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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:

  1. 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 of mathematical 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. The Federal 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 ecosystems are 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 of corruption 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.

Let the debates begin.

BTC: 1C6LXez44MSvsVzzuFuP4yXXeyc7Muo7i8

By

Mark has spent close to 25 years working and advising in various IT roles for government, retail and healthcare industries. He graduated with a BS in Business Management from the University of Phoenix which taught nothing about bitcoin. He's into hardware and has a thing for Indian motorcycles.

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  • http://cryptolix.com Cryptolix

    Excellent thoughts Mark. The reasons you provide here make it easy to see why there seems to be so much resistance to BTC by the Chinese government. One wonders how soon it will be before we see a firestorm of protest to cryptocurrencies in general by the USA “powers that be”.

  • captain kirk

    Great ! Cryptocoins will help us abolish money is thé 23th.

  • Mark Rees

    Just a reminder that all value is subjective; as I pointed out with the loaf of bread section. Each of the 22 points that follow assume that SOMEBODY would find that property valuable. Properties on their own can’t be valuable until somebody says they are. I think I made the case each time that somebody could. – As I myself found them to be valuable, to my subjective opinion they qualify. I would be shocked if everybody agreed with all of them. What did I get wrong? Which item is NOT a property, and which item is NOT valuable in your opinion?

    Also it’s silly that people say the block-chain and payment network is valuable but the bitcoin itself is not. The bitcoin is your ticket to ride. Good luck using that block chain without a bitcoin. And if you don’t like that block-chain go ahead and build your own as many alt-coins have done. Then good luck getting it to scale like bitcoin’s own and convincing the world to switch. Its computing power is currently running ~ 2500 times the top 500 supercomputers on earth and growing which is used to protect the network and ledger. Having somebody try to explain how to use the network and ledger without using a bitcoin will be…entertaining.

    • Marcus

      Beat me to it.

    • Zyo

      Of course, this can be said for all currencies created by any government. History show that over time all fiat currency die. Older currency like sterling pound were backed by silver and USD were back by gold. Now they only decline in value because what you said: somebody need to find it valuable.

      Rarity usually create value. That were bitcoin start, they are limited… just like silver, gold, diamond or anything physically real. But can be send over the internet… unlike anything physically real.

  • Dawie

    Great summary to debunk naysayers’ limited perspectives

  • http://raszl.com/ iraszl

    Allows for micro-transactions and safe from rogue governments or banks.

  • Satoshi

    Value is subjective. So no such thing as intrinsic value can exist. Other than that, great article.

    • G Trieste

      Energy has intrinsic, unsubjective worth.

      • http://extropolitca.blogspot.com Mirco Romanato

        The worth of a gallon of gasoline doused on your head and alight is different from the value of the same gallon of gasoline inside the tank of your car.

        But a gallon of gasoline is and the energy content is the same.

        • G Trieste

          Well it depends on what you want to do.
          If your goal is a burning head, then the worth of the gallon of gas is more on your head than in your car.
          Most others value it in their car though.
          In both cases, the energy content is the same.

          • http://extropolitca.blogspot.com Mirco Romanato

            We agree the energy content is the same but if you need to write “it depend” its value is not objective/intrinsic but subjective. It is in the eye of the beholder and depend on his motivation and understanding.

          • G Trieste

            The “it” that I am referring to, is what a person wants to do with the energy.
            His intent is subjective, but the amount of energy he can do it with is objective, and intrinsic.

          • http://extropolitca.blogspot.com Mirco Romanato

            you wrote this:
            “Energy has intrinsic, unsubjective worth.”

            Worth is subjective.
            Energy worth is subjective too.

          • G Trieste

            Some things’ worthiness is subjective.
            Those are not things you would base a currency on.
            There are other things that have objective, intrinsic, invariable worth.
            Those are the things you would base a currency upon.

  • http://www.BIGbtc.ca Merchant Integration

    Mark, Nice work!

