The Real Scandal Is the EPA’s Diesel Policy, Not Volkswagen

You’ve probably heard about the Volkswagen emissions scandal. The official story is that engineers at VW faked emissions test results to meet EPA requirements. VW made it appear as though its diesel engines produced fewer pollutants while being tested than they actually produce on the road. When independent testers identified the issue, VW was forced to fix 11 million vehicles, and pay over $7 billion in fines, refits, and buy-backs. This much is true.

However, that’s not the full story. VW cheated because the EPA introduced an ultra-stringent emissions standard with the expectation that automakers would invent compatible technology. VW engineers faced intense pressure to invent suitable technology before the deadline.

The rigid EPA regulations reduced some types of pollutants while creating more of others, and forced a radical environmentalist agenda, set in California, to shape the design of cars for a global market. The EPA rules drastically increased the cost of diesel vehicles, forcing trucking companies to install $20,000 pollution control systems, and driving up costs for all American consumers.

Furthermore, the scandal exposed the incompetence of the EPA in regulating the auto industry, as the $8 billion agency missed what a professor and two students easily discovered.

Finally, and perhaps most regretfully, the EPA regulations harmed the diesel market, which produces vehicles that are both more efficient and cleaner than petrol vehicles.

The EPA’s Unrealistic Expectations

The new United States “Tier 2” rules were set in 1999.They were based on California’s LEV-II ULEV standard with a “phase-in” period from 2004-2009. Environmental regulations in the U.S. and Europe typically use a “phase-in” period so that manufacturers have time to invent technology that meets the more stringent environmental rules.

This is pretty fantastic if you think about it. Every few years, a committee of bureaucrats decides that your car, dishwasher, toilet or vacuum should produce less pollution, and demand that the manufacturer invent technology to make it possible within “X” years. This works so long as the demand is physically and logistically possible – or until it’s not.

Students Are More Efficient Than the EPA

Two scientists at West Virginia Universitydecided to test whether the EPA’s testing matched real-world performance. They expected test results that were very close to the official standards. And with two students in the car, they put 2,400 kilometers on a VW Jetta by driving it from Los Angeles to Seattle and back again.

To their surprise, they found that the Jetta produced more than ten times the allowable NOx levels. NOx refers to a family of mono-nitrogen oxide particles, which produce harmful effects like acid rain and ozone in high concentration. Significant sources of NOx include lightning (8.6 million tonnes/year), fertilizers, coal power plants, and fuel used for transportation.

The scientists found that VW cars produce more NOx than permitted by the 1999 EPAregulations in real-world driving. But they could also detect when tests were conducted under laboratory conditions and artificially lower emissions. This confirmed what millions of VW owners already knew: their VW diesel cars had much higher fuel mileage than the EPA stickers stated. The scientists reported their findings to the EPA, forcing the agency to open a formal investigation that led to a global recall.

EPA Policies Encouraged VW to Cheat

Why did the VW engineers feel the need to cheat on their emissions tests? Remember that the EPA regulations for the California-based NOx standard was issued in 1999, with a five year standard.

Our environment has an infinite number of variables affecting the quality of everyone’s lives.

VW struggled to meet the new standards with a series of designs, but it was forced to suspend sales of current diesel in 2007. Finally in 2008, it announced new Clean Diesel cars which were able to win numerous “green” awards thanks to the emission-cheating software.

Why was VW the only automaker to cheat its emissions? Most automakers only have one or two high-end diesel vehicles in their lineup so they could take the additional costs and lower fuel efficiency caused by the new standard. Over 30 percent of VW vehicles were diesel however, so they probably felt that they could not comply with the new regulations. At least not without a major hit to either profits or sales.

In order to reduce NOx output, petrol cars use devices such as catalytic converters, which have greatly reduced pollutants from cars since 1975. Because diesel engines have a higher oxygen output, they don’t work nearly as well. As a result, other technologies have been introduced, such as exhaust recirculation systems, urea-based exhaust treatments, lowered engine temperatures and electronically controlled fuel injectors. All modern vehicles are essentially sophisticated computers which continuously monitor many engine parameters and optimize for both engine efficiency and pollution output under legal standards.

