Saturday, 27 April 2013

Is hording really an issue with bitcoin?

One of the fundamental arguments posed against Bitcoin is that it is deflationary in nature. The misinformed argument made by many prominent government economists is that this will result in hording. That is, individuals will irrationally stockpile large amounts of bitcoins as a cash balance.

This is a perfectly common but flawed understanding of money. The entire nature of hoarding as a concept is flawed in itself.

One of the early issues becomes clear when you start to investigate why people hold any cash at all. There is no money circulation as many people falsely suppose all there is comes from a transfer of commodities. Money in any form is a commodity subject to supply and demand like any other.

Where money itself differs as a commodity is in its use as an exchange medium.

Holding money is not in itself irrational. In a perfect risk-free world there would be no need to hold any cash balance. If we could predict payments with perfect certainty there would be no need to hold any cash. The argument on hoarding is one I will expand on in coming days. It is analogous to an argument that investing in unused capital of any type is bad. If we take vacant land is an example and compare it to gold we can use the same arguments that are falsely used to justify the concept of hoarding.

So, what exactly happens when an individual holds a wallet of bitcoins and decides not to spend. Once we called the saving but let us look at it from the eyes of those who see hoarding. Have we really stopped the economy? For that matter what is the economy? The simple answer here is that the economy is the sum of human interactions. When we choose to spend money on conspicuous consumption goods now because that aids the economy we are in fact falling prey to a variation of the "broken window fallacy". We are consuming capital and not creating it.

Holding a quantity of bitcoins is no different to an investment in land. Yet we do not run around calling land holders hoarders. In holding our money and saving in what we could call delayed gratification we are in fact guiding society and what we call the economy into delivering goods that we want more. In choosing to wait until a better option is available we have decided to tell the producers that create our economy that they are not delivering the goods we require. That is the difference that these people who say we are hoarding fail to comprehend. We vote with our purchases. We decide the structure of society when we spend our money. In saving our money we have delayed expenditure. This is either due to a risk decision where we want to ensure our future well-being and prosperity or a decision to wait until there is a better option. Neither is hoarding.

If individuals do hold a quantity of bitcoins what is the effect?

Simply put, the quantity of money in the system being used will determine the value of goods. Remember, like all money bitcoins are simply a commodity. The value of a Bitcoin is based on the demand for a Bitcoin. This equates to the purchasing power of each Bitcoin. If an individual hordes their supply as some would term this but people like myself would call saving then the result is that the amount of expenditure will change. Those with a desire for goods now will still purchase goods. The argument that deflation of the currency means that people will hold currency is flawed outside of the notion of investment and savings. An individual can choose to put their money into land in the hope that that land will increase in value over time. There is no difference to maintaining a holding a bitcoins. If we save funds we are putting aside money so that we can consume at a later date or when a better option becomes available.

The argument that hoarding will result fails to take existing reality into account. Right now an individual with excess capital has a choice of spending or investing. This investment can be done in a risk-free rate as it is known in treasury bonds and money is tied up for a period of time. Individuals are not interested in the amount of money they have. That is a common flaw. They are interested in the purchasing power that they maintain. The amount of Bitcoin in the market will determine the exchange value of those bitcoins and hence the purchasing power.

Having the ability to print more bitcoins does not create wealth.

As we've seen, the government's ability to print money also does not create wealth. The amount of money may change but all this does is change the distribution of goods. Increasing a perception of risk in society results in a different distribution of capital. The uncertainty associated with financial markets is the problem. People should be saving and people should engage in delayed gratification. The reason they do this should be to create a greater capital base not to consume for the sake of the arbitrary notion of "economy". Remember, the economy is nothing but people.

In choosing not to spend now we make a choice that shape society. Some people say that in saving for something better we are hoarding. I'll give another analogy. In this I will ask is it better to go out for a small meal at McDonald's every night or to save and go out to a good restaurant a couple times a month? In both cases we can be spending just as much. What it comes down to is not a question of hoarding it one of subjective choice. It is an argument not of hoarding of some individuals saying that others don't live right. It is an argument of paternalism and telling others how they should live their life.

When an individual saves them money be that bitcoins or dollars the economy continues. The amount of wealth available is a function of capital goods. If one individual saves them money then all goods become less expensive for all other individuals. Not only does the saver in delaying gratification hedge their own risk and stop the need to rely on charity but they also make life easier for those who are consuming at the moment.

When we say we need to have particular sectors protected such as the car industry in Australia what we're saying is that the jobs of car workers are far more valuable than other jobs. What we're saying is these small community interest groups should be favored over the rest of society. What we're doing is in fact diminishing the economy. If we stop miss allocating funds protecting unwanted services what we end up doing is helping the market to align to the things people actually desire. Not those things selective individuals tell us we want when we in fact don't.

The argument of hoarding is one of subjective measures of judgment and risk. It is party A telling party B that their choices are wrong. It comes down to one individual attempting to determine what another should be doing. It is not using valid methods of persuasion but rather attempting to misinform and deceive other individuals into believing that what they are doing is wrong and what they are being told by another is right. It is not informed persuasion but rather deception.

