The Miners’ “Greed” will Save Bitcoin

It just occurred to me that the Bitcoin system of production does not need to be controlled at all, not pogrammatically, not even by any rule. What will limit production is the profitability of miners. At this stage of development, Bitcoin is increasing in value, and mining is very profitable. It cannot remain so forever, if production is not limited by absolute quantity. Assume for the sake of discussion that there is no limit. Every miner, to increase profitability, would produce as many Bitcoins per second as he could. There will be over-production, and subsequent inflation (inflation in quantity, and then eventually reduction in value [the alternate “definition” of inflation]). As the value of Bitcoins come down, naturally the profits of miners will come down also, if measured in terms of how much a Bitcoin can buy. The system will tend towards a state of equilibrium, one in which the profitability of miners is throttled by inflation (in the second sense), and the value of every Bitcoin stabilizes.

This absolute limit on quantity is fictitious anyway, and I daresay it is GOOD that it is fictitious.

Let’s say that the miners “collude” among themselves in order to remove the absolute limit on quantity. As the moderator of this forum pointed out here:, there is really nothing that can stop the miners from changing the quantity rule, except the wallets in everybody else’s possession. What if the miners themselves also start distributing their vesion of the wallet, with compelling advantages to the user? (For example, a version with a much pruned Merkle tree, so that everybody with a smartphone or any handheld device can use it.)

So now the question to ask is, if the limit on quantity is fictitious, what sets Bitcoin apart from any fiat currency in use today? Every fiat currency is controlled by some monopoly, a monopoly necessarily sanctioned and enforced by the state. In Bitcoin’s case, such monopoly does not exist. In Bitcoin’s case, its own market will control its quantity, while any fiat currency is prone to hyper-inflation because its monopolistic structure does not present a feedback mechanism to limit production or “printing”.

The two worries I expressed in my previous blog are in reality no cause for concern. I now believe in Bitcoins much more than I ever did. If a version of the wallet that can run on a handheld becomes available (as I am sure it will, soon enough), then its proliferation will further enhance its own integrity, as I explain here:

Posted in Money and Economics | 2 Comments

Would Bitcoin Suffer a Similar Fate as that of Unix on the Desktop?

I have seen the Grand Canyon of Arizona, and I am still smarting from its effect on my perception of reality. Its grandeur reminded me of a paradox, the paradox of what I would call “chance and permanence”: nature works mostly by chance, but what it has wrought so far is almost permanent. In the beginning, I am sure the path of the mighty Colorado river that formed the Grand Canyon was determined mostly by chance. As time went by, and the canyon went deeper, what was determined by chance is now almost permanent. Every twist and every turn, every steep cliff that formed, every rock that stayed put and not washed away is there by chance, and yet now permanent. It would take great effort, time, and money to change the path of the Colorado river. So we, as observers of the Grand Canyon, can appreciate how its path was formed mostly by chance, but can also appreciate its permanence. And so it is with the rest of the universe.

We can consider even human institutions in terms of the same paradox. Sure, we’d like to think that all our institutions are there by design, and not by chance, and that is true. But there are certain important aspects of our institutions that become permanent purely by chance. We cannot possibly know beforehand which little twists and turns in our lives become very important later, but there is no doubt in my mind that the sum total of those decisions can make each one of us successful or lose out and simply become a statistic. It certainly makes sense to leave less to chance, and the less we leave to chance, the better.

Just as an example, let’s take the Windows operating system. It has now become an institution. It is very difficult to replace precisely because it has become an institution. We can appreciate the fact that until now, despite the presence of free (and some say even better) alternatives like Linux, Windows remains the most widely adopted operating system, by a wide margin. It is not that the proponents of Linux have not tried enough. A huge effort is being spent, not just by the Linux community, but also by the Apple OS community, to dislodge Windows from its position as number one, but so far to no avail. This is what I mean by becoming an institution, mostly by virtue of Windows’ virtues, but also partly by chance. There were crucial steps that Microsoft took, during its early days, that caused Windows to be an institution. Some of those steps, like partnering with IBM in the early days, did not happen by chance. What was left to chance was which little OS to start with, during the earliest epoch called “DOS”.

(Microsoft started not with an OS of its own making, but bought out some OS from an obscure company. Incidentally, it would be wrong to conclude from this that Windows won by great marketing alone. It had to be a good OS also, limited only by available hardware, and had to continue to compete by being the best. Being a good OS is a minimum requirement, and by now that should be obvious.)

Now I have no doubt that Bitcoin will become an institution, something that maybe very difficult, if not impossible to change in the near future. I would not invest in it myself if I did not believe in it. But there are a couple of things that worry me, and I am writing this to see what other serious thinkers would say.

There have been several attempts to bifurcate the path of transactions. Let us remember that these attempts had a sinister purpose. I believe it is also possible to bifurcate the path of transactions, to have more than one set of transaction files, simply by distributing another branch of the software. The system is designed to protect itself from invalid transactions with a sinister purpose. However, if this is done NOT with a sinister purpose, but in order to come up with a better currency, then politically such new branch would be adopted by a large number of users, which would then cause the path of transactions to bifurcate. We would end up with not one database of transactions, but several incompatible databases. The Bitcoin currency would then bifurcate several times to spawn several other currencies, all competing against each other.

Remember Unix? I believe that Unix should have been the number one OS instead of DOS/Windows. It was certainly better, by any measure, than DOS. It did not win out because it bifurcated several times into different versions, all incomptible with one another. Would Bitcoin suffer a similar fate?

The other thing that worries me about Bitcoins is the rule that puts a hard limit to its quantity. I believe that this is reason enough for it to bifurcate. I still have to hear from a reputable monetarist thinker that a hard limit on quantity is good. Here is why I think it is bad.

