Under Armour Faces Federal Accounting Probe Amid Major C-Suite Churn
Sources have told The Wall Street Journal that Baltimore-based Under Armour Inc. is at the center of a federal investigation for its accounting practices.
The probe, which hasn’t been publicly announced, is being coordinated by civil investigators at the Securities and Exchange Commission (SEC).
The announcement of the probe via The Journal comes one day before Under Armour reports Q3 results on Monday.
Investigators are examining “revenue-recognition practices, authorities generally focus on whether companies record revenue before it is earned or defer the dating of expenses to make earnings appear stronger, among other possible infractions,” The Journal noted.
Under Amour shares have crashed more than -60% in the last 17 quarters on weak apparel sales.
The investigation comes several weeks after Kevin Plank, founder/CEO, stepped down from the helm.
The apparel company has spent two years restructuring operations, in the attempt to turn the tide and increase sales. Still, nothing seems to work as their North American segment continues to sink.
What The Journal missed, which was an even more important story, is that Plank and top executives hosted wild parties at his 18 million dollar farm in Baltimore County. All of the partying has been suspected to be on the company’s dime.
Plank and his brother, Scott Plank, sold company stock over the years to expand their real estate empire, called Sagamore Development Company. The brothers dumped company stock and built an exotic hotel, and a whiskey distillery as the market capitalization of the company was halved.
After the #MeToo movement hit Under Armour in 2018, mainly because lower-level staff, women staff to be exact, complained about a highly toxic male environment in management, it now seems that one year later, with Plank out the door and the company currently under federal investigation for its accounting practices — sh*t is hitting the fan.
One of the popular rhetorical moves in the climate change debate is for advocates of aggressive government intervention to claim that “97% of scientists” agree with their position, and so therefore any critics must be unscientific “deniers.”
Now these claims have been dubious from the start; people like David Friedman have demonstrated that the “97% consensus” assertion became a talking point only through a biased procedure that mischaracterized how journal articles were rated, and thereby inflating the estimate.
But beyond that, a review in The New Republic of a book critical of mainstream economics uses the exact same degree of consensus in order to cast aspersions on the science of economics. In other words, when it comes to the nearly unanimous rejection of rent control or tariffs among professional economists, at least some progressive leftists conclude that there must be group-think involved. The one consistent thread in both cases – that of the climate scientists and that of the economists – is that The New Republic takes the side that will expand the scope of government power, a central tenet since its birth by Herbert Croly a century ago.
The Dubious “97% Consensus” Claim Regarding Climate Science
Back in 2014, David Friedman worked through the original paper that kicked off the “97% consensus” talking point. What the original authors, Cook et al., actually found in their 2013 paper was that 97.1% of the relevant articles agreed that humans contribute to global warming. But notice that that is not at all the same thing as saying that humans are the main contributors to observed global warming (since the Industrial Revolution).
This is a huge distinction. For example, I co-authored a Cato study with climate scientists Pat Michaels and Chip Knappenberger, in which we strongly opposed a U.S. carbon tax. Yet both Michaels and Knappenberger would be climate scientists who were part of the “97% consensus” according to Cook et al. That is, Michaels and Knappenberger both agree that, other things equal, human activity that emits carbon dioxide will make the world warmer than it otherwise would be. That observation by itself does not mean there is a crisis nor does it justify a large carbon tax.
Incidentally, when it comes down to what Cook et al. actually found, economist David R. Henderson noticed that it was even less impressive than what Friedman had reported. Here’s Henderson:
[Cook et al.] got their 97 percent by considering only those abstracts that expressed a position on anthropogenic global warming (AGW). I find it interesting that 2/3 of the abstracts did not take a position. So, taking into account David Friedman’s criticism above, and mine, Cook and Bedford, in summarizing their findings, should have said, “Of the approximately one-third of climate scientists writing on global warming who stated a position on the role of humans, 97% thought humans contribute somewhat to global warming.” That doesn’t quite have the same ring, does it? [David R. Henderson, bold added.]
