On Football Officiating

This counts for my foreign travel blog because I said “football” instead of “soccer”, and because I’m shamelessly pandering to EPL fans where this awful call probably would never have been made.*

On 57 minutes in the Seattle Sounders’ MLS match against Columbus, Sounders center back Djimi Traore was sent off and Columbus was given a penalty kick, which they converted to tie the match at 1-1. Columbus later went on to win with a dubious corner kick in the 93rd minute.

Whether or not the corner was legitimate, I want to talk about the red card. Despite my confessed bias in favor of my home team, I do think it was an objectively bad call. (You can watch the video of the sending off here. The angle shown at 48 seconds best approximates the view of the referee.)

Anyway, the laws of the game dictate that the referee may send a player off if he

1. Denies an obvious goal-scoring opportunity
2. to an opponent moving towards the goal
3. by a foul punishable by a direct free kick.

Condition (ii) is undeniable. Condition (i) was simply not met. The red card is warranted not by denying a goal, but by denying the obvious opportunity to score a goal. Dominic Oduro got a good shot on target. Clearly, he was not denied the opportunity to score – the fact that he failed no more satisfies condition (i) than would the goalkeeper making any normal save.

Now, there’s a reason why football has evolved to give these penalties – if a player has to keel over and not attempt a shot in order to get a deserved penalty, it incentivizes players to flop in the box rather than making a good faith effort to just play the game. But I think the correct solution here is simply to be harsher in punishing simulation as a form of unsporting behavior, which is afforded by the rules without our having to do this bizarre balancing act between the value of instrumentally reducing simulation and of giving the laws their obvious plain-text interpretation.

Training referees to better spot and punish simulation has been a major initiative of global professional officiating organizations in the past few years, and I think it has produced a marked – if still incomplete – improvement in player behavior in the EPL, MLS, and international competitions. There is no reason to believe that trend will reverse itself, so we really don’t need to distort games and rules just to try and crack down on it.

UEFA and, to a lesser extent, FIFA, are considering doing away with the sending-off punishment in these cases. Leaving aside the independent merits of the law itself, the careful enforcement of condition (i) makes that whole debate rather superfluous. The major issue is that players are being heavily punished for marginal offenses like Traore’s. If condition (i) and anti-simulation rules are both properly enforced, then these marginal offenses don’t trigger the harsh punishment and players will only be sent off for egregious and game-changing offenses. That’s clearly the spirit of the law, and it just makes intuitive sense in a competitive, adversarial context.

The last issue I want to mention is how frequently people ignore condition (iii). It’s not at all clear to me that Traore actually committed a foul punishable by a direct free kick – he didn’t kick, push, hold, strike or trip his opponent. There’s probably a case that what he did was somewhere between a kick, a trip, and a push, and made his opponent lose balance. But there’s also a case that it was closer to impeding the progress of an opponent, which is punishable only by an indirect free kick. Since condition (iii) is also a prerequisite for awarding a penalty kick, there’s no reason why marginal cases like this need to trigger a penalty, either.

Referees are highly reluctant to give indirect free kicks inside of the penalty area, even though the laws expressly allow for it. Whether or not this was an appropriate case to do so, I think that referees should be more willing to consider marginal cases as obstruction. The law exists to provide a less severe alternative to the “triple punishment” of penalty, sending off, and league ban. Officials should use it as such.

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*Allen Chapman kind of looks like a scrawnier Howard Webb, but I know who I would rather see officiating a top-level match.

Young (and Scary) Debaters

So I’m a little late to the party, but I want to know how much site traffic I owe to former Etonian Jamie Jackson. He’s made me feel special, so I’ll give him a quid for every fifty poll responses. And (shameless plug) feel free to follow the blog!

Last Saturday, I had the distinct pleasure of adjudicating the Oxford region’s round of the “International Competition for Young Debaters”, or ICYD. Twenty-four teams of middle-schoolers competed in three preliminary rounds and a final in British Parliamentary debate format, which is the style of the World University Debating Championships. In it, four teams are divided into “government” and “opposition” benches, two teams on each side. A motion is given by the tournament’s chief adjudicator, and 15 minutes later the debate begins. Each speaker gets one speech, and, at the end of the debate, the teams are ranked first through fourth. The only difference between this and university debate is that speeches were shortened from seven minutes to only five minutes.

Considering that this is a totally impromptu debate style on relatively complex issues that even college and university students screw up, I went into the day terrified that I was going to watch some truly atrocious rounds.

I was wrong. And that’s scary.

