bitcoin in 2011, since there’s no good ex ante reason for them to have been interested in or read up on it and doing so in general is probably a bad use of time—but for LWers, we had other reasons for being interested enough in Bitcoin to realize what an opportunity it was, so there it is a bit of a failure to not get involved.

• Apologies for replying to this so much later.

And in a market where a price is either too low or too high, ‘reversed stupidity’ is intelligence…

This is exactly why I did not get into btc so long ago, and I was in those circles, but not a good tech or economist and considered it a flavor of the month, then a flavor of the year for black markets. And THIS is how I have changed my entire worldview in the past month or so- I gave up, rationality doesn’t work when my life is going in wild swings, rational decisions end up being conservative and I never make any ground, or lose it fast. Losing it fast loses me confidence, and a lack of confidence leads to awful decision making, or a perception of rationality when it is not.

Rationality doesn’t work in a country where half of us are immediately convinced by a twitter video edited to make Biden look like an idiot that can’t talk.

As soon as I tossed intelligence to the side and started to use reversed stupidity, I’ve seen gains in pursuits I never had success in.

I hate this, epistemically. I love it, as a theory. I will be journaling my progress. Thanks.

• I bought 10 bitcoins back around 2012. I forget the exact date, but they were around ten dollars each. Today, that investment is worth zero dollars, because those bitcoins were in Mt Gox.

My point: there may be a nontrivial chunk of LWers who correctly predicted where bitcoin would go, but still ended up without any significant profit. (That actually would not include me; I just got into it to test a trading algorithm, then left a few bitcoins sitting around after the test was done.)

• Collectively the community has made hundreds of millions from cypto. But it did so by getting a few wealthy people to buy many bitcoin, rather than many people to buy a few bitcoin. This is a more efficient model because it avoids big fixed costs for each individual.

It also avoid everyone in the community having to dedicate some of their attention to thinking about what outstanding investment opportunities might be available today.

Due to declining marginal returns, hundreds of millions is a substantial fraction as good as billions. So I think we did alright.

• If you’re considering the welfare of the individuals concerned: “a few wealthy people make multiple millions” is not as good an outcome as “dozens of not-so-wealthy people make hundreds of thousands” because of diminishing marginal returns.

If you’re considering cryptocurrency gains only as fuel for effective altruism or something, then “a few wealthy people make multiple millions” might be as good an outcome, but then it’s no longer so plausible that “hundreds of millions is a substantial fraction as good as billions”.

If you’re considering cryptocurrency gains only as fuel for some narrow kind of effective altruism (say, donations to help AI safety work) then both halves might be right, but then it seems reasonable to ask whether those hundreds of millions have in fact gone to AI safety donations. My impression is that most of the money has just gone into the personal fortunes of the people who bought cryptocurrency. That’s fine, but if so then I think we’re back with my first paragraph.

• From a selfish point of view, I don’t think most rationalists would benefit significantly from a bit of extra money, so it doesn’t make much sense to be dedicating their truly precious resource (time and attention) to identifying high-risk high-return investments like bitcoin and in this case figuring out how to buy/​store them safely. And I’m someone who bought bitcoin for the sake of entertainment.

From an altruistic point of view, yes I expect hundreds of millions of dollars to be donated, and the current flow is consistent with that—I know of 5 million in the last few months, and there’s probably more than hasn’t been declared.

“then it’s no longer so plausible that “hundreds of millions is a substantial fraction as good as billions”.”

At the full community level the marginal returns on further donations also declines, though more slowly: https://​​80000hours.org/​​2017/​​11/​​talent-gaps-survey-2017/​​#how-diminishing-are-returns-in-the-community

• I have some Bitcoin, and have made some money on Bitcoin[1], and am currently a software engineer at a Bitcoin startup, where I’ve been working since the beginning of 2015.

I have complicated feelings about this. Obviously I invested in Bitcoin because I thought it was +EV, and I did make a nice profit by doing so. That doesn’t necessarily mean I was correct to imagine that it was +EV, and I struggle to understand whether my choices were reasonable or just lucky. I think Eliezer’s recent sequence about adequacy probably has something useful to say about this. But I also think that a lot of Bitcoin and cryptocurrency behavior is fundamentally a function of the psychology of the market, rather than actual value, and the psychology of the market is a dangerous thing to bet on.

Of course, it’s not wrong to take dangerous bets with good upside. Ultimately I think cryptocurrency investing may or may not have been the correct decision for people depending on their circumstances. There’s no conventional wisdom or obvious right answer to fall back on.

I might have more to say on this later.

[1] Bitcoin is very hard to store safely. Don’t ask anybody how much Bitcoin they have (at least in public non-anonymously). They would be very foolish to disclose it, and the more it is the more foolish they would be.

• I think the percentages of ‘successful’ LW readers need to be recalculated. What percentage of LW readers were in the SSC survey, but started reading LW after the most profitable window for buying bitcoin had already passed? What percentage were students with no spare funds in 2011, or otherwise had too little risk tolerance to invest?

