Two Objections To Searle’s Chinese Room Argument

Searle’s Chinese Room Argument always seemed dumb to me:

The Chinese Room Argument contains two fallacies:

First, it conflates a composition of elements with a single element:

Is a plank of wood a ship? No, but a whole bunch of them are. You can’t say that you can never sail across the ocean because a wood plank isn’t a ship.

No, the message operator in the room doesn’t speak Chinese. But the room *as a system* does speak it. Are the individual neurons in your brain conscious? No, they are simple machines. But you as a whole are sentient. Likewise, software may be sentient even if individual lines of code are not.

The second fallacy is a trick: it compares a one-rule operator to 100 billion neurons in your brain. The hidden argument is that a simple rule engine cannot compete with a 100-billion rule network. The hidden implication is that a “simple” system can never do the job of an ultra-complex one like the brain. But no one claims that sentience can be replicated with a simple system. Perhaps 100 billion neurons are the minimum needed for intelligence, and that’s fine. In fact, GPT-4 has about the same number of neurons as the human brain.

Why the AI apocalypse IS coming

When most people think of AI as a threat, they imagine a malevolent AI. That isn’t very likely, so they dismiss the threat entirely.

But that’s not the danger of AI. The real danger is super-competence in the wrong hands. This is a difficult idea to convey because “super-competence” does not exist yet, so it takes some imagination to consider the risks it could bring.

I say “super-competence” instead of “super-intelligence” because we don’t have a firm grasp of intelligence, much less “super”-intelligence in a non-human context. “Super-competent AI” is just software with a versatile utility function, without the baggage of self-awareness, the question of a soul, etc. Everyone accepts that computers are super-competent in some narrow contexts. They can solve math problems much faster, search large amounts of data, land rockets on a dime, etc. These are all forms of narrow competence — algorithms that are good at very specific things.

Of course, with ChatGPT, we have an example of competence in a broader context. GPT4 can solve problems in almost any domain of human knowledge, even if not very well (yet).

I predict that within the next 10 years, we will have super-competent AI (which could be augmented humans) that can provide superhuman results in a wide array of problems. It doesn’t have to be a chatbot. It might be an oil rig builder that can handle everything from finding oil to building a pipeline. The initial domain doesn’t matter because once we figure out how to make more adaptive AI tools, they will spread to every human endeavor. Most likely, it will be an informational tool of some kind (like a kids’ cartoon generator) because language models have already proven superhuman talents in this field.

Once we have super-competent tools, one of three disasters will inevitably happen:

1: A do-gooder will tell an AI algorithm something dumb like “design an airborne viral cancer cure” and the AI will decide that the most effective way to cure cancer is to kill the hosts.

2: Some malicious human will use AI towards malicious ends. The most likely way this will happen is that the world gets so scared of AI that it bans all research, and that only parties without regard for the law or AI safety continue the work.

3: An AI really will develop a mind of its own and decide that the carbon in our bodies would be more useful in building more compute nodes. I consider this the least likely, or rather likely to be a risk long after the first two risks.

So far as I can see, the only way I could be wrong is if (1) super-competent AI is not possible, either because technological progress stalls, or because human intelligence is at the apex of what is possible or (2) we find a way to align software with human values, such as by integrating super-intelligence into everyone’s minds or perhaps creating an AI overlord with human values that can stop any possible disasters.

My confidence in the timeline of AI progress comes from both the state of AI research and the nature of information systems (such as human civilization), which tend to produce more complex iterations in ever shorter cycles. I do not think “no one will do anything dumb or malicious” is a realistic option because given 8 billion+ humans, all of whom will eventually have access to these tools, it is a certainty that some will be smart enough to be dangerous, but too dumb or malicious to know better.

So what’s the solution? As I mentioned, banning AI will only make a disaster more likely. I think the first step is to develop a consensus about AI’s existential risks, rather than, for example, worry that someone will trick ChatGPT into saying something racist. The second step is to fund AI safety research on a scale proportional to AI research itself. The third step is to develop future-oriented safety protocols. (AI safety protocols exist, but they are backward-looking and completely inadequate for the scale of the problem.)

See Insights and Ads2Blake Williams and Fred Smiszek Jr.

How to Stay Focused on Your Great Journey

Tell me if this rings a bell:

As a kid, your options seem limitless. Whether you want to be an astronaut, build the next supercar, or win a national championship, your possibilities seem limitless. Yet, as you got older, days seem to get shorter. You set out to accomplish one thing, but at the end of each day, ten other things pulled at you, and the goal you are aiming at is still just as far away. Your youthful optimism has been replaced by the realization that your talent and potential are very limited indeed — by time, intellect, innate biology, and luck of the draw.

