Is there a Bitcoin bubble? Jason Kuznicki thinks so and believes that he has conclusive proof. He blogs three graphs that show more or less that there is a lot of speculation in Bitcoin. But does speculation prove that there’s a bubble? Let’s use Bayes’s rule to think about this carefully.

Bayes’s rule is a mathematical tool for thinking about the incorporation of new evidence into subjective probabilities. Let’s suppose that there is some proposition A for which you have a prior belief. Somebody offers evidence B for or against A. How much should you change your belief in A based on evidence B?

Bayes’s rule boils the answer down to a simple mathematical form: Continue reading →

Sens. Lamar Alexander and Dianne Feinstein introduced a bill that would ban cellphone calls on planes today, just before the FCC votes on the issue. Alexander, a small government conservative, had this to say in a statement:

Keeping phone conversations private on commercial flights may not be enshrined in the Constitution, but it is certainly enshrined in common sense. This legislation is about avoiding something nobody wants: nearly 2 million passengers a day, hurtling through space, trapped in 17-inch-wide seats, yapping their innermost thoughts.

As I pointed out in Reason last week, the fear that if airlines are given the option of allowing cellphones in-flight then we’ll have millions of “yapping” passengers is contrary to all evidence. First of all, not all airlines will allow in-flight phone use, giving folks who fear “yapping” a choice.

If [demand for phone-free flights] is there, as it certainly seems to be, airlines will respond with private rules and bans on cellphone use without government’s help. And private rules have the advantage of being much more varied and flexible than the difficult-to-change, one-size-fits-all rules we can get from government. We can see this at work in Europe and Asia, which already allow cellphone use in-flight. According to the New York Times, “Virgin Atlantic allows unlimited data connections, but it lets only six people talk on a cellphone at once. Some Lufthansa flights allow data connections through a cellphone, but no phone calls.”

By introducing this legislation, Alexander is essentially saying that he doesn’t trust markets to meet consumer demand, and that a government edict is the better course. More to the point:

Even on flights that do allow cell phone use, it won’t be “chaos” as Rep. DeFazio predicts. Humans have a pretty good history of eliciting good behavior from each other through the development of norms without the need for codified rules–public or private. According to the FAA, civil authorities in countries were in-flight cellphone use is permitted reported no “cases of air rage or flight attendant interference related to passengers using cell phones on aircraft equipped with on-board cellular telephone base stations.”

Having the government tell airlines what services they can and can’t offer their customers is not “commons sense” as Alexander puts it; it’s big-government paternalism. Perhaps I have a higher opinion of my fellow Americans, including travelers from Tennessee, but I really doubt that if an airline allows cellphone use, then we will necessarily see endless mindless “yapping.” Americans would probably behave like the Europeans and Asians who already have this choice, being judicious about using their phone and courteous when they do.

Call it what you want: a bailout, a thumb on the scales, bidder restrictions–the FCC might conspicuously intervene in the 2015 incentive auctions at the behest of smaller carriers and public interest advocates.

Chairman Wheeler’s recent comments indicate the FCC may devise a way to prevent the largest two carriers–AT&T and Verizon–from purchasing “too much” of the television broadcasters’ spectrum at auction. AT&T likely sees the writing on the wall and argues that if there are auction limits, the restrictions should apply only to the auction, rather than more extreme restrictions that would penalize AT&T and Verizon, the largest carriers, for previously-acquired spectrum. As The Switch’s Brian Fung put it,

the small carriers favor what are called “asymmetric” spectrum caps that affect various carriers differently, while opponents prefer “symmetric” caps that don’t account for existing market positions.

While I wish AT&T put up more of a fight to auction interventions, they (and staff at the FCC) are handicapped in pursuing an unrestricted auction. The blame lies mostly with Congress who gave the FCC vague (thus ripe for abuse) and conflicting mandates spanning decades. The 1993 law authorizing auctions, for instance, requires the FCC to “avoid[] excessive concentration of licenses” and to “disseminat[e] licenses among a wide variety of applicants” among other regulatory carve-outs for smaller competitors. These latter requirements, if implemented as rigorously as smaller carriers would like, directly undermine the purpose of the 2012 American Taxpayer Relief Act that requires the upcoming spectrum auctions raise $7 billion for a public safety broadband network and $20 billion for deficit reduction.

