10 ms·

Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf]

88 points by _acco 5y ago

decebalus1 5y ago
I feel cheated. I saw 'Fragility', 'Taleb' and 'Bitcoin' in the same sentence and I thought this was going to be peak bullshit but just reading the abstract, seems like I kind of agree with him.
- canjobear 5y ago
  One of the side effects of Taleb being a truly independent thinker is that pretty much everyone will find they agree with some of his takes and violently disagree with others.
  - decebalus1 5y ago
    I'd say more 'broken clock being right twice a day' than 'truly independent thinker' but sure.
    - canjobear 5y ago
      Could be, but my point is just that he’s uncorrelated with other people.
  - MrMan 5y ago
    ha ha hero worship
druadh 5y ago
I read Skin in the Game. I know Nassim Taleb is extremely intelligent and his arguments are always strong. But he's such a self-aware a-hole that it negates his positive traits and I just have no interest in what he has to say. Wish he'd change his attitude, people would be more receptive.
- sunshinerag 5y ago
  That’s a poor reason to ignore his points no?
  - X6S1x6Okd1st 5y ago
    It's a good reason to not assume that it's worth reading. I personally gave up following him on twitter because he's such a dick. I personally do find this line of argument compelling though
  - Simplicitas 5y ago
    You may be right, but it does play into accepting some of Taleb's arguments when one lacks his intellectual caliber. I certainly feel that "intellectual honesty" plays a little bit into how harmoniously a great thinker "sells" his or her frameworks. This is one reason why I hardly question the good-will behind a reasoning Chomsky or Pinker or Dawkins, or any other great thinker who consistently shows a more reflexive humanity. Tabeb may be a genius, but his a-holeness indeed makes it hard for me to comprehend him better. Admittedly, the same was probably said of Newton and many others :-(
  - tshaddox 5y ago
    It’s a good reason to not spend time examining his points, given that time is scarce. That’s not a formal argument that his claims are incorrect, obviously, but it’s a valid reason to not spend my time on him.
    - druadh 5y ago
      Precisely
- gooseus 5y ago
  Unfortunately, Taleb being an enormous asshole does not actually negate this paper or any of his other formal arguments. 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.
digitailor 5y ago
If you're in the HN knee-jerk native digital assets hate camp, this is how you attempt to refute bitcoin. As someone who has stood up to FUD about bitcoin on this forum, this paper provides the ammunition that's actually needed and is relevant to discussion on this forum. > 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.
- dreyfan 5y ago
  > this is how you refute bitcoin I don’t need to refute cryptocurrency for the same reason the onus isn’t on me to disprove the existence of god.
  - canjobear 5y ago
    Obviously you’re not under a moral obligation to make an argument, but what I think the OP means is if you want to actually convince people, and thus actually reduce the usage of cryptocurrency, then this is how you would do it.
    - dsr_ 5y ago
      The fact that I think that all cryptocurrencies are worthless in their current form does not mean that I need to convince people at large of this. (I may want to convince my friends, but my friends are generally already convinced.) 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.
setgree 5y ago
obligatory arXiv-vanity conversion: https://www.arxiv-vanity.com/papers/2106.14204/ https://www.arxiv-vanity.com/papers/2106.14204/
- andybak 5y ago
  I didn't know about this. Thank you. I will no longer avoid arXiv posts like the plague.
  - setgree 5y ago
    my pleasure, I believe I first learned about it from HN https://news.ycombinator.com/item?id=15534580 https://news.ycombinator.com/item?id=15534580 This particular conversion came out not so great but I think generally they are better
    - baby 5y ago
      If only this would work with https://eprint.iacr.org/ https://eprint.iacr.org/
- jcpham2 5y ago
  Thanks this was a super helpful link. TIL.
hrhrhrhrhr 5y ago
The abstract reads more like some emotional comment on social media rather than part of a scientific paper.
- civilized 5y ago
  That's Taleb for you.
- waffle_maniac 5y ago
  Yes, talking about "promoters" is not very specific. Lots of generalizations.
nathias 5y ago
BTC is worth 0, because it will be worth 0. This really is the work of a genius. Why do we even bother with markets, lets just have Taleb deduce value for everything. I can't believe anybody would take this argument seriously, let alone consider it as a strong argument.
folex 5y ago
There was an interesting debate on this topic, with one of the speakers being Saifedean Ammous, author of The Bitcoin Standard. https://www.youtube.com/watch?v=MN4klUUx8fM 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.
jcfrei 5y ago
This paper has been out for quite a while now. The argument that any digital assets whose value can drop to zero at any point in the future has a current value of zero is flawed. People can maintain the ledger even when they are losing money doing so (which is little in the case of bitcoin because running a ledger is quite cheap). So even at a price of zero there would be people running nodes. The more pertinent question would be: What is the probability that at any point in the future nobody will run a node? I'd argue that probability is pretty low, therefore there will always be some value > 0 for the asset. 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.
- cm277 5y ago
  I think that's a perfectly valid argument. And of you have any Miami beachfront property you may as well just gift it to me now as its value is $0, so why pay any taxes on it?
  - civilized 5y ago
    Taleb responds to this. If you're getting utility out of something today - financial or nonfinancial, tangible or intangible - then it has worth today, regardless of whether it may be worthless in the future. Only goods that both never provide any utility and will eventually be worthless are subject to his argument. BTC seems to have value as a religious talisman if nothing else.
- syntheweave 5y ago
  The premise given is that some other technology will displace Bitcoin. This is not implausible, but it also applies to fiat! 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.
