You Say Bitcoin Has No Intrinsic Value? Twenty-two Reasons to Think Again.
I haven't posted here for a while and it's looking quiet so I'll stir things up a bit. Here's a reposting of an article I did recently. What do you think?
You Say Bitcoin Has No Intrinsic Value? Twenty-two Reasons to Think Again.
Intrinsic Value Defined:
Let’s agree what the term “Intrinsic Value” means. For this article we will use the common Wikipedia entry for the intrinsic theory of value. This is found at:http://en.wikipedia.org/wiki/Intrinsic_theory_of_value
An intrinsic theory of value (also called theory of objective value) is any theory of value in economics which holds that the value of an object, good or service, is intrinsic or contained in the item itself. Most such theories look to the process of producing an item, and the costs involved in that process, as a measure of the item’s intrinsic value.
What are some properties contained in the bitcoin itself? What are the properties that make it valuable? Some pundits like Warren Buffett seem to remain stuck in the belief that only things you can touch, feel, and see can be intrinsically valuable. One might wonder how these pundits would explain unseen forces of DNA, radio spectrum, viruses, bacteria, or even recent technological advances such as software or internet bandwidth.
Some say that gold and silver are the main standard bearer of intrinsic value mainly because of its perception and history of value. But to a starving person, a loaf of bread holds much more intrinsic value in that it might keep you alive. It doesn’t really matter to a starving person that gold has been used for 6,000 years, or that the loaf of bread might not be worth anything in a month from now.
Two valid points come from the precious metals arguments: Perception of value, and actual usefulness. For the most part, gold isn’t all that useful; based on that aspect alone, silver is much more valuable. Perception of value in gold these days is mainly propagated by those few who own it and have a vested interested in making the rest of the world continue to believe that it still does. This appears to be becoming less important as it seems to be slowly disappearing from the consciousness of the youth of the world. The only gold coins seen by much of today’s young people exist in games like Clash of Clans.
So now let’s talk about the properties that are found in bitcoin that are unique or ground-breaking. These properties did not exist before bitcoin. Some people would rightly point out that many of these properties can be duplicated. There is, however, one extremely important factor that separates bitcoin from any other digital coins on the horizon: the protective shell created by the network that prevents it from being hacked or commandeered. Keep that critical piece of knowledge in the back of your mind as we review this list. That is a titanic gulf separating bitcoin from the crowd. Bitcoin snuck up on an unsuspecting world; bitcoin 2.0, whatever that may be, will have a target on its back.
Bitcoin intrinsic value properties:
- It transcends nations, politics, religions, cultures and regulations. These vary from country to country in ways that may seem bizarre to populations out of its own borders. While one may believe that governments always have their best interests at heart, it may be wise to see that knife cuts both ways. Some drugs are banned in certain states or countries that are allowed in others. Bibles are banned from purchase is some countries. Religion, custom, dogma, superstitions prevent various purchases based on man-made borders that continually shift over time. These policies tend to be created by limited segments of populations that can be self-serving. If one happens to be included in the “correct” political party, race, religion, items can be purchased or outlawed. It’s all opinion.
The US government bans online gambling. Is this a moral decision? Many of the same governments think it morally acceptable to hold their own state-lotteries. The lotteries hold significantly worse odds and tends to target those in the community that are the least educated and most susceptible to poverty, alcohol abuse, and have a generally poor understanding ofmathematical probability. Many have gone on to say that lotteries are simply “a tax on people bad at math”. Many argue that this is a double standard of governments which prevents them from taking the moral high ground.
2. It requires no trust. (in the short term). It can’t be counterfeit. There is a record of who owns it (by wallet id) and its validity is publicly known. It requires no central clearing house. With any other currency, one must trust the government from which it is issued will continue to maintain its value by not “overprinting” to pay for its own mismanagement. You can send it globally without having to trust anybody. This is not true with any state issued country, bank, credit card company, or anybody else. Volatility and long-term trust is still building, but when one transacts in bitcoin, nobody gets in-between sender and receiver unless agreed beforehand. It’s permission-less.
3. It can be transparent. By making wallet IDs public, one can track the flow of money through other transparent wallets. You cannot do that with any other currency. You can use this feature to do things like monitor your children’s use. This can make obsolete entire industries that are built solely on the fact that money can be hidden, disguised, cheated, etc. These can also happen to bitcoin, but pressure can be applied by the people to make it transparent and accountable when needed. Auditors may insist on it for compliance. The list of possibilities of this intrinsically valuable feature can scarcely be imagined.
4. It can be programmable. Plans for product layers on top of bitcoin to further its use to become spendable based on contracts that can be programmed to complete with built in variables, or be valid to purchase only certain items. Insist your college bound kid buys books and not beer for example. Or based on GPS in a cell phone, you could send your kids off shopping and it could be programmed to be spendable only in certain stores.
5. It can require multi-signatures. Wallets containing the currency can be set to only unlock with more than one signing key. This will leave hackers and thieves frustrated. Try doing that with your grandpa’s money. It is an intrinsic piece of bitcoin technology.
