Carlos Velásquez · Medium · 8 min read
Nassim Taleb’s fifth book, Skin in the Game: Hidden Asymmetries in Daily Life, highlights the significance of bearing monetary or reputational risk when promoting an idea. Chapter Two, titled “The Most Intolerant Wins: The Dominance of the Stubborn Minority”, develops the concept of skin in the game within the context of the Minority Rule — a phenomenon that enables a stubborn minority to assert its preference on the broader population.
For the Minority Rule to manifest, six conditions must exist.
- The minority must be intransigent.
- The minority must be small: < 5% of the total population.
- The minority must be evenly distributed.
- The minority’s decision-making must be decentralized.
- The cost of complying with the minority’s demands must be minimal.
- The majority must be flexible (i.e., tolerant) to the minorities’ desires.
The Minority Rule applies to far-ranging aspects of life:
- Ethics: the banning of books; the blacklisting of people; the spread of religions; the adoption of moral values.
- Language: international meetings default to English, the world’s lingua franca, if just one key person does not speak the host country’s language.
- Markets: the reason kosher/halal/organic/non-GMO foods are sold in supermarkets; smoking bans; automatic cars; stock price fluctuation.
- Science: the disconfirmation of scientific findings.
- Sociology: segregation; civil rights moments; surprising election results; revolutions.
In these domains, skin in the game abets a stubborn minority to impose its preference on the majority.
During the past decade, a new stubborn minority has emerged. This time, within the context of a regulated and (historically) centralized global system:
- Finance: …let me explain.
A New Global Stubborn Minority
Since 2014, the price of Bitcoin (BTC) has 100Xed. Equally impressive has been Bitcoin’s exponential adoption rate. Some estimate it will 10X from 2021 to 2025 (Figure 1).
What propels Bitcoin’s price appreciation and global adoption?
To answer this question, let us briefly contextualize the state of technology, innovation, and global finance:
- Relatively cheap digital technologies exist globally.
- Decentralized blockchain technologies are driving Web 3.0 innovations.
- Central banks’ monetary expansion has stoked fears of inflation.
- Worldwide inequality, including within developed countries, is increasing.
This state of affairs has enabled a new stubborn minority to emerge. One that leverages digital technologies and a popular Web 3.0 decentralized blockchain while narrating a compelling “digital gold” story that can combat inflation and inequality.
The new stubborn minority: Bitcoin Maximalists.
The Minority Rule provides a framework for understanding how Bitcoin Maximalists are influencing our financial lives.
Bitcoin Maximalists: Applying The Six Conditions That Lead To The Minority Rule
***
1) Bitcoin Maximalists Are Intransigent
“Bitcoin Maximalist” was a term coined in 2014. Bitcoin Maximalists believe Bitcoin is the only digital asset worth owning. Bitcoin’s growing use case, value, and antifragility prompted some of its early adopters (many of which are multimillionaires from HODLing BTC at sub $400 prices) to popularize Bitcoin Maximalists’ ideas; and they have gradually influenced the global community’s views on Bitcoin.
Example: Bitcoin Maximalists’ ideas enter U.S. politics — Liberals, Democrats, Independents, Republicans, Conservatives, and Libertarians own BTC. Bitcoiners will soon represent the largest single voting block in American politics. Bitcoin Maximalists across the political spectrum will increasingly vote for and help fund pro-Bitcoiners into office. Elected officials, such as Wyoming Senator Cynthia Lummis, will help champion Bitcoin’s integration into the U.S. financial system, causing knock-on effects in global finance.
2) Less Than 5% Of The Worlds’ Pop. Owns Bitcoin
Approximately *1.3% of the world’s population (102 million people) own BTC. Of the people who own BTC, 2% own about two-thirds. See Figure 2. [*Institutional investors /companies/countries also own a significant amount of bitcoins.] The increasing adoption of Bitcoin among individual and institutional investors, companies, and countries reveals that Bitcoin Maximalists’ ideas are beginning to gain broad traction.
Example: Bitcoin Maximalists’ ideas are impacting mainstream finance — PricewaterhouseCoopers reports that 50% of hedge funds now invest in BTC and crypto-assets. Public and private companies own $19.8 Billion of BTC (Figure 3). Several governments — Bulgaria, Ukraine, El Salvador, and Georgia — collectively own $12 .9 BTC (Figure 4).
3) Bitcoin Maximalists Are Evenly Distributed
Figure 5 denotes that Bitcoin is legal in virtually every developed country. In countries where Bitcoin’s legal status is neutral/restricted/illegal/no information exists, many citizens own BTC. Bans placed on Bitcoin typically prohibit its use to settle debts or financial obligations, not its use as a store of value. Bitcoin Maximalists’ ideas have no boundaries.
Example: Countries are already exploiting Bitcoin Maximalists’ ideas — El Salvador made Bitcoin legal tender in September 2021. Recently, Ukraine adopted cryptocurrency regulations and seeks to open its market to crypto investors; Panama introduced a bill to use bitcoin as currency; Cuba and Paraguay are also working on bills to legalize digital assets. The evenly distributed global interest in Bitcoin implies more countries could follow suit, particularly in emerging markets where many citizens are unbanked.