By asymmetrically penalizing AT&T and Verizon, the FCC increases the probability the auction fails to raise the tens of billions of dollars needed (see Fred Campbell’s recent paper). I haven’t heard a policymaker speak about the incentive auction without remarking how extraordinarily complex it is. That complexity–as was made clear in this week’s Senate hearing on the subject–means no one knows how much spectrum will be auctioned off or how much money will be raised. I was doubtful the FCC would secure the called-for 120 MHz for auction in the first place, but the Senate hearing convinced me that they might not get even 60 MHz. If the FCC meddles too much and the broadcasters aren’t assured they’ll get top dollar for their spectrum, the broadcasters might not show up to sell.

For many reasons, the FCC should ignore the pressures to restrict the large carriers in bidding. Smaller carriers argue the large carriers will outbid them only to preclude competition and hoard the spectrum. Every major carrier is spending billions to expand its footprint and capacity rapidly so the hoarding argument is hard to accept (not to mention, carriers face FCC build out requirements). The hoarding argument also confounds me because AT&T and Verizon are at the forefront arguing for more spectrum auctions, particularly spectrum from federal agencies. Would they want the market flooded with new spectrum only so they could spend billions to hoard it?

Asymmetric auction restrictions also resemble a bailout for smaller carriers. T-Mobile and Sprint–who most actively lobby for auction restrictions–are not mom-and-pop establishments. Each is a sophisticated, powerful corporation with access to capital markets and backed by larger international telecoms–Germany’s Deutsche Telekom for T-Mobile and Japan’s SoftBank for Sprint. DT and SoftBank have both pledged to spend billions in the next few years to improve their American carrier’s competitive position. Such carriers do not need an FCC handout.

The bailout resemblance is more apparent when you realize Sprint has been hamstrung for nearly a decade with damaging business decisions. Three come immediately to mind: 1) the dreadful merger with Nextel in 2005; 2) the ill-fated bet in 2008 to forgo LTE rollout in favor of WiMax, a competing 4G standard; and 3) the loss of over one million customers when it discontinued its push-to-talk iDEN service for network upgrades. The losses from the Nextel merger alone approach $30 billion.

To be clear, I don’t second-guess Sprint’s decisions. They did what innovative firms are supposed to do in attempting big, risky investments. However, it should not be the job of the FCC to favor some firms through spectrum auctions because some carriers’ business decisions did not pan out. That is not a competitive wireless auction–that is an FCC-orchestrated bailout. Granted, the FCC has been handed conflicting mandates. The Commission has ample discretion, however, to conduct a competitive auction that both complies with the law and improves chances of reaching the ambitious revenue goals. Intense meddling with auction results could prove disastrous.

Here are a few Internet policy essays I collected over the past year which I thought were particularly well done and worth highlighting once more. They are listed in chronological order:

  • L. Gordon Crovitz – “Silicon Valley’s ‘Suicide Impulse,'” Wall Street Journal, January 28. (“It’s a measure of how far Silicon Valley has strayed from its entrepreneurial roots that a top regulator is calling on technology companies to do less lobbying and more competing,” Crovitz argued. “Rather than lobby government to go after one another, Silicon Valley lobbyists should unite to go after overreaching government. Instead of the “suicide impulse” of lobbying for more regulation, Silicon Valley should seek deregulation and a long-overdue freedom to return to its entrepreneurial roots.”)
  • John Gruber – “Open and Shut,Daring Fireball, March 1. (An absolutely brutal evisceration of Tim Wu’s recent work.)
  • R. U. Sirius – “Cypherpunk Rising: WikiLeaks, Encryption, and the Coming Surveillance Dystopia,” The Verge, March 7.
  • Julian Sanchez – “A Reply to Epstein & Pilon on NSA’s Metadata Program,Cato at Liberty, June 16. (A meticulous point-by-point takedown of an essay by Roger Pilon & Richard Epstein defending NSA’s online surveillance tactics.)
  • Ethan Zuckerman – “Is Cybertopianism Really Such a Bad Thing?” Slate, June 17 (A “defense of believing that technology can do good.”)

