May 062013

Bloomberg reports (6 May 2013):

Job postings referencing Bitcoin surged 433 percent in January through March compared to a year earlier, while jobs based on 3-D printing rose 206 percent, according to Elance Inc., a service that connects employers with remote online freelancers.”

Invest accordingly.

Prof. Evans

May 062013

As Mark Knopfler of Dire Straits put it in “Telegraph Road“, after the homesteaders settle, then come the churches, then come the schools, then come the lawyers, then come the rules. And, as Danny Elfman of Oingo Boingo put it in “No Spill Blood“:

Who makes the the rules?
Someone else.”

So, what are we to make of this latest announcement that US regulators at the Commodities & Futures Trading Commission (CFTC)—the people allegedly responsible for the demise of Intrade—are not going to sit passively by and watch Bitcoin, that furry woodland creature that is giving status quo dinosaurs the fits, rise in prominence?

Bear with me, while I do that glass-half-full thing that I have done so well, to the great irritation of doom-&-gloomers, for more than a quarter-century.

This is FANTASTIC news! [Gads, how I miss the <blink> tag right now!]

If the CFTC regulated Bitcoin, or more likely Bitcoin derivatives, then this would officially legitimize Bitcoin and maybe even make it possible to buy it through a licensed derivatives broker, like OptionsXpress.

Yes, pipsqueak mom-&-pop operations would not be able to experiment with disruptive financial innovations, but Bitcoin is not the only unbacked token out there. Go experiment with something that is still off regulators’ radar.

Yes, the US financial system is run by and for the benefit of plutocratic oligarchs. Go live in Chile or Panama, if that sort of thing bothers you.

The point is that people with real money to spend have shown keen interest in Bitcoin, and regulators are lining up at the front of the parade and pretending like they are in charge, rather than trying to shut it down. As long as Americans continue to elect rulers who see their role as the wielding of power over everyone else, these are the only two realistic options.

The world would be a wonderful place, if it were governed by the principle, “No Victim, No Crime,” but until that day arrives count your blessings, however meager they might be.

What would CFTC regulation mean in practical terms? No one knows, and anyone who prophesies the future is a fool, a liar, or both. The main thing to bear in mind here is that, just as there is a cost for every benefit, there also is a benefit hiding within every cost.

That, and the market always wins.

Invest accordingly.

Prof. Evans

May 052013

Much ado has been made about how deflationary Bitcoin is. This is mildly comical, as it conflates three independent processes, as anyone who comments on monetary matters should know. As I have pointed out before:

In general, and all other things held constant (or, as we say in the business, ceteris paribus), prices can rise for three reasons: demand increases (e.g., an auction or a popular restaurant), supply decreases (e.g., lower efficiency, war, or natural disaster), or the number of units of currency increases faster than the rate of increase of goods and services (inflation).”

In the case of Bitcoin, the number of units in circulation is always increasing, albeit at a decelerating rate, thus Bitcoin is inflationary. Granted, Bitcoin can be lost, never to be recovered, and when that rate eventually exceeds the rate of Bitcoin creation, sometime before the hard cap of 21 million is reached, only then can we talk of deflation.

For now, what we are seeing with the general run-up in value of Bitcoin relative to fiat national currencies is a combination of demand increases for Bitcoin and the debasement of fiat currencies by central bankers at a rate that is significantly higher than the rate of Bitcoin creation.

Seen from the perspective of Bitcoin-qua-money, the general fall in prices is a function of users’ preference to hold money and to put off consumption into the future. While it is tempting to call this ‘deflation’, an increase in the demand for money is categorically different from a decrease in the supply of money.

With Bitcoin, we are seeing a radical reduction in time preference—i.e., putting consumption off into the future—which is associated with low discount rates (‘interest’), low risk, and a move away from scarcity toward plenty.

The bigger story here is that if Bitcoin users can find ways to dampen the fiat-price volatility—itself, a form of risk, which reduces present value—then Bitcoin’s value could rise even more dramatically. Think of it this way: people will pay more for a safe bet, like an apartment in Luxembourg, than for a risky bet, like an otherwise identical apartment in Syria. Today, the Bitcoin market is more like Syria than many like, and so they stay away; if Bitcoin’s value were more predictable, demand could increase even more as risk-averse individuals began to see it as a viable asset.

Were this to happen, it would not lead to deflation. Instead, it would show that Bitcoin currently is undervalued.

Invest accordingly.

Prof. Evans

May 042013

“It’s a sad dog that won’t wag its own tail.”
—Southern Aphorism

In this spirit, I must share an anecdote that provides very strong support for my long-standing admonition to learn how to write software and program yourself out of a job, rather than wait until someone else does it for you, because if it can be automated, then it will be automated.

I began developing the practice utilities at in response to students’ requests for practice tests in the Managerial Finance courses that I teach. Previously, I distributed paper copies of sample numerical questions from old exams, and every time typos snuck in when I was not looking. No matter how careful I thought I was, I inevitably grabbed a version that had errors in it that were different from the version that I had distributed in the immediately preceding semester, and the cycle of duelling typos never resolved.

