Nassim Nicholas Taleb, Author of Black Swan, on Bitcoin

https://medium.com/opacity/bitcoin-1537e616a074

by tejasmanohar • 9 years ago

135 121 9 years ago

medium.com

the_gastropod• 9 years ago

But it is the first organic currency

I'm guessing Taleb hasn't heard of Cowry shells [1]...

[1] https://en.wikipedia.org/wiki/Cowry#Human_use

conanbatt5• 8 years ago

Im pretty sure he means there is a central design with a distributed behavior on monetary policy.

That is actually a very interesting thing as an economist. I would have loved to see Hayek and bitcoin in the same era..

ballenarosada2• 8 years ago

Cowry shells are also at least as organic as Bitcoin in this sense.

dragonwriter2• 8 years ago

Im pretty sure he means there is a central design with a distributed behavior on monetary policy.

Classic standardized commodity (e.g. metallic) currency has central design and distributed behavior.

Given that the name for the distributed actors key to Bitcoin and other cryptocurrency comes from that for a key set of those responsible for supply of metallic currency, I’m kind of surprised that this could be overlooked.

B1FF_PSUVM• 8 years ago

Sheesh, anyone schooled by Scrooge McDuck comics - Taleb's demographic is a pretty sure bet - would hit that bit of money history before puberty.

focom• 8 years ago

A pretty correct analysis imo

[Bitcoin] not good enough to buy your decaffeinated expresso macchiato at your local virtue-signaling coffee chain.

Plus he has some humor.

zengid2• 8 years ago

His books are also quite funny, particularly Antifragile.

huphelmeyer2• 8 years ago

Was Antifragile supposed to be funny? I thought Taleb just came off as stuck-up.

josu3• 8 years ago

Actually, you can indeed buy an expresso with bitcoin:

https://twitter.com/alexbosworth/status/955870434230132736

prepend• 8 years ago

I like his expression of opinion. It’s probably closest to my own that BitCoin is neat and a good technology, but not the investment hype that currently exists.

ABCLAW3• 8 years ago

I always feel bad when I read some of Taleb's work and come away empty. The guy is clearly smart, but I feel like he skips too many steps in his mental algebra and then misses his own mistakes altogether too often.

This gives us, the crowd, an insurance policy against an Orwellian future.

Here's a great example. Does it really, Nassim?

coffeeacc• 8 years ago

Is the preceding sentence not useful?

But its mere existence is an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly.

tantalor• 8 years ago

Bitcoin is no more a currency than gold.

at-fates-hands• 8 years ago

The only problem is what we're currently seeing. That yes, the government will do everything within its power to insert itself into the crypto currency market in order to control it.

Look at how the SEC is not only keeping tabs on crypto currencies, but are monitoring ICO's and bringing charges against people they feel are committing fraud. It's been pointed out before that although the SEC can't stop CC's, then can effectively sideline them as a niche offering to investors.

I guess this is the beauty and beast of CC's right now. Yeah, it's totally unregulated, but it's also rife with fraud. It's like people want it both to be safe and regulated while still outside the control of any government.

ABCLAW3• 8 years ago

No?

In that statement, Taleb uses his conclusion as a premise. That doesn't make his reasoning stronger.

dxbydt• 8 years ago

I always feel bad when I read some of Taleb's work and come away empty

Took the words right out of my mouth. His recent thoughts/tweets on Deep Learning were even more confusing.

ABCLAW3• 8 years ago

Taleb is a deeply intuitive, sharp individual - this is his weakness.

Like all the smart kids in school who rushed through math problems and wrote out the final answer rather than all the work to get there, he often skips key steps in his chain of reasoning. Since he skips them, he doesn't notice when those key steps are demonstrably wrong.

I feel he's gotten worse in this respect over time.

ballenarosada2• 8 years ago

Totally agree. He seems to think highly enough of his own intelligence that he's excused from being precise or even intelligible

bbctol• 8 years ago

You should read Taleb until you understand the important part of his message is not to listen too much to people like Taleb.

gburt• 8 years ago

This is what I get out of his writing. He is a great pop-culture writer, expresses some important (and mostly, relatively old, repackaged) ideas about convexity and natural mathematical implications thereof.

