It’s the only question that matters with bitcoin: Does it have actual value?
Depending on your perspective, bitcoin and the altcoins are the most important financial revolution in human history, or they’re the second coming of the tulip market. But all this ignores a pretty important point: Yes, bitcoin has value. In fact, it inherently has value.
What Is Value?
It’s easy to tick off the flaws in bitcoin’s value model, and truth be told they’re very much worth discussing. Bitcoin is an asset designed, from the ground up, to be driven by the free market; the value of bitcoin is dictated, entirely, by how much those buying and selling bitcoin value it. If you’re defining value as “intrinsic value” or utility, then, in theory, it makes more sense to buy and sell corn than it does to buy and sell bitcoin. At least if you lose your shirt on corn, you’ll have something you can eat.
This question of intrinsic value has contributed to the volatility of altcoins and attempts to mitigate it have dominated the altcoin space. For example, Ethereum is not an altcoin per se, but it uses altcoins instead to streamline and create a global market for CPU cycles. Filecoin, one of 2017’s bigger ICOs, does the same, but with cloud storage. There’s a massive rush to find something, preferably something that solves a nagging technical problem and create an altcoin that lets you easily buy and sell it across the world.
And this isn’t a bad thing. Altcoins smoothing over global commerce is good for everyone. But it also misses the point. Bitcoin has value specifically because we value it. And there’s no better demonstration of this than the exact opposite of bitcoin: gold.
All That Glitters
The idea that gold lacks intrinsic value seems ridiculous, but until very recently, that was the case. Gold has value now since its conductive and ductile properties make it perfect for creating fine wires for electronics. But until electrical engineering came along, gold’s main attributes were that it was rare, relatively easy to turn into different forms like coins and bars, hard to mine, and gold currency was difficult to fake.
Gold’s rarity and social value made it ideal for building monetary systems back in the day, but if you gave a gold brick to a peasant far away from the financial centers of Florence or London, its main value would be as a doorstop. He couldn’t eat it, burn it for warmth, use it to clothe his family, and probably had nobody to trade it with. If a king came along and offered him a herd of sheep for his gold brick, he’d take the sheep and think the king a sucker.
The same is true of bitcoin. Bitcoin undeniably has value because you can take a bitcoin and sell it for a sum of money. Just what that sum is depended heavily on shifting markets, changing regulatory positions, and the confidence of bitcoin’s investors. But unless something cataclysmic happens to the bitcoin network, it will always have value. An investor’s job is to look at the market and figure out whether that value will rise or fall. Need help securing your finances?