  • Mirelo

    Bitcoin is either a commodity or money, and it can only have intrinsic value as a commodity. Those interested in the success of Bitcoin as actual money should look forward to its losing all intrinsic value.

    • Mark Rees

      Which of the 22 would you like to see us live without?

      • techenomics

        He is correct. If you believe that Bitcoin’s price is going to be over $10,000; then, you and other people would not spend it. If Bitcoins are not spent, then it fails to be a currency.

        • testconpastas

          false!. you can use it and buy more after to hold your stack

        • http://homelesstribe.com PureApeshit

          nonsense, tablet i bought 2 years ago cost me 200 euros, i knew very well it will be cheaper and better in near future. after two years i bought 2x better tablet for half the price.

          The needs are needs and you spend even u sure the value will increase in future. Just you will be more conservative with spending which, even completely scary in eyes of economist, in real world is very good thing as it will reduce the ridiculous consumption of nonsense items.

        • Mirelo

          This argument is false. My contention is that money does not need to have intrinsic value to function as money. In Bitcoin, that function is even incompatible with intrinsic value (as Bitcoin is only useful as money). Bitcoin only has intrinsic value when priced in other forms of money. When acting itself as money, its qualities are just its utility. On the other hand, its intrinsic value (that expressed in its price) depends entirely on the prospects about its utility.

          • Mark Rees

            All money (even currency) has some intrinsic value. For national currencies, some of these qualities.
            1. It is required to pay taxes –
            2. It’s legal tender – backed by the court system as satisfaction for all debts public and private – backed by its government.
            3. Accepted for payment by all merchants in one’s country.
            4. Recognizable.

            Those are four qualities the bitcoin DOESN’T have.

          • techenomics

            That does not change anything. I still have no incentive to spend my bitcoins when I believe it will be $10,000. 64% of bitcoins are not spent and most people just hoard it.

          • Mirelo

            This only means you did not invest in Bitcoin more than your investment money, which you don’t need to spend. This decision reflects just your personal attitude about Bitcoin (that of treating it as an investment), instead of a general economic law.

          • Mark Rees

            Let’s do a thought experiment with your theory techenomics. Say your strategy was so good, everybody followed it. If nobody spent their bitcoins, how would they derive any price? They would sit in meaningless wallets. Word of usefulness would not get out. Benefits mentioned in the article would never be realized because you need people to act, not just have knowledge.
            The continued efforts of savings would quagmire and no circulation at all would render the coins worthless. So your strategy would just implode – and your coins become worthless. Your expectations are self-defeating. Studies at MIT have shown the opposite is true. Most newcomers to bitcoin spend them. Theories that state percentages of bitcoins that are never spent make an assumption that they are “spendable” but somebody is choosing not to.

            Included in that assumption are :”dead coins”. The unfortunate fellow in the UK accidentally discarded his hard drive holding thousands that now sits in a landfill that won’t allow him to dig it up. But in the block chain, nobody knows which are his, and they assume they are still being “horded”. I’ve heard of hundreds of cases where they’ve been deleted, or the password forgotten. The block-chain is showing them, but they are “ghosts”. Coins that are long dead but continuing to echo through time. There has been some effort for people to voluntarily report their own “dead coins” they’ve accidentally made worthless by forgetting passwords, deleting them, or sending to invalid wallet addresses. You can search that thread on “Cointalk.org”. I believe they have tracked around one million dead coins that will never be used. How many of those show up in the 64% number you state?
            There are many that hang onto coins, but make bitcoin purchases – and just refill to replace them, so they can have their cake and eat it too. This might make more sense if you want the value to increase.

          • Mirelo

            Intrinsic value is not intrinsic properties or qualities: it is the exchange value derived from those intrinsic properties or qualities. Otherwise, the notion would be rather meaningless as everything has intrinsic properties or qualities: everything would have intrinsic value.

