Topic: A random thought about intrinsic value (Read 510 times)

Good point. I think intrinsic value is a loaded phrase that typically means people can use "item X" for some basic or alternate function. Virtual currencies really don't have other uses. Other than to move bits around between two authenticated parties. Though I think this is fundamentally useful. I'd even go so far as to say it is the intrinsic value of bitcoin.

With respect to your main observation, I agree that the energy and computational power used to check transactions could be used for other purposes. This creates a floor on the value of decentralized virtual currencies. However I haven't crunched the numbers to see what that theoretical minimum equates to on average (for me I pay roughly 0.12 $/kWh at 43W to run my BFL Little Single). So in a way bitcoin acts as a motivator to encourage people to figure out ways to economize energy consumption and get more computations per second.

I see this as being potentially beneficial down the road because it ties bitcoins value in part to energy costs. Though I realize this just means more research into ASIC design rather than something more fundamental like additional research dollars pumped into harnessing cheap energy.

However, as interesting as this might be, that is a discussion for another thread.

I want to focus on the benefits and issues that exist because of the absence of intrinsic value (in the sense of a currency being useful for another function -- like gold).

Basically here is the scenario that keeps playing through my head.

Inflation relatively increases the wealth of people who work for a living (middle class and poor) because wages rise vs debts compared to those with excess capital who lend it out (wealthy).

Back in the 19th century average populists and average people understood this one correctly.

Since deflationary currencies like gold had intrinsic value and were scarce. Debts increased over time.

This was a problem.

I see bitcoin as a solution because it doesn't have alternate use. This motivates people to move their bits as quickly as they expect it to devalue — just like how moving fiat (inflationary currency) is a good thing if you want to get the maximum value for it (e.g. $1 USD today is worth more than 1 future USD unless it's invested at a rate that exceeds inflation).

To be honest, I still don't understand about the intrinsic value of bitcoin, like I don't know what that string of number and character can be used for.

For some of the alternate currencies, I know a bit better. Like NMC (Namecoin), it's doing something with domain name. My friend says it is a very useful coin, again, my understanding stops there. Primecoin (XPM) is to deal with Prime numbers. Litecoin (LTC) is simply faster and outnumbered bitcoin.

And there is now like more than 50 alternate currencies, the newest so far I know of is DOGE, a meme one, really really funny.

It's hard to convince 'conventional' people about the intrinsic value of bitcoins, let alone the fact that is is virtual, and none has seen it in real life. Towards intrinsic value, we can also say a 10USD note does not have any value. It is legal tender from US government, an IOU, which is only valuable as long as the US government is believed to honour their promise. But I guess it is supported by government (it's linked to gold reserve before, but not now), and it is widely accepted. So until Bitcoin gains widely acceptance in a lot of places in the world and creates its own channel of payment, tranfers, etc.... then 'ordinary' people will find it more natural to deal with it.

To me now I think most are still very much speculative activities. And whether this will be real or this will be another bubble, don't know.... Of course, I know, a lot of people are not of the same idea with me.

I think there is some kind of an intrinsic value to cryptocurrencies, it's derived from combination of energy and computational time spent on mining. Just as in your example with gold, energy could have been spent on creating something material and computational power could have been used to do calculations, but both were spent on mining coins, so now the value of those is a combination of 2 inputs, even though you can't get them back by disassembling.

However, this has really nothing to do with coin's market value,

Several days ago I was thinking about what people mean when they say 'intrinsic value'; and I realized it is exactly because bitcoin doesn't have intrinsic value in the traditional sense (meaning that people could use bitcoin for other functions — e.g. gold can be used in electronics and jewelry, or that water can be used for drinking) that makes people want to circulate coins in the economy. Otherwise people would treat bitcoins like gold and horde it. The speculative nature of digital currencies is what will keep coins moving when we mint the last 21 millionth bitcoin. I think it is this very feature that might prevent a deflationary spiral.

There is something about the idea of virtual currencies as a vehicle for value, not a final representative form of it, that strikes me as interesting. I would love to hear peoples thoughts about this.