Bitcoin and the Lindy effect: what lasts a long time finally becomes good
Bitcoin coin, with a rubber band underneath in the shape of the infinity sign
The life expectancy of a technology increases proportionally with its lifetime. This is what the Lindy effect, popular among Bitcoiners, says. What to think of the concept.
The concepts and ideas that shape Bitcoin’s acceptance curve are not always easy to understand. Bitcoin is a novel technology for which there are no analogues from the past. Accordingly, the Crypto Bull rise of the first decentralised, fully digital money in the history of mankind seems incomprehensible to viewers at the margins.
What is the Lindy effect?
The flood of money to cope with Corona is enormous. Many investors therefore rely on gold as protection against feared crises and inflation. Low interest rates are still an argument for the precious metal, about which banker John Pierpont Morgan once said: „Only gold is money. Everything else is credit.“ Two DJE funds have gold in particular.
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One of these concepts is the Lindy effect. In essence, the idea is quite simple. According to it, the life expectancy of non-perishable things like technology increases with the duration of its existence. Every additional period of time that a technology masters implies a longer life expectancy.
The idea originally came from US author Albert Goldman, who in the 1960s linked the probability of comedy performances at New York’s Lindy’s restaurant (hence the name) to the frequency of previous gigs. The more frequent the gigs, the more likely a comedian’s career is to continue in the future.
But the concept only really took off when mathematician Benoit Mandelbrot described the „Lindy effect“ in his 1982 book The Fractal Geometry of Nature. According to this, future life expectancy is proportional to its past. So if a particular book is printed for 40 years, it can be assumed that it will be around for another 40 years. However, if it survives an additional ten years, it can be expected to be distributed in 50 years. The ultimate example of the stock of literature that can be explained by the Lindy effect is the Bible. It cannot be assumed that the Holy Scriptures will be replaced by an update in the next few years.
So, as Nassim Taleb states in his book Antifragil, certain things age „backwards“. The automobile has existed for about 120 years. So we can assume that the invention will have relevance for another 120 years. Of course, according to Taleb, the Lindy effect is only a statistical probability distribution. For many technologies, however, there is a sudden end. The fax machine or landline telephone connections are largely a thing of the past, as more efficient technologies such as e-mail or mobile phones have replaced them.
If a book has been in print for forty years, I can assume that it will be in print for another forty years. But if it survives another decade, I can expect it to be in print for another fifty years. That usually tells you simply why things age the other way round. Every year that passes without extinction doubles the additional life expectancy.
Nassim Nicholas Taleb in Antifragil.
And what about Bitcoin?
Fair enough. But what does all this have to do with Bitcoin? Well, if the concept is transferred to the No. 1 crypto-currency, every day that BTC functions smoothly, the general confidence should increase that „Orange Coin“ will continue to exist for the duration of its existence. In other words, the longer Bitcoin has been in existence, the longer the crypto-currency should last.
Moreover, the Lindy effect allows for another conclusion. As far as the persistence of competing crypto-currencies is concerned, the Lindy effect suggests that Bitcoin is ahead. After all, it is the first really working crypto currency.
Of course, the Lindy effect is a simplistic view of technological advances. Even Taleb admits that the phenomenon is not really suitable for predicting the life expectancy of individual technologies. In the end, however, it is a very useful tool for testing the robustness of technological achievements. And Bitcoin is indeed becoming more popular every day.