What’s So Bad About Cryptocurrencies?

15 March 2018 – Cryptocurrency fans point to the vast “paper” fortunes that have been amassed by some bitcoin speculators, and sometimes predict that cryptocurrencies will eventually displace currencies issued and regulated by national governments. Conversely, banking-system regulators in several nations, most notably China and Russia, have outright bans on using cryptocurrency (specifically bitcoin) as a medium of exchange.

At the same time, it appears that fintech (financial technology) pundits pretty universally agree that blockchain technology, which is the enabling technology behind all cryptocurrency efforts, is the greatest thing since sliced bread, or, more to the point, the invention of ink on papyrus (IoP). Before IoP, financial records relied on clanky technologies like bundles of knotted cords, ceramic Easter eggs with little tokens baked inside, and that poster child for early written records, the clay tablet.

IoP immediately made possible tally sheets, journal and record books, double-entry ledgers, and spreadsheets. Without thin sheets of flat stock you could bind together into virtually unlimited bundles and then make indelible marks on, the concept of “bookkeeping” would be unthinkable. How could you keep books without having books to keep?

Blockchain is basically taking the concept of double-entry ledger accounting to the next (digital) level. I don’t pretend to fully understand how blockchain works. It ain’t my bailiwick. I’m a physicist, not a computer scientist.

To me, computers are tools. I think of them the same way I think of hacksaws, screw drivers, and CNC machines. I’m happy to have ’em and anxious to know how to use ’em. How they actually work and, especially, how to design them are details I generally find of marginal interest.

If it sounds like I’m backing away from any attempt to explain blockchains, that’s because I am. There are lots of people out there who are willing and able to explain blockchains far better than I could ever hope to.

Money, on the other hand, is infinitely easier to make sense of, and it’s something I studied extensively in MBA school. And, that’s really what cryptocurrencies are all about. It’s also the part cryptocurrency that its fans seem to have missed.

Once upon a time, folks tried to imbue their money (currency) with some intrinsic value. That’s why they used to make coins out of gold and silver. When Marco Polo introduced the Chinese concept of promissory notes to Renaissance Europe, it became clear that paper currency was possible provided there were two characteristics that went with it:

  • Artifact is some kind of thing (and I can’t identify it any more precisely than with the word “thing” because just about anything and everything has been tried and found to work) that people can pass between them to form a transaction; and
  • Underlying Value is some form of wealth that stands behind the artifact and gives an agreed-on value to the transaction.

For cryptocurrencies, the artifact consists of entries in a computer memory. The transactions are simply changes in the entries in computer memories. More specifically, blockchains amount to electronic ledger entries in a common database that forever leave an indelible record of transactions. (Sound familiar?)

Originally, the underlying value of traditional currencies was imagined to be the wealth represented by the metal in a coin, or the intrinsic value of a jewel, and so forth. More recently folks have begun imagining that the underlying value of government issued currency (dollars, pounds sterling, yuan) was fictitious. They began to believe the value of a dollar was whatever people believed it was.

According to this idea, anybody could issue currency as long as they got a bunch of people together to agree that it had some value. Put that concept together with the blockchain method of common recordkeeping, and you get cryptocurrency.

I’m oversymplifying all this in an effort to keep this posting within rational limits and to make a point, so bear with me. The point I’m trying to make is that the difference between any cryptocurrency and U.S. dollars is that these cryptocurrencies have no underlying value.

I’ve heard the argument that there’s no underlying value behind U.S. dollars, either. That just ain’t so! Having dollars issued by the U.S. government and tied to the U.S. tax base connects dollars to the U.S. economy. In other words, the underlying value backing up the artifacts of U.S. dollars is the entire U.S. economy. The total U.S. economic output in 2016, as measured by gross domestic product (GDP) was just under 20 trillion dollars. That ain’t nothing!

And, You Thought Global Warming was a BAD Thing?

Ice skaters on the frozen Thames river in 1677

10 March 2017 – ‘Way back in the 1970s, when I was an astophysics graduate student, I was hot on the trail of why solar prominences had the shapes we observe them to have. Being a good little budding scientist, I spent most of my waking hours in the library poring over old research notes from the (at that time barely existing) current solar research, back to the beginning of time. Or, at least to the invention of the telescope.

The fact that solar prominences are closely associated with sunspots led me to studying historical measurements of sunspots. Of course, I quickly ran across two well-known anomalies known as the Maunder and Sporer minima. These were periods in the middle ages when sunspots practically disappeared for decades at a time. Astronomers of the time commented on it, but hadn’t a clue as to why.

The idea that sunspots could disappear for extended periods is not really surprising. The Sun is well known to be a variable star whose surface activity varies on a more-or-less regular 11-year cycle (22 years if you count the fact that the magnetic polarity reverses after every minimum). The idea that any such oscillator can drop out once in a while isn’t hard to swallow.

Besides, when Mommy Nature presents you with an observable fact, it’s best not to doubt the fact, but to ask “Why?” That leads to much more fun research and interesting insights.

More surprising (at the time) was the observed correlation between the Maunder and Sporer minima and a period of anomalously cold temperatures throughout Europe known as the “Little Ice Age.” Interesting effects of the Little Ice Age included the invention of buttons to make winter garments more effective, advances of glaciers in the mountains, ice skating on rivers that previously never froze at all, and the abandonment of Viking settlements in Greenland.

And, crop failures. Can’t forget crop failures! Marie Antoinette’s famous “Let ’em eat cake” faux pas was triggered by consistent failures of the French wheat harvest.