6. It can be spent over the internet without a bank account, credit report, identification, and pre-permissions. Prepaid credit cards can do some of these functions, but only to locations and countries that accept credit cards. This list of locations in countries outside of the US is actually decreasing with the amount of fraud in the networks. Technically, the only item limiting of bitcoin is the merchant’s acceptance of it. Given the natural law of least resistance, these limitations could erode as more merchants around the world realize the potential savings. The network effect will continue to work its magic.
7. It can store irrevocable and time stamped records of transactions. Absolute clarity of events and their corresponding order is available in the block chain. Proof of ownership and purchase can be established without a third party. The trusted and reliable distributed ledger cannot reasonably be altered (barring a massive scale network attack which becomes less likely as the network grows).
8. It allows you to keep your identity from being stolen. Bitcoin is nobody’s debt. Paying with bitcoin isn’t a “promise to pay”. It is payment in full. This could potentially reduces fraud related expenses on massive scale.http://www.statisticbrain.com/credit-card-fraud-statistics/ There is no need for a merchant to get bank information or any other kind of personal information that can be later used in identity theft.
9. It allows movement across borders. It can defeat government issued capital controls. The same governments try to hold their own citizens “hostage” monetarily by outlawing movement of money outside its own borders. Ask any citizen from any country ravaged by hyperinflation if this is important. Could it be possible that it might ever become important in the USA? If you can foresee the day people will be clamoring to get out of the US dollar, where do you think they are going to go? Ask Argentina.
10. The same wallet can be used anywhere in the world with a connection to the internet. As the money exists on the global ledger, all you need is the key. This can be memorized, or written on any piece of paper – even confined inside a microdot the size of the period that ends this sentence. Some old time gold bugs say you can’t bribe the border guards with bitcoin like you can gold. In the future, border guards will have cellphones and internet access too. We aren’t living in the 1960s Vietnam or before any longer.
11. It can move independently of banking rules, laws, and restrictions. The people in the USA may think this unimportant in their bubble view of the world, but is this also true of the 150 or so currencies and countries with terrible track records? Which other currency enjoys this property? Will enough of the world outside of the US believe it to be so? Is it hard to imagine the properties of bitcoin being intrinsically valued by populations subjected to terrible economic policies? It only takes a billion people in India fed up with corruption to want an escape mechanism out of the control of the system. At that point, they won’t give a hoot about what some American pundit said on “bubble vision” about intrinsic value.
12. It can be used to resist corruption. If the citizens stand up united and demand a transparent government, they can use bitcoin to follow the money in the same way governments use powers at their disposal for surveillance on their own populations. In today’s world money corrupts. In tomorrow’s maybe it will become vice-versa. Let’s see if 86% of the world agrees that any tool that makes less opportunity for corruption is valuable.
13. It can be made to settle contracts without other parties. You can program it to settle contracts based on certain events such as date, proof of ownership, death, or a host of other factors that can be validated programmatically without a third party to validate if the conditions were met. It can be used as a record keeping asset tag, and proof of ownership. Ownership of the private key to the bitcoin is by definition, the owner. In addition, it can be the source record of ownership for property title, copyrights, and intellectual property that transcends borders and locally interpreted laws. In effect, the records become the de-facto “single source of truth”. The currency itself is globally accessible proof of ownership. Can these functions and properties be reasonably argued to be valuable beyond the currency itself?
14. There are no age requirements. Paying for items in a global world requires bank accounts. Bank accounts are legal properties that can only be established with those of legal age (18 in most locations). There is no minimum age requirement to pay for items globally using bitcoin. How many people under 18 have cell phones, AND need to spend money with no credit card. Smart businesses have started to recognize this intrinsically valuable potential.
15. It is more difficult to be used as surveillance. The main attributes of money are often quoted these days, but one attribute is rarely mentioned. Money has become surveillance. As people continue to learn of the horrors of the NSA and other government efforts to spy on every aspect of their lives, it only takes one person drunk with power to make all the well-intention sounding policies reverse into shocking horror. One government required Jews to register themselves for easy identification, which was then used to “dispose” of them.
Now one’s religion, race, gender, national origin, political party, age, place of work, address, and much more can be determined by how and where one spends their money. To those who think they have nothing to worry about because they are not doing anything wrong, might ask themselves, what did the Jews have to fear during the time they were self-registering? They also were not (generally) doing anything wrong. That’s only one example in a history littered with them. Is the ability to obscure one’s spending habits intrinsically valuable? Is it possible to imagine how much of the population of the world would think it is?
16. Bitcoin as money bandwidth. If one were to transfer value between large companies or nations, much of the world has discovered bitcoin to be a very efficient payment network to do this. If bitcoin was thought of as envelopes to be stuffed with dollars or other currencies for transport, only the size of the envelope itself that contains the dollars inside would be the limiting factor. To increase the ability and usefulness of this feature, the envelopes represented in bitcoin price will have to inflate enormously to take on that load. TheFederal Reserve and former Vice Presidents have caught on. So has smart Venture Capitalist firms that have a knack for being one step ahead of everybody else.
