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2018-03-20 07:00 by Karl Denninger
in Stupidity , 123 references
[Comments enabled]  

Oh look at the utter and complete crap.

The cryptocurrency craze has spread to small businesses like Rancho Fresco Mexican Grill, a restaurant in Modesto, California, that began accepting bitcoin as payment about a year ago.

Bitcoin offers a specific benefit to the business and its bottom line: It spares Rancho Fresco from paying credit card fees that can total $3,000 each month, owner Ismael Covarrubias told FOX40 in Sacramento.

“It definitely helps because if someone pays in bitcoin, I don't have to pay anyone anything of that bitcoin. It goes directly to my business,” he said.

That's bull****.

The clearing cost for a Bitcoin transaction is much higher than that for credit cards.  If this clownface isn't seeing it it's because he's holding the Bitcoin and not turning into something he can spend.

There are always people who believe they can get something for nothing, but it's never true.  One of the "first principles" I pointed out in Leverage, very early in the book, was that the fundamental economic equation isn't supply:demand -- it's that nobody works for free.

This in turn leads to an axiom that is never violated as it is in the same class as the laws of thermodynamics -- indeed, I have often referred to the fact that economics and thermodynamics have very similar properties.


1. You can't win (that is, "over parity" output from an input is impossible)

2. You can't break even either (that is, some sort of loss is inevitable in all transactions.)

3. The more transfers you make and/or the more complexity you have in a process, the more #1 and #2 cost you (that is, nobody works for free and thus losses are additive.)

The most efficient loan, in terms of actual cost, is the simplest: You find someone with money and borrow it directly from said person.

Provided the market is efficient -- that is, you don't lie about the risk in the loan, there are many choices of lenders, etc -- this is always the cheapest option for you and the best deal for the lender since it has the fewest losses simply by the fact that only two people touch it -- the borrower and lender.

Every single additional person who touches the deal must inherently result in more loss.  A "securitized" loan cannot be cheaper for the borrower and a better deal for the buyers of said securitization unless someone is being robbed.  That is, unless someone lies about the risk and benefits somewhere the total return, when added up for all the participants in the securitization must be less than if one of the persons just loaned the borrower the money!

If that is not the case then someone was robbed.  It cannot happen by accident either, since once again nobody works for free and while individual accidents can happen across any statistically valid number of transactions the only way this occurs if if people are ripping other people off.

The same is true here.  For Bitcoin and other cryptocurrencies there are thousands if not more people "involved"; the miners must confirm transactions, the blockchain has to be moved around, etc.  The transaction is inherently less efficient than a credit card because there are more people and more steps involved than with Visa, Master Card, Amex or Discover.

And by the way, without continual increases in the price of Bitcoin mining eventually becomes unprofitable.  When that happens the cost of clearing transactions becomes instantly exposed in full to the persons transacting since there is no longer any reason for a "miner" to absorb it (or worse, there is no reason to mine!)

You cannot get a free lunch and if you think you did someone ripped you off.  You may not know who stole from you yet and you may not have yet recognized the loss but it did occur.  It must because the basic laws of economics say it must, just as the laws of thermodynamics prohibit "free energy."

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2018-03-07 07:00 by Karl Denninger
in Stupidity , 126 references
[Comments enabled]  

This is just flat-out stupid.

Outrageously so.

In early February, a small Virginia-based company—REAN Cloud—that partners with Amazon Web Services announced a nearly $1 billion deal to provide cloud computing services for the Defense Department.

The stupidity isn't in the form of letting a contract like this to a company that formerly has only done single-digit millions worth of business with the government before, and has only $70 million of gross revenue -- in other words, an expansion of nearly ten times its allegedly-proved capability to execute.

That would be bad enough.

No, the real stupid is that the Pentagon is obviously putting data that is not intended for immediately and full public consumption in the cloud in the first place.

As I have repeatedly pointed out anyone with hypervisor access can access anything running on any instance of any VM on that machine.

There is utterly no ****ing way that the Pentagon can, has, or will actually vet every single person within Amazon's AWS unit that has such access, nor that they can control the hiring and firing of same or in any way pre-clear anyone who the firm is considering hiring.

Yet this is utterly essential for even the most-rudimentary concept of "security" around said data and ignores the risk of outside threats from other users, which we also know is real (and which, I remind you, became "much more real" with Meltdown and Spectre, flaws that have been present in all Intel processors made over the last decade.)

Now allegedly those flaws have been patched.  I say allegedly because we don't know if they have in all cases, we don't know if they can be in all cases, and what's worse there is no reason to believe these are the only such flaws.

I have data in the "cloud", including this blog.  But nothing that I am unwilling to have some random jackass able to find it in the cloud.  Since I publish this blog for the consumption of the public I really don't care one whit whether someone "steals" that data, since the entire point of publishing it is for people to see it.  I would be mildly annoyed if someone was able to penetrate the "expiry" of articles, for example, but the fact still remains that I wrote and intended them for public consumption, so.... big deal.

But Pentagon data?  Tell me once again what isn't at least modestly sensitive and not for public disclosure that the Pentagon does!

Operational and execution risk here is ridiculous, but what's even worse is the utter and complete ignorance and stupidity that drove this decision in the first place.

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