This article summarizes a recent debate on the Intelligence2 web site. The motion was: 'Bitcoin is more than a bubble and here to stay.' Arguing for the motion were Patrick Byrne and Tim Draper. Arguing against the motion were Eric Posner and Gillian Tett.
Introduction
Image Source: pixabay.com; License: CC0, Public Domain
Image Source: pixabay.com; License: CC0, Public DomainI have been a fan of the Intelligence Squared web site for somewhere around a year now. Their respectful and mannerly debates on a variety of topics are very refreshing in a world that's otherwise filled with mud-slinging. I am especially impressed with the way that their moderator, John Donvan, is able to understand the nuance of the debate issues and to keep the debate lively, but on topic.
On April 21, they held a debate on the long term viability of Bitcoin. I thought it was an especially interesting debate, so I thought I would post some highlights here for the Steem audience. Specifically, the motion under debate was, Bitcoin is more than a bubble and here to stay. The team arguing in favor of the motion included Patrick Byrne and Tim Draper. The team arguing against the motion was comprised of Eric Posner and Gillian Tett.
Like all of their debates, this debate begins with an opening poll so that they can get a baseline for the audience, and then proceeds through three sections. The first section is the opening statements, where each panelist gets to make a statement. Second is a period of time that is dedicated to discussion among the panelists and moderator as well as questions from the audience. And the third section is the closing statements, where each panelist gives a closing summation. Finally, after the debate has concluded, the audience votes again. The winning side is determined by the change in votes between the beginning and the end of the debates.
In the remainder of this article, I will include the following information, modeled after the structure of the debate itself:
- The panelists
- Summary of opening statements
- Discussion recap
- Summary of closing statements
- Conclusion
Or, if you prefer, you can read the transcript or watch the full debate on youtube.
The debate was hosted by the Adam Smith Society.
Section 1: The panelists
Image Source: pixabay.com; License: CC0, Public Domain
Image Source: pixabay.com; License: CC0, Public DomainArguing for the motion were Patrick Byrne and Tim Draper. Patrick Byrne is the CEO and founder of both Overstock.com and tZERO. As many on this site will know, he has been involved in setting up investment mechanisms that bypass Wall Street, and use block chain instead. Tim Draper was an early investor in Skype, Hotmail, and Tesla, and he also runs Draper University.
Arguing against the motion were Eric Posner and Gillian Tett. Posner is a law professor at the University of Chicago, a legal scholar, and the author of the book, Radical Markets. Tett is a journalist and author, and is currently the U.S. Managing Editor for the Financial Times.
Section 2: Summary of Opening Statements
As usual for these debates, the opening statements began with the "for" team, and alternated from team to team until all four panelists had spoken. In bullet format, here are the highlights that I captured:
Draper
- History of currency: shells -> gold -> promise of gold -> FRN -> Bitcoin
- Point 1: No trusted 3rd parties required for bitcoin (3rd party is a massive computer network which provides an objective standard)
- Point 2: Countries overprint and destroy national currencies. This cannot be done with bitcoin.
- Point 3: So-called "bubbles" outlive the burst, i.e. the dotcom bubble burst, but the Internet still exists
- Point 4: Bitcoin can disrupt many industries - banking, insurance, real estate, government
Image Source: pixabay.com; License: CC0, Public Domain
Image Source: pixabay.com; License: CC0, Public DomainPosner
- Point 1: Bubbles exist. i.e. South Sea Bubble (1711), Real Estate Bubble (2008)
- Point 2: Investor overconfidence causes bubbles.
- Point 3: pseudonymous transactions are most attractive to criminals, don't appeal to mainstream users.
- Point 4: Fixed money supply impairs necessary flexibility (deflation/hording)
- Point 5: Decentralization is false: Bitcoin is controlled by unknown miners, and possibly foreign governments
Byrne
- Intro: Problem of trust, solved by violence/monopoly (government) for thousands of years.
- Now can be solved by consensual exchange between strangers.
- Point 1: Like markets outperformed USSR central price controls, BTC markets will outperform central bank controlled interest rates.