What makes gold still THE number one standard currency is the fact that its quantity cannot be increased by a simple human decision. It has to be mined. There have been times when its quantity increased by more than the world economy can sustain, and it inflated just like fiat currency (during the Gold Rush, for example). However, there is no hard limit to the quantity of gold in circulation, and I think that the reason it remains the best currency is because it continues to be mined and so continues to increase in quantity. In the end, I think that it’s not the increase in quantity of a currency per se that’s bad, it’s HOW it increases in quantity. I believe that the best currency is one that increases in quantity in relation to worldwide economic activity. In the future, gold cannot remain the best currency because its increase in quantity is not necessarily a good arithmetic function of worldwide economic activity.

A currency is only as useful as how convenient and beneficial it is to use as a medium of exchange. In this regard, Bitcoins are far more useful than gold. Gold has other values apart from its use value as currency. It has jewelry or ornamental value, it has industrial value (as electronic connector in integrated circuits), and monetary value. Its monetary value has now exceeded its two other values because the U.S. dollar is failing in this function as worldwide currency. Contrast this with the pure monetary value of Bitcoins. Bitcoins have no other value than its use for exchange. We can say it has pure exchange value. One of its attractions is that, by being based on the power of the Internet, it is money that can travel friction-free from one point in the world to another. Very much unlike gold, which weighs so much it takes not just some reliable means to transport, but also a secure one. It takes a lot of money just to transport gold; it takes almost zero to transport Bitcoins.

However, and this is a big caveat, even a Bitcoin itself can see its exchange value reduced. It can reduce in exchange value precisely because its perceived value, or market value, is increasing. As it increases in market value, many holders will start to hoard it. (Like me: I plan to hold on to as much quantity of it as long as I can.) Now when it is hoarded and stashed away, the total count of Bitcoins in circulation necessarily goes down. Hoarding necessarily affects the count of daily transactions that occur per quantity of Bitcoins: its so-called net velocity goes down. When the velocity of a currency goes down, we can say its usefulness as currency goes down also. Therefore, what we may see happen is a long-term trend upwards in market value, but punctuated by violent fits of steep drops in price, as the exchange value compensates for market value, and vice-versa. This is precisely what we want a currency to fix: the occasional steep drops, the violent business cycle.

I propose that the violent cycles of ups and downs can be avoided, simply by increasing the quantity of Bitcoins, not asymptotically as it is now, but as a function of velocity. (It should not be a function of market price because market price by definition is always in relation to another currency, like the U.S. dollar, which can also be volatile.) Velocity is easily measured by the count of transactions per minute or per hour or per day even. Note that “velocity” is different from speed (as in elementary physics). Velocity includes the component of direction, not just speed; so for example, a million transactions that occur only between two accounts contributes less to velocity than transactions that occur between many different accounts.

I am a programmer by trade, and I can go in there and make this modification myself, and come up with a different distribution. If enough people believe that my version is better, then the database of transactions will bifurcate, which is not good. Rather than do that, I have chosen to discuss this matter with the Bitcoin community. Even just two currencies competing at this early stage can be fatal. We have a world to conquer out there, and we don’t want to end up like Unix. Rather, we want to be like the Colorado river, cutting deep into the very foundation of world commerce. However, we want Bitcoin to be successful less by chance like the Colorado, and more by conscious decisions like Microsoft’s Windows OS on the desktop.

Posted in Money and Economics | 1 Comment

More on Bitcoins

I mentioned Bitcoins in “What is Money?” a blog I wrote almost two years ago. In that blog I predicted that by itself, Bitcoins would not gain wide use, that it needed a backer for it to gain the necessary trust of people. Boy was I wrong. Bitcoin has become so popular since I wrote that blog. It has had its ups and downs, but I think it is slowly but surely gaining adherents. I am now definitely a believer.

There are two things about Bitcoins that are quite remarkable.

The data that holds the blueprint for our biological being is stored in our DNA. Now each DNA strand is a very fragile thing. The absolute genius of the design is that the same data is stored not in a single DNA strand, but in billions of copies of the same data storage DNA. The whole organism will have to die in order to lose this data, but even then it is possible to retrieve it. It is even possible to retrieve it from anything the organism has touched.

What has this got to do with Bitcoins? This same idea of a distributed, highly redundant design has been applied to the Bitcoin system. The database that holds all past Bitcoin transactions are stored in a set of files that are distributed in every corner of the world. So the reliability of this database is unprecedented, in that it is truly distributed. It is scattered all over. Once you use Bitcoins, your computer system (whatever it is, a PC, a tablet, a cell phone) will be storing this database. This means that, as it gains wider use, it becomes more resilient. In order to destroy the database that holds Bitcoin transactions, the whole world would have to be annihilated along with it.

Our DNA is somewhat static in that in doesn’t change in our lifetimes, so duplicating it a billion times is trivial. The Bitcoin database, however, is very dynamic, and so computers that store it use the Internet to update each other constantly. The update process itself is complex because a million different versions of the same database can exist at any one time.

Amazing, isn’t it? Bitcoin may be the solution to the coming fiat money crash. It is very decentralized, and so is not controlled by any entity nor any country. The only way that any government can control it is by prohibiting its use, but even then enforcement would be almost impossible. It has now gained a free life of its own.

The other thing that’s remarkable about Bitcoins is its use of cryptography. Of course, the distributed database of transactions is fully encrypted, in blocks. But the more interesting question to ask is, How can I own Bitcoins? How does the system know I own, say 23 Bitcoins? Each of us can have as many Bitcoin “account numbers” as we need. A Bitcoin account is just a long, unique pattern of computer bits, such as


Which happens to be one of my accounts, and which is now useless (more on that in a minute). This pattern of bits is also called a Bitcoin address, and it can be both a destination (payor account) or a source (payee account). For this particular address or account to receive payments, nothing else is required other than this account number itself. Anybody can send Bitcoins to this account. However, because I lost my private key to this account, I can’t use any of the Bitcoins that may be credited to it, and nobody else can, either. One needs a PRIVATE KEY in order to send from one’s Bitcoin account. This is no different from needing a password in order to access your email account. If nobody else knows that password, you can be assured that only you are able to read your emails. If you forget that password, and the email system you use does not have a password retrieval system, then all your email is lost.