      • Mirelo

        Bitcoin does not need to have a price for having those 22 qualities, but it needs to become an actual medium of exchange to realize them: its qualities do not need to give it intrinsic value to make it useful. There is nothing wrong with Bitcoin increasing in price, but its success depends on people realizing its qualities as its utility, not its price. Otherwise, people will start being suspicious about the reality, completeness, or effectiveness of those qualities. It is fine to stress Bitcoin’s qualities, but not as intrinsic value: there is already too much focus on Bitcoin’s price.

        • Mark Rees

          People need reasons to want to use bitcoin. If it has no intrinsic qualities like those I’ve mentioned, what is the compelling reason to use it rather than the paper money they already use? I believe it is BECAUSE of these qualities that people will use it. They can use it in ways they haven’t imagined yet. Price will eventually equalize and as you see PRICE was not an intrinsic value, that would be an extrinsic value(result, not cause).
          The old saying “everyone has their price” is absolutely true. The law of supply and demand eventually will spur people to finally give them up when they need to spend one. This will pry them loose from “misers”. It’s easy enough to buy more immediately after you spend it, so for that 10 minutes you aren’t out anything. That’s the great thing about a fungible currency. You’re not giving up a house or anything that can’t be replaced with another one just like the one you just sold. Nobody will be building a close emotional relationship to one invisible unit. The next one shares the same properties and will substitute just fine. Having these properties is a good thing.

          • Mirelo

            Intrinsic value is exchange value derived from intrinsic properties, not those properties themselves. For example, gold has intrinsic value because it has exchange value derived from its beauty, which does not depend on its functioning as money. Bitcoin has no exchange value derived from its non-monetary properties, which it does not have. Bitcoin can only have intrinsic value as a commodity, not as money, and it can only be a commodity as the promise of its becoming money.

          • Mark Rees

            It looks like you are looking at the concept of economic theory that doesn’t align with the version used by Wikipedia and the basis for the article. It’s important to agree to the definition of terms to provide common ground to speak about it. What you are saying is valid, but out of scope for this discussion. But to entertain your view for a moment, there were a few properties that qualify for bitcoin use besides as a money itself.

            # 7 – acts as record keeping for data and order of transactions (doesn’t necessarily involve cost (A Satoshi is .00000001 of a full bitcoin and thus currently value-less) Yes you can “Spend” that amount to record an event you want registered.

            #13 – use in contracts. Say just to replace the function of a Notary Public. If valued in satoshi transaction records – if you can replace the price a notary public charges (say $10) there is a huge savings potential.

            #17 – Looking over the list of companies that are in development and coming up – you’ll likely see many that are not planning on using the concept as money itself.

            There are many more ways to use it without it being money using layers of applications that are being developed to be build on top (Ethereum, Mastercoin, Counterparty, side-chains ..etc) – It appears they all need to “hook” to bitcoin to work.

          • Mirelo

            The Wikipedia article is about intrinsic value economic theories, which give the word “intrinsic” the strong meaning of something inherently objective. However, the use of the expression “intrinsic value” is not a monopoly of those theories. I use it to mean any exchange value of money derived from its intrinsic properties as an object, independently of representing money. Despite enumerating properties and utilities of Bitcoin indistinctly, your article does a fairly good job in showing how Bitcoin can be useful. What you do not realize is that the intrinsic value of Bitcoin is not only derived from those properties or utilities, but also requires Bitcoin to remain a priced commodity. Again, there is nothing wrong with Bitcoin being itself priced, provided we remember not only that then it is not functioning as actual money, but also that all this priced value depends on the prospect of Bitcoin eventually pricing more than being priced.

          • Dimitri Andre

            encryption software has intrinsic value, which is derived from there contextual perceptions(to express and transmnit value when at whim) utility and network effect.

          • Mirelo

            Bitcoin is not just software: it is (or should be) money. However, it cannot be money by having its potential utility priced, only by being itself the pricing object. You must choose: either Bitcoin has intrinsic value by remaining just another commodity, or it loses its intrinsic value to start pricing everything else as actual money.

