Taleb's bitcoin paper

General
1

I found Taleb’s paper on bitcoin quite interesting. I wonder if it would be a good starting point for zcash to look at, and see if it is possible to solve the points he’s raising with zcash.

Volatility and the problem of fixing prices in crypto.
Early holders will be the source of zec if it proves to be the currency for all, it would create inequalities.

On the better side:
Zcash is closer than bitcoin as safe haven as it is private.
The risk of centralisation through the miners: that should also be solved when switching to POS.

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Thank you for sharing that paper I had not read it yet, but I’m familiar with Taleb and his consistently negative views about Bitcoin and crypto. I think any of the points made are equally valid against Zcash currently so it would be a good exercise to think out how Zcash can improve to counter his suggestions in the future. Below are my most interesting cut outs from the paper

In its current version, in spite of the hype, bitcoin
failed to satisfy the notion of “currency without government” (it proved to not even be a currency at all), can be
neither a short nor long term store of value (its expected
value is no higher than 0), cannot operate as a reliable
inflation hedge, and, worst of all, does not constitute,
not even remotely, a safe haven for one’s investments,
a shield against government tyranny, or a tail protection
vehicle for catastrophic episodes.

Furthermore, bitcoin promoters appear to conflate the
success of a payment mechanism (as a decentralized
mode of exchange), which so far has failed, with the
speculative variations in the price of a zero-sum maximally fragile asset with massive negative externalities.

Earnings-free assets with no residual value are problematic.
The implication is that, owing to the absence of any explicit
yield benefitting the holder of bitcoin, if we expect that at
any point in the future the value will be zero when miners are
extinct, the technology becomes obsolete, or future generations
get into other such “assets” and bitcoin loses its appeal for
them, then the value must be zero now.

Cumulative ruin
If any non-dividend yielding asset has the tiniest probability of hitting an absorbing barrier (causing its value to become 0), then its present value must be 0.

SUCCESS IN WRONG PLACES
More generally, the fundamental flaw and contradiction at
the base of most cryptocurrencies is, as we saw, that the
originators, miners, and maintainers of the system currently make their money from the inflation of their currencies rather
than just from the volume of underlying transactions in them

Gold and silver proved then that they could neither be a
reliable numeraire, nor an inflation hedge. The world had
become too sophisticated for precious metals. If we consider
the most effective numeraire, it must be the one in which the
bulk of salaries are paid, as we will show next

Payment system
There is a conflation between “accepting bitcoin for
payments” and pricing goods in bitcoin. To “price” in
bitcoin, bitcoin the price must be fixed, with a conversion
into fiat floating, rather than the reverse

THE DIFFICULTY WITH INFLATION HEDGES
This does not mean that a cryptocurrency cannot displace
fiat –it is indeed desirable to have at least one real currency
without a government. But the new currency just needs to be
more appealing as a store of value by tracking a weighted
basket of goods and services with minimum error

Fallacy of libertarianism

Fallacy of safe haven

Fallacy of the Agency

3

To be fair, he’s also suggesting the need for a currency that is not controlled by a government, also in that same paper:

This does not mean that a cryptocurrency cannot displace fiat –it is indeed desirable to have at least one real currency without a government. But the new currency just needs to be more appealing as a store of value by tracking a weighted basket of goods and services with minimum error.

So he is criticizing the state of cryptos, not the goal.

It could still be very valuable to try to address his points with Zcash.

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It’s great that you found Taleb’s paper on Bitcoin interesting! Exploring solutions for the issues raised in his paper is a valuable endeavor, and Zcash could indeed be an intriguing candidate, especially with its focus on privacy. The potential for Zcash to serve as a safe haven is worth considering.

Given that the thread is a year old, it’s interesting to think about how developments in the crypto space may have unfolded since then. The landscape is constantly evolving, and new cryptocurrencies and solutions may have emerged. If you’re still interested in exploring new crypto options, you might want to check out recent developments and projects that have come to light in the past year.

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