So, to be fair, we judged the tournament on the university speaking scale – the average university speaker gets 75 points per round, and the effective range of possible scores is 55 (absolutely atrocious and possibly offensive) to 95 (the best speech you’ve ever seen). Realistically, though, scores below 65 or above 85 are fairly rare – 85 is the approximate average of the best speaker at the World Championships every year.

Now, you would expect these 13-15 year-olds to be speaking in the 50’s and 60’s pretty consistently – and they were. I don’t have the full tab, but I think the average speaker was right around 65. Still, that wasn’t because they couldn’t formulate intelligent thoughts or express themselves well – they were all quite articulate – but rather because they more frequently made the exact same interpretive mistakes as college students might on the same topic. I was randomly assigned to some of the better rounds, and I think the average speaker score that I gave was closer to 72, about what you would expect from a well-read college freshman with no formal debate experience.

So some of these kids were pretty good. But that’s not the scary part. The scary part is Eton. What the hell…

Eton had three of the four teams in finals. One of their speakers scored a 78 in a preliminary round. The Eton finalists had in-round speaker score averages at or above that of the average university student competing at the World Championships. We don’t give speaker scores for the final, but I’m pretty sure that three of the six Eton speakers gave as good a speech as I would have in the exact same circumstance. And they’re in middle school.

I think there’s something in the water…

Anyway, perhaps the most telling trait of the Eton kids is how differently they approached judge feedback from the other competitors. If you’ve ever gone to a university-level debate tournament, you can instantly single out the most ravenous debaters by how they descend on the judge after every round to get extensive feedback and find out exactly why they won or lost. It can get really intense. At this tournament, full of middle school students, almost nobody was doing that. They weren’t swarming us between rounds. They weren’t exhibiting obvious stress during preparation time. If they found out that they won, that was all they needed, and they didn’t ask further questions. When they lost, they looked kind of sheepish, accepted your advice, and went back to their friends.

Not the Eton kids.

After the final, we almost missed our ride back because all six of the Eton debaters in the final came to the judging panel for extensive feedback and asked persistent questions about how they could have done every single argument or strategic move better than they did. To maximize feedback, they did something that I haven’t even seen university debaters doing – they split up partnerships, sent one person to one judge and the other to another judge, then switched to get double feedback from the same person. And that includes the team that won.

So here’s why I’m scared: I’m scared of 14 year-olds in their first or second years of debate who would be non-trivial competition for me in my sixth, because that shows how far I still have to go to be a great BP debater. I’m scared of how much preparation and experience those kids will have in this style before they ever go to university, because they will almost invariably go to top UK universities and make it difficult for more technically-minded American debaters to attain success on the international level. And I’m scared that the extent to which these kids are focused on international styles of debate will concentrate them in BP, while American debaters get dispersed across policy, LD, Public Forum, APDA, NPDA, and BP. That means that these kids will be the calibration standard and the top judges at international competitions five years from now, and will perpetuate a culture that the U.S. is only slowly penetrating as a serious competitive force.

I really like British Parli. I think it’s a highly engaged, intellectual, exciting, and accessible style of debate. I would like to see more focus on it in American high schools and colleges. But consider this my call to action: we have a lot of work to do if we want to make the States as a whole (and not just Yale, Harvard A, and Colin Etnire) a serious force on the international scene.

*The cover photo is a panoramic view of the countryside around the Chenderit School, a middle school a short drive outside of Oxford, where the tournament was held.

BitCoinference Report

Last weekend*, the “real founders of FaceBook”, Cameron and Tyler Winklevoss, joined hedge fund manager and BitCoin speculator Michael Novogratz at the Oxford Union for a panel discussion of the digital currency’s future. Here’s what they had to say:

(Note: Since the room was so crowded, I couldn’t see the front to tell who was speaking. Mr. Novogratz had a quite different voice from the Winklevosses, but Tyler and Cameron sounded quite similar to me. As such, their answers are listed collectively under “Winklevoss”. It was clear, though, that one of them had greater expertise in the technical aspects of BitCoin and the other in the financial markets and regulations. Please also note that these answers are my substantively notes, but not exact transcriptions of either the questions or the responses given. I take full responsibility for any errors in reconstructing the dialogue.)

Question: Could you provide some background to Bitcoin?