          • Dimitri Andre

            1. Bitcoin is just software(really great software)
            2. It can be money, and is working as money right now, even if its price in other currencies, everybody else around the is used to juggling with multiple volatile currenies, get over it with your first world problem!!
            3. i choose both cause like point 1 its software and can be applied to many uses. Gold did the same thing but you can’t send it over the internet.

          • Mirelo

            By Bitcoin I refer to the electronic cash system designed by Satoshi Nakamoto, which is only useful as money, not to its underlying technology. In this monetary sense, Bitcoin cannot be both a commodity and money for the same person, at the same time: either you buy things with it (as money) or you buy and sell it (as a commodity). Finally, Bitcoin being a commodity depends on its prospect of becoming money. So it can be just money, but not just a commodity.

          • Dimitri Andre

            ‘CASH’ is money and money is a medium of exchange. Anything can be money so long as you can buy stuff with it and thats including money itself(ie forex) And bitcoin like many other commodities were and can be both a commodity and money for the same person at the same time, simply because your using the commodity as a medium exchange(think gold, silver, and cowry shells. Bitcoin is already a commodity(encrypted network software) and it just needs acceptance by more people to become BETTER money(cause it already is functioning as money).

          • Mirelo

            The same person cannot buy bitcoins and at the same time use them to buy something else. Therefore, pricing Bitcoin as a commodity requires delaying its use as a medium of exchange, and using it as a medium of exchange prevents pricing it as a commodity. Additionally, the exchange value of Bitcoin as a commodity just prices its future utility as money: people believing Bitcoin will have no utility as money would make its price go to zero. So it cannot be a commodity without being useful as money, which makes it fundamentally different from gold or any other commodity money, which is useful in other ways than as money.

          • Guest

            Bitcoin cannot be a commodity the same way gold or silver can, simply because, unlike precious metals, it has no utility other than functioning as money: treating it as a commodity requires reducing its usefulness to its mere potential.

  • techenomics

    “So now let’s talk about the properties that are found in bitcoin that are unique or ground-breaking.”

    All the properties found in Bitcoin are also found in other cryptocurrencies. These properties are not exclusive to Bitcoin.

    • Mark Rees

      Yes, you forgot to keep the tidbit of info I recommended you keep in the back of your mind: From paragraph 5….

      *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.*

      • techenomics

        “the protective shell created by the network that prevents it from being hacked or commandeered”

        That protective shell can be available to other crypto in other forms of security such as Proof-of-Transaction, Proof-of-Stake or any other forms of enhanced security. For example Goldcoin claims to have solved the 51% attack which Bitcoin is still vulnerable to if miners no longer find Bitcoin mining profitable. Look deeper.

        • Mark Rees

          I do own various other alt-coins and I recognize there are some promising new fun developments. But none have a five the year track record of being unsuccessfully hacked by the world with big incentive ( ~6 billion dollars) . Bitcoin has proved it’s tough and resilient to attackers, although exchanges and wallet holders have proved less trustworthy..
          Hopefully the proof-of-stake theories will prove fruitful as well. Many people might find it wise to let the “proof of stake” ideas vet for a few years, just to make sure no unintended consequences develop.

  • Jose Perez

    What is the “democratization of money”? This concept is as far from the reality of Bitcoin as democracy is far from being a just or rational system. Clearly, having an arbitrary majority of people does not make their whims valuable or legitimately enforceable over the resulting arbitrary minority; and neither does Bitcoin function by imposing the validity of transactions over the rest of the network.
    The value of Bitcoin is, as you rightly say, in its decentralized integrity, and that is what will make it win. The practicalities you mention are as subject to the personal preferences (and misconceptions, like “democratization”) of users as they are for the case of gold or bread…

    • Mark Rees

      What I mean by democratization of money is that it allows the will of the people to provide ballast. Current nation currency monetary decisions are implemented and enforced by an extreme minority of regulators, bankers, and politicians, mainly rigged to keep themselves in the powerful positions.