MrPatan 5y ago
Is this the one where he assumes an eventual value of $0? That's the flaw. At a value >0 many people would buy them all purely for the pleasure, the aesthetic value of owning them. 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.
- DarylZero 5y ago
  If the value gets low enough the network won't even work and you can't transfer them. Either no miners or else mining difficulty gets so low that there's no security.
  - MrPatan 5y ago
    But now the question is "is this aesthetic value high enough to sustain the network?". Maybe, maybe not. But it's no longer a mathematical certainty, which is what this paper is about.
  - hrhrhrhrhr 5y ago
    I think if the value drops then the security requirements would also drop. And all the existing UTXO's that were already mined when the difficulty was high would also stay secure, so they'd be comparable to Gold bars that could be stored for thousands of years without spending any energy.
    - DarylZero 5y ago
      > all the existing UTXO's that were already mined when the difficulty was high would also stay secure Not really, because if there's not exactly one social consensus chain, then you can't prove you're the only owner of anything.
      - hrhrhrhrhr 5y ago
        What do you mean by "social consensus chain"? 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.
mercy_dude 5y ago
I used to respect Nassim a lot, and I still do. He was the one who opened my eyes to tail risks, fragility among a host of other things. His books Skin in the Games and Antifragility were one of the books that had a very large impact on my late twenties. 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.
- jonemi 5y ago
  I think you mean he complains about anti-vaccine rhetoric? Because he's very pro-vaccine: https://twitter.com/search?q=from%3Anntaleb%20vaccine https://twitter.com/search?q=from%3Anntaleb%20vaccine
- MrMan 5y ago
  luckily we have statistics textbooks we dont need twitter celebrities to teach about probability.
c0decracker 5y ago
Where did he get 10,000 cryptocurrencies number? Coincap lists 2,295 and only 746 has market cap above $0.
- svenfaw 5y ago
  First time I hear of Coincap. The de facto standard reference for such stats is coinmarketcap.com, which lists a mind-boggling 16,155 cryptos.
- BoiledCabbage 5y ago
  Wait are you serious? 2/3rds of crypto already have a market cap of zero? This industry is even scammier than I thought.
- capableweb 5y ago
  There are many, many more than just 10,000. Ethereum as a platform can host cryptocurrencies inside of it, and just that has spawned countless of cryptocurrencies. Many others like Ethereum exists as well, putting the count probably closer to 100,000 than 10,000.
deleted 5y ago
[deleted]
cblconfederate 5y ago
Well there s a lot that is objectionable in the article, in fact it's probably pretty bad for Taleb (it's also not peer-reviewed). The premise of the article is absolutist " does not constitute, not even remotely, a safe haven for one’s investments, a shield against government tyranny, or a tail protection vehicle for catastrophic episodes". This seems hard to prove, while the criticism is certainly warranted. 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/precariousness-modern-young-adulthood-one-chart/ https://www.washingtonpost.com/business/2019/12/03/precariou...
- MrMan 5y ago
  crypto is elegant - nothing is produced and indeed much is burned, but you just have to trick people into playing the game and someone will capture all that money as it flows in. its a purely behavioral hack that taps into our mindless greed and fear. We are herd animals and crypto is a typical stampede.
msoad 5y ago
I'm assuming Bitcoin will be hacked in 1000 years. We will have Quantum computers that can hack the hashing algorithm. That on its own makes value of Bitcoin 0.
- asdfsd234234444 5y ago
  That would make the entire internet and basically all financial institutions worthless lol
- walkhour 5y ago
  I'm assuming we'll be able to produce gold in a thousand years with a children's chemistry set. It won't be more valuable than sand. That on its own makes the value of gold 0.
Animats 5y ago
Taleb being an academic is fun to read. He's an options trader. He made his money with a fund that bought way-out-of-the-money options. That strategy loses money most years, but was a big win in 2008, when the crash made those cheap options valuable. Any 5-year period in the past 30 years that didn't include 2008 would probably have been a lose. So he may have been lucky, rather than smart. Although, arguably, you could see in the runup to 2008 that something had to give. 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?
- wdpk 5y ago
  >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. 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.
defgeneric 5y ago
I think Nassim Taleb's nay-saying does have a useful purpose. He's effectively saying that the dominant ideology of the Bitcoiners (e.g. the "libertarianism" of the Chicago school) is not itself adequate to explain or justify Bitcoin. 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.
- defgeneric 5y ago
  One last point: Taleb's claim that Bitcoin is an earnings-free asset with no residual value would be true if the protocol was immutable and never amenable to change. But even most Bitcoin maximalists accept that at some point in the future there will be significant changes to the protocol (a fork). And we already see the most conservative changes (SegWit, Lightning Network) moving in the direction of opening up paths for future earnings.
ur-whale 5y ago
A very worthy and researched entry for the hall of fame [1] [1] https://99bitcoins.com/bitcoin-obituaries/ https://99bitcoins.com/bitcoin-obituaries/
laxmin 5y ago
I am looking for a robust academic rebuttal of this paper, but I fail to find any. Does anybody have any pointers to literature that directly addresses the paper's assertions? It looks that the academia isn't interested in crypto space at all, and if any, it is a contrarian view.
thunkshift1 5y ago
Wheres the analysis? He just has a bunch of graphs and historical anecdotes in scientific paper format..? I fail to see here anything more than a Medium article. Is publishing in arxiv rather than Medium the new way to distinguish yourself? of saying ‘I am very smart and I know what I am talking about’?

