Original | Liu Jiaolian
Overnight, BTC hovered around 63k. At the third quarter private board meeting on Sunday, Jiaolian mentioned that someone had recently dug up a paper written by Taleb in 2021 called the " Bitcoin Black Book" and rehashed it. As the author of the best-selling books "The Black Swan" and "Antifragile", Taleb (Nassim Nicholas Taleb) was famous for a while. However, when he lost his BTC position in 2020 (or 2021), he angrily used his academic talent to concoct a paper criticizing BTC 's inevitable return to zero, titled "Bitcoin, Currencies, and Fragility" [1]. Interestingly, this carefully crafted "black book" did not attract much attention and attention in the industry because of Taleb's fame.
Harold Christopher Burger and others wrote an article in 2021 that refuted Taleb’s paper point by point [2]. I will not translate the specific teaching link here. If you are interested, you can click the reference link at the end of the article to read the original text.
Jiaolian has read this paper by Taleb a long time ago. Overall, apart from using a set of academic paper formats, some pretentious mathematical symbols, and some vague terms, his criticism of BTC is not much better than what other people who criticized BTC in history have said.
Since this paper has been re-posted recently and the market is divided, many readers have forwarded it to Jiaolian and asked what Jiaolian thinks of it. So Jiaolian thought it would be better to write a criticism to dissect Taleb's "black book" to get to the bottom of it and answer questions.
1. Taleb’s understanding of the randomness and unidirectionality of the BTC chain is completely wrong
In the first chapter of the paper, Taleb tried to start with the concept of "blockchain". It can be said that he started wrong. Satoshi Nakamoto never used the concept of "blockchain". Satoshi Nakamoto wanted to invent Bitcoin, not blockchain.
Jiaolian said that countless IT professionals, who are very professional in technology, just cannot understand BTC. Why? One of the reasons is that they mistake blockchain for Bitcoin.
Taleb showed off his mathematics in his paper. He talked about Monte Carlo simulation and von Neumann, which were all very absurd.
When I saw Taleb write about “pseudorandom numbers”, “sequences” and “probabilisitcally mimicking the arrow of time” in his paper, especially when I saw him write about “the very nature of the blockchain, transactions are irreversible”, I have already judged very clearly that Taleb has not really understood Bitcoin at all.
Without BTC, blockchain is just an ordinary data structure. This data structure does not naturally have the basis for several key properties of BTC that we understand, such as one-way, immutability, Byzantine fault tolerance, etc.
In fact, Satoshi Nakamoto cited three references in the Bitcoin white paper, all of which were about the blockchain data structure. These three reference papers were published in 1991, 1993, and 1999.
I wonder if Taleb has ever thought about what has changed in the 10 years from 1999 to 2009? The blockchain data structure used by Satoshi Nakamoto to record BTC transactions is exactly the same as that described in the paper more than 10 years ago.
Taleb spent some time talking about hash collisions. In fact, the hash reversal algorithm (also known as proof of work) was proposed by Adam Back as early as 2002. His paper is also the sixth reference of Satoshi Nakamoto's paper.
Based on this, Taleb, like many IT professionals, believes that the three major technologies used by Satoshi Nakamoto - hash algorithm, Merkle tree, and proof of work - are all outdated technologies that have long been invented by predecessors, which is very ironic.
The light bulb invented by Edison was made of materials that had been invented by predecessors. The iPhone invented by Steve Jobs also had all its components and technologies invented by predecessors. What exactly did the light bulb and the iPhone invent?
If we only observe from the perspective of mathematics (data structure), we will never understand why BTC can achieve true unidirectionality (irreversibility), true arrow of time, true immutability, and true Byzantine fault tolerance...
Jiaolian specifically discussed this issue in Chapter 92 “Verifiable Randomness” of the book “A History of Bitcoin”, discussing why many professionals’ subjective intuition that “there is no real randomness in the blockchain world” is wrong, the inherent contradiction between “randomness” and “verifiable”, and why the Bitcoin system can achieve verifiability and true randomness at the same time.
Please note that this is not a low-level question, but a high-level question. The understanding of this question should span three levels:
The first level: ordinary people believe that computer algorithms can generate truly random numbers.