As adulthood approaches, you adjust your expectations. Maybe you won’t get that Olympic medal after all. Perhaps instead of a mansion a middle-class home and a steady job will suffice. As Henry David Thoreau wrote in Walden in 1854: “The mass of men lead lives of quiet desperation. What is called resignation is confirmed desperation.” In other words: we settle.

And yet, not everyone settles. Some people do achieve greatness. While cynics may attribute success to luck, the fact is that many great men and women reach success not just once, but again and again. Steve Jobs, Elon Musk, and Jack Dorsey reinvented themselves and built empires in unrelated fields. (I’m a fan of tech moguls, but pick your own field, and it will hold heroes.) I am convinced there is a method to success, and while mastering it won’t necessarily make you a billionaire, you don’t have to settle for mediocrity either.

Later in Walden, Thoreau writes: “That man who does not believe that each day contains an earlier, more sacred, and auroral hour than he has yet profaned, has despaired of life, and is pursuing a descending and darkening way.” To me, that “sacred and auroral hour” is an aspiration that when I sit down to work the next day, it will be with a renewed vision for my future, a single-minded focus on my chief goal, and untainted optimism that despite the limited time I have, I will yet accomplish my highest goals.

The “secret” to success is deceptively simple: daily progress. The primary reason for failure is not a lack of talent, intelligence, or bad fortune, but perseverance. As midcentury radio speaker Earl Nightingale wrote “most people live a life of quiet mediocrity and never achieve the success they truly desire because they get impatient. They want easy success or none at all. They see the path to success as a frustration, an impediment. Each day spent short of the ultimate goal is viewed as a time of failure and as an annoyance. As such, they get distracted by hundreds of little things that each day try to get us off our course. Yet the successful among us know the truth.”

Last week was the Jewish holiday of Simhat Torah, which celebrates the conclusion of the annual cycle of Torah readings. Jews celebrate this day by collectively unwrapping the Torah (a single scroll containing the first five books of the bible) around the temple, as the rabbi reads the highlights, starting with Genesis and ending with the death of Moses. Just as the Torah tells the story of the Jewish people, I imagine my life as a scroll that contains my own trials and tribulations. As I wander through the time and space of life, I work towards a single goal: the perfection of my soul. In this mission, I have two aims: to discover the Good and to integrate it fully into myself and my world.

I believe that life ought to be a mission, a destination, and I must stay focused on my Grand Journey to move consistently toward my destination. You are on this journey whether you accept it or not. The only choice you have is whether to choose a destination and make daily progress towards it or to wander aimlessly, circling around to the same place again and again.

Your Great Journey has a beginning and an end, but what is your destination? Psychologist Kurt Goldstein thought it was “self-actualization” — the achievement of your full potential. I see it as the building of one’s soul — from an immature and imperfect one, to one that maximizes the flourishing of all the aspects of being human — social, romantic, parental, professional, and material.

The only aspect of life we ever have total control over is our mind, but the way we perfect our mind is through our actions — which become our habits. Therefore, I make big plans, while focusing on daily habits that move me towards them one day at a time.

In short, this is my advice for fellow travelers: in the journey of life, you will face a daily struggle. Don’t become so immersed in it that you forget to choose a destination. Make big plans, and then take small but consistent steps toward them, and you will reach them.

I will conclude with a quote from 19th-century architect Daniel Burnham:

Make no little plans. They have no magic to stir men’s blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone will be a living thing, asserting itself with ever-growing insistency. Remember that our sons and grandsons are going to do things that would stagger us. Think big.

Why Bitcoin is NOT “crypto”

Bitcoin is NOT “crypto.”

Bitcoin is decentralized, censorship-resistant money. It is an immutable bearer instrument, meaning that possession of the key entitles the holder to dispose of the value of Bitcoin, and no entity in the world can do anything to stop that. It is an asset, not a security, meaning that it does not represent debt, derivative, or equity in any enterprise. It has no shareholders, no corporation, organization, CEO, nor any other kind of administrator who can make unilateral changes to it. It has an entirely fair distribution, which is to say that it was worthless for years before it had any value, and no one involved in the project had any special bitcoin allocation. It has always been the top cryptocurrency by monetary usage, market capitalization, and ecosystem adoption. It requires no special hardware or permission to run, and anyone with a regular computer can run a full Bitcoin node.

No other leading crypto asset meets any of these criteria, much less all of them. None of the 20,000 other crypto projects meet all of these criteria. The vast majority of “crypto” projects are scams, created solely to enrich the founders. The few well-meaning projects are securities promising a future payoff, but few practical applications today. No other project can be said to already serve millions of users’ needs for non-speculative purposes.   
The “crypto” space is dominated by scammers, grifters, and ignorant sycophants who believe their lies because they’ve been sucked into a shitcoin cult and because they can only profit as long as they keep finding other suckers. The actual founders of these projects typically put all their profits back into Bitcoin or fiat as soon as they can get away with it.
The sooner you understand that Bitcoin is unique, the sooner you can get away from pump and dump schemes and put your wealth into the asset most likely to safeguard your wealth.
Bitcoin is not “crypto.”

