A LessWrong Crypto Autopsy

Wei Dai, one of the first people Satoshi Nakamoto contacted about Bitcoin, was a frequent Less Wrong contributor. So was Hal Finney, the first person besides Satoshi to make a Bitcoin transaction.

The first mention of Bitcoin on Less Wrong, a post called Making Money With Bitcoin, was in early 2011 - when it was worth 91 cents. Gwern predicted that it could someday be worth "upwards of $10,000 a bitcoin". He also quoted Moldbug, who advised that:

If Bitcoin becomes the new global monetary system, one bitcoin purchased today (for 90 cents, last time I checked) will make you a very wealthy individual...Even if the probability of Bitcoin succeeding is epsilon, a million to one, it's still worthwhile for anyone to buy at least a few bitcoins now...I would not put it at a million to one, though, so I recommend that you go out and buy a few bitcoins if you have the technical chops. My financial advice is to not buy more than ten, which should be F-U money if Bitcoin wins.

A few people brought up some other points, like that if it ever became popular people might create a bunch of other cryptocurrencies, or that if there was too much controversy the Bitcoin economy might have to fork. The thread got a hundred or so comments before dying down.

But Bitcoin kept getting mentioned on Less Wrong over the next few years. It's hard to select highlights, but one of them is surely Ander's Why You Should Consider Buying Bitcoin Right Now If You Have High Risk Tolerance from January 2015. Again, people made basically the correct points and the correct predictions, and the thread got about a hundred comments before dying down.

I mention all this because of an idea, with a long history in this movement, that "rationalists should win". They should be able to use their training in critical thinking to recognize more opportunities, make better choices, and end up with more of whatever they want. So far it's been controversial to what degree we've lived up to that hope, or to what degree it's even realistic.

Well, suppose God had decided, out of some sympathy for our project, to make winning as easy as possible for rationalists. He might have created the biggest investment opportunity of the century, and made it visible only to libertarian programmers willing to dabble in crazy ideas. And then He might have made sure that all of the earliest adapters were Less Wrong regulars, just to make things extra obvious.

This was the easiest test case of our "make good choices" ability that we could possibly have gotten, the one where a multiply-your-money-by-a-thousand-times opportunity basically fell out of the sky and hit our community on its collective head. So how did we do?

I would say we did mediocre.

According to the recent SSC survey, 9% of SSC readers made $1000+ from crypto as of 12/2017. Among people who were referred to SSC from Less Wrong - my stand-in for long-time LW regulars - 15% made over $1000 on crypto, nearly twice as many. A full 3% of LWers made over $100K. That's pretty good.

On the other hand, 97% of us - including me - didn't make over $100K. All we would have needed to do was invest $10 (or a few CPU cycles) back when people on LW started recommending it. But we didn't. How bad should we feel, and what should we learn?

Here are the lessons I'm taking from this.

1: Our epistemic rationality has probably gotten way ahead of our instrumental rationality

When I first saw the posts saying that cryptocurrency investments were a good idea, I agreed with them. I even Googled "how to get Bitcoin" and got a bunch of technical stuff that seemed like a lot of work. So I didn't do it.

Back in 2016, my father asked me what this whole "cryptocurrency" thing was, and I told him he should invest in Ethereum. He did, and centupled his money. I never got around to it, and didn't.

On the broader scale, I saw what looked like widespread consensus on a lot of the relevant Less Wrong posts that investing in cryptocurrency was a good idea. The problem wasn't that we failed at the epistemic task of identifying it as an opportunity. The problem was that not too many people converted that into action.

2: You can only predict the future in broad strokes, but sometimes broad strokes are enough

Gwern's argument for why Bitcoin might be worth $10,000 doesn't match what actually happened. He thought it would only reach that level if it became the world currency; instead it's there for...unclear reasons.

I don't count this as a complete failed prediction because it seems like he was making sort of the right mental motion - calculate the size of the best-case scenario, calculate the chance of that scenario, and realize there's no way Bitcoin wasn't undervalued under a broad range of assumptions.

3: Arguments-from-extreme-upside sometimes do work

I think Moldbug's comment aged the best of all the ones on the original thread. He said he had no idea what was going to happen, but recommended buying ten bitcoins. If Bitcoin flopped, you were out $10. If it succeeded, you might end up with some crazy stratospheric amount (right now, ten bitcoins = $116,000). Sure, this depends on an assumption that Bitcoin had more than a 1/10,000 chance of succeeding at this level, but most people seemed to agree that was true.

