Topic: Bitcoin's intrinsic value (Read 4210 times)

The intrinsic value of Bitcoin is several things rolled into one.

1) first to market advantage
2) inflation rate is known
3) upper limit / scarcity known (21 million coins)

When combined with the current 'flight from fiat' (i.e., there is no safe fiat currency currently) and gold / silver prices are manipulated.  People are looking for a safe store of value.

So Bitcoin, although not perfect, fits the bill as a safe store of value relative to everything else.

If gold / silver prices surge / are not as strongly manipulated, some may move from bitcoin back to these.  Or, if some country (i.e., China) or some countries (the BRICS) release a stable, gold-backed currency, the same could happen.  People want a safe store of value.  Right now that is Bitcoin and it's likely to carry into the future, unless it gets hacked.

Bitcoin's intrinsic value is the Fed.  Long live the Fed.

Bitcoin enables services to decentralise in a way that was hitherto not possible

That's huge

Explains it better than I ever could

http://paulbohm.com/articles/bitcoins-value-is-decentralization/

Yes, and the fiat money is constantly depreciating at that. Functionality of bitcoin provides its usefulness beyond pure speculation and wouldn't let its price fall below some level of support (unlike tulips). It can be a bubble or in a bubble, but surely it is not a pyramid or Ponzi scheme...

I think the most difficult part for everyone to understand is: How come a digital token can have some value at the first place? (Although bitcoin can be securely transferred over internet, if its exchange rate is 0, it is still useless)

Traditionally, various kind of digital tokens like airline bonus point, supermarket discount coupon were issued by some organizations. These organizations guarantee that the tokens can be used to exchange goods/services. This ensured those tokens' value

In bitcoin's case, there is no organization guarantee that they will provide certain amount of goods/services for 1 bitcoin. So bitcoin's value become highly dependant on exchanges. Even there are many shops accepting bitcoin payment, if the exchange rate drop to zero, their guarantee is gone

So, why is bitcoin's exchange rate keep rising?

1. Very limited supply of coins and plenty of fiat money supply. Many people buying bitcoin just because they are curious, but they actually lifted the exchange rate since each of them have so much fiat money to spend

2. Due to the fact that people anticipate bitcoin price will rise 10x to 1000x in the near future (by historical data), more and more people will just hold on to their coins indefinitely, this greatly reduced the coin supply on market and raised the exchange rate

3. With more merchant accepting bitcoin payment, more and more bitcoins are used in real economy, this also reduced the coin supply on exchanges

So, bitcoin will always command a high exchange rate, maybe not because of its great functionality, just because there are so many fiat money out there and so little coins on the market

https://bitcointalksearch.org/topic/m.3934640

https://bitcointalksearch.org/topic/m.3916390

The same 3-4 people arguing for the exact same thing in 3-4 different topics.

Why does everyone keep feeding this troll? He's got this "argument" running on 3 separate threads .... just leave him to his gold and silver, he clearly doesn't want bitcoins, just wants to annoy everyone in here. These threads can run for another 20 pages and he'll still be saying the same thing. Leave him be, please.

Actually, many goods with intrinsic value have become less and less valuable since there are plenty of supply, like water or food. Many of today's intrinsic value comes from high end demands, for example communication and entertainment (IPHONE)

Notice that intrinsic value changes over time depends on human's knowledge level. For example, Uranium-235 does not have any intrinsic value 100 years ago before people gained the knowledge about nuclear reaction

Similarly, bitcoin might not have any intrinsic value before people gained the knowledge about money

It is difficult to understand the value of a digital token. But it is also difficult to understand the value of a digital dollar in your bank account. A digital dollar should not have any value since it does not have any cost, but since everyone accept it as a payment medium, it has value, this is primarily a psychological phenomenon. Once everyone gained the knowledge about fiat money, they will discover the value of bitcoin (The value of bitcoin is already stated in the genesis block)

Bitcoin worth something because it has a cost (mining cost). Once it has a cost, it is very difficult to acquire bitcoin below this cost. Maybe not everyone have a demand for bitcoin, but for those who are interested in bitcoin, this cost is the lowest possible price that they will pay for each bitcoin

Bitcoin's price is rising fast because the difficulty (or the cost) is rising fast

Gold bugs against Gold 2.0 bugs (Judean People's Front against the People's Front of Judea)



Yes at the moment people think that Gold has value. Thus they pay something for it (price). That does not mean that Gold actually HAS value. People can think that something has value even though it has no value (to a rational and sane human being). Thus something can have a HIGH PRICE despite having no value. People can be incorrect, and once they figure it out, the PRICE adjust to the objects actual utility (from the perspective of a rational and sane human being) in fullfilling human needs.
(..)
Why is that so difficult to understand?