Winklevoss: First of all, there are actually two different words being used here. “Bitcoin”, with a capital “B”, is the network and process through which transactions take place; “bitcoin” with a lower-case “b” is the digital currency itself. The important innovation of the Bitcoin network is its decentralization. The “mining” process, whereby people in the network verify transactions, cuts out the middle-man in currency or document exchange. Basically, that verification network provides a public ledger where assets are accounted, but of course no physical asset actually exists – bitcoins are all digital. But anyway, bitcoins are unique in that they aren’t necessarily a trust-based currency. What I mean is that past currencies have always been based on trust in some third-party institution – banknotes relied on trust that the issuing bank had gold to exchange for them, fiat currencies rely on trust in the faith and credit of the issuing government, and digital transaction services like PayPal rely on trust in the honesty and reliability of the middle man. Bitcoin’s real breakthrough, beyond the currency itself, is solving the problem of getting a distributed network to establish consensus on the validity of transactions so that a third-party doesn’t have to certify it.

Q: What is driving speculation in bitcoin markets?

Michael: Speculative bubbles are always formed around simple narratives that people can easily buy into. There are enough anti-government libertarians and technophiles in the world who like the narrative of cutting the government out of currency transactions, and they will create a bubble in this asset. We bought it and hoped for that, and held on when it started to fall. The reason we held on is that bubbles don’t tend to pop until years after they have been called bubbles. Lots of people are calling bitcoin a bubble right now, so it really isn’t one. Bubbles only really pop after every starts believing that the growth will continue forever – think about how people were talking about a housing bubble in 2000 and 2001, but it was only in 2007, when people didn’t believe it anymore, that it actually came true. It will be years before bitcoin is worth selling for maximum profit. But while we believe that bitcoin is speculative, we also believe that it represents a long-term paradigm shift in finance. That paradigm shift will become evident when large institutional investors like Goldman Sachs back effective, reliable exchanges, unlike less well-funded and developed exchanges like Mt. Gox.

W: It’s also not just a paradigm shift in the currency. In 5-10 years, we expect to see this type of protocol as a universal public asset registry on which other businesses and applications can be built, including document verification for contracts, deeds, or sales.

Q: What do you see in the future of bitcoin with respect to regulation?

W: bitcoin isn’t likely to be outlawed in the U.S. like it has been in China. Regulation in the U.S. is mostly a state issue, since the Fed doesn’t recognize it as a currency and the SEC doesn’t recognize it as a security. So right now there’s really no oversight, except the need for state-to-state licensing to operate exchanges.

M: In the medium-term, regulation at the federal level will be good for bitcoin because it will simplify the patchwork of licensing requirements. As to how we should categorize bitcoin, and regulatory classification aside, right now I have tech investor friends who urge me to view bitcoin basically as a really cheap technology stock. If you take the value of bitcoin as its market capitalization and divide it between the number of users, then it really is phenomenally cheap right now and a really good deal. And like any tech stock, it will continue to grow in value as it gets more users, so everyone who is invested in bitcoin has an interest in making it stable and growing it so that they can maximize value.

Q: What do you think about alternative digital currencies, so-called “Altcoins” like Litecoin, that claim to improve upon the Bitcoin protocol?

W: bitcoin isn’t necessarily the long-term winner in the digital currency race, though there is a huge first-mover advantage here. We don’t see the alternatives as really solving any important problems, either, so we don’t think that any of the existing Altcoins are likely to take over. Whatever digital currency does win out though, we think there will only be one, and it will be winner-take-all.

M: Currencies need to reach some kind of stable equilibrium in order to be a good store of value. bitcoin is still very volatile because it has relatively few users, but it will reach an equilibrium as it grows. Altcoins are currently exploiting that volatility to try to get into the market, but I agree that scale is essential to the long-term success of a digital currency.

Q: What are the biggest challenges facing bitcoin going forward?

W: Clearer regulation. Security breaches from malicious miners. Neither of these is keeping me up at night. Uncertainty and fraud are common in all currencies, and the black market in bitcoin is much smaller, as a percentage, than the black market conducted in fiat currencies. There are also really smart people working on resolving these problems, so I think it will work out.

M: The biggest problem right now is the shortage of reliable infrastructure. I think the Chinese ban comes in recognition of the fact that no big investors have created the stability needed for long-term viability yet. But once they do, the currency will become universally viable as a medium of transaction, and China will want back in.

Q: Since the bitcoin ledger is public, people concerned with their privacy use “coin mixing” services to obscure their identities. Thoughts?

W: We think that much privacy is unnecessary. Coin mixing is dangerous because it can be used as a form of money laundering, so it could draw a regulator crackdown. A common misunderstanding is that Bitcoin is anonymous – that’s just not true. The ledger is totally public, so it’s not anonymous at all. And governments have a huge interest in a transparent exchange medium that will make it easier to regulate drug rings, fraud, and other illicit activities. Creating opacity in the system threatens to make regulators scared and aggressive, and it also risks making it harder to work the market as an investor, since you don’t know where trades and transactions are happening.

