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« on: August 31, 2014, 12:58:31 pm »
Warren Buffet thinks Bitcoin and altcoins generally an 'illusion'.
What he makes of Bitcoin derivatives (such as Bitshares x) I do not know, but I can guess.
The problem has been accurately identified by the originator of this thread. When will Bitshares x (derivatives) be directly linked with the primary securities or assets they purport to relate to?
This is more important that one might imagine because otherwise, Bitshares x may be said to amount to little more than betting on the price of primary assets (betting whether they will move up or down without actually holding a stake in the primary assets one is betting upon), like a 19th century ghetto bucket shop (poor people would bet on whether stocks listed on the real stock market would rise or fall - that is to say, it was a purer form of gambling).
The conceptual problem for old school investors (like Warren Buffet) may be summarised as follows:
In his view, Cryptocurrencies are similar to Ponzi schemes. The first people to invest do very nicely, but people further down the line must necessarily lose all their money. If that were not so, the schemes would become mathematical impossibilities (requiring more investors than there are human beings on the planet).
His second main objection is that nothing of value can spring into existence from nowhere.
Thirdly, he would argue that Bitcoin derivatives such as Bitshares x are a more extreme example of the same lunacy, as they are not even directly linked to the mirage of crytocurrencies in the first place, much less linked to gold or silver or oil or indeed anything else of value.
At the heart of the Buffet objections lie two questions
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1. How can something of value materialise from the nothingness of mathematical abstraction (ex nihilo nihil fit...from nothing nothing comes... )?
2. How can Bitcoin derivatives such as bitshares x ever have underlying value if they are not directly linked to underlying assets with real world value?
Buffet is wrong in terms of his first objection. Fiat currencies and all of them essentially originate from nowhere.
After the first batch of notes are printed (not the most challenging of processes), quantitative easing brings more of the Fiat money supply into existence from that point on.
Governments today simply press a button on a computer keyboard to create more money. There is no underlying value.
Accordingly, there is no true distinction between cryptocurrencies and Fiat currencies in terms of provenance (that is, in terms of how they spring into existence).
The only real differences between them are that decentralised currencies cannot be controlled or expropriated by bankrupt governments (the Greek Government bank grab is perhaps the best example of a government simply announcing that they were taking bank customer' money, that it had been expropriated and there was no more to be said about it).
Cryptocurrencies are new, more volatile, more prone via exchanges and wallets to hacking (if proper precautions are not taken such as two factor authentication protection etc) but they are nonetheless orders of magnitude more efficient, more private, and so much safer in real terms (if you get your online security in order) than Fiat currencies.
Both spring into existence from nowhere, but crytocurrencies are in almost every sense better.
They arise from the perfection of mathematics (unlike Fiat currencies, which come into being because governments and opposition parties, all of which are ultimately sponsored and therefore controlled by competing business interests (whether they are Republicans or Democrats, Labour or Conservative) decide its time to print more money( normally because the money supply is running out, itself an inevitable consequence of interest and debt). Unattractive stuff that leads to bank bail outs (again, because political parties, whether they are in power or merely in opposition, are different from another only to the extent they represent different business interests - all else is a side show reflecting the inherent prejudices of their primary voting base- hence the bank bail outs were universally popular (with politicians).
Major Banks were in trouble. It did not really matter any more whether they had sponsored the Republicans or the Democrats or the Conservatives or Labour. Politicians from all parties for the most part acted in unison (to protect their sponsors).
If that is correct, bank bail outs were a political inevitability everywhere.
I will not exhaust myself explaining it further. The Buffet school are wrong if they challenge the idea that everything ultimately arises from nothing, most particularly money.
But the second objection of the Buffet school (concerning cryptocurrency derivatives) is entirely valid. Unless Bitshares x are linked directly or indirectly with underlying primary assets, cryptocurrency derivatives cannot work. I have every confidence that this can be acheived, in which event, DACs represent a disruptive new technology.
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