Continue reading →


Please join us at the Willard Hotel in Washington, DC on December 16th for a conference launching the year-long project, “FTC: Technology and Reform.” With complex technological issues increasingly on the FTC’s docket, we will consider what it means that the FTC is fast becoming the Federal Technology Commission.

The FTC: Technology & Reform Project brings together a unique collection of experts on the law, economics, and technology of competition and consumer protection to consider challenges facing the FTC in general, and especially regarding its regulation of technology.

For many, new technologies represent “challenges” to the agency, a continuous stream of complex threats to consumers that can be mitigated only by ongoing regulatory vigilance. We view technology differently, as an overwhelmingly positive force for consumers. To us, the FTC’s role is to promote the consumer benefits of new technology — not to “tame the beast” but to intervene only with caution, when the likely consumer benefits of regulation outweigh the risk of regulatory error. This conference is the start of a year-long project that will recommend concrete reforms to ensure that the FTC’s treatment of technology works to make consumers better off. Continue reading →

Yesterday’s decision requiring AT&T to continue offering seven-year term discounts on POTS lines while the FCC conducts a meritless investigation is more than a drag – it is a government shackle on the deployment of modern IP-based infrastructure to rural and low-income consumers.

In early 2010, the Federal Communications Commission (FCC) issued the National Broadband Plan (Plan) to ensure that all people of the United States have access to broadband Internet communications. The Plan concluded that “broadband is a foundation for economic growth, job creation, global competitiveness and a better way of life” and urged that everyone “must now act and rise to our era’s infrastructure challenge.” (Plan at XI, XV) Yesterday the FCC threatened to turn its back on this call to action when it suspended revisions to AT&T tariffs that sought to stop offering term discount plans of five to seven years for 1960s era “Plain Old Telephone Service” (POTS) technology using circuit switched “special access” lines. The FCC suspended the tariff revisions for five months to investigate their “lawfulness” (even though the remaining tariff rates have already been conclusively presumed to be just and reasonable).

Ironically, at the open Commission meeting on Thursday, the Technology Transitions Policy Task Force will provide a status update on the National Broadband Plan’s recommendation that the FCC eliminate—within the next five to seven years—the requirement that AT&T and other carriers offer POTS technologies using circuit-switched networks (known as the “IP transition”).

Why would the FCC open a five-month investigation on Monday to determine whether it is “lawful” for AT&T to stop providing long-term discounts for services using outdated technologies the FCC will discuss eliminating altogether at its meeting on Thursday? Continue reading →

One year ago I wrote that conservatives were the leading voices in technology policy. Conservative leadership on tech policy issues became even more apparent last week, when House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) announced plans to update the Communications Act for the Internet era (#CommActUpdate). Virtually everyone recognizes that the Act, which Rep. Walden noted was “written during the Great Depression and last updated when 56 kilobits per second via dial-up modem was state of the art,” is now hopelessly out of date. But it was conservative leadership that was willing to begin the legislative process necessary to update it.

Although the term “progressive” literally means “advocating progress, change, improvement, or reform, as opposed to wishing to maintain things as they are,” some political progressives have focused their communications advocacy on maintaining the status quo. In response to the #CommActUpdate, Free Press said, “We’re not going to get a better act than we have now.” (Communications Daily, Dec. 5, 2013 (subscription required)) Free Press, which describes itself as a “movement to change media and technology policies,” also told Comm Daily, “The IP transition should be governed by the laws on the books today.” Continue reading →

bitcoin transaction

A common question among smart Bitcoin skeptics is, “Why would one use Bitcoin when you can use dollars or euros, which are more common and more widely accepted?” It’s a fair question, and one I’ve tried to answer by pointing out that if Bitcoin were just a currency (except new and untested), then yes, there would be little reason why one should prefer it to dollars. The fact, however, is that Bitcoin is more than money, as I recently explained in Reason. Bitcoin is better thought of as a payments system, or as a distributed ledger, that (for technical reasons) happens to use a new currency called the bitcoin as the unit of account. As Tim Lee has pointed out, Bitcoin is therefore a platform for innovation, and it is this potential that makes it so valuable.