There is a trade-off: minimizing exhaust pollutants takes energy which can be used to move the car, so for a given power output, the more NOx a car produces, the more efficient it is. Efficiency can be measured in both mileage and CO2 output, so when the EPA mandated lower NOx production, they effectively lowered fuel efficiency and increased CO2 output.

VW was forced to choose between delivering clean but underpowered and inefficient cars, or cheat in lab tests and deliver power and fuel efficiency on the road. They sided with the drivers over the EPA.

New Regulations Increased Gas and Product Prices

Most people assume that new EPA regulations are good for the environment. But this is far from being absolute.The “environment” is not a single metric, but our entire planet, and with an infinite number of variables affecting the quality of everyone’s lives. When a committee of EPA bureaucrats bowed to political pressure and passed new NOx regulations in 1999, they considered only a single variable: the amount of NOx pollutants produced by diesel vehicles in the air. NOx is harmful to animals, so the fewer the better. (Plants, on the other hand, turn it into nitrogen and use it as fertilizer).

While minimizing harmful chemical in car exhausts is important, it’s not free. The emission control systems lower the fuel efficiency of cars (generating more CO2) and require complex and exotic technologies. Catalytics converts are made of precious metals such as platinum, palladium and rhodium. Diesel emission reduction technology that can comply with the new EPA demands requires complex and immature new technologies that raise costs and require more frequent maintenance.

An emission control system for a commercial truck can cost $20,000 and requires regular and expensive maintenance. The increased transport costs raise the cost of everything in our economy – from your Amazon Prime subscription (which pays for package shipments) to the gas fuel (brought in by gas tankers). For example, take a company like Flying J, which sells 7 billion gallons of fuel each year. They need over 1500 trucks to deliver that fuel, and each one requires a $20,000 pollution control system.

How much is a marginal difference in air quality worth to you, if a miniscule increase in pollution meant improved living standards for everyone? This is a valid question, but the EPA’s (and California’s) blanket stance that all pollution is bad, and internal combustion vehicles must be eliminated from existence leave no room for a cost-benefit analysis.

The EPA’s Solutions Hurts People and the Environment

Here is what actually happened when environmental activists forced the EPA to make US diesel standards the highest in the world:

  • Some companies cut diesel engine production because it was too much trouble to comply.
  • Some companies cheated and got caught, putting their entire business in jeopardy.
  • Individual diesel owners who care about the superior performance and efficiency of diesel engine hacked their cars, bypassing EPA regulations.

Hacking a diesel car is not hard. Because modern cars are computers on wheels, owners who want an efficient and high-performing engine can get it tuned from a friendly mechanic. If they live in a state which requires inspections, the hack can be turned off as needed. Other owners change out to a non-stock thermostack to burn the fuel hotter (and a bit dirtier), or bypass exhaust recirculation systems entirely. These owners are not out to destroy the environment – they just want a fuel-efficient vehicle, or to haul their trailer, or climb a mountain road.

The real shame in this story is that diesel’s reputation has been sullied despite its superiority for many applications. Diesel engines have lower RPM at peak torque, allowing them to remain efficient at high altitudes or hauling heavy loads. They require service at longer intervals (and commercial truck engines can last a million miles with proper maintenance), and are typically more efficient and higher-mileage than petrol engines.

Originally posted on

Five common errors made by abortion critics

Opponents of abortion (those who oppose a woman’s right to abortion and those think it is merely immoral) typically make five kinds of logical errors:

1: The seen and the unseen:

Abortion opponents see the fetus which was aborted but ignore the good things that the abortion made possible. These include the mother who is free to pursue her life goals and the lives of the children who are born into families that want and are ready for them. The decision to have an abortion is not arbitrary: it’s a choice the mother makes because she believes that she and her future children will have a better life by delaying childbirth. Extensive research confirms that abortion improves the lives of mothers and their future children. More importantly, no one, and certainly no politician is more qualified or morally justified to decide what will lead to a better life for a mother and her family.

