Why Warren Buffet Doesn't Understand Cryptocurrency
Warren Buffet is one of the most successful investors of all time. Born in 1930, he has accumulated $86 billion dollars in his 88 years. The style of investing he mastered is known as "value investing", which involves doing fundamental analysis on a company to determine whether it is undervalued in the marketplace. This methodology is thoroughly burned into Buffet's nervous system, and that is why he will find it difficult or impossible to understand software such as Bitcoin, which is not a company and therefore not amenable to this form of analysis. Cryptocurrency is a new technology that falls outside of old paradigms.
The value of the Bitcoin software, and also of some other cryptocurrencies, is derived from its usefulness in the world. How useful is a technology that can store value in the same way that a bank vault stores value, except that is globally accessible, trans-national, immune from censorship, seizure and control, is orders of magnitude more convenient and fast, and in many ways much more secure? Throughout history, new technology that is more efficient and effective than old ways of doing things always confers great advantages to those who adopt it.
A simple way to value cryptocurrencies is the same way that gold and other stores of value are valued — by how much people are willing to pay for them. They are used in a similar way as precious metals, to store value. Only it does it in a much better way, and can do other things too.
What differentiates Bitcoin? It is a trustless system, which means that you can use it to transact with anyone else in the world without trusting them, or any third parties. You don't need to trust the sender or receiver of money, not the network infrastructure, not the validators of transactions — you independently, without appeal to any third party or trusted authority, verify and validate the integrity of transactions yourself. You do that using applied cryptography and distributed computing technology. These technologies are available to everyone via a peer-to-peer network of trust, trust that is achieved not through faith in authorities or other people who are amenable to corruption, but through faith in mathematics, in the form of cryptography.
The Bitcoin software was not created by any one person or company, and is not controlled or provided by any one person or company. It is open source software, meaning that the code that makes up the software was written by a global community of cryptographers, computer scientists, and hobbyists. It is freely available to anyone to inspect, download, modify, and contribute to. The source code is right here. It runs on thousands, maybe even millions, of computers world-wide that communicate with each other peer-to-peer — it is decentralized, and getting more decentralized as development continues.
Open blockchains like Bitcoin are borderless, transnational, and neutral. Neutral in the sense that it does not serve the goals or agenda of any one person, organization, institute, nation state, or any other entity. Transactions are either valid, or they are invalid, based on the rules of the consensus algorithm built into the distributed network software. It is radically neutral. This is the first time in history that money has been liberated from political power, and it is empowering everyone who chooses to use it over the King's money.
Many people who have mastered the old-world of finance, like Warren Buffet, have little interest in new ways of doing things. The plutocracy has served them well. They will bemoan change. They will resist even taking the time to learn about it, and will say things to disparage any suggestion that things could be different. They may not even be able to conceive that things could be different. In the end, that won't matter — technological progress will continue, and adopters of new technologies will have a big advantage over those who stagnate.
For those who are curious, I leave you with this educational video about the new money, by one of the foremost experts on the subject and all-around excellent human being, Andreas Antonopoulos:
How I see it, either:
1.) He is not as knowledgeable in fundamental analysis, as it seems, and more especially when it comes to cryptocurrency.
OR
2.) He knows exactly what he's doing, and there's a conspiracy to destroy cryptocurrency.
As I observe his actions, colleagues, and political history, I tend to lean toward the second explanation..
That's my take on it. Thanks for sharing.
— NP
Thanks for your comment!
By definition, fundamental analysis is something that is applied to assets that are derived from corporate or national entities. It is those underlying entities which are analyzed, not the derivatives/securities themselves, which are just paper representations of underlying legal fictions like corporations. Since open, decentralized cryptocurrencies are not derived in this way, being decentralized and ownerless, they are by definition not amenable to this form of analysis.
Buffett dont need to no anything about tech or blockchain to know with almost certainty that cryptocurrencies will come to a bad ending. for the simple fact they have gone up to fast. buffett is too old too wise and to clever to be dismissed as some old Dinosaur who dont get blockchain. you can talk about dotcom that he not understand that and missed out but look at the companies that survived probably only 2% and the ones that did survive im pretty sure still lost 90% of there value and took years to recover
Yes, there was a dotcom bubble, and now here we are typing messages to each other on the Internet. (Not only that, but on a distributed platform on the Internet!) The dotcom bubble marked the birth of a new technology, and there were a lot of companies that went bust in the frenzy. But those who survived and thrived continue to change the ways that we live today.
With Bitcoin and other distributed networks, we are witnessing the emergence of another technological leap forward. From what I have seen, Buffet and economists like Krugman fail to see it as a technology with potential, instead using the current paradigm to evaluate it as a static thing, assuming that the world will never change. They were wrong then, and they are wrong again now.
Amazon's IPO initial public offering took place on May 1997 at a price of $18 per share, rising to more than $100 and subsequently dropping to less than $10 after the bubble burst. Your right blockchain is a technological leap forward and buffet is no tech expert hes never claimed to be but blockchain is not a magical source of wealth creation either And when hes says it will come to a bad ending he means people will lose a hell of a lot of money. That does not mean blockchain will fail it just means it has been misunderstood and abused by the market.
Anythink can be turned into a bubble when it is miss used Crypto does not escape this