Author: Jarod Bona
I suspect that Antitrust DOJ head Makan Delrahim and I have had a similar reading list lately. And I am not even referring to any sort of antitrust books, like, for example, Steve Cernak’s book on Antitrust in Distribution and Franchising.
Let me explain.
I read, with great interest, a speech that Assistant Attorney General Makan Delraihim delivered on August 27, 2020 to the Conference on Innovation Economics in Evanston, Illinois (well, virtually).
His two topics were blockchain and Nassim Taleb’s concept of antifragility.
As a consistent reader of this blog, I trust that you already know that I am a big fan of Nassim Taleb and, particularly, his book, Antifragile: Things that Gain from Disorder. Indeed, a re-reading of Antifragile inspired an earlier article about Iatrogenics. If you haven’t read Antifragile, you should, right away.
My interest in blockchain, Bitcoin, and other cryptocurrency systems like Ethereum is relatively recent. But—like many before me—a little bit of knowledge has created an insatiable appetite for more. I am making my way down the rabbit hole, as they say.
Let’s dig in and talk about what the Department of Justice thinks about both antifragility and blockchain.
What does the term “antifragile” mean?
You might think that robust is the opposite of fragile. But those of us that have read Taleb know that isn’t true. Something that is fragile is likely to break or weaken from stress, shocks, or variability. If something is robust, it will resist this stress, shock, or variance.
But what you really want during times of stress (or, really, just over time), is antifragility. If you are antifragile, you improve from stress, shocks, and variance, which are inevitable, especially as time passes.
The human body is, in some ways, antifragile. Lifting weights, for example, creates a stressor on the muscles and surrounding tissues, which cause, ultimately, an increase in strength. So make sure you get your deadlifts in this week.
Antifragile is the opposite of fragile and it is better than robustness.
Earnest Hemingway understood antifragility when he said in A Farewell to Arms that “the world breaks everyone and afterward many are strong at the broken places.” The next line is just as important for reasons you will understand if you read Antifragile: “But those that will not break it kills.”
So, what does antifragility have to do with the Department of Justice and antitrust?
Assistant Attorney General Makan, in his speech, emphasized that “the Antitrust Division has made protecting competition in order to advance innovation in the private sector one of our top priorities,” and that the Division wants to “ensure that antitrust law protects competition without standing as an impediment to rapid innovation.”
He then introduced the concept of antifragility and acknowledged that the pandemic can certainly be described as a “shock” producing a “wide array of trauma.” But with that harm comes an opportunity—“if we rise to the challenge of being antifragile, there is also an opportunity for tremendous growth.” More specifically, “[c]ritical innovations and technological developments often result from the kind of extraordinary experimentation the pandemic has made necessary. We have the opportunity to embrace antifragility, to delve into the experimentation and trial and error that drive growth, and to make ourselves better.”
According to AAG Makan, “[o]ur goal at the Antitrust Division is to extend the spirit of innovation beyond our latest efforts to combat the pandemic and protect competition—ultimately, to become antifragile.”
The market system—competition—is, of course, an antifragile system because it improves with variance over time, including shocks and stresses. As problems arise, the market provides solutions. As new preferences arise, the system meets those preferences. As demands for certain products or services decrease, resources move away from those areas. Indeed, the “heart of our national economy has long been faith in the value of competition.” And the purpose of the antitrust laws is to protect that competition.
I am pleased to read the DOJ Antitrust leader expressly affirm those values and I have no doubt that he believes them—you can’t read and quote Taleb and not be affected.
But let’s remember that large central government is not typically the friend of antifragility. Indeed, government interference is more likely to distort incentives and the market’s ability to adjust to stressors. It can also lock-up parts of the system and increase fragility.
When a knocking on your door is followed by a shout of “I am from the government and I am here to help,” your heart should feel fear not relief.
I view the antitrust laws, if applied with restraint, as similar to contract, property, and tort laws. They provide the rules of the game that allow the market to prosper. Failure to apply any of them uniformly or fairly harms the beneficial potential of markets and competition. But over-applying them does the same. Like much of life, sometimes the answer is complicated and doesn’t fit into a single tweet.