A world without abortions is not a world with more children — it is a place with children born to parents who are not psychologically and financially ready for a life-long responsibility. Children who are born to loving parents who welcome them to the world and are prepared to care for them are far more likely to grow up into successful, mature adults. This is why protecting the right to abortion is one of the most effective ways of reducing abortions!

This failure of the imagination is known in economics as the Broken Window Fallacy – we see the economic activity created by the need to repair a broken window, but do not see the goods that can no longer be bought because they were redirected to fix that window. Likewise, we see the children who are products of unwanted births, but we don’t see the children who never had a chance to be born into a family that wanted them. Instead, countries that ban abortion deal with higher rates of single-parent families, poverty, and crime.

2: Genetic determinism:

Abortion opponents equate a human being with his genetic legacy. To them, an aborted fetus represents a lost potential life, with all its richness. But the inherent value of a human life is not determined by our genes, but the interaction of our genes with the environment we grow up in, especially the ideas and culture we are exposed to. A fetus is only a part of the recipe for a human being. A human being is not merely a biological machine, but a rational animal, with a rich internal life. We can argue when that mental existence becomes a possibility, but it is certainly closer to birth than conception.

To take a sci-fi scenario, a fetus grown into a brain-dead grown adult in a vat is not a full human being either. Human beings are the synthesis of biology and culture. Theists often talk of the fetus as having a “soul”, but whether you believe in genes or a mystical essence, the error is the same.

3: Potential vs actual:

A fetus is a potential human being, not an actual one. The ingredients for a cake on a table cannot be called a cake. A seedling is not a tree. A fetus is a potential human being and only becomes one under specific biological conditions.

The distinction is especially clear early in the pregnancy: a blastocyst is a microscopic clump of cells, physically almost identical to the fetus of any other mammal. To say that a bit of protoplasm is a human being ignores the essence of what a person is: an independently functioning rational animal.

A human being can exist without an exclusive biological dependence on a host, intentionally interact with its environment, and possess the basic attributes of cognition. A fetus lacks these attributes. True, a newborn infant is entirely dependent on others for its continued survival, but this is a relationship, not a biological necessity. Virtually everyone in a civilization would soon die without the cooperation of others, but these are contractual relationships, not biological dependencies. A baby can be adopted by a willing family, a fetus cannot.

The moment of birth presents a clear physical, biological, and psychological point when a parasite (as an analogy, not a derogatory term) becomes a metaphysically independent being.

4: Continuum fallacy:

This is the logical fallacy of denying that a distinction exists because there exists a continuum. For example, there is no clear distinction between a stubble and a beard, yet the existence of unclear cases does not invalidate our ability to identify someone with a beard. Likewise, difficulty in identifying the exact instant that a fetus becomes a human being does not mean that there are no clear differences between a fetus (say, a single-celled ovum just after fertilization) and a clear example of a human being (an infant, or you and me).

We can acknowledge difficulty, and err on the safe side for moral or legal reasons, but we need to base our conclusions on facts, not arbitrary religious doctrine. I outlined what I believe are the relevant facts in the “potential vs actual” section above. By contrast, I think that the act of conception meets no reasonable criteria, especially at the beginning of the pregnancy. As I detailed, a fertilized ovum is not metaphysically equivalent to a human being, and only begins to approach that status towards the moment of birth, which firms an unambiguous epistemological and therefore legal distinction. (We can argue about the ethics of late-term abortion, but they are a red-herring in the debate the meaning of conception.)

5: False dichotomy between moral absolutism and subjectivism

A false dichotomy is a false alternative between an either/or situation when an additional position exists. In regard to abortion, the dichotomy is this:
“Women must be responsible for their sexual choices and forced to bear children they do not want in order to preserve traditional marriages, families, morality, religion, or another value. Either we hold people responsible for their choices or anything goes.”

There are two false dichotomies in regard to abortion:

First, there is no fundamental conflict between women leading moral lives, raising families, and observing religious beliefs and the practice of abortion. There is no inherent conflict between these concepts. Of course, some religious groups claim that abortion goes against their tenets, but there is no fundamental conflict between these practices, and indeed many religious groups allow for abortion with no ill effect to their basic tenets. More importantly, there is no fundamental conflict between living a virtuous life and abortion, whether individually or as a society. In Western countries such as Germany, France, and Australia, abortions are widely practiced and accepted, and yet are completely incidental to their moral qualities.

