Thread
Some thoughts on @nntaleb's 6-page Bitcoin paper, available here: www.dropbox.com/s/5jwrgf9l4j41dtx/Taleb%20-%20Bitcoin_Currencies_and_Bubbles.pdf?dl=0
Let's start with the conclusion. "There is no evidence we are getting a great technology" with Bitcoin or blockchain. Does the argument support this conclusion? I think not. 1/23
Let's start with the conclusion. "There is no evidence we are getting a great technology" with Bitcoin or blockchain. Does the argument support this conclusion? I think not. 1/23
Let's ask, "Suppose the conclusion is true. What kind of argument would support it?" The argument would have to consider every bit of purported evidence that Bitcoin is great, and show that it's misleading evidence. The paper is 6 pages. It can't possibly do this. 2
So, we know that the conclusion is far too strong for a 6-page paper. But what is the argument? There are several. Here's one:
1) If we expect that the value will go to 0 when there are no miners, then the value now is zero. 3
1) If we expect that the value will go to 0 when there are no miners, then the value now is zero. 3
That's it. There's no added "there will be no miners" or "the value will go to 0 when there are no miners", nor is there any argument for either of those. So rather than an argument against Bitcoin as it seems purported to be, it's rather a general point about expected value. 4
Next, Taleb asserts that "transactions in Bitcoin are considerably more expensive than wire transfers". This is not true of even on-chain transactions, which are currently USD$4.75; my bank charges $30 for a wire transfer. 5/
He also says Bitcoin transactions are slower than credit cards. But this is comparing a final settlement network (on-chain Bitcoin) to a third-layer network (Visa). Taleb seems to be unaware of Lightning Network, where transactions cost less than a penny and are instantaneous. 6/
Next, Taleb says that Bitcoin isn't functioning as a unit of account, as almost nothing is priced in it. This is true, but it's hard to see it as a criticism 12 years into Bitcoin's existence. 7/
And there is no argument for the conditional: If Bitcoin fails to be a unit of account (or numeraire), then it's value should be 0. I would love to see an argument for that, but it's absent. 8/
Taleb then argues that Bitcoin doesn't work as an inflationary hedge. He compares it to the gettoni, an Italian telephone token. The getonni didn't work as an inflation hedge because of technological advances. 9/
Of course, showing one thing doesn't work as an inflation hedge doesn't show nothing can. I gather the gettoni discussion is supposed to show how difficult it is to find a single inflation hedge. But there's no argument that there can't be one, or that it can't be Bitcoin. 10/
The last half-page deals with four other arguments for Bitcoin, dismissing each in a paragraph or three. 11/
First, he argues that Bitcoin isn't libertarian because libertarianism is about the rule of law -- not money -- and it's not about total distrust. I don't care if this is true or not, but the argument goes by way too fast. 12/
Second, he argues that Bitcoin isn't a tail hedge against inflation. The evidence is the price movement of Bitcoin and the stock market in March 2020. That certainly shows Bitcoin didn't work then, and so doesn't always work. Maybe someday, but not yet. 13/
Third, he argues that Bitcoin isn't protection against tyrannical regimes. The evidence for this is that (i) the blockchain is public, and (ii) the FBI "hacked" the "account" of the Colonial Pipeline hackers. 14/
In response to (i), the blockchain contains addresses and amounts. No real-world identity. Without a KYC requirement at some point, the blockchain doesn't provide any information on real-world identities. Taleb gives no evidence that it does. 15/
On (ii), there are no such things as "accounts" in Bitcoin. There are simply addresses. And the FBI didn't hack any of those. Rather, the FBI tracked the sending of Bitcoin across addresses, and at some point some of it ended up at a known address. 16/
The FBI approached the exchange that had the private key to the address and asked for the Bitcoin at the address. It was given to them. They didn't hack it. And the Pipeline hackers erred in sending Bitcoin to an address to which they didn't have the private keys. 17/
So, this is not evidence that Bitcoin isn't a safe haven from tyrannical regimes. It shows that these people failed to use it as such. But thousands to millions around the world successfully use it as such. There is no discussion of them. 18/
Fourth, he argues that Bitcoin "insiders" (by which I think he means early adopters) are holding the vast majority of the Bitcoin, and so Bitcoin isn't justly distributed. This is an interesting argument, and I'd like to see a paper dedicated to it. 19/
I would love for more of the "civil servants making lower middle class wages" to have more Bitcoin. The way to do that is to encourage them to buy it. Sadly, papers like this are likely to make this a worse problem. 20/
Overall, the paper is a cursory discussion of a few of the aspects of Bitcoin that Taleb finds problematic. But the argument is far too thin to justify the strong conclusion. 21/
Rather, we should see this as a jumping-off point for thinking about some of these issues. Particularly interesting to me:
- can Bitcoin succeed without being a unit of account?
- can Bitcoin be a successful inflation hedge, or tail risk hedge? 22/
- can Bitcoin succeed without being a unit of account?
- can Bitcoin be a successful inflation hedge, or tail risk hedge? 22/
- How are people using Bitcoin in tyrannical regimes, and how can we make Bitcoin better for such people?
- If Bitcoin is a great technology, what other features makes it such? /end
- If Bitcoin is a great technology, what other features makes it such? /end
PS - This is not a response paper -- merely a Twitter thread with some thoughts. Please don't hold it to the standards of academic philosophy!
PPS — “if there’s even the tiniest chance that X will meet an absorbing barrier at some point in the future, then X has 0 value now” is not true by definition. It needs an argument. I don’t see one in the paper, but I’ve ordered *Skin in the Game* and will look for one there.