Below, I will break down the ways in which Bitcoin is unique, critique some of its competitors, and then answer some of the criticisms made against Bitcoin.
This newsletter is based on my talk “Bitcoin vs “Crypto” why they are not the same” at Liberty On The Rocks Denver, which you can watch below:
Why Bitcoin?
Bitcoin creator Satoshi Nakamoto:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

Unlike the vast majority of “cryptos,” Bitcoin solves a real problem,
the problem of modern civilization: fiat money. Why is fiat a problem?
The US government and our economy are being kept afloat by a giant “everything bubble” that assumes that the world will keep buying dollar-denominated debt. When the bubble pops, the dollar will collapse, and the world will need a new reserve currency. In other countries, the bubble has money has already collapsed, and Bitcoin is already a lifeline.
The corrupting influence of inflationary fiat money has infiltrated and ruined every aspect of society – I highly recommend Saifedean Ammous’ book “The Bitcoin Standard” for the gory details.

Unlike shitcoins, Bitcoin solves a real problem affecting billions of people – and that is why it has the most real-world adoption.
Why promote maximalism now?
Warren Buffett: 
Only when the tide goes out do you discover who’s been swimming naked. 

The crypto-bear market is upon us. Many scams and vaporware projects have failed, and many people are getting turned off crypto assets entirely, which is why it’s a good time to remind you that Bitcoin is not crypto. Speculators who are here for a quick buck will come and go, but Bitcoin is here for the long run. Now is the time to highlight this fact.
Bitcoin is different
Bitcoin is better money, the best money

Bitcoin is better money – actually the best form of money ever. It doesn’t pretend to remake the web or introduce exotic financial instruments or allow your company to run itself, or a new art form. It’s just money. It’s been better money from the beginning because it’s digital, decentralized, and scarce. 
Jimmy Song:
Bitcoin actually has a use case that people all over the world are using. Jimmy Song: “Crypto” is not any of these things because its leaders are like politicians, making promises they won’t keep.

Bitcoin is not a security
The U.S. Supreme Court’s
Howey test: “an investment contract exists if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” Nearly every other crypto asset is a security: it’s a project run by a centralized team, with the goal of making a profit. Token buyers are investors, hoping to earn a reward from the work of that team.  

When you buy a crypto token, you’re betting that the team that runs the token will beat 10,000 other projects and make you a profit. Often, they are backed by millions in venture capital, which they use to sell their investment.
Bitcoin is different. There is no one in charge, no “Bitcoin CEO” or marketing team, no venture capital, and no securities token. Bitcoin is truly decentralized, and all decisions are made by a community consensus process.
We can see evidence of centralization the fact that other networks can simply reboot their blockchain when they have a bug, or the fact that Ethereum’s supply schedule changes more often than the weather. There will only ever 21 million Bitcoin, and there is no group or charismatic leader in charge who can ever change that.

Bitcoin has no demagogues

Cory Klippsten, the CEO of Swan Bitcoin:

“Why is Bitcoin not a Ponzi scheme? The big difference is that there is no entity or group of people that control Bitcoin who are marketing Bitcoin to be able to dump it. If anything, most Bitcoiners that promote Bitcoin are just buying and holding as much as possible — and people who love it the most are the people who never sell.”

Bitcoin has a fair distribution

Bitcoin is the only blockchain that has a credible claim to a truly fair distribution:
* No premine (Satoshi didn’t grant himself any coins)
Satoshi gave a 2 month heads up before launching the network (no sudden release and no mining before release)
* Coins had no value for 1.5 years so they circulated freely (it’s not even possible for an altcoin to replicate this)
* Satoshi never cashed out (unlike every altcoin founder in history and I bet it stays that way for eternity)

By contrast, Ethereum launched with 12 million ETH for the developers, and 60 million ETH for sale as an “initial coin offering” during the presale.  

Bitcoin is #1

All other cryptocurrencies only exist because of Bitcoin: Bitcoin enabled an instant global payment network and final settlement for other digital assets.  If you own another cryptocurrency, there is a good chance you bought it with Bitcoin.
If you hear about any other project, it’s because of a marketer/promoter, whereas Bitcoin’s growth is organic.

