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Here's Satoshi's response to the "intrinsic value" problem: https://bitcointalk.org/index.php?topic=583.msg11405#msg11405 https://bitcointalk.org/index.php?top

Here's Satoshi's response to the "intrinsic value" problem: https://bitcointalk.org/index.php?topic=583.msg11405#msg11405 https://bitcointalk.org/index.php?topic=583.msg11405#msg1140...

oleganza 13y ago
Quoted that for you: As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose and one special, magical property: - can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I'm using the word scarce here to only mean limited potential supply)
- digitalengineer 13y ago
  Good link in your links: As I see it, BitCoins do qualify as money when they are used as currency — which they actually are — because they are present goods, the same way that software or an mp3 file are also a present goods. And they are useful as currency because they have good properties as a medium of exchange: They are scarce, homogeneus, difficult to fake, easy to identify (this could be improved), easy to transport, divisible, etc. The perceived utilitiy of these properties is what makes Bitcoins valuable. Purchasing power is a consequence of utility, not the opposite. It would make the BitCoins value more stable if they could be used for a non monetary purpose. Maybe some cryptographic application? I think that it would be a good idea for the BitCoin community to research for a non monetary utility for the BitCoins. As long as BitCoins don´t have a non monetary utility, Mises followers are correct when they say that if BitCoins loses its currency status, then their value would drop to zero, the question is, how much value would also lose silver or gold if they were not used as currency or store of value anymore? BitCoins are not risk-free, as nothing in life is risk-free. It´s a matter of choice. Gold has been valuable for over 4.000 years, Bitcoins? 4, and that's already longer than the Tulip Mania ;-) We'll see how it works out but it sure is interesting. http://eleconomistaprudente.wordpress.com/2011/06/06/bitcoins-and-mises%C2%B4s-regression-theorem/ http://eleconomistaprudente.wordpress.com/2011/06/06/bitcoin...
orblivion 13y ago
Well, I'm glad Satoshi got right to the point. So many defenders come up with these roundabout counterarguments. "There's value in the system" "As I understand, its intrinsic value come from being so easy to spend across the world" The bottom line is, there is a belief that there can be a currency bootstrapped into an exchange rate, with no compelling reason to have it other than to pass it on to the next. It's a hard one to argue either way, but I'm still holding out in camp "no". Here's a simple engineering analogy since I'm among engineers. In both cases, valuation is based on some sort of subjective valuation (advocates love to point this one out, which is why I don't use the phase "intrinsic value" anymore, they're right that there's really no such thing). In both cases, prices can swing wildly. This is because there is a positive feedback loop constantly pushing prices in either direction, from people subjectively reacting to previous prices and wanting to follow suit. However the consumable commodity has an additional negative feedback loop, from people always ready to buy if prices get low enough, without regard to future expected prices, because they just want a pretty ring.
- digitalengineer 13y ago
  Correct. Not only because they want a pretty ring, also because it's what their culture demands and has demanded for century's. (India, Asia, heck even Germany with it's 'hard money'-policy finds it's roots in a defense against a debasement of the currency). We should not forget we are the generation that has never seen a currency connected to something intrinsic like gold. (I'm referring to the closing of the gold-window by Nixon in the 70's). We are viewing this through our own culture.
  - orblivion 13y ago
    The biggest thing that makes me doubt my position is the fact that the gold window was closed and the US hasn't collapsed in 40 years. Even if there's a slow debasement, that's not what I expect to happen to Bitcoin, [edit to clarify] I expect it to collapse very quickly. I know there's the "you need dollars to pay taxes" argument. But that doesn't sit right with me. It's not a fixed amount of dollars, it's a percentage of your salary. Exchange rates of the dollar can go down, people's real salaries go down, and the real amount of taxes they pay go down. There's no negative feedback loop.

Here's Satoshi's response to the "intrinsic value" problem: https://bitcointalk.org/index.php?topic=583.msg11405#msg11405 https://bitcointalk.org/index.php?topic=583.msg11405#msg1140...

oleganza 13y ago

Quoted that for you: As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose and one special, magical property: - can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I'm using the word scarce here to only mean limited potential supply)

digitalengineer 13y ago
Good link in your links: As I see it, BitCoins do qualify as money when they are used as currency — which they actually are — because they are present goods, the same way that software or an mp3 file are also a present goods. And they are useful as currency because they have good properties as a medium of exchange: They are scarce, homogeneus, difficult to fake, easy to identify (this could be improved), easy to transport, divisible, etc. The perceived utilitiy of these properties is what makes Bitcoins valuable. Purchasing power is a consequence of utility, not the opposite. It would make the BitCoins value more stable if they could be used for a non monetary purpose. Maybe some cryptographic application? I think that it would be a good idea for the BitCoin community to research for a non monetary utility for the BitCoins. As long as BitCoins don´t have a non monetary utility, Mises followers are correct when they say that if BitCoins loses its currency status, then their value would drop to zero, the question is, how much value would also lose silver or gold if they were not used as currency or store of value anymore? BitCoins are not risk-free, as nothing in life is risk-free. It´s a matter of choice. Gold has been valuable for over 4.000 years, Bitcoins? 4, and that's already longer than the Tulip Mania ;-) We'll see how it works out but it sure is interesting. http://eleconomistaprudente.wordpress.com/2011/06/06/bitcoins-and-mises%C2%B4s-regression-theorem/ http://eleconomistaprudente.wordpress.com/2011/06/06/bitcoin...

orblivion 13y ago

Well, I'm glad Satoshi got right to the point. So many defenders come up with these roundabout counterarguments. "There's value in the system" "As I understand, its intrinsic value come from being so easy to spend across the world" The bottom line is, there is a belief that there can be a currency bootstrapped into an exchange rate, with no compelling reason to have it other than to pass it on to the next. It's a hard one to argue either way, but I'm still holding out in camp "no". Here's a simple engineering analogy since I'm among engineers. In both cases, valuation is based on some sort of subjective valuation (advocates love to point this one out, which is why I don't use the phase "intrinsic value" anymore, they're right that there's really no such thing). In both cases, prices can swing wildly. This is because there is a positive feedback loop constantly pushing prices in either direction, from people subjectively reacting to previous prices and wanting to follow suit. However the consumable commodity has an additional negative feedback loop, from people always ready to buy if prices get low enough, without regard to future expected prices, because they just want a pretty ring.

digitalengineer 13y ago
Correct. Not only because they want a pretty ring, also because it's what their culture demands and has demanded for century's. (India, Asia, heck even Germany with it's 'hard money'-policy finds it's roots in a defense against a debasement of the currency). We should not forget we are the generation that has never seen a currency connected to something intrinsic like gold. (I'm referring to the closing of the gold-window by Nixon in the 70's). We are viewing this through our own culture.
- orblivion 13y ago
  The biggest thing that makes me doubt my position is the fact that the gold window was closed and the US hasn't collapsed in 40 years. Even if there's a slow debasement, that's not what I expect to happen to Bitcoin, [edit to clarify] I expect it to collapse very quickly. I know there's the "you need dollars to pay taxes" argument. But that doesn't sit right with me. It's not a fixed amount of dollars, it's a percentage of your salary. Exchange rates of the dollar can go down, people's real salaries go down, and the real amount of taxes they pay go down. There's no negative feedback loop.