Monetary Technological Disruption
As an investor, I have always been fascinated by the prospect of either finding an asset worth $1 today that I could buy for 50 cents (“value” investing) or an asset worth $1 today that had a reasonable shot of being worth $10 years in the future (“growth” investing). Most of my professional experience involved investing in assets that generated cash flows and had what Benjamin Graham and David Dodd, the fathers of value investing, called “intrinsic value.”³ And I have done well at this kind of value investing. But despite my success, I had a lot to learn.
A college degree in Economics, two professional financial certifications (CFA and CFP), and a decade and a half of professional investment, asset allocation, and financial advisory experience provided me with a rich set of tools and experiences with which to understand the financial world. Yet it left me without the most fundamental understanding of money. I need to underscore this. I managed to spend tens of thousands of hours of my life working directly with money without gaining an understanding of its core underlying fundamentals. If the core fundamentals of money eluded a financial professional like me for so long, I can have some confidence that they have likewise eluded others, probably including you.
Like a financial professional today who doesn’t really understand money, I suppose that a horse breeder in the nineteenth century didn’t understand the underlying physical mechanics and engineering that made horses an effective source of locomotive power to passenger- and package-carrying buggies. Such a lack of understanding would not have prevented the horse breeder from making a respectable living—until the arrival of the automobile revolution, which decimated the demand for horses and therefore his livelihood.⁴ History is full of examples of new technologies disrupting existing industries and creating new winners at the expense of the losers. It is also full of examples of those who don’t understand the vast potential of these new technologies.
In 1998, almost a century after the automobile came into use, economist Paul Krugman wrote in the popular Internet bubble-era magazine The Red Herring that “by 2005 or so it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”⁵ A decade later Krugman won the Nobel Prize in economics. But another decade after that, his Internet prognostication now ranks as one of the most ridiculous predictions in modern economic history. Like other skeptics of the era, Krugman evidently didn’t anticipate companies like Alibaba, Amazon, Apple, Facebook, Google, Netflix, Tencent, and others. These Internet-native companies have had a gargantuan effect on the global economy and created trillions of dollars of stock market capitalization, while dramatically impacting civil society. And they have had a huge effect on the magazine and newspaper industry, which Krugman, who writes a regular newspaper column, would undoubtedly be the first to admit. Like Krugman, many newspaper publishers didn’t imagine how the Internet would divert readers’ attention to other news platforms, take away their classified ads business, gut their newsrooms, and eviscerate their profits.
The example of what happened to the traditional press industry is particularly salient to Bitcoin because, like the websites and attention aggregators that crippled the newspapers, Bitcoin is native to the Internet. Internet-based disruptions tend to happen rapidly—much more rapidly than when the car disrupted the horse a century ago. Helping people avoid the surprising level of disruption that could be caused by the arrival of a new technology for money is one thing that motivated me to write this book.
Another motivation is the financial opportunity that investing in this new technology could bring. Avoiding being on the losing side of a new monetary technology is reason enough to attempt to understand the underlying fundamentals of money and the potential threat posed by a new and better form of money. But if avoiding the losing side is interesting, so is joining the winning side. At minimum, it may make sense for some people to “hedge their bets” by gaining a modest amount of positive exposure to this potential disruption. Beyond that, I believe that Bitcoin has the potential to undo some of the massively regressive effects of our current economic system and partially mitigate some of the wealth imbalances this system has created.