So to sum up: The casual statements in the corporate media and in online arguments would lead the average person to believe that 97% of scientists who have published on climate change think that humans are the main drivers of global warming. And yet, at least if we review the original Cook et al. (2013) paper that kicked off the talking point, what they actually found was that of the sampled papers on climate change, only one-third of them expressed a view about its causes, and then of that subset, 97% agreed that humans were at least one cause of climate change. This would be truth-in-advertising, something foreign in the political discussion to which all AGW issues now seem to descend.
The New Republic’s Differing Attitudes Towards Consensus
The journal The New Republic was founded in 1914. Its website states: “For over 100 years, we have championed progressive ideas and challenged popular opinion….The New Republic promotes novel solutions for today’s most critical issues.”
With that context, it’s not surprising that The New Republic uses the alleged 97% consensus in climate science the way other progressive outlets typically do. Here’s an excerpt from a 2015 article (by Rebecca Leber) in which Republicans were excoriated for their anti-science stance on climate change:
Two years ago, a group of international researchers led by University of Queensland’s John Cook surveyed 12,000 abstracts of peer-reviewed papers on climate change since the 1990s. Out of the 4,000 papers that took a position one way or another on the causes of global warming, 97 percent of them were in agreement: Humans are the primary cause. By putting a number on the scientific consensus, the study provided everyone from President Barack Obama to comedian John Oliver with a tidy talking point. [Leber, bold added.]
Notice already that Leber is helping to perpetuate a falsehood, though she can be forgiven—part of David Friedman’s blog post was to show that Cook himself was responsible (Friedman calls it an outright lie) for the confusion regarding what he and his co-authors actually found. And notice that Leber confirms what I have claimed in this post, namely that it was the Cook et al. (2013) paper that originally provided the “talking point” (her term) about so-called consensus.
The point of Leber’s essay is to then denounce Ted Cruz and certain other Republicans for ignoring this consensus among climate scientists:
All this debate over one statistic might seem silly, but it’s important that Americans understand there is overwhelming agreement about human-caused global warming. Deniers have managed to undermine how the public views climate science, which in turn makes voters less likely to support climate action.
Now here’s what’s really interesting. A colleague sent me a recent review in The New Republic of a new book by Binyan Appelbaum that is critical of the economics profession. The reviewer, Robin Kaiser-Schatzlein, quoted with approval Appelbaum’s low view of consensus in economics:
Appelbaum shows the strangely high degree of consensus in the field of economics, including a 1979 survey of economists that “found 98 percent opposed rent controls, 97 percent opposed tariffs, 95 percent favored floating exchange rates, and 90 percent opposed minimum wage laws.” And in a moment of impish humor he notes that “Although nature tends toward entropy, they shared a confidence that economies tend toward equilibrium.” Economists shared a creepy lack of doubt about how the world worked. [Kaiser-Schatzlein, bold added.]
Isn’t that amazing? Rather than hunting down and demonizing Democratic politicians who dare to oppose the expert consensus on items like rent control – which Bernie Sanders has recently promoted – the reaction here is to guffaw at the hubris and “creepy lack of doubt about how the world [works].”
Conclusion
From the beginning, the “97% consensus” claim about climate change has been dubious, with supporters claiming that it represented much more than it really did. Furthermore, a recent book review in The New Republic shows that when it comes to economic science, 97% consensus means nothing, if it doesn’t support progressive politics.
Freight Railroad Traffic Plunged 8% At The End Of October
US freight railroads, which along with Class 8 trucking have long been used as a gauge of the country’s economic health, continue to show declines in traffic.
Freight railroads logged 513,147 carloads and intermodal units during the week ending October 26, according to data from the Association of American Railroads reported on by Progressive Railroading. This marks an 8.8% decline compared to the same week last year.
Total carload traffic for the week was down 9.4% to 243,321 units and intermodal volume fell 8.3% to 269,826 containers and trailers.
