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Which longer lasting Ponzi scheme would you choose?

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If crypto circles are a Ponzi scheme, what isn't? Be realistic and choose the Ponzi scheme you think will last longer.

Recently, the author has been thinking about the problem of modern monetary economic system.

In the first lesson of your economics class, your teacher will give you the basic definition of money: a medium of exchange, a unit of account, and a store of value.

The appearance of the medium of exchange and money greatly improves the efficiency of people's interaction and reduces the friction cost of barter transaction.

As a unit of account, money can be used as a commodity in itself and can be used to measure the value of other goods in its own unit, thus forming the price of other goods.

A store of value, which has probably been removed from textbooks today, is not a store of value. Economic growth requires healthy inflation, and money itself has no function of generating interest.

However, the traditional economic definition of money is gradually breaking down today.

The medium of exchange of value, the instrument of implementing monetary policy, the only permissible medium of exchange in the controlled domain under a system of consensual values endorsed by arms, the price of official intervention is to abandon the move towards open finance. Unit of account? This unit is very elastic, and the value of this unit is completely determined by monetary policy, and the asset deviates from its intrinsic value. The store of value, under the stimulus bill, the value of money has plummeted.

There is no gold behind the modern monetary system. It is a little ledger of its own, with a balance sheet drawn up by the central bank itself.

And under free trade, strong currencies will indirectly or directly link with weaker currencies.

Put it simply, and perhaps a little too far. While I was thinking, I saw this article, and I couldn't help nodding my head, as if it was very similar to my idea. Although I don't agree with it 100%, I think it is still worth sharing here.

This post is by Alberto Guerrero from CoinMonks. The following is the original translation:

Nassim Nicholas Taleb, the controversial author of "Fighting Vulnerability," "Black Swan," "Shared Risk," and "Random Rich Fools," recently changed his mind about bitcoin.

Not long ago, he suggested that you might have some crypto assets in your portfolio. But now he believes crypto prices are too volatile to serve as a reserve asset or even a hedge against inflation.

What's going on? What made him change his mind? Should people now follow his recent views or his previous advice?

Let's take a closer look.

decentralized

Bitcoin is a decentralized cryptocurrency with no authorities, no companies or institutions behind it. It consists of nodes and miners in the network and is supported by the forces of supply and demand markets. This makes it anti-regulatory, transparent, homogenous and unlicensed.

Taleb has always argued that decentralized systems are more robust than centralized systems. For example, he is bearish on Europe, the US or China and long on Switzerland or Singapore. His money goes to small cities and countries, not big economies like the European Union.

Centralised systems are often too bureaucratic, run from the top down, inefficient and corrupt. A good example is the Soviet Union, which could not even organize a system for distributing bread, contributing to its notorious long lines at bakeries.

Centralized authorities, large corporations, and pyramid hierarchies are at risk of being centralized and therefore extremely vulnerable to attack. Distributed systems such as ant colonies, Linux or guerrilla warfare are almost impossible to attack with precision, making them less likely to be routed.

Bitcoin is very decentralized. No one can control this game. Even Satoshi (Bitcoin's creator) has disappeared, leaving the algorithms and consensus mechanisms to run the system itself. The only way to destroy Bitcoin is through a 51% attack or quantum computer or by shutting down the entire Internet. But these events are highly unlikely, and even if they did, there would be defences.

banned

Bitcoin is resistant to regulation, and even if officials try to stop it, it will only make itself stronger. This is also the definition of anti-vulnerability, a concept proposed by Taleb himself.

The US and China have tried to limit the cryptocurrency ecosystem. But ironically, these two countries have some of the highest Bitcoin penetration rates in the world. Like the mythical Hydra, when one head is severed, two other heads grow up.

In some countries and regions, there is another prohibited currency, that is the US dollar. How useful do you think this ban will be in the end?