This reminds me of eg the argument for cryonics. Most LWers believe there's a less than 10% chance of cryonics working. But if it does work, you're immortal. Based on the extraordinary nature of the benefits, the gamble can be worth it even if the chances of success are very low.

We seem to be unusually fond of these arguments - a lot of people cite the astronomical scale of the far future as their reason for caring about superintelligent AI despite the difficulty of anything we do affecting it. These arguments are weird-sounding, easy to dislike, and guaranteed to leave you worse off almost all the time.

But you only need one of them to be right before the people who take them end up better off than the people who don't. This decade, that one was Bitcoin.

Overall, if this was a test for us, I give the community a C and me personally an F. God arranged for the perfect opportunity to fall into our lap. We vaguely converged onto the right answer in an epistemic sense. And 3 - 15% of us, not including me, actually took advantage of it and got somewhat rich. Good work to everyone who succeeded. And for those of us who failed - well, the world is getting way too weird to expect there won't be similarly interesting challenges ahead in the future.

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It is a little bit unfair to say that buying 10 bicoins was everything you needed to do. I owned 10 bitcoins, and then sold them at a meager price. Nothing changed as a result of me merely understanding that buying bitcoins was a good idea.

What you really needed was to sit down and think up a strict selling schedule, and also commit to following it. E.g. spend $100 on bitcoin now, and later sell exactly 10% of your bitcoins every time that 10% becomes worth at least $10,000 (I didn't run the numbers to check if these exact values make sense, but you get the idea).

Upstream of not taking effective action was unwillingness to spend a few hours thinking hard about what would actually be smart to do if the hypothetical proved true.

A good general rule here is to think in terms of what percentage of your portfolio (or net worth) you want in a specific asset class, rather than making buying/selling a binary decision. Then rebalance every 3 months.

For example, you might decide you want 2.5%-5% in crypto. If the price quadrupled, you would well about 75% of your stake at the end of the quarter. If it halved, you would buy more.

The major benefit is that this moves you from making many small decisions to one big decision, which is usually easier to get right.

I agree that this is the appropriate strategy to use when adding an investment to your portfolio, but note that if applied to Bitcoin it did not yield the sort enormous gains that motivated this post. So if you think the Bitcoin example should lead us to update away from outside-view-motivated beliefs about our ability to spot market inefficiencies/investment opportunities, you should probably also endorse updating away from outside-view-motivated portfolio strategies like picking an allocation and rebalancing.

I just ran some numbers on this. Suppose you had $100k in savings, read the 2011 LessWrong post and were convinced to adopt a 95% cash 5% bitcoin allocation at the end of Q1 2011, and thereafter rebalanced on the last Monday of every quarter. (Assume for simplicity that your non-Bitcoin holdings earn zero interest, that you don't add or remove any money from your total savings during the period, and that you successfully avoided having your BTC stolen in MtGox etc.) If you ignore taxes, then at the end of 2017 you'd be left with $414k, which is decent but not life-changing. Further, since you're rebalancing every quarter you're paying a lot of taxes if you're in the US; assuming a federal+state short term capital gains rate of 30% you'd end up with $284k. (By only rebalancing yearly you can decrease your tax liability but you miss out on some of the big rallies; assuming a 15% long-term capital gains rate you end up with $258k.)

By contrast just buying the same $5k of BTC in Q1 2011 and hodling until the end of 2017 would leave you with around $75M (perhaps $60M after tax), which is more like the sort of "winning" Scott seems to be thinking about here. But how would you know to do that rather than, say, selling in mid-2011 for $100k?

A plausible strategy would be to buy say 100 bitcoins for $1 each, then sell 10 at $10, 10 at $100, and so on. With this strategy you would have made $111,000 and hold 60 bitcoins.

I think this seems correct and is also what I have settled on. In theory you can use the Kelly Criterion to work out bounds on the percentages to use. In practice that seems hard.

I strongly agree. Despite appearances, I wouldn't say someone with 10 bitcoin today has "won" at all. Winning means getting more of what you ultimately care about, like goods and services. You only win if you convert your bitcoin into goods or dollars at the right time. I am reminded of "buy low, sell high": an empty phrase that can sound deceptively like good investment advice.