There is no such thing as hoarding. That our differences in the individual risk appetite of individuals. Some of us want to save and not have to rely on government or charitable handouts later in life. To do this we need savings. Rather than conspicuous spending now we seek a delayed gratification where we don't need to rely on others for charity.

A diatribe on Bitcoin, Trust and the economy of security

The most marketable goods are what becomes the media of exchange.

The statement above has held true for all time. When exploring the history of money and barter it was not cows and chickens that were exchanged. The farmer with an excess of chickens would exchange first for grain, butter or some other divisible good. Grain could be divided into small parcels. These parcels could be used to trade for other objects. It is impractical to think that anything larger than a small village engaged in social barter long-term. What would've actually occurred is the use of improvised currency.

This started with divisible used goods. In Rome, salt was commonly used and forms the basis of our word today for earning. That is, salary.

Salt was ideal as a form of early currency. It was divisible into small amounts, did not degrade quickly and started as something people could trust. It was easy to taste salt and tell the quality.

As value increased salt became insufficient. The quantity of salt was too large. It was also too easy to lose. A rainstorm could literally liquidate your holdings. Slowly over time other sources of wealth came to replace early currency's such as salt. Gold is perhaps the best known of these. It is easily divisible and does not degrade over time. It has a use in jewelry and has been highly valued through the entirety of written history.

Supply and demand however has increased the value of gold. Gold has uses in electronics and jewelry even today but it's true use is a form of wealth measurement. This value is increased many times it's consumption value as it is in demand as a form of saving. Although gold is mined it is also consumed. The demand for gold is increasing for many reasons but one is fairly simple, you cannot print gold.
This is of course a powerful aspect of gold. The hidden tax of inflation cannot be hidden. The government cannot decide to increase the monetary supply and devalue a nation's wealth. Yes, the arguments abound that the central banks control currency or not the government but remember in the US it was Pres. Obama who took an additional $1 trillion for his own spending experiments. The result of this was a severe drop in the US currency value. The US dollar which was worth far more than the Australian dollar is now on par. The reality of this is that the US government took the wealth of the entire country and taxed it away. The international purchasing power of a US citizen has been drastically reduced. The result is every US citizen has less money. Their houses are worth less, their investments are worth less, they are less wealthy.

The reality, government has taxed them outside of Congress or anything they decided to vote for. The reality is a theft in a massive scale but one that has been hidden, overlooked and somehow blamed on commerce and business. Commerce and business of course being the engine the funds and powers the country but which is also denigrated.

So the question is what the hell does this have to do with bitcoins and trust?

If you asked this I will say is a good question. It is a fundamental aspect of what bitcoins are achieving. The key to currency is trust. That's it, nothing special no more. The US dollar is not a promise of anything of value. Since the US dollar has been taken off the gold standard the US dollar is a promise of the US dollar. What this means is that if you go up to the treasury and hand them one US dollar they will hand you back a US dollar. This may be the same US dollar or it may be a different one. That is the extent of state-based promises in regard to currency. Basically, there is nothing to trust.

We've seen this again and again. States change leadership. Even when leaders are selected they do not do what they are selected to do. Here in Australia we have a choice of two parties. One a Labour Party who will lead us into a deficit that they have created. The other the conservative coalition who will promise to spend us into a deficit. We have a choice. A choice of who waste our money better. But is that really a choice at all. When given a choice of Mickey Mouse or Donald Duck as our leader I don't see that we have a choice at all.
Bitcoins are like gold in many ways that I am not going to detail on this post. What matters is that government cannot degrade the currency. They cannot print more. They cannot steal the wealth of the nation for the half cocked ideas they tout without a clue of the effects.

Here in Australia we have an opportunity to be the breadbasket of Asia. Commercially speaking supporting the commercialization of agriculture make sense. This is not the idea of handouts to farmers, it is the idea of allowing large-scale industry farming. Automated systems based on technology with highly educated people managing farms. This is an idea based on cutting subsidies and spending less. It is one where we don't continue to pay car workers who are economically inefficient and who drain money from the entire society to produce inferior quality products. It is one where the most competitive forces win.

Bitcoins can be trusted for the simple fact that government cannot print more. It is not a central authority that creates trust. It never has been. Money did not develop because of the benevolent government. Money was created by merchants and commercial entities as a means of engaging in trade. It was not a benevolent government who created money but rather a despotic government who monopolized and continues to monopolized the means and supply of money following a hostile takeover. Yes a hostile takeover. Quite simply put money existed well before government. Trust in the currency existed without government. We have been fed a lie designed to make us believe that we need a benevolent central body telling us what to do. We do not nor did we ever.

For this reason and for the reason that bitcoins cannot be created at will, we can trust virtualized currency more than that issued by governments.

This brings us back to the initial statement of this post. The most marketable goods will always become the primary media of exchange. Right now Bitcoin is in the early phases of adoption. A limited number of markets are available but they are growing. It is a currency that is infinitely divisible allowing for small trades across borders. This is important. More so than many people realize.
We are entering an era of intellectual property.

