This is the biggest misconception Proof-of-Work supporters have about the nature of value. I used to believe in this idea of “work=value” or “money can’t be created for free” too because it’s intuitive but it turned out to be wrong upon scrutiny.
Value subjects to supply and demand law rather than based on the work or effort spent in creating the asset.
This “work=value” idea stems from the misunderstanding that “unforgeable costliness” gives the value to the asset. In reality, it’s the “scarcity” that gives the value. It doesn’t matter at all how the scarcity is achieved. As long as StockToFlow ratio is high and the costliness is similarly fair among the participants, it’s good enough.
Even if it’s not costly to produce the asset at all but the producer of the asset doesn’t produce too much, the asset can still be valuable. Just look at fiat.
Why does it still have value if it’s so easy to produce?
Decent scarcity.
I’d also argue that “work” is not the only way to achieve unforgeable costliness. Costliness could also come from time cost like in Proof of Stake.
Labor Theory of Value (LTV) is from Maxian economics and it's wrong. This theory is intuitive because it says that effort spent creates value. But in reality, results matter more than effort.
The point of Proof-of-Work is to choose a random leader to create blocks. The work is the unnecessary part. The reason we use work is because it's the only way Satoshi knows to select random leaders without Sybil attack. So, PoW is an algorithm design that solves a computer science problem rather than a requirement for creating value. It’s just a sybil-control mechanism, nothing less, nothing more.
If there exists a way to select random leaders without work, it would be used instead because it is more efficient to achieve randomization without any energy cost. And that would destroy your idea that work is needed to create value immediately. The only reason we need energy use in bitcoin is because no one knows how to create a decentralized random leader selection algorithm that doesn’t require work and still able to prevent Sybil attack.
To give a clear example:
Let's say there's something similar to Gold, let's call it the AirGold. It's a magical element that spawns randomly on Earth. Every 10 minutes it will spawn in some guy's pocket without him needing to mine it at all. This element is as scarce as the real gold. The supply is growing about 1-2% a year.
So in this example, it requires absolutely no work to mine AirGold and it's still valuable because it's scarce. If people believe that AirGold is a good commodity to use as money, they will use it.
The fact that it spawns "out of thin air" doesn’t make it any less valuable.
We can't find AirGold in real life so it's hard to feel the validity of it, just like Quantum mechanics. But these qualities can be created in digital world with no problems. Just like you can create a digital simulation for Quantum mechanics.
Do not mix value with work or effort. The main attributes giving value to Bitcoin are “demand and scarcity”, not work. Which means it could be replicated by anyone using any non-PoW technology as long as it’s secure enough.
The only reason you think work is required to create value is because you have an "appreciation for the work". You look at the coin like a scarce commodity and you feel entertained by the idea that someone spend a lot of energy to obtain the coin, which gives a reassuring feeling that your coin is really hard to produce and valuable. And that's a subjective experience felt only by you rather than an inherent value of work itself. Not everyone appreciates the work like you do so it's not a universal phenomenon. I don’t believe in this idea of work now so I don’t feel that it makes the coin more valuable. You can spend 10 years drawing a picture or digging a hole and it would be worthless if no one finds it valuable.
Bitcoins are wanted by various reasons including "appreciation for the work" by people who have mistakenly thought that work is a requirement for valuable coins. Censorship resistance can also be a good reason to use bitcoin. Or the idea that it is a good store of value can also be a reason. But none of these reasons are going to be all felt by the same person.
As you can see, “appreciation for the work” is not the only reason for wanting bitcoin and it’s also a misleading reason that doesn’t need to exist at all because it is a speculative attribute rather than tangible attributes like its monetary properties.
In the end, the strongest reason to want bitcoin will be to use it as money, not to want it because you appreciate the work. It means any other cryptos that have good monetary properties “without proof of work” could also be good money if they can make it decentralized and secure despite PoW.
Most importantly, the fundamental reason Bitcoin is valuable is because a lot of people are buying it, driving up the demand, while the supply is relatively scarce. That’s it. It doesn’t matter how much energy were spent mining the coins whatsoever. You can spend the entire world’s energy but if no one is buying it then it’s a wasted effort. Or you can spend very little energy to mine Dogecoin but it’s still going to take over the world if the market demands it hard enough.
Another misconception people like to have is that “miners give value to the coins because the harder they mine, the more expensive the price becomes”. This is based on a cause-effect confusion that “miners lead the price” whereas in reality it’s “price leads miners”. Miners mine according to the price. They are followers, not leaders. Supply/demand leads price action and then miners follow that price. If price is too low, a few miners will stop mining. If price is too high, more miners will start mining. It’s not the other way around.
Actually, even if miners all agree on mining 2x harder that hour, the price can’t still go up and all these miners will lose money. This is a proof that miners can’t affect the price of coins directly. They are followers of price. They move in and out as price changes.
They might put more resources in marketing bitcoin when their resources are spent mining bitcoin, indirectly increasing the price. But that is not different from stakers in Proof of Stake. And it’s not the reason why the coins have value.
If we want to evaluate validity of the Proof-of-Work, we must evaluate it from the security and decentralization standpoint rather than a cool analogy about how it stores energy in a digital form because that’s a misleading analogy geared towards a cult, not for a rational group of people.
PS. I’m not asking you to believe in Proof-of-Stake here. I’m asking that you do not mislead yourself thinking that Proof-of-Work gives value to the coins just because it uses energy. Work is not a requirement for value. We must compare consensus mechanisms fairly without this erroneous idea that “work = value”.
