Topic: Regression theorem & Bitcoin revisited - page 5. (Read 5406 times)

If bitcoin is to fit the regression theorem, then yes bitcoin would need to have an intrinsic, or more accurately, a barterable value.

This discussion isn't really about bitcoin, though, is it?  Bitcoin clearly has a value and clearly has utility as a money.  This discussion, I think, is really about the validity of the regression theorem.  Because if bitcoin doesn't fit the theorem, then the theorem is disproven.

As for whether my point is a long shot, it isn't.  It's exactly dead on.  That's why I'm surprised that the point never comes up.  It's impressive that Satoshi saw the barterability of proof-of-work tokens and jumped right from there to turning them into money.  To understand both cryptography and economics enough to see this possibility and actually implement it is a stroke of genius.

That was a long shot. Do you really need there to be intrinsic value in bitcoins?

This never seems to come up in these regression theorem discussions:

https://en.bitcoin.it/wiki/Proof_of_work



So, the proof-of-work token is originally valuable because it lets you send email, and because it is also divisible fungible and countable it inevitably gets used as money. 

This quote from the OP's original post is the key, when reviewing the regression thrum in reverse from its origin through time; you see the only real money is a commodity that has a measurable benefit (something like wheat / corn) and all other money is a derivative of that.

The transition from a corn to gold was most likely a market driven transition. Arguably the food commodity money transitions to a token system like gold was a messy process and took generations. That jump is very similar to the transition from Fiat to Bitcoin crypto currency.

A side note: the original lure of gold was most likely it reflected excess recourses in a community, and as a result gave one a symbol for "food prosperity" hence its desirability and people willing to pay in life sustaining recourses to attain it.  (bitcoin's  comparison to digital Jewellery is appropriate in my opinion)

In support of the regression thrum, Adam Smith gives us insight as to how the value of mined metals were derived, during this transition, effectively you needed excess production in corn to invest in feeding the miners  and the metal was valued higher than its production cost, market forces them sculpted human action in relation to how corn was invested.

Bitcoin fits this model to a tee,  people originally exchanged it for near to the production cost, then for pricing determined by the market, all the while the transition is analogues to that of a food commodity being exchanged for a metal like silver of gold, (just at the speed of fibrotic light).

That said, Miesis understood the issue of money inflation more than anyone and his regression thrum addresses this issue but doesn't emphasise it enough, over 98 % of money to day is just money by association, and its only connection to money is it was printed in the same name as the money before it.

Leaving the argument with Bitcoin and regression thrum a little moot, the real problem is Fiat, not lining Bitcoin to the regression chain to prove its validity.

Actually this is a really good point. Gold that is still in the ground isn't worth anything. It's only when it's dug up that it gets it's value because now someone put effort into transforming that lump of rock into something more pure and more beautifully shaped that the person who dug it up and other people now value. And this is as true today as it was back when the only use gold saw was as jewellery  (imagine some guy finding a pretty rock and coming home and giving as a present to his wife saying "look what I found, isn't it pretty..).

The same could be argued about the calculated hashes.. By themselves they are meaningless and worthless but it's because someone did the calculations and found those numbers and gathered them into a blockchain that they were valuable to them and then to others.

I haven't read all the stuff here, but just about that: I would argue, that in the case of gold, bitcoin & co, it boils down to reduction of entropy. for gold, you have to find and combine all the tiny bits (atoms) to bigger chunks. That reduces the scattering, i.e. entropy. this needs energy! bitcoin: the low hash value is one of the purest forms of entropy reduction you can get. also needs energy.

so, only the cost of making something doesn't count, but it counts if its goal is to make something "special" or "unique".

This is actually basically what I've been saying in a couple of other threads. I view bitcoins more as a commodity than a typical modern day currency, but since they are currently in the process of being used more and more for trade, they are moving into the commodity currency territory, as far as I'm concerned. Gold did the same thing, way back when.

Good stuff sgbett!

