Varoufakis Questions What Google has Done for Us

Today I read Yanis Varoufakis’s post on Project Syndicate named What Has Google Ever Done for Us?

It baffles me that I hear little about proponents of a return to Newtonian physics or 21st century neo-bloodletting physicians and yet, intriguing as some of his insights are, I hear some praise of Karl Marx as an alternative to modern economics instead of a stepping stone of mere historic value.

It’s a bit like the return to vinyl records, except that overpaying for antiquated audio solely impacts the acquirer, while peddling a system that substitutes oppression for freedom, uniformity for creativity and centralized rule for autonomous coordination hurts everyone.

In the case of Google, there is plenty about its practices and business model that could be found objectionable. Nevertheless, confiscation and state ownership, the usual answer of Marxists both neo- and old, assumes a static world where means of production are machines, arable land and proletarian hands. It is either insulting or depressing that there is still an audience for that.

State action probably has a place in ensuring that contracts are fair and enforced, that large organisations do not smother new entrants and that individual rights are not infringed, but it is foolish to assume that an, even partially, nationalised Google will better serve society.

There are already competitors to Google out there, even with current technology. They are little known, because of Google’s tremendous advantage, driven in part by its superior creativity and technical prowess, which Mr. Varoufakis is too quick to brush off as of no value.

Looking forward, particularly if no forces prevent it, we are likely to see a post-Google world, where services are provided on a peer to peer competitive basis, where the value provided by consumers themselves is distributed back with market-based criteria rather than via supposedly free service that leaves huge margins to providers and where control over proprietary data can be retained by their owners. The whole crypto phenomenon, just reviled by fellow writer Roubini on this same medium, is probably key in permitting such progress.

By contrast, a gargantuan Google is a tasty morsel for collectivists. And if hardly anyone can expect protection of one’s data and privacy from a monopolist, only a fool could think that having the hands of the state, and the government, near it might make the situation better.



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When the Scholar is Angry

I just read, a week after publishing, The Big Blockchain Lie, by Nouriel Roubini on the often thought-provoking if sometimes bland and sometimes self-congratulating Project Syndicate.

I was surprised by the angry and poorly supported rant from a thinker who, generally, I find cooler and more balanced that like-minded opiners such as Joseph Stiglitz or Yanis Varoufakis.  If he wanted to create controversy, though, it was a good play, with seventy-nine comments so far, six of them while I write this piece.

Rather than going after each unsubstantiated jab, which I may do separately in my blog, let me stick to the panoramic view of this article.

  1. The doomsday view.

Is there a bloodbath?  You might say so judging by the standards of traditional assets with clear established prices that are the promise to deliver a static and clearly stated underlying good.  However, if one thinks cryptoassets are in the process of price discovery, oscillations might not be such a surprise.  Think of the present as the first few minutes of the Big Bang and consider how behavior deviates from standard physics in this environment.  Some “retail” investor likely lost some money, sure, but this is far from rational evidence of a scam.

  1. Blockchain vs Bitcoin

I deride blockchain lovers in Coffe Talk, but I have a hard time believing Mr. Roubini buys his own claim that a blockchain is just a spreadsheet.  By that measure, penicillin is just random mold and the internal combustion engine just arson inside some iron ore block.  The concept of blockchain, though far from the final, winning representative of crypto-value structures, is a genial construct that offers opportunities to coordinate and therefore enhance human activity in ways we cannot completely imagine yet.  Claiming the contrary is disingenuous and, from an accomplished academic, suspect.

  1. Economic Hell

The spectre of monopoly, centralization and manipulation is real.  I pointed out in Another take on what makes a good cryptocurrency some problems with bitcoin as Satoshi Nakamoto laid out in his seminal paper.  Bitcoin has a scaling problem that goes beyond the petty dispute about megabytes.  A truly global crypto platform must scale by distributing and not concentrating and it must be able to forget as much as it is able to remember.

Nevertheless, Mr. Roubini’s arrogant underestimation of the buying decisions of free economic actors is insulting.  He assumes mathematicians, financiers and data scientists are regularly duped by very bad hombres in undisclosed unsavory locations.  In reality, most crypto holders are highly educated individuals who buy the concept of crypto and use the currencies for their advantage.

Monopoly and manipulation are unpleasant and not necessarily persistent phenomena and roadkill, though unfortunate, should be viewed in a Shumpeter-like fashion, as part of the creative destruction intertwined with progress.