He is one of my favorite authors, but I am unconvinced by nearly everything he has to say. He has this cult-leader style of "everyone else is wrong, but here, you can be part of the enlightened group" that I find somewhat grating, but more importantly, he simply does not provide "extraordinary evidence for extraordinary claims."

Almost nothing he asserts is empirically testable due to his reliance on fat tails and Knightian uncertainty, and when it is, it either has not been empirically tested or the entire "traditional" industry is built around the empirical results. His response to this is generally of the form "systemic failures can dominate normal effects." [1]

In the cases where he leans on statistical modelling, especially modelling with fat tails, his writing breaks down. I find his approach at that point to feel sort of "baffle them with bullshit" in the sense that he is indifferent to whether it is even possible for the reader to understand what he is saying, once he has convinced himself.

[1] e.g., https://www.facebook.com/nntaleb/posts/10155509264828375

soneca2• 8 years ago

I think he just isn't a very good communicator (nor cares to be one). He was recently a guest at the excellent podcast Econtalk and you really needed to know his ideas from other sources to properly understand what he was talking about.

I don't think is arrogance or anything, it is just a skill that he doesn't have naturally and also doesn't care enough to practice and improve.

I think his ideas are strong enough to find an audience even without this skill. Contrasting him with a Malcolm Gladwell who, imo, reaches a large audience much more from his communication skills than from the power of this ideas, I think I prefer Taleb's style.

_e2• 8 years ago

Nassim Taleb wrote in one of his books that he intentionally articulates his beliefs in a somewhat difficult to understand fashion otherwise people wouldn't take him seriously.

Malcolm Gladwell and Daniel Kahneman (author of Thinking, Fast and Slow) both credit Nassim Taleb for a lot of inspiration in their books.

Someone mentioned to me that Benoit Mandelbrot (author of (Mis)behavior of Markets) inspired Nassim Taleb for a lot of his thoughts.

So there... read Mandelbrot, Gladwell and Kahneman to understand Nassim Taleb.

ordinaryradical• 8 years ago

This utopian streak running through the crypto community is what convinces me most that it’s going to be a heartbreaker.

But Hayek used the notion of distributed knowledge. Well, it looks like we do not even need that thing called knowledge for things to work well. Nor do we need individual rationality. All we need is structure.

Irrational exuberance is a good thing!

And while these ideologues are busy demonizing the central banks a handful of individuals manipulate bitcoin to levels a central bank could never even attempt...

matthewbauer4• 8 years ago

Yes definitely. If you replace "Bitcoin" in this essay with "blockchain based assets", Taleb would have a fairly good point. But "Bitcoin" has been manipulated so much that I think most people recognize that a crash is inevitable. There is nothing special about Bitcoin-anyone can start their own blockchain. Bitcoin is just an overpriced version of the infinite possible blockchains.

soneca2• 8 years ago

But he indeed is mostly talking about the idea/concept behind Bitcoin (that could be translated as "blockchain based assets") rather than necessarily Bitcoin itself. He doesn't discard Bitcoin as not having these qualities, but he also doesn't state that only Bitcoin is capable of it.

jebeng• 8 years ago

I think you have it backwards here for the most part.

What problems do you see infinite blockchains solving?

No comment on whether or not a crash is inevitable, who knows where the price is going. That's not really too important to me. But the fact that Bitcoin is for now the most secure and technologically sound blockchain is what makes it interesting. And actually having those unique characteristics is what makes it special. I definitely don't see much special with 'blockchain the data structure' on its own.

paulgb• 8 years ago

For what it's worth, I think Hayek's vision of competitive money is often misrepresented by crypto folks. I wrote about it here: https://paulbutler.org/archives/stop-dragging-hayek-into-bit...

brndnmtthws• 8 years ago

I hope the price goes close to 0 so I can buy it all up.

jgh3• 8 years ago

I honestly hope the utopian dream is smashed in the cryptocurrency community. It's not the kind of "utopia" I want to be a part of. I like the technical ideas behind cryptocurrency, but the terrible political views are off-putting.

tenaciousDaniel3• 8 years ago

I'm legitimately interested in cryptocurrency; I think it's a really cool idea. So what I'm hoping for is that everything goes as horribly wrong as possible, the price tanks, everyone's dreams are smashed, and all the bullshit takes disappear.

