[WSMDiscuss] Revisting bitcoin and cryptocurrencies | naked capitalism
fkashner at gmail.com
Mon Jun 28 18:15:52 CEST 2021
Here is a great article about Bitcoin from a progressive perspective by Tom
The Cantillonian Oligarchy: Why the Left Should Embrace Bitcoin
On Sun, Jun 27, 2021 at 3:51 PM Frank Kashner <fkashner at gmail.com> wrote:
> Let me first list the pejoratives in this article. Shellacks? Nothing to
> like? No holds barred? (Taleb is) far from the only expert (who hates
> Bitcoin)? Fanboys? Poseurs? Suffering no fools? Paranoid antigovernment
> individuals and others distrustful of institutions? naïve-libertarian
> illusion? getting ideologues wound up? --- Really, why are the critics so
> The main thing I got from this article was a good laugh. The author takes
> a chainsaw to a random set of trees while showing remarkable ignorance of
> the forest. The bitcoin project is young and has remarkable achievements
> for only 11 years of existence. It has had some of the actually smartest
> people (who is the poseur?) working on it and has, somehow, magically
> created more than $1 trillion of value.
> Rather than engage with the author’s 20 random points, I will simply ask:
> Why are dozens of countries including the US and China struggling to create
> digital versions of their currencies? How can anyone claim to know
> anything about Bitcoin without accounting for the Lightning Network.
> Who on this list trusts the government and other capitalist institutions
> to preserve the value of their currencies, to not use monetary policy to
> starve millions? Who on this list cannot be curious about a cryptographic
> and mathematical Internet money that has never been hacked, is independent
> of governments and central banks, and that forces rich and poor to follow
> the same protocol?
> On Sun, Jun 27, 2021 at 8:52 AM Brian <brian at radicalroad.com> wrote:
>> Those on this list who engaged in the long recent thread on bitcoin et
>> alia may find this interesting….
>> ~ Brian
>> Nassim Nicholas Taleb Shellacks Bitcoin and Cryptocurrencies
>> Yves Smith <https://www.nakedcapitalism.com/author/yves-smith>June 23,
>> 2021 | *naked capitalism*
>> Nassim Nicholas Taleb has weighed in on Bitcoin and its brethren in a new
>> paper for New York University, *Bitcoin, Currencies, and Bubbles
>> <https://nassimtaleb.org/2021/06/bitcoin-currencies-bubbles/>, *and
>> finds nothing to like. We’ve embedded his analysis below and encourage you
>> to read it in full. [See attachment to this email]
>> Taleb is far from the only expert in finance to pen a wide-ranging and
>> overwhelmingly negative assessment of Bitcoin and other crypto (which for
>> convenience we will refer to as Bitcoin). Nouriel Roubini published a no-holds
>> barred takedown in the Financial Times in February
>> Roubini called out its lack of fundamental value, environmental toll,
>> volatility, high transaction costs, and very slow processing.
>> Taleb’s critique is even more fundamental. We joked early on that
>> blockchain was a technology looking for an application. Taleb confirms that
>> that is still true. From Taleb’s conclusion:
>> 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
>> Bitcoin fanboys may have tried to shrug off Roubini as a mere
>> doom-oriented economist. They’ll have a much more difficult time dismissing
>> Taleb. Taleb is a quant’s quant and has no patience with poseurs. He starts
>> with a brief overview of the technologies that underpin Bitcoin and
>> includes observations about Bitcoin that derive from currency risk hedging,
>> but it’s not essential to parse them to get the drift of his gist. Even
>> though he is not a computer scientist, he held senior positions in
>> derivatives trading at top tier market participants, and particularly in
>> the 1980s and 1990s, competitiveness in options and derivatives trading was
>> very much dependent on fast IT development and implementation, so the
>> senior traders would often work closely with the developers on the rollout
>> of new trading models and tools. So his asides about IT are not to be
>> dismissed either.
>> However, Taleb is also famous for suffering no fools, and so calls on
>> readers to step up their game to follow his argument rather than making his
>> arguments op-ed-level layperson friendly. However, the finance-literate
>> will find this paper to be accessible as well as occasionally acid.