4) Bitcoin Is Decentralized
Figure 6 illustrates the distribution of Bitcoins’ monthly hashrate share by country, of which China held the most in March 2021. Globally, thousands of miners are economically incentivized to compete on Bitcoin’s decentralized peer-to-peer blockchain network to authentication transitions. Their decentralized actions are the reason China’s Bitcoin mining ban has not negatively impacted Bitcoin’s store of value function.
Example: Bitcoin Maximalists’ ideas aid far-flung regions — the Taliban’s recent takeover in Afghanistan compelled some Afghans to default to Bitcoin as a store of value, which speaks to the impact Bitcoin Maximalists’ “digital gold” thesis has globally — even though China recently banned Bitcoin mining. Before the Taliban’s takeover, Afghanistan ranked 20th on one Global Crypto Adoption Index (Figure 7). This Index will be interesting to follow.
5) Societal Compliance Costs Are Minimal
The compliance costs of owning BTC are minimal; 46 million Americans now own BTC. They are buying and storing it in digital wallets and on various exchanges. Other investors have gained BTC exposure by investing in Bitcoin Trusts, Bitcoin mining company stocks, or non-Bitcoin mining company stocks that have BTC on their balance sheet (see Figures 8 & 9). Similar trends are seen in Canada and Europe. People who believe BTC is a speculative asset simply need not own it.
Example: Bitcoin Maximalists’ ideas influencing the 401k/IRA/compensation realm — U.S. investors can now invest in cryptocurrencies via self-directed retirement accounts. Coinbase has added a feature enabling companies to allow workers to transfer up to 5% of their 401(k) account balance to Coinbase’s “Alt 401(k)” platform. Several companies (M31 Capital, Nansen, and SuperRare Labs) are working with Coinbase to enable staff to be paid in cryptocurrency.
6) Majority’s Flexibility To Bitcoin Maximalists
The majority of people have been passive observers of the Bitcoin phenomenon. Their collective passivity has turned them into the “flexible” (i.e. tolerant) majority within the context of global finance.
Leaders of companies, cities, and countries that Bitcoin Maximalists have influenced are taking advantage of the flexible majority. Twitter now allows users to send and receive BTC payments; Miami created its own cryptocurrency, MiamiCoin (MIA), which uses a smart contract protocol built on the Bitcoin network; El Salvador — a county where 1.9 million adults use bank accounts — has 2.7 million users of the Chivo App, enabling them to use BTC as legal tender alongside the U.S. dollar.
Example: Bitcoin Maximalists’ ideas impact the world — Jack Mallers is one of the most influential Bitcoin Maximalists. The 27-year-old Founder and CEO of Strike — a payments app enabling users to send/receive money for free — partnered with Salvadoran President Bukele to build the financial infrastructure necessary to make BTC legal tender. Jack Mallers also recently teamed up with Twitter, using Strike’s Lightning infrastructure to enable Twitter’s users to send and receive BTC.
The Outcome: A Stable Or Binary Rule Emerges
As Bitcoin’s global adoption continues, individuals/companies/cities/ institutions/countries will increasingly have skin in the game in BTC, further propelling Bitcoin Maximalists’ narrative within global finance. Mass Bitcoin adoption among the “flexible” majority will eventually occur, adding (relative) stability to BTC’s price as it continues to trend up and to the right.
Outcomes are paradoxically more stable under the minority rule — the variance of the results is lower and the rule is more likely to emerge independently across separate populations. What emerges from the minority rule is more likely to be black-and-white, binary rules.” ~ Nassim Taleb, Skin in the Game
Ultimately, the Minority Rule will likely result in a binary outcome:
| Bitcoin will become “digital gold”.
or
| The price of Bitcoin will go to $0.
The latter scenario occurring if another one of Nassim Taleb’s concepts transpires: a Black Swan. (Such as a quantum computer hack of the Bitcoin network; albeit, by definition, a Black Swan cannot be predicted.)
Until a Black Swan event impacts Bitcoin, however, the Minority Rule will serve as a helpful framework for understanding how Bitcoin Maximalists influence our financial lives — regardless of our opinions of Bitcoin.
One should be leery of betting against a stubborn minority with skin in the game.
Or in the case of Bitcoin Maximalists, a stubborn minority with millions (if not billions) of USD-BTC in the game.
And an ever-increasing global following.
Author also wrote: Your Inner Voice | Bitcoin’s Volatility | Blockchain Stocks |50 Investment Lessons | Flywheel Effect | Bitcoin: Mental Framework | Crypto Moonshots | 4 Crypto Stocks | Bitcoin: Insurance | Brief History: Money | Spontaneous Order | Ackman’s $2.6B Moonshot | Fragility Inducing Events | Antifragile: Definition | 1% Bitcoin: 99% Cash | COVID-19: Market