The PRIVATE KEY is the Bitcoin system’s only way to determine ownership of an account. You can claim ownership of the account above if you know its private key. Simply trying to guess it is next to impossible, because it’s about as long as the account number itself. Lots of computational power will have to be applied in attempting determine that key, which is akin to dropping a safe from a window in order to open it. But even then there is only a small chance of determining that private key and thereby gain ownership of the account. (Some accounts can have more than one private key, just like you can open a bank account that needs two or more signatures to withdraw.)

An account is therefore useless without its private key. This has two implications:

1. The account owner better be sure that this key is safe, specially if the account already holds Bitcoins. Any thief can steal all your Bitcoins by somehow obtaining your private key. If you plan on using Bitcoins, this is one aspect that you have to be extra careful about. Because this private key is not easy to memorize, you will have to store it somewhere. You can encrypt it, but then you will have to remember the key you used to encrypt it. (This is like hiding a key in a drawer, and holding on to the key to that drawer.) Bitcoin trader sites like store this key in their servers, which I think is problematic. It’s not that I don’t trust, but if anybody lays their hand on those private keys, they would be certainly tempted to run away with all those Bitcoins. I would never allow any of my private keys to be stored anywhere else except in something that is in my possession. However, even storing it in any of my personal computers can carry a certain risk because cyber thieves can possibly get hold of them. I think the safest way to protect an account that holds some considerable amount of Bitcoin money is to encrypt the key using another key that is very easy to remember but very difficult for others to guess, copy the encrypted key to a USB thumb drive, and then hide that thumb drive in a safe.

2. It is quite possible for an account that holds lots of Bitcoins to get lost, like I lost my key to the above account. My understanding is that, Bitcoins lost in this manner are lost forever. In other words, if I inherited millions of Bitcoins from my father, and he dies without giving me the private key, there is no way for me or even my descendants to retrieve those Bitcoins.

I may be wrong on this, but I think this also means that, the absolute count of Bitcoins can decrease in time. This happens to real coins too, and so minting of real coins is a regular affair. However, in the case of Bitcoins, it seems that “minting” new coins is not possible. (Bitcoins can be “mined”, but the total quantity that can be mined is also limited.) Even though each Bitcoin is divisible into billions of parts, the value of each Bitcoin, and each of its billions of parts, can only increase and never decrease. No inflation! But deflation maybe just as bad as inflation. This certainly is worth looking into more closely.

Nevertheless, in the current state of affairs, Bitcoin has certainly exceeded expectations. I believe it will continue to do so in the foreseeable future.

Posted in Money and Economics | 2 Comments

The Freedom to be Selfish

Ayn Rand shook the world with her prescription for what ails it. She offered a very simple prescription, one that goes against everything we have been taught so far, from Jesus Christ to Ghandi. She wrote that selfishness is a virtue, and if we simply behaved in our self-interest, things would be better. I have lived by this ethics most of my life, and I recommend it to everyone else.

Austrian economists see the world in similar terms, from the economics point of view. Economics presupposes human economic actors that act in their self-interest. It is impossible to draw conclusions if economics were to start from a different premise. I am not saying that Austrian economists have declared the moral superiority of selfishness, but their methods of analysis would simply be invalid without starting from the premise that everyone is acting in one’s economic self-interest.

What is self-interest, and what is selfishness? These two words mean the same thing, from an ethical standpoint. Self-interest is the euphemism for selfishness. Selfishness is a bad word, and it’s always been used with negative connotation, until Ayn Rand came along.

We use the word self-interest in the context of a legal contract. When we enter a contract or sign an agreement, the presupposition is always that we are doing so in our interest. We never sign an agreement that would be detrimental to ourselves. In fact, lawyers can easily argue that a contract is invalid if it were signed with one side being disadvantaged by it. Contracts have to benefit both sides, both signatories. Notice that lawyers never say “you signed this contract out of your selfishness”. In essence it means the same thing as signing a contract in one’s self-interest, but the connotation is bad if the word selfishness is used.

The word self-interest is also used in the context of an accomplished athlete or musician or any artist. The coach would say to the athlete he is coaching: “It’s not in your interest to skip practice today” or “It’s not in your interest to go drinking with your friends tonight”.

The athlete may respond: “What are you saying? I like to skip practice right now. I’m more interested in something else.”

“Yes, I know you’d rather do something else; but if you want to remain at the top of your game, you will practice today. What is more important for you?”

And so on. We sometimes forget what is good for us, and it is sometimes unclear what is good for us. The point is that, in every situation, we can judge for ourselves and the presupposition is always that we are acting in our self-interest.

The word selfishness is mostly used in the context of misbehaving kids or “greedy” merchants. We don’t normally say that Manny Pacquiao is selfish for aiming to be the best in boxing, but if we think about it for a second, there is really no difference between a merchant aiming for the highest price for his merchandise, and Manny Pacquiao aiming to win his next bout. The merchant looks for that merchandise that he can charge the highest price for. (By definition, it is that merchandise that has low supply in relation to demand.) Nothing wrong with that, because by providing that rare tablet computer (for example), he has served me well as a consumer.

He is selling rare tablet computers at great risk to his capital. If he were to set a price that is too high for me, I simply refuse to buy his merchandise, for selfish reasons.

There are Rules

What makes an action bad? Where goes ethics if we are all to act selfishly? This is where most of the confusion arises. Ayn Rand correctly pointed out that so far, the ethics of altruism has dominated our world view, and we have looked at this question from that standpoint. We can clear this up simply by dissociating the word selfishness from its bad connotation. To act selfishly does not necessarily mean to act badly, and the dissociation is only possible if we give up the ethics of altruism (living for others).