88 points by _acco 5y ago

I feel cheated. I saw 'Fragility', 'Taleb' and 'Bitcoin' in the same sentence and I thought this was going to be peak bullshit but just reading the abstract, seems like I kind of agree with him.

canjobear 5y ago
One of the side effects of Taleb being a truly independent thinker is that pretty much everyone will find they agree with some of his takes and violently disagree with others.
- decebalus1 5y ago
  I'd say more 'broken clock being right twice a day' than 'truly independent thinker' but sure.
  - canjobear 5y ago
    Could be, but my point is just that he’s uncorrelated with other people.
- MrMan 5y ago
  ha ha hero worship

druadh 5y ago

I read Skin in the Game. I know Nassim Taleb is extremely intelligent and his arguments are always strong. But he's such a self-aware a-hole that it negates his positive traits and I just have no interest in what he has to say. Wish he'd change his attitude, people would be more receptive.

sunshinerag 5y ago
That’s a poor reason to ignore his points no?
- X6S1x6Okd1st 5y ago
  It's a good reason to not assume that it's worth reading. I personally gave up following him on twitter because he's such a dick. I personally do find this line of argument compelling though
- Simplicitas 5y ago
  You may be right, but it does play into accepting some of Taleb's arguments when one lacks his intellectual caliber. I certainly feel that "intellectual honesty" plays a little bit into how harmoniously a great thinker "sells" his or her frameworks. This is one reason why I hardly question the good-will behind a reasoning Chomsky or Pinker or Dawkins, or any other great thinker who consistently shows a more reflexive humanity. Tabeb may be a genius, but his a-holeness indeed makes it hard for me to comprehend him better. Admittedly, the same was probably said of Newton and many others :-(
- tshaddox 5y ago
  It’s a good reason to not spend time examining his points, given that time is scarce. That’s not a formal argument that his claims are incorrect, obviously, but it’s a valid reason to not spend my time on him.
  - druadh 5y ago
    Precisely
gooseus 5y ago
Unfortunately, Taleb being an enormous asshole does not actually negate this paper or any of his other formal arguments. 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.

