Bitcoin’s responses to black swans are irrelevant to its continued success as a protocol used around the world.
This is an opinion editorial by Bernardo Filipe, a life-long thinker, philosopher and author of “The Straight Science.”
“Earnings-free assets with no residual value are problematic.
The implication is that, owing to the absence of any explicit yield benefitting the holder of bitcoin, if we expect that at any point in the future the value will be zero when miners are extinct, the technology becomes obsolete, or future generations get into other such ‘assets’ and bitcoin loses its appeal for them, then the value must be zero now.” — Nassim Taleb
If bitcoin’s general adoption succeeds, it will be automating most of our financial structure with the aid of power plants, energy and computers. At the very least, it will create a system that is parallel to the current banking one and that would therefore be protected from the latter’s crashes (see 2007-2008 financial crisis). Of course it is taking years for this new system to fully mature. Taleb says this mission is worth exactly zero because he lacks the vision.
Is it a good time to invest in bitcoin? I believe it is. Besides proper philosophers, who are thinking in terms of centuries, not many can build such a belief, with the exception of the best wealth managers, who think in terms of decades.
So philosophers, who historically never cared about wealth, and wealth managers, who naturally enough only care about wealth, are uniting here in an interesting turn of events. Philosophers see that the inevitable fate of mankind is to evolve into a cybernetic organism, and they see that any technology that facilitates this process is bound to come to dominate. Wealth managers, on the other hand, realize that an alternative financial system that is thermodynamically closed can be useful to their activities.
That’s all there is to say about it. But I can say more.
Because there are indeed other opinions in the marketplace, which are however mostly inconsequential. There’s, for example, the confused Nassim Taleb, who writes 300-page books about trivial ideas that can be summarized in a single paragraph. He talks about “black swans'' as if we didn’t already know that a scientific model is merely a rough sketch and not the freaking gospel. He literally wrote 300 pages about this — that you can’t accurately predict any event with 100% certainty and that accidents and disasters happen. Only instead of calling these events accidents or disasters, which is what they are, he called them “black swans.” In an utterly exasperating prose riddled with italics, moreover, literally italicizing at least a word in every single paragraph, if not sentence. And also gratuitously quoting and name-dropping intellectuals for absolutely no reason. So why did people pay attention to him again? Because he made a fortune trading options. Nassim Taleb believes bitcoin is worth exactly zero and that bitcoin’s price drop in March 2020 “proves'' that it can’t be used to hedge against risk (as if all risks were equal, and as if diversification wasn’t the best general hedge against risk to begin with), showing once and for all that he not understand his own book. You cannot “prove” anything from a single data point, my dear Taleb. The March 2020 lockdown was a freak event — an exception — a “black swan,” to adopt your terminology. If you had paid attention, you’d have also seen that the entire market also collapsed, and you’d have maybe realized that you cannot extrapolate anything worthwhile about bitcoin at this stage from this freak event. But Taleb says that bitcoin collapsed more than the stock market did — therefore, he thinks, “bitcoin is worthless”. We’re moving now, then, from childish terminology to childish logic.
But what exactly is his mistake here? The problem is that he has failed to realize that bitcoin is still in development, it is still growing and evolving. The mistake he’s making is equivalent to watching a healthy cat kill a newborn lion, and then concluding from that freak observation that cats are stronger than lions. He seems to think that bitcoin’s future behavior will mirror its current behavior, but how could that be the case when we are this early? So early in fact that no regulation exists for it and most people are still trying to define what exactly bitcoin is. Meaning, practically nobody has a clue about what bitcoin is. Taleb, then, is not considering in his analysis the idea that bitcoin’s maximum utility hinges on a future widespread adoption. He’s analyzing bitcoin at this point in time, myopically, with a total disregard for the effect of future favorable conditions in his analysis, as if bitcoin today was already a finished product and process. But it isn’t — because bitcoin is designed to bind itself cyber-symbiotically to mankind, and right now the portion of mankind to which it has bound itself is not significant enough, in terms of raw wealth and investment power.
