The Significance of Bitcoin, Part 3: What Makes Bitcoin Antifragile?

Bitcoin is not Robust, Bitcoin is Antifragile

What does it mean to be antifragile? What makes Bitcoin antifragile, and a must-have feature for a cryptocurrency, or for any system for that matter. The concept of antifragility was formally introduced by Nassim Taleb in his 2012 book ‘Antifragile: Things That Gain from Disorder’ where he describes there’s an entire class of other things that don’t simply resist stress but actually grow, strengthen, or otherwise gain from unforeseen and otherwise unwelcome stimuli. 

We can examine Antifragility in the following graphic:

How is Bitcoin Antifragile?

How does bitcoin become stronger due to volatility? Out of chaotic events? Direct attacks? What exactly makes Bitcoin sntifragile? How is a system of money become stronger under such adversarial environments?

Silk Road

Launched in 2011, Silk Road for those not familiar was an online market and the first modern ‘darknet’ market, that became infamous for it’s use of Bitcoin in the transaction of illegal drugs.

In October 2013, the Federal Bureau of Investigation shut down the website and arrested Ross Ulbricht under charges of being the site’s founder. Ulbricht was convicted of seven charges related to Silk Road in the U.S. Federal Court in Manhattan and was sentenced to life in prison without possibility of parole.

The FBI initially seized 26,000 bitcoins from accounts on Silk Road. Another 144,342 bitcoins were seized which had been found on Ulbricht’s computer, roughly $87 million.

After the fall of Silk road, critics of Bitcoin were quick to call out it’s use for ‘illicit activities and such’. The price subsequently tumbled, but bitcoin kept moving on.

Effect on BTC of Silk Road Shutdown (Wikipedia)

MTGOX

By April 2013 and into 2014 the now infamous MtGOX exchange had grown to the point where it was handling over 70% of the world’s bitcoin trades, as the largest bitcoin intermediary and the world’s leading bitcoin exchange. With prices increasing rapidly, Mt. Gox suspended trading from 11–12 April for a “market cooldown”. The value of a single bitcoin fell to a low of $55.59 after the resumption of trading, before stabilizing above $100. Around mid-May 2013, Mt. Gox traded 150,000 bitcoins per day, per Bitcoin Charts.

On 28 February 2014, Mt. Gox filed in Tokyo for a form of bankruptcy protection from creditors called minji saisei (or civil rehabilitation) to allow courts to seek a buyer, reporting that it had liabilities of about 6.5 billion yen ($65 million, at the time), and 3.84 billion yen in assets.

Logarithmic scaled bitcoin price history in USD on the Mt. Gox exchange from February 2012 until its shutdown in February 2014

The company said it had lost almost 750,000 of its customers’ bitcoins, and around 100,000 of its own bitcoins, totaling around 7% of all bitcoins, and worth around $473 million near the time of the filing. Mt. Gox released a statement saying, “The company believes there is a high possibility that the bitcoins were stolen,” blamed hackers, and began a search for the missing bitcoins.

It should be noted that the hack of MtGOX only affected the Bitcoin price, those who held their Bitcoin off the exchange were unaffected by the hack, and the Bitcoin they hold now is far more valuable.

Bitcoin Cash Hardfork

In 2017 there were two factions of bitcoin supporters, those that supported large blocks and those who preferred small blocks. This hardfork caused great uncertainty on the Bitcoin community, and caused many speculators to lose faith.

Perhaps Bitcoin developer Jimmy Song said it best in a 2017 Coindesk Article Bring on the FUD: 2017 Was The Year Bitcoin Became Anti-Fragile

Going into August 1st, many thought that a hard fork would be a terrible thing for bitcoin in general. There would be two different bitcoins, two different communities, a split network effect and many other things. Many were expecting price to adjust to those realities and crater to much lower levels. Instead, what we saw was the start of a bull run, the likes of which we haven’t seen since 2013.

The price the day before the hard fork was around $2,700. The next week, bitcoin rose to $3,700 and bitcoin cash surprisingly had value that wasn’t zero. What was going on? How did both forks end up greater than the sum before the fork? Such math seems self-evident now, but this was not the predicted outcome and most thought that forks would reduce the overall value, not gain.

– Jimmy Song

Coronavirus 2020

Fast forward a few years, past now the speculative bubble of 2017 to early 2020 where the Covid-19 global pandemic has gripped the world. After the massive deleveraging event that saw Bitcoin lose nearly 50% of it’s dollar value, the price has seen a steady recovery since then. With trillions of dollars in bailouts in the works, the future of Bitcoin is brighter than ever, and continues to be antifragile.

The Significance of Bitcoin, Part 2: Proof of Work & Immutability

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