Discover the Antifragile nature of Bitcoin and Cryptocurrencies. On Bitcoin Antifragility, Black Swan logic, Lindy Effect and more.
Is Bitcoin as risky as portrayed in the Media? Satoshi Nakamoto, the creator of Bitcoin, left the project in very early days. What would happen if the founder of a startup left the company in the early days? Shit would probably go south. Bitcoin is different, it’s decentralized. It’s open source, so when Satoshi left, a new wave of skilled cypherpunks successfully took over development. Bitcoin is not dependent on any one person or group. It does not need to change much.
Antifragile Bitcoin Media Exposure
“Bitcoin is dead” stories in mainstream media only serves as promotion.
When Bitcoin Ransomware was newsworthy, the media framed this as bad for Bitcoin and its holders. Looking closer, we can see that ransomware is just another use-case. The media is caught in the narrative: “ransomware is bad, so it’s bad for bitcoin”. Good or bad for society, it’s a use-case. Bitcoin as a good money, does not distinguish between bad and good for society. Just like traditional cash, cars or computers does not discriminate between users (for now).
Paul Krugman’s “Bitcoin is Evil“, Nouriel Roubini’s twitter meltdown, Augustin Carstens “My message to young people: stop trying to create money“. The list of “old guard” influencers desperately attacking Bitcoin, is long. What affect will it have? Tech savvy youngsters are able to see through this misinformation. It’ll probably create more interest. I’d argue that almost no negative media exposure, can hurt Bitcoin over the long run. Bitcoin seems to be antifragile to individuals attacking it. What does this mean? Bitcoins and other cryptocurrencies not only isn’t hurt, but they seems to be getting stronger with every media attack from the establishment.
Bitcoin Lindy Effect – Validity of Time
Through the past 8+ years, no one have been able to successfully attack Bitcoin. Additionally, even if a single Bitcoin miner had the resources to attack the system from inside, they have strong incentives not to do so. While eight years isn’t much for a new type of asset, it is a testament to its antifragility. Over eight years have passed with Bitcoin code being 100% open to public / hacker scrutiny. The probability of long-term success is far the highest among cryptocurrencies, applying the logic of the Lindy Effect. Bitcoin survived for almost nine years despite the fact that it is threatening the state monopoly on money. Despite the fact that the potential bounty for breaking it is billions of dollars. Almost nine years of Bitcoin survival is a testament to its ability of embracing disorder.
Pre-Bitcoin (Fragile) Private Money Initiatives
To understand what nation states thinks about challengers to their monopoly on money, you only have to look at the recent centralized experiments. Most were crushed by the state. Two of the most notable being E-gold in 2007 and Liberty Reserve in 2013. I’m sure that the nation-state would have crushed Bitcoin by now if they knew how to.
Trust and Trust Minimization
Trust is a key concept of Bitcoin. In Bitcoin, trust is placed in math and unchangeable fundamentals while it’s removed from 3rd parties as governments and central bank. Nick Szabo calls this trust-minimization.
Satoshi’s breakthrough with money was to provide social scalability via trust minimization: reducing vulnerability to counterparties and third parties alike. – Nick Szabo
Trust in Bitcoin builds as people watch it successfully resist the power of hackers, nation states and other sources of potential disorder. Trust builds when people realize that it is impossible to change Bitcoin fundamentals.
Bitcoin Forks and Lindy Effect
During the 2017 hard-fork drama, arguments broke out about which version would be “the real” Bitcoin. This whole debate was largely irrelevant in terms of defining Bitcoin. Consulting Lindy, when Bitcoin forks, the most conservative chain is Bitcoin. The chain most resistant to change is Bitcoin. Digital gold doesn’t easily change. The Lindy Effect, or time proved fundamentals in action.
“You know that the idea will fail if it is not useful, and can be therefore vulnerable to the falsification of time (and not that of naive falsificationism, that is by some government printed black-and-white guideline). The more an idea has been around without being falsified, the longer its future life expectancy.” – Taleb, An Expert Called Lindy
Bitcoin has proved and well-guarded fundamentals. Bitcoin forks are legit in the way that they’re products of free speech in the form of code. They’re a product of the free cryptomarkets spawned by Bitcoin.
Forks start anew, with new fundamentals. Each fork throws away the trust Bitcoin has built and starts over. Meanwhile Bitcoin keeps building trust, in the form Lindy Effect-like resistance to change.
Antifragile Bitcoin Architecture and Development
While few people have the skills to code Bitcoin, understanding the philosophy of Bitcoin and how it reflects on its development, is beneficial to all Bitcoin holders.
Regarding blocksize, scaling and Ethereum vs. BTC: Big and fast is short volatility – Taleb
— Jacob N. Pedersen (@norupp) June 18, 2017
Probability of collapse in complex systems tend to increase with time, size and speed. Applying this thinking to Bitcoin. Big and fast is the exact opposite of the philosophy around Bitcoin core protocol development. Bitcoin core protocol development is trust preserving and conservative for the reasons stated above.
