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Robust And Resilient
A few posts ago, I laid down a timeline of significant events in the history of the Bitcoin movement. All of those events are positive developments that give the reader an impression of steady forward progress. However, it has been no bed of roses for the world’s first decentralized currency system. To highlight this fact, I decided to superimpose four of the events (in blue) that could have signaled the death of Bitcoin – but didn’t.
The Silk Road disaster, the China crackdown, the Mt. Gox implosion, or the dire SEC warning each in their own right could have caused the value of Bitcoin to go back to its initial value of zero and stay there – but it didn’t. Thus far, Bitcoin has shown remarkable robustness and resiliency. Perhaps it’s even antifragile – gaining strength with each attempt to kill it.
As long as enough people believe that Bitcoin has value, then it will have value. As cell phones become more and more affordable to the poor and third world countries continue to act fiscally irresponsible with their fiat currencies, Bitcoin’s volatility will decrease and its utility as a fast, low fee, direct, mechanism of economic exchange will increase.
Bitcoin was never designed out of the box to “fit in” with the established ways of dealing with money through centralized institutions that can collapse or go bankrupt via greed/corruption. Perhaps it never will fit in, but Bitcoin can exist side-by-side with the established big wigs; acting as a deterrent to incompetent governments (Zimbabwe, Greece, Cyprus?) and serving as an escape valve to those affected by that incompetence.
Second Time Around
Since his philosophical ideas are refreshingly new, counter-intuitive, and mind-boggingly deep, I decided to re-read all four of Nassim Taleb’s books. I just finished re-reading “Antifragile” and am now well into my second pass through “The Black Swan“.
As with all good books that resonate with me, I find that re-reading them brings new learning, excitement, and joy. It’s almost like I’m reading them for the first time.
The reason I’m magnetically drawn to Mr. Taleb’s work is because his mission is truly noble and humanitarian. It is to make the world a better place by creating a system in which so-called elites (e.g. economists, politicians, academicians, Harvard-trained managers, high frequency traders) with no “skin in the game” cannot harm millions who follow their predictions/advice/policies without being harmed themselves. Requiring big-wigs to place some “skin in the game” (Mr. Expert, does the content f your portfolio align with your forecasts/advice?) precludes the alarming and increasingly asymmetric transfer of anti-fragility from regular Joe Schmoes like you and me to smug, self-serving elites.
In case you are new to the concept of antifragility, consider the figure below. A fragile system is one in which, as the magnitude of an external stressor is applied, the harm it experiences increases non-linearly. An antifragile system is the exact opposite. It is more than simply resilient or robust. It actually gains from volatility (up to a point, of course).
Since you can’t know what’s going to happen in the next five minutes, let alone far into the future, you can’t guarantee your own personal antifragility. But you can take concrete action to reduce your fragility and minimize the risk of someone stealing whatever antifragility you do have. Eliminating debt decreases fragility. Adding redundancy (e.g. two kidneys, two lungs) and “having options” reduce fragility. Government bailouts transfer antifragility from taxpayers to executives and shareholders. Lack of term limits transfers antifragility from voters to politicians. Corporate mergers and buyouts transfer antifragility from employees to executives. Increasing size and centralization increases fragility. Lack of exercise increases fragility. Long periods of obsessively manufactured stability increase fragility. The ultimate fragilizer, and the one in which we can only accept, is…….. TIME.