The second level: computer science scholars who have read the famous book TAOCP by computer scientist Donald Knuth and understand why computer algorithms can only generate pseudo-random numbers but not true random numbers.
The third level: Go beyond simple computer science, have interdisciplinary thinking in natural science, and understand Prigogine's dissipative structure theory. Understand the real source of randomness in the Bitcoin system - completely open, permissionless, and fully competitive hash back calculation, which is the so-called "PoW mining". PoW is the so-called proof of work mentioned above.
In fact, when your thinking and understanding of BTC reach the third level, many problems will become clear. For example, the large amount of electricity consumed to perform PoW calculations cannot be "improved" into other algorithms without PoW. Because the so-called "improvements" are all replacing physics with mathematics, which will greatly reduce the system's ability to obtain randomness, thereby greatly damaging the security of the system.
Prigogine's dissipative structure theory also explains the fundamental reason why the Bitcoin system must be an open system without permission - a closed and isolated system cannot continuously absorb "negative entropy" from the outside, and will inevitably go to corruption and destruction. At the same time, it is precisely because the Bitcoin system is a dissipative structure that it can emerge through Turing bifurcations at every moment, and a true, one-way, irreversible arrow of time emerges. This is what Jiaolian introduced in the 22nd episode "Dissipative Structure" of "The History of Bitcoin".
With this knowledge, you will know that the arrow of time in the Bitcoin system, that is, the "timestamp server" mentioned by Satoshi Nakamoto in Section 3 of the white paper, is the real arrow of time, not the "simulated" arrow of time mentioned in Taleb's paper.
Therefore, when we look at the lower-level arguments in Taleb's paper from a higher level of thinking, we can see at a glance the low-level mistakes he made.
Taleb's mistake is fundamental, critical and fatal. Once he made this mistake, his entire paper basically became a high-rise building on quicksand, without any solid foundation, and it would fall down at the slightest push.
2. Taleb’s belief that BTC is worth zero is completely untrue
At the end of the first chapter of the paper, Taleb suddenly jumped from discussing the data structure of blockchain to discussing the value of BTC as zero. The transition was a bit abrupt, but let’s ignore it for now. In the second chapter, he continued to argue that the value of BTC is zero.
His main arguments include:
First, BTC is a zero-sum game. Second, the BTC network needs miners to maintain its existence, while things like gold can be preserved for a long time without paying any cost. Third, zero-interest assets will inevitably encounter the so-called "absorbing barrier" in the long run, and their value will return to zero. Fourth, anything with an expected value of zero must have a present value of zero. Fifth, gold has industrial and jewelry uses, but BTC does not. Sixth, the physical nature of gold does not have "path dependence", while BTC is a technology, and technology will always be replaced by better technology.
There is no need to refute them one by one. Just one simple fact is enough to prove the opposite: in the past 15 years, BTC has not only not returned to zero, but has become stronger and stronger, reaching new highs. As we all know, the price of the financial market reflects future expectations. Since the price continues to rise, it means that people expect it to be higher in the future. If people expect the value of BTC to return to zero, then its price today should be zero. Obviously, this inference is inconsistent with the facts.
If the theoretical predictions do not match the facts, should we revise the theory or insist that the theory is correct and the facts are wrong?
Obviously, the latter approach does not conform to the scientific spirit of seeking truth from facts. When people found that high-speed objects did not conform to Newton's laws of motion, they did not stubbornly believe that the objects were wrong, but overturned the old theory and invented the theory of relativity to explain the problem that high-speed motion did not conform to Newton's laws.
Obviously, the fact that BTC has not returned to zero but has repeatedly set new highs is enough to prove that Taleb’s long and tedious argument that BTC’s value is zero and its present value should be zero is completely wrong.
Looking at them one by one, it is easy to prove that almost every point he made is wrong:
For example, the argument of "zero-sum game". Is the value of zero-sum game zero? Even more, how about negative-sum game, shouldn't the value be zero? Well, is car insurance a negative-sum game? Everyone pays the premium, the insurance company takes a part as operating expenses and profit, and the remaining fund pool is divided among all the premium payers according to the expenses of the accident. This system is a zero-sum game or even a negative-sum game. So, is car insurance worthless? Of course not.
