Which would you choose as a more permanent Ponzi scheme?

The definition of money in traditional economics is gradually failing today.

Which would you choose as a more permanent Ponzi scheme?

Recently, I have been thinking about the modern monetary and economic system.

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

The medium of exchange, the emergence of money greatly improves the efficiency of people’s interactions, reducing the frictional cost of bartering.

A unit of account, money can be a commodity in its own right, and can be used as a unit to measure the value of other commodities, which forms the price of the rest.

The store of value, which may have been eliminated from today’s textbooks, is that money does not serve as a store; economic growth requires healthy inflation, and money itself has no interest-bearing function.

However, the traditional definition of money in economics is failing today.

The medium of exchange of value, the instrument for implementing monetary policy, the only permitted medium of exchange in a controlled domain under a consensus system of values backed by arms, the price of official intervention is the abandonment of the move towards open finance. The unit of account? This unit is flexible and it is entirely up to monetary policy to determine the value of the unit, with assets deviating from their intrinsic value. The value is stored, and under the stimulus bill, the value of money shrinks by leaps and bounds.

There is no gold behind the modern monetary system, but a small book of housekeeping, which is a balance sheet drawn by the central bank itself.

And with free trade, a strong currency will indirectly or directly link to a weaker currency.

To put it simply, and perhaps a bit parochially. As I was thinking about it, I came across this article and I couldn’t help but nod my head a lot, it seems to be very similar to what I think, and although I don’t agree 100%, I think it’s still worth sharing here.

This article is from Coinmonks, by Alberto Guerrero. here is the translation of the original article.

Nassim Nicholas Taleb, author of Antifragile, The Black Swan, Risk Sharing, and The Random Rich Fool, a controversial author, recently changed his mind about Bitcoin.

Not long ago, he was suggesting that people could allocate some crypto assets in their portfolios. But now he argues that crypto asset prices are too volatile to be used as a reserve asset or even a hedge against inflation.

What has happened? What made him change his mind? Should people now follow his recent views or heed his previous advice?

Let’s take a closer look.

Decentralization
Bitcoin is a decentralized cryptocurrency with no official, corporate or institutional backing. It consists of nodes and miners in a network and is backed by the forces of the supply and demand market. This makes it regulation-resistant, transparent, homogeneous and unlicensed.

Taleb has always believed that decentralized systems are more resilient 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 to large economies like the EU.

Centralized systems tend to be too bureaucratic, with top-down management models that are inefficient and corrupt. A good example is the former Soviet Union, which could not even organize a system for distributing bread and achieved the notoriety of long lines in front of its bakeries.

Centralized official, large companies and pyramidal hierarchies are at risk of centralization and are therefore vulnerable to attack. Distributed systems such as ant colonies, Linux or guerrilla warfare can barely hit them with enough precision to make them easy to defeat.

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

Sequestration
Bitcoin is resistant to regulation, and even if officials try to stop it, it will only make itself more powerful. This is also the definition of anti-fragility, a concept introduced by Taleb himself.

The US and China have tried to restrict the cryptocurrency ecosystem. But ironically enough, these two countries have the highest bitcoin penetration rates in the world. Just like the mythical hydra, when one head is severed, two other heads grow.

In some countries and regions, there is another banned currency, and that is the US dollar. Guess how useful this ban ended up being?

When people need a proper currency to act as a reserve of value, they will always find it. Traditionally, gold has been a safe haven in times of crisis. In developing countries, the dollar is still king. But now the market is embracing 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 I am very confused by this statement. Bitcoin goes up 200% a year while the dollar goes down 15%, one is deflationary and the other is inflationary. When the price of bread in Venezuela goes up, it’s not the bread that is inflated, it’s the Venezuelan silver coin.

In comparison to Bitcoin, the price of any asset is falling, so this also effectively acts as a hedge against inflation.

Look at this according to Wittgenstein’s ruler principle: If you are using a ruler to measure the length of a table, then you are also using the table to measure the length of the ruler. Using fiat currencies to measure the value of assets is deceptive because they are unstable. It’s like using an elastic band to measure length.

Over the past few years, stock and real estate prices have been rising, but that’s not a reflection of their true value; rather, the dollar has been falling, which makes everything look more expensive.

If you measure the price of all assets by measuring gold or bitcoin, you will find that the price of all assets has been stable or even declining since the new crown. That’s that more reliable yardstick.

High Volatility
Taleb claims that Bitcoin is too volatile to act as a store of value.

Once again, I’m confused. What’s wrong with asset price volatility? One should assume that even though sometimes asset prices pull back, most investors would be happy with an asset that keeps rising in price.

In fact, I want higher volatility, not less. If you want stability, you can put your cash in the bank and get a nice 0.1% annualized interest rate, minus commissions. That’s very stable indeed. But if you want to make money, you have to take some risk on your own weighting and be subject to the volatility of asset prices.

The Lindy Effect
Taleb is a strong proponent of the Lindy effect – if something has been around for 100 years, it will probably be around for another 100.

Books, movies and works of art usually follow this rule. The Bible has been around for 2,000 years, so it will probably still be around in 4000 AD.

Now, Bitcoin has only been around for 12 years, which isn’t very long. But in this fast-paced technological world, twelve years can already be considered an eternity. One could also argue that a technology that can exist for a decade or more, he’s 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 creates a network effect, it will be very difficult for that technology to become obsolete. Even if a very advanced technology emerges, it must follow Metcalfe’s law: the value or benefit of a network is proportional to the number of users of that network.

