In a paper published recently, Nassim Nicholas Taleb stated that Bitcoin’s many flaws make it ineligible to function as a currency.
His paper is Bitcoin and Currencies and Fragility. Taleb is the celebrated author of The Black Swan, The Impact of the Highly Improbable.
Taleb claims that Bitcoin’s failure to be a currency outside of government is partly due bitcoin’s large swings in value.
“There is a confusion between accepting bitcoin for payments and pricing goods in Bitcoin. Taleb explains that bitcoin must be priced with fixed prices. This is done by converting bitcoin into fiat floating.
He says that bitcoin advocates confuse the success of payment systems and decentralized exchanges. Taleb argues that bitcoin is too distant. Fiat currencies are closely tied to our economy, and how we live our lives.
An employer must have revenues in bitcoin to pay a fixed-rate salary. A vendor cannot offer a can in fixed bitcoins if they are not paying for the raw materials and having the overhead in bitcoin. This applies to mismatches in assets and liabilities on a balance sheets. Taleb explains that all this requires bitcoin-USD parity of low enough volatility to be manageable and that variations remain inconsequential.
While gold is tangible and physical, it partially sustains its value. However, bitcoin suffers from a ‘path dependence problem’
“We cannot expect a bitcoin book entry to a ledger that needs active maintenance by interested people to maintain its physical presence, which is a condition for monetary worth, for any length of time. We also don’t know the future interests, mindsets and preferences. Bitcoin may drop below a threshold and stay at 0; gold, on the other side, is not dependent on its physical properties.
Precious metals have a thousand years of history to fall back on.
Taleb writes that bitcoin is one of the most fragile assets in financial history. “[Bitcoin] cannot be a short or long-term store of value (its expected price is not higher than 0), it cannot serve as an inflation hedge and worst of all, it does not provide a safe haven to one’s investments, a shield from government tyranny or tail protection for catastrophic episodes.