📤 Antifragile — Issue No. 97

This year is shaping up to be one filled with intense upheaval and colossal societal shifts, and it’s not even June yet. As the tumultuous and tragic year that is 2020 continues to unfold, I can’t help but notice how crypto seems “antifragile” to some of these accelerating trends.

The term antifragile was coined by Nassim Taleb, an author whose books have done much to shape my view of the world. It is defined as “a property of systems that increase in capability to thrive as a result of stressors, shocks, volatility, noise, mistakes, faults, attacks, or failures.” In this edition of Build Blockchain, we’ll explore how crypto is antifragile to three large sources of uncertainty in 2020: money printing, anti-globalism, and internet censorship struggles. Link.

I want to emphasize one thing at the outset: focusing on crypto amidst the turmoil of 2020 is not meant to diminish the tragedies in the slightest, nor to suggest crypto enthusiasts should be cheering them on. Far from it. Much suffering has come from these calamities, and things may get worse before they get better.

Despite that, this is a newsletter about blockchain technology. Presumably, you subscribe because you want to learn how that technology fits into the world around us, so that’s what I’m going to focus on. Ok, with that said, onward.

Money Printing

I wrote extensively about about central bank money printing in issue 90 of this newsletter, so I won't dwell on here. Check out that issue if you'd like a more fleshed out discussion. Link.

Here's the abbreviated version. While the standard narrative amongst most crypto folks is that money printing by the Fed will lead to massive inflation of the US Dollar, I'm not convinced that's a given. Sure, the government is printing money, but the credit market has contracted and demand for dollars globally has skyrocketed. Without the printing, we'd probably see deflation.

Many other countries, however, don't enjoy such flexibility. If nations in the developing world try to print their way out of economic trouble, there may be inflation of those local currencies. Demand for USD will be high amongst their citizens. As such, adoption of dollar pegged stablecoins, running largely on the Ethereum network, may end up being crypto's first mainstream use case.

One way or the other, cryptocurrencies are well positioned to benefit from the massive money printing that has accompanied the economic uncertainty we're seeing around the globe.

Anti-Globalism

The coronavirus crisis is a global phenomenon in a way few events in history have ever been. Right now, virtually every person on the planet has been impacted by its spread in one way or another. In the wake of the crisis, more than a few heads of state have expressed a desire to end the so-called "globalist world order," and there's good reason to believe such efforts will enjoy political support in many places.

To the extent these sentiments are fueled by overzealous nationalism, they are, of course, shameful. Still, I wouldn't be so quick to dismiss anti-globalism as merely jingoistic. Global supply chains have proven worryingly fragile in the last few months. Amongst shortages, many nations struggled to import critical supplies needed to fight the pandemic. There is a legitimate conversation to be had around the tail risks brought on by global economic interconnectedness, as well as whether nations with incompatible value systems should be interdependent via trade.

If cooperation amongst nations is set to decline in the coming years, where does crypto fit in? Put simply, if you can't rely on trusted institutions to intermediate cross-border cooperation, the value of trust-free decentralized networks, as a substitute, goes up. This is especially true when one considers the physical/digital divide. Nations may choose to reduce the flow of people and physical goods across their borders, but this would only accelerate the growth of the borderless, digital economy of the internet.

Atoms will be local, but bits can go anywhere. Any economic activity that can be done over the internet will be done over the internet. Digital assets, coupled with smart contracts, can play a huge role in enabling this shift. Cryptonetworks stand to grow massively in an anti-globalist world.

Internet Censorship Power Struggles

It's been clear since at least the 2016 US election that social media giants like Facebook and Twitter have immense power to shape the flow of information in the modern world. Certainly, this power must come with some responsibilities, but what those are, and who should enforce them, have been murky to say the least. While this issue has been bubbling below the surface for years now, it broke out in a big way in just the last few days.

When Twitter took various measures to enforce its terms of service on Tweets authored by President Trump, he responded with a full throated attack on so-called Big Tech. In fact, Trump went so far as to release an executive order aiming to narrow the protections for internet content platforms. The tit-for-tat escalation seems only the opening salvo in what is likely to be a major fight, one amplified by the fact that this is an election year. Link.

If I had to boil my opinion on this issue down to a few sentences, I'd say this: we should be deeply skeptical of all forms of concentrated power. We should be worried about the power of the state when we see it aiming to limit the activity of private companies. We should also be worried about those same companies when they amass power, especially when they're pseudo-monopolies driven by network effects.

Social media giants want the ability to censor and editorialize the content their users generate, while remaining shielded from responsibility for that content when it's harmful. The state wants the ability to enforce its own standards of "neutrality" on these platforms, without explaining how such powers won't end in tyrannical abuse.

To date, we've yet to see a decentralized social network or content platform take hold in a major way. There are interesting experiments, with Hive being perhaps the largest and most vibrant so far, but it's still far from mainstream. With this ugly power struggle over censorship on centralized platforms breaking out, the odds of a crypto-backed decentralized alternative gaining meaningful traction rise.

Perspective

While I’ve argued that crypto is antifragile, and stands to benefit from the volatile year that 2020 has become, I want to close by stepping back and making sure we have all this in proper perspective.

First off, please note I’ve said nothing about the price of cryptocurrencies. I’m not making any predictions about the value of any specific crypto assets. More so, I’m deeply skeptical of anyone who does make such predictions in the face of such spectacular price volatility and uncertainty. Cryptonetworks may rise in importance, but there's no guarantee that translates into higher prices.

Second, it’s important to remember crypto is not a panacea for the problems we’re facing. I’m passionate about crypto for lots of reasons, and included amongst them is a distaste for concentrated power, a desire to see a more free and open internet, and a hope for fairer economic systems. I believe crypto can be a force for good in the world along all these axes, but it's not guaranteed to be, nor is it some silver bullet.