THE BACKGROUND Ben: I said, "Why don't we just bet?" I've read enough of Felix's stuff to know that would be irresistible to him. Felix: He's right about that. Being challenged by Ben Horowitz is kind of the high point of my career. So I immediately said yes. About 2011, I first started looking into Bitcoin thinking this is a bit crazy. And eventually when it reached the dizzying heights of $200 per coin, I published this article saying this is ridiculous, it's a bubble, it's all going to crash and I was absolutely right, it was ridiculous and it was a bubble and it did crash and it went back down to about $5 a coin and I was vindicated and that was the end of that, except it wasn't, because then it went up to a $1000. Ben: It's a very interesting discussion because one of the things about the discussion is that it's one of the few that involves experts in economics and then experts in computer science and a lot of the differences come from the differences in background. So if you approach Bitcoin from a computer science standpoint, you tend to be very bullish. If you approach it from an economics standpoint, you tend to be very bearish. I'm from the computer science side, for sure. Felix: And to Ben's point, the computer scientists, at least the ones in Silicon Valley where Ben lives, tend towards the techno-utopian and anarcho-libertarian perspective. They think that technology is going to save the world, it's what Evgeny Morozov calls "solutionism." Ben: It's a real computer science breakthrough. This is a problem that we've been trying to solve in computer science since the early '80s, which is: How do you prevent the double-spending problem? You have to pay a very high fee to accept money on the internet, 2.5 - 3% [just credit and debit cards]. If you look at Overstock.com, which just started accepting Bitcoin, one of the interesting things about it is their margins are very low. They're operating on a 5 - 10% margin, so 2.5% is a huge chunk of the profit. So their Bitcoin transactions are significantly more profitable. As a merchant, you end up rejecting approximately 8 to 10 percent of your good customers due to potential fraud. Netflix, I think, only accepts customers from 40 countries because of this credit-card problem. And merchants in, like, Kazakhstan, they're just done — there's no way they can be online. Felix: I'm skeptical about Bitcoin in particular partly because it is a store of speculative value. It's a place where speculators like the Winkelvoss twins will come in and buy up lots of Bitoins for no reason other than they think they can find a greater fool to sell the Bitcoins to tomorrow. And because Bitcoin offers the potential for so much profit just by sitting on it — the longer you don't spend it, the more you benefit — then everyone has an incentive to not spend their Bitcoins. And you can't have an have effective payments mechanism if you're not spending the currency. Ben: Well Bitcoin has gone up so fast now, I'm a**uming it won't go up as fast as it has in the recent past as it gets to be pervasive, the price is going to reach equilibrium, it's not going to go just straight up. THE TERMS Ben: I think it makes sense in the five- to seven-year time frame. It is a big thing to upgrade the the payment structure of the Internet if not the world. ... Felix: There's no way that Bitcoin is going to be a common payment mechanism in five years' time. It probably will not even exist. It's just going to be a vague memory that in any case, it's not going to be use as part of the deep architecture of payments. Ben: Well we fundamentally disagree, so that's what makes the bet so exciting. Felix: Let's take a representative group of people and ask them this poll, "Have you used Bitcoin as a payment for goods in the past month, we could say a week, but let's say a month because I want to be generous to Ben. What number, what percentage of people do you think are going to say yes? Let's say 25%, what do you say to that? Ben: I would say that seems a little bit higher than I would predict. I was thinking more that if 5 - 10% of the people that make payments have used Bitcoin, that's a lot of payments. Felix: Well it depends on how much they've used it... Ben: But you're saying that it's going to disappear! Felix: To be frank, I think that the answer to who would have won this bet is going to be blindingly obvious five years from now. We're not going to even need to run a poll, it's going to be blindingly obvious who has won. NEGOTIATING THE BET Five years from now, in January, 2019, we'll poll a representative sample of Americans. If 10 percent or more say they have used bitcoin to buy something in the past month, Ben wins. If it's fewer than 10 percent, Felix wins. Ben: If exactly 10% say yes, then clearly I've won. I think we should bet in Bitcoin. I would like my payment in Bitcoin. Felix: The problem in betting on Bitcoin is that I'm utterly unhedged in this. There's no way I'm going to able to afford to pay out on this bet. Unless I buy a Bitcoin now. [Also if Bitcoin ends up being worth nothing, Felix loses.] I think a fine pair of Alpaca socks is something I do not have and could probably use from time to time. Ben: I will frame them and hang them in my office. Felix: Alpaca socks it is. And of course, you do realize, Ben, that part of the reason I'm going to win this bet is exactly that everyone who bought Alpaca socks with Bitcoin a few years ago is kicking their warm feet right now saying "I wish I hadn't bought those Alpaca socks, I wish I had just held on to the Bitcoin because I would now be a millionaire!" I have lost more than my fair share of bets over time. [If I lose] frankly, I'll be happy, I think, because I hate the current payment system. The current payment system is broken in a million ways and I would love something frictionless and global, I would love to be able to pay money anywhere in the world really easily in a way that anyone else anywhere else in the world can accept really easily. The world would be a much better place if I lose the bet. Ben: [If I lose] I will either feel extremely sad if nothing has changed, or I will feel fine if some cryptocurrency has taken hold and solved the problems that Bitcoin seems to solve. Felix: I'm looking forward to some warm feet.