The following guest post is one of a series courtesy of Marco Streng, CEO and Co-founder of Genesis Mining.
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It is commonly argued that Bitcoin has no intrinsic value. To address these concerns, it is important to first understand what defines value.
In terms of a currency, value must meet the following criteria:
- Means of exchange
- Store of value
- Unit of value
- Divisibility
- Durability
- Fungibility
- Verifiability
It is beyond the scope of this article to discuss the theory of money and concept of value. We leave that to the academics and economists and possibly even philosophers.
However, we would ask another question. What “value”, intrinsic or otherwise, does gold have? What “value” does a diamond have? What “value” does a magnificent Picasso have?
Gold is just an element which occurs in nature. A diamond is just crushed coal. A Picasso is just some cheap ink spread over a cheaper canvas. None of these three things have any intrinsic “value” or “worth”. Value is created in a tacit acknowledgment that the “thing”, the gold, the diamond, the Picasso, can be traded for something else which the holder would rather have. That is the essence of a trade: I have a Picasso but I’d rather have a diamond, so we will trade….if I prefer my Picasso over your diamond, I will not trade…if you prefer your diamond of my Picasso we will not trade.
All commerce is no more than a series of trades. Money is just a medium that allows people to trade one good or service for another good or service in an efficient manner. In a modern economy, money facilitates basic trades just like the Picasso for a diamond. But rather than done directly it is done indirectly through the use of money. I trade my diamond of “money” which I now use (trade) for a Picasso.
Seen another way, I trade my labor for dollars (that is, a salary), which I then convert to food. If you think about it, the real transaction is trading my labor for food. “Money” has no value other than a medium of exchange, a convenient method to allow me to be able to store value then convert it…..which is really trading my labor to bread.
Thus Bitcoin too has “value” in the sense that to the extent that it can be used as a medium of exchange it is no different than a paper dollar bill.
If Bitcoins continue to be accepted, as they clearly are now, to be a medium of exchange enabling one to make trades, that is, convert his or her labor to bread, then it will always have “value.”
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Previous posts in the LeapRate Top Bitcoin Myths series include:
Top Bitcoin Myths – #2: Bitcoin does not solve any real world problems
Top Bitcoin Myths – #3: Bitcoin allows for anonymous payments
Top Bitcoin Myths – #4: Bitcoin is a Ponzi scheme or a ‘tulip mania’
Top Bitcoin Myths – #5: Bitcoin is not regulated and therefore cannot be safe
Top Bitcoin Myths – #6: Bitcoin is only a currency
Top Bitcoin Myths – #7: Bitcoin has been hacked on several occasions
Top Bitcoin Myths – #8: Bitcoin is too volatile for merchants to accept