Charlie Munger, a man who is by many thought to be billionaire Warren Tapkast’s right-hand man, made a statement at a University of Michigan’s Ross Schoolgebouw of Business event. When asked what he thought of bitcoin, Munger replied that bitcoin is te a “crazy bubble”, and is a “bad idea”.
Does Munger have a point, or does he belong among the ranks of other misinformed classical banking naysayers like Jamie Dimon and Canap of America CEO Brian Moynihan? Read on spil wij unpack Munger’s argument.
During the university event, one of the attendees asked Munger for his thoughts on bitcoin, that is what triggered his vitriolic response. After comparing bitcoin to a plague, he noted that bitcoin is a trapje, luring people into lies of effortless wealth.
It would seem that Munger believes bitcoin and other cryptocurrencies to be something like a self-powered Ponzi scheme. Munger’s argument commences to fall speciaal when he starts making comments about comparing gold and bitcoin.
You know it is one thing to think gold has some marvelous store of value because man has no way of inventing more gold or getting it very lightly, so it has the advantage of rarity. Believe mij, man is capable of somehow creating more bitcoin. … They tell you there are rules and they can’t do it. Don’t believe them. When there is enough incentive, bad things will toebijten.
Let’s take this chic and see what’s truly going on te this statement. Very first, wij need to consider two separate things. Why is gold valuable, and why can’t wij “invent more”? Then, why can’t wij make more bitcoin? And if wij could, what would toebijten?
According to Munger, humans cannot create gold. This is where a part of gold’s value is derived from. It is deflationary, and it exists ter a finite amount and it has both aesthetic and industrial uses. This is a fair enough set of assumptions, but it is incomplete.
According to sources, humans can make gold. The problem is, wij can only make it a few atoms at a time, and at a far higher cost than mining. For the sake of argument, let’s imagine that a machine is exposed tomorrow that can transmute metal into gold. What would this do to the value of gold? Most likely very little, te the long term.
To understand why, wij need to consider another precious, natural material that is still very valued today, but can be produced te a laboratory: diamonds.
Te 1954, Howard Tracy Hall created a reliable and reproducible process by which diamonds could be created. Today, thesis artificial diamonds are used all across the world for numerous industrial applications.
But why are natural diamonds, the kinds used te jewelry, still worth a fortune? Te fact, diamonds today are worth inbetween Trio and 25 thousand dollars vanaf carat. The reason behind this is ordinary – diamonds are valuable for the same reason that a celebrities used sock is valuable, people care about where things come from. They care if its “original” or not.
Let’s imagine for a uur that wij don’t care about the absurdity of the idea of making fresh bitcoins, beyond the set amount that is mined with every block. If someone were somehow able to do this, the network would not view them spil legitimate. They would be the idiot’s gold of bitcoin and thus would have no value.
Experts can distingtuish lab-grown diamonds from natural ones, and the bitcoin network knows the difference inbetween a real and a fake bitcoin.
Today anyone can create a cryptocurrency. Ems of thousands or more already exist today day. More and more are created every minute. Many suggest technological advantages, use cases, or innovations far above and beyond bitcoin, and yet they are valued less.
Why? It’s the same reason why a lab-grown diamond is worth less than a natural one.
Charlie Munger is a brilliant investor – few would argue that point. But like many of his generation and background, he too lacks a fundamental understanding of how bitcoin works.