The AAR tracks 10 carload commodity groups on a weekly basis – none of them showed growth for the week. Coal fell 14,797 carloads, grain fell 2,512 carloads and metallic ores and metals fell 2,064 carloads.
Canadian and Mexican railroads also reported traffic declines for the week. Canadian railroads were down 7.9% and intermodal units were down 3.6%. Mexican railroads logged 19,573 carloads for the week, down 1.1% and intermodal units fell 5.6%.
As the report notes, in aggregate:
U.S. railroads reported a combined 22,300,581 carloads and intermodal units, down 4.3 percent;
Canadian railroads reported a combined 6,523,922 carloads, containers and trailers, up 0.7 percent; and
Mexican railroads reported a combined 1,625,137 carloads and intermodal containers and trailers, down 2.8 percent.
Total North American rail volume for the YTD 43 week period is still 3.2% lower than 2018. Recall, we wrote earlier this month that Class 8 orders for September had also crashed 71%, with the two indicatorsmarking an obvious slowdown in the country’s economic productivity that everybody except Jim Cramer and Jerome Powell are able to see.
McDonald’s CEO Fired Over Relationship With Employee
McDonald’s Corporation dropped a press release on Sunday afternoon detailing it had fired Chief Executive Officer Steve Easterbrook for having a consensual relationship with an employee.
Easterbrook “violated company policy and demonstrated poor judgment involving a recent consensual relationship with an employee,” the release stated.
McDonald’s said Sunday that its board voted Friday to terminate Easterbrook over the “consensual relationship,” indicating that he violated company policy on personal conduct.
Chris Kempczinski, most recently President of McDonald’s USA, was voted by the board to succeed Easterbrook. Easterbrook has also been removed from the board.
Easterbrook emailed employees after his hiring and said: “I engaged in a recent consensual relationship with an employee, which violated McDonald’s policy. This was a mistake. Given the values of the company, I agree with the board that it is time for me to move on. Beyond this, I hope you can respect my desire to maintain my privacy.”
Easterbrook took the reins as CEO in 2015, during his tenure, traffic volumes in the North American segment have slumped.
McDonald’s tumbled last week when Q3 earnings missed on the top and bottom line, while US comp sales disappointed lofty expectations.
McDonald’s stock has more than doubled over the last five years as fundamentals have worsened.
“By sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards that crisis.”
– Mervyn King, former head of the Bank of England in a lecture at the IMF’s recent annual meeting
The market levitates higher on phony economic data from the Government, Trump tweets, Fed money printing and hedge fund algorithms chasing headline and twitter sound bites. Currently the stock market, dulled by money printing and official interventions, could care less about economic reality and rising global systemic geopolitical and financial risk. Corporate headline earnings “beats” are considered bullish even if the earnings declined YoY or sequentially.
But for those who don’t have their head in the sand, clinging desperately to the “hope” offered by the misdirecting Orwellian propaganda, it’s difficult to ignore the message signaled by the legendary levels of insider selling.
Someone is not telling the truth – The Fed once again last week increased the size of both the overnight and “term” repo operations. Starting Thursday (Oct 24th) the overnight repos were increased from $75 billion to “at least” $120 billion and the term repos (2 week term) of “at least” $35 billion were extended to the end of November, with two “at least $45 billion” term repos thrown in for good measure. The Fed is also outright printing helicopter money for the banks at a rate of $60 billion per month (via “T-bill POMOs).
At the height of the last QE/money printing cycle, the Fed was doing $75 billion per month. So whatever the problem is behind the curtain, it’s already as large or larger than the 2008 crisis..
That escalated quickly – When the repo operations started in September, the Fed attributed the need to “relieve funding pressures.” At the time the public was fed the fairytale that corporations were pulling funds from money market funds to pay quarter-end taxes. Well, we’re over five weeks past that event and the repo operations have escalated in size and duration three times. Someone is not telling the truth…
The rapid increase in Fed money printing in just five weeks reflects serious problems developing in the global financial system. Actually, the problem is easy to identify:
At every cohort – government, corporate and household – the level of debt has become unsustainable, with not insignificant portions of that debt in non-performing status (seriously delinquent or in default).