(price = information about value and scarcity. BTC makes it possible to communicate that information about the currency, itself. Bankers can't buy or bribe the laws of mathematics.)
Tett
- Properties of money: Many things can be used as currency; fiat money has problems; fiat problems are nothing when compared to BTC
- Point 1: BTC is poor medium of exchange. 7 transactions per second. Not many merchants accept it.
- Point 2: BTC is poor store of value. It is backed only by trust in computers/wisdom of crowd. High volatility. Infinite supply of competing cryptocurrencies.
- Point 3: All problems of fiat currency can be solved w/ gold. No need for new technology.
- Point 4: Massive energy requirement for BTC network.
Section 3: Discussion recap
Image Source: pixabay.com; License: CC0, Public Domain
Image Source: pixabay.com; License: CC0, Public DomainIn this section, discussion often flowed freely among the teams and moderator. The discussion was guided by moderator questions at the beginning, and later by audience questions. Several of the questions came from reporters with organizations like Yahoo Finance or CNBC. Here are the highlights that I caught (paraphrased):
Q1 - Moderator: Discuss the mathematics
Byrne: cryptography is basically unhackable. If it is hacked, governments and banks can also be hacked.
Tett: Computers get hacked all the time.
Byrne: BTC has been attacked more than anything in history, hasn't failed. Cash can also be used for "illicit" transactions.
Draper: Banks also rely on computers.
Tett: Banks can guaranty/insure accounts. Computers can't. Central bank backstops the computer.
Draper: Central bank makes it worse, not better.
Tett: Checks & balances are needed. BTC, 100% dependency on computers. There are no checks and balances.
Q2 - Moderator: What is fiat currency?
Posner: Currency that's created by government or central bank. It's generally "pretty good".
Draper: Are we satisfied by "pretty good"?
Posner: BTC is not just controlled by computers. Also controlled by developers and miners.
Byrne: Open source collaboration is transparent, more trustworthy than secret meetings and back room dealing.
Posner: 51% of miners is the "fed of bitcoin"
Draper: anyone can start mining. 51% is very difficult to accomplish. Criminals should use fiat because the blockchain is transparent and permanent.
Q3 - Moderator to "against" team - deal with criminality
Posner: 25% of bitcoin users are criminals, money laundering $100 billion per year - most of which is bitcoin.
Posner: Ordinary people can be tracked down, but smarter people succeed at crime.
Tett: People aren't buying it because they think it'll be useful for criminality. They're buying it for growth, or for use as a "mainstream currency." No reason to think that it will be more useful than alternatives.
Byrne: Venezuela and Greece prove the use case.
Tett: In a war zone, you want gold or jewels, not cryptocurrency.
Byrne: BTC has all advantages of gold, but you can send it across the globe.
Posner: So economy will collapse enough to disrupt fiat, but leave miners functioning. (Goldilocks collapse)
Tett: You can buy international currencies if you don't trust any particular central bank.
Draper: People are fleeing China for Japan, where BTC is a legal currency. All of the world's best engineers are working on BTC, not dollars.
Draper: In five years, people will laugh at you for buying coffee with fiat. (moderator, let's come back and test that)
Editor's Note: I want to elaborate here on Posner's point that I termed for myself as a "Goldilocks collapse," because it was really a context sensitive point. He was, I think, saying that the doomsday scenario for bitcoin to replace fiat requires us to assume that fiat currency is printed into oblivion and governments are powerless, but the Internet and bitcoin miners are just humming along smoothly. I thought this was one of the most persuasive arguments by the "against" team. I patterned the term "Goldilocks Collapse" to describe the concept to myself after the "Goldilocks Zones" where astronomers believe that habitable planets can be found.
Q4 - Moderator to "against" team - deal with liberation argument
Posner - Periodic financial crises happen. Governments know how to deal with them. BTC won't let them.
Byrne - Fractional reserve banking causes crises. BTC won't allow it. 1907 crisis was solved by private actors.
Byrne - FED caused great depression.
Draper - FED failed to solve 2008 crisis.