Q: The Bitcoin verification protocol that you endorse for other applications, like document transfer, relies on a proof mechanism that traces the blockchain (basically, the public ledger) to verify the pedigree of exchanged coins. The longer the currency is around, and the more trades are made, the longer the chain gets, making proof difficulty harder and more expensive in terms of computational power. Do you see any viable solutions to this problem on the horizon?

W: That’s a lot of questions. I’m not worried about it. There are lots of really smart computer scientists and engineers working on this sort of thing, and I’m sure they’ll find a way to make it work.

Other W: To clarify for everyone, the process of mining is when people set up their computers to do the verification of transactions. Then every ten minutes, they attach a chunk of transactions to the blockchain, which is the ledger we were talking about earlier. So mining is the process that makes the network function and raises this concern. One promising thing that some people are looking into is a way to compress the blockchain, kind of like how you zip a file. But this also raises another worthwhile point, which is that the blockchain is totally public and transparent – that’s how the proofs are done – and that makes Bitcoin a terrible place for money laundering.

Q: I’m really interested in the social and political aspects of bitcoin. For example, in your investing experience, how many of the people involved are women?

M: The success of Bitcoin will help people currently without access to banks, so it will most benefit the very poor and those living in undeveloped areas, especially in developing countries. As for who’s involved in the market, it’s pretty much the same makeup as all of financial investing, which tends to be a pretty male-dominated field.

W: Keep in mind that Bitcoin is not an essentially libertarian project. It can certainly be used that way, and it’s mysterious creator, Satoshi Nakamoto, recognized that it could be used that way, but said that it wasn’t his intent. It was an experiment. Outside of the libertarian project, it has huge potential to be applied to micro-finance schemes and micro-payments for individuals who aren’t connected to banks or credit card companies to transfer their money.

M: I think the next killer app is one that makes this type of micro-transfer reliable and accessible to anyone with a mobile device.

W: bitcoin transfers are cheap, reliable, and almost instantaneous, 24/7. That’s a big improvement on other forms of money transfer. You could use it for disaster relief – imagine if, after the Haitian earthquake, people could instantly send money to those affected or to aid organizations on the ground. Of course, it’s also really valuable for un-banked people, and much better than high-cost alternatives, like the pilot currency that Vodaphone has rolled out in Kenya and Tanzania. People are flocking to it because its the only form of money transfer available to them, but the transaction fees are still pretty steep. There’s no way it could compete with basically free transactions in bitcoin, so if we can figure out how to get bitcoin to un-banked people in the developing world, it will instantly give them access to free financial services that they obviously want, so there’s massive room for expansion and use of the currency in that regard.

M: Exactly. bitcoin is like the monetary version of Twitter. Think about how it would be if, aside from being able to organize via social media, protestors in Cairo could hold up signs for TV cameras requesting bitcoin donations to a particular account? They would have an instant, crowd-sourced funding mechanism for social movements.

Q: Given that bitcoin is distributed, who will have the incentive and the media power to remove the stigma created by bitcoin’s illicit use on The Silk Road?

W: The more bitcoin is used, the more people will change the way they talk about it in a positive way. It’s already much better press in the last year or so. Early on, it was easy to make headline-grabs with scares about black markets, but facts show that only about 4% of bitcoin transactions occur in shadow economies in the deep web, which is a lower proportion than black markets in most fiat currencies. When people are confronted with the facts, the discourse changes, so it doesn’t need a single institution to be pushing positive publicity. We can see, for example, how early derisions of bitcoin as a Ponzi scheme have almost completely faded away because more information is coming out and more reliable teams are coming in to run the infrastructure.

Q: You’ve all talked about the need for more stable infrastructure. Should small investors wait for big-business exchanges before they buy?

M: Mt. Gox is currently going down, and the faster, the better. We need to get rid of the “B-team” exchanges and bring in the “A-team” to set up reliable exchanges before bitcoin can become truly reliable as a store of value. But, while I don’t give investment advice, because markets are volatile and there’s risk and all of those sorts of caveats, if bitcoin falls to around $400 again, I say buy it. Today it’s around $550, I think, but if it falls that low, it will be a great deal and have a lot of growth potential, in my opinion.

W: The later you invest, the lower your risk; but there will also be a correspondingly lower reward. More exchanges and better regulation will keep the price more stable and make fraud less likely. But Bitcoin is going to be the new internet. It has massive potential as a platform that we haven’t even begun to fully exploit, and it will revolutionize the way we manage our online lives. If you wait for it to reach that point, it will be too late to make money in the market. If you want it as an investment, buy sooner rather than later and sit on it for a few years while the infrastructure develops and more people get involved.

