3 signs Bitcoin is antifragile — and their objections
Bankers and investors keep ignoring this fact. Facts the most valuable things during chaotic times have in common.
You might have heard of Nassim Nicholas Taleb. The risk management- expert, economist and writer who defined the term Black Swan as an unexpected event that can not be calculated by established probability calculations used in risk management.
Black Swans and Bitcoin
Black Swans are happening far too frequent to ignore them. Black Swans such as the Fukushima earthquake, the Corona pandemic, like Lehman Brothers. And Bitcoin (from the perspective of the Fiat system IMO). In fact mathematics used for risk management is worthless because of them. Still it is being used ignoring these facts stated by Taleb… Black Swans have influenced our economy drastically. And they become more frequent over time in an increasingly fragile economy. There is a reason for that, as Taleb states.
Antifragility vs. Resilience
Taleb shows in his most important book “Antifragile” (he claims that), that systems become more vulnerable to Black Swans, the more fragile they are. Fragile is the opposite of antifragile. No, the opposite of fragility is not resilience. Resilience is something that endures stress. Fragility is something that gets damaged by stress. Antifragile is something that becomes more robust when stressed. Antifragile is the true opposite of fragile.
Got the difference? I think this is another groundbreaking thought of Taleb, undoubtedly one of the greatest thinkers of our time, at least in the economic realm.
Is Bitcoin antifragile?
So what does antifragility have to do with Bitcoin and other cryptocurrencies? Well, our financial system is just like our planet highly regulated and highly centralized.
Taleb shows that centralization and regulation make systems more fragile. There are 2 important features that lead to fragility of systems, according to Taleb. Most of all:
BTC is both decentralized and definitely not overregulated. Same applies to the whole cryptocurrency market.
But is BTC antifragile? Does BTC become more robust in stressful times? IMO there are 3 facts to look at to get a conclusion. Let’s look at Bitcoin:
1. BTC is decentralized
There is no central power that controls Bitcoin. Bitcoin is open source and changes to the code have to be accepted by the users (agents, miners etc.) to integrate them. So BTC at first sight is decentralized.
BUT: The thing is, we know that the majority of the mining farms are located in China, controlled by very few mining farms. So technically decentralization is not that obvious with BTC and can be questioned.
2. BTC is resistant to regulation
In the last years there have been many attempts to control or prohibit Bitcoin, by several countries. All of these attempts may have worked temporarily, but overall BTC is as strong as never before. We could argue that the stress of regulative pressure did make Bitcoin stronger in the past. A clear sign of antifragility.
BUT: We do not know if BTC generally benefits from any kind of regulation. We can not know how a ban in a powerful country such as China or the US would impact the price. I assume that it could be disastrous, if china drops BTC support, same applies for USA. And who knows hhow soon the central banks will be forced to take actions to defend their own power?
3. BTC proves stronger against other Cryptos
There are many technically very good alternatives to BTC available, that are, let us be honest, just better to use than Bitcoin. But Bitcoin is still by far the most successive of all. It appears as if BTC could benefit from the large ecosystem that had risen around it.
BUT: The question is if this will always be the case also for the future. It is clear to me that Bitcoin will only survive in the long run if it can actually fulfill its purpose, and that is being used as digital money. We can not assume BTC will stabilize on a high level if it goes on to be just an object of speculation. One threat concerning this is that the way Bitcoin is built there are interests against making BTC better as a payment solution, as for examples the very powerful miners earn from transaction fees and have the power to keep them high. That could prove to be a fragility of BTC in the future.
Reading this it might become obvious that BTC might be antifragile in its nature. In fact, Blockchain and decentralized organizations are antifragile. And this could possibly make them very important to our society in the future. But we have to be very cautious not to see the obvious fragilities hiding in BTC.
At the moment BTC is the spearhead of a technological solution, and the hype around it as well as the network effect drive its growth. But there are serious threats ahread…
What do you think?
Do you think BTC will prove antifragile in the long run?
Or will it’s success not be lasting longer than say 10 more years or so?
Let me know
(I originally published this text on voice.com — republish due to voice.com going private)