Commodities have certain properties. They are physical tangible good that cannot be replicated. They have some value to people (some say intrinsic value, i agree with the previous poster that says no such thing as intrinsic value - without a person to assign value, then something has no value!).They can be created, discovered or brought into existence in some way, and they can be destroyed, lost etc mostly the commodity exists in a quantifiable way and the quantity of a commodity is subject to the physical laws of nature. Gold must be mined, oil must be drilled etc

Bitcoin satisfies the conditions of a commodity, save one - it is not a physical tangible good. It's virtual existence though is governed by probability, its very unlikely that any virtual bitcoin can be 'duplicated', the so called double spend. Unless the encryption scheme is broken somehow. As it stands the probability of this is low enough that we accept that bitcoins cannot be replicated.

I think then, the value of bitcoin is that it is a scarce commodity. A commodity that does not require physical storage space, requires negligible effort to trade (think in terms of energy to ship from A to B). A commodity that can be traded almost anonymously, almost instantly, internationally, and in spite of governmental trade restrictions. No other tangible, traceable, valuable commodity can come close to bitcoin in this respect. I think that gives it enormous value. It's value is mitigated by risks. The risk it will be broken, the risk it will be criminalised etc

Bitcoins have value because they are a commodity not a currency. They have value in spite of the USD exchange rate, and not because of it. Thats how I see it!

There is no such thing as "intrinsic" value. Value is subjective, no debate.

Bitcoin is valued as a medium of exchange. You can't make zero fee online transactions that aren't tied to your real-life identity with any other exchange medium. This has value!

I think the regression theorem doesn't account for the fact that the "initial demand" of a currency can indeed be as a currency. People need to trade and trade is more efficient with a medium of exchange. The market values currency itself as currency.

Thank you for this explanation.  I think your reasoning is correct, and this is a good way to explain it.

I would also argue that prior to being exchanged for goods and other currencies, bitcoins were valued for interest sake alone.  I know that when I first started investigating bitcoin, I was concerned that they didn't appear to have a prior value on the market, until I realized that I was so interested in them I was interested in purchasing them merely to try them out.  That proved they had value as entertainment, education, etc.  I'm not sure if that's materially different from your "jewelry" analogy.

Today it's clear bitcoins have value in a number of cases, international currency transactions being one prime example.  Now that they do have value, they satisfy the regression theorem.

Regression is useful when you are trying to understand how we got from barter with useful objects to where we are today.

Now that we are here, it hardly seems necessary to theorize on why we would want to switch from less useful monopoly money to more useful monopoly money.

I think your reasoning was very solid.

But i'd probably shoot straight at the core of monetary utility.

Gold has zero internet utility (even with the best compression methods it cannot be transfered over IP). While "cryptography+communication" does, so much that without it we couldn't have the kind of internet we have, and that's what gives bitcoin a physical backing.

Which seems to have been his final argument (which btw is invalid, something becomes money once 1 or more people accept it as valuable):

The cost to make something does not give it value.

My idea of bitcoin and the regression theorem is that maybe it applies maybe it's too much of a stretch, but it doesn't matter. Like the vaccine/evolution comment implies, just because there is a known route to something doesn't mean everything needs to take that route in order to work.
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Oh I know and I agree with you. I was just trying, and failing, at playing devil's advocate. Next time, Gadget.. Next time.

Consider the value of the ashes of beautiful furniture.

The cost to make something does not give it value.

My idea of bitcoin and the regression theorem is that maybe it applies maybe it's too much of a stretch, but it doesn't matter. Like the vaccine/evolution comment implies, just because there is a known route to something doesn't mean everything needs to take that route in order to work.

But couldn't you say that the resources were exhausted and therefore the remnant of them is the coin? I'm not referring in this case to an exchange, but that the bitcoin itself is an extension of the very things it consumed in being created.

Though I suppose on second thought that isn't a very good parallel, since we do not think of dollars as having any value for the paper they are printed on (though we theoretically could).

The electricity that went into creating the block could not be intrinsic value of bitcoins - because you can not take the electricity out again.

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

Funny story, but this part


Intrinsic value is the value apart from its moneyness: Nice to look at, electric conductivity, can make really thin sheets.