Bitcoin is useful today

Bitcoin is the only crypto asset with underlying non-speculative demand. It is useful today as a long-term store of wealth and medium of exchange. The only reason to own altcoins is speculation. If they ever acquire a practical use, you can just buy them when you need them. Only Bitcoin is Legal Tender in El Salvador & the Central African Republic, has tens of thousands of ATM’s, and saves lives in bankrupt countries like Zimbabwe and Venezuela.

Is Private Censorship Still “Censorship?”

Commentary on my last post:

Whether it’s a private entity or the government doing the censorship, it’s still wrong and harmful, and for some of the same reasons.

Government censorship is far worse than private censorship because it eliminates your ability to speak on any platform.

But the value of free speech is a universal principle, not a just political one. Human progress requires open debate. This is one of the key principles of the Enlightenment responsible for the surge of progress and human development in the modern era. Toleration of disagreement is essential for the pursuit of knowledge.

A platform committed to the principle of free speech has a moral obligation to maximize the speech it tolerates, even if that speech is wrong or repulsive to the operators. That doesn’t mean that platforms must allow disruptive or illegal speech. All platforms must have some policies to restrict disruptive behavior like spam or illegal behavior like crime.

A platform is not the same as a social community. A community is a group of people committed to common values or interests. Communities often need to restrict speech to facilitate their mission. For example, a marine biology community can’t have outsiders promoting day trading schemes. A social networking platform is a host of communities and has a moral obligation to maximize the range of speech it tolerates.

One of the primary problems with social media censorship is confusion about the concept of “harm.” Illegal behavior like threats of violence are disruptive of speech and should be banned by social platforms. However, the intellectual elite no longer differentiates between physical harm and harm to emotions, or often simply wrong ideas. If harming emotions is prohibited, then all speech is vulnerable, since we cannot be responsible for other people’s feelings. We pay lip service to freedom of speech, but we no longer understand what it is. The Enlightenment has drawn to a sad end.

In the last three years, we’ve seen censorship of speech using the wrong pronouns, censorship of speech that contradicted government health advice, censorship of speech that represented government health advice at one time, but was changed later, censorship of speech because people of the wrong nationality commented on another country’s politics, and censorship of speech for no reason at all, because the AI trying to censor wrongthink is easily confused. On the other hand, when someone on Facebook threatened to literally murder me, Facebook told me it reviewed the message and found nothing wrong, demonstrating where its priorities lie. Too bad he did not misgender me or told me not to take a vac**ne, or call me a politically-incorrect slur.

In short, censorship has been weaponized to push the political agenda of the group in power, and the elites are seeing just how far they can push thoughtcrime.

By the way, even as the elites trust our ability to tell truth from falsehood less and less, the intellectual and material tools we have to evaluate the truth for ourselves are better than ever. We have the intellectual tools of the scientific method, statistical science, and empirical knowledge of the world. These tools would be awe-inspiring to the natural philosophers of the past. We have the material tools of the Internet, engineering, and mass-produced scientific instruments making the truth more accessible than any time in history. Yet our intellectual elites have responded to the mass-accessibility of truth with an unprecedented wave of censorship and intolerance.

Can Bitcoin Fix Big Tech Censorship?

Today is the start of Hereticon, an annual conference that celebrates heretical ideas. Why celebrate thoughtcrime? According to Hereticon: 

While our culture is fascinated by the righteousness of our historical heretics, it is obsessed with the destruction of the heretics among us today

Most of the heretics of the past were wrong, just like today’s heretics. But history teaches us that leaps in human progress usually start with radical new ideas that are rejected by “experts.”  

Ignaz Semmelweis, the Hungarian doctor who discovered the importance of handwashing in 1847, was universally ridiculed and forced into a mental asylum for advocating his views. Today, handwashing is one of the least controversial positions imaginable, but there is no shortage of radical ideas that will get you “canceled.”

While many blame “woke cancel culture”, “big tech”, or “big government, ” the root of hostility to heretical ideas is in our epistemology – our understanding of the origin of knowledge. To nurture radical new ideas, we need a marketplace of ideas that values both dissent and rationality. I believe that Bitcoin will play a major role in making these new marketplaces possible.

What Is The Problem?

The problem with “Big Tech Censorship” is not that big tech is run by the left. It’s that the enlightenment idea of objective truth has been replaced by tribalism. “Truth” is determined by group identity, not the relation of your ideas to reality. If a “majority” of “experts” say something is true then that is true. 

Reality is objective – it exists independently of our opinions. The only way to obtain knowledge is through empirical evidence and a valid epistemological process – what we call “the scientific method.” The means to discover the truth are available to everyone with an Internet connection today. The problem is that intellectuals on both sides of the political divide no longer believe people to be capable of evaluating facts for themselves. They think that we believe whatever the groups we identify with tell us to think. If it is impossible to have a rational discussion about truth, then force is the only way that we can establish the “truth.”

