Ammous - The Bitcoin Standard

1. Chapter 3
2. Chapter 4
3. Chapter 7
4. Chapter 8

1. Chapter 3
2. Chapter 4
3. Chapter 5
4. Chapter 6
5. Chapter 8
6. Chapter 9
7. Chapter 10

Saifedean Ammous

Copyright 2018 by Saifedean Ammous. All rights reserved.

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To my wife and daughter, who give me a reason to write.

And to Satoshi Nakamoto, who gave me something worth writing about.

Saifedean Ammous is a Professor of Economics at the Lebanese American University and member of the Center on Capitalism and Society at Columbia University. He holds a PhD in Sustainable Development from Columbia University.

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 intelligencea zerointelligence crowd, under the right design, works better than a Sovietstyle 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 virtuesignaling 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

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 peertopeer, with no trusted third party. 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.