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Intrinsic value is often being raised as a determining factor when the issue of cryptocurrencies is raised in the context of market wholesomeness or consistency as an asset class. The very term – intrinsic value – is more of a derivative of trading terminology, in which a formula derives said value by subtracting strike price from current price. But insofar as it is convenient and comforting to apply a formula to everything and satisfy human lust for mathematical perfection, some things have more than intrinsic value to them, which makes their real value measurable not via trading charts, but through their inherent potential.
Bitcoin is often accused of having no intrinsic value or not being backed by anything – essentially being misbranded as ‘money out of thin air’. However, such an assessment is usually made by those who are either staunch opponents of cryptocurrencies as a whole – largely the members of ruling elites with much at stake in the weakening stranglehold of the global financial system. Or by those who are not entirely acquainted with the means of production that are involved in the mining of Bitcoin. This raises the question of defense on the part of Bitcoin from an objective point of view to highlight why the asset is so demanded on the market at large, and why the term ‘value’ is well entrenched in Bitcoin on a fundamental level.
First line of defense
When it comes to intrinsic value that is attributed as a lacking element in Bitcoin’s financial makeup, one must remember that the given terminology can apply to completely immaterial objects, which, paradoxically, have immense value from a human point of view. The basis is that ‘life’ has intrinsic value, ergo, perhaps there are some essential products like water, air, shelter, and food that sustain said value as core constituents that result in the intrinsic value of life. If so, then objects that require manual labor or means of production have value for sustaining life, as they require energy, effort and resources to be produced or extracted.
If the concept is to be expanded, then perhaps a community of family, friends, loved ones and even ambience and immaterial benefits can make up the value of life.
But if intrinsic value is to be applied as a formula in this case, then some lives will seem less valuable than others, which makes the entire concept suddenly seem hypocritical and inhumane. It follows that Bitcoin cannot be valued as an immaterial asset, since it requires means of production and energy to be minted, meaning that its value is not immaterial, like a life’s, but rather rooted in real-world value constituting elements.
Second line of defense
When we determine value around us, we use money to measure it. Be it food or any other product, we might value it by putting a price on it. Some products are not vital to existence, categorized as non-essential, but we ascribe value to them based on the context within which they have their use case on an individual basis for those who need them, or based on how they contribute to quality of life. By following the same logic, it would be fair to say that Bitcoin too has a price for those who need it and want to use it, which is why a price in US Dollars is placed on it based on the supply and demand curve.
Third line of defense
Money as a measuring unit needs to be reliable. Inflationary money can be manipulated by central banks and diluted, making it a poorly reliable unit of measurement. And since money is prone to value manipulation, it is fair to assume that everything priced in it is, essentially, misvalued. Bitcoin, on the other hand, is scarce, reliable, predictable, immutable and incorruptible, making it a good unit of measurement that carries inherent value.
Fourth line of defense
Bitcoin can also be ascribed value, because it bears some characteristics that make it a reliable asset:
– Real ownership that support property rights and empowers the individual;
– Transparency that supports a core tenet in democracies, which relates to accountability;
– Decentralization as a valuable attribute that protects the many from the few and holds the prospect of a more fair global economy that is accessible, inclusive, borderless, and free from capital controls.
Fifth line of defense
Real resources are used in the process of Bitcoin’s production. Electricity is used for maintaining the blockchain and minting new Bitcoin, meaning real-world capital is spent on buying or generating said energy, thus creating the basis for a competitive location-agnostic economy capable of facilitating job and local wealth creation. The energy-component also adds to the network’s unprecedented security, since, unlike central banks that declare defaults, the chance of a global power failure that would lead to a full shutdown of a decentralized blockchain is virtually impossible.
Ironically, US Dollars that are not backed by anything and are printed frivolously to the glee of those lauding its value, are used for buying electricity that supports Bitcoin’s blockchain.
Conclusion
Bitcoin does not have intrinsic value as per the classic formula, but then neither does the US Dollar in terms of money’s core principles. However, if we consider Bitcoin’s core features along with the principles it underscores and recognize them as value, then they form the basis for Bitcoin’s true price discovery.
Volatile at present, but then that may be the lens through which we view it. In the end, 1 Bitcoin equals 1 Bitcoin. Sounds stable. That’s because it is sound money. Few.
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