The moral of the Little Ice Age story is:

Global Cooling = BAD

The converse conclusion:

Global Warming = GOOD

seems less well documented. A Medieval Warm Period from about 950-1250 did correlate with fairly active times for European culture. Similarly, the Roman Warm Period (250 BCE – 400 CE) saw the rise of the Roman civilization. So, we can tentatively conclude that global warming is generally NOT bad.

Sunspots as Markers

The reason seeing sunspot minima coincide with cool temperatures was surprising was that at the time astronomers fantasized that sunspots were like clouds that blocked radiation leaving the Sun. Folks assumed that more clouds meant more blocking of radiation, and cooler temperatures on Earth.

Careful measurements quickly put that idea into its grave with a stake through its heart! The reason is another feature of sunspots, which the theory conveniently forgot: they’re surrounded by relatively bright areas (called faculae) that pump out radiation at an enhanced rate. It turns out that the faculae associated with a sunspot easily make up for the dimming effect of the spot itself.

That’s why we carefully measure details before jumping to conclusions!

Anyway, the best solar-output (irradiance) research I was able to find was by Charles Greeley Abbott, who, as Director of the Smithsonian Astrophysical Observatory from 1907 to 1944, assembled an impressive decades-long series of meticulous measurements of the total radiation arriving at Earth from the Sun. He also attempted to correlate these measurements with weather records from various cities.

Blinded by a belief that solar activity (as measured by sunspot numbers) would anticorrelate with solar irradiation and therefore Earthly temperatures, he was dismayed to be unable to make sense of the combined data sets.

By simply throwing out the assumptions, I was quickly able to see that the only correlation in the data was that temperatures more-or-less positively correlated with sunspot numbers and solar irradiation measurements. The resulting hypothesis was that sunspots are a marker for increased output from the Sun’s core. Below a certain level there are no spots. As output increases above the trigger level, sunspots appear and then increase with increasing core output.

The conclusion is that the Little Ice Age corresponded with a long period of reduced solar-core output, and the Maunder and Sporer minima are shorter periods when the core output dropped below the sunspot-trigger level.

So, we can conclude (something astronomers have known for decades if not centuries) that the Sun is a variable star. (The term “solar constant” is an oxymoron.) Second, we can conclude that variations in solar output have a profound affect on Earth’s climate. Those are neither surprising nor in doubt.

We’re also on fairly safe ground to say that (within reason) global warming is a good thing. At least its pretty clearly better than global cooling!

Chaos Piggies

Don Argott’s 2009 film The Art of the Steal led me down a primrose path to some insight about chaos in human interactions.

25 November 2017 – After viewing Don Argott’s 2009 film The Art of the Steal about the decades long history of the Barnes Foundation and its gradual conversion from a private suburban-Pennsylvania art-education institution into a Philadelphia tourist attraction, the first thing I thought about was the Beatles’ song “Piggies.” The second thing I thought about was the chaos of human interractions. That led to an epiphany about the class struggle that has been going on, probably, since long before there were humans around to divide into classes that could struggle.

To understand what I’m talking about, the best place to start is with some general observations about mathematical chaos.

The fundamental characteristic of chaotic systems is that they have limited predictability. That is, while they may seem to evolve along a predictable path in the short run, as time goes on “what happens next” becomes increasingly unpredictable until eventually all bets are off. You can set something up to keep going forever, but if it turns out to be a chaotic system, eventually it comes unravelled.

Another chaos characteristic is what electronics engineers call 1/f noise. It’s called 1/f noise because if you carefully analyze the signal, you find it’s a mixture of waves whose amplitude is inversely proportional to their frequency. It’s found in measurements of everything from ocean waves to solid state electronics. When you see this kind of behavior in virtually anything, it’s a sure sign of chaos.

It turns out that the best way to create a chaotic system is to take kazillions of things all acting independently, then somehow get them to affect each other. In the case of human society, you’ve got kazillions of people all doing their own things independently, but having to work together to get anything done.

Now, let’s look at the Beatles’ song:

“Have you seen the little piggies/Crawling in the dirt?” …

“Have you seen the bigger piggies/In their starched white shirts?” …

Sound familiar? The lyrics are pointing out an observation of 1/f noise. The “little piggies” are analogous to the rapid, high-frequency fluctuations whose effect is swamped by the larger, low-frequency fluctuations represented by the “bigger piggies.”

In other words, the big and powerful few have and outsized effect compared to that of the small and powerless many.

Duh!

I’m not crediting George Harrison with sufficient insight into mathematical chaos to draw the parallel between it and the social scene he was describing. He was certainly smart enough and interested enough to make the connection, but in 1968 when the song was released chaos theory was not widely enough understood to inform Harrison’s songwriting. Most likely at the time he was simply creating a metaphor in which we now can percieve chaos.

Okay, what has “Piggies” to do with The Art of the Steal?

The thesis of the film is that big, powerful politicians conspired to run roughshod over a group of small, relatively powerless art lovers trying to preserve the legacy of one Dr. Albert C. Barnes, who created the Barnes Foundation in the first place. Supposedly (and we have no reason to doubt it) Barnes hated the big, powerful interests who ultimately got control of his art collection decades after his death.

The lesson I’d like to draw from this whole thing is not quite the lesson the film would like us to draw, which is that the big piggies are bad guys beating up on the good guy little piggies. That’s the usual class-struggle argument.

To me, the good and bad in this tale is a matter of viewpoint. What I’d prefer us to learn is that Barnes’ attempt to create something that would forever function as he wanted it to was fundamentally doomed to failure.

Human society is a chaotic system, so any human organization you set up will eventually evolve in ways you cannot predict and cannot control. That’s Mommy Nature’s way.

If you try to go against Mommy Nature’s way, as Barnes did, Mommie Nature SPANK!