The fallacy of measuring success and failure based on price movements
Imagine the following scenario:
We time travel to early 2013. Bitcoin price is ~10$. We tell bitcoiners that we come from the future (providing proof of our claims) and that Bitcoin will be 600$ by 2016. Their excitement is off the charts (pun intended).
We now give them a twist: We reveal to them that bitcoiners in 2016 are ...disappointed with the 600$ price.
Obviously, the 2013 bitcoiners are dumbfounded.
How could this be possible? Our 2016 behavior seems irrational to them.
And it is. Why do we behave like that?
Attention span and "sentiment"
It seems that the problem can be pinpointed in our focus: We seem to be geared in the very short term price direction.
Case in point: If someone told us 3 years ago that Bitcoin would go 10$ ->100$ (2014)-> 200$ (2015) -> 600$ (2016) we would be extremely happy.
But if it went 10->1200->600, we suddenly have an "issue" because it seems like "it's dropping" from 1200 to 600 by focusing exclusively on the last part / the shorter term view. Some say it is "failing"... Some are trolling, some are saying "it's dead", etc etc. In other words a negative "sentiment".
Yet, we see that the price in both scenarios would be exactly the same.
And that same price produces different results in terms of sentiment and perception (one would be the air of invincibility and cheering, the other something between "meh" and doom-and-gloom). So our sentiment and perception of success and failure are not only provably subjective but also erratic.
Steem
We see a similar irrational behavior regarding Steem. People seem to forget that Steem's marketcap went from 0 to the 130mn USD that it is right now, in just a few months. The fact that it used to be 300mn+ marketcap cannot be used as an indication of failure and it is, likewise, completely irrational to claim so.
If you asked anyone 5 months ago and told them that in these short 5 months we'll go from 0 to over 100mn USD and claim a top-altcoin position in coinmarketcap, they'd objectively consider this a success. Actually they'd consider that a mind-blowing success.
I just wanted you to remember how subjective all these labels are and how our minds play these tricks on us.
I had a serious crack at bitcoin speculation in the last few months, and after getting hammered left right and centre, I'm staying out of speculation until there is a big enough decentralised exchange platform that won't get hacked. Sure, maybe there will be some minor incidents, but I think overall, the cryptosphere is getting more and more secure.
For now I am focusing on other things. Specifically, now that we have Steem, the era of the DAO commences. Maybe other DAOs will manage to garner as much, but I think Steem is the Mother of DAO, the same as Bitcoin is the mother of Cryptocoins. Well, actually, because Steem is the Mother of DAOs, the first one up and running and actually working out really well, I think it could very well jump up and overtake everything else.
No other platform lets you talk about it, within it. Think about it. This is revolutionary. @dantheman and @ned deserve a Nobel Prize. Well, if that award meant anything, after the last Peace Prize winner...
I am pretty certain steem is probably the most revolutionary thing that has come after Bitcoin - although I generally avoid complex concepts so I might have missed a lot of "complex" altcoins. In terms of marketcap, I cannot see why ETH would be above STEEM. Either ETH has to go below STEEM, or STEEM fly beyond ETH. It does not compute to have a crypto with real-life use at 1/8th marketcap vs a crypto with near-zero use. Even if I factor future use, I cannot see the dynamic changing in favor of ETH. So it's a market anomaly as far as I'm concerned - and sooner or later it has to be corrected.
Ethereum is too much hot air, too vague a concept, and its first actual application crashed and burned very badly. So the value on it doesn't make sense at all. We will see, I guess. Steem will power up again soon I think, just not quite so vigorously as the first big rally. I am looking forward to when I have enough that I am powering up some of my rewards instead of cashing them out. But it's very handy that they get partially powered up automatically. Builds up a nice little nest egg, maybe for the first time in my life I will actually save some of my money. Imagine that! lol!
The most plausible explanation seems to be the engagement of big institutional investors (super whales, unlike any other in the cryptosphere).
:D
Umm,Steemit is not a DAO,it is partly centralised,and not governed by a smart contract. It is hierarchical,in terms of the code.
It has the essential elements to run an enterprise. More or less. The choice who gets paid is determined by everyone, and this payment can be for anything. I think that makes it Distributed and Autonomous. You can do work here, you can document it, you can invest it into the company, etc. I dunno. To me it's like a corporation where everyone is just an investor and figure out how to do something that other people in the organisation want to see done, then document it, and people pay to hear about it... You can use the structure to ... Seriously. I doubt that after the full release there won't be a move towards using Steem itself to regulate even the development and marketing.