The Importance of Dissent

Moral and intellectual progress requires all issues to be open to debate.

We should value disagreement because we believe that every bold new idea begins as a radical thought by a single individual. An open marketplace of ideas is required for the best ideas to flourish. Just as material markets require the freedom to adapt to a constantly changing world, so does the marketplace of ideas. Any society that forbids open debate faces stagnation, decline, and ultimately ruin. This has nothing to do with whether the entity doing the censorship does so through government censorship or through “community standards.” 

It is fine for a community to exclude some views. A “community” is a group of people with like-minded ideas interests, and it is necessary to exclude disruptive individuals from such a group. But social networks like Facebook, Twitter, LinkedIn, TokTok, etc are not “communities.”

A social network is a platform for communities. Not allowing the communities within a platform to decide which views are acceptable leads to the decline of the entire platform. When such censorship is embraced by all social platforms, it leads to the decline of a society.

(Note: Politicians in democracies don’t like to censor directly, but they often employ the threat of censorship with Congressional hearings and the like. It’s usually impossible for users to tell whether a private platform censors of its own volition or under duress.)

More Closed Platforms Are Not A Solution

There are three reasons why it’s hard to compete with a Facebook or a YouTube:

First, 99% of the content that people want to post does not violate their rules. Of the 1% that is blocked, most is worthless, but .1% is vital commentary. It’s that .1% that we need to protect. It’s impossible to compete with Big Tech because that 99% of content has too much network lock-in for an alternative to succeed. (Sorry Parler, MeWe, Gettr, etc).

 A second problem is that any alternative to Big Tech platforms will start with users who Big Tech rejected. The alternative platform will require those users to survive. By virtue of being rejected by Big Tech, the alternative will be banned by Big Tech for refusing to censor “unacceptable” content. They will be kicked out of app stores, their payment provider will cancel, their web hosts will cancel, their SMS, auth, email, KYC, DNS, firewall, CDN, messaging, and every other service provider will cancel. As a CTO, I depended on over a dozen different services to power my organization, and over the course of 2020, most of them updated their terms of service to justify censorship of politically incorrect customers. 

The third problem is that running a platform is expensive. To pay for the platform, you need advertising. But if most (or any) of your content is what Big Tech rejected, you will find it difficult to attract advertisers. If you try to get users to pay for your service, your payments processor will fire you, as OnlyFans found out.

The Need For Decentralized Alternatives

The more intolerant the legacy networks become, the more motivation and expertise will flow into decentralized alternatives like Mastodon, PeerTube, ActivityPub, and Diaspora. 

However, content is not enough. To enable an alternative, we need to decentralize the content layer, the Feed, and the value layer.

Decentralizing Content

IPFS is a peer-to-peer protocol for censorship-resistant content storage.  

Decentralizing The Feed

The Feed is the personalized list of Facebook posts, Instagram photos, Twitter Tweets, & TikTok/YouTube videos you see to discover new content on each platform. The Feed can never be neutral or objective. The Feed is tailored to your interests, but it depends on both machine learning and product managers’ opinions about what you like. Because there is always far more content created than you can consume, each platform has to decide how to filter that content to maximize the appeal of their platform. This is necessarily a subjective process – should you see more news posts or posts from friends? Should you see more inspirational, graphical, or factual content? What content should be excluded entirely? These questions are data-driven, but ultimately humans decide on the tone of each platform. The Feed is very good at being addictive and is one of the main reasons why second-tier platforms cannot compete. The Feed is expensive to maintain, but being customized also makes it very valuable.  

I would like to see Content separated from Feed. Search engines are examples of Feeds competing for the same content, but we don’t have an equivalent for social networks. You should be able to create Content once, then choose what Feed service to use to discover other’s content. If a Feed becomes too intolerant or allows too much spam, I could switch to another Feed to find my content. My friends would discover my content through several Feeds, tailored to their vision of content discovery.

Decentralizing The Value Layer with Bitcoin

Until we have a censorship-resistant Internet, we cannot have censorship-resistant social networks. To have a censorship-resistant Internet, we need censorship-resistant money, because running social networks is expensive, and centralized payment services are single points of failure. Space on the feed has enough value to pay for decentralized networks, but we need censorship-resistant money for advertisers to pay for space on the feed. Bitcoin can fulfill this role.

What Can I Do?

  • Support decentralized payments by using Bitcoin
  • Use Brave browser, or another browser with built-in support for decentralized content hosting like IPFS.
  • Publish content on blockchain-powered content platforms like Steemit
  • Let me know if you have other ideas.

Addendum: Is Private Censorship Still “Censorship?”

