Warren Buffett Predicts 'Bad Ending' for Cryptocurrencies - Slashdot

Warren Buffett Predicts 'Bad Ending' for Cryptocurrencies - Slashdot:

https://news.slashdot.org/story/18/01/14/0317246/warren-buffett-predicts-bad-ending-for-cryptocurrencies?sbsrc=md



"In other words, stall out the economy.

You want to know why every country moved away from the gold standard? Because it turns out, your economy is limited by how much gold you can find. Find no gold? Well, you economy will stagnate (not a good thing). Find a ton of gold? Well, your economy booms (again, not a good thing).

Say you were paid 1 oz of gold a month for your work. Well, what happens if the company can't get you 1oz of gold? Let's say they can get half an ounce. So you work half the month. But you still have to pay for all your stuff - do you buy half a month's worth of food and starve half a month? Or do you have to search for short term work to make up the missing half an ounce? Perhaps next month, they have an ounce and a half, and let you work 50% more to get it - do you? This uncertainty is what screws up economies.

Going from boom to bust dependent on how much you can mine turns out to destabilize economies. That's why every economy floats their currency (i.e., fiat). Economies in the past were fine - there was lots of gold easily available, and thus the economic output of a country wasn't really limited.

Bitcoin with its fixed supply seems like a great idea, but you then realize it's a static economy. It cannot grow. And economies need to grow. If you have a baby, you need money to pay for its needs. But in a static economy, you can't - you're stuck with what you're earning. You cannot earn more because the economy cannot support your added output - i.e., you work more, and are thus paid less per unit to keep your income the same, keeping the economy static.

As people join the economy (after all, there are people who don't use bitcoin), demand for bitcoins go up, creating an even worse situation - a deflationary one, where a bitcoin today is worth more tomorrow because more people want it. Or, put another way, you can put 8 hours of work today for me, but I won't ask you do that, because tomorrow, it will cost me less bitcoin for those same 8 hours because they're worth more. Deflationary economies can lead to complete economic stall - if you're getting richer by the day, why would you buy today what is cheaper tomorrow? (This is partly the reason why the Great Depression was as long and as hard as it was - yes, being on gold also hurts).

So inflation it is. But not too much - you destabilize the economy if there's too much - what was affordable today, is out of reach tomorrow (see hyperinflaction). You want to add just enough to match growth in the economy. In a trading world, you can benefit as well - print a bit more cash and devalue your currency making your country cheaper to buy from, hopefully increasing economic output (people are buying your stuff!), but don't grow too fast because then your currency goes up and people stop buying.

Bitcoin is like Wikipedia. Both are experiments that have or are going to show what everyone already knows, just taught to the next generation who always never sees history repeat itself. (Wikipedia is a great example of communism as government, and the whole "every animal is equal, but some are more equal than others" conclusion of Animal Farm).

The only good news is that Bitcoin is at least unlikely to affect the economy too badly, so it's only those heavily leveraged on it will suffer. So unlike the lessons we all had to learn during the Great Depression about economic growth, the actual scope of losses will likely just be a blip."



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