Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf]
arxiv.org
arxiv.org
> Going through monetary history, we show how a true numeraire must be one of minimum variance with respect to an arbitrary basket of goods and services
The issue with this paper that I can see is it that it's a purely economic analysis that makes no mention of the inherent value of the technological underpinnings. In other words, it abandons some practical business valuations to the exclusivity of economic/financial ones. I don't think it's reasonable to say that the technological solution to game theoretic challenges like double spending on public digital networks indicates a final value of 0 as he does. I have no idea how to value this properly but have seen proofs by geniuses that are in complete contradiction to each other on the matter.
Maybe there is a third group: Believes that are some uses with cryptocurrencies, but most of the space is over-hyped, but that doesn't mean everything is vaporware, and someone who doesn't care about the money earned by working in it but rather that it replaces money as we know it today.
Furthermore I'm not even going to bother sending them this paper because I know that most of them rarely read anything longer than a Tweet.
I'm not entirely sure either (and I didn't, for the record) but I could imagine why people would. Grouping a huge industry into just two groups generally is seen as over-simplification, and I would agree with that. There are clearly people working in the space that don't fit in in either groups.
If your only goal is to persuade people who have no interest in utilizing reason, or to dazzle people who already agree with you with your rhetorical skills, then sure, there’s not much point. But if you actually want to utilize reason yourself and construct or refine a rational argument, that’s certainly not futile.
So we close with a Damascus joke. One vendor was selling the exact same variety of cucumbers at two different prices. "Why is this one twice the price?", the merchant was asked. "They came on higher quality mules" was the answer.
We only judge a technology by how it solves problems, not by what technological attributes it has."
I don’t need to refute cryptocurrency for the same reason the onus isn’t on me to disprove the existence of god.
The religious argument (I must convert everyone!) resonates most strongly with current true believers. It is the same projection that many Prosperity Gospel Christians feel about atheists wanting to convert them.
How did you convince yourself of this ?
A thought is just an idea - it can come from reasoned analysis or irrational feelings.
What’s the basis for your thought that current cryptocurrencies are worthless ?
Answers I've seen:
- you can do various crimes.
- you can gamble in many ways.
- you can send cryptocurrency to people in places which have reliable electrical, computing and networking environments but no Western Union or equivalent, and they can use that in place of the local currency with other people who are similarly inclined. (Why you would want to do this is rarely specified.)
- you can have fun being part of competing/cooperating cults.
I see this a lot in discussions and parties mostly end up talking past each other.
If you believe Bitcoin is a terrible idea and/or will eventually be you obviously can abstain from it.
But if you feel significant portions of society are becoming trapped in it, and will reach an unfortunate end result, that is relevant to you. If you live in that shared society the failure of that idea will impact you. If you are concerned about the future impact on you, you have a reason to be concerned about refuting it.
If a bunch of people join a cult, I don't care. If a bunch of people join a cult, and believe that judgement day is at the end of 2022, that they will set fire to all the buildings and people in around them as a test, and their god/leader will protect the true believers leaving them unharmed, I do care. A lot.
So the question isn't do you have an obligation to correct everyone who is wrong. The question is, what are the consequences of the belief continuing to spread, and does it negatively/harmfuly impact society and me as a member.
This isn't true. In the 14th century, for example, someone would find a silver mine, get the blessing of the king and start making money. Money wasn't connected in any way to "an arbitrary basket of goods and services." If Taleb rejects silver coins as a 'true' numeraire then he's just arguing a definition.
Any idea how to refute crypto to these folks?
People will believe in what they want to believe in, and there is little you can do to change their mind if it's already made up.
If you have zero desire for something, just stay away? I don't want to write Java code, so I don't.
Hopefully other developers will do whatever the fuck they want to do. Wanna work on cryptocurrencies? Go for it. Wanna write Java code? Sure, why not! Why care about what others are doing?
I'm not referring to Gavin Wood's specific conception or the associated Polkadot and its foundation's specific usage of the term. FWIW, I'm really trying to dissect the name and not the vision and perhaps not doing it that well. As far as I'm concerned, the usage of the term predates even bitcoin and originally meant Semantic Web. Content-addressable networks like IPFS or Arweave could be seen as related to that conception, but it's a bit of a stretch.