You cant do ANYTHING with a dollar note except dumping it on the next guy in exchange for some goods/services

So, if you can use bitcoin to exchange some goods/services at certain places, it will be exactly like a dollar note. Don't you think that dollar note is a big ponzi scheme? (The gold used to back the dollar has long gone since 1971, now they are backed by nothing)

You cant produce wealth via mining; you can only waste energy. Wealth is utility. Bitcoin has no utility. You can only dump it on the next guy.

You can create wealth on your own however. Its not like bitcoin has given humans the ability to produce wealth. We already had it. Delusions are strong here.

Now if you mean you can create nothing (bitcoin) out of something (use of energy), I would agree.

I think the best thing a person can do is get the idea of intrinsic value out of their mind, then the world will make more sense.

I don't agree with the argument that Nothing backs Bitcoin because it is backed by one of the greatest ideas that has been pulled off in recent History. The fact that even micro peeps like me can start producing my own wealth and not be at the mercy of the Fractional Banking System that has ruled us for over 700 odd years for me is the greatest value BTC can give Humankind. Also the ease of transactions and low cost variables are a deep plus which is something to sell to the Masses. These alone are great selling points on behalf of Bitcoin but maybe I am biased towards the Freedom Movement.

This.

As an example, we value water because it is highly useful (i.e. required for human survival), therefore the demand for water is extremely high.  If tomorrow a way was found to alleviate entirely the human body's need for water, it's value would be greatly diminished, as it's usefulness had been reduced.  Concomitantly, the demand for water would be diminished.

In the Bitcoin world, the demand for Bitcoins is high because people value them for various reasons such as security, anonymity, easy of transfer, low fees, etc.  If tomorrow a requirement of high fees were somehow introduced, that aspect of its usefulness would be gone, thereby reducing its value.  This would cause the demand to drop.

If this "nothing" actually helps you earn some dollars (which you don't consider as nothing as far as I remember, or at least less (more than) nothing), will it be useful to you?

No. Even if you transfer nothing from peer to peer, anonymously (not possible with bitcoin), at a (low) cost and instantly, its still nothing. I cant do ANYTHING with Bitcoin except dumping it on the next guy. Again, I can only refer to the post above yours: Money has intrinsic value, its essential for its functions.

However I do find it interesting, that you you try SO HARD rationalizing the fact that you are transferring NOTHING. You yourself know deep down, that accepting NOTHING for SOMETHING is unacceptable and that NOTHING cant be money. I dont want to repeat myself so I will refer to the post above yours I made.

 Why is Bitcoin valuable?

This is perhaps the most important topic to address, as nothing else matters if Bitcoin has no value. What makes Bitcoin worth anything? Isn't it just "fake"? Isn't it just a made-up pretend virtual currency? Many say, "I can't hold it, I can't see it, and thus it's artificial and not worth my time." Let's challenge this understandable initial reaction. Let's demonstrate why Bitcoin is valuable, and very much worth one's time.

Financial privacy has long been symbolized by the notorious "Swiss bank account." Yet, anyone with a Swiss bank account has to trust that bank, and as we've seen in the last couple years, "bank privacy" even in Switzerland is a myth - banks there have been bending over for the US government and divulging customer information. So imagine having a private, numbered Swiss bank account, but without having to bother with the Swiss bank itself. That is Bitcoin. Instead of placing your trust in a regulated bank governed by fallible humans, Bitcoin enables you to place your trust in an unregulated cryptographic environment governed by infallible mathematics. 2+2 will always equal 4, no matter how many guns the government points at the equation.

Bitcoin is thus the only currency and money system in the world which has no counter-party risk to hold and to transfer. This is absolutely revolutionary and you should read the preceding sentence again. Gold advocates will point out that physical gold bullion has no counter-party risk, but that is only true for storage in your own home. Store it in a vault or bank and you have counter-party risk. And sending gold? You have to trust all sorts of people if you wish to transfer your gold somewhere else or spend it across distance.

Bitcoin means complete ownership of money both in storage and transfer. Nobody can prevent you from having it. Nobody can prevent you from spending it. Even if one's home is broken into, or even if the government issues a "confiscation order" (as they did with gold in 1933), one's Bitcoins are perfectly safe. Try fleeing a country with $1,000,000 in bullion without the government knowing about it. Easier said than done. With Bitcoin, it's almost easier done than said - you could put $1,000,000 of Bitcoin on a USB drive, or even write the private key on a piece of paper, or just email the wallet file to yourself to be retrieved outside the country.

Starting to see the value? Never in the history of the world has an individual had this ability. It is unprecedented.

No really, WHY is Bitcoin valuable???

At this point, skeptics should say, "okay fine, you can store and spend Bitcoins without interference, but what gives them initial value? Why do they have a price?" It's a very good question, and even expert economists have struggled with the answer.

