The Antifragility Of Bitcoin - Jimmy Song @ TOKEN2049

[Music] all right good good all right so my talk is called why is Bitcoin antifragile um who here has read the book by n TB antifragile okay I see like maybe three 10 hands okay who's familiar with the concept of antifragility okay not that many more all right so let me just describe it real quick um when you call something fragile it means that it does not like volatility disorder or um you know any sort of sudden jarring movements or something like that so a vase for example is very fragile right something that is robust is something that doesn't care as much about like being Jarred so a rock is necessarily not not not really fragile it's robust it does doesn't really change when you sort of hit it against something because it's pretty strong something that's anti- fragile is something that gains from disorder it's something that uh adds to itself that that gets better as you um you know sort of throw at it disordering events so for example your muscles are antifragile right when you work out when you lift something heavy your muscle fibers tear but your body puts it back so that it gets bigger and stronger right your muscles are antifragile that's the idea of antifragility now the question that I'm going to talk about today is why is Bitcoin antifragile now for many of you you just learned the concept of antifragility so you might not be completely familiar with what I'm talking about but think about it whenever there are disordering events volatility things that sort of Jar Bitcoin Bitcoin tends to get stronger doesn't it right that that that's it's not at all obvious why because for a long time people thought that Bitcoin was actually more fragile than it was and there are two instances that I want to sort of point out as as part of bitcoin's anti fragility that we should really take a look and study first is the Silk Road and the second is Bitcoin cash so let's let's take a look at this first silkroad who here was involved in Bitcoin at all around October of 20133 wow most of you are new huh all right so 2013 uh October 1st 2013 Ross Al uh was arrested by uh the DEA uh for being dread pirate Roberts of the Silk Road Silk Road if you don't know was uh a darket Marketplace for trading drugs and they were famous because Bitcoin was utilized ized to do most of the trading so you could buy for example ecstasy or cocaine or you know even like Staples coupons that you're not supposed to use or something like that on on Silk Road back then um and that was thought to be the major use case for Bitcoin at the time October 1st Ross alri was arrested in uh outside his apartment in San Francisco price at that point was $120 Bitcoin was at $120 later that day as news of his arrest came out Bitcoin dropped all the way to like $85 but then it started on a bull run that we hadn't seen until last year more or less 2013 from October 1st to something like December 15th it went on an incredible bull run where it went from $85 uh the low for that day all the way up to ,00 or you know 50 depending on which exchange you were using it went on an incredible bull run after this bad news and the thing was for a lot of people when when they were thinking about Bitcoin back in 2013 they thought it was the place for Dark Net markets for silk road but it turned out that it wasn't that wasn't the main use case and as people discovered that Bitcoin went up the other major uh sort of disordering event that we had uh was last year Bitcoin cash there this was originally supposed to be a contingency plan made by bitmain in case the user activated software cing now I was on the air during all of this right like August 1st I was I I was on world crypto network with tone and it was going to be like a 30 minute show where we were going to talk about you know Bitcoin cash and how it was going to hard fork and everything else um except I mistimed it and we ended up going not just 30 minutes or even an hour or two hours we were on the air for eight hours and it wasn't just me and tone we had like seven other people we're being shown on like trading floors in various like uh New York New York firms because they wanted to know what was going to happen with Bitcoin cash and the thing about Bitcoin cash was uh like right before that the price of Bitcoin before the hard Fork event was $2,700 and a lot of people thought that Bitcoin would completely ruined by hard Fork because there would be brand confusion there would be two different communities that the network effect would be uh you know lessened and all all sorts of other stuff but what happened afterwards well from August 1st all the way to like around December 15th or so we had an impr another really really strong bare Market we went from $2,700 to something like $220,000 combined Bitcoin and Bitcoin cash as of around December 15 which is an incredible bu run right based on some bad news right disordering events you know volatility like stuff that should uh destroy fragile things ended up helping Bitcoin making Bitcoin stronger it it's almost like Bitcoin was lifting weights and it it tore some muscle but then it it gained it back many fold and it it got stronger as a result so that's sort of the motivating question for us today why is Bitcoin antifragile what's going on what what what what are the qualities of Bitcoin that are making this so and I want to explore sort of three different aspects of it we have the technological the economic and the social um and the and I I put it in that order because I I believe the technical is the easiest to understand the uh the economic is somewhat okay to understand the social we really don't understand much at all uh but let let's take a look at each of those in turn all right so let's let's first look at technical uh antifragility there is definitely technical antifragility in Bitcoin and we'll we'll we'll talk about it but in order to do that we need to look at some uh disordering events right some things that sort of Jar the Bitcoin ecosystem not just Bitcoin but any sort of technological ecosystem and uh let's let's look at examples of technological Disorder so first protocol