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I remember analysts and experts in 2004 sneering at the thought that Google might be worth $23 billion at the time of their IPO. The pundits and talking heads

I remember analysts and experts in 2004 sneering at the thought that Google might be worth $23 billion at the time of their IPO. The pundits and talking heads gravely warned that investors were crazy to pay 230 times the prior year's net income. They said Google was a "one-trick pony". They said Google could never grow into that insane valuation. It was a bubble, they said. Why didn't foolish speculators learn from the dot com crash, or from the Dutch tulip mania? Maybe today's wise men are right, and the cryptocurrency bubble will burst in a spectacular bonfire of hubris. Or maybe they aren't really wise. Maybe they only know what they know, and can't understand what's right in front of their faces, just like they couldn't understand what Google could become.

rtpg 9y ago
To that point, from the article: >“During the information technology bubble, we saw a rally in dot-com company shares. But at least at that time, there were people using Yahoo or (Japanese internet firm) Rakuten -- people were using their services,” he said. >“But this time, I see quite a lot of people doing crypto-currency businesses in my circle of friends. But I hardly know anyone in person who is trading crypto-currencies and I haven’t seen anyone using them in real life,” he said. Google is a real thing. The impression from a lot of people isn't that Bitcoin is "actually" worthless, but that it's not currently being used in society in a way that validates the high numbers we're seeing. Shorter thesis: Bitcoin right now is fueling Bitcoin startups, but not much else. Google was search.
- panarky 9y ago
  In 2004, analysts and pundits acknowledged that Google had some utility, but they had great certainty that Google's potential was far too small to justify the valuation. Today, almost everyone accepts that the blockchain is a disruptive and valuable innovation and that cryptocurrencies have some utility -- just far too little to justify the valuation. They could be right. It's just not obvious to me that the potential isn't there, and I question how they can be so certain.
  - rtpg 9y ago
    This might be more pedantic RE the comparison to Google, but there's a good subset of people who think that Bitcoin provides no value. I think there's a lot of interesting innovations in the space, but I can think of a lot of counterarguments to Bitcoin's "value". These are points I've heard... - distributed ledger: In practice, things that require ledgers also have a degree of trust between parties. They also usually are bound by contracts and laws. Enforcement power is necessary for ledgers to be useful - store of value: Many different securities exist with less volatility. Also I either store my value in exchanges I can't trust to stay solvent, or I am now hiding my BTC under my figurative couch and can't use it super easily. - Transaction mechanism: For small transactions, the mining fees are prohibitive and the speed's not great. For large transactions, banks work fine. Each transaction uses absurd amounts of energy I think the blockchain is interesting (smart contracts as a thin layer under "real" contracts), and can come up with theoretical use cases. But large-scale "real" usage needs to happen for a lot of these counter-arguments to become less compelling.
InclinedPlane 9y ago
Google is a company that earns revenue. It has a valuation that is based on the expected future revenue of the company. Bitcoin is not a company.
- colordrops 9y ago
  No, it's a bunch of companies, individuals, cash, and gold mixed together and borderless.
  - jmmcd 9y ago
    But when you buy a bitcoin, you don't own any of that.
    - colordrops 9y ago
      The point is it's more like the internet than like google. And people were naysaying the internet more than they were naysaying google.
graeme 9y ago
Warren buffet wrote a good piece about the expected value of buying ownership of a chunk of the us economy (i.e. shares) vs. buying gold. The former is normally a good investment, because it grows. Gold just sits there. It’s decent as a store of value compared to cash, but that’s about it. Google is a company. It had a high valuation because some people expected it to grow larger and earn future revenues. Bitcoin seems more like gold. What does it do? Why should it have more value tomorrow than today? The only reason I can come up with is that it has intrinsic scarcity, like gold, and can be a store of value. But this doesn’t seem very convincing - other people could make other blockchain based currencies. Can someone explain why bitcoin ought to be worth more money in te future?
- panarky 9y ago
  Pretty simple, really. 1) People are building business with cryptocurrencies 2) Bitcoin is the biggest, oldest, most conservative, and most reliable of the cryptocurrencies 3) Therefore, as crypto businesses grow, transaction volume increases, and more people need to hold and save in Bitcoin 4) More people holding and using it, with a supply that is capped, means the value per unit would tend to increase with growth Now maybe that growth is over-estimated, or already priced in, or speculative forces have over-shot the true value. Or maybe more people are finally waking up to the real potential, and it's actually under-valued right now. Hard for me to know. That's why it's curious that others have such great certainty.
  - graeme 9y ago
    Thanks, that’s the clearest explanation I’ve received of a plausible mechanism for bitcoin having any intrinsic value. I’m not convinced that justifies it’s value, but I’ll mull this theory over when bitcoin articles come up. Based on your theory, would it be fair to say the following: 1. Like gold, bitcoin won’t be a long run value producing asset. (Unlike stocks) 2. Like gold, bitcoin may settle on some value relative to non-bitcoin 3. People investing in bitcoin are betting it has not yet reached that value, and are thus hoping it will increase in price to a future equilibrium. Obviously gold fluctuates based on market conditions, but it has rough parameters of value. Are people assuming btc has some similar level of value and will rise to it?
thisisit 9y ago
To use your Google analogy, Google in 2004 might have looked like a "one trick pony" and people thought they were not worth $23 billion. In time Google came up with products like Android, Gmail, Chrome, Youtube etc. They moved away from their "one trick" of relying only on search engine ad revenues and serving ads on those platforms as well. Given that serving up ads is getting costlier if they relied solely on search ad revenues, no one knows what might have happened. So, on that note pray tell what kind of diversification is happening in bitcoin? People can't even let go of a simple change like the block size. There is so much infighting for it that any thing else looks impossible. Unlike what people, specially bitcoin supporters, think many believe blockchain has a future but not like this hype fueled boom. As the same guy noted in the end - "Sago noted that blockchain is a great technology and one day bitcoin could become a major means of settlement. “But that will be years away, possibly more than a decade -- so there’s no need to buy bitcoin now. Since no one knows when the bubble will burst, the best thing to do here is to stay away from it,” he said."

