Bitcoin Series 6: Intrinsic value - it is not that simple

One of the most frustrating discussions about bitcoin is the concept that it has no ‘intrinsic value’.  

First of all, that characterization is itself inaccurate when it comes to bitcoin.   A natively digital fungible transportable secure currency that millions of people accept has value has intrinsic value.

The naysayers would say “but this concept that it has value is itself a bubble, a delusion, it must return to its ‘instrinsic’ value that can't include the fact that people think it has value so it will go to $0.”

If that is the case, how does one explain the following?

-          A rare stamp has almost no intrinsic value (you can’t even mail a letter with it and they are hardly beautiful works of art), but if someone wants to give me a Penny Black, I am 100% certain that someone would pay me thousands of dollars for it

-          Lab diamonds are functionally equivalent to mined diamonds and a lot cheaper.    Yet, somehow that has had almost no impact on the price of mined diamonds

-          Gold has traded above its ‘intrinsic’ industrial value for thousands of years

If something gets established as a store of value it can trade above its ‘intrinsic’ value on a permanent basis based on the fact that other people will accept it.     So, while it is still undetermined that bitcoin will be accepted as store of value, there is no theoretical reason why an arbitrarily scarce asset (aka the Penny Black or gold or bitcoin) can’t accrue permanent market value.

In this regard, bitcoin has significant advantages over the examples above.   I can’t arbitrarily divide a diamond and send it instantly to India or buy, say, web hosting services with it.   I can do that with bitcoin.

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Posted on December 28, 2013 and filed under Bitcoin.