Thus, the Central Banks have had to resort to money printing to help the banks manage the rising level of distress on their balance sheet and to monetize the escalating rate of Treasury debt issuance.
The quote at the beginning is from the former head of the Bank of England, Mervyn King. King is warning that the global financial system is headed toward a crisis and that money printing ultimately won’t save it. While it’s pretty obvious that a disaster waits on the horizon, when the former head of a big Central Bank delivers a message like that instead of Orwellian gobbledygook, the world should pay heed. I would suggest that the Fed’s money printing signals that the risk of a crisis intensifies weekly.
US Convoy In Syria Attacked By Turkey-Backed Militants: Russian MoD
Russia’s Ministry of Defense announced Sunday that a US military convoy came under attack by Turkey-backed militants in Syria.
“American troops heading toward the Iraqi border have been attacked from land held by Turkish-backed militants in northern Syria, Russia’s Ministry of Defense has claimed,” according to a breaking report by RT.
Russian military sources, who have this week been seen in close vicinity with US troops amid a Pentagon draw down from border areas, reported no casualties as a result of the alleged incident.
US convoy in northern Syria file image, via Zuma Press/WSJ
Though the Pentagon did not immediately confirm the report, there’s been increasing tensions between Washington and Ankara over proposed Congressional sanctions on Turkey, also as the ‘US withdrawal’ from northern Syria became in reality a mere ‘partial’ draw down with American forces redeployed to ‘secure’ oil fields in partnership with the Kurdish-led SDF.
According to details from the Russian Defense Ministry (MoD), the American convoy was attacked near the town of Tell Tamer on the M4 highway, which runs parallel to the Turkish border near areas captured by pro-Turkish forces as part of ‘Operation Peace Spring’.
“As part of deconfliction exchange, information has been received from the US side that on November 3 a convoy of American servicemen…was fired upon from the territory controlled by the pro-Turkish Syrian National Army.”
This follows an incident last month which involved American troops in the Syrian Kurdish town of Kobani coming under Turkish artillery fire.
Since Trump’s declared US withdrawal from the border areas due to Erdogan’s Turkish military incursion, American and Russian convoys have been seen passing each other on the roadways.
Subsequent to that mid-October incident Defense Secretary Mark Esper told reporters that US forces had permission to fire back if fired upon.
Multiple media reports have lately documented the presence of former ISIS and al-Qaeda fighters swelling the ranks of Turkish-backed Sunni militias currently serving as the main ground force for Erdogan’s ‘Operation Peace Spring’.
Social unrest seems to be cropping up all over the world, from Hong Kong to Bolivia and Lebanon; we offer up a 3 variable model to help explain why. The inputs: urbanization, income inequality, and average age. Every country currently seeing mass protests has some combination of high levels of the first two and lower readings for the last. This admitted crude measure also explains why many developed countries’ political environments also seem so fraught at the moment.
Long time readers may recall I occasionally take strange vacations. Over the last 30 years I have been all over Syria, Lebanon, and most recently Afghanistan in 2013. I once drove around rural Turkey for a week just taking in the sights. It wasn’t until we encountered an army checkpoint outside a small village that questions about safety popped up.
Curiosity is the only reason I can offer for these offbeat excursions. It’s one thing to read about troubled countries, but once you get there you see the universal truth that travel always illuminates. People are pretty much the same everywhere.
Since there seems to be an outbreak of global protest at the moment, these are the subject of this week’s Story Time Thursday. A partial list of the countries in question:
Bolivia
Chile
Ecuador
Haiti
Hong Kong
Lebanon
Much of the news commentary around these events centers on country-specific issues, but I see 3 threads that weave through most or all of them: urbanization, income inequality and average age. Perhaps that’s just my own worldview that “people are the same everywhere”, but let’s see how far it takes us in explaining current events.