      Their efforts of control effect the other 99.999999999% of the world. Bitcoin by comparison – will have to be agreed on by 50.000001% of the miners that process the transactions. Because they are (likely) representative of people throughout the world with a mix of religion, cultures, politics, and ideals, changes will eventually be heavily vetted and extremely slow to change. They will only allow changes that benefit themselves – which likely also aligns with the best interest of the network.

      Satoshi brilliantly aligned the system to be self regulating by making the mining and network process appealing to the same people that will benefit directly from the stability. It’s a master of “Game Theory”. He also puts the economic view of free market economist master “Adam Smith” to work:

      “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

      • Jose Perez

        I understand what you mean, but you some of what you say points in the direction of freedom (participation in the system is voluntary or responding to incentive) and some points in the other direction (people can control Bitcoin, politics, religion…). No, “people” cannot control Bitcoin precisely because it is engineered so that it will be in the best interest of the individual to keep it as it is (fundamentally), not of the collective. You seem to mistake the keeping of the blockchain with political decision-making… The idea that “people” can control anything or have a “will” belongs to the mysticism of politics and religion, has no place in Bitcoin, and time will tell that this is true.

        Besides, the “benevolence of the butcher” is, if you notice, how “butchers” tend to be motivated – however wrong they may be about what benevolence means. Still, the most powerful force in this world is morality, not profit.

        • Mark Rees

          Sorry for any confusion – we all understand it’s complicated and we are in uncharted water. I don’t think, or intended to imply that block-chain upkeep would be a political decision (yet). But it’s important to remember that bitcoin is just a technology. It is used by people that are influenced by politics, religion, culture and so forth, it might be difficult to divorce those aspects of human nature. So those aspects will influence how they use the technology. (or choose not to).

          I can see one possible direction of the technology. As it is trust-less, and countries themselves do not trust each other’s monetary policies, Could it be possible that in absence of a gold standard, and loss of trust for the US dollar to be the world reserve currency because of trillion dollar spending budget deficits -might the nations of the world collectively choose something else that is neutral to every country? One that can be inspected, transferred and viewed by all? If nations themselves choose to adapt bitcoin (or something like it), nations themselves will have self-interest in keeping mining verification process going- if only to protect the network – and keep each other honest in a monetary “cold war”?

          Bitcoin could “Stumble into greatness” from that possibility alone. Yet, that possibility didn’t make the list. :-)

          • Jose Perez

            Well, at least I understand it and am not in “uncharted waters”. Many others – though, granted, a very small minority – understand that “nations” and such do not exist like a human being exists, and do not have a “will” as you seem to think they do. It is as simple as this: unless the mafiosos at the top control more than 50% of computational resources, or do away with the internet, they cannot control or substantially modify the working of Bitcoin, which responds to individual incentives, not collective. An aggregation of individuals – each with their own will and preferences – is not a “nation”, “state” or anything like that, and obviously transcends them all insofar as it is objective and rational – and therefore does not understand arbitrary conceptual restrictions.

  • Nioc Tib

    Way too many good reasons which are scaring off banksters and politicians. They don’t want to openly regulate it.

  • RageOfReason

    Very nice list of valuable characteristics. But I think we mix two types of value when we talk about bitcoin; utility value and monetary value. Your list, I would argue, is utility value. It’s hard to say which of these (or in what proportion) the market price of bitcoin reflects. Personally I think it’s a mistake to think of bitcoin as having monetary value because it’s kinda fails on the three characteristics money should have (store of value, medium of exchange and unit of account). That’s not to discount the utility value though.

    • Mark Rees

      It’s true. I purposely left out any monetary value because it is extrinsic. (my theory that intrinsic is the “cause” and extrinsic is the “effect”). Reasoning of value based on price alone becomes circular. But one can make the case that because “x” currency bought “y” amount of product yesterday, we expect it will purchase the same again the next day. Once it builds enough momentum and expectation – it becomes its own “flywheel” and carries momentum that will be slower to change one way or the next. That’s a ways off as bitcoin currently only does about ~10 transactions per second. Once it scales to 10,000 transactions per second the flywheel should be spinning nice and smooth.