At that point, the people who are interested in building something worthwhile will be the only ones who remain, and we can work in peace.

pjkundert3• 8 years ago

While claiming the principles of Liberty for yourself (deciding what kind of "utopia" you want to be part of), would you deny that choice to others?

This is perhaps what separates libertarians from liberals, conservatives, socialists, etc.: we simply do not deny others the liberty we claim for ourselves.

If a monetary system that cannot be debased/controlled by government is available, does that not allow you to elect to create and/or join a community of similar beliefs? Or, would you prefer that I (or someone else) be able to gain control of your government, and then choose to make it (financially) impossible for you to choose your associations and/or behaviors?

Or, perhaps: does your "utopia" require others to fund it, in order for it to work? This is, unfortunately, the case with most people's personal beliefs. They require the non-consensual forced effort of others to succeed...

runeks4• 8 years ago

I like the technical ideas behind cryptocurrency, but the terrible political views are off-putting.

Which political views? I read the article and only saw a view on money, not politics.

What’s being criticized is the very idea that money should involve politics.

The argument is that we should be as free to choose which kind of money we use as we are to choose which kind of car we use. There should be no law giving competitive advantage — in the form of legal tender law, and the absence of choosing which numeraire to use as the basis for calculating capital gains tax — to currencies issued by central banks with whom the government has an account.

It’s entirely possible to deliver an argument for the separation of government and money without criticizing either in and of itself. It’s very much like arguing for the separation of church and state without saying anything negative about either of the two in isolation.

arisAlexis2• 8 years ago

are you talking about rotten bank bailouts? yes terrible policies

dqpb• 8 years ago

I feel like you could say the exact same thing about democracy

vec2• 8 years ago

You can!

Also relevant, there are no functioning democracies in the world today. There are a bunch of republics and parliaments and representative democracies and such, but without exception they empower some relatively small central institution to make broad, sweeping decisions on behalf of the nation.

jm__872• 8 years ago

There is a distinct difference between some pump and dump strategy and a central bank printing a ton of currency. One has a temporary effect on supply and demand for the instrument in question, the other has a permanent effect.

tinokid• 8 years ago

the other has a permanent effect

This is not really accurate. There are of course many ways both fiscal and monetary for policymakers to "tighten the screws", as it were. They just haven't chosen to do so in recent years.

agorabinary• 8 years ago

If there is a fatal flaw in Bitcoin somewhere, there are hundreds of other attempts to improve upon this idea by forking the code. We will surely see dramatic changes in valuation amongst these different coins as the crypto community develops, but to think that ALL the coins will fail in their game-changer level ambition.. this does not logically follow.

In all possible worlds, individuals will fork Bitcoin and the competition for economically and technically sound digital monies will only increase. And in all possible worlds, individuals will manipulate markets with very low volume, ie. Bitcoin for most/all of its existence.

This is all deterministic. It could not be otherwise.

sethrin2• 8 years ago

but to think that ALL the coins will fail in their game-changer level ambition.. this does not logically follow.

Good thing no one suggested that.

ShabbosGoy• 8 years ago

And while these ideologues are busy demonizing the central banks a handful of individuals manipulate bitcoin to levels a central bank could never even attempt...

What baffles me is the obsession over price. Nobody obsesses over USD/JPY, unless you’re a forex trader.

Rather than focusing on price, the focus should be on building new ideas with blockchain technology. Dapps are easier than ever to deploy with Truffle/web3.js[0] for example. You can come up with cool alternative governance models like Dash[1] has.

I’ve been following Bitcoin since 2010. It’s never been about price for me. It’s been about what cool things you can build with the technology.