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

You might be able to make a better burger than McDonald’s, but can you be the next fast food mogul? That’s not so sure.

McDonald’s, Bitcoin, Coca-Cola, the Internet and Facebook all have a network effect, and the more people who join, the stronger and more irreplaceable the brand becomes.

The Lindy effect is real, and it applies to technology as well. Combined with the network effect, it will drive technology with a first-mover advantage at an exponential growth rate.

Ponzi Schemes
Taleb sees Bitcoin as similar to a Ponzi scheme. Here, I think he’s absolutely right.

You know what else is a Ponzi scheme? That’s right, gold, real estate, the stock market, pensions, and entire economies.

All of these systems are basically pyramidal. They can only survive on trust in the system and the belief that the system will continue to grow forever. Once the trust is gone, the whole system collapses like a house of cards.

The Internet bubble, the 2008 subprime crisis, and the Japanese recession of the late 1990s were all downfalls of Ponzi schemes that collapsed. Gold, the dollar, and other assets are also Ponzi schemes that are just holding their value for now.

The question now is not to decide if Bitcoin is a Ponzi scheme, but to choose: which Ponzi scheme is the better one?

Would you buy dollars when they are printing $1.9 trillion out of thin air every other month? Or would you want to own bitcoins with a total supply cap of 21 million?

The entire economic system is based on a bubble, a Ponzi scheme, a system that requires you to trust a system that cannot be trusted. Anyone seeking intrinsic value should go back to bartering for self-sufficiency. Everything else is a fiction.

One of the advantages of Bitcoin is that it is trustless. There is no need to rely on a central bank, official or financial institution to back the assets in the system, everything is based on mathematics. While its still subject to the supply and demand of the market, it does not rely on any inefficient and corrupt institutions.

It’s a Ponzi scheme, but one that will continue to grow for at least 1000 years.

Screw you, stinking money.
Taleb made all of his wealth by betting on highly volatile assets, taking extreme risks and betting against the entire system. When he saw a bubble, he shorted it and made millions of dollars from it. He got the money he needed, money that would allow him to be wealthy and free without having to rely on anyone else. So he can say: screw you, stinking money.

Now, he’s saying that Bitcoin is a bubble. Is he right?

We’re certainly in a bubble and it’s definitely going to explode, the question is: which bubble is it?

Is Bitcoin the bubble, or is it the pinhead that will pierce all the other bubbles? The stock market, the banking system, the trillions of dollars of money printing and centralized economies are very big bubbles to me.

This is a question that must be asked of yourself. Pick the right bubble, put your money there, make crazy money, and run.

Risk sharing (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 but get rich themselves.

He is a rebel for being able to tell the truth and has earned a lot of empathy (including from me). When bankers make money, they get a cut; when they go bankrupt, you pay for it. That’s not fair.

It’s fair to say that bitcoiners are all in on this game of shared risk. I think 10% of crypto asset proponents’ portfolios are allocated to crypto assets. Putting your money where your mouth is will make you know what you’re doing. Not so much for 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 the real risks. If they ruin other people’s lives, theirs should be implicated as well. But the reality is the opposite: they get their bonuses as usual and enjoy a lavish retirement with the money they ‘stole’ from other people’s wallets.

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

But why?

Contrarianism
Taleb is a contrarian. He enjoys making people angry. He is sometimes self-righteous, tantrums and even rude.

One of his readers once said.

The question is not whether Taleb is a jerk. Yes, he is a jerk. But what Taleb says is right. -Dan from Prague

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

I myself am a contrarian investor. I can relate to everything Taleb wrote. Most people make mistakes in most situations, so to follow the crowd is to walk on a cliff face.

It’s great to be a contrarian, but don’t go too far. If you become the opponent of the contrarian, then you will become the majority and the cliff will be right in front of you.

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

Is it the 1% of cryptocurrency advocates or the 99% of people who think cryptocurrency is a scam? It’s up to you to decide.

Read the news, listen to politicians, go to your bank for investment advice. It’s obvious what the majority of people’s choices are.

No one knows what the future looks like. Something can soar from one moment to the next or hit rock bottom, but it’s clear that when an advanced technology comes along, it will eventually take over the entire world. Think of the Internet in the 1990s, which, despite its many detractors, changed the entire world. Can you compare Bitcoin to the Internet? Some of the contrarian thinkers in the risk-sharing game might think so. But will they be right? We’ll see.

In Summary
Taleb is the world’s best philosopher, economist, scholar, author, and mathematician. I read all of his work over and over again every year and continue to learn from his wisdom. He has changed my life.

I got into cryptocurrency because of him, and now he’s abandoned the ship.

I won’t listen to him this time. I think he’s blinded by his own contrarian thinking. Sometimes you just need to do what you think is right and not be distracted by the crowd around you.

The recent tweets he has made are unconvincing. He just seems angry that this new cryptocurrency technology can be so successful, but that’s usually not a good reason to argue against it.

I’m in this risk-sharing game in the hope that one day I’ll get rich. But all of this assumes that no black swan event occurs. Fortunately, by definition, black swans are rare, but who knows ……

Maybe the black swan here is bitcoin and fiat is the victim. We’ll see the answer soon.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/which-would-you-choose-as-a-more-permanent-ponzi-scheme/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-05-12 16:42
Next 2021-05-12 16:53

Related articles