  1. No institution under the sun.

Well, no institution under the sun would have trusted email contracts, digital signatures, telephone conversations for that matter just a few years or decades ago.  ‘Nough said.

  1. Appeal to discrimination.

I have no time now to reread and find where in the rant the writer regrets the absence of minorities in crypto (he shouldn’t really, if this is such a scam).  But this cheap shot is just in line with attributing it all to “greed” a concept that hardly fits with economic science.


My father used to ask “cui prodest”, perhaps assuming someone who pushes something often does it out of self interest of, as Mr. Roubini would put it, greed.  In this case, I wish I knew.




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St. Louis Fed: Not Fedcoin, Fedaccount

Reading this paper by Aleksander Berentsen and Fabian Schar I am reminded of last year’s post by David Andolfatto of the same institution.

The former reasons more on the lines of my comment on the subject:   There is no reason (yes some hurdles) why we cannot all have accounts at the central bank and make payments with “on us” transfers in a single ledger. And state crypto makes no sense.

Maybe it is bad form to say it out loud, but the thing is banks as payment intermediaries will have their business drastically rationalized, no matter where the institutional winds blow.

As a young banker bragging of his economics savvy, I used to say that we banks had the legal monopoly of the payments system, bestowed to us by governments in exchange for help in managing monetary policy.

I still think this was the case and mostly still is, for the time being.  It all began with the rise of central banks and the awareness of the very concept of monetary policy, back in the beginning of the last century.

This is on the brink of changing completely.  Once we are fully bathed in electromagnetic radiation everywhere all the time, our ability to draw on e-funds is just as instantaneous as the greenback in our pocket, without the drawbacks and the limits.  How could any of my former employers compete with this?

For those who are big on monetary policy (like in “I believe there should be one”), the book needs to be rewritten from scratch.

To what extent can private actor be allowed to expand credit with the magic of the multiplier?

How would authorities inflate or deflate the money supply?

The ultimate holder of the monopoly on dollar (and euro, renminbi, etc.) rest by definition on the government.  What is to be seen is whether a few years or decades from now these will be just a unit of account for tax purposes, quaint relics of a time past or pushed altogether into oblivion by private, decentralized alternatives.

Banks will still need to intermediate credit for the foreseeable future, I imagine, and many other useful services will be invented and provided by financial institutions, though maybe on a different scale.

Another take on what makes a good cryptocurrency

Sent to the Lifeboat Foundation new money systems group.

The thing is that block size is really irrelevant in the big scheme of things.  What matters is blockchain size.  (I know the two are connected, but the problem is the overall size of the DB, not the size of each chunk.)

Great as it is within its design boundaries, Bitcoin and most other cryptos have a self-imposed limitation that is totally unnecessary and needs to be lifted.  My question is: why in heaven would someone on Proxima Centauri five hundred years from now need to know what I spent on a cup of coffee in a Mexico City Starbucks in 2017?

To some, it is important that it was 30 pieces of silver that were exchanged for Jesus’s capture, for others that Manhattan went for twenty-some dollars.  Yet in no case we know which specific coins were used.  Bitcoin confuses a value transmission and storage medium with a notarization system.  Of course we need to know pretty much forever which land belongs to whom, but that body of knowledge is likely to grow roughly arithmetically.

Payment transactions, if the recent past is any indication, are on the other hand likely to grow with population, AND with wealth AND with technology AND just accumulating with the passage of time.  Cryptocurrency  transactions are also likely to grow with adoption. It is, therefore, disingenuous to gloss over the fact that a blockchain as envisioned by Satoshi will be unmanageable regardless of Moore`s Law et similia.

Notarization is costly.  It need not be as costly as today’s services by protected oligopolies in most countries, but it cannot be free.  Free stuff is used in infinite amounts.   Yet, Satoshi did not bake in any compensation for record keeping nodes.  Increasing recordkeeping needs and no comp are a recipe for collapse, soon or by the time we colonize Proxima.

I lack the math skills to make in code the design changes that I just exposed, but I think until the following appears in a cryptocurrency, whatever its name and be it through a fork, hard, or soft, or a completely new development, the promise of Satoshi will not be realized:

  1. Decouple current ownership from transaction history.
  2. Create a market for transaction storage and make transaction recordkeeping costly.
  3. Truly make transactions confidential, i.e. provable only at the desire of the parts.
  4. Allow multiple paths of transaction chaining, so that throughput can grow in parallel and not only serially.
  5. Eliminate economies of scale in transaction verification, so that mining on a billion cellphones is roughly just as profitable as mining on a petahash asic rig (in proportional terms, of course)

In this vision, all payments could be made in crypto.  No one could censor the network or attack it.  If every person on the planet makes today an average of three payments a day (I know, some of us make a multiple of that, but some still make none) there are today around 20 billion payments per day, i.e. over two hundred thousand payments per second.  Imagine why we need  points 1-4.

