If you're in the HN knee-jerk native digital assets hate camp, <i>this</i> 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 <i>that's actually needed</i> and is relevant to discussion on this forum.<p>> 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<p>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.
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.<p>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.
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.<p>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.<p>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.<p>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?
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.
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.<p>I can't believe anybody would take this argument seriously, let alone consider it as a strong argument.
There was an interesting debate on this topic, with one of the speakers being Saifedean Ammous, author of The Bitcoin Standard.<p><a href="https://www.youtube.com/watch?v=MN4klUUx8fM" rel="nofollow">https://www.youtube.com/watch?v=MN4klUUx8fM</a><p>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.
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.<p>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.
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.
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’?
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?<p>It looks that the academia isn't interested in crypto space at all, and if any, it is a contrarian view.
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 <i>" 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"</i>. This seems hard to prove, while the criticism is certainly warranted.<p>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 <i>different</i>.<p>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.<p>[1] <a href="https://www.washingtonpost.com/business/2019/12/03/precariousness-modern-young-adulthood-one-chart/" rel="nofollow">https://www.washingtonpost.com/business/2019/12/03/precariou...</a>
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.
A very worthy and researched entry for the hall of fame [1]<p>[1] <a href="https://99bitcoins.com/bitcoin-obituaries/" rel="nofollow">https://99bitcoins.com/bitcoin-obituaries/</a>
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.<p>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 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.<p>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.<p>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).<p>In the same way, while it's pretty clear Bitcoin will never be a functional numeraire, its staying-power still needs to be explained.<p>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 <i>vault</i> 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.<p>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.