      • RageOfReason

        That’s a good point Mark. I haven’t studied the early economic history of say gold but I can easily imagine it started first with users being attracted to gold’s utility value (fungible, scarce..) to solve particular problems and then acquiring the characteristics of money – and then the relevant price.
        I wonder if bitcoin’s price needs to reflect the utility value more ‘honestly’ to attract new users (i.e. cheaper) and build mind share / momentum. Perhaps that’s happening and why we’ve seen the price stall for a while. It seems that’s the Ripple strategy with ripple being touted not so much as money in itself but as the price you pay to use the system.

    • Mirelo

      Monetary value is the exchange value, not of the object expressing it (money), but rather of the merchandise it prices. In the money we have today, this value is indistinguishable from the exchange value of the object representing it, hence the confusion. Bitcoin has no non-monetary properties from which to derive a non-monetary exchange value. It can only have such an intrinsic value by people pricing its potential as actual money, which becomes impossible at the same time and for the same person it starts functioning that way.

      • RageOfReason

        Right now it’s tricky to separate utility from monetary value. But in the future, once the transaction fees become the main income for miners, the aggregate transaction fees will effectively be the utility value of the system as a whole.
        I may be misunderstanding you but In current money (and credit) it is possible to separate the two; we can figure out the cost of paper money (I think central bank web-sites often quote this) and in the case of credit cards (I know, I know) the fees are effectively the utility value.
        Your last sentence nails the dilemma and in particular, ‘pricing its potential as money’, implies virtually nothing to support a price level except speculation – until mass adoption.

        • Mirelo

          By “utility value” I guess you mean “cost.” When miners earn only transaction fees, those fees will be the cost of maintaining the system, like bank fees or taxes to finance paper money production are today.
          The problem with our current money is that it makes itself no difference between its monetary value and its representing object. When you look at a banknote, you cannot see any such distinction: it is just a concrete object, as if all its exchange value were intrinsic to it. Likewise, gold seems to have exchange value in itself, as a consequence of its beauty. Bitcoin, on the other hand, represents its monetary value as a private key, which it then also represents as a public key. When you look at the public key, you know you are not looking directly to its monetary value (the corresponding private key). This is how Bitcoin eliminates any confusion between the exchange value of an object and its represented monetary value: it eliminates the confusion between that object itself and that represented value. The only confusion left is between the prospect of Bitcoin functioning as money, by which it can have a price, and its already functioning that way.

          • RageOfReason

            By utility value I meant Mark’s list if 22 characteristics. Cost would be the price I’m willing (or rather, have to pay, if there are no cheaper alternatives) to pay for that utility. In the same way that I hand over $10 a month (that would be the cost of utility value) to my Bank to use ATM, debits etc.

            You might be right that, without reflection, a banknote seems to have no distinction between it’s value as an object and what it represents. However the important think is what happens when you test that perception. If I cut a banknote into 5 pieces it’s destroyed at an object, but I can take those 5 pieces to a bank and get a new one (in fact in all G7 countries if you take > 50% of a banknote to a central bank they’ll give you a whole new one).