Here’s Core developer Adam Back on a similar note:
many would like to see a frozen base layer once it's modular enough to do other things on top. satoshi said the same early on "The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime" https://t.co/Fqd5DYPIMi
— Adam Back (@adam3us) November 21, 2018
For those of you who want to go deeper, see Adam’s reasoning (Twitter thread) behind Bitcoin base layer “conservatism”.
Black Swan Logic
Bitcoin is long volatility. Bitcoin is antifragile (convex). Bitcoin is small in the way that the blockchain does not do much. Its task of time stamping ownership is simple. Bitcoin is slow as development and upgrades are extremely conservative/ trust preserving. Black Swan logic makes what you don’t know much more important than what you do know. This logic argues for conservative and lean core protocol development. The opposite of Bitcoin is a public Blockchain that does many things with high-speed and increasing complexity.
Bitcoin Development Philosophy
The philosophy of Bitcoin: it doesn’t mean that everyone agree’s – only that the ones who disagree are unable to change anything. They seem to be quitting to Ethereum, a corporate Blockchain or forking Bitcoin, creating a knockoff compatible to their individual vision. This is key to the Bitcoin Value proposition of censorship resistant store-of-value. Resistance to change.
a phenomena of people who's ego allows them to think they should be able to override the market & collective brain trust of experts operating via stringent peer review, who appear immune to self-competence re-evaluation after having failed hard times over on #Bitcoin game-theory.
— Adam Back (@adam3us) November 21, 2018
You can’t force Bitcoin in your direction. You can’t change the core properties. This would diminish trust and from a Lindy perspective, make us start all over. Nobody with Skin in the Game will allow this.
Antifragile Bitcoin as a Risk Manager
“An idea survives if it is a good risk manager, that is, not only doesn’t harm its holders, but favors their survival… More technically, it needs to be convex and reduce fragility somewhere.” – Taleb, An Expert Called Lindy.
Bitcoin is an excellent risk manager as it isolates the fragility of individual experiments in the 2nd and app layers above the core protocol. It isolates risk’s from experiment from the holders of Bitcoin. By holding Bitcoin instead of 2nd layer tokens and app-specific cryptoassets, you’ll be exposed to potential upside from innovation and experiments using the rails of the Bitcoin network. This is without suffering the downside from blow-up in these experiments. Hodling Bitcoin is a convex strategy leveraging “The Anti Fragility Edge”.
Bitcoin Ergodicity
Experimentation and the inevitable fatal failure of 2nd layer apps and businesses is ergodic to Bitcoin. That is, it contributes to the survival of Bitcoin over the long run. The apps can die and investors will lose their money. To Bitcoin it’s a win. By trial and error Bitcoin finds ways to grow. Future Bitcoin innovators building on its rails, will be more likely to succeed as a result. Ruin, blow-ups and failure in the core protocol layer is not ergodic to Bitcoin. Blow-up or fatal failure in the core protocol layer would by definition, be the end of Bitcoin.
Ensemble Probability
Experimentation, innovation and failure in 2nd and app layers, fits a type of probability Taleb calls “ensemble probability”. Ensemble probability is concerned with a group of independent experiments. Risk from ensemble probability is not systemic. It is spread across multiple projects and does not increase systemic risk.
Time Probability
Experimentation, innovation and failure in the core protocol layer, fits a type of probability called “time probability”. Time probability is concerned with a single experiment/object over time. Risk is systemic. Experimentation in the core protocol layer increases the risk of fatal failure in Bitcoin. Probability of fatal failure under time probability increases with time. With every experiment, the life expectancy of Bitcoin decreases. Even if the experiment works out fine.
Bitcoin minimizes risk of fatal failure and blow-up, by pushing experimentation and innovative solutions to the layers above the core protocol layer. Experiments and risk taking in the 2nd layer, also minimizes the risk to the Bitcoin hodler and investor, as the token BTC is native to the core protocol layer. Bitcoin allows people to build, innovate and fail while not hurting the underlying system.
If Blockchain features are easily copied, one could even argue that experimentation in competing cryptocurrencies is ergodic to Bitcoin. Take the best from other experiments when risk of blowup fades. More on this below.
Unseating Bitcoin
The belief that Bitcoin will be unseated by a better version and “new features” is common. Something marginally better comes along and steals the show.
The likelihood of this is likely very small. To understand why, ponder the question: What makes the winning Blockchain when features are easily copied and added in layers/apps on top (these projects are open-source after all)? The properties mentioned above. A conservative, risk averse core protocol layer. Resistance to change and the increased trust coming from this. Bitcoin will scale and add many altcoin features in the layers above. It might not be now and the speed of execution might not satisfy all people. Security and trust preservation will be prioritized.
Other Posts on Antifragility:
(First publish: December 4, 2017)