[0] http://truffleframework.com

[1] https://dashvotetracker.com

rmah• 8 years ago

How is this baffling? 99% of people who buy bitcoin and other cryptocurrencies don't care about freedom, disrupting the financial system or any of that other ideological issues. They simply want to make money (USD, EUR, JPY, what have you).

vec2• 8 years ago

And while these ideologues are busy demonizing the central banks a handful of individuals manipulate bitcoin to levels a central bank could never even attempt...

Thank you for putting words to an idea I've had for a while.

I agree that central banks are imperfect and that they sometimes abuse or just misuse their power. When they abuse the trust we place in them it creates real, specific problems. Cryptocurrencies have no trust, but they have even worse versions of the same specific problems.

This shouldn't be surprising. The entire reason we created central banks in the first place was precisely to attempt to manage these specific problems. The implicit argument is that centrally managing a currency isn't just imperfect and corrupt, but that it's so incredibly imperfect and corrupt as to be worse than nothing.

arisAlexis2• 8 years ago

you can manipulate any market when it's small. that doesn't mean anything actually

eggy2• 8 years ago

I hope Bitcoin perseveres. I missed the boat on buying it when it was valued at ~$200 USD. I am more into the decentralization of currency. I don't buy the fear-mongering.

And today, I am even more resolved. Bank of America rejected my father trying to deposit $250 USD cash into my account at a local branch while I was out of town. They made him go home to get his checkbook to write a check (money order was an option). They no longer take cash deposits since December 2017 from non-account holders. Any talk of preventing money laundering and the customer's best interest is just a lame excuse to rid staff at branches.

The banks know it too, since they are rushing to develop cryptocurrency instruments to ensure they insert themselves into the payment chain to collect percentages.

I remember being at the first HOPE NYC in August 1994 [1], and listening to a talk about crypto and currencies. I can't remmber the guys name, but he had a cowboy hat on, long hair and beard. Jeez, I wish I were more visionary then. It woke a spark of potential, and then I went on with other things.

  [1]  https://en.wikipedia.org/wiki/Hackers_on_Planet_Earth

simias4• 8 years ago

I see many people complaining about the banking system (often for a good reason) and mention cryptocurrencies as an alternative but I'm not sure I see it.

Take your anecdote for instance, what would be the equivalent in the crypto world? If you actually need to deposit fiat you'll have to use an exchange and it's basically the same problem (good luck getting an exchange to accept $250 in cash).

Of course the whole thing is that if everything switches to some cryptocurrency then everybody will be able to manage their own money directly without needing an institution. Well, in theory at least, in practice it seems as likely as expecting everybody to host their own email servers instead of relying on gmail & friends. In practice people won't want to risk losing their funds because they made a mistake, lost their hardware token or got a virus on their computer. In practice people will still want loans and insurance. So I think crypto or no crypto banks won't go away.

kbutler• 8 years ago

There are already more than 2000 bitcoin ATMs https://coinatmradar.com/

odonnellryan• 8 years ago

There are plenty of local services for you to exchange cash for BTC. Yes, very big exchange rate, but you can find these easily enough.

QML• 8 years ago

I think the notion of banking won't go away, but today's concept of a bank will: no more physical locations, ATMs, wire-transfers that cost $30, etc. Maybe opening an account will be as easy as getting an email address (at least for the user anyways).

fra• 8 years ago

Sadly, NNT gets a key detail wrong: Bitcoin isn't controlled by its users, it's controlled by the miners.

yasp• 8 years ago

And yet ultimately the users can move to a fork if they are unhappy. To wit: Bitcoin Cash, which is the true bitcoin. (With Bitcoin Cash, Nassim's coffeeshop transaction would indeed be possible, and without needing to wait for 10+ minutes, contrary to popular belief.)

matthewbauer4• 8 years ago

No the miners are the ones that can fork if they are unhappy. Users are held hostage by the miners for any PoW cryptocurrency. If they want their holdings to be worth anything, they have to endlessly shill for their currency or else they'll go broke.

sergiosgc• 8 years ago

Read this as a comment from a cryptocurrency lurker.

Bitcoin Cash, which is the true bitcoin.