I started reading LW in 2014, took the advice of the 2015 post to the extent I could, but was only able to make a little money because I didn’t have any savings and 1 bitcoin was worth $200. Later, I heard about ethereum very early on from a friend who bought a bunch and was interested in investing myself, but was in the midst of a job transition where I again had no spare cash to invest. I only reported having acquired about$1000 from crypto on the survey, but I count myself as having done about as well as I could have, given circumstances and timing.

• My biggest takeaway is that there’s a chance I can beat markets which as far as I could tell ought to have been pretty efficient, so I’m personally going to attempt to do that more often in the future until I get evidence that it’s not working.

• Dude, no. You are assuming that because you beat the market one time, through crypto, that you can often do so. So then we need to ask ourselves, are the people who beat the market (with crypto) people that consistently beated the market before crypto?

In almost all cases the answer is no. This is a special case where lots of people who are otherwise not good at investing made lots of money. Beating the market in this unique case shouldn’t suggest any ability to recursivly beat the market.

• At the time I took the survey I would have answered that I made no money out of cryptocurrency. Since then, I found out that some free cryptocurrency I had forgotten about, which was worth less than $10 at the time, is now worth several thousand. Given that I went to the (small) effort of noticing and signing up for the giveaway, but only did the long-term-hold strategy by accident, I’ll give myself a D+. I’m also too lazy to sell it for now so hopefully there isn’t a hard crash. • 15% seems like a lot. Maybe I have that impression because I tend to reach for a null hypothesis as my default model, which in this case is that LWers would do no better with cryptocurrency than other people who had similar levels of interest in tech. And 15% of people making$1000+ is way more than I would predict on that model.

• Scott’s whole point is ‘if rationality is good for anything, we should be doing much better than the average tech industry.’

• Do we have any data on how well other people who had similar levels of interest in tech did?

• And mine is that it sounds like we did do much better than the average tech industry.

Though maybe you/​Scott/​others have different intuitions than I do about how common it has been for tech folks to make a bunch of money on cryptocurrency. My impression from Scott’s post was that we wouldn’t differ much in our estimates of the numbers, just about whether “15% is way less than 100%” was more salient than “15% is way more than 1% (or whatever the relevant base rate is)”.

• I agree, 15% struck me as a huge number. In particular, everyone in the tech industry has had the money to invest over the last several years, while LessWrongers are a lot younger and poorer. More than half of SSC survey responders are students or entry-level employees, and less than half of people well into their careers are in tech. Also, this is still just an online forum, so I wouldn’t expect investment opportunities to spread as contagiously as among people having lunch together at a tech company office every day.

Bottom line: based purely on background demographics, I would have expected at least 5 times as many (as a %) of Silicon Valley people to have made money off crypto as LessWrongers. Based on the 15% result, I’d be surprised if we didn’t do 5 times better.