How To Tell If A Cryptocurrency Or DeFi Platform Is A Scam

My survey of 2500+ crypto scam victims identified some key signs that a crypto project is a scam. Whether it’s a scam from the start, or just doomed to fail and waste all your money, here are six ways to tell if a crypto project is a scam:

1: Does this project have a legitimate profit model?

There are a few legitimate ways to make a profit in crypto, such as mining, lending, staking, and yield farming. Learn what each means to so can evaluate if an opportunity is legitimate. Never invest money in projects whose business model is not disclosed or that you do not understand.

Legitimate CeFi platforms clearly state what they do with customer funds, list their fee schedule, and expected returns. DeFi platforms should list token allocation, a link to the whitepaper, and smart contract source code. Never invest in Defi projects without a whitepaper or documentation stating the tokenomics.

2: Is this project feasible and sustainable?

Even if a project is legitimate, it needs to have a business model that is scalable and sustainable. For example, many projects aim to create coins for very narrow niches, like a token to pay your dentist. Such a project will never achieve a very large market cap. It’s also not sustainable because the token doesn’t add any value to its target market, and so it will never pay off for investors.

3: Does this project have independent verification or third-party certification?

Be extremely careful about platforms that offer to trade your money. There are only a few legitimate ways for businesses to trade customers’ money. In the US, they must be either a hedge fund or registered brokerage. They will be licensed with a regulatory body such as FINRA & SIPC or the SEC (via FORM D filings). Be aware that scammers are impersonating licensed financial professionals, so it is necessary to independently verify their contact information via FINRA BrokerCheck, LinkedIn, etc.

Note that hedge funds are not even legally allowed to directly advertise their services, so if someone is messaging you via Instagram and asking for deposits in anonymous crypto payments, it is 100% a scam.

In DeFi, services like RugDoc rate the legitimacy of financial platforms. RugDoc will tell you if a project has passed independent security audits like Certik. Never invest in a DeFi project without a security audit, or if rated as high risk by RugDoc.

4:  Can you independently verify this token or platform?

A common scam in crypto is to impersonate a legitimate platform or token. To avoid this scam:

1: Always access crypto services through their official website and never trust “support” links found through search engines or social media.  Scammers are placing search ads that fool you into thinking their fake website is a legitimate platform.

2: Be very careful of social media recommendations. Always check independent sources like RugDoc (for DEFI) or FINRA (for CeFi)

3: If buying a token, confirm the contract ID matches at CoinMarketCap.

5: Is this project run by a reputable team?

Many DeFi projects are anonymous, but CeFi projects should always disclose their management team. Always check that the bio on the project page matches what you can find on LinkedIn and Twitter.

Launching a cryptocurrency exchange is an incredibly technical endeavor. Does the management team have the required technical experience or are they just paid celebrities? Do not simply look at the number of Twitter followers they have, as that is easy to buy.

Conclusion: Signs of a crypto scam: 

According to my survey of 2500+ scam victims, fraudulent schemes have a few things in common: unrealistic returns, high-pressure tactics, sales pitches via messaging platforms, no mention of fees, & lack of reputation.

Scammers have deployed thousands of bots on social media platforms like Instagram, Facebook, LinkedIn, Telegram, and Twitter to push their platforms or pump up their tokens. Never trust social media recommendations, even from a friend, as scammers are hacking profiles to push their scams. Check to see if a project has a legitimate community on Reddit or Discord.

If in doubt, keep in mind that the safest strategy is always to buy and hold Bitcoin on your own hardware wallet.

Originally posted at The Bitcoin Consultancy.

Six Reasons Why Bitcoin Is Superior To Gold

Gold and Bitcoin are fungible, durable, portable, divisible, & scarce. Both have limited acceptance today: there are few goods & services you can buy directly with gold or bitcoin. 

But Bitcoin has six advantages over gold:

1: Bitcoin is far more portable than gold. You can send it anywhere in the world instantly for a trivial fee.  

2: Bitcoin transactions can be instantly and remotely verified. It’s impossible to fake a Bitcoin transaction. Verifying receipt of gold bullion is an expensive, error-prone, and physical process that requires either trust or expertise in gold assaying.

3: A bitcoin is divisible into 100 million satoshis. Gold bullion can be expensive or impractical to split into tiny fractions.

4: The supply of Bitcoin is completely independent of the price. The creation of Bitcoin follows a fixed schedule with a hard limit of 21 million. The supply of monetary gold increases when the gold price goes up, due to increased mining and redirection from industrial use.