To take a different set of data points in the community, MIRI and CFAR easily filled up their respective funding gaps recently (largely as a result of crypto), and if this continues to be the new normal then I'll consider us to have passed fairly well (maybe a B+). If it's a one off hit then I'll agree to the C grade.

Edit: Fixed the links.

I can't click your link, but I disagree. MIRI got most of its money from Vitalik, who I think was into crypto first and then found rationality/LW. We don't get any credit for that.

Also, MIRI got a 500,000 dollar (why can't I make the dollar sign on this site?) worth of Ripple donation in 2014. If they had kept it as Ripple, it would be worth 50 million now. Instead they sold it for 500,000 dollars (I'm not blaming them, this made sense at the time).

So although MIRI and CFAR lucked out into getting some money from crypto, I don't think it was primarily because of their (or our) great decisions. And if people had made great decisions they could have gotten much more.

Maybe this is nitpicking, but per their post MIRI got a plurality of cryptocurrency from Vitalik but not a majority. If the website is accurate, then out of 66% of the funds raised ($1.656m) Vitalik contributed $763k, the other $893k of cryptocurrency being from other donors.

Are the numbers MIRI cites for crypto donation amounts in USD based on how much they worth at the time of the donation? Or how much that donation is worth in USD based on price right now?

Based on price at the time of donation. My understanding is that they usually sell right away.

MIRI got most of its money from Vitalik

While not technically part of the winter fundraiser, don't forget that MIRI also got a million dollar ETH donation in the spring. For the year, it's more than half crypto, even after accounting for the 1.25M from Open Phil.

You can't write a dollar sign because it's interpreted as "start writing mathematics". But if you type a backslash first it gets escaped and you get the dollar sign you hoped for: $.

I think it says something good about our community that whoever implemented this feature assumed people would be more likely to want to write mathematics than to discuss amounts of money.

That is a nice thought, but it seems more likely that they just didn’t think of it…

(also, I don’t think that particular bit was custom-written for LW, though the dev team can correct me on that if I’m mistaken)

Nope, not custom-written. We are using this plugin: https://github.com/efloti/draft-js-mathjax-plugin

However, I did consider whether to change the behavior of pressing '$' and decided that people would probably use LaTeX more often than trying to use the dollar sign, and so was reasonably happy with that default behavior.

FWIW, I ran into the same issue with Arbital, and very quickly decided to change it to $$. Otherwise, any time you're writing a post about money, it's super inconvinient.


I actually had in mind the original author of the plugin, when I said whoever it was just didn’t consider it; but it’s interesting that you did think about it in this way!

It might be cool to survey current users of the site, to see what in fact are the relative prevalences of these two use cases. (Also there are lots of other similar questions I’d love to have the answers to.)

decided that people would probably use LaTeX more often than trying to use the dollar sign

Err... this seems like the kind of thing that *really* wouldn't stand up to user testing.

Taking my place in history - one of my first tasks as an intern at MIRI was to write some ruby scripts that dealt with some aspects of that donation.

Not only did that experience land me my first programming job, but just realizing now that it was also the impetus that led me to grab more bitcoin (I had sold mine at the first peak in 2013) AND look into Stellar. Probably the most lucrative internship ever.

(Shoutout to Malo/Alex if you guys are still lurking LW)

(Re-writing this comment from the original to make my point a little more clear).

I think it is probably quite difficult to map the decisions of someone on a continuum from really bad to really good if you can't simulate the outcomes of many different possible actions. There's reason to suspect that the "optimal" outcome in any situation looks vastly better than even very good but slightly sub-optimal decisions, and vise-versa for the least optimal outcome.

In this case we observed a few people who took massive risks (by devoting their time and energy into understanding or developing a particular technology which very well may have turned out to be a boondoggle) receive massive rewards from the success of it, although it could have very well turned out differently, based on what everyone knew at the time. I think the arguments for cryptocurrency becoming sucessful that existed in the past were very compelling but they weren't exactly airtight logical proofs (and still aren't even now). Not winning hugely because a legitimately large risk wasn't taken isn't exactly "losing" (and while buying bitcoins when they were cheap wasn't a large risk, investing time and energy into becoming knowledgable enough about crypto to know it was worth taking the chance may have been. A lot of the biggest winners were people who were close to the development of cryptocurrencies).

But even so, a few of these winners are close to the LW community and have invested in its development or some of its projects. Doesn't that count for something? Can they be considered part of the community too? I see no reason to keep the definition so strict.