Second, there is no conflict between a lifestyle which separates sexuality from parenthood and healthy, loving, responsible families. Modern society has provided men and women with safe and effective technologies that separate sex and childbirth — condoms, birth control pills, emergency contraception, and as a last resort, abortion. These tools liberate women by allowing them to enjoy fulfilling sexual lives for the first time in human history.

While independent women with sexual agency are a threat to those who wish to force them into their vision of a woman’s role in society, there is no reason that women who desire sex for reasons other than childbirth are incapable of healthy and responsible relationships, marriage, and child-rearing.  Having sex for pleasure without the risk of a lifelong obligation does not preclude women and men from forming healthy romantic relationships.  Even abortion critics must accept this – or require a fertility test before any couple is allowed to have sex or marry.  What about those who are infertile or past menopause?

Allowing women to choose when they are ready to raise a child greatly improves the likelihood of raising children in stable, loving families. Children should not be a sacrificial obligation which women must be forced into, but a personal, selfish choice that parents pursue because it will bring joy and a multitude of other benefits into their lives.

This is the real reason your iPhone cables break

Apple products look great. Whatever else you think of the company, there’s little doubt that Apple uses high-end materials to create gorgeous and durable products. That’s true for just about everything Apple makes, with one glaring exception: the cables.

It’s common knowledge that Apple cables begin to disintegrate after about six months of regular use. This has been a constant across many different devices – MacBook, iPhones, and adapters, and over the course of many generations of product. My first generation iPhone had a cable that fell apart in 2009, and my iPhone 6 cable disintegrated less than a year later too.

This issue has created an entire industry of third party Apple cables, and another industry of hacks (see SugruApple cable protectors) to keep cables from disintegrating. Somehow, third party Apple accessory manufacturers have no problem making cables that are far more durable than Apple’s. There are websites with buying guides for replacement iPhone cables which are both good looking and far, far more durable. As a committed Apple family with multiple MacBooks, iPads, and iPhones, we’ve eventually replaced all our OEM Apple cables and found alternatives which have survived in pristine condition for years now.

Why can’t Apple use its billions to create a cable that won’t fall apart?

There are several explanations offered for Apple’s apparent incompetence in cable design, but one stands out: Greenpeace. In 2009, Greenpeace successfully lobbied Apple to remove PVC from their cables with their “Green My Apple” campaign. PVC is Polyvinyl chloride, or just vinyl, the world’s third most popular plastic polymer. Ever since, Apple has bragged on their Environment page that all their products are PVC free.  Third-party cables on the other hand inevitably mention PVC construction.

I am not a chemical or environmental engineer, so I cannot definitively tell you whether Apple’s decision is scientifically sound. What I do know is that PVC is one of the world’s most common chemical products. In the USA, it is used for 66% of drinking water delivery pipes, most electrical cable insulation, waterproofed clothing, vinyl flooring, and medical gloves. Not deadly-toxic stuff, in other words. Like any other plastic, I would not suggest eating it or breathing fumes from a fire, but it is otherwise safe.

So why did Greenpeace object to Apple’s use of PVC?  Their site is not clear on this other than vague references to “poison plastics,” and the difficulty of disposal. We used to think that plastics like PVC would remain in the environment for thousands of years, but we’ve since learned that there are bacteria and fungi that effectively eat PVC for dinner. In the past, lead-based stabilizers have been used in PVC, but suitable replacements are well established.

What has Apple accomplished with their PVC ban? Their reputation for making quality accessories has been ruined. Billions of broken Apple cables have been prematurely sent to the landfill. Billions of replacement cables will be sent to landfills when the gadgets they charge become obsolete. While Apple no longer uses PVC in their cables, many people now rely on cheap third party cables from China, which may use toxic chemicals like lead, arsenic, mercury, and brominated flame retardants.