digitailor 5y ago

If you're in the HN knee-jerk native digital assets hate camp, this is how you attempt to refute bitcoin. As someone who has stood up to FUD about bitcoin on this forum, this paper provides the ammunition that's actually needed and is relevant to discussion on this forum. > 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.

dreyfan 5y ago
> this is how you refute bitcoin I don’t need to refute cryptocurrency for the same reason the onus isn’t on me to disprove the existence of god.
- canjobear 5y ago
  Obviously you’re not under a moral obligation to make an argument, but what I think the OP means is if you want to actually convince people, and thus actually reduce the usage of cryptocurrency, then this is how you would do it.
  - dsr_ 5y ago
    The fact that I think that all cryptocurrencies are worthless in their current form does not mean that I need to convince people at large of this. (I may want to convince my friends, but my friends are generally already convinced.) 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.

setgree 5y ago

obligatory arXiv-vanity conversion: https://www.arxiv-vanity.com/papers/2106.14204/ https://www.arxiv-vanity.com/papers/2106.14204/

andybak 5y ago
I didn't know about this. Thank you. I will no longer avoid arXiv posts like the plague.
- setgree 5y ago
  my pleasure, I believe I first learned about it from HN https://news.ycombinator.com/item?id=15534580 https://news.ycombinator.com/item?id=15534580 This particular conversion came out not so great but I think generally they are better
  - baby 5y ago
    If only this would work with https://eprint.iacr.org/ https://eprint.iacr.org/
jcpham2 5y ago
Thanks this was a super helpful link. TIL.

hrhrhrhrhr 5y ago

The abstract reads more like some emotional comment on social media rather than part of a scientific paper.

civilized 5y ago
That's Taleb for you.
waffle_maniac 5y ago
Yes, talking about "promoters" is not very specific. Lots of generalizations.

nathias 5y ago

BTC is worth 0, because it will be worth 0. This really is the work of a genius. Why do we even bother with markets, lets just have Taleb deduce value for everything. I can't believe anybody would take this argument seriously, let alone consider it as a strong argument.

folex 5y ago

There was an interesting debate on this topic, with one of the speakers being Saifedean Ammous, author of The Bitcoin Standard. https://www.youtube.com/watch?v=MN4klUUx8fM 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.

jcfrei 5y ago

This paper has been out for quite a while now. The argument that any digital assets whose value can drop to zero at any point in the future has a current value of zero is flawed. People can maintain the ledger even when they are losing money doing so (which is little in the case of bitcoin because running a ledger is quite cheap). So even at a price of zero there would be people running nodes. The more pertinent question would be: What is the probability that at any point in the future nobody will run a node? I'd argue that probability is pretty low, therefore there will always be some value > 0 for the asset. 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.

cm277 5y ago
I think that's a perfectly valid argument. And of you have any Miami beachfront property you may as well just gift it to me now as its value is $0, so why pay any taxes on it?
- civilized 5y ago
  Taleb responds to this. If you're getting utility out of something today - financial or nonfinancial, tangible or intangible - then it has worth today, regardless of whether it may be worthless in the future. Only goods that both never provide any utility and will eventually be worthless are subject to his argument. BTC seems to have value as a religious talisman if nothing else.
syntheweave 5y ago
The premise given is that some other technology will displace Bitcoin. This is not implausible, but it also applies to fiat! 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.

MrPatan 5y ago

Is this the one where he assumes an eventual value of $0? That's the flaw. At a value >0 many people would buy them all purely for the pleasure, the aesthetic value of owning them. 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.

DarylZero 5y ago
If the value gets low enough the network won't even work and you can't transfer them. Either no miners or else mining difficulty gets so low that there's no security.
- MrPatan 5y ago
  But now the question is "is this aesthetic value high enough to sustain the network?". Maybe, maybe not. But it's no longer a mathematical certainty, which is what this paper is about.
- hrhrhrhrhr 5y ago
  I think if the value drops then the security requirements would also drop. And all the existing UTXO's that were already mined when the difficulty was high would also stay secure, so they'd be comparable to Gold bars that could be stored for thousands of years without spending any energy.
  - DarylZero 5y ago
    > all the existing UTXO's that were already mined when the difficulty was high would also stay secure Not really, because if there's not exactly one social consensus chain, then you can't prove you're the only owner of anything.
    - hrhrhrhrhr 5y ago
      What do you mean by "social consensus chain"? 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.