rtpg 9y ago

To that point, from the article: >“During the information technology bubble, we saw a rally in dot-com company shares. But at least at that time, there were people using Yahoo or (Japanese internet firm) Rakuten -- people were using their services,” he said. >“But this time, I see quite a lot of people doing crypto-currency businesses in my circle of friends. But I hardly know anyone in person who is trading crypto-currencies and I haven’t seen anyone using them in real life,” he said. Google is a real thing. The impression from a lot of people isn't that Bitcoin is "actually" worthless, but that it's not currently being used in society in a way that validates the high numbers we're seeing. Shorter thesis: Bitcoin right now is fueling Bitcoin startups, but not much else. Google was search.

panarky 9y ago
In 2004, analysts and pundits acknowledged that Google had some utility, but they had great certainty that Google's potential was far too small to justify the valuation. Today, almost everyone accepts that the blockchain is a disruptive and valuable innovation and that cryptocurrencies have some utility -- just far too little to justify the valuation. They could be right. It's just not obvious to me that the potential isn't there, and I question how they can be so certain.
- rtpg 9y ago
  This might be more pedantic RE the comparison to Google, but there's a good subset of people who think that Bitcoin provides no value. I think there's a lot of interesting innovations in the space, but I can think of a lot of counterarguments to Bitcoin's "value". These are points I've heard... - distributed ledger: In practice, things that require ledgers also have a degree of trust between parties. They also usually are bound by contracts and laws. Enforcement power is necessary for ledgers to be useful - store of value: Many different securities exist with less volatility. Also I either store my value in exchanges I can't trust to stay solvent, or I am now hiding my BTC under my figurative couch and can't use it super easily. - Transaction mechanism: For small transactions, the mining fees are prohibitive and the speed's not great. For large transactions, banks work fine. Each transaction uses absurd amounts of energy I think the blockchain is interesting (smart contracts as a thin layer under "real" contracts), and can come up with theoretical use cases. But large-scale "real" usage needs to happen for a lot of these counter-arguments to become less compelling.

InclinedPlane 9y ago

Google is a company that earns revenue. It has a valuation that is based on the expected future revenue of the company. Bitcoin is not a company.

colordrops 9y ago
No, it's a bunch of companies, individuals, cash, and gold mixed together and borderless.
- jmmcd 9y ago
  But when you buy a bitcoin, you don't own any of that.
  - colordrops 9y ago
    The point is it's more like the internet than like google. And people were naysaying the internet more than they were naysaying google.

graeme 9y ago

Warren buffet wrote a good piece about the expected value of buying ownership of a chunk of the us economy (i.e. shares) vs. buying gold. The former is normally a good investment, because it grows. Gold just sits there. It’s decent as a store of value compared to cash, but that’s about it. Google is a company. It had a high valuation because some people expected it to grow larger and earn future revenues. Bitcoin seems more like gold. What does it do? Why should it have more value tomorrow than today? The only reason I can come up with is that it has intrinsic scarcity, like gold, and can be a store of value. But this doesn’t seem very convincing - other people could make other blockchain based currencies. Can someone explain why bitcoin ought to be worth more money in te future?

panarky 9y ago
Pretty simple, really. 1) People are building business with cryptocurrencies 2) Bitcoin is the biggest, oldest, most conservative, and most reliable of the cryptocurrencies 3) Therefore, as crypto businesses grow, transaction volume increases, and more people need to hold and save in Bitcoin 4) More people holding and using it, with a supply that is capped, means the value per unit would tend to increase with growth Now maybe that growth is over-estimated, or already priced in, or speculative forces have over-shot the true value. Or maybe more people are finally waking up to the real potential, and it's actually under-valued right now. Hard for me to know. That's why it's curious that others have such great certainty.
- graeme 9y ago
  Thanks, that’s the clearest explanation I’ve received of a plausible mechanism for bitcoin having any intrinsic value. I’m not convinced that justifies it’s value, but I’ll mull this theory over when bitcoin articles come up. Based on your theory, would it be fair to say the following: 1. Like gold, bitcoin won’t be a long run value producing asset. (Unlike stocks) 2. Like gold, bitcoin may settle on some value relative to non-bitcoin 3. People investing in bitcoin are betting it has not yet reached that value, and are thus hoping it will increase in price to a future equilibrium. Obviously gold fluctuates based on market conditions, but it has rough parameters of value. Are people assuming btc has some similar level of value and will rise to it?

thisisit 9y ago

To use your Google analogy, Google in 2004 might have looked like a "one trick pony" and people thought they were not worth $23 billion. In time Google came up with products like Android, Gmail, Chrome, Youtube etc. They moved away from their "one trick" of relying only on search engine ad revenues and serving ads on those platforms as well. Given that serving up ads is getting costlier if they relied solely on search ad revenues, no one knows what might have happened. So, on that note pray tell what kind of diversification is happening in bitcoin? People can't even let go of a simple change like the block size. There is so much infighting for it that any thing else looks impossible. Unlike what people, specially bitcoin supporters, think many believe blockchain has a future but not like this hype fueled boom. As the same guy noted in the end - "Sago noted that blockchain is a great technology and one day bitcoin could become a major means of settlement. “But that will be years away, possibly more than a decade -- so there’s no need to buy bitcoin now. Since no one knows when the bubble will burst, the best thing to do here is to stay away from it,” he said."