The only winner from Apple’s PVC ban has been Greenpeace, while consumers, Apple’s reputation, and the environment itself have suffered. In 2007, Steve Jobs directly addressed Greenpeace’s campaign against Apple at a shareholder meeting:

“I think your organization particularly depends too much on principle and not enough on fact… I think you put way too much weight on these glorified principles and way too little weight on science and engineering. It would be very helpful if your organization hired a few more engineers and actually entered into dialogue with companies to find out what they are really doing and not just listen to all the flowery language when in reality most of them aren’t doing anything.”

Originally posted at

How to prepare for the coming economic meltdown

Predicting economic recession is like predicting earthquakes.  It’s impossible to predict when the next Big One will hit.  However, unless the fundamentals of local geology have changed, we should expect the past to follow the same pattern as the future.  And the last time I checked, Southern California hasn’t turned into an island, and the Fed is still wreaking havoc with interest rates.  The smart thing to do is to earthquake-proof your house — and your finances while you can.

Are you ready the next recession to wipe out half of your net worth?   Can you survive a decimated stock market, the loss of your job, and sky-high interest rates?

But wait, you say.  Things are going great.  The markets are up 249% since 2009, unemployment is low, and Bitcoin just hit $4000.  Why the gloom?

Predicting economic recessions is like predicting earthquakes.  It’s impossible to predict when the next Big One will hit.  However, unless the fundamentals of local geology have changed, we should expect the past to follow the same pattern as the future.  And the last time I checked, Southern California hasn’t turned into an island, and the Fed is still wreaking havoc with interest rates.  The smart thing to do is to earthquake-proof your house — and your finances while you can.

The recession is overdue

Historically, bull markets have lasted an average of 30 months.  We’re now at 100+.  During the average recession, the market falls 35%, but given the duration of the current run-up, and the malinvestment caused by the lowest interest rates in history, 50% or more is not unlikely.

Read Mr Money Mustache for more on this.

The worst that could happen

Here are things that could happen when the Big One hits:

  • Your stocks will lose half their value
  • You will lose your job (or customers, if you run a business)
  • Loans will become prohibitively expensive

While all these things probably won’t happen to you, everyone should perform a stress-test.  If you were to lose your job or business for an extended time, would your family be OK?  What’s your contingency plan?

If your business model or job depends on the availability of easy money, you will need to scramble to find a new career.  Mortgages, student loans, and auto loans are in an unprecedented 12-trillion plus bubble.  I would not want to go into these fields right now.

How to prepare

This post by Richard Reis contains pretty much everything you need to know

  1. Don’t hold an all-stock portfolio.  When your portfolio is down 50%, you need to think about buying, not selling.  That’s hard to do when you need the cash ASAP.  Bonds are the most cost-effective way to protect yourself.   In a recession, keep your stocks, and sell bonds first.  If you have minimal liabilities and a secure job, this percentage can be quite low.
  2. Save money while you can.  Now is the time to build up your savings.  Use your salary, bonuses, etc to grow your portfolio.  Saving may be much harder when the crisis hits.
  3. Diversify into non-market assets.   Hold some of your net worth in assets which have minimal correlation with markets – gold, property, Bitcoin, etc.
  4. Build an emergency fund.   My emergency fund is held in corporate and government bonds earning about 4.4%.  With my brokerage debit card, I can sell them and get cash in my hands within a business day.  Because I have no debts of any kind and few financial obligations, it’s only enough to pay for a few months food and rent.

Bitcoin won’t save you

Some people have analyzed the lack of correlation between the traditional and cryptocurrency markets and concluded that Bitcoin can hedge you from an economic meltdown.   I don’t agree with this.  There is no reason to think that short-term market fluctuations should be related to the Bitcoin price, but long term, I expect a strong correlation between traditional and crypto markets.   One of the biggest drivers of the Bitcoin price are low worldwide interest rates, leading individual investors to bet on Bitcoin.   This works as long as people have money to spare.  During a recession,  people will be scrambling to get money to keep their businesses, homes, and cars afloat.  Because crypto markets are still a tiny share of the total economy, they will be quickly drained of most of their value.   Only a minority of the value of Bitcoin is regularly traded, so it would not take much to crash the price to a fraction of its value

What should I do in a recession?