To Nassim Taleb, bitcoin seems to function like a Ponzi scheme, but I say it will resemble a Ponzi only if it fails to develop into maturity. Otherwise, it will be nothing like a Ponzi and very much like an extremely awesome asset with great utility. I could also say that most life on planet Earth is a “Ponzi,” because a few billion years down the line the Sun will expand and destroy the entire planet, destroying with it, for example, all the real estate contained in it. At that time, the real estate bag-holders might perhaps say that real estate investment was always a Ponzi to begin with, especially after they see every bitcoin holder safely move their bitcoin out of the planet. In this scenario, what exactly is the Ponzi? So we see that Taleb’s quote above is meaningless: in a sufficiently advanced future, everything is fated to go to zero, but of course that doesn’t mean there’s no value to anything.
Right now we are, then, entering bitcoin’s “development into maturity” phase (having already gone through ten years of its infancy) which is the final and protracted phase that will reduce price volatility and effectively bring to the table its store of value capabilities. Can this phase fail to be completed? Sure. In nature, lifeforms occasionally fail to develop into maturity. That doesn’t stop me or any other person from trying to imagine what a particular lifeform can look and behave like if favorable conditions emerge that guarantee its prosperous development. This is, of course, a basic idea from biology. In the technological realm, however, the same principles from biological and evolutionary thought can be applied because tools are created, they grow, they mutate, they clash with each other, and eventually evolve or become obsolete in a manner that resembles that of lifeforms in nature; only in the technological realm it is mankind which dictates the fate of the tool, while in the biological realm, it is nature. The point is that this “development into maturity” phase that I’m referring to is of course in the case of bitcoin the “widespread adoption of bitcoin” phase: the phase in which all worthwhile wealth managers agree that bitcoin’s rules are great and decide to play by them—allocating a small portion of their capital to it, initially—and gradually but steadily adding some more whenever they see fit. For it will be this phase that will put the cybernetic symbiosis between bitcoin and mankind in full swing.
As of right now, bitcoin is useful for wealth transfers and that’s about it. However, bitcoin can potentially, i.e., in theory, under favorable conditions, be much more useful than it currently is. For we are envisioning, after all, a radical optimization of the entire financial structure with the aid of automation. It’s on this coming, higher utility that we are betting, dear Taleb — and this is why we couldn’t care less now about volatility or fragility or your “convex curve responses to stressors.” I know you wrote an entire book about randomness, and even tried to create a theory on how to utilize randomness to our benefit. But at the end of the day this entire theoretical endeavor is pointless because the purpose of theory is to predict the future, while randomness is defined precisely as that which cannot be predicted. Sure, yes, of course we want to minimize the harmful effects of randomness (=chance,=accidents, =disasters). It’s called risk management. But until the non-predictable accident (see the pleonasm?) actually happens nobody knows how fragile our process-activity-asset stands relative to said accident—otherwise the event wouldn’t be by definition an accident and we’d have been able to factor it in our theories and models! But not only do you fail to see this triviality, you even give lectures about it, as if randomness could be in anyway intelligible, as if we hadn’t already defined it as unintelligible! And as if the book’s message was something profound instead of obvious, as obvious as saying the sky is blue or that birds fly.
If you think I am being too tough on Taleb, dear reader, I’ll just say that he was asking to get such a reply when he started gratuitously quoting philosophers for no reason, hundreds of pages in a row. He invoked the spirit of philosophy—so here it is now biting him back—a proper case of a wizard’s spell turning against the caster. Hope you like it, Taleb!
So that’s that. Philosophers, wealth managers and a few visionaries agree that bitcoin is awesome. Then, there’s the rest of humanity who simply doesn’t care about this stuff. Finally, there are thinkers like Nassim Taleb who aren’t thinking straight. In short: the potential gains far over-shadow the, in my view, laughably low risk of bitcoin going to zero.
This is a guest post by Bernardo Filipe. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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