Here is the percent of each country that lives in/around cities using World Bank urbanization data:
Bolivia: 69%
Chile: 88%
Ecuador: 64%
Haiti: 55%
Hong Kong: 100%
Lebanon: 89%
All are well above the global urbanization rate of 55%.
And here is the Gini coefficient by country from the CIA World Factbook (the higher the number, the greater the income inequality):
Bolivia: 47.0
Chile: 50.5
Ecuador: 45.9
Haiti: 60.8
Hong Kong: 53.9
Lebanon: 31.8
Most are above the global median Gini coefficient of 37.9, and I can tell you that Beirut is as unequal as any western city so perhaps Lebanon’s official number is incorrect.
Finally, here is the average age of each country, also from CIA data:
Bolivia: 24.6 years
Chile: 34.8
Ecuador: 28.1
Haiti: 23.3
Hong Kong: 44.8
Lebanon: 30.5
The majority are at or below the global median age by country of 31.0.
The logic behind why these measures indicate a potential for unrest:
Urbanization rates quantify the concentration of citizens in urban areas and how easily they might gather for protests. They are also essentially a proxy for the “network effect” of people’s ability to connect with each other face to face.
Income inequality makes it more likely for a population to protest against what they see as a ruling elite.
As for average age, history shows younger people are more likely to take to the streets.
We can even make a crude model for how these inputs might interrelate. Add the urbanization rate and Gini coefficient and divide by average age and you get:
Bolivia: 4.7
Chile: 4.0
Ecuador: 3.9
Haiti: 5.0
Hong Kong: 3.4
Lebanon: 4.0
The global “social unrest indicator” sits at 3.0, well below all 6 countries
You’re probably wondering how the US and other major economies rank and, despite the fact that our simple model leaves out important inputs like a history of democratic institutions and the rule of law, we won’t leave you hanging:
United States: 3.3. Urbanization at 82%, Gini of 45.0, average age of 38.2
Germany: 2.2. Urbanization at 77%, Gini of 27.0, average age of 47.4
China: 2.8. Urbanization at 59%, Gini of 46.5, average age of 37.7
United Kingdom: 2.8. Urbanization at 83%, Gini at 32.4, average age of 40.5
Brazil: 4.2. Urbanization at 87%, Gini at 49.0, average age of 32.4
One can tell an infinite number of stories about how these metrics inform each country’s proclivity for unpredictable political outcomes even if they don’t rise to the perilous levels of the 6 countries we highlighted. In the interest of respecting your time, I will leave you to develop those narratives for yourself.
Summing up: as investors, we are trained to look for common patterns that explain outcomes and that is what this exercise tries to accomplish when it comes to country-specific political events. Language and culture may vary, but people are essentially the same everywhere.
A U.S. B-52 bomber was spotted in the eastern Mediterranean this past week, as the aircraft itself was flying with an F-16 escort provided by the Greek Air Force.
According to the Russian aviation publication Avia.Pro, the U.S. B-52 bomber made an unexpected approach to the Russian Hmeimim (or also Khmeimim) Airbase in western Syria, which caught their forces in the region off guard.
“A few hours ago, initially over the southern part of Greece, and subsequently already close to Cyprus, the American strategic bomber B-52 was tracked, which was a rather big surprise due to its approach the Russian Hmeimim Airbase. The exact route of the U.S. strategic bomber remains unknown; however, according to a number of sources, the plane flew close to the border of Syria before heading into Jordanian airspace,” the publication reported Friday.
For what purpose the American strategic B-52 bomber appeared so near Russian military bases in Syria so far remains unknown, however, these aircraft were previously seen in imitation of attacks on Russian military bases located in the region, in connection with which analysts believe that this is another attempt to scare Russia with an American presence.
“It is noteworthy to mention that previously unconfirmed information appeared that the Russian Hmeimim Airbase is no longer under the protection of the S-400 air defense system,” they added.