5: Bitcoin is relatively easy to secure. You can memorize a Bitcoin seed. Bitcoin can only be stolen by improper security & privacy practices. On the other hand, even the most secure gold vault is vulnerable to armed theft by criminals and governments – as has often happened

6: Bitcoin currently has limited vendor acceptance, but you can use Bitcoin debit cards with point of sale conversion to fiat. Gold can be used as a store of value, but in most of the world, it involves much effort to be exchanged for goods. There is already one country that uses Bitcoin as legal tender (El Salvador) and this number is likely to grow.

So Why is Gold More Valuable Than Bitcoin?

Gold does have one important advantage over Bitcoin: 

Gold has been used as a store of value for all of human history, all over the world. Bitcoin is only 13 years old. This is why the market cap of above-ground gold is currently 10x that of Bitcoin. On the other hand, the fact that Bitcoin has grown nearly 200% per year to a market cap of nearly $1 trillion demonstrates that it is rapidly gaining credibility.  

Over the long run, I expect the fundamental advantages that Bitcoin has over gold to be reflected in their relative market caps.  

Is Inflation Good For The Poor?

The Intercept story “Inflation is Good For You” argues that “Inflation is bad for the 1 percent but helps out almost everyone else.”

After denying the threat of inflation, then claiming that it is transitory and that it would fade away, the mainstream is finally admitting a wave of unprecedented inflation for the foreseeable future. So now the story is that inflation is good for the poor. President Biden claims that a massive expansion of government spending will actually reverse inflation.

The Intercept story has more holes than swiss cheese, but I want to rebut the central thesis of the article. Is inflation bad? Spoiler: the worst aspect of inflation is not rising prices or eroding savings, but the censorship of price signals required for a thriving economy.

Demand-Pull Theory Doesn’t Explain Inflation

The unstated theory of the author and the mainstream economic model that guides the monetary policy of the world’s central banks is Keynes’ model of Demand-Pull Inflation. The theory goes like this: when aggregate demand exceeds the value of aggregate supply, producers raise prices. In response, governments can raise interest rates to reduce demand, slow economic growth, and end inflation. Problem solved!

If the master planners at the Federal Reserve simply need to pull a few levers to fix the economy, why has the global economy had a series of boom-bust cycles ever since the Fed was founded in 1913? The usual excuse is that the government simply hasn’t imposed enough regulations to stop the pesky capitalists from screwing up their central planning.

The Austrian economic school provides a comprehensive response to Keynes’ economics.  Say’s law (Jean-Baptiste Say, 1803) provides a simple refutation of Keyne’s demand-pull theory. In order for someone to buy goods, he must first produce something of value to obtain the money needed to pay for those goods. Production is the source of all economic growth, not consumption. Economic growth is an increase in supply, not an increase in consumers demanding more. To consume the product of others’ labor, you must first produce something they find valuable. Government edict can change what goods are produced, but it cannot magically command new workers, factories, and materials into existence.

What Is Inflation?

Milton Friedman famously said, “inflation is always and everywhere a monetary phenomenon.“ Inflation is a broad decrease in the purchasing power of money caused by governments creating new money. And boy have they been creating it.

Just look at the money being printed by the Fed:

Since Covid 19 began, the M2 supply has jumped from $15 trillion to almost 20 trillion dollars. Quick quiz: if the same amount of economic activity is served by 40% more dollar bills, what will happen to prices? It’s not a question of if but when.

The question of why the government had to print so much money is a long and shameful tale, but the ultimate result is inevitable: massive inflation.  

Inflation is much worse than the official numbers suggest:

First, in an economy with a hard (fixed) money supply, we should have deflation proportional to the rate of economic growth

Second, the United States has been able to hide away most inflation, mostly by exporting dollars as a global reserve currency. 

Third, the official deficit numbers are misleading because much government spending (like government-backed student loans and mortgages and quantitative easing) doesn’t end up on the books.  

What we are seeing now is not the beginning of a period of higher inflation, but an unprecedented expansion of the money supply causing the Fed to lose control of the narrative and have to admit it in official indexes.

So Why Is Inflation Bad?

The problem is not that prices are going up. If prices merely increased by some steady amount each year, we could adapt to them, just as employees expect a 3-4% base salary raise every year to match inflation. Likewise, producers and lenders would have no problem adapting to a universal increase in the price level.

The problem with inflation is that it’s not a universal increase in price. Inflation is what happens when politicians print new money to hand it out to their constituents instead of raising taxes. Raising taxes is hard but running printing presses (physical or digital) is easy.  

To understand why inflation is harmful, we need to understand what prices are: prices are signals about which activities are valuable to people. When the price of a good goes up, producers direct more resources into the production of that good. When the wage of a job goes up, more workers are directed to that industry. This “invisible hand” of the market continually optimizes human activity to direct human effort to the most valuable activity.