I wonder if this comes down to personal situation bias. Scott made no money, and he gives us a C. I made enough to donate >$5k in BTC to MIRI, and I’d give us an A- at worst. • It’s one thing to know when to buy, it’s another to know when to sell. In hindsight buying at 1.00 made sense with gwern’s logic,(I don’t think I had even heard about bitcoin let alone gwern’s argument at the time) but what happens when it rises to 100.00? In that case, the same logic would tell you to sell, in which case if you had invested 100.00 you’d have made 10,000.00, hardly a life-changing sum. To have made it to 100,000.00 you’d have had to sit and watch as that not inconsiderable sum bounces around the hundreds range, driven by people whose only explanation is “it’s going up” while not making hardly any headway in its intended purpose of being an actual currency used for legal transactions. The one person I know who mined it early on did exactly this, he sold it at around the 50.00 point and said it was a bubble when it was in the hundreds range. I still think he’s right, it was and is a bubble; I don’t see the value in something which has no actual value. About the rationalists winning, we already ‘win’ in a lot of ways. We on average have higher incomes, better-managed finances, better health, fewer substance abuse problems, ect, than the average person. But little of that is due to rationalism per-se, as these “rational” behaviors are incorporated into the general suite of lifestyle advice given to the average “normie:” don’t get in debt, don’t major in that in college, ect. You probably followed them before you ever heard of rationalism. There are a few ways however that the common ideology of the upper-middle class people diverges from rational behavior, and which rationalists would gain an advantage: 1. On infertility. Don’t get me wrong, few communities are as sterile as this one, but IF rationalists decide to get married and IF they decide to have kids, I would think they would be more aware of the fact that fertility takes a nosedive around age 37, relative to a non-rationalist of similar income level. 2. On marriage. Rationalists are heavily single, some of that owes to the general sperg-demographic, but I would bet that a lot of them remain unmarried due to a more accurate understanding of the family court system and the divorce industry. 3. On raising children. If they have them, rationalists will be more likely to understand the dominant role of genetics in shaping their children’s upbringing, and will thus be spared a lot of expense and heartache caused by people’s belief that they can buy IQ points for their child. In all these cases, it’s not anything that allows one to get rich quick, rather, it’s the avoidance of a potentially very bad outcome. And that’s all you should expect with the fact that the stock market is already rational … and the corporate ladder largely isn’t.(So our skills are of limited relevance there.) • Just for posterity and to try to make the success rate better next time, you should IMO seriously look at Ethereum now and decide what you make of it. Blockchain-based ledgers of stuff still seem to me like a good idea, the market has validated that opinion, and Ethereum is technically far in the front of the curve. (Some competitors, e.g. Tezos, Cardano have reasonable-sounding ideas but are way behind in terms of actual implementation and developer manpower being applied.) In the next two years we should see whether Ethereum’s scaling plans work out or not. If they do, I can’t understand any plausible future for Bitcoin. My only problem is that it’s confusing to me to understand how to compute how much an individual ether should be worth—more confusing than Bitcoin, where it seemed to be competing directly with specific technologies like Western Union or Visa and I thought I could look at the fees and velocity of money through those as a comparison. So even if Ethereum becomes the technical infrastructure for a ton of random tokenized software I’m not sure how to estimate the future value of ether as a result. Perhaps I should be looking at potential tx/​sec levels and estimating demand for gas in each case. Disclaimer: Confusion notwithstanding, my money is where my mouth is. • Some competitors, e.g. Tezos, Cardano have reasonable-sounding ideas but are way behind in terms of actual implementation and developer manpower being applied. To me it seems that EOS is the most viable competitor. The actual blockchain of theirs will go live this summer, but they already have test nets up and running that developers can use to develop applications (though I dunno how easy or hard it is to get started with the current level of documentation, etc). Some of the questions that determine how well EOS does or doesn’t do are: • How developer-friendly will EOS be compared to Ethereum? This article argues that EOS will be a better choice for dapp developers (https://​steemit.com/​eos/​@nadejde/​eos-development-platform-first), with a bit of discussion for and against some of the articles points in the comments. I don’t have experience with either myself, and I don’t know much about what kind of third party code that is /​ will be /​ can be made available for Ethereum to make it more developer friendly. • How much flexibility will EOS give for developers language-wise? My impression has been that lots of the popular languages we have today will be possible to use since they’ll be using WebAssembly. After googling WebAssembly a bit more I’m not as optimistic about this as I was, but still think this seems to be an argument in favour of EOS vs Ethereum: https://​github.com/​appcypher/​awesome-wasm-langs, https://​stackoverflow.com/​questions/​43540878/​what-languages-can-be-compiled-to-web-assembly-or-wasm. I don’t know if languages that are well-supported by WebAssembly practically speaking will be easy to use to develop on EOS, or if C++ in the beginning or indefinitely will be the de facto choice for EOS developers, but I’m assuming that they chose WebAssembly because they intend for it to be possible to use several different languages, so that more developers can choose a language they already are comfortable with. • Practically speaking, when can developers start working on dapps on EOS vs on Cardano? EOS has a test-net ready for dapp developers to work on, and will release the main net this summer, though I don’t know how easy or cumbersome it is to get started. Unless I’m mistaken Cardanos work on smart contracts is pretty early stage, and there hasn’t been set a date yet for when smart contract functionality will be available: https://​www.reddit.com/​r/​cardano/​comments/​7q9yq0/​when_will_cardano_have_smart_contracts/​? • Will EOS transactions really be free for most users? This seems to be what they claim, and so far I haven’t come across people arguing that this isn’t the case. • Is it the case that regular users of Ethereum applications always will have to pay fees, even if these get really low? As I understand it, one possible solution would be to have dapps give the users money for gas. If this becomes affordable, will it for most dapps be practically doable to “hide” them from users so that it doesn’t make the dapp less user-friendly? I don’t see why it wouldn’t be if gas-fees become low enough, at least for dapps where users have to register accounts, but my understanding is vague. Also, this seems to me like yet another thing that developers will have to think about, unless some easy standardized solution becomes available. • For the different levels of speed, scalability and low costs of transactions, will both EOS and Ethereum get there? And if both get there, who will get there first and how large will the time difference between them be? Take for example steemit.com, a website that runs on a blockchain with an architecture that is similar to the one EOS will be using. Will it become possible to have something like that run on Ethereum without having users wait a lot, pay high fees, and having the network get clogged? My impression is that if this becomes possible on Ethereum it will probably not be a few months after EOS, but years after. Is that impression wrong? I don’t have a full overview of the different upgrades Ethereum are planning and their expected timelines. In this video from September 2017 Vitalik seems to think that Ethereum probably will have the capacity to replace Visa in a couple of years, but with prototypes with lower security having that kind of capacity in about a year: https://​youtu.be/​WSN5BaCzsbo?t=10m42s. He also seems to think that running something like Starcraft on Ethereum will be possible at some point thanks to second-layer systems. Here are some comments regarding the capacity of EOS (the video moves on to other topics at 2:02): https://​youtu.be/​UC6RYwYPnpU?t=49s. • How will they compare in terms of funding for projects? I don’t know, though I know that EOS has a pretty big “war chest” of money that will be used to fund projects on their blockchain (https://​​cryptovest.com/​​news/​​breaking-blockone-ceo-brendan-blumer-announces-1-billion-in-capital-for-eos-projects/​​). My own guess is that Ethereum will continue to be the number one smart contract platform, but that EOS will do better in terms of percentagewise growth in price from here. That’s just the guess that feels most likely to me though, not something I expect neccecarily will happen. I have read a significant amount and watched a significant amount of interviews and so on, but my understanding of this stuff is vague and incomplete. I have the majority of my money in EOS at this moment, though I’m not sure if that’s smart of me or not, and am very much unsure about when I should pull out (now? in a month? this summer?). What makes me most unsure is the possibility of a crash of the whole crypto-market, which may be pretty likely. In the next two years we should see whether Ethereum’s scaling plans work out or not. If they do, I can’t understand any plausible future for Bitcoin. Smart contracts thanks to rootstock? Scaling and lower transaction fees thanks to lightning network? More investments and usage due to first-mover advantage /​ brand awareness /​ network effects? These possibilities, which I don’t rule out with my current admittedly shallow/​vague understanding, makes it seem plausible to me that Bitcoin could continue to be #1 even if Ethereum scales successfully. • From the linked blog post it seems to be that EOS doesn’t provide trust in code because it allows a developer to make changes in the code after it was first deployed. It feels to me unlikely that developers want to write dapps in any random programming language. For dapps it’s important to optimize performance and computing is expensive and the underlying infrastructure is just different than a normal computer and you should’t expect that simply porting normal existing programming languages result in a good result. From a security perspective it’s also very bad. If you look at the problem that brought down The DAO, it suggest that you need to think differently about how your code is exectued to not repeat that mistake. Formal verification seems to be very important for dapps and that just isn’t a feature in the existing languages programmers already know. • Thanks for this interesting infodump, I haven’t looked hard at EOS yet (I am biased towards only bothering to learn about things which are actually “live in production” in a meaningful way, as a kind of bozo filter) but I will promote it in my attention. I agree that Bitcoin could sort of tack on scalability with payment channels and tack on smart contracts with RSK. It just seems really unlikely that it’s a better idea to do these things on top of a PoW blockchain layer that has tire fire governance. It’s definitely true that some kind of worse-is-better network effect* could keep Bitcoin at the top in a way that’s hard for me to understand—I don’t even have any explanation for why Bitcoin is at the top as of right now! At the end of the day, though, my original decision to buy Bitcoin and later Ethereum was based on my assessment of the technical usefulness of the work being done, and since that turned out so well, I’m going to keep riding that heuristic until I see it not work. *Although it’s interesting to speculate what the network would be. Ethereum has mostly caught up in terms of ease-of-obtaining-and-transferring; exchanges, wallets, node software, etc. Bitcoin never really hit the mainstream in terms of people transacting in it for everyday things, and due to congestion it probably won’t now until payment channels are running and the kinks get worked out. One interesting thing that might be a “network effect” is the number of people with non-portable investments into Bitcoin’s future, e.g. miners with Bitcoin ASICs. That’s a lot of capital which is incentivized to make Bitcoin in particular succeed, and competitors don’t have that. • I agree. Ethereum has several trump cards. Namely a series of desirable third party Ethereum applications in the pipeline. For example, Augur, a prediction market on the blockchain. If you want to play on the prediction market, you need to buy ether. I’ll publicly state that I expect Augur to singlehandedly distinguish Ethereum from all the other coins. • Ethereum currently has average transaction costs of 1.62$ . To me that seems two orders of magnitude to high for Augur to work decently.