Eric Posner is one of these smart skeptics. Writing in Slate in April he rejected Bitcoin as a “fantasy” because he felt it didn’t make sense as a currency. Since then it’s been pointed out to him that Bitcoin is more than a currency, and today at the New Republic he asks the question, “Why would you use Bitcoin when you can use PayPal or Visa, which are more common and widely accepted?”

He answers his own question, in part, by acknowledging that Bitcoin is censorship-resistant. As he puts it, “If you live in a country with capital controls, you can avoid those[.]” So right there, it seems to me, is one good reason why one might want to use Bitcoin instead of PayPal or Visa. Another smart skeptic, Tyler Cowen, acknowledges this as well, even if only to suggest that the price of bitcoins will fall “if/when China fully liberalizes capital flows[.]”

Continue reading →

There is bipartisan agreement that the 1996 Telecom Act was antiquated only shortly after President Clinton’s signature had dried on the legislation. There is also consensus that spectrum policy, still largely grounded in the 1934 communications statute, absolutely distorts today’s wireless markets. And there is frequent criticism from thought leaders, right and left, that the FCC has been, for decades, too accommodating to the firms it regulates and too beholden to the status quo (economist Thomas Hazlett quips the agency’s initials stand for “Forever Captured by Corporations”).

For these reasons, members of Congress every few years announce their intention to reform the 1934 and 1996 communications laws and modernize the FCC. Yesterday, some powerful House members unexpectedly reignited hopes that Congress would overhaul our telecom, broadband, and video laws. In a Google Hangout (!), Reps. Fred Upton and Greg Walden said they wanted to take on the ambitious task of passing a new law in 2015.

Much depends on next year’s elections and the composition of Congress, but hopefully the announcement spurs a major re-write that eliminates regulatory distortions in communications, much as airlines and transportation were deregulated in the 1970s–an effort led by reformist Democrats.

About ten years ago, more than fifty scholars and technologists crafted reports which constituted the Digital Age Communications Act (or DACA) that is largely deregulatory (a majority of the group had served in Democratic administrations, interestingly enough). In 2005, then-Sen. Jim DeMint proposed a bill similar to the working group’s proposals. The working group’s recommendations aged very well in eight years–which you can’t say about the 1996 Act–and represents a great starting point for future legislation.

As Adam has said the DACA reports have five primary reform objectives:

– Replacing the amorphous “public interest” standard with a consumer welfare standard, which is more well-established in field of antitrust law

– Eliminate regulatory silos and level the playing field through deregulation

– Comprehensively reform spectrum not just through more auctioning but through clear property rights

– Reform universal service by either voucherizing it or devolving it to the States and let them run their own telecom welfare programs; and

– Significantly reforming & downsizing the scope of the FCC’s power of the modern information economy

DACA redefines the FCC as a specialized competition agency for the communications sector. The FCC largely sees itself as a competition agency today but the current statutes don’t represent that gradual change in purpose. The FCC is slow, arbitrary, Balkanizes industries artificially, and attempts to regulate in areas it isn’t equipped to regulate–the agency has a notoriously bad record in federal courts. These characteristics create a poor environment for substantial investments in technology and communications infrastructure. The DACA proposals aren’t perfect but it is a resilient framework that minimizes the effect of special interests in communications and encourages investments that improve consumers’ lives.

One of the criticisms leveled at Bitcoin by those people determined to hate it is that Bitcoin transactions are irreversible. If I buy goods from an anonymous counterparty online, what’s to stop them from taking my bitcoins and simply not sending me the goods? When I buy goods online using Visa or American Express, if the goods never arrive, or if they aren’t what was advertised, I can complain to the credit card company. The company will do a cursory investigation, and if they find that I was indeed likely ripped off, they will refund me my money. Credit card transactions are reversible, Bitcoin transactions are not. For this service (among others), credit card companies charge merchants a few percentage points on the transaction.

The problem with this account is that it’s not true: Baked into the Bitcoin protocol, there is support for what are known as “m-of-n” or “multisignature” transactions, transactions that require some number m out of some higher number n parties to sign off. Continue reading →