Two points are most relevant here:

1. The ethics of selfishness does not mean the absence of rules. If we are to act in our self-interest, we also have to respect the interest of others.

Many people think in terms of a zero-sum game in which if one side wins, the other has to lose. Not necessarily. If I buy the latest tablet computer from a merchant, he wins, but I also win. I win because I got the tablet computer I have been salivating about, at a price I have emotionally associated with that computer, without having to travel far to get it. He wins because from his standpoint, that tablet computer is costing him money every day that it stays on the store shelf. Now what if the tablet computer is defective? Then I should have the right to return it. If he refuses to take it back and return my money, he has violated the ethics of selfishness in two senses: by not making sure that the merchandise is good, he has effectively fooled the consumer (me); he has also stunted the growth of his business because it is easy to spread bad news about bad merchants, and he may very well lose his market. In essence, he has not acted selfishly by selling bad merchandise.

2. Many people believe that merchants, specially those earning good money, are bad because there’s no other way to win except by cheating. This thinking is so ingrained in us that, most small businessmen also think the same thing, that they can only be profitable by cheating. So we have both sides, merchants and consumers, reinforcing the same belief. To top it off, this belief is also reinforced by laws that small businessmen have to work under.

The merchant is hobbled by so many unreasonable rules that he is forced to cheat and go beyond the rules. These rules were made under the assumption that merchants and traders cannot be trusted and have to be regulated. In this kind of environment, it is almost impossible to be ethical, and so the beliefs become self-fulfilling. Indeed, this bad reputation has become part of our language: in Cebu, to say that some product is “commercialized” means it’s shoddy and has bad quality. In the U.S., “commercialized” means it’s either sturdy or in large quantities.

Lance Armstrong is the epitome of being unethically selfish. He decided that, in order to win, he had to cheat. He justified it by suggesting that it is the trend in sports anyway. No, Lance, you joined Tour de France agreeing to the rules. You broke the rules, so you haven’t really won, no matter how you put it.

If the rules are CoRRECT, it IS possible to win without cheating.

There are CoRRECT Rules

Imagine a game that looks like basketball, but is not really basketball because the scoring rules are heavily skewed to favor the weak. Let’s say the rules were made in the interest of those who are bad at basketball, to “level the playing field”, so to speak. Here are the rules:

1. The winning team is allowed to be ahead of the losing team only if the difference in scores is odd (1, 3, 5, and so on);

2. If the difference in scores is even (2, 4, 6, …), the winning team will have to give up half of the difference to the losing team.

So for example, if the score is currently Ginebra at 30, and Alaska at 31, both teams get to keep their scores unchanged, and Alaska is winning. However, when Ginebra scores 3 points, the score can’t be 33 and 31. Ginebra will have to give up one point so that now the score is 32 and 32. Let’s say that Alaska then scores 3 points also, so that the score is now 32 and 35. Alaska keeps the score of 35, and of course Alaska will try to keep their advantage odd by scoring a 2 next time (the next score Alaska should aim for is 32 and 37, keeping the difference odd). Ginebra on the other hand, only needs to score an odd number, say 1, so that if the score is now 33 and 37, the difference is 4 and Alaska will have to give up 2 points making the scores equal again, at 35.

Knowing how difficult it is to win a game of basketball even with normal rules in place, do you think any team would be interested in playing this bastardized basketball game? Probably more importantly, do you think people would be interested in watching it?

And yet that is exactly how laws are formulated in Pinas (which is basically how it is now also in the U.S., the Kingdom of Obama). Article XIII of our 1987 Constitution says, in the very first section:

“The Congress shall give highest priority to the enactment of measures that protect and enhance the right of all the people to human dignity, reduce social, economic, and political inequalities, and remove cultural inequities by equitably diffusing wealth and political power for the common good.

“To this end, the State shall regulate the acquisition, ownership, use, and disposition of property and its increments.”

Our constitution enjoins the congress to make rules that “… reduce social, economic, and political inequalities, and remove cultural inequities by equitably diffusing wealth and political power for the common good”. This gives government all the authority it needs to disregard limits to government power as stipulated in the Second Article (The Bill of Rights), in the name of the “common good”. Here you see the influence of altruism on our constitution. What is the “common good”? Who can define what is the common good in a case? Only the government can.

The second part of Section 1 is a direct consequence of the first part: the governent can REGULATE all aspects of property. The “common good” can only be carried out if property rights are weakened.

These basic rules in our constitution guarantee that the economic game played in Pinas is one where it is very difficult (if not impossible) to win in the market. If you don’t want to cheat, then you have to influence government to grant you exceptions (favors). The government has to decide who wins (not the market) in the name of the “common good”. You, as a businessman, is handicapped from the very start.

Funny thing with our constitution is that it tries to ameliorate one section with another. Right in the second section of Article XIII, it says:

“The promotion of social justice shall include the commitment to create economic opportunities based on freedom of initiative and self-reliance.”

Huh? What does this mean, exactly? Can any lawyer explain this? Can you cite an example of legislation that adheres to this section?

The predominance of the ethics of altruism has skewed our logic so much that it has corrupted Pinas at several levels, from the highest (Supreme Court), to the lowest (local government). Our biggest problem, in my mind, is that we have no politician working with the mindset of the ethics of selfishness; and we have very few intellectuals who constantly drive home the point.

Who Wins and Who Loses in a Society of Selfish People?

In any society there are winners, and there are losers. It does not matter what type of system is in force in a society (Capitalist, Socialist, Communist, or even Islamist) there are those who do very well, and those that do very poorly. Aiming for equality of outcome, as our constitution clearly does, is futile. It is possible to be equal before the law, but equality of outcome is an illusion. What matters is not that there are winners and there are losers (inequality of outcome); rather, what matters is how winners and losers are determined.

In a Communist society, those that belong to the Communist party are automatically chosen to be the winners. The losers are those who choose not to join the party. There are clearly tremendous advantages if you join the party. For one, you can become a government official if you join the party, and government power in a Communist regime is absolute.