M: Oddly, and this isn’t normally the case, I like bitcoin now, on the way day, even better than I liked it at the same value on the way up. That it’s on the way down right now is a sign of the market moving towards equilibrium and stable infrastructure that will make bitcoin more valuable again going forward.

Q: How long do you think it will be before small firms and individual consumers are widely adopting bitcoin?

W: Well, it’s already happening, and it will continue to expand. Overstock.com accepts bitcoin now, as do lots of other small firms. The reason is that these firms have pretty low margins, and the fees that credit card companies charge for their transactions cuts into those margins. Since bitcoin is basically free, adopting it increases the profit margin for these firms, so there’s a big incentive for them to keep signing on.

Q: What’s going to happen to all of the bitcoins that the FBI seized when it shut down The Silk Road?

M: They’ll probably auction them – it might be a good time to buy.

W: Some of the coins will be tied up in litigation for the next couple of years – the purported owner of The Silk Road is challenging the legality of their seizure. The remainder, though, are worth about $30 million, and will come up for auction. The FBI has no intention of becoming players in the bitcoin market – they want out as fast as they can. As a matter of fact, though, they’ve risen pretty substantially in value since the FBI seized them, so the government stands to make a tidy profit on their sale.

Q: You mentioned earlier that bitcoin is inherently deflationary because the quantity in circulation caps out. Doesn’t that lead to a pressure to hold bitcoins instead of spending them, which would hurt the expansion of the transaction market?

W: So right now, bitcoins are still inflationary on a logarithmic scale. So there are something like 25 coins mined every ten minutes right now, and next year there will be 12.5 every ten minutes, and so on. It will cap out at 21 million coins in circulation in 2020. When that happens, it will pressure people to save more, but I don’t see that as necessarily a bad thing. It will stabilize and become deflationary, but right now uncertain regulation and the relatively low number of users are spurring volatility.

M: Current investors are basically hoarders, but even when the currency is deflationary, you have to recognize that everyone has a point when they will sell at least some fraction of their hoard. And the infinite divisibility of bitcoins makes that possible no matter how valuable any given bitcoin gets, which I think side-steps the major problem with hoarding in fiat currencies or product markets. Since everyone eventually can and does sell, the important factor in increasing the use of bitcoin will just be getting more people involved.

W: Think about it like this: people who hold stocks will sell them at irregular intervals when life events dictate it. If you want to buy a house or a car, or anything like that, you might call your broker and ask them to trade in some of your shares for a liquid currency. You always have things that you want to buy, so people will still use bitcoins for transactions even in a deflationary market five or ten years down the road.

Q: What are credit card companies doing with respect to bitcoin?

M: They’re running scared. Their entire business model is based on being able to charge transaction fees for their networks. Even if the difficulty of mining makes miners’ fees non-negligible, they will still be tiny compared to what credit card companies and other intermediaries need to charge in order to make a profit. So Visa and MasterCard want to slow down bitcoin as much as possible, and a lot of transactional business are trying to develop their own alternatives. Amazon, for example, now has its own digital currency, but I don’t think they can compete in the long-term with essentially free bitcoin transactions replacing current payment methods.

W: Banks can’t make their own effective currencies. The technological support and innovation just isn’t there. The people proposing revolutionary changes are coming from outside the existing tech space, and we’ll have to see how industry reacts. It might react regressively. It’s interesting to note how the recording industry didn’t invent iTunes, and telecom companies didn’t invent voice-over-IP – it took a creative team outside of these industries to fundamentally change them. So Visa and MasterCard will almost certainly try to fight bitcoin, but they’ll just as certainly eventually lose.

Q: Will bitcoin be big in business-to-business transactions? How about in the financial industry?

W: Yes, and it will disrupt white-collar workers the way the mechanization disrupted blue-collar workers. You won’t need Escrow agents when you have a trusted transaction network that can hold and release bitcoins for you when certain conditions are met. You won’t need trustees when you can tell your bitcoin wallet to distribute x amount of bitcoins to your child on their 18th birthday, or when they go to college. And you can require multiple authorizations to use particular coins or in particular ways, so we won’t need the same network of fraud prevention that exists in the white-collar world today.

Q: How will developing countries adapt to bitcoin?

W: Exchanges are still pretty risky, so early movers like us had to work on trust and word-of-mouth reputation. That’s what it comes down to: trust. But in theory, all you need is internet in order to use bitcoin. In fact, people are also developing SMS-based bitcoin wallets that can allow you to manage transactions over any basic cell network. So expansion will be easy, but agains there’s the need for some more investment in infrastructure.

*Saturday, February 22