The main evil of inflation is that it corrupts this information flow. Inflation begins when governments give new money to favored groups. The recipients of new money spend it at the current price, whereas the downstream users of that money spend it at a higher, inflated price. Instead of prices signaling which activities are socially valuable, they signal activities supported by the government’s printing presses. Inflation corrupts the economic harmony that directs resources to their most valuable use.

If you remember one thing, it should be this: 

“Fiat” is another word for “decree” or “edict.” It’s called “fiat money” because governments force people to use their money by decree. Through inflation, fiat money forces people to allocate their lives to the causes the government’s money benefits instead of those they would voluntarily choose for themselves.

Inflation Is A Hidden Tax

All taxes are signals which force people to produce goods they would not voluntarily produce. But taxes are different from inflation in that both the tax burden and the recipients of tax income are generally auditable by the electorate. Inflation is a hidden tax that subtly changes the incentives throughout an economy to erode its ability to produce wealth.  

Because it’s hidden, inflation is highly addictive to the political system. Government programs depend on printing money to a far larger extent than official deficit numbers suggest. Even if there was suddenly a broad awareness of the harms of inflation and a political movement to curtail it, moving to a sound money system absent a complete collapse of the dollar regime would still be outside the realm of possibility.

Inflation Wrecks The Structure Of Production

Why is the economy suffering from shortages of seemingly everything? It has nothing to do with a “chip shortage,” or the Suez canal blockage, or just-in-time manufacturing. These are only the symptoms. The root cause of the “everything shortage” is the government’s manipulation of the money supply.  

One of the main disagreements of the Austrian school with Keynesian economics is the emphasis it places on the structure of capital. Capital is not a monolithic blob of “aggregate supply”, but a hierarchy of lower and higher-order goods. In order to produce consumer goods, capital must be employed. To make your Venti Frappuccino (first-order good), a barista uses an espresso grinder (second-order good). The grinder requires steel and microchips (third-order goods).

When the government created new money for the stimulus programs, that money first went to consumers, who voted with their wallets to shift the structure of capital from the production of higher-order (production) goods to lower-order (consumption) goods. Inflation robbed producers with low time preference and redistributed the loot to consumers with a higher time preference. The shortages were a result of inflation eating the “seed corn” of capital needed to maintain and expand production.

So what should happen when an external shock (such as pandemics and lockdown policies) constrains production and changes demand patterns? The economy needs to re-structure to rebuild the structure of production to reflect the new reality. Uncertainty causes consumers to save more, which frees up higher-order capital to shift to new demand trends. Capital can focus on producing PPE, webcams, home exercise equipment, and consumer groceries rather than restaurant supplies, office buildings, airliners, etc.

The inflation-powered stimulus packages attempted to “freeze” the economy in pre-pandemic spending levels and thus crippled the adjustment to the new reality. The rest was inevitable.

The Myth of Idle Capital

President Biden claims that the “Build Back Better” stimulus package will reverse inflation by “reducing bottlenecks” in the economy. This thinking is straight of out Keynes’s General Theory (1936). Keynes believed that government spending is needed to put “idle” resources to work and stimulus the economy.  

William H. Hutt refuted this idea in “The Theory of Idle Resources” (1939). Politicians cannot create new capital and labor. They can only force people to do the government’s bidding rather than what individuals believe is in their best interest. If some capital is idle, it’s because it currently provides no economic value to people. “Build Back Better” is just the latest version of the belief that the government’s central planning is more efficient than the price mechanism of the free market. Though Mises, Hutt, and many others refuted these ideas in the 1930s, the backdoor of fiat money allows politicians to try the same failed policies without consequences.

Does Inflation Help The Poor?

The Intercept claims that inflation is good for the poor because it will make debts easier to pay off. Supposedly, rich lenders will suffer while the poor are granted a reprieve.  

Do you really believe the elites suffer more under any economic policy? While banks may lose some money, they are also the first recipients of new government money!  

There are many reasons why the poor always suffer the most from inflation:

* A far larger percentage of poor households’ income is used for basic needs. 

* The wealthy get most of their income from inflation-protected assets like real estate, business interest, and stocks.

* The prices of basic goods increase faster than luxury goods.

* Families with low incomes will be pushed into poverty, while the middle and upper classes can cut down on luxuries.

* Debt is a wealth-maximizing strategy for the wealthy, while it’s a survival strategy for the poor. 

* Although existing mortgages and student debt will depreciate, interest rates on new debt will go up dramatically!

Though the very idea that inflation helps the poor is absurd on its face, it’s not the fundamental error of the article. The central problem is the idea that high inflation is just the price we pay for economic growth. If you have understood the above description of inflation, you should understand that this is another way of saying that government central planning of the economy is more efficient than the market. If you believe that, look up the thriving economies of the USSR, North Korea, Venezuela, or Cuba.