level attacks uh almost any technological product will have some flaws right bugs things that aren't don't work quite right those tend to be sort of more internal uh and you know there there are lots of instances of where that that's happened you know you might you might have a website with the wrong you know uh thing happening at a particular Point lots of lots of stuff like that uh you have maybe more external things denial a service attacks you know that if you run a website this is one of the big things that can happen to you is a distributed denial of service or dos attack and and these things happen uh and uh the website goes down um and you know depending on how things uh you know the web Masters respond it can either get stronger or not there are also new technologies they tend to be very disruptive very disordering and the uh and this happens to technology all the time and depending on how the current handlers of whatever technology it is you know uh respond it either gets better or it doesn't the key thing here is that there are very few guarantees at least for Bitcoin now for a lots of other Technologies that's not the case right like uh you know uh what the government often does when they interfere with uh with technology is they just sort of make certain things illegal right they'll say okay you're not allowed to attack in this particular way and we we'll punish it with a 5-year prison sentence or something like that uh or you know you're not allowed to do certain things or this particular technology is illegal now or something like that that sort of thing happens all the time but in Bitcoin we don't have any of that right we don't have big daddy government protecting us and that actually turns out to be a very good thing because in Bitcoin we get some gains out of this we get gains out of all these types of attacks so let's take a look so transaction malleability uh if you're not familiar with what that was this this was something in Bitcoin uh back in 2013 Mount Cox famously uh told everybody that they were losing money due to transaction malleability they would send out a transaction to somebody that was withdrawing money and uh and somebody would malleate that transaction and the mated transaction ID would get into the block Mount gox would mistakenly believe that they didn't send money to the customer and send it again they claimed that that was why they were insolvent um didn't turn out to be the case but despite that that was kind of like a protocol level bug right and that was exploited uh by people but what what happened then well since that point we've completely gotten rid of transaction malleability not just for that reason but for a whole host of reasons and recently last year we we had segwit come online and segwit completely removes all malleability vectors so that means that all transactions have a fixed transaction ID which is great because that strengthened the entire protocol uh we have uh you know our own form of denial of service and this is transaction spam this is kind of a controversial topic because we don't really know how much actual transaction uh volume out there is Spam or not but we can see that for example in December there were all sorts of transactions that were constantly back backlogged and that caused uh the fees to be very high whereas right now what what are the fees right now like one Satoshi per right it's really really low so there there's some suspicion that miners in particular uh and maybe other people that are sort of enemies of Bitcoin they were sort of putting in transaction spam um and this has been known for a long time but as a result of transaction spam we've gotten better we've started implementing second layer Solutions this not this not only sort of solves uh the very base level stuff but it gives you like a 10,000x Improvement in transaction throughput as a result that's what we get when when you're anti- fragile third allcoins right and this is this is a constant attack Vector on bitcoin is that there're constantly all coins that claim to be better at something or other and if it truly is better it tends to come back into Bitcoin segwit for example was not in Bitcoin it got into Litecoin first and it sort of proved that it can it wasn't like unsafe or something like that there was a lot of fud around segwood at the time just like there's a lot of fud around uh lightning right now but you know it it it turned out to be okay and that and Bitcoin ended up incorporating it as a result and that's what makes better software you prove it out in the real world and then it it it it it can be incorporated into Bitcoin as a result of that now having so few guarantees and not just sort of like legislating away uh these problems like governments tend to do you end up with a very careful and wise Community right and this is this characterizes Bitcoin development is in that we don't just put in stuff for the sake of it we're we're not that coin that uh just sort of like puts in a new feature every 3 months instead we test it and make sure that it it it works and that there are no attack vectors and look at all sorts of low probability scenarios and how you can attack this particular feature and that a very good thing because you're talking about people's money we're not talking about a website you know you you you make a mistake on a website you get a 404 right like error page not found you make a mistake on bitcoin people lose like $10 million it's very important that you have good security so you have your timelines on sort of expectations have to be much longer you know uh a an operating system like Windows or Mac they take like two years to develop right that's the level of security that you need to have for something like this with some Financial product like like we have and you know anyone that tells you they can get a feature in in six weeks probably trying to sell you something just just as a hint all right so we we talked about technological antifragility and this is something that I thought about a lot and I I used to think okay how can technology be antifragile because if if you've read M tb's book antifragile one of the