Wei Dai, one of the first people Satoshi Nakamoto contacted about Bitcoin, was a frequent Less Wrong contributor. So was Hal Finney, the first person besides Satoshi to make a Bitcoin transaction.
The first mention of Bitcoin on Less Wrong, a post called Making Money With Bitcoin, was in early 2011 - when it was worth 91 cents. Gwern predicted that it could someday be worth "upwards of $10,000 a bitcoin". He also quoted Moldbug, who advised that:
If Bitcoin becomes the new global monetary system, one bitcoin purchased today (for 90 cents, last time I checked) will make you a very wealthy individual...Even if the probability of Bitcoin succeeding is epsilon, a million to one, it's still worthwhile for anyone to buy at least a few bitcoins now...I would not put it at a million to one, though, so I recommend that you go out and buy a few bitcoins if you have the technical chops. My financial advice is to not buy more than ten, which should be F-U money if Bitcoin wins.
A few people brought up some other points, like that if it ever became popular people might create a bunch of other cryptocurrencies, or that if there was too much controversy the Bitcoin economy might have to fork. The thread got a hundred or so comments before dying down.
But Bitcoin kept getting mentioned on Less Wrong over the next few years. It's hard to select highlights, but one of them is surely Ander's Why You Should Consider Buying Bitcoin Right Now If You Have High Risk Tolerance from January 2015. Again, people made basically the correct points and the correct predictions, and the thread got about a hundred comments before dying down.
I mention all this because of an idea, with a long history in this movement, that "rationalists should win". They should be able to use their training in critical thinking to recognize more opportunities, make better choices, and end up with more of whatever they want. So far it's been controversial to what degree we've lived up to that hope, or to what degree it's even realistic.
Well, suppose God had decided, out of some sympathy for our project, to make winning as easy as possible for rationalists. He might have created the biggest investment opportunity of the century, and made it visible only to libertarian programmers willing to dabble in crazy ideas. And then He might have made sure that all of the earliest adapters were Less Wrong regulars, just to make things extra obvious.
This was the easiest test case of our "make good choices" ability that we could possibly have gotten, the one where a multiply-your-money-by-a-thousand-times opportunity basically fell out of the sky and hit our community on its collective head. So how did we do?
I would say we did mediocre.
According to the recent SSC survey, 9% of SSC readers made $1000+ from crypto as of 12/2017. Among people who were referred to SSC from Less Wrong - my stand-in for long-time LW regulars - 15% made over $1000 on crypto, nearly twice as many. A full 3% of LWers made over $100K. That's pretty good.
On the other hand, 97% of us - including me - didn't make over $100K. All we would have needed to do was invest $10 (or a few CPU cycles) back when people on LW started recommending it. But we didn't. How bad should we feel, and what should we learn?
Here are the lessons I'm taking from this.
1: Our epistemic rationality has probably gotten way ahead of our instrumental rationality
When I first saw the posts saying that cryptocurrency investments were a good idea, I agreed with them. I even Googled "how to get Bitcoin" and got a bunch of technical stuff that seemed like a lot of work. So I didn't do it.
Back in 2016, my father asked me what this whole "cryptocurrency" thing was, and I told him he should invest in Ethereum. He did, and centupled his money. I never got around to it, and didn't.
On the broader scale, I saw what looked like widespread consensus on a lot of the relevant Less Wrong posts that investing in cryptocurrency was a good idea. The problem wasn't that we failed at the epistemic task of identifying it as an opportunity. The problem was that not too many people converted that into action.
2: You can only predict the future in broad strokes, but sometimes broad strokes are enough
Gwern's argument for why Bitcoin might be worth $10,000 doesn't match what actually happened. He thought it would only reach that level if it became the world currency; instead it's there for...unclear reasons.
I don't count this as a complete failed prediction because it seems like he was making sort of the right mental motion - calculate the size of the best-case scenario, calculate the chance of that scenario, and realize there's no way Bitcoin wasn't undervalued under a broad range of assumptions.
3: Arguments-from-extreme-upside sometimes do work
I think Moldbug's comment aged the best of all the ones on the original thread. He said he had no idea what was going to happen, but recommended buying ten bitcoins. If Bitcoin flopped, you were out $10. If it succeeded, you might end up with some crazy stratospheric amount (right now, ten bitcoins = $116,000). Sure, this depends on an assumption that Bitcoin had more than a 1/10,000 chance of succeeding at this level, but most people seemed to agree that was true.
This reminds me of eg the argument for cryonics. Most LWers believe there's a less than 10% chance of cryonics working. But if it does work, you're immortal. Based on the extraordinary nature of the benefits, the gamble can be worth it even if the chances of success are very low.
We seem to be unusually fond of these arguments - a lot of people cite the astronomical scale of the far future as their reason for caring about superintelligent AI despite the difficulty of anything we do affecting it. These arguments are weird-sounding, easy to dislike, and guaranteed to leave you worse off almost all the time.
But you only need one of them to be right before the people who take them end up better off than the people who don't. This decade, that one was Bitcoin.
Overall, if this was a test for us, I give the community a C and me personally an F. God arranged for the perfect opportunity to fall into our lap. We vaguely converged onto the right answer in an epistemic sense. And 3 - 15% of us, not including me, actually took advantage of it and got somewhat rich. Good work to everyone who succeeded. And for those of us who failed - well, the world is getting way too weird to expect there won't be similarly interesting challenges ahead in the future.
[copying the reply here because I don't like looking at the facebook popup]
(I usually do agree with Scott Alexander on almost everything, so it's only when he says something I particularly disagree with that I ever bother to broadcast it. Don't let that selection bias give you a misleading picture of our degree of general agreement. #long)
I think Scott Alexander is wrong that we should regret our collective failure to invest early in cryptocurrency. This is very low on my list of things to kick ourselves about. I do not consider it one of my life's regrets, a place where I could have done better.
