Why you shouldn’t trust expert predictions on Bitcoin

Two of the world’s most famous and admired investors, Warren Buffett and Charlie Munger of Berkshire Hathaway, have been particularly scathing of Bitcoin. In 2018 Buffett described Bitcoin as “rat poison squared” while Buffett’s business partner Charlie Munger went even further, famously comparing Bitcoin to trading “freshly harvested baby brains.” In 2014, a century ago in crypto years, Jamie Dimon, the CEO of JP Morgan stated “The question isn’t whether the bank accepts Bitcoin, the question is do we even participate with people who facilitate Bitcoin?”

Could they be right? They well could be. While it is too soon to know who will be proven right, history shows that expert predictions on new technological innovations are often wide of the mark.

Chris Dixon, general partner at the venture capital firm Andreessen Horowitz, wrote in 2010 that “the reason big new things sneak by incumbents is that the next big thing always starts out being dismissed as a toy.”

Dixon’s essay is worth reading, and it is as relevant today as it was ten years ago. His thesis builds on Clay Christensen’s “disruptive technology” theory, the idea being that technologies tend to get better at a faster rate than users’ needs increase.

Dixon says that disruptive technologies are often first dismissed as toys because they undershoot user needs when they launch. There are many examples of this. The first telephones could only carry voices a mile or two. Western Union, the leading telco of the time, passed on acquiring the phone because they didn’t see how it could be useful. What they failed to anticipate was how rapidly telephone technology and infrastructure would improve due to network effects. Dixon says “the same was true of how mainframe companies viewed the PC (microcomputer), and how modern telecom companies viewed Skype.”

From this perspective, many early criticisms of Bitcoin may fall into a similar category. As the network effects of Bitcoin increase, its adoption speeds up. Networks are different to other types of technology – a connected set of devices becomes a network and networks grow according to this exponential curve. Metcalfe’s law states that the effect of a telecommunications network is proportional to the square of the number of connected users of the system (n²).

Industry incumbents can be especially blind to innovative new technologies if they are financially incentivised to protect the status quo.

It can take society time to see that what we thought we understood about the world and the near future was completely wrong. Many famous scholars once believed that the Earth was flat. Some misguided souls are still not convinced. The same must be true today. Many “expert opinions” on subjects including Bitcoin, global warming, the economy, and how to respond to a global pandemic – are just flat out wrong.

However, it can take years for new science and research to reveal the truth. There are many cases in history where it has taken science time to reveal the truth, and even longer for society to accept it. Even when it appears that all the research is available, it isn’t until much later that we see how little we knew.

Here are 10 examples of experts, commentators, presidents, and industry incumbents making a bold prediction that was dead wrong.

1) "The horse is here to stay but the automobile is only a novelty – a fad.” – President of the Michigan Savings Bank

2) “Who the hell wants to hear actors talk?" – H. M. Warner, Warner Brothers, 1927

3) "This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication." – Western Union internal memo, 1876

4) “Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia. – Dr. Dionysys Larder, science writer and academic, 1828

5) "Remote shopping, while entirely feasible, will flop" – Time Magazine, 1966

6) “X-rays will prove to be a hoax”– Lord Kelvin, President of the Royal Society, 1883.

7) " I think there is a world market for maybe five computers." – Thomas Watson, Chairman of IBM, 1943

8) "Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night." – Darryl F. Zanuck, head of 20th Century-Fox, 1946

9) “The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’ — which states that the number of potential connections in a network is proportional to the square of the number of participants — becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the internet’s impact on the economy has been no greater than the fax machine.” Paul Krugman, Nobel Prize winning economist, 1998

10) “15 cases is going to go down to close to zero. When you have 15 people — and the 15 within a couple of days is going to be down to close to zero — that’s a pretty good job we’ve done.” Donald Trump, President of the United States, February 26, 2020

The purpose of this post is to encourage you to seek out information for yourself and not allow your opinions to be formed solely based on the opinions of others. This goes for experts who oppose a particular view and those who support it.

Before you make your opinion on a potentially disruptive new technology, take some time to learn about the possible implications, both negative and positive. Read opinions from those who support it and those who oppose it. And ask yourself, what are the motivations a particular commentator might have? Are they biased because their industry and income will be affected by a new technology? What impact would have on their current business model?

In 2014 at the Institute of International Finance annual meeting, JPMorgan Chase Chairman and CEO Jamie Dimon said that “Bitcoin developers are going to try and eat our lunch. And that’s fine. That’s called competition, and we’ll be competing.”

It’s possible that some Bitcoin skeptics are simply biased against Bitcoin because it represents a threat to the existing status quo. That was true in 2014 and it remains true today. By 2030 we should have a clearer idea on whether Bitcoin is a failed experiment of little value, or a global store of value with a network that protects trillions of dollars. Have you placed your bet?

Brett Stapper is a tech entrepreneur. He is the founder of https://www.frontlines.io/