  • Buy everything!  The best time to buy anything – stocks, houses, employees to grow your company, etc, is when prices are depressed.  If you have the cash, the depths of a recession are the best time to buy it.
  • Don’t buy anything!  Waiting for a recession to start saving money is a terrible idea, but that describes you, you should minimize your spending while you still have an income to build an emergency fund.
  • Maximize your savings rate.  I lost over 60% of my portfolio in 2008-2009 recession, but by aggressively investing much of the salary in 2009, I made it all back and set myself up for a lifetime of financial security.
  • Don’t panic!  While everyone else was selling in 2008-2009, I started scrounging up money to invest.  I started buying in January 2009 – and saw my portfolio go down another 15%.   But I held on, and made a 58% return that year.

Feminists ought to welcome the rise of the sex robots

Johanna Legatt writes: “There is little coincidence that these sophisticated sex robots have emerged at a time when women’s rights are under threat across the globe, when there is a president in the White House who has bragged about sexually assaulting women”

1: Is it really true that “women’s rights are under threat across the globe?” One can reasonably conclude that in the Islamic world, which has rolled back Western norms introduced during colonialism. Everywhere else, women have more rights (and face fewer sexual violence) than any other time in history.
In many Western countries, it is taboo to even suggest that women are biological and psychologically different from men.

2: “Sophisticated sex robots” are not a thing. The “sex robots” are just deluxe versions of blow-up dolls with a tape player inside. We can’t even get robots to walk upright properly. Virtually all of the statements in the article are marketing hype. The ability to hold a realistic conversation is several dozens to several hundred years away.

3: It is sexist and Victorian of the author to suggest that sexual desire belongs exclusively to men. The implication that men have uncontrollable sexual desires to rape women (apparently triggered by sex dolls), whereas women are sex-less beings is an outdated and sexist relic.

4: If “sophisticated sex robots” are ever a real thing, it would be a great boon for male-female relationships. For the first time in history, men (and women!) could honestly say that they are interested in love and companionship rather than sex when they seek out romantic partners.

5: “sophisticated sex robots” would be a great boon to feminism as well. For example, older men would have no reason to seek younger women solely for their physical attributes. The value of female attractiveness would be greatly depreciated when robots with perfect looks and obedience are easily available, and women would be forced to compete with men in the workplace based solely on their mental faculties.

6: Feminists in relationships should appreciate that the invention of a perfect “sex toy” will perfect the separation between sexual orientation and romantic relationships since one’s sexual needs will be able to be perfectly met regardless of the biological sex of one’s partners.

How to invest your money – from $25K to $5 million

Your first $25,000 should be invested in an all-market (VTI) or S&P 500 index fund (VOO) in your 401K or IRA.

Your first $500,000 should be invested in a broad market, low-cost, diversified portfolio of large/small cap and some international index funds.

After you reach $500k, you need to invest the majority of your portfolio into individual stocks. 
At this scale, tax efficiency becomes increasingly important, and you need an actively managed portfolio which optimizes the tax allocation of investments (growth stocks into taxable, REITs & bonds into 401K, etc), minimizes trading frequency, and practices tax loss harvesting (sell losses first to minimize capital gains tax). You can move your funds to a robo-trader and consider getting a dedicated advisor.

When your portfolio nears $1.5 million, avoid the tendency towards an overly risk-averse portfolio due to substantial swings in net worth caused by market volatility. Develop additional income streams from revenue-generating investments such as rental real estate, small businesses, etc.

Around $5 million, personally managing income streams may be an inefficient use of your time. Consider diversifying into hedge funds that offer positive absolute returns and research private equity opportunities which are promising and interesting to you. If you are older and your net worth exceeds $5.5 million, consider forming a trust fund to safely pass your fortune to your family.

Trading cryptocurrencies taught me where prices come from

Very few of us have the opportunity to experience the heart of what makes our civilization work. Crypto-asset markets are one of the few places where you can participate in a real asset exchange without spending a decade getting training and certifications. If you want to try your hand at playing Wall Street trader for a day, this is the place to be.

Very few of us have the opportunity to experience the heart of what makes our civilization work. Crypto-asset markets are one of the few places where you can participate in a real asset exchange without spending a decade getting training and certifications. If you want to try your hand at playing Wall Street trader for a day, this is the place to be.

