Why Bitcoin Has Intrinsic Value

But also why it doesn’t really matter

Todd Kronenberg
Aug 18, 2020 · 6 min read
Photo by averie woodard on Unsplash

A common critique you will hear of Bitcoin from anti-Bitcoin people is that it has no intrinsic value. Let’s explore that!

First off, nobody who buys another currency, or a stock, or a house, or precious metal, or a business, or rare art, or anything else asks what its intrinsic value is in order to get an idea of how much they should pay. They ask what its market value is, and what is its potential future market value. Wikipedia describes intrinsic value as:

On the one hand we could take a more conservative view of what intrinsic value means and say the only things that have intrinsic value are those things necessary for survival, namely: clean food, clean water, enough land to live on, and shelter/protection from the elements, perhaps also medicine. But let’s take a more liberal view of intrinsic value. Using the wikipedia definition above, and the key point being “independent of its market value”, we can logically state that in the absence of any market value that thing would still have vital value to people. In other words, if it had no market value it would still be worthwhile to own. Let’s make a list.

Would still be valued if it had no market value (i.e. has intrinsic value):

  1. Fiat currencies…nope
  2. Stock shares…nope (outside of voting on the path of the company)
  3. Bonds…nope
  4. Land / real estate…yes (to live on, but not as investment property)
  5. Gold…yes as a shiny thing and for use in electronics
  6. Bitcoin…nope because without market value you’d be transferring no value

Oh damn, so does Bitcoin really not have intrinsic value? Well, Bitcoin’s raison d’etre is to provide cross border, censorship resistant, secure payments that don’t require trusted intermediaries, in a currency that has the opposite of the inflationary model of fiat currencies, in addition to providing self-banking for anyone in the world with an internet connection. But if it has no value then you aren’t passing any value around so it is pointless.

Photo by Cytonn Photography on Unsplash

But wait, the whole point of money is as a placeholder for value to make exchange easier. So it doesn’t make any sense to say a currency has no value — if it has no value then by definition it isn’t a currency. As long as a currency has a non-zero market value, that currency has intrinsic value as a means of exchange. Fiat currency’s value is set and enforced by central banks and governments, without which it has no intrinsic value and isn’t a currency. They have intrinsic value in their respective nations because the government forces their use, while Bitcoin has intrinsic value because the market has decided it has a non-zero market value. The market wouldn’t have assigned any value to Bitcoin, thus denying it intrinsic value, if it didn’t do something extra beyond the features of today’s fiat currencies. The “extra” of Bitcoin is what I mentioned above:

Bitcoin’s raison d’etre is to provide cross border, censorship resistant, secure payments that don’t require trusted intermediaries, in a currency that has the opposite of the inflationary model of fiat currencies, in addition to providing self-banking for anyone in the world with an internet connection.

In a digital world of inflation-based fiat currencies that require regulated entities to securely store said currencies, governments that can freeze access to your own money, and require expensive slow transactions that go through multiple middlemen organizations for validation, a currency that requires no middlemen, no regulated banking entity, has no borders, and has no government oversight control certainly has intrinsic value. Bitcoin is that currency.

Bitcoin solves the problems that people have with fiat currencies and the banking system in general. Fiat currencies and Bitcoin together make a stronger monetary system than either one alone, therefore they both have intrinsic value as long as they have a non-zero market value.

Markets set value. Abstract notions do not.

For those who say Bitcoin has no intrinsic value and therefore will go to zero, they’ve got a chicken and egg problem — Bitcoin would only have no intrinsic value if its market value was already at zero! The entire premise of their argument is illogical.

Intrinsically valued at 01, not $xx

Now that we know Bitcoin has intrinsic value, you might wonder what it is intrinsically valued at, precisely. Some argue that the intrinsic value of Bitcoin is whatever it costs to mine a bitcoin, which is in constant flux and depends on several factors and is different for each miner. But that isn’t really measuring intrinsic value, that is more like measuring if the Bitcoin mining network should shrink or grow in the short term. In a desperate search to assign intrinsic value people are mislabeling ideas.

Photo by noodle kimm on Unsplash

The entire idea behind value in a free market is the market value. Market value is an amount, intrinsic value is binary. Something either has intrinsic value or it doesn’t, it doesn’t have X-amount of intrinsic value. If a bushel of corn has no market value you can’t figure out its dollar value from some intrinsic value calculation because the dollar value is inherent to market value. You can’t say anything more than it has intrinsic value because it is a food source. Only the market (or a government forcing a market value) can decide something’s dollar worth.

At best you might say something has more intrinsic value than something else because it provides more non-monetary value (like land to live and grow food on being more valuable than a bushel of corn) but intrinsic value alone doesn’t calculate a monetary value. Market value is specific, while intrinsic value is binary and relational but not specific. Monetary value simply isn’t a concept in intrinsic value.

Intrinsic value is a concept, it isn’t a market force. It doesn’t matter outside of philosophical debate. All that matters is market value.

When describing Bitcoin’s intrinsic value, the best we can do is to say yes it has intrinsic value because it has useful utility as a currency and the market has decided it has a lasting non-zero value. You could then debate whether it has more intrinsic value than other things with intrinsic value, but that would really come down to personal need. Just as chicken meat has a hell of a lot less intrinsic value to me than it has to other people because I’m allergic to poultry.

Market value is specific, while intrinsic value is binary and relational but not specific.

In Summary

Yes, Bitcoin has intrinsic value. But you can’t define its monetary value from intrinsic value. All that matters is the market has given Bitcoin a lasting non-zero value, which, combined with its useful features, is what gives it intrinsic value. So arguing that Bitcoin is worthless because it has no intrinsic value is an entirely illogical argument, and it doesn’t even matter!

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Todd Kronenberg

Written by

American nomad, semi-retired/entrepretrying, coder, cryptocurrency investor, dog owner, burgeoning human. Briefly caught across a few ordinary moments in time.

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

Todd Kronenberg

Written by

American nomad, semi-retired/entrepretrying, coder, cryptocurrency investor, dog owner, burgeoning human. Briefly caught across a few ordinary moments in time.

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

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