1. Crypto-Currency “Smart Contracts” Are Sending Billions Up in Smoke

    As noted above, bitcoin is not the only form of digital crypto-currency. There are many others. One of the most popular is called ether (the name gives it away), based on the Ethereum platform.

    Ethereum is intended as much more than a crypto-currency protocol. It allows a user to program a so-called “smart contract” that will automatically execute financial transfers upon the satisfaction of specified conditions. You can use Ethereum to automatically pay your rent, record a transfer of property such as real estate, stocks or bonds, or even pay your children’s’ allowance if they make their beds and cleanup their rooms (good luck with that).

    This sounds efficient because it’s faster, cheaper and easier than using traditional financial intermediaries such as banks, lawyers or exchanges. There’s only one problem. The protocol is full of bugs that hackers are using to steal the ether!

    This article has a litany of horror stories including one Canadian exchange that locked itself out of $13 million in a broken smart contract with no way ever crack the code and recover the money. It’s just lost in cyber-space — forever. This article is a sobering reminder of the great attraction of gold, silver, and or other hard assets such as land, fine art or natural resources.

    Hard assets are non-digital and can’t be hacked, erased or trapped behind an encrypted firewall. Gold and silver are always there when you need them.

  2. Even The Preppers Are Dumping Gold For Bitcoin

    Most observers have an image of preppers as living in a remote area with water, freeze-dried food (enough to last for several years), guns, ammo, gold, silver and some artisanal skills. They also have an image of bitcoin boosters as young, tech-savvy and fully-invested in a future that is onward, upward and more digital by the day. 

    This article stands those images on their head. The article covers a trend among preppers to dump gold coins and load up on bitcoins in preparation for the unspecified apocalypse that awaits. The article is interesting, but it says more about muddled libertarian thinking than it does about the best way to prepare for civilizational chaos.

    The kind of crisis the preppers are preparing for is unlikely to have a functioning power grid, something the author points out repeatedly. Without power bitcoin is worthless.

    The preppers say, “No worries!” While the power grid may be out for months or years, it will eventually be restored and their bitcoin will be waiting for them in the cloud of a newly formed libertarian nirvana. That’s nonsense. If and when the power comes back on, history says it will be restored through martial law and neo-fascism; not exactly what the libertarians had in mind.

    The preppers also say that an ounce of gold is impractical for small transactions. Of course it is; that’s a reason to have silver right next to your gold. The gold preserves long-term wealth, and the silver serves for daily transactions. That’s why gold and silver have always co-existed as forms of money.

    In the end, the preppers described in the article are probably just drawn in by the get-rich-quick mentality that seems to affect everyone chasing the bitcoin bubble. A libertarian gloss won’t save them in the end. Gold and silver will.

  3. It’s Not Guesswork. Here’s Some Scientific Evidence That Bitcoin is a Fraud

    The debate about whether bitcoin is a bubble, a fraud, or the greatest financial innovation since the ATM too often degenerates into shouting and name-calling. The bitcoin detractors say bitcoin buyers are relying on the “greater fool” theory of investing. That’s when you pay a high price for something of little value in the hope that some greater fool comes along and takes it off your hands at an even more ridiculous price.

    Bitcoin supporters shoot back by saying the critics are technophobes and Neanderthals who don’t understand the brilliance of the blockchain and how it is the wave of the future. (By the way, it’s typical for bitcoin boosters to pivot away from the currency to the technology. In fact, they’re two very different things. The blockchain has a future; bitcoin does not).

    Such tendentious sparring is unproductive and unenlightening. What’s needed is a more scientific basis for judging bitcoin. This article provides that kind of scientific analysis.

    It’s a bit longer and more technical that the articles we usually recommend, but it’s well worth your time. The article begins with the observation that increasing volatility along with increasing price is a good bubble indicator in any market and suggests an underlying instrument will soon be worth zero. But, the author observes declining volatility with higher prices in bitcoin suggesting it’s not a bubble and there is real money in the market.

    Yet, these real money reduced volatility episodes seem interspersed with hot money inflows and periodic higher volatility. This suggests a tug-of-war between real money and hot money that go could either way.

    That’s a valid observation, but there’s another possibility the author does not consider. The continual reduction in volatility in response to price increases suggests autoserial correlation (a kind of “smoothing” in which the futures resembles the past only more so). Autoserial correlation appeared in LTCM (a sign of excessive leverage to achieve smoothing), and in the Bernie Madoff case (a sign of accounting fraud to lull investors into complacency).

    The appearance of autoserial correlation says bitcoin may be in for a dramatic crash or be revealed as a massive fraud — perhaps both.

