Saturday, 7 December 2013
Alan Greenspan says Bitcoin has no intrinsic value
This was stated on 5 dec 2013 (Bloomberg).
He is a great economist but does he understand the new economy?
In the information era, data has value whence once it had little or only when turned into information. Today the data/information industry (Baidu, Facebook, Yahoo, WeChat) is growing fast, is adding new categories like the sharing economy (Lyft, AirbnB, Funding Circle) with more categories expected as we move deeper into the cycle of the information age when once it was a stagnant sector (mostly the media, publishing and information services). Bitcoin is a currency based on data, created by computing a complex algorithm which is akin to being mined. While the establishment criticise Bitcoin, could it be that they are seeing it through rose-tinted glasses of traditional convention? And all this as the underlying change caused by the cycle towards the information age marches on. Admittedly, it’s early days so he may not grasps the new.
Here are a few examples showing that data has value, raw or processed:
· Big data is an example of data now having a value on its own albeit that it needs to be mined
· Social data, created by the social media companies now has a lot of value. Google and Weibo are behemoths, based on information and data. Once massive amount of data was close to valueless because there was no way to mine them cheaply but with today’s low cost of computing, it does.
· Telcos as one example has transformed into a data business. The voice business model has collapsed with the internet (turned voice to simply data). With increasing revenues, data obviously has a lot of intrinsic value.
Paper currencies are simply pieces of paper but backed by governments. That’s where it derives its value now that the gold standard has been abandoned. Not long ago, currencies were backed by gold. Bitcoin is a ‘piece’ of data, backed by the crowd. It is modelled after gold and thus harks back to the days of the gold standard but in an information economy. In this era socio-economically speaking, the crowd has acquired an unusual place. Crowdsourcing is now the engine of commerce (see ‘Crowdsourcing; why it works” dated 18 Aug. 2013 in this blog. It also tells why data now has value). The crowd’s role in the economy was once in consumption but now it also produces (see ‘peer-to-peer as a business model Part II’ posted 16 Nov. 2013). The world’s certainly more democratic now, implying the crowd nowadays has more power. The command-and-control culture also seems to be breaking down. Etcetera. And isn’t democracy backed by the crowd?
Like Napster (the peer-to-peer model did not go away despite the detractors) so it is likely that Bitcoin or its derivative could evolve similarly.
Update...Interestingly Federal Reserve’s outgoing Chairman Ben Bernanke ‘praised digital currencies’ in a letter to the US Senate as reported by Time 16 December 2013.