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Antifragility and Optionality in Bitcoin and Fat-Protocols

Antifragility and Optionality in Bitcoin, Cryptocurrencies and Fat-Protocols

Cryptocurrencies, native to blockchain based protocols can be seen as options. They represent fundamental internet infrastructure. These protocols are like railways on the 8th continent, the internet. Some of these railways have huge potential for innovation and applications to be built on top of them. The right to use future applications based on the protocol is obtained by purchase of the native cryptoasset. To use the apps built on the Bitcoin network you’ll have to own bitcoins.
Bitcoin and Ethereum are technology options. These protocols retain useful solutions built on top of them while poor solutions are killed through market forces. Solutions built on the protocol are without down-side risk to the token holders. If the Apps built on top of Bitcoin goes bankrupt, it does not matter to the protocol. On the other hand if an app built on top becomes a success, it adds value to the network.

Bitcoin and some other cryptocurrencies have convexity or what Nassim Taleb calls antifragility. Low down-side and large upside from experimentation, innovation and random events influencing the protocol over time.

Optionality operates by what Taleb calls Via Negativa. By experimentation and elimination of what does not work. This makes the price of experimentation relevant. For blockchain based protocols with native cryptoassets, the cost of experimentation is low to nonexistent. Everyone can innovate and build on the protocol, without negative impact on value if the experiment fails. Note: the exception is experimentation in the core protocol layer (layer 1). Errors could potentially have major negative consequences that destroys the convexity properties. The hypothesis is that convexity from experimentation is achieved only in layer 2 and app layers.

The Crypto Antifragility Edge
It’s not about predicting specifics, it’s about antifragility. It’s about buying the cryptoassets that allows you to be as ignorant as possible. The cryptoassets maximizing long term experimentation, innovation and potential use-cases, while keeping a secure core protocol layer, keeping down-side risk low.

Finding these types of investments allows for minimal knowledge and predictions as the mathematical property of convexity unfolds itself. Find protocols with convexity properties and time will most likely make it a good investment.

Antifragile cryptoassets loves variance, turmoil, innovation and everything in motion. It benefits more from positive events than it is damaged by negative. It’s not about predicting specific events, but about maximizing convexity and thus positive outcomes from optionality.

It makes more sense to improve convexity than trying to gather specific knowledge with the aim of investing toward a specific outcome. Generally, it makes most sense to invest in layer 1 cryptoassets, such as Bitcoin. Layer 2 cryptoassets, require more knowledge about use-cases and provides less optionality from innovation in the layers on top.

Invest in innovation agents and entrepreneurs, rather than a specific plan or narrative. If invested in innovation agents, you have more optionality than if invested in a specific idea or plan that may not last. A skilled innovation agent can change direction and experiment. Bitcoin and other cryptocurrencies may be seen as a gathering of innovation agents running experiments and building awesome apps in layer 2. Look for protocols with skilled developers and community. Protocols with the greatest potential for permissionless innovation. The internet will route around protocols suffering from friction and censorship and let the most open protocol win (if it is also secure). Adam Back illustrates this thinking with his tweet:

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