Intrinsic Value. Bitcoin skeptics love to talk about it. Their argument is typically as follows: “Bitcoin cannot be used as a money because it does not have any intrinsic value as a commodity. For something to be a viable money, it must first be accepted and used for some other commodity purpose intrinsic to the item, then slowly become a money over time. For example: because gold can be used in jewelry and electronics, people naturally stockpile it to store value.”
Previously, Bitcoiners have made several compelling arguments against this on the grounds that 1) intrinsic value is subjective and 2) Bitcoin does have intrinsic value as a good for censorship resistant payments. Here I will argue that Bitcoin skeptics are right. Bitcoin has no “intrinsic value” as a commodity, but that’s a great thing for Bitcoin (and the rest of the world).
Inside the Mind of a Skeptic
Intrinsic value is an old idea. Even Aristotle wrote about the importance of money being “intrinsically useful and easily applicable to the purposes of life, for example, iron, silver, and the like.” It’s no wonder that this idea has persisted — commodity value has been essential to humankind for thousands of years and is directly evident to the layman.
Despite its ancient origins, intrinsic value is not directly linked to monetary functions. A good money needs to be many things — portable and easy to trade, scarce and durable to store value, fungible and divisible as a unit of account — but an alternative commodity use is not one of them. So why do many critics claim money needs intrinsic commodity value?
There appear to be two main reasons.
Appeals to History
Many skeptics denounce Bitcoin’s lack of intrinsic value simply because they are accustomed to stores of value doubling as commodities. Put simply — they are living in the past. Many have made this argument about previous technological improvements by wrongly assuming that previous trends would hold true.
The fact that all previous forms of value had a physical form does not mean a new store of value must also be physical. People were making similar arguments about physical shopping during the rise of the…