Did quick stats on SSC survey data, wanted to report null results: a person's favourability rating of the rationality community predicted the amount of money someone made in crypto very weakly (r=0.07), though more than IQ (r=0.03). Both with tiny p values.

In my case, it was about not-so-trivial inconveniences. Like Richard, I couldn't install the software and didn't know a reliable place to buy. A few months ago, when a friend sent me a link to BitStamp and explained what to do, I bought some BTC, which are currently at triple the price I bought them. Nice, but not as nice as if the same thing would have happened a few years sooner.

(I am in a similar situation with index funds right now. I agree that it is a good idea to buy them. I just don't know where exactly to go, what exactly to do, and what exactly will be the consequences for taxes. I am not an American, so I would need specific information for my country.)

But it is also my fault for not paying enough attention to this specific topic. Not realizing that this article is not the same as 99.99% of the rest; that this is the right moment to stop reading web and actually do something.

Some of us were smarter than others. Good for them! But if we want to help each other, and avoid having the same thing happen the next time, next time when you see an exceptionally important article, don't just think "others have read the same article, and they are smart people, so they know what to do". That's another form of illusion of transparency; after reading the same text, some people will jump up, others will just continue reading. Here are two things you can do to nudge your fellow rationalists in the right direction:

1) Imagine a person who has very little knowledge in this specific area, and for some reason is not going to study more. Can the whole thing be simplified; ideally into a short list that is easy to follow? For example: "Step 1: register online at BitStamp. Step 2: send them the required KYC documents. Step 3: do the money transfer. Step 4: buy Bitcoins. Step 5: HODL!" More people will follow this procedure, than if they just read "buy and/or mine some Bitcoins, find out how".

2) Offer help at your local meetup. Make a short lecture, explain the details, answer questions. When people are interested, guide them step by step.

All we would have needed to do was invest $100 (or a few CPU cycles) back when people on LW started recommending it.

All we needed was someone who would make a lecture about Bitcoins at a meetup and then say: "If you are interested, bring a laptop and USD 100 to the next meetup and we will do this together." Today, you would have a local rationalist millionaires' club. Think how awesome that could be!

More generally, if we want to win, we need to seriously improve our teamwork. Sometimes that means to cooperate with other people. Sometimes that means to lead them. It is not true that each of us needs to play the game of life alone.

This post is interesting to me, because I feel strong resistance to acting as you suggest. (Background: I made a lot of money from buying Ether at $0.80, but was into crypto before I was into rationalism.)

I think my intuition is some sort of fear of social risk? I'm mostly willing to tell people what I think the right move is, but if they're not motivated to figure out the details themselves, then I worry that they will be upset if the most likely outcome (losing 100% of their money) happens, and that I'll bear the social cost.

Yeah, I tend to agree that social factors work against the idea of telling someone to invest in cryptocurrency or other high-risk high-reward things like this. (And despite Eliezer's point that modesty is not necessarily correct in making decisions for oneself, I find it hard to sensibly eliminate modesty in what one tells other people to do.)

Strongly agree that I probably would have bought some crypto on LW advice had there been a nearby meetup to go through the process of doing it. Otherwise my priors about not giving my credit card info (or whatever) to strange websites were too strong to believe I would even successfully engage in the strategy.

I'm one of the 3% who made over $100K (I made ~$500K).

I have to agree with other commenters that it was genuinely difficult to buy the cryptocurrency in the first place. It took me about 5 solid hours to learn how it worked, and then several days to funnel the currency through the various necessary conversions, any of which might've unexpectedly eaten my hard-earned cash for some incomprehensible reason.

In hindsight it's easy to see this as "5 hours' work for $100,000/hour, plus some waiting", but at the time there was no such guarantee of success. The only reason I persisted was because I was interested in the cryptography aspect and wanted to be a part of an up-and-coming technology.

The only reason I persisted was because I was interested in the cryptography aspect and wanted to be a part of an up-and-coming technology.

And that is a reward I guess a very high fraction of the people actually 'investing' in Bitcoin had. Those hackers, nerds, tech enthusists didn't need high fractions of likelihood times payoff.

And maybe the true lesson to draw from this is not to look at an abstract payoff but at the social dynamic: Are there enough people attracted to something.

I suspect it was the trivial inconveninece of setting it up that stopped most of those who were considering it.

I remember reciting "beware trivial inconveniences" to myself in my head when I went through the process of figuring out how to buy BTC in December 2010. It was good advice.

