Estimations of Cryptocurrency’s Life-Span Using The Lindy Effect Theory
Within the cryptocurrency market, there is no other name which deserves such a high level of respect or influence than Nassim Taleb. Taleb, who gained his fabulous reputation as an author, statistician and former trader, has a large volume of individuals and fans that would line up to read about his views on anything regarding the cryptocurrency market and attempt to extract some diamond Taleb may eloquently place within the work.
Whether or not it directly allows them to get an edge in the crypto trading world, from having an optimistic analysis from someone like Taleb, it can have a positive ripple effect on the market as a whole. In his many works on randomness and probability along with his commentary in the public sphere, Taleb speaks highly of Bitcoin.
Writing on the subject of Bitcoin, Taleb muses on the great ideas and theories the Bitcoin represents, and its prospects for the future when he writes:
“… Bitcoin is an excellent idea. It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide its fate. It is owned by the crowd, its users. And it has now a track record of several years, enough for it to be an animal in its own right.”
Taken as an extract from one of his many blog posts, Taleb's quote incorporates, with some subtlety, the idea that he's previously mentioned on a number of occasions. The most apparent of these instances have been in his book ‘Antifragile', something that he refers to as the ‘Lindy Effect‘, and it serves as a unique method of analyzing and predicting the average lifespan of an idea.
It's a theory that has been readily applied by Taleb, and a number of other individuals, to give readers, among others, a better idea for how long the cryptocurrency craze can be expected to last.
The Origins Of The Lindy Effect
The name itself has more obscure origins than from statistics or trading, the name comes from ‘Lindy's Deli', a Delicatessen located on 7th Avenue in Manhattan. It's here that it's described how actors would sit with their colleagues and talk about Broadway, all while discussing, with mutual understanding, the observation that the longer any single play ran on Broadway, the longer it would run off Broadway.
Our modern measurements of the Lindy Effect stemmed from the population where its original focus lie, on the longevity of a Broadway play, and it still holds true. While it's been re-applied to the world of cryptocurrency, age has not made it less relevant. Eventually, it was re-purposed, changing from a casual theatrical observation, to become an evident theory which can be applied to a number of fields. Non-perishable assets like ideas, technology, or religion, are all relevant. It’s believed that Bitcoin is no exception.
Taleb, in writing Antifragile, mentioned the Lindy Effect on a number of occasions, all because antifragility is a trait of an asset to which the effect applies. Effectively, this means that any topic that is able to survive a test of time, in spite of the odds, attaining longevity as a result.
One of the examples is clearly Broadway, in which, plays (among many other elements) have a competitive nature to them, with evolving attitudes, approaches and tastes which change the demand and desirability of certain things. As a result, there are always a number of different shows vying for center stage, and as each becomes older, it becomes more of a challenge to sustain. And with a number of new, innovative and dynamic plays entering Broadway, as the first plays get older, their enemies get younger.
But while a Broadway play that's been playing for a longer stretch of time may face dynamic adversaries, where it lacks in innovation, it makes up for in way of reputation, notoriety and credibility, all important factors for a field like that. Off Broadway stages are eager to reproduce it in their own towns, lending longevity to the play.
While this appears to be a major digression from the initial topic, the Lindy Effect asks a similar question of Bitcoin: does Bitcoin have the same longevity that Broadway plays do? And the answer is yes, both Bitcoin and Broadway play possess a certain ‘unperishable idea'. Using Broadway as the example, famous plays go on to be continually successful, regardless of where it's played and who comprise the roles.
The same trend can be seen in the world of Blockchain, where a number of truths and concepts go on in a timeless fashion, continually persisting despite continual friction coming from the marketplace. The comparison isn't without its limitations but works relatively well in discussing the features of blockchain.
The Ill-Fitting Dress – Where The Lindy Effect Doesn't Fit So Well
There are some that make the observation that the test sample used from the cryptocurrency world means that it would be too small in order to fully and effectively apply the full range of aspects that the Lindy Effect pertains to.
For cryptocurrencies, there are too few examples of tokens that have demonstrated longevity, too little data on those that have, and it may be too early on in the lifespan of cryptocurrencies and blockchain as a whole, to fully form a perspective of this outlook.
