Why Mr. Money Mustache Is Wrong (and Nassim Taleb Is Right) About Bitcoin
I’m a fan of Mr. Money Mustache. His blog advocates for “financial freedom through badassity,” and for the past few years I’ve lapped up his rants on choosing happiness instead of “convenience, luxury, and following the lead of the financially illiterate herd.”
He and I would be good friends. Like Mario and Luigi.
But Mr. Money recently penned a post and a related piece for The Guardian that said Bitcoin is stupid. He used phrases like “completely irrational,” “big dumb lottery,” and “preposterous herd behavior.”
I think they’re wrong, and I side with Nassim Taleb and others who say Bitcoin is a legitimate, “organic currency.” Here’s why:
- Bitcoin is not valueless, as Mr. Money suggests. Value can be defined as the willingness to pay (WTP) for an asset minus its costs. With Bitcoin, the WTP is high because it is scarce, fungible, divisible, durable, and transferable. The costs to hold and mine it are relatively low. The value of Bitcoin is not zero, but rather exactly what it can be traded at in the present moment — no more and no less. Similar to any other currency, Bitcoin is built on trust and cooperation. What makes it unique is that it’s not completely built on human trust. The blockchain technology underlying it validates trust and removes the middlemen. As Taleb says, “clearance does not require a specific custodian.”
- Mr. Money equates his fingernail clippings to Bitcoin, and this is a prepostrous argument. To extend his argument, imagine if Mr. Money’s fingernail clippings could travel around the world to anybody within seconds (ahem, Lightning), and if there were a known, fixed number of his fingernail clippings ever in existence. Then imagine that a computer system could validate whether any fingernail clipping was Mr. Money’s fingernail clipping. That’s closer to Bitcoin (although Bitcoin is even more robust), and if that existed, I’d probably pay for it. Mr. Money says that in order for Bitcoin to be a currency, it needs three things: 1) easy and frictionless trading between people, 2) wide acceptance as a legal tender for all debts, public and private, and 3) a stable value that does not fluctuate. He and I differ in our definition of currency. Either way, Bitcoin is much easier than other currencies to trade, increasingly frictionless as the tech advances, and increasingly accepted as tender. One could argue that it is government currencies that are fluctuating, and it is Bitcoin that is stable.
- Finally, Mr. Money says that it “helps to have wise, centralized humans (the Federal Reserve system and other central banks) guiding the system. In a world of human trust, putting the wisest and most respected people in a position of Adult Supervision is a useful tactic.” I take two issues with this. First, humans do guide Bitcoin through programming, mining, and trading. One could argue that Bitcoin is as much a socialist innovation as it is a libertarian one. It lives on consensus. Second, Adult Supervision in government? Look where Greenspan got us. Look where Trump is taking us. Who are the real adults in the room?
I don’t invest in dollar bills, and I appreciate that Mr. Money is skeptical of Bitcoin as an investment. However, I do speculate and hedge with dollar bills. I speculate that the United States will be economically stable for years, and I hedge by holding a portion of my net worth in dollars instead of all stock, bonds, property, and derivatives. Speculation and hedging are valid, practical strategies for creating and insuring value.
Skeptics of Bitcoin would be wise to think about it in more probabilistic terms. They may not “believe” in it, but they would be wise to incorporate it into their worldview. After all, the distribution of outcomes may not be normal. Bitcoin may in fact be a wise instrument for trading and storing.
So Mr. Money, we’re going to have to part our separate ways. I’m headed for another world, and this time I’ll be hanging out with Satoshi “Yoshi” Nakamoto.