Here's What Gold Bugs Miss About Bitcoin's 'Intrinsic Value'

Posted 29. octoober 2017


While bitcoin would appear to be a libertarian’s monetary dream at first glance, the reality is that many of the longtime gold bugs have yet to go all the way down the cryptocurrency rabbit hole. For those most part, these gold bugs do not believe in the long-term viability of bitcoin due to its lack of “intrinsic value.”

Peter Schiff is one such gold bug who is a noted critic of bitcoin. I recently dissected some of the arguments he made against bitcoin on The Joe Rogan Experience in another post.

Indeed, I also followed this line of thinking when I first found out about bitcoin. One of the first questions I had about this new digital commodity was why it was not backed by a physical commodity such as gold.

However, that was back in 2011. And I eventually learned that the lack of physical backing behind bitcoin is a feature, not a bug. Without physical backing, bitcoin is able to act as the world’s first digital bearer asset, which can be stored and transacted without interference from a third party custodian or government.

Like many others who have researched bitcoin thoroughly over the years, my understanding of money and intrinsic value has been flipped on its head by Satoshi Nakamoto’s financial innovation.

Bitcoin’s Intrinsic Value

So how does bitcoin have any value at all? How can you go from zero to one?

In the early days, bitcoin was nothing more than a collectible to most people who were looking into the new technology. This is in contrast to the “cryptocurrency” and “digital currency” monikers that would eventually be placed on it.

In an early thread on the Bitcointalk.org forum regarding how bitcoin should be defined, Nakamoto stated, “Bitcoins have no dividend or potential future dividend, therefore not like a stock. More like a collectible or commodity.”

This speculative view of bitcoin as a sort of collectible for crypto-anarchists and other like-minded individuals is where bitcoin first attained any value at all. The fact that there was a limited supply of bitcoins meant you had to convince someone else to send you theirs (or put in work as a miner) if you wanted to have any.

The Collectible Use Case Bootstraps More Value

Once bitcoin gained a price in other assets, it could then be used to transmit value over the internet in a censorship-resistant manner.

“If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it,” Nakamoto wrote back in 2010.

One Bitcointalk.org user famously traded 10,000 bitcoins for a couple of pizzas, but the best illustration of bitcoin’s use as a censorship-resistant medium of exchange likely came in the form of darknet marketplace Silk Road. The bearer nature of bitcoin made it the perfect option for illicit commerce on the internet.

Bitcoin’s use for near-instant, censorship-resistant online transactions is the closest thing it has to the gold bug’s obsession over “intrinsic value,” but it had to be bootstrapped by its use as a collectible. This feature does not exist with any other asset in the world, physical or digital, outside of alternative cryptocurrencies, which have been unable to compete with bitcoin’s network effects up to this point.

At any point in time, there is a portion of bitcoin that is being held for the purpose of buying or selling goods on a darknet market, making a ransomware payment, depositing or withdrawing funds from an online sportsbook, or any other type of financial activity where the use of bitcoin is a requirement. This is the bitcoin equivalent of gold’s use in jewelry or electronics.

In these situations, people are usually using bitcoin because they have to, not because they want to.

The Digital Gold Meme

With its scarcity and resistance to control by governments, the investment case for bitcoin eventually became “digital gold.” In the digital realm, there is no better tool for storing and exchanging value (discounting the use of virtual IOUs for physical assets).

So now the debate is over which meme people prefer for their money. There is gold, which has stood the test of time for thousands of years and already has a sufficient amount of liquidity in its market. Then there is bitcoin, which is still extremely new, has relatively low trading volume, but also acts as the first digital bearer instrument in an increasingly digital world.

It’s clear that bitcoin has at least a niche use case among those who wish to hold digital value without the use of a third-party custodian, which is not possible with gold. The only question that remains is if more people will continue to prefer bitcoin over gold as a store of value and medium of exchange.

Source: https://www.forbes.com/sites/ktorpey/2017/10/27/heres-what-gold-bugs-miss-about-bitcoins-intrinsic-value/#1515763f2d88

Back