In a Socialist society, the winners are those who work in government because government is also very powerful in a Socialist society. In an Islamist society, the winners are automatically chosen to be the clergy; the losers are those who resist Islam and belong to a different religion.

In our current system in Pinas, which is more Socialist than Capitalist, one wins by being part of government. If you are a big businessman, you ignore the government at your peril. This is the reason why Mr. Villar is in government, and likewise many of the ruling families.

In a Capitalist society, people with abilities win. It is not perfect by any means, but in general, if you have some marketable talent or quality (like good looks) you win in a Capitalist society.

So in a Capitalist society, even though there is no guarantee that you win in the game of everyone for himself/herself, you have a shot at it, based solely on your marketable abilities or quality. If your abilities are not good enough to put up a store, then you can’t make it in the Sari-Sari store business. If you cheat, your customers will eventually find out, and you can’t win either. You stay at the bottom. If you have a marketable skill, like writing suspense novels, you can earn good money and win by using your talent effectively. If you are a good boxer, there’s a place for you in boxing. If you have good looks and you know how to use it, then you can end up with a winner as partner, or help a merchant attract buyers and get paid handsomely for it. If you study well and become a good accountant, you win because a job will be waiting for you.

Having seen several countries in various degrees of being Capitalist, I think it won’t be a bad observation to make that, to the degree that a society is Capitalist, it is as difficult to make it to the top as it is to get to the bottom. To the degree that a society is Capitalist, more people stay in the middle (neither very rich, nor very poor). So in the end, without even wishing for it, a society that simply practiced basic rules ends up having more equality of outcome than a society that explicitly aims for it, as Pinas does.

The Freedom to be Selfish

We need rules that allow people to be selfish, while also allowing those who want to be selfless to practice their altruism. It is very difficult to be consistently selfish, but for most people it is impossible to be altruist. The key is to allow people to be either one. Our constitution has a huge bias against selfish people, and we can see the results right before our eyes.

What About the Poor? Most of us are charitable by nature, and we become even more so by winning. In fact, it is good marketing practice to care for the poor. Big companies trip over themselves trying to show who is most charitable. It is proper and good for individuals to be charitable and actually visit the poor, but it is wrong for government to be benevolent, because it just cannot and should not. Government is the only entity in society that we allow to have certain powers over us, and for it to be benevolent it has to use those powers for that purpose. The rise of Communism in the past can be attributed to the very idea of trusting government to be benevolent.

At one extreme, we have seen the horror of a “benevolent” government in the hundreds of millions of people that have been killed by such governments. China has skeletons in its closet in this regard, and it will haunt them later. We in Pinas at least do not have that many skeletons in our closet. Our conscience is clear, and we remain charitable.

I hope we can be ethically selfish as well. Selfishness and the primacy of the individual are the keys to upward mobility of the poor, not ideas for the “common good”, for there is no such thing.

Posted in Amateur Philosophy | 8 Comments

The Evolution of Digital Computers in the Context of How Humans Organize

I came into the computer industry by way of the 8080 CPU, the first CPU on a chip. After tinkering with the 8080 chip for several years, in 1980 I was lucky to get into Intel, the company that introduced the 8080 in the market. I am happy and proud to have been (and still am) a foot soldier in this worldwide upheaval which has seen the digitization of most everything: appliances, cars, cell phones, communication, even the way we record our thoughts (as in this blog) and absorb new ideas. As a foot soldier in this truly life-changing upheaval, I write this article from a unique vantage point.

The most amazing thing to think about is that it did not take us a hundred years to progress from the vacuum tube and computers that had to be housed in buildings, to integrated circuits and computers that you can hold in the palm of your hand. And that computer you have in your hand is more than a million times more powerful than its roomful ancestor only a few decades ago. What used to be called a “supercomputer” a giant, electricity-draining behemoth, costing hundreds of millions of dollars just about three decades ago now sits on your desktop, and you use it to play first-person shooter games. You even complain that your neighbor’s gaming system has a more powerful graphics card than yours.

Progress has been exponential and continues to be so, like doubling the count of transistors on a chip every two years. We have only scratched the surface of what is possible, however, because we are still so far away from the processing density of computing systems in nature — meaning the brain, any mammalian brain. In terms of the processing power itself, the digital computer is no match for even the brain of a cat. There maybe a limit to what we can do with digital systems: we may never be able to emulate the power of the mammalian nervous system simply because the architecture and the units of computation (bits and hard logic versus analog values and “soft” logic) differ fundamentally. However, even now we can see what the future holds: a computer may never be able to survive in the jungle in a way that a lion can, even though today the fact that a computer can drive the streets of California legally is quite a feat. With miniaturization comes more computing power, not less, and so we will see ourselves undergoing an upheaval in months, not years. It took only a few months for Apple’s iPhone to blanket the whole world and start another revolution. Ideas can come from anywhere. There is no order to it all, and the only thing we can be certain about is faster and faster pace of change. Don’t buy that latest smarphone yet! In a few weeks another one will come out more dazzling, more powerful, more beautiful than that.

To build a pyramid in ancient times, you need slaves, and it took decades to put together one. To build a marketable smartphone can take six months to a year, and you need freethinking engineers, the most creative kind, to put it together and survive in the market. To build a pyramid you need solid rocks, and a discipline for accuracy. A little mistake, and you have to do it all over: add a few more years to your schedule, and a few thousand more slaves to replace those who would die as a result of the mistake. To build a smartphone, one that can survive the first day in the market, you need it to be as near as possible to perfection. Any defect noticeable to the consumer means defeat in the market. And yet perfection is not enough: it has to be attractive too, and full of desirable features like the ability to tell you exactly where you are at any moment.