That’s even more true when there’s more pressure from projects like Augur to make even more transactions. Given that Augur itself is open source, I would expect it to get ported in some way to other coins.

• The hypotheis that there are plenty of uses for etherium is totally compatiable with the hypothesis that Etherium will say be worth 12 it’s price in a year from now.

In other words, even if Etheriumn has a practical use case, it might very well be that the system is actually worth 20 billion or something (that is less than its current market cap). I’m not sure, do we actually know the maket cap that properly reflects the assumed uses?

• It seems like a good idea to collect self-reports about why LessWrongers didn’t invest in Bitcoin. For my own part, off the top of my head I would cite:

• less visible endorsement of the benefits than e.g. cryonics;

• vaguely sensing that cryptocurrency is controversial and might make my taxes confusing to file, etc.;

• and reflexively writing off articles that give me investment advice because most investment advice is bad and I generally assume I lack some minimal amount of wealth needed to exploit the opportunity.

So something like We Agree: Get Froze,might have helped. I also could have actually evaluated the difficulty of filing taxes given that I’d purchased bitcoins, instead of flinching away and deciding it was too difficult on the spot. I could pay more attention to figures that are relatively small even for someone with little wealth.

If surveys are still being done, that seems like important data to collect on the next survey. I would want to know if most people knew but didn’t invest, or simply didn’t know at all, and so on.

• I didn’t invest in Bitcoin because I don’t invest in things that I don’t understand well enough to be confident that the Efficient Market Hypothesis doesn’t apply. I continue to believe this is a rational choice—okay, sure, this one time I might have made a lot of money, but most of the time I would waste a bunch of money/​time/​other resources. And no one writes blog posts about how they could have lost a lot of money but didn’t, so the availability heuristic is going to overweight successes.

• okay, sure, this one time I might have made a lot of money, but most of the time I would waste a bunch of money/​time/​other resources.

This seems like a good heuristic, but is it actually true that Bitcoin was an undifferentiated member of an extremely large class? I agree that the availability heuristic is very important here, but I’m struggling to think of a single thing in the same reference class (maybe cryonics? MIRI? Nootropics?). If anyone can give me examples of “stuff lots of people on LessWrong liked that could have huge payouts”, that would be much appreciated.