Over the years, the typos reproduced and mutated in a manner that had me afraid that I might wake one morning to find that they had evolved into something particularly virulent and maybe even achieve self-awareness.

Finally, a couple years ago, after having told nearly two thousand students over the better part of a decade that they should learn how to write software and program themselves out of jobs, rather than wait until someone else to did it for them, I decided to program myself out of a job. I’m not there yet, but I learned recently that I am closer than I had suspected, and that doing so has improved my teaching performance dramatically.

In a fit of frustration and in a mood to show off a bit, I followed my own advice to solve whatever problem annoys you the most, and converted those contemptible paper printouts into the first version of the online practice utilities linked to above.

During the first semester, students and I identified errors and omissions that, once corrected stayed corrected, and the flood of emailed pleas for help just prior to exams fell from a firehose to a trickle. This is in large measure, I since have learned, because I took the time to incorporate randomly generated values into the problems. In essence, anyone, anywhere in the world can create seemingly infinite variations on the questions posted, just by clicking the Reload button.

In response to the few cries for help that I do receive, I tend to post my replies in this Blog area, and respond more often than not with the URL of the post that addresses the question, along with exhortations to practice, practice, PRACTICE. When a student asks for further clarification, I edit my follow-up response into the existing post.

Shortly after I integrated those sets into my classes, I noticed a dramatic improvement in my students’ test scores and subsequently cranked up the pressure by asking more realistic (read ‘harder’) questions. For the Advanced Managerial Finance class, which we hold in computer labs, I have my students build spreadsheets that replicate each of the practice utilities and use those to answer some sample questions.

The first time that I was asked to teach Principles of Managerial Finance—one of the handful of dreaded required courses that all students in the College of Business must pass—online, I cringed at the thought of my students suffering in solitude, armed with only a textbook and the accompanying publisher-produced practice questions that are more about solving dense and clever puzzles than about preparing for a career of drafting business plans, seeking investment, and managing working capital accounts.

I envisioned each of them cowering in the dark by the light of a kerosene lantern, in a dank and fetid shack with the wind howling, panthers screaming into the night, and alligators banging their massive tails on the kitchen door—we’re in South Florida; that kind of thing can happen from time to time—as they tried to make sense of some of concepts that run exactly counter to virtually everything that their high school teachers and most politicians have told them most of their lives, like the promise of a benefit in the future is worth less than an actual benefit now, you will not necessarily be rewarded for bearing risk, there is a cost for every benefit, and the future is unknowable although it is not unimaginable. That, and we say it with algebra.

Thus were born the videos on the page that links to the utilities above. As I type this, that page is still as ugly as someone else’s baby pictures, and in one of them I had a cold when I recorded the voiceover. And, you know what? The kids love it.

I know this, because I just received my student survey results from the online section that just ended a couple days ago, and my scores are a thing to be envied. This is not because of any special treats that I hand out, as—and I hesitate to post this—I was horribly distracted this semester, and I had thought that I was largely AWOL. I half-expected them to burn me in effigy and call for my public humiliation. (I exaggerate, but only for effect.)

Granted, I make it a point to respond to email within 24-48 hours, but sometimes a four-day weekend turns into a one-week turnaround time (yes, inexcusable!). However, when I was remiss, students turned in their frustration to each other for help, and the vast majority of the time, a classmate directed the questioner to one of my videos or blog posts.

I am fast becoming the Andy Warhol of Business education, whose art is streamlining the creative process to the point where my own hand never touches the end product. And, with Direct Deposit, I don’t even have to endorse and cash the checks. (Again, I exaggerate, but not all that much.)

Here’s the kicker: I use the same exams, albeit with different numbers, in the classroom and online, and my mean scores and distributions are insignificantly different from each other! I very nearly have achieved the Holy Grail of ensuring that my online and face-to-face sections are as closely aligned as is possible.

So, to repeat, if you teach Business, especially Accounting, Economics, or Finance, learn how to write software and program yourself out of a job. Alternatively, contact me and have me do it for you. Seriously.

Invest accordingly.

Prof. Evans

May 022013

Anyone new to Bitcoin would do well to read Alvaro Feito’s Big Book of Bitcoin after reviewing these Khan Academy videos.

Bitcoin – Overview

An introduction to the mechanics of bitcoins and an overview of how transactions take place.

Bitcoin – Cryptographic Hash Function

What cryptographic hash functions are and what properties are desired of them.

Bitcoin – Digital Signatures

A high-level explanation of digital signature schemes, which are a fundamental building block in many cryptographic protocols.

Bitcoin – Transaction Records

The basic mechanics of a bitcoin transaction between two parties and what is included within a given bitcoin transaction record.

Bitcoin – Proof of Work

An explanation of cryptographic proof-of-work protocols, which are used in various cryptographic applications and in bitcoin mining.

Bitcoin – Transaction Block Chains

Bitcoin – The Money Supply

The mechanisms by which the supply of bitcoins is controlled.