Lesson 1: Warren Buffet vs Bitcoin
In March 2014, the usually sanguine Warren Buffet made some disparaging comments about the potential of Bitcoin, which were more or less in line with his usual regard for new technology. This caused Bitcoin investor Marc Andreessen to reply that, “The historical track record of old white men crapping on new technology they don’t understand is at, I think, 100%.”
As there are billionaires in Silicon Valley who consider 42 year-year-old Mr. Andreessen to be old, that comment will definitely come back to haunt him.
Nevertheless, I feel compelled to point out that Andreessen totally left out the track record of old white men who DO NOT crap on technology. Remember when billionaire Sumner Redstone (owner of Viacom–MTV Networks and Paramount) wanted to purchase MySpace, and billionaire Rupert Murdoch (Owner of News Corp and Fox) also wanted to purchase MySpace? Fox did the deal and purchased MySpace for $545 million. Furious at losing out on the next big thing, Mr. Redstone fired then head of Viacom, Tom Freston, a guy too cool to ever be called an old white man. Even though it cost $90 million in severance to fire Mr. Freston, Viacom still came out ahead by about +$400 million. (MySpace lost most of its value and Fox lost $520 million, selling MySpace for $35 million.
Then there are the young-ish white men who DO NOT crap on technology and also have lost a few hundred billion along the way. Remember when Steve Case (owner of AOL) and Gerald Levin (CEO of Time Warner) decided to merge the two companies? A couple years later, AOL’s value dropped from $226 billion to $20 billion.
Mr. Buffet and Mr. Andreessen are both very smart and very rich, but as the above shows, nobody’s perfect. However, some people are consistent, and Warren Buffet has consistently made money by buying good companies with long-term upside, and Mr. Andreessen has consistently made money by innovating new technologies with long-term upside.
So who is right?
Like a lawyer sitting in front of row upon row of law-book full of cases, I will now turn to my row upon row of science-fiction books to see what cases we can find there to help us understand this Bitcoin things a little better.
Two recently read science fiction books in my collection involve a virtual currency that could be compared to Bitcoin (though Bitcoin it is technically a crypto-currency). In “Ready Player One” by Ernest Cline, people live much of their lives in a virtual reality called OASIS. The creator of OASIS , an eccentric billionaire who dies and leaves his billions to whoever could find a hidden “Easter Egg” in OASIS. Players use the OASIS virtual currency to buy virtual supplies and weapons in order to advance in their quest, and eventually someone wins the game. It’s an example of how virtual currency can be directly tied to “real” currency.
In another sci-fi series, Daemon and Freedom, by Daniel Suarez, an eccentric billionaire dies, leaving behind a virtual reality that becomes known as “The Darknet.” As the forces that control The Darknet grow, the global economy goes to hell and Darknet Credits becomes the only stable currency while the Dollar, Euro and Yaun plummet.
Both books are written by authors with tremendous understanding of both technical as well as social structures. As such, in both stories, the virtual currencies are tied to an ideology that is familiar to us in these times. Namely, that ideology is that our current reality is in the hands of inhumane institutions and the future lies in creating a new social order. The new societies the authors create are both ideal meritocracies, where power goes to those whose productivity is aligned with the interests of humanity rather than in the interests of capitalism.
For a new social order to be self-sustaining, it must have the involvement of a critical mass of individuals. Wherever we see an attractive ideology, people follow. See MySpace and Facebook. Reaching critical mass requires the ideology platform to evolve into something easier and easier for people to use. Something like Compu-serve gives way to AOL, AOL gives way to Yahoo, Yahoo gives way to Google. The same could be said of the Friendster to MySpace to Facebook evolution.
So who’s right about the whole Bitcoin thing?
Well, Bitcoin meets the first criteria; it is the merging of a technology with an ideology. And just like in “Ready Player One” and “Freedom” the ideology is attractive to current social sentiment.
That leaves ease-of-use as the last variable. Buffet says that Bitcoin is a fast way to anonymously pay for things. Right now most people use cash as the way to anonymously pay for things. However, cash isn’t used so much any more. Most transaction are done with credit and debit cards because it is easier, people don’t have the cash, they want a record, and are “rewarded” by getting points.
Andreessen sees Bitcoin transcending all of the above.
Citing the case law in just two of the many science fiction books where virtual money becomes the currency of choice, its eventuality makes Andreessen correct. However, no one can predict how god intends for evolution to unfold. Transactional cash will eventually be replaced, and Bitcoin is part of the evolution. There will be times when both Buffet and Andreessen are right, and times when they are wrong.
Buffet is risk averse and will avoid investing in any rapidly evolving technology. Andreessen has a higher than average understanding of where systems will dominate on the technological evolutionary chain. Much like my experience on Easter Island when I would ask a question and be told to look around and see the answers for myself by experiencing them, you can find the answers by picking up a copy of “Ready Player One” or “Daemon.”