Without point 5, Mr. Xi’s successors will hold the keys to the throne of Emperors of the Galaxy.  I wish work on these five points could advance as fast as possible.  It would take not just math, but also economics, strategy and diplomacy and evangelization.


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My email to Lew Claasen on the Bitcoin Foundation Manifesto

Dear Lew,

Thanks for your message.

Please see my comments to the Manifesto.  I appreciate the effort put into it, and I thought I would give you my remarks.  Would be happy to discuss further.



Claudio Migliore


I can recognize the intentions in this manifesto and some are hard not to agree with.  Nevertheless, I would give another whirl to it:

  1. The listed truths are arguably correct, although they range between timeless principles and contingents short term facts
    1. You could argue that the first statement is confusing, since gold backed money is not strictly fiat
    2. Even when there was some gold “standard” around the world, governments happily debased their currencies and then they played around with words to get some legal cover.
    3. The statement about the gold standard is very US centric and is only good to cling to often repeated stats about the loss of dollar purchasing power.
    4. Truths 3 to 7, while significant, refer not to systemic economic issues but rather to the contingent state of financial intermediaries
    5. The huge truth that is not mentioned at all is that:
      1. The Internet has subverted and continues to subvert all connections between humans, making intermediaries generally unnecessary
      2. Crypto makes permissionless transactions possible
  2. The word “accordingly” suggests that the Foundation beliefs somehow derive from the listed truths, which I do not think to be the case.
    1. All the listed rights probably derive in cascade from the principles already established (if routinely trampled upon) by the constitution and laws of most of the world and not from the before mentioned “truths”
    2. More in detail:
      1. Although politically correct, it is debatable whether the expression “transactions harming no others” has any real meaning
      2. The right to economic participation is also a PC term.  There could be mention to economic freedom, but this also entails the right of anyone NOT to transact with anyone else.
  3. About the MISSION:
    1. The Bitcoin Foundation cannot coordinate any efforts of free people.  It can only attempt to, based on intellectual leadership and personal effort of its members.  The statement contrasts with the factual observation five lines up about the different views within the ecosystem.
    2. The mission could, and does not, address the issue of scientific study and understanding of the cryptocurrency phenomenon from and economic and technical point of view.  Past the simple though substantive statements  in Nakamoto’s paper, little has been done regarding understanding the ramifications of Bitcoin adoption, with the irony that a legacy institution of dubious neutrality like the Bank of England has been a major contributor in this field.
  4. About the VISION:
    1. I think it is a bit narrow.  I believe Bitcoin will play a crucial role as global money, but it is naïve to assume that there will be no third parties.  In fact some initiatives within Bitcoin are creating third parties.  Third parties will always exist in any advanced free economic system since anyone can attempt to, and may succeed in, adding value in a transaction chain.  The point of Bitcoin is permissionless access, not lack of intermediaries.
    2. The vision should, I believe include the contribution of Bitcon to freedom and economic progress
  5. About the values:
    1. PC at work again.
    2. “Guaranteed financial access”?  Who is guaranteeing? What is financial access?
    3. What is “financial access” and how is it different from financial inclusion? Why is one guaranteed and the other is not?
    4. What does the word “Autonomy” mean?

Stable money supplies (Plural?) is very vague.  It sort of tries to reassure inflation hawks.  I am one, by the way, and am not reassured.


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Bank Soundness and Competitiveness



I just read the World Economic Forum (WEC) Global Competitiveness Report and the useful (and pretty) charts Bank of America derived from it.  Then I did some comparisons.

I picked two countries (randomly-lol) and overlayed their graphs. (Note that the third panel is my responsibility, not BoA’s.)  Argentina ranks hugely better against Brazil on two categories and marginally better or worse in four.  The only large outperform by Brazil is on Bank Soundness and yet Argentina fares dramatically worse in WEC reading of Competitiveness!

Although I could not find the weights in the report, clearly (and probably rightly) the WEC places a substantial weight on Bank Soundness in promoting country competitiveness.

The argument is probably solid.  Flimsy, flaky, shady banks are no good.  However, what does it say for the evolution of finance, banking and Fintech?  Could it be that a healthy crypto alternative might pick up where sound banks falter?


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