Some rumors began to surface last week about the Russian military’s alleged deactivation of their S-400 system in Syria.
There have been unconfirmed claims that the Russian military deactivated its S-400 anti-air defense missile system protecting Russian bases in Syria.
If true, this may have been one of the reasons the U.S. made the close approach; however, these flights are rarely discussed by either the U.S. or Russia.
Trump Wants China Deal Signed Somewhere In US… All That’s Missing Is The Actual Deal
Last week we joked that after the cancellation of this month’s Asia-Pacific Economic Cooperation summit in Chile due to unrest in the country, Trump should host the APEC meeting at his infamous Doral resort in Florida.
Trump should offer to host APEC at the Doral resort
And while that – for now at least -remains an absurd stretch, on Sunday President Trump told reporters at the White House that a trade agreement with China would be signed somewhere in the U.S. “First of all I want to get the deal,” he said after returning for a trip to New York City. “The meeting place, to me, is going to be very easy.”
Trump previously hinted of a US signing venue when on Saturday he said that the “Phase One” of the trade deal could be signed in Iowa.
Of course, the trade deal first has to be completed, but who cares about nuance these days…
However providing the weekly dose of trade deal optimism ahead of tonight’s first futures print, earlier on Sunday Commerce Secretary Wilbur Ross expressed optimism – what else – that the U.S. would reach a “Phase One” trade deal with China this month and said licenses would be coming “very shortly” for American companies to sell components to Huawei.
Ross also said that Iowa, Alaska, Hawaii (however, not Florida), as well as locations in China were all possible places for Trump and Xi Jinping to sign the deal now that the choice of the Chile venue is no longer practical. Even so, Ross called the agreement “particularly complicated” and said the U.S. was “making sure that each side has a very correct and clear, detailed understanding of what each side has agreed to.”
“We’re in good shape, we’re making good progress, and there’s no natural reason why it couldn’t be,” Ross told Bloomberg Television in an interview on Sunday in Bangkok, when asked if the deal is on track to be signed this month. “But whether it will slip a little bit, who knows. It’s always possible.”
The Trump administration has long ago learned that all it takes to goose markets higher is slip a little hopium that the trade deal, which was “just around the corner” over a year ago, is still “just around the corner.” Indeed, stocks hit a new all time high on Friday amid what Bloomberg called “signs of a breakthrough on trade” when top negotiators both spoke on the phone Friday and described the talks as “constructive” as they look to lower tensions in a trade war that has roiled global growth.
Yet even with the deal supposedly imminent, Ross refused to commit whether the Trump administration would suspend the December tariff hike, according to Bloomberg. He also said further phases of the deal would depend on things involving legislation on the part of China and an enforcement mechanism, without which “all you’ve got is a pile of paper.“
Meanwhile, in what appeared a rather “clear” mixed message, last week Bloomberg reported that Chinese officials cast doubts about reaching a comprehensive long-term trade deal due their concerns that Trump will respect a formal deal, Bloomberg reported last week. China has stated for months that a final deal must include the removal of all punitive tariffs, and has balked at reforms in areas such as state-run enterprises that could jeopardize Xi Jinping’s grip on power.
As a reminder, several weeks back, Trump placed dozens of Chinese firms on the Commerce Department’s “entity list,” hindering their ability to purchase American software and components. It first targeted Huawei in May for national security reasons, and last month added 28 more companies including artificial intelligence giants SenseTime Group Ltd., Megvii Technology Ltd. and Hangzhou Hikvision Digital Technology Co.
Entities on the list are prohibited from doing business with American companies without being granted a U.S. government license, although some have maintained relationships with banned companies through international subsidiaries. China’s government has signaled it will hit back over the blacklist, and the companies have denied wrongdoing.
The blacklist is also hurting American companies that do business with China, and particularly Huawei. Trump said in June after meeting with Xi in Japan that he’d “easily” agreed to allow American firms to continue certain exports to Huawei, and weeks later Trump said he’d accelerate the approval process for licenses.