If factories are the engines running the world’s economies, then the financial markets are its brain. Unless something goes wrong, we are blissfully unaware that our modern, comfortable and decadent lives are made possible by the great flows of the capital markets on Wall Street.

Without them, companies like Apple and Toyota would not be able to raise funds to produce iPhones or Priuses. Without the price stabilizing service of the futures markets, farmers would be gambling their farms on the price of corn or pork when they go to the market. In countries without a public stock market, employees have no way to invest in their future and their country’s economic growth other than unreliable government programs, savings accounts that lose value due to inflation, or fly-by-night ponzi schemes.

Prices are Not Given

Yet despite the crucial service offered by markets, very few of us have any direct experience of how they work. Every now and then, we are asked to semi-randomly pick a mutual fund from a list offered by our 401K or financial advisor. Some of us throw a few bucks at a hot stock tip (only to panic and sell and the first sign of trouble) or get a .01% CD at our banker’s suggestion.

We are not only ignorant of financial markets – we have very little experience as active participants in any markets. Most Americans live their lives as passive consumers – accepting the prices they see in grocery stores, gas stations, or online marketplaces. We are so inexperienced with haggling that we either pay exorbitant amounts for a Realtor to do it for us, or make an attempt of it every decade or so at a car dealership, and come away hating the experience.

I shared this state of blissful ignorance until I moved to China and suddenly faced the need to haggle for most of my transactions. Goods such as clothing, fruit, meat, electronics, apartments for rent, and Western imports are either much cheaper or only available from small vendors who either don’t post any price, or only use it as a starting point for negotiation.


I quickly learned that all prices are subjective estimates of what the seller expects the market will bear. Many people think that haggling is a game of psychological manipulation, and it certainly is that, but more importantly, it reflects the disinformation between buyer and seller. The seller knows his cost, and more importantly, the going market rate, but the buyer usually does not. Haggling is, therefore, a way of indirectly surveying the price the seller thinks the market will bear. Sometimes the price depends on the cost of a good to the seller, but it just as likely may not. A fashion retailer will sell out of fashion clothing far below cost, and a hot, imported gadget may sell for several times what it cost the seller to acquire.

My experience in real-world markets was a big help when I was asked to design and code a Bitcoin exchange in 2013. I created an exchange meant for professional traders by looking over traders shoulders to learn how the billion-dollar foreign currency markets work. I thought I had developed pretty good understanding of how markets worked, but I have never traded on a real-live exchange myself.

Like millions of other people, I only dabbled in Bitcoin myself, investing little real money in it. However, last week, a friend told me about an interesting opportunity: I could get free alt-coins (competing alternative crypto assets to Bitcoin) by using my existing Bitcoins to claim them.

Currency Competition

To make a long story short, after I claimed the alt-coins (with awesome names like Stellar LumensByteball, and Bitcoin Cash), I decided to sell them right away for more Bitcoin. Selling Bitcoin is relatively easy: you just log on to or and link your bank account. Selling Byteballs requires an account on a much smaller market which lists dozens of smaller currencies and is mostly frequented by serious traders.

So there I was, looking at a trading screen like this:

What’s happening here is pretty simple: people who want to sell Lumens are posting offers to sell a fixed quantity for a set price (Asks). People who want to buy Lumens are posting offers to buy them for another price (Bids). When the bid price is greater than or equal to the asking price, the exchange automatically executes the trade.

Films such as Trading Places, Wall Street, Rogue Trader, or The Pit depict what floor trading on a securities exchange looks like. Traders huddle around a podium and shout or signal offers to buy and sell. Few securities are still traded on a physical trading floor, but all exchanges work the same way.

So do crypto-asset exchanges! While some exchanges allow you to buy and sell for the “market price” (whatever price the market will bear), the smaller, less popular “alt-coins” have very little liquidity (active orders), which means that your order may execute for a very different price than you expected. For currencies like Lumens and Byteballs, it is, therefore, necessary to place orders using a “limit price” — a fixed maximum or minimum.

