Mind The GAAP Again

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A bit over three months ago I wrote Depreciation and started with this graph from my 2022 post Generally Accepted Accounting Principles about the way Bitcoin miners were inflating their profits through misleading depreciation of their rigs.

The key message of the graph is the contrast between the 5-year straight-line depreciation and the curves showing the value of the remaining Bitcoin that the rig will generate. I suggested that the same mismatch between straight-line depreciation and remaining value generation would apply to AI hardware. I don't claim to be the first to flag this issue; The Economist's The $4trn accounting puzzle at the heart of the AI cloud was about a month earlier.

About a month later I returned to AI economics with Mind The GAAP, but that was mostly focused on other parts of the puzzle.But now, thanks to Bryce Elder's Big tech’s $680bn buy-now-book-later problem it turns out that both Michael Burry of The Big Short and Morgan Stanley Research agree with me that there's a problem:

Below the fold I go into the details, with many thanks to Bryce Elder.

Funding Open Source?

$BLEEBZORX chart

Most of the world's software infrastructure is, or is based upon, open source. The developers and supporters of some of it, for example the Linux kernel, and the major compilers, are paid by technology companies because they are critical to their business. Other, less visible but similarly critical parts are supported by lone volunteers. Apart from the unfairness, this can lead to serious vulnerabilities. Back in 2018 I wrote about one such vulnerability, the event-stream hack, in Securing The Software Supply Chain

The attackers targeted a widely-used, fairly old package that was still being maintained by the original author, a volunteer. They offered to take over what had become a burdensome task, and the offer was accepted. Now, despite the fact that the attacker was just an e-mail address, they were the official maintainer of the package and could authorize changes.

The change they authorized included code to steal cryptocurrencies.

In 2020 I wrote a detailed post about this problem entitled Supporting Open Source Software. Recently the topic re-surfaced on an e-mail alias I read. But what triggered the post below the fold was that this coincided with yet another fascinating piece from Matt Levine and his laugh-out-loud follow-up the next day.

Internet Archive's Storage

Internet Archive Staff

Bruce Li introduces his The Long Now of the Web: Inside the Internet Archive’s Fight Against Forgetting thus:

This report delves into the mechanics of the Internet Archive with the precision of a teardown. We will strip back the chassis to examine the custom-built PetaBox servers that heat the building without air conditioning. We will trace the evolution of the web crawlers—from the early tape-based dumps of Alexa Internet to the sophisticated browser-based bots of 2025. We will analyze the financial ledger of this non-profit giant, exploring how it survives on a budget that is a rounding error for its Silicon Valley neighbors. And finally, we will look to the future, where the "Decentralized Web" (DWeb) promises to fragment the Archive into a million pieces to ensure it can never be destroyed.

It is long, detailed, comprehensive and well worth reading in full. Below the fold I comment on the part about storage.

Good Questions

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On November 21^st Bryce Elder posed Five questions from an ignorant no-coiner about the crypto crash. Each of his five questions identified some interesting apparent anomalies.

Below the fold I look into each of his questions, asking how anomalous its anomalies really were and whether they have persisted into the New Year.

TL;DR none of them are really surprising but reaching that conclusion took a good deal of research.

Meta: Post #1000

This is the one thousandth post to this blog in the 212 months since the first post. That is an average of 4.7 posts per month, or just over one per week, which is my long-term goal for the roughly half my time that isn't taken up with grand-parenting.

Some posts are a lot of work, and take more than a week. Major talks, such as The Gaslit Asset Class or Lessons from LOCKSS typically represent a month's work, as do long posts such as Sabotaging Biitcoin, Drones or The Dawn Of Nvidia's Technology.

The 1000 posts have gained over 6.88M page views, 7.6% of which were for my EE380 Talk. Less publicized but popular posts get around 30K page views, well above the 6.9K average.

The only one of these statistics that I care about is the goal of a post a week. Having an audience is nice when it happens, but that's not why I'm writing. I write for myself, to understand not necessarily to communicate. Despite this, I'd like to thank those who read and comment.

Sabotaging Bitcoin

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I find myself in the unusual position of defending Bitcoin from its critics, if only reluctantly.

In 2024 Soroush Farokhnia & Amir Kafshdar Goharshady published Options and Futures Imperil Bitcoin's Security and:

showed that (i) a successful block-reverting attack does not necessarily require ... a majority of the hash power; (ii) obtaining a majority of the hash power ... costs roughly 6.77 billion ... and (iii) Bitcoin derivatives, i.e. options and futures, imperil Bitcoin’s security by creating an incentive for a block-reverting/majority attack.

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It is worth noting that they are not talking about profiting from double-spending. The Bitcoin blockchain transacts around $17B/day of nominal value in around 450K transactions (average ~$38K), but in 2021 Igor Makarov & Antoinette Schoar found that:

90% of transaction volume on the Bitcoin blockchain is not tied to economically meaningful activities but is the byproduct of the Bitcoin protocol design as well as the preference of many participants for anonymity ... exchanges play a central role in the Bitcoin system. They explain 75% of real Bitcoin volume.

Of course, just because they aren't "economically meaningful" doesn't mean they aren't worth attacking! The average block has ~3.2K transactions, so ~$121.6M/block. As a check. $121.6M * 144 block/day = $17.5B. So to recover their cost for a 51% attack would require double-spending about 8 hours worth of transactions.

I agree with their technical analysis of the attack, but I believe there would be significant difficulties in putting it into practice. Below the fold I try to set out these difficulties.

Data Centers In Spaaaace!

Pigs in Spaaaace!

The AI bubble has been kept inflated by journalists uncritically reporting whatever CEOs say as they frantically pump the stock. Right now, you can observe a wonderful example of this by searching the Web for "orbital data centers". My recent search turned up pages of links, including SpaceX’s Lofty IPO Valuation Hinges on Big Bet on Outsize Growth from Bloomberg's Bailey Lipschultz, Sana Pashankar, and Loren Grush:

To buy into SpaceX’s audacious $1.5 trillion valuation in a listing next year, investors will need to have faith in Elon Musk’s equally galactic vision for his rocket and satellite maker, from orbital data centers to lunar factories to human settlements on Mars.

I chose one that ought to be more credible than Musk from Scientific American. Jeremy Hsu's Data Centers in Space Aren’t as Wild as They Sound reports that:

In early November Google announced Project Suncatcher, which aims to launch solar-powered satellite constellations carrying its specialty AI chips, with a demonstration mission planned for 2027. Around the same time, the start-up Starcloud celebrated the launch of a 60-kilogram satellite with an NVIDIA H100 GPU as a prelude to an orbital data center that is expected to require five gigawatts of electric power by 2035.

To do Hsu justice, he did point out a few of the problems. But follow me below the fold for more.