Draper - BTC is not volatile, one BTC == one BTC. Fiat currencies float against BTC.
Byrne - Get out of the "fiat bubble".
Tett - Only thing as volatile as BTC is VIXX.
Q5 - Moderator to "for" team - is it dangerous for "regular people."
Draper - It's an alternative. Should be part of a diversified portfolio.
Byrne - It is risky, maybe 5% of assets should be in cryptocurrency.
Draper - Predicted BTC = 10k 3 years ago, now predicts 250k by 2022.
Q6 - Moderator to "against" team - respond to claim that you lack vision.
Tett - The internet survived the dotcom bubble, but pets.com is gone.
Tett - BTC is the pets.com of the blockchain revolution.
Draper - The value of BTC is tied to the network (Metcalfe's law). Biggest network = biggest value, by far. BTC will absorb new technologies, brief lightning network reference.
Q7 - Audience - Is it better for individuals to be entirely responsible for their own security?
Byrne - Companies will have to offer security as a service in a competitive market.
Byrne - The shift from legacy to crypto has to be incremental.
Q8 - Audience to "for" team - Did you lose the debate by admitting that your portfolio should only be 1-5% BTC?
Draper - Over time, ownership should increase. There will be a time when you don't need fiat currencies.
Posner - agrees that they lost the debate by conceding that point (joking). A currency needs to be used by everyone.
Byrne - Humility. I might be wrong, but I don't think I am.
Q9 - Audience to "for" team - Are regulators keeping up? Is there a risk of the asset class going abroad.
Byrne - Regulators have hands-off attitude to keep it from moving to China. Blockchain is in China's 5 year plan.
Draper - Regulators are skeptical and cracking down on bitcoin. Regulators would destroy it if it became a currency.
Byrne - Then it would be too late to stop it.
Tett - China is already clamping down on BTC. Don't confuse block chain and bitcoin. Block chain is useful. Bitcoin is myspace of the cryptocurrency world.
Draper - Estonia: saving huge money on digital signatures, digital voting, digital identity lowered crime, virtual residency card. Governments must compete across borders for virtual constituents.
Tett - Russians hacked into Estonia's computers. No checks & balances.
Editor's Note: If you don't listen to the whole debate, it's worth listening to Draper's comments on Estonia for about a minute and a half starting at 1:09:58 in the youtube video.
Q10 - Audience to "for" team - What does a financial crisis look like under BTC regime? How do you balance virtual and terrestrial governance?
Byrne - Austrian economics. Crises don't happen when government distortions go away. Fed/government causes booms and busts.
Posner - Wrong. Booms and busts are caused by bad lending.
Tett - Booms and busts go back to Mesopotamia, hence the phrase "wiping the slate clean."
Draper - Governments that are forced to compete will do better than monopoly governments. 51% of GDP in US is government spending, and we're stuck with it because there is no competition.
Q11 - Moderator to "for" team - what do you mean by governments competing for constituents?
Draper - Companies must compete for customers. Historically, governments don't feel that way.
Draper - After block chain, they will. Other governments will offer better health care, pension, etc...
Posner - Bitcoin won't change government's ability to raise taxes.
Tett - Buy gold & wide basket of currencies to hedge your bets.
Q12 - Audience to "for" team - Do you envision a future where you price products in BTC.
Byrne - Yes, as currencies collapse, they'll be replaced by BTC. May eventually spread to US.
Draper - Pricing in BTC already exists, for example a KFC in Canada and a mansion for sale that is priced in BTC.
Q13 - Audience to "for" team - BTC dominance down from 80% to 33%, why do you think it will maintain its lead?
Byrne - Unique, foundational placement, BTC is too slow, but side chains will all be stamped on BTC chain.
Tett - Leaps of faith for BTC to succeed are bigger than those for legacy platforms.
Byrne - BTC is transparent, not leap of faith.
Posner - Fatal flaw of bitcoin is energy use. If BTC succeeds, energy will be prohibitively expensive.
Byrne - As problems arise, BTC evolves solutions, including chain forks.
Q14 - Audience to "for" team - Do you see coeexistence of cryptocurrency + fiat or crypocurrency replacing fiat?