I mean, look, people are marketing steem. They get votes, they get paid. How is that not a DAO? Do people think a DAO is an AI corporation? No, it's a free-form, anyone can join, anyone can try doing something, and if other people in the company like it, funds are diverted to reward them. I think you don't understand what a DAO actually is. It's an ad-hoc, geographically dispersed organisation. It could be Dispersed Ad-hoc Organisation as equally as Distributed Autonomous Organisation. It means the same thing.
How money gets moved around is the product of smart contracts, plus people's votes, plus their vested steem power, plus their reputation. This is governance.
anyway. I say Steem is a DAO.
Yup I've talked about this in my music initiative :) - https://steemit.com/business/@kevinwong/steemit-and-the-dance-music-scene
Would be sweet if there are smart contracts, but for now, self-organization, rep, and casual trust will do as long as there's no promise of financial returns for the DAO, but other intangibles.
It's coming. Name registration for a name smart contract with a registration rental rate, the name registrar takes a part vote rewards inside their domain, and they can issue coins backed by the Steem Power of name owners that can be exchanged with others, in something rather like a stock market. The metric of the growth of the SP vested in the name would contribute to part of the value, as well as subjective, speculative trading for price discovery.
I think it is going to be very interesting to see what comes out of it.
Something else. If 'government by code' is the definition of a DAO, then the Ethereum DAO was not either. Because the Ethereum developers do not govern development by code. They did make the decision for the hardfork based on votes, but I can't remember whether this vote was stake weighted, as votes are here on Steem.
A DAO, in my opinion, is defined by a distributed database system that allows the operation of an organisation without a centralised authority, through inbuilt filter algorithms that determine how to declare a result of a decision making process automatically and transparently...
Thus, while to the extent the Developers here are in primary control, they in fact concede the decisions about major forks in the system to the system's voting system, and thus it is based on stake. I don't think one voice one vote works. Voting needs to be moderated by stake, or it becomes vulnerable to political machinations. Stake weighting does not entirely eliminate politics, but it does, and Steem has shown, act as a roadblock that tends towards conservatism, blocking new legislation, which as it is in the Blockchain, is the code.
Laws are often called Codes as well. If you know anything about law, as well as programming and logic, you understand that they overlap very much. Laws can specify decision making processes (logic filters) as well as procedures (if this then that).
So, I think that in essence, Steem is indeed a DAO, and that it implements in practice what democratic/legislative systems do not. It achieves this by stake-weighting, because those with the biggest stake are most affected by these decisions. In proportion, all are affected equally by the decisions, but in terms of absolute magnitude, if a decision causes a drop of price by 50%, for example, a holder of 10% from a total market capitalisation of 100,000,000 loses 500,000. A holder of a starting 4 dollar stake, loses 2 bux. And this is why decisions can often be gridlocked in this situation, and only made when they really need to be.
It is a system that works out better in the long run, because frequent code changes are expensive to implement. If they have a clear benefit, the biggest stakeholders will agree.
Ya, no need to try to prop up that award. Let it be a token of irony for the most violent among us, and let it fade away.
That psychological dynamic is what pushes wild swing the in the markets of any thing for centuries. That previous high becomes a focal point and it makes something a "bad" investment until it gets back there.
Then there is a wall of pressure as everyone runs for the exit now that they are "happy." Good times indeed.
Their cost of investing in steemit is so low right now that the risk to possible reward is worth a small investment at the least. Everyone should have a "speculation" amount of 10% of their investment portfolio anyway if someone needs to look at it that way.
This plus the crowd-behavior mentality. If an investment seems hot, everyone piles up on it even after it has done a good run (and thus has much less explosive potential and much more inherent danger of correcting - as old investors lock their profits).
Interestingly, a similar irrational behavior exists among curation voters - despite the fact that piling up on votes does not give the later whales any serious curation amount (compared to the first whale voters).
Very true. The dynamic of "greater fool" theory is also in play. People pile on with their chance of making money ever increasing even though they think it's a great opportunity
I think that one protection with steemit for the greater fool theory is that holders. An. To liquidate steem power too quickly.
Loss aversion is a thing indeed.
