Bitcoin and Ethereum are not Antifragile 

While most people in the crypto ecosystem think Bitcoin and Ethereum are antifragile, I want to argue the opposite, exploring a new framework of assessing crypto antifragility. I will argue that antifragility exists across a spectrum, and while Bitcoin is antifragile from a doctrine and financial returns perspective, its software ultimately fails to pass the test of antifragility given its immutability and lack of benefit from hacks. Further, I will argue that this immutability causes Bitcoin to be susceptible to Black Swan events as the static nature of the codebase precludes the protocol’s ability to adapt to unforeseen circumstances. This ultimately leads to the conclusion that Bitcoin is if anything robust, if not fragile. I will also argue that while Ethereum’s dynamic codebase mitigates some of these vulnerabilities, it too has software that is not antifragile. Instead, the Ethereum software is fragile, a result of historical exploitation as well as susceptibility to future vulnerability within the codebase.

I will state clearly that an asset’s fragility does not negate all value that it holds. And further, it is important to note that this exploration of fragility in cryptoassets in fact seeks to strengthen their value through shining a light on a fundamental misunderstanding within the crypto ecosystem in order to prevent building conviction around a falsehood. As a supporter of both Ethereum and Bitcoin, this new framework of antifragility should be viewed as an opportunity rather than a condemnation. An opportunity that encourages the creation of true antifragility through leveraging the combination of technology and financial instruments.

What is Antifragility?

Antifragility is a term coined by Nassim Nicholas Taleb, used to describe things that gain from disorder, the opposite of fragility. It is important to make the distinction that antifragility does not mean robust. While fragility dislikes volatility and antifragility enjoys it, the robust is not really impacted one way or another. 

Let us use an example of reputation in one’s profession.

The reputation of a corporate executive within a stalwart company does not benefit from disorder, whether it be market turmoil, incomplete knowledge, or randomness. This individual’s reputation is dependent on steady growth and predictability, with disorder at the company leading to opinions of incompetence and risk of unemployment. They are fragile. 

The reputation of a train conductor on the other hand is not materially impacted by uncertainty. Their profession today is relatively the same as it was yesterday and as it will be tomorrow. The non-cyclical nature of their profession allows them to be considerably insulated from any unforeseen event both negatively and positively. They are robust.

The reputation of the writer however is antifragile. This individual gains both from unforeseen events that lead to praise and also those that lead to slander. Controversy is a writer’s friend. Writers love disorder in the sense that they benefit from a world in which their ideas are both adored and hated. 

Antifragility and Crypto 

The crypto community has a peculiar relationship with Taleb. Once a supporter of Bitcoin, Taleb now deems the technology has failed to satisfy its original vision of currency, store-of-value, inflation hedge, or safe haven, highlighted in what has become known as, The Bitcoin Black Paper.  

While the broader crypto community may not support the arguments laid out in Taleb’s paper, they still maintain a particular affinity for Taleb’s work. Specifically, many individuals in the space argue Bitcoin is antifragile. 

While I am a strong supporter of the vision and long-term viability of the crypto ecosystem, it is crucial that we understand the weaknesses and misunderstandings of the technology to ensure its success. With this said, I will argue that neither Bitcoin or Ethereum are truly antifragile, and that we should be cautious of using this terminology in order to protect crypto’s viability and improve its staying power.

Spectrums of Antifragility in Crypto  

To repeat, things that are antifragile gain from disorder. They enjoy uncertainty, randomness, and the unknown. When analyzing the antifragility of Bitcoin and Ethereum, I view it across a spectrum of three components: doctrine, finance, and software. For either of these protocols to be antifragile, they must be so across all three domains.  

Bitcoin’s Doctrine is Antifragile

Bitcoin is well known to have a community of passionate supporters. The most extreme being maximalists, who believe that Bitcoin is the only true cryptocurrency, with all other coins likely a scam. While this belief system is antagonistic, it is also one of the major reasons for Bitcoin’s success. The community has effectively created a religion. The more Bitcoin is attacked, the stronger the religion becomes. As discussed in You Are Not a Lottery Token, this maximalist loop is strengthened through incentives of personal holdings and risk of community ostracism, breeding a reflexive narrative that further strengthens the religion. 

Bitcoin is Financially Antifragile

From a financial returns perspective, Bitcoin’s closest corollary is to that of venture capital. While its asymmetric upside could be argued to have largely been realized since its inception in 2008, it is still predominantly a bet on its ability to become an effective store-of-value as digital gold. As with venture returns, this is a bet that is dependent on incomplete knowledge and the potential for a future that is materially different than today. Thus, a holder of Bitcoin is long volatility, potentially benefiting from market turmoil, errors, randomness, and time. 

Bitcoin’s Software in Not Antifragile

One of Bitcoin’s major value proposition is the idea that its codebase will never change. While this may strengthen its narrative of being a SoV, the very static nature of the protocol precludes its ability to be antifragile, as it does not gain or lose from outside factors. For it to be antifragile it would be required to improve in the event of negative or positive externalities, but in reality it remains exactly the same.

This is the major misunderstanding of others who describe Bitcoin as antifragile. Bitcoin has remained in existence despite consensus rule changes, competing protocols, government action, large drawdowns, and hacks, however again, these externalities did not improve the protocol. No changes were made to the codebase in light of these events, and thus, the Bitcoin technology itself is not strengthening in the face of disorder. 

I will also state clearly that Bitcoin does not benefit from hacks. The classic argument “in support” of hacks is some combination of, “This is how the protocol should operate. It is doing its job. There are no exceptions. Self-sovereignty.” But when individuals have their funds stolen (re: Mt. Gox), they are losing their income and trust while exposing a vulnerability to the asset. This is regardless of whether the vulnerability is the result of the Bitcoin codebase itself or the ecosystem in which it operates (e.g. through centralized entities). They cannot be mutually exclusive because their value is (currently) dependent on the other. 