It works like this: if you want to buy or sell a crypto-asset, you first need to read the market liquidity: look at the order book to gauge or depth of the market in order to know what price you can get away with. If you have a big order, you might break it into several smaller ones to disguise your sale, or you might start selling when you want to buy in order to push the price down before making your break.

All prices (wages and interest too) are ultimately determined through a similar process. Yet very few of us have the opportunity to experience the heart of what makes our civilization work. Crypto-asset markets are one of the few places where you can participate in a real market without spending a decade getting training and certifications. If you want to try your hand at playing stock trader for a day, get an account with a crypto exchange while the field is still open to amateurs.

Originally posted on

Why I’m betting on the future of Bitcoin

Five years of living in China spoiled me in terms of financial transactions. Most people don’t use debit or credit: they either use cash or more commonly, send money electronically via mobile apps. Mobile wallet apps are often used for large payments, and your landlord or utility company is just as likely to accept them as the friend you’re splitting lunch with.  You can login to your bank’s website or ATM and send someone a million dollars as easily as a few bucks.

Then I moved back to the U.S.

I owe several thousand dollars to a friend. At first, I tried to find a way to send the money electronically through my bank. You need a business bank account to send via ACH transfer. I could do a wire transfer, but my bank charges the sender $30 and the recipient $15, and requires a lot of information about the recipient’s bank account. I tried this thing called “Zelle” — a new payment network that most major banks have introduced. Much as we tried, we could not get a $5 test transaction to reach my friend. Zelle also has a $2000 daily limit. I looked into Venmo – the daily limits are too low. PayPal charges 2.9% of each transaction.

Dejectedly, I wrote a check. A check is a piece of paper dating back to the ancient Roman empire on which you — get this — just write down the amount to be transferred to someone else’s bank account. In theory, only the recipient of the check can cash it, but there are exceptions, and not all financial institutions are strict about this.

I thought that was the end of the story until my friend informed me that he had not received my check. Actually, before that, my letter bounced back to me because the stamp somehow fell or was detached. Apparently, I did not apply enough of my saliva to last to its destination. I occasionally have my emails bounced, but at least I don’t need to worry about expending sufficient bodily fluids for my messages to reach their independent recipient.

Anyway, we now have a real mess. A check lost in the mail means one of four things:

1: The United State Post Office lost the letter.
2: The letter was delivered, but someone had taken it from the mailbox (my friend was on vacation at the time it was delivered)
3: The sender lied about sending the check.
4: The recipient lied about receiving the check.

Now, I’d like to think that my friend is trustworthy, but how well do I really know him? And how well does he know me? And what about the teenager that he asked to watch his house while he was away? A single failure in our payment system has thrown our whole relationship into doubt.  And what about the USPS? I just learned that you’re supposed to wrap checks in a sheet of paper so USPS workers don’t steal your money. Since when do I need to worry about the US Government stealing my money? (Don’t answer that.)

So here is what I did next: first I drove to my bank to put a stop payment on the check ($30 fee).  Then I drove to a UPS store and send another check via certified mail (another $10).  After hours of lost productivity and $40 in fees, I need to wait another week to see if we can put this behind us.   That’s not the end of the story.  Banks are required to report all transactions over $10,000 to the U.S. government, and if the FinCEN or the IRS finds my transaction record suspicious, I may be investigated.  That’s the real reason why financial transactions are outdated, expensive, and buggy — a massive amount of government regulation deters innovation in the Western financial system.  While politicians claim to do this in the name of safety, it’s really all about preserving tax revenue.  Countries like Hong Kong, Luxembourg, and Singapore with the fewest financial regulations also have simple tax systems with low rates. Politicians want their cut, and they have no problem forcing us to use an expensive and unreliable financial system to get it.

What if we used Bitcoin instead? My friend could send me a payment request with his address.  I open it and click “Send” and we’re done. I can be absolutely certain that the transaction was successfully sent to the intended recipient, and the recipient can be certain that the funds are irreversibly his.  It costs the same (under a dollar) and works equally well for $5, $50, or $5 billion dollars.  If done properly, the transaction can be completely anonymous.  Can you imagine if the entire finance sector worked like this?  Many people are working to make this happen.