Draper - coexistence, but bitcoin is better.
Tett - Bitcoin will be like traveler's checks. Niche/sideshow
Section 4: Summary of closing statements
Image Source: pixabay.com; License: CC0, Public Domain
Image Source: pixabay.com; License: CC0, Public DomainAgain in bullet format, here are the key points I took away from the panelists' closing statements. As with opening statements, the team arguing in support of the motion went first, and the teams alternated until all panelists were done.
I included Draper's closing statement just about in full, because the quotes he used were really powerful.
Draper:
Draper's closing statement consisted almost entirely of quotes, and concluded by saying, "Don't be like them."
- "A rocket will never be able to leave the Earth's atmosphere", NY Times 1936
- "When the Paris exhibition of 1878 closes, electric light will close with it, and no more will be heard of it.", Oxford Professor, Erasmus Wilson
- "It'll be gone by June", Variety Magazine on Rock 'n Roll, 1955
- "The world's potential for copying machines is 5,000 at most.", IBM declining to buy Xerox.
- "The wireless music box has no imaginable commercial value. Who would pay for a message sent to no one in particular", associates of David Sarnoff, responding to call for investment in radio in 1921.
- "There's no reason for any individual to have a computer in his home.", Ken Olsen, President of Digital Equipment Corp.
- "Television won't last because people will soon get tired of staring at a plywood box every night", 20th Century Fox, Darryl Zanuck in 1946
- "The horse is here to stay, but the automobile is only a novelty, a fad.", President of Michigan Savings Bank advising Henry Ford's lawyer.
- "X-Rays will prove to be a hoax", 1883
- "I think there is a world market for maybe 5 computers"
- "This telephone has too many shortcomings to be considered as a means of communication."
- "Anything that can be invented has been invented.", Charles Duell, head of patent office in 1899
Posner
- Bitcoin transactions take 10 minutes or days, credit card transactions take seconds.
- BTC acceptance is virtually 0 and shrinking
- Merchants don't take bitcoin because its value fluctuates too much.
- Bitcoin is basically only good for illegal transactions
- Transaction fees can be high
- Governments will crack down on it.
Byrne
- Paul Volker, "The last financial innovation that actually added any value to society was the ATM machine."
- Bitcoin adds value
- Financial crises were brought about by fractional reserve banking and central banking, bitcoin protects against those.
- Keynes' "bezzle". If you could freeze time and ask everyone about what they thought they owned and compare it against what they actually own, there would be some missing value. That value has been embezzled. BTC makes this graft impossible.
- There will be less illegality. Criminals use cash, too.
Tett
- Dollars from Volker's ATM are real and backed by government. BTC is backed by flawed/hack-prone computers.
- No one knows who Satoshi is.
- BTC is a first mover. First movers never win the technology sector.
- Bet on Volker w/ real assets vs. Satoshi's phantomware.
Conclusion
In the end, according to the audience voting, the team arguing against the motion won. It was interesting that they accomplished this by making two different and incompatible arguments. Argument 1 was basically that there's no need for cryptocurrencies because existing products already do the job. Argument 2 was that Bitcoin is a first-mover in the blockchain space, and it will eventually be replaced by a competing platform that does the job better.
It's impossible to know, but my impression is that argument #2 is the one that did it for them. Byrne made a weak attempt to fend off that argument when he brought up bitcoin forks and implied that if a bitcoin fork survives, it's still bitcoin. For the most part, I thought that the "For" team did very little to defend against the claim that Bitcoin is the pets.com or myspace of the blockchain revolution.
Next up, I'm looking forward to Trigger Warning: Safe Spaces Are Dangerous, which will be held live in Banff, Canada at 9:30 PM US/Eastern time on June 23, and posted on their web site either at that time or shortly afterwards.
Thank you for your time and attention.
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Steve Palmer is an IT professional with three decades of professional experience in data communications and information systems. He holds a bachelor's degree in mathematics, a master's degree in computer science, and a master's degree in information systems and technology management. He has been awarded 3 US patents.
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