Still, none have been granted so far. The president as recently as this month green-lit the approval of licenses in a meeting with advisers, according to people familiar with the matter, but an announcement has yet to be made.
On Sunday, Ross said the licenses “will be forthcoming very shortly,” noting that the government received 260 requests.
“That’s a lot of applications — it’s frankly more than we would’ve thought,” Ross said in the interview. “Remember too with entity lists there’s a presumption of denial. So the safe thing for these companies would be to assume denial, even though we will obviously approve quite a few of them.”
Oct. 31 marked the 11th anniversary of the release of the famous bitcoin whitepaper. It is worthwhile to take stock of the first crypto-currency’s impressive achievements to date, while also warning of the future perils it faces.
Bitcoin has defied the critics repeatedly, being declared “dead” many times over. (In this respect it’s appropriate that it was born on Halloween.) Although its price has been volatile, it’s currently trading at a market cap of $170 billion – more than McDonald’s, and comparable to CitiGroup.
Along the way, internecine battles led to a “hard fork” and the creation of “Bitcoin cash” (in August 2017), but the cryptocurrency community emerged wiser. As for the future, ironically a piece of otherwise good news – faster computing power – may pose serious problems if the promise of “quantum supremacy” should be fulfilled.
An estimated 5 percent of Americans hold bitcoin, and the global number of users is probably around 25 million. More impressive (and precise) details concern the financials: as of this writing, some 18 million bitcoins have been “mined” — the metaphorical term describing the procedure by which a new bitcoin becomes recognized as belonging to someone’s address on the blockchain — and a single bitcoin currently fetches a market price of about $9,450. For something that critics derided as a tech fad that would soon evaporate, that’s a rather impressive accomplishment.
The disputes between bitcoin and bitcoin cash concerns the trade off between speed of transactions and the diffusion of transaction approval among a greater number of players in the network. These debates are of intense interest to crypto-enthusiasts and merchants, but for me they underscore some of the confusion in the original “marketing” of bitcoin to the public.
The fundamental achievement of bitcoin was its genuine peer-to-peer payment system; no person or even institution was “in charge” of bitcoin. In a financial system lacking trust, it seemed a “trustless” transaction network was just what the doctor ordered.
Yet as the acrimonious debates and eventual “hard fork” showed, dominant personalities indeed appealed to public opinion, at least where “the public” referred to the community of bitcoin miners. To be sure, a tremendously important difference exists between the way the blockchain (its system of rules) works and (say) credit card purchases.
But just as it was misleading when some proponents originally described bitcoin as “anonymous” — since “pseudonymous” is a better term — it was likewise misleading when some claimed that changing the rules of bitcoin would be as impossible as changing the laws of arithmetic.
It would have been more accurate to say that changing the rules of bitcoin would be like changing the rules of grammar: much more stable than the IRS code, to be sure, but ultimately malleable as the whole community’s behavior evolves.
As an economist I have argued that bitcoin is even “harder” than precious metals because in principle humans might discover an asteroid laden with silver, or scientists might figure out a cheap way to transform baser matter into gold. In contrast, the bitcoin protocol locks in an ultimate limit of 21 million bitcoins that will ever be mined. (It’s true that even this “rule” could in principle be changed, but that would be akin to English speakers deciding to consistently start sentences with verbs instead of nouns).
However, the possibility of quantum computing poses a threat. This isn’t unique to bitcoin; the encryption currently safeguarding internet transactions in general is vulnerable. In the grand scheme, it will be of immense value to humans if a new type of computer can perform in seconds what would take a classical computer millennia. However, when the security of bitcoin had originally been promised by saying, “Why, it would take a mainframe a thousand years to reverse engineer your private key,” there is obviously a concern.
On its 11th birthday we should celebrate bitcoin as an amazing accomplishment of human ingenuity and financial innovation that forced several disciplines — including economics — to adapt. Those of us studying its evolution have become wiser, but crypto currencies will need to continue their evolution as the rest of the world progresses.