What I've found is like most people's relationship with money in general, a person's beliefs on the subject are usually rooted in their emotions. The area has always been technologically interesting to me so I tend to ignore everything but identifiable FUD, because that's part of what I do generally.
One of the problems with cryptocurrency communities is that they often immediately label any criticism they don't like as "FUD". It's a thought stopping cliche.
In the real world work is not immediately abandoned when the payoff is temporarily negative. If for example a company misses a payment workers usually continue working for it. They know that if they stopped right away then bankruptcy of the company would be a near certainty, so continuing despite the missed payment makes sense.
What is really not present in the paper is arguments that accommodate demographic change. Generational shifts - in population and asset distributions - are what mark corresponding shifts in currency, acting as an economic reset button. Taleb is looking just to the recent past to make arguments, while Bitcoiners would insist that one has to "zoom out" to see the potential longevity. In this respect they talk past each other. Currencies come and go throughout history. Nobody is particularly interested in the 1000-year outlook, or even the 100-year. Taleb made a "in the long run, we're all dead" argument.
Given the pace of the current trend, the market could irrationally center on Bitcoin for longer than anyone outside it stays solvent, in which case, it's game over: that's a win for Bitcoin even if it does get displaced later and falls to 0.
Fiat is backed by the/a government. The main scenario that I can think of in which something replaces fiat currency is if something replaces government. If an event occurs in which government is no longer around, there will probably be bigger problems to worry about, e.g., when the Imperial ruble was replaced by the Soviet ruble (and then the Russian ruble):
This isn't quite the whole argument. The argument is that BTC provides no utility and never will. Given this premise, and the fact that it will eventually die, its value today must be zero.
Whether BTC fails to provide any value and will never do so is debatable, but it is certainly untrue of fiat.
I thought Taleb argued that if there's any probability that nobody will run a node in the future -- no matter how low -- the present value ought to be zero.
I'm probably missing some nuance in this argument, though.
BTC seems to have value as a religious talisman if nothing else.
Taleb's big argument here is that Bitcoin will someday be obsolete and will have a value of 0. Since Bitcoin doesn't generate income or pay dividends, its present value is thus 0. That's a strange position for an options trader to take. Options, by their nature, expire, and have a value of 0 at some future time. Yet they are traded during their life as having value.
An option is a bet, not an investment. It's zero-sum; losers + winners is zero, minus some trading costs. This is also true of Bitcoin. Taleb, interestingly, does not analyze Bitcoin as an option. Possibly out of frustration. Options are analyzed based on what the underlying commodity is expected to do. Bitcoin has no underlying commodity. So option analysis techniques won't work.
Nobody has a convincing model for the future value of cryptocurrencies. It's mostly velocity investing - it goes up because it's been seen to go up. Until it doesn't. Taleb looks at financial history, sees that this isn't the first thing which behaves that way, and notes that pure speculative instruments always collapse in the end. But when?
this remark is not true, only some possible paths of an option end-up at 0 otherwise nobody would take the other side of the bet... In the parlance of Options trading, there will be options that end-up at expiry in the money with a strictly positive payoff and some out of the money. In order to price an option expiring sometime in the future as of today, you have to take into account all the possible future payoffs (in and out of the money), and the probability distributions of such payoffs then propagate back to present time (check tree methods or cox ross rubinstein for an example of how this can be done). So if all possible future payoffs were 0 then the present value of the option would be 0 too. Same thing with bitcoin, if in the future you think with 100% probability that the price will be 0 (the absorbing barrier) then going backward from that future moment, you'll get the "rational" price at t-1 to be 0 and so on until today.
I agree people would be more receptive if he wasn't a egotistical jerk, but the ironic thing is people dismissing his work because he called them an IYI is just the other side of the fragile ego coin.
He's at his best with "black swan" and "skin in the game" type stuff - aphoristic, lyrical, qualitative philosophical musing that evokes the best of traditional schools of thought.
What's interesting about Taleb is that given his takes on GMOs and "naive interventionism" he seems to have been advocating quite strongly for COVID vaccination against people that have tried to use his ideas to argue against it.
It would have been so easy for him to use "antifragility" to follow so many other pubic intellectuals who saw an opportunity to promote their "heterodox" brand and gather followers advocating for natural immunity and other remedies.