I see this statement repeated often, to the point of sounding like a strategy of "if you repeat a lie enough, people will believe it". Isn't Bitcoin Cash the minority result of a Bitcoin fork? Isn't the majority result by definition the true Bitcoin?

jstandard2• 8 years ago

Users don't move to a fork, the supporting institutions do (miners, exchanges, wallet developers). In essence we're back to square one. Our future is being decided by a few, centralized entities with majority control over the system.

josu3• 8 years ago

Your comment is bad, but since you brought it up, you can buy coffee with bitcoin: https://twitter.com/alexbosworth/status/955870434230132736

The lightning network is still in beta, but it's certainly a much more scalable solution than bcash or any other fork.

dmm• 8 years ago

Non-mining nodes still enforce the consensus rules. Miners can't just decide to increase the block size or change the total # of bitcoin to 42 million.

6nf2• 8 years ago

Non-mining nodes do not have the ability to change the block chain and therefore they do not affect the rest of the network.

runeks4• 8 years ago

That’s a gross oversimplification. There are thousands of Bitcoin nodes running right now who verify that the miners are honest. Miners could refuse to include any transactions at all, but that would amount to a sort of constant denial-of-service attack, and could be resolved by moving to a new proof-of-work function (thus rendering all current Bitcoin mining hardware worthless).

htormey2• 8 years ago

"When you trade gold, you trade “loco” Hong Kong and end up receiving a claim on a stock there, which you might need to move to New Jersey. Banks control the custodian game and governments control banks (or, rather, bankers and government officials are, to be polite, tight together). So Bitcoin has a huge advantage over gold in transactions: clearance does not require a specific custodian. No government can control what code you have in your head."

Regardless of what you think of BTC and its ilk, I think this is a pretty good point about investing in gold.

rwmj2• 8 years ago

Really though? Unless you're a millionaire you can store gold yourself - in a cheap bank deposit box or (if you're daring) even at home.

htormey2• 8 years ago

True, but if you are going to be that paranoid how easy is it for you to take your gold across the border?

“According to the Transportation Security Administration (TSA), it is legal to travel with any amount of cash or other monetary instruments in and out of the United States. However, you must declare your cash to customs if the amount exceeds $10,000 or its foreign equivalent.”

http://traveltips.usatoday.com/travel-airline-cash-9937.html

Traveling with more than 10k of gold or cash is much more noticeable than 10k plus of BTC, aka a piece of paper Wirh some words scribbled on it.

Changu3• 8 years ago

I was hoping to read his thoughts on Bitcoins market cap of about 200 Billion Dollar.

I have the theory, that the value of a cryptocurrency is equal to the sum of transaction fees people will spend in the future, discounted for inflation.

Currently Bitcoin users pay about $5m per day on transaction fees. That is $1.82B per year. At this rate, it would take 109 years to reach those $200B.

So by that logic, the market predicts a strong future for BTC. Either it will be around for very long or its usage will grow.

Personally, I am skeptical. I think there will be too much competition. It might be hard to replicate the BTC ecosystem but I don't think it is $200B hard. Especially since there will be rapid changes to the whole crypto space in the coming years (offchain transactions, alternative mining forms etc).

I expect we will end up with a currency that does not need mining at all. I think we will end up with a currency that uses signed transactions that are simply broadcasted. The receiver asks a bunch of trusted nodes "Is this a double spend?" and if they reply "no" then the payment is accepted.

That is simple, instantaneous and free. And has almost no real life downsides compared to Bitcoin.

digi_owl• 8 years ago

That sounds oddly similar to the notion that a national currency gets its value from having to pay taxes with it.

matthewbauer4• 8 years ago

Interesting thoughts but I think "the sum of transaction fees people will spend in the future" is better as a value for mining (after rewards go to 0). "Holders" really aren't wanting anything to do with transactions.

My Bitcoin valuation:

Bitcoin is worth as much as it costs to move to another blockchain.

That's the "first-mover advantage" basically and I'm afraid it's much closer to $200 million than $200 billion.

Changu3• 8 years ago

That seems to imply that the BTC market cap is the result of speculation. Of people holding BTC because they think some greater fool will buy them later.

Personally I believe in efficient markets. I think the $200B is the best guess the market came up for the intrinsic value of BTC. Independent of speculation.