            Also most money in the system is not notes or gold but electronic in deposit accounts. I can’t see it but I value it the same as a banknote. The essential difference between bitcoin and fiat is that fiat is a claim on the issuer, bitcoin has no issuer. But of course if I go to a central bank to claim the promise on a banknote – I’ll just get another banknote…

          • Mirelo

            Mark listed 22 properties (and utilities) of Bitcoin. For those properties to have an exchange value, Bitcoin must be a commodity. Then, the exchange value of Bitcoin’s properties will find expression in its price. Otherwise, those properties have no exchange value.
            You called total transaction fees the “utility value” of Bitcoin. That is what I referred to as “cost”: the cost of maintaining the network, which is now inflation and fees and will after 2140 be just fees. This cost has nothing to do with how much a BTC “costs.” Still, there is nothing wrong with calling the Bitcoin price its “cost”: it is just confusing since cost applies better to production or maintenance costs.
            Being able to replace a destroyed banknote is precisely a result from its being indistinguishable from its represented monetary value: were it something different from that value, the government would not replace your damaged note (just as nobody can replace your lost bitcoins). Bank accounts have the same problem: they are indistinguishable from their balance, the same way a banknote is indistinguishable from its monetary value, or gold from its buying power. Fractional-reserve banking is today entirely dependent on bank accounts being indistinguishable from their deposited money: if any loan you take from a bank did not “merge” with the account in which it is deposited, then it could not be considered brand new money, and fractional-reserve banking would become impossible.

  • Marc C

    All 22 true. No2, not 100% regarding the way many wallets are kept, trusted on centralized holders like Bitstamp. Not to forget that many did lost by trusting MtGox
    23. If used within Ripple you may add No 23: fast transactions/payments in a few seconds and irreversible safety

    • Mark Rees

      Well those weren’t a failing of bitcoin, it was a failing of wallet holders, exchanges,and the like. Those kinds of things can happen with any currency. If those were “required” for bitcoin, I would have needed to account for it, but many people never used those service processors and made out just fine. So I should probably noted that *if you hold your own wallet and not allow somebody between you and party you are exchanging. But you have to have “trust” that the currency will remain valuable of the long term which you probably can’t at this point (6-12 month time frames). Very short time frames usually ok.(1 – 6 hours) Year over year it seems to have always done very nicely

      • Marc C

        So true, only lasting point 23 as the bigger problem for Bitcoin: transaction SPEED. Can be solved by Ripple, but Bitcoin integrated in Ripple means that again you’ve to use a gateway service for Bitcoin and that we fallback in the problem of trust. If you count it all up, the better solution might be Ripple with Bitcoin as a potential value storage, but XRP as the better option for this. Because with Ripple you’ve the best of two: all advantages of Bitcoin and the speed of Ripple and the direct integration of XRP as value storage (in a cold wallet if you want to have the pure security on your own) and as a bonus the integrated exchanges and bridges with fiat, Bitcoin…

  • Mobarth

    Is it’s ‘intrinsic value’ it’s usefulness as a currency?
    It has the above benefits.

  • Mark

    Great points Mark. Money is what we all collectively decide has value. Your points on silver over gold are right on as well! The opportunities and uses for Bitcoin will grow exponentially overtime with acceptance and understanding. Question Mark et al: What is the best, safest and easiest wallet to use?

    • Mark Rees

      blockchain.info

    • Rod

      I recommend the Mycelium Wallet for Android phones; best non-desktop wallet out there, IMO.

  • Milly Bitcoin

    You are confusing the value of a Bitcoin with the value of the Bitcoin protocol.

    • Mark Rees

      I have yet to see somebody explain how I can have one without the other. As bitcoin (small b) is your ticket to ride and get any benefit from the protocol. It is the “Packet of data” that travels the protocol. That’s like saying TCP/IP is valuable, but only if you don’t use it to switch and route data packets. What???

      • Milly Bitcoin

        The exchange rate is not based on how valuable the protocol is. A bitcoin does have, and never will have, the type of “intrinsic value” that investors discuss. The article should explain that rather than go off on some hyperbolic claim that bitcoins have intrinsic value.

        • Mark Rees

          Doesn’t really matter what you or I think. People will value them based on their own subjective opinion and the exchange rate reflects that opinion. I lay out reasons why they *might*. I make no assertions that everybody should agree with my subjective opinion. I think you’ll see that most reasonable people would be open to that suggestion. I would be careful about using the words NEVER as that could be narcissistic to the extreme. We don’t live in the land of infinity. Some might think is sounds radical to suggest anybody could speak for the world.