When people need a proper currency to serve as a store of value, they always find it. Gold has traditionally been a haven in times of crisis. In the developing world, the dollar is still king. But now the market is accepting bitcoin as a store of value and a hedge against inflation.

inflation

Taleb argues that bitcoin will never be a hedge against inflation because its price keeps going up.

I must admit that I am very puzzled by this statement. Bitcoin is going up 200% a year, while the dollar is falling 15%, one is deflationary, the other is inflationary. When the price of bread in Venezuela goes up, it's not the bread that swells, it's the Venezuelan silver.

The price of any asset is falling in comparison to Bitcoin, so this also acts as an effective hedge against inflation.

According to Wittgenstein's Ruler Principle, if you are using a ruler to measure the length of a table, you are also using a table to measure the length of a ruler. Using fiat money to value assets is deceptive because they are unstable. It's like measuring length with elastic bands.

Over the past few years, stock and property prices have been rising, but not reflecting their true values. The dollar has been falling, making everything look more expensive.

If you measure the price of all assets by measuring gold or bitcoin, you will find that prices of all assets have been stable or even falling since the new crown. This is the more reliable ruler.

High volatility

Taleb said bitcoin is too volatile to act as a store of value.

Again, I was confused. What's wrong with asset price volatility? It should be assumed that most investors would be happy with rising asset prices, even if they sometimes pull back.

Actually, I want more volatility, not less. If you want to stay steady, you can deposit your cash in the bank and earn a juicy 0.1 per cent annualised interest, minus commission. That's really stable. But if you want to make money, you have to take some calculated risks and live with the volatility of asset prices.

Lindy effect

Taleb is a big proponent of the Lindy effect -- if something's been around for 100 years, it's probably going to be around for another 100 years.

Books, movies, and works of art often follow this rule. The Bible has been around for two thousand years, so in the year 4000, it may still be around.

Right now, Bitcoin has only been around for 12 years, which is not that long. But in this fast-paced world of technology, twelve years is an eternity. In other words, a technology that can survive for a decade or more is likely to succeed.

Think Google, Apple, Facebook or Amazon. Will they still be around in 20 years? I think so.

Once a technology reaches a tipping point and network effects form, it is very difficult to kill it. Even if a technology is very advanced, it must follow Metcalfe's law: the value or benefit of a network is proportional to the number of users of the network.

Some say that Bitcoin will be replaced by crypto assets with higher performance, lower cost or higher speed. I doubt it.

You may be able to cook a better burger than McDonald's, but can you be the next fast food giant? Not necessarily.

McDonald's, Bitcoin, Coca-Cola, the Internet and Facebook all have network effects, and the more people who join, the more powerful and irreplaceable the brand becomes.

The Lindy effect is real, and it applies to technology, too. Combined with network effects, it will drive first-mover advantage technologies at an exponential rate.

A ponzi scheme

Taleb thinks bitcoin is similar to a Ponzi scheme. Here, I think he's absolutely right.

You know what else is a Ponzi scheme? Yes, gold, real estate, the stock market, pensions and the economy in general.

All of these systems are basically pyramid-shaped. They can only survive by trusting the system and believing that it will last forever. Once trust disappears, the whole system collapses like a house of cards.

The dotcom bubble, the subprime mortgage crisis of 2008 and the Japanese recession of the late 1990s were all examples of Ponzi schemes that collapsed. Gold, the dollar and other assets are also Ponzi schemes, but they still hold a certain value.

The question now is not whether Bitcoin is a Ponzi scheme, but rather a choice: Which Ponzi scheme is better?

Would you buy dollars when they print $1.9 trillion out of thin air every other month? Or do you want to own a total supply capped at 21 million bitcoins?

The entire economic system is based on a bubble, a Ponzi scheme, and requires you to trust a system you can't trust. Anyone seeking intrinsic value should return to barter self-sufficiency. Everything else is fiction.

One of the great things about Bitcoin is that it is untrusted. Instead of relying on central banks, officials or financial institutions to support the assets in the system, everything is based on mathematics. It is still subject to the forces of supply and demand in the market, but it is not dependent on any inefficient or corrupt institution.