I can't believe anybody would take this argument seriously, let alone consider it as a strong argument.
https://www.youtube.com/watch?v=MN4klUUx8fM
P.S. I find the name of the book 'The Bitcoin Standard' fairly misleading, given that the first 2/3 it is about Gold Standard and barely mentions Bitcoin. I have not found the latter 1/3 of the book interesting to read, so I dropped it there.
So there you go, what gives bitcoin value is art. It'll never be 0, just go ahead and disregard the rest of the argument, it's irrelevant.
If the value goes to zero ($0.000), then yes, the network would probably not work (but just probably, it worked before when it was worth zero, maybe could work again in the future if that happens), but how you reach the conclusion that if it's >0 but very low, it wouldn't work?
As long as there are at least one miner online, there will be transfers happening. And even if you earn zero, some will probably run a miner. BitTorrent kind of proves you can still build useful systems even if the incentive is zero.
Not really, because if there's not exactly one social consensus chain, then you can't prove you're the only owner of anything.
Any UTXO that you create now, when the mining difficulty is quite high, is going to have a very high security, even if the mining difficulty goes down afterwards.
As the difficulty gets lower, the number of transactions to drop from the top gets higher, and maybe also less certain.
It makes no difference about the mining difficulty in the past. If double-spends are possible _today_ then you can't ever prove you own the coin, regardless of whether you could do it in the past.
This industry is even scammier than I thought.
It looks that the academia isn't interested in crypto space at all, and if any, it is a contrarian view.
The author forgets that Aluminum used to be more expensive than Gold, and this can happen to gold too, so the present value of Gold must also be $0? Bitcoin is certainly not a conventional currency , nor completely digital gold, it's different.
But i think the author brushes aside the sociological argument for Bitcoin. The cause of bitcoin is generational: Each generation wants to create its bubble, to nourish it and benefit from it as they get older. For boomers there was real estate, for gen-x'ers there was entrepreneurship, for the next generations there is nothing but a future where their productivity is eaten up trying to sustain giant government sectors, pension funds and real estate bubbles, which leaves them with no wealth[1]. Bitcoin sidesteps that, allowing them to create a bubble that is fully their own. That's why bitcoin (or a replacement cryptocurrency) will persist for decades.
[1] https://www.washingtonpost.com/business/2019/12/03/precariou...
But lately something happened to him. He has adopted a “Twitter persona” where all he talks about is anti vaccine, anti Bitcoin and sometimes on rare occasions Mediterranean architecture. It is a bit disappointing especially sometimes he starts picking random people in Twitter and borderline bullying them. I don’t know how much weight I can put to his work anymore.
I will no longer avoid arXiv posts like the plague.
This particular conversion came out not so great but I think generally they are better
Where he seems to go wrong is in the wholesale rejection of Bitcoin and "crypto-currency" as a genuine historical/economic phenomenon. It may be true that the value of Bitcoin is zero in the context of rational expectations theory, but all that says is that rational expectations theory doesn't really explain Bitcoin. A die-hard adherent is forced to maintain that it's a mass delusion and everyone else is really just wrong.
The hint that Taleb's theoretical framework isn't really adequate to the phenomenon is in his discussion of gold. Part of what Taleb misses regarding gold is that it never perfectly fit all the conditions for functioning as the "universal equivalent in exchange" or the "numeraire". It was simply good enough. He accepts that the reason for moving off the gold standard was that there simply was not enough gold to match the value of all commodities (not enough gold to accomodate the expanding money supply). This may be true but it suggests gold failed as a numeraire not for inherent reasons but more accidental reasons (we couldn't dig it up fast enough).
In the same way, while it's pretty clear Bitcoin will never be a functional numeraire, its staying-power still needs to be explained.
As a historical phenomenon, Bitcoin seems to have revealed another condition or desirable property of being the numeraire could be the ability to hold and move money privately, especially in large amounts. In other words, it could be said that the concept and existence of a vault was really a symptom of an inadequacy in gold. Another way to put it is that Bitcoin outperforms gold in that it lessens the need for extensive custodial services.
Lastly, his demand that the historical horizon be on par with gold is displaced. In fact, what Bitcoin seems to show is that gold's historical horizon is really overkill. But perhaps fiat money had already demonstrated this.