All of this would not have been possible without freedom, the more freedom, the better. This is exactly the antithetical arrangement from that under which Egyptians had to organize themselves at the time they built those pyramids. You definitely can’t build a microchip by hiring slaves. You still need a large number of people to build a microchip, but under a very different motivational infrastructure. A slave’s motivation is very simply to survive today and live to see tomorrow. An engineer’s motivation is very complex, but one essential feature of such motivational makeup is money. So, instead of recruiting by force, you recruit for your army of engineers with a complex web of positive incentives: money in amounts competitive enough (market pay rates), a chance to leave a significant mark in the world, a little fame or bragging rights, extra benefits like comprehensive health care, and so on. Even all these are not enough. Like Rome’s armies, the army of engineers you need today have to have a vision of where the army is going, what is the prize, and leaders who can rally them on.

Whereas the pyramids were built under government coercion, today’s microchips are built without even the hint of government intervention. The U.S. government did not “create” Intel nor did it have any hand in the emergence of Microsoft. Its role is very limited to providing the environment by which these and subsequent technological giants came into being. What kind of environment is conducive to rapid progress? It’s not some  comprehensive “industrialization plan” that caused the emergence of these companies. The kind of environment conducive to rapid technological change can be summed up in one word: freedom. The freedom to create, to set one’s own direction, to form an army of engineers. The freedom to make decisions, but then to enforce those decisions that become contractual agreements. To define precisely what rights are, and to enforce those rights. If I have the right to property, the government must protect that right by catching burglars and making them pay for property lost. The government’s role in this is very basic, almost mundane: protect people’s rights to be free. And by “rights” I don’t mean the “rights” to housing, to education, to health care. There are no such rights, unless we all want to be subservient to government.

The freedom to create means open competition. If I am free to nurture and follow bold ideas, the person next to me has to be free to invent also. In a free country, competition is unfettered and ruthless. The pursuit of perfection can be its own prize, and the only limit to progress is how large a market can emerge from a new invention. This freedom goes both ways: I should be allowed to charge market price for my product, or charge nothing at all. It’s up to the originator of an idea how she wants to use it, as long as it does not harm anybody else’s rights.  Message to third world countries like the Philippines: set your people free, and you will see progress. Remove all useless and counter-productive rules and regulations. Let the market decide who wins and who loses.

In a free country such as the U.S., many think that only people who already have money have all the power to make significant contributions to progress. Not true. For example, even granting that Intel is still the largest semiconductor company, and Microsoft is still the largest software company, these two giant corporations have lost their leadership status. Other companies have come and grown even bigger. Google was just a tiny upstart when it offered its shares to the public (I didn’t even think they would make it). Apple got a helping hand from Microsoft when it had difficulties making ends meet, now it’s bigger than Microsoft in terms of stock value. Facebook and its leader could not have come from Intel nor Microsoft. Facebook came from nowhere to become the one dominant force in social networks.

Freedom and innovation are a tricky thing. What makes one company successful can also cause its decline, in time. When I first joined Intel, employee rules were very simple. You basically just did your thing, and risk-taking was even rewarded. My career as a mercenary engineer has taken me back to Intel (this time in Arizona). I am amazed by the changes I experience at Intel now: on my first day in this assignment, I had to undergo safety training. The main point of the training was to impart the idea that “safety and security are a value, not just a priority”. There are rules for everything, from what I can do with the company-supplied laptop (standard weapon for warriors that Intel has now made very difficult to use because of its requirement to ENCRYPT all drive contents), to traffic rules in the parking lot. I can be kicked out for a mere traffic rule violation like going faster than five miles per hour! This is not an exaggeration, and the teacher even cited an example of a warrior who got canned for driving at 20 miles per hour in the company parking lot. Innovation is not the game anymore, being mindful of rigid rules is now the game. I enjoy the independence of being a mercenary, but having this assignment is like being skipper of a small sailboat hitched to a humungous steam ship. I feel safe hitched to this lumbering giant, but I seem to have lost my creativity at the same time.

Understanding the market that Intel has been successful in, can make us appreciate Intel’s transformation from a nimble fighter jet to a slow-moving aircraft carrier. Building chips requires much more discipline than writing software. Intel rarely made mistakes (“bugs” in computer lingo), and every chip design that makes it to one of their billion dollar foundries has to be perfect (essentially free of bugs). Any bug can be very costly to fix, and most probably cost Intel a share of the market. To remain number one in the chip business, discipline is key.

Intel has been part of almost every significant semiconductor development in the past, recently it has missed an “inflection point” or two in the business. It has not participated in the cellphone chip revolution, nor has it made a dent in the mobile business. It bought Chips and Technologies in an attempt to enter the PC graphics business, but it has ceded this field to NVidia and AMD. Antitrust laws may partly be to blame, but today Intel’s core business is no longer new CPU architectures. Our PCs still use the Intel microprocessor, but Intel’s absence in the smartphone and tablet business are a significant loss. Somebody even predicted that, with Otellini’s departure, Intel has marked its transition from avante-garde chip designer to a giant and still very profitable chip foundry. It will be producing chips it did not design.

Success certainly breeds its own “downfall”, in this case not a violent crash, but a slow march to oblivion. Clearly, in a free country, no one individual, no organization can have a monopoly on success. Of course there are ancient companies that have remained competitive in their field: the Ford car company remains dominant. To stay there, however, one cannot rest and be sloppy. Competition drives everyone, including the pioneers, to work hard and yet enjoy, to be disciplined and yet be innovative. It’s not easy to get to number one, much less to remain number one. In the end, who benefits from all this? We all do.

Posted in Computers and Internet | 2 Comments


I have friends who work abroad and who send money regularly back home to a sibling or two. I tell them, why not deposit that monthly amount to a savings account instead? They feel guilty if they’d do that. The parasitic-host relationship requires the consent of the host, and as long as the host allows it the parasite can rest assured of monthly income with not much of an effort. Some parasites suck blood without even a “thank you”.

The human parasite feels entitled to others’ efforts. We all have relatives who expect to be sustained just because they are less fortunate than you are. In some pathological cases the parasite does not request but even DEMANDS to be supported.