It's a Ponzi scheme, but it will go on for at least 1,000 years.

Fuck you, money

Taleb made all his wealth by betting on highly volatile assets, taking enormous risks and betting against the system. When he saw a bubble, he bet against it and made millions of dollars. He got the money he needed to make himself rich and free without having to depend on others. So he can say: Fuck you, money.

Now, he says bitcoin is a bubble. Is he right?

Of course we are in a bubble, and it is bound to explode. The question is: which bubble?

Is Bitcoin a bubble, or is it the needle that will pop all other bubbles? The stock market, the banking system, the trillion-dollar printing press and the centralized economy are very big bubbles to me.

This is a question you must ask yourself. Pick the right bubble, put your money in there, make money like crazy, and run.

"Skin in the Game"

Taleb hates bankers, economists and politicians. He despises institutions and politicians who play games with other people's money and make their clients lose everything while making them rich.

He was a rebel who had won a lot of empathy (including from me) by being able to tell the truth. When bankers make money, they get bonuses; When they go bankrupt, you pay the price. It's not fair.

Bitcoin players are in a risk-sharing game, so to speak. I think the proponents of crypto assets have about 10% of their portfolio allocated to crypto assets. Put your money where your mouth is. It will make you know what you do. Not so with bankers and politicians

In my case, I want to live in a world where people are rewarded for making smart decisions and punished for making bad ones. Like the Roman engineers who were forced to live under the Bridges they built, we let politicians, economists and bankers take real risks. If they ruin other people's lives, their lives should suffer too. Instead, they will continue to receive their bonuses and enjoy a lavish retirement with money "stolen" from other people's wallets.

Taleb used to own bitcoin, but he recently sold it. There is nothing wrong with him putting his money where his mouth is. But after selling bitcoin, he bought dollars, an inflationary bubble supported by a system of corrupt bankers and politicians that he highly despises. I can see a big contradiction here.

But why?

contrarianism

Taleb is a contrarian. He enjoys the feeling of being angry. He can be opinionated, angry and even rude.

One of his readers once said:

"The question isn't whether Taleb is an asshole. Yes, he is. But everything Taleb says is true." -Dan from Prague

He got it right once and made millions of dollars, but he got it wrong many times before that. All you need to get rich is to make the right decision once, and once is enough.

I'm a contrarian myself. I can understand everything Taleb writes. Most people make mistakes most of the time, so to follow the crowd is to walk on a cliff.

It's good to be a contrarian, but don't overdo it. If you become the opponent of the contrarian, then you will become the majority, and the cliff will settle in front of you.

Now, you need to decide who is the majority and who is the contrarian, and make your own choice.

Is it the 1% of cryptocurrency advocates or the 99% of people who think cryptocurrencies are scams? It's for you to decide.

Read the news, listen to politicians, go to banks for investment advice. It is clear what the majority of people choose.

No one knows what the future holds. One thing may soar or fall to the bottom from a moment, but it is clear that when an advanced technology appears, it will eventually take over the whole world. Think of the Internet in the 1990s, which, despite its many naysayers, changed the world. Can Bitcoin be compared to the Internet? Some contrarian players in risk-sharing games might think so. But can they be right? We'll see about that.

conclusion

Taleb is one of the world's greatest philosophers, economists, scholars, writers and mathematicians. I reread all of his works every year and continue to learn his wisdom. He changed my life.

I got into the currency circle because of him, and now he's abandoned the ship.

I won't listen to him this time. I think he was blinded by his own contrarian thinking. Sometimes, you just have to do what you think is right and not be distracted by the people around you.

None of his recent tweets are convincing. He seems simply angry that this new monetary technology has been so successful, but that is not usually a good reason to argue against it.

I joined the risk-sharing game in the hope that one day I would be rich. But that is only if there is no black swan event. Fortunately, black swans are rare by definition, but who knows...

Maybe the black swan here is Bitcoin and fiat money is the victim. We'll see the answer soon.