# Bitcoin, Currencies, and Bubbles

**Authors:** Nassim Nicholas Taleb  
**arXiv:** [2106.14204](https://arxiv.org/abs/2106.14204)  
**Date:** 2021-06-27  
**Summary page:** https://www.summarizepaper.com/en/paper/2106.14204v1/

## Key points

- The authors apply quantitative finance methods and economic arguments to cryptocurrencies in general and bitcoin in particular.
- They focus on the most discussed crypto of those that claim to hew to the original protocol (Nakamoto, 2009) and the one with by far the largest market capitalization.
- Bitcoin has failed to satisfy the notion of being a currency without government control as it is not even a currency at all.
- Bitcoin cannot operate as a reliable inflation hedge nor can it be considered a safe haven for investments or a shield against government tyranny.
- There appears to be an underlying conflation between the success of a payment mechanism (as a decentralized mode of exchange), which so far has failed, and the speculative variations in the price of a zero-sum asset with massive negative externalities.
- A true numeraire must be one of minimum variance with respect to an arbitrary basket of goods and services.
- The authors cite several sources including M. Nair and R. Emozozo's article on electronic currency in Africa where they discuss M-pesa as private inside money; K. Colucci and C. Moiso's paper on virtual currencies' phenomenon; J. Murphy-O'Connor's work on Jesus and money changers; M.W Spitznagel's article on why cryptocurrencies will never be safe havens; D.Porechna's update on Darkside hacking incident from Wolfram Research.
- Common misconceptions about Bitcoin include its supposed democratic nature reducing agency problems perceived among civil servants and bankers when in reality there appears to be worse agency problem: insiders hoarding what they think will be the world currency so others would have to go to them later on for supply.
- This is seen as a wealth transfer to the cartel of early bitcoin accumulators.
- The authors question Bitcoin's usefulness as a technology, stating that they only judge a technology by how it solves problems not in what technological attributes it has.

## Summary

In their paper, "Bitcoin, Currencies, and Bubbles," the authors apply quantitative finance methods and economic arguments to cryptocurrencies in general and bitcoin in particular. While acknowledging that there are about 10,000 cryptocurrencies, they focus on the most discussed crypto of those that claim to hew to the original protocol (Nakamoto, 2009) and the one with by far the largest market capitalization. The authors argue that despite all the hype surrounding bitcoin as a currency without government control, it has failed to satisfy this notion as it is not even a currency at all. They further contend that bitcoin cannot operate as a reliable inflation hedge nor can it be considered a safe haven for investments or a shield against government tyranny. The authors also discuss how there appears to be an underlying conflation between the success of a payment mechanism (as a decentralized mode of exchange), which so far has failed, and the speculative variations in the price of a zero-sum asset with massive negative externalities. Going through monetary history, they show how a true numeraire must be one of minimum variance with respect to an arbitrary basket of goods and services. To expand on their argument against bitcoin's supposed benefits, the authors cite several sources including M. Nair and R. Emozozo's article on electronic currency in Africa where they discuss M-pesa as private inside money; K. Colucci and C. Moiso's paper on virtual currencies' phenomenon; J. Murphy-O'Connor's work on Jesus and money changers; M.W Spitznagel's article on why cryptocurrencies will never be safe havens; D.Porechna's update on Darkside hacking incident from Wolfram Research. The authors also address some common misconceptions about Bitcoin such as its supposed democratic nature reducing agency problems perceived among civil servants and bankers when in reality there appears to be worse agency problem: insiders hoarding what they think will be the world currency so others would have to go to them later on for supply. They argue that this is a wealth transfer to the cartel of early bitcoin accumulators. In conclusion, the authors present their argument against Bitcoin's supposed benefits and question its usefulness as a technology. They state that they only judge a technology by how it solves problems not in what technological attributes it has.