Pull Your Own Strings

Metcalfe’s Lie

Thursday August 11, 2016

Delusional consumers in revolt of the mass adoption variety, often utilize pseudoscience to advance their agendas. Voices have formulated pseudoarguments in such quantity it has become a disservice to the endearing novice seeking actual education. One of these psuedoarguments involving the debunked Metcalfe’s “Law”, has resulted in an endorsement of scamming. Hopefully, showing the failed application of this pseudoscience in Bitcoin, will allow for the endearing novice to understand the dangers of becoming too friendly to scammers.

Now for the pseudoscientific argument:

Well, I wasn’t the first one who said that. I[t] was some guy named Metcalfe. And as I already mentioned, “Metcalfe’s Law” has functioned pretty good up until now for Bitcoin – showing that, yes, more people does mean more value – despite the fact that you for some reason refuse to believe that.

Building policy around this logic in Bitcoin will inevitably lead to an influx of scammers that prey on weak novices. Unfortunately many have placed confidence in this flawed advice.

The Eternal Setpember unloosed an ecological disaster on the internet that has yet to be contained. Like Huxley’s Brave New World, it allows for the infinite consumption of meaningless media. During the 20th century TV became the opiate of the masses, now the internet is slowly progressing in the same direction.

Metcalfe original proposed his observation to establish the existence of a cost-value crossover point–critical mass–before which networks don’t pay. During the internet boom of the 90’s which saw the Eternal September of 1993, venture capitalist gripped Metcalfe’s Law like a bible, citing it on numerous occasions. Two familiar buzz phrases coined by VCs during this era were: “network effect” and “first-mover advantage”. These two buzz phrases have been repeated ad infinitum by the mass adoption consumerist crowd without first investigating the validity of the evidence presented.

The original proposition by Metcalfe has a fundamental flaw that has yet to be acknowledged by Roger Ver and his cronies.

The fundamental flaw underlying both Metcalfe’s and Reed’s laws is in the assignment of equal value to all connections or all groups.

I personally have stated this exact flaw in Metcalfe’s Law in relation to Bitcoin, only to fall on deaf ears and denial by brainwashed consumers purporting to be Bitcoin users.

In fact, in large networks, such as the Internet, with millions and millions of potential connections between individuals, most are not used at all. So assigning equal value to all of them is not justified. This is our basic objection to Metcalfe’s Law, and it’s not a new one: it has been noted by many observers, including Metcalfe himself.

Even Metcalfe himself noted that the quality of connections and peers in a network have a major impact on the network’s value. The original postulate states that for every number of peers n that connect to the network, its value increases by n2, which doesn’t make sense if one of those peers provides no extra utility.

One can understand the rationale of the differentiation of Metcalfe’s Law after first observing Sarnoff’s Law. The two postulates are similar, except Sarnoff’s Law is linear while Metalfe’s is exponential. Sarnoff’s law deals specifically with television and radio networks – broadcast networks, not bidirectional networks (like telephones). The value comes from users consuming advertisement, which funds the TV network. The value a user provides to the network could be directly evaluated, which is why most television shows in the US are slaves to Nielsen Ratings.

The Eternal September is a real problem, and it infects nearly every facet of the internet exposed to uneducated masses. Forums that become too popular too quickly nearly always succumb to degradation in quality, just like sewage contaminating fine wine. Although having more reach in a network is not necessarily a bad thing, it nearly always invites the inevitable scammer to the party who gets the cops called before midnight.

Bitcoin is freedom with money, as long as you follow the rules you opted into when you joined the system. Unfortunately, not everyone is ready to be freed, and those who aren’t ready usually cause more problems than they solve. Given these simple facts, I would propose that peer connections in a network can actually devalue that network if they are negative contributors. On the Bitcoin network, these would obviously be scammers who steal Bitcoin from honest individuals.

In 2012, Trilema published a timeline of many of the large visible scams in Bitcoin that resulted in the loss of user funds.

For the actuarially inclined, the total losses to theft, fraud and stupidity plus anything in between amount to 1.296 million BTC. That comes to about 75k BTC monthly average for the ~18 months we’ve discussed.

Albeit in 2012, 20-30 individuals were able to induce a nearly 1.3 million BTC loss. Alone, pirateat40 accounted for up to 500k BTC of losses. The days after pirateat40 defaulted, the price fell from approx. $15 to about $10 – a 33% drop. The market cap went from $150mn to $100mn – a $50mn loss of value from the network. If a single bad actor connected to the network can significantly devalue it by $50mn, what would occur if the majority of the network were composed of pirateat40s?

Bitcoin’s defense against this potential Eternal September of scammers is the trustworthy valuable connections tend to heavily isolate themselves from potential scam connections. The trustworthy and diligent individuals will grow, hoard, and hide their Bitcoin wealth, while isolating themselves from the increasing number of scammers. Although scammers may get their hands on a large number of coins, like pirateat40, they won’t hold onto those coins for very long. Meanwhile the diligent and trustworthy peers will continue to operate behind their castle walls. The large pool of zombie scammers outside will operate on ever dwindling resources.

If finally there is a time when the masses have awoken and detoxed from their opiates, they will be ready for rational investment from the diligent and patient peers defending Bitcoin from an Eternal September.

Published under Bitcoin, Shitware, Television | Leave a Comment

Leave a Reply

Your email address will not be published. Required fields are marked *