Bitcoin as the first anti-fragile economic entity
Companies are extremely fragile and delicate objects.. Most of them do not survive their five year anniversary, and less than one tenth of one percent reach the age of 50. That means that 99.9% of companies get dissolved before they are 50 years old. 99.9% disintegrate during your professional career.
Moreover, companies are fragile because they break down in the first sound of trouble or chaos. Massive events like stock market crashes or wars can dissolve countless companies. Long term technological or social changes can create wide scale extinction of whole sectors of the economy, not just few companies.
On the other hand, cities are extremely resilient. There are cities that are four and five thousands years old. There are even older ones. Cities withstand floods, wars, plagues. Cities even survived throwing atom bombs on them. It’s extremely hard to destroy a city.
So why are cities so resilient while corporations so fragile? Why do cities thrive as they grow in size, while corporations slow down, many times to a halt? In one word: Evolution. A city is a continuously adapting complex network. This kind of network has been shown to be very resilient to network fault. It connects people in surprising ways, allowing for dissemination of information and influence through countless links. It’s a decentralized, living organism where each person is free to change role, activity, occupation and domestic state as he wishes. For the most part, it adapts to changing times well, through the millions of decisions taken by its citizens every day. There is no central management (regardless of what its mayor may think), no ‘strategic planning session’. No ‘chain of command’. The citizens of the city tend to have a very high stake in the success of the city, either because they own a house, their largest asset, in that city, or because it is part of their self-esteem, culture and persona. Choosing a city is many times a life choice, and typically a decision people stay with for decades, as all of them are part-owners of the city. This adaptive and evolving nature results in a positive scaling law, where the larger the city, the more productive its citizens are.
A corporation, on the other hand, is a hierarchical structure, tree-like in nature, with a centralized ownership and a centralized management. A tree is a highly fragile structure. It has single point of failures in each of its layers all the way to the top. Crisis can easily propagate up and down, and if an executive at the top is slow at adapting to the changing tides or makes the wrong call, it can destroy the company completely. Centralized ownership also means that employees have limited vested interest in the success of the company and can easily fathom moving from one company to another, as they often do the minute the going gets a bit tough. This centralized, rigid nature of a corporation results in a negative scaling law, where the larger a corporation is, the less productive its employees are.
Bitcoin (and other blockchain-based assets) is essentially a decentralized network for producing trust where none exists, and as such it also possesses the highly resilient nature of other large-scale distributed networks like cities. It evolves through the integral actions of its members / miners, who decide what flavor of Bitcoin to run and support. Bitcoin is only v1 of this decentralized control concept, and as such still suffers from concentration and other problems due to the naïveté that comes with being first, but already shows the promise of moving the economy from being a forest to an ensemble of networks.
We can think of Bitcoin as a constant dare to the hackers of the world to try and break it. The ultimate hackers bounty competition. As the value of Bitcoin grows, the incentive to try and attack the network follows suit, and as the last decade has shown, Bitcoin is extremely resilient to 3rd party attacks, and in fact, we are not aware of a single attack of the network that succeeded. All successful attacks were done on the links between the network and the outside world, like wallets and exchanges.
But Bitcoin’s resiliency doesn’t stop at the crypto level. Bitcoin is like the land of Fantasia from the Never Ending Story, which will survive as long as there is at least one human like Bastian, who still believes in it. As long as there is a group of people in the world that will believe in Bitcoin enough to operate a miner and a wallet, Bitcoin will continue to exist, with all of its ledger and transaction history. Once you understand this point, you will understand why comparing Bitcoin to a dot-com company is not understanding it at all. As long as there are people in the world for which Bitcoin provides a service, all of it will exist, regardless of how far its price drops. Bitcoin is like a hologram, which you may break in half, and then in half again, and each sliver and segment will still contain all of the information about the entire scene it captured.
But Bitcoin doesn’t stop with resiliency. There is an even higher level of existence, popularized by Nassim Nicholas Taleb: Antifragility.
Antifragile entities thrive in disorder and chaos, not just weather them. They are more valuable in volatile times. That is exactly the case of Bitcoin. Western citizens (and senior bankers in particular) don’t get Bitcoin and don’t understand its value because they are living in a highly stable, highly predictable society, where the chances that everything you ever owned will one day disappear on a whim are virtually zero. Bitcoin’s utility for such people is very low, and it functions mainly as a speculative asset. In chaotic regions and countries, Bitcoin and other crypto assets shine. Bitcoin allows a citizen of such a country to keep his fortune out of the arbitrary hands of his regime. It allows immigrant workers to easily and securely send back money to their families abroad, and allows refugees all over the world to take their assets with them regardless of where they go and what they need to tackle on their way. These are major innovations which will have profound, long lasting implications on the human condition.
In fact, Bitcoin might end up fulfilling the wish of every Miss Universe who ever walked a runway: Usher World Peace.
Why world peace? Because Bitcoin and other decentralized assets will make it extremely hard to maintain totalitarian regimes afloat. If rulers of totalitarian and oppressing regimes can’t control and block the movement of funds and assets among their citizens and between their country and the rest of the world, they will end up waking up one day to learn their economy is barren, imploding into itself. Their total control of resources will be stripped from them, paving the way to the rise of democracies. In essence, Bitcoin gives people optionality and presents governments with a strong dilemma — squeeze your population too much, and you may end up losing it all. The paradoxical trait of Bitcoin is that to the extent it will be successful in moving regimes to be more democratic and deterministic, the need for it will diminsh. In essence, in its success lay the seeds to his downfall.
Bitcoin is just the first decentralized asset, and already today we see thousands of attempts of building new types of assets and currencies, and new economies based on them. Most will likely not leave their mark, but some undoubtedly will. Those that do, will chart a new blueprint for organizing human energy and creativity. If up until now the main large scale way to organize human energy was corporation (barring armies and religions, of course), which as we saw, are tree-like and highly fragile, we can now organize human innovation around synthetic economies run in a decentralized manner, while still building the right incentive structure that will attract people to invest their time and energy in solving humanity’s grand challenges. We can move from a forest-like society into a much more resilient society, by creating a new type of a city-like corporation: self-organizing, always evolving networks of resources and humans.
Cities, Companies, Currencies — these are the foundations on top of which we build the human society. Making these basic building blocks resilient and ultimately anti-fragile is a worthy cause, which could fundamentally evolve the human condition for the better.
I’d like to thank Eden Shochat, Michael Eisenberg, Parker Thompson, Sam Lessin, and Matthew Barnett for looking at drafts of this post.