My favorite in the trollbox is "it's dead"!!
Gets me laughing every time :)
It's become a classic :D
Great primer on behavioral finance and how we let our brains play tricks on us with numbers.
Good way of discussing it. The secret is, we travel to the future at the same rate - twenty-four hours per day - and the most vivid memories we have are recent ones. That, plus the prices of the stuff we own dropping makes us gloomy, angry or doubtful, explains those quirks you discussed.
It's sometimes hard to stick to the long-term path you know is right when the bumps and scrapes pile up...
You seem to imply that direction of movement doesn't matter. It's like saying that there is no reason to be negative when employment figures drop after rising as opposed to employment figures rising after dropping, so long at they end at the same point. Obviously this doesn't add up
Human brains are wired to extrapolate everything and search for periodical patterns as this gives in most cases a higher predictive power that improves our chances of survival by giving us the precious additional seconds to flee or avoid an imminent danger. This is a product of evolution.
Unemployment numbers can be different. It depends on what you are counting. To give an example: Back in 2004, Greece's only access into the Internet was through ...dial-up. Broadband connections were very scarce (0%).
As the numbers were rising from 0% to 1%, 2%, 5% the government was saying that we were "champions in the entire europe, in terms of broadband development"...
Internet users in Greece cringed at such statements, because the reality of the matter was that other countries had 30-40-50% broadband adoption and we were living in stone-age conditions. What mattered to everyone wasn't the increasing curve, but the absolute number - because that absolute number had a tremendous effect on our daily reality (stone age internet) compared to the booming adoption percentage by early adopters paying heavily (like 150 euro per month for a 384kbps connection) that were pushing the 0% to 1-2-5%.
The bottom line is that both position and trajectory matter.
You vote for me so I vote for you :-)
I have invested a very small sum on steemit and will be fine if it gets sold to Facebook for one hundred billion dollars or if it crashes to zero tomorrow morning.
My biggest disappointment so far with steemit it's not it's free falling price, but the unfairness of how steem dollars and steem power are distributed among users.
Don't know if it was in 2013, likely somewhat earlier, but Bitcoin enthusiasts would be probably disappointed, horrified even, to learn that in 2016 fiat currencies still exist. I remember from the time a blog post estimating future value of Bitcoin based on dividing world's GDP by Bitcoin to be available on the blockchain. They expected this somewhat later than now, though.
Now that pipe dreams of destroying fiat statist and whatnot economy are pretty much over, ~$600 seems quite organic, but is it really? It has grown from ~$300 over a very short period, and it may just as easily fall.
As for steem, well, we'll see. Initial success is indubitable, but will it translate into a long term one? And market cap is quite delusive a measure: if everyone decided at once to sell, they wouldn't get the entire market cap together, indeed significantly less. And, above all, it doesn't mean that steem owners have this money available to fund development. In fact, latest actions indicate that they might be quite short instead.
Only those who do not understand the politics involved. The establishment would have no intention to replace their own fiat scam with bitcoin. Most (rational) expectations were that if bitcoin started to oppose the fiat money, it would trigger aggressive reactions (laws / bans).
Perhaps I met only such activists then :-) Obviously you're right.
Yeah, certainly, this was to be expected, but I heard it answered more than once that they cannot do anything about Bitcoin due to crypto. I think it was only the Ulbricht arrest that ended such delusions.
Scam or not, it's not like they would be unable to take Bitcoin over if they'd feel threatened. Bitcoin, interesting as it is, was, is and will likely remain too weak to endanger governmental systems.
Yep, the strength will have to increase over time. Back in '10 Satoshi was fearful that a wikileaks funding campaign with bitcoins would kill bitcoin by attracting wrong attention in such an early stage. Now we are far better off - but still there's a long way to go.
Well I think it's never, unless the govts actually embrace Bitcoin as their legal tender (unlikely). See, it in general reduces to force, and they are the ones who decide how you can e.g. pay taxes or in most cases wages and services. And paid taxes in many a country trump Bitcoin's market cap several times over, and it appears most countries can afford energy enough to take over the blockchain for long enough to make Bitcoin irrelevant if they only wanted.
Yet they don't seem to want to destroy BTC but acknowledge it instead and are taxing profits (in my country it's legal to trade and profits are taxed like trading securities are AFAIK - I don't trade) made therewith.