Antifragility & Bitcoin

You would be hard pressed to find an investment that carries with it the antifragile properties of bitcoin. Antifragile is a term which here describes something which benefits from shock; it thrives and grows when exposed to volatility, randomness, disorder, stressors and risk.

When things get uncertain, bitcoin thrives, and it gains on the mismanagement that is all too prevalent in our global economy. It can be used as a hedge for uncertainty in various markets, although the bitcoin market is uncertain in itself. It’s a place to look to when economic sanctions clamp down on the freedom of money, and it expands a portfolio’s diversity if the investor is willing to absorb the risk.

Bitcoin represents an antidote to conflict found in regions which do not have stable debt management and poor monetary policy.

Taleb On Bitcoin

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.

– Nassim Taleb, Anti-Fragile

Antifragile systems are necessarily complex, and a degree of randomness is natural when it is functioning properly. These types of designs are resistant to top-down controls and interference, because they are too complex to be controlled externally. The only way that we can effectively work with complex systems is by working from the inside – by gearing our decisions and actions to act as minor tweaks (trial and error) on the system (just as evolution does). (Taleb, 2012)

Taleb argues that artificially insulated firms make the eventual threat more damaging but less frequent. Banking bail-outs and strictly regulated industries which are protected from competition among imports are examples of insulated firms which are shielded from vulnerabilities which would otherwise make them stronger over the longer term.

Bitcoin, on the other hand, has no such incubation. Breaking the source code of bitcoin is a hacker’s dream. Negative media attention serves to harden the perception of newcomers to the bitcoin industry. Competition among a growing number of alternative cryptocurrencies forces bitcoin users to innovate. Each time, the antifragile properties of bitcoin allow it to become more resilient.

2013 Cyprus Financial Crisis

The randomness of human error and conflict present a landscape which gives bitcoin a convincing draw for people looking to put their money in an asset which cannot be seized or manipulated. Consider the Cyprus financial crisis of 2013, where the country imposed capital controls leaving residents cash-restricted. Banks on the island nation of Cyprus temporary shut off access to customer deposits under losses on government debt which put the nation on the fringe of bankruptcy and provided bitcoin a fertile opportunity in spite of these restrictions.

Bitcoin skyrocketed from $10 at the start of 2013 to $266 in early April, and although not all that investment/speculation can be attributed to the Cyprus crisis, the largest push happened as finance ministers publicly declared the seizure of citizen’s capital. Although much of the investment came from onlooking speculators, the ability to evade capital controls highlights the antifragile nature of bitcoin well.

Bitcoin is resistant to top-down controls by design due to the user base processing transactions. Developers of the source code could not suddenly make changes because the majority of the network would have to agree with said changes. No interference can take place where 51% of the user base does not agree on a particular change. The mining power of the bitcoin network is what directs certain blocks of transactions to be included in the ledger or not. Moreover, an external actor cannot control the functionality of bitcoin. Therefore, as Taleb describes, the only way that the system can operate is from within – by implementing minor tweak into the system much in the same way evolution does on the flow of life and survival.

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