But really, the answer is simple. Bitcoins have value because A) they are useful and B) they are scarce. Combine those two attributes in any asset and you will discover it has a price. The moment the first Bitcoin was traded to someone in exchange for something else, an exchange rate (market price) was established. Subsequent exchangers agreed or disagreed with that rate, and made further trades accordingly. Bitcoin thus spontaneously developed a price, as do all things in an open market if they are sufficiently useful and sufficiently scarce.

Let's look at value a little further, because it's a contentious issue with Bitcoin. There are many (including Paul Krugman) who believe Bitcoin isn't worth anything and is no more than a speculative bubble fad.

I wouldn't expect Krugman to "get it," but wiser/real economists need only observe metals to start understanding why Bitcoins have value. After all, any strong advocate of gold or silver as money should hopefully understand why these metals should be money. The answer is that these metals tend to be chosen in an open marketplace as money, because their specific properties make them useful as a means of exchange. It is the properties of gold and silver—unique to these metals—which make them excellent money. They are scarce, fungible, uniform, transportable, have a high value-to-weight ratio, are easily identifiable, are highly durable, and their supplies are relatively steady and predictable. Contrast other goods like chickens, or seashells, or sand, and you discover that none of them are as good on the above attributes as precious metals. Chickens can't well be cut in half or recombined, seashells are not uniform, and sand is too plentiful to be used as money. Why not other metals... why don't we use iron as money? It's not scarce enough - you'd need carts of it at the store to go shopping.

As any Austrian economist can tell you, money is merely that commodity in an open market which best satisfies the properties necessary for useful exchange. Gold and silver take the cake every time a violent government doesn't get in the way... or at least, this is true historically. But, this doesn't mean that gold and silver are "perfect, infallible money." Indeed, there are practical problems. One can't easily divide and combine silver coins to make change. One can't easily send large values of gold across distance without hiring security and waiting for transport. One must pay storage fees, or risk theft at home. And, while difficult, it is possible to make fake gold and silver ingots and pass them off in trade as real.

So then it follows that if gold and silver are not perfect money (though admittedly the best we've had), perhaps mankind could discover or invent something that was even better. This is the Bitcoin experiment - the question of whether Bitcoin, with its specific attributes, is an even better form of money than what the marketplace currently enjoys (or in the case of state fiat, is forced to use). If the Austrians are right, and a marketplace tends to chose the medium of exchange which best works as money, and Bitcoin's specific attributes make it excellent money, then perhaps the marketplace will, over time, increasingly use it for such.

The answer so far, is yes. Bitcoin is finding more and more niches for early adoption, which further supports its market price, providing confidence to holders that it will retain value, and this further lends Bitcoin to be used for still more purposes. It's an organic and messy process, full of trial and error, potholes, brilliant innovations and terrible failures. But that's what an open marketplace is, no? Every day a more resilient economy is being built, and not at the point of a gun, but voluntarily - not by decree of Bernanke, but by spontaneous, self-interested private order.

Many have made the argument that "nothing backs Bitcoin." And this is true. Bitcoin cannot be redeemed for any fixed value, nor is it tied to any existing currency or commodity. But, neither is gold. Gold is not backed by anything - it is valuable because it's useful and scarce. Cars are not backed by anything, they are merely useful as cars and thus have value. Food is not backed, nor are computers. All these goods have value in proportion to their usefulness and scarcity, and one merely needs to see the usefulness of Bitcoin to understand why, without backing from any government nor corporation, without being tied to any fiat currency or existing commodity, it commands a price on the market and rightly so.

http://evoorhees.blogspot.com/2012/04/bitcoin-libertarian-introduction.html

The price of an asset going up is already enough to give value to the asset for an individual if his aim is to buy cheap and sell dear. Its utility consists in providing an opportunity to get some profits from speculation. If price heads down the asset loses its usefulness unless he is going to short it...

Anything has value only as long as people are thinking it as having that value which depends on its utility, i.e usefulness. The reasons for valuation may vary (water vs alcohol, bitcoin vs dollar), but the grounds however different they may be or seem to be invariably produce the same scale of estimation within human mind... There is no valuation beyond subjective valuation by people. To say that "people may think something has value even though it has no value" is equal to saying that there is intrinsic value in things (logical necessity) existing beyond an individual's assessment of utility, whereas there is none actually...

Let me say it differenty:

People are actually not even evaluating bitcoins value. They only buy because the price is going up.

Yes at the moment people think that bitcoin has value (most people actually dont even think about bitcoins actual value, but only buy because the price is increasing). Thus they pay something for it (price). That does not mean that bitcoin actually HAS value. People can think that something has value even though it has no value (to a rational and sane human being). Thus something can have a HIGH PRICE despite having no value. People can be incorrect, and once they figure it out, the PRICE adjust to the objects actual utility (from the perspective of a rational and sane human being) in fullfilling human needs.