Government enforcers can, however, stay on the right track if they have in their mind the rule that doctors often forget: “First, do no harm.” Antitrust enforcement, like medical intervention, can be iatrogenic.
Blockchain, Bitcoin, and Cryptocurrency
The DOJ Antitrust Division’s attorneys have formally educated themselves on blockchain and other technologies. And, like me, once they started learning about it, they probably realized what a big deal it truly is.
My worry, frankly, is that the government is going to somehow screw it up.
This isn’t the article for me to explain Bitcoin or blockchain to you. I am still learning myself and there are plenty of other great resources: articles, books, videos, podcasts, etc. This is probably a good time to apologize to my family for making them watch videos on Bitcoin, the history of money, and, for example, technical debates between the Bitcoin-only crowd and Vitalik Buterin, the founder of Ethereum. That last one, in particular, drew angry complaints (and not just because it seems like people are too hard on the brilliant Buterin, who handles criticism with incredible grace and calmness).
Bitcoin is particularly fascinating to me as it is the Austrian economists’ great dream test: actual sound “money,” with a limited supply that increases at a fixed and decreasing rate over time. It’s time to dust off your copy of Ludwig Von Mises’ The Theory of Money and Credit because the Austrian Economists are back in style with Bitcoin.
The foundation of Bitcoin and the other cryptocurrencies is the blockchain, which is a distributed, decentralized ledger that can store information in a way that allows anyone and everyone to verify. It eliminates the need to rely on a centralized, or really, any entity to trust with information or transactions.
Indeed, Antitrust DOJ—after completing the course on blockchain—“recognized the transformational effect that blockchain solutions may have on technology, businesses, and society in general over the coming years.”
According to Delrahim, it could “have profound implications for many industries and issues the Division analyzes, from financial services and credit monitoring to healthcare and health insurance. Likewise, verification over the blockchain also could impact the markets for intellectual property rights, such as by helping to manage IP rights in digital goods like streaming music or eBooks, or, as a company called IPwe aims to achieve, by building a single global database of patent ownership that can facilitate IP transactions.”
Putting aside Bitcoin and its sound “money” feature—which is awesome, by itself—blockchain technology has the potential to end up as the backbone of how many marketplaces function. That doesn’t mean it will—but it could, legitimately.
From the perspective of an antitrust and competition attorney that studies and appreciates decentralized markets, discovering blockchain is like learning about the internet before it changed our life. Again, it may or may not reach its potential. But it could.
Blockchain technology is decentralized and can create networks that are not owned by any particular entity (which, with the right network, will tend toward monopoly, depending upon market definition). If you read the preceding sentence again, you will understand quickly that blockchain has some natural enemies—those that profit from ownership of existing networks.
So watch for actions by existing network owners with market power against the implementation of blockchain technology. This could take the form of government lobbying, information campaigns, restrictive contracts, or even their own private blockchain products. I suspect that over the next decade, blockchain technology will be the largest threats to their market power. And they will fight hard to keep their monopoly (which is, of course, one of the wasted resources of monopoly).
Delrahim explains that the “dream for blockchain developers is that it will enable all the benefits of network effects, while minimizing or eliminating the market power that usually comes with those benefits.”
I am happy to see that the present leadership of Antitrust DOJ view themselves as protectors of blockchain technology: “Dedication to achieving this new world is vital—both from blockchain experts and from those who can support these competitive efforts, like the Antitrust Division. Our goal at the Division is to inquire how disruptive innovations might be deploying these technologies and how incumbents might try to stop or co-opt them.”
Besides entrenched monopolists, government is a natural predator of blockchain technology, and Bitcoin. While I believe that Delrahim and his team are taking the right protective approach, I worry that future enforcers or other enforcement agencies won’t recognize the massive potential of blockchain and Bitcoin for the country and the world.
Central government is jealous of threats to its power and control and blockchain is inherently decentralized, such that it cannot be controlled by any particular entity, including a Leviathan. So we should expect that as blockchain becomes more prevalent, it will have to endure the arrows of governments all over the world.
At Bona Law, our mission is to serve our clients and to protect competition, from all angles. Blockchain and Bitcoin are gifts to decentralized market competition and we stand by ready to defend them from jealous enemies of competition.