For any cryptocurrency, the prospect of ‘surviving' in the same way as a Broadway play proves difficult to define in any definitive sense. It's a far easier thing to measure the success of a Broadway play, simply because the data is there, the time-frame is conclusive, and we live surrounded by the legacies of shows that have, in our eyes, ‘made it'.
One argument is this: where exactly is the ‘half-life' for cryptocurrencies? That point is not necessarily when it's taken offline per se, primarily because that precludes any remaining life. Could that half-life point be when the number of active users starts to diminish? Finally grinding to a halt like gears without power? Or maybe when it's breached and altered irrevocably by a team of hackers, rendering the IP and whole system unusable?
This is one of the ways in which the Lindy Effect proves to be somewhat of an ill-fitting dress, one being that age isn't enough of a factor; a defunct and unused cryptocurrency can still go on in some shape or form by an obscure number of users, thereby thwarting any use of time as a factor.
The fact that the Lindy Effect cannot yet answer these questions doesn't essentially show us that it has no purpose, but that it must be re-wired in a way as to prove more effective for cryptocurrency market.
Repurposing Lindy For Unique Assets
For the questions and reasons given above, it pokes a number of holes through the fabric of whether the Lindy Effect can be put to extensive use in analyzing the cryptocurrency market and blockchain.
This is not to say that the theory, as a whole, is unworkable, just that there are a number of features that it boasts that don't fully conform to the life of the market in question, user error can also be attributed to the reason why it's seen as poorly fitting.
One factor is that we may be zooming in too close on specific samples and on the market as a whole to effectively utilize the Lindy Effect in the same way as the Broadway observations had. We remain uncertain as to whether blockchain has an intrinsic longevity that Broadway had, making it an increasing challenge to apply Lindy.
A couple of notable cryptos that could have the Lindy Effect, effectively measure their success would, to some extent, be Bitcoin and Ethereum, especially when it comes to their respective lifespans. These two cryptos still make for a challenging pair, especially when considering that Ethereum is three years old and Bitcoin is ten, making for a very narrow window when the Lindy Effect has navigated decades, if not centuries of Broadway plays.
As a result, the Lindy Effect must be applied to the cryptocurrency market in its entirety. Where it’s hard to tell when one cryptocurrency project begins to taper, and indeed, if it’s already “dead”, it’s not difficult to imagine how cryptocurrency would reach its finale.
For measuring the overall longevity of cryptocurrencies, the Lindy Effect would be applied with a level of success, thanks to these three factors:
- Cryptography and network defenses
- Incentive to participate
- Regulatory environment
Any level of disruption to any of these three factors would essentially, take cryptocurrencies ‘off-Broadway' in a sense. So at present, the market remains thoroughly on the billing of Broadway, but if any of the following were to happen, Cryptocurrencies may very well go to ‘join the choir invisible':
- Quantum computing and the obsolescence of cryptography
- The financialization of markets to the point where volatility is null
- An outright ban on cryptocurrency, or exorbitant taxes
At our present point a decade into the “crypto experiment”, if any of the above were to happen, the Lindy effect would tell us that it will be another decade or so before the idea finally chokes and dies.
In the past, Taleb has raised similar points in a number of his public appearances, talks, and published works, however, simply applying theoretical laws to such a unique type of asset is something, not only asking for outside complications, but it's something that is asking for fallacious assumptions.
Blockchain has, already, achieved a meteoric rise and a rate of development that is well and truly humbling, especially when harkening back to its humble, not too distant origins of 2008. It would be safe to assume that, even before the play began for blockchain, it has died a number of times and in a multitude of different ways. But one thing remains a certainty: its show must go on.
Proof of Work blockchains, for instance, may now be in their death throes. There are a number of things within Bitcoin, for example, that make it seem ready to be removed from the billing: the wasteful resource management, the sluggish transaction times, and imbalanced miner pools were aspects understood about it years ago. By the logic of the Lindy Effect, is Bitcoin technically in its afterlife now?
And with this in mind, would it be only another few years on it until traders, investors and enthusiasts rack up their costumes and shut the lights off its stage one final time? There's no need to be a playwright to know that some shows just have to end.