Obi Nwosu is the CEO and co-founder of Coinfloor, the UK's longest-running Bitcoin exchange. He has over 20 years’ experience building online marketplaces and bringing virtual currencies to tens of millions of people. Obi writes The Road to Bitcoin Hegemony, a weekly recap of some of the most impactful developments in Bitcoin.
Welcome to The Road to Bitcoin Hegemony, a weekly analysis of some the most interesting developments in Bitcoin and why they matter in Bitcoin's journey towards monetary dominance.
It’s a brave man who questions the wisdom of the seventh-richest person in the world, especially when it comes to investment advice. But if Warren Buffett thinks that breaking one of his own Golden Rules will pass unnoticed, then perhaps he has fallen a little too much in love with his own myth.
Only last May, Buffett was reassuring Berkshire Hathaway investors that the US would come out of the coronavirus crisis stronger than ever and that “in the end, the answer is: Never bet against America.”
As it turned out, “never” meant three months. With weeks of the summer still remaining, the Oracle of Omaha - famous for favouring US stocks over store of value-assets - has traded U.S. dollars for gold.
Buffett may argue that purchasing half a billion dollars-worth of shares in Barrick Gold is merely a continuation of his long-held stock strategy, as if it’s not really gold unless it’s piled up in your garage. But that would be stretching credulity: for Warren, this seems to be a case of “do as I say, not as I do”.
Although he may be insulated from the same Covid concerns as the rest of us, these are unprecedented times for Buffett. He’s a man who’s grown used to making the economic weather; now it looks more like he’s reacting to it. As Joseph Young wrote on Wednesday, a number of major hedge funds are also shorting the U.S. dollar for the first time in years, so Buffett is not an outrider in taking a lukewarm-at-best view of the U.S. currency and banks.
And if Buffett is now running with the rest of the market, he’s not even at the head of the herd. Many of his more technically adept contemporaries such as Paul Tudor Jones and ex-Prudential CEO George Ball have skipped gold and gone straight onto the logical best option, Bitcoin.
I long ago gave up hope that Warren would finally admit to the seismic shift in money that’s already well underway, and recognize that Bitcoin is steadily replacing the dollar’s long-unchallenged hegemony. What matters to me is that so many people continue to treat him like a sage even in areas where he has continually demonstrated a blind spot - such as in new, disruptive financial thinking and technologies.
One of the first things any investor learns is to avoid the “hot hand fallacy”. Ultimately, you’re only as good as your last trade, and Buffett’s position on Bitcoin should remind us that past performance is no indication of future success - especially in such revolutionary times as these.
Berkshire Hathaway still has almost a trillion dollars under management, so Buffett is not exactly old news. But he is increasingly looking like Old Money.
With more investors making the transition, Bitcoin is fast losing its reputation as a challenger: it’s now where most of the smart money is heading. And perhaps that best explains Buffett’s reluctance to engage with Bitcoin, since the time is long past when he could be a pioneer of money’s new frontier. For us mere mortals, though, it is never too late to follow the orange brick road.
There are many roads to Bitcoin ownership. For some, it’s the thrill of speculation in a new commodity; others are driven by the need to diversify and protect their retirement savings. For me, it was gaming.
Before Bitcoin, creating MMORPGs was my bag. I devised and built one of the first multiplayer web-based online games, Netropolis, nearly 20 years ago. I was also part of the team that built WeeWorld that boasted 30 million users (and its own digital currency) over a decade ago. The experience of building online worlds made me realize that virtual assets can have enormous value in the real world.
As we know, one of the key attractions of digital currencies (and what makes them so valuable) is that they can be decentralized, making them resistant to censorship or manipulation by governments and central banks. By the same token, any move towards centralization - either of a currency or its digital environment - strips crypto of its value and it’s raison d’etre.
So it was with considerable dismay that I read about plans for mandatory Facebook accounts for every Oculus VR user. This may not seem like earth-shattering news for the Bitcoin community, but trust me: it matters.
The last thing we need is more centralization. We already know that much of the Internet resides on servers owned by one of the 5 FAANGs. This is the polar opposite of the new era of democracy that the web was supposed to represent, where no single actor held sufficient power to dictate the rules to anyone else.
What makes Bitcoin so exciting is that it promises to reboot the Internet, bringing it closer to its original model of an open, online virtual world. The rise of the Bitcoin economy, coupled with pervasive cultural shifts towards remote working and ever-wider broadband access, seemed to be bringing this future closer. But every move towards greater centralization and away from the core principle of anonymity moves it tantalizingly out of reach.
The recent Twitter hack should make it abundantly clear that the Internet is actually far less decentralized than one would like. We must ensure we do not focus all our energies on winning the currency battle only to lose the information war. To do so would be to build a digital currency that’s practically perfect in every way, lacking only a reason to use it.
Fortunately, I’m not alone in decrying the Oculus news. The level of backlash unleashed against Facebook since the announcement has been very encouraging, suggesting that consumers will only tolerate so much centralized control for so long. Numerous VR and technology commentators have also joined the chorus of condemnation and called for a decentralized, open alternative.
It’s an important lesson: there are many roads towards Bitcoin, but it’s not a destination in itself. The greater the value we will place on information self-sovereignty, the faster we will achieve the vision of what the nternet was always supposed to be: not a plaything for corporate behemoths, but a level-playing field for the whole world.