• As someone who made a profit investing in Bitcoin I endorse and encourage your decision. I definitely want to avoid this somehow turning into “rationalists should win by trying to jump on every crazy make-money-fast scheme because one of them could be the next Bitcoin.” If it’s the case that rationalists should have been able to predict Bitcoin’s success, we should focus on specific factors that indicated there was something there to be gotten.

I can talk now about all the smart people I know who believe in Bitcoin as a reason to want to keep it, but I didn’t know any of those people yet when I first bought it—I met them along the way. It’s hard for me to remember what it was that attracted me to it at the time. I think it had a lot to do with the way the technology played into my own specific vision for the future of tech, which is very personal and not necessarily portable to an arbitrary person in the rationalosphere (in terms of reasons to have believed in Bitcoin at the time.)

• For my part, it was one part trivial inconveniences, one part that it read like woo. I was aware it existed through other avenues (I wasn’t a Less Wronger then), and aware of what it was trying to do, and I had the technical acumen to get in on it if I had so chosen. Given that, I’m a little bitter that I didn’t do so. I could retire today if I had. I could get into it today, of course, but now that everybody knows it’s a magic money making machine I suspect a bubble is well underway. I don’t want to be in when it breaks.

I’m a little worried about Bitcoin’s externalities. The mining process consumes more and more energy, and professional miners are driving up hardware costs. Which might be fine if most transactions were, well, transactions, i.e. if we’re getting human value out of the work. But I get the impression that the vast majority of the network’s effort goes towards playing musical chairs with money, and that seems bad.

Bitcoin doesn’t feel woo-ish, anymore, but it’s starting to feel paperclippy instead.

• Yes, paperclippy. And also bitcoin network is equal to 10E23 flops now (but cant’t do anything else except bitcoinclips), which is 60 times more than total computational power of all other computers combined, which was estimated by Grace. It is really mindbending and astronomical amount of computations, and it doubles every 8 months. And it pays people for its construction.

• I notice I am confused. 60 times more than all other computers combined would imply that >98% of human compute capacity is tied up in the bitcoin network. That seems...unlikely.

• The figure’s misleading, because mining (these days) is done with specialised hardware: ASICs, chips dedicated to calculating SHA256 hashes (or whatever algorithm your favourite coin uses), which can calculate those approx. times times faster (per second per $) than a general-purpose CPU—but can’t do anything else. So that implication may well be true in the sense that if all the worlds computers turned to mining bitcoin, the total mining capacity would only be increased by a couple percent over what it is at the moment (due to general-purpose computers being so inefficient at specific tasks compared to dedicated hardware). But false in the sense that very little of the world’s general-purpose compute capacity is tied up mining cryptocurrency. • 60 times more than total computational power of all other computers combined What are you referring to here? • I’m a little worried about Bitcoin’s externalities. I think most such worries are not well-founded, but I would also like to point out that “Bitcoin seems like it might eat the world in a bad way” is not exactly a reason not to invest. It might be a reason to fight against Bitcoin, but if you’re not fighting against it, it seems like precisely a reason you would want to buy it. • Individual incentives to back something collectively terrible seems like textbook Moloch to me. (which doesn’t imply that you’re wrong, of course) • Very interesting, and I kind-of agree with the conclusion. However, as a few people pointed out, it wasn’t as simple as just buying bitcoin, you had to sell at the right time, etc.. And buying bitcoin was complicated. But the other problem is that there are thousands of opportunities, things you should do, etc, lying around, with a possibly good payoff in expected value terms. And how many of them do we do? How many of them do we even think about seriously? Just a few off the top of my head (first two are obvious, then some others): 1. Cryo, obviously. 2. AI safety—tons of people in the community agree that’s it’s a serious issue, but how many actively work towards fixing it? (A decent amount, but I’d guess not as much as the “could” do). 3. CPR training—how many people do it? What is the chance that you’ll one day be in a situation where you need it? I have no idea of the numbers, but considering this is a life-and-death situation, have you looked up the numbers and decided it’s not worth doing? 4. Similarly, buying an emergency survival pack in case of a natural disaster. Again, not idea of the numbers here, but people do find themselves in situations where they’re without food/​water for some period. Do you know the numbers here to decide it’s not worth buying canned goods? 5. How many people have even bothered to sit down and make sure their health insurance/​life insurance/​unemployemnt insurance/​etc is handled properly? 6. Even more obvious—sending out resumes every year to find better job opportunities? Or taking a course/​reading about finding a better job? This is likely have a massively higher impact than buying bitcoin, not only in monetary terms, but also in life satisfaction impact. Etc, etc. Most of the above are pretty obvious and trivial things almost anyone can do. I can probably list a dozen more, some more “standard advice”, some more out there but still probably high in expected value. If I or anyone were to actually sit down and work through these one by one, we’d probably do little else for the next year. So while bitcoin, in retrospect, may have been the most obvious and immediately high-value payoff, I’m not sure it’s easy to seperate it from all the other things above. Then again, I’m not sure you should—maybe we should have a list of “these are things you need to take care of ASAP” somewhere. • I thought Bitcoin, specifically, was a bubble/​pyramid scheme. I still think so, as well as thinking it’s a colossal waste of energy. Obviously, that doesn’t mean I couldn’t have gotten rich by buying it, or that I wouldn’t want to do so. And I’ve also adjusted my beliefs; I think I understand how it has failed to crash, and so I could imagine it continuing to have something like its current value for even 5 or 10 years more. But it is very, very hard for me to imagine a world in which I am able to make a large pile dollars from something I so deeply distrust and dislike. And I don’t think “I coulda been rich” is an outstandingly compelling reason to radically update my values and/​or epistemology. • When such a situation arises again, that there’s an investment opportunity which is generally thought to be worth while, but which has a lower than expected uptake due to ‘trivial inconveniences’, I wonder whether that is in itself an opportunity for a group of rationalists to cooperate by outsourcing as much as possible of the inconvenience to just a few members of the group? Sort of: “Hey, Lesswrong. I want to invest$100 in new technology foo, but I’m being put off by the upfront time investment of 5-20 hours. If anyone wants to make the offer of {I’ve investigated foo, I know the technological process needed to turn dollars into foo investments, here’s a step by step guide that I’ve tested and which works, or post me a cheque and an email address, and I’ll set it up for you and send you back the access details} I’d be interested in being one of those who pays you compensation for providing that service. ”

