The awkward mathematics of booms and bubbles

When short and long aren't opposites.

One of the most common responses in the many, many comments to my pieces on Bitcoin over the last couple of weeks has been to ask me why, if I'm so sure it's a bubble, I don't short it.

The simplest answer is that journalism isn't a career which leaves a huge amount of money left over after the bills are paid with which to gamble, and that I'm not entirely sure it's ethical anyway. There's also the fact that the two main Bitcoin meta-exchanges aren't particularly liquid, which leaves me doubtful that I'd get the best value for money on any shorting contract,

Then there's the problem that being pretty certain the bubble is going to pop doesn't leave me any surer about when it's going to pop – something which most methods of shorting require you to know.

Shorting usually involves borrowing the thing you want to short for a fixed amount of time, selling it straight away, and then buying it back just before your loan is up. Ideally, the commodity has dropped in value, and so you make a profit by you pocketing the difference.

In a normal commodity, going short and going long – buying the commodity to sell at a higher price – are roughly symmetrical. If a share in Apple goes up $1, the people who are long make a dollar a share; if it goes down, the people who are short do.

But that symmetry breaks down when you're dealing with a commodity on the sort of parabolic trend that Bitcoin is shooting along now.

If I spend £100 on Bitcoin, then the most I can lose is £100. Conversely, if the trend continues, I could have £1000 in a month. And the maximum possible payoff is basically uncapped. Suppose I'm catastrophically wrong, and Bitcoin becomes the world currency by the end of the year – anyone who'd bought in to it, even at today's inflated prices, would be a millionaire.

But what if I short it, by borrowing £100 of Bitcoin? Well, then the most I can earn is £100, if the price drops to zero. But the amount I could lose is potentially uncapped, for the exact same reasons that make buying in to it so appealing.

That lack of symmetry – which is an innate feature of, well, maths – serves only to goose the bubble higher and higher. And at the other side, when the down swing comes, it will be vicious; with no shorters ready to step in and buy the coins of people trying to cash out, the volatility will have nothing dampening it.

So that's why I'm keeping my money where it is. But don't think I'm not pretty damn confident when I say that if I had any extra, it still wouldn't be in Bitcoin.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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A quote-by-quote analysis of how little Jeremy Hunt understands technology

Can social media giants really implement the health secretary’s sexting suggestions? 

In today’s “Did we do something wrong? No, it was social media” news, Health Secretary Jeremy Hunt has argued that technology companies need to do more to prevent sexting and cyber-bullying.

Hunt, whose job it is to help reduce the teenage suicide rate, argued that the onus for reducing the teenage suicide rate should fall on social media companies such as Facebook and Twitter.

Giving evidence to the Commons Health Committee on suicide prevention, Hunt said: “I think social media companies need to step up to the plate and show us how they can be the solution to the issue of mental ill health amongst teenagers, and not the cause of the problem.”

Pause for screaming and/or tearing out of hair.

Don’t worry though; Hunt wasn’t simply trying to pass the buck, despite the committee suggesting he direct more resources to suicide prevention, as he offered extremely well-thought out technological solutions that are in no way inferior to providing better sex education for children. Here’s a quote-by-quote analysis of just how technologically savvy Hunt is.

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“I just ask myself the simple question as to why it is that you can’t prevent the texting of sexually explicit images by people under the age of 18…”

Here’s Hunt asking himself a question that he should be asking the actual experts, which is in no way a waste of anybody’s time at all.

“… If that’s a lock that parents choose to put on a mobile phone contract…”

A lock! But of course. But what should we lock, Jeremy? Should teenager’s phones come with a ban on all social media apps, and for good measure, a block on the use of the camera app itself? It’s hard to see how this would lead to the use of dubious applications that have significantly less security than giants such as Facebook and Snapchat. Well done.

“Because there is technology that can identify sexually explicit pictures and prevent it being transmitted.”

Erm, is there? Image recognition technology does exist, but it’s incredibly complex and expensive, and companies often rely on other information (such as URLs, tags, and hashes) to filter out and identify explicit images. In addition, social media sites like Facebook rely on their users to click the button that identifies an image as an abuse of their guidelines, and then have a human team that look through reported images. The technology is simply unable to identify individual and unique images that teenagers take of their own bodies, and the idea of a human team tackling the job is preposterous. 

But suppose the technology did exist that could flawlessly scan a picture for fleshy bits and bobs? As a tool to prevent sexting, this still is extremely flawed. What if two teens were trying to message one another Titian’s Venus for art or history class? In September, Facebook itself was forced to U-turn after removing the historical “napalm girl” photo from the site.

As for the second part of Jezza’s suggestion, if you can’t identify it, you can’t block it. Facebook Messenger already blocks you from sending pornographic links, but this again relies on analysis of the URLs rather than the content within them. Other messaging services, such as Whatsapp, offer end-to-end encryption (EE2E), meaning – most likely to Hunt’s chagrin – the messages sent on them are not stored nor easily accessed by the government.

“I ask myself why we can’t identify cyberbullying when it happens on social media platforms by word pattern recognition, and then prevent it happening.”

Jeremy, Jeremy, Jeremy, Jeremy, can’t you spot your problem yet? You’ve got to stop asking yourself!

There is simply no algorithm yet intelligent enough to identify bullying language. Why? Because we call our best mate “dickhead” and our worst enemy “pal”. Human language and meaning is infinitely complex, and scanning for certain words would almost definitely lead to false positives. As Labour MP Thangam Debbonaire famously learned this year, even humans can’t always identify whether language is offensive, so what chance does an algorithm stand?

(Side note: It is also amusing to imagine that Hunt could even begin to keep up with teenage slang in this scenario.)

Many also argue that because social media sites can remove copyrighted files efficiently, they should get better at removing abusive language. This is a flawed argument because it is easy to search for a specific file (copyright holders will often send social media giants hashed files which they can then search for on their databases) whereas (for the reasons outlined above) it is exceptionally difficult for algorithms to accurately identify the true meaning of language.

“I think there are a lot of things where social media companies could put options in their software that could reduce the risks associated with social media, and I do think that is something which they should actively pursue in a way that hasn’t happened to date.”

Leaving aside the fact that social media companies constantly come up with solutions for these problems, Hunt has left us with the burning question of whether any of this is even desirable at all.

Why should he prevent under-18s from sexting when the age of consent in the UK is 16? Where has this sudden moral panic about pornography come from? Are the government laying the ground for mass censorship? If two consenting teenagers want to send each other these aubergine emoji a couple of times a week, why should we stop them? Is it not up to parents, rather than the government, to survey and supervise their children’s online activities? Would education, with all of this in mind, not be the better option? Won't somebody please think of the children? 

“There is a lot of evidence that the technology industry, if they put their mind to it, can do really smart things.

Alas, if only we could say the same for you Mr Hunt.

Amelia Tait is a technology and digital culture writer at the New Statesman.