Writing a blog post summary of another summary of an academic paper may seem to be ridiculously derivative but bear with me, this is crypto. And whenever I think of crypto, I can’t help but thinking about the immortal Jerry Lewis in The Nutty Professor. Don’t ask me why, it makes as much sense as anything else to do with crypto lunacy…
Nassim Taleb has eviscerated Bitcoin and blockchain in a new paper for NYU. This summary from the invaluable NakedCapitalism Blog, provides a helpful and detailed review for those of you who don’t speak Taleb fluently but are, like, really into this stuff. For the rest of you, I give you my Top Three Juicy Bits extracted from NakedCapitalism’s summary of Nassim Taleb’s paper about why Bitcoin and Blockchain are useless (or worse):
#1. Blockchain is, to date, an epic fail:
We presented the attributes of the blockchain in general and bitcoin in particular. The customary standard argument is “bitcoin has its flaws but we are getting a great technology, we will do wonders with the blockchain”. No, there is no evidence that we are getting a great technology —unless “great technology” doesn’t mean “useful”. And we have done —at the time of writing —in spite of all the fanfare, still close to nothing with the blockchain.
#2. Bitcoin fanboys don’t understand the difference between “accepting bitcoin for payment” and “being priced in bitcoin”. This is hugely insightful and something I’d not thought of.
There is a conflation of “accepting bitcoin for payments” and pricing goods in bitcoin. For that the price in bitcoin must be fixed, with the conversion into fiat floating, rather than the reverse.… To be able to regularly buy goods denominated in bitcoin (that is, fixed in bitcoin, floating in U.S.$ or some other fiat currency), one must have an income that is fixed in bitcoin. Such an income must come from somewhere, say, an employer. For an employer to pay a salary fixed in bitcoin, she or he must be getting revenues fixed in bitcoin. Furthermore, for the vendor to offer a can of beer in fixed bitcoins, she or he must be paying for the raw material, and have the overhead fixed in bitcoin. The same with a mismatch of assets and obligations on a balance sheet. All this requires a parity bitcoin-USD of low enough volatility to be tolerable and for variations to remain inconsequential.
#3. Lastly, the most hilarious of all the Bitcoin bloopers, secrecy. As we’ve all learned (or realized, “doh!”), a distributed ledger keeps tracks of all your “secret” transactions for anyone, anywhere to see! It ain’t secret! Bitcoin doesn’t even work for it’s biggest users: criminals!
To many paranoid antigovernment individuals and others distrustful of institutions, bitcoin has been marketed as safe haven —also with the open invitation to fall for the fallacy that a volatile electronic token on a public setting is a place for your hidden treasure. By its very nature, bitcoin is open for all to see. The belief in one’s ability to hide one’s assets from the government with a public blockchain easily triangularizable at endpoints and not just read by the FBI but by people in their living room also requires a certain lack of financial seasoning and statistical understanding – perhaps even simple common sense. For instance a Wolfram Research specialist was able to statistically detect and triangularize “anonymous” ransom payments made by Colonial Pipeline on May 8 in 2021 [18] —and it did not take long for the FBI to hack the account and restitute the funds.
The logic of Bitcoin buyers (not the elephants who own half the currency and are hoarding it for future manipulation but the “person in the street”) is as compelling and lucid and rational as that of GameSTONK “investors”.