17. It can be the basis of a new eco system. Right now entire new ecosystemsare being built up around the new currency (in use, if not government recognition). Gold towns sprang up into eco-systems but crashed when the gold veins ran dry. We know exactly how deep the bitcoin well can go and the rate at which it will be found. What other modern day ecosystems are being built because of the intrinsic values of a currency?
18. It can upend centuries-old money monopolies. The strangleholds on monetary policy continue to be held by relatively few extremely wealthy families for centuries. Bitcoin has the possibility to change the paradigm completely. These banks will likely find ways to maintain their power and wealth and there is nothing preventing them from moving into digital currencies to maintain it. However, which other currency has the possibility to change the dynamic? Many in the world will likely place much value in the paradigm shift that is possible. When was the last time a monetary unit threatened to rewrite the rules from the ground up?
19. Democratization of money. An explosive report from a whistleblower from the World Bank reports that all networked banking infrastructure throughout the entire world can be traced back to 12 people who make decisions at the privately controlled US Federal Reserve bank. Consensus driven, public records, and democratization of money made possible by bitcoin, might change the rules.
20. Gives the unbanked population access to banking features they might not otherwise enjoy. As the much smaller digital currency M-Pesa proved, the poverty riddled villages with no access to banking were able to lift themselves out of poverty with simple abilities to pay suppliers and start businesses. With the cross border scale and usability of bitcoin, imagine the same results x 1,000. Are there any national currencies up to this task?
21. It can be extremely hard to steal. Muggers of the future will be at a loss for what to do with the bitcoin they can’t take from your wallet or purse. That money will be no good to them without the private keys to spend it. There likely will no longer be credit cards there was well. Could robbery itself become obsolete? Hackers will soon have a difficult time stealing money from multi-signature wallets.
22. It represents economic freedom. Because of all of the reasons stated above, it might as well be called the currency of freedom. Dictators will hate it. Totalitarian governments will hate it in proportion equal to the amount ofcorruption the government enjoys. The worst countries for freedom believe that money exist primarily to serve the country and personal ownership of it is just an illusion they can confiscate at will. Banks technically own it as soon it’s deposited. Through court order, government taxation, or inflation, they always get it back. Bitcoin offers some protection. We become our own bank.
Many people will likely debate this list. Others might be open to the suggestion that if just ONE of these factors is agreeable to most reasonable people, the description used by Wikipedia might also be applied to bitcoin. A year from now, there might be another list compiled that is just as long as this one – of things that can’t possibly be imagined today.
Indeed… Bitcoin is not dead. I think the we are ready to start discussing the second coming, and possibly buying more at this time. Excellent article Mark.
You forgot this one;
Bitcoin is an electronic ledger, a copy of which is kept on every participant’s computer in the network, and all of which are continually updated, reconciled, and synchronized in real-time. Every participant can make entries in this ledger, which records transactions of a certain amount of currency from one participant to another participant, and every one of those entries is then propagated to the network in realtime, so that every copy on every computer is updated near simultaneously and all copies of the ledger are kept synchronized. The official term for this public, distributed ledger is the ‘blockchain’ (which you can see here), and it uses Bittorrent technology to keep all copies synchronized.
You can also think of Bitcoin not as a currency but as a general solution to a difficult algorithmic problem in the field of distributed systems, colloquially known as Byzantine Fault Tolerance, the Byzantine Generals Problem, or the Two Generals Problem…..
Triple entry public ledger
A ledger is a principal book or a digital representation for recording and totaling monetary transactions into accounts, with a beginning balance and ending balance for each account. It is a permanent summary of all amounts entered into it, listing individual transactions by date/time and other properties. It’s a time-stamped entry into a book or file that denotes a financial transaction which has existed in some point in time.
Modern accounting is based on a double entry system – to put it simply, double entry bookkeeping allows firms to maintain records that reflect what the firm owns and owes and also what the firm has earned and spent over any given period of time. The setbacks of double entry bookkeeping becomes apparent when companies are expected to reveal their records to an independent third part. The independent public auditor, whose role was (and is) to serve as an independent guarantor of financial information is the trusted third party in this equation. However, with the Blockchain, the trusted third party is no longer required.
Triple entry bookkeeping is an upgrade to the inferior double entry system in which all entries involving outside parties are cryptographically secured. This is where the Blockchain shines – rather than these entries be entered separately into independent sets of books, they occur in the form of a transfer between two blocks on the Blockchain, creating an interlocking chain of mutually exclusive & incorruptible records. Since the entries are distributed and cryptographically secured, manipulation or falsification of said records is practically impossible.
Trace Mayer talks about that and lots of other Bitcoin topics in this excellent interview;
Thanks for posting those articles. I hadn't read the details about the "general's problem" that explained it as well as this one does, I was waiting for something like that to come along.
The Trace Meyer interview was great. I had just caught that a few days ago. I really admire Trace, I wished he would have made it on the Bitcoin Foundation board.