There’s a lot lesswrong (or a similar group) could set up to facilitate such outsourcing, such as letting multiple people register interest in the same potential offer, and providing some filtering or guarantee against someone claiming the offer and then ripping people off.

• There’s a project Scott proposed something like eight years ago that got started last weekend because someone posted a bounty on it.

Even if the bounty is just beer money, being able to profit financially by doing something feels qualitatively different from doing it for free.

A centralized registry of bounties would be useful. And there might even be a startup idea in there—it’s essentially Wesearchr for outsourcing instead of far-right gossip journalism.

• For example, if anyone is planning on setting up an investment vehicle along the lines described in the article:

Investing in Cryptocurrency with Index Tracking

with periodic rebalancing between the currencies.

I’d be interested (with adequate safeguards).

• >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.

Hum. I believed on various “weak efficient market” arguments, that this Bitcoin was unlikely to be profitable. So I didn’t invest. Does this makes me worse or better? I had worse epistemics, but it wasn’t a failure to act on things I thought I were true...

• Hmm, now I’m starting to wonder if Satoshi is a rationalist

• Hal Finney was Bitcoin user number 2, and is currently cryopreserved at Alcor. There’s been a LOT of overlap from the very beginning. Hard to say about Satoshi, though.

• It’s not like the opportunity is gone. Making money on blockchain hype is still easy enough. But it feels more like a bubble/​scam now, so I’m out.

• Who is our control group? I can think about two candidates:

1) “Rational”Wiki

David Gerard (RW admin) writes articles about how you can’t actually sell Bitcoins, and those articles get highly upvoted on Hacker News. I would take that as a weak evidence he doesn’t have any.

2) Logic Nation

Athene (some guy who tried some weird financial scheme on LW, and then started his own cult) is selling his own cryptocurrency (actually, two of them; you can use the former to buy the latter).

Seems to me that Less Wrong is somethere in the middle. I guess that makes us merely average weirdoes.

• So this is where we are. Cryo: some are taking it seriously, but not enough. The bet is still open, but yet to pay off. Cryptocurrency: some took it seriously, but not enough. The bet paid off magnificently in the past. It may still be open to a significant extent, though maybe not with BTC.

Are there any candidates for a current thing in the category of things that someone informed about, smart, and having comparative advantage should be leaping into? Broadening from personal gain (although that’s my interest here), maybe x-risk, AGI x-risk, defeating aging, and EA would count. Anything else?

• I got a lot of extremely valuable rationality advice from Lesswrong, but even if I had read the arguments about Bitcoin, I would not have bought any. Like someone else said, it feels too much like a penny stock.

You migh call Bitcoin “Pascal’s Investment Scheme”

• This is a very important post to read concerning Bitcoin “billionaires”, from one of the guys who helped code its software:

Not as rich as you think… - http://​​gavinandresen.ninja/​​not-as-many-as-you-think

It goes like this:

People assume that the people who worked on Bitcoin in the early years are fabulously wealthy.

That’s a bad assumption, for lots of reasons:

• Thanks for rubbing salt in the wound. (Only a tiny bit serious.)

Back when mining was possible on a standard desktop computer I mined a block in my first week, and received 50 bitcoins. A couple years later, I found that bitcoins were trading at the mind-blowing sum of \$1 each, and cashed in. (In my pitifully weak defense, I was really short on money at the time.)

If I had done something sensible, like sold a few each time the price went up 10x, I’d have a pile of cash and probably some bitcoins left.

Weep for me, oh ye internets.