Yeah. I was wondering if I get any points for spending two or three evenings back in 2014 trying to get some bitcoin and failing due to the complete crappiness of the user experience.

I mean, you get points for trying, but those points don't go to your final grade. Your final grade is only ever determined by reality, and if you didn't make millions because of a trivial inconvenience, then you didn't make millions.

I'm a little curious, can you go into more detail? I had always assumed that the "too inconvenient" barrier was when you had to mine it yourself, or when you had to slowly wire money to some fishy site like Dwolla and from there to some fishy exchange like Mt. Gox, and that by 2014 it would largely seem easier and less risky.

Specifically, I first looked into buying some. I found that all the exchanges required far more of my personal information than I was willing to submit to what looked like and, in retrospect, very well may have been a scam.

Next I tried to mine some, but I didn't own any computers that could really do it effectively. I only had laptops and if I recall correctly I didn't have enough spare disk space to hold the blockchain.

I could have persisted along the route of purchasing the bitcoin and exposed myself to really quite significant financial risk. I could have persisted along the mining route and purchased a new expensive computer. While I felt like bitcoin could become A Thing, neither of those options seemed worth the tradeoff.

I found the inconvenience more than trivial. I made several attempts over the life of Bitcoin to either mine some (back when that was practical for anyone) or buy some, but my efforts always ran into the sand. The software didn't work, or the web sites didn't look like credible places to send substantial sums of money to, or whatever. Scandals like Mt Gox didn't help. Of course, plenty of people did get past those hurdles, so I can't blame anyone but myelf.

I did finally manage to buy a token quantity of Bitcoin a few months ago, but I expect the boom is now over. I haven't bothered tracking the price since then. I've even had ads for digital coins in my Facebook feed, targetted at the general public (eww!). In fairness to Bitcoin, they mostly looked like scams with little likelihood of doing anything with their customers' money but keeping it.

or web sites didn't look like credible places to send substantial sums of money to

It seems to me that this particular barrier is some sort of double counting. If you've already decided that this bitcoin thing is weird and risky, but also worth a shot, then you shouldn't change your mind when presented with evidence that it's indeed weird and risky.

It's multiple risks, each singly counted. Bitcoin in general is risky for definite reasons: volatility, the possibility that governments will come down hard on it, security of the cryptography it depends on, etc. But any particular method of operating in Bitcoin has its additional risks of the probity and security of those involved. My unconfidence in some of the cryptocurrency dealers I looked at was not simply because they were cryptocurrency dealers.

Yeah, it's definitely true that it's an additional risk. My intuition that it's likely to be a misfiring heuristic lingers, though.

Say any given exchange has a 50% chance of losing or stealing your money, and that it's independent of the chance Bitcoin succeeds. (That feels pretty pessimistic to me, and the actual track record has been notably better than that.) If you needed 1/10000 credence for success before adding that factor, now you need 1/5000. I'm skeptical that any of us are well-calibrated enough to put Bitcoin's success at higher than 1/10000 but lower than 1/5000.

It also seems that it's unlikely to be uncorrelated. I would expect a higher chance of exchanges working in worlds where Bitcoin is successful. (Because if exchanges are consistently unreliable, that will make Bitcoin less attractive, and because they're both entangled with difficult-to-observe factors like "the community actually tries to make it work rather than just scamming everyone".)

This is of course all hindsight, so I could easily be wrong. But it seems definitely true to me that most people have a lot of trouble overcoming conservative heuristics enough for successful "black swan farming", and paying too much attention to superficial feelings of sketchiness seems likely to be -EV in that context.

Say any given exchange has a 50% chance of losing or stealing your money

Applying a population average to an individual is a course of last resort, especially in a marketplace that contains everything from solidly reliable businesspeople to those who will just take your money and run. One must seek further information about each individual to make a judgement about who can best be trusted.

For example, the reviews I found of one of the exchanges I considered were almost all negative, the main complaint being that it was next to impossible to withdraw funds from it and customer support was uncontactable. The few positive reviews I found read like spam. No-brainer there -- avoid.

It also became clear to me that to deal seriously in cryptocoins (and dealing at all is too expensive to do frivolously), you must have your own wallet on your own machine, and not merely have an account with an exchange that holds your coins for you in their own wallet. The track record says that no exchange can be trusted to that extent. The latter is the usual way of handling conventional currency, but that is because banks, funds, etc. are on the whole and by and large, reasonably reliable, notwithstanding notable financial crashes from time to time. (Even then, you need to mitigate the risk by diversifying not just your kinds of investment, but the institutions they are invested with.) You then have to take seriously the security of that wallet, to the point of never exposing it to the internet except as absolutely necessary and for the shortest possible time.