things he says is that antifragile things are characterized by the fact that they are alive there's life in them right uh so muscles for example are antifragile because they can react and change in response to environmental factors whereas something that's dead or man-made they can't react and that's why they're not antifragile so I was like well Bitcoin is code isn't it how can it be antifragile where's the organic component where's the life in Bitcoin and then it hit me it's the developers it's the developers that's the organic component that's who gives Bitcoin the technological antifragility right that's why Bitcoin improves every time you know there's an attack against it and this isn't just like core developers right like when there's an attack when there's a malleability Vector they fix all possible malleability vectors instead of just that one right when there's a hard Fork they don't just fix for that one single hard Fork they fix for every possible hard Fork there is that is why Bitcoin is technologically anti- fragile because the developers not just the core developers but wallet developers exchange developers uh you know pay and processor developers all of those people are constantly having to react to attacks against the system they're sort of like the white blood cells right they they they can go out and attack it and make sure that they're protected against the next round which may be even worse that's why Bitcoin is technologically antifragile all right so we talked about technological antifragility the next one I want to talk about is economic antifragility and this one is uh you know technological is a little bit easier to understand I think economic we're talking about price and how how markets respond and things like that so let's take a look at some economic disordering events uh a typical one is a company going bankrupt right uh like back in 2009 uh GM went bankrupt that disrupted the car industry right and I think Chrysler as well so I mean there were it didn't just disrupt them it dis disrupted the entire supply chain all the people that were all the companies that were supplying parts that tends to be very economically disordering um another economic disorder is government banss um often happens with TP uh some sort of drug or something like that the FDA will class class IFI it as a series one drug and you you you have to you can't like just get a prescription for it or buy it over the counter or something like that that that's one another way in which something uh can get economically disordered another one uh just volatility in general and and this could be uh you know economic volatility uh but usually it's related to price so the price of a particular commodity right like uh you know Ram or something like that or uh you know soybeans or whatever it is any any anything can have sort of fluctuations based on um just the economics of everything and that can be very disordering uh it it can go something can go from massively profitable to very unprofitable very quickly as a result and that happens again very few guarantees in Bitcoin uh but again if you look at this there's a lot of instances in which the government sort of tries to put its hand on things so for example GM and Chrysler they bailed them out right they're like well we'll we'll just give you some more money and make sure you don't collapse uh they might ban things right that are competition uh uh you know China famously uh banned Short Selling because they didn't like the economic volatility of certain stocks right or they'll they'll put a price floor for something or a price ceiling on something all sorts of ways in which they try to reduce volatility and all of those things are completely misguided because they make the system more fragile but we don't have that in Bitcoin instead what we get are economic gains let's see what's happened so companies collapsing um and the most famous one that that that we all know of is Mount gox and allow me to be frank Here Mount gox deserve to die they deserve to die they were a completely poorly run shop uh Mark carelis famously wrote the entire code himself in PHP without any code review or tests he had he didn't have any cold wallet he had a VNC connection to another machine that he he that only he knew the password to where he kept all the money these are not good security practices and it's not a surprise at all that he got hacked and if you if you do get hacked well you shouldn't be in business anymore and what happened after the mount Cox collapse well a lot of other players came in that were a lot more careful right coinbase bitstamp bit finex you know all there all sorts of exchanges all over the world they came online after Mount goau but they realized they had to step up their game because otherwise they would die and it's not just exchanges like Mount Cox look at miners you know butterfly Labs KC Miner coin Terra sponduli Tech all of those guys did not know how to make miners well right and they're all bankrupt now and that's a very good thing because we companies need to die cuz when we weak companies die strong companies take over and that makes the entire system better government and irrelevance uh you guys all know China's banned Bitcoin like 30 times or something and uh at least in 2013 when they first banned it the market would react sharply and then they would ban it again and then it would react just a little less and then they would ban it again and it would react just a little less and it got to the point where you know like earlier last year they just banned exchanges all together and the market was like me let's just keep going up see what what happens with government bans is that they just sort of Fade Into irrelevance and that's what what happened to bitcoin cuz you know China did ban exchanges but what happened well then people started trading on local Bitcoins so they banned local Bitcoins what what happened there are now all sorts of WeChat and telegram groups where you can trade OTC people will find a way people will find a way and they'll just go around the government and they become completely irrelevant their bands mean nothing