• I’m one of the 15%. Given declining marginal utility of money , high-risk-high-financial-reward bets have never appealed to me; the financial EV would have to be ridiculously high for the EV in utilons to be positive. I considered getting some BTC as a curiosity in 2011 but decided it was too much hassle. However discussions in the aftermath of the 2016 election led me to conclude that holding a small amount of cryptocurrency could decrease overall risk by mitigating certain legal risks (e.g. money you can memorise might be good to have if you’re a fleeing refugee), and so I bought some in early 2017, despite assuming that the then-current price was basically efficient and so expecting 0% average returns. I have of course been pleasantly surprised by the returns since then, but continue to make decisions based on the assumption of 0% expected returns going forward. (I’m waiting to rebalance out until the capital gains are long-term for tax purposes.)

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

I would defend the instrumental rationality of having a rule of thumb that unless you’re quite wealthy, you don’t bother looking into anything that appears to be a ‘get rich quick’ scheme, or seek to invest in high-risk high-return projects you can’t evaluate.

Yes sometimes it will fail big, if you miss the boat on bitcoin, or Facebook or whatever. Every strategy fails in some scenarios. Sometimes betting it all on 23 red will have been the right call.

But because it i) lowers risk, ii) saves you wasting time looking into lots of dud investments to find the occasional good one, iii) makes you less of a mark for scams and delusions, I think it’s sensible for most.

• Is this taking the assumption that it was a sound investment based on its underlying value and therefore predictable? Or is this saying that the explosion in price was predictable even if unjustified?

My belief on bitcoin is that it isn’t a viable fiat currency alternative and won’t be (nor will any other crypto) because governments won’t allow it. I believe this because it wouldn’t make sense for a central bank to volunarily give up one of its few economic levers. A government could kill the bull proposition for bitcoin by making it illegal for all transactions to registered businesses and making you pay tax in fiat currency as well. If law abiding businesses are unable to use it then it can’t be a good currency. Then it’s only useful as a volatile currency store and for buying drugs on the internet, although cryptos with better anonymity will eventually take that over.

If you think I’m missing or wrong about something here please let me know. I’m really curious as to how this will play out.

• It seems like you are using the word predictable in a way that’s nonstandard. Everything is predictable. You can put a probability on whether an astroid will hit earth. The core question is what probability is warrented and for bitcoin a reasonable probability assessment would have suggested buying it.

Gold isn’t a good currency and there’s a lot of money stored in it. Similar arguments go for expensive art that gets brought with the belief that it appreciates.

If you look at the US, the central bank can’t make laws. It’s a Republican controlled congress and senate along with a Republican president who currently do. There are powerful people in Silicon Valley who lobby for bitcoin and Republican’s don’t want to pass regulation that makes life hard for business.

• Thanks. I get your first paragraph. That’s what I was meaning to say.

On Bitcoin vs Gold: Gold has physical properties that make it very valuable. It is a great conductor of heat and electricity, the most corrosion resistant of all metals, highly maleable, aesthetically pleasing and scarce. Gold may have some degree of cultural/​signalling effect driving its price up but I don’t know this for sure.

On Bitcoin vs Art: Art has its aesthetic value but obviously most of the price comes from its cultural/​signalling value and scarcity.

Bitcoin obviously has scarcity in common, but if it doesn’t get market share as an actual goods and services trade currency then its inherent value just comes from whatever other people are willing to pay for it and not what it does (unless the fast, secure transactions feature is valuable enough on its own). Normal currency is scarce and backed by the government and therefore the entire economy of its country meaning you can use it to trade for X amount of goods/​services in that country. Bitcoin is worth USD, which you can use to do all the above, but only because people are willing to pay lots for it. And people are only willing to pay lots for it because they expect in the future it will be worth more. Eventually people will stop wanting to buy it so then why would you hold it? Then you’d just put your money in stocks to get returns again.

I guess the question I’m really chasing an answer to is what would a future look like that justifies Bitcoin’s price?

Re 3rd paragraph: You’re right there. I wrongly assumed government would do the will of the central bank. In more authoritarian countries like China this may be the case soI’d expect them to be the first to implement such a policy.

• I do think that bitcoins current price is more likely than not a bubble that will pop.

But to engage with the issue I don’t think that anybody buys artwork worth 9 figures of money for cultural/​signaling value.

If you are in the US with a relatively trustworthy government it’s easy to hold USD and be confident that it won’t lose much value due to inflation. The same isn’t true in many other countries.

• I think expensive art gets its value from the fact that really rich people are willing to buy it for social significance. On top of that intelligent art invesors will also buy it knowing that rich people in the future will still want to buy it, but there will be more competition because of the increased number of rich people and the scarcity created by it being held over time by a private seller (the longer it gets held the less likely you’ll get another chance to buy it in your lifetime). What’s your theory on where the value comes from?

Agree on your inflation point. However then your BTC is only a trade away from the less volatile USD. The value propostion seems tough with all the superior competition and better uses. Kinda psyched for the one with a prediction market attached.

• I think that art has scarcity and that leads to rich people buying it because they think it wil appreciate in the future.

If you are in a third world country and the government raides your house they can easily take all the USD you have at home. On a bigger scale you have big organsiations buying massive numbers of treasury bills with negative yields because they don’t want to hold cash.

Even in the US you can have the government take your money via civil forfeiture if you carry too much cash around. Numbers suggest that the US police stole more money from citizens via civil forfeiture then was stolen in burglaries.