In short, you have to think about specific failure modes and plan against them.

Your post is a good summary of how to have excellent cryptocurrency security, but why is it a requirement to have excellent security? In sentences like this one:

you must have your own wallet on your own machine

Where does the "must" come from? What would happen if you didn't?

This seems like applying K-selection strategy, in a situation where a r-selection strategy might outperform. I posit that it would have been better to use $10 to buy 5 Bitcoin without substantial consideration of security risk, rather than put $0 in due to worries about security. Yes, you might lose that $10 in all sorts of ways, but that's the risk you're signing up to take, and the potential reward makes it worth it.

I bought 200 BTC and lost them in a hack. Later bought 50 ether and kept them in a wallet, so I still have those. In light of that, I'd say security was pretty important!

Security is great! I love security. I recommend hardware wallets if you're storing a non-trivial amount of crypto.

But the question is about what someone should do when it's 2011 and they want to buy $10 worth of Bitcoin as a (+EV) lottery ticket. My claim is that, if your goal is "have some Bitcoin", then the options go like this:

"Buy Bitcoin + implement security best practices" > "Buy Bitcoin without worrying about security" > "Don't buy Bitcoin"

It's great if you can get the first one, but it's irrational to let the existence of the first strategy push you into the third strategy. The second strategy ends up with "maybe some Bitcoin", which is more Bitcoin then "definitely no Bitcoin".

Th easiest way to buy Bitcoin was MtGox for a long time and anybody who just kept the Bitcoins at MtGox lost them afterwards.

Yep! When you make 1000-to-1 bets, usually you lose.

For my purposes, I rate the middle option lower than the last. I'm not interested in merely "having some Bitcoin" (or other cryptocurrencies, some of which look more promising going forward). My only reason for doing this is for a significant chance of making some useful amount of money. By "useful" I am roughly thinking in terms of at least 6-figure sums of money. Proper security is essential at that scale, and caution over who I deal with. My currently trifling amount of BTC was only to test the basics of how to do it, and in fact I haven't yet tested the other half of the matter, i.e. turning BTC back into conventional currency.

a significant chance of making some useful amount of money

It sounds like you're talking about a different bet than the one the article is about. Gwern's 0.05% is not "a significant chance".

I agree that for your totally different case, you should put more effort into security.

[Edit: The 80/20 for crypto security is to buy from Coinbase if you're in the US, or the most credible local exchange if not. If you're buying altcoins, convert from BTC/ETH on poloniex or shapeshift. Then put it in a hardware wallet such as Trezor or Ledger, with paper copies of your private key in a couple secure locations.]

Completely agreed. I even publicly announced on my Facebook when Bitcoin was USD that I was buying 100USD worth, but then once I looked into how to even convert USD to Bitcoin, I said "eh, not worth, even it for some interesting economic experiment".

I think a large part of what prevented many people from investing in Bitcoin may have been the epistemic norms commonly referred to nowadays as "the absurdity heuristic", "the outside view", "modest epistemology", etc. In other words, many of us may have held the (subconscious) belief that it's impossible to perform substantially better than the market, even in situations where the Efficient Markets Hypothesis may not fully apply. To put it another way:

Well, suppose God had decided, out of some sympathy for our project, to make winning as easy as possible for rationalists. He might have created the biggest investment opportunity of the century, and made it visible only to libertarian programmers willing to dabble in crazy ideas. And then He might have made sure that all of the earliest adapters were Less Wrong regulars, just to make things extra obvious.

I think many of us considered this, and unconsciously dismissed it due to the obvious absurdity: surely things can't be that easy, right? Sure, we may be rationalists, and sure, rationalists "ought to win", but surely winning can't be so easy that the opportunity to win literally hits us on the head, right?

I think what this points to is a fundamental inability on our part to Take Ideas Seriously. Of course, most people don't have this ability at all, and we're surely doing much better on that count--but what matters in this case isn't your relative superiority to other people, but your absolute level of skill. (I'm using the pronoun "your" here to refer to the majority of rationalists who didn't invest in Bitcoin, not the few who did.) The corresponding solution seems obvious: work to improve our ability to Take Ideas Seriously, without dismissing absurd-sounding ideas too quickly.

