Aswath Damodaran

Yes, to gain traction, Bitcoin would have to be used in a way that appeals to both sides of the market. Both sides have to somehow share in any savings that it brings.

It also has to be significantly better than the status quo. There are many markets where using Bitcoin currently doesn't have a significant advantage over the existing payment options, I think. In fact, I'm fairly sure there is often a net greater cost spread across both parties if they use Bitcoin, if you consider the case where someone exchanges other money for bitcoins in order to pay with bitcoins, and the merchant exchanges the bitcoins for other money.

However, and this is an important point, Bitcoin does not have to be suitable for all markets worldwide to establish a presence in some markets. In fact, it doesn't even have to appeal to every merchant operating in a market - just to some of them, perhaps those with the lowest profit margin. If Bitcoin is to succeed as a method of payment, then I expect a scenario where Bitcoin gains a small bridgehead in niche markets, which then slowly expands to some other markets.

Markets that suffer the largest burden of ID theft/chargeback fraud as a percentage of profit seem to be the most promising candidates for that bridgehead. An online merchant with a 4% net profit margin, who is also in a high risk market where they're losing 1% of revenue (i.e. 25% of profit) to fraud, might consider offering a 10% discount to customers who use Bitcoin, for example.

I'd…

Before you read my detailed response below, my tl;dr point is not that wind and solar suck, or that we need to hold on to oil and gas forever. My most salient point is that proclaiming an "emergency" of an "existential threat" that requires centralized authority (held by decisionmakers who usually pay no cost for being wrong) is a playbook that's as old as history, and one that almost always resulted in great human toll.

I predict that more human misery will be generated by efforts to counter climate change that are predicated upon such centralized authority, than that generated by the status quo. Having said that:

> The economic and political power of the oil and gas lobby is magnitudes larger than the economic and political power of the wind and solar lobby. We're talking about entrenched interests here.

No arguments there from me, except I would like to add that the degree of entrenchment reflects how much modern society depends on oil and gas.

> If there's ever an existential threat to our global human civilization through wind and solar

You're presupposing that oil and gas is an existential threat to global human civilization. Evidence points the other way around, that humanity flourished more than ever with the usage of fossil fuels.

> We have have trillions of yearly subsidies for oil and gas[0], we've had it for decades.

$7T of subsidies around the world according to your source (including "implicit" subsidies; direct subsidies of $1.3T), out of a global GDP…

I think you guys are both right. And I'm sure one could construct some sort of venn diagram for startup funding with circles for equity, debt and bootstrapping; where a given startup is a good match for one or more funding choices (based on its biz model, industry, geography, founders, etc..).

(By the way congrats on financing your Series B with revenue, that is awesome!).

Just wanted to add one point in the equity vs debt debate is 'in theory' once a startup gets big enough doing the math on choosing equity or debt is very different. Once a startup is a real company and reasonably calculates how much money it needs and what it expects to earn on that money, an "optimal" capital structure calculation starts to emerge [1] and VCs and banks will compete for your business.

For a healthy, growing startup, if selling a certain % of your equity to a VC looks unattractive compared taking out a bank loan then your equity valuation is being mispriced here. Negotiate it. Conversely if a bank loan looks unattractive compared to VC equity offers (because the bank's convenants are too burdensome and your monthly interest/principal payments pull too much cash away from your growing business then the lender is mispricing your borrower risk). Negotiate it.

To follow on the Facebook example above, I believe they started mixing equity and debt almost immediately as early as 2004 [2]. Their seed investors backed their credit line (WTI invested $25k in equity and provided a $600k credit…

I'm not sure you understand how an equity cushion works.

Suppose you start a company with 1,000 kg of gold. No other assets, no liabilities. Currently, that gold is worth about 60 million USD.

Now you issue 1,000,000 'stable' tokens. Each can be redeemed for one USD. For simplicity, assume that you just give them away.

At current gold prices, your tokens are 60x over-capitalised. If the gold price collapses 90%, your tokens are still 6x over-capitalised. That's what I mean by an equity cushion.

A 'run' is everyone trying to redeem their tokens. If that happens, you just sell one million dollars worth of gold, and pay that obligation. You are not running out of anything here.

In historical practice in eg Scotland, the banks that issued private bank notes there kept an equity cushion of about 30% around. That means for every 70 pounds in liabilities, they had 100 pounds of assets on their balance sheet. (For comparison, in our example of 60x over-capitalisation, that's an equity cushion of 59/60 = ~98%. Or for the 6x over-capitalisation, it's 5/6 = ~83%.)

It's called an equity cushion, because on a balance sheet the excess of assets shows up at equity.

That equity on the books is very different from the banks shares. It's the difference between 'book value' and 'market value'. See https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pbvdata.html for a table with price-to-book-values (PBV). You can also look up that value for any specific firm…

Thanks for responding, I appreciate the interesting discussion. :)

You began this sub-thread by making the following claim:

> It's only at the risk-free rate of return that the two products you describe are of equal value. In order to realize returns higher than the risk-free rate, investors must do work. I think that the extra gain beyond the risk-free rate should be taxed as ordinary income, because that's really what it is: income produced by work.

With this in mind, look at the following table, based on historical returns since 1928:[0]

Stocks TBills TBonds
Arith avg. 11.50% 3.57% 5.21%
Geo avg. 9.55% 3.53% 4.93%
Std Dev 20.02% 3.06% 7.85%

Let's say your time horizon is 10 years. You have at least four options:

1. Buy $1000 worth of equity ETFs. Sell them in 10 years. Expected value: $2,489.57. Expected tax paid: $223.44 (22%).

2. Buy $1000 worth of T bill ETFs. Sell them in 10 years. Expected value: $1,414.69. Expected tax paid: $62.20 (6.2%).

3. Buy $1000 worth of T bond ETFs. Sell them in 10 years. Expected value: $1,618.07. Expected tax paid: $92.71 (9.2%).

4. Hold $1000 worth of cash. Expected value: $1,000. Expected tax paid: $0 (0%).

Do these four products have unequal present values? No, they are equally valued at $1000, despite the fact that stocks have a higher expected return, because people are risk averse.

Are some of these products likely to realize returns higher than the risk-free rate?…

A reasonably sound place to start for investing as an individual is the Bogleheads wiki: https://www.bogleheads.org/wiki/Main_Page The general Bogleheads approach isn't to try to estimate value of individual stocks or sectors of the economy, basic idea is passive investment: buy & hold index funds to get diversified exposure to market returns, then minimise costs by avoiding funds with high management fees.
Bernstein's http://www.efficientfrontier.com/ is good reading, from perspective of individual investor.

If on the other hand you want to learn about how to estimate value of companies (this will probably will not have a good return on time or money invested for an individual compared to low effort passive investment approach) one place to start reading is http://pages.stern.nyu.edu/~adamodar/ & http://aswathdamodaran.blogspot.com/