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How a group of pro-free market types lost their faith in bitcoin in just an hour

Two bitcoin millionaires lose a debate with an editor and a law professor

Donvan, Tett, and Posner

ABC’s John Donvan and the winning side of the debate (FT’s Gillian Tett and University of Chicago’s Eric Posner) at The Manhattan Institute’s Adam Smith Society’s national meeting (Photo by Brendan Sullivan for Modern Consensus).

A lively afternoon debate of some of the top minds in business, finance, technology, and law left its hitherto bitcoin-friendly audience with some serious FUD: fear, uncertainty, doubt.

The Manhattan Institute’s Adam Smith Society—a group of free market-advocating MBA students and business people—hosted the lively debate Saturday with Intelligence Squared U.S. at its national meeting. The proposition, “Bitcoin is more than a bubble and here to stay,” was supported by legendary venture capitalist Tim Draper and Overstock.com CEO Patrick Byrne. On the opposition side was Financial Times U.S. managing editor Gillian Tett and University of Chicago law professor Eric Posner.

Going into the discussion, a slim plurality (39 percent) of the audience of about 300 people were optimistic about bitcoin’s future. But an hour and a half later,  68 percent became naysayers, including a third of those who walked in being bullish on bitcoin’s prospects.

Even the moderator, ABC’s John Donvan, was shocked by the change in opinion. “If it’s a bubble, then the Internet itself was a bubble,” he said.

The opposition debaters sunk their teeth into the fundamental flaws of bitcoin’s anonymity, fixed supply, and decentralization. But it wasn’t any technical flaw that swayed the audience. Instead the negative side reminded attendees of one fundamental fact: nobody can truly predict the future.

“Right now, those wonderful magicians of cryptography have created a system which has a limited supply of bitcoins,” Tett said in her remarks. “But what about Etherum? What about Bitcoin Cash? What about all those other ‘bitcoins’ that are coming out too? Who actually believes that the first incarnation of bitcoin is going to be the only bitcoin?”

The event was made available Tuesday on YouTube and should make it into podcast format very soon.

Before Donvan introduced the panel, he asked the audience to pull out their smartphone and vote “for” or “against” this statement: “Bitcoin is more than a bubble and here to stay.” While casting my vote (in favor), I tried to think of one thing that could change my mind. I noticed that several others around the room had a crypto trading window open on their laptops. Many of their nametags listed the business school of their enrollment. They came here on a Saturday. Clearly they want the world to have crypto jobs when they graduate next year.

An hour later, the group came to a consensus: Blockchain is the future and it’s here to stay but bitcoin is a clunky, early-to-arrive, and overvalued fad. Among other things the skeptics compared it to: dotcom failure Pets.com, Myspace, traveler’s checks, and the cassette walkman.

Team Bitcoin provided some great analysis, but failed to prove that bitcoin was the future. And neither side could say what a future without bitcoin on top would look like.

But, in the spirit of debate, let’s talk a little more about the panel and then go through a number of their best arguments. Then you can decide for yourself.

Patrick Byrne

That’s not a bellhop, that’s Overstock.com’s CEO, Patrick Byrne, posing with a fan (Photo by Brendan Sullivan for Modern Consensus)

Team Pro-Bitcoin

“You’re also CEO of tZero. That’s an ICO trading platform that you founded. Wired magazine has called you, ‘The messiah of bitcoin.’” Donvan said of Patrick Byrne by way of introduction. “You have also been called the scourge of Wall Street.” Byrne’s tag team partner, Tim Draper, was the founder of VC powerhouse Draper Fisher Jurvetson and is the guy pushing to divide California into multiple states. He also made headlines when he purchased almost 30,000 Bitcoin seized from Silk Road.

Team Anti-Bitcoin

It should be noted that this wasn’t a debate of crass capitalists versus fearless crypto populists. The FT’s Gillian Tett isn’t a bull market cheerleader. She authored the recession post mortem “Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe.” Chicago law professor Eric Posner, who has dubbed bitcoin “a Ponzi scheme,” is also the author of “Radical Markets: Uprooting Capitalism and Democracy for a Just Society”

Posner’s opening remarks were commendably concise. He focused on bitcoin’s anonymity, limited supply, and decentralization. Each person was given a chance to respond so here are their briefest quotes on the matter and our commentary.

Anonymity

“Bitcoins are very good for money launderers, drug criminals, human traffickers, and many other criminals,” Posner said. “Twenty-five percent of people who use Bitcoin are criminals, according to a study that just came out a couple days ago. Ordinary people don’t get anonymity, sophisticated criminals do.”

My take: Yeah, criminals like cash and gold too. I don’t know where that 25 percent figure comes from, but I’m gonna guess that 90 percent of crimes happen in cash. It’s kind of the whole point of doing a crime—get money.