Easier said than done, of course.

A hindsight solution for rationalists to have reduced the setup costs of buying bitcoin would have been either to have had a Rationalist mining pool or arrange to have a few people buy in bulk and serve as points of distribution within the community.

This suggests that if a future opportunity appears to be worth the risk of investment, but has some barrier to entry that is individually costly but collectively trivial, we ought to work first to eliminate that barrier to entry, and then allow the community to evaluate more dispassionately on risk and return alone.

I like this much much better than the other proposed proposed solution, of effectively pressuring people to buy. Removing inconveniences (trivial and otherwise) would probably have been the most helpful thing someone could do. (I can't honestly remember if I was in the LW community yet when I started in Bitcoin, as they were both so long ago, but I was definitely not part of an IRL rationalist community, and it didn't occur to me that rationalists would be interested in Bitcoin at the time.)

I bought 10 bitcoins back around 2012. I forget the exact date, but they were around ten dollars each. Today, that investment is worth zero dollars, because those bitcoins were in Mt Gox.

My point: there may be a nontrivial chunk of LWers who correctly predicted where bitcoin would go, but still ended up without any significant profit. (That actually would not include me; I just got into it to test a trading algorithm, then left a few bitcoins sitting around after the test was done.)

I have some Bitcoin, and have made some money on Bitcoin[1], and am currently a software engineer at a Bitcoin startup, where I've been working since the beginning of 2015.

I have complicated feelings about this. Obviously I invested in Bitcoin because I thought it was +EV, and I did make a nice profit by doing so. That doesn't necessarily mean I was correct to imagine that it was +EV, and I struggle to understand whether my choices were reasonable or just lucky. I think Eliezer's recent sequence about adequacy probably has something useful to say about this. But I also think that a lot of Bitcoin and cryptocurrency behavior is fundamentally a function of the psychology of the market, rather than actual value, and the psychology of the market is a dangerous thing to bet on.

Of course, it's not wrong to take dangerous bets with good upside. Ultimately I think cryptocurrency investing may or may not have been the correct decision for people depending on their circumstances. There's no conventional wisdom or obvious right answer to fall back on.

I might have more to say on this later.

[1] Bitcoin is very hard to store safely. Don't ask anybody how much Bitcoin they have (at least in public non-anonymously). They would be very foolish to disclose it, and the more it is the more foolish they would be.

Collectively the community has made hundreds of millions from cypto. But it did so by getting a few wealthy people to buy many bitcoin, rather than many people to buy a few bitcoin. This is a more efficient model because it avoids big fixed costs for each individual.

It also avoid everyone in the community having to dedicate some of their attention to thinking about what outstanding investment opportunities might be available today.

Due to declining marginal returns, hundreds of millions is a substantial fraction as good as billions. So I think we did alright.

If you're considering the welfare of the individuals concerned: "a few wealthy people make multiple millions" is not as good an outcome as "dozens of not-so-wealthy people make hundreds of thousands" because of diminishing marginal returns.

If you're considering cryptocurrency gains only as fuel for effective altruism or something, then "a few wealthy people make multiple millions" might be as good an outcome, but then it's no longer so plausible that "hundreds of millions is a substantial fraction as good as billions".

If you're considering cryptocurrency gains only as fuel for some narrow kind of effective altruism (say, donations to help AI safety work) then both halves might be right, but then it seems reasonable to ask whether those hundreds of millions have in fact gone to AI safety donations. My impression is that most of the money has just gone into the personal fortunes of the people who bought cryptocurrency. That's fine, but if so then I think we're back with my first paragraph.

From a selfish point of view, I don't think most rationalists would benefit significantly from a bit of extra money, so it doesn't make much sense to be dedicating their truly precious resource (time and attention) to identifying high-risk high-return investments like bitcoin and in this case figuring out how to buy/store them safely. And I'm someone who bought bitcoin for the sake of entertainment.

From an altruistic point of view, yes I expect hundreds of millions of dollars to be donated, and the current flow is consistent with that - I know of 5 million in the last few months, and there's probably more than hasn't been declared.

"then it's no longer so plausible that "hundreds of millions is a substantial fraction as good as billions"."

At the full community level the marginal returns on further donations also declines, though more slowly: https://80000hours.org/2017/11/talent-gaps-survey-2017/#how-diminishing-are-returns-in-the-community