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The author has a belief in "intrinsic value" which doesn't exist from an economical perspective. Value is demand/supply. The demand for bitcoin is for it's long

by npoc 2y ago

The author has a belief in "intrinsic value" which doesn't exist from an economical perspective. Value is demand/supply. The demand for bitcoin is for it's long-term store-of-value properties and the supply is hard-fixed.

deleted 2y ago
[deleted]
jazzyjackson 2y ago
Are the properties and capabilities of the whole system not intrinsic? Maybe I don't quite understand the meaning of the word, but it seems to me the intrinsic value of gold is a result of things-you-can-do-with-it (whether that's to prevent corrosion via plating or spiritually elevate via gilding etc) - why shouldn't bitcoins value lie in things-it-can-do, namely, be arbitrarily subdivided and have control transferred to another keyholder ? Whether this is a useful thing is subjective, but they are properties baked into the thing itself. Edit: nvm I see you're making a different point, that the usefulness of a thing is not correlated to the value. But still I think demand is not entirely divorced from usefulness.
- npoc 2y ago
  Demand is completely linked to usefulness. What most people don't understand is that gold's primary use is as a scarce, divisible, fungible store of value. This is why it has a market cap of $18T. Not because it's shiny, or used in electronics - it's predominately because there are trillions of dollars of economic value looking for a safe place to be stored. Safe from theft by legislation (see https://thegreattaking.com https://thegreattaking.com), and safe from theft via supply inflation (see https://imgur.com/a/DG8zWbe https://imgur.com/a/DG8zWbe).
tptacek 2y ago
Price is supply and demand. Things have (or don't have) intrinsic utility. Value can mean either, as well as other things.
- npoc 2y ago
  Could you give an example of something with a price >0, but no intrinsic utility? Also, demand / supply equals value, not price. The price is determined by the value / value of the thing you're pricing in. For example the value of the dollar is halved every decade through supply inflation, which doubles the price of something even if its economic value has remained constant (real estate and gold are good examples)
  - tptacek 2y ago
    No, I don't believe that is an economically rigorous definition of value.
alphazard 2y ago
We only infer value through market transactions, and we are actually inferring a bound on the surplus rather than the precise value being exchanged. It does make sense to draw distinctions between different kinds of value, and often "intrinsic" and "extrinsic" are used, even if they may not be great terms. I can give a few examples. - In options pricing. The intrinsic value is determined by what the contract says happens at expiration. The contract is enforced by the authorities like any other legal contract. The extrinsic value is the name we give to the value that must exist to make up the difference between the intrinsic value and the current market price. It's sort of like the "dark energy" of the option. - Gold is said to have intrinsic value because it can be used as a material in ways that other material's can't. It can be used as an input to whatever industrial process regardless of what humans have to say about it. There is additional value implied by the price of Gold, just as there is with the price of an Option. Intrinsic value means something like "if the other market participants disappeared, the value the last person holding the thing could still get from it". Maybe as a matter of semantics, you would exclude this from the "economic perspective". In the case of Bitcoin, intrinsic value may just not exist (as you seem to imply).
- npoc 2y ago
  Intrinsic value for an option's strike price is a special case, as the value is fixed to a historical moment by prior agreement. Correct me if I'm wrong, but it seems from the rest of your post that you see intrinsic value as "non-economic usefulness". But gold's primary usefulness is as the best physical hard money due to it's fundamental properties: scarce, divisible, indestructible, recognisable, fungible, assayable (its weight, colour and softness) However, your definition states: > "if the other market participants disappeared, the value the last person holding the thing could still get from it" and money has no use/value if there is no one to transact with (i.e. no other market participants) So if we were to agree that intrinsic value is the usefulness of something but with the exception of any purely economic/market use, then to use "it has no intrinsic value" as an argument for why something would not be a good money (as the author does) makes no sense, as it ignores the exact usefulness that would make it a good money.
kayo_20211030 2y ago
A tough one, this. I think intrinsic does exist from an economical perspective in a somewhat roundabout way. In the most banal case, in the US, a dollar has actual (intrinsic?) value. I'll grant you it's merely a piece of paper, with some number of calories released if you burn it; but as a practical matter, it can be used to pay your taxes - a necessary thing if you live in the US. (There's a whole side conversation about how money is created, but let's put that aside for the moment) Honest question, does the dollar have intrinsic value, or not? It's not much different from BC in the abstract, but laws, conventions and traditions grant it some intrinsic-ness, even if it's just to keep the IRS off my doorstep. I kind of fall on the side of the OP. If BC isn't much better than the dollar in abstract terms, why bother treating it differently from a good weekend in Vegas?
- npoc 2y ago
  To discuss whether the dollar has intrinsic value, we need to agree on the definition of intrinsic value, and my hypothesis is that it doesn't actually exist from an economics perspective. We simply have the demand for something (due to perceived usefulness) and the available supply. If we talk about plain usefulness, then both the dollar and bitcoin are useful as money - they have fundamental properties that are well suited for use as money. However, the dollar has a great weakness - its scarcity is both poor and artificial. Poor because its supply doubles every decade (halving the economic value it would otherwise have). This effectively sucks half the value out of the dollars that make up our wages, pensions and savings, and injects it into the new dollars. Artificial is a weakness because it can be created effortlessly by a select few people (the banks) and it's supply is only limited by interest rates which are set by the same people. This means that the banks can create money effortlessly that everyone else has to work for, making them EXTREMELY rich through the interest payments on the money they print while doing negligible work (they can create billions of dollars at a few keystrokes). On the other hand, bitcoin has fixed issuance ultimately culminating in perfect scarceness (hard limit of 21M) and the creation of new bitcoins requires work of equal value (just like gold for example), which keeps everything fair.