uncertainty acclimation so there is a lot of volatility in Bitcoin if you've been through as many as I have I I've been through four major Bitcoin crashes 2011 it went from $30 to One 2013 it went from 260 to 50 2013 again it went from 1,200 down to like 180 and of course the most recent one went from 19,000 to 5,800 something like that and that's a good thing the bubbles are a good thing because they shake out the weak hands they shake out the people that don't know about the technology that are just in it to make make some money right I tell people all the time uh you know when they ask me should I invest in Bitcoin Jimmy should I should I invest right now I tell them well if you're going to sell in six months after it doubles or halves then don't bother cuz you you don't understand anything about the technology so I I don't want you to be one of the holders but if you're going to invest for the long term and be immune to you know 10x gains and 90% drops then then maybe you're ready right if you if you're going to hold for 5 10 years then it makes total sense but if you're investing for the short term then this is not for you and that's that's who shakes out that's who shakes out of out as a result of this volatility and a and as a result of this this as a result of having few guarantees as a result of having uh you know no government hand trying to like fix everything we get a very temperate community and Temperance here if you're not familiar is sort of like finding that happy middle place cuz there there are two two ways you can go wrong you could be too lazy or too greedy the two lazy people never got into Bitcoin in the first place the two greedy people are you know investing in some scam Ico or something like that right and and that's driven largely out of Envy but the but those people don't contribute anything they don't actually economically benefit the the hole you want to be in the middle you want to be the you know you want to have the right amount of motivation but not be so greedy and and you can see this in government right like uh government bails out both ends they'll bail out the GRE uh lazy people it's called welfare they'll they'll often bail out the greedy people you know it's called bailouts right like it it happens all the time and uh some people like to protect one side more than the other or are more envious of one side or the other and they're called Republicans and Democrats at least in the United States but regardless that's that's what government does but when in the absence of that what you get is actual virtue you get Temperance you have a group of people that are motivated to contribute in a meaningful way and that's what we have in Bitcoin as a result uh you know we we get ant economic antifragility so what how is this achieved and the way this is achieved is through holders like many of you in this room you're the one that understand the technology you're not just investing to make a quick Buck without knowing what the hell it is you're you you actually understand what's going on and why why the technology is important and why it's good for society and that's why we have economic antifragility all right we've gone through uh technological and economic antifragility now we go into the social antifragility first two are relatively easy to understand but I would argue that the third one is actually the most important and this is social antifragility and by that I mean Bitcoin sort of as a social movement and it is a social movement many of you are in this room because it's a social movement right like we're all gathered together it's a social experiment and we're all part of this Bitcoin try now let talk about some of the disordering events in any sort of social movement first one is uh fud or as we call it in Bitcoin the Tulip attack fud stands for fear uncertainty and doubt right like people try to make you doubt the fact that Bitcoin is actually useful and this happens all the time it's been happening since like 2009 right people have been saying you know Bitcoin is bad and it's like tulips or something that's why I call it the Tulip attack because critics can't seem to criticize Bitcoin without mentioning tulips and if you don't know about tulips study like what happened in Holland in like the 15th century um there's also the governance takeover attack and this happens a lot in social movements instead of just discrediting the idea itself they will often try to take over and sort of lead the parade right and this famously happened in the United States with the Tea Party Movement and Occupy Wall Street right they were both sort of like ground swelling movements and then politicians got in front of it and said I represent this movement and I uh I appoint myself as a leader of this movement and that happens all the time that's a way to sort of attack that social movement by taking it over scams a lot of people in social movements tend to be very vul vulnerable because they're going along with things for the sake of uh sort of going along with it and not really understanding the underlying truth and scammers take advantage of that they they want to they they give all of the right social cues but actually don't have any substance behind them and this is very prevalent in any social movement and really there are no guarantees on this and you know governments do try to do that um especially in the Middle East and Arab countries uh they'll they'll often make regulations about all all all sorts of social related social things but that's generally not a good idea because once you bottle up that volatility the mini volatility of social movements then it explodes and you get something like Arab Spring okay and you don't want that you don't want sort of a revolution on your hands that that's how how how things get really bad this is sort of like a a cartoon I really like this is how a lot of people coming into Bitcoin uh the the faux leaders of Bitcoin tend to view Bitcoin I just heard about Bitcoin I'm here to fix it right as if we've never heard any of their arguments before right and that's that's who we're fighting right these are the types of people that you