ELI5 of Review of “Modelling Bitcoin’s Value with Scarcity

A metaphor to show the issue with the OLS Regression based model

After reviewing Plan B’s “Modelling Bitcoin’s value with Scarcity”, I understood that lots of people without strong quantitative or statistical backgrounds had difficulty understanding my review of Plan B’s article. So here’s an additional write up that might help these people to better understand my review.

Engineering and assumptions

When people build bridges or other large constructions like skyscrapers, plenty of assumptions have to be made. Based on these assumptions a structural engineer will design the construction based on requirements that follow from these assumptions. One of the assumptions could be the number of people and vehicles it should be able to carry (and with it the minimum weight it should be able to withstand). Durability of the construction and the impact of extreme weather conditions are considered on top of assumptions like these.

What if assumptions are not met

When the assumptions underlying the structural engineer’s design are not met, dangerous situations might occur. Imagine that a bridge was designed with the assumption it should be able to carry at least 50 cars and at max 125 cars, while some day there happens to be a severe traffic jam and the bridge now has to carry 200 cars. As a result the entire bridge starts to collapse under…