This is very common in Pinas: out of many brothers and sisters, one earns most than others, by a wide margin. It can be because the successful one has a good business, or he/she is abroad and earning more than the rest. The siblings who remain in Pinas feel entitled to the efforts of the one successful family member. In most cases, they demand to be sustained: politeness is shunned and help is demanded, not requested. In some cases, the less fortunate siblings appeal to the good graces of the more fortunate, but in all cases the relationship is that of a parasite to a host.

It is NOT a parasitic relationship when the relative you support is doing something for you in return. For example, it is also very common for people to hire a niece to live and work in the house as a maid. A parasite would never work in order to receive support.

I am not advocating that the more fortunate among us refuse to help siblings and other relatives at all. I would like to think that I am generous, and I do help my relatives who are deserving of help. I did help a younger brother through high school and college with irregular monthly remittances, but I regret having done it because decades later the ingrate doesn’t even remember who put him through high school and college! Since then I have resolved to help only those relatives who are deserving.

I have another brother who grew up unable to support himself. He has never held a paid job for more than a year, and has started so many failed businesses nobody can count anymore. He is a complete failure, and yet he is haughty and feels that he is better than everyone else. Everyone can feel it in the way he talks and how he epxresses anger: everybody cowers in fear once he raises his voice. My father spoiled him, and accepted the fatal premise that he (my father) had an obligation to support him for life. Classic parasite-host relationship. When my father was frail and weak, this brother would bang my father’s house door in the middle of the night, and demand that he be given money right then and there, or else. My father couldn’t do anything but cry. He suffered much, all because he accepted the parasite-host relationship as normal.

This same brother is fortunate most of his children grew up to be much more productive members of society than he ever could be. However, he has not changed, and is now sustained by his wife who works, his children who have income, and some monthly revenue  he receives from his inheritance. In old age, he is still a parasite.

This is one Filipino “cultural trait” that does not constitute a virtue. There is nothing good about a parasitic arrangement. Millions of able-bodied men and women depend on somebody else’s labor with nothing given in return but the promise of family peace that never comes. Money that could otherwise be invested gainfully is instead wasted.

Is parasitism unique to Pinoys? In Japan, a person who supports a sibling is “erai” or noble; but the whole family demands that such favor be returned, eventually. In the U.S., it is very common for parents to literally let children go at age eighteen, meaning she should survive on her own. It is very rare to find anybody supporting somebody else on the basis of kinship. Parents are expected to save money for their own retirement, instead of expecting their children to support them through old age. When one is married and raising a family, it is enough to visit the parents once in a while; it is very rare to find a family man supporting his own parents. If grandpa lives with the next generation, he is expected to help raise the kids, by reading a book to them in the evening, and by other duties. Most parents in old age prefer to live on their own than live with a married son or daughter.

Of course, the parasitic relationship is never as simple as I make it out to be. It involves a complex web of dynamics that render a host completely unable to pry off the parasite. The most dominant feeling, however, is that of guilt when a parasite is let go. What the host does not know or refuses to see is that letting go is beneficial to the parasite in the long run. The parasite ceases to be a parasite when he is let go, by definition. He has to depend on his own abilities in order to survive, and soon enough learns how to serve others and get paid for it.

The moral here is that, by refusing to be a host, one can avoid parasites.

Posted in Journal | 4 Comments

Negative Effects of Weakened Property Rights: IPRA Law as a Prime Instance

(Important note: although in this article I advocate dismantling the IPRA law, I do not advocate disobeying the law as it currently exists. As a citizen and resident of the Philippines, I abide by all Philippine laws.)

Our 1987 Philippine Constitution defines land ownership as a “stewardship”, which allows us to be administrators of land that we have title to, but not “own” it in the strict sense of the word.

At first glance, this would seem like a good idea borne of a good intention: to prevent misuse of the land that one owns title to. Theoretically the government can come in and correct the situation if you misuse the land, like selling it to a foreigner, for example. However, I don’t think it has improved land use, and it has very negative effects: it has weakened the enforcement of land property rights. I believe the result has been that, in the Philippines more than any other South-East Asian country, we have more land area (land with title) occupied by people who do not own such land and yet do not pay rent either. There are more “squatters” in the Philippines than in Indonesia or Malaysia or Singapore, for example. First World countries like in Europe, America, and Japan have very few land areas (if any) occupied by squatters. In the Philippines, it seems like it’s a permanent problem. It is definitely pervasive: I do not think there is any region in the Philippines in which the squatter problem does not exist. Please do tell me if your region, or even just your local province, does not have squatters.

This stewardship idea has spawned other laws that further weaken the rights of landowners. In my mind, foremost among these laws is the so-called Indigenous People’s Rights Act (IPRA). The idea is to preserve and protect the culture of indigenous tribes, and to grant them large swaths of land that are their “ancestral domains”.

As a side note, needed specially because my family and I have just been directly affected by this law, I have to state categorically that we have nothing against indigenous cultures and I and my family (most specially both of my deceased parents) do and did respect all unique qualities of indigenous culture.

Benefits and Demands of Competition

I believe in a society where everyone has the chance to prosper, but we cannot remove the fact that life itself is competitive. In fact, survival alone can be competitive. We forget how competitive life is in general, and do not see the benefits of competition to society. In a system where competition thrives, it’s not the winner alone that wins: we all benefit by choosing the winner because our very choice, on a daily basis, is founded on which product or company most benefits us. In fact, this competitive arrangement makes it very easy to survive in a capitalist society. In pre-capitalist societies, competition is for basic things like food: we hunt and the better hunter gets more food. Capitalism allows competition to progress from the very mundane and basic survival skills to the very advanced and challenging.

