,Foreword
by Nassim Nicholas Taleb
Let us follow the logic of things from the beginning. Or, rather, from the
end: modern times. We are, as I am writing these lines, witnessing a
complete riot against some class of experts, in domains that are too difficult
for us to understand, such as macroeconomic reality, and in which not only
is the expert not an expert, but he doesn't know it. That previous Federal
Reserve bosses Greenspan and Bernanke, had little grasp of empirical
reality is something we only discovered too late: one can macroBS longer
than microBS, which is why we need to be careful of whom to endow with
centralized macro decisions.
What makes it worse is that all central banks operated under the same
model, making it a perfect monoculture.
In complex domains, expertise doesn't concentrate: under organic reality,
things work in a distributed way, as F. A. Hayek has convincingly
demonstrated. But Hayek used the notion of distributed knowledge. Well, it
looks like we do not even need the “knowledge” part for things to work
well. Nor do we need individual rationality. All we need is structure.
It doesn't mean all participants have a democratic share in decisions. One
motivated participant can disproportionately move the needle (what I have
studied as the asymmetry of the minority rule). But every participant has the
option to be that player.
Somehow, under scale transformation, a miraculous effect emerges: rational
markets do not require any individual trader to be rational. In fact they work
well under zero intelligence—a zero‐intelligence crowd, under the right
design, works better than a Soviet‐style management composed of
maximally intelligent humans.
Which is why Bitcoin is an excellent idea. It fulfills the needs of the
complex system, not because it is a cryptocurrency, but precisely because it
has no owner, no authority that can decide on its fate. It is owned by the
,crowd, its users. And it now has a track record of several years, enough for
it to be an animal in its own right.
For other cryptocurrencies to compete, they need to have such a Hayekian
property.
Bitcoin is a currency without a government. But, one may ask, didn't we
have gold, silver, and other metals, another class of currencies without a
government? Not quite. 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.
Finally, Bitcoin will go through hiccups. It may fail; but then it will be
easily reinvented as we now know how it works. In its present state, it may
not be convenient for transactions, not good enough to buy your
decaffeinated espresso macchiato at your local virtue‐signaling coffee
chain. It may be too volatile to be a currency for now. But it is the first
organic currency.
But its mere existence is an insurance policy that will remind governments
that the last object the establishment could control, namely, the currency, is
no longer their monopoly. This gives us, the crowd, an insurance policy
against an Orwellian future.
Nassim Nicholas Taleb
January 22, 2018
, Prologue
On November 1, 2008, a computer programmer going by the pseudonym
Satoshi Nakamoto sent an email to a cryptography mailing list to announce
that he had produced a “new electronic cash system that's fully peer‐to‐peer,
with no trusted third party.”1 He copied the abstract of the paper explaining
the design, and a link to it online. In essence, Bitcoin offered a payment
network with its own native currency, and used a sophisticated method for
members to verify all transactions without having to trust in any single
member of the network. The currency was issued at a predetermined rate to
reward the members who spent their processing power on verifying the
transactions, thus providing a reward for their work. The startling thing
about this invention was that, contrary to many other previous attempts at
setting up a digital cash, it actually worked.
While a clever and neat design, there wasn't much to suggest that such a
quirky experiment would interest anyone outside the circles of
cryptography geeks. For months this was the case, as barely a few dozen
users worldwide were joining the network and engaging in mining and
sending each other coins that began to acquire the status of collectibles,
albeit in digital form.
But in October 2009, an Internet exchange2 sold 5,050 bitcoins for $5.02, at
a price of $1 for 1,006 bitcoins, to register the first purchase of a bitcoin
with money.3 The price was calculated by measuring the value of the
electricity needed to produce a bitcoin. In economic terms, this seminal
moment was arguably the most significant in Bitcoin's life. Bitcoin was no
longer just a digital game being played within a fringe community of
programmers; it had now become a market good with a price, indicating
that someone somewhere had developed a positive valuation for it. On May
22, 2010, someone else paid 10,000 bitcoins to buy two pizza pies worth
$25, representing the first time that bitcoin was used as a medium of
exchange. The token had needed seven months to transition from being a
market good to being a medium of exchange.
by Nassim Nicholas Taleb
Let us follow the logic of things from the beginning. Or, rather, from the
end: modern times. We are, as I am writing these lines, witnessing a
complete riot against some class of experts, in domains that are too difficult
for us to understand, such as macroeconomic reality, and in which not only
is the expert not an expert, but he doesn't know it. That previous Federal
Reserve bosses Greenspan and Bernanke, had little grasp of empirical
reality is something we only discovered too late: one can macroBS longer
than microBS, which is why we need to be careful of whom to endow with
centralized macro decisions.