My feeling is similar to yours though. That BTCs value is closer to $200m then to $200B.

jstanley• 8 years ago

I have the theory, that the value of a cryptocurrency is equal to the sum of transaction fees people will spend in the future, discounted for inflation.

How does that follow, at all?

Is the total value of all the USD in the world equivalent to the total transaction fees paid on USD in the future, discounted for inflation?

Changu3• 8 years ago

The approach I use here is to not see Bitcoin as a currency, but as a money sending service like Visa. The incentive to buy BTC is that one wants to use the system. How much is the usage of the system worth? It is the transaction fees. They reflect what people are willing to pay to use the system.

jsutton• 8 years ago

Non-mining cryptocurrencies are already here, thankfully. Ethereum will be moving from mining to a Proof of Stake model; others like Dash have been successful with it for years.

rdlecler1• 8 years ago

Governments could ban crypto sites, crypto trading, and conversion to currency. While this won’t completely kill it, it marginalizes it to such an extent that it won’t be an attractive medium for most folks because most people are lazy and don’t want the hassle.

ethbro• 8 years ago

Hell, China could reprice electricity rates for mining. That alone would almost do it.

conanbatt5• 8 years ago

China can also block exports to the US and bring it down, for that matter.

runeks4• 8 years ago

Your conclusion very much depends on the prevailing rate of inflation for national currencies. The higher the rate, the greater the incentive to move your savings to somewhere safe.

In other words, the incentive may not be that great right now (since the inflation rate is relatively low), but this is something that can change.

georgeecollins2• 8 years ago

one can macroBS longer than microBS, which is why we need to be careful on who to endow with centralized macro decisions.

Taleb goes overboard sometimes, but he has been so great for calling BS on finance pseudo-science.

davidw• 8 years ago

I guess when you call everything 'BS', you're bound to be right some of the time.

georgeecollins2• 8 years ago

I don't want to defend everything Nassim Taleb says because I don't agree with it. But its facile and wrong to say that he calls everything BS. And his earlier books were very much a clear attack on a poor use of statistics in finance. Antifragile is the work of a crank. Fooled by Randomness is just good.

jerkstate• 8 years ago

Wow, I expected Mr. "I don't eat or drink anything that hasn't been around for 1000 years" to write a lot more negative on this. I completely agree with the statement that even if bitcoin itself fails, cryptocurrencies will ultimately succeed.

huphelmeyer2• 8 years ago

"I don't eat or drink anything that hasn't been around for 1000 years"

He'd love our office fridge.

zeesh• 8 years ago

Don’t you all think insider trading will be significantly easier with crypto? Why is there little talk about this?

lucozade• 8 years ago

Not sure why insider trading would be a thing. What information would affect the price? Most aren't based on anything substantive.

Front running and pump & dump are pretty easy currently. That's not a fundamental thing though. More of a fact that the cryptocurrency environments, especially exchanges, tend to be exceptionally opaque. Somewhat ironically.

jstandard2• 8 years ago

Employees at major exchanges can trade on insider information about whether a major exchange will support a new coin. Employees at token-funded companies can insider trade on that same information.

There's already some evidence these schemes are happening at major exchanges. Coinbase's launches of Litecoin and Bitcoin Cash come to mind.

https://medium.com/@bitfinexed/coinbase-insider-trading-lite...

deevolution• 8 years ago

Two things are constant in this world: tax and death.

rargulati• 8 years ago

Payment processing and banking in the United States is woefully behind the rest of the world. Globally, the system is complex, obtuse, and fragmented enough to result in a shanty town of technological solutions that are just lipstick on a pig.

The hope here is that the introduction of blockchains and cryptocurrencies into public discourse, and public excitement regarding a digital mechanism to store and receive value might be the kick in the pants that the banks need to roll-out better banking tools and systems. Furthermore, the first bank to run a publicly auditable ledger which can be validated externally will set a precedent for transparency.

I'm not sure what the future of cryptocurrencies will be (though I'm bullish), but those would be huge wins for society.

Nassim Nicholas Taleb, Author of Black Swan, on Bitcoin

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