by npoc 2y ago

deleted 2y ago

[deleted]

jazzyjackson 2y ago

Are the properties and capabilities of the whole system not intrinsic? Maybe I don't quite understand the meaning of the word, but it seems to me the intrinsic value of gold is a result of things-you-can-do-with-it (whether that's to prevent corrosion via plating or spiritually elevate via gilding etc) - why shouldn't bitcoins value lie in things-it-can-do, namely, be arbitrarily subdivided and have control transferred to another keyholder ? Whether this is a useful thing is subjective, but they are properties baked into the thing itself. Edit: nvm I see you're making a different point, that the usefulness of a thing is not correlated to the value. But still I think demand is not entirely divorced from usefulness.

npoc 2y ago
Demand is completely linked to usefulness. What most people don't understand is that gold's primary use is as a scarce, divisible, fungible store of value. This is why it has a market cap of $18T. Not because it's shiny, or used in electronics - it's predominately because there are trillions of dollars of economic value looking for a safe place to be stored. Safe from theft by legislation (see https://thegreattaking.com https://thegreattaking.com), and safe from theft via supply inflation (see https://imgur.com/a/DG8zWbe https://imgur.com/a/DG8zWbe).

tptacek 2y ago

Price is supply and demand. Things have (or don't have) intrinsic utility. Value can mean either, as well as other things.

npoc 2y ago
Could you give an example of something with a price >0, but no intrinsic utility? Also, demand / supply equals value, not price. The price is determined by the value / value of the thing you're pricing in. For example the value of the dollar is halved every decade through supply inflation, which doubles the price of something even if its economic value has remained constant (real estate and gold are good examples)
- tptacek 2y ago
  No, I don't believe that is an economically rigorous definition of value.

alphazard 2y ago

We only infer value through market transactions, and we are actually inferring a bound on the surplus rather than the precise value being exchanged. It does make sense to draw distinctions between different kinds of value, and often "intrinsic" and "extrinsic" are used, even if they may not be great terms. I can give a few examples. - In options pricing. The intrinsic value is determined by what the contract says happens at expiration. The contract is enforced by the authorities like any other legal contract. The extrinsic value is the name we give to the value that must exist to make up the difference between the intrinsic value and the current market price. It's sort of like the "dark energy" of the option. - Gold is said to have intrinsic value because it can be used as a material in ways that other material's can't. It can be used as an input to whatever industrial process regardless of what humans have to say about it. There is additional value implied by the price of Gold, just as there is with the price of an Option. Intrinsic value means something like "if the other market participants disappeared, the value the last person holding the thing could still get from it". Maybe as a matter of semantics, you would exclude this from the "economic perspective". In the case of Bitcoin, intrinsic value may just not exist (as you seem to imply).

npoc 2y ago
Intrinsic value for an option's strike price is a special case, as the value is fixed to a historical moment by prior agreement. Correct me if I'm wrong, but it seems from the rest of your post that you see intrinsic value as "non-economic usefulness". But gold's primary usefulness is as the best physical hard money due to it's fundamental properties: scarce, divisible, indestructible, recognisable, fungible, assayable (its weight, colour and softness) However, your definition states: > "if the other market participants disappeared, the value the last person holding the thing could still get from it" and money has no use/value if there is no one to transact with (i.e. no other market participants) So if we were to agree that intrinsic value is the usefulness of something but with the exception of any purely economic/market use, then to use "it has no intrinsic value" as an argument for why something would not be a good money (as the author does) makes no sense, as it ignores the exact usefulness that would make it a good money.

kayo_20211030 2y ago

A tough one, this. I think intrinsic does exist from an economical perspective in a somewhat roundabout way. In the most banal case, in the US, a dollar has actual (intrinsic?) value. I'll grant you it's merely a piece of paper, with some number of calories released if you burn it; but as a practical matter, it can be used to pay your taxes - a necessary thing if you live in the US. (There's a whole side conversation about how money is created, but let's put that aside for the moment) Honest question, does the dollar have intrinsic value, or not? It's not much different from BC in the abstract, but laws, conventions and traditions grant it some intrinsic-ness, even if it's just to keep the IRS off my doorstep. I kind of fall on the side of the OP. If BC isn't much better than the dollar in abstract terms, why bother treating it differently from a good weekend in Vegas?

npoc 2y ago
To discuss whether the dollar has intrinsic value, we need to agree on the definition of intrinsic value, and my hypothesis is that it doesn't actually exist from an economics perspective. We simply have the demand for something (due to perceived usefulness) and the available supply. If we talk about plain usefulness, then both the dollar and bitcoin are useful as money - they have fundamental properties that are well suited for use as money. However, the dollar has a great weakness - its scarcity is both poor and artificial. Poor because its supply doubles every decade (halving the economic value it would otherwise have). This effectively sucks half the value out of the dollars that make up our wages, pensions and savings, and injects it into the new dollars. Artificial is a weakness because it can be created effortlessly by a select few people (the banks) and it's supply is only limited by interest rates which are set by the same people. This means that the banks can create money effortlessly that everyone else has to work for, making them EXTREMELY rich through the interest payments on the money they print while doing negligible work (they can create billions of dollars at a few keystrokes). On the other hand, bitcoin has fixed issuance ultimately culminating in perfect scarceness (hard limit of 21M) and the creation of new bitcoins requires work of equal value (just like gold for example), which keeps everything fair.