The Fax Machine and Cryptocurrency: Generational Lag in Adoption
When the fax machine was invented in 1982, there was hardly a buzz of excitement among consumers in the United States. To most average Americans, the fax wouldn’t become mainstream until the early 90’s when the dot com boom integrated the underlying technology of the fax with the internet, allowing consumers to send and receive a facsimile, or an exact copy of a file, via personal computers.
The first fax machines on the market were sold by Xerox Corporation to a consumer base that was largely unaware of this new, disruptive technology for a staggering $20,000. The story of the fax machine that is perplexing in that its value derives from the owner’s ability to send and receive faxes to multiple other machines. At $20,000 per unit, a fax machine was hardly a household item in the 1980’s. So who was buying the 5th, and 6th, and 7th fax machines when there were only 6 other machines with which the 7th could interact with?
If we didn’t know that the fax machine became a household application in the decade following the dot com boom, it would be logical to predict that this technology would have gone the way of the dinosaur due to its high price and low practical application. But it didn’t, and here’s why.
The people who were buying the 7th, 8th, 9th and 10th fax machines were innovators and early adapters. They understood the implications of the technology and saw the trend moving toward the dot com boom that followed shortly after. Early adapters of the fax were not buying it for its practical use, but instead, for its ideology. They identified parallels with the technology of the fax with overall trends toward the internet of the future, and this commonality fueled a desire to be the first owners of a cutting edge technology. They wanted to take it apart and put it back together piece by piece to explore the intricacies. The value of understanding this technology through immersion superseded the practical application of the machine itself. These mavens, or people who thoroughly understand every minute detail of an emerging technology, had an informational advantage as to the direction of the world. They were able to recognize that the fax would be an important development in years to come, and they wanted to be the first ones to own the technology.
Eventually, technology advances and becomes more efficient, which in turn dramatically reduces consumer prices. More and more mavens continued to buy fax machines incrementally until eventually, not owning a fax machine became disadvantageous. Years and years after the 10th unit was sold by Xerox for $20,000 to an ideological maven, the 1 millionth until was sold to a retail consumer who cared nothing for the technology in and of itself, but rather the practical function of the machine in sending a document to another unit.
Eventually, the technology becomes so pervasive that we are forced to adapt, like it or not.
The story of the fax machine is much like that of cryptocurrency to an exponential degree. The fax was an innovative technology, but it was not disruptive to the effect that the internet was disruptive — to virtually every industry on a global scale.
Cryptocurrency is like both the fax and the internet: the aversion to immediate adoption is high, and it will be as disruptive globally as the internet.
Much like the early adapters, the mavens, in the fax example of the 1980’s, Bitcoin enthusiasts have seen boom and bust. They have used Bitcoin through the ups and downs and have seen the crypto world evolve through the dark web era, hacker vulnerabilities, boom and bust. This is the $20,000 price that the mavens pay for early adoption, and the rewards that they are set to receive for their understanding of the underlying technology will pay out exponentially on the initial investment (if it hasn’t already). These mavens were able to identify a philosophy in Bitcoin that resonated with their perception of the future — decentralization of currency.
Following the financial crisis of 2008, there was a lot of finger-pointing as to who was to blame for the crash of the housing market. When the dust settled, it became glaringly obvious that the financial institutions that Americans blindly trust had been acting in self-interest at the expense of the consumer, exposing home buyers to extremely high-risk loans against poor credit for institutional gains. It became apparent that “experts” in the financial world value the asymmetry of information. When mortgages started defaulting, lenders repackaged delinquent loans into CDOs that were resold at higher bond ratings in order to continue profiteering off of irresponsible lending, all at the ignorance of the consumer.
Satoshi invented Bitcoin in 2012 in response to this mistrust of central institutions — why should I give my money to a bank so that they can lend it out as they see fit with fractional reserves?
The Bitcoin enthusiasts early on were the small segment of the population who were fed up with the status quo. While most of us endured the hardships and returned to subsequent life without much consideration as to any alternative, these mavens recognized the value in this decentralized approach to finance. The early adapters had a thorough understanding of blockchain, the underlying technology that allows for an open source, transparent, publicly available ledger of transactions that eliminate the information asymmetry that lending institutions have used to their benefit in the past. The early adapters invented tokenomics, the study of how cryptocurrencies operate in a broad ecosystem. They have evolved to address issues as they arise, constantly changing for the better in an effort to create a new decentralized approach to finance.
The result of their innovation over the past decade is colossal. Cryptocurrency and the underlying blockchain technological advancements are poised to retool our financial world from right underneath the institutions of powers for which it was originally imagined to replace.
If you think I’m exaggerating, then you’re in the majority. Most people still see crypto enthusiasts as a cult of sorts. They hear about the black market history of Bitcoin, the extortion headlines of years past, the volatility of its price, or the hacker stories and immediately dismiss its legitimacy. They see Dogecoin, a crypto copycat of Gamestop, which in their minds represents concerted effort of the masses to manipulate the market at their expense. After all, they are experts, and they know information that individuals can’t understand, which means that it’s only a matter of time before they say “I told you so”.