For example, "gold does not require maintenance costs." Taleb obviously cannot distinguish between gold as gold and gold as currency. Marx said that gold and silver are not naturally currencies, but currencies are naturally gold and silver. Gold as gold is just an element of the universe. Gold as currency is essentially a carrier of production relations in human society.
Gold, as a currency, obviously requires extremely high maintenance costs. It takes a lot of infrastructure and military force to store and keep it safely. It is extremely slow and expensive to transport. In comparison, BTC's security costs (cold wallets) and long-distance transportation costs (network sending) are 10,000 times better than gold.
For example, "zero-interest assets". Gold is also a zero-interest asset. According to Taleb's theory, it should also be zero. He also used the DCF valuation model to prove it. This is meaningless. Valuation models are nothing more than subjective thinking patterns of human beings. In fact, Wall Street has long broken through these rules and regulations. Internet listed companies can get high valuations without making profits, which does not conform to DCF (discounted future cash flow). There is no absolute relationship between future cash flow and value, but people subjectively think that it is related or not.
The illusion of productive assets continuously generating interest and dividends is not Taleb's original creation. This is the most common reason Buffett uses to criticize BTC. In fact, from the perspective of the laws of the universe, what productive assets are there? The evolutionary direction of the universe is eternal destruction, and the end point is heat death. Only local value increases, which is just a short-term illusion at the cost of greater damage to the surrounding environment and the value of others.
A factory or enterprise can continuously provide the capitalists with so-called dividends and interest, which is based on the fact that it can continuously obtain value from the outside and extract surplus value from it for distribution according to capital. If one day, it becomes corrupt and declines, it can no longer continuously obtain value and can no longer generate interest.
Using Prigogine's dissipative structure theory mentioned in the teaching link above to look at the dividend-bearing system of enterprises and the non-interest-bearing system of BTC, in fact, they are just different in the way they distribute value, and their essence is to absorb value from the outside. Which system is more open, more flexible, and more vital, which system will survive longer and continue to grow. Obviously, centralized and easily bureaucratic and rigid enterprises are definitely not the same species as the decentralized and highly open BTC system. The vitality and value absorption capacity of the former are far less efficient than the latter!
As for the "practical value" issue, it is an old one, and the coach is too lazy to refute it. Doesn't Taleb even understand the basic economic issues? How can value and practical value be confused? Air is very practical and cannot be lacking for a second, but its value is zero. A dollar bill has almost no practical value (it is too hard to wipe your butt), but it has a value of up to $100.
There is also "technological replacement", which is also a manifestation of unclear thinking. The technology used by BTC can be replaced, but BTC is still BTC. This is the "Ship of Theseus". It is said that most of the cells in your body will be replaced every 7 years, but you are still you!
Even if you replace every plank of the BTC, it is still the BTC. If you use other planks to copy the BTC 1:1, it is not the BTC. Even if you use the planks replaced from the BTC to reassemble a ship, it is still not the BTC.
3. Taleb’s perception that BTC is a failure as a payment currency is wrong
In the third and fourth chapters, Taleb criticizes BTC for being a failure as a payment currency.
It is true that BTC is not yet widely used as a payment currency.
However, anyone who understands the laws of currency development knows that the development stage of BTC should conform to the following historical laws:
It will start as a niche toy and collectible. Then it will evolve into a speculative product. Then it will evolve into an investment product, i.e. a store of value (SoV). Then it will evolve into a medium of exchange (MoE). Then it will evolve into a payment tool. And finally it will have the potential to become a world currency and unit of account (UoA).
After 15 years of development, today's BTC has just reached the stage of transition from a speculative product to an investment product and SoV.
Isn’t it funny that Taleb directly uses the fact that BTC lacks widespread application as a payment tool today (it cannot be used to buy things) or does not have the nature of a pricing unit (for example, it cannot be used to record accounts on accounting forms), etc. to say that BTC has failed so far?
It's like saying when Taleb was still a one-month-old baby, "Look, this person can't walk, he is a failed disabled person." Isn't this a ridiculous statement?
4. Taleb’s perception that BTC is a failure as an inflation hedge is wrong
Taleb does not make it clear what definition of inflation he is referring to.
If inflation is the original definition, that is, the over-issuance of the money supply, then BTC is obviously a very sensitive indicator of money supply and demand, and will react quite sensitively to the monetary policy of the Federal Reserve.