          • Milly Bitcoin

            It is a definition, not a subjective opinion. If the Bitcoin network ends, say because people stop mining, then bitcoins would be worthless no matter what the protocol does.

          • Mark Rees

            True, and if were using hypothetical situations, if the world ends tomorrow, nothing will. Given the right circumstance – you could say *fill in the blank* can also become worthless.I make no claim that this will be the case forever – just why some people might see value that others don’t. Simple. You can take that for what it’s worth. I’m happy we all have our own opinions and would worry if everybody agreed with me. I appreciate your opinion Milly,.

          • Milly Bitcoin

            You are confusing market value with intrinsic value. If the exchange rate at all the exchanges goes to zero bitcoins do not otherwise have value.

  • guest

    >Just a reminder that all value is subjective; as I pointed out with the loaf of bread section

    In that case bitcoin doesn’t have intrinsic value. And in other words, your whole article and position is baseless and inconsistent nonsense.

    • Mark Rees

      I guess we’ll see. If enough people believe this list is accurate your point won’t mean much, except to yourself. I propose that the features listed here will be extremely valuable to some for the reasons stated here. They won’t care much what you think. (or me for that matter) they only care about what’s in it for them. If it allows them to do the things describe in this article – that’s enough.

      • eric s

        great rebuttal

  • guest

    >But to a starving person, a loaf of bread holds much more intrinsic value in that it might keep you alive.

    yeah. Except that a gram of gold can buy you a few hundred kilos of bread.

    • Mark Rees

      Only if one values the gold more than the bread. To one’s subjective mind, the gold is worth more. Each person in that trade think they are getting the better deal.If they are both starving, guess which one is more valuable?

  • http://www.stlcoin.org/ Rick – STLcoin

    “All money is a matter of belief.” -Adam Smith. Have faith

  • http://www.newevangelization.info David Roemer

    I’v read four books about bitcoins and glanced over all these comments. No one seems to know about the regression theory of money, which is based on the concept of indirect exchange. If a fisherman and tobacco farmer trade, and one smokes the tobacco and the other eats the fish, that is direct exchange. If the fisherman does not smoke but uses the tobacco to trade that is indirect change and the tobacco is the medium of indirect exchange, which is called money. It increases the usefulness of tobacco. The purchasing power of money in the immediate present is determined by its purchasing power in the immediate past.

    Money in the U.S is dollar bills, checking account deposits, and savings accounts at banks. Dollar bills get their purchasing power from the fact that it could be exchanged for gold at some point in the past. It kept its purchasing power even though the government stopped converting dollars to gold.

    • Mark Rees

      Watch for my future article I’m working on explaining why bitcoin value will come from the “flywheel” it creates. Also, look up the words of Jeffery Tucker on the matter.

  • Jeeves

    Make some bitcoin. http://freebitco.in/?r=378575

  • Samuel Velasco
  • http://extropolitca.blogspot.com Mirco Romanato

    Intrinsic value do not exist.
    Value is subjective.
    Intrinsic properties are not intrinsic value.
    The value of something is dependant on its properties. More the properties are desirable higher the value is.

    • Mark Rees

      Yes, I said as much. These are properties, then each are evaluated with respect of who might VALUE those properties. Not everybody would be expected to place the same value on each property as that is subjective. The very first paragraph was used to define intrinsic value of money- that is the basis for the foundation of the entire article, If you can’t agree on terms for common ground for a point to start a discussion, you might as well not have a discussion. If we are trying to determine overall value and perhaps pick an economic price, it may be wise to see the same properties from other’s point of view other than your own. The price will move based on the combined valuation of different people for different reasons. Especially for a completely disruptive technologies as digital currencies. This isn’t by any means considered a end-all be-all…this just scratches the surface. I could give you another 22 not even spoken about off the top of my head.

  • Tusk_Bilasimo

    Great Article Mark