mercy_dude 5y ago

I used to respect Nassim a lot, and I still do. He was the one who opened my eyes to tail risks, fragility among a host of other things. His books Skin in the Games and Antifragility were one of the books that had a very large impact on my late twenties. 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.

jonemi 5y ago
I think you mean he complains about anti-vaccine rhetoric? Because he's very pro-vaccine: https://twitter.com/search?q=from%3Anntaleb%20vaccine https://twitter.com/search?q=from%3Anntaleb%20vaccine
MrMan 5y ago
luckily we have statistics textbooks we dont need twitter celebrities to teach about probability.

c0decracker 5y ago

Where did he get 10,000 cryptocurrencies number? Coincap lists 2,295 and only 746 has market cap above $0.

svenfaw 5y ago
First time I hear of Coincap. The de facto standard reference for such stats is coinmarketcap.com, which lists a mind-boggling 16,155 cryptos.
BoiledCabbage 5y ago
Wait are you serious? 2/3rds of crypto already have a market cap of zero? This industry is even scammier than I thought.
capableweb 5y ago
There are many, many more than just 10,000. Ethereum as a platform can host cryptocurrencies inside of it, and just that has spawned countless of cryptocurrencies. Many others like Ethereum exists as well, putting the count probably closer to 100,000 than 10,000.

deleted 5y ago

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cblconfederate 5y ago

Well there s a lot that is objectionable in the article, in fact it's probably pretty bad for Taleb (it's also not peer-reviewed). The premise of the article is absolutist " does not constitute, not even remotely, a safe haven for one’s investments, a shield against government tyranny, or a tail protection vehicle for catastrophic episodes". This seems hard to prove, while the criticism is certainly warranted. 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/precariousness-modern-young-adulthood-one-chart/ https://www.washingtonpost.com/business/2019/12/03/precariou...

MrMan 5y ago
crypto is elegant - nothing is produced and indeed much is burned, but you just have to trick people into playing the game and someone will capture all that money as it flows in. its a purely behavioral hack that taps into our mindless greed and fear. We are herd animals and crypto is a typical stampede.

msoad 5y ago

I'm assuming Bitcoin will be hacked in 1000 years. We will have Quantum computers that can hack the hashing algorithm. That on its own makes value of Bitcoin 0.

asdfsd234234444 5y ago
That would make the entire internet and basically all financial institutions worthless lol
walkhour 5y ago
I'm assuming we'll be able to produce gold in a thousand years with a children's chemistry set. It won't be more valuable than sand. That on its own makes the value of gold 0.

Animats 5y ago

Taleb being an academic is fun to read. He's an options trader. He made his money with a fund that bought way-out-of-the-money options. That strategy loses money most years, but was a big win in 2008, when the crash made those cheap options valuable. Any 5-year period in the past 30 years that didn't include 2008 would probably have been a lose. So he may have been lucky, rather than smart. Although, arguably, you could see in the runup to 2008 that something had to give. 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?

wdpk 5y ago
>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. 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.

defgeneric 5y ago

I think Nassim Taleb's nay-saying does have a useful purpose. He's effectively saying that the dominant ideology of the Bitcoiners (e.g. the "libertarianism" of the Chicago school) is not itself adequate to explain or justify Bitcoin. 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.

defgeneric 5y ago
One last point: Taleb's claim that Bitcoin is an earnings-free asset with no residual value would be true if the protocol was immutable and never amenable to change. But even most Bitcoin maximalists accept that at some point in the future there will be significant changes to the protocol (a fork). And we already see the most conservative changes (SegWit, Lightning Network) moving in the direction of opening up paths for future earnings.

ur-whale 5y ago

A very worthy and researched entry for the hall of fame [1] [1] https://99bitcoins.com/bitcoin-obituaries/ https://99bitcoins.com/bitcoin-obituaries/

laxmin 5y ago

I am looking for a robust academic rebuttal of this paper, but I fail to find any. Does anybody have any pointers to literature that directly addresses the paper's assertions? It looks that the academia isn't interested in crypto space at all, and if any, it is a contrarian view.

thunkshift1 5y ago

Wheres the analysis? He just has a bunch of graphs and historical anecdotes in scientific paper format..? I fail to see here anything more than a Medium article. Is publishing in arxiv rather than Medium the new way to distinguish yourself? of saying ‘I am very smart and I know what I am talking about’?