• And scarcity, especially of anything with cultural value, gives prestige/​significance to whoever owns it. Like rich people buying cool old but relatively useless cars. It’s just a cool think to have that everyone else will think is cool too. Most don’t care about its appreciation. Some may buy it for that purpose, but not all.

Valuable art pieces also confers prestige on any institutions that hold them. Everyone can oggle at how much the art is worth and assume this must be one of the best museums in the world.

Think of it like buying an overpriced but cool pair of limited edition shoes (Yeezy’s or whatever). Most people will wear them to show them off, but some people will never take them out of the box because they know in the future other people who want to wear them to show them off will pay even more for them. With art, showing it off doesn’t depreciate it so it’s like having LE shoes that never wear out.

It can’t just be scarcity. People have to want the art for some other reason for it to have that value. I can create an equally scarce piece of art by doing one painting, signing my name to it and never doing painting again. Picasso’s are valuable because they are great, famous for their greatness and scarce meaning it’s a big significant prestigious thing to own one.

• I guess the question I’m really chasing an answer to is what would a future look like that justifies Bitcoin’s price?

The future used to look like a medium for anonymous, untraceable transactions beyond the control of governments for the sorts of goods that you need that to safely deal in. That was the primary, object-level selling point of Bitcoin. Then Silk Road got broken by law enforcement. The newer rivals have their own would-be killer apps to give them real value. I’m not sure what Bitcoin’s unique value proposition is these days. For anyone who has some Bitcoin and is willing to say: when did you last use it to buy something, and what?

• Bitcoin is (currently) pretty much useless as a medium of exchange. It remains of some practical use as a store of value resilient to certain legal risks (e.g. as the answer to the question Eliezer asked in this Facebook post), and in general with a risk profile uncorrelated with other assets. Its strength over other cryptocurrencies for this use case is based primarily on being the most established Schelling point. It’s also possible (though not looking particularly likely) that future software changes will eventually make it useful as a medium of exchange again.

• I think it’s safe to say it doesn’t have a unique value proposition anymore. It just has market share.

• I am not convinced that people in 2011 should have bought bitcoin. If you gave 2011 me the epistemic skills of 2018 me, I would not have bought bitcoin. I don’t know how one could reliably distinguish bitcoin from, say, a penny stock that makes promises of 10,000x growth.

Or perhaps a slightly stronger argument would be venture capital. Many startup founders have plausible stories of why their company will one day be worth billions of dollars. Surely it’s worth investing even if there’s a 0.1% chance that they are correct? But if VCs invested in every company with a story they thought was 0.1%-plausible, they wouldn’t make any money.

If you could figure out a general epistemic strategy that would lead to buying bitcoin in 2011 but not buying penny stocks, or not investing in the wrong startups, that would be great. I don’t know how to do that.

This is especially a concern in markets, where making an argument that an asset will appreciate isn’t enough; you have to also explain why other people (including very smart people, and people whose entire job is to find assets that will appreciate) haven’t done it already.

• But if VCs invested in every company with a story they thought was 0.1%-plausible, they wouldn’t make any money.

This is pretty much exactly what they do, if by “0.1%-plausible” you mean “has a 0.1% chance to give us a 10,000x return”. The vast majority of VC investments lose money, and that’s fine, because one 10,000x pays for a lot of failures.

Paul Graham has a good essay on it: http://​​www.paulgraham.com/​​swan.html

Now, that probably doesn’t mean VCs shouldn’t filter startups at all (though I’d be interested to see someone try that as an experiment). So it’s worth considering what made Bitcoin “not nonsense”. My first take is that it was a genuine technological innovation, which also got interest from a decent number of smart people. But this is a really unintuitive game. You have to be OK with usually losing all your money. Your system 1 isn’t going to like that.

• My understanding is that VCs only invest in about 1% of startups, even though probably 5-10% of startups have reasonably good stories for why they’ll be super successful, and where you could argue “surely they have at least a 0.1% chance of succeeding, so let’s invest in all of them.” If VCs lowered their standards by 5-10x, they would not make any money; that’s what I was trying to say.

The question isn’t how do you distinguish bitcoin from the 1% of startups that are worth investing in; it’s how do you distinguish it from the 5-10% of startups that look like they’re worth investing in according to the arguments in OP?

• It seems to me that you’re conflating “succeeding” and “returning 5000x my money”. I think it’s obviously true that most startups don’t have a 0.1% chance of returning 5000x your money.

Notice that the most important factor in that calculation is generally not “chance of success”, but rather “chance of 5000x return, given success”.

• I decided to buy only 0.5 BTC in 2013 as I thought that buying more will require too much my mental energy to think about how the exchange rate changes. The truth is that I still think about it a lot.

I also read a post about Davos-2018 where was said that older people think that all problems will be solved by AI, and younger ones think that blockchain will solve everything. Surely, LW people are more inclide to think that AI will solve everything and it explains the ignoring of bitcoin.

• I also read a post about Davos-2018 where was said that older people think that all problems will be solved by AI, and younger ones think that blockchain will solve everything.

I think that (x-risks aside) while for every thing there is a time at which it will be solved, there will be no time at which everything is solved. How old does that make me? :)

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