[cryptography] (off-topic) Bitcoin is a repeated lesson in cryptography applications - was "endgame"

James A. Donald jamesd at echeque.com
Sun Feb 26 19:28:21 EST 2012

dan at geer.org wrote:
 > Warren Buffet's arguments are, to my eye, aligned with
 > yours.  He argues that gold has no intrinsic value, unlike
 > farmland or a company like Coca Cola.  In that way, his
 > evaluation is as instrumentalist as is yours, to the extent
 > that I understand the both of you.  His discussion of gold,
 > per se, is getting some press.  See
 > 2011 shareholder letter
 > www.berkshirehathaway.com/letters/2011ltr.pdf

Warren Buffet writes:

	What motivates most gold purchasers is their belief
	that the ranks of the fearful will grow.

Rather, what motivates most gold purchasers (and thus most
bitcoin purchasers) is their belief that their fears might
well prove correct, that without gold, they might find
themselves penniless refugees, or, worse, without even the
ability to become penniless refugees, because they lack the
funding to leave a collapsing society.

Gold is an end of the world investment, insurance against
total institutional collapse.  We tend to underestimate fat
tail risks such as total collapse, since the English speaking
world has never had a total institutional collapse since the
battle of Hastings in 1068.

This however, is survivorship bias.  In the rest of the
world, total institutional collapse has been rather common.

Warren Buffet correctly argues that gold will, on average,
lose value.  However there is a significant risk that
everything except gold will lose value.

Warren Buffet continues:
	A century from now the 400 million acres of farmland
	will  have produced staggering amounts of corn,
	wheat, cotton, and  other crops – and will continue
	to produce that valuable  bounty, whatever the
	currency may be. Exxon Mobil will  probably have
	delivered trillions of dollars in dividends to  its
	owners and will also hold assets worth many more
	trillions (and, remember, you get 16 Exxons)

Now let us apply this reasoning to Russian croplands in 1903.  A 
situation is all too easily imaginable where investing in American 
cropland will not get you corn, but a one way ticket to the gulag.

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