It is important to also consider the event of a vulnerability in the codebase that is discovered at a future date. I will emphasize that given the technology has survived for over a decade without successful attack this is a long-tail event, however, those events are exactly the scenarios in which things that are antifragile thrive. The fact that Bitcoin is negatively impacted by such a scenario eliminates any possibility of its antifragility, regardless of whether the probability is minute.

While it could be argued that other aspects of Bitcoin’s technology are antifragile including its decentralized network, in order for the protocol to be truly antifragile all aspects of the protocol must be so. 

Thus, Bitcoin’s software is not antifragile. 

As major points of fragility have not been exploited within the protocol since inception, the software is currently (until proven otherwise) robust. However, this must be expressed with caution, as things that are classified as robust can be proven fragile when vulnerabilities not yet imagined are exposed.

Ethereum’s Software is Not Antifragile

Similar to Bitcoin, Ethereum also has a religious following and VC-esque investment rationale, justifying its basis as having a doctrine and financial return that are antifragile.

Unlike Bitcoin however, Ethereum’s codebase is not static. There are frequently proposed and implemented changes to the protocol under what are called, Ethereum Improvement Proposals (EIPs). Anyone within the Ethereum community has the ability to create an EIP, with stakeholders in the community then debating to determine if it should be adopted as a standard or included in a network upgrade. 

While this decentralized decision making process and evolving codebase allow Ethereum to continuously adapt in the event of disorder, the protocol does not inherently benefit from unforeseen events. 

A clear example would be The DAO Hack, wherein an attacker exploited a vulnerability in The DAO codebase, enabling them to siphon off a significant portion of The DAO’s funds. The hack represented an existential crisis to the Ethereum protocol, with the Ethereum community deciding that a hard fork was the most logical solution, effectively abandoning the original blockchain (now known as Ethereum Classic). 

Putting aside the validity of this decision as well as the success of Ethereum post-fork, the event was a clear exposure of fragility that did not benefit the protocol. It was a decision that led to ecosystem divisiveness and loss of trust. Further, it did not inherently solve its problem of fragility. Rather, it targeted and solved for one specific exploited vulnerability. Similar to cutting a limb off a rotten tree when the solution needs to be solved at the root. Thus, if an event of greater magnitude (albeit in a different shape) were to occur again within the protocol, further fragility would be exposed. 

Regardless of whether the evolving codebase allows Ethereum to improve in the event of disorder, this is only true up to the scale at which this disorder would not irreparably destroy the protocol. A true long-tail event. An event in which things that are antifragile thrive.

Accordingly, Ethereum’s software is fragile.

Closing Thoughts

Complete Immutability is a Bug Not a Feature 

Bitcoin’s immutable codebase is in some ways a bug not a feature, as while it has fostered a religious narrative that is financially antifragile, it invariably introduces fragility into the codebase via its inability to adapt to unforeseen events. This is a tradeoff that can ultimately be exploited and be the cause of its downfall.

I predict that in the future there will be a Black Swan event in which the Bitcoin community will be forced to decide whether to fork the protocol as a result of an exposed vulnerability which invalidates the historical codebase. 

While Black Swan risk is an easy excuse to use to poke holes within a technology, I believe it is justified with regard to Bitcoin as a result of the following:

• Age of Technology: Bitcoin is only ~13yrs old. While this is no small feat, it is also an extremely short amount of time with regard to the rapidity through which technology (both crypto and software generally) evolves. Its “Lindy” status therefore remains questionable, justifying a disruption or other technological risk that is not immaterial.    
• Threat to Existing Powers: If Bitcoin were to reach a scale that truly threatens USD or governmental hegemony, it is not unlikely more extreme efforts will be taken to suppress adoption or useability. The old guards will not go down without a fight, all of which would rather attempt to kill the new guard than risk seeing their empire fall. While some may argue that we have already experienced attempts to suppress the technology (e.g. bans, sanctions, etc.), these efforts fall short of the extremity that can be enacted through imprisonment or warfare. 
• Immutability is an Exception: No technology has simply been invented and remained the same from day 0. In all circumstances, technology iterates and evolves from its inception. While Bitcoin could be an exception to this rule, it would go against thousands of years of technological development. Accordingly, it is much more likely that an event or circumstance will arise that justifies a protocol change than for disruption to never occur over the course of Bitcoin’s existence. 

The Spectrum of Antifragility 

Crypto can be understood to exist across a spectrum of antifragility: doctrine, finance, and software. While Bitcoin is antifragile within the first two, the fact that its codebase does not gain from disorder invalidates any argument for its software to be classified as antifragile. As for Ethereum, its codebase has proven its fragility through recent history as well as future susceptibility. 

Thus, Ethereum is fragile, while Bitcoin is (until proven otherwise) robust.

To repeat, I will emphasize that the fragility of Ethereum does not eliminate all value that Ethereum holds. To the contrary, I see identifying Ethereum’s fragility as a chance to further bolster its value and longevity through devising ideas that can eliminate this fragility and in fact make it antifragile. This is in contrast to Bitcoin, as its doctrine that the software remains static precludes its ability to ever attain antifragility. The best it can achieve is robustness.  

As assets conceived and upheld on the notion of unforeseen or long-tail events, Bitcoin and Ethereum’s success and interest proves it is crucial we continue to explore and experiment with antifragility in financial instruments. And with this exploration, accurately label those instruments that are antifragile and those that are not.