This is typical of a bubble: people think the object has enormous value and thus pay an enormous price. Once they realize that they have overestimated the objects value or that it has non at all, the price they are willing to pay collapses.

Why is that so difficult to understand?

I think that you really understand that your reasoning is false. If people didn't value bitcoin they wouldn't care to exchange anything for it, whether it ultimately turns out to be a pyramid or not. This is pretty evident. Actually, it is more interesting now why you are still going on with this garbage here...

I never said that utility of an object is the same for each person. However everybody needs to eat and drink. Thus food and water have utility for everyone. Nobody can do anything with BTC except dump it on the next guy. It has 0 value. You will agree with me once this pyramid collapses.

There is no utility existing on its own. Utility is always subjective and differs between people. In fact, even for one individual the utility of the same thing is different at different times (see the law of marginal utility). If anything had utility on its own, no exchange would be possible at all...

I have refuted both of these points already. That you cant grasp it shows how much emotional capital you have invested in this bubble. You WANT to believe bitcoin has value because you own it. You cant see straight. Again you fail to differentiate between price (what something costs) and value (what you get).

1. It is not a store of value as it has not value on its own.

2. As it has no value you are not transferring value when you transfer bitcoin.

You can do NOTHING with bitcoin except dumping it on the next guy.

This is a classical pyramid scheme.

Actually, it is you who are confusing issues here. The monetary worthiness of something which is determined through exchange is called price...

I think we're both confusing which "value" the other is talking about.

Value
1. the regard that something is held to deserve; the importance, worth, or usefulness of something.
2. estimate the monetary worth of (something).

Your saying that because someone perceives to value (no. ) a G/S they will purchase it, or be willing to purchase it thus creating demand. My argument is that it is this demand which in turn results in it having value (no. 2).

lets all agree that intrinsic is a synonym and means something that has utility on its own. these pedantic arguments are really annoying.

No, if people would not value something, why the heck would they want to buy it in the first place (i.e. create demand for it)? Value is the cause of demand, demand is the effect of value, if this clarifies things a little. The notion of supply is superfluous here and, yes, it is caused by demand (either open or hidden)...

Actually, I'm pretty sure you have it the wrong way around. Supply comes from the fact that there is value, with value in in itself being derived from the fact that there is demand. Supply does not dictate demand, instead suppliers will move to fit the demands of the consumers. If no one in the world demands your signed t-shirt then it has no value and then no one will bother to supply it. If there is demand, someone will eventually find a way to supply such a demand (provided it is viable).

I don't know whom you replied actually, but no, demand comes from value, not the other way round. And your case just confirms it. People would value signed t-shirts, and thereby arises demand for them...

Bitcoin is backed up by its inherent properties which people value because these properties help them reach their aims. Things as such are valueless..

Surely value comes from demand? If I own a signed t-shirt, and 1000 people want it because the person signing it is famous, its going to be worth far more i.e. more valuable than if a nobody signed it and only they wanted it 

Just to add most people on the planet don't even have access to a bank account at the moment. I predict in these countries, a similar thing will happen that happened with phones i.e. skipped landlines and went straight to mobile. People will skip bank accounts and go straight to bitcoin wallets.

Value doesn't come from demand, quite the opposite. Some value should necessarily exist before to support demand. And the intrinsic value you refer to here is called utility, i.e. usefulness for achieving individual's ends. How on earth could value be intrinsic if it changes with people's preferences?

Many people say that bitcoin does not have intrinsic value, they typically compare it to gold and say at least you can make some jewelry using gold

Value comes from demand. If someday, people's preference changed and there is no demand for gold jewelry, then gold will not have intrinsic value anymore

Bitcoin's intrinsic value also comes from demand, maybe it is difficult to see the demand for a single bitcoin, but the whole bitcoin network can satisfy 2 major demands:

1. Securely store value in a digital form

2. Securely transfer that value worldwide instantly

There are demands in both area, gold or fiat money can not fulfill these demands

For the first demand, people might pick an online bank account, but due to the inflative nature of fiat money, it is not secure: The value of the saving account is getting less every year and the bank can freeze your account when they wish to do so

For the second demand, bitcoin enabled almost free international value transfer, just like internet enabled almost free international telephone call

Another usually asked question is: What is backing bitcoin? It is backed by all the bitcoin miners around the globe with the most powerful network in the world, and one single consensus of never generating more than 21 million coins

It is all about how to store and transfer value securely in a digital form. Before bitcoin, there is no way to do this without rely on a third party

But to work as a currency, it must have stable exchange value, that is not the strength of bitcoin, at least not before reaching a full market saturation