Sure, Clippy posted to LW in 2011 about Bitcoin back when Bitcoins were $1 apiece, and gwern gave an argument for why Bitcoin had a 0.5% probability of going to $5,000 and that this made it a good investment to run your GPU to mine Bitcoins, and Wei Dai commented that in this case you could just buy Bitcoin directly. I don't remember reading that post, it wasn't promoted, and gwern's comment was only upvoted by 3 points; but it happened. I do think I heard about Bitcoin again on LW later, so I won't press the point.
I do not consider our failure to buy in as a failure of group or individual rationality.
A very obvious reply is that of efficient markets. There were lots and lots of people in the world who want money, who specialize in getting more money, who invest a lot of character points in doing that. Some of them knew about cryptocurrency, even. Almost all of them did the same thing we did and stayed out of Bitcoin--by the time even 0.1% of them had bought in, the price had thereby gone higher. At worst we are no less capable than 99.9% of those specialists.
Now, it is sometimes possible to do better than all of the professionals, under the kinds of circumstances that I talk about in Inadequate Equilibria. But when the professionals can act unilaterally and only need to invest a couple of hundred bucks to grab the low-hanging fruit, that is not by default favorable conditions for beating them.
Could all the specialists have a blind spot en masse that you see through? Could your individual breadth of knowledge and depth of sanity top their best efforts even when they're not gummed up in systemic glue? Well, I think I can sometimes pull off that kind of hat trick. But it's not some kind of enormous surprise when you don't. It's not the kind of thing that means you should have a crisis of faith in yourself and your skills.
To put it another way, the principle "Rationalists should win" does not translate into "Bounded rationalists should expect to routinely win harder than prediction markets and kick themselves when they don't."
You want to be careful about what excuses you give yourself. You don't want to update in the opposite direction of experience, you don't want to reassure yourself so hard that you anti-learn when somebody else does better. But some other people's successes should give you only a tiny delta toward trying to imitate them. Financial markets are just about the worst place to think that you ought to learn from your mistake in having not bought something.
Back when Bitcoin was gaining a little steam for the first time, enough that nerds were starting to hear about it, I said to myself back then that it wasn't my job to think about cryptocurrency. Or about clever financial investment in general. I thought that actually winning there would take a lot of character points I didn't have to spare, if I could win at all. I thought that it was my job to go off and solve AI alignment, that I was doing my part for Earth using my own comparative advantage; and that if there was really some low-hanging investment fruit somewhere, somebody else needed to go off and investigate it and then donate to MIRI later if it worked out.
I think that this pattern of thought in general may have been a kind of wishful thinking, a kind of argument from consequences, which I do regret. In general, there isn't anyone else doing their part, and I wish I'd understood that earlier to a greater degree. But that pattern of thought didn't actually fail with respect to cryptocurrency. In 2017, around half of MIRI's funding came from cryptocurrency donations. That part more or less worked.
More generally, I worry Scott Alexander may be succumbing to hindsight bias here. I say this with hesitation, because Scott has his own skillz; but I think Scott might be looking back and seeing a linear path of reasoning where in fact there would have been a garden of forking paths.
Or as I put it to myself when I felt briefly tempted to regret: "Gosh, I sure do wish that I'd advised everyone to buy in at Bitcoin at $1, hold it at $10, keep holding it at $100, sell at $800 right before the Mt. Gox crash, invest the proceeds in Ethereum, then hold Ethereum until it rose to $1000."
The idea of "rationality" is that we can talk about general, abstract algorithms of cognition which tend to produce better or worse results. If there's no general thinking pattern that produces a systematically better result, you were perfectly rational. If there's no thinking pattern a human can realistically adopt that produces a better result, you were about as sane as a human gets. We don't say, "Gosh, I sure do wish I'd bought the Mega Millions ticket for 01-04-14-17-40-04* yesterday." We don't say, "Rationalists should win the lottery."
What thought pattern would have generated the right answer here, without generating a lot of wrong answers in other places if you had to execute it without benefit of hindsight?
Have less faith in the market professionals? Michael Arc née Vassar would be the go-to example of somebody who would have told you, at that time, that Eliezer-2011 vastly overestimates the competence of the rest of the world. He didn't invest in cryptocurrency, and then hold until the right time, so far as I know.
Be more Pascal's Muggable? But then you'd have earlier invested in three or four other supposed 5,000x returns, lost out on them, gotten discouraged, and just shaken your head at Bitcoin by the time it came around. There's no such thing as advising your past self to only be Pascal's Muggable for Bitcoin, to grant enough faith to just that one opportunity for 5,000x gains, and not pay equal amounts of money into any of the other supposed opportunities for 5,000x gains that you encountered.
I don't see a simple, generally valid cognitive strategy that I could have executed to buy Bitcoin and hold it, without making a lot of other mistakes.
Not only am I not kicking myself, I'd worry about somebody trying to learn lessons from this. Before Scott Alexander wrote that post, I think I said somewhere--possibly Facebook?--that if you can't manage to not regret having not bought Bitcoin even though you knew about it when it was $1, you shouldn't ever buy anything except index funds because you are not psychologically suited to survive investing.
Though I find it amusing to be sure that the LessWrong forum had a real-life Pascal's Mugging that paid out--of which the real lesson is of course that you ought to be careful as to what you imagine has a tiny probability.
EDIT: This is NOT me saying that anyone who did buy in early was irrational. That would be "updating in the wrong direction" indeed! More like, a bounded rationalist should not expect to win at everything at once; and looking back and thinking you ought to have gotten all the fruits that look easy in hindsight can lead to distorted thought patterns.