We forget the benefits of capitalism because most of us do not even ascribe these benefits to capitalism, much less to the competition inherent in capitalism. In the local fast food business, for example, not many people realize the intense competition that existed between Mang Inasal and Jollibee in areas where these two companies operate. The benefit to the consumer is tremendous: lower fast food prices, with better quality; and yet not many people even think about it. We all simply go to eat at the place with the most convenient, lowest-priced, and good quality food. (It would appear that because Jollibee has now bought Mang Inasal that such competition is now moot, but that is another subject worth exploring in another blog.)

As another example, very few of us have the time to look into why wages are low in our country and high in countries like Singapore and the first world countries. We believe the left when it asserts that wages are low because of “oppressive” companies like Nike and Apple who manufacture their products in low wage countries and try to keep it low. We don’t see that wages are low in our country because of our own making: we restrict foreign direct investments with our 60/40 rule of land ownership. Without much foreign capital, we rely on local capital which is slowly growing larger but still not large enough. Without enough capital, there is no demand for labor. Without demand for labor, wages are low. Instead of driving away companies like Nike and Apple, we should welcome them in order to enhance the competition for labor. The situation right now is reversed: it is labor that is competing for too few jobs. It’s a good thing the government at least allows us to go out of the country to get a job, but even in this our laws make it difficult and expensive for the OFW to freely get a job outside.

We all try to improve our competitiveness. It is a natural effect of a competitive society. We all went to elementary school because our parents instinctively knew that we would do better (in a competitive society) by having at least elementary education. In fact, we spend an enormous effort to get done also with high school and college. We do a lot of other things to stay competitive in the labor market. The worst thing we can do to our kids is to shield them from competition, and yet that is exactly what the government is doing to indigenous tribes with at least part of the IPRA law. Hiding from competition breeds dependency and welfare mentality. Many of these tribes now cannot survive without government aid.

Capitalism as the Minimum Common Denominator

I believe that capitalist competition can coexist with diverse cultures. The spirit of competition is not anathema to some cultures. Even Muslims who reside in a capitalist society can thrive in that capitalist system, if they choose to. Islam has its own system of government that, in practice, is basically socialist, and so it appears that Muslim culture is not compatible with capitalism. I suggest that this is negated by the fact that devout Muslims can and do prosper in a capitalist society.

The idea of preserving cultures is very much akin to preserving species: the idea is to preserve species without regard to usefulness or benefit to man. Culture preservation, as stipulated in IPRA, does not distinguish between useful and useless (even harmful) practices, customs, and values in indigenous cultures. For example, if an indigenous tribe does not value education, then this law can encourage (instead of frowning upon) such valuation. This law, by discouraging education among some indigenous tribes, therefore stunts the competitiveness of members of such tribes in the larger society.

Instead of blind preservation, I would advocate preservation of selected practices, customs, and values of indigenous tribes. The criteria for selection should be decided not by the government, or even the tribe itself. That decision (on which aspects of a culture to keep or dispose of) should be left to individual families, or even down to individual members of that tribe. In other words, I would advocate doing away with all of IPRA. But this leaves too little to preserve, anthropologists would cry. No, I don’t think things like language, clothing style, a large number of religious practices are too little to preserve.

In practice, capitalism leaves much of any culture alone. The Sikh tribe in India, for example, practices the wearing of very long hair, and covering such hair with a turban. Such practice is preserved by tribe members who live as far physically and culturally as capitalist America.

Stewardship and Ancestral Domain Claims

The stewardship concept of property fits in very nicely with IPRA. Some anthropologists claim that certain indigenous tribes even hold the philosophical tenet that we cannot own land because our existence is limited while land can exist far longer than we can; therefore, it is land that owns us instead of the other way around. We have progressed so far we have forgotten this tenet. It must be ancient. It lost in the battle of ideas a long time ago. Why did it lose out to cadastral titling of land?

At first glance, this ancient philosophical tenet makes sense; but even if it were true that such tenet existed, in practice it would have called for a very oppressive government. If nobody can own land, then only the government can because government can exist for as long as land exists. Therefore, the government should own all land and control its use. Imagine that. If there is no national government that exists, or if the tribe does not recognize any such national government, then whoever is strongest and able to assert control will control land, a situation that is still “competitive” but will only enhance the survival of the strongest, not necessarily the fittest. Moreover, the strongest chieftain in any area will tend to increase his area of control. Centralization of control is inevitable. As usually happens with centrally controlled systems, they lose out to more locally autonomous systems.

Cadastral titling allows for decentralized administration of land. You, the owner of a parcel of land, is responsible for maintaining it, plus you get all the benefits of owning it. If you plant rice in it, for example, you reap all the rice grains such activity produces. If you don’t do anything with your parcel, you don’t get anything except the benefit of a possibly increased price of that land in the future. You pay land taxes annually even if you do not till the land. Whatever you do with that land requires additional capital and risking that capital. If you fail, you can’t charge the government for capital spent; however, if you succeed, the government takes a small portion of your profits.

Cadastral titling has clearly won over the idea of “land owning us”. So why are we going back to the idea that has lost maybe thousands of years ago? Is the granting of “Ancestral Domain” claims in the form “Certificate of Ancestral Domain Title” (CADT) the best way to recognize our indigenous cultures?

What is Respect for Indigenous Cultures?

We do not have to weaken further our property rights in order to accommodate indigenous cultures. Doing so would be logically and practically infeasible, and yet we may have done just this with the IPRA law.

We preserve indigenous cultures and respect them by celebrating their uniqueness in festivals and other acts of government, not by gutting our system of land ownership. Our property rights are already weak as it is, and has been rendered even weaker by IPRA.

We respect an indigenous tribe not by shielding its members from competition, but by teaching them how to be competitive: get an education, don’t get drunk, etc. We respect them by allowing them to preserve those customs, traditions, values that do not conflict with the semi-capitalist system that we have so far established. For example, killing Christians is a practice that cannot be condoned, no matter how one’s culture or religion justifies it. In a similar vein, land grabbing is also a practice that cannot be condoned, no matter how much “ancestral domain” can justify it.

Posted in News and politics | 2 Comments