What makes it worse is that all central banks operated under the same
model, making it a perfect monoculture.
In complex domains, expertise doesn't concentrate: under organic reality,
things work in a distributed way, as F. A. Hayek has convincingly
demonstrated. But Hayek used the notion of distributed knowledge. Well, it
looks like we do not even need the “knowledge” part for things to work
well. Nor do we need individual rationality. All we need is structure.
It doesn't mean all participants have a democratic share in decisions. One
motivated participant can disproportionately move the needle (what I have
studied as the asymmetry of the minority rule). But every participant has the
option to be that player.
Somehow, under scale transformation, a miraculous effect emerges: rational
markets do not require any individual trader to be rational. In fact they work
well under zero intelligence—a zero‐intelligence crowd, under the right
design, works better than a Soviet‐style management composed of
maximally intelligent humans.
Which is why Bitcoin is an excellent idea. It fulfills the needs of the
complex system, not because it is a cryptocurrency, but precisely because it
has no owner, no authority that can decide on its fate. It is owned by the
,crowd, its users. And it now has a track record of several years, enough for
it to be an animal in its own right.
For other cryptocurrencies to compete, they need to have such a Hayekian
property.
Bitcoin is a currency without a government. But, one may ask, didn't we
have gold, silver, and other metals, another class of currencies without a
government? Not quite. 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.
Finally, Bitcoin will go through hiccups. It may fail; but then it will be
easily reinvented as we now know how it works. In its present state, it may
not be convenient for transactions, not good enough to buy your
decaffeinated espresso macchiato at your local virtue‐signaling coffee
chain. It may be too volatile to be a currency for now. But it is the first
organic currency.
But its mere existence is an insurance policy that will remind governments
that the last object the establishment could control, namely, the currency, is
no longer their monopoly. This gives us, the crowd, an insurance policy
against an Orwellian future.
Nassim Nicholas Taleb
January 22, 2018
, Prologue
On November 1, 2008, a computer programmer going by the pseudonym
Satoshi Nakamoto sent an email to a cryptography mailing list to announce
that he had produced a “new electronic cash system that's fully peer‐to‐peer,
with no trusted third party.”1 He copied the abstract of the paper explaining
the design, and a link to it online. In essence, Bitcoin offered a payment
network with its own native currency, and used a sophisticated method for
members to verify all transactions without having to trust in any single
member of the network. The currency was issued at a predetermined rate to
reward the members who spent their processing power on verifying the
transactions, thus providing a reward for their work. The startling thing
about this invention was that, contrary to many other previous attempts at
setting up a digital cash, it actually worked.
While a clever and neat design, there wasn't much to suggest that such a
quirky experiment would interest anyone outside the circles of
cryptography geeks. For months this was the case, as barely a few dozen
users worldwide were joining the network and engaging in mining and
sending each other coins that began to acquire the status of collectibles,
albeit in digital form.
But in October 2009, an Internet exchange2 sold 5,050 bitcoins for $5.02, at
a price of $1 for 1,006 bitcoins, to register the first purchase of a bitcoin
with money.3 The price was calculated by measuring the value of the
electricity needed to produce a bitcoin. In economic terms, this seminal
moment was arguably the most significant in Bitcoin's life. Bitcoin was no
longer just a digital game being played within a fringe community of
programmers; it had now become a market good with a price, indicating
that someone somewhere had developed a positive valuation for it. On May
22, 2010, someone else paid 10,000 bitcoins to buy two pizza pies worth
$25, representing the first time that bitcoin was used as a medium of
exchange. The token had needed seven months to transition from being a
market good to being a medium of exchange.