  4. Even Blockchain CEOs Believe Blockchain “Coin” Offerings Are Frauds

    With so much talk about bitcoin, observers can be forgiven for not knowing that the blockchain is a lot bigger than just bitcoin. In fact, bitcoin is just one of hundreds of “coins” and “tokens” issued and traded on blockchain platforms.

    Even blockchain itself is not homogenous. There are basic blockchain applications such as bitcoin, and newer innovations such as ethereum and ripple, which are more efficient than bitcoin, but still have serious limitations in terms of scalability and sustainability. Problems with blockchain (as described in more detail below) are the target of criticism by many experts from both a technical and monetary perspective. 

    This article shows that the criticisms are not coming just from outsiders, but are coming from insiders themselves. The CEO of Ripple, and the co-founder of Ethereum both say that most “ICOs” issued on the blockchain are frauds.

    An ICO (initial coin offering) is an issuance of new coins or tokens for cash intended to be used for development of new blockchain applications. The token allows the buyer to have early access to the application or other benefits. The ICO coin can be held for future appreciation or traded for other tokens on crypto-currency exchanges.

    ICOs have been likened to IPOs (initial public offerings) that companies use to raise debt in public markets. But, there’s really no resemblance between ICOs and IPOs. The latter are heavily regulated with transparent disclosure and severe penalties for misrepresentations. ICOs are not subject to any rules at all. They’re a “trust me” market in which the basis for trust is non-existent.

    Any market like that immediately becomes a magnet for fraud as naïve buyers scoop up new tokens with a get-rich-quick mentality that will end in tears.

  5. Ancient data, modern math and the hunt for 11 lost cities of the Bronze Age

    Ancient data, modern math and the hunt for 11 lost cities of the Bronze Age

    This article does not mention Bayes by name, but that’s exactly the kind of math being used here. A prior hypothesis is continually updated and improved as new data (in the form of clay tablets) is added to the algorithm.

  6. Money for Nothing. Here’s a Deep Dive on “Guaranteed Basic Income”

     

    Very few issues unite policy thinkers on the left and right these days. Yet, guaranteed basic income, GBI, is one that does. GBI has been endorsed by left-wing Silicon Valley billionaires like Mark Zuckerberg and Elon Musk, and by right-wing public intellectuals like Charles Murray.

    GBI goes by various names including universal basic income, but the idea is the same. Government will send everyone below a certain income level a check to get that individual up to a reasonable middle-class standard of living.

    The idea has been around since Thomas Paine proposed it in 1797. Ancient versions include the bread dole of the Roman Empire ridiculed by the poet Juvenal as “panem et circenses,” (bread and circuses). The 21st century version rests on the idea that robots will soon take most jobs (except those of the elites), and that economic returns to capital versus labor strongly favor capital resulting in extreme income inequality.

    The elites believe they need to appease the workers with cash to prevent a revolution. Karl Marx would be proud. Most of our articles are brief and to the point, and are selected to illustrate some emerging economic threat. This article is much longer than usual, but that’s because the topic is of the utmost importance. The subject of GBI goes straight to the heart of questions like, “What is a democracy?” “What is fairness in society?” and “Are some values more important than money?”

    Most importantly, the issue is not going away — you’ll be hearing a lot about it. GBI promises to be at the top of the political agenda for years to come.

     

  7. Kim Jong Un is Taking a Breather. But the North Korean Threat is Still Grave

    Kim Jong Un kept up a rapid operational tempo of missile launches and nuclear weapons tests from January through September 2017. Suddenly he has gone quiet.

    Over two months have passed since he launched a missile or detonated a nuclear bomb. It would be nice to think that he “got the message” from Washington and has decided to scale back his nuclear and ICBM ambitions. Maybe pressure from China and elsewhere in the form of economic sanctions is starting to work. Perhaps Kim is looking for a diplomatic way out of the escalatory dynamic he created.

    We can be hopeful about that since any of those developments might avoid a war. But this article suggests that Kim’s pause is tactical rather than a strategic about-face.

    No one knows exactly what Kim is up to. He may have wanted to pause his tests during the Chinese Communist Party Congress in late October and Trump’s visit to Beijing in early November in order not to be overly provocative. Some analysts suggest Kim is turning his attention to internal matters and shoring up popular support before entering the final phase of his nuclear showdown with the United States.

    The best posture is to follow the classic advice of, “Hope for the best, but prepare for the worst.” Now that the Chinese Party Congress and Trump’s Asia visit are over, it may soon be back to business as usual for the North Korean dictator.