There will be no traditional manufacturing in years to come. This is a big and even bold statement but it is one based on fact. Automated systems are becoming cheaper, faster and better. In just a few years they will exceed the best capabilities of the most skilled artisans and they will do this at a cost less than the lowest unskilled wage. 3-D printing remains at the stage computers were in the 70s and 80s. Robotics remain at a similar level. What people seem to forget is that all of these technologies gain in capability every year exponentially. The skills of individuals, even artisans increase slowly if ever. The best development a human can do is linear. Over time any exponential system exceeds a linear one. In my lifetime manufacturing and automated systems will produce more at a better quality in the lower price than any human could ever hope to achieve.

What people can offer is simply intellectual. We design and we create, it is our strength.

The result will be a world of intellectual property. Technologies such as 3-D printing as well as others I cannot even imagine and services will be the foundation of society. Manufacturing will not be. Even agriculture will be a technology. The romanticized ideal of the farm family has had its day. The agricultural corporation running automated devices will exceed the output in production of even the best farmer.

This is a world that needs a means of transacting engaging across borders. Intellectual property can be distributed instantaneously across the Internet to any place as it is needed. Your production device at home, the future intellectual child of today's 3-D printing technology, will create a new cup as you need it. It will replace your shoes, your swimsuit, your computer tablets, the thing that passes for your phone with its visual display across your retina. All of these will be printable at home. To do this will require base materials and intellectual property.

Just like we purchase intellectual property for movies and videos online now we will purchase and receive instantly goods and manufacturing rights in the future.

This will be from any place on earth. We will purchase from Africa, Asia, Europe, the US and anywhere else instantaneously. Your Nike shoes will not require sweatshop workers in China. They won't require workers at all. The result will be the download of an intellectual property right enabling you to print these things at home. And they will be better quality than you have now. They will be bespoke set to your exact measurement in a way that not even the rich know now.

The question to ask here is whether any existing currency can handle this world of the future. One that will be here in my lifetime and I'm not young. The simple answer is that US currency, the failing Euro, or about anything else you can select as a state currency will not be trusted internationally if at all inside their own borders. The trust in the US dollar has eroded as the country is slowly become more and more interventionist.

What bitcoins offer is a way to instantly distribute payments anywhere in the world quickly and cheaply. They offer a means of distributing intellectual property and selling the rights instantly anywhere in the world.

For those who argue about the need for trust based on the government I would add it is about time that you look at the world we are in and where it is headed. Innovation will change this earth in a way that none of us can comprehend but it is a way that will become based on intellectual property and intangible ideas. All wealth will become intangible at its primary source and foundation. Bits will become the foundation of all society as they already are starting to do, not just movies or music that hard physical goods will derive from ones and zeros.

Right now we can still transact using US dollars and other local currencies but in the future this will become less and less viable. This is the beauty of Bitcoin in this is the uppercut that has remained unseen until now when it is too late. The advances in intellectual property and its inevitable march to consume manufacturing as we know it will require an international currency that can be universally trusted. This is one without any government intervention. There is only one way to do this and no government can centralize it.

Bitcoin is not the only solution but it is the leading one.

Hold fast to your beliefs if you wish and I will place my bet is you did yours. For this is what it is. You may bet on currency controlled by state player and I will bet on something that is decentralized and which cannot be devalued at a whim. A currency that can be trusted by all.

Bet your way and there is a simple way of testing what will occur. It is time. I've placed my bet and it is against all of those who believe that trust requires a central authority. My bet relies on the individual as a collective whole. That we all have value in that society does not need to be ruled centrally through monetary control. In the next couple decades we will see who is right and if I'm wrong my words will be here as a marker and a lesson.


If I'm right...

Wednesday, 24 April 2013


The tool “Sigfind” performs a search for a defined hexadecimal value within a defined image or file. We can use this in analyzing digital images to find partitions. There are many reasons for doing this, one would be in finding corrupted partitions.

The tool will find and output the sector where the match was located.

The way it is used is:

sigfind -b 512 -l -o 510 Image.dd

Now, all Windows partitions are the same in many ways. We can find partitions and the MBR as the Hex value 0x55AA always comes in the final 2-bytes of the MBR. This can be corrupted, but it is a good place to start looking.

This is:

  • The last two bytes of a Microsoft Windows partition are 0X55 and 0XAA
  • The last two bytes of a Partition Table partition are 0X55 and 0XAA

Using this information, it is possible to recover formatted drives.

Knowing that MBR is located at the start of the drive and that it is a fixed size in non-dynamic drives, we can thus skip the first 510-bytes. Hence run:

sigfind -b 512 -o 510 55AA Image.dd

The output of this command is listed below. I will write more on this another time, but knowing where the partition starts allows us to know where we can start to carve partitions (using the offsets and DD).

$sigfind -b 512 -o 510 55AA Image.dd

Block size: 512 Offset: 510 Signature: 55AA

Block: 0 (-)

Block: 63 (+63) MBR (MS Boot Sectors end in 55AA)

Block: 323836 (+323773)

Block: 820512 (+496676)

Block: 820575 (+63) One of the Partitions

Block: 1026144 (+205569) (Can you say which one?)

Block: 1026207 (+63)

error reading bytes 1048320