When you buy a Bitcoin, you are helping to convert electricity to heat.
Add to this that the payout mechanics strongly incentivize pooled mining, even for people with powerful miners, and the "guarantees" get that much flimsier. A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power, and they've all been in the same room on multiple occasions. It's no different than the small handful of men who control the Fed / other major financial institutions in our fiat systems.
Bitcoin was an excellent thought experiment, but it's no wonder that Satoshi wants nothing to do with what it has become.
Also "A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power"
I think that's a bit hyperbolic. A small handful of men control where the hashing power currently is. However, that can change very quickly. If you don't like what a pool is trying to use your hashing power for, leave that pool.
Examples: copper, gold, land, art, wireless spectrum, currency.
There's a perfectly valid rationale to hold each of these assets, and none of them are "productive" by themselves.
Each of these has scarcity and utility. That's what matters.
Also, Buffet is the insider's insider. Banks work for him. He has exactly a 0.00000% chance of having his accounts frozen. The US Congress would hesitate to pick fights with his companies. When you have those kind of connections and power, you're not well placed to understand the benefits decentralized sources of authority provides.
What Buffet is missing is that bitcoin is an alternative to cash, and when lightning networks and side chains are widely deployed it will be very, very competitive with cash on most axes. Eventually (if hyperbitcoinization actually happens) even the variability will be less than any one national currency, since global demand and stabilizers will buffer it against any localized shock.
Everything about Bitcoin is new and untested and most institutional investors abhor anything they can't quantify. Bitcoin is a huge gamble, and people like Gates and Buffet don't gamble.
intercontinentalexchange has a value. visa has a value. etc.
The transactions are the value. The network has value.
If I add up all the times people buy something with bitcoin and sell something for bitcoin and compare that against the fees the would incur it's generated some kind of value. It's just dispersed to the people using it not a central company.
Is it a good way to buy and hold...of course not.
If you have a functioning company making something and sell it, your company is worth almost nothing. That's true.
But those people and assets are still useful to someone else. They have a value.
Bitcoin can't be consumed the way assets and labor can.
"The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.
Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B."
Source: http://www.berkshirehathaway.com/letters/2011ltr.pdf
Buffett thinks it's irrational to pay $1750 for one ounce of gold when he could own 22 shares of Exxon Mobil for the same price.
Let's assume he's correct. Since the value of Exxon Mobil should compound over the decades much faster than gold, it should be worth more today, right?
But markets are already discounting those future cash flows, isn't that already built in to the current market price of both Exxon Mobil and gold?
If the price of gold is irrationally high, then it's an irrationality that has lasted for centuries and will likely last centuries more.
Even Buffett isn't predicting that the "gold bubble" will burst, sending its price to zero, as everyone sells gold to buy Exxon Mobil.
So if he expects an asset will be valued irrationally high forever, is it really irrational buy it?
As an aside Buffett and others are very unfair to tulips. A tulip can produce many offspring tulips which can be sold for cash and currently account for about 10% of Hollands GDP. Many tulip bubble buyers may have done ok buying holding and sticking in compost. Try that with a bitcoin or a share of Berkshire.
How many businesses from Jesus's time are still here today?
The gold that was around 2000 years ago is still here.
"Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard “cash is king” in late 2008, just when cash should have been deployed rather than held. Similarly, we heard “cash is trash” in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.
My own preference – and you knew this was coming – is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test. Certain other companies – think of our regulated utilities, for example – fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.
Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.
Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest."
But what I can't get behind is his active and vocal bearishness. If he has a well-reasoned argument to make, then he should make it. If not, lay off.
I can’t imagine the frustration Warren Buffet feels when surrounded on all sides by digital snake oil peddlers.
If you read up on his comments on hold (someone copy-pasted it elsewhere in this thread), you will see that this is nothing more than his investment thesis. It seems to work well for him.
Statements like "rat poison squared" are not the same thing as disliking non-productive assets. I'm sure he doesn't think gold is going to $0. I want to hear why he thinks that Bitcoin is particularly destined for a price of zero. This is the analysis that he never gives us.
ending:
>It’s something where people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbours are getting rich and neither one of them understands. It will come to a bad ending. Charlie…
I see a lot of that.
This is not cut and dry as to whether it is a benefit or not. Many people, myself included, don't consider it a benefit. Not having control over your currency makes it that much harder to respond in times of recession. Greece was hit quite hard by the Great Recession, and one of the reasons why is because they didn't have control over their currency, and so they couldn't lower the value of it. The Euro was still valued high due to the use by Germany and France.
"Huge sums can be transferred globally at the speed of light with very low fees."
Currently that's not true of Bitcoin, either. Transactions are slow, and fees are not low.
"The electricity it takes to maintain it is nothing compared to the rest of the banking system."
Is it? It takes a crazy amount of power, for what seems to be something that only a small amount of people are using, with a very anemic transaction throughput.
Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster.
Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin.
Some people, not all people. And that's why I said that it unsure whether that's an actual value or not.
"Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster."
No, not really. Credit card transactions are far, far faster than a Bitcoin one. Bank transfers in Europe are quite fast, too.
"Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin."
You're gonna have to provide a citation for this.
Stop proving that Bitcoin enthusiasts don't understand economics.
Are you saying that the intrinsic value of gold is the price manufacturers of "useful" products from gold are willing to pay for it?
Scarcity relative to demand pushes up market prices (i.e. extrinsic value) but that's something entirely different...
Then what is the number? No, scarcity is an important attribute that contributes to perceived value, but it's not intrinsic. Otherwise any cryptocurrency that is scarce would have intrinsic value, as opposed to the many that are essentially 0.
> Most importantly it can't be created/destroyed at will by a central government.
Couldn't someone destroy/steal my BTC wallet though? I'd have no recourse for justice, right? Also, doesn't the Federal Reserve print money mostly at will?
> Huge sums can be transferred globally at the speed of light with very low fees.
I think the speed claim here is totally false[1].
> With normal currency a wire transfer costs money
Don't all BTC transactions have confirmation fees?
> and moving a lot of money from a bank account usually takes days.
This is true crypto currencies shine here. It can take 20 minutes to transfer $5 or $5,000,000.
> The electricity it takes to maintain it is nothing compared to the rest of the banking system.
Maybe, but also maybe not. The rest of the banking system provides lots of services and protections that crypto currencies don't.
> These properties are the very nature of crypto, that's why it's intrinsic.
These are properties of crypto currencies for sure, but that these are valuable properties is entirely subjective.
Also, unlike cash, you're making your transaction history public. Any central government in the world can see this. You have to jump through a lot of hoops and use multiple blockchains to anonymize your Bitcoins.
Transfers incur a network fee with Bitcoin as well. I doubt anyone making a small purchase wants to pay fees that might be a significant percentage of, or exceed, their purchase subtotal.
You cannot send Bitcoins "at the speed of light". On average, the Bitcoin network processes 7 transactions per second.