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Saturday, October 28, 2017

How Warren Buffett Is Dead Wrong On Bitcoin

The Oracle of Omaha, legendary investor Warren Buffett, recently said about bitcoin:

"You can't value bitcoin because it's not a value-producing asset."

Buffett is undervaluing, or entirely discounting, the value of information which has been passed on, or verified, by an algorithmic-based consensus reached among users as to items or events listed in a public ledger in a decentralized network.

The value of verified information, or data, should be increasingly apparent to followers of current events who have become increasingly accustomed to "fake news" or other, more subtle forms of data degradation. 

The utility of the best data is apparent to market participants in virtually every industry, in virtually every marketplace whether an international, borderless marketplace or a local or regional market.

The value of that data is demonstrated time and time again, because the savviest market players compete to get that information first before their competitors. 

The savviest market players. Men and women, like Warren Buffett.

Buffett may be making the mistake many casual observers have committed, in viewing bitcoin and other "cryptocurrency" protocols solely as media for exchange and for commerce.   

That outlook would tend to focus on the protocol's utility and convenience for clearing transactions, and the most common application would be to verify transactions the same way as credit card transactions are cleared. Bitcoin and other protocols have yet to solve the transaction processing bottleneck problem while preserving the framework for data integrity. 

If that is indeed the impetus for Buffett's remarks, he would not be entirely wrong in that regard. However, he appears to sharply understate and underappreciate the value of correct, verified data. 

When the protocol governing bitcoin is numerically limited such that scarcity is the primary driver of the larger value of data integrity, the ability to verify your data becomes subject to the limited supply of the bitcoin. The growth in an information-driven world economy may outlive Buffett, but the trends should already be apparent to most observers. 

1 comment:

  1. I disagree that Buffett is "dead wrong" but will say he is mistaken. There is value to bitcoin, but I agree with Buffett to the extent that it the value is extremely hard to ascertain. Buffett likes to invest in companies and assets he understands and can predict the future of. Bitcoin is neither.