Nassim Nicolas Taleb has been called the leading Wall Street dissident by famous journalist Malcolm Gladwell. Still, he might well be dubbed Bitcoin’s top dissident by anyone with enough academic authority to do so.
Once a user and vocal advocate of Bitcoin, Black Swan author Nassim Taleb has recently become a harsh cryptocurrency critic, and published an article this weekend explaining why he thinks Bitcoin is failing as money, a store of value and even as a new technology.
For Nassim Taleb, Bitcoin is not money … it is useless
Taleb began by questioning the possibility that Bitcoin will turn into a global store of value in the near future:
It is also an error of reasoning to claim that an innovation, bitcoin, can become the “new gold” ab ovo, whereas gold was not decided to be so by ﬁ at thanks to a white paper. ; it organically became the ex-post reserve, over centuries of competitive selection against other modes of storage, payment and collectibles.
As a social science, economics explains that the design of money fundamentally depends on a collective agreement. This can happen by force (as in the case of fiat money) or by changing social interactions (as in gold). However, it takes a long time for society to change culturally for both scenarios. To expect bitcoin to accomplish in decades what gold has done in thousands of years seems unlikely to social science.
Likewise, Nassim Taleb questioned the role of bitcoin as money. One of the main functions of money is that it must be stable enough to act as a unit of account, which bitcoin currently cannot satisfy.
Nassim Taleb explains that it would be difficult to express economic interactions in terms of pure Bitcoin prices:
To be able to regularly buy goods denominated in bitcoin (i.e. fixed in bitcoin, floating in US dollars or in another fiat currency), one must have a ﬁ xed income in bitcoin. Such income has to come from somewhere, say, from an employer. In order for an employer to pay a salary fixed in bitcoin, it must receive income fixed in bitcoin. In addition, for the seller to offer a can of beer in fixed bitcoins, they must pay for the raw material and have the overheads fixed in bitcoins. The same goes with a mismatch of assets and obligations on a balance sheet. All of this requires a bitcoin-USD parity of sufficiently low volatility to be tolerable and for variations to remain inconsequential.
In other words, when buying goods with Bitcoin, the parties are actually exchanging goods using the dollar as the underlying currency. It is difficult to establish fixed prices in Bitcoin because the market does not have a global agreement on its value. This extreme volatility can ultimately lead to Bitcoin’s failure.
Nassim Taleb ends by explaining how certain arguments of maximalists and theorists are only illusions.
First, he explains that it is wrong that Bitcoin is a libertarian-designed product:
“The belief that bitcoin is an offshoot of the libertarian and Austrian economy has no shadow of support …
Libertarianism is fundamentally about the rule of law instead of the rule of regulation. It’s not about the rule of rules – mechanistic, automated rules with irreversible results …
Libertarianism is not total distrust either.
Second, he assures that it is wrong that Bitcoin is a safe haven. He confirms that instead of maintaining its value over time, “Bitcoin appears to respond to liquidity, just like other parts of the bubble.”
Third, he denies that BTC serves as a protection against oppressive regimes:
In the cyber world, connections are made with people you have never met in real life; infiltration by government agents is extremely easy. By comparison, the Mafia demanded Sicilian lineage for “our friends” so that they could perform their own security clearance-type check. You never know the degree of government oversight and the actual capacity.
The slogan “Escape the tyranny of government and therefore bitcoin” is similar to advertisements extolling the health benefits of cigarettes
The transparency of the blockchain, the use of the fiduciary system to access money, and the need to build human relationships help governments keep oversight over bitcoin transactions.
And finally, he addressed what he calls the agency error problem: instead of relying on central banks and governments to be able to use the money, a society that is totally dependent on Bitcoin would be relatively dystopian and dependent in turn on large companies and individuals who took the opportunity to acquire BTC in its infancy:
We would have the illusion that by being distributed, Bitcoin would be democratic and reduce the agency problem perceived as present among officials and banks.
Sadly, there appears to be a worse agency problem: a collection of insiders clinging to what they think is the global currency, so others would have to turn to them later for stocking up. . They would cumulatively earn billions of dollars, with many billionaire “Hodlers”; compare with civil servants whose salaries are lower than the middle class. It is a transfer of wealth to the cartel of the first users of bitcoins.
Twitter arguments? No
Taleb ends the article by saying that ‘great tech’ doesn’t mean useful and argues that the company is still ‘next to nothing with blockchain’.
Such arguments are hard on many BTC maximalists, and some might even try to prove them wrong. But beware! If you are one of those adventurous bitcoiners who are always looking to debate, you better do it in academia! Mr. Taleb isn’t much of a fan of Twitter dramas:
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