>> Taleb’s overarching complaint is that Bitcoin accomplished none of its
>> supposed aims, including facilitating crime. Its volatility and speculative
>> use makes it unworkable as a currency. One of the comments the paper
>> 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.
>> It isn’t a store of value, an inflation hedge or a safe haven either. It
>> isn’t just that Bitcoin did poorly in the Covid panic of March 2000; it’s
>> also not a techno answer to a bank account in a secrecy jurisdiction like
>> Panama or the Isle of Man. From the article:
>> 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  —and it did not take long for the FBI to hack the
>> account and restitute the funds.
>> Government structures and computational power will remain stronger than
>> those of distributed operators who, while distrusting one another, can fall
>> prey to simple hoaxes.
>> In the cyber world, connections are with people one has never met in real
>> life; infiltration by government agents are extremely easy. By comparison,
>> the mafia required a Sicilian lineage for “friends of ours” so they could
>> do their own security clearance type of check. One never knows the degree
>> of governmental surveillance and real capabilities.
>> Taleb makes much of the fact that the value of Bitcoin depends on having
>> miners “in perpetuity”. He points out that other historical currencies,
>> such as gold and silver, even if they had lost their luster and no longer
>> function as inflation hedge or reliable stores of value, still have some
>> fundamental worth due to their use in industry and jewelry. No such
>> possible floor exists for Bitcoin. It similarly can’t be considered to be
>> an asset because it can never generate income. Taleb puts aside
>> collectables since they have what amounts to consumption value, as in
>> enjoyment of their aesthetic qualities.
>> Let us go deeper into how a currency can come about. No transaction is
>> analytically pairwise in an open economy. The root of the confusion lies in
>> the prevalent naïve-libertarian illusion that a transaction between two
>> consenting adults, when devoid of coercion, is effectively just a
>> transaction between two consenting adults and can be isolated and discussed
>> as such, pairwise. One must consider the ensemble of transactions and the
>> interactions between agents: people happen to engage in contractual
>> agreements with others; for them a given transaction is just a piece. 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.
>> There are also arbitrage bounds present in any sufficiently efficient
>> economy with relatively free markets.
>> Furthermore, if a vendor prices goods in bitcoin, and the value
>> fluctuates from the initial fixing, the price will be directly or
>> indirectly arbitraged: when the conversion rate to fiat is favorable,
>> customers will buy from the bitcoiner; when unfavorable they will either
>> buy elsewhere (indirect arbitrage), or if possible, return previous goods
>> (direct arbitrage). For the price to not be arbitrageable requires the good
>> to be unique and unavailable elsewhere at a fixed price in another currency
>> – in this case it becomes, simply, a proxy to bitcoin. The only items that
>> currently appear to be somewhat priced in bitcoin are other
>> cryptocurrencies, even then.
>> Taleb does not invoke the MMT/chartalist view that the acceptance of a
>> currency depends on the necessity of acquiring it to make tax payments. But
>> he gets to similar place:
>> In 2021, the governments (central and local) share of GDP in Western
>> economies is around 30-60%, one order of magnitude higher than it was in
>> the 1900s. Government employees and contractors get paid in fiat; taxes are
>> collected in fiat.
>> Taleb, as did Roubini, calls out the fiction that Bitcoin is somehow
>> One would have the illusion that, by being distributed, Bitcoin would be
>> democratic and reduce the agency problem perceived to be present among
>> civil servants and banks. Unfortunately, there appears to be a worse agency
>> problem: a collection of insiders holding on to what they think will be the
>> world currency, so others would have to go to them later on for supply.
>> They would be cumulatively earning trillions, with many billionaire
>> “Hodlers”; compare with civil servants making lower middle class wages. It
>> is a wealth transfer to the cartel of early bitcoin adopters.
>> If you get as much of a charge as I do from getting ideologues wound up,
>> I hope you’ll send this article on to your Bitcoin true believers and watch
>> them go on tilt.
>> Visit: https://murphyslog.ca
>> Twitter: @BrianKMurphy2
>> Visit: https://murphyslog.ca
>> Twitter: @BrianKMurphy2
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