But what if they’re wrong? What if free market capitalism isn’t reliant on “experts” who are smarter than all of us? What if “experts” really exploit information asymmetry to their advantage, and free markets really means equal access to liquidity for everyone?
You will never convince a banker that his expertise is harmful. It just won’t happen. Even the most honest bankers take advantage of information asymmetry to a certain degree in managing risk, leveraging liquidity, or acting in conjunction with privileged information that comes with their centrality of operation. Banks act as the determining agencies for participation (or lack thereof) in the money markets. They deem individuals as credit-worthy or not, and charge interest based on their assessment. This directly affects an individual’s cost of capital and access to liquidity necessary to compete in the “free markets”. I mean, you literally lose points on your credit score for checking to see what your score is! That’s how much these institutions value information asymmetry. The rules of the game are set in favor of the lenders, and these lenders then turn around and use the liquidity provided by bank members at their discretion. It doesn’t take a genius to understand that these banks are using our liquidity to fluff their Income Statements.
Is there a better solution? Absolutely. But better for who?
Generational lag describes the phenomenon seen in the fax machine at its introduction. A disruptive technology will only be adopted as it fits the sentiment of its time. This makes sense. In order for a technology to see widespread adoption, the people have to realize its value, regardless of how inherently valuable it may be.
Crypto and blockchain technology have incredible tangible use right now, but there are hurdles to adoption — namely the fact that government and financial institutions encapsulate the constituency that is most resistant to the new technology. The resistance comes from a variety of different origins — from a simple lack of understanding to a recognition that this new tech could render the institutions who oppose it obsolete. But like the fax machine, we are already seeing external factors force the powers that be to accept crypto.
China has a leg up on the United States in adoption. They have already circulated a National Cryptocurrency for experimental purposes to gain an edge in the global race toward automation. The advantages to being the first established international cryptocurrency backed by a federal government are largely uncertain, but massive nonetheless. China’s efforts have spurred the Federal Reserve to begin developing its own plans: 5 cryptocurrencies are in the process of development to be released to the public for scientific method review following the trials.
Financial institutions are competing to offer crypto ETF’s on US Exchanges, which forces the government to get a handle on how to classify crypto. Ripple Labs is currently undergoing litigation with the SEC surrounding what the regulatory agency deemed “an unlawful sale of securities” in 2019. The SEC has been contradictory in its labeling of Bitcoin and Ether in the past, and when Ripple lawyers requested documentation to be presented highlighting this hypocrisy, the SEC basically pulled a Tom Brady. They said that no documents existed… Right, just like Brady’s cell phone #DeflateGate2.0
But the generational lag can best be seen in the case of Charlie Munger, who has admittedly lost “billions” since 2018 shorting Bitcoin. In his response to a question posed at the Berkshire Hathaway Shareholder meeting two weeks ago asking if he was still a doubter, he said:
Of course, I hate the bitcoin success and I don’t welcome a currency that’s useful to kidnappers and extortionists, and so forth,” the 97-year-old said. “Nor do I like just shuffling out of extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. So, I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilization. And I’ll leave the criticism to others.
That tells you all you need to know about the boomer generation who has everything to lose from adoption and nothing to gain. Oh yeah, and who was it that created a financial product out of thin air in 2008 with Collateralized Debt Obligations? CDOs were catastrophic on a global level, and those were created behind closed doors as a mechanism for profiting off of mortgages that went belly up. At least Bitcoin is transparent in its risk — whereas the risk of banks is hidden and manipulated until it all implodes at once to the detriment of our entire global economy. The hypocrisy is comical.
And what Charlie Munger means to say is that the whole damn development is disgusting and contrary to the interests of Charlie Munger, which is underlined by his bitterness.
Warren Buffett and Charlie Munger represent the philosophical ideology of money markets for the entire boomer generation. Buffett is a god among boomers — “The Oracle of Omaha” as he is known. It’s not surprising that his condemnation of cryptocurrency is inversely related to his understanding of its purpose, fundamentally. He has no incentive to question a system that has been so good to him for his entire life, and so he won’t. Boomers listen to Buffett, because the alternative is to invest a lot of time and energy learning about technology that they don’t understand. The late boomer generation survived the internet but never mastered it in understanding like the millennials. Blockchain is made of complex coding and oracle networks, and without a fundamental understanding of the building blocks, it makes the concept that much more foreign and untrustworthy.
We are into the first stage of adoption following the mavens, who have paved the way to the Ethereum Network, Smart Contracts, DeFi, and other exciting developments. Bitcoin is old news, and newer capabilities are furthering the potential every day. It is a matter of time until adoption is necessary, where resistance to buying the fax machine is now a disadvantage.