Fixed Supply

Posner did point out that a fixed supply leads to deflation since people will horde to buy more in the future but currency that isn’t used can’t be successful.

Tett said that can’t make a functioning system. “The reason why people are buying bitcoin, investing in it is not because they think it’s going to be this incredible useful thing for criminality per se. The reason why most people buy it is because they think it’s either going to keep going up, and up, and up, or because it’s going to become a mainstream currency that will be useful,” she asserted “The question I still have is why on earth do we think that bitcoin is going to become this incredibly, widely-used useful currency compared to all the other alternatives?”

Draper countered in support of bitcoin as a store of value. “There is always going to be value fluctuation, but bitcoin is not volatile at all,” he argued “One bitcoin equals one bitcoin.”

Tett shot back, “Tim, a dollar has always been worth a dollar as well.” The audience hooted in laughter then. “If you don’t like fiat currency, go buy gold—because bitcoin—a.k.a. digital gold—is a pretty lousy alternative. And the great thing about gold is that if it all goes horribly wrong, you can always wear it. You can put it in your teeth.”

My take: Yes, gold has value, but only as gold. You can’t really go buy $2 worth of gold. You can’t carry it around in large quantities. You can’t get it through a metal detector. You can’t travel well with it. If you lived in an unstable political area, would you sleep better at night knowing that you had you life savings under your bed in gold?

Decentralization

Bryne: “Bitcoin has all the advantages of gold, which I’m happy to hear that you admire, has all the advantages of gold plus one. You can beam it across the universe.”

Tett: “I started off as a war reporter. If you are in a war zone, if you are in that kind of stress situation, you don’t want to start fiddling around with a computer. If the computers collapse and suddenly you’re left high and dry, you want to get a bag of gold or emeralds and sew them into your clothes, and run, O.K.? So, my key point is this: I hear what you’re saying about the shortcomings of fiat government-backed currency. Guess what? It ain’t perfect, but it’s probably the least bad system there is today.”

Posner said that the top reason to doubt bitcoin is that the miners aren’t people you can trust. “Who are they? We don’t know. Probably a lot of foreigners, possibly foreign governments.”

Posner tried to argue that anyone who could control 51 percent of the bitcoin networks could commit an unending amount of fraud by putting false transactions onto the blockchain.

My take: this problem, known as “Gambler’s ruin,” is addressed in the original bitcoin whitepaper. It’s also known as the “Selfish Miners” problem and has been disproven for a number of mathematical reasons (it’s hard to cheat and play the game at the same time). But a bigger and unaddressed reason is that if anyone found fraud on the blockchain, it wouldn’t matter how many coins you were able to steal because all bitcoin would become worthless.

For all the spirited back and forth, though, the debate came down to one thing: who can predict the future?

“Is there any technology in the world—any big technological advance we’ve had where the first mover advantage ensured that that stayed dominant all the way through?” Tett asked just before the end. “I mean, remember a time we all thought that Sony Walkmans were the coolest thing out?”

Of all the technological issues brought up during the debate, that one was the hardest to argue with. The audience liked the pro bitcoin team better but people left thinking that bitcoin isn’t the one.

Draper made the best point about bitcoin today and in the immediate future: bitcoin is winning by having the most number of users. “The value of bitcoin is tied to the network and how big that network is.” He cited Metcalfe’s Law, which states that the value of a network is equal to the square of the sum of its users.

“You said there are a whole bunch of problems with bitcoin and you said there are fewer with dollars,” Draper said. “There are. But all the best engineers in the world are working on bitcoin, not on dollars.”

While no one can predict the future, it is a little bit of fun to look back on the past and see what the previous experts got right and what they got wrong. Thus Draper ended on a lighter note, reading various business and popular media reports about nascent technologies.

“‘The world potential for copying machines is 5,000 at most.’ That’s IBM avoiding buying Xerox,” Draper noted. :‘The wireless music box has no imaginable commercial value. Who would pay for a message sent to no one in particular?’ That’s the associates of David Sarnoff responding to the latter’s call for investment in the radio in 1921.”

Nonetheless, Draper made his own about bitcoin, something he famously did (correctly) correctly in 2014. when the price of bitcoin was $413. That the time, he accurately forecasted that the price would reach $10,000 by 2017. He now has a new prediction of $250,000 by 2022. Draper upped the ante just a little bit more on stage: “In five years, you are going to try to go buy coffee with fiat currency and they are going to laugh at you because you’re not using crypto.”

“We have a bet,” Tett smiled as the audience applauded. “In five years’ time.  You’re buying the coffee.”

“We’re going to have you all back in five years,” Donvan the moderator said. “And somebody’s going to be laughing at somebody.”

Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives. Disclosure: he owns cryptocurrencies. Follow him on Twitter.