If inflation is a definition that was later tampered with, referring specifically to the rise in prices of a carefully selected basket of commodities, then in the long run, BTC is actually an excellent counter to the rise in prices and plays a role in preserving and increasing value.
There are many empirical studies on this topic, so I will not go into details here.
Taleb even brazenly said in his paper that maintaining the stability of a basket of commodities is a good hedge against inflation.
His idea reminded me of Wei Dai's b-money proposal. Unfortunately, Satoshi Nakamoto clearly pointed out that there is no way to link the prices of goods in the outside world under decentralization. Therefore, Satoshi Nakamoto believed that the best design is to keep the amount of currency stable and let the price of goods fluctuate relative to the currency (i.e. BTC).
From the perspective of game theory, this is the best monetary policy and plan.
Taleb lies with his eyes open in Chapter 5 of his paper.
5. Taleb’s cognitive errors about other fallacies
In the last chapter of Taleb's paper, he added a list of four other so-called "fallacies".
The first is the so-called libertarian fallacy. This is a straw man attack. Satoshi Nakamoto never said that BTC is a branch of the Austrian School of Economics. I also said that BTC is a branch of the Marxist school. Taleb used other people's interpretation of BTC as an argument to criticize BTC, which is like setting a target and shooting it yourself. It makes no sense. I don't want to say more.
The second is that BTC is not a safe-haven asset. Taleb used the panic circuit breaker of the US stock market and the deeper decline of BTC as arguments to criticize BTC for not being able to fight against the so-called "tail risk". He is subjective and nonsense. I won't say more about this teaching chain. Just click and study the famous BlackRock research paper: 2024.9.20 "BlackRock Research Report: Bitcoin, a Unique Risk Diversification Tool".
The third is that it is false propaganda that BTC can protect anti-government people. This is still a straw man attack. Taleb likes to do this trick of setting up a target and shooting at it himself. Satoshi Nakamoto has never advocated anti-government, nor has he designed BTC to be anti-government.
The fourth is to criticize the early hoarders who became billionaires. Taleb criticized these early holders for forming a "monopoly consortium" and cursed them as being even more evil than government bureaucrats, who only received some meager salaries.
Haha, I couldn't help but laugh when I read this. Did Taleb write so much just to get jealous of this last point? Isn't he just envious of those big BTC hoarders in the early days?
Oh, I won't argue with that. After all, rational arguments are worth refuting. Jealousy is an emotional issue, what else is there to refute?
6. Taleb’s Conclusion
Taleb finally prepared to end his paper after expressing his envy and hatred for early holders.
In the conclusion, he says, “In the history of finance, few assets have been more fragile than Bitcoin.” This is completely wrong. It should be the other way around, “In the history of finance, few assets have been more antifragile than Bitcoin.”
He said, "At the time of writing, despite all the hype in the media, we have achieved almost nothing in terms of blockchain." This once again proves that he confused blockchain with Bitcoin and made many mistakes.
In the last sentence, he said, "The only criterion for judging a technology is how it solves problems, not what technical attributes it has." This sentence is quite correct. But unfortunately, it refutes what he said in his previous paper, that BTC will be replaced by better technology.
What we should value is precisely what problems BTC can solve, rather than what advanced (or not advanced) technology it has.
Finally, I think this poem from A Dream of Red Mansions is quite suitable for Taleb's paper on black for black's sake:
The paper is full of nonsense and the words are filled with bitter tears.
Everyone says the author is crazy, who can understand the meaning?
After the interpretation of Jiaolian, I believe that all dear readers have tasted the meaning behind Taleb’s absurd words, which is: (seeing BTC rising higher and higher, but having) no position in hand.
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- [1] https://www.fooledbyrandomness.com/BTC-QF.pdf
- [2] https://medium.com/quantodian-publications/a-rebuttal-to-talebs-bitcoin-black-paper-ea308ab78eb7
(Official account: Liu Jiaolian. Knowledge Planet: reply “Planet” to the official account)
(Disclaimer: The content of this article does not constitute any investment advice. Cryptocurrency is an extremely high-risk product and there is a risk of it returning to zero at any time. Please participate with caution and be responsible for your own actions.)