have to make sure that you're on guard against all right so what are the social gains that we get out of this well first of all fight only works if you have if you believe in authority and we've been so conditioned by all of these appeals to Authority that you know we we don't pay attention to them anymore the latest example is Jamie Diamond but you look at like 99 Bitcoins there are hundreds of people that have called Bitcoin dead at various prices I love how they put like the price next to when they said it it's like wired June 2011 Bitcoin was like at $3 and they they call Bitcoin dead right like and bitcoin's not worth anything don't they look stupid now but yeah we we get immune to appeals to Authority instead we learn to actually evaluate the technology right evaluate the claims instead of somebody in Authority telling us what what what's right second we learned that businesses are not in charge and I'm going to specifically point out that this is in regards to the New York agreement because that was an attempt for a government that was a governance takeover attack that was an attempt to lead the parade if you will a lot of businesses came out front and said we represent the Bitcoin community and you should listen to us and and usually that works because teachers unions in the United States they say we represent the kids and uh you should just give us more money and that they get it right like that that sort of that sort of attack works but what was extraordinary about Bitcoin is that that didn't work the holders fought back they said no you can't you don't represent us and we're going to prove it to you we're going to show you that we have a Futures market and we're going to Value things like as the market values them and no businesses you do not represent us we represent us another one scammers use social cues they um they use you know fancy sounding words they write lots of white papers they they they do everything that someone that's credible would do but try to trick you into believing their thing and there's a lot of scammers that have been in Bitcoin and are still in Bitcoin and what they take advantage of is your ignorance they take advantage of your ignorance because if you don't actually evaluate the technology and all of the stuff behind it you will get eaten alive by scammers and I I have no doubt that there that many people have because we've seen it right what's interesting is that at least in Bitcoin a lot of these scammers have left they're no longer there back in 2011 2012 2013 there were lots of scammers there were people that were saying I will get you 8% returns every week on bitcoin and uh and you know they would just disappear after you know you know like several rounds of a Ponzi or something like that instead those people have moved on to much more fertile pastures they're mostly doing icos or all coins or running all their own scammy company what this points to is that because we have so few guarantees and because we're a community that is informed that has to go and learn the technology and what's great about it we have a meritocracy that's the natural result of people knowing what the hell is going on instead of relying on social cues and that's the kind of community we have it's a meritocratic community that's awesome if you do good work you will rise up you will get more credit and if you don't do good work or you turn code and you know do something else then the community will rightly condemn you and you will no longer have standing and that's a very good thing that gives us social antifragility and what gives us this social antifragility what's the organic component the organic component is the community it's the people in this room it's all of you we're the ones that enforce this em Min gire back in 2013 wrote a paper called a selfish mining paper and uh and basically it's it gets a little technical but he argued that 33% of uh uh of mining hash power could completely subvert Bitcoin because it made it was technologically feasible it was economically rational and he said I broke Bitcoin you can't you can't stop the selfish mining attack and I've always wondered okay what's going on he's right if you read the paper the techn the it is technologically feasible it is economically rational so why isn't anyone doing it the answer is this we have a social Community there's a third dimension here you can't just run an attack on the Bitcoin Network without any consequences there will be people that will boycott you there will be a user activated softwork there will be people that will DDS your servers they you can't just screw over the community and think you're going to get away with with it there's an enforcement that the community provides and that's why this is so important and I would argue that this is more important than even the technological and economic antifragility because the social norms that we come up with the morality that we have as a community that's what's caused good behavior in an adversarial Network and that is an amazing emergent property an amazing emergent property so we've talked about the technological economic and social antifragility and what is this all talking about well we're talking about there being zero guarantees zero guarantees and that is a wonderful thing that is a wonderful thing by letting companies die by not bailing them out by letting things happen the way they naturally do we have a much stronger community we have people that are more motivated to act virtuously that act wisely that act prudently that act temperately that act on the merits and not just the reputation or social standing and that's what makes Bitcoin better that's what makes Bitcoin stronger so to conclude why is Bitcoin what makes Bitcoin antifragile why is Bitcoin antifragile the answer is you it's the people in this room it's the holders it's the developers it's the community you guys are the reason why Bitcoin has antifragility you guys are the reason why it continues to get stronger Whenever there is an disordering event why it continues to go up in price whenever there's bad news that's why Bitcoin is anti fragile thank you very much [Music]