Why Nassim Taleb Says Bitcoin is Worthless
Nassim Nicholas Taleb doesn’t mince words. When he thinks that something is worthless, he says so. In a recent paper he says in no uncertain terms that bitcoin is worthless. However, those “uncertain terms” are not only in mathematical language but in Taleb-speak. They need some explanation and interpretation. I will provide it in this brief article.
In a new paper, “Bitcoin, Currencies, and Fragility,” Taleb aims a scattergun at bitcoin and its underlying database technology, blockchain. Some of those scattershots merely ding bitcoin or blockchain only slightly, or not at all. But some of them hit the mark squarely.
I’ll list his objections, then explain them one by one. They are, in the order in which Taleb presents them:
- He implies that blockchain technology is not much different from a mathematical technique introduced by famed mathematician John von Neumann 70 years ago and now applied by hundreds of thousands of programmers and practitioners who use Monte Carlo simulation.
- If there is even the faintest possibility that bitcoin’s value could drop to zero or near-zero at any time, then by rational expectations its present value must be zero now.
- Bitcoin has failed to become a currency because bitcoin transactions are too expensive and too slow.
- Bitcoin’s price is too volatile for it to be used as a currency.
- To be an inflation hedge, a new currency needs to be more appealing than bitcoin as a store of value by tracking a weighted basket of goods and services with minimum error.
- Bitcoin is not a libertarian’s dream.
- Bitcoin is not a safe haven – it cannot remotely be used as a tail hedge against systemic risk.
- Bitcoin is not protection against tyrannical regimes; its transactions are open for all to see.
- Bitcoin does not solve the agency problem of reliance on intermediaries.
- Blockchain technology is similar to von Neumann’s pseudorandom number generator
This is not a serious objection to blockchain technology, except to say that something with a faint resemblance to it was invented